# Penumbra Inc: Form 10-Q for the period ended Sep 30, 2022

- Company: [Penumbra Inc](/companies/pen.md) (CIK 1321732)
- Form: 10-Q
- Filed: 2022-11-03
- Accepted by EDGAR: Nov 3, 2022, 16:45 ET
- Period: 2022-09-30
- Accession: 0001321732-22-000104
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1321732/000132173222000104/pen-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1321732/000132173222000104/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $213.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $625.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $78.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $229.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $135.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $396.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $21.3m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $61.4m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-07-01 to 2022-09-30 | $108.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-09-30 | $334.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $5.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $1.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $5.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $2.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$2.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$5.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.16 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.16 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 37,918,452 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 37,778,362 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$57.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $15.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $54.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $723.6m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $1.32bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $138.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $347.8m | us-gaap:Liabilities |

## Management's discussion and analysis

As filed, 52,774 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 22, 2022.*

*This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify these statements by forward-looking words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations, but these words are not the exclusive means for identifying such statements. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results and timing expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.*

### Overview

Penumbra is a global healthcare company focused on innovative therapies. We design, develop, manufacture and market novel products and have a broad portfolio that addresses challenging medical conditions in markets with significant unmet need. Our team focuses on developing, manufacturing and marketing novel products for use by specialist physicians and other healthcare providers to drive improved clinical and health outcomes. We believe that the cost-effectiveness of our products is attractive to our customers.

Since our founding in 2004, we have had a strong track record of organic product development and commercial expansion that has established the foundation of our global organization. We have successfully developed, obtained regulatory clearance or approval for, and introduced products into the neurovascular market since 2007, vascular market since 2013, neurosurgical market since 2014, and immersive healthcare market since 2020.

We expect to continue to develop and build our portfolio of products, including our thrombectomy, embolization, access and immersive healthcare technologies, while iterating on our currently available products. Generally, when we introduce a next generation product or a new product designed to replace a current product, sales of the earlier generation product or the product replaced decline. Our research and development activities are centered around the development of new products and clinical activities designed to support our regulatory submissions and demonstrate the effectiveness of our products.

To address the challenging and significant clinical needs of our key markets, we have developed products that fall into the following broad product families:

#### Our neuro products fall into four broad product families:

- Neuro thrombectomy - Penumbra System, including Penumbra RED, JET, ACE and the 3D Revascularization Device, Penumbra ENGINE and other components and accessories
- Neuro embolization - Penumbra SMART COIL, Penumbra Coil 400, POD400 and PAC400
- Neuro access - delivery catheters, consisting of Neuron, Neuron MAX, Select, BENCHMARK, BMX96, DDC and PX SLIM
- Neurosurgical - Artemis Neuro Evacuation Device

#### Our vascular products fall into two broad product families:

- Vascular thrombectomy - INDIGO System designed for mechanical thrombectomy, including aspiration catheters, separators, aspiration pump and accessories and Lightning, our next-generation aspiration system for peripheral thrombectomy
- Peripheral embolization - RUBY Coil System, Ruby LP, LANTERN Delivery Microcatheter and the POD System (POD and POD Packing Coil)

#### Our immersive healthcare products fall into one broad product family:

- REAL Immersive System - portfolio of products that leverages immersive computer-based technologies to deliver engaging, immersive therapeutics to promote better health, motor function and cognition

We support healthcare providers, hospitals and clinics in more than 100 countries. In the nine months ended September 30, 2022 and 2021, 30.6% and 29.5% of our revenue, respectively, was generated from customers located outside of the United States. Our sales outside of the United States are denominated principally in the euro and Japanese yen, with some sales being denominated in other currencies. As a result, we have foreign exchange exposure but do not currently engage in hedging.

We generated revenue of $625.9 million and $543.6 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of $82.3 million. We generated operating income of $1.2 million and $32.6 million for the nine months ended September 30, 2022 and 2021, respectively.

### COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the U.S. and the world. In response, governments have issued orders restricting certain activities, and while our business falls within the category of healthcare operations, which are essential businesses permitted to continue operating during the COVID-19 pandemic, we have experienced, and expect to continue to experience, disruptions to our operations as a result of the pandemic. For example, hospital resources have been diverted to fight the pandemic, and many government agencies in conjunction with healthcare systems have recommended the deferral of elective and semi-elective medical procedures during the pandemic. Some of Penumbra’s medical devices are used in certain procedures that the United States Centers for Medicare & Medicaid Services (“CMS”) has indicated are “high-acuity” procedures that should not be postponed during the pandemic in its March 18, 2020 recommendations, while other Penumbra devices are used in elective procedures that physicians may consider postponing. Many of the procedures in which our vascular products are used are elective in nature, whereas procedures in which our neuro products are used, such as stroke, tend to be more emergent in nature.

