ICU MEDICAL INCDE

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and accompanying notes in this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and related notes thereto included in our 2023 Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the caption entitled “Forward-Looking Statements” in this section and Part I, Item 1A. “Risk Factors” in our 2023 Annual Report on Form 10-K.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and accompanying notes in this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and related notes thereto included in our 2023 Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the caption entitled “Forward-Looking Statements” in this section and Part I, Item 1A. “Risk Factors” in our 2023 Annual Report on Form 10-K as may be further updated from time to time in our other filings with the SEC.

Previous wording

When used in this report, the terms “we,” “us,” and “our” refer to ICU Medical, Inc. ("ICU") and its consolidated subsidiaries included in our condensed consolidated financial statements unless context requires otherwise.

Current wording

When used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” and “our” refer to ICU Medical, Inc. ("ICU" or the "Company") and its consolidated subsidiaries included in our condensed consolidated financial statements unless context requires otherwise.

Previous wording

We present income statement data in Part I, Item 1. "Financial Statements." The following table shows, for the three and six months ended June 30, 2024 and 2023, the percentages of each income statement caption in relation to total revenue:

Current wording

We present income statement data in Part I, Item 1. "Financial Statements." The following table shows, for the three and nine months ended September 30, 2024 and 2023, the percentages of each income statement caption in relation to total revenue:

Previous wording

Consumables revenue increased for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to growth in our Infusion Consumables, Vascular Access and Oncology product lines.

Current wording

Consumables revenue increased for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to new customer installations and increased demand for our Infusion Consumables, Vascular Access and Oncology product lines.

Previous wording

Infusion Systems revenue increased for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to the impact of foreign currency exchange rate changes and sales of ambulatory hardware and dedicated sets.

Current wording

Infusion Systems revenue increased for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to increased sales of ambulatory pump hardware and both ambulatory and LVP dedicated sets.

Previous wording

Vital Care revenue increased for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, primarily due to higher sales of IV Solutions and Pain Management products.

Current wording

Vital Care revenue increased for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, primarily due to higher sales of IV Solutions and Respiratory products.

Previous wording

For the three and six months ended June 30, 2024, gross margins were 34.8% and 33.8%, respectively, as compared to 35.0% and 34.4% for the three and six months ended June 30, 2023, respectively. The decreases in gross margin for the three and six months ended June 30, 2024, as compared to the same periods in the prior year, was primarily driven by lower manufacturing absorption from lower production volumes and the impact of foreign currency exchange rate changes, particularly the strength of the Mexican Peso. These were partially offset by lower quality remediation spend, price increases, and lower supply chain and freight costs in the three and six months ended June 30, 2024 compared to the same prior year period in 2023.

Current wording

For the three and nine months ended September 30, 2024, gross margins were 34.8% and 34.1%, respectively, as compared to 33.2% and 34.0% for the three and nine months ended September 30, 2023, respectively. The increases in gross margin for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year, were primarily driven by price increases and lower supply chain and freight costs. The increase in gross margin for the three months ended September 30, 2024 was also driven by favorable foreign exchange rates.

Previous wording

SG&A expenses increased for the three months ended June 30, 2024, as compared to the same period in the prior year, primarily due to increases of $6.2 million in compensation costs and $2.4 million in sales commissions. Compensation costs and commissions increased primarily due to an increase in accrued cash incentive compensation and sales commissions.

Current wording

SG&A expenses increased for the three months ended September 30, 2024, as compared to the same period in the prior year, primarily due to increases of $4.4 million in compensation costs, $5.6 million in dealer fees and $2.4 million in sales commissions. Partially offsetting these increases was a $2.5 million decrease in depreciation and amortization expense. Compensation costs and commissions increased primarily due to an increase in accrued cash incentive compensation and sales commissions. Dealer fees increased due to an increase in revenue to distributors. Depreciation and amortization expense decreased primarily due to certain assets that reached the end of their useful lives.

Previous wording

SG&A expenses increased for the six months ended June 30, 2024, as compared to the same period in the prior year primarily due to increase of $8.7 million in compensation costs, $3.6 million in dealer fees, and $3.5 million in stock-based compensation. Partially offsetting these increases was a $2.8 million decrease in IT expenses. Compensation costs and commissions increased primarily due to an increase in accrued cash incentive compensation and sales commissions increased due to higher revenues. Dealer fees increased due to an increase in revenues to distributors. Stock based compensation increased due to (i) changes in the number of shares expected to vest for certain of our executive performance awards; (ii) later timing of certain annual awards granted in the prior year that were subject to shareholder approval; and (iii) the stock compensation expense related to the employees of Smiths Medical included the expense of three years of grants in the current year as compared to the expense of two years of grants in the prior year. IT expenses decreased based on current operating needs.

