Twin Disc Inc: Form 10-Q for the period ended Mar 29, 2024

In the financial review that follows, we discuss our results of operations, financial condition, and certain other information. This discussion should be read in conjunction with our consolidated financial statements as of March 29, 2024, and related notes, as reported in Item 1 of this Quarterly Report.

Some of the statements in this Quarterly Report on Form 10-Q are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include the Company’s description of plans and objectives for future operations and assumptions behind those plans. The words “anticipates,” “believes,” “intends,” “estimates,” and “expects,” or similar anticipatory expressions, usually identify forward-looking statements. In addition, goals established by the Company should not be viewed as guarantees or promises of future performance. There can be no assurance the Company will be successful in achieving its goals.

In addition to the assumptions and information referred to specifically in the forward-looking statements, other factors, including but not limited to those factors discussed under Item 1A, Risk Factors, of the Company’s Annual Report filed on Form 10-K for June 30, 2023, as supplemented in this Quarterly Report, could cause actual results to be materially different from what is expressed or implied in any forward-looking statement.

Results of Operations

(In thousands)

23

Comparison of the Third Quarter of Fiscal 2024 with the Third Quarter of Fiscal 2023

Net sales for the third quarter increased 0.5%, or $0.4 million, to $74.2 million from $73.8 million in the same quarter a year ago. The Company has benefited from favorable market conditions across most geographies and product groups through fiscal 2023 and into fiscal 2024. With the some stabilization in the global supply chain, along with improving operational performance, the Company has been able to improve overall delivery results. Global sales of marine and propulsion products improved 3.2% from the prior year, while shipments of off-highway transmission products declined slightly (2.5%). Shipments of industrial products declined by 14.7%, with a slow-down in the domestic housing and construction markets, as well as weakness in European market demand. The European region enjoyed the most significant sales improvement ($2.1 million or 8.9%) due to improved shipments Veth propulsion products for European applications. The Asia Pacific region also saw a slight increase ($0.1 million or 0.4%), with improved demand in the commercial marine market, partially offset by timing of oil and gas shipments into China. Sales into North America decreased 19.3%, or $5.2 million, primarily due to some softening in aftermarket demand in the oil and gas market and weaker demand for industrial products. Currency translation had a slightly favorable impact on third quarter fiscal 2024 sales compared to the third quarter of the prior year totaling $0.1 million.

Sales at our manufacturing segment decreased 1.9%, or $1.2 million, versus the same quarter last year. The U.S. manufacturing operations experienced a 9.4%, or $3.1 million, decrease in sales versus the third fiscal quarter of 2023, with some softening aftermarket demand in the North American energy market and weaker industrial demand related to the North American housing and construction markets. The Company’s operation in the Netherlands saw dramatically increased revenue of $4.9 million (32.8%) compared to the third fiscal quarter of 2023, primarily due to improving operation performance in support of a record level of incoming orders over the past few quarters, along with improved supply chain performance. Similarly, the Company’s Belgian operation saw an increase compared to the prior year third quarter (12.9% or $0.9 million), with improved delivery performance driven by operational and supply chain execution. The Company’s Italian manufacturing operations were down $4.1 million (51.9%) compared to the third quarter of fiscal 2023, primarily due to the sale of the BCS business during the current fiscal year. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.2 million (13.9%) compared to the prior year third quarter.

Our distribution segment experienced an increase in sales of $3.1 million (9.2%) in the third quarter of fiscal 2024 compared to the third quarter of fiscal 2023. The Company’s Asian distribution operations in Singapore, China and Japan were up 1.2% or $0.2 million from the prior year on improved commercial marine demand, partially offset by reduced deliveries for energy related products in China. The Company’s North America distribution operation saw a 7.9% ($0.7 million) increase on strong demand for marine products manufactured by the European operations. The Company’s European distribution operation saw a significant increase ($1.5 million or 29.1%) on strong demand and improved supply of product. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw a decrease in revenue (9.7% or $0.7 million) from the prior year third fiscal quarter, primarily due to softer demand for pleasure craft products in the region following record levels in the prior year.

