What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2024-03-15 compared with 2023-03-16 · 187 added, 240 removed, 245 unchanged (64% of the section changed)

MARKET FOR REGISTRANT ’

S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Information

Our common stock has traded on the NASDAQ Global Select Market since November 25, 1997, under the symbol “ANIK.”

At December 31, 2022, the closing price per share of our common stock was $29.60 as reported on the NASDAQ Global Select Market, and there were 111 holders of record. We believe that the number of beneficial owners of our common stock at that date was substantially greater, due to shares being held by intermediaries.

Our common stock has traded on the NASDAQ Global Select Market since November 25, 1997, under the symbol “ANIK.” At December 31, 2023, the closing price per share of our common stock was $22.66 as reported on the NASDAQ Global Select Market, and there were 110 holders of record.

We believe that the number of beneficial owners of our common stock at that date was substantially greater, due to shares being held by intermediaries.

We have never declared or paid any cash dividends on our common stock.

9 unchanged sentences

Issuer Purchases of Equity Securities

On May 2, 2019, we announced that our Board of Directors approved a $50.0 million share repurchase program with $30.0 million to be utilized for an accelerated share repurchase program, which was completed in January 2020, and $20.0 million reserved for open market repurchases which represents the maximum value of shares that may yet be purchased.

No open market repurchases were made during the years ended December 31, 2021 and 2022.

In April 2023, we agreed to establish a share repurchase program for an aggregate purchase price of $20.0 million.

Of the $20.0 million, the first $5.0 million was to be effected through an accelerated stock repurchase program, the second $5.0 million was to be purchased in the open market and the remaining $10.0 million was to be purchased in the open market subject to positive cash flow.

On May 12, 2023, we entered into an accelerated share repurchase agreement with Bank of America, N.A., or Bank of America, pursuant to a Fixed Dollar Accelerated Share Repurchase Transaction, or ASR Agreement, to purchase $5.0 million of shares of its common stock.

During the second quarter of 2023, 158,983 shares were delivered to us, constituting the initial delivery of shares and representing 80% of the then estimated total number of shares expected to be repurchased under the ASR Agreement.

In July 2023, we received the remaining 29,046 additional shares at a final settlement price based on the average purchase price of $26.59 per share.

Securities Authorized for Issuance Under Equity Compensation Plans

1 unchanged sentence

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section contains statements that are not statements of historical fact and are forward-looking statements within the meaning of the federal securities laws.

1 unchanged sentence

These statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks and uncertainties.

We discuss many of these risks and uncertainties at the beginning of this Annual Report on Form  

10-K and under the sections captioned “

Business ”

Risk Factors.

We discuss many of these risks and uncertainties at the beginning of this Annual Report on Form 10-K and under the sections captioned “ Business ” and “ Risk Factors.

” The following discussion should also be read in conjunction with the consolidated financial statements and the Notes thereto appearing elsewhere in this Annual Report on Form 10-K.

2 unchanged sentences

Based on our collaborations with clinicians to understand what they need most to treat their patients, we develop minimally invasive products that restore active living for people around the world.

We are committed to leading in high opportunity spaces within orthopedics, including OA, pain management, regenerative solutions, sports medicine and Arthrosurface joint solutions (previously Bone Preserving Joint Solutions).

We are committed to leading in high opportunity spaces within orthopedics, including OA pain management, regenerative solutions, sports medicine and Arthrosurface joint solutions.

We have thirty years of global expertise developing, manufacturing and commercializing products based on our HA technology platform.

2 unchanged sentences

In early 2020, we expanded our overall technology platform, product portfolio, and significantly expanded our commercial infrastructure, especially in the United States, through our strategic acquisitions of Parcus Medical, LLC, a sports medicine and instrumentation solutions provider, and Arthrosurface, Inc., a company specializing in bone preserving partial and total joint replacement solutions.

These acquisitions, have ignited the transformation of our company by augmenting our HA-based OA pain management and regenerative products with a broad suite of products and capabilities focused on early intervention joint preservation primarily in upper and lower extremities such as shoulder, foot/ankle, knee and hand/wrist.

These acquisitions augmented our HA-based OA pain management and regenerative products with a broad suite of products and capabilities focused on early intervention joint preservation primarily in upper and lower extremities such as shoulder, foot/ankle, knee and hand/wrist.

As we look towards the future, our business is positioned to capture value within our target market of joint preservation.

1 unchanged sentence

Decades of experience in HA-based regenerative solutions and early intervention orthopedics combined under new seasoned leadership with a strong financial foundation for future investment in meaningful solutions for our customers and their patients;

Utilizing HA-based technology and manufacturing expertise to provide new and differentiated solutions for the growing joint preservation and regenerative medicine markets;

Introducing key HA-based products into the US market upon FDA approval/clearance, such as Cingal, Hyalofast and the Integrity Implant System, our arthroscopic patch system for rotator cuff repair;

Robust network of stakeholders in our target markets to identify evolving unmet patient treatment needs;

Prioritized investment in differentiated pipeline of regenerative solutions, bone preserving implants and sports medicine products;

Leveraging our global commercial expertise to drive growth across the portfolio, with an intentional site of care focus on ASCs in the United States;

Global commercial expertise which we will leverage to drive growth across our product portfolio, including an intentional site of care focus on ambulatory surgical centers in the United States and continued international expansion;

Opportunity to pursue strategic inorganic growth opportunities, including potential partnerships and smaller acquisitions, technology licensing, and leveraging our strong financial foundation and operational capabilities;

Pursuit of strategic inorganic growth opportunities, including potential partnerships and smaller acquisitions and technology licensing, by leveraging our strong financial foundation and operational capabilities;

Energized and experienced team focused on strong values, talent, and culture.

For additional information regarding our business, please refer to “Item 1.

Business”

of this Annual Report on Form 10-K.

For additional information regarding our business, please refer to “Item 1.

Business” of this Annual Report on Form 10-K.

Key Developments during the Year Ended December 31, 2023

Strengthened #1 U.S.

market share position for 2022 in OA Pain Management with single-injection Monovisc and multi-injection Orthovisc (SmartTRAK 2022 data).

In August 2022, DePuy Mitek extended our license and supply agreement for Orthovisc for another 5-year term through December 2028.

Continued accelerated growth of Tactoset, Anika’s regenerative solution for insufficiency fractures and soft tissue hardware augmentation, with multiple planned 510(k)s targeting further expansion.

Cingal, Anika’s next generation, non-opioid, single-injection HA-based product combined with fast-acting steroid, successfully achieved its primary endpoint in a third Phase III clinical trial, Cingal 19-01, which demonstrated the superiority of Cingal over steroid alone, for OA pain relief at 26 weeks.

