Emergent BioSolutions Inc

EMERGENT BIOSOLUTIONS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, dollar and share amounts in tables in millions, except per share data)

1. Nature of the business and organization

Organization and business

Emergent BioSolutions Inc. (“Emergent,” the “Company,” “we,” “us,” and “our”) is a global life sciences company focused on providing innovative preparedness and response solutions addressing accidental, deliberate, and naturally occurring Public Health Threats ("PHTs"). The Company's solutions include a product portfolio, a product development portfolio, and a contract development and manufacturing ("CDMO") services portfolio.

The Company is focused on the following four PHT categories: chemical, biological, radiological, nuclear and explosives ("CBRNE"); emerging infectious diseases ("EID"); emerging health crises; and acute, emergency and community care. The Company has a product portfolio of 12 products (vaccines, therapeutics, and drug-device combination products). The revenues generated by the products comprise a substantial portion of the Company's revenue. The Company structures its business with a focus on markets and customers. As such, the key components of the business structure include the following four product and service categories: NARCAN®commercial product, Anthrax - Medical Countermeasures (“MCM") Products, Smallpox - MCM products and Emergent Bioservices (CDMO) ("Bioservices").

The Company’s business is organized inthree reportable operating segments: (1) a Commercial Products segment consisting of NARCAN®Nasal Spray and other commercial products, which were sold as part of our travel health business in the second quarter of 2023 (see Note 3, "Divestiture" for more information on the sale of the travel health business); (2) a MCM Products segment consisting of our Anthrax - MCM, Smallpox - MCM and Other Products, described below and (3) a Services segment consisting of our Bioservices offerings (see Note 16, "Segment information" for more information on our reportable segments).

The Company's products and services include:

Commercial Products Segment:

•NARCAN® (naloxone HCl) Nasal Spray is an intranasal formulation of naloxone approved by the United States Food and Drug Administration (“FDA”) (including in over-the-counter form) and Health Canada for the emergency treatment of known or suspected opioid overdose as manifested by respiratory and/or central nervous system depression.

Sale of Travel Health Business

On May 15, 2023, the Company completed the sale of its Commercial Products segment's travel health business, including rights to Vivotif®, the licensed typhoid vaccine; Vaxchora®, the licensed cholera vaccine; the development-stage chikungunya vaccine candidate CHIKV VLP; the Company’s manufacturing site in Bern, Switzerland; and certain of its development facilities in San Diego, California. For additional information, refer to Note 3, "Divestiture".

MCM Products Segment:

Anthrax - MCM Products

•Anthrasil® (Anthrax Immune Globulin Intravenous (human)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada for the treatment of inhalational anthrax in combination with appropriate antibacterial drugs;

•BioThrax® (Anthrax Vaccine Adsorbed), the only vaccine licensed by the FDA for the general use prophylaxis and post-exposure prophylaxis of anthrax disease;

•CYFENDUS® (Anthrax vaccine adsorbed (AVA), adjuvanted), previously known as AV7909, which was recently approved by the FDA for post-exposure prophylaxis of disease following suspected or confirmed exposure to Bacillus anthracis in persons 18 through 65 years of age when administered in conjunction with recommended antibacterial drugs. CYFENDUS® is procured by certain authorized government buyers for their use; and

•Raxibacumab injection, the first fully human monoclonal antibody therapeutic licensed by the FDA for the treatment and prophylaxis of inhalational anthrax;

Smallpox - MCM Products

•ACAM2000®, (Smallpox (Vaccinia) Vaccine, Live), the only single-dose smallpox vaccine licensed by the FDA for active immunization against smallpox disease for persons determined to be at high risk for smallpox infection;

•CNJ-016® (Vaccinia Immune Globulin Intravenous (Human) (VIGIV)), the only polyclonal antibody therapeutic licensed by the FDA and Health Canada to address certain complications from smallpox vaccination; and

•TEMBEXA®, an oral antiviral formulated as 100 mg tablets and 10 mg/mL oral suspension dosed once weekly for two weeks which has been approved by the FDA for the treatment of smallpox disease caused by variola virus in adult and pediatric patients, including neonates.

•BAT® (Botulism Antitoxin Heptavalent (A,B,C,D,E,F,G)-(Equine)), the only heptavalent antitoxin licensed by the FDA and Health Canada for the treatment of symptomatic botulism;

•Ebanga™ (ansuvimab-zykl), a monoclonal antibody with antiviral activity provided through a single IV infusion for the treatment of Ebola. Under the terms of a collaboration with Ridgeback Biotherapeutics ("Ridgeback"), Emergent will be responsible for the manufacturing, sale, and distribution of Ebanga™ in the U.S. and Canada, and Ridgeback will serve as the global access partner for Ebanga™;

•RSDL® (Reactive Skin Decontamination Lotion Kit), the only medical device cleared by the FDA that is intended to remove or neutralize chemical warfare agents from the skin, including: tabun, sarin, soman, cyclohexyl sarin, VR, VX, mustard gas and T-2 toxin; and

•Trobigard® atropine sulfate, obidoxime chloride auto-injector, a combination drug-device auto-injector procured product candidate that contains atropine sulfate and obidoxime chloride. Trobigard® was approved in Belgium in 2021 but has not been approved by the FDA. Trobigard® is procured by certain authorized government buyers under special circumstances for potential use as a nerve agent countermeasure outside of the U.S. On April 2, 2024, Emergent submitted its revocation of the Market Authorization for the Trobigard Auto-Injector to the Belgium Federal Agency for Medicines and Health Products (“FAMHP”). The FAHMP subsequently acknowledged and confirmed the revocation date as being April 2, 2024.

Services Segment:

Bioservices - CDMO

The Company’s services revenue consists of distinct but interrelated bioservices: drug substance manufacturing; drug product manufacturing (also referred to as "fill/finish" services) and packaging; development services including technology transfer, process and analytical development services; and, when necessary, suite reservation obligations. These services, which the Company refers to as "molecule-to-market" offerings, employ diverse technology platforms (mammalian, microbial, viral and plasma) across a network ofnine geographically distinct development and manufacturing sites operated by the Company for its internal products and pipeline candidates and third-party bioservices. The Company services both clinical-stage and commercial-stage projects for a variety of third-party customers, including government agencies, innovative pharmaceutical companies, and non-government organizations. In August 2023, the Company initiated an organizational restructuring plan (the “August 2023 Plan”) which included actions to reduce investment in and de-emphasize focus on its Bioservices business.