The impact of COVID-19 on our business remains fluid, and we continue to actively monitor the dynamic situation. We will continue to undertake the following specific actions and strategic priorities to navigate the pandemic:

- We have made changes to how we manufacture, inspect and ship our products to prioritize the health and safety of our employees and to operate under the protocols mandated by our local and state governments. While we are committed to continue to meet demand for our essential devices, we have implemented social distancing and other measures to protect the health and safety of our employees, which have reduced, and may continue to reduce, our manufacturing capacity.
- We further strengthened our liquidity position by entering into a Credit Agreement (the “Credit Agreement”) on April 24, 2020, with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The Credit Agreement is secured and provides for up to $100 million in available revolving borrowing capacity with an option, subject to certain conditions, for us to increase the aggregate borrowing capacity to up to $150 million. This revolving line of credit provides access to capital beyond the $184.4 million in cash, cash equivalents and marketable investments on our balance sheet as of September 30, 2022, and we believe this will allow us to both navigate the current environment and emerge in a strong liquidity position after the pandemic. During the three months ended March 31, 2021, we entered into an amended one-year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The amended Credit Agreement extended the maturity date from April 23, 2021 to February 21, 2022 and had substantially the same terms and conditions as the prior credit agreement with certain changes including the exclusion of certain one-time charges and expenses incurred during the fiscal quarters ended September 30, 2020 and December 31, 2020 from the calculation of the financial covenants, reductions in interest rate floors applicable to revolving loans and other changes to borrowing mechanics under the Credit Agreement. In the first quarter of 2022, we entered into a further amended one-year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The amended Credit Agreement extended the maturity date from February 21, 2022 to February 17, 2023 and has substantially the same terms and conditions as the prior credit agreement with certain changes to the reference benchmark interest rates, applicable margins and borrowing mechanics under the Credit Agreement, having the overall effect of lowering the interest rates payable by the Company on amounts borrowed under the Credit Agreement, and a reduction of the commitment fee payable on the average daily unused amount under the Credit Agreement to 0.25% per annum. As of September 30, 2022, the

Company was in compliance with the requirements in the amended Credit Agreement. As of September 30, 2022, there were no borrowings outstanding under the Credit Agreement.

- We will continue to prioritize investments in our production capacity and flexibility, commercial channels, preparation for new product launches, and new product developments to help patients.

While we began to see positive trends in certain areas of our business in May 2020, we remain mindful of the negative impacts on business trends we experienced in April 2020 due to the COVID-19 pandemic. The general impact of COVID-19 on our business has been negative and we are unable to reliably predict the full impact that the COVID-19 pandemic will have on our business due to numerous uncertainties, including the severity and duration of the pandemic, the global resurgences of cases, particularly as new variants of the virus spread, additional actions that may be taken by governmental authorities in response to the pandemic, the impact of the pandemic on the business of our customers, distributors and suppliers, other businesses and worldwide economies in general, our ability to have access to our customers to provide training and case support, and other factors identified in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. We will continue to evaluate the nature and extent of the impact of COVID-19 on our business, consolidated results of operations, and financial condition.

### Factors Affecting Our Performance

There are a number of factors that have impacted, and we believe will continue to impact, our results of operations and growth. These factors include:

- The COVID-19 pandemic and measures taken in response thereto, which have negatively affected, and we expect will continue to negatively affect, our revenues and results of operations. Due to these impacts and measures, we may experience significant and unpredictable fluctuations in demand for certain of our products as hospital customers re-prioritize the treatment of patients and distributors adjust their operations to support the current demand level.
- The rate at which we grow our salesforce and the speed at which newly hired salespeople become fully effective can impact our revenue growth or our costs incurred in anticipation of such growth.
- Our industry is intensely competitive and, in particular, we compete with a number of large, well-capitalized companies. We must continue to successfully compete in light of our competitors’ existing and future products and their resources to successfully market to the specialist physicians and other healthcare providers who use our products.
- We must continue to successfully introduce new products that gain acceptance with specialist physicians and other healthcare providers and successfully transition from existing products to new products, ensuring adequate supply. In addition, as we introduce new products and expand our production capacity, we anticipate additional personnel will be hired and trained to build our inventory of components and finished goods in advance of sales, which may cause quarterly fluctuations in our operating results and financial condition.
- Publications of clinical results by us, our competitors and other third parties can have a significant influence on whether, and the degree to which, our products are used by specialist physicians and other healthcare providers and the procedures and treatments those physicians and other healthcare providers choose to administer for a given condition.
- The specialist physicians who use our interventional products may not perform procedures during certain times of the year, such as those periods when they are at major medical conferences or are away from their practices for other reasons, the timing of which occurs irregularly during the year and from year to year.
- Most of our sales outside of the United States are denominated in the local currency of the country in which we sell our products. As a result, our revenue from international sales can be significantly impacted by fluctuations in foreign currency exchange rates.
- The availability and levels of reimbursement within the relevant healthcare payment system for healthcare providers for procedures in which our products are used.

In addition, we have experienced and expect to continue to experience meaningful variability in our quarterly revenue, gross profit and gross margin percentage as a result of a number of factors, including, but not limited to: the impact of COVID-19, the number of available selling days, which can be impacted by holidays; the mix of products sold; the geographic mix of where products are sold; the demand for our products and the products of our competitors, which can be impacted by hospitals’ ability to maintain sufficient staffing to treat patients; the timing of or failure to obtain regulatory approvals or clearances for products; increased competition; the timing of customer orders; inventory write-offs due to obsolescence; costs, benefits and timing of new product introductions; costs, benefits and timing of the acquisition and integration of businesses and product lines we may acquire; the availability and cost of components and raw materials; and fluctuations in foreign currency exchange rates. Additionally, certain unique macroeconomic and geopolitical factors, including those as a result of the Russian invasion of Ukraine, may cause instability and volatility in the global financial markets and disruptions within the healthcare industry that may negatively impact our business. We may experience quarters in which we have significant revenue growth sequentially followed by quarters of moderate or no revenue growth. Additionally, we may experience quarters in which operating expenses, in particular research and development expenses, fluctuate depending on the stage and timing of product development.

