Polaris Inc.: Form 10-Q for the period ended Jun 30, 2023

The following discussion pertains to the results of operations and financial position of Polaris Inc., a Delaware corporation, for the three and six month period ended June 30, 2023 compared to the three and six month period ended June 30, 2022. The terms “Polaris,” the “Company,” “we,” “us,” and “our” as used herein refer to the business and operations of Polaris Inc., its subsidiaries and its predecessors, which began doing business in 1954. We design, engineer and manufacture powersports vehicles, which include: off-road vehicles (“ORV”), including all-terrain vehicles (“ATV”) and side-by-side vehicles; military and commercial off-road vehicles; snowmobiles; motorcycles; moto-roadsters; quadricycles; boats; and related Parts, Garments and Accessories (“PG&A”), which includes aftermarket accessories and apparel. Due to the seasonality of certain products and to certain changes in production and shipping cycles, results of such periods are not necessarily indicative of the results to be expected for the complete year. Unless otherwise noted, all “quarter” comparisons are from the second quarter of 2023 to the second quarter of 2022 and all “year-to-date” comparisons are from the six month period ended June 30, 2023 to the six month period ended June 30, 2022. Estimates related to industry retail sales are unaudited and based on internally-generated management estimates, including estimates based on extrapolations from third-party surveys of the industries in which we compete, and are subject to change.

Overview

Second quarter sales totaled $2,216.6 million, an increase of seven percent from last year’s second quarter sales of $2,062.8 million. Our second quarter sales to customers in North America increased eight percent and our sales to customers outside of North America increased six percent. The increase in sales in the quarter was driven primarily by increased shipments and higher net pricing, partially offset by higher finance interest.

Our gross profit of $505.0 million increased six percent from $474.4 million in the comparable prior year second quarter. Gross profit, as a percentage of sales, decreased primarily due to higher finance interest, warranty, and labor costs, as well as unfavorable foreign currency exchange rate movement, partially offset by higher net pricing and lower logistics costs.

Net income from continuing operations attributable to Polaris was $134.3 million, or $2.32 per diluted share, compared to 2022 second quarter net income from continuing operations attributable to Polaris of $141.8 million, or $2.34 per diluted share. The decrease in net income from continuing operations was primarily driven by higher operating expenses, including research and development and marketing costs. We reported second quarter Adjusted EBITDA of $265.5 million, compared to 2022 second quarter Adjusted EBITDA of $254.9 million. For information on how we define and calculate Adjusted EBITDA and a reconciliation of net income from continuing operations to Adjusted EBITDA, see “Non-GAAP Financial Measures”.

During the third quarter of 2022, we completed the sale of our Transamerican Auto Parts (“TAP”) business, an aftermarket parts business. The results of TAP have been presented as discontinued operations for all periods presented.

Consolidated Results of Operations

The consolidated results of operations were as follows:

($ in millions except percentages and share data)

23

Sales:

The sales growth for the quarter and year-to-date periods was driven primarily by increased shipments, favorable product mix, and higher net pricing, partially offset by higher finance interest.

The components of the consolidated sales change were as follows:

Volume increases for the quarter and year-to-date periods were primarily driven by increased ORV and Indian Motorcycle shipments. Product mix and price for the quarter and year-to-date periods was favorable as a result of a higher sales mix of premium ORV models.

Sales by geographic region were as follows:

($ in millions)

Sales in the United States increased during the quarter and year-to-date periods driven by increased shipments, favorable product mix, and and higher net pricing, partially offset by higher finance interest.

Sales in Canada decreased during the quarter and year-to-date periods primarily driven by unfavorable foreign currency exchange rate movement, partially offset by favorable product mix. Currency rate movements had an unfavorable impact of five percentage points on both quarter and year-to-date sales.

Sales in other countries, primarily in Europe, increased during the quarter and year-to-date periods primarily driven by favorable product mix, partially offset by lower ORV and Indian Motorcycle shipments. Currency rate movements had a favorable impact of one percentage point on quarter sales and an unfavorable impact of two percentage points on year-to-date sales.

