# Butterfly Network, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Butterfly Network, Inc.](/companies/bfly.md) (CIK 1804176)
- Form: 10-Q
- Filed: 2024-05-01
- Accepted by EDGAR: May 1, 2024, 16:29 ET
- Period: 2024-03-31
- Accession: 0001558370-24-006395
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1804176/000155837024006395/bfly-20240331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1804176/000155837024006395/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $17.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $7.4m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $10.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $10.7m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$22.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $300.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $3.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$21.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.10 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.10 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 208,873,449 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$20.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $112.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $213.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $284.3m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $41.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $80.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $204.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 23,305 characters.

*The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our condensed consolidated results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto contained in our 2023 Annual Report on Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the caption “Risk Factors” in Item 1A of Part I of our 2023 Annual Report on Form 10-K and in Item 1A of Part II of this Quarterly Report on Form 10-Q as filed with the SEC. Actual results may differ materially from those contained in any forward-looking statements.*

### Overview

We are an innovative digital health business transforming care through a unique combination of portable, semiconductor-based ultrasound technology, intuitive software, services and educational offerings that can make medical imaging more accessible than ever before. Butterfly’s solution enables the practical application of ultrasound information into the clinical workflow through affordable hardware that fits in a healthcare professional’s pocket and is paired with cloud-connected software that is easily accessed through a mobile application.

Butterfly iQ+ and iQ3 are ultrasound devices that can perform whole-body imaging in a single handheld probe using semiconductor technology. Our Ultrasound-on-Chip™ makes ultrasound more accessible outside of large healthcare institutions, while our software is intended to make the product easy to use, fully integrated with the clinical workflow, and accessible on a user’s smartphone, tablet, and almost any hospital computer system connected to the Internet. We aim to enable the delivery of imaging information anywhere at point-of-care to drive earlier detection throughout the body and remote management of health conditions. We market and sell the Butterfly system, which includes probes, related accessories, and software subscriptions, to healthcare systems, physicians, and healthcare providers through a direct sales force, distributors, and our eCommerce channel.

In 2023 and 2022, we took significant actions to reduce our cost of operations and extend our cash runway. Over the two years, we reduced our annual cash requirements by approximately $170 million, to approximately $60 million assuming no revenue growth or further reductions in expenses. As such, we conservatively expect our cash to last into 2026. As we look forward, we expect to continue to invest our business in order to grow revenue. Before we reach 2026, we expect to raise capital in order to reach profitability. We expect to first seek nondilutive capital in the form of grants or debt and then potentially in the form of equity securities.

### Key Performance Measures

We review the key performance measures discussed below to evaluate the business and measure performance, identify trends, formulate plans, and make strategic decisions. Our key performance measures may fluctuate over time as the adoption of our devices increases, which may shift the revenue mix more toward software and other services. The quarterly metrics may be impacted by the timing of device sales.

### Units fulfilled

We define units fulfilled as the number of devices whereby control is transferred to a customer. We do not adjust this measure for returns as our volume of returns has historically been low. We view units fulfilled as a key indicator of the growth of our business. We believe that this metric is useful to investors because it presents our core growth and the performance of our business period over period.

Units fulfilled increased by 768 units, or 21.8%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, with increased device sales volume in the U.S. and internationally for both our established iQ+ probes and our newly launched iQ3 probes.

### Software and other services mix

We define software and other services mix as a percentage of our total revenue recognized in a reporting period that is based on software subscriptions and other related services, consisting primarily of our software as a service (“SaaS”) offering. We view software and other services mix as a key indicator of the profitability of our business, and thus we believe that this measure is useful to investors.

Software and other services mix decreased by 6.7 percentage points, to 36.1% for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease is due to the recent launch of our new iQ3 probe and an increase in device sales during the current year.

### Description of Certain Components of Financial Data

### Revenue

Revenue consists of revenue from the sale of products, such as medical devices and accessories, and the sale of software and related services, classified as software and other services revenue on our condensed consolidated statements of operations and comprehensive loss, which are SaaS subscriptions and product support and maintenance (“Support”). SaaS subscriptions include licenses for teams and individuals as well as enterprise-level subscriptions. For sales of products, revenue is recognized at a point in time upon transfer of control to the customer. SaaS subscriptions and Support are generally related to stand-ready obligations and are recognized ratably over time.