### Components of Results of Operations

***Revenue.*** We sell our interventional products directly to hospitals and other healthcare providers and through distributors for use in procedures performed by specialist physicians to treat patients in two key markets: neuro and vascular disease. We sell our products through purchase orders, and we do not have long term purchase commitments from our customers. Revenue from product sales is recognized either on the date of shipment or the date of receipt by the customer, but is deferred for certain transactions when control has not yet transferred. With respect to products that we consign to hospitals, which primarily consist of coils, we recognize revenue at the time hospitals utilize products in a procedure. Revenue also includes shipping and handling costs that we charge to customers.

***Cost of Revenue.*** Cost of revenue consists primarily of the cost of raw materials and components, personnel costs, including stock-based compensation, inbound freight charges, receiving costs, inspection and testing costs, warehousing costs, royalty expense, shipping and handling costs, and other labor and overhead costs incurred in the manufacturing of products. In addition, we record write-downs or write-offs of inventory in the event that a portion of our inventory becomes excess or obsolete.

We manufacture substantially all of our products in our manufacturing facilities in Alameda and Roseville, California.

### Operating Expenses

*Research and Development (“R&D”).* R&D expenses primarily consist of product development, clinical and regulatory expenses, materials, depreciation and other costs associated with the development of our products. R&D expenses also include salaries, benefits and other related costs, including stock-based compensation, for personnel and consultants. We generally expense R&D costs as they are incurred, with the exception of certain costs incurred for the development of computer software for internal use related to our REAL Immersive System offerings. We capitalize certain costs when it is determined that it is probable that the project will be completed and the software will be used to perform the function intended, and the preliminary project stage is completed. Capitalized internal use software development costs are included in property and equipment, net within the condensed consolidated balance sheets.

*Sales, General and Administrative (“SG&A”).* SG&A expenses primarily consist of salaries, benefits and other related costs, including stock-based compensation, for personnel and consultants engaged in sales, marketing, finance, legal, compliance, administrative, facilities, information technology and human resource activities. Our SG&A expenses also include marketing trials, medical education, training, commissions, generally based on sales, to direct sales representatives, amortization of acquired intangible assets and acquisition-related costs.

### (Benefit from) Provision For Income Taxes

We are taxed at the rates applicable within each jurisdiction in which we operate. The composite income tax rate, tax provisions, deferred tax assets (“DTAs”) and deferred tax liabilities will vary according to the jurisdiction in which profits arise. Tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities, and require us to exercise judgment in determining our income tax provision, our deferred tax assets and deferred tax liabilities and the potential valuation allowance recorded against our net DTAs. Deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized. A valuation allowance is established when it is more likely than not that the future realization of all or some of the DTAs will not be achieved.

### Results of Operations

The following table sets forth the components of our condensed consolidated statements of operations in dollars and as a percentage of revenue for the periods presented:

*(in thousands, except for percentages)*

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2022 |  | 2021 |  | Nine Months Ended September 30, 2022 |  | 2021 |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $213,678 | 100.0% | $190,117 | 100.0% | $625,917 | 100.0% | $543,579 | 100.0% |
| Cost of revenue | 78,351 | 36.7 | 70,205 | 36.9 | 229,137 | 36.6 | 193,644 | 35.6 |
| Gross profit | 135,327 | 63.3 | 119,912 | 63.1 | 396,780 | 63.4 | 349,935 | 64.4 |
| Operating expenses: |  |  |  |  |  |  |  |  |
| Research and development | 21,320 | 10.0 | 16,734 | 8.8 | 61,443 | 9.8 | 52,548 | 9.7 |
| Sales, general and administrative | 108,573 | 50.8 | 94,397 | 49.7 | 334,088 | 53.4 | 264,831 | 48.7 |
| Total operating expenses | 129,893 | 60.8 | 111,131 | 58.5 | 395,531 | 63.2 | 317,379 | 58.4 |
| Income from operations | 5,434 | 2.5 | 8,781 | 4.6 | 1,249 | 0.2 | 32,556 | 6.0 |
| Interest (expense) income, net | (43) | 0.0 | 138 | 0.1 | (162) | — | 917 | 0.2 |
| Other expense, net | (2,356) | (1.1) | (1,137) | (0.6) | (4,323) | (0.7) | (3,021) | (0.6) |
| Income (loss) before income taxes | 3,035 | 1.4 | 7,782 | 4.1 | (3,236) | (0.5) | 30,452 | 5.6 |
| Provision for (benefit from) income taxes | 5,306 | 2.5 | (249) | (0.1) | 2,643 | 0.4 | 3,196 | 0.6 |
| Consolidated net (loss) income | $(2,271) | (1.1)% | $8,031 | 4.2% | $(5,879) | (0.9)% | $27,256 | 5.0% |
| Net loss attributable to non-controlling interest | — | — | (819) | (0.4) | — | — | (2,661) | (0.5) |
| Net (loss) income attributable to Penumbra, Inc. | $(2,271) | (1.1)% | $8,850 | 4.7% | $(5,879) | (0.9)% | $29,917 | 5.5% |

### Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

### Revenue

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Vascular | $123,361 | $105,465 | $17,896 | 17.0% |
| Neuro | 90,317 | 84,652 | 5,665 | 6.7% |
| Total | $213,678 | $190,117 | $23,561 | 12.4% |

Revenue increased $23.6 million, or 12.4%, to $213.7 million in the three months ended September 30, 2022, from $190.1 million in the three months ended September 30, 2021. Overall revenue growth is primarily due to an increase in sales of new and existing products within our vascular and neuro businesses.

Revenue from our vascular products increased $17.9 million, or 17.0%, to $123.4 million in the three months ended September 30, 2022, from $105.5 million in the three months ended September 30, 2021. This increase was primarily attributable to increased revenue in China and the United States, sales of new products and further market penetration of our existing products. The increase in product sales was driven by sales of our vascular thrombectomy products and peripheral embolization products, which globally increased by 19.8% and 12.4%, respectively in the three months ended September 30, 2022. Prices for our vascular products remained substantially unchanged during the period.

Revenue from our neuro products increased $5.7 million, or 6.7%, to $90.3 million in the three months ended September 30, 2022, from $84.7 million in the three months ended September 30, 2021. This increase in revenue was primarily attributable to China and sales of new products. The increase in sales of new products was driven by an increase in sales of our neuro thrombectomy products and neuro access products, which globally increased by 16.0% and 1.2%, respectively, in the three months ended September 30, 2022, partially offset by a decrease in sales of our neuro embolization products, which decreased by 21.0% in the three months ended September 30, 2022. Prices for our neuro products remained substantially unchanged during the period.

### Revenue by Geographic Area

The following table presents revenue by geographic area, based on our customers’ shipping destinations, for the three months ended September 30, 2022 and 2021:

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2022 |  | 2021 |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| United States | $148,819 | 69.6% | $134,834 | 70.9% | $13,985 | 10.4% |
| International | 64,859 | 30.4% | 55,283 | 29.1% | 9,576 | 17.3% |
| Total | $213,678 | 100.0% | $190,117 | 100.0% | $23,561 | 12.4% |

Revenue from product sales in international markets increased $9.6 million, or 17.3%, to $64.9 million in the three months ended September 30, 2022, from $55.3 million in the three months ended September 30, 2021. Revenue from international sales represented 30.4% and 29.1% of our total revenue for the three months ended September 30, 2022 and 2021, respectively.

### Gross Margin

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | $78,351 | $70,205 | $8,146 | 11.6% |
| Gross profit | $135,327 | $119,912 | $15,415 | 12.9% |
| Gross margin % | 63.3% | 63.1% |  |  |

Gross margin remained relatively flat, increasing by 0.2 percentage points to 63.3% in the three months ended September 30, 2022, from 63.1% in the three months ended September 30, 2021. Gross margin is impacted by our ability to scale production capacity to support our expanding portfolio of products, which enabled us to navigate through some macroeconomic factors such as labor shortage, inflation and supply chain headwinds in the three months ended September 30, 2022, as well as our continued investments in COVID-19 related safety measures. We may see continued productivity improvements to offset higher inflation and supply chain pressures resulting in expansion of our gross margin in the future.

### Research and Development (“R&D”)

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| R&D | $21,320 | $16,734 | $4,586 | 27.4% |
| R&D as a percentage of revenue | 10.0% | 8.8% |  |  |

R&D expenses increased by $4.6 million, or 27.4%, to $21.3 million in the three months ended September 30, 2022, from $16.7 million in the three months ended September 30, 2021. The increase was primarily due to a $3.5 million increase in personnel-related expenses driven by an increase in headcount and a $0.4 million increase in infrastructure costs to support our growth.

We have continued to make investments, and plan to continue to make investments, in the development of our products. As part of our ongoing investment in the development of our products, we are anticipating future payments related to research and development milestones. As a result of being more disciplined with spending, we anticipate a reduction in our ongoing quarterly immersive healthcare related R&D expenses of approximately $1.5 million beginning in the fourth quarter of 2022. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of clinical trials and product development, which may include additional personnel-related expenses in conjunction with the launch of new products.

### Sales, General and Administrative (“SG&A”)

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| SG&A | $108,573 | $94,397 | $14,176 | 15.0% |
| SG&A as a percentage of revenue | 50.8% | 49.7% |  |  |

SG&A expenses increased by $14.2 million, or 15.0%, to $108.6 million in the three months ended September 30, 2022, from $94.4 million in the three months ended September 30, 2021. The increase was primarily due to a $7.6 million increase in personnel-related expenses driven by an increase in headcount and related expenses to support our growth, a $2.7 million increase in infrastructure costs, and a $2.3 million amortization expense of finite lived intangible assets acquired in connection with the Sixense acquisition.

As we continue to invest in our growth, we have expanded and may continue to expand our sales, marketing, and general and administrative teams through the hiring of additional employees in critical roles that support our strategic initiatives. As a result of being more disciplined with spending, we anticipate a reduction in our ongoing quarterly immersive healthcare related SG&A expenses of approximately $1.0 million beginning in the fourth quarter of 2022. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of investments in infrastructure to support the business.

