Repligen(RGEN) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (interim periods unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, income, equity, cash flows, and detailed accounting notes Condensed Consolidated Balance Sheets The balance sheets reflect a slight increase in total assets and stockholders' equity, with a minor decrease in cash and cash equivalents | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | :-------------------- | | Cash and cash equivalents | $516,609 | $523,458 | $(6,849) | | Accounts receivable, net | $133,488 | $116,247 | $17,241 | | Inventories, net | $244,704 | $238,277 | $6,427 | | Total current assets | $1,018,803 | $998,118 | $20,685 | | Total assets | $2,538,234 | $2,524,658 | $13,576 | | Total current liabilities | $405,321 | $404,196 | $1,125 | | Total liabilities | $597,742 | $613,958 | $(16,216) | | Total stockholders' equity | $1,940,492 | $1,910,700 | $29,792 | Condensed Consolidated Statements of Comprehensive Income Reports a significant year-over-year decrease in total revenue, operating income, and net income for Q1 2023, despite increased investment income | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :-------- | | Total revenue | $182,660 | $206,400 | $(23,740) | (11.5%) | | Income from operations | $31,256 | $60,000 | $(28,744) | (47.9%) | | Investment income | $5,486 | $77 | $5,409 | 7024.7% | | Net income | $28,829 | $46,964 | $(18,135) | (38.6%) | | Basic EPS | $0.52 | $0.85 | $(0.33) | (38.8%) | | Diluted EPS | $0.51 | $0.81 | $(0.30) | (37.0%) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased from Q4 2022 to Q1 2023, primarily due to net income and a positive foreign currency translation adjustment - Total stockholders' equity increased from $1,910,700 thousand to $1,940,492 thousand from December 31, 2022, to March 31, 2023[9] - Net income contributed $28,829 thousand to equity in Q1 2023[9] - A foreign currency translation adjustment resulted in a gain of $3,273 thousand in Q1 2023, a positive shift from a loss of $4,688 thousand in Q1 2022[9] Condensed Consolidated Statements of Cash Flows Operating cash flows decreased significantly year-over-year, while investing and financing activities also changed, leading to a smaller net decrease in cash | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Net cash provided by operating activities | $11,154 | $23,113 | $(11,959) | | Net cash used in investing activities | $(9,433) | $(28,214) | $18,781 | | Net cash used in financing activities | $(9,563) | $(12,021) | $2,458 | | Effect of exchange rate changes on cash | $993 | $(2,052) | $3,045 | | Net decrease in cash, cash equivalents | $(6,849) | $(19,174) | $12,325 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's financial reporting, covering accounting policies, fair value, revenue, asset valuations, debt, equity, taxes, EPS, and segment performance 1. Summary of Significant Accounting Policies Outlines the basis of financial statement preparation, impact of economic uncertainties, and changes in accounting policies - Financial statements are prepared in accordance with GAAP and SEC rules for Form 10-Q, and should be read in conjunction with the 2022 Form 10-K[14] - Estimates and assumptions are more difficult to calculate due to business and economic uncertainties from COVID-19, the Russia-Ukraine conflict, supply chain challenges, cost pressure, and high inflation[15] - No material changes in significant accounting policies, except for the Convertible Senior Notes policy adopted effective January 1, 2022, as required by ASU 2020-06[17] 2. Fair Value Measurements Explains the company's three-level fair value hierarchy and details fair value measurements for various assets and liabilities - The company uses a three-level fair value hierarchy: Level 1 (unadjusted quoted prices in active markets), Level 2 (quoted prices for similar assets/liabilities), and Level 3 (unobservable inputs)[20] | Asset/Liability | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Cash and money market funds | $516,609 | $523,458 | | Marketable securities (U.S. treasury bills) | $101,409 | $100,299 | | Short-term contingent consideration | $27,834 | $13,950 | | Long-term contingent consideration | $38,910 | $51,559 | - Contingent consideration (Level 3 liability) increased to $66,744 thousand at March 31, 2023, from $65,509 thousand at December 31, 2022, due to a change in market inputs used to calculate the discount rate[24] 3. Revenue Recognition Details product and royalty revenue, noting a year-over-year decrease in product revenue due to reduced COVID-19 related demand and unfavorable