2. Summary of significant accounting policies

Basis of presentation and consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of Emergent and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X issued by the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 8, 2024.

All adjustments contained in the accompanying unaudited condensed consolidated financial statements are of a normal recurring nature and are necessary to present fairly the financial position of the Company as of March 31, 2024. Interim results are not necessarily indicative of results that may be expected for any other interim period or for an entire year.

Going concern

As of March 31, 2024, there was $264.2 million outstanding on the Company’s senior revolving credit facility (“Revolving Credit Facility”) and $194.2 million on the senior term loan facility (“Term Loan Facility” and together with the Revolving Credit Facility, the “Senior Secured Credit Facilities”) that mature in May 2025 and the Senior Credit Facilities were subject to a forbearance agreement as described below, with respect to the Company’s noncompliance with certain operational and financial covenants. As of March 31, 2024, the Company had $78.5 million in cash and cash equivalents. As a result of these factors, the Company determined that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The evaluation considered the potential mitigating effects of management’s plans that have not been fully implemented. Management has evaluated the mitigating effects of its plans to determine if it is probable that (1) the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. Management's plans include (A) further amending the Senior Secured Credit Facilities, and (B) improving operating performance, reducing working capital and the potential of the sale of assets to pay down the Senior Secured Credit Facilities before they become due. As neither plan is in the complete control of management, neither is probable of occurring. In this regard, management may not be able to further amend the Senior Secured Credit Facilities or find a buyer for the assets it is willing to divest and may not be able to close on any asset sale for which management is able to reach an agreement with a buyer. As a result, the Company may be unable to meet its obligations as they become due. In addition, any asset sales that are completed could have potential negative impacts on the Company's future operating cash flows and profitability.

Debt Covenants

The Senior Secured Credit Facilities mature in May 2025, and provide for (1) revolving credit commitments, (2) a term loan, and (3) the issuance of commercial letters of credit. As of March 31, 2024, the Company had $458.4 million outstanding under the Senior Secured Credit Facilities. As of March 31, 2024, the Company was not in compliance with the minimum consolidated EBITDA covenant under the Senior Secured Credit Facilities and did not expect to satisfy a covenant requiring it to raise not less than $75.0 million through issuance of equity and/or unsecured indebtedness by April 30, 2024. In addition, the Company was required to deliver audited annual financial statements without a “going concern” explanatory paragraph with respect to its financial statements for the year ended December 31, 2023, which was not achieved. However, on February 29, 2024, the requisite lenders agreed to enter into a Forbearance Agreement and Sixth Amendment to Amended and Restated Credit Agreement (the “Forbearance Agreement and Amendment”) with the Company, which included a limited waiver of certain events of default, including those that resulted from (a) any violation of the financial covenants set forth in the Senior Secured Credit Facilities with respect to the fiscal quarter ending December 31, 2023 and the fiscal quarter ending March 31, 2024 and (b) the going concern explanatory paragraph contained in the audited financial statements for the year ended December 31, 2023. This forbearance period (the “Forbearance Period”) expired on April 30, 2024.

On April 29, 2024, the requisite lenders agreed to enter into a Consent, Waiver and Seventh Amendment to the Amended and Restated Credit Agreement (the “Seventh Amendment”) with the Company. The Seventh Amendment, among other things: (a) reduces available commitments under the Revolving Credit Facility to $270.0 million through July 30, 2024, to $225.0 million from July 31, 2024 through October 30, 2024, and to $200.0 million on October 31, 2024 and thereafter; (b) amends the interest rate benchmark in the definition of Applicable Margin from (i)5.00% per annum to 7.00% per annum with respect to Base Rate Loans and (ii)6.50% per annum to 8.50% per annum with respect to SOFR Loans, RFR Loans and Eurocurrency Rate Loans; and (c) requires the Company to raise equity or unsecured indebtedness of at least $85.0 million by July 31, 2024 (or such later date on or before September 29, 2024 as agreed to by the Administrative Agent), provided that such requirement will be reduced by the aggregate net cash proceeds received from certain dispositions that are applied to reduce amounts outstanding under the Revolving Credit Facility. There is no guarantee the Company will be able to meet the capital raise requirement by the stated deadline.

In addition, pursuant to the Seventh Amendment, the Company is obligated to apply 100% of the aggregate net cash proceeds received from certain dispositions to the prepayment of amounts outstanding under the Revolving Credit Facility, except where such proceeds exceed $85,000,000, in which case such mandatory prepayment of the Revolving Credit Facility will no longer be required. Mandatory prepayment of the Term Loan Facility will not be required unless and until the aggregate net proceeds from such dispositions exceed $85,000,000, at which point 100% of such proceeds must be used toward repayment of amounts outstanding under the Term Loan Facility.

Under the Seventh Amendment, the Company is also subject to (a) a monthly minimum consolidated EBITDA covenant through May 15, 2025 and a monthly maximum capital expenditures covenant through March 31, 2025, (b) a minimum liquidity requirement and (c) additional financial statement reporting and business plan forecast obligations. In connection with the entry into the Seventh Amendment, the Company paid an amendment fee of an aggregate amount equal to 0.5% of the total credit exposure as of the Seventh Amendment effective date and will be required to pay an additional amendment fee of 1.0% of total credit exposure at December 1, 2024 and each month thereafter. The Senior Secured Credit Facilities and the Company’s other debt facilities are described in more detail below in Note 9, “Debt.”

If the Company defaults under the Senior Secured Credit Facilities, the lenders would have the right to accelerate the repayment of borrowings under the Senior Secured Credit Facilities, which would result in a cross-default of the Company’s obligations under the 3.875% Senior Unsecured Notes due 2028 (the “Senior Unsecured Notes”). If the Company were unable to obtain additional waivers or forbearance of such covenants or defaults, to successfully renegotiate the terms of the Senior Secured Credit Facilities, or to cure the potential covenant breach or default, and the lenders enforced one or more of their rights upon default and/or the default resulted in a cross-default under the Senior Unsecured Notes, the Company would be unable to meet its obligations under those agreements and would likely be forced into insolvency proceedings.