### Provision for (benefit from) income taxes

*(in thousands, except for percentages)*

|  | Three Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Provision for (benefit from) income taxes | $5,306 | $(249) | $5,555 | (2,230.9)% |
| Effective tax rate | 174.8% | (3.2)% |  |  |

Generally during interim periods, including the three months ended September 30, 2021, we utilize the estimated annual effective tax rate (“AETR”) method to calculate our provision for (benefit from) income taxes, which involves the use of forecasted information. However, for the three months ended September 30, 2022, we used the discrete effective tax rate method, which involved the use of year-to-date information, as it provided a more reliable estimate of income taxes for the current period than the estimated AETR method. Our provision for income taxes was $5.3 million for the three months ended September 30, 2022, which was primarily due to tax expenses attributable to our worldwide profits during the period, combined with tax deficiencies (shortfalls) expenses from stock-based compensation attributable to our U.S. jurisdiction as a result of stock price fluctuation. Our benefit from income taxes was $0.2 million for the three months ended September 30, 2021, which was primarily due to tax expenses attributable to our worldwide profits during the period, offset by excess tax benefit from stock-based compensation attributable to our U.S. jurisdiction. The effective tax rate was 174.8% for the three months ended September 30, 2022, compared to (3.2)% for the three months ended September 30, 2021. Our change in effective tax rate was primarily attributable to large tax expenses over relatively smaller worldwide profits for the three months ended September 30, 2022, when compared to small tax benefits over relatively larger worldwide profits for the three months ended September 30, 2021.

### Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

### Revenue

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Vascular | $369,712 | $295,314 | $74,398 | 25.2% |
| Neuro | 256,205 | 248,265 | 7,940 | 3.2% |
| Total | $625,917 | $543,579 | $82,338 | 15.1% |

Revenue increased $82.3 million, or 15.1%, to $625.9 million in the nine months ended September 30, 2022, from $543.6 million in the nine months ended September 30, 2021. Overall revenue growth is primarily due to an increase in sales of new and existing products within our vascular and neuro businesses.

Revenue from our vascular products increased $74.4 million, or 25.2%, to $369.7 million in the nine months ended September 30, 2022, from $295.3 million in the nine months ended September 30, 2021.This increase in revenue from our vascular products was primarily attributable to increased revenue in China and the United States and was driven by sales of our vascular thrombectomy products and peripheral embolization products, which globally increased by 30.4% and 17.1%, respectively, in the nine months ended September 30, 2022. These increases were primarily due to higher sales volume as a result of sales of new products and further market penetration of our existing products. Prices for our vascular products remained substantially unchanged during the period.

Revenue from our neuro products increased $7.9 million, or 3.2%, to $256.2 million in the nine months ended September 30, 2022, from $248.3 million in the nine months ended September 30, 2021. This increase in revenue from our neuro products was primarily attributable to increased revenue in the United States, sales of new products, and further market penetration of our existing products. This increase was driven by an increase in sales of our neuro thrombectomy products and neuro access products, which globally increased by 5.9% and 5.3%, respectively, in the nine months ended September 30, 2022, partially offset by a decrease in sales of our neuro embolization products of 17.0% in the nine months ended September 30, 2022. Prices for our neuro products remained substantially unchanged during the period.

### Revenue by Geographic Area

The following table presents revenue by geographic area, based on our customer’s shipping destination, for the nine months ended September 30, 2022 and 2021:

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2022 |  | 2021 |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| United States | $434,583 | 69.4% | $383,306 | 70.5% | $51,277 | 13.4% |
| International | 191,334 | 30.6% | 160,273 | 29.5% | 31,061 | 19.4% |
| Total | $625,917 | 100.0% | $543,579 | 100.0% | $82,338 | 15.1% |

Revenue from sales in international markets increased $31.1 million, or 19.4%, to $191.3 million in the nine months ended September 30, 2022, from $160.3 million in the nine months ended September 30, 2021. Revenue from international sales represented 30.6% and 29.5% of our total revenue for the nine months ended September 30, 2022 and 2021, respectively.

### Gross Margin

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | $229,137 | $193,644 | $35,493 | 18.3% |
| Gross profit | $396,780 | $349,935 | $46,845 | 13.4% |
| Gross margin % | 63.4% | 64.4% |  |  |

Gross margin decreased 1.0 percentage point to 63.4% in the nine months ended September 30, 2022, from 64.4% in the nine months ended September 30, 2021, primarily due to higher labor and logistics costs as a result of manufacturing transfer activities and higher labor absenteeism due to the Omicron variant during the three months ended March 31, 2022. Gross margin is impacted by our ability to scale production capacity to support our expanding portfolio of products as well as our continued investments in COVID-19 related safety measures. We may see continued productivity improvements to offset higher inflation and supply chain pressures resulting in expansion of our gross margin in the future.

