What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-30 compared with 2024-07-31 · 48 added, 36 removed, 174 unchanged (33% of the section changed)

50 unchanged sentences

Critical accounting policies are those that, in management’s view, are most important in the portrayal of our financial condition and results of operations.

Management believes there have been no material changes during the three months ended June 30, 2024, to the critical accounting policies discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC.

Management believes there have been no material changes during the three months ended September 30, 2024, to the critical accounting policies discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC.

Results of Operations

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except %)

Revenue from products and services

Revenue from products and services increased $28.6 million, or 25%, and $58.0 million, or 26%, during the three and six months ended June 30, 2024, respectively, compared to the same period in 2023.

Revenue from products and services increased $32.5 million, or 27%, and $90.5 million, or 26%, during the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023.

The increase was primarily due to an increase in product volume that was due to the increase in our surgeon user base, continued expansion of our new product portfolio, and increasing adoption of our technology.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except %)

Cost of sales

Cost of sales decreased $9.4 million, or 18%, and $7.0 million, or 8%, for the three and six months ended June 30, 2024, respectively, compared to the same period in 2023.

The decrease was primarily due to a decrease in stock-based compensation offset by an increase in product volume.

Cost of sales increased $9.8 million, or 26%, and $2.8 million, or 2%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023.

The increase was primarily due to an increase in product volume offset by a decrease in stock-based compensation.

We have entered into Development Service Agreements for the development of a wide variety of potential products and intellectual property.

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Certain of these agreements were amended to remove the cash royalty option and require settlement in restricted shares of our common stock.

During the three and six months ended June 30, 2023, the vesting conditions of certain of these amended awards were deemed probable.

There were no such vesting conditions met during the three and six months ended June 30, 2024 resulting in a decrease in stock-based compensation for the period.

Stock-based compensation associated with these awards was higher during the nine months ended September 30, 2023 than the other periods presented as the vesting conditions of certain of these amended awards were deemed probable at that time.

Operating expenses

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except %)

8 unchanged sentences

Research and development expenses .

Research and development expenses increased $4.5 million, or 31%, and $9.3 million, or 33%, for the three and six months ended June 30, 2024, respectively, compared to the same period in 2023.

The increase was primarily due to an increase in personnel to support the expansion of our new product portfolio.

Research and development expenses increased $0.4 million, or 2%, and $9.6 million, or 20%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023.

The increase during the nine months ended September 30, 2024 was primarily due to an increase in stock-based compensation related to our Development Service Agreements and due to an increase in personnel to support the expansion of our new product portfolio.

Sales, general and administrative expenses.

Sales, general and administrative expenses increased $25.4 million, or 29%, and $47.9 million, or 27%, during the three and six months ended June 30, 2024, respectively, compared to the same period in 2023.

Sales, general and administrative expenses increased $17.8 million, or 19%, and $65.7 million, or 24%, during the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023.

The increase was primarily due to higher compensation-related costs and variable selling expenses associated with the increase in revenue, and our continued investment in building our strategic distribution channel.

1 unchanged sentence

Litigation-related expenses.

Litigation expenses decreased $4.8 million, or 70%, and $3.6 million, or 35%, for the three and six months ended June 30, 2024, respectively, compared to the same period in 2023.

The decrease was primarily related to settled litigation matters.

Litigation expenses decreased $0.6 million, or 23%, and $4.2 million, or 33%, for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023.

The decrease was primarily related to resolved litigation matters.

Amortization of acquired intangible assets.

Amortization expense increased $1.1 million, or 17%, during the six months ended June 30, 2024, compared to the same period in 2023.

Amortization expense increased $1.1 million, or 10%, during the nine months ended September 30, 2024, compared to the same period in 2023.

The increase in amortization of acquired intangible assets is primarily due to amortization of intangible assets acquired in the acquisition of the navigation-enabled robotics platform ("Valence") in April 2023.

Transaction-related expenses.

Transaction-related expense decreased $1.9 million, or 100%, and $2.0 million, or 106%, during the three and six months ended June 30, 2024, respectively, compared to the same period in 2023.

Transaction-related expense decreased $0.3 million, or 100%, and $2.3 million, or 105%, during the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023.

The decrease in transaction-related expenses is due to the Valence acquisition in April 2023.

Restructuring expenses.

The increase in restructuring expenses for the three and six months ended June 30, 2024 is primarily due to costs associated with the relocation of office facilities in Paris, France.

Restructuring expenses increased $0.8 million, or 624%, and $1.5 million, or 459%, during the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023.

The increase in restructuring expenses is primarily due to costs associated with the relocation of office facilities in Paris, France and personnel related expenses.

Total interest expense and other expense, net

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except %)

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Total other expense, net

Interest expense, net, increased $1.9 million, or 49%, and $3.4 million, or 44%, during the three and six months ended June 30, 2024, respectively, compared to the same period in 2023.

Interest expense, net, increased $2.1 million, or 47%, and $5.5 million, or 45%, during the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023.

The increase in interest expense, net, was primarily due to drawing an additional $50.0 million on the Braidwell Term Loan in September 2023 and higher interest rates related to our Revolving Credit Facility and Braidwell Term Loan.

Other income, net, decreased $2.2 million, or 93%, and $2.8 million, or 91%, during the three and six months ended June 30, 2024, respectively, compared to the same period in 2023.

The change in other income, net, was primarily due to an employee retention credit received during the three months ended June 30, 2023.

Other income, net, increased $0.6 million, or 1,226%, and decreased $2.2 million, or 71%, during the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023.

The increase in other income, net, during the three months ended September 30, 2024, was primarily due to fluctuations in foreign currency rates.