Gross profit as a percentage of sales for the third quarter of fiscal 2024 improved to 28.2%, compared to 26.1% for the same period last year. The improvement in the current year third quarter compared to the prior year result was primarily driven by price realization and cost reductions, with a slightly positive mix impact. The mix impact for the quarter was essentially neutral.

For the fiscal 2024 third quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 23.2%, compared to 19.8% for the fiscal 2023 third quarter. ME&A expenses increased $2.6 million (17.6%) versus the same period last fiscal year. The increase in ME&A spending for the quarter was comprised of higher wages and benefits ($0.5 million), increased global bonus expense ($0.4 million), travel costs ($0.3 million), lease expense ($0.2 million), higher professional fees ($0.5 million, driven by acquisition activities), along with other inflationary increases. The increases were driven by investments to drive growth (resources to support our hybrid electric strategy), corporate development and other inflationary impacts.

The Company incurred minor restructuring charges during the third quarter of fiscal 2024 and fiscal 2023, primarily associated with ongoing cost reduction actions at its European operations and actions to adjust the cost structure at the Company’s domestic operation. The Company continues to focus on actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.

Interest expense was down slightly to $0.3 million in the third quarter of fiscal 2024, with a lower average outstanding revolver balance partially offset by a higher interest rate.

Other income, net of $1.0 million for the third fiscal quarter was primarily attributable to a currency gains and a pension benefit.

The fiscal 2024 third quarter effective tax rate was 10.6% compared to 14.0% in the prior fiscal year third quarter. The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the reduced effective tax rate for both periods.

Comparison of the First Three Quarters of Fiscal 2024 with the First Three Quarters of Fiscal 2023

Net sales for the first three quarters increased 9.2%, or $17.7 million, to $210.7 million from $193.0 million in the same period a year ago. The Company has continued to benefit from favorable market conditions across most geographies and product groups through fiscal 2023 and into fiscal 2024. With the easing of global supply chain disruptions, along with improving operational performance, the Company has been able to improve delivery results compared to the prior year. Global sales of marine and propulsion products improved 17.3% from the prior year, while shipments of off-highway transmission products improved by 6.7%. Shipments of industrial products declined by 15.5%, with a slow-down in the domestic housing and construction markets. The Asia Pacific region enjoyed the most significant sales improvement ($14.5 million or 34.1%) due to improved shipments of oil and gas transmissions into China, an improved demand for commercial marine products and continued strength in pleasure craft demand in Australia. The European region also saw a significant increase ($13.5 million or 23.0%), with improved operational performance at our facilities in Belgium and the Netherlands, coupled with continued strong demand. Sales into North America decreased 19.1%, or $14.4 million, primarily due to some softening in aftermarket demand in the oil and gas market. Currency translation had a favorable impact on first three quarters of fiscal 2024 sales compared to the same period in the prior year totaling $4.5 million primarily due to the strengthening of the euro against the U.S. dollar.

Sales at our manufacturing segment increased 3.5%, or $5.9 million, versus the same period last year. The U.S. manufacturing operations experienced a 7.8%, or $7.2 million, decrease in sales versus the first three quarters of fiscal 2023, with some softening aftermarket demand in the North American energy market and weaker industrial demand related to the North American housing and construction markets. The Company’s operation in the Netherlands saw increased revenue of $16.1 million (45.2%) compared to the first three quarters of fiscal 2023, primarily due to improving operation performance in support of a record level of incoming orders over the past several quarters, along with a favorable currency impact and improved supply chain performance. Similarly, the Company’s Belgian operation saw an increase compared to the prior fiscal year first three quarters (21.5% or $3.6 million), with a favorable translation effect and improved delivery performance driven by operational and supply chain execution. The Company’s Italian manufacturing operations were down $6.9 million (33.2%) compared to the first three quarters of fiscal 2023, primarily due to the sale of the BCS business during the current fiscal year. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $0.3 million (7.3%) compared to the prior fiscal year first three quarters.