foreign exchange rates | Revenue Type | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :------------- | :--------------------------------------- | :--------------------------------------- | | Product revenue | $182,621 | $206,363 | | Royalty and other income | $39 | $37 | | Total revenue | $182,660 | $206,400 | - Product revenue decreased by $23.7 million (11.5%) year-over-year, primarily due to a decrease in revenue from COVID-19 related programs and unfavorable foreign exchange rates[26][80] | Contract Balance | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------- | :------------------------------ | :------------------------------- | | Accounts receivable | $133,488 | $116,247 | | Deferred revenue | $18,821 | $19,631 | 4. Goodwill and Intangible Assets Reports a slight increase in goodwill and details net carrying values and amortization expense for intangible assets, with no impairment identified - Goodwill increased slightly to $856,301 thousand at March 31, 2023, from $855,513 thousand at December 31, 2022, primarily due to cumulative translation adjustment[29] - No impairment of goodwill or intangible assets was identified for the three months ended March 31, 2023[30][31] | Intangible Asset Type | March 31, 2023 Net Carrying Value (in thousands) | December 31, 2022 Net Carrying Value (in thousands) | | :---------------------- | :----------------------------------------------- | :----------------------------------------------- | | Total finite-lived intangible assets | $345,895 | $352,976 | | Indefinite-lived intangible asset (Trademarks) | $700 | $700 | | Total intangible assets, net | $346,595 | $353,676 | - Amortization expense for finite-lived intangible assets was $7.4 million for Q1 2023, up from $6.6 million for Q1 2022[31] 5. Consolidated Balance Sheet Detail Provides detailed breakdowns of inventories, property, plant and equipment, and accrued liabilities, noting a decrease in accrued liabilities | Item | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :------------------------------ | :------------------------------- | | Inventories, net | $244,704 | $238,277 | | Property, plant and equipment, net | $192,692 | $190,673 | | Accrued liabilities | $58,055 | $71,120 | - Accrued liabilities decreased primarily due to lower employee compensation payments during Q1 2023[34][114] 6. Convertible Senior Notes Details the 0.375% Convertible Senior Notes due 2024, including their convertibility, carrying amount, fair value, and associated interest expense - The 0.375% Convertible Senior Notes due 2024 are convertible at the option of holders during Q2 2023, as conditions were met for the first quarter[36][37] | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Net carrying amount of 2019 Notes | $285,072 | $284,615 | | Fair value of 2019 Notes | $441,800 | $452,000 | | Interest Expense Type | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :---------------------- | :--------------------------------------- | :--------------------------------------- | | Contractual interest expense | $270 | $270 | | Amortization of debt issuance costs | $457 | $452 | | Total | $727 | $722 | 7. Stockholders' Equity Details available shares for future grants, total stock-based compensation expense, and unrecognized compensation cost related to unvested awards - 1,739,335 shares were available for future grants under the 2018 Stock Option and Incentive Plan at March 31, 2023[39] | Expense Type | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | | Total stock-based compensation | $7,254 | $7,915 | - As of March 31, 2023, there was $81.4 million of total unrecognized compensation cost related to unvested share-based awards, expected to be recognized over a weighted average remaining service period of 3.07 years[46] 8. Commitments and Contingencies Outlines collaboration agreements, including royalty payments, and notes the company is not aware of any material adverse litigation - The company has collaboration agreements, including with Navigo Proteins GmbH for exclusive co-development of affinity ligands, such as NGL-Impact® and NGL-Impact® HipH[48] | Item | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :---------------- | :-------------------------------------- | :-------------------------------------- | | Royalty payments to Navigo | $1.1 | $0.4 | - The company is subject to litigation in the normal course of operations but is not currently aware of any proceedings or claims that would have a material adverse effect[49] 9. Income Taxes Reports the income tax provision and effective tax rate, explaining the decrease in rate due