Current wording

SG&A expenses increased for the nine months ended September 30, 2024, as compared to the same period in the prior year primarily due to increases of $13.1 million in compensation costs, $9.2 million in dealer fees, $5.6 million in sales commissions and $4.0 million in stock compensation expense. Partially offsetting these increases was a $6.5 million decrease in depreciation and amortization expense and a $2.6 million decrease in IT expenses. Compensation costs and commissions increased primarily due to an increase in accrued cash incentive compensation and sales commissions increased due to higher revenues. Dealer fees increased due to an increase in revenues to distributors. Stock based compensation increased due to (i) changes in the number of shares expected to vest for certain of our executive performance awards; (ii) later timing of certain annual awards granted in the prior year that were subject to shareholder approval; and (iii) the stock compensation expense related to the employees of Smiths Medical included the expense of three years of grants in the current year as compared to the expense of two years of grants in the prior year. Depreciation and amortization expense decreased primarily due to certain assets that reached the end of their useful lives. IT expenses decreased based on current operating needs.

Previous wording

R&D expenses increased for the three and six months ended June 30, 2024, as compared to the same periods in the prior year. R&D expenses during both periods primarily related to headcount and employment expense in support of ongoing R&D projects. R&D expenses for both periods presented generally included compensation and benefit expenses, consulting fees, production supplies, samples, travel costs, utilities and other miscellaneous administrative costs incurred in our ongoing R&D projects.

Current wording

R&D expenses increased for the three and nine months ended September 30, 2024, as compared to the same periods in the prior year. R&D expenses during both periods primarily related to headcount and employment expense in support of ongoing R&D projects. R&D expenses for both periods presented generally included increased compensation and benefit expenses, consulting fees, production supplies, samples, travel costs, utilities and other miscellaneous administrative costs incurred in our ongoing R&D projects.

Previous wording

Restructuring, strategic transaction and integration expenses were $17.1 million and $33.2 million for the three and six months ended June 30, 2024, respectively, as compared to $12.4 million and $23.4 million for the three and six months ended June 30, 2023, respectively.

Current wording

Restructuring, strategic transaction and integration expenses were $16.8 million and $50.1 million for the three and nine months ended September 30, 2024, respectively, as compared to $7.2 million and $30.5 million for the three and nine months ended September 30, 2023, respectively.

Previous wording

Restructuring charges were $7.7 million and $13.0 million for the three and six months ended June 30, 2024, respectively, as compared to $1.3 million and $4.0 million for the three and six months ended June 30, 2023, respectively, and were primarily related to severance costs for all periods. The restructuring charges for the six months ended June 30, 2023 is net of $0.9 million related to facility closures costs and severance costs that were reversed during the first fiscal quarter of 2023. As of June 30, 2024, we expect to pay the majority of our outstanding restructuring charges during the remainder of 2024 and 2025.

Current wording

Restructuring charges were $3.6 million and $16.6 million for the three and nine months ended September 30, 2024, respectively, as compared to $1.1 million and $5.1 million for the three and nine months ended September 30, 2023, respectively, and were primarily related to severance costs for all periods. The restructuring charges for the three and nine months ended September 30, 2023 is net of $0.2 million related to facility closures costs that were reversed in the third quarter of 2023. As of September 30, 2024, we expect to pay the majority of our outstanding restructuring charges during the remainder of 2024 and 2025.

Previous wording

Strategic transaction and integration expenses were $9.4 million and $20.2 million for the three and six months ended June 30, 2024, respectively, as compared to $11.1 million and $19.4 million for the three and six months ended June 30, 2023, respectively. The strategic transaction and integration expenses during the three and six months ended June 30, 2024 and 2023 were primarily related to consulting expenses and employee costs incurred to integrate our Smiths Medical business acquired in 2022.

Current wording

Strategic transaction and integration expenses were $13.2 million and $33.5 million for the three and nine months ended September 30, 2024, respectively, as compared to $6.1 million and $25.4 million for the three and nine months ended September 30, 2023, respectively. The strategic transaction and integration expenses during the three and nine months ended September 30, 2024 and 2023 were primarily related to consulting expenses and employee costs incurred to integrate our Smiths Medical business acquired in 2022.