Cost of Sales:

The following table reflects our cost of sales in dollars and as a percentage of sales:

($ in millions)

Cost of sales increased during the quarter and year-to-date periods primarily due to increased shipments and higher warranty and labor costs, partially offset by lower logistics costs.

Gross Profit:

Consolidated gross profit for the quarter, as a percentage of sales, decreased primarily due to higher finance interest, warranty, and labor costs, as well as unfavorable foreign currency exchange rate movement, partially offset by higher net pricing and lower logistics costs. Consolidated gross profit for the year-to-date period, as a percentage of sales, increased primarily due to higher net pricing and lower input costs, partially offset by higher finance interest, warranty, and labor costs, as well as unfavorable foreign currency exchange rate movement.

Operating Expenses:

Operating expenses, in absolute dollars and as a percentage of sales, increased for the quarter and year-to-date periods due to higher selling and marketing and general and administrative expenses.

Income from Financial Services:

Income from financial services increased for the quarter and year-to-date periods, primarily due to higher wholesale financing income from Polaris Acceptance driven by higher dealer inventory levels.

Interest Expense:

Interest expense increased for the quarter and year-to-date periods due to higher debt levels and higher interest rates.

Other (income) expense, net:

Other (income) expense is primarily the result of currency exchange rate movements and the corresponding effects on currency transactions related to the Company’s international subsidiaries.

Provision for income taxes:

The increase in the effective income tax rate for the quarter is primarily due to unfavorable impacts related to certain amended income tax returns, partially offset by favorable state income tax credits recorded during the quarter.

The increase in the effective income tax rate for the year-to-date period is primarily due to a decrease in excess tax benefits related to share based compensation, unfavorable impacts related to certain amended income tax returns and state income tax audit adjustments. These increases were partially offset by favorable state income tax credits recorded during the period.

Adjusted EBITDA:

Adjusted EBITDA, in absolute dollars, increased during the quarter primarily due to higher net pricing and increased shipments, partially offset by higher finance interest and operating expenses. Adjusted EBITDA, as a percentage of sales, decreased during the quarter as the impact of higher finance interest and operating expenses more than offset higher net pricing and the increase in shipments.

Adjusted EBITDA, in absolute dollars and as a percentage of sales, increased during the year-to-date period primarily due to higher net pricing and increased shipments, partially offset by higher finance interest and operating expenses.

For information on how we define and calculate Adjusted EBITDA and a reconciliation of net income from continuing operations to Adjusted EBITDA, see “Non-GAAP Financial Measures”.

Weighted average diluted shares outstanding:

Over the time period within and between the comparable periods, weighted average diluted shares outstanding decreased compared to the comparable prior year periods, primarily due to share repurchases.

Cash Dividends:

We paid a regular cash dividend of $0.65 per common share on June 15, 2023 to holders of record at the close of business on June 1, 2023. We paid aggregate cash dividends of $1.30 per common share for the six months ended June 30, 2023.

Segment Results of Operations

On January 1, 2022, the Company began management of its portfolio of businesses under a new basis as a result of the divestiture of the GEM and Taylor-Dunn businesses. As a such, the Global Adjacent Markets segment was eliminated and the results of the Company’s remaining businesses historically included within the Global Adjacent Markets segment were reclassified to the Off Road and On Road segments. All historical segment results were reclassified for comparability.

On June 30, 2022, the Company again began management of its portfolio of businesses under a new basis as a result of the divestiture of TAP. As such, the Aftermarket segment was eliminated and the results of the Company’s remaining aftermarket businesses historically included within the Aftermarket segment were reclassified to the Off Road and On Road segments. All historical segment results were reclassified for comparability.