Together with previous studies, Cingal has shown superiority over each of its active ingredients and placebo, consistently demonstrating strong and durable pain relief in OA patients.

Engaging with the FDA regarding next steps for U.S.

regulatory approval and exploring the potential to advance Cingal through commercial partnerships in the U.S.

and select Asian markets.

Submitted multiple 510(k)s for a new innovative HA-based regenerative rotator cuff system, which will further build upon Anika's growing and differentiated shoulder portfolio.

Hyalofast has been designated as a Breakthrough Device by the FDA, allowing prioritized interaction and review.

Approaching full enrollment in pivotal Phase III clinical trial with 199 of 200 subjects enrolled.  Company expects to be on track to file for a Premarket Approval (PMA) with the FDA in 2025.

Completed development of RevoMotion Reverse Shoulder Arthroplasty System, with limited market release initiated and first surgeries performed in Q1 2023.

RevoMotion’s differentiated bone preserving design expands Anika’s shoulder arthroplasty portfolio in the over $800 million U.S.

reverse shoulder market and offers the industry’s smallest diameter threaded glenoid baseplate.

Received 510(k) clearance and launched new X-Twist Fixation System, Anika’s cornerstone suture anchor system, with full market launch in early 2023 following successful limited launch in the second half of 2022.

X-Twist is a key addition to Anika’s portfolio and is uniquely positioned to address the needs of surgeons performing high volume soft tissue repair procedures such as rotator cuff repair and ankle stabilization surgeries.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the spread of the COVID-19 virus a pandemic.

This pandemic caused an economic downturn globally, which created volatility in our results due to the worldwide cancellation or delay of elective procedures, staffing shortages and supply chain disruptions, as well as the impact on timelines associated with certain clinical studies.

Please see the section captioned “Part I.

Risk Factors”

of this Annual Report on Form 10-K for additional information with respect to the risks faced by our business in light of the COVID-19 pandemic.

While the impact has been limited to these items to date, we caution that there continues to be a possibility for potential future implementation of certain additional restrictions or other challenges associated with infections, staffing shortages or supply chain disruptions due to COVID-19 and current or new variants in certain jurisdictions.

The impact of these challenges is currently unknown but could be significant and we continue to take precautions so as not to disrupt our business.

Strengthening Leadership Position in OA Pain Management

Achieved record annual revenues of $101.9 million in OA Pain Management with single-injection Monovisc, multi-injection Orthovisc and Cingal outside the U.S.;

Increasing leading U.S.

market share position.

Cingal, Anika’s next generation non-opioid single-injection HA-based osteoarthritis pain product, continued strong double-digit growth outside the U.S.

Awaiting FDA feedback on proposed non-clinical next steps regarding Cingal U.S.

regulatory approval following a Type C meeting with the FDA in early 2023 and success in meeting its latest Phase III Pivotal primary endpoint in 2022.

Advancing a Highly Differentiated Portfolio of HA-Based Regenerative Solutions

Successfully completed over 100 cases with the Integrity Implant System, Anika’s HA-based regenerative rotator cuff patch system, following the limited market release in late November 2023;

on-track for full market release in mid-2024.

Fully enrolled Hyalofast , Anika’s HA off-the-shelf single-stage cartilage repair product, Phase III clinical trial;

modular PMA submission with break-through device designation commencing in 2024;

final PMA module filing expected in 2025 with product launching by 2026.

Launched Key Products in Sports Medicine and Arthrosurface Joint Solutions

X-Twist Biocomposite Fixation System launched in the first quarter of 2024, compliments the PEEK version launched in early 2023.

RevoMotion Reverse Shoulder Arthroplasty System full market release in September 2023.

OA Pain Management

Our OA Pain Management product family consists of Monovisc and  Orthovisc, our injectable, HA-based viscosupplement offerings that are indicated to provide pain relief from osteoarthritis conditions;

Cingal, our novel, next-generation, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a fast-acting steroid, designed to provide both short- and long-term pain relief, which is currently sold outside the United States in over 35 countries;

and Hyvisc, our high molecular weight injectable HA veterinary product.

Our OA Pain Management product family consists of Monovisc and Orthovisc, our injectable, HA-based OA Pain Management offerings that are indicated to provide pain relief from osteoarthritis conditions;

and Cingal, our novel, next-generation, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a fast-acting steroid.

Cingal is our next generation fast-acting, long-lasting, non-opioid, clinically proven osteoarthritis pain product which is designed to provide both short- and long-term pain relief, through at least six months.

It is currently sold outside the United States in over 35 countries.

In 2022, we completed a third Phase III clinical trial for Cingal, which achieved its primary endpoint.

Cingal is currently not approved for commercial use in the United States.

We have been actively engaging with the U.S.

Food and Drug Administration, or the FDA, on next steps for U.S.

regulatory approval.

Joint Preservation and Restoration

Our Joint Preservation and Restoration product family consists of:

(a) our portfolio of over 150 bone preserving joint technology products, including partial joint replacement, joint resurfacing, and minimally invasive and bone sparing implants, designed to treat upper and lower extremity orthopedic conditions caused by trauma, injury and arthritic disease;

(a) our portfolio of orthopedic regenerative solutions products utilizing HA, including Integrity, our new arthroscopic regenerative patch system for rotator cuff repair and other tendon procedures, Tactoset products, and Hyalofast outside of the United States in over 30 countries;

(b) our line of sports medicine solutions used to repair and reconstruct damaged ligaments and tendons due to sports injuries, trauma and disease;

and (c) our orthopedic regenerative solutions products, including Hyalofast and Tactoset.

and (c) our Arthrosurface portfolio of bone preserving joint technologies, including partial joint replacement, joint resurfacing, and minimally invasive and bone sparing implants, designed to treat upper and lower extremity orthopedic conditions caused by trauma, injury and arthritic disease.

Non-Orthopedic

Our Non-Orthopedic product family consists of legacy HA-based products that are marketed principally for non-orthopedic applications, including our adhesion barrier product, advanced wound care products, our ear, nose and throat products, and our ophthalmic products.

For additional information with respect to our products, including information related to how they are sold and new product development initiatives, please see the sections captioned “Products,”

“Sales Channels,”

and “Research and Development”

contained within “Part I.

Business”

of this Annual Report on Form 10-K.

Non-Orthopedic also includes Hyvisc, our high molecular weight injectable HA veterinary product approved for the treatment of joint dysfunction in horses due to non-infectious synovitis associated with equine OA.

Hyvisc was previously reported in the OA Pain Management product family but has been reclassified to the Non-Orthopedic product family beginning in 2023.

