Gates Industrial Corp plc [GTES] Filings

10-Q 1 gtes-20220702.htm 10-Q gtes-20220702

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 2, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number 001-38366

Gates Industrial Corporation plc

(Exact Name of Registrant as Specified in its Charter)


England and Wales						98-1395184
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1144 Fifteenth Street, Denver, Colorado 80202



(Address of principal executive offices)						(Zip Code)

(303) 744-1911

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary Shares, $0.01 par value per share	GTES	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 2, 2022, there were 282,286,432 ordinary shares of $0.01 par value outstanding.

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TABLE OF CONTENTS


Part I – Financial Information

Item 1.	Financial Statements (unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
Item 4.	Controls and Procedures	46

Part II – Other Information

Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47


Item 6.	Exhibits	47
Signatures		48

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Forward-looking Statements

This Quarterly Report on Form 10-Q (this “quarterly report” or “report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “predicts,” “intends,” “trends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those expressed in or implied by our forward-looking statements, including but not limited to the factors described in Item 1A. “Risk Factors” in Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (the “annual report”), as filed with the Securities and Exchange Commission (the “SEC”), which include the following: economic, political and other risks associated with international operations (including those related to the Russia-Ukraine conflict); severe disruptions in the global economy due to the ongoing COVID-19 pandemic; availability of raw materials or other manufacturing inputs at favorable prices in sufficient quantities, or at a given time; changes in our relationships with, or the financial condition, performance, purchasing power or inventory levels of, key channel partners; pricing pressures from our customers; continued operation of our manufacturing facilities, supply chains, distribution systems and information technology systems; our ability to forecast demand or meet significant increases in demand; our ability to maintain and enhance our strong brand; market acceptance of new product introductions and innovations; our cost-reduction actions; longer lives of products used in our end markets may affect demand for some of our replacement markets; development of the replacement market in emerging markets may limit our ability to grow; pursuit of strategic transactions, including acquisitions, divestitures, restructurings, joint ventures, strategic alliances or investments, which could create risks and present unforeseen integration obstacles or costs; our investments in joint ventures; liabilities with respect to businesses that we have divested in the past; loss or financial instability of any significant customer; societal responses to sustainability issues, including those related to climate change; litigation, legal and regulatory proceedings and obligations, and the availability and coverage of insurance; infringement on the intellectual property of others; failure to adequately protect or enforce our intellectual property rights against counterfeiting activities; failure to develop, obtain, enforce and protect our intellectual property rights in all jurisdictions throughout the world; recalls, product liability claims or product warranties claims; failure to comply with anti-corruption laws and other laws governing our international operations; existing or new laws and regulations, including but not limited to those relating to HSE concerns, and the sale of aftermarket products; cyber-security vulnerabilities, threats, and more sophisticated and targeted computer crimes; failure of information systems; highly complex and rapidly evolving global privacy, data protection and data security requirements; loss of senior management or key personnel; work stoppages and other labor matters; potential requirement to make additional cash contributions to our defined benefit pension plans; change in our effective tax rates or additional tax liabilities; change in tax laws; tax authorities may no longer treat us as being exclusively a resident of the U.K. for tax purposes; our substantial leverage, including interest rate risk; and the significant influence of our majority shareholders, affiliates of Blackstone Inc., over us, as such factors may be updated from time to time in the Company’s periodic filings with the SEC. Investors are urged to consider carefully the disclosure in this report and our other filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. Gates undertakes no obligation to update or supplement any forward-looking statements as a result of new information, future events or otherwise, except as required by law.

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ABOUT THIS QUARTERLY REPORT

Financial Statement Presentation

Gates Industrial Corporation plc is a public limited company that was incorporated under the Companies Act 2006 on September 25, 2017 and is registered in England and Wales.

Certain monetary amounts, percentages and other figures included elsewhere in this quarterly report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

All amounts in this quarterly report are expressed in United States of America (the “U.S.”) dollars, unless indicated otherwise.

