What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 98 added, 27 removed, 161 unchanged (44% of the section changed)

38 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, 2024, international net sales accounted for approximately 20.4% of our total net sales.

During the six months ended June 30, 2024, international net sales accounted for approximately 20.5% of our total net sales.

We have sold our products and services in approximately 64 countries other than the United States through a combination of sales representatives employed by us and exclusive international distributors.

9 unchanged sentences

We have concluded that these operating segments are aggregated into one reportable segment, based on the aggregation criteria.

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

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 $248.8 million for the three month period ended March 31, 2024 was due primarily to the addition of NuVasive, as well as increased spine product sales, including robotic spine instruments, resulting from penetration in existing territories and an increase in sales volume of enabling technologies.

International net sales increased by $81.2 million for the three month period ended March 31, 2024 due to the addition of NuVasive and increased spine product sales resulting from penetration in existing territories.

In the United States, the increase in net sales of $254.0 million for the three month period ended June 30, 2024 was due primarily to the addition of NuVasive, as well as increased spine product sales, including robotic spine instruments, resulting from penetration in existing territories and an increase in sales volume of enabling technologies.

International net sales increased by $84.1 million for the three month period ended June 30, 2024 due to the addition of NuVasive and increased spine product sales resulting from penetration in existing territories.

Cost of Sales

3 unchanged sentences

Percentage of net sales

The $170.7 million increase in cost of sales is due to the addition of NuVasive, amortization of inventory fair value step-up, and increased volume and product mix .

The $183.6 million increase in cost of sales was due to the addition of NuVasive, amortization of inventory fair value step-up, and increased volume and product mix .

Research and Development Expenses

3 unchanged sentences

Percentage of net sales

The $36.2 million increase in research and development expenses was due primarily to the addition of NuVasive, acquired IPR&D and an increase in personnel related expenses due to our continued investment in product development.

The $16.4 million increase in research and development expenses was due primarily to the addition of NuVasive and an increase in personnel related expenses due to our continued investment in product development.

Selling, General and Administrative Expenses

9 unchanged sentences

Percentage of net sales

The provision for litigation, net remains immaterial for the three month periods ended March 31, 2024 and March 31, 2023.

The $4.1 million increase in provision for litigation, net was due to receipt of a legal settlement during the three months ended June 30, 2024, as compared to the net amount of settlement receipts during the three months ended June 30, 2023.

Amortization of Intangibles

Three Months Ended

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

Amortization of intangibles increased for the three month period ended March 31, 2024 compared to the three month period ended March 31, 2023, due to the impact of the acquired intangibles from NuVasive.

Amortization of intangibles increased for the three month period ended June 30, 2024 compared to the three month period ended June 30, 2023, due to the impact of the intangibles acquired from NuVasive.

Acquisition-Related Costs

3 unchanged sentences

Percentage of net sales

The increase in acquisition-related costs is due primarily to unfavorable change in the fair value of business acquisition liabilities, driven by changes in contract terms, market conditions and the achievement of certain performance conditions.

The increase in acquisition-related costs was due primarily to charges recorded to the fair value of business acquisition liabilities resulting from changes in contract terms, market conditions and the achievement of certain performance conditions.

Restructuring Costs

3 unchanged sentences

Percentage of net sales

The restructuring costs for the three months ended March 31, 2024 is due to costs associated with the 2024 Synergy Plan.

The restructuring costs for the three months ended June 30, 2024 were driven by 2024 Synergy Plan accrued expense balance changes.

These costs were primarily related to employee termination benefits.

4 unchanged sentences

Percentage of net sales

The decrease in other income/(expense), is due primarily to foreign currency losses and interest expense from a lower average marketable securities portfolio size in the current period.

The decrease in other income/(expense), was due primarily to foreign currency losses, lower interest income from a lower average marketable securities portfolio size in the current period and interest expense from amortization of the fair value adjustment on the 2025 Notes from acquisition accounting.

Income Tax Provision

3 unchanged sentences

Effective income tax rate

The decrease in the effective tax rate is due primarily to lower pretax earnings over the comparative period, and one-time tax adjustments as a percentage of pretax earnings.

A discussion of our Results of Operations for the three months ended March 31, 2023 can be found in “ Part I, Item 2.