Based on the facts and circumstances described above, there can be no assurance that the Company would be able to comply with its debt covenants in the future. As a result, the Company continues to evaluate a number of factors related to its ability to continue as a going concern, including its ability to comply with the terms and operating and financial covenants required by the Senior Secured Credit Facilities, its ability to satisfy the capital raise requirement required by the Senior Secured Credit Facilities, other market conditions, economic conditions, particularly in the pharmaceutical and biotechnology industry, and disruptions or volatility caused by factors such as regional conflicts, inflation, and supply chain disruptions. The Company has engaged legal and financial advisors to assist with a comprehensive review of alternatives to enhance its capital structure, which may include taking steps to cure any potential defaults or seeking forbearance, waivers, further cost reductions, asset sales, restructurings or other alternatives to avoid an event of default.

Significant accounting policies

During the three months ended March 31, 2024, there have been no significant changes to the Company's summary of significant accounting policies contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC that have materially impacted the presentation of the Company's financial statements.

Fair value measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, includes:

On a recurring basis, the Company measures and records money market funds (Level 1), interest-rate swap arrangements and time deposits (Level 2) and contingent purchase consideration (Level 3) using fair value measurements in the accompanying financial statements. The carrying amounts of the Company's short-term financial instruments, which include cash and cash equivalents, accounts receivable and accounts payable approximate their fair values due to their short maturities. The carrying amounts of the Company’s long-term variable interest rate debt arrangements (Level 2) approximate their fair values.

New accounting standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board that the Company adopts as of the pronouncement's specified effective date.

Accounting Standards Not Yet Adopted

In November 2023, the Financial Accounting Standards board ("FASB") issued Accounting Standards Update ("ASU") 2023-07 ("ASU 2023-07"), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker ("CODM"). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The amendments in the ASU are effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The amendments in the ASU are effective for public business entities for annual periods beginning after December 15, 2024, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on it consolidated financial statements.

3. Divestiture

On May 15, 2023, pursuant to the Purchase and Sale Agreement (the “Purchase and Sale Agreement”), by and between the Company, through its wholly owned subsidiaries Emergent International Inc. and Emergent Travel Health Inc., and Bavarian Nordic ("Bavarian Nordic”), the Company completed the sale of the Company’s travel health business, including rights to Vivotif®, the licensed typhoid vaccine; Vaxchora®, the licensed cholera vaccine; the development-stage chikungunya vaccine candidate CHIKV VLP; the Company’s manufacturing site in Bern, Switzerland; and certain of its development facilities in San Diego, California.

At the closing, Bavarian Nordic paid a cash purchase price of $270.2 million, exclusive of customary closing adjustments for cash, indebtedness, working capital and transaction expenses of the business at closing. Bavarian Nordic may also be required to pay milestone payments of up to $80.0 million related to the development of CHIKV VLP and receipt of marketing approval and authorization in the U.S. and Europe, and earn-out payments of up to $30.0 million based on aggregate net sales of Vaxchora® and Vivotif® in calendar year 2026.

As a result of the divestiture, the Company recognized a pre-tax gain of $74.2 million, net of transaction costs of $4.0 million recorded within "Gain on sale of business" on the Condensed Consolidated Statements of Operations during 2023.

In connection with the divestiture, the Company entered into a Transition Services Agreement (“TSA”) with Bavarian Nordic to help support its ongoing operations. Under the TSA, the Company provides certain transition services to Bavarian Nordic, including information technology, finance and enterprise resource planning, research and development, human resources, employee benefits and other limited services. Income from performing services under the TSA is recorded within "Other, net" on the Condensed Consolidated Statements of Operations and was $0.4 million for three months ended March 31, 2024.

4. Restructuring charges

January 2023 Organizational Restructuring Plan

In January 2023, the Company initiated an organizational restructuring plan (the “January 2023 Plan”) intended to reduce operating costs, improve operating margins, and continue advancing the Company’s ongoing commitment to profitable growth. As part of the January 2023 Plan, the Company reduced its workforce by approximately 125 employees. The charges related to the January 2023 plan consist primarily of employee transition, severance payment and employee benefit charges. The cumulative amount of restructuring charge related to the January 2023 Plan since inception is $9.3 million. All activities related to the January 2023 Plan were substantially completed during the first quarter of 2023. Restructuring costs are recognized as an operating expense within the Condensed Consolidated Statement of Operations and are classified based on the Company's classification policy for each category of operating expense.

August 2023 Organizational Restructuring Plan

In August 2023, the Company initiated the August 2023 Plan intended to strengthen its core business and financial position by reducing investment in and de-emphasizing focus on its CDMO services business for future growth. As part of the August 2023 Plan, the Company reduced its workforce by approximately 400 employees. The charges related to the August 2023 Plan consist primarily of employee transition, severance payment and employee benefit charges. The cumulative amount of restructuring charge related to the August 2023 Plan since inception is $19.5 million. All activities related to the August 2023 Plan were substantially completed during the third quarter of 2023. Restructuring costs are recognized as an operating expense within the Condensed Consolidated Statement of Operations and are classified based on the Company's classification policy for each category of operating expense.

The following table presents the total restructuring costs related to the January 2023 Plan and August 2023 Plan by reportable segment as well as amounts included within unallocated corporate selling general and administrative (“SG&A”) expense and research and development ("R&D") expense:

The following table presents the total restructuring costs related to the January 2023 Plan and August 2023 Plan by function:

The following tables provide the components of and changes in the Company's restructuring accrual for the January 2023 Plan during the three months ended March 31, 2024 and 2023:

The following table provides the components of and changes in the Company's restructuring accrual for the August 2023 Plan during the three months ended March 31, 2024:

5. Inventories, net

Inventories, net consisted of the following:

Inventories, net is stated at the lower of cost or net realizable value.

6. Property, plant and equipment, net

Property, plant and equipment, net consisted of the following:

As of March 31, 2024 and December 31, 2023, construction-in-progress primarily included costs incurred to advance the Company's MCM Product capabilities.