The summary that follows provides a discussion of the results of operations of each of our three reportable segments, Off Road, On Road, and Marine. Each of these segments is comprised of various product offerings that serve multiple end markets. We evaluate performance based on sales and gross profit. The Corporate amounts include costs that are not allocated to segments, including certain unallocated manufacturing costs. Businesses that are presented as discontinued operations are excluded from the tables below.

Our sales and gross profit by reporting segment, which includes the respective PG&A, were as follows:

($ in millions)

($ in millions)

Off Road:

Off Road sales, inclusive of PG&A sales, increased for the quarter and year-to-date periods driven by increased shipments, favorable product mix, and higher net pricing, partially offset by higher finance interest. The average per unit sales price for the Off Road segment increased approximately one percent and six percent for the quarter and year-to-date periods, respectively, driven by favorable product mix and higher net pricing.

Off Road sales to customers outside of North America decreased five percent for the quarter driven by lower shipments. Off Road sales to customers outside of North America increased one percent for year-to-date period driven by higher net pricing.

Gross profit, as a percentage of sales, decreased during the quarter, primarily due to higher warranty costs, higher finance interest, and unfavorable product mix, partially offset by lower logistics and commodity costs. Gross profit, as a percentage of sales, was approximately flat during the year-to-date period.

Additional information on our end markets for the quarter:

• Polaris North America ATV unit retail sales up high-teens percent
• Polaris North America side-by-side unit retail sales up low-double digits percent
• Total Polaris North America ORV unit retail sales up mid-teens percent
• Estimated North America industry ORV unit retail sales up high-single digits percent
• Total Polaris North America ORV dealer inventories up approximately 190 percent

On Road:

On Road sales, inclusive of PG&A sales, increased for the quarter and year-to-date periods primarily due to increased shipments, partially offset by higher finance interest. The average per unit sales price for the On Road segment increased approximately 11 percent and seven percent for the quarter and year-to-date periods, respectively, primarily due to favorable product mix.

On Road sales to customers outside of North America increased 20 percent and 25 percent for the quarter and year-to-date periods, respectively, primarily due to higher Indian Motorcycle shipments and favorable product mix.

Gross profit, as a percentage of sales, increased for the quarter and year-to-date periods, driven by favorable product mix, lower logistics costs, and higher volumes, partially offset by higher finance interest.

Additional information on our end markets for the quarter:

• Indian Motorcycle North America unit retail sales up low-forties percent
• Estimated North America industry 900cc cruiser, touring, and standard motorcycles unit retail sales up low-single digits percent
• Polaris North America motorcycle dealer inventories up approximately 175 percent

Marine:

Marine sales decreased for the quarter primarily due to decreased shipments and unfavorable product mix, partially offset by favorable net pricing. Marine sales increased for the year-to-date period primarily due to favorable net pricing, mostly offset by unfavorable product mix. The average per unit sales price for the Marine segment was flat for the quarter and increased approximately three percent for the year-to-date period, primarily due to favorable net pricing.

Gross profit, as a percentage of sales, increased during the quarter and year-to-date periods, primarily due to favorable net pricing and prudent cost management, partially offset by higher promotional costs.

Additional information on our end markets for the quarter:

• Polaris U.S pontoon unit retail sales down mid-single digits percent
• Estimated U.S. industry pontoon unit retail sales down mid-single digits percent
• Polaris U.S deck boat unit retail sales down mid-single digits percent
• Estimated U.S. industry deck boat unit retail sales down low-twenties percent

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use the non-GAAP financial measure of Adjusted EBITDA, which is defined as net income from continuing operations, excluding interest expense, income tax expense, depreciation and amortization, and certain other non-cash, non-recurring, or non-operating items impacting net income from continuing operations from time to time. For example, costs associated with our multi-phase supply chain transformation initiative and certain corporate restructuring activities, such as divestitures, are included as non-GAAP adjustments. We use the non-GAAP financial measure of Adjusted EBITDA Margin, which is defined as Adjusted EBITDA divided by net sales. We believe that Adjusted EBITDA and Adjusted EBITDA Margin help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude from Adjusted EBITDA and Adjusted EBITDA Margin.