Over time as adoption of our devices increases through further market penetration and as practitioners in the Butterfly network continue to use our devices, we expect our annual revenue mix to shift more toward software and other services. The quarterly revenue mix may be impacted by the timing of device sales. In 2024, due to the launch of our next generation device iQ3, we are expecting our software as a percentage of total revenue to remain flat or decrease.

To date, we have invested heavily in building out our direct salesforce, with the ultimate goal of growing adoption at large-scale healthcare systems. As we expand our healthcare system software offerings and develop relationships with larger healthcare systems, we continue to expect a higher proportion of our sales in healthcare systems compared to eCommerce.

### Cost of revenue

Cost of product revenue consists of product costs including manufacturing costs, personnel costs and benefits, inbound freight, packaging, warranty replacement costs, payment processing fees and inventory obsolescence and write-offs. We expect our cost of product revenue to fluctuate over time due to the level of units fulfilled in any given period and fluctuate as a percentage of product revenue over time as our focus on operational efficiencies in our supply chain may be offset by increased prices of certain inventory components.

Cost of software and other services revenue consists of personnel costs, cloud hosting costs and payment processing fees. Because the costs and associated expenses to deliver our SaaS offerings are less than the costs and associated expenses of manufacturing and selling our device, we anticipate an improvement in profitability and margin expansion over time as our revenue mix shifts increasingly towards software and other services. We plan to continue to invest additional resources to expand and further develop our SaaS and other service offerings.

### Research and development

Research and development expenses primarily consist of personnel costs and benefits, facilities-related expenses and depreciation, fabrication services, and software costs. Most of our research and development expenses are related to developing new products and services that have not reached the point of commercialization and improving our products and services that have been commercialized. Fabrication services include certain third-party engineering costs, product testing, and test boards. Research and development expenses are expensed as incurred. We expect to continue to make substantial investments in our product and software development, clinical, and regulatory capabilities.

### Sales and marketing

Sales and marketing expenses primarily consist of personnel costs and benefits, advertising, conferences and events, facilities-related expenses, and software costs. We expect to continue to make substantial investments in our sales capabilities.

### General and administrative

General and administrative expenses primarily consist of personnel costs and benefits, insurance, patent fees, software costs, facilities costs, and outside services. Outside services consist of professional services, legal fees, and other professional fees.

### Other

Operating expenses classified as other are expenses which we do not consider representative of our ongoing operations. These other expenses primarily consist of employee severance and benefits costs related to our reductions in force, litigation costs, and legal settlements.

### Results of Operations

We operate as a single reportable segment to reflect the way our CODM reviews and assesses the performance of the business. The accounting policies are described in Note 2 “Summary of Significant Accounting Policies” in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