Property, plant and equipment, net is stated at cost, less accumulated depreciation and amortization.

7. Intangible assets and goodwill

The Company's finite-lived intangible assets consist of products acquired via business combinations or asset acquisitions. The following table summarizes the Company's finite-lived intangible assets:

Amortization expense associated with the Company's finite-lived intangible assets was recorded as follows:

As of March 31, 2024 and December 31, 2023, the Company hadno remaining goodwill balance on the Condensed Consolidated Balance Sheets due to impairment charges recorded during the third quarter of 2023.

8. Fair value measurements

The table below presents information about the Company's assets and liabilities that are regularly measured and carried at fair value and indicates the level within the fair value hierarchy of the valuation techniques the Company utilized to determine fair value:

Contingent consideration

Contingent consideration payments in an asset acquisition not required to be accounted for as derivatives are recognized when the contingency is resolved, and the consideration is paid or becomes payable. Contingent consideration liabilities associated with business combinations are measured at fair value. These liabilities represent an obligation of the Company to transfer additional assets to the selling shareholders and owners if future events occur or conditions are met. These liabilities associated with business combinations are measured at fair value at inception and at each subsequent reporting date. The changes in the fair value are primarily due to the expected amount and timing of future net sales, which are inputs that have no observable market. Any changes in fair value for the contingent consideration liabilities related to the Company’s products are classified on the Company's Condensed Consolidated Statements of Operations as "Cost of product sales."

The table below is a reconciliation of the beginning and ending balance of the Company's Level 3 contingent consideration liability:

As of March 31, 2024 and December 31, 2023, the current portion of the contingent consideration liability was$2.7 million and $2.7 million, respectively, and was included in "Other current liabilities" on the Condensed Consolidated Balance Sheets. The non-current portion of the contingent consideration liability is included in "Other liabilities" on the Condensed Consolidated Balance Sheets.

The recurring Level 3 fair value measurement for the Company's contingent consideration liability used the following significant unobservable inputs:

Non-variable rate debt

As of March 31, 2024 and December 31, 2023, the fair value of the Company's Senior Unsecured Notes was $191.3 million and $184.3 million, respectively. The fair value was determined through market sources, which are Level 2 inputs and directly observable. The carrying amounts of the Company’s other long-term variable interest rate debt arrangements approximate their fair values (see Note 9, "Debt").

9. Debt

The table below presents the components of the Company’s debt:

During the year ended December 31, 2023, the Company reclassified the debt issuance costs associated with the revolver loan to a contra account to directly offset the loan balance in "Other current liabilities" on the Company's Condensed Consolidated Balance Sheets. As of March 31, 2024 and December 31, 2023, the Company had $1.3 million and $5.3 million, respectively, of debt issuance costs associated with the revolver loan.

During the quarter ended March 31, 2024, the Company entered into a bilateral agreement with a bank in the amount of $0.5 million that is fully collateralized by cash, which is classified as “Restricted cash” in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2024.

3.875% Senior Unsecured Notes due 2028

On August 7, 2020, the Company completed its offering of $450.0 million aggregate principal amount of its Senior Unsecured Notes. Interest on the Senior Unsecured Notes is payable on February 15th and August 15th of each year until maturity, beginning on February 15, 2021. The Senior Unsecured Notes will mature on August 15, 2028.

As of August 15, 2023, the Company may redeem the Senior Unsecured Notes, in whole or in part, at the redemption prices set forth in the related indenture, plus accrued and unpaid interest. As of August 15, 2023, the Company may redeem all or a portion of the Senior Unsecured Notes at a redemption price equal to 100% of the principal amount of the Senior Unsecured Notes plus a “make-whole” premium and accrued and unpaid interest as set forth in the related indenture. Upon the occurrence of a change of control, the Company must offer to repurchase the Senior Unsecured Notes at a purchase price of 101% of the principal amount of such notes plus accrued and unpaid interest.

Negative covenants in the indenture governing the Senior Unsecured Notes, among other things, limit the ability of the Company to incur indebtedness and liens, dispose of assets, make investments, enter into certain merger or consolidation transactions and make restricted payments.

Senior Secured Credit Facilities

On February 29, 2024, the Company entered into the Forbearance Agreement and Amendment to, among other things, (a) provide that the Administrative Agent and the lenders forbear from exercising all rights and remedies under the Senior Secured Credit Facilities and the other related loan documents arising from the occurrence and continuation of certain specified events of default during the Forbearance Period and (b) provide consent by the required revolving credit lenders to make further loans to the Company or other extensions of credit to the credit parties during the Forbearance Period, notwithstanding the occurrence of the specified events of default, subject to certain conditions set forth in the Forbearance Agreement and Amendment, including a limit on Revolving Credit Facility indebtedness of $270 million. The Forbearance Agreement and Amendment also amended, among other things, (x) the interest rate benchmark to provide that borrowings will bear interest at a rate per annum equal to (A)5.00% with respect to Base Rate Loans, (B)6.50% per annum with respect to SOFR Loans, Daily Simple SONIA Loans and Eurocurrency Rate Loans, and (C)0.40% with respect to Commitment Fees, (y) the mandatory prepayment threshold amount for unrestricted cash and cash equivalents from $125,000,000 to $100,000,000, and (z) the mandatory principal prepayment amount from 75% of all milestone payments received by the Company and its subsidiaries from certain project milestone payments to 100%. Under the Forbearance Agreement and Amendment, the Company and the other guarantors agreed to cause Emergent BioSolutions Canada Inc. to (i) become a guarantor under the Senior Secured Credit Facilities and (ii) grant a security lien in all collateral owned by Emergent BioSolutions Canada Inc. (subject to the exclusions and exceptions specified in the Collateral Agreement) to the Administrative Agent. In addition, in connection with the entry into the Forbearance Agreement and Amendment, the Company paid a forbearance fee of approximately $1.2 million. The Forbearance Period expired on April 30, 2024. See Note 2, "Summary of significant accounting policies" for further discussion of the Forbearance Agreement and Amendment.