### Research and Development (“R&D”)

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| R&D | $61,443 | $52,548 | $8,895 | 16.9% |
| R&D as a percentage of revenue | 9.8% | 9.7% |  |  |

R&D expenses increased by $8.9 million, or 16.9%, to $61.4 million in the nine months ended September 30, 2022, from $52.5 million in the nine months ended September 30, 2021. The increase was primarily due to a $11.4 million increase in personnel-related expenses driven by an increase in headcount, and a $1.8 million increase in infrastructure costs to support our growth, partially offset by a $5.7 million decrease in product development and testing costs.

We have continued to make investments, and plan to continue to make investments, in the development of our products. As part of our ongoing investment in the development of our products, we are anticipating future payments related to research and development milestones. As a result of being more disciplined with spending, we anticipate a reduction in our ongoing quarterly immersive healthcare related R&D expenses of approximately $1.5 million beginning in the fourth quarter of 2022. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of clinical trials and product development, which may include additional personnel-related expenses in conjunction with the launch of new products.

### Sales, General and Administrative (SG&A)

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| SG&A | $334,088 | $264,831 | $69,257 | 26.2% |
| SG&A as a percentage of revenue | 53.4% | 48.7% |  |  |

SG&A expenses increased by $69.3 million, or 26.2%, to $334.1 million in the nine months ended September 30, 2022, from $264.8 million in the nine months ended September 30, 2021. The increase was primarily due to a $30.9 million increase in personnel-related expense driven by an increase in headcount and related expenses to support our growth, a $10.4 million increase in infrastructure costs, a $8.4 million increase in travel and other in-person expenses, a $7.9 million increase in cost related to marketing events, a $5.8 million amortization expense of finite lived intangible assets acquired in connection with the Sixense acquisition, and a $5.1 million increase in information technology expenses and other professional services primarily associated with our ERP system implementation.

As we continue to invest in our growth, we have expanded and may continue to expand our sales, marketing, and general and administrative teams through the hiring of additional employees in critical roles that support our strategic initiatives. As a result of being more disciplined with spending, we anticipate a reduction in our ongoing quarterly immersive healthcare related SG&A expenses of approximately $1.0 million beginning in the fourth quarter of 2022. In addition, we have experienced in the past, and may continue to experience in the future, variability in expenses incurred due to the timing and costs of investments in infrastructure to support the business.

### Provision for income taxes

*(in thousands, except for percentages)*

|  | Nine Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Provision for income taxes | $2,643 | $3,196 | $(553) | (17.3)% |
| Effective tax rate | (81.7)% | 10.5% |  |  |

Generally during interim periods, including the nine months ended September 30, 2021, we utilize the AETR method to calculate our provision for (benefit from) income taxes, which involves the use of forecasted information. However, for the nine months ended September 30, 2022, we used the discrete effective tax rate method, which involved the use of year-to-date information, as it provided a more reliable estimate of income taxes for the current period than the estimated AETR method. Our provision for income taxes was $2.6 million for the nine months ended September 30, 2022, which was primarily due to tax expenses attributable to our foreign profits during the periods, combined with tax deficiencies (shortfalls) expenses from stock-based compensation attributable to our U.S. jurisdiction as a result of stock price fluctuation. Our provision for income taxes was $3.2 million for the nine months ended September 30, 2021, which was primarily due to tax expenses attributable to our worldwide profits during the period, offset by excess tax benefits from stock-based compensation attributable to our U.S. jurisdiction. The effective tax rate was (81.7)% for the nine months ended September 30, 2022, compared to 10.5% for the nine months ended September 30, 2021. Our change in effective tax rate was primarily attributable to tax expenses over small worldwide losses for the nine months ended September 30, 2022, when compared to tax expenses over large worldwide profits for the nine months ended September 30, 2021.

Prospectively, our effective tax rate will likely be driven by (1) permanent differences in taxable income for tax and financial reporting purposes, (2) tax expense or benefit attributable to our worldwide financial results, and (3) discrete tax adjustments such as excess tax expenses or benefits related to stock-based compensation. Our income tax provision can be volatile as the amount of excess tax expenses or benefits can fluctuate from period to period due to the price of our stock, the volume of share-based grants exercised or vested, and the fair value assigned to equity awards under U.S. GAAP. In addition, changes in tax law or our interpretation thereof, and changes to our valuation allowance could result in fluctuations in our effective tax rate.

### Liquidity and Capital Resources

As of September 30, 2022, we had $585.3 million in working capital, which included $54.8 million in cash and cash equivalents and $129.6 million in marketable investments. As of September 30, 2022, we held approximately 23.3% of our cash and cash equivalents in foreign entities.

In addition to our existing cash and cash equivalents and marketable investment balances, our principal source of liquidity is our accounts receivable. In order to further strengthen our liquidity position and financial flexibility during the COVID-19 pandemic, on April 24, 2020 we entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The Credit Agreement is secured and provides for up to $100 million in available revolving borrowing capacity with an option, subject to certain conditions, for us to increase the aggregate borrowing capacity to up to $150 million, and was set to mature on April 23, 2021. During the three months ended March 31, 2021, we entered into an amended one-year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The amended Credit Agreement extended the maturity date from April 23, 2021 to February 21, 2022 and had substantially the same terms and conditions as the prior credit agreement with certain changes including the exclusion of certain one-time charges and expenses incurred during the fiscal quarters ended September 30, 2020 and December 31, 2020 from the calculation of the financial covenants, reductions in interest rate floors applicable to revolving loans and other changes to borrowing mechanics under the Credit Agreement. In the first quarter of 2022, the Company entered into a further amended one-year credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and lender, and Bank of America, N.A. and Citibank, N.A. as lenders. The amended Credit Agreement extended the maturity date from February 21, 2022 to February 17, 2023 and has substantially the same terms and conditions as the prior credit agreement with certain changes to the reference benchmark interest rates, applicable margins and borrowing mechanics under the Credit Agreement, having the overall effect of lowering the interest rates payable by the Company on amounts borrowed under the Credit Agreement, and a reduction of the commitment fee payable on the average daily unused amount under the Credit Agreement to 0.25% per annum. See Note “8. Indebtedness” to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

