What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-01 compared with 2024-10-30 · 66 added, 68 removed, 154 unchanged (47% of the section changed)

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By applying our unique, 100% spine focus and deep, collective industry know-how, we aim to revolutionize the approach to spine surgery through clinical distinction.

The sophisticated approaches that we create from the ground up are designed to integrate with our expanding Alpha InformatiX product platform to objectively inform surgery and achieve the goals of spine surgery more predictably and more reproducibly.

The sophisticated approaches that we create from the ground up are designed to integrate with our expanding InformatiX product platform to objectively inform surgery and achieve the goals of spine surgery more predictably and more reproducibly.

We have a comprehensive product portfolio designed to address the spine’s various pathologies, and are perpetually innovating to accomplish our ultimate vision, which is to be the standard bearer in spine.

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To deliver consistent, predictable growth, we have added, and intend to continue to add, clinically astute and exclusive sales team members to reach untapped surgeons, hospitals, and national accounts and better penetrate existing accounts and territories.

Recent Developments

0.75% Senior Convertible Notes due 2030

In March 2025, we issued $405.0 million principal amount of unsecured senior convertible notes with a stated interest rate of 0.75% (the "2030 Notes").

The 2030 Notes began accruing interest immediately and interest is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2025.

The 2030 Notes are convertible into shares of our common stock based upon an initial conversion rate of 64.3407 shares of our common stock per $1,000 principal amount of 2030 Notes (equivalent to an initial conversion price of approximately $15.54 per share).

The net proceeds from the sale of the 2030 Notes were approximately $392.9 million after deducting the offering expenses.

The 2030 Notes will mature on March 15, 2030, unless earlier converted, redeemed, or repurchased.

We used $42.5 million of the net proceeds from the 2030 Notes offering to enter into separate capped call instruments with certain financial institutions.

The capped call transactions effectively limit the premium for conversion of the 2030 Notes to 100% and are generally expected to reduce potential dilution to our common stock upon any conversion of the 2030 Notes and/or offset any payments we make upon conversion.

In addition, we repurchased 80% of our 2026 convertible notes (the "2026 Notes") for approximately $268.4 million.

We intend to use the remainder of the net proceeds from the 2030 Notes for general corporate purposes.

Revenue and Expense Components

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Our product costs consist primarily of raw materials, component parts, direct labor, and overhead.

The product costs of certain of our biologics products include the cost of procuring and processing human tissue.

The product costs of certain of our biologics products

include the cost of procuring and processing human tissue.

We incur royalties related to the technologies that we license from others and the products that are developed in part by surgeons with whom we collaborate in the product development process.

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Amortization of acquired intangible assets consists of intangible assets acquired in business combinations and asset acquisitions.

Transaction-related expenses.

Transaction-related expenses consist of one-time costs associated with business combinations and asset acquisitions.

These items may include but are not limited to consulting and legal fees, and other related deal costs.

Restructuring expenses .

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Total interest expense and other expense, net .

Total interest expense and other expense, net includes interest income, interest expense, gains and losses from foreign currency exchanges and other non-operating gains and losses.

Total interest expense and other expense, net includes interest income, interest expense, gains and losses from foreign currency exchanges, loss on debt extinguishment, gain on derivative liability, and other non-operating gains and losses.

Income tax provision.

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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 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.

Management believes there have been no material changes during the three months ended March 31, 2025, 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, 2024, filed with the SEC.

Results of Operations

Total revenue

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands, except %)

Revenue from products and services

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.

Revenue from products and services increased $30.7 million, or 22%, during the three months ended March 31, 2025, compared to the same period in 2024.

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.

Cost of sales

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands, except %)

Cost of sales

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.

Cost of sales increased $12.1 million, or 29%, for the three months ended March 31, 2025, compared to the same period in 2024.

The increase was primarily due to an increase in product volume and an increase 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.

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.

Stock-based compensation associated with these awards was higher during the three months ended March 31, 2025 as the vesting conditions of certain of these amended awards were deemed probable during the current period.

Operating expenses

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands, except %)

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Litigation-related expenses

Amortization of acquired intangible assets

Transaction-related expenses

Amortization expense

Restructuring expenses

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Research and development expenses .

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.

Research and development expenses decreased $1.4 million, or 8%, for the three months ended March 31, 2025, compared to the same period in 2024.

The decrease during the three months ended March 31, 2025 was primarily due to a decrease in stock-based compensation related to our Development Service Agreements and a decrease in personnel.