The increase in the effective tax rate was due primarily to lower pretax earnings over the comparative period, and one-time tax adjustments as a percentage of pretax earnings.

A discussion of our Results of Operations for the three months ended June 30, 2023 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, 2023 Compared to the Three Months Ended March 31 2022.

” on our Form 10-Q filed on May 4, 2023 .

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30 2022.

” on our Form 10-Q filed on August 3, 2023 .

Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

Six Months Ended

(In thousands, except percentages)

United States

International

Total net sales

In the United States, the increase in net sales of $502.8 million for the six month period ended June 30, 2024 was due primarily to the addition of NuVasive, as well as increased spine product sales, including robotic spine instruments, resulting from increased penetration in existing territories and an increase in sales volume of enabling technologies.

International net sales increased by $165.3 million for the six month period ended June 30, 2024 due to the addition of NuVasive and increased spine product sales resulting from penetration in existing territories.

Cost of Sales

Six Months Ended

(In thousands, except percentages)

Cost of sales

Percentage of net sales

The $354.2 million increase in cost of sales was due to the addition of NuVasive, amortization of inventory fair value step-up, and increased volume and product mix .

Research and Development Expenses

Six Months Ended

(In thousands, except percentages)

Research and development

Percentage of net sales

The $52.5 million increase in research and development expenses was due primarily to the addition of NuVasive, acquired IPR&D and an increase in personnel related expenses due to our continued investment in product development.

Selling, General and Administrative Expenses

Six Months Ended

(In thousands, except percentages)

Selling, general and administrative

Percentage of net sales

The $244.3 million increase in selling, general and administrative expenses was due to the addition of NuVasive, and an increase in personnel related expenses resulting primarily from higher product sales, and meeting expenses.

Provision for Litigation, net

Six Months Ended

(In thousands, except percentages)

Provision for litigation, net

Percentage of net sales

The $4.0 million increase in provision for litigation, net was due to receipt of a legal settlement during the six months ended June 30, 2024, as compared to the net amount of settlement receipts during the six months ended June 30, 2023.

Amortization of Intangibles

Six Months Ended

(In thousands, except percentages)

Amortization of intangibles

Percentage of net sales

Amortization of intangibles increased for the six month period ended June 30, 2024, as compared to the six month period ended June 30, 2023, due to the impact of the intangibles acquired from NuVasive.

Acquisition-Related Costs

Six Months Ended

(In thousands, except percentages)

Acquisition-related costs

Percentage of net sales

Restructuring Costs

Six Months Ended

(In thousands, except percentages)

Restructuring Costs

Percentage of net sales

The restructuring costs for the six months ended June 30, 2024 were due to costs associated with the 2024 Synergy Plan.

These costs were primarily related to employee termination benefits.

Other Income/(expense), Net

Six Months Ended

(In thousands, except percentages)

Other income, net

Percentage of net sales

Income Tax Provision

Six Months Ended

(In thousands, except percentages)

Income tax provision

Effective income tax rate

The increase in the effective tax rate was due primarily to lower pretax earnings over the comparative period, and one-time tax adjustments as a percentage of pretax earnings.

A discussion of our Results of Operations for the six months ended June 30, 2023 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, 2023 Compared to the Six Months Ended June 30, 2022.

” on our Form 10-Q filed on August 3, 2023 .

Liquidity and Capital Resources

Our principal source of liquidity is cash flow from operating activities as well as our cash and cash equivalents and marketable securities, which we believe will provide sufficient funding for us to meet our liquidity requirements for the foreseeable future.

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, service our 2025 Notes, and potential future business or intellectual property acquisitions.

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, contingent consideration achievement obligations, potential future business or intellectual property acquisitions, and to service our 2025 Notes.

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.

Additionally, we have varying needs for cash in connection with our Senior Convertible Notes, of which $450 million are due March 2025, as well as for certain acquisition-related obligations and contingent consideration achievements.

Future litigation or requirements to escrow funds could also materially impact

our liquidity and our ability to invest in and operate our business on an ongoing basis.

Our Senior Convertible Notes, with a principal balance of $450 million are due March 2025.

We anticipate being able to support this need through existing or new sources of liquidity.