Previous wording

For the three months ended June 30, 2024, we recorded a gain of $0.3 million related to a change in the fair value of contingent earn-out related to the Smiths Medical acquisition. The change in the fair value of the contingent earn-out during the six months ended June 30, 2024 was essentially flat. For the three and six months ended June 30, 2023, there was a loss of $4.0 million and $3.3 million, respectively, primarily related to the change in fair value of contingent earn-out related to the Smiths Medical acquisition and the earn-out related to an agreement with one of our international distributors.

Current wording

For the three and nine months ended September 30, 2023, we recorded gains of $15.6 million and $12.3 million, respectively, primarily related to the change in fair value of contingent earn-out related to the Smiths Medical acquisition.

Previous wording

Interest expense, net for the three and six months ended June 30, 2024 and 2023 primarily included the contractual interest incurred on borrowings under the Credit Agreement, the per annum commitment fee charged on the available amount of the revolving credit facility contained in the Credit Agreement, the amortization of debt issuance costs incurred in connection with entering into the Credit Agreement (see Note 16: Long-Term Debt in our accompanying condensed consolidated financial statements), the impact of the interest rate swaps, and interest income. The interest expense component increased for the three and six months ended June 30, 2024, as compared to the respective prior year periods, primarily due to increases in the applicable SOFR reference rate.

Current wording

Interest expense, net for the three and nine months ended September 30, 2024 and 2023 primarily included the contractual interest incurred on borrowings under the Credit Agreement, the per annum commitment fee charged on the available amount of the revolving credit facility contained in the Credit Agreement, the amortization of debt issuance costs incurred in connection with entering into the Credit Agreement (see Note 16: Long-Term Debt in our accompanying condensed consolidated financial statements), the impact of the interest rate swaps, and interest income. The interest expense component increased for the three and nine months ended September 30, 2024, as compared to the respective prior year periods, primarily due to increases in the applicable SOFR reference rate.

Previous wording

For the three and six months ended, June 30, 2024 and 2023, the foreign exchange losses were primarily related to the strengthening of the U.S. dollar relative to foreign currencies, including the Mexican peso and Argentine peso.

Current wording

For the three and nine months ended, September 30, 2024 and 2023, the foreign exchange losses were primarily related to the strengthening of the U.S. dollar relative to certain foreign currencies, including the Mexican peso and Argentine peso.

Previous wording

For the three and six months ended June 30, 2024, income taxes were accrued at an estimated effective tax rate of (10)% and (8)%, respectively, as compared to 57% and 46% for the three and six months ended June 30, 2023, respectively.

Current wording

For the three and nine months ended September 30, 2024, income taxes were accrued at an estimated effective tax rate of (84)% and (26)%, respectively, as compared to 235% and 70% for the three and nine months ended September 30, 2023, respectively.

Previous wording

The effective tax rate for the three and six months ended June 30, 2024 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S. and foreign incomes, state income taxes, section 162(m) excess compensation, tax credits, and a valuation allowance against certain U.S. federal and state deferred tax assets. The effective tax rate during the three and six months ended June 30, 2024 included a tax benefit of $0.7 million and $3.0 million, respectively, related to the excess tax recognized on stock option exercises and the vesting of restricted stock during the period. Additionally, there were unrecognized tax benefits released as a result of the expiration of statute of limitations during the three and six months ended June 30, 2024 of $3.9 million and $4.0 million, respectively.

Current wording

The effective tax rate for the three and nine months ended September 30, 2024 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S. and foreign incomes, state income taxes, section 162(m) excess compensation, tax credits, and a valuation allowance against certain U.S. federal and state deferred tax assets. The effective tax rate during the three and nine months ended September 30, 2024 included a tax benefit of $0.8 million and $3.8 million, respectively, related to the excess tax recognized on stock option exercises and the vesting of restricted stock during the period. Additionally, there were unrecognized tax benefits released as a result of the expiration of statute of limitations during the three and nine months ended September 30, 2024 of $0.0 million and $4.0 million, respectively. Lastly, U.S. federal return-to-provision adjustments net of related tax reserves for the year ended December 31, 2023 resulted in a tax expense of $1.6 million during both the three and nine months ended September 30, 2024. The adjustments related primarily to changes in estimate for the research and development credit and an increase to the U.S. valuation allowance.