Our distribution segment experienced an increase in sales of $23.4 million (27.95%) in the first three quarters of fiscal 2024 compared to the first three quarters of fiscal 2023. The Company’s Asian distribution operations in Singapore, China and Japan were up 48.6% or $14.1 million from the prior year on improving deliveries for energy related products in China and strong commercial marine demand in the region. The Company’s North America distribution operation saw a 9.3% ($1.9 million) increase on strong domestic demand for marine products from the European operations. The Company’s European distribution operation saw a significant increase ($3.8 million or 27.9%) on strong demand, a favorable currency impact and improved supply of product. The Company’s distribution operation in Australia, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw an increase in revenue (1.2% or $0.3 million) from the prior year first three quarters, primarily due to continued strong demand for pleasure craft products in the region.

Gross profit as a percentage of sales for the first three quarters of fiscal 2024 improved to 27.6%, compared to 25.7% for the same period last year. The improvement in the first three quarters of the current year compared to the prior year result was primarily volume related, along with a positive mix impact due to additional oil and gas units shipped in the current year. These favorable movements were partially offset by the negative impact of the sale of the BCS business that was recorded in the first quarter of fiscal 2024.

For the fiscal 2024 first three quarters, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 24.3%, compared to 23.7% for the fiscal 2023 first three quarters. ME&A expenses increased $5.6 million (12.2%) versus the same period last fiscal year. The increase in ME&A spending for the first three quarters was comprised of higher wages and benefits ($1.4 million), travel costs ($0.7 million), software maintenance ($0.3 million), product development ($0.3 million), global bonus expense ($0.9 million), professional fees ($0.4 million), lease expense ($0.3 million), depreciation and amortization ($0.6 million) and a positive currency translation impact ($0.5 million). The increases were driven by inflationary impacts and investment in resources to support our hybrid electric strategy.

The Company incurred minor restructuring charges during the first three quarters of fiscal 2024 and fiscal 2023, primarily associated with ongoing cost reduction actions at its European operations and actions to adjust the cost structure at the Company’s domestic operation. The Company continues to focus on actively managing its cost structure and reducing fixed costs in light of the ongoing market challenges.

Interest expense was down 37.6% to $1.0 million in the first three quarters of fiscal 2024, with a lower average outstanding revolver balance partially offset by a higher interest rate.

Other income of $0.6 million for the first three quarters of fiscal 2024 was primarily attributable to a pension benefit, partially offset by a currency loss.

The fiscal 2024 first three quarters effective tax rate was 41.9% compared to 38.2% in the prior fiscal year comparable period. The full domestic valuation allowance, along with the mix of foreign earnings by jurisdiction, resulted in the increase to the effective tax rate.

Financial Condition, Liquidity and Capital Resources

Comparison between March 29, 2024 and June 30, 2023

As of March 29, 2024, the Company had net working capital of $119.9 million, which represents an increase of $0.3 million, or 0.2%, from the net working capital of $119.6 million as of June 30, 2023.

Cash increased by $10.6 million to $23.8 million as of March 29, 2024, versus $13.3 million as of June 30, 2023. As of March 29, 2024, the majority of the cash is at the Company’s overseas operations in Europe ($5.6 million) and Asia-Pacific ($10.4 million). The Company had $7.9 million of domestic cash available at March 29, 2024 in anticipation of the closing of the Katsa Oy acquisition announced in March.

Trade receivables of $41.0 million were down $13.8 million, or 25.2%, when compared to last fiscal year-end. The impact of foreign currency translation was to decrease accounts receivable by $0.2 million versus June 30, 2023. As a percent of sales, trade receivables finished at 55.2% in the third quarter of fiscal 2024 compared to 60.2% for the comparable period in fiscal 2023 and 65.2% for the fourth quarter of fiscal 2023.