*(in thousands)*

| ​ ​ ​ ​ Revenue: | ​ ​ ​ ​ ​ | ​ ​ Three months ended March 31, 2024 ​ ​ Dollars | ​ ​ ​ | ​ ​ ​ % of ​ revenue ​ | ​ ​ ​ ​ | ​ ​ 2023 ​ ​ Dollars | ​ ​ ​ | ​ ​ % of revenue | ​ ​ ​ ​ ​ |
| --- | --- | --- | --- | ---: | --- | --- | --- | ---: | --- |
| Product | ​ | $11,291 |  | 63.9% | ​ | $8,848 |  | 57.2% | ​ |
| Software and other services | ​ | ​ 6,365 |  | 36.1 ​ | ​ | ​ 6,628 |  | 42.8 ​ | ​ |
| **Total revenue** | **​** | **​** **17,656** |  | **100.0** **​** | **​** | **​** **15,476** |  | **100.0** **​** | **​** |
| Cost of revenue: | ​ | ​ |  | ​ | ​ | ​ |  | ​ ​ | ​ |
| Product | ​ | ​ 5,096 |  | 28.9 ​ | ​ | ​ 4,349 |  | 28.1 ​ | ​ |
| Software and other services | ​ | ​ 2,284 |  | 12.9 ​ | ​ | ​ 2,038 |  | 13.2 ​ | ​ |
| **Total cost of revenue** | **​** | **​** **7,380** |  | **41.8** **​** | **​** | **​** **6,387** |  | **41.3** **​** | **​** |
| **Gross profit** | **​** | **​** **10,276** |  | **58.2** **​** | **​** | **​** **9,089** |  | **58.7** **​** | **​** |
| Operating expenses: | ​ | ​ |  | ​ | ​ | ​ |  | ​ ​ | ​ |
| Research and development | ​ | ​ 10,720 |  | 60.7 ​ | ​ | ​ 16,651 |  | 107.6 ​ | ​ |
| Sales and marketing | ​ | ​ 10,378 |  | 58.8 ​ | ​ | ​ 10,034 |  | 64.8 ​ | ​ |
| General and administrative | ​ | ​ 10,442 |  | 59.1 ​ | ​ | ​ 11,019 |  | 71.2 ​ | ​ |
| Other | ​ | ​ 1,357 | ​ | 7.7 ​ | ​ | ​ 6,432 | ​ | 41.6 ​ | ​ |
| **Total operating expenses** | **​** | **​** **32,897** |  | **186.3** **​** | **​** | **​** **44,136** |  | **285.2** **​** | **​** |
| **Loss from operations** | **​** | **​** **(22,621)** |  | **(128.1)** **​** | **​** | **​** **(35,047)** |  | **(226.5)** **​** | **​** |
| Interest income | ​ | ​ 1,511 |  | 8.6 ​ | ​ | ​ 1,784 |  | 11.5 ​ | ​ |
| Interest expense | ​ | ​ (300) |  | (1.7) ​ | ​ | ​ — |  | — ​ | ​ |
| Change in fair value of warrant liabilities | ​ | ​ (207) | ​ | (1.2) ​ | ​ | ​ (207) | ​ | (1.3) ​ | ​ |
| Other (expense) income, net | ​ | ​ (141) |  | (0.8) ​ | ​ | ​ 17 |  | 0.1 ​ | ​ |
| **Loss before provision for income taxes** | **​** | **​** **(21,758)** |  | **(123.2)** **​** | **​** | **​** **(33,453)** |  | **(216.2)** **​** | **​** |
| Provision for income taxes | ​ | ​ 3 |  | 0.0 ​ | ​ | ​ 87 |  | 0.6 ​ | ​ |
| **Net loss and comprehensive loss** | **​** | **$(21,761)** |  | **(123.2)%** | **​** | **$(33,540)** |  | **(216.7)%** | **​** |

### Comparison of the three months ended March 31, 2024 and 2023

### Revenue

*(in thousands)*

| ​ ​ | ​ ​ ​ | ​ ​ Three months ended March 31, 2024 | ​ ​ | ​ ​ 2023 | ​ ​ ​ | ​ ​ ​ ​ Change | ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Product |  | $11,291 | ​ | $8,848 | ​ | $2,443 | 27.6% |
| Software and other services |  | ​ 6,365 | ​ | ​ 6,628 | ​ | ​ (263) | (4.0) ​ |
| ​ | ​ | $17,656 | ​ | $15,476 | ​ | $2,180 | 14.1% |

Product revenue increased by $2.4 million, or 27.6%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase was primarily driven by higher device sales across nearly all of our sales channels, including the launch of our next-generation iQ3 probe and its higher selling price.

Software and other services revenue decreased by $0.3 million, or 4.0%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease was primarily driven by lower renewals of individual subscriptions, partially offset by higher enterprise software sales. Enterprise as a percentage of software sales increased by 9 percentage points year-over-year.

### Cost of revenue

*(in thousands)*

| ​ ​ | ​ ​ ​ | ​ ​ ​ Three months ended March 31, 2024 ​ | ​ ​ ​ ​ 2023 ​ | ​ ​ ​ ​ Change | ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | ---: | ---: | ---: |
| Product |  | $5,096 ​ | $4,349 ​ | $747 | 17.2% |
| Software and other services |  | ​ 2,284 ​ | ​ 2,038 ​ | ​ 246 | 12.1 ​ |
| ​ | ​ | $7,380 ​ | $6,387 ​ | $993 | 15.5% |
| Percentage of revenue | ​ | 41.8% | 41.3% |  | ​ |

Cost of product revenue increased by $0.7 million, or 17.2%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase was primarily driven by higher device sales in the current year. Cost of software and other services revenue was higher for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 largely due to increased software amortization of $0.2 million.

