What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-04 · 81 added, 67 removed, 195 unchanged (43% of the section changed)

13 unchanged sentences

As such, given the dynamic nature of this situation, the Company cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

However, if a resurgence occurs and governments mandate restrictions, including restrictions on elective surgeries, we do expect that it could have a material adverse impact on our revenue growth, operating profit and cash flow and may lead to higher than normal inventory levels, revised payment terms with certain of our customers, and a change in effective tax rate driven by changes in the mix of earnings across the Company’s jurisdictions.

However, if a resurgence occurs and governments mandate restrictions, including restrictions on elective surgeries, we do expect that it could have a material adverse impact on our revenue growth, operating profit and cash flow, revised payment terms with certain of our customers, and a change in effective tax rate driven by changes in the mix of earnings across the Company’s jurisdictions.

We are focused on navigating these recent challenges presented by COVID-19 and believe we are in a strong position to continue to sustain and grow our business.

To date, COVID-19 has not materially affected our supply chain or production schedule, although delays may be possible in the future due to the dynamic nature of the situation.

Product Categories

11 unchanged sentences

Enabling Technologies

Our Enabling Technologies are comprised of imaging, navigation and robotics (“INR”) solutions for assisted surgery which are advanced computer-assisted intelligent systems designed to enhance a surgeon’s capabilities, and ultimately improve patient care and reduce radiation exposure for all involved, by streamlining surgical procedures to be safer, less invasive, and more accurate.

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and reduce radiation exposure for all involved, by streamlining surgical procedures to be safer, less invasive, and more accurate.

The market for our Enabling Technologies in spine and orthopedic surgery is still in the infancy stage and consists primarily of imaging, navigation and robotic systems.

market for our Enabling Technologies in spine and orthopedic surgery is still in the infancy stage and consists primarily of imaging, navigation and robotic systems.

In spine, a majority of these technologies are limited to surgical planning and assistance in implant placement which are designed for increased accuracy and time savings with less intraoperative radiation exposure to the patient and surgical staff.

6 unchanged sentences

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

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

During the nine months ended September 30, 2021, international net sales accounted for approximately 14% of our total net sales.

We have sold our products in approximately 49 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 June 30, 2021 Compared to the Three Months Ended June 30, 2020

Three Months Ended September 30, 2021 Compared to the Three Months Ended September 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:

Three Months Ended

September 30,

(In thousands, except percentages)

2 unchanged sentences

Total net sales

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

In the United States, the increase in net sales of $16.1 million for the three month period ending September 30, 2021 was due primarily to an increase in sales volume of enabling technologies and increased spine product sales resulting from penetration in existing territories, partially offset by current period impacts of the COVID-19 pandemic.

International net sales decreased by $2.4 million for the three month period ending September 30, 2021 due primarily to lower sales in Japan due to the transition of our sales force composition and impacts of the COVID-19 pandemic, which was partially offset by increased spine product sales resulting from penetration in other existing territories.

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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

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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.

The $1.5 million increase in cost of goods sold was primarily due to increased volume, which was partially offset by lower inventory reserves and write-downs and favorable production variances driven by manufacturing efficiencies.

Research and Development Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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.

The $1.4 million increase in research and development expenses was primarily due to an increase in personnel related expenses due to our continued investment in product development.

Selling, General and Administrative Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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 and orthopedic trauma sales forces.

The increase in selling, general and administrative expenses was primarily due to an increase in commission expenses resulting from higher product sales, and an increase in travel, meeting and consulting expenses, which are comparable to pre-COVID-19 spending.

Provision for Litigation

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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

The provision for litigation for the three month period ending September 30, 2021 includes an accrual for a potential settlement.

Amortization of Intangibles

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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 intangible assets acquired in the fourth quarter of fiscal 2020.

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Acquisition Related Costs

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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.

The decrease in acquisition related costs is due to lower acquisition related professional fees and changes in fair value of business acquisition liabilities.

Other Income/(expense), Net

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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 June 30, 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 September 30, 2021.

Income Tax Provision

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Effective income tax rate

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.

The decrease in the effective income tax rate was primarily due to the favorable impact of stock option exercises.

A discussion of our Results of Operations for the three months ended September 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 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

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

” on our Form 10-Q filed on October 28, 2020 .

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

2 unchanged sentences

Total net sales

In the United States, the increase in net sales of $140.9 million was due primarily to increased spine product sales resulting from penetration in existing territories and an increase in sales volume of enabling technologies, both of which were partially attributable to the lower net sales for the nine month period ending September 30, 2020 due to the COVID-19 pandemic.

International net sales increased by $11.6 million, which was due primarily to increased spine product sales resulting from penetration in existing territories and sales volume of enabling technologies, both of which were partially attributable to the lower net sales for the nine month period ending September 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.

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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

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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.

The $20.8 million increase in cost of goods sold was primarily due to increased volume, which was partially offset by favorable production variances driven by manufacturing efficiencies, and lower write-downs of excess and obsolete inventory driven by the impact of the COVID-19 pandemic on operations for the nine month period ending September 30, 2020.

Research and Development Expenses

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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.

Research and development expenses for the nine month period ending September 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 an increase in personnel related expenses due to our continued investment in product development.

Selling, General and Administrative Expenses

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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 the continued build out of the spine, INR technology and orthopedic trauma sales forces.

Provision for Litigation

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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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The provision for litigation for the nine month period ending September 30, 2021 includes an accrual for a potential settlement.

Amortization of Intangibles

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

2 unchanged sentences

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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Acquisition Related Costs

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

3 unchanged sentences

Other Income/(expense), Net

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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.

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

Income Tax Provision

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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.

The decrease in the effective income tax rate was primarily due to the unfavorable impact of non-tax-deductible acquired IPR&D in the nine month period ended September 30, 2020.

A discussion of our Results of Operations for the nine months ended September 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 .

Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019.

” on our Form 10-Q filed on October 28, 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

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

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

sales force, and expand into international markets.

7 unchanged sentences

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

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

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

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

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by/used in by financing activities

Net cash provided by/(used in) operating activities

Net cash provided by/(used in) investing activities

Net cash provided by/(used in) 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 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.

The increase in net cash provided by operating activities for the nine months ended September 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 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.

The increase in net cash used in investing activities for the nine months ended September 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 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.

The increase in net cash provided by financing activities for the nine months ended September 30, 2021 was primarily the result of the increase in proceeds from option exercises.

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

A discussion of our Cash Flows for the nine months ended September 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 August 5, 2020 .

” on our Form 10-Q filed on October 28, 2020 .

Contractual Obligations and Commitments

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

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

Off-Balance Sheet Arrangements

1 unchanged sentence

We work closely with our suppliers to ensure that our inventory needs are met while maintaining high quality and reliability.

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

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will support our capacity needs for the foreseeable future.

To date, we have experienced slight delays in locating and obtaining the materials necessary to fulfill our production requirements, but it has not caused a meaningful backlog of sales orders.

Despite the current delays, which we believe are temporary and are driven by the dynamic nature of the COVID-19 impact on the global supply chain, we believe our supplier relationships and facilities will support our capacity needs for the foreseeable future.

However, it is possible that a prolonged COVID-19 disruption could cause a backlog of sales orders.

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