What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-04 · 104 added, 33 removed, 158 unchanged (46% of the section changed)

42 unchanged sentences

sales force and we intend to add additional direct and distributor sales representatives in the future.

During the three months ended March 31, 2021, international net sales accounted for approximately 15% of our total net sales.

During the six months ended June 30, 2021, international net sales accounted for approximately 15% of our total net sales.

We have sold our products in approximately 47 countries other than the United States through a combination of sales representatives employed by us and exclusive international distributors.

7 unchanged sentences

Results of Operations

Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020

Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020

The following table sets forth, for the periods indicated, our net sales by geography expressed as dollar amounts and the changes in net sales between the specified periods expressed in dollar amounts and as percentages:

4 unchanged sentences

Total net sales

In the United States, the increase in net sales of $34.9 million was due primarily to increased spine product sales resulting from penetration in existing territories and an increase in sales volume of enabling technologies.

International net sales increased by $1.9 million, which was due primarily to increased sales volume of enabling technologies and spine product sales resulting from penetration in existing territories, partially offset by lower sales in Japan due to a sales force position.

In the United States, the increase in net sales of $90.0 million was due primarily to increased spine product sales resulting from penetration in existing territories and an increase in sales volume of enabling technologies, both of which were partially attributable to the lower net sales for the three month period ending June 30, 2020 due to the COVID-19 pandemic.

International net sales increased by $12.1 million due primarily to increased spine product sales resulting from penetration in existing territories, which was partially attributable to the lower net sales for the three month period ending June 30, 2020 due to the

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COVID-19 pandemic.

The increase in net sales was partially offset by lower sales in Japan due to the transition of our sales force composition.

Cost of Goods Sold

3 unchanged sentences

Percentage of net sales

The $6.2 million increase in cost of goods sold was primarily due to increased volume, product mix, and higher write-downs of excess and obsolete inventory, partially offset by favorable production variances.

The $13.2 million increase in cost of goods sold was primarily due to increased volume, which was partially offset by favorable production variances driven by improved manufacturing efficiencies, and lower write-downs of excess and obsolete inventory driven by the impact of the COVID-19 pandemic on operations for the three month period ending June 30, 2020.

Research and Development Expenses

3 unchanged sentences

Percentage of net sales

The decrease in research and development expenses was primarily driven by the decreased travel and meeting expense as a result of COVID-19 restrictions.

Research and development expenses for the three month period ending June 30, 2020 includes $24.4 million of acquired in-process research and development (“IPR&D”) assets with no alternative future use, which was partially offset by increased product development spend.

Selling, General and Administrative Expenses

3 unchanged sentences

Percentage of net sales

The increase in selling, general and administrative expenses was primarily due to an increase in commission expenses resulting from higher product sales, and by the continued build out of the spine, INR technology, joints and orthopedic trauma sales forces.

These increases were partially offset by decreased travel and meeting expenses as a result of COVID-19 restrictions.

Provision for Litigation

3 unchanged sentences

Percentage of net sales

The provision for litigation for the three month period ending March 31, 2021 includes receipt of a settlement.

The provision for litigation was immaterial for the three month periods ending June 30, 2021 and 2020.

Amortization of Intangibles

3 unchanged sentences

Percentage of net sales

The increase in the amortization of intangibles is primarily due to the developed technology intangible asset acquired in connection with the Nemaris acquisition and the intangible assets acquired in the fourth quarter of fiscal 2020.

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The increase in the amortization of intangibles is primarily due to the developed technology intangible asset acquired in connection with the intangible assets acquired in the fourth quarter of fiscal 2020.

Acquisition Related Costs

3 unchanged sentences

Percentage of net sales

Acquisition related costs decreased due to higher changes in fair value of business acquisition liabilities for the three month period ended March 31, 2020.

Acquisition related costs increased due to changes in fair value of business acquisition liabilities, driven by changes in market conditions and the achievement of certain performance conditions.

Other Income/(expense), Net

3 unchanged sentences

Percentage of net sales

The decrease in other income/(expense), net was primarily the result of lower interest income from lower yields on marketable securities during the three month period ended March 31, 2021.