Certain Definitions

As used in this quarterly report, unless otherwise noted or the context requires otherwise:

•“Gates,” the “Company,” “we,” “us” and “our” refer to Gates Industrial Corporation plc and its consolidated subsidiaries; and

•“Blackstone” or “our Sponsor” refer to investment funds affiliated with Blackstone Inc., which, although no individual fund owns a controlling interest in us, together represent our current majority owners.

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PART I — FINANCIAL INFORMATION

Item 1: Financial Statements (unaudited)

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Operations


	Three months ended				Six months ended
(dollars in millions, except per share amounts)	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net sales	$	906.8	$	915.1	$	1,800.2	$	1,796.4
Cost of sales	580.6		548.4		1,169.1		1,084.2
Gross profit	326.2		366.7		631.1		712.2
Selling, general and administrative expenses	209.1		214.2		444.3		425.8
Transaction-related expenses	0.5		0.2		1.3		2.6
Asset impairments	0.6		—		0.6		—
Restructuring expenses	3.2		3.7		3.7		6.6
Other operating expense (income)	0.1		(0.5)		0.1		(0.5)
Operating income from continuing operations	112.7		149.1		181.1		277.7
Interest expense	33.0		33.3		65.6		67.7
Other expenses (income)	8.1		(1.2)		8.7		(2.4)
Income from continuing operations before taxes	71.6		117.0		106.8		212.4
Income tax expense	12.3		11.6		10.1		30.5
Net income from continuing operations	59.3		105.4		96.7		181.9
Loss (gain) on disposal of discontinued operations, net of tax, respectively, of $0, $0, $0 and $0	0.2		(0.4)		0.3		(0.3)
Net income	59.1		105.8		96.4		182.2
Less: non-controlling interests	6.0		8.9		12.4		18.0
Net income attributable to shareholders	$	53.1	$	96.9	$	84.0	$	164.2

Earnings per share
Basic
Earnings per share from continuing operations	$	0.19	$	0.33	$	0.29	$	0.56
Earnings per share from discontinued operations	—		—		—		—
Earnings per share	$	0.19	$	0.33	$	0.29	$	0.56

Diluted
Earnings per share from continuing operations	$	0.19	$	0.33	$	0.29	$	0.55
Earnings per share from discontinued operations	—		—		—		—
Earnings per share	$	0.19	$	0.33	$	0.29	$	0.55

The accompanying notes form an integral part of these condensed consolidated financial statements.

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Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Comprehensive Income


	Three months ended				Six months ended
(dollars in millions)	July 2, 2022		July 3, 2021		July 2, 2022		July 3, 2021
Net income	$	59.1	$	105.8	$	96.4	$	182.2
Other comprehensive (loss) income
Foreign currency translation:
—Net translation (loss) gain on foreign operations, net of tax expense, respectively, of $(1.0), $0, $(1.0) and $0	(164.3)		32.6		(191.8)		(35.4)
—Gain (loss) on net investment hedges, net of tax benefit, respectively, of $0, $0, $0.9 and $0	21.9		(2.7)		33.1		15.5
Total foreign currency translation movements	(142.4)		29.9		(158.7)		(19.9)
Cash flow hedges (interest rate derivatives):
—Gain (loss) arising in the period, net of tax (expense) benefit, respectively, of $(0.5), $0.4, $(8.8) and $(1.5)	1.7		(3.2)		26.8		4.6
—Reclassification to net income, net of tax expense, respectively, of $(1.4), $(1.7), $(2.8) and $(2.7)	4.1		3.7		8.2		8.0
Total cash flow hedges movements	5.8		0.5		35.0		12.6
Post-retirement benefits:

—Reclassification of prior year actuarial movements to net income, net of tax benefit, respectively, of $0, $0, $0.1 and $0	(0.3)		—		(0.4)		—
Total post-retirement benefits movements	(0.3)		—		(0.4)		—
Other comprehensive (loss) income	(136.9)		30.4		(124.1)		(7.3)
Comprehensive (loss) income for the period	$	(77.8)	$	136.2	$	(27.7)	$	174.9

Comprehensive (loss) income attributable to shareholders:
—(Loss) income arising from continuing operations	$	(56.1)	$	123.7	$	(5.3)	$	163.4
—(Loss) income arising from discontinued operations	(0.2)		0.4		(0.3)		0.3
	(56.3)		124.1		(5.6)		163.7
Comprehensive (loss) income attributable to non-controlling interests	(21.5)		12.1		(22.1)		11.2
	$	(77.8)	$	136.2	$	(27.7)	$	174.9

The accompanying notes form an integral part of these condensed consolidated financial statements.