On April 29, 2024, the Company entered into a Consent, Waiver and Seventh Amendment to the Amended and Restated Credit Agreement with requisite lenders (the "Seventh Amendment"). The Seventh Amendment, among other things: (a) reduces available commitments under the Revolving Credit Facility to $270.0 million through July 30, 2024, to $225.0 million from July 31, 2024 through October 30, 2024, and to $200.0 million on October 31, 2024, and thereafter; (b) amends the interest rate benchmark in the definition of Applicable Margin from (i)5.00% per annum to 7.00% per annum with respect to Base Rate Loans and (ii)6.50% per annum to 8.50% per annum with respect to SOFR Loans, RFR Loans and Eurocurrency Rate Loans; and (c) requires the requirement that the Company to raise equity or unsecured indebtedness of at least $85.0 million by July 31, 2024 (or such later date on or before September 29, 2024 as agreed to by the Administrative Agent), provided that such requirement will be reduced by the aggregate net cash proceeds received from certain dispositions that are applied to reduce amounts outstanding under the Revolving Credit Facility.

In addition, pursuant to the Seventh Amendment, the Company is obligated to apply 100% of the aggregate net cash proceeds received from certain dispositions to the prepayment of amounts outstanding under the Revolving Credit Facility, except where such proceeds exceed $85,000,000, in which case such mandatory prepayment of the Revolving Credit Facility will no longer be required. Mandatory prepayment of the Term Loan Facility will not be required unless and until the aggregate net proceeds from such dispositions exceed $85,000,000, at which point 100% of such proceeds must be used toward repayment of amounts outstanding under the Term Loan Facility.

Under the Seventh Amendment, the Company is also subject to (a) a monthly minimum consolidated EBITDA covenant through May 15, 2025 and a monthly maximum capital expenditures covenant through March 31, 2025, (b) a minimum liquidity requirement, and (c) additional financial statement reporting and business plan forecast obligations. In connection with the entry into the Seventh Amendment, the Company paid an amendment fee of an aggregate amount equal to 0.5% of the total credit exposure as of the Seventh Amendment effective date and will be required to pay an additional amendment fee of 1.0% of total credit exposure at December 1, 2024 and each month thereafter. See Note 2, "Summary of significant accounting policies" for additional information related to the Company’s compliance with the debt covenants described above.

10. Share-based compensation and stockholders' equity

Share-based compensation

The Company’s share-based compensation expense relates to stock options, performance stock options, restricted stock units, performance stock units and liability classified long-term incentive awards. During the three months ended March 31, 2024, the Company granted stock options to purchase 3.7 million shares of common stock and granted performance stock options, subject to market conditions, to purchase 0.8 million shares of common stock. The grants were made under the Emergent BioSolutions Inc. Amended and Restated Stock Incentive Plan and the Emergent BioSolutions Inc. Inducement Plan. Additionally, during the three months ended March 31, 2024, the Company granted a long-term incentive award, subject to market conditions, with the option to settle in any combination of cash or shares, which is accounted for as a liability classified award. The performance stock options and the long-term incentive award were valued using Monte Carlo valuation models, and both have a performance period offive years to vest based on the Company’s stock price performance. The long-term incentive award will be revalued at each reporting period until the award is earned or expires. The Company’s other equity awards typically vest over three equal annual installments beginning on the day prior to the anniversary of the grant date. The performance stock units settle in stock at the end of thethree-year performance period based on the Company's results compared to the performance criteria. During the three months ended March 31, 2024,0.1 million stock options and 0.1 million shares of restricted stock units were forfeited prior to the completion of the applicable vesting requirements or expiration. An immaterial number of performance stock units were forfeited during the three months ended March 31, 2024.

Share-based compensation expense, net of forfeitures was recorded in the following financial statement line items:

Stockholders' equity

At-the-Market Equity Offering Facility

The Company may, from time to time, sell up to $150.0 million aggregate gross sales price of shares of its common stock through Evercore Group L.L.C. and RBC Capital Markets, LLC, as sales agents, under an “at-the-market” equity offering program (the “ATM Program”) that was entered into on May 17, 2023. There wereno sales of the Company’s common stock under the ATM Program during the three months ended March 31, 2024. As a result of the delayed filing of certain of the Company’s periodic reports with the SEC in 2023, the Company is not currently eligible to sell any shares under the ATM Program until the Company has timely filed certain periodic reports required under the Securities Exchange Act of 1934 (the “Exchange Act”) for 12 consecutive calendar months. Between the entry into the ATM Program and March 31, 2024, the Company has sold 1.1 million shares of the Company’s common stock for gross proceeds of $9.1 million, representing an average share price of $8.22 per share. As of March 31, 2024, $140.9 million aggregate gross sales price of shares of the Company’s common stock remains available for issuance under the ATM Program. The Company intends to use proceeds obtained from the sale of shares under the ATM Program for general corporate purposes.

Accumulated other comprehensive income (loss), net of tax

The following table includes changes in accumulated other comprehensive income (loss), net of tax by component:

The tables below present the tax effects related to each component of other comprehensive income (loss):

11. Net income (loss) per common share

Basic earnings or loss per common share is calculated using the treasury method by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted income or loss per common share adjusts basic earnings or loss per common share for the effects of potentially dilutive common shares and is calculated using the treasury stock method. Potentially dilutive common shares include the dilutive effect of shares issuable under our equity compensation plans, including stock options, restricted stock units and performance stock units. Diluted income or loss per share excludes anti-dilutive securities, which represent the number of potential common shares related to shares issuable under our equity compensation plan that were excluded from diluted income or loss per common share because their effect would have been antidilutive.

The following table presents the calculation of basic and diluted income or loss per common share:

12. Revenue recognition

The Company generates the majority of its revenues through product sales to its customers. The Company also generates revenues through its Bioservices offerings and suite reservations for and to third parties and contracts and grants revenue. The Company recognizes revenue when the Company's customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services by analyzing the following five steps: (1) identify the contract with (a) customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

In the third quarter of 2023, the Company launched over-the-counter (“OTC”) NARCAN®, which was approved by the FDA as an over-the-counter emergency treatment of opioid overdose, broadening the Company’s customer base and sales channels to retail pharmacies and digital commerce websites. The Company's Nasal Naloxone Products are now sold commercially over-the-counter at retail pharmacies and digital commerce websites as well as through physician-directed or standing order prescriptions at retail pharmacies, health departments, local law enforcement agencies, community-based organizations, substance abuse centers and other federal agencies.