Inventories were reduced by $2.1 million (1.6%) versus June 30, 2023. The impact of foreign currency translation was to decrease inventories by $0.9 million versus June 30, 2023. The remaining decrease was essentially the result of the sale of the BCS business, reducing inventory by $3.8 million. The operation in the Netherlands reported an offsetting increase driven by continued growth in backlog and the need for inventory to support growth. Much of this inventory, however, is funded through customer advance payments upon receipt of the order. On a consolidated basis, as of March 29, 2024, the Company’s backlog of orders to be shipped over the next six months approximates $130.5 million, compared to $119.2 million at June 30, 2023 and $127.7 million at March 31, 2023. As a percentage of six-month backlog, inventory has decreased from 111% at June 30, 2023 to 100% at March 29, 2024.

Net property, plant and equipment increased $2.0 million (5.1%) to $40.6 million versus $38.7 million at June 30, 2023. The Company had capital spending of $7.6 million in the first three quarters. This increase was partially offset by depreciation ($5.0 million) and the impact of the sale of the BCS business. Capital spending occurring in the first three quarters was primarily related to replacement capital. In total, the Company expects to invest between $9 and $11 million in capital assets in fiscal 2024. The Company continues to review its capital plans based on overall market conditions and availability of capital and may make changes to its capital plans accordingly. The Company’s capital program is focused on modernizing key core manufacturing, assembly and testing processes and improving efficiencies at its facilities around the world.

Accounts payable as of March 29, 2024 of $33.2 million was down $3.3 million, or 9.0%, from June 30, 2023. The impact of foreign currency translation was to decrease accounts payable by $0.3 million versus June 30, 2023. The remaining decrease is primarily related to the reduced purchasing activities in light of stable demand and inventory reduction efforts.

Total borrowings and long-term debt as of March 29, 2024 decreased $1.6 million to $17.0 million versus $18.6 million at June 30, 2023. During the first three quarters, the Company reported positive free cash flow of $14.7 million (defined as operating cash flow less acquisitions of fixed assets), driven by positive operating results and working capital performance, partially offset by the payment of a bonus accrual and capital spending. The Company ended the quarter with total debt, net of cash, of ($6.8) million, compared to $5.4 million at June 30, 2023, for a net improvement of $12.2 million.

Total equity increased $1.4 million, or 0.1%, to $146.9 million as of March 29, 2024. The net income during the first three quarters increased equity by $3.6 million, offset by an unfavorable foreign currency translation of $0.9 million and the payment of a dividend ($1.2 million). The net change in common stock and treasury stock resulting from the accounting for stock-based compensation decreased equity by $0.5 million. The net remaining decrease in equity primarily represents the amortization of net actuarial loss and prior service cost on the Company’s defined benefit pension plans, along with the unrealized gain on cash flow hedges.

On June 29, 2018, the Company entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris Bank N.A. (“BMO”) that provided for the assignment and assumption of the previously existing loans between the Company and Bank of Montreal (the “2016 Credit Agreement”) and subsequent amendments into a term loan (the “Term Loan”) and revolving credit loans (each a “Revolving Loan” and, collectively, the “Revolving Loans,” and, together with the Term Loan, the “Loans”). Pursuant to the Credit Agreement, BMO agreed to make the Term Loan to the Company in a principal amount not to exceed $35.0 million and the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate, $50.0 million (the “Revolving Credit Commitment”), subject to a Borrowing Base based on Eligible Inventory and Eligible Receivables. Subsequent amendments to the Credit Agreement reduced the Term Loan to $20.0 million, extended the maturity date of the Term Loan to April 1, 2027, and require the Company to make principal installment payments on the Term Loan of $0.5 million per quarter. In addition, under subsequent amendments to the Credit Agreement, BMO’s Revolving Credit Commitment is currently $45.0 million. The Credit Agreement also allows the Company to obtain Letters of Credit from BMO, which if drawn upon by the beneficiary thereof and paid by BMO, would become Revolving Loans. Under the Credit Agreement, the Company may not pay cash dividends on its common stock in excess of $5.0 million in any fiscal year. The term of the Revolving Loans under the Credit Agreement currently runs through April 1, 2027.