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Gates Industrial Corporation plc

Unaudited Condensed Consolidated Balance Sheets


(dollars in millions, except share numbers and per share amounts)	As of July 2, 2022		As of January 1, 2022
Assets
Current assets
Cash and cash equivalents	$	393.2	$	658.2
Trade accounts receivable, net	831.7		708.1
Inventories	695.5		682.6
Taxes receivable	50.2		19.1
Prepaid expenses and other assets	276.4		210.7
Total current assets	2,247.0		2,278.7
Non-current assets
Property, plant and equipment, net	633.3		670.3
Goodwill	1,973.2		2,063.0
Pension surplus	68.7		75.5
Intangible assets, net	1,545.4		1,642.2
Right-of-use assets	114.2		124.2
Taxes receivable	14.7		15.7
Deferred income taxes	557.6		639.3
Other non-current assets	43.9		24.1
Total assets	$	7,198.0	$	7,533.0
Liabilities and equity
Current liabilities
Debt, current portion	$	37.8	$	38.1
Trade accounts payable	478.8		506.6
Taxes payable	35.1		34.1
Accrued expenses and other current liabilities	219.8		277.1
Total current liabilities	771.5		855.9
Non-current liabilities
Debt, less current portion	2,533.9		2,526.5
Post-retirement benefit obligations	97.4		106.2
Lease liabilities	105.3		116.4
Taxes payable	104.8		103.7
Deferred income taxes	224.6		283.7
Other non-current liabilities	57.2		59.2
Total liabilities	3,894.7		4,051.6
Commitments and contingencies (note 18)
Shareholders’ equity
—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 282,286,432 (January 1, 2022: authorized shares: 3,000,000,000; outstanding shares: 291,282,137)	2.8		2.9
—Additional paid-in capital	2,524.1		2,484.1
—Accumulated other comprehensive loss	(914.8)		(825.2)

—Retained earnings	1,346.1		1,437.9
Total shareholders’ equity	2,958.2		3,099.7
Non-controlling interests	345.1		381.7
Total equity	3,303.3		3,481.4
Total liabilities and equity	$	7,198.0	7,533.0

The accompanying notes form an integral part of these condensed consolidated financial statements.

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Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Cash Flows


	Six months ended
(dollars in millions)	July 2, 2022		July 3, 2021
Cash flows from operating activities
Net income	$	96.4	$	182.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	110.9		112.7
Foreign exchange and other non-cash financing expenses	25.1		13.3


Share-based compensation expense	27.6		12.8
Decrease in post-employment benefit obligations, net	(7.9)		(7.6)
Deferred income taxes	(30.8)		(34.2)
Asset impairments	0.9		0.1
Other operating activities	4.3		3.8
Changes in operating assets and liabilities, net of effects of acquisitions:
—Increase in accounts receivable	(153.5)		(161.0)
—Increase in inventories	(40.3)		(85.3)
—(Decrease) increase in accounts payable	(5.7)		66.2
—Increase in prepaid expenses and other assets	(38.0)		(14.9)
—(Decrease) increase in taxes payable	(27.8)		28.1
—Decrease in other liabilities	(43.0)		(4.4)
Net cash (used in) provided by operating activities	(81.8)		111.8
Cash flows from investing activities
Purchases of property, plant and equipment	(34.9)		(40.3)
Purchases of intangible assets	(3.2)		(3.7)

Cash paid under corporate-owned life insurance policies	(10.3)		(10.1)
Cash received under corporate-owned life insurance policies	4.6		1.9