Previous wording

The Company regularly assesses the realizability of deferred tax assets and records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. In assessing the realizability of our deferred tax assets, we weigh all available positive and negative evidence. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Due to the weight of objectively verifiable negative evidence, the Company recorded a valuation allowance of $10.4 million and $20.5 million tax expense, against certain U.S. federal and state deferred tax assets during the three and six months ended June 30, 2024, respectively. The significant piece of objectively verifiable negative evidence evaluated was the recent U.S. cumulative losses. Our ability to use our deferred tax assets depends on the amount of taxable income in future periods. Based on current earnings and anticipated future earnings along with expected changes in our deferred tax asset and liability balances, it is likely that the current valuation allowance position will be adjusted during the year. An additional valuation allowance may be required beyond the current year if future earnings are not sufficient to support the realization of deferred tax assets.

Current wording

The Company regularly assesses the realizability of deferred tax assets and records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized. In assessing the realizability of our deferred tax assets, we weigh all available positive and negative evidence. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Due to the weight of objectively verifiable negative evidence, the Company recorded a valuation allowance of $22.4 million and $42.9 million tax expense, against certain U.S. federal and state deferred tax assets during the three and nine months ended September 30, 2024, respectively. The significant piece of objectively verifiable negative evidence evaluated was the recent U.S. cumulative losses. Our ability to use our deferred tax assets depends on the amount of taxable income in future periods. Based on current earnings and anticipated future earnings along with expected changes in our deferred tax asset and liability balances, it is likely that the current valuation allowance position will be adjusted during the year. An additional valuation allowance may be required beyond the current year if future earnings are not sufficient to support the realization of deferred tax assets.

Previous wording

In 2021, the Organization for Economic Cooperation and Development ("OECD") released model rules for a 15% global minimum tax, known as Pillar Two. On December 15, 2022, the European Union agreed to implement the OECD’s global minimum tax of 15% for multinationals that meet a global revenue threshold. A number of countries have enacted or have announced plans to enact legislation to adopt Pillar Two. We considered the applicable tax law changes on Pillar Two implementation in the relevant countries, and there was no material impact to our tax provision for the three and six months ended June 30, 2024. We do not expect the provisions currently in effect for 2024 to have a material impact on our tax provision and effective tax rate for the remainder of 2024 but will continue to assess the impact of tax legislation in the jurisdictions in which we operate.

Current wording

In 2021, the Organization for Economic Cooperation and Development ("OECD") released model rules for a 15% global minimum tax, known as Pillar Two. On December 15, 2022, the European Union agreed to implement the OECD’s global minimum tax of 15% for multinationals that meet a global revenue threshold. A number of countries have enacted or have announced plans to enact legislation to adopt Pillar Two. We considered the applicable tax law changes on Pillar Two implementation in the relevant countries, and there was no material impact to our tax provision for the three and nine months ended September 30, 2024. We do not expect the provisions currently in effect for 2024 to have a material impact on our tax provision and effective tax rate for the remainder of 2024 but will continue to assess the impact of tax legislation in the jurisdictions in which we operate.

Previous wording

The effective tax rate for the three and six months ended June 30, 2023 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S. and foreign incomes, state income taxes, section 162(m) excess compensation, foreign-derived intangible income (“FDII”) and tax credits. The effective tax rate during the three and six months ended June 30, 2023 included a tax benefit of $0.9 million and $0.2 million, respectively, related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock during the period. The effective tax rate during the three and six months ended June 30, 2023 also included a tax benefit of $6.0 million primarily related to unrecognized tax benefits released as a result of the expiration of the statute of limitations. Additionally, the effective tax rate for the three and six months ended June 30, 2023 also included the nil tax impact of the revaluation of contingent consideration for $4.0 million and $3.3 million, respectively.

Current wording

The effective tax rate for the three and nine months ended September 30, 2023 differs from the federal statutory rate of 21% principally because of the effect of the mix of U.S. and foreign incomes, state income taxes, section 162(m) excess compensation, foreign-derived intangible income (“FDII”) and tax credits. The effective tax rate during the three and nine months ended September 30, 2023 included a tax benefit of $0.6 million and $0.8 million, respectively, related to the excess tax benefits recognized on stock option exercises and the vesting of restricted stock during the period. The effective tax rate for both the three and nine months ended September 30, 2023 also included a tax benefit of $0.0 million and $6.0 million, respectively, primarily related to unrecognized tax benefits released as a result of the expiration of the statute of limitations. Additionally, the effective tax rate for both the three and nine months ended September 30, 2023 included a tax benefit of $7.5 million related to U.S. federal return-to-provision adjustments net of related tax reserves. The adjustments related primarily to changes in estimates for the research and development credit and foreign tax credits. Additionally, the effective tax rate for the three and nine months ended September 30, 2023 also included the nil tax impact of the revaluation of contingent consideration for $15.6 million and $12.3 million, respectively.