We believe that these measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to key metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP measures to assist investors in seeing our financial performance through the eyes of management, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA has limitations and should not be considered in isolation from, as a substitute for, or more meaningful than, net income from continuing operations as determined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance. Our presentation of Adjusted EBITDA and Adjusted EBITDA Margin should not be construed as an inference that our results will be unaffected by unusual or non-recurring items.

The following table presents a reconciliation of net income from continuing operations, the most comparable GAAP financial measure, to Adjusted EBITDA for each of the periods presented:

($ in millions)

(1) Represents adjustments for corporate restructuring, network realignment costs, and supply chain transformation costs

(2) Represents adjustments for certain class action litigation-related expenses

Liquidity and Capital Resources

Our primary sources of funds have been cash provided by operating and financing activities. Our primary uses of funds have been for acquisitions, repurchases and retirement of common stock, capital investments, new product development and cash dividends to shareholders. The seasonality of production and shipments cause working capital requirements to fluctuate during the year and year to year.

We believe that existing cash balances, cash flow to be generated from operating activities and borrowing capacity under the credit facility arrangement will be sufficient to fund operations, new product development, cash dividends, share repurchases, and capital requirements for at least the next 12 months and for the foreseeable future thereafter.

Cash Flows

The following table summarizes the cash flows from operating, investing and financing activities of continuing operations:

($ in millions)

Operating Activities:

The increase in net cash provided by operating activities of continuing operations was primarily the result of lower working capital additions and higher net income from continuing operations.

Investing Activities:

The primary uses of cash were for the purchase of property, equipment and tooling for continued capacity and capability at our manufacturing and distribution facilities and for product development, and distributions from and contributions to Polaris Acceptance. Net cash used for investing activities of continuing operations increased due to an increase in property, equipment and tooling purchases.

Financing Activities:

The increase in net cash used for financing activities was primarily due to decreased net borrowings under debt arrangements, partially offset by lower share repurchases. We recorded $1.0 million of net borrowings for the six months ended June 30, 2023, compared to $217.5 million of net borrowings for the comparable period in 2022.

Financing Arrangements:

We are party to an unsecured Master Note Purchase Agreement, as amended and supplemented, under which we have issued senior notes. As of June 30, 2023, outstanding borrowings under the Master Note Purchase Agreement totaled $350.0 million.

We are also party to an unsecured credit facility, which includes a $1.0 billion variable interest rate Revolving Loan Facility that matures in June 2026, under which we have unsecured borrowings. As of June 30, 2023, there were borrowings of $341.3 million outstanding under the Revolving Loan Facility. Our credit facility also includes a Term Loan Facility, on which $804.0 million was outstanding as of June 30, 2023. Interest is charged at rates based on adjusted Term SOFR for the credit facility. As of June 30, 2023, we had $651.2 million of availability on the Revolving Loan Facility.

In December 2021, the Company amended the credit facility to provide an unsecured incremental 364-day term loan (the “Incremental Term Loan”) in the amount of $500 million, which was fully drawn on closing. In December 2022, the Company further amended its credit facility to extend the maturity date of the Incremental Term Loan to December 15, 2023. There are no required principal payments prior to the maturity date. In addition to the payment of the $500 million Incremental Term Loan, the Company is required to make principal payments under the Term Loan Facility totaling $45 million over the next 12 months.

The agreements governing the facility and the Master Note Purchase Agreement contain covenants that require the Company to maintain certain financial ratios, including minimum interest coverage and maximum leverage ratios. The agreements also require the Company to maintain an interest coverage ratio of not less than 3.00 to 1.00 and a leverage ratio of not more than 3.50 to 1.00 on a rolling four quarter basis.

