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Item 7. Management’s Discussion and Analysis

2026-02-24 compared with 2025-02-26 · 58 added, 41 removed, 259 unchanged (28% of the section changed)

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

The sophisticated approaches that we create from the ground up integrate with our expanding Alpha InformatiX ("AIX") 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 integrate with our expanding InformatiX ("IX") 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 we are perpetually innovating to accomplish our vision 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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Litigation-related expenses are costs incurred for our ongoing and settled litigation.

Amortization expense.

Amortization expense includes amortization of acquired intangible assets and amortization of internally-developed software that has been placed in service.

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

Amortization of acquired intangible assets.

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

Transaction-related expenses.

Transaction-related expenses consist of certain costs incurred related primarily to the acquisition and integration of Valence.

Transaction-related expenses consist of certain costs incurred related primarily to our term loan amendment.

Restructuring expenses .

Restructuring expenses primarily consist of severance, social plan benefits and related tax costs incurred in connection with cost rationalization efforts, as well as costs associated with the opening or closing of office and warehouse facilities.

Total interest and other expense, net .

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

Income tax provision.

Total other expense, net .

Total 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 (benefit).

Income tax provision primarily consists of an estimate of federal, state, and foreign income taxes based on enacted state and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.

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Cost of sales increased by $45.0 million, or 24%, during the year ended December 31, 2025, compared to the year ended December 31, 2024.

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.

Under these agreements, future royalty payments for product and/or intellectual property rights may be paid in either cash or restricted shares of our common stock at the election of the developer, depending on the terms of the agreement.

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 year ended December 31, 2023 as the vesting conditions of certain of these amended awards that met the requirements for presentation within cost of sales were deemed probable at that time.

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

Operating expenses

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Litigation-related expenses

Amortization expense

Amortization of acquired intangible assets

Transaction-related expenses

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Research and development expenses .

Research and development expenses increased by $10.6 million, or 15%, during the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase was primarily due to an increase in personnel to support the expansion of our new product portfolio and an increase in stock-based compensation associated with Development Service Agreements (as described above), as the vesting conditions of certain of these amended awards, that met the requirements for presentation within research and development, were deemed probable during the year.

Research and development expenses decreased by $4.5 million, or 6%, during the year ended December 31, 2025, compared to the year ended December 31, 2024.

The decrease was primarily due to a decrease in stock-based compensation associated with Development Service Agreements for the development of a wide variety of potential products and intellectual property, as the vesting conditions for more of these awards that met the requirements for presentation within research and development, were deemed probable during the prior year than during the current year.

Sales, general and administrative expenses.

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Litigation-related expenses.

Litigation-related expenses decreased by $12.5 million, or 56%, during the year ended December 31, 2024, compared to the year ended December 31, 2023.

The decrease was primarily related to a decrease in legal fees associated with our previously settled litigation matters.

Refer to Note 7 of our Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further information regarding litigation matters.

Amortization expense.

Amortization expense increased $2.0 million, or 14%, during the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase in amortization expense is primarily due to amortization of intangible assets acquired in the acquisition of Valence in April 2023 and internally-developed software placed in service during 2024.

Litigation-related expenses increased by $14.0 million, or 143%, during the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase was primarily related to a litigation settlement during the year ended December 31, 2025, and ongoing litigation matters.

Refer to Note 7 of our Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further information regarding litigation matters.

Amortization of acquired intangible assets.

Amortization of acquired intangible assets decreased $1.2 million, or 7%, during the year ended December 31, 2025, compared to the year ended December 31, 2024.

The decrease in amortization expense is primarily due to several acquired intangible assets becoming fully amortized during the year ended December 31, 2025.

Transaction-related expenses.

Transaction-related expenses decreased $0.2 million, or 100%, during the year ended December 31, 2025, compared to the year ended December 31, 2024.

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

The decrease in transaction-related expenses is due to the term debt amendment in the prior year that did not recur.

Restructuring expenses .

Restructuring expenses increased $2.5 million, or 352%, during the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase in restructuring expenses is primarily due to costs associated with the relocation of office facilities in Paris, France, and severance and related tax costs incurred in connection with cost rationalization efforts.

Total interest and other expense, net

Restructuring expenses decreased $2.9 million, or 88%, during the year ended December 31, 2025, compared to the year ended December 31, 2024.

The decrease in restructuring expenses is primarily due to costs associated with the relocation of office facilities in Paris, France, and severance and related tax costs incurred in connection with cost rationalization efforts in the prior year that did not recur.