Other investing activities	1.2		1.6
Net cash used in investing activities	(42.6)		(50.6)
Cash flows from financing activities
Issuance of shares	13.9		3.7

Buy-back of shares	(175.8)		—
Proceeds from long-term debt	70.0		—
Payments of long-term debt	(10.3)		(80.4)

Debt issuance costs paid	(0.3)		(8.6)
Dividends paid to non-controlling interests	(14.5)		(10.3)
Other financing activities	(10.3)		(7.3)
Net cash used in financing activities	(127.3)		(102.9)
Effect of exchange rate changes on cash and cash equivalents and restricted cash	(12.9)		(6.4)
Net decrease in cash and cash equivalents	(264.6)		(48.1)
Cash and cash equivalents and restricted cash at the beginning of the period	660.9		524.1
Cash and cash equivalents and restricted cash at the end of the period	$	396.3	$	476.0
Supplemental schedule of cash flow information
Interest paid	$	57.4	$	62.0
Income taxes paid	$	68.7	$	36.5
Accrued capital expenditures	$	2.5	$	0.6

The accompanying notes form an integral part of these condensed consolidated financial statements.

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Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Shareholders’ Equity


	Three months ended July 2, 2022

(dollars in millions)	Share capital		Additional paid-in capital		Treasury Shares		Accumulated other comprehensive loss		Retained earnings		Total shareholders’ equity		Non- controlling interests		Total equity
As of April 2, 2022	$	2.9	$	2,504.7	$	(121.9)	$	(805.4)	$	1,414.8	$	2,995.1	$	381.1	$	3,376.2

Net income	—		—		—		—		53.1		53.1		6.0		59.1
Other comprehensive loss	—		—		—		(109.4)		—		(109.4)		(27.5)		(136.9)
Total comprehensive (loss) income	—		—		—		(109.4)		53.1		(56.3)		(21.5)		(77.8)
Other changes in equity:
—Issuance of shares	—		13.7		—		—		—		13.7		—		13.7
—Shares withheld for employee taxes	—		—		—		—		—		—		—		—

—Cancellation of treasury shares	(0.1)		—		121.9		—		(121.8)		—		—		—
—Share-based compensation	—		5.7		—		—		—		5.7		—		5.7


—Dividends paid to non-controlling interests	—		—				—		—		—		(14.5)		(14.5)

As of July 2, 2022	$	2.8	$	2,524.1	$	—	$	(914.8)	$	1,346.1	$	2,958.2	$	345.1	$	3,303.3


	Three months ended July 3, 2021

(dollars in millions)	Share capital		Additional paid-in capital		Treasury Shares		Accumulated other comprehensive loss		Retained earnings		Total shareholders’ equity		Non- controlling interests		Total equity
As of April 3, 2021	$	2.9	$	2,463.1	$	—	$	(833.1)	$	1,218.7	$	2,851.6	$	378.4	$	3,230.0

Net income	—		—		—		—		96.9		96.9		8.9		105.8
Other comprehensive income	—		—		—		27.2		—		27.2		3.2		30.4
Total comprehensive income	—		—		—		27.2		96.9		124.1		12.1		136.2
Other changes in equity:
—Issuance of shares	—		2.0		—		—		—		2.0		—		2.0


—Share-based compensation	—		6.1		—		—		—		6.1		—		6.1


—Dividends paid to non-controlling interests	—		—		—		—		—		—		(10.3)		(10.3)

As of July 3, 2021	$	2.9	$	2,471.2	$	—	$	(805.9)	$	1,315.6	$	2,983.8	$	380.2	$	3,364.0

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Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Shareholders’ Equity


	Six months ended July 2, 2022

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss		Retained earnings		Total shareholders’ equity		Non- controlling interests		Total equity
As of January 1, 2022	$	2.9	$	2,484.1	$	(825.2)	$	1,437.9	$	3,099.7	$	381.7	$	3,481.4