to lower income and increased tax benefits | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------- | :-------------------------------- | :-------------------------------- | | Income tax provision | $7.3 million | $12.0 million | | Effective tax rate | 20.1% | 20.3% | - The decrease in the effective tax rate was primarily due to lower income before taxes and increased benefits from business tax credits and windfall benefits recognized on stock option exercises and vesting of stock units[50] - The Inflation Reduction Act of 2022 had no material effect on the company's consolidated financial position or results of operations[51] 10. Earnings Per Share Presents basic and diluted EPS, along with diluted potential common shares, and explains the impact of the 2019 Notes conversion election | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------- | :-------------------------------- | :-------------------------------- | | Basic EPS | $0.52 | $0.85 | | Diluted EPS | $0.51 | $0.81 | | Diluted potential common shares | 1,459 thousand | 3,463 thousand | - The company irrevocably elected to settle the conversion obligation for the 2019 Notes in a combination of cash (par value) and shares (excess conversion premium), impacting diluted EPS calculation under ASU 2020-06[55] 11. Related Party Transactions Details rent expense incurred for facilities leased from a related party, the Roy T. Eddleman Living Trust - The company incurred $0.2 million in rent expense for each of the three months ended March 31, 2023 and 2022, related to facilities leased from the Roy T. Eddleman Living Trust, a related party[57] 12. Segment Reporting Confirms the company operates as one bioprocessing segment and provides revenue breakdown by geographic region and major customer - The company operates as one reportable bioprocessing segment[58] | Geographic Region | Q1 2023 Revenue % | Q1 2022 Revenue % | | :------------------ | :---------------- | :---------------- | | North America | 38% | 40% | | Europe | 39% | 43% | | APAC/Other | 23% | 17% | | Total revenue | 100% | 100% | - Revenue from Pfizer, Inc. was $20.1 million (11.0% of total revenue) for Q1 2023, and $21.1 million (10.2%) for Q1 2022[61] 13. Subsequent Event Reports the acquisition of FlexBiosys, Inc. on April 17, 2023, which expands the company's fluid management portfolio with single-use bioprocessing products - On April 17, 2023, the company acquired FlexBiosys, Inc., which offers single-use bioprocessing products (bags, bottles, tubing assemblies)[63][64] - The FlexBiosys acquisition is expected to complement and expand Repligen's fluid management portfolio[64] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial performance, revenue trends, cost drivers, macroeconomic impacts, liquidity, non-GAAP measures, and capital plans Overview Describes Repligen as a global life sciences company focused on innovative bioprocessing technologies and systems for biological drug manufacturing - Repligen is a global life sciences company focused on developing and commercializing innovative bioprocessing technologies and systems for manufacturing biological drugs[67] - The company operates as one bioprocessing business, offering a comprehensive suite of products for upstream and downstream processes in biological drug manufacturing[69] - Strategy includes organic growth initiatives (internal innovation and commercial leverage) and targeted acquisitions to maximize product platform value[69] Macroeconomic Trends Discusses exposure to non-U.S. exchange rates, cost inflation, labor shortages, and decreasing demand for COVID-19 related products - The company is subject to non-U.S. exchange exposure, with volatile exchange rates potentially impacting revenue and gross profit margins[70] - Experienced and expects continued cost inflation, primarily in raw materials and supply chain, and labor shortages, partially offset by price increases and productivity improvements[71] - Decreasing demand for COVID-19 vaccinations is driving a reduction in future demand for related products[71] 2023 Acquisition Details the acquisition of FlexBiosys, Inc. on April 17, 2023, which expands Repligen's fluid management portfolio with single-use bioprocessing products - On April 17, 2023, Repligen completed the acquisition of FlexBiosys, Inc.