The decrease in other income/(expense), net was primarily the result of lower interest income from lower yields on marketable securities during the three month period ended June 30, 2021.

Income Tax Provision

3 unchanged sentences

Effective income tax rate

The change in effective income tax rate for the three month periods ending March 31, 2021 and 2020 is primarily driven by the increase in pretax income partially offset by an increase in tax benefits related to stock option exercises and the reduction to non-tax deductible expenses in the current year.

A discussion of our Results of Operations for the three months ended March 31, 2020 can be found in “ Part I, Item 2.

The change in the effective income tax rates for the three month periods ending June 30, 2021 and 2020 is primarily driven by the increase in pretax income and the impact of the non-tax-deductible expense of acquired IPR&D of $24.4 million for the three month period ending June 30, 2020, which were partially offset by tax benefits due to an increase in stock option exercises in the current year.

A discussion of our Results of Operations for the three months ended June 30, 2020 can be found in “ Part I, Item 2.

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

Results of Operations;

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019.

” on our Form 10-Q filed on May 7, 2020 .

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019.

” on our Form 10-Q filed on August 5, 2020 .

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

Six Months Ended

(In thousands, except percentages)

United States

International

Total net sales

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In the United States, the increase in net sales of $124.8 million was due primarily to increased spine product sales resulting from penetration in existing territories and an increase in sales volume of enabling technologies, both of which were partially attributable to the lower net sales for the six month period ending June 30, 2020 due to the COVID-19 pandemic.

International net sales increased by $14.0 million, which was due primarily to increased sales volume of enabling technologies and spine product sales resulting from penetration in existing territories, both of which were partially attributable to the lower net sales for the six month period ending June 30, 2020 due to the COVID-19 pandemic.

The increase in net sales was partially offset by lower sales in Japan due to the transition of our sales force composition.

Cost of Goods Sold

Six Months Ended

(In thousands, except percentages)

Cost of goods sold

Percentage of net sales

The $19.4 million increase in cost of goods sold was primarily due to increased volume, which was partially offset by favorable production variances driven by improved manufacturing efficiencies, and lower write-downs of excess and obsolete inventory driven by the impact of the COVID-19 pandemic on operations for the six month period ending June 30, 2020.

Research and Development Expenses

Six Months Ended

(In thousands, except percentages)

Research and development

Percentage of net sales

Research and development expenses for the six month period ending June 30, 2020 includes $24.4 million of acquired in-process research and development (“IPR&D”) assets with no alternative future use.

Selling, General and Administrative Expenses

Six Months Ended

(In thousands, except percentages)

Selling, general and administrative

Percentage of net sales

Provision for Litigation

Six Months Ended

(In thousands, except percentages)

Provision for litigation

Percentage of net sales

The provision for litigation for the six month period ending June 30, 2021 includes receipt of a settlement.

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Amortization of Intangibles

Six Months Ended

(In thousands, except percentages)

Amortization of intangibles

Percentage of net sales

Acquisition Related Costs

Six Months Ended

(In thousands, except percentages)

Acquisition related costs

Percentage of net sales

Acquisition related costs increased due to changes in fair value of business acquisition liabilities, driven by changes in market conditions and the achievement of certain performance conditions.

Other Income/(expense), Net

Six Months Ended

(In thousands, except percentages)

Other income/(expense), net

Percentage of net sales

The decrease in other income/(expense), net was primarily the result of lower interest income from lower yields on marketable securities during the six month period ended June 30, 2021.

Income Tax Provision

Six Months Ended

(In thousands, except percentages)

Income tax provision

Effective income tax rate

The change in the effective income tax rates for the six month periods ending June 30, 2021 and 2020 is primarily driven by the increase in pretax income and the impact of the non-tax-deductible expense of acquired IPR&D of $24.4 million for the six month period ending June 30, 2020, which were partially offset by tax benefits due to an increase in stock option exercises in the current year.

A discussion of our Results of Operations for the three months ended June 30, 2020 can be found in “ Part I, Item 2.

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

Results of Operations;

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019.

” on our Form 10-Q filed on August 5, 2020 .

