INTEGRA LIFESCIENCES HOLDINGS CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and our consolidated financial statements for the year ended December 31, 2021 included in our Annual Report on Form 10-K. We have made statements in this report which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company and other matters. These forward-looking statements include, but are not limited to, statements related to the Company's expectations regarding the potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations. These statements should, therefore, be considered in light of various important factors, including, but not limited to, the following: risk of the COVID-19 pandemic could lead to further material delays and cancellations of, or reduced demand for, procedures; delayed capital spending by the Company's customers; disruption and/or higher costs to the Company’s supply chain; staffing shortages in hospitals; labor impacts in our facilities; delays in gathering clinical evidence; diversion of management and other resources to respond to the COVID-19 outbreak; the impact of global and regional economic and credit market conditions on healthcare spending; 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, 2021, under the heading "Risk Factors" in this report, and in other filings with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. 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. GENERAL 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, as well as peripheral nerves and tendons. The Company has expanded its base regenerative technology business to include surgical instruments, neurosurgical products and advanced wound care through global acquisitions and product development to meet the evolving needs of its customers and enhance patient care. Integra manufactures and sells medical technologies and products in two reportable business segments: Codman Specialty Surgical ("CSS") and Tissue Technologies ("TT"). The CSS segment, which represents two-thirds of our total revenue, consists of market-leading technologies and instrumentation used for a wide range of specialties, such as neurosurgery, neurocritical care and otolaryngology. We are the world leader in neurosurgery and one of the top three providers in instruments used in precision, specialty, and general surgical procedures. Our TT segment generates about one-third of our overall revenue and focuses on three main areas: complex wound surgery, surgical reconstruction, and peripheral nerve repair. We have key manufacturing and research facilities located in California, Indiana, Maryland, Massachusetts, New Jersey, Ohio, Puerto Rico, Tennessee, Utah, France, Germany, Ireland and Switzerland. We 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) 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 acquisitions, we can build scale, increase competitiveness, and achieve our long-term goals. 34 Table of Contents To this end, the executive leadership team has established the following key priorities aligned to the following areas of focus: Strategic Acquisitions. 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. Our growth strategy includes the acquisition of businesses, assets or products lines to increase the breadth of our offerings, the reach of our product portfolios and drive relevant scale to our customers. In 2022, we continued to advance the development of pioneering neurosurgical technologies from our 2019 acquisitions of Arkis Biosciences, Inc. and Rebound Therapeutics Corporation and the expansion our product offering of regenerative technologies from our 2021 ACell acquisition. See Note 2, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for additional details. Portfolio Optimization and New Product Introductions. We are investing in innovative product development to drive a multi-generational pipeline for our key product franchises. Our product development efforts span across our key global franchises focused on potential technological innovations for significant returns on investment. 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. In addition to acquisitions and organic reinvestment, we continually look to optimize our portfolio towards higher growth and higher margin businesses. As such, we may opportunistically divest businesses or discontinue products where we see limited runway for future value creation in line with our aspirations due in part to changes in the market, business fundamentals or the regulatory environment. In August 2022, we completed the sale of our non-core traditional wound care ("TWC") business to Gentell, LLC for $28.8 million, which consists of $27.8 million in cash plus $1.0 million in contingent consideration which may be received upon achieving certain revenue-based performance milestones. In January 2021, we completed the sale of our Extremity Orthopedics business to Smith & Nephew USD Limited ("Smith & Nephew"), a subsidiary of Smith & Nephew plc, for approximately $240 million in cash. Our portfolio optimization actions over the past two years have allowed us to increase our focus on Integra’s core portfolio of market-leading products in neurosurgery, surgical instrumentation and regenerative tissue and moves us closer to achieving our long-term organic growth and profitability targets. See Note 2, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for details. Commercial Channel Investments. 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. To support our commercial efforts in Tissue Technologies, we utilize a two-tier specialist model to increase our presence in focused segments by creating a virtual selling organization to help serve the evolving needs of our customers. In addition, we continue to build upon our leadership brands across our product franchises in both CSS and TT to engage customers through enterprise-wide contracts with leading hospitals, integrated delivery networks and global purchasing organizations in the United States. 