Under the Credit Agreement as amended, interest rates are based on either the secured overnight financing rate (“SOFR”) or the euro interbank offered rate (the “EURIBO Rate”). Loans are designated either as “SOFR Loans,” which accrue interest at an Adjusted Term SOFR plus an Applicable Margin, or “Eurodollar Loans,” which accrue interest at the EURIBO Rate plus an Applicable Margin. Amounts drawn on a Letter of Credit that are not timely reimbursed to the Bank bear interest at a Base Rate plus an Applicable Margin. The Company also pays a commitment fee on the average daily Unused Revolving Credit Commitment equal to an Applicable Margin. Currently, the Applicable Margins are between 2.00% and 3.50% for Revolving Loans and Letters of Credit; 2.125% and 3.625% for Term Loans; and 0.15% and 0.30% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio).

The Credit Agreement, as amended, requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio may not be less than 1.10 to 1.00. In determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $0.6 million for the Katsa Oy acquisition, as well as pro-forma EBITDA of Katsa Oy as permitted by the Bank. The Company’s Tangible Net Worth may not be less than $100.0 million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2023.

Borrowings under the Credit Agreement are secured by substantially all of the Company’s personal property, including accounts receivable, inventory, machinery and equipment, and intellectual property. The Company has also pledged 100% of its equity interests in certain domestic subsidiaries and 65% of its equity interests in certain foreign subsidiaries. The Company also entered into a Collateral Assignment of Rights under Purchase Agreement for its acquisition of Veth Propulsion. To effect these security interests, the Company entered into various amendment and assignment agreements that consent to the assignment of certain agreements previously entered into between the Company and the Bank of Montreal in connection with the 2016 Credit Agreement. The Company also amended and assigned to BMO a Negative Pledge Agreement that it has previously entered into with Bank of Montreal, pursuant to which it agreed not to sell, lease or otherwise encumber real estate that it owns except as permitted by the Credit Agreement and the Negative Pledge Agreement.

The Company has also entered into a Deposit Account Control Agreement with the Bank, reflecting the Bank’s security interest in deposit accounts the Company maintains with the Bank. The Bank may not provide a notice of exclusive control of a deposit account (thereby obtaining exclusive control of the account) prior to the occurrence or existence of a Default or an Event of Default under the Credit Agreement or otherwise upon the occurrence or existence of an event or condition that would, but for the passage of time or the giving of notice, constitute a Default or an Event of Default under the Credit Agreement.

Upon the occurrence of an Event of Default, BMO may take the following actions upon written notice to the Company: (1) terminate its remaining obligations under the Credit Agreement; (2) declare all amounts outstanding under the Credit Agreement to be immediately due and payable; and (3) demand the Company to immediately Cash Collateralize L/C Obligations in an amount equal to 105% of the aggregate L/C Obligations or a greater amount if BMO determines a greater amount is necessary. If such Event of Default is due to the Company’s bankruptcy, BMO may take the three actions listed above without notice to the Company.

On April 1, 2024, the Company entered into Amendment No. 10 to Credit Agreement (the “Tenth Amendment”) that amended and extended the Credit Agreement. The Tenth Amendment increased the Revolving Credit Commitment from $40.0 million to $45.0 million, and also increased the Borrowing Base for Revolving Loans from the sum of (a) 85% of outstanding unpaid Eligible Receivable and (b) the lesser of $30.0 million and 50% of Eligible Inventory to the sum of (a) 85% of outstanding unpaid Eligible Receivables and (b) the lesser of $35.0 million (reduced to $32.5 million beginning with the first quarter of the 2026 fiscal year) and 60% of Eligible Inventory (reduced to 55% of Eligible Inventory beginning with the third quarter of the 2025 fiscal year, and 50% of Eligible Inventory beginning with the first quarter of the 2026 fiscal year).