For additional information with respect to our products, including information related to how they are sold and new product development initiatives, please see the sections captioned “Products,” “Sales Channels,” and “Research and Development” contained within “Part I.

Business” of this Annual Report on Form 10-K.

Results of Operations

Year ended December  

31, 2022 compared to year ended December  

Year ended December 31, 2023 compared to year ended December 31, 2022

Statement of Operations Detail

Years Ended December 31,

Year Ended December 31,

(in thousands, except percentages)

3 unchanged sentences

Selling, general & administrative

Change in fair value of contingent consideration

Impairment of intangible assets

Total operating expenses

(Loss) income from operations

Loss from operations

Interest and other expense, net

(Loss) income before income taxes

Loss before income taxes

Benefit from income taxes

Net (loss) income

The following table presents revenue by product family for fiscal years 2022 and 2021 (dollars in thousands): 

The following table presents revenue by product family for fiscal years 2023 and 2022 (dollars in thousands):

Years Ended December 31,

2 unchanged sentences

Non-Orthopedic

Revenue for the year ended December 31, 2022 was $156.2 million, an increase of $8.4 million, or 6%, compared to the prior year.

The increase in revenue was driven by recovery outside the U.S.

from the initial impact of the COVID-19 pandemic on sales volumes and related strategic partner ordering patterns, as well as from growing global commercial adoption of our products.

Revenue from our OA Pain Management product family increased 9% for the year ended December 31, 2022, as compared to prior year, due primarily to higher international sales on recovery from the initial impact of the COVID-19 pandemic, favorable ordering patterns and growth in adoption of our products globally.

The increase was also a result of growth in Mitek revenues as well as higher veterinary sales on favorable order patterns and COVID-19 recovery. 

Revenue from our Joint Preservation and Restoration product family increased 4% for the year ended December 31, 2022, as compared to prior year, due to improving elective procedure volumes and rapidly growing commercial adoption of our newest products.

Revenue from our Non-Orthopedic product family decreased 18% for the year ended December 31, 2022, as compared to prior year, primarily due to timing of distributor sales as well as last-time purchases of legacy products during 2021.

Revenue for the year ended December 31, 2023 was $166.7 million, an increase of $10.5 million, or 7%, compared to the prior year.

The increase in revenue was driven by growing global commercial adoption of our products as well as our introduction of new products in recent years.

Revenue from our OA Pain Management product family increased 11% for the year ended December 31, 2023, as compared to prior year, due to a global sales growth of our Monovisc single injection pain product and favorable ordering patterns, as well as continued double-digit international growth of our Cingal next generation non-opioid single injection pain product.

Revenue from our Joint Preservation and Restoration product family increased 9% for the year ended December 31, 2023, as compared to prior year, due to commercial adoption of our newest products, such as X-Twist, and higher international sales.

Revenue from our Non-Orthopedic product family decreased 29% for the year ended December 31, 2023, as compared to prior year, primarily due to lower sales to veterinary customers due to timing of ordering patterns and lower sales following last-time-buys in 2022 associated with termination of certain legacy distributor contracts.

Effective January 1, 2023, we began to report revenue from product sales to veterinary customers within the Non-Orthopedic product family whereas such revenue had historically been reported within the OA Pain Management revenue product family for the prior period year ended December 31, 2022.

Revenue from product sales to veterinary customers amounted to $4.2 million and $5.9 million for 2023 and 2022, respectively, with the 2022 revenue reclassified to Non-Orthopedic to conform to current presentation.

Gross Profit and Margin

Gross profit for the year ended December 31, 2022 was $93.6 million, or gross margin of 60%, as compared with $82.9 million, or gross margin of 56%, for the year ended December 31, 2021.

The increase in gross profit for the year ended December 31, 2022, primarily resulted from higher revenue growth and the conclusion of the amortization of inventory step-up costs related to the 2020 Arthrosurface and Parcus Medical acquisitions.

This increase was partially offset by higher product rationalization charges, as well as higher manufacturing-related costs.

Gross margin includes acquisition-related amortization expenses and the impact of inventory step-up costs associated with the Arthrosurface and Parcus Medical acquisitions.

These expenses together increased cost of revenue by $6.2 million, or 7 points of gross margin, for the year ended December 31, 2022, as compared to increased cost of revenue of $12.7 million, or 9 points of gross margin for the same periods in 2021.

Gross profit for the year ended December 31, 2023 was $103.1 million, or gross margin of 62%, as compared with $93.6 million, or gross margin of 60%, for the year ended December 31, 2022.

The increase in gross profit for the year ended December 31, 2023, primarily resulted from higher revenue growth, improved manufacturing efficiency and lower product rationalization charges.

This increase was partially offset by higher costs due to inflationary pressures for raw materials and freight charges.

Research and Development

Research and development expenses for the year ended December 31, 2022 were $28.2 million, an increase of $0.9 million, or 3%, as compared to the prior year, primarily due to increased costs to ensure compliance with growing regulatory requirements globally as well as new product development associated with our research and development pipeline.

Also included in research and development expenses are clinical costs.

We completed a third Phase III clinical trial for Cingal in 2022, which achieved its primary endpoint, and made significant progress in completing enrollment in our Hyalofast clinical trial.

For additional information on our research and development activities, please see the section captioned “Part I.

Business—

Research and Development ”

in this Annual Report on Form 10-K.

Research and development expenses for the year ended December 31, 2023 were $32.7 million, an increase of $4.5 million, or 16%, as compared to the prior year, primarily due to increased costs to ensure compliance with growing regulatory requirements globally, such as EU MDR, as well as new product development associated with our research and development pipeline, led by Integrity, which received FDA clearance in August 2023 and was launched with first surgeries in rotator cuff repair and other tendon procedures in November 2023.

For additional information on our research and development activities, please see the section captioned “Part I.

Business— Research and Development ” in this Annual Report on Form 10-K.

Selling, General and Administrative

Selling, general and administrative, or SG&A, expenses for the year ended December 31, 2022 were $84.8 million, an increase of $10.7 million, or 14%, as compared to the prior year.

The increase in SG&A expenses for the year ended December 31, 2022 was primarily related to the expansion of our commercial capability in the United States, including increased marketing, medical education and other operational capabilities to support our growing business needs, as well as increased commissions on higher sales.

The growth in SG&A expenses also reflects the increase in certain activities that were curtailed in the early stages of the COVID-19 pandemic, such as travel, as well as higher stock-based compensation expense driven by the growth in personnel to support Anika’s strategic transformation, and higher general corporate costs.