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. Domestically, we have also increased our TT sales force in the United States to support the expanded regenerative tissue product portfolio that includes ACell products. These investments in our international and domestic sales channel position us well for expansion and long-term growth. Customer Experience . We aspire to be ranked as a best-in-class provider and are committed to strengthening our relationships with all customers. We continue to invest in technologies, systems and processes to enhance the customer experience. We also launched digital tools and programs, resources and virtual product training to drive continued customer familiarity with our growing portfolio of medical technologies globally. In addition, we are in the process of outsourcing certain transactional back-office finance and customer service activities to enhance customer quality, build scale for future growth, and capture cost efficiencies and expect to complete the transition by year end 2022. New Product Introductions and Research and Development Updates 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. In the third quarter of 2022, we made progress to several enhancements to our CUSA ® Clarity Tissue Ablation System. The extended laparoscopic tip was launched in the U.S. to enhance laparoscopic liver procedures. In addition, a single-sided bone tip received 510(k) approval. Commercial launch is expected in the first quarter of 2023. We continue to update our CUSA Clarity platform by incorporating new ultrasonic handpiece and integrated electrosurgical capabilities. 35 Table of Contents In 2022, we continued to advance the two early-stage technology platforms we acquired in 2019. Through the acquisition of Arkis Biosciences, we added a platform technology, CerebroFlo ® 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. In 2019, we also acquired Rebound Therapeutics Corporation which specialized in a single-use medical device, known as Aurora Surgiscope, which is the only tubular retractor system designed for cranial surgery with an integrated access channel, camera and lighting. In 2021, we began and continued to conduct a limited clinical launch of the Aurora Surgiscope for use in minimally invasive neurosurgery as well as initiated a registry called MIRROR to collect data on early surgical intervention using this same technology platform for the treatment of intracerebral hemorrhages ("ICH"). In 2022, we have continued to execute on our growth initiatives. We launched the Aurora ® Evacuator with Coagulation device in the U.S., designed to be used in conjunction with our Aurora Surgiscope to safely address and evacuate blood in the brain caused by hemorrhagic stroke.  We are focused on the development of core clinical applications in our electromechanical technologies portfolio. In June 2022, we launched the Neutus ® EVD system, our first external ventricular drain (“EVD") in China. The Neutus EVD system is manufactured in China by Shanghai Haoju Medical Technology Co., Ltd. under an exclusive distribution arrangement. The device is used in the management of cerebrospinal fluid and is highly complementary to our Bactiseal ® catheter and advanced intercranial pressure monitoring products. In 2021, we launched our CereLink ® ICP Monitor System in the U.S. and Europe direct markets and continued the global rollout in the first half of 2022. CereLink provides enhanced accuracy, usability and advanced data presentation that provides clinicians with uncompromised, advanced continuous ICP monitoring that until now, has not been available when treating patients with traumatic brain injuries. Refer below to the FDA Matters for further consideration on the recall of the CereLink ICP Monitor System. Within our TT segment, in 2022, we launched NeuraGen ® 3D Nerve Guide Matrix, a resorbable implant for repair of peripheral nerve discontinuities and designed to optimize the environment for nerve regeneration to allow for more complete functional recovery. During 2021, we completed one of the largest diabetic foot ulcers ("DFU"), randomized controlled trials of the PriMatrix ® Dermal Repair Scaffold for the management of DFU. This multi-center study enrolled more than 225 patients with chronic DFU's over the course of 12-week treatments and 4-week follow-up phases. The results of this study, which was published in the Journal of Wound Care, demonstrated that PriMatrix plus standard of care ("SOC") consisting of sharp debridement, infection elimination, use of dressings and offloading was significantly more likely to achieve complete wound closure compared with SOC alone, with a median number of one application of the product. COVID-19 Pandemic and the Economic Recession The global healthcare system is continuing to respond to the unprecedented challenge posed by the COVID-19 (including new variants of COVID-19) pandemic ("COVID-19" or the "pandemic"). The pandemic has caused a severe global health crisis, along with economic and societal disruptions and uncertainties, which have negatively impacted business and healthcare activity globally. The COVID-19 pandemic continues to cause significant volatility and uncertainty in the global and regional economies, leading to changes in consumer and business behavior, market fluctuations, materials and product shortages and restrictions on business and individual activities, all of which are materially impacting supply and demand in broad sectors of the world markets. Additionally, the COVID-19 pandemic and general macroeconomic conditions have led to disruptions in the global supply chain, primarily through a lack of availability of raw materials and electronic components. We have experienced challenges associated with material and component availability for certain product lines, longer shipping and delivery times for raw materials and components, constrained logistics capacity related to the movement of our products, availability of skilled labor and increased costs of raw materials, components, labor, and freight and courier services. Regional COVID-19 case volumes (including those related to subsequent variants), actions taken by governmental authorities, private businesses and individuals, such as “shelter-in-place” orders and restrictions on travel and access to our customers or temporary closures of our facilities or the facilities of our suppliers, disruption and/or higher costs to the Company’s supply chain, staffing shortages in hospitals and labor constraints in our facilities, could further impact our sales margins and our ability to ship our products and supply our customers. COVID variants continue to contribute to an uncertain business environment and the effects resulting from the pandemic, such as inflationary pressures and global central bank actions to contain high inflation levels, could cause or contribute to a local and/or global economic recession. Capital markets and worldwide economies have also been significantly impacted and such economic recession could have a material adverse effect on the Company’s long-term business as hospitals reduce capital, as well as overall spending. The emergence of new variants, vaccinations and public health measures are driving the pace of economic recovery unevenly in various regions. The direct and indirect disruptions caused by the pandemic and the responses of both governments and individuals 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. Further discussion of the potential impacts on our business from the COVID-19 pandemic and global macroeconomic conditions is provided under Item 1A - Risk Factors of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021. 