[72] - FlexBiosys specializes in expert design and custom manufacturing of single-use bioprocessing products, including bags, bottles, and tubing assemblies[73] - The acquisition will complement and expand Repligen's fluid management portfolio[73] Critical Accounting Policies and Estimates Highlights critical accounting policies requiring subjective judgments due to inherent uncertainties, referencing the Form 10-K for detailed descriptions - Critical accounting policies require management's most difficult, subjective, or complex judgments due to inherent uncertainties[74] - Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 2, 'Summary of Significant Accounting Policies', in the Form 10-K for a detailed description[75] Results of Operations Analyzes the company's financial performance, including revenue, cost of product revenue, operating expenses, other income/expenses, and income tax provision Revenues Details product and royalty revenue, highlighting an 11.5% year-over-year decrease in product revenue due to reduced COVID-19 related demand and foreign exchange rates | Revenue Type | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :-------- | | Products | $182,621 | $206,363 | $(23,742) | (11.5%) | | Royalty and other | $39 | $37 | $2 | 5.4% | | Total revenue | $182,660 | $206,400 | $(23,740) | (11.5%) | - Product revenue decreased by $23.7 million (11.5%) year-over-year, mainly due to reduced demand from COVID-19 related programs affecting filtration products and unfavorable foreign exchange rates[80] - Revenue declines were partially offset by strong performances in the Chromatography and Proteins franchises, specifically from large scale OPUS pre-packed chromatography columns and cell culture growth factors[80] Costs of Product Revenue and Operating Expenses Analyzes changes in cost of product revenue, R&D, SG&A, and contingent consideration, noting a decrease in gross margin due to sales volume and product mix | Expense Type | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :-------- | | Cost of product revenue | $81,845 | $82,356 | $(511) | (0.6%) | | Research and development | $12,154 | $12,155 | $(1) | (0.0%) | | Selling, general and administrative | $56,170 | $54,300 | $1,870 | 3.4% | | Contingent consideration | $1,235 | $(2,411) | $3,646 | (151.2%) | | Total costs and operating expenses | $151,404 | $146,400 | $5,004 | 3.4% | - Gross margin decreased to 55.2% in Q1 2023 from 60.1% in Q1 2022, primarily due to lower overall sales and production volumes, a shift in product mix away from higher-margin COVID-19 products, and increased manufacturing costs (occupancy, depreciation, freight)[84] - Selling, general and administrative (SG&A) costs increased by $1.9 million (3.4%) year-over-year, driven by the expansion of customer-facing activities to support future growth[89] Other Income (Expenses), net Details significant increase in investment income due to higher interest rates and realized foreign currency gains, offsetting other expenses | Item | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :-------- | | Investment income | $5,486 | $77 | $5,409 | 7024.7% | | Interest expense | $(270) | $(292) | $22 | (7.5%) | | Amortization of debt issuance costs | $(457) | $(452) | $(5) | 1.1% | | Other income (expenses) | $77 | $(402) | $479 | (119.2%) | | Total other income (expenses), net | $4,836 | $(1,069) | $5,905 | (552.4%) | - Investment income increased significantly by $5.4 million due to higher interest rates on invested cash balances and interest earned on U.S. treasury bills[93] - The change in other expenses was primarily attributable to realized foreign currency gains in Q1 2023[96] Income Tax Provision Reports the income tax provision and effective tax rate, explaining the decrease in rate due to lower income and increased tax benefits | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------- | :-------------------------------- | :-------------------------------- | | Income tax provision | $7,263 thousand | $11,967 thousand | | Effective tax rate | 20.1% | 20.3% | - The decrease in the effective tax rate was primarily due to lower income before taxes and increased benefits from business tax credits and windfall benefits recognized on stock option exercises and vesting of stock units[98] Non-GAAP Financial Measures Presents non-GAAP adjusted income from operations, net income, adjusted EPS, and Adjusted EBITDA, reconciling them to their GAAP equivalents Non-GAAP Adjusted Income from Operations Reconciles GAAP income from operations to non-GAAP adjusted income from operations, excluding acquisition costs, contingent consideration, and intangible amortization | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | GAAP income from operations | $31,256 | $60,000 | | Non-GAAP adjusted income from operations | $40,852 | $67,371 | - Non-GAAP adjustments exclude acquisition and integration costs, contingent consideration fair