The Company's OTC NARCAN® customer contracts are fixed price contracts. The Company invoices and records revenue when the pharmacies and wholesalers receive product from the third-party logistics warehouse used by the Company, which is the point at which control is transferred to the customer. Revenues for OTC NARCAN® are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. Estimates of variable consideration includes allowance for returns, specialty distributor fees, wholesaler fees and prompt payment discounts. OTC NARCAN® may also be sold on consignment through third-party online retailers where revenues are recognized at the point in time when sold to the end customer. The Company pays these third-party online retailers selling commissions and fulfillment fees which are recorded as SG&A expenses and Cost of commercial product sales, respectively, in the Condensed Consolidated Statement of Operations. Revenues from OTC NARCAN® are recognized to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with such variable consideration is subsequently resolved. The Company considers several factors in the estimation process for the allowance for returns of OTC NARCAN®, including inventory levels within the distribution channel, product shelf life and historical return activity, including activity for product sold for which the return period has passed, as well as other relevant factors. Because returned product cannot be resold, there is no corresponding asset for product returns.

The Company's revenues disaggregated by operating segment and major sources for the three months ended March 31, 2024 and 2023 were as follows:

Bioservices operating leases

Certain multi-year Bioservices arrangements with non-USG customers include operating leases whereby the customer has the right to direct the use of and obtain substantially all of the economic benefits of specific manufacturing suites operated by the Company. The associated revenue is recognized on a straight-line basis over the term of the lease. The remaining term on the Company's operating lease components approximates 4.8 years. The Company utilizes a cost-plus model to determine the stand-alone selling price of the lease component to allocate contract consideration between the lease and non-lease components. During the three months ended March 31, 2024, the Company's non-USG lease revenues were $0.2 million, which is included within Bioservices "Leases" on the Condensed Consolidated Statement of Operations. The Company estimates future operating lease revenues to be $0.6 million in the remainder of 2024, $0.8 million in 2025, $0.9 million in 2026, $0.9 million in 2027, $0.9 million in 2028 andno lease revenue in 2029 and thereafter.

Transaction price allocated to remaining performance obligations

As of March 31, 2024, the Company has future contract value on unsatisfied performance obligations of approximately $279.3 million associated with all arrangements entered into by the Company. The Company expects to recognize $273.5 million of unsatisfied performance obligations within the next 24 months. The amount and timing of revenue recognition for unsatisfied performance obligations can change. The future revenues associated with unsatisfied performance obligations exclude the value of unexercised option periods in the Company’s revenue arrangements. Often the timing of manufacturing activities changes based on customer needs and resource availability. Government funding appropriations can impact the timing of product deliveries. The success of the Company's development activities that receive development funding support from the USG under development contracts can also impact the timing of revenue recognition.

Contract assets

The Company considers accounts receivable and deferred costs associated with revenue generating contracts, which are not included in inventory or property, plant and equipment and that the Company does not currently have a contractual right to bill, to be contract assets. As of March 31, 2024 and December 31, 2023, the Companyhad $29.5 million and$21.9 million, respectively, of contract assets recorded within "Accounts receivable, net" on the Condensed Consolidated Balance Sheets.

Contract liabilities

When performance obligations are not transferred to a customer at the end of a reporting period, cash received associated with amounts allocated to those performance obligations is reflected as contract liabilities on the Condensed Consolidated Balance Sheets and is deferred until control of these performance obligations is transferred to the customer. The following table presents the roll forward of the contract liability balances:

As of March 31, 2024 and December 31, 2023, the current portion of contract liabilities was $5.5 million and $27.2 million, respectively, and was included in "Other current liabilities" on the Condensed Consolidated Balance Sheets.

Accounts receivable and allowance for expected credit losses

Accounts receivable, including unbilled accounts receivable contract assets, consist of the following:

We maintain an allowance for expected credit losses, which represents the estimated aggregate amount of credit risk arising from the inability or unwillingness of specific customers to pay our fees or disputes that may affect our ability to fully collect our billed accounts receivable. We estimate the current-period provision for expected credit losses on a specific identification basis and we consider factors such as the age of the receivables balance, knowledge of the specific customers' circumstances and historical collection experience for similar customers. Accounts receivable, net of the allowance for expected credit losses, represents the amount we expect to collect. Our actual experience may vary from our estimates. At each reporting date, we adjust the allowance for expected credit losses to reflect our current estimate.

13. Leases

The Company is the lessee for operating leases for offices, R&D facilities and manufacturing facilities. The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets and liabilities. For a discussion of lessor activities, see Note 12, "Revenue recognition."

The components of lease expense were as follows:

Operating lease costs are reflected as components of "Cost of Commercial Product sales", "Cost of MCM Product sales", "Cost of Bioservices", "R&D" expense and "SG&A" expense on the Company's Condensed Consolidated Statements of Operations.

Supplemental balance sheet information related to lessee activities is as follows:

14. Income taxes

The estimated effective annual tax rate as of March 31, 2024 and 2023 for the years ended December 31, 2024 and 2023, excluding the impact of discrete adjustments, was 19% and (16)%, respectively. The effective tax rate for the three months ended March 31, 2024 and 2023 was 26% and (16)%, respectively. The increase in the estimated effective annual tax rate is primarily due to a change in jurisdictional mix of income and losses. The Company did not record a discrete tax expense (benefit) for the three months ended March 31, 2024 and 2023.

The Company establishes valuation allowances for deferred income tax assets in accordance with U.S. GAAP, which provides that such valuation allowances shall be established unless realization of the income tax benefits is more likely than not. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At each reporting period, the Company considers the scheduled reversal of deferred tax liabilities and assets, available taxes in carryback periods, tax planning strategies and projected future taxable income in making this assessment.

In 2022, the Company determined that it was more likely than not that certain deferred tax assets would not be realized due to reductions in estimates of future profitability and disclosure related to substantial doubt about the Company's ability to continue as a going concern.