### Research and development

*(in thousands)*

| ​ ​ | ​ ​ ​ | ​ ​ ​ Three months ended March 31, 2024 ​ | ​ ​ ​ ​ 2023 ​ | ​ ​ ​ ​ Change | ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | ---: | ---: | ---: |
| Research and development |  | $10,720 | $16,651 | $(5,931) | (35.6)% |
| Percentage of revenue | ​ | 60.7% | 107.6% |  | ​ |

Research and development expenses decreased by $5.9 million, or 35.6%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease was primarily driven by reductions of $4.4 million in personnel costs resulting from our reduction in force in July 2023, $0.8 million in engineering and software costs, and $0.3 million in consulting fees resulting from continued execution of our plan announced to better align our commercial objectives and prioritization with our existing strengths and offerings.

### Sales and marketing

*(in thousands)*

| ​ ​ | ​ ​ ​ | ​ ​ ​ Three months ended March 31, 2024 ​ | ​ ​ ​ ​ 2023 ​ | ​ ​ ​ ​ Change | ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | ---: | ---: | ---: |
| Sales and marketing |  | $10,378 | $10,034 | $344 | 3.4% |
| Percentage of revenue | ​ | 58.8% | 64.8% |  | ​ |

Sales and marketing expenses increased by $0.3 million, or 3.4%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase was primarily driven by a $0.3 million increase in marketing expenses related to the launch of our new iQ3 probe in February 2024.

### General and administrative

*(in thousands)*

| ​ ​ | ​ ​ ​ | ​ ​ ​ Three months ended March 31, 2024 ​ | ​ ​ ​ ​ 2023 ​ | ​ ​ ​ ​ Change | ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | ---: | ---: | ---: |
| General and administrative |  | $10,442 | $11,019 | $(577) | (5.2)% |
| Percentage of revenue | ​ | 59.1% | 71.2% |  | ​ |

General and administrative expenses decreased by $0.6 million, or 5.2%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease was primarily driven by reductions of $1.5 million in personnel costs resulting from our reductions in force over the past year, partially offset by an increase of $1.0 million in stock-based compensation expense due to a prior year adjustment.

### Other

*(in thousands)*

| ​ ​ | ​ ​ ​ | ​ ​ ​ Three months ended March 31, 2024 ​ | ​ ​ ​ ​ 2023 ​ | ​ ​ ​ ​ Change | ​ ​ ​ ​ ​ ​ % Change |
| --- | --- | ---: | ---: | ---: | ---: |
| Other |  | $1,357 | $6,432 | $(5,075) | (78.9)% |
| Percentage of revenue | ​ | 7.7% | 41.6% |  | ​ |

Other decreased by $5.1 million, or 78.9%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease was primarily driven by the nonrecurrence of $3.7 million of employee severance and benefits costs related to our January 2023 reduction in force that were incurred in the prior year and a reduction of $1.4 million in legal costs due to litigation and other legal matters. These costs are not representative of our ongoing operations.

### Liquidity and Capital Resources

Since our inception, our primary sources of liquidity are cash flows from operations, proceeds from the Business Combination and issuances of preferred stock and convertible notes. Our primary uses of liquidity are operating expenses, working capital requirements and capital expenditures. The Company has incurred net losses and negative cash flows from operating activities in each year since inception, and we expect to continue to incur losses and negative cash flows for a few years as we continue to commercialize existing and new products and services. We expect that our existing cash and cash flows from operations will be sufficient to meet our liquidity, capital expenditure, and anticipated working capital requirements and fund our operations for at least the next 12 months.

During the three months ended March 31, 2024, the Company utilized $21.8 million of cash and cash equivalents. In the first quarter, we paid $6.3 million of bonuses and $1.4 million of legal payments due to litigation and other legal matters. As of March 31, 2024, our cash and cash equivalents balance was $112.7 million. Our future spending on capital resources may vary from those currently planned and will depend on various factors, including our rate of revenue growth and the timing and extent of spending on strategic business initiatives.

As of March 31, 2024, we have restricted cash of $4.0 million to secure a letter of credit for one of our leases, which is expected to be maintained as a security deposit for the duration of the lease. In addition, we have restricted cash of $0.2 million for an agreement with the Gates Foundation. The restriction is expected to lapse as we fulfill our obligations in the agreement with the Gates Foundation.