value adjustments, and intangible amortization[103] Non-GAAP Adjusted Net Income and Adjusted Earnings Per Share Reconciles GAAP net income and diluted EPS to non-GAAP adjusted figures, including various adjustments and their tax effects | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | GAAP net income | $28,829 | $46,964 | | Non-GAAP adjusted net income | $36,299 | $53,745 | | GAAP diluted EPS | $0.51 | $0.81 | | Non-GAAP adjusted diluted EPS | $0.64 | $0.92 | - Non-GAAP adjustments to net income include acquisition and integration costs, contingent consideration, intangible amortization, amortization of debt issuance costs, and their tax effects[105] Adjusted EBITDA Reconciles GAAP net income to Adjusted EBITDA, excluding investment income, interest, taxes, depreciation, amortization, and acquisition-related costs | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :---------------- | :--------------------------------------- | :--------------------------------------- | | GAAP net income | $28,829 | $46,964 | | Adjusted EBITDA | $48,857 | $72,210 | - Adjusted EBITDA excludes investment income, interest expense, income tax provision, depreciation and amortization, acquisition and integration costs, and contingent consideration fair value adjustments[107] Liquidity and Capital Resources Discusses the company's financing sources, cash balances, cash flow activities, and future capital requirements, including potential acquisitions - The company's operations are primarily financed through product sales, the issuance of 2019 Convertible Senior Notes, and common stock offerings[108] - Cash and cash equivalents were $516.6 million at March 31, 2023, a decrease from $523.5 million at December 31, 2022[111] - The company had a banking relationship with Silicon Valley Bank (SVB) and held approximately $0.1 million in SVB accounts, but utilized other financial institutions to mitigate potential operational risks following SVB's failure[110] - Current cash balances are believed adequate to meet cash needs for at least the next 24 months, absent acquisitions[121] - Future capital requirements include expanding the bioprocessing business, R&D activities, purchases of property, plant and equipment, and potential acquisitions, which may necessitate additional financing[121][122] Cash Flows Analyzes cash flows from operating, investing, and financing activities, detailing the net decrease in cash and cash equivalents | Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------- | | Operating activities | $11,154 | $23,113 | $(11,959) | | Investing activities | $(9,433) | $(28,214) | $18,781 | | Financing activities | $(9,563) | $(12,021) | $2,458 | | Net decrease in cash and cash equivalents | $(6,849) | $(19,174) | $12,325 | - Operating activities provided less cash in Q1 2023 ($11.2 million) compared to Q1 2022 ($23.1 million), reflecting lower net income and increased cash consumption from accounts receivable and inventories[114] - Investing activities consumed $9.4 million in Q1 2023, primarily for capital expenditures to increase manufacturing capacity[117] - Financing activities consumed $9.6 million in Q1 2023, mainly due to cash disbursed for tax withholding on restricted stock units, partially offset by stock option exercises[119] Net Operating Loss Carryforwards Provides a table detailing federal, state, and foreign net operating loss carryforwards and state business tax credits, including their expiration dates | Carryforward Type | Amount at December 31, 2022 (in millions) | Expiration | | :-------------------------- | :---------------------------------------- | :--------- | | Federal Net Operating Loss | $42.9 | $7.3M through 2037, $35.6M unlimited | | State Net Operating Loss | $0.8 | Through 2041 | | Foreign Net Operating Loss | $4.9 | No expiration | | State Business Tax Credits | $3.8 | Through 2042 | Effects of Inflation Discusses the impact of inflation on monetary assets and expenses, such as employee compensation and contract services - Monetary assets (cash, cash equivalents, marketable securities) are not directly affected by inflation due to their liquidity[125] - Inflation affects expenses such as employee compensation and contract services, which could increase the level of expenses and the rate at which resources are used[125] Cautionary Statement Regarding Forward-Looking Statements Warns that forward-looking statements are subject to risks and uncertainties, including COVID-19 impacts, acquisitions, regulatory approvals, and market acceptance - This report contains forward-looking statements that are not guarantees of future