Contingent Consideration Fair Value Change

In the year ended December 31, 2021, we recorded a $21.1 million net benefit related to the change in fair value of our contingent consideration liabilities incurred associated with the acquisitions of Parcus Medical and Arthrosurface in 2020.

The liability for contingent consideration is remeasured at each reporting period until the contingency is resolved.

The decrease in fair value of the contingent consideration was due primarily to the decrease in the likelihood that certain contingent milestones would be achieved or because certain contingent milestones were not achieved.

In July 2021, we made a regulatory milestone payment in connection with the Arthrosurface acquisition in the amount of $10.0 million upon obtaining a regulatory clearance for a reverse shoulder implant system.

In September 2022, we made a milestone payment in connection with the Parcus Medical acquisition in the amount of $4.3 million.

As of December 31, 2022, we do not expect that any additional milestones associated with the Parcus Medical and Arthrosurface acquisitions to be achieved.

Selling, general and administrative, or SG&A, expenses for the year ended December 31, 2023 were $95.9 million, an increase of $11.0 million, or 13%, as compared to the prior year.

The increase in SG&A expenses for the year ended December 31, 2023 was primarily due to $13.0 million of non-recurring costs related to the Parcus Medical unitholder arbitration settlement, shareholder activism, discontinuation of a software development project and other non-recurring corporate costs.

During the year, spending increased as we continued to expand our commercial capability in the United States, including increased marketing, medical education and other operational capabilities to support our business growth, as well as due to increased commissions resulting from sales growth.

Impairment of Intangible Assets

We assess our long-lived assets for impairment under certain circumstances, such as when events or changes in circumstances indicate there may be impairment.

During the fourth quarter of 2023, we performed a quantitative assessment of intangible assets impairment related to the Parcus Medical and Arthrosurface reporting unit.

The results of these impairment tests indicated that the estimated fair value of this reporting unit was less than its carrying value.

Consequently, a non-cash impairment of intangible assets charge of $62.2 million was recorded in the quarter ended December 31, 2023.

The decline in fair value was primarily due to lower growth expectations for future revenue and related cash flows related the Parcus Medical and Arthrosurface reporting unit.

The benefit from income taxes was $2.7 million for the year ended December 31, 2023, resulting in an effective tax rate of 3.1%.

The benefit from income taxes was $3.9 million for the year ended December 31, 2022, resulting in an effective tax rate of 20.7%.

The increase in our effective rate for the year ended December 31, 2022 as compared to the year ended December 31, 2021 is primarily due to the change in fair value of contingent consideration and the release of the valuation allowance related to the net deferred tax assets in Italy during 2021.

Net Income (Loss)

For the year ended December 31, 2022, net loss was $14.9 million, or $1.02 per diluted share, compared to net income of $4.1 million, or $0.28 per diluted share, for the prior year.

The decrease in net income and diluted earnings per share was primarily due to the net of tax benefit of $17.0 million recorded in 2021 related to the reduction in fair value of contingent consideration, as well as higher operating expenses in 2022 primarily driven by increased spending to expand our commercial capability and development of new products, partially offset by higher revenues and favorable gross profit in 2022.

The decrease in our effective rate for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is primarily due to a valuation allowance being recorded on U.S.

deferred tax assets in 2023 offset somewhat by non-deductible stock-based compensation.

For the year ended December 31, 2023, the net loss was $82.7 million, or $5.64 per basic and diluted loss per share, compared to a net loss of $14.9 million, or $1.02 per basic and diluted share, for the prior year.

The $67.8 million increase in the net loss was due to the $62.2 million pre-tax impairment charge on intangible assets recorded in the fourth quarter of 2023 and $13.0 million in pre-tax expenses associated with other non-recurring costs earlier in 2023.

Non-GAAP Financial Measures

3 unchanged sentences

We believe that the exclusion of these items in calculating these measures can provide a useful tool for period-to-period comparisons of our core operating performance.

Accordingly, we believe that these measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects and allowing for greater transparency with respect to key financial metrics used by our management in their financial and operational decision-making. 

Adjusted Gross Profit and Adjusted Gross Margin

7 unchanged sentences

Acquisition related intangible asset amortization

Acquisition related inventory step up

Adjusted gross profit

3 unchanged sentences

The increase in adjusted gross profit for the year ended December 31, 2023 as compared to 2022, primarily resulted from the growth of revenue.

There was no change in adjusted gross margin for the year ended December 31, 2022 as compared to 2021, as the benefits of higher revenue and related production volumes were offset by increased costs and the continued impact of global supply chain and staffing challenges that arose following the COVID-19 pandemic.

There was no change in adjusted gross margin for the year ended December 31, 2023 as compared to 2022, as the benefits of higher revenue and related production volumes were offset by increased supply chain costs due to inflationary pressures and a higher proportion of international sales in which product margins are generally lower.

Adjusted EBITDA

We present information below with respect to adjusted EBITDA, which we define as our net income (loss) excluding interest and other income, net, income tax benefit (expense), depreciation and amortization, stock-based compensation, product rationalization charges, and acquisition-related expenses.

We have also excluded the impact changes in the fair value of contingent consideration associated with our acquisition transactions in early 2020.

We present information below with respect to adjusted EBITDA, which we define as our net loss excluding interest and other income, net, income tax benefit, depreciation and amortization, stock-based compensation, product rationalization charges, and other non-recurring expenses.

Adjusted EBITDA is not prepared in accordance with U.S.

3 unchanged sentences

Some of these limitations are:

adjusted EBITDA excludes depreciation and amortization, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;

we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our employee compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary and bonus expense included in operating expenses likely would be higher, which would affect our cash position;

we exclude acquisition related expenses, including transaction costs and other related expenses, amortization and depreciation of acquired assets in recent acquisitions, and the impact of inventory fair-value step up on cost of goods sold;

we exclude certain impairment charges, including impairment related to In-Process Research and Development, or IPR&D, assets, certain product rationalization charges, the impact of COVID-19 and changing regulatory requirements;

we exclude goodwill impairment charges and changes in the fair value of contingent consideration;

the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;

adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

adjusted EBITDA does not reflect provision for (benefit from) income taxes or the cash requirements to pay taxes; and

we exclude certain impairment charges, including impairment related to intangible assets, certain product rationalization charges;

we exclude goodwill impairment charges and changes in the fair value of contingent consideration;’

we exclude certain other non-recurring costs, such as the arbitration settlement with Parcus Medical, costs associated with shareholder activism, and discontinuation of a software project;

adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

adjusted EBITDA does not reflect provision for (benefit from) income taxes or the cash requirements to pay taxes; and

adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments.