36 Table of Contents FDA Matters On August 18, 2022, the Company, after consultation with the FDA and other regulatory authorities outside of the United States, initiated an immediate voluntary global product removal of all CereLink intracranial pressure monitors as a result of customer reports about monitors whose pressure readings were out of range. The Company believes that the out-of-range readings are principally caused by electrical interference from the external environment and/or interference from a component on the circuit board of the monitor. These out-of-range readings have occurred at a low incidence rate and at a limited number of sites; however, out of an abundance of caution, the Company removed all CereLink monitors from the field. The Company is continuing its investigation into the matter in order to remedy the observed issue and plans to resume shipment of the CereLink monitors as soon as any such issues have been resolved. Based on outlook for returning the product to market and feedback from customers, the Company recorded a $1.5 million provision for product returns, as a reduction of net revenue, and a $0.8 million rework accrual in cost of goods sold in the third quarter of 2022. 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 ("HCT/Ps"). An HCT/P is a product containing or consisting of human cells or tissue intended for transplantation into a human patient. Refer to Item 1. Business and Item 1A. Risk Factors in our 2021 10-K report for further details around these FDA regulations and their potential effect on the Company's portfolio of morselized amniotic material-based products as well as the impact on consolidated revenues. On June 22, 2015, the FDA issued an Untitled Letter (the "Untitled Letter") alleging that BioD LLC'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 LLC ("BioD") would need a biologics license to lawfully market those morselized products. Since the issuance of the Untitled Letter, BioD and the Company have made known to the FDA their disagreement with the FDA’s assertion that certain products are more than minimally manipulated. The FDA has not changed its position that certain of the BioD acquired products are not eligible for marketing solely under Section 361. In July 2020, the FDA issued the final guidance document related to human tissue titled, “Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue-Based Products: Minimal Manipulation and Homologous Use” (the “2020 HCT/P Final Guidance”). The 2020 HCT/P Final Guidance document supersedes the November 2017 guidance by the same title. The HCT/P Final Guidance maintains the FDA’s position that products such as the Company’s morselized amniotic membrane tissue-based products do not meet the criteria for regulation solely as HCT/Ps. In addition, in the November 2017 guidance, 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 2020 HCT/P Final Guidance maintained this approach and extended the discretionary enforcement period to May 31, 2021. Considering the risk of enforcement action, the Company discontinued the manufacturing of all morselized amniotic membrane tissue-based products prior to May 31, 2021. We no longer distribute these products. As of September 30, 2022, the Company has not received any further notice of enforcement action from the FDA regarding its morselized amniotic membrane tissue-based products. As the FDA continues to review various 361 HCT/P products currently on the market over time, there is the risk of continued upregulation by FDA based on their interpretation of criteria applied to specific 361 HCT/P products and the new clinical applications of these products by Health Care Professionals that may be viewed by FDA as higher risk uses. Additionally, the Center for Medicare & Medicaid Services (CMS), which is part of the Department of Health and Human Services (HHS), will be requiring all amniotic products to obtain new reimbursement codes by 2024, where qualification includes a detailed review by the FDA’s Tissue Reference Group (TRG) of the 361 HCT/P’s uses, processing and relevant characteristics followed by a written recommendation that the HCT/P, in their opinion, meets the criteria of a 361 HCT/P. There is the risk that although the TRG provided letters in the past confirming the 361 HCT/P status of our amniotic products, they may not do so again due to changes in their interpretation and application of the 361 HCT/P criteria and/or the practices of clinicians for specific uses which could be considered higher risk uses. Any of these outcomes could negatively impact the ability to obtain third party reimbursement for these products as well as negatively impact the volume of these products utilized by Health Care Professionals and have a material adverse effect on our business, financial condition, results of operations, or cash flows. 37 Table of Contents On March 7, 2019, TEI Biosciences, Inc. ("TEI"), a wholly-owned subsidiary of the Company received a Warning Letter (the “Warning Letter”), dated March 6, 2019, from the FDA. The warning letter related to quality systems issues at TEI's 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 and, since the conclusion of the inspection, has undertaken significant efforts to remediate the observations and continues to do so. On October 28, 2021 the FDA initiated an inspection of the facility and at the conclusion of the inspection issued a FDA Form 483 on November 12, 2021 (the "2021 Form 483"). The Company provided an initial response to the inspection observations and will continue to provide responses to FDA. The Warning Letter and the 2021 FDA Form 483 do not restrict the Company’s ability to manufacture or ship products or require the recall of any products, nor do they restrict our ability to seek FDA 510(k) clearance of products. 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. The TEI Boston facility manufactures extracellular bovine matrix products. We cannot give any assurances that the FDA will be satisfied with our response to the Warning Letter or as to the expected date of the resolution of the matters included in the letter. Until the issues cited in the letter are resolved to the FDA’s satisfaction, the FDA may initiate additional regulatory action without further notice. 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, 2022 were approximately 5.5% of consolidated revenues. ACQUISITIONS & DIVESTITURES Divestitures On August 31, 2022, the Company completed the sale of its previously announced sale of its non-core traditional wound care ("TWC") business to Gentell, LLC ("Gentell") for $28.8 million, which consists of $27.8 million in cash plus $1.0 million in contingent consideration which may be received upon achieving certain revenue-based performance milestones two years after the closing date. The proceeds from the sale of the TWC business of $27.8 million is presented in the consolidated statement of cash flows net of cash transferred of $3.5 million and other transaction fees . The transaction included the sale of the Company's TWC products, such as sponges, gauze and conforming bandages, and certain advanced wound care dressings, such as supportive, calcium alginate, hydrogel, and foam dressings. In connection with the sale, the Company recognized $0.6 million as a gain from the sale of business in the consolidated statement of operations for the nine months ended September 30, 2022. The transaction is subject to final working capital adjustments. See Note 2, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for details. 38 Table of Contents On January 4, 2021, the Company completed its sale of its Extremity Orthopedics business to Smith & Nephew. 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 & 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. In connection with the sale, the Company recognized a $41.8 million as Gain from the sale of business in the consolidated statement of operations for the year ended December 31, 2021. See Note 2, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for details. Acquisition On January 20, 2021, the Company acquired ACell, Inc. for an acquisition purchase price of $306.9 million plus contingent consideration obligations 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 , to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) 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 c apacity for our regenerative technology products. These efforts are expe cted to continue and while we expect a positive impact from ongoing restructuring, integration, and manufacturing transfer and expansion activities, such results remain uncertain. In support of our continued focus on product margins during 2022, we closed a manufacturing facility located in France and began the transfer of production to the Company’s existing Switzerland facility . The transfer is expected to be completed by the fourth quarter of 2022. In addition, we announced plans to outsource certain transactional back-office finance and customer service activities to enhance customer quality, build scale for future growth, and capture cost efficiencies. We expect this transition to be completed by the fourth quarter of 2022. RESULTS OF OPERATIONS Executive Summary Net income for the three months ended September 30, 2022 was $49.9 million, or $0.60 per diluted share, as compared to $43.2 million or $0.51 per diluted share for the three months ended September 30, 2021. Net income for the nine months ended September 30, 2022 was $127.6 million, or $1.53 per diluted share, as compared to $123.7 million or $1.45 per diluted share for the nine months ended September 30, 2021. The increase in net income for the nine months ended September 30, 2022, was primarily driven by an increase in revenue as well as a decrease in the income tax provision as compared to prior year. This increase was partially offset by an increase in non-operating income in the prior period due to the gain of $42.0 million recognized as result of the sale of the Extremity Orthopedics business. 39 Table of Contents Special Charges Income before taxes includes the following special charges : Three Months Ended September 30, Nine Months Ended September 30, Dollars in thousands 2022 2021 2022 2021 Acquisition, divestiture and integration-related charges (1) $ (13,842) $ 2,637 $ (19,552) $ (13,588) Structural optimization charges 10,112 6,719 24,604 15,410 EU medical device regulation ("EU MDR") 13,208 7,077 32,970 16,240 Total $ 9,478 $ 16,433 $ 38,022 $ 18,062 (1) See Note 2 , 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, Dollars in thousands 2022 2021 2022 2021 Cost of goods sold $ 4,198 $ 5,854 $ 13,859 $ 26,757 Research and development 5,723 5,517 15,528 13,140 Selling, general and administrative 877 6,386 12,440 24,443 Gain from the sale of businesses (1) (644) 230 (644) (41,967) Other income (676) (1,554) (3,161) $ (4,311) Total $ 9,478 $ 16,433 $ 38,022 $ 18,062 (1 ) 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 acquisitions and divestitures and efforts to optimize our manufacturing, distribution, commercial and administration infrastructure, 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, 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. Revenues and Gross Margin The Company's revenues and gross margin on product revenues were as follows: Three Months Ended September 30, Nine Months Ended September 30, Dollars in thousands 2022 2021 2022 2021 Segment Net Sales Codman Specialty Surgical $ 249,796 $ 256,497 $ 754,967 $ 754,575 Tissue Technologies 135,395 130,364 404,677 382,349 Total revenues $ 385,191 $ 386,861 $ 1,159,644 1,136,924 Cost of goods sold 148,445 144,468 439,418 441,558 Gross margin on total revenues $ 236,746 $ 242,393 $ 720,226 $ 695,366 Gross margin as a percentage of total revenues 61.5 % 62.7 % 62.1 % 61.2 % 40 Table of Contents Three Months Ended September 30, 2022 as Compared to Three Months Ended September 30, 2021 Revenues For the three months ended September 30, 2022, total revenues decreased by $1.7 million to $385.2 million from $386.9 million for the same period in 2021, inclusive of a unfavorable foreign currency impact of $11.8 million on revenues. Domestic revenues increased by $6.2 million, or 2.3%, to $282.0 million and were 73.2% of total revenues for the three months ended September 30, 2022 compared to $275.8 million during the same period in the prior year. International revenues decreased by $7.9 million or 7.1% to $103.2 million for the three months ended September 30, 2022 compared to $111.1 million during the same period in the prior year, which is inclusive of a unfavorable foreign currency impact of $11.8 million. In the CSS segment, revenues were $249.8 million which was a decrease of $6.7 million, or 2.6% as compared to the prior-year period, inclusive of $10.5 million unfavorable foreign currency impact on revenue. Excluding the impact of foreign currency, the CSS segment revenues in the third quarter increased $3.8 million as compared to the prior year period. The increase was driven primarily by low single digits growth in our Neurosurgery portfolio, partially offset by low single digits declines in our our Instruments business. This increase in our Neurosurgery portfolio was primarily driven by the growth in advanced energy, CSF management, and dural access and repair, partially offset by declines in neuro monitoring which was impacted by the voluntary recall of the CereLink ICP monitoring system. In the TT segment, revenues were $135.4 million which was an increase of $5.0 million, or 3.9% from the prior-year period, inclusive of a $1.2 million unfavorable foreign currency impact on revenue. Excluding the impact of foreign currency of $1.2 million and the divestiture impact of TWC of $2.9 million, the TT segment revenues in the third quarter increased by $9.1 million. This increase was driven by high single digits increases in our Wound Reconstruction business, led by Integra ® Dermal Matrices, amniotic tissue products and ACell MicroMatrix, and low single digit increases in our Private Label business as compared to the same period in the prior year. Gross Margin Gross margin was $236.7 million for the three months ended September 30, 2022, a decrease of $5.6 million from $242.4 million for the same period in 2021. Gross margin as a percentage of revenues was 61.5% for the three months ended September 30, 2022 and 62.7% or the same period in 2021. This decrease in gross margin was driven by CereLink recall impacts, unfavorable regional mix, and higher material and labor costs, partially offset by favorable price and other procurement and margin improvement initiatives. Operating Expenses The following is a summary of operating expenses as a percent of total revenues: Three Months Ended September 30, 2022 2021 Research and development 6.4 % 6.7 % Selling, general and administrative 37.3 % 40.3 % Intangible asset amortization 0.8 % 1.1 % Total operating expenses 44.5 % 48.1 % Total operating expenses, which consist of research and development, selling, general and administrative, and amortization expenses, decreased by $14.3 million, or 7.7% to $171.7 million in the three months ended September 30, 2022, compared to $186.0 million in the same period in 2021. The Company continues to prioritize its operating costs to increase organic investments that will drive long-term growth including the support of new product development and introductions, clinical studies, geographic expansion and targeted U.S. sales channel expansion. Research and Development Research and development expenses for the three months ended September 30, 2022 decreased by $1.1 million as compared to the same period in the prior year due to a decrease in spending during the period associated with project supplies and materials, partially offset by an increase in professional services and costs associated with EU MDR compliance. Selling, General and Administrative Selling, general and administrative costs for the three months ended September 30, 2022 decreased by $12.2 million as compared to the same period in the prior year driven primarily due to the reduction of $13.1 million in the change in the fair value of contingent consideration for ACell. 41 Table of Contents Intangible Asset Amortization Amortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) for the three months ended September 30, 2022 was $3.1 million compared to $4.1 million for the same period in prior year. Non-Operating Income and Expenses The following is a summary of non-operating income and expenses: Three Months Ended September 30, Dollars in thousands 2022 2021 Interest income $ 3,264 $ 1,786 Interest expense (12,809) (12,192) Other income, net 2,648 4,985 Gain (loss) from the sale of businesses 644 (230) Total non-operating income and expense $ (6,253) $ (5,651) Interest Income Interest income for the three months ended September 30, 2022 increased by $1.5 million as compared to the same period last year due to higher interest earned on higher cash balances and favorable rates on the net investment hedges entered into during the second quarter of 2022. Interest Expense Interest expense for the three months ended September 30, 2022 increased by $0.6 million as compared to the same period last year. Gain from the sale of businesses On August 31, 2022, the Company completed its previously announced sale of its TWC business to Gentell and recognized $0.6 million as a gain from the sale of the business f or the three months ended September 30, 2022 . On January 4, 2021, the Company completed its sale of its Extremity Orthopedics business and recorded a decrease to the gain from the sale of the business of $0.2 million for the three months ended September 30, 2021 as a result of working capital adjustment. Other Income, net Other income, net for the three months ended September 30, 2022 decreased by $2.3 million compared to the same period in the prior year primarily due to lower income associated with the transition services agreement from the divestiture of the Extremity Orthopedics business. Income Taxes Three Months Ended September 30, Dollars in thousands 2022 2021 Income before income taxes $ 58,796 $ 50,788 Income tax (benefit) expense 8,881 7,559 Effective tax rate 15.1 % 14.9 % The Company’s effective income tax rates for the three months ended September 30, 2022 and 2021 were 15.1% and 14.9%, respectively. For the three months ended September 30, 2022, the primary driver of the higher tax rate is a decrease of income in lower-taxed jurisdictions, offset by a $1.2 million benefit related to prior year amended tax returns. 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. 42 Table of Contents Nine Months Ended September 30, 2022 as Compared to Nine Months Ended September 30, 2021 Revenues and Gross Margin For the nine months ended September 30, 2022, total revenues increased by $22.7 million to $1,159.6 million from $1,136.9 million for the same period in 2021, inclusive of an unfavorable foreign currency impact of $26.7 million on revenues. Domestic revenues increased by $31.0 million, or 3.9%, to $832.7 million and were 71.8% of total revenues for the nine months ended September 30, 2022. International revenues decreased by $8.2 million, or 2.5% to $326.9 million for the nine months ended September 30, 2022 compared to $335.2 million during the same period in the prior year, which is inclusive of a unfavorable foreign currency impact of $26.7 million. In the CSS segment, revenues were $755.0 million, which was an increase of $0.4 million, or 0.1% from the prior-year period, inclusive of a $23.9 million unfavorable foreign currency impact on revenue. Excluding the impact of foreign currency, the CSS segment revenues increased $24.3 million as compared to the prior year period. This increase was primarily driven by low single digits growth in both our Neurosurgery and Instruments portfolios as compared to the same period in the prior year. The increase in our Neurosurgery portfolio was primarily driven by growth in advanced energy and CSF management, partially offset by the voluntary recall of the CereLink ICP monitoring system. In the TT segment, revenues were $404.7 million, which was an increase of $22.3 million, or 5.8% from the prior-year period, inclusive of a $2.7 million unfavorable foreign currency impact on revenue. Excluding the impact of foreign currency of $2.7 million and the divestiture impact of TWC of $2.9 million, the TT segment revenues in the third quarter increased by $27.9 million. This increase was driven by mid-single digit increases in our Wound Reconstruction business, led by Integra ® Dermal Matrices, SurgiMend ® and ACell MicroMatrix and low double digit increased in our Private Label business driven by higher customer demand and favorable order timing. Gross Margin Gross margin was $720.2 million for the nine months ended September 30, 2022, an increase of $24.9 million from $695.4 million for the same period last year. Gross margin as a percentage of total revenue increased to 62.1% for the nine months ended September 30, 2022 from 61.2% in the same period last year. The increase in gross margin percentage was due to higher revenues and a reduction of inventory step-up amortization in connection with the acquisition of ACell in the prior year. Operating Expenses The following is a summary of operating expenses as a percent of total revenues: Nine Months Ended September 30, 2022 2021 Research and development 6.4 % 6.0 % Selling, general and administrative 40.0 % 41.8 % Intangible asset amortization 0.9 % 1.1 % Total operating expenses 47.4 % 48.9 % Total operating expenses, which consist of selling, general and administrative expenses, research and development expenses, and amortization expenses, decreased by $7.2 million, or 1.3% to $549.1 million in the nine months ended September 30, 2022, compared to $556.4 million in the same period in 2021. The Company continues to prioritize its operating costs to increase organic investments that will drive long-term growth including the support of new product development and introductions, clinical studies, geographic expansion and targeted U.S. sales channel expansion. 43 Table of Contents Research and Development Research and development expenses for the nine months ended September 30, 2022 increased by $6.1 million as compared to the same period in the prior year. This increase in spending resulted from additional spending on new product development, clinical studies and additional spending due to the EU MDR compliance. Selling, General and Administrative Selling, general and administrative costs decreased by $10.8 million as compared to the same period in the prior year driven primarily by reduced employee related costs and stock-based compensation, partially offset by increased selling costs on commissions and investment in sales force expansion. Additionally, the decrease in the nine months ended September 30, 2022 as compared to the same period in the prior year was also due to the reduction of $16.8 million in the change in fair value of contingent consideration for ACell, partially offset by increased spending in acquisition related costs for acquiring ACell as well as the sale of its Extremity Orthopedics business to Smith & Nephew. Intangible Asset Amortization Amortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) for the nine months ended September 30, 2022 was $10.3 million compared to $12.8 million for the same period in prior year. We expect total annual amortization expense to be approximately $19.1 million for the remainder of 2022, $76.3 million in 2023, $75.7 million in 2024, $75.7 million in 2025, $75.5 million in 2026, $73.6 million in 2027 and $499.0 million thereafter. Non-Operating Income and Expenses The following is a summary of non-operating income and expenses: Nine Months Ended September 30, Dollars in thousands 2022 2021 Interest income $ 6,606 $ 5,298 Interest expense (36,700) (38,270) Gain from the sale of businesses 644 41,967 Other income, net 8,056 14,888 Total non-operating income and expense $ (21,394) $ 23,883 Interest Income In terest income for the nine months ended September 30, 2022 increased by $1.3 million as compared to the same period last year due to higher interest earned on higher cash balances. Interest Expense Interest expense for the nine months ended September 30, 2022 decreased by $1.6 million as compared to the same period last year primarily from a lower outstanding borrowing on the Senior Secured Credit Facility. Gain from the sale of businesses On August 31, 2022, the Company completed its previously announced sale of its TWC business to Gentell and recognized $0.6 million as a gain from the sale of the business f or the nine months ended September 30, 2022 . On January 4, 2021, the Company completed its sale of its Extremity Orthopedics business and recognized a gain of $42.0 million for the nine months ended September 30, 2021. Other Income, net Other income, net for the nine months ended September 30, 2022, decreased by $6.8 million compared to the same period in the prior year primarily due unfavorable impact of foreign exchange, as well as lower income associated with the transition services agreement from the divestiture of the Extremity Orthopedics business. 44 Table of Contents Income Taxes Nine Months Ended September 30, Dollars in thousands 2022 2021 Income before income taxes $ 149,686 $ 162,890 Income tax (benefit) expense 22,082 39,199 Effective tax rate 14.8 % 24.1 % The Company’s effective income tax rates for the nine months ended September 30, 2022 and 2021 were 14.8% and 24.1%, respectively. For the nine months ended September 30, 2022, the primary driver of the lower tax rate is a $5.5 million benefit related to excess tax benefits from stock compensation, offset by the prior year tax impact of the gain on the sale of the Extremity Orthopedics business, which was completed during the first quarter of 2021. 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. Additionally, changes to income tax laws and regulations, in any of the tax jurisdictions in which the Company operates, could impact the effective tax rate. Various governments, both U.S. and non-U.S., are increasingly focused on tax reform and revenue-raising legislation. Further, legislation in foreign jurisdictions may be enacted, in response to the BEPS project begun by the OECD. The OECD recently finalized major reform of the international tax system with respect to a minimum tax rate. Such changes in U.S. and Non-U.S. jurisdictions could have an adverse effect on the Company’s effective tax rate. 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 we expect to pay in the coming year, which would be classified as current income taxes payable. GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS The Company attributes revenues to geographic areas based on the location of the customer. Total revenue by major geographic area consisted of the following: Three Months Ended September 30, Nine Months Ended September 30, Dollars in thousands 2022 2021 2022 2021 United States $ 282,016 $ 275,775 $ 832,714 $ 801,754 Europe 38,301 46,458 128,907 140,714 Asia Pacific 42,774 45,015 133,856 136,616 Rest of World 22,100 19,613 64,167 57,840 Total Revenues $ 385,191 $ 386,861 $ 1,159,644 $ 1,136,924 The Company generates significant revenues outside the U.S., a portion of which are U.S. dollar-denominated transactions conducted with customers that generate revenue in currencies other than the U.S. dollar. As a result, currency fluctuations between the U.S. dollar and the currencies in which those customers do business could have an impact on the demand for the Company's products in foreign countries. 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 $6.2 million for the three months ended September 30, 2022 compared to the same period last year. European sales decreased by $8.2 million for the three months ended September 30, 2022 compared to the same period last year. Sales to customers in Asia Pacific decreased by $2.2 million for the three months ended September 30, 2022 compared to the same period last year. The Rest of World for the three months ended September 30, 2022 increased by $2.5 million compared to the same period last year. The international revenues were impacted by a $11.7 million unfavorable foreign exchange impact. Sales in China, Japan and Canada were the primary drivers of international growth. 45 Table of Contents Domestic revenues increased by $31.0 million for the nine months ended September 30, 2022 compared to the same period last year. European sales decreased by $11.8 million for the nine months ended September 30, 2022 compared to the same period last year. Sales to customers in Asia Pacific decreased by $2.8 million for the nine months ended September 30, 2022 compared to the same period last year. The Rest of World for the nine months ended September 30, 2022 increased by $6.3 million compared to the same period last year. The international revenues were impacted by a $26.6 million unfavorable foreign exchange impact. Sales in Japan, China, and Canada were the primary drivers of international growth. LIQUIDITY AND CAPITAL RESOURCES Working Capital The Company's working capital as of September 30, 2022 and December 31, 2021 was $892.0 million and $813.7 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 $511.9 million and $513.4 million at September 30, 2022 and December 31, 2021 respectively, which are valued based on Level 1 measurements in the fair value hierarchy. At September 30, 2022, our non-U.S. subsidiaries held approximately $317.7 million of cash and cash equivalents that are available for use outside the U.S. On October 3, 2022, the Company settled cross-currency swaps designated as cash flow hedges of intercompany loans and approximately $100 million of cash was repatriated to the U.S. Refer to See Note 7, Derivative Instruments of the Notes to Consolidated Financial Statements ( Part I, Item 1 of this Form 10-Q) for additional details The Company asserts that it has the ability and intends to indefinitely reinvest the undistributed earnings from its foreign operations unless there is no material tax cost to remit the earnings into the U.S. Cash Flows Nine Months Ended September 30, Dollars in thousands 2022 2021 Net cash provided by operating activities $ 179,135 $ 243,150 Net cash used in investing activities (3,760) (133,958) Net cash used in financing activities (154,254) (98,747) Effect of exchange rate fluctuations on cash (22,632) (10,380) Cash Flows Provided by Operating Activities Operating cash flows for the nine months ended September 30, 2022 decreased by $64.0 million compared to the same period in 2021. Net income after removing the impact of the gain on sale of businesses and non-cash adjustments increased for the nine months ended September 30, 2022 by approximately $29.1 million as compared to the same period in 2021 primarily due to earnings from higher revenues. The changes in assets and liabilities, net of business acquisitions, decreased cash flows by $49.7 million in 2022 as compared to the increase in cash flows of $43.4 million for the same period in 2021. The change in 2022 is mainly attributable to increases in inventory, increases in accounts receivable due to higher revenues and decreases in accrued expenses and other current liabilities due to the Company being in an income tax refund position in the current year. Operating cash flows for the nine months ended September 30, 2021 increased by $119.6 million compared to the same period in 2020. Net income after removing the impact of the gain on sale of business and non-cash adjustments increased for the nine months ended September 30, 2021 by approximately $25.4 million as compared to the same period in 2020 primarily due to the continuing revenue recovery in the current year as compared to the height of the COVID-19 pandemic in the first half of the 2020. The changes in assets and liabilities, net of business acquisitions, increased cash flows by $43.4 million as compared to the decrease of $50.8 million for the same period in 2020. The improvement in 2021 working capital is attributable to a smaller increase in inventory of $3.6 million due to investments in building safety stock made in the prior year where inventory increased by $45.5 million. Cash Flows Used in Investing Activities During the nine months ended September 30, 2022, the Company paid $27.9 million for capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments as well as the $4.7 million payment related to the final developmental milestone for Rebound Therapeutics Corporation. This was partially offset by the net proceeds from the sale of the TWC business of $24.0 million. The proceeds from the sale of the TWC business of $27.8 million is presented net of cash transferred of $3.5 million and other transaction fees. Additionally, the Company also received $4.9 million proceeds on cross-currency swaps designated as net investment hedge. 46 Table of Contents During the nine months ended September 30, 2021, we paid a net cash amount of $303.9 million in relation to the acquisition of ACell and received net proceeds of $190.5 million for the sale of the Extremity Orthopedics business. The Company also paid for $20.6 million capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments. Cash Flows Used in Financing Activities Uses of cash from financing activities in the nine months ended September 30, 2022 primarily related to the repurchase of treasury stock of $125.0 million under the 2022 accelerated share repurchase agreement that was completed in the first quarter of 2022. In addition, the Company had $24.3 million in cash taxes paid for net equity settlements as a result of the departure of the former chief executive officer of the Company. The Company also had repayments of $40.8 million under our Senior Credit Facility and Securitization Facility offset by $34.3 million borrowings under our Senior Credit Facility and Securitization Facility. Uses of cash from financing activities in the nine months ended September 30, 2021 were repayments of $114.3 million under our Senior Credit Facility and Securitization Facility. In addition, the Company had $4.3 million in cash taxes paid in net equity settlements. These uses were offset by $6.6 million proceeds from the exercise of stock options and $13.5 million borrowings under our Senior Credit Facility and Securitization Facility. Amended and Restated Senior Credit Agreement, Convertible Senior Notes, Securitization and Related Hedging Activities See Note 6 , Debt, to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for a discussion of our Amended and Restated Senior Credit Agreement, the 2025 Notes and Securitization Facility and Note 7, Derivative Instruments , to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for discussion of our hedging activities. We are forecasting that sales and earnings for the next twelve months will be sufficient to remain in compliance with our financial covenants under the terms of the February 2020 Amendment to the Senior Credit Facility. Share Repurchase Plan On April 26, 2022, the Board of Directors authorized the Company to repurchase up to $225.0 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 2024. This stock repurchase authorization replaces the previous $225 million stock repurchase authorization, of which $100 million remained authorized at the time of its replacement, and which was otherwise set to expire on December 31, 2022. Purchases may be affected through one or more open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, or a combination of the foregoing On January 12, 2022, the Company entered into a $125.0 million accelerated share repurchase ("2022 ASR") and received 1.48 million shares of the Company common stock at inception, which represented approximately 80% of the expected total shares. On March 24, 2022, the early exercise provision was exercised by 2022 ASR counterparty. Upon settlement on March 24, 2022, the Company received an additional 0.46 million shares determined using the volume-weighted average price of the Company's common stock during the term of the 2022 ASR. See Note 11, Treasury Stock of the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further details. Dividend Policy We have not paid any cash dividends on our common stock since our formation. Our Senior Credit Facility limits the amount of dividends that we may pay. Any future determinations to pay cash dividends on our common stock will be at the discretion of the Board and will depend upon our financial condition, results of operations, cash flows and other factors deemed relevant by the Board. Capital Resources We believe that our cash and available borrowings under the Senior Credit Facility are sufficient to finance our operations and capital expenditures for the foreseeable future. Our future capital requirements will depend on many factors, including the growth of our business, the timing and introduction of new products and investments, strategic plans and acquisitions, among others. Additional sources of liquidity available to us include short term borrowings and the issuance of long term debt and equity securities. Off-Balance Sheet Arrangements We do not have any off–balance sheet financing arrangements during the nine months ended September 30, 2022 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. 47 Table of Contents Contractual Obligations and Commitments We will continue to have cash requirements to support seasonal working capital needs and capital expenditures, to pay interest, to service debt, and to fund acquisitions. As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments. Our primary obligations include principal and interest payments on revolving portion and Term Loan component of the Senior Credit Facility, Securitization Facility and Convertible Securities. See Note 6 , Debt, to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for details. The Company also leases some of our manufacturing facilities and office buildings which have future minimum lease payments associated. See Note 10, Leases and Related Party Leases to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for a schedule of our future minimum lease payments. Amounts related to the Company's other obligations, including employment agreements and purchase obligations were not material. The Company has contingent consideration obligation related to prior and current year acquisitions and future pension contribution obligations. See Note 9, Retirement Plans and Note 16, Commitments and Contingencies to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for details. The associated obligations are not fixed. The Company also has a liability for uncertain tax benefits including interest and penalties. See Note 12, Income Taxes to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for details. The Company cannot make a reliable estimate of the period in which the uncertain tax benefits may be realized. Employee Termination Benefits The Company incurred employee termination costs on restructuring activities associated with a closure of a manufacturing facility located in France, outsourcing plans for select transactional back office activities, and executive reorganization in the consolidated statement of operations for the nine months ended September 30, 2022. Restructuring costs were included in accrued expenses and other current liabilities in the consolidated balance sheet for the nine months ended September 30, 2022 and year ended December 31, 2021 . See Note 1, Basis of Presentation of the Notes to Consolidated Financial Statements ( Part I, Item 1 of this Form 10-Q) for additional details. OTHER MATTERS Critical Accounting Estimates The critical accounting estimates included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 have not materially changed. Recently Issued Accounting Standards Information regarding new accounting pronouncements is included in Note 1, Basis of Presentation to the current period’s condensed consolidated financial statements.