What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-24 · 178 added, 260 removed, 293 unchanged (60% of the section changed)

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The comparison of fiscal 2021 to 2020 has been omitted from this Form 10-K, but can be referenced in our Form 10-K for the fiscal year ended December 31, 2021—“Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations” filed on February 23, 2021.

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”).

Management's Discussion and Analysis of Financial Condition and Results of Operations” filed with the SEC on February 24, 2022.

We have made statements in this report which constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.

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 Item 1A.

Risk Factors.

We have made statements in this report which constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of 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:

the risk that 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.”

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 nerves and tendons.

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 product development to meet the needs of its customers and impact patient care.

Please refer to “Special Note Regarding Forward-Looking Statements” and Item 1A.

Risk Factors for a discussion of the factors that could cause actual results to differ materially from those projected in these statements.

The following information concerning our business, results of operations and financial condition should also be read in conjunction with the information included under Item 1.

Business, Item 1A.

Risk Factors and Item 15.

Financial Statements and Supplementary Data.

Integra LifeSciences is a global leader in regenerative tissue technologies and neurological solutions dedicated to limiting uncertainty for clinicians so they can focus on providing the best patient care.

Founded in 1989 with the acquisition of an engineered collagen technology platform used to repair and regenerate tissue, Integra LifeSciences Holdings Corporation common stock trades on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “IART.” 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 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.

The CSS segment, which represents approximately 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.

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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, Canada, China, France, Germany, Ireland and Switzerland.

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

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.

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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.

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.

To this end, the executive leadership team has established the following key priorities aligned to the following areas of focus:

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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.

During 2021, the Company acquired ACell Inc.

("ACell"), an innovative regenerative medicine company specializing in the manufacturing of porcine urinary bladder extracellular matrices.

This acquisition not only expanded the Company’s product offering of regenerative technologies, but it also supported the Company’s long-term growth and profitability strategy as this product line has a financial profile similar to Integra’s other regenerative tissue products.

All critical components of ACell have been integrated into the Company’s TT segment.

See Note 4, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for additional details.

In 2021, we continued to advance the development of pioneering neurosurgical technologies from our 2019 acquisitions, Arkis Biosciences, Inc.

and Rebound Therapeutics Corporation.

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.

On December 6, 2022, the Company completed the acquisition of SIA, which develops, markets and sells DuraSorb, a resorbable synthetic matrix for plastic and reconstructive surgery.

This acquisition will advance Integra’s global strategy in breast reconstruction, expanding plans to access the U.S.

market where SIA is pursuing pre-market approval for use in IBBR.

We also continued to advance the development of pioneering neurosurgical technologies with the expansion our product offering of regenerative technologies from our 2021 ACell acquisition.

See Note 4, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) 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 for significant returns on investment.

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.

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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 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.

This transaction enables us to increase our investments in our core neurosurgery and tissue technologies businesses and fund pipeline opportunities to expand our addressable markets to strengthen our existing leadership positions in these segments and drive future growth.

See Note 4, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) 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 expanded our 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.

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

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

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 strengthen our relationships with all customers.

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.

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

Clinical and Product Development Activities

In 2022, we outsourced certain transactional back-office finance and customer service activities to enhance customer quality, build scale for future growth, and capture cost efficiencies.

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.

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 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) clearance.

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.

In each area, we continue to benefit from products launched over the past several years, 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 mid-2019, which is the first and only collagen xenograft approved for use as a dural substitute in the country.

In 2022, we continued to advance the two early-stage technology platforms we acquired in 2019.

Through the acquisition of Arkiss, we added a platform technology, CerebroFlo EVD, which is a 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 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 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.

Also, we continue to update our CUSA Clarity platform by incorporating new ultrasonic handpiece, surgical tips and integrated electrosurgical capabilities.

We continue to work with several instrument partners to bring new surgical instrument platforms to the market.

In the third quarter of 2021, our CereLink ICP Monitor System was launched in the U.S.

In June 2022, we launched the Neutus ® EVD system, our first 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 CSF 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.

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

Through the acquisition of Arkis Biosciences, 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.

In 2019, we also acquired Rebound Therapeutics, a Company that 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 the third quarter of 2021, we