On July 2, 2018, pursuant to the Agreement and Plan of Merger dated May 29, 2018, the Company completed the acquisition of Boat Holdings, LLC, a privately held Delaware limited liability company, headquartered in Elkhart, Indiana which manufactures boats (“Boat Holdings”). As a component of the Boat Holdings merger agreement, we have committed to make a series of deferred payments to the former owners through July 2030. The original discounted payable was for $76.7 million, of which $55.3 million was outstanding as of June 30, 2023.

As of June 30, 2023, we were in compliance with all debt covenants and our debt to total capital ratio was 62 percent. Additionally, as of June 30, 2023, we had letters of credit outstanding of $36.8 million, primarily related to purchase obligations for raw materials.

Share Repurchases:

As of June 30, 2023, our Board of Directors has authorized us to repurchase up to an additional $262.2 million of our common stock. We repurchased a total of 0.9 million shares of our common stock for $101.1 million during the first six months of 2023, which had a favorable impact on diluted net income from continuing operations per share of three cents.

Wholesale Customer Financing Arrangements:

We have arrangements with certain finance companies to provide secured floor plan financing for our dealers. These arrangements provide liquidity by financing dealer purchases of our products without the use of our working capital. A majority of the worldwide sales of snowmobiles, ORVs, motorcycles, boats and related PG&A are financed under similar arrangements whereby we receive payment within a few days of shipment of the product. We participate in the cost of dealer financing up to certain limits.

Under these arrangements, we have agreed to repurchase products repossessed by these finance companies. As of June 30, 2023, the potential aggregate repurchase obligations were approximately $465.4 million. Our financial exposure under these repurchase agreements is limited to the difference between the amounts unpaid by the dealer with respect to the repossessed product plus costs of repossession and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements during the periods presented.

Retail Customer Financing Arrangements:

We have agreements with third-party financing companies to provide financing options to end consumers of our products. We have no material contingent liabilities for residual value or credit collection risk under these agreements.

Critical Accounting Policies

See our most recent Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our critical accounting policies. There have been no material changes to our critical accounting policies discussed in such report.

Note Regarding Forward Looking Statements

This report contains not only historical information, but also “forward-looking statements” intended to qualify for the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These “forward-looking statements” can generally be identified as such because the context of the statement will include words such as we or our management “believes,” “should,” “anticipates,” “expects,” “estimates” or words of similar import. Similarly, statements that describe our future plans or trends, objectives or goals, such as future sales, shipments, inventory levels, consumer demand, net income, net income per share, future cash flows and capital requirements, operational initiatives, pricing actions, tariffs, currency fluctuations, interest rates, and commodity costs, are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those forward-looking statements, are also forward-looking. Forward-looking statements may also be made from time to time in oral presentations, including telephone conferences and/or webcasts open to the public.

Potential risks and uncertainties include such factors as the severity and duration of the supply-chain related constraints currently impacting the Company; the Company’s ability to successfully source necessary parts and materials on a timely basis; the ability of the Company to manufacture and deliver products to dealers to meet demand; the Company’s ability to identify and meet optimal dealer inventory levels; the Company’s ability to accurately forecast and sustain consumer demand; the Company’s ability to mitigate increasing input costs through pricing or other measures; the pandemic and the resulting impact on the Company’s business, supply chain, and the global economy; the Company’s ability to successfully implement its manufacturing operations strategy and supply chain initiatives; product offerings, promotional activities and pricing strategies by competitors that make our products less attractive to consumers; our ability to strategically invest in innovation and new products, including as compared to our competitors; economic conditions that impact consumer spending or consumer credit including recessionary conditions; disruptions in manufacturing facilities; product recalls and/or warranty expenses; product rework costs; impact of changes in Polaris stock price on incentive compensation plan costs; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; commodity costs; freight and tariff costs (tariff relief or ability to mitigate tariffs); changes to international trade policies and agreements;

uninsured product liability and class action claims, including claims seeking punitive damages, and other litigation expenses incurred due to the nature of our business; uncertainty in the retail and wholesale credit markets; performance of affiliate partners; changes in tax policy; relationships with dealers and suppliers; and the general overall global economic, social and political environment.