Liquidity and Capital Resources

1 unchanged sentence

Our principal liquidity requirements are to fund working capital, research and development, including clinical trials, capital expenditures primarily related to investment in surgical sets required to maintain and expand our business, and potential future business or intellectual property acquisitions.

We expect to continue to make investments in surgical sets as we launch new products, increase the size of our U.S.

We expect to continue to make investments in

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surgical sets as we launch new products, increase the size of our U.S.

sales force, and expand into international markets.

4 unchanged sentences

In August 2020, we entered into a credit agreement with Citizens Bank, N.A.

(the “Credit Agreement”) that provides a revolving credit facility permitting borrowings up to $125.0 million (the “Revolving Credit Facility”), and has a termination date of August 5, 2021.

(the “Credit Agreement”) that provides a revolving credit facility permitting borrowings up to $125.0 million (the “Revolving Credit Facility”).

As amended, the Credit Agreement has a termination date of August 3, 2022.

The Revolving Credit Facility includes up to a $25.0 million sub limit for letters of credit.

As of March 31, 2021, we have not borrowed under the Credit Agreement.

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As of June 30, 2021, we have not borrowed under the Credit Agreement.

The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities:

Three Months Ended

Six Months Ended

(In thousands)

1 unchanged sentence

Net cash used in investing activities

Net cash used in/provided by financing activities

Net cash provided by/used in by financing activities

Effect of foreign exchange rate changes on cash

1 unchanged sentence

Cash Provided by Operating Activities

The increase in net cash provided by operating activities for the three months ended March 31, 2021 was primarily due to the increase of cash flow from net income, reduced outflows for inventories and liabilities, and the favorable change in prepaid expenses and other assets, primarily related to long term accounts receivable becoming current.

The increase in net cash provided by operating activities for the six months ended June 30, 2021 was primarily due to the increase of cash flow from net income and reduced outflows for inventories and liabilities.

These were partially offset by an unfavorable change in accounts receivable as a result of increased sales.

Cash Used in Investing Activities

The increase in net cash used in investing activities for the three months ended March 31, 2021 was due primarily to the net outflows of purchases, maturities and sales of marketable securities, which was partially offset by a decrease of purchases of property and equipment.

The increase in net cash used in investing activities for the six months ended June 30, 2021 was due primarily to the net outflows of purchases, maturities and sales of marketable securities, which was partially offset by a decrease of purchases of property and equipment and acquisition activity.

Cash Used in Financing Activities

The increase in net cash provided by financing activities for the three months ended March 31, 2021 was primarily the result of the increase in proceeds from option exercises partially offset by the increased payments of business acquisition liabilities.

The three months ended March 31, 2020 included cash used for the repurchase of common stock.

A discussion of our Cash Flows for the three months ended March 31, 2020 can be found in “ Part I, Item 2.

The increase in net cash provided by financing activities for the six months ended June 30, 2021 was primarily the result of the increase in proceeds from option exercises which was partially offset by the increased payments of business acquisition liabilities.

The six months ended June 30, 2020 included cash used for the repurchase of common stock.

A discussion of our Cash Flows for the six months ended June 30, 2020 can be found in “ Part I, Item 2.

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

Results of Operations;

” on our Form 10-Q filed on May 7, 2020 .

” on our Form 10-Q filed on August 5, 2020 .

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations during the three months ended March 31, 2021.

There have been no material changes to our contractual obligations during the three months ended June 30, 2021.

Off-Balance Sheet Arrangements

2 unchanged sentences

To date, we have not experienced significant difficulty in locating and obtaining the materials necessary to fulfill our production requirements, and we have not experienced a meaningful backlog of sales orders.

We believe our supplier relationships and facilities will support our capacity needs for the foreseeable future.

We believe our supplier relationships and facilities

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will support our capacity needs for the foreseeable future.

A majority of our product inventory is held primarily with our sales representatives and at hospitals throughout the United States.

1 unchanged sentence

Safety stock levels are determined based on a number of factors, including demand, manufacturing lead times, and quantities required to maintain service levels.

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Recently Issued Accounting Pronouncements

23 unchanged sentences

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