What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-08-06 · 100 added, 54 removed, 205 unchanged (43% 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 six months ended June 30, 2024, international net sales accounted for approximately 20.5% of our total net sales.

During the nine months ended September 30, 2024, international net sales accounted for approximately 20.6% of our total net sales.

We have sold our products and services in approximately 65 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 June 30, 2024 Compared to the Three Months Ended June 30, 2023

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 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:

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 $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.

In the United States, the increase in net sales was $186.5 million, or 60.3%, for the three month period ended September 30, 2024 and was significantly driven by the Merger.

From a product standpoint, domestic musculoskeletal solutions sales increased by $172.9 million, mainly driven by sales increases in spine products of $146.1 million, and neuromonitoring solution product and services of $17.1 million.

Domestic enabling technology sales increased by $13.5 million compared to the prior year, driven by higher unit placement.

International net sales increased by $55.6 million, or 74.8% for the three month period ended September 30, 2024 and was significantly driven by the Merger.

From a product standpoint, the increase was mainly due to musculoskeletal solutions sales increase of $58.5 million, primarily due to spine products.

Regionally, the increase was driven by sales growth in the Europe and Middle East (“EMEA”) region by $27.1 million, Latin America (“LATAM”) region by $6.4 million and Asia Pacific (“APAC”) region by $21.5 million.

International enabling technology sales decreased by $2.9 million compared to the three months ended September 30, 2023 .

Cost of Sales

Three Months Ended

September 30,

(In thousands, except percentages)

Cost of sales

Cost of sales (exclusive of amortization of intangibles)

Percentage of net sales

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 .

The $135.1 million or 99.8% increase in cost of sales was driven primarily by increases to inventory product costs of $59.4 million from increased volume significantly due to the Merger.

Additionally, there was increased amortization of inventory fair value step-up of $41.7 million, due to three months of post-acquisition amortization occurring in the current period as compared to one month in the prior period.

Further, increases in costs of sales were also impacted by increased depreciation of $9.9 million, and increased changes in excess and obsolete inventory reserves of $5.2 million.

Research and Development Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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.

The $6.1 million or 20.6% increase in research and development expenses shows our continued investment in product development.

This increase was primarily driven by increased personnel related expenses of $4.7 million due to increased headcount and parts expended in development of $1.3 million.

Selling, General and Administrative Expenses

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The $118.1 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.

The increase of $84.5 million or 54.1% in selling, general and administrative expenses was primarily driven by increases to personnel related expenses by $60.3 million due to increased headcount primarily from the Merger, increases to taxes and fees by $4.6 million, consulting and outside service expenses by $4.6 million, and rent expenses by $4.1 million.

Provision for Litigation, net

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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.

The $3.6 million decrease in provision for litigation, net was due to a favorable legal settlements of $0.7 million during the three months ended September 30, 2024, as compared to the provision expense recorded during the three months ended September 30, 2023.

Amortization of Intangibles

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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.

Amortization of intangibles increased by $16.3 million or 118.6% for the three month period ended September 30, 2024 compared to the three month period ended September 30, 2023, due to the impact of the intangibles acquired from NuVasive, which had $25.9 million amortization in the current period.

Acquisition-Related Costs

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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.

The decrease in acquisition-related costs compared to prior year was due primarily to the closing of the merger with NuVasive during the three months ended September 30, 2023.

During the prior period, costs incurred primarily related to employee-related costs of $34.0 million and banking and legal fees contingent on the merger closing of $9.5 million.

In the current period, a benefit of $3.6 million was recognized due to an adjustment in the classification of associated costs.

Restructuring Costs

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

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.

The restructuring costs of $5.2 million for the three months ended September 30, 2024 were driven by 2024 Synergy Plan employee termination benefits.

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), 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.

The increase of $6.8 million in other income/(expense), was primarily due to $15.6 million of foreign currency gain offset by increases in interest expense of $6.0 million, from amortization of the fair value adjustment on the 2025 Notes from acquisition accounting and other contractual interest incurred.

Additionally, interest income decreased by $2.5 million driven by a lower average marketable securities portfolio size in the current period.

Income Tax Provision

Three Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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 three months ended June 30, 2023 can be found in “ Part I, Item 2.

The decrease in the effective tax rate was due primarily to a benefit from a release of tax reserves of $2.9 million in the current period and a higher stock compensation windfall benefit of $1.5 million, partially offset by higher income before income taxes of $54.5 million.

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

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

” on our Form 10-Q filed on November 7, 2023 .

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

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 $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.

In the United States, the increase in net sales was $689.3 million, or 87.4% for the nine month period ended September 30, 2024 and was significantly driven by the Merger.

From a product standpoint, domestic musculoskeletal solutions increased by $667.6 million, mainly driven by sales increases in spine products of $556.1 million and neuromonitoring solution product and services of $77.4 million.

Enabling technology increased by $21.7 million compared to the prior year, driven by higher unit placement.

International net sales increased by $220.9 million for the nine month period ended September 30, 2024 and was driven significantly by the Merger.

From a product standpoint, it was mainly due to musculoskeletal solutions sales increase of $223.0 million, primarily due to spine products.

The increase was driven by sales growth in the EMEA region by $95.8 million, the LATAM region by $25.7 million and the APAC region by $80.8 million, respectively.

International enabling technology decreased by $2.1 million compared to the nine months ended September 30, 2023 .