15. Litigation

Securities and shareholder litigation

With respect to the specific legal proceedings and claims described below, unless otherwise noted, the amount or range of possible losses is not reasonably estimable. There can be no assurance that the settlement, resolution, or other outcome of one or more matters, including the matters set forth below, during any subsequent reporting period will not have a material adverse effect on the Company's results of operations or cash flows for that period or on the Company's financial condition.

On April 20, 2021, May 14, 2021, and June 2, 2021, putative class action lawsuits were filed against the Company and certain of its current and former senior officers in the United States District Court for the District of Maryland on behalf of purchasers of the Company’s common stock, seeking to pursue remedies under the Exchange Act. These complaints were filed by Palm Tran, Inc. – Amalgamated Transit Union Local 1577 Pension Plan; Alan I. Roth; and Stephen M. Weiss, respectively. The complaints allege, among other things, that the defendants made false and misleading statements about the Company's manufacturing capabilities with respect to COVID-19 vaccine bulk drug substance (referred to herein as "CDMO Manufacturing Capabilities"). These cases were consolidated on December 23, 2021, under the caption In re Emergent BioSolutions Inc. Securities Litigation, No. 8:21-cv-00955-PWG (the "Federal Securities Class Action"). The lead plaintiffs in the consolidated matter (the "Lead Plaintiffs") are Nova Scotia Health Employees’ Pension Plan and The City of Fort Lauderdale Police & Firefighters’ Retirement System. The defendants filed a motion to dismiss on May 19, 2022 and the Lead Plaintiffs filed an opposition to that motion on July 19, 2022. A hearing on the motion to dismiss was conducted on April 19, 2023 and an order was entered on September 1, 2023, granting in part and denying in part the motion to dismiss. The defendant's answer to the complaint was filed on October 30, 2023. The defendants believe that the allegations in the complaints are without merit and intend to defend the matters vigorously. Given the uncertainty of litigation, the preliminary stage of the cases, and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot reasonably estimate the possible loss or range of loss, if any, that may result from the consolidated action.

On June 29, 2021, Lincolnshire Police Pension Fund (“Lincolnshire”), and on August 16, 2021, Pooja Sayal, filed putative shareholder derivative lawsuits in the United States District Court for the District of Maryland on behalf of the Company against certain of the Company's current and former officers and directors for breach of fiduciary duties, waste of corporate assets, and unjust enrichment, each allegation related to the CDMO Manufacturing Capabilities. In addition to monetary damages, the complaints seek the implementation of multiple corporate governance and internal policy changes. On November 16, 2021, the cases were consolidated under the caption In re Emergent BioSolutions Inc. Stockholder Derivative Litigation, Master Case No. 8:21-cv-01595-PWG. On January 3, 2022, the Lincolnshire complaint was designated as the operative complaint in the consolidated action. On April 13, 2022, the Court approved the parties' joint stipulation to and stay of the proceedings and discovery until the close of fact discovery in the Federal Securities Class Action. The defendants believe that the allegations in the complaints are without merit and intend to defend the matter vigorously.

On September 15, 2021, September 16, 2021 and November 12, 2021, putative shareholder derivative lawsuits were filed by Chang Kyum Kim, Mark Nevins and Employees Retirement System of the State of Rhode Island, North Collier Fire Control and Rescue District Firefighters Pension Plan, and Pembroke Pines Firefighters & Police Officers Pension Fund, respectively, in the Court of Chancery of the State of Delaware on behalf of the Company against certain of its current and former officers and directors for breach of fiduciary duties, unjust enrichment and insider trading, each allegation related to the CDMO Manufacturing Capabilities. In addition to monetary damages, the complaints seek the implementation of multiple corporate governance and internal policy changes. On February 2, 2022, the cases were consolidated under the caption In re Emergent BioSolutions, Inc. Derivative Litigation, C.A. No. 2021-0974-MTZ with the institutional investors as co-lead plaintiffs. On March 4, 2022, the defendants’ filed a motion to dismiss the complaint. Ruling on this motion is stayed pursuant to a March 29, 2022 order staying all proceedings pending a final, non-appealable judgment in the Federal Securities Class Action.

On December 3, 2021, December 22, 2021 and January 18, 2022, putative shareholder derivative lawsuits were filed by Zachary Elton, Eric White and Jeffrey Reynolds in the Circuit Court for Montgomery County, Maryland on behalf of the Company against certain of its current and former officers and directors for breach of fiduciary duty, unjust enrichment, waste of corporate assets, failing to maintain internal controls, making or causing to be made false and/or misleading statements and material omissions, insider trading and otherwise violating the federal securities laws, each allegation related to the CDMO Manufacturing Capabilities. The complaints seek monetary and punitive damages. On February 22, 2022, the Court entered an order consolidating these actions under case number C-15-21-CV-000496. On March 9, 2022, the parties filed a Joint Stipulation of Stay of Proceedings and Discovery, pursuant to which the parties agreed to stay all proceedings until 30 calendar days after a ruling on the defendants’ motion to dismiss, and on November 2, 2023, the Court approved the parties' joint stipulation to extend the stay of the proceedings and discovery until the close of fact discovery in the Federal Securities Class Action.

In addition to the above actions, the Company has received inquiries and subpoenas to produce documents related to these matters from the Department of Justice, the SEC, the Maryland Attorney General’s Office, and the New York Attorney General’s Office. The Company produced or is producing documents as required in response and will continue to cooperate with these government inquiries. The Company also received inquiries and subpoenas from Representative Carolyn Maloney and Representative Jim Clyburn, members of the House Committee on Oversight and Reform and the Select Subcommittee on the Coronavirus Crisis and Senator Murray of the Committee on Health, Education, Labor and Pensions. The Company produced documents and provided testimony and briefings as requested in response to these inquiries.

2022 Termination of manufacturing services agreement with Janssen Pharmaceuticals, Inc.

On July 2, 2020, the Company, through its wholly owned subsidiary, Emergent Manufacturing Operations Baltimore, LLC, entered into the Janssen Agreement with Janssen, one of the Janssen Pharmaceutical Companies of Johnson & Johnson, for large-scale drug substance manufacturing of Johnson & Johnson’s investigational SARS-CoV-2 vaccine, Ad26.COV2-S, recombinant based on the AdVac technology (the “Product”).