Sales, general and administrative expenses.

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.

Sales, general and administrative expenses increased $13.4 million, or 12%, during the three months ended March 31, 2025, compared to the same period in 2024.

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.

Additionally, we continued to increase our investment in our sales and marketing functions by increasing headcount to support the growth of our business, as well as necessary administrative support.

Litigation-related expenses.

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 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 $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.

Litigation expenses increased $7.8 million, or 176%, for the three months ended March 31, 2025, compared to the same period in 2024.

The increase was primarily related to a litigation settlement during the current period.

Amortization expense.

Amortization expense increased $0.2 million, or 6%, during the three months ended March 31, 2025, compared to the same period in 2024.

The increase in amortization expense is primarily due to the amortization of internally-developed software that has been placed in service.

Restructuring expenses.

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.

Restructuring expenses decreased $0.4 million, or 53%, during the three months ended March 31, 2025, compared to the same period in 2024.

The decrease in restructuring expenses is primarily due to costs associated with the relocation of office facilities in Paris, France in the prior period that did not recur.

Total interest expense and other expense, net

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands, except %)

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Interest expense, net

Loss on debt extinguishment

Gain on derivative liability

Other income, net

Total other expense, net

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, 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.

Interest expense, net, increased $2.5 million, or 47%, during the three months ended March 31, 2025, compared to the same period in 2024.

The increase in interest expense, net, was primarily due to drawing an additional $50.0 million on the Braidwell Term Loan in October 2024, and the amortization of debt discount associated with the 2030 Notes.

Net cash and non-cash interest was $5.3 million and $2.5 million, respectively, for the three months ended March 31, 2025.

Loss on debt extinguishment increased $17.6 million, or 100%, during the three months ended March 31, 2025, compared to the same period in 2024.

The increase in loss on debt extinguishment relates to the redemption of 80% of the 2026 Notes.

Gain on derivative liability increased $17.4 million, or 100%, during the three months ended March 31, 2025, compared to the same period in 2024.

The increase in gain on derivative liability relates to the change in the valuation of the derivative liability associated with 2030 Notes from inception to March 31, 2025.

Other income, net, increased $0.2 million, or 186%, during the three months ended March 31, 2025, compared to the same period in 2024.

The increase in other income, net, during the three months ended March 31, 2025, was primarily due to fluctuations in foreign currency rates.

Income tax provision

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands, except %)

Income tax (benefit) provision

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.

Income tax benefit

The change in the income tax benefit for the three months ended March 31, 2025, compared to the same period in 2024, 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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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 $81.0 million and $221.0 million at September 30, 2024, and December 31, 2023, respectively.

Cash and cash equivalents were $153.2 million and $138.8 million at March 31, 2025, and December 31, 2024, 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

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

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Effect of exchange rate changes on cash

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities

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.

We used cash of $5.0 million from operating activities for the three months ended March 31, 2025, 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 $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.

We used cash of $11.6 million in investing activities for the three months ended March 31, 2025, 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

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.

Financing activities provided cash of $30.8 million for the three months ended March 31, 2025, which is primarily related to proceeds from our 2030 Notes, offset by the repurchase of 80% of our 2026 Notes, the purchase of capped calls of the 2030 Notes, and payments on our revolving line of credit.

Debt and Commitments

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

As of March 31, 2025, we had $200.0 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 September 30, 2024, we had $63.2 million outstanding under the Revolving Credit Facility.

As of March 31, 2025, we had $15.0 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 September 30, 2024, we had $316.3 million outstanding under the 2026 Notes.

As of March 31, 2025, we had $63.3 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 September 30, 2024, we had $3.6 million in other debts that are due in monthly and quarterly installments through maturity in 2027.

As of March 31, 2025, we had $405.0 million outstanding under the 2030 Notes.

The 2030 Notes accrue interest at a rate of 0.75%, payable semi-annually in arrears on March 15 and September 15 of each year.

Prior to maturity in March 2030, the holders of the 2030 Notes may, under certain circumstances, choose to convert their notes into shares of our common stock.

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 March 31, 2025, we had $2.9 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 September 30, 2024, the remaining minimum purchase commitment under the agreement was $8.9 million.

As of March 31, 2025, the remaining minimum purchase commitment under the agreement was $8.0 million.

Contractual obligations and commercial commitments

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.

As of March 31, 2025, 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, 2024.

Off-Balance Sheet Arrangements

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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 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.

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 three months ended March 31, 2025, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2024, 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