The following is a reconciliation of adjusted EBITDA to net income (loss) for the years ended December 31, 2022 and 2021 respectively:

The following is a reconciliation of adjusted EBITDA to net loss for the years ended December 31, 2023 and 2022 respectively:

Years Ended December 31,

Net (loss) income

Interest and other expense, net

3 unchanged sentences

Product rationalization charges

IPR&D impairment

Arbitration settlement

Acquisition related intangible asset amortization

Acquisition related inventory step up

Change in fair value of contingent consideration

Impairment of intangible assets

Discontinuation of software development project

Costs of shareholder activism

Adjusted EBITDA

Adjusted EBITDA for year ended December 31, 2022, decreased $3.8 million as compared to 2021.

The decrease in adjusted EBITDA was primarily due to an increase in operating expenses largely attributable to expansion of our commercial capability in the United States and an increase in product development costs, partially offset by an increase in revenue.

Adjusted Net Income (Loss) and Adjusted EPS

We present information below with respect to adjusted net income (loss) and adjusted EPS.

We define adjusted net income (loss) as our net income (loss) excluding amortization and depreciation of acquired assets, the impact of inventory fair-value step up on cost of revenue, changes in the fair value of contingent consideration, as well as certain impairment charges, including impairment related to IPR&D assets and non-cash product rationalization charges, each on a tax effected basis.

Adjusted EBITDA for year ended December 31, 2023 was $15.5 million, an increase of $2.9 million as compared to 2022.

The increase in adjusted EBITDA was primarily due to an increase in revenue and adjusted gross profit as well as a slower ramp up of commercial spending in 2023 and overall spending control.

Adjusted Net Loss and Adjusted EPS

We present information below with respect to adjusted net loss and adjusted EPS.

We define adjusted net loss as our net loss excluding amortization and depreciation of acquired assets, the impact of inventory fair-value step up on cost of revenue, changes in the fair value of contingent consideration, as well as certain impairment charges, including impairment related to IPR&D assets and non-cash product rationalization charges, each on a tax effected basis.

Acquisition-related expenses are those that we would not have incurred except as a direct result of acquisition transactions.

2 unchanged sentences

We define adjusted EPS as U.S.

GAAP diluted earnings per share excluding the above adjustments to net income (loss) used in calculating adjusted net income (loss), each on a per share and tax effected basis.

The following is a reconciliation of adjusted net income (loss) to net income (loss) for the years ended December 31, 2022 and 2021, respectively:

GAAP diluted earnings per share excluding the above adjustments to net loss used in calculating adjusted net loss, each on a per share and tax effected basis.

The following is a reconciliation of adjusted net income to net loss for the years ended December 31, 2023 and 2022, respectively:

Years Ended December 31,

Net (loss) income

Product rationalization charges, tax effected

IPR&D impairment, tax effected

Arbitration settlement, tax effected

Acquisition related intangible asset amortization, tax effected

Acquisition related inventory step up, tax effected

Change in fair value of contingent consideration, tax effected

Impairment of intangible assets, tax effected

Discontinuation of software development project, tax effected

Costs of shareholder activism, tax effected

Adjusted net loss

The following is a reconciliation of adjusted EPS to diluted earnings (loss) per share for the years ended December 31, 2022 and 2021, respectively (in thousands, expect per share data):

The following is a reconciliation of adjusted diluted loss per share to diluted loss per share for the years ended December 31, 2023 and 2022, respectively (in thousands, expect per share data):

Years Ended December 31,

Diluted (loss) earnings per share

Diluted loss per share

Product rationalization charges, tax effected

IPR&D impairment, tax effected

Arbitration settlement, tax effected

Acquisition related intangible asset amortization, tax effected

Acquisition related inventory step up

Change in fair value contingent consideration, tax effected

Impairment of intangible assets, tax effected

Discontinuation of software development project, tax effected

Costs of shareholder activism, tax effected

Adjusted diluted loss per share

Adjusted net loss in 2022, increased by $6.7 million as compared to 2021.

The increase in adjusted net loss for the period was primarily due to an increase in selling and marketing expenses to support our commercial capability in the United States, an increase in research and development expenses and an increase in stock-based compensation expense.

Adjusted net loss in 2023 was $4.3 million, a decrease of $2.7 million as compared to 2022.

The decrease in adjusted net loss and adjusted diluted loss per share for the period was primarily due to higher revenues and improved operating performance during the year.

Results of Operations

Year ended December  

31, 2021 compared to year ended December  

Year ended December 31, 2022 compared to year ended December 31, 2021

Statement of Operations Detail

Years Ended December 31,

Year Ended December 31,

(in thousands, except percentages)

3 unchanged sentences

Selling, general & administrative

Goodwill impairment

Change in fair value of contingent consideration

Total operating expenses

Income (loss) from operations

(Loss) income from operations

Interest and other expense, net

Income (loss) before income taxes

(Loss) income before income taxes

Benefit from income taxes

Net income (loss)

Net (loss) income

The following table presents product revenue by product family for fiscal years 2022 and 2021 (dollars in thousands):

3 unchanged sentences

Non-Orthopedic

Revenue for the year ended December 31, 2021 was $147.8 million, an increase of $17.3 million, or 13%, compared to the prior year.

The increase in revenue was primarily driven by partial recovery from the initial impact of the COVID-19 pandemic on sales volumes and related strategic partner ordering patterns as well as from growing commercial adoption of new products.

The increase for 2021 was also in part due to inclusion of full first quarter results of Parcus Medical and Arthrosurface, which we acquired on January 24, 2020 and February 3, 2020, respectively.

Revenue from our OA Pain Management product family increased 8% for the year ended December 31, 2021, as compared to prior year, due primarily to partial recovery from the initial impact of the COVID-19 pandemic on sales volumes and related strategic partner ordering patterns. 

Revenue from our Joint Preservation and Restoration product family increased 23% for the year ended December 31, 2021, as compared to prior year, due primarily to organic growth as the initial impact of the COVID-19 pandemic on elective procedures begins to lift in various worldwide jurisdictions, especially in the United States during 2021.

We also saw rapidly growing commercial adoption of new regenerative, soft tissue and bone sparing joint products introduced in 2019, 2020 and 2021.

The increase was also due in part to the inclusion of full year results from Parcus Medical and Arthrosurface which were acquired in the first quarter of 2020.

Revenue from our non-orthopedic product family increased 20% for the year ended December 31, 2021, as compared to the prior year, primarily due to the timing of distributor sales as well as due to higher revenues from legacy products during the first quarter.

Revenue for the year ended December 31, 2022 was $156.2 million, an increase of $8.4 million, or 6%, compared to the prior year.