Total other expense, net

Year Ended December 31,

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Interest expense, net

Other (expense) income, net

Loss on debt extinguishment

Gain on derivative liability

Other income (expense), net

Total other expense, net

Interest expense, net, increased $21.0 million, or 85%, during the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase in interest expense, net, was primarily due to drawing an additional $50.0 million on the Braidwell Term Loan in both September 2023 and October 2024.

Other (expense) income, net, increased $4.1 million, or 133%, during the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase in other (expense) income, net, was primarily due to foreign currency rates and recognition of an employee retention credit during the year ended December 31, 2023.

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 interest was $21.1 million and net non-cash interest was $24.8 million for the year ended December 31, 2025.

Loss on debt extinguishment increased $17.6 million, or 100%, during the year ended December 31, 2025, compared to the year ended December 31, 2024.

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

Gain on derivative liability increased $0.6 million, or 100%, during the year ended December 31, 2025, compared to the year ended December 31, 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 June 12, 2025, the date the conditions necessary for separate accounting of the conversion option as a derivative liability were no longer met.

Other income (expense), net, increased $2.6 million, or 256%, during the year ended December 31, 2025, compared to the year ended December 31, 2024.

The increase in other income (expense), net, was primarily due to foreign currency rates and recognition of an employee retention credit.

Income tax provision

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(in thousands, except %)

Income tax provision (benefit)

Income tax (benefit) provision

Income tax provision for the year ended December 31, 2025 was negligible and remained consistent compared to the year ended December 31, 2024.

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Operating Activities

We used net cash of $44.7 million from operating activities for the year ended December 31, 2024.

The cash used in operating activities primarily related to costs associated with the continued expansion of our business and inventory purchases, offset by the timing of cash payments and receipts.

Operating activities provided net cash of $45.2 million for the year ended December 31, 2025, which is primarily related to cash collections offset by costs associated with the continued expansion of our business and inventory purchases.

Investing Activities

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Financing Activities

Financing activities provided net cash of $56.2 million for the year ended December 31, 2024, which is primarily related to proceeds from our term loan and net draws on our revolving line of credit.

Financing activities provided net cash of $30.0 million for the year ended December 31, 2025, which is primarily related to proceeds from our 2030 Notes offset by the repurchase of 80% of the 2026 Notes, the purchase of capped calls and the net repayment of our Revolving Credit Facility.

Debt and Commitments

As of December 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 SOFR plus 5.75% per annum.

The outstanding loans under the Braidwell Term Loan bear interest at the sum of Term Secured Overnight Financing Rate ("SOFR") plus 5.75% per annum.

The Braidwell Term Loan matures on January 6, 2028.

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The outstanding loans bear interest at the sum of 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 outstanding 0.75% Convertible Senior Notes due 2026 (the "2026 Notes").

The Revolving Credit Facility matures on September 29, 2027.

As of December 31, 2025, we had $63.3 million outstanding under the 2026 Notes.

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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 December 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, beginning on September 15, 2025.

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 December 31, 2025, we had $1.9 million in other debts that are due in monthly and quarterly installments through maturity in 2027.

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Interest expense (1)

Revolving Credit Facility

Facility lease obligations

Revolving Credit Facility

Milestone payments

Purchase commitments (2)

Development services plans

(1) Represents interest expense from our debt that we expect to pay in the future.

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Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative industry or economic trends.

If this evaluation indicates that the value of the intangible asset may be impaired, we make an assessment of the recoverability of the net carrying value of the asset over its remaining useful life.

If this assessment indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the asset over the remaining amortization period, we reduce the net carrying value of the related intangible asset to fair value and may adjust the remaining amortization period.

If this evaluation indicates that the value of the intangible asset may be impaired, we make an assessment of the recoverability of the net carrying value of the asset group in which the intangible asset resides over its remaining useful life of the primary asset in the asset group.

The asset group is determined based on the lowest level for which identifiable cash flows can be identified.

If this assessment indicates that the asset group is not recoverable, based on the estimated undiscounted future cash flows of the asset group, we reduce the net carrying value of the related intangible assets in the asset group to fair value and may adjust the remaining amortization period.

Significant judgment is required in the forecasts of future operating results that are used in the discounted cash flow valuation models.

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Stock-based compensation expense for equity-classified awards, principally related to restricted stock units ("RSUs") and performance restricted stock units ("PRSUs") is measured at the grant date based on the estimated fair value of the award.

The fair value of equity instruments that are expected to vest is recognized and amortized over the requisite service period.

The fair value of common stock that is expected to vest is recognized and amortized over the requisite service period.

We have granted awards with up to four year graded or cliff vesting terms.

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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-K

Item 7. Management’s Discussion and Analysis