We believe our sources of liquidity will be sufficient to meet our liquidity requirements for at least the next 12 months. Our principal liquidity requirements are to fund our operations, expand manufacturing operations which includes, but is not limited to, maintaining sufficient levels of inventory to meet the anticipated demand of our customers, fund research and development activities and fund our capital expenditures. We may also lease or purchase additional facilities to facilitate our growth. We expect to continue to make investments as we launch new products, expand our manufacturing operations and information technology infrastructures and further expand into international markets. We may, however, require or elect to secure additional financing as we continue to execute our business strategy. If we require or elect to raise additional funds, we may do so through equity or debt financing, which may not be available on favorable terms, could result in dilution to our stockholders, could result in changes to our capital structure, and could require us to agree to covenants that limit our operating flexibility.

While we have strengthened our liquidity position, we cannot reliably estimate the extent to which the COVID-19 pandemic and other macroeconomic factors may impact our cash flow from operations in the fourth quarter and beyond.

The following table summarizes our cash and cash equivalents, marketable investments and selected working capital data as of September 30, 2022 and December 31, 2021:

*(in thousands)*

|  | September 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Cash and cash equivalents | $54,844 | $59,379 |
| Marketable investments | 129,583 | 195,496 |
| Accounts receivable, net | 189,006 | 133,940 |
| Accounts payable | 25,365 | 13,421 |
| Accrued liabilities | 101,672 | 99,796 |
| Working capital(1) | 585,293 | 558,277 |

(1) Working capital consists of total current assets less total current liabilities.

The following table sets forth, for the periods indicated, our beginning balance of cash and cash equivalents, net cash flows provided by (used in) operating, investing and financing activities and our ending balance of cash and cash equivalents:

*(in thousands)*

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Cash and cash equivalents and restricted cash at beginning of period | $59,379 | $69,670 |
| Net cash (used in) provided by operating activities | (56,998) | 18,772 |
| Net cash provided by (used in) investing activities | 46,157 | (20,396) |
| Net cash provided by (used in) financing activities | 5,887 | (2,125) |
| Cash and cash equivalents and restricted cash at end of period | 54,844 | 66,290 |

### Net Cash (Used In) Provided By Operating Activities

Net cash (used in) provided by operating activities consists primarily of consolidated net income adjusted for certain non-cash items (including depreciation and amortization, stock-based compensation expense, inventory write-downs, and changes in deferred tax balances), and the effect of changes in working capital and other activities.

Net cash used in operating activities was $57.0 million during the nine months ended September 30, 2022 and consisted of consolidated net loss of $5.9 million and non-cash items of $51.0 million, offset by net changes in operating assets and liabilities of $102.1 million. The change in operating assets and liabilities includes an increase in inventories of $62.3 million to support our growth, an increase in accounts receivable of $57.4 million due to timing of receipt of payment, and an increase in prepaid expenses and other current and non-current assets of $2.0 million. This was partially offset by an increase in accounts payable of $13.1 million, an increase in accrued expenses and other non-current liabilities of $6.2 million, and proceeds of $0.3 million received related to lease incentives from operating leases.

Net cash provided by operating activities was $18.8 million during the nine months ended September 30, 2021 and consisted of consolidated net income of $27.3 million and non-cash items of $39.6 million, offset by net changes in operating assets and liabilities of $48.0 million. The change in operating assets and liabilities includes an increase in inventories of $45.8 million to support our growth, an increase in prepaid expenses and other current and non-current assets of $7.1 million, an increase in accounts receivable of $7.0 million, and a decrease in accounts payable of $1.2 million. This was partially offset by an increase in accrued expenses and other non-current liabilities of $9.8 million and proceeds of $3.2 million received related to lease incentives from operating leases.

### Net Cash Provided By (Used In) Investing Activities

Net cash provided by (used in) investing activities relates primarily to proceeds from maturities of marketable investments, net of purchases, and capital expenditures.

Net cash provided by investing activities was $46.2 million during the nine months ended September 30, 2022 and primarily consisted of proceeds from maturities and sales of marketable investments of $61.9 million, partially offset by capital expenditures of $15.7 million.

Net cash used in investing activities was $20.4 million during the nine months ended September 30, 2021 and primarily consisted of purchases of marketable investments, net of proceeds from maturities and sales, of $7.2 million, and capital expenditures of $13.1 million.

### Net Cash Provided By (Used In) Financing Activities

Net cash provided by (used in) financing activities primarily relates to payments of employee taxes related to vested restricted stock units, payments towards the reduction of our finance lease obligations, and proceeds from exercises of stock options and issuance of common stock under our employee stock purchase plan.