performance and are subject to risks and uncertainties[126] - Key risks include the impact of COVID-19, success of collaborations, ability to grow the bioprocessing business (including acquisitions), regulatory approvals, intellectual property, litigation, manufacturing capabilities, personnel retention, market acceptance, integration of acquired businesses, competition, and stock price volatility[126][127] - Investors are cautioned that actual results could differ materially from those anticipated[126] Item 3. Quantitative and Qualitative Disclosures About Market Risk Outlines the company's exposure to market risks, specifically interest rate risk and foreign exchange risk, and current hedging strategies Interest Rate Risk Details the company's investment portfolio and explains how short-term maturities limit exposure to interest rate fluctuations - The company's investment portfolio includes $516.6 million in cash and cash equivalents (money market funds) and $101.4 million in marketable securities (U.S. treasury bills) as of March 31, 2023[128] - Short-term maturity periods of cash equivalent investments and marketable securities dampen the impact of market or interest rate risk[129] - A hypothetical 100 basis point increase in interest rates would have no effect on the company's cash position as of March 31, 2023[129] Foreign Exchange Risk Identifies primary foreign currency exposures and notes that fluctuations may adversely affect results, with no current hedging strategy - Primary foreign currency exposures include the Swedish krona, Euro, and Chinese yuan[131] - Fluctuations in exchange rates may adversely affect results of operations, financial position, and cash flows[131] - The company currently does not seek to hedge its exposure to fluctuations in exchange rates[131] Item 4. Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023[132] Changes in Internal Control Reports no material changes in internal control over financial reporting during the three months ended March 31, 2023 - No changes in internal control over financial reporting occurred during the three months ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[133] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is subject to legal proceedings in the ordinary course of business but is not aware of any that would have a material adverse effect - The company is subject to legal proceedings and claims in the ordinary course of business[135] - Currently, the company is not aware of any such proceedings or claims that are believed to have a material adverse effect on its business, financial condition, or results of operations[135] Item 1A. Risk Factors Highlights new and updated risk factors, focusing on adverse developments in the financial services industry and their potential impact on funding access - Adverse developments affecting the financial services industry, including liquidity issues or failures of financial institutions (e.g., Silicon Valley Bank), could significantly impair the company's access to funding sources[137][139] - The company holds approximately $0.1 million in SVB depository accounts and utilized other financial institutions to mitigate operational risks stemming from the temporary inability to access funds[137] - Investor concerns regarding financial systems could lead to less favorable commercial financing terms, including higher interest rates or systemic limitations on access to credit and liquidity[141] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities or use of proceeds to report[143] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities for the period - No defaults upon senior securities to report[144] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[145] Item 5. Other Information The company reports no other information for the period - No other information to report[146] Item 6. Exhibits Lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate organizational documents, certifications, and XBRL files - Exhibits include corporate organizational documents such as the Restated Certificate of Incorporation, Certificate of Amendment, and Third Amended and Restated Bylaws[148] - Certifications pursuant to Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350 are filed[148] - XBRL Instance Document and Taxonomy Extension Documents are included[148] Signatures Contains the official signatures of the company's principal executive and financial officers, certifying the accuracy of the Form 10-Q - The report is signed by Tony J. Hunt, President and Chief Executive Officer, and Jon Snodgres, Chief Financial Officer, on May 2, 2023[153]