Cost of Sales

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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 .

The $489.4 million or 173% increase in cost of sales was driven primarily by increases to inventory product costs of $220.0 million from increased volume significantly due to the Merger.

Additionally, there was increased amortization of inventory fair value step-up of $149.0 million due to nine months of post-acquisition amortization occurring in the current period as compared to one month in the prior period.

Further, increases in costs of sales were impacted by increased depreciation of $34.8 million, and increased changes in excess and obsolete inventory reserves of $11.8 million.

Research and Development Expenses

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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.

The $58.6 million or 81.6% increase in research and development expenses shows our continued investment in product development.

This increase was primarily driven by increased personnel related expenses of $35.7 million due to increased headcount, and acquired IPR&D charge of $12.6 million from the asset acquisition closed in the first quarter of 2024.

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 $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.

The net increase of $328.9 million or 82.5% in selling, general and administrative expenses was primarily due to increased personnel related expenses of $240.1 million driven by increased headcount primarily from the Merger.

Additionally, taxes and fees increased by $21.4 million, consulting and outside service expenses by $14.9 million, and rent expenses by $11.3 million.

Provision for Litigation, net

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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.

The provision for litigation was consistent across the periods, with net provision charge slightly higher in the current period as compared to the prior period .

The main driver in the current period was a case accrual for $0.8 million along with adjustments to other reserves, partially offset by a favorable settlement of $0.7 million.

Amortization of Intangibles

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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.

Amortization of intangibles increased by $66.6 million, or 290.5%, for the nine month period ended September 30, 2024, as compared to the nine month period ended September 30, 2023, due to the impact of the intangibles acquired from NuVasive, which had $77.3 million amortization in the current period.

Acquisition-Related Costs

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

Percentage of net sales

The decrease in acquisition-related costs compared to prior year was due primarily to the closing of the merger with NuVasive during the three months ended September 30, 2023.

During the current period, the cost of $12.5 million was primarily driven by the charge of $8.6 million recorded as a change to the fair value of business acquisition liabilities resulting from changes in contract terms, market conditions and the achievement of certain performance conditions.

Additionally, there was an increase of $1.5 million in employee related costs.

During the prior period, costs incurred are primarily related to the closing of the Merger, including employee-related costs personnel related charges for fees and severance of $34.0 million and banking and legal fees contingent on the merger closing of $9.5 million.

Restructuring Costs

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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.

The restructuring costs of $23.8 million for the nine months ended September 30, 2024 were due to employee termination benefits associated with the 2024 Synergy Plan .

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 of $27.0 million in other income/(expense), was primarily due to higher interest expense of $20.7 million, from amortization of the fair value adjustment on the 2025 Notes from acquisition accounting and other contractual interest incurred.

In addition, interest income decreased by $7.0 million driven from a lower average marketable securities portfolio size in the current period.

Income Tax Provision

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except percentages)

1 unchanged sentence

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.

The decrease in the effective tax rate was due primarily to a benefit from a release of tax reserves of $3.7 million in the current period, a higher stock compensation windfall benefit of $2.1 million, and lower income before income taxes of $44.3 million.

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

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022.

” on our Form 10-Q filed on November 7, 2023 .

Liquidity and Capital Resources

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

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

As of September 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:

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

5 unchanged sentences

Cash Provided by Operating Activities

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.

The higher net cash provided by operating activities for the nine month period ended September 30, 2024 was primarily the result of higher net income after adjusting out non-cash add-backs and non-cash expenses, primarily due to the Merger.

These include increased amortization of purchase accounting related fair value step up of inventory of $149.0 million, increased depreciation and amortization of $112.2 million, and increased amortization of the fair value step up with respect to our 2025 Note of $20.0 million, partially offset by unfavorable changes in accounts receivable of $63.6 million, deferred income taxes of $46.7 million, and accrued expenses and other liabilities of $20.2 million.

Cash Used in Investing Activities

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.

The higher cash used in investing activities for the nine month period ended September 30, 2024 was due primarily to less inflows from net maturities of marketable securities of $289.8 million as we manage our liquidity, as well as increased purchases of property and equipment of $42.9 million primarily from increased production resulting from the Merger.

These were partially offset by decreased outflows for the acquisition of businesses, net of cash acquired of $278.4 million, with immaterial acquisitions occurring in the current period as compared to the prior period that was primarily driven by the Merger.

Cash Used in Financing Activities

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.

The higher net cash used in financing activities for the nine month period ended September 30, 2024 was primarily the result of increased repurchases of Class A common stock of $84.8 million, and increased payments of business acquisition-related liabilities of $31.1 million, partially offset by higher proceeds from the exercise of stock options of $29.8 million.

A discussion of our Cash Flows for the nine months ended September 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 August 3, 2023 .

” on our Form 10-Q filed on November 7, 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.

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.

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.

Business,” “Item 1A.

7 unchanged sentences

Forward-looking statements contained in this Quarterly Report speak only as of the date of this Quarterly Report.

We undertake no obligation to update any forward-looking statements as a result of new information, events or circumstances or other factors arising or coming to our attention after the date hereof.

We undertake no

obligation to update any forward-looking statements as a result of new information, events or circumstances or other factors arising or coming to our attention after the date hereof.

Quantitative and Qualitative Disclosure About Market Risk

1 unchanged sentence

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