Our material cash requirements include contractual obligations with third parties for office leases, technology licensing agreements, and inventory supply agreements. Our fixed office lease payment obligations were $30.7 million as of March 31, 2024, with $3.6 million payable within the next 12 months. Our fixed technology license payment obligations were $15.5 million as of March 31, 2024, with $1.5 million payable within the next 12 months. Our fixed purchase obligations for inventory supply agreements were $12.5 million as of March 31, 2024, with $9.0 million payable within the next 12 months. We expect to pay for approximately 15% of the amount payable within the next 12 months using vendor advances.

As of March 31, 2024, we had no obligations, assets or liabilities, which would be considered off-balance sheet arrangements.

### Cash flows

### Comparison of the three months ended March 31, 2024 and 2023

The following table summarizes our sources and uses of cash for the three months ended March 31, 2024 and 2023:

*(in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ Three months ended March 31, 2024 | ​ ​ ​ ​ 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(20,667) | $(43,252) |
| Net cash (used in) provided by investing activities | ​ (1,138) | ​ 74,855 |
| Net cash provided by financing activities | ​ — | ​ — |
| Net decrease in cash, cash equivalents and restricted cash | $(21,805) | $31,603 |

### Net cash used in operating activities

Net cash used in operating activities represents the cash receipts and disbursements related to our activities other than investing and financing activities. We expect cash provided by historical financing activities will continue to be our primary source of funds to support operating and capital expenditure needs for the foreseeable future.

Net cash used in operating activities decreased by $22.6 million, or 52.2%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The decrease was driven by reductions of $14.8 million in net loss adjusted for certain non-cash items and $7.9 million in net working capital cash usage. The decrease in net loss adjusted for certain non-cash items was primarily driven by a reduction of $11.8 million in net loss and higher adjustments for stock-based compensation expense and other non-cash items. The decrease in net working capital cash usage was primarily driven by reductions of $6.3 million in cash used for changes in our inventory and the related vendor advances and accrued purchase commitments, $2.8 million in cash used for changes in our prepaid expenses and other assets, and $0.7 million in cash used for changes in accounts payable and accrued expenses, partially offset by a $1.8 million increase in cash used for changes in accounts receivable.

### Net cash used in investing activities

Net cash provided by investing activities decreased by $76.0 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase was primarily due to the sale of our marketable securities in 2023.

### Net cash provided by financing activities

We did not have any significant financing activities during the three months ended March 31, 2024 and 2023.

### Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, contingent assets and liabilities, and related disclosures. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, and these form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to the critical accounting policies and estimates disclosed in our 2023 Annual Report on Form 10-K.

### Recently Adopted Accounting Pronouncements

The Company did not identify any significant recently issued accounting pronouncements that may potentially impact our financial position and results of operations.

## Market risk

As filed, 1,562 characters.

### Interest Rate Risk

We did not have any floating rate debt as of March 31, 2024. Our cash and cash equivalents are comprised primarily of bank deposits and money market accounts. The primary objective of our investments is the preservation of capital to fulfill liquidity needs. We do not enter into investments for trading or speculative purposes. Due to the short-term nature and low risk profile of these investments, we do not expect cash flows to be affected to any significant degree by a sudden change in market interest rates, including an immediate change of 100 basis points, or one percentage point. Declines in interest rates, however, would reduce future investment income.

### Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations, other than its impact on the general economy. Nonetheless, to the extent our costs are impacted by general inflationary pressures, we may not be able to fully offset such higher costs through price increases or manufacturing efficiencies. Our inability or failure to do so could harm our business, financial condition, and results of operations.

### Foreign Exchange Risk

We operate our business primarily within the United States and currently execute the majority of our transactions in U.S. dollars. We have not utilized hedging strategies with respect to such foreign exchange exposure. This limited foreign currency translation risk is not expected to have a material impact on our condensed consolidated financial statements.

## Controls and procedures

As filed, 2,086 characters.

### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial & Operating Officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial & Operating Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 323 characters.

Our business, results of operations, and financial condition are subject to various risks and uncertainties including the risk factors described under the caption “Risk Factors” in our 2023 Annual Report on Form 10-K. There have been no material changes to the risk factors described in the 2023 Annual Report on Form 10-K.

Filed May 1, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-006395. Last ingested by Listed: Nov 5, 2026, 13:52 ET. No prices; not investment advice.