The increase in revenue was driven by recovery outside the U.S.

from the initial impact of the COVID-19 pandemic on sales volumes and related strategic partner ordering patterns, as well as from growing global commercial adoption of our products.

Revenue from our OA Pain Management product family increased 8% for the year ended December 31, 2022, as compared to prior year, due primarily to higher international sales on recovery from the initial impact of the COVID-19 pandemic, favorable ordering patterns and growth in adoption of our products globally.

The increase was also a result of growth in Mitek revenues as well as higher veterinary sales on favorable order patterns and COVID-19 recovery.

Revenue from our Non-Orthopedic product family decreased 2% for the year ended December 31, 2022, as compared to prior year, primarily due to timing of distributor sales as well as last-time purchases of legacy products during 2021.

Revenue from product sales to veterinary customers amounted to $5.9 million and $4.4 million for 2022 and 2021, respectively, with the 2022 and 2021 revenue reclassified to Non-Orthopedic to conform to current presentation.

Gross Profit and Margin

Gross profit for the year ended December 31, 2021 was $82.9 million, or gross margin of 56%, as compared with $69.0 million, or gross margin of 53%, for the year ended December 31, 2020.

The increase in gross profit for the year ended December 31, 2021, primarily resulted from revenue growth and lower amortization of inventory step up costs related to the Arthrosurface and Parcus Medical acquisitions.

This increase was partially offset by higher product rationalization charges, as well as lower production levels and increased reserves caused in part by staffing and supply chain challenges resulting from the COVID-19 pandemic.

Gross margin includes the impact of inventory step-up associated with the Arthrosurface and Parcus Medical acquisitions, as well as acquisition-related amortization expenses.

Gross profit for the year ended December 31, 2022 was $93.6 million, or gross margin of 60%, as compared with $82.9 million, or gross margin of 56%, for the year ended December 31, 2021.

This increase was partially offset by higher product rationalization charges, as well as higher manufacturing-related costs.

Gross margin includes acquisition-related amortization expenses and the impact of inventory step-up costs associated with the Arthrosurface and Parcus Medical acquisitions.

Research and Development

Research and development expenses for the year ended December 31, 2021 were $27.3 million, an increase of $3.9 million, or 17%, as compared to the prior year, primarily due to product development activities associated with the development of new product candidates in our research and development pipeline, execution of the third Cingal Phase III clinical study and Hyalofast clinical trial.

Research and development expenses for the year ended December 31, 2022 were $28.2 million, an increase of $0.9 million, or 3%, as compared to the prior year, primarily due to increased costs to ensure compliance with growing regulatory requirements globally as well as new product development associated with our research and development pipeline.

Also included in research and development expenses are clinical costs.

We completed a third Phase III clinical trial for Cingal in 2022, which achieved its primary endpoint, and made significant progress in completing enrollment in our Hyalofast clinical trial.

Selling, General and Administrative

Selling, general and administrative, or SG&A, expenses for the year ended December 31, 2021 were $74.1 million, an increase of $14.0 million, or 23%, as compared to the prior year.

The increase in SG&A expenses for the year ended December 31, 2021 was primarily related to full period expenses from Parcus Medical and Arthrosurface, expansion of our commercial capability in the United States and expanded marketing activities and other operational capabilities to support the growing business needs, higher stock based compensation expense, and a non-cash loss on disposal of fixed assets, partially offset by the absence of transaction costs incurred in 2020 related to acquisitions of Parcus Medical and Arthrosurface. Certain activities were curtailed in the year ended December 31, 2020 due to cost optimization in light of the early stages of the COVID-19 pandemic.

Goodwill Impairment Charge

We assess goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment.

government policy responses to the COVID-19 pandemic and the resulting changes in healthcare guidelines caused a temporary suspension of domestic elective surgical procedures.

As a result of these events during 2020, we experienced decreases in immediate term revenue and related cash flows which directly impacted the Parcus Medical and Arthrosurface reporting unit.

The results of the interim and annual impairment tests indicated that the estimated fair value of this reporting unit was less than its carrying value.

Consequently, a non-cash goodwill impairment charge of $42.5 million was recorded in 2020.

There were no goodwill impairment charges during 2021.

Selling, general and administrative, or SG&A, expenses for the year ended December 31, 2022 were $84.8 million, an increase of $10.7 million, or 14%, as compared to the prior year.

Contingent Consideration Fair Value Change

The liability for contingent consideration is remeasured at each reporting period until the contingency is resolved.

1 unchanged sentence

In September 2022, we made a milestone payment in connection with the Parcus Medical acquisition in the amount of $4.3 million.

The benefit from income taxes was $3.9 million for the year ended December 31, 2022, resulting in an effective tax rate of 20.7%.

The benefit from income taxes was $1.7 million for the year ended December 31, 2021, resulting in an effective tax rate of (70.4%).

The net change in the effective tax rate for the year ended December 31, 2021, as compared to the prior year, was primarily due to lower income before tax in 2021, favorable state tax apportionment, a $0.9 million tax benefit on the decrease in the fair value of contingent consideration and the release of a valuation allowance initially recorded in 2020 in the amount of $0.9 million due to increased likelihood regarding the realizability of certain net deferred tax assets in Italy.

Net Income (Loss)

For the year ended December 31, 2021, net income was $4.1 million, or $0.28 per diluted share, compared to net loss of $24.0 million, or $1.69 per diluted share, for the prior year.

The increase in net income and diluted earnings per share was primarily due to increased revenue, reduction in the fair value of contingent consideration and the absence of goodwill impairment charges, partially offset by higher operating expenses primarily driven by increased spending to expand our commercial capability in the United States and development of new products and clinical trial activity.

For the year ended December 31, 2022, net loss was $14.9 million, or $1.02 per diluted share, compared to net income of $4.1 million, or $0.28 per diluted share, for the prior year.

Concentration of Risk

9 unchanged sentences

The loss of any one of our major customers or the delay of significant orders from such customers, even if only temporary, could reduce or delay our recognition of revenues, harm our reputation in the industry, and reduce our ability to accurately predict cash flow, and, consequently, it could seriously harm our business, financial condition, and results of operations.

See Note 13, Revenue by Product Family, by Significant Customer and by Geographic Location;

See Note 12, Revenue and Geographic Information;

Geographic Information , to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information regarding significant customers.

2 unchanged sentences

We expect that our requirements for cash to fund these uses will increase as our operations expand.

We continue to generate cash from operating activities, and we believe that our operating cash flows, cash currently on our balance sheet and availability under our credit facility will be sufficient to allow us to continue to invest in our existing business, to manage our capital structure on a short and long-term basis, and to meet our anticipated operating cash needs.