Previous wording

Our current primary sources of liquidity are cash and cash equivalents, cash flows from our operations including the cash received from our uncommitted trade accounts receivable purchase facility, and access to borrowing arrangements.

Current wording

Our current primary sources of liquidity are cash and cash equivalents, cash flows from our operations including access to borrowing arrangements and the cash received from our uncommitted trade accounts receivable purchase facility.

Previous wording

Funds generated from operations are held in cash and cash equivalents. During the six months ended June 30, 2024, our cash and cash equivalents increased by $47.9 million from $254.7 million at December 31, 2023 to $302.6 million at June 30, 2024, primarily due to cash generated from operations.

Current wording

Funds generated from operations are held in cash and cash equivalents. During the nine months ended September 30, 2024, our cash and cash equivalents increased by $57.8 million from $254.7 million at December 31, 2023 to $312.5 million at September 30, 2024, primarily due to cash generated from operations.

Previous wording

The Credit Agreement contains financial covenants that pertain to the Term Loan A and the Revolving Credit Facility. Specifically, we are required to maintain a Senior Secured Leverage Ratio of no more than 4.50 to 1.00 until June 30, 2024, with stepdowns to 4.00 to 1.00 thereafter, and an Interest Coverage Ratio of no less than 3.00 to 1.00 (defined and discussed in greater detail in Note 16: Long-Term Debt to our accompanying condensed consolidated financial statements). We were in compliance with these financial covenants as of June 30, 2024.

Current wording

The Credit Agreement contains financial covenants that pertain to the Term Loan A and the Revolving Credit Facility. Specifically, we are required to maintain a Senior Secured Leverage Ratio of no more than 4.50 to 1.00 until June 30, 2024, with stepdown to 4.00 to 1.00 thereafter, and an Interest Coverage Ratio of no less than 3.00 to 1.00 (defined and discussed in greater detail in Note 16: Long-Term Debt to our accompanying condensed consolidated financial statements). We were in compliance with these financial covenants as of September 30, 2024.

Previous wording

At June 30, 2024, we estimate our capital expenditures in 2024 will be in the range of $85 million to $100 million, compared to the range of $90 million to $110 million previously disclosed. This reduction was due to changes in the timing of certain projects.

Current wording

As of September 30, 2024, we estimate our capital expenditures in 2024 will be in the range of $80 million to $90 million, compared to the range of $85 million to $100 million as previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024. This reduction was due to changes in the timing of certain projects.

Previous wording

Other future capital investments include restructuring and integration expenses along with spending to support quality systems and quality compliance objectives, which includes acquired field action liabilities. At June 30, 2024, we estimate our other future capital investments in 2024 will be in the range of $80 million to $90 million, compared to the range of $90 million to $110 million previously disclosed. This reduction was due to changes in the timing of certain projects.

Current wording

Other future capital investments include restructuring and integration expenses along with spending to support quality systems and quality compliance objectives, which includes acquired field action liabilities. As of September 30, 2024, we estimate our other future capital investments in 2024 will be in the range of $90 million to $100 million, compared to the range of $80 million to $90 million as previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024.

Previous wording

Our net cash provided by operations for the six months ended June 30, 2024 was $127.7 million. The changes in operating assets and liabilities included a $6.7 million decrease in accounts receivable, a $21.1 million decrease in inventories, a $9.4 million increase in accounts payable, and a $20.2 million increase in accrued liabilities. Offsetting these amounts was a $12.6 million increase in prepaid expenses and other current assets, a $11.1 million increase in other assets, and $5.1 million in net changes in income taxes, including excess tax benefits and deferred income taxes. The decrease in accounts receivable was primarily due to the amount and timing of revenues. The decrease in inventory was primarily due to our focus on reducing inventory levels. The increase in accounts payable was due to the timing of payments. The increase in prepaid expenses and other current assets was primarily due to increase in deferred costs related to infusion pumps sold and the payment of other miscellaneous prepaid invoices. The increase in other assets was due to the purchase of spare parts. The net changes in income taxes was a result of recording the current deferred provision, the timing of payments, and valuation allowance. The increase in accrued liabilities was primarily due to employee costs.