The decrease in other income, net, during the nine months ended September 30, 2024, was primarily due to an employee retention credit received during the nine months ended September 30, 2023.

Income tax provision

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands, except %)

Income tax (benefit) provision

The change in the income tax provision for the three and six months ended June 30, 2024, respectively, compared to the same period in 2023, was primarily related to the recognition of income tax benefits in several jurisdictions.

The change in the income tax benefit for the three and nine months ended September 30, 2024, respectively, compared to the same period in 2023, was primarily related to the recognition of income tax benefits in several jurisdictions.

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents, our Revolving Credit Facility and cash from operations.

On October 29, 2024, the Company entered into an amendment of the Braidwell Term Loan, which provides for an additional term loan of $50.0 million.

Our liquidity and capital structure are evaluated regularly within the context of our annual operating and strategic planning process.

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continues to increase, we will be exposed to foreign currency exchange risk related to our foreign operations.

We do not have any material financial exposure to one customer or one country that would significantly hinder our liquidity.

We do not have any material financial exposure to one customer or one country, outside of the United States, that would significantly hinder our liquidity.

We are and may become involved in various legal proceedings arising from our business activities.

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We have disclosed all material accruals for pending litigation or investigations in Note 9, Commitments and Contingencies, in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Cash and cash equivalents were $99.8 million and $221.0 million at June 30, 2024, and December 31, 2023, respectively.

Cash and cash equivalents were $81.0 million and $221.0 million at September 30, 2024, and December 31, 2023, respectively.

We believe that our existing funds, cash generated from our operations and our existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditure and debt service requirements, and other business initiatives we plan to strategically pursue.

Summary of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Operating Activities

We used cash of $49.8 million from operating activities for the six months ended June 30, 2024, which is primarily related to inventory purchases to support the growth of our business and commercial launch of new products, offset by the timing of cash payments and receipts.

We used cash of $55.2 million from operating activities for the nine months ended September 30, 2024, which is primarily related to inventory purchases to support the growth of our business and commercial launch of new products, offset by the timing of cash payments and receipts.

Investing Activities

We used cash of $69.5 million in investing activities for the six months ended June 30, 2024, which is primarily related to the purchase of surgical instruments to support the growth of our business and commercial launch of new products.

We used cash of $89.4 million in investing activities for the nine months ended September 30, 2024, which is primarily related to the purchase of surgical instruments to support the growth of our business and commercial launch of new products.

Financing Activities

We used cash of $1.1 million in financing activities for the six months ended June 30, 2024, which is primarily related to cash paid for net tax withholdings associated with employee stock awards offset by net draws on our revolving line of credit.

Financing activities provided cash of $5.6 million for the nine months ended September 30, 2024, which is primarily related to net draws on our revolving line of credit.

Debt and Commitments

As of June 30, 2024, we had $150.0 million outstanding under the Braidwell Term Loan.

As of September 30, 2024, we had $150.0 million outstanding under the Braidwell Term Loan.

The outstanding loans under the Braidwell Term Loan bear interest at the sum of Term SOFR plus 5.75% per annum.

The Braidwell Term Loan matures on January 6, 2028.

As of June 30, 2024, we had $54.9 million outstanding under the Revolving Credit Facility.

As of September 30, 2024, we had $63.2 million outstanding under the Revolving Credit Facility.

The outstanding loans under the Revolving Credit Facility bear interest at the sum of Term SOFR plus 3.5% per annum.

The Revolving Credit Facility matures on the earlier of September 29, 2027, or 90 days prior to the final maturity date of any of our 2026 Notes.

As of June 30, 2024, we had $316.3 million outstanding under the 2026 Notes.

As of September 30, 2024, we had $316.3 million outstanding under the 2026 Notes.

The 2026 Notes accrue interest at a rate of 0.75%, payable semi-annually in arrears on February 1 and August 1 of each year.

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Based on the terms we have the option to pay or deliver cash, shares of our common stock, or a combination thereof, when a conversion notice is received.

As of June 30, 2024, we had $4.0 million in other debts that are due in monthly and quarterly installments through maturity in 2027.

As of September 30, 2024, we had $3.6 million in other debts that are due in monthly and quarterly installments through maturity in 2027.

We have an inventory purchase commitment agreement with a third-party supplier, where we are obligated to meet certain minimum purchase commitment requirements through December 2026.

As of June 30, 2024, the remaining minimum purchase commitment under the agreement was $9.8 million.

As of September 30, 2024, the remaining minimum purchase commitment under the agreement was $8.9 million.

Contractual obligations and commercial commitments

As of June 30, 2024, there have been no material changes, outside the normal course of business, in our outstanding contractual obligations from those disclosed within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

As of September 30, 2024, there have been no material changes, outside the normal course of business, in our outstanding contractual obligations from those disclosed within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Off-Balance Sheet Arrangements

1 unchanged sentence

Recent Accounting Pronouncements

Aside from the changes disclosed in Note 1 to the Notes to Condensed Consolidated Financial Statements (Unaudited) under the heading “Recently Issued Accounting Pronouncements,” if any, there have been no new accounting pronouncements or changes to accounting pronouncements during the six months ended June 30, 2024, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2023, that was filed with the SEC.

Aside from the changes disclosed in Note 1 to the Notes to Condensed Consolidated Financial Statements (Unaudited) under the heading “Recently Issued Accounting Pronouncements,” if any, there have been no new accounting pronouncements or changes to accounting pronouncements during the nine months ended September 30, 2024, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2023, that was filed with the SEC.

Forward Looking Statements

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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-Q

Item 2. Management’s Discussion and Analysis