Cash, cash equivalents, and investments aggregated $86.3 million and $94.4 million, and working capital totaled $141.6 million and $138.7 million, at December 31, 2022 and 2021, respectively. 

We believe that our operating cash flows, cash currently on our balance sheet and availability under our credit facility will be sufficient to allow us to continue to invest in our existing business, to manage our capital structure on a short and long-term basis, and to meet our anticipated operating cash needs.

Cash, cash equivalents, and investments aggregated $72.9 million and $86.3 million, and working capital totaled $132.2 million and $141.6 million, at December 31, 2023 and 2022, respectively.

We entered into a Third Amendment to Credit Agreement, on November 12, 2021, with Bank of America N.A.

1 unchanged sentence

Subject to certain conditions, we may request up to an additional $75.0 million for a maximum aggregate commitment of $150.0 million.

As a precautionary measure at the beginning of the COVID-19 pandemic, we executed a drawdown of $50.0 million in April 2020, all of which we repaid during the year ended December 31, 2020.

As of December 31, 2023, and 2022, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

9 unchanged sentences

Operating Activities

Cash provided by operating activities was $4.4 million, $8.4 million, $13.1 million for 2022, 2021 and 2020. The change in 2022 was primarily attributable to an increase in operating spending largely attributable to expansion of our commercial capability in the United States and an increase in product development costs, partially offset by an increase in product sales.

We also made a payment of contingent consideration in July 2021, in which we paid contingent consideration in the amount of $10.0 million, $2.8 million of which was classified within operating activities and the remaining $7.2 million was classified within financing activities.

For the foreseeable future, we expect to continue to invest substantial resources in research and development for new products and clinical trials as well as continued investment in our commercial infrastructure to support our growth strategy.

Cash (used in) provided by operating activities was $(1.8) million, $4.4 million and $8.4 million for 2023, 2022 and 2021, respectively.

The change in 2023 was primarily attributable to non-recurring expenses for the Parcus arbitration settlement and shareholder activism costs and an increase in inventories, primarily related to new product launches, partially offset by an increase in product sales.

For the foreseeable future, we expect to continue to invest in research and development for new products and clinical trials to support our growth strategy.

These costs will be funded with a combination of cash on hand and cash expected to be generated from future operations.

Investing Activities

Investing activities used $7.5 million, $3.1 million, $71.3 million in 2022, 2021 and 2020.

The significant use of cash from investing activities in 2020 was primarily due to the $94.6 million of consideration paid, net of cash acquired, for the acquisitions of Parcus Medical and Arthrosurface.

Capital expenditures totaled $7.5 million, $5.1 million, and $1.6 million for 2022, 2021 and 2020, respectively.

Cash used in investing activities was $5.4 million, $7.5 million and $3.1 million for 2023, 2022 and 2021, respectively.

Most of the spend on investing activities was for capital investments in manufacturing operations to support growing product demand and instruments to support clinical cases.

The change in 2023 was due to lower spending on software implementation.

Financing Activities

Cash used in financing activities was $4.9 million, $6.8 million and $3.8 million for 2022, 2021 and 2020.

The change in 2022 was primarily due to lower payments of contingent consideration compared to 2021. 

For a discussion of our liquidity and capital resources as of December 31, 2021, and our cash flow activities for the fiscal year ended December 31, 2021, see “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations”

of our annual report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 10, 2022, which is incorporated by reference in this Report.

Contractual Obligations and Other Commercial Commitments  

The table below summarizes our non-cancelable operating leases, purchase commitments, and contractual obligations related to future periods which are not reflected in our consolidated balance sheet at December 31, 2022.

Cash used in financing activities was $6.3 million, $4.9 million and $6.8 million for 2023, 2022 and 2021, respectively.

The change in 2023 was primarily due to $5.0 million used to fund an accelerated stock repurchase program completed during 2023.

For a discussion of our liquidity and capital resources as of December 31, 2022, and our cash flow activities for the fiscal year ended December 31, 2022, see “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 16, 2023, which is incorporated by reference in this Report.

Contractual Obligations and Other Commercial Commitments

Purchase commitments relate primarily to non-cancellable inventory commitments and capital expenditures entered in the normal course of business:

Payments due by period (in thousands)

Operating Leases

Operating Leases

Year Ended December 31, 2023

8 unchanged sentences

We have identified the policies below as critical to our business operations and the understanding of our results of operations.

The impact and any associated risks related to these policies on our business operations are discussed throughout this section captioned “

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations ”

where such policies affect our reported and expected financial results.

For a detailed discussion on the application of these and other accounting policies, see Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Business Combinations and Contingent Consideration

Amounts paid for acquisitions are allocated to the intangible and tangible assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition.

This purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and deferred revenue obligations.

Critical estimates include, but are not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates.

The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management.

Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill.

While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of comprehensive income.

The fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made.

We use the income approach to determine the fair value of certain identifiable intangible assets including developed technology and IPR&D.

This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value.

The estimated economic lives were determined using a variety of indicators including historical usage, evolutionary changes and other observable market data.

We base our assumptions on estimates of future cash flows, expected growth rates and expected trends in technology.

We base the discount rate used to arrive at the present value used in this method as of the date of acquisition on the time value of money and certain industry-specific risk factors.

We use the relief-from-royalty method of the income approach to determine the fair value of trade names.

This approach determines fair value by estimating the after-tax royalty savings attributable to owning the intangible asset and then discounting these after-tax royalty savings back to a present value.

We base our assumptions on the estimated revenue attributable to the trade name and the estimated royalty rate attributable to the trade name.

We use the avoided costs/lost profits method to determine the fair value of customer relationships.

This approach determines fair value by estimating the projected revenues related to the asset and estimated costs to recreate the intangible asset.

We believe the estimated purchased customer relationships, developed technologies, trade name, and in process research and development amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets.

If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges which could be material.

In addition, estimated economic lives of certain acquired assets are used to calculate depreciation and amortization expense.

If our estimates of the economic lives change, depreciation or amortization expenses could be accelerated or slowed.

We used the comparative sales method to determine the fair value of work-in-process, or WIP, and finished goods inventory acquired and ultimately the inventory step- up required.

The fair value of WIP inventory was estimated as the selling price less the sum of (a) costs to complete, (b) costs of disposal, and (c) a reasonable profit allowance for the selling effort of the acquiring entity based on profit for similar products.

The fair value of finished goods inventory was estimated as the selling price less the sum of (a) costs of disposal and (b) a reasonable profit allowance for the selling effort of the acquiring entity based on profit for similar products.