The Company intends to use the increased borrowing capacity under the Credit Agreement to help finance its previously announced proposed acquisition of Katsa Oy by TD Finland Holding Oy, a wholly-owned subsidiary of the Company. The Tenth Amendment specifically permits the Company to use Revolving Loans for the Katsa Oy acquisition. In addition, in determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $0.6 million for the Katsa Oy acquisition, as well as pro-forma EBITDA of Katsa Oy as permitted by the Bank.

The Tenth Amendment also extended the Credit Agreement through April 1, 2027 and extended the maturity date of the Term Loan and the Term Loan Commitment Date to April 1, 2027. Prior to the Tenth Amendment, the Credit Agreement was scheduled to terminate as of June 30, 2025, and the Term Loan and Term Loan Commitment Date were scheduled to mature/terminate on March 4, 2026.

The Tenth Amendment also increased the Applicable Margins under the Credit Agreement for purposes of determining interest rates on Revolving Loans, Letters of Credit, Term Loans, and the Unused Revolving Credit Commitment. Prior to the Tenth Amendment, the Applicable Margins were between 1.25% and 2.75% for Revolving Loans and Letters of Credit; 1.375% and 2.875% for Term Loans; and .10% and .15% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio). Under the Tenth Amendment, the Applicable Margins are between 2% and 3.5% for Revolving Loans and Letters of Credit; 2.125% and 3.625% for Term Loans; and .15% and .3% for the Unused Revolving Credit Commitment (each depending on the Company’s Total Funded Debt to EBITDA ratio).

The Tenth Amendment also increased the amount of Restricted Payments that the Company may make in the form of cash dividends, distributions, purchases, redemptions, or other acquisitions of its common stock from $3.0 million to $5.0 million in any fiscal year.

The Company remains in compliance with its liquidity and other covenants.

As of March 29, 2024, current maturities include $2.0 million of term loan payments due within the coming year.

Other significant contractual obligations as of March 29, 2024 are disclosed in Note N "Lease Liabilities" in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. There are no material undisclosed guarantees. As of March 29, 2024, the Company had no additional material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant, and equipment, which generally have terms of less than 90 days. The Company has long-term obligations related to its postretirement plans which are discussed in detail in Note G "Pension and Other Postretirement Benefit Plans” in the Notes to Condensed Consolidated Financial Statements in Part I, Item 1of this Quarterly Report on Form 10-Q. Postretirement medical claims are paid by the Company as they are submitted. In fiscal 2024, the Company expects to contribute $0.7 million to postretirement benefits based on actuarial estimates; however, these amounts can vary significantly from year to year because the Company is self-insured. In fiscal 2024, the Company expects to contribute $0.7 million to its defined benefit pension plans. The Company does not have any material off-balance sheet arrangements.

Management believes that available cash, the Credit Agreement, the unsecured lines of credit, cash generated from future operations, and potential access to debt markets will be adequate to fund the Company's cash and capital requirements for the foreseeable future.

New Accounting Releases

See Note A, Basis of Presentation, to the condensed consolidated financial statements for a discussion of recently issued accounting standards.

Critical Accounting Policies

The preparation of this Quarterly Report requires management’s judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

The Company’s critical accounting policies are described in Item 7 of the Company’s Annual Report filed on Form 10-K for June 30, 2023. There have been no significant changes to those accounting policies subsequent to June 30, 2023.

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that such information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). During the most recent fiscal quarter, no changes were made which have materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors previously disclosed in response to Item 1A to Part I of our 2023 Annual Report on Form 10-K.