Current wording

Our net cash provided by operations for the nine months ended September 30, 2024 was $163.8 million. The changes in operating assets and liabilities included a $17.5 million increase in other assets, a $11.2 million increase in prepaid expenses and other current assets, a $11.5 million increase in accounts receivable and $4.4 million in net changes in income taxes, including excess tax benefits and deferred income taxes. Offsetting these amounts was a $21.1 million increase in accounts payable, a $20.5 million increase in accrued liabilities and a $9.4 million decrease in inventories. The increase in other assets was due to the purchase of spare parts. The increase in prepaid expenses and other current assets was primarily due to an increase in deferred costs related to infusion pumps sold and the payment of other miscellaneous prepaid invoices. The increase in accounts receivable was primarily due to the amount and timing of revenues and we sold less receivables under our account receivable purchase program (see Note 20: Accounts Receivable Purchase Program). The net changes in income taxes was a result of recording the current deferred provision, the timing of payments, and valuation allowance. The increase in accounts payable was due to the timing of payments. The increase in accrued liabilities was primarily due to employee costs. The decrease in inventory was primarily due to our focus on reducing inventory levels.

Previous wording

Our net cash used in operations for the six months ended June 30, 2023 was $39.8 million. The changes in operating assets and liabilities included a $76.0 million increase in inventories, a $12.7 million increase in other assets, a $46.9 million decrease in accounts payable, $26.0 million in net changes in income taxes, including excess tax benefits and deferred income taxes and a $0.1 million decrease in accrued liabilities. Offsetting these amounts was a $46.8 million decrease in accounts receivable and a $3.0 million decrease in prepaid expenses and other current assets. The increase in inventory was primarily to build inventory safety stock levels. The increase in other assets was due to the purchase of spare parts. The decrease in accounts payable was due to the timing of payments. The net changes in income taxes was a result of recording the current deferred provision and the timing of payments. The increase in accrued liabilities was primarily due to employee costs. The decrease in accounts receivable was primarily due to the sale of accounts receivable as part of our accounts receivable purchase program with Bank of the West, which was subsequently acquired by BMO in February 2023 (see Note 20: Accounts Receivable Purchase Program). The decrease in prepaid expenses and other current assets was primarily due to insurance and property taxes.

Current wording

Our net cash used in operations for the nine months ended September 30, 2023 was $74.9 million. The changes in operating assets and liabilities included a $66.7 million increase in inventories, a $18.9 million increase in other assets, a $65.0 million decrease in accounts payable, $42.9 million in net changes in income taxes, including excess tax benefits and deferred income taxes and a $10.5 million decrease in accrued liabilities. Offsetting these amounts was a $43.1 million decrease in accounts receivable and a $11.3 million decrease in prepaid expenses and other current assets. The increase in inventory was primarily to build inventory safety stock levels. The increase in other assets was due to the purchase of spare parts. The decrease in accounts payable was due to the timing of payments. The net changes in income taxes was a result of recording the current deferred provision and the timing of payments. The increase in accrued liabilities was primarily due to employee costs. The decrease in accounts receivable was primarily due to the sale of accounts receivable as part of our accounts receivable purchase program with Bank of the West (see Note 20: Accounts Receivable Purchase Program). The decrease in prepaid expenses and other current assets was primarily due to insurance and property taxes.

Previous wording

(4) During the six months ended June 30, 2024, our employees surrendered 112,876 shares of our common stock from vested restricted stock unit awards as consideration for approximately $11.7 million in minimum statutory withholding obligations paid on their behalf. During the six months ended June 30, 2023, our employees surrendered 54,371 shares of our common stock from vested restricted stock unit awards as consideration for approximately $8.7 million in minimum statutory withholding obligations paid on their behalf.

Current wording

(4) During the nine months ended September 30, 2024, our employees surrendered 114,023 shares of our common stock from vested restricted stock unit awards as consideration for approximately $11.9 million in minimum statutory withholding obligations paid on their behalf. During the nine months ended September 30, 2023, our employees surrendered 58,089 shares of our common stock from vested restricted stock unit awards as consideration for approximately $9.2 million in minimum statutory withholding obligations paid on their behalf.

Previous wording

See Note 2: New Accounting Pronouncements in Part I, Item 1. "Financial Statements."

Current wording

See Note 2: New Accounting Pronouncements Not Yet Adopted in Part I, Item 1. "Financial Statements."