For contingent consideration, we update these estimates and the related fair value of contingent consideration at each reporting period based on the estimated probability of achieving the earn-out targets and applying a discount rate that measures the risk associated with the expected contingent payments.

Under the Parcus Medical and Arthrosurface merger agreements, there are contingent consideration milestones totaling up to $100 million payable from 2020 to 2022.

Parcus Medical has net sales milestones annually from 2020 to 2022, while Arthrosurface had both regulatory and net sales milestones in 2020 and 2021.

As of December 31, 2022, there were no more remaining regulatory or net sales milestones related to Parcus Medical or Arthrosurface expected to be achieved.

The fair value of the Parcus Medical contingent consideration was estimated using a Monte Carlo simulation.

Changes in the fair value can result from changes pertaining to the achievement of the defined milestones and changes in assumed discount rates.

Changes in the fair value of contingent consideration are recorded in our consolidated statements of operations.

As of December 31, 2022, there was no contingent consideration for Parcus Medical or Arthrosurface.

Revenue Recognition –

The impact and any associated risks related to these policies on our business operations are discussed throughout this section captioned “ Management ’ s Discussion and Analysis of Financial Condition and Results of Operations ” where such policies affect our reported and expected financial results.

For a detailed discussion on the application of these and other accounting policies, see Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Revenue Recognition – General

Pursuant to ASC 606, we recognize revenue when a customer obtains control of promised goods or services.

26 unchanged sentences

We sell to a diversified base of distributors and, therefore, we believe there is no material concentration of credit risk.

Certain of our supply agreements contain terms that represent a promise to deliver product at the customer’s discretion that are considered distributor options.

We assess if these options provide a material right to the licensee, and if so, they are accounted for as separate performance obligations.

11 unchanged sentences

Amounts are recorded as accounts receivable when our right to consideration is unconditional.

Deferred revenue was $0 and $1.0 million as of December 31, 2022 and 2021, respectively.

There was no deferred revenue as of December 31, 2023 and 2022, respectively.

Generally, customer contracts contain Free on Board, or FOB, or Ex-Works shipping point terms where the customer pays the shipping company directly for all shipping and handling costs.

14 unchanged sentences

Other long-term assets include inventory expected to remain on hand beyond one year.

Goodwill and In-Process Research and Development

Goodwill is the amount by which the purchase price of acquired net assets in a business combination exceeded the fair values of net identifiable assets on the date of acquisition.

5 unchanged sentences

We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

When using the qualitative method in 2022, we considered several factors, including the following:

the amount by which the fair value of the reporting unit exceeded its carrying value as of the date of the most recent quantitative impairment analysis, which indicated there would need to be substantial negative developments in the markets in which the reporting unit operates for there to be potential impairment;

the carrying value of the reporting unit as of the assessment date compared to their previously calculated fair value as of the date of the most recent quantitative impairment analysis;

the current forecasts as compared to the forecasts included in the most recent quantitative impairment analysis;

public information from competitors and other industry information to determine if there were any significant adverse trends in our competitors' businesses;

We used the quantitative method in 2023, we considered several factors, including the following:

the carrying value of the reporting unit as of the assessment date compared to their previously calculated fair value as of the date of the most recent quantitative impairment analysis;

the current forecasts as compared to the forecasts included in the most recent quantitative impairment analysis;

public information from competitors and other industry information to determine if there were any significant adverse trends in our competitors' businesses;

changes in the value of major U.S.

stock indices that could suggest declines in overall market stability that could impact the valuation of our reporting unit;

whether there had been any significant increases in the weighted-average cost of capital rates for the reporting unit, which could materially lower our prior valuation conclusions under a discounted cash flow approach.

Significant assumptions utilized in the impairment analysis included valuation multiple with respect to revenue and weighted-average cost of capital.

Based on sensitivity analysis performed on key assumptions at November 30, 2022, a 10% decrease in valuation multiples or a 10% increase in the weighted average cost of capital assumption would not have resulted in a fair value below the reporting unit’s carrying value.

Based on sensitivity analysis performed on key assumptions at November 30, 2023, a 10% decrease in valuation multiples or a 10% increase in the weighted average cost of capital assumption would not have resulted in a fair value below the reporting unit’s carrying value.

Accordingly, we determined it was not more likely than not that the fair value of the legacy Anika reporting unit is less than its carrying amount and thus goodwill was not impaired as of November 30, 2023.

IPR&D represents the fair value assigned to research and development assets that we acquire that have not been completed at the date of acquisition or are pending regulatory approval in certain jurisdictions.

We conduct annual impairment tests of IPR&D, by comparing the fair value of each IPR&D project to its carrying value.

If the carrying value exceeds its fair value, we record an impairment loss to the extent that the carrying value of the IPR&D project exceeds its fair value.

We estimate the fair value for IPR&D using the income approach which incorporates significant estimates and assumptions related to the forecasted results including revenues, expenses, expected economic life of the asset, contributory asset charges and discount rates to estimate future cash flows.

During 2021, we decided not to further invest in certain of our projects and recorded an impairment charge in the amount of $0.6 million in 2021, in research and development expenses in the consolidated statements of operations.

Based on a sensitivity analysis performed on key assumptions at November 30, 2022 with respect to the remaining IPR&D, a 10% decrease in the long-term growth factor assumption, or 10% increase in the weighted average cost of capital assumption would not have resulted in a fair value below the IPR&D carrying value.

Long-Lived Assets

Long-lived assets primarily include property and equipment and intangible assets with finite lives.

Our intangible assets are comprised of purchased developed technologies, patents, trade names, customer relationships and distributor relationships.

These intangible assets are carried at cost, net of accumulated amortization.

Amortization is recorded on a straight-line basis over the intangible assets' useful lives, which range from approximately five to sixteen years.

We review long-lived assets for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate.

Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset.

If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis.

During the year ended December 31, 2023, the Company determined that certain of its intangible assets related to its Arthrosurface and Parcus reporting unit were impaired mainly due to slower than expected revenue growth from product sales that have impacted cash flows with this reporting unit.

As a result, we recorded a $62.2 million charge to intangible assets related to its Arthrosurface and Parcus reporting units during the year ended December 31, 2023.

In determining the useful lives of intangible assets, we consider the expected use of the assets and the effects of obsolescence, demand, competition, anticipated technological advances, changes in surgical techniques, market influences and other economic factors.

For technology-based intangible assets, we consider the expected life cycles of products, absent unforeseen technological advances, which incorporate the corresponding technology.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is included in Note 2 to the consolidated financial statements in this Annual Report on Form 10-K.

A discussion of recent accounting pronouncements is included in Note 2 to the consolidated financial statements in this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity