What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-29 · 198 added, 274 removed, 183 unchanged (72% of the section changed)

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These statements should, therefore, be considered in light of various important factors, including, but not limited to, the following:

The Company's ability to obtain accurate procedure volume in the midst of the COVID-19 pandemic;

the Company's ability to recover to normalized procedure volume in the midst of the COVID-19 pandemic;

the risk that the COVID-19 pandemic could lead to further material delays and cancellations of, or reduced demand for, procedures;

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the risk that the COVID-19 virus disrupts local economies and causes economies in our key markets to enter prolonged recessions.

The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 , and under the heading "Risk Factors" in this

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

You can identify these forward-looking statements by forward-looking words such as “believe,” “may,” “might,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar expressions in this report.

Integra, headquartered in Princeton, New Jersey, is a world leader in medical technologies.

Integra, headquartered in Princeton, New Jersey, is a world leader in medical technology.

The Company was founded in 1989 with the acquisition of an engineered collagen technology platform used to repair and regenerate tissue.

Since then, Integra has developed numerous product lines from this technology for applications ranging from burn and deep tissue wounds, to the repair of dura mater in the brain, and repair of nerves and tendons.

The Company has expanded its base regenerative technology business to include surgical instruments, neurosurgical products, advanced wound care, collagen matrix products for hernia and plastic & reconstructive surgery, and orthopedic hardware, through a combination of several global acquisitions and internally developed products to further meet the needs of its customers and impact patient care.

We manufacture and sell our products in two reportable global business segments:

Codman Specialty Surgical and Orthopedics and Tissue Technologies.

The Company has expanded its base regenerative technology business to include surgical instruments, neurosurgical products and advanced wound care through a combination of several global acquisitions and development of products internally to further meet the needs of its customers and impact patient care.

Integra manufactures and sells products in two reportable business segments:

Codman Specialty Surgical and Tissue Technologies.

In conjunction with the sale of the Extremity and Orthopedics business, the Company rebranded the Orthopedics and Tissue Technologies segment as Tissue Technologies in the first quarter of 2021.

Acquisitions and Divestitures, for details.

Our Codman Specialty Surgical products comprise of specialty surgical implants and instrumentation for a broad range of specialties.

This segment includes products and solutions for dural access and repair, instruments, advanced energy, cerebral spinal fluid ("CSF") management and neuro monitoring including market leading product portfolios used in neurosurgery operation suites and critical care units.

Our Orthopedics and Tissue Technologies product portfolios consist of differentiated regenerative technology products for soft tissue repair and tissue regeneration products, surgical reconstruction, and small bone fixation and joint replacement hardware products for both upper extremities and lower extremities.

This business also includes private label sales of a broad set of our regenerative and wound care medical technologies.

We have key manufacturing and research facilities located in California, Massachusetts, New Jersey, Ohio, Tennessee, Texas, Canada, France, Germany, Ireland, Puerto Rico and Switzerland.

We also source most of our handheld surgical instruments, specialty metal and pyrocarbon implants, and dural sealant products through specialized third-party vendors.

Codman Specialty Surgical products are sold through a combination of directly employed sales representatives, distributors and wholesalers, depending on the customer call point.

Orthopedics and Tissue Technologies products are sold through directly employed sales representatives, distributors focused on their respective surgical specialties, and strategic partners.

Our Tissue Technologies product portfolios consist of differentiated regenerative technology products for soft tissue repair and tissue regeneration products, and surgical reconstruction.

This business also includes private label sales of a broad set of our regenerative and wound care medicine technologies.

Tissue Technologies products are sold through directly employed sales representatives and distributors focused on their respective surgical specialties, and strategic partners.

We have key manufacturing and research facilities located in California, Indiana, Maryland, Massachusetts, New Jersey, Ohio, Tennessee, Canada, France, Germany, Ireland, Puerto Rico and Switzerland.

We also source most of our handheld surgical instruments, and dural sealant products through specialized third-party vendors.

Integra is committed to delivering high quality products that positively impact the lives of millions of patients and their families.

We focus on four key pillars of our strategy:

1) building an execution-focused culture, 2) achieving relevant scale, 3) improving agility and innovation, and 4) leading in customer experience.

1) enabling an execution-focused culture, 2) optimizing relevant scale, 3) advancing innovation and agility, and 4) leading in customer experience.

We believe that by sharpening our focus on these areas through improved planning and communication, optimization of our infrastructure, and strategically aligned tuck-in acquisitions, we can build scale, increase competitiveness and achieve our long-term goals.

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An important part of the Company's strategy is pursuing strategic transactions and licensing agreements that increase relevant scale in the clinical areas in which Integra competes.

We successfully completed the Codman Neurosurgery integration, the most significant acquisition in the Company's history, as we exited 45 transition service agreements, across 90 countries.

This acquisition expanded the Company's portfolio of neurosurgery products and established us as the world leader in neurosurgery.

It has also enabled us to expand our international footprint and customer reach, thereby providing access to our entire product portfolio globally.

In 2020, we continue to invest in our two most recent acquisitions Arkis Biosciences, Inc.

and Rebound Therapeutics Corporation, both of which are developing innovative technologies for neurosurgery.

In December 2020, Integra entered into a merger agreement to acquire ACell, Inc., an innovative regenerative medicine company specializing in the manufacture of porcine urinary bladder extracellular matrices.

This acquisition, which closed on January 20, 2021, expands our product offering of regenerative technology and is complementary to Integra’s existing tissue technologies portfolio.

The acquisition also supports our long-term growth and profitability strategy with a financial profile similar to Integra’s tissue products.

In 2021, we are focused on the integration of ACell Inc., into our Tissue Technologies business segment, while also continuing the development of regenerative tissue products for complex wound management that will benefit the expanded portfolio.

See Note 2, Acquisitions and Divestitures , for details.

Portfolio Optimization and New Product Introductions.

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Our product development efforts span across our key global franchises focused on potential for significant returns on investment.

In February 2020, we launched the AmnioExcel® Plus Placental Allograft Membrane, the next generation wound care offering to support soft tissue repair.

Further in 2020, we continue to reap the benefits of many of our 10 new products launches from 2019.

We continue to advance the development of pioneering technologies from our 2019 acquisitions, Arkis Biosciences, Inc.

and Rebound Therapeutics Corporation.

In addition to new product development, we are funding studies to gather clinical evidence to support launches, ensure market access and improve reimbursement for existing products.

We continue to identify ways of optimizing our portfolio including identifying low-growth, low-margin products and product franchises for discontinuation.

On September 29, 2020, we entered into an agreement to sell our Extremity Orthopedics business to Smith & Nephew USD Limited for approximately $240 million in cash.

The transaction is expected to close at or around the end of 2020, subject to the satisfaction of customary conditions, including regulatory approvals and consultation with employee representative bodies.

See Note 2, Assets and Liabilities Held for Sale , for details.

Upon completion of the transaction, we expect Integra to be a faster growing, more profitable, and more focused company.

This will enable us to increase our investments in our core Neurosurgery and Tissue Technology businesses.Those investments will strengthen our existing leadership positions and fund pipeline opportunities to drive future growth and expand our addressable markets.

We will also significantly reduce the complexity of the organization.

Exiting the Orthopedics business is accretive to our organic growth and EBITDA margins which will enhance shareholder value and keep us on a path toward achieving our long-term growth and profitability targets.

Additionally, this transaction will improve our financial flexibility.

We will have the ability to meaningfully reduce our consolidated total leverage ratio and to pursue strategic M&A from a stronger financial position.

In January 2021, we completed the sale of our Extremity Orthopedics business to Smith & Nephew for approximately $240 million in cash subject to finalization of working capital adjustments.

This transaction enables us to increase our investments in our core Neurosurgery and Tissue Technology businesses which will strengthen our existing leadership positions in both areas, fund pipeline opportunities to drive future growth and expand our addressable markets.

See Note 2, Acquisitions and Divestitures for details.

Commercial Channel Investments.

With acquisitions, new product introductions and a broader portfolio of products, investing in our sales channels is a core part of our strategy to create specialization and greater focus on reaching new and existing customers and addressing their needs.

Internationally, we have increased our commercial resources significantly in many markets and are making investments to support our sales organization and maximize our commercial opportunities.

We now have a strong international sales channel that will deliver our current portfolio as well as position us for expansion.

To support our commercial efforts in Tissue Technologies, we expanded our two-tier specialist model to increase our presence in focused segments.

We created a virtual selling organization to help serve the evolving needs of our customers.

Internationally, we have increased our commercial resources significantly in key emerging markets and are making investments to support our sales organization and maximize our commercial opportunities.

These strong investments in our international sales channel position us well for expansion and long-term growth.

In addition, we continue to build upon our leadership brands across our product franchises to enable us to engage customers through enterprise-wide contracts.

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We aspire to be ranked as a best-in-class provider and are committed to strengthen our relationships with all customers.

We strive to consistently deliver outstanding customer service and continue to invest in technologies, systems and processes to improve the way our customers do business with us.

Additionally, we expect to build on the success of our professional education programs to drive continued customer familiarity with our growing portfolio of medical technologies globally.

We continue to invest in technologies, systems and processes to enhance the customer experience.

Additionally, we launched new digital programs, resources and virtual product training to drive continued customer familiarity with our growing portfolio of medical technologies globally.

Clinical and Product Development Activities

We continue to invest in collecting clinical evidence to support the Company's existing products and new product launches, and to ensure that we obtain market access for broader and more cost-effective solutions.

Within our Codman Specialty Surgical segment, the Company received FDA clearance in July 2020 to treat malignant and benign tumors, but not limited to meningiomas and gliomas, for its CUSA ® Clarity Ultrasonic Surgical Aspirator System, the first and only ultrasonic tissue ablation system with this specific indication.

In each area, we continue to benefit from products launched over the past several years.

Within our Codman Specialty Surgical segment, the Company received FDA clearance in 2020 to treat malignant and benign tumors, but not limited to meningiomas and gliomas, for its CUSA® Clarity Ultrasonic Surgical Aspirator System, the first and only ultrasonic tissue ablation system with this specific indication.

The FDA clearance is based on a wealth of peer-reviewed clinical publications and 40 years of surgical cases involving resection of brain and spinal tumors.

Additionally, the Company continued to reap the benefits of our product launches from the prior year from the Codman Specialty Surgical segment, including our new electrosurgery generator and irrigator system, an innovative customer-centric toolkit for our Certas™ Plus Programmable Valve along with additional shunt configurations.

In Japan, we are experiencing strong growth as a result of the successful launch of DuraGen® in the prior year, which is the first and only collagen xenograft approved for use as a dural substitute in the country.

We are focused on the development of core clinical applications in our electromechanical technologies portfolio.

In Japan, we are experiencing strong growth as a result of the successful launch of DuraGen® in mid-2019, which is the first and only collagen xenograft approved for use as a dural substitute in the country.

We are focused on the development of core clinical applications in our

electromechanical technologies portfolio.

Also, we updated our CUSA Clarity platform to incorporate a new ultrasonic handpiece, surgical tips and integrated electrosurgical capabilities.

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This enables us to add new instruments with minimal expense and invest in ongoing development, such as our next generation of LED technology with our DUO LED Surgical Headlight System.

Within our Orthopedic and Tissue Technologies segment, we launched AmnioExcel® Plus Placental Allograft Membrane, a human placental tissue product for treatment of wounds during February 2020.

We also continued to benefit from the 2019 U.S.

product launches, such as, the Panta® II TTC Arthrodesis Nail System.

The Panta II system is our new fusion nail used in ankle fixation.

We also launched a small post baseplate in our reverse shoulder system that accommodates smaller patients.

In addition, we initiated the limited market release of enhancements to our Salto Talaris® Total Ankle System.

In May 2020, the Company announced positive clinical and economic data on Integra® Bilayer Wound Matrix ("IBWM") in complex lower extremity reconstruction based on two retrospective studies recently published in Plastic and Reconstructive Surgery, the official journal of the American Society of Plastic Surgeons.

As surgeons looks for ways to efficiently and effectively repair and close wounds during these challenging times, IBWM helps address the efficiency needed in operating rooms by reducing both the operating time and costs to hospitals and patients.

We also continued to advance the early-stage technology platforms we acquired during 2019.

Through the Arkis Biosciences acquisition, we added a platform technology, CerebroFlo® external ventricular drainage (EVD) catheter with Endexo® technology, a permanent additive designed to reduce the potential for catheter obstruction due to thrombus formation.

The CerebroFlo EVD Catheter has demonstrated an average of 99% less thrombus accumulation onto its surface, in vitro, compared to a market leading EVD catheter.

We also acquired a company, Rebound Therapeutics, that specialized in single-use medical devices that enable minimally invasive access with enhanced lighting and visualization to the neurosurgery suite and launched the MIRROR registry to collect data on this new device.

Importantly, these new platforms provide us with the opportunity to expand into new, faster growth therapeutic areas, such as intracerebral hemorrhage and minimally invasive neurosurgery.

Within our Tissue Technologies segment, in 2020, we launched AmnioExcel® Plus Placental Allograft Membrane, a human placental tissue product for treatment of wounds.

We also completed a randomized clinical study of PriMatrix for use in the closure of Diabetic Foot Ulcers (DFU).

The Company also announced positive clinical and economic data on Integra® Bilayer Wound Matrix ("IBWM") in complex lower extremity reconstruction based on two retrospective studies recently published in Plastic and Reconstructive Surgery, the official journal of the American Society of Plastic Surgeons.

As surgeons look for ways to efficiently and effectively repair and close wounds during these challenging times, IBWM helps address the efficiency needed in operating rooms by reducing both the operating time and costs to hospitals and patients.

COVID-19 Pandemic

The Company's focus during this global crisis remains unchanged.

The Company continues to support patients, provide customers with life-saving products, and protect the health and safety of its employees.

The rapid and evolving spread of the

virus has resulted in an unprecedented challenge to the global healthcare industry, as medical resources were reallocated to fight COVID-19.

During 2020, the Company was able to sustain ongoing operations by implementing contingency plans such as enabling its manufacturing and distribution sites around the world to continue operating at levels required to meet demand and to provide for the safety of its employees.

During April of 2020, the Company implemented cost-savings measures, which included the following:

Reduced executive management compensation through July 2020 and director compensation

Reduced cash compensation for all other employees through reduced commissions, reduction in hours through July 2020 and/or furloughs

Hiring freeze, elimination of overtime, reduction in certain employee benefit costs, cessation of third-party services and temporary contractor relationships

Significant reduction in capital expenditures and discretionary spending including travel, events and marketing programs

The Company restored employee wages and other spending in the third quarter of 2020, as revenues sequentially increased approximately 43.1% as compared to the second quarter of 2020.

The Company also continues to implement programs and strategies to drive sustainable growth, such as partnering with key opinion leaders to increase our customer engagement through educational webinars and improve the clinical components of sales training.

As many surgical procedures in which our products are employed cannot be deferred for more than 90 days, this should contribute to the continued recovery of the Company's business.

We cannot predict with certainty the extent to which the COVID-19 pandemic will impact procedures in the fourth quarter and beyond.

During this global crisis, the Company's focus remained on supporting patients, providing customers with life-saving products, and protecting the well-being of our employees.

The rapid and evolving spread of the virus has resulted in an unprecedented challenge to the global healthcare industry, as medical resources were reallocated to fight COVID-19.

During the first half of 2020, in response to the pandemic, we acted swiftly by implementing protocols to ensure continuity of our manufacturing and distribution sites around the world and to provide for the safety of our employees.

During the first quarter of 2021, the Company's revenues were still impacted due to COVID-19 resurgences and lower surgical procedural volumes, though not to the levels seen in early 2020.

As a result, the Company has continued to manage its operating costs in this environment.

We remain confident that the underlying markets in which the Company competes remain attractive over the long term.

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The Company's adaptability and resiliency in the face of this unprecedented crisis is made possible in part by prior investments in technology infrastructure and operations, as well as our talented and committed global workforce.

Throughout this period, we continued to prioritize and invest in critical R&D and clinical programs.

Capital markets and worldwide economies have also been significantly impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession.

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Any of these events could negatively impact the number of surgical and medical intervention procedures performed and have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Information pertaining to additional risk factors as it relates to the COVID-19 pandemic can be found in Item 1A.

Risk Factors.

On June 22, 2015, the FDA (the “FDA”) issued an Untitled Letter (the "Untitled Letter") alleging that BioD LLC's ("BioD") morselized amniotic membrane tissue based products do not meet the criteria for regulation as HCT/Ps solely under Section 361 of the Public Health Services Act ("Section 361") and that, as a result, BioD would need a biologics license to lawfully market those morselized products.

We manufacture and distribute products derived from human tissue for which FDA has specific regulations governing human cells, tissues and cellular and tissue-based products, or HCT/Ps.

An HCT/P is a product containing or consisting of human cells or tissue intended for transplantation into a human patient.

On June 22, 2015, the FDA issued an Untitled Letter (the "Untitled Letter") alleging that BioD's morselized amniotic membrane tissue based products do not meet the criteria for regulation as HCT/Ps solely under Section 361 of the Public Health Services Act ("Section 361") and that, as a result, BioD would need a biologics license to lawfully market those morselized products.

Since the issuance of the Untitled Letter, BioD and more recently the Company have been in discussions with the FDA to communicate their disagreement with the FDA’s assertion that certain products are more than minimally manipulated.

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In addition, the FDA articulated a risk-based approach to enforcement and, while some uses for amniotic membrane tissue-based products would have as much as thirty-six months of enforcement discretion, other high risk uses could be subject to immediate enforcement action.

The revised final guidance extends the discretionary enforcement period to May 31, 2021.

The revised final

guidance extends the discretionary enforcement period to May 31, 2021.

The Company does not believe the uses for its amniotic membrane tissue-based products fall into the high-risk category.

As of September 30, 2020 the Company has not received any further notice of enforcement action from the FDA regarding its morselized amniotic tissue-based products.

Nonetheless, we can make no assurances that the FDA will continue to exercise its enforcement discretion with respect to the Company’s morselized amniotic membrane tissue-based products, and any potential

action of the FDA could have a financial impact regarding the sales of such products.

The Company has been considering and continues to consider regulatory approval pathways for its morselized amniotic membrane tissue-based products.

Revenues from BioD morselized amniotic membrane based products for the nine months ended September 30, 2020 were less than 1.0% of consolidated revenues.

As of March 31, 2021, the Company has not received any further notice of enforcement action from the FDA regarding its morselized amniotic tissue-based products.

Revenues from BioD morselized amniotic membrane-based products for the three months ended March 31, 2021 were less than 1.0% of consolidated revenues.

On March 7, 2019, TEI Biosciences, Inc.

a subsidiary of the Company received a Warning Letter (the “Warning Letter”), dated March 6, 2019, from the United States Food and Drug Administration.

a subsidiary of the Company received a Warning Letter (the “Warning Letter”), dated March 6, 2019, from the FDA.

The warning letter relates to quality systems issues at our manufacturing facility located in Boston, Massachusetts.

The letter resulted from an inspection held at that facility in October and November 2018 and did not identify any new observations that were not already provided in the Form 483 that followed the inspection.

The Company submitted its initial response to the FDA Warning Letter on March 28, 2019 and provides regular progress reports to the FDA as to its corrective actions on a monthly basis and, since the conclusion of the inspection, has undertaken significant efforts to remediate the observations and continues to do so.

The Company submitted its initial response to the FDA Warning Letter on March 28, 2019 and provides regular progress reports to the FDA as to its corrective actions and, since the conclusion of the inspection, has undertaken significant efforts to remediate the observations and continues to do so.

The warning letter does not restrict the Company’s ability to manufacture or ship products or require the recall of any products.

Nor does it restrict our ability to seek FDA 510(k) clearance of products.

The letter states that requests for Certificates to Foreign Governments will not be granted, however, due to our progress reports, FDA has agreed to resume issuing Certificates to Foreign Governments to TEI due to substantial progress and the length of time it takes to resolve the Warning Letter.

The letter states that requests for Certificates to Foreign Governments would not be granted.

However, due to our progress reports, the FDA agreed to resume issuing Certificates to Foreign Governments to TEI due to substantial progress and the length of time it takes to resolve the Warning Letter.

Additionally, premarket approval applications for Class III devices to which the Quality System regulation violations are reasonably related will not be approved until the violations have been corrected.

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Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and selling our products and could have a material adverse effect on our business, financial condition and results of operations.

Revenues of products manufactured in the TEI Boston facility for the nine months ended September 30, 2020 were approximately 4.5% of consolidated revenues.

Revenues of products manufactured in the TEI Boston facility for the three months ended March 31, 2021 were approximately 4.5% of consolidated revenues.

ACQUISITIONS & DIVESTITURES

On January 4, 2021, the Company completed its previously announced sale of its Extremity Orthopedics business to Smith & Nephew USD Limited.

The transaction included the sale of the Company's upper and lower Extremity Orthopedics product portfolio, including ankle and shoulder arthroplasty and hand and wrist product lines.

The Company received an aggregate purchase price of $240.0 million from Smith and Nephew and concurrently paid $41.5 million to the Consortium of Focused Orthopedists, LLC ("CFO") effectively terminating the licensing agreement between Integra and CFO relating to the development of shoulder arthroplasty products.

The Company recognized a gain of $42.9 million in connection with the sale that is presented in Gain from the sale of business in the consolidated statement of operations for the year ended March 31, 2021.

See Note 2- Acquisitions and Divestitures for details.

On January 20, 2021, the Company acquired ACell Inc.

for an acquisition purchase price of $305.4 million plus contingent consideration of up to $100 million, that may be payable upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025 .

ACell was a privately-held company that offered a portfolio of regenerative products for complex wound management, including developing and commercializing products based on MatriStem Urinary Bladder Matrix ("UBM"), a technology platform derived from porcine urinary bladder extracellular matrix.

See Note 2- Acquisitions and Divestitures for details.

OPTIMIZATION AND INTEGRATION ACTIVITIES

As a result of our ongoing acquisition strategy and significant growth in recent years, we have undertaken cost-saving initiatives to consolidate manufacturing operations, distribution facilities and transfer activities, implement a common ERP system, eliminate duplicative positions, realign various sales and marketing activities, and expand and upgrade production capacity for our regenerative technology products.

These efforts are expected to continue and while we expect a positive impact from ongoing restructuring, integration, and manufacturing transfer and expansion activities, such results remain uncertain.

RESULTS OF OPERATIONS

Executive Summary

Net income (loss) for the three months ended September 30, 2020 was $32.3 million , or $0.38 per diluted share, as compared to $(27.6) million or $(0.32) per diluted share for the three months ended September 30, 2019 .

Net income for the nine months ended September 30, 2020 was $41.1 million, or $0.48 per diluted share, as compared to $34.9 million or $0.40 per diluted share for the nine months ended September 30, 2019 .

The net income for the three and nine months ended September 30, 2020 was impacted by the COVID-19 pandemic which resulted in lower revenues in addition to a decrease in the level of operating expenses due to cost-savings measures implemented by the Company during 2020.

The Company also had an increase in interest expense due to the issuance of the Convertible Senior Notes.

The increase in net income for the three months ended September 30, 2020 from the same period last year resulted from a $59.9 million IPR&D expense attributed to the Rebound transaction which occurred during the third quarter of 2019.

For the nine months ended September 30, 2020 , total revenues were $ 983.2 million, representing a decline of 12.4% from prior year revenues.

First quarter revenues declined 1.5% which reflects the impact of the COVID-19 pandemic on the Company from mid-March 2020 following two and a half months of revenue trends at the higher end of the Company’s expectations.

As a result of the speed and severity of the spread of COVID-19, the Company saw rapid and significant decline in surgical and medical intervention procedures as healthcare providers reallocated resources to address the increasing demands caused by the COVID-19 pandemic.

By reacting swiftly in February and working with customers and distributors, we were largely able to mitigate the first quarter impact of the social and economic shutdowns that took place globally.

The second quarter finished with sales of $258.7 million , representing a decline of 32.6% from the prior year period.

In April 2020, revenues were down 45% as compared to the same period in the prior year 2019, as healthcare providers around the world began to defer non-urgent medical procedures.

Throughout the remainder of the second quarter of 2020, revenues improved sequentially as compared to lows experienced in April 2020, as surgical procedure restrictions began to ease.

During the third quarter, we experienced strong sequential quarterly revenue improvements across all franchises, representing an increase of 43.1% as compared to the second quarter.

Third quarter revenues finished with sales of $370.2 million, representing a decline of 2.3% from the prior year period.

The Company's performance varied across regions and product lines

based on the severity of the pandemic but continued to demonstrate strong improvement compared to the second quarter, as surgical procedure restrictions continued to ease.

In the Codman Specialty Surgical ("CSS") segment, revenues increased 41% as compared to the second quarter of 2020.

Both the Neurosurgery and Instruments portfolio showed significant sequential quarterly improvement.

During the three months ended September 30, 2020, CSS revenues declined 5.4% compared to the prior year.

Sales in our neuro monitoring and programmable valve products increased low-single digits in the third quarter compared to the prior year.

Despite showing a sequential quarterly improvement, sales in capital products, largely concentrated in our advanced energy franchise, declined mid-double digits in the third quarter compared to the prior year as hospitals and healthcare institutions continued to allocate capital budgets to manage the increase in costs associated with the COVID pandemic.

The Company continues to have a strong pipeline of new capital opportunities and believes the reallocation of capital budgets is only temporary.

Additionally, sales of consumable products used in conjunction with previously sold capital equipment nearly recovered to prior year levels in the third quarter.

Sales of our Instruments portfolio decreased low-double digits as compared to the prior year, as sales of some products are more closely tied to hospital budgets rather than directly correlated to procedure volumes.

In the Orthopedics and Tissue Technologies ("OTT") segment, revenues increased 47.3% as compared to the second quarter of 2020.

Sales in our Wound Reconstruction, Extremity Orthopedics and Private Label portfolios all showed sequential quarterly improvement in revenues.

During the three months ended September 30, 2020, OTT revenues increased 3.8% as compared to the prior year.

Sales in the Wound Reconstruction portfolio remained flat as compared to the prior year led by growth in sales of Integra skin, PriMatrix and amniotic tissue products.

This was offset by performance in surgical reconstruction which declined by mid-double digits as compared to the prior year.

Sales of our Extremity Orthopedics portfolio increased low single digits as deferred surgical procedures were completed.

Our Private Label portfolio sales also increased by low-double digits over the prior year.

We continue to closely monitor local and regional COVID-19 surges for an impact on procedures in the fourth quarter of 2020 and beyond.

The reallocation of hospital resources to treat COVID-19 may continue to cause a financial strain on healthcare systems.

Additionally, the Company does not expect all markets and product lines to improve at the same rate based on the level of recurrence of COVID-19 and its associated impact on the pace of procedure recovery and economic normalization.

Net income for the three months ended March 31, 2021 was $45.4 million, or $0.53 per diluted share, as compared to $9.2 million or $0.11 per diluted share for the three months ended March 31, 2020.

The net income for the three months ended March 31, 2021 was primarily driven by an increase in non-operating income primarily due to the gain of $42.9 million recognized in the first quarter of 2021 as a result of the sale of its Extremity Orthopedics business to Smith & Nephew.

The Company also benefited from slightly higher revenues and lower operating expenses in the current period as compared to the prior period.

Special Charges

Income before taxes includes the following special charges :

Three Months Ended September 30,

Nine Months Ended

September 30,

(In thousands)

Three Months Ended March 31,

(In thousands)

Acquisition, divestiture and integration-related charges (2)

$ (27,001) $ 6,166

Structural optimization charges 3,946 3,242

EU medical device regulation 5,748 2,187

Litigation charges

Discontinued product lines charges 33 3,185

Impairment charges

COVID-19 pandemic related charges (1)

Expenses related to debt refinancing

Convertible debt non-cash interest expense — 2,529

(1) Charges relate to business interruptions and cost associated from the COVID-19 pandemic which impacted the Company's operations globally, partially offset by Coronavirus government relief programs.

(2) The Company included $59.9 million of IPR&D expense within acquisition, divestiture and integration-related charges as a result of the Rebound transaction in the third quarter of 2019.

Expenses related to debt refinancing — 2,740

COVID-19 pandemic related charges (1)

Total $ (17,274) $ 24,755

(1) Charges relate to business interruptions and costs associated with the COVID-19 pandemic which impacted the Company's operations globally, partially offset by Coronavirus government relief programs in the prior year.

(2) The Company completed its sale of its Extremity Orthopedics business to Smith & Nephew and recognized a gain of $42.9 million for the three months ended March 31, 2021 which was partially offset by other acquisition, divestiture and integration-related charges.

Acquisitions and Divestitures for details.

The items reported above are reflected in the condensed consolidated statements of operations as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Three Months Ended March 31,

(In thousands)

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Research and development 5,515 (1,051)

IPR&D expense

Selling, general and administrative 11,494 11,230

Intangible asset amortization (2)

Interest expense (1)

Other expense

(1) Amortization and impairment charges related to technology based intangible assets is included in cost of goods sold.

(2) Impairment charges related to non-technology based intangible assets such as customer relationships are included in Intangible asset amortization.

We typically define special charges as items for which the amounts and/or timing of such expenses may vary significantly from period to period, depending upon our acquisition, integration and restructuring activities, and for which the amounts are non-cash in nature, or for which the amounts are not expected to recur at the same magnitude.

Gain from the sale of business (2)

Other income (1,586) —

Total $ (17,274) $ 24,755

(1) Upon adoption of ASU No.

2020-06, the Company will no longer incur non-cash interest expense for the amortization of debt discount.

Basis of Presentation , for details.

(2) See Note 2.

Acquisitions and Divestitures for details.

We typically define special charges as items for which the amounts and/or timing of such expenses may vary significantly from period to period, depending upon our acquisition, divestiture, integration and restructuring activities, and for which the amounts are non-cash in nature, or for which the amounts are not expected to recur at the same magnitude.

We believe that given our ongoing strategy of seeking acquisitions, our continuing focus on rationalizing our existing manufacturing and distribution infrastructure and our continuing review of various product lines in relation to our current business strategy, some of the special charges discussed above could recur with similar materiality in the future.

We believe that the separate identification of these special charges provides important supplemental information to investors regarding financial and business trends relating to our financial condition and results of operations.

Investors may find this information useful in assessing comparability of our operating performance from period to period, assessing the objectives that management has established, and against other companies in our industry.

Investors may find this information useful in assessing comparability of our operating performance from period to period, against the business model objectives that management has established, and against other companies in our industry.

We provide this information to investors so that they can analyze our operating results in the same way that management does and to use this information in their assessment of our core business and valuation of Integra.

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The Company's revenues and gross margin on product revenues were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Segment Net Sales

(Dollars in thousands)

Three Months Ended March 31,

Segment Net Sales (Dollars in thousands)

Codman Specialty Surgical $ 241,241 $ 231,440

Orthopedics & Tissue Technologies

Total revenue

Tissue Technologies $ 118,830 $ 122,884

Total revenues $ 360,071 $ 354,324

Cost of goods sold $ 145,823 $ 133,476

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Gross margin as a percentage of total revenues 59.5 % 62.3 %

Three Months Ended September 30, 2020 as Compared to Three Months Ended September 30, 2019

Revenues and Gross Margin

For the three months ended September 30, 2020 , total revenues decreased by $8.9 million to $370.2 million from $379.1 million for the same period in 2019 .

Domestic revenues increased by $0.2 million , or 0.1% , to $266.5 million and were 72.0% of total revenues for the three months ended September 30, 2020 compared to $266.3 million during the same period in the prior year.

International revenues decreased by $9.1 million or 8% to $103.8 million for the three months ended September 30, 2020 compared to $112.8 million during the same period in the prior year.

The net decrease of $8.9 million was a result of disruption from the COVID-19 pandemic and $6.0 million due to discontinued and divested products offset by $2.6 million due to favorable impact of foreign exchange.

Codman Specialty Surgical revenues were $239.3 million, a decrease of $13.7 million, or 5.4% from the prior-year period.

Orthopedics and Tissue Technologies revenues were $130.9 million, an increase of $4.8 million, or 3.8% from the prior-year period.

Gross margin was $235.4 million for the three-month period ended September 30, 2020 , a decrease of $1.0 million from $236.5 million for the same period last year.

Gross margin as a percentage of total revenue increased to 63.6% for the third quarter of 2020 from 62.4% in the same period last year.

This increase is primarily attributable to favorable revenue mix and lower costs as a result of cost-savings measures implemented by the Company.

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

For the three months ended March 31, 2021, total revenues increased by $5.7 million to $360.1 million from $354.3 million for the same period in 2020.

Domestic revenues increased by $0.9 million, or 0.4%, to $247.8 million and were 68.8% of total revenues for the three months ended March 31, 2021 compared to $246.9 million during the same period in the prior year.

International revenues increased by $4.8 million or 4.5% to $112.3 million for the three months ended March 31, 2021 compared to $107.5 million during the same period in the prior year.

Foreign exchange fluctuations had a favorable impact of $5.9 million on revenues for the quarter.

In the Codman Specialty Surgical segment ("CSS"), revenues were $241.2 million which was an increase of $9.8 million, or 4.2% as compared to the prior-year period.

The Company saw growth within our Neurosurgery portfolio primarily with sales in advanced energy increasing high single digits as a result of capital and disposable sales recovery in our international markets.

Sales in our instruments portfolio increased low double digits as compared to the first quarter of 2020 primarily driven by recovery in physician office visits in comparison to the prior year.

In the Tissue Technologies ("TT") segment, revenues were $118.8 million which was a decrease of $4.1 million, or 3.3% from the prior-year period.

The decline in revenue was primarily as a result of the sale of the Company's Extremity Orthopedics product portfolio to Smith and Nephew which occurred on January 4, 2021.

This decline was partially offset by sales in our Wound Reconstruction portfolio which increased due to the acquisition of ACell Inc.

which was completed on January 20, 2021 and growth from our legacy portfolio such as Primatrix and Integra skin products.

We continue to closely monitor local, regional, and global COVID-19 surges as well as new variants of the virus for an impact on procedures during Q2 2021 and beyond.

The reallocation of hospital resources to treat COVID-19 may continue to cause a financial strain on healthcare systems and reduce procedural volumes.

For three months ended March 31, 2021 and 2020, gross margin as a percentage of revenues was 59.5% and 62.3%, respectively.

The decrease in gross margin percentage was due to increased amortization associated with technology-based intangible assets, inventory step-up amortization in connection with the ACell Inc.

acquisition, revenue mix and higher manufacturing costs.

The product revenue mix was impacted by the timing of the Extremity Orthopedics divestiture relative to the partial quarter benefit from ACell, and a higher mix of international revenue, which has lower gross margins than that of domestic revenue.

The higher manufacturing costs were mainly due to higher idle capacity relating to the impact of COVID resurgences on our workforce.

Operating Expenses

The following is a summary of operating expenses as a percent of total revenues:

Three Months Ended September 30,

Three Months Ended March 31,

Research and development 6.2 % 5.9 %

IPR&D expense

Selling, general and administrative 43.5 % 46.8 %

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Total operating expenses 51.0 % 54.7 %

Total operating expenses, which consist of selling, general and administrative expenses, research and development expenses, IPR&D expense and amortization expenses, decreased by $79.2 million, or 30.8% to $177.9 million in the three months ended September 30, 2020 , compared to $257.0 million in the same period in 2019 .

Research and development expenses for the three months ended September 30, 2020 increased by $0.5 million as compared to the prior year.

The increase in research and development was driven by costs related to product development, including product development for the new acquisitions completed in 2019.

The Company continues to invest in R&D programs with spending at prior year levels despite the challenges from the COVID-19 pandemic.

IPR&D expense decreased by $59.9 million as compared to the prior year due to the Rebound transaction which occurred during the third quarter of 2019.

Selling, general and administrative costs decreased by $23.0 million as compared to the prior year.

The decrease in selling, general and administrative expenses was driven by overall cost reduction actions along with lower commission and selling costs associated with lower revenue in the quarter.

Although expenses were still below prior year levels during the third quarter of 2020, the Company restored employee wages and began to increase other spending in line with the sequential revenue improvements during the period.

Revenues for the third quarter of 2020, sequentially increased approximately 43.1% as compared to the second quarter of 2020.

Non-Operating Income and Expenses

The following is a summary of non-operating income and expenses:

Three Months Ended September 30,

(In thousands)

Interest income

Interest expense

Other income, net

Interest Expense

Interest expense for the three months ended September 30, 2020 increased by $6.8 million as compared to the same period last year primarily due to an increase in non-cash interest expense due to the issuance of the Convertible Senior Notes.

Other Income, net

Other income, net for the three months ended September 30, 2020, decreased by $1.6 million compared to the same period last year primarily driven from a legal settlement received during the three months ended September 30, 2019.

Three Months Ended September 30,

(In thousands)

Income before income taxes

Income tax (benefit) expense

Effective tax rate

The Company’s effective income tax rates for the three months ended September 30, 2020 and 2019 were 22.1 % and ( 0.4 )% , respectively.

For the three months ended September 30, 2020 , the primary drivers of the higher tax rate are the jurisdictional mix of income along with a $4.2 million recognition of a deferred tax liability related to an outside tax basis from the sale of the Extremity Orthopedics business, offset by a $3.2 million benefit from a reversal of the French valuation allowance.

For the three months ended September 30, 2019 , the primary driver of the tax rate is the impact of the Rebound transaction, which resulted in a $59.9 million IPR&D expense.

This amount was not deductible for tax purposes.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of taxable earnings and losses, tax planning and settlements with various taxing authorities.

We consider these factors and others, including the Company's history of generating taxable earnings, in assessing our ability to realize tax assets on a quarterly basis.

While it is often difficult to predict the outcome or the timing of the resolution of a particular matter with the various federal, state, and foreign tax authorities, we believe that our reserves reflect the most probable outcome of known tax contingencies.

Settlement of a particular issue would usually require the use of cash.

A favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution.

The Company's tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items that we expect to pay in the coming year, which would be classified as current income taxes payable.

Nine Months Ended September 30, 2020 as Compared to Nine Months Ended September 30, 2019

Revenues and Gross Margin

For the nine months ended September 30, 2020 , total revenues decreased by $139.2 million to $983.2 million from $1,122.4 million for the same period in 2019 .

Domestic revenues decreased by $101.2 million, or 13% , to $695.2 million and were 71% of total revenues for the nine months ended September 30, 2020 .

International revenues decreased by $38.0 million, or 12% to $288.0 million for the nine months ended September 30, 2020 compared to $326.0 million during the same period in the prior year.

The net decrease of $139.2 million was a result of decline in both segments due to disruption from the COVID-19 pandemic and $17.3 million due to discontinued and divested product offset by $0.2 million due to favorable impact of foreign exchange.

Codman Specialty Surgical revenues were $640.5 million, a decrease of $96.3 million, or 13.1% from the prior-year period.

Orthopedics and Tissue Technologies revenues were $342.7 million, a decrease of $42.9 million, or 11.1% from the prior-year period.

The decrease in both segments is primarily due to disruption caused by the COVID-19 pandemic across all franchises.

Gross margin was $609.5 million for the nine-month period ended September 30, 2020 , a decrease of $97.8 million from $707.2 million for the same period last year.

Gross margin as a percentage of total revenue decrease d to 62.0% for the nine months ended September 30, 2020 from 63.0% in the same period last year.

This decrease is primarily attributable to the disruption caused by the COVID-19 pandemic partially offset by favorable revenue mix and lower costs as a result of cost-savings measures implemented by the Company during the second quarter of 2020.

Operating Expenses

The following is a summary of operating expenses as a percent of total revenues:

Nine Months Ended September 30,

Total operating expenses, which consist of research and development, selling, general and administrative, and amortization expenses, decreased by $10.2 million, or 5.3% to $183.5 million in the three months ended March 31, 2021, compared to $193.7 million in the same period in 2020.

The Company has continued to manage its operating costs as a result of the impact of the COVID-19 pandemic.

We also began to benefit from synergies as a result of the ACell Inc.

acquisition and the sale of the Extremity Orthopedic business.

Research and Development

IPR&D expense

Research and development expenses for the three months ended March 31, 2021 increased by $1.6 million as compared to the same period in prior year.

The Company continues to invest in R&D programs despite the challenges from the COVID-19 pandemic.

Selling, General and Administrative

Selling, general and administrative costs decreased by $9.3 million as compared to the same period in prior year resulting from less spending on travel, events and other discretionary expenses, as well as benefits from synergies as a result of the ACell Inc.

acquisition and the sale of the Extremity and Orthopedic business.

The Company has continued to manage its operating costs as a result of the impact of the COVID-19 pandemic.

Intangible Asset Amortization

Total operating expenses

Total operating expenses, which consist of selling, general and administrative expenses, research and development expenses, IPR&D expense and amortization expenses, decreased by $138.8 million, or 21.4% to $510.7 million in the nine months ended September 30, 2020 , compared to $649.5 million in the same period in 2019 .

Research and development expenses for the nine months ended September 30, 2020 increased by $0.2 million as compared to the prior year.

The Company continues to invest in R&D programs with spending at prior year levels despite the challenges from the COVID-19 pandemic.

IPR&D expense for the nine months ended September 30, 2020 decreased $59.9 million from the same period last year as a result of an IPR&D expense attributed to the Rebound transaction which occurred during the third quarter of 2019.

Selling, general and administrative costs decreased by $81.2 million as compared to the prior year resulting from less acquisition and integration related charges, lower commissions and selling costs resulting from lower revenue during the year and overall cost reduction actions resulting from cost-savings measures associated with actions taken by the Company as a result of the impact of the COVID-19 pandemic.

A mortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) for the three months ended March 31, 2021 was $4.5 million compared to $7.0 million for the same period in prior year primarily due to a reduction in amortization expense associated with intangible assets sold in conjunction with the sale of the business during the current year and accelerated amortization expense associated with an intangible asset recorded in the prior year.

We may discontinue certain products in the future as we continue to assess the profitability of our product lines.

As our profitability assessment evolves, we may make further decisions about our trade names and incur additional impairment charges or accelerated amortization.

We expect total annual amortization expense to be approximately $78.8 million in 2022, $78.0 million in 2023, $77.3 million in 2024, $77.3 million in 2025, $77.2 million in 2026 and $582.7 million thereafter.

Non-Operating Income and Expenses

The following is a summary of non-operating income and expenses:

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

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Interest expense (12,929) (17,752)

Gain from the sale of business 42,876 —

Other income, net 4,869 (479)

Total non-operating income and expense $ 36,564 $ (15,661)

Interest Income

Interest income for the three months ended March 31, 2021 decreased by $0.8 million as compared to the same period last year.

Gain from the sale of business

On January 4, 2021, the Company completed its sale of its Extremity Orthopedics business to Smith & Nephew and recognized a gain of $42.9 million for the three months ended March 31, 2021.

Interest Expense

Interest expense for the nine months ended September 30, 2020 increased by $13.7 million as compared to the same period last year primarily due to an increase in non-cash interest expense due to the issuance of the Convertible Senior Notes and expenses associated with Amended and Restated Senior Credit Agreement.

Interest expense for the three months ended March 31, 2021 decreased by $4.8 million as compared to the same period in the prior year primarily due to the elimination of the non-cash interest expense as the result of the adoption ASU 2020-06 and the expenses associated with Amended and Restated Senior Credit Agreement which occurred in the prior period.

Basis of Presentation for details in relation to the adoption of ASU 2020-06.

Other Income, net

Other income, net for the nine months ended September 30, 2020 , decreased by $5.5 million as compared to the same period last year primarily due to unfavorable impact of foreign exchange and a legal settlement received during the nine months ended September 30, 2019.

Nine Months Ended September 30,

Other income, net for the three months ended March 31, 2021 increased by $5.3 million compared to the same period in the prior year primarily due to income associated with the transition services agreement with Smith and Nephew and favorable impact of foreign exchange.

Three Months Ended March 31,

(In thousands)

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Effective tax rate 32.5 % 19.8 %

The Company’s effective income tax rates for the nine months ended September 30, 2020 and 2019 were 24.6% and (3.5)% , respectively.

For the nine months ended September 30, 2020 , the primary drivers of the higher tax rate are the jurisdictional mix of income along with a $4.2 million recognition of a deferred tax liability related to an outside tax basis from the sale of the Extremity Orthopedics business.

For the nine months ended September 30, 2019 , the primary driver of the tax rate is the impact of the Rebound transaction, which resulted in a $59.9 million IPR&D expense.

This amount is not deductible for tax purposes.

This was offset by a tax benefit of $10.8 million related to a federal tax holiday in Switzerland, which was finalized during the quarter ended March 31, 2019.

The Company received a federal tax credit in Switzerland of 12 million CHF, which may be used over a seven year period, ending in 2024.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law.

The CARES Act includes certain income tax provisions for corporations and individuals, among other provisions.

The Company does not expect the CARES Act to have a significant impact on the income tax provision.

The Company continues to monitor the issuance of new legislation, regulations, and case law that may impact federal, state, and international tax positions.

The Company expects its effective income tax rate for the full year to be approximately 24.6%, driven primarily by the jurisdictional mix of income and the incremental impact of the $4.2 million expense related to an outside tax basis from the sale of the Extremity Orthopedics business.

The Company’s effective income tax rates for the three months ended March 31, 2021 and 2020 were 32.5% and 19.8%, respectively.

For the three months ended March 31, 2021, the primary driver of the higher tax rate is the tax impact of the gain from the sale of the business, which closed during the first quarter.

For the three months ended March 31, 2020, the primary drivers of the rate were lower income impacted by the COVID-19 pandemic, coupled with a $3.3 million valuation allowance on certain foreign deferred tax assets.

2 unchanged sentences

Settlement of a particular issue would usually require the use of cash.

Favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution.

The tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items we expect to pay in the coming year, which would be classified as current income taxes payable.

A favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution.

GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS

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Total revenue by major geographic area consisted of the following:

Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands)

Three Months Ended March 31,

(In thousands)

United States $ 247,793 $ 246,852

Europe 45,819 45,896

Asia Pacific 47,295 39,960

Rest of World 19,164 21,616

1 unchanged sentence

The Company generates significant revenues outside the U.S., a portion of which are U.S.

dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S.

dollar-denominated transactions conducted with customers that generate revenue in currencies other than the U.S.

As a result, currency fluctuations between the U.S.

1 unchanged sentence

Local economic conditions, regulatory compliance or political considerations, the effectiveness of our sales representatives and distributors, local competition and changes in local medical practice all may combine to affect our sales into markets outside the U.S.

Domestic revenues increased by $0.2 million for the three months ended September 30, 2020 compared to the same period last year.

European sales decreased by $3.2 million for the three months ended September 30, 2020 compared to the same period last year.

Sales to customers in Asia Pacific and the Rest of the World for the three months ended September 30, 2020 decreased by $5.8 million compared to the same period last year.

The revenues globally continue to be impacted by the COVID-19 pandemic across all of the franchises.

Domestic revenues decreased by $101.2 million for the nine months ended September 30, 2020 compared to the same period last year.

European sales decreased by $24.8 million for the nine months ended September 30, 2020 compared to the same period last year.

Sales to customers in Asia Pacific and the Rest of the World for the nine months ended September 30, 2020 decreased by

$13.2 million compared to the same period last year.

The decrease in revenues globally was primarily due to adverse effects of the COVID-19 pandemic across all franchises.

Domestic revenues increased by $0.9 million for the three months ended March 31, 2021 compared to the same period last year.

European sales decreased by $0.1 million for the three months ended March 31, 2021 compared to the same period last year.

Sales to customers in Asia Pacific increased by $7.3 million for the three months ended March 31, 2021 driven by accelerated recovery in both the Japan and China markets in relation to otherwise negative COVID-19 impacts.

The Rest of the World for the three months ended March 31, 2021 decreased by $2.5 million compared to the same period last year primarily due to adverse effects of the COVID-19 pandemic.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

The working capital as of March 31, 2021 and December 31, 2020 was $626.8 million and $836.2 million, respectively.

Working capital consists of total current assets less total current liabilities as presented in the consolidated balance sheets.

Cash and Marketable Securities

The Company had cash and cash equivalents totaling approximately $396.3 million and $198.9 million at September 30, 2020 and December 31, 2019 respectively, which are valued based on Level 1 measurements in the fair value hierarchy.

At September 30, 2020 , our non-U.S.

The Company had cash and cash equivalents totaling approximately $409.0 million and $470.2 million at March 31, 2021 and December 31, 2020 respectively, which are valued based on Level 1 measurements in the fair value hierarchy.

At March 31, 2021, our non-U.S.

subsidiaries held approximately $251.6 million of cash and cash equivalents that are available for use outside the U.S.

1 unchanged sentence

The Company does not anticipate the need to repatriate earnings from foreign subsidiaries as a result of the impact of the COVID-19 pandemic.

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

1 unchanged sentence

Net cash used in investing activities (117,566) (21,485)

Net cash provided by financing activities

Net cash (used) provided by financing activities (3,015) 162,005

Effect of exchange rate fluctuations on cash (9,690) (2,533)

Cash Flows Provided by Operating Activities

Operating cash flows for the nine months ended September 30, 2020 decreased compared to the same period in 2019 .

For the nine months ended September 30, 2020 , net income after non-cash adjustments decreased by approximately $21.3 million to $174.4 million from $195.7 million when compared to the same period in 2019 primarily due to adverse effects of the COVID-19 pandemic.

The changes in assets and liabilities, net of business acquisitions, decreased cash flows from operating activities by $50.8 million for the nine months ended September 30, 2020 compared to a decrease of $53.5 million for the same period in 2019 .

The decrease in 2020 is attributable to an increase in inventory to improve safety stock of select products.

In addition, decreases were also driven by reduced payables offset by decreases in accounts receivable due to lower revenue and continued collection efforts.

Operating cash flows for the three months ended March 31, 2021 increased by $48.3 million compared to the same period in 2020.

For the three months ended March 31, 2021 , net income after removing the impact of the gain on sale of business and non-cash adjustments decreased by approximately $10.1 million.

T he changes in assets and liabilities increased cash flows by $26.0 million primarily due to operating cash flow contributions of accounts receivable for the three months ended March 31, 2021 when compared to the prior year.

In addition, the increase was also driven by an increase in accounts payables, accrued expenses and other current liabilities for the three months ended March 31, 2021.

Cash Flows Used in Investing Activities

During the nine months ended September 30, 2020 , we paid $30.5 million for capital expenditures, most of which were directed to our facilities located in Mansfield, MA;

and Princeton, NJ.

During the nine months ended September 30, 2019 , the Company paid $47.3 million for capital expenditures, most of which were directed to our Mansfield, MA facility, Princeton, NJ facility and commercial expansion.

Further, we paid $95.5 million for the Arkis Acquisition and Rebound Transaction, net of cash acquired.

During the three months ended March 31, 2021, we paid a net cash amount of $302.6 million in relation to the acquisition of ACell Inc.

and received net proceeds of $191.7 million for the sale of the Extremity Orthopedics business.

The Company also paid for $6.7 million capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments.

During the three months ended March 31, 2020, the Company paid $16.5 million for capital expenditures, most of which were directed to our Mansfield, Massachusetts facility, our Princeton, New Jersey facility and commercial expansion, as well as $5.0 million payment related to the first developmental milestone for Rebound.

Cash Flows Used in Financing Activities

Our principal sources of cash from financing activities in the nine months ended September 30, 2020 were $515.3 million proceeds from the issuance of Convertible Senior Notes including the call and warrant transactions, and $151.3 million borrowing under our Senior Credit Facility and Securitization Facility.

These were offset by repayments of $441.0 million on the revolving portion of our Senior Credit Facility and Securitization Facility, $24.3 million debt issuance costs related to the Amended and Restated Senior Credit Agreement and the issuance of Convertible Senior Notes and $100.0 million purchases of treasury stock.

Our principal sources of cash from financing activities in the nine months ended September 30, 2019 were $215.8 million from borrowings under our Senior Credit Facility and Securitization Facility.

These were offset by repayments of $143.3 million on the revolving portion of our Senior Credit Facility and Securitization Facility.

Uses of cash from financing activities in the three months ended March 31, 2021 were $2.2 million proceeds from the exercise of stock options which was partially offset by net repayments of $1.6 million on the Securitization Facility offset and $3.6 million cash taxes paid in net equity settlement.

Sources of cash from financing activities in the three months ended March 31, 2020 were $515.3 million proceeds from the issuance of Convertible Senior Notes including the call and warrant transactions, $113.2 million borrowing under our Senior Credit Facility and Securitization Facility and $2.3 million in proceeds from the exercise of stock options.

These were offset by repayments of $344.2 million on the revolving portion of our Senior Credit Facility and Securitization Facility, $20.3 million debt issuance costs related to the Amended and Restated Credit Agreement, $100 million purchases of treasury stock and $4.3 million cash taxes paid in net equity settlement.

Amended and Restated Senior Credit Agreement, Convertible Senior Notes, Securitization and Related Hedging Activities

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We are forecasting that for the next twelve months, sales and earnings will be sufficient to remain in compliance with our financial covenants under the terms of the February 2020 Amendment and July 2020 Amendment to the Senior Credit Facility.

The Company entered into the July 2020 amendment to increase financial flexibility in light of the unprecedented impact and

uncertainty of the COVID-19 pandemic on the global economy.

If the downturn is more severe and prolonged than we currently expect, we may need to take further steps to reduce our costs.

Share Repurchase Plan

On December 11, 2018, the Board authorized the Company to repurchase up to $225.0 million of the Company’s common stock.

On December 7, 2020, the Board of Directors authorized the Company to repurchase up to $225 million of the Company’s common stock.

The program allows the Company to repurchase its shares opportunistically from time to time.

The repurchase authorization expires in December 2022.

During the nine months ended September 30, 2020 , the Company repurchased 2.1 million shares of Integra’s common stock as a part of our existing share repurchase authorization.

The Company utilized $100.0 million of net proceeds from the offering of the Convertible Senior Notes to execute the share repurchase transactions.

The Company has $225.0 million remaining under the share repurchase of its Common Stock.

The price and timing of any future purchases under the share repurchase program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, dividends, economic and market conditions and stock price.

During the year ended December 31, 2020, the Company repurchased 2.1 million shares of Integra’s common stock as a part of our previous share repurchase authorization.

The Company utilized $100.0 million of net proceeds from the offering of the

Convertible Senior Notes to execute the share repurchase transactions.

This included $7.6 million from certain purchasers of the convertible notes in conjunction with the closing of the offering.

On February 5, 2020, the Company entered into a

$92.4 million accelerated share repurchase ("ASR") to complete the remaining $100.0 million of share repurchase.

On February 5, 2020, the Company entered into a $92.4 million accelerated share repurchase ("ASR") to complete the remaining $100.0 million of share repurchase.

The Company received 1.3 million shares through the ASR, which represented approximately 80% of the expected total shares.

Upon settlement of the ASR in June 2020, the Company received an additional 0.6 million shares determined using the volume-weighted average price of the Company's common stock during the term of the transaction.

The Company has $125.0 million remaining under the share repurchase of its Common Stock.

Dividend Policy

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Additional sources of liquidity available to us include short term borrowings and the issuance of long term debt and equity securities.

Further, as part of our actions to manage the impacts of the COVID-19 pandemic on our business, the Company has significantly reduced our capital expenditures by approximately $16.9 million as compared to the prior year.

We currently do not anticipate disruptions to our suppliers and their supply chains due to the COVID-19 pandemic for the fourth quarter, 2020 and beyond.

Off-Balance Sheet Arrangements

The Company has no off–balance sheet financing arrangements during the nine months ended September 30, 2020 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests.

We do not have any off–balance sheet financing arrangements during the three months ended March 31, 2021 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests.

Contractual Obligations and Commitments

As of September 30, 2020 , the Company is obligated to pay the following amounts under various agreements:

As of March 31, 2021, the Company is obligated to pay the following amounts under various agreements:

Payments Due by Calendar Year

Remaining 2020

Total Remaining 2021 2022-2023 2024-2025 Thereafter

(In millions)

Revolving Credit Facility (1) $ 97.5 $ — $ — $ 97.5 $ —

Term Loan 877.6 33.8 106.9 736.9 —

Securitization Facility (1) 111.5 111.5 — — —

Convertible Debt (4) 575.0 — — 575.0 —

Interest (2) 54.5 9.5 23.4 21.6 —

Employment Agreements (3) 0.8 0.8 — — —

1 unchanged sentence

Purchase Obligations 4.9 1.6 3.3 — —

Other 4.3 1.2 0.4 1.6 1.1

Total $ 1,874.4 $ 170.3 $ 163.9 $ 1,455.4 $ 84.8

(1) The Company may borrow and make payments against the revolving credit portion of its Senior Credit Facility and Securitization Facility from time to time and considers all of the outstanding amounts to be long term based on its current intent and ability to repay the borrowing outside of the next twelve-month period.

Interest is calculated on the term loan portion of the Senior Credit Facility based on current interest rates paid by the Company.

(2) Interest is calculated on the term loan portion of the Senior Credit Facility based on LIBOR plus the spread paid by the Company.

As the revolving credit facility and Securitization Facility can be repaid at any time, no interest has been included in the calculation.

3 unchanged sentences

See Note 6, Debt , for the details on the 2025 Notes.

The Company has excluded its contingent consideration obligation related to a prior and current year acquisitions from the contractual obligations table above;

this liability had a total estimated fair value of $14.4 million at September 30, 2020 .

This liability has been excluded because the amount to be paid and the potential payment date is not fixed.

The Company has excluded its option to acquire Integrated Shoulder Collaboration Inc., which becomes mandatory upon achievement of a certain sales threshold, for an amount not to exceed $80.0 million.

The Company has excluded its contingent consideration obligation related to prior and current year acquisitions from the contractual obligations table above;

this liability had a total estimated fair value of $39.6 million at March 31, 2021.

This liability has been excluded because the amount to be paid and the potential payment date is not fixed.

In connection with the sale of the Company's Extremity Orthopedic business, the Company will pay $41.5 million to CFO pursuant to the terms of certain agreements between Integra and CFO relating to the development of shoulder arthroplasty products.

See Note 2, Assets and Liabilities Held for Sale , for details of the transaction.

The Company has excluded its future pension contribution obligations and deferred compensation obligations from the table above.

The Company has excluded its future pension contribution obligations from the table above.

This has been excluded because the future amounts to be paid and the potential payment dates are not fixed.

The Company has excluded the liability for uncertain tax benefits from the contractual obligations table above, including interest and penalties, totaling $1.0 million at September 30, 2020 .

The Company has excluded the liability for uncertain tax benefits from the contractual obligations table above, including interest and penalties, totaling $0.9 million at March 31, 2021.

This liability for uncertain tax benefits has been excluded because we cannot make a reliable estimate of the period in which the uncertain tax benefits may be realized.

5 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