The risks and uncertainties discussed in this report are not exclusive and other factors that we may consider immaterial or do not anticipate may emerge as significant risks and uncertainties.

Any forward-looking statements made in this report or otherwise speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures made on related subjects in future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that are filed with or furnished to the Securities and Exchange Commission.

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a complete discussion on the Company’s market risk. There have been no material changes in market risk from those disclosed in the Company’s Form 10-K for the year ended December 31, 2022. Refer below for further discussion on commodity cost risk, foreign currency exchange rate risk, and interest rate risk.

Inflation:

We are subject to market risk from fluctuating market prices of certain purchased commodities and raw materials, including steel, aluminum, petroleum-based resins, certain rare earth metals and diesel fuel. In addition, we are a purchaser of components and parts containing various commodities, including steel, aluminum, rubber and others, which are integrated into our end products. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We generally buy these commodities and components based upon market prices that are established with the vendor as part of the purchase process. Based on our current outlook for commodity prices, the total impact of commodities, including tariff costs, is expected to have a positive impact on our gross profit margins for full-year 2023 when compared to 2022.

Foreign Exchange Rates:

The changing relationships of the U.S. dollar to foreign currencies can have a material impact on our financial results.

Euro: We have operations in the Eurozone through wholly owned subsidiaries and distributors. We also purchase components from certain suppliers directly for our U.S. operations in transactions denominated in Euros. Fluctuations in the Euro to U.S. dollar exchange rate impacts sales, cost of sales, and net income.

Canadian Dollar: We operate in Canada through a wholly owned subsidiary. The relationship of the U.S. dollar in relation to the Canadian dollar impacts both sales and net income.

Other currencies: We operate in various countries, principally in Europe, Mexico and Australia, through wholly owned subsidiaries. We also sell to certain distributors in other countries. We also purchase components from certain suppliers directly for our U.S. operations in transactions denominated in these foreign currencies. The relationship of the U.S. dollar in relation to these other currencies impacts sales, cost of sales and net income.

We actively manage our exposure to fluctuating foreign currency exchange rates by entering into foreign exchange hedging contracts. A portion of our foreign currency exposure is mitigated with the following open foreign currency hedging contracts as of June 30, 2023:

During the quarter and year-to-date periods ended June 30, 2023, after consideration of the existing foreign currency hedging contracts, foreign currencies had a negative impact on net income compared to 2022. We expect currencies to have a negative impact on full-year net income from continuing operations in 2023 compared to 2022.

The assets and liabilities in all our international entities are translated at the foreign exchange rate in effect at the balance sheet date. Translation gains and losses are reflected as a component of accumulated other comprehensive loss, net in the shareholders’ equity section of the consolidated balance sheets. Revenues and expenses in all of our international entities are translated at the average foreign exchange rate in effect for each month of the year. Certain assets and liabilities related to intercompany positions reported on our consolidated balance sheet that are denominated in a currency other than the entity’s functional currency are translated at the foreign exchange rates at the balance sheet date and the associated gains and losses are included in net income.

Interest Rates:

We are a party to an unsecured credit facility with various lenders consisting of a $1.0 billion revolving loan facility, a $1.2 billion term loan facility, and a $500 million incremental term loan. Interest accrues on the revolving loan, term loans, and the incremental term loan at variable rates based on adjusted Term SOFR plus the applicable add-on percentage as defined. As of June 30, 2023, there was $341.3 million outstanding on the revolving loan, $804.0 million outstanding on the term loan, and $500 million outstanding on the incremental term loan. We enter into interest rate swaps in order to maintain a balanced risk of fixed and floating interest rates associated with our debt. We expect interest rates to have a negative impact on full-year net income from continuing operations in 2023 compared to 2022.

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (2) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

Changes in Internal Controls

There have been no changes in the Company’s internal control over financial reporting during the latest fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Please consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes or additions to our risk factors discussed in such report, which could materially affect the Company’s business, financial condition, or future results.