On June 6, 2022, the Company provided to Janssen a notice (the “Notice”) of material breach of the Janssen Agreement for, among other things, failure by Janssen (i) to provide the Company the requisite forecasts of the required quantity of Product to be purchased by Janssen under the Janssen Agreement and (ii) to confirm Janssen’s intent to not purchase the requisite minimum quantity of the Product pursuant to the Janssen Agreement and instead, wind-down the Janssen Agreement ahead of fulfilling these minimum requirements. On June 6, 2022, the Company received from Janssen a purported written notice of termination (the “Janssen Notice”) of the Janssen Agreement for asserted material breaches of the Janssen Agreement by the Company, including alleged failure by the Company to perform its obligations in compliance with current good manufacturing practices ("cGMP") or other applicable laws and regulations and alleged failure by the Company to supply Janssen with the Product. Janssen alleged that the Company’s breaches were not curable and that, therefore, termination of the Janssen Agreement would be effective as of July 6, 2022. The Company disputes Janssen's assertions and allegations, including Janssen's ability to effect termination pursuant to the Janssen Notice. The Company and Janssen disagree on the monetary amounts that are due to the Company as a result of termination by any means. The Company believes the amounts due to the Company include, but are not limited to, compensation for services provided, reimbursement for raw materials purchased and non-cancelable orders, and fees for early termination. Janssen has alleged that no additional amount is due to the Company and that the Company should pay Janssen an unspecified amount as a result of the Company's alleged failure to perform under the Janssen Agreement. The Company is currently engaged in a confidential arbitration with Janssen. The Company has not recorded any contingent liabilities related to Janssen's allegations as the Company believes they are without merit and intends to vigorously defend the Company's position during the dispute resolution process through arbitration.

During the three months ended March 31, 2024, there were no impacts on previously recognized revenue or depreciation related to the conclusion of the Janssen Agreement. As of March 31, 2024, the Company has no billed or unbilled net accounts receivable related to the Janssen Agreement.

Beginning in the fourth quarter of 2022, because the arbitration process with Janssen is expected to extend longer than one year, the Company reclassified amounts related to the Janssen Agreement from "Inventories, net" and from "Prepaid expenses and other current assets" to "Other assets", resulting in $152.7 million in long-term assets related to the Janssen Agreement on the Condensed Consolidated Balance Sheet as of December 31, 2022. The long-term asset balance within "Other Assets" related to the Janssen Agreement as of March 31, 2024 was $158.8 million. These assets include termination penalties, certain inventory related items and raw materials inventory representing materials purchased for the Janssen Agreement which Janssen has not reimbursed. The Company evaluated the net realizable value of the inventory as of March 31, 2024, concluding that because the Janssen Agreement specifies the Company is entitled to, among other things, reimbursement of raw materials and non-cancelable orders in the event of a contract termination for any reason, the Company is entitled to payment from Janssen for these raw materials. As of March 31, 2024, all non-cancelable orders have been received by Janssen and are included in the long-term asset balance within "Other Assets".

16. Segment information

In the fourth quarter of 2023, the Company realigned its reportable operating segments to reflect recent changes in the Company’s internal operating and reporting process. The revised reporting structure reflects the internal reporting and review process used by the Company’s CODM for making decisions and assessing performance and is consistent with how the Company currently manages the business. The Company now manages its business with a focus onthree reportable segments. The Commercial Products segment, which includes NARCAN® products and other commercial products that were sold as part of the travel health business in the second quarter of 2023 (see Note 3, "Divestiture" for more information on the sale of the travel health business); the MCM Products segment, which includes the Anthrax - MCM products, Smallpox - MCM products and Other Products; and the Services segment, consisting of the Company’s Bioservices offerings.

The Company evaluates the performance of these reportable segments based on revenue and segment adjusted gross margin, which is a non-GAAP financial measure. Segment revenue includes external customer sales, but it does not include inter-segment services. The Company defines segment adjusted gross margin, as segment gross margin excluding the impact of restructuring costs and non-cash items related to changes in fair value of contingent consideration and inventory step-up provision. We define total segment adjusted gross margin, which is a non-GAAP financial measure, as total segment gross margin, excluding the impact of restructuring costs and the fair value of contingent consideration. The Company does not allocate research and development, selling, general and administrative costs, amortization of intangibles assets, interest and other income (expense) or taxes to operating segments in the management reporting reviewed by the CODM. The accounting policies for segment reporting are the same as for the Company as a whole.

The Company manages its assets on a total company basis, not by operating segment, as the Company's operating assets are shared or commingled. Therefore, the Company's CODM does not regularly review any asset information by operating segment and, accordingly, the Company does not report asset information by operating segment.

For all tables presented below, the prior period disclosures have been recast to conform to the current period segment presentation.

The following table presents segment revenues, segment cost of sales or services, segment gross margin, segment gross margin percentage and segment adjusted gross margin for each of the Company’s reportable segments for the three months ended March 31, 2024 and 2023:

The following table provides a reconciliation of the Company's total segment adjusted gross margin to the Condensed Consolidated Statement of Operations:

The following table includes depreciation expense for each segment:

17. Subsequent events

May 2024 Organizational Restructuring Plan

On May 1, 2024, the Company announced an organizational restructuring plan (the “May 2024 Plan”). These strategic actions will lead to a reduction of the Company’s current workforce by approximately 300 employees across all areas of the Company and the elimination of approximately 85 positions that are currently vacant, as well as the closure of the Company’s Baltimore-Bayview Drug Substance manufacturing facility and Rockville, Maryland Drug Product facility. Decisions regarding the elimination of positions and the closure of manufacturing facilities are subject to local law and consultation requirements in certain countries, as well as the Company’s business needs.

The Company estimates that it will incur approximately $18.0 million to $21.0 million in charges in connection with the May 2024 Plan, which it expects to incur primarily in the second quarter of fiscal 2024. These charges consist primarily of cash charges related to severance, transition services, and estimated benefits cost.

The estimates of the charges and expenditures that the Company expects to incur in connection with the May 2024 Plan, and the timing thereof, are subject to a number of assumptions, including local law requirements in various jurisdictions, and actual amounts may differ materially from estimates. In addition, the Company may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the May 2024 Plan.