Future litigation or requirements to escrow funds could also materially impact our liquidity and our ability to invest in and operate our business on an ongoing basis.

We may, require additional liquidity as we continue to execute our business strategy.

12 unchanged sentences

The September 2023 Credit Agreement contains financial and other customary covenants, including a funded net indebtedness to adjusted EBITDA ratio.

As of March 31, 2024, we have not borrowed under the September 2023 Credit Agreement and we are in compliance with all covenants.

As of June 30, 2024, we have not borrowed under the September 2023 Credit Agreement and we are in compliance with all covenants.

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

Three Months Ended

Six Months Ended

(In thousands)

5 unchanged sentences

Cash Provided by Operating Activities

The higher net cash provided by operating activities for the three month period ended March 31, 2024 was primarily the result of higher net income after adjusting out non-cash add-backs and non-cash expenses, such as amortization of purchase accounting related fair value step up, amortization, and stock-based compensation, partially offset by unfavorable changes in accounts receivable and accrued expenses and other liabilities.

The higher net cash provided by operating activities for the six month period ended June 30, 2024 was primarily the result of higher net income after adjusting out non-cash add-backs and non-cash expenses, such as amortization of purchase accounting related fair value step up, amortization, and stock-based compensation, partially offset by unfavorable changes in accounts receivable, deferred income taxes, and accrued expenses and other liabilities.

Cash Used in Investing Activities

The higher cash used in investing activities for the three month period ended March 31, 2024 was primarily net outflows for acquisition of businesses, net of cash acquired , h igher purchases of property and equipment, and net purchases of marketable securities.

The higher cash used in investing activities for the six month period ended June 30, 2024 was due primarily to increased net outflows for the acquisition of businesses, net of cash acquired , and increased purchases of property and equipment, less inflows from net maturities of marketable securities.

Cash Used in Financing Activities

The higher net cash used in financing activities for the three month period ended March 31, 2024 was primarily the result of higher repurchases of Class A common stock, payments of business acquisition related liabilities and lower proceeds from exercise of stock options.

A discussion of our Cash Flows for the three months ended March 31, 2023 can be found in “ Part I, Item 2.

The higher net cash used in financing activities for the six month period ended June 30, 2024 was primarily the result of increased repurchases of Class A common stock, and increased payments of business acquisition-related liabilities, partially offset by higher proceeds from the exercise of stock options.

A discussion of our Cash Flows for the three months ended June 30, 2023 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 4, 2023 .

” on our Form 10-Q filed on August 3, 2023 .

Contractual Obligations and Commitments

13 unchanged sentences

Forward-looking statements are only predictions and are subject to many risks, uncertainties and other factors that may affect our businesses and operations and could cause actual results to differ materially from those predicted.

These risks and uncertainties include, but are not limited to, the risks and costs associated with the integration of the NuVasive business and our ability to successfully integrate and achieve anticipated synergies with the integration, health epidemics, pandemics and similar outbreaks, factors affecting our quarterly results, our ability to manage our growth, our ability to sustain our profitability, demand for our products, our ability to compete successfully (including without limitation our ability to convince surgeons to use our products and our ability to attract and retain sales and other personnel), our ability to rapidly develop and introduce new products, our ability to develop and execute on successful business strategies, our ability to comply with changes and applicable laws and regulations that are applicable to our businesses, our ability to safeguard our intellectual property, our success in defending legal proceedings brought against us, trends in the medical device industry, and general economic conditions, and other risks set forth in this Quarterly Report on Form 10-Q and throughout our Annual Report on Form 10-K for the year-ended December 31, 2023 , particularly those set forth under “Item 1.

growth, our ability to sustain our profitability, demand for our products, our ability to compete successfully (including without limitation our ability to convince surgeons to use our products and our ability to attract and retain sales and other personnel), our ability to rapidly develop and introduce new products, our ability to develop and execute on successful business strategies, our ability to comply with changes and applicable laws and regulations that are applicable to our businesses, our ability to safeguard our intellectual property, our success in defending legal proceedings brought against us, trends in the medical device industry, and general economic conditions, and other risks set forth in this Quarterly Report on Form 10-Q and throughout our Annual Report on Form 10-K for the year-ended December 31, 2023 , particularly those set forth under “Item 1.

Business,” “Item 1A.

11 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