Net income	—		—		—		84.0		84.0		12.4		96.4
Other comprehensive loss	—		—		(89.6)		—		(89.6)		(34.5)		(124.1)
Total comprehensive (loss) income	—		—		(89.6)		84.0		(5.6)		(22.1)		(27.7)
Other changes in equity:
—Issuance of shares	—		13.9		—		—		13.9		—		13.9
—Shares withheld for employee taxes	—		(1.3)		—		—		(1.3)		—		(1.3)
—Buy-back and cancellation of shares	(0.1)		—		—		(175.8)		(175.9)		—		(175.9)

—Share-based compensation	—		27.4		—		—		27.4		—		27.4


—Dividends paid to non-controlling interests	—		—		—		—		—		(14.5)		(14.5)

As of July 2, 2022	$	2.8	$	2,524.1	$	(914.8)	$	1,346.1	$	2,958.2	$	345.1	$	3,303.3


	Six months ended July 3, 2021

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss		Retained earnings		Total shareholders’ equity		Non- controlling interests		Total equity
As of January 2, 2021	$	2.9	$	2,456.8	$	(805.4)	$	1,151.4	$	2,805.7	$	379.3	$	3,185.0

Net income	—		—		—		164.2		164.2		18.0		182.2
Other comprehensive loss	—		—		(0.5)		—		(0.5)		(6.8)		(7.3)
Total comprehensive (loss) income	—		—		(0.5)		164.2		163.7		11.2		174.9
Other changes in equity:
—Issuance of shares	—		3.7		—		—		3.7		—		3.7

—Shares withheld for employee taxes	—		(0.7)		—		—		(0.7)		—		(0.7)
—Share-based compensation	—		11.4		—		—		11.4		—		11.4


—Dividends paid to non-controlling interests	—		—		—		—		—		(10.3)		(10.3)

As of July 3, 2021	$	2.9	$	2,471.2	$	(805.9)	$	1,315.6	$	2,983.8	$	380.2	$	3,364.0

The accompanying notes form an integral part of these condensed consolidated financial statements.

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Gates Industrial Corporation plc

Notes to the Unaudited Condensed Consolidated Financial Statements

1. Introduction

A. Background

Gates Industrial Corporation plc (the “Company”) is a public limited company that was registered in England and Wales on September 25, 2017.

In these condensed consolidated financial statements and related notes, all references to “Gates,” “we,” “us,” and “our” refer, unless the context requires otherwise, to Gates Industrial Corporation plc and its consolidated subsidiaries.

B. Accounting periods

The Company prepares its annual consolidated financial statements for the period ending on the Saturday nearest December 31. Accordingly, the condensed consolidated balance sheets as of July 2, 2022 and January 1, 2022, and the related condensed consolidated statements of operations, comprehensive income, cash flows, and shareholders’ equity are presented, where relevant, for the 91-day period from April 3, 2022 to July 2, 2022, with comparative information for the 91-day period from April 4, 2021 to July 3, 2021 and for the 182-day period from January 2, 2022 to July 2, 2022, with comparative information for the 182-day period from January 3, 2021 to July 3, 2021.

C. Basis of preparation

The condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are presented in U.S. dollars unless otherwise indicated. The condensed consolidated financial statements and related notes contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position as of July 2, 2022 and the results of its operations and cash flows for the periods ended July 2, 2022 and July 3, 2021. Interim period results are not necessarily indicative of the results to be expected for the full fiscal year.

We continue to contend with the

Gates Industrial Corp plc [GTES] Filings
10-Q	[2022-08-05]
10-Q	[2022-05-04]
10-K	[2022-02-11]
10-Q	[2021-11-08]
10-Q	[2021-08-09]
10-Q	[2021-05-11]
10-K	[2021-02-10]
10-Q	[2020-11-04]
10-Q	[2020-08-05]
10-Q	[2020-05-06]
10-K	[2020-02-21]
10-Q	[2019-11-06]
10-Q	[2019-08-07]
10-Q	[2019-05-08]
10-K	[2019-02-14]
10-Q	[2018-11-02]
10-Q	[2018-08-02]
10-Q	[2018-05-03]
10-K	[2018-03-15]
S-1	[2017-12-27]