Net cash provided by financing activities was $5.9 million during the nine months ended September 30, 2022 and primarily consisted of proceeds from the issuance of common stock under our employee stock purchase plan of $8.0 million and proceeds from exercises of stock options of $6.3 million. This was partially offset by $7.0 million of payments of employee taxes related to vested restricted stock units and $1.3 million in payments towards finance leases.

Net cash used in financing activities was $2.1 million during the nine months ended September 30, 2021 and primarily consisted of $10.5 million of payments of employee taxes related to vested restricted stock and restricted stock units and $1.1 million in payments towards finance leases. This was partially offset by proceeds from the issuance of common stock under our employee stock purchase plan of $7.4 million and proceeds from exercises of stock options of $2.2 million.

### Contractual Obligations and Commitments

During the nine months ended September 30, 2022, the Company entered into new leases and modified existing leases for certain properties. See Note “9. Leases” to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding our future lease obligations.

There have been no other material changes to our contractual obligations and commitments as of September 30, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

### Critical Accounting Policies and Estimates

We have prepared our financial statements in accordance with U.S. GAAP. Our preparation of these financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021.

### Recently Issued Accounting Standards

For information with respect to recently issued accounting standards and the impact of these standards on our condensed consolidated financial statements, see Note “2. Summary of Significant Accounting Policies” to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

## Market risk

As filed, 3,642 characters.

We are exposed to various market risks, which may result in potential losses arising from adverse changes in market rates, such as interest rates and foreign exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes and do not believe we are exposed to material market risk with respect to our cash and cash equivalents and/or our marketable investments.

***Interest Rate Risk.*** We had cash and cash equivalents of $54.8 million as of September 30, 2022, which consisted of funds held in money market funds, general checking and savings accounts. In addition, we had marketable investments of $129.6 million, which consisted primarily of corporate bonds, U.S. agency and government sponsored securities, and U.S. states and municipalities. Our investment policy is focused on the preservation of capital and supporting our liquidity needs. Under the policy, we invest in highly rated securities, while limiting the amount of credit exposure to any one issuer other than the U.S. government. We do not invest in financial instruments for trading or speculative purposes, nor do we use leveraged financial instruments. We utilize external investment managers who adhere to the guidelines of our investment policy. The revolving loans under our Credit Agreement bear interest at: (1) the adjusted EURIBOR rate, plus an applicable rate, for euro currency revolving borrowing; or (2) an alternate base rate, daily simple SOFR, or adjusted term SOFR rate, as applicable, plus an applicable rate, for revolving borrowing in U.S. dollars. As of September 30, 2022, there were no borrowings outstanding under the Credit Agreement. A hypothetical 100 basis point change in interest rates would not have a material impact on the value of our cash and cash equivalents or marketable investments.

***Foreign Exchange Risk Management.*** We operate in countries other than the United States, and, therefore, we are exposed to foreign currency risks. We bill most sales outside of the United States in local currencies, primarily euro and Japanese yen, with some sales being denominated in other currencies. We expect that the percentage of our sales denominated in foreign currencies may increase in the foreseeable future as we continue to expand into international markets. When sales or expenses are not denominated in U.S. dollars, a fluctuation in exchange rates could affect our net income. For example, changes in exchange rates negatively affected our revenue as expressed in U.S. dollars for the three and nine months ended September 30, 2022, and we expect our revenues as expressed in U.S. dollars to be negatively affected by changes in exchange rates for our fiscal year ending December 31, 2022 as well. Additionally, changes in exchange rates reduced our expenses as expressed in U.S. dollars for the three and nine months ended September 30, 2022, which largely offset the impact to net income for those periods resulting from changes in exchange rates that reduced revenue as expressed in U.S. dollars. We do not currently hedge our exposure to foreign currency exchange rate fluctuations; however, we may choose to hedge our exposure in the future.

While our gross margin for the nine months ended September 30, 2022 was primarily impacted by higher labor and logistics costs as a result of manufacturing transfer activities and higher labor absenteeism due to the Omicron variant during the three months ended March 31, 2022, changes in prices did not have a significant impact on our results of operations for any periods presented on our consolidated financial statements.

## Controls and procedures

As filed, 3,165 characters.

### Evaluation of Disclosure Controls and Procedures

An evaluation as of September 30, 2022 was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at September 30, 2022.

### Changes in Internal Control Over Financial Reporting

During the quarterly period ended June 30, 2022, we began a multi-stage implementation of a new Enterprise Resource Planning (“ERP”) system, which will replace our existing core financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance the flow of financial information, improve data management, and provide timely information to our management team. Accordingly, as the phased implementation occurs, we continue to rely upon a combination of our existing and new ERP systems for financial statement reporting purposes. Except for the implementation of the new ERP system and related controls, there was no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the quarterly period ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our principal executive officer and principal financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.

## Risk factors

As filed, 235 characters.

There have been no material changes to our risk factors reported in, or new factors identified since the filing of, our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 22, 2022.

Filed Nov 3, 2022.
Source: SEC EDGAR, the filing index for accession 0001321732-22-000104. Last ingested by Listed: Nov 6, 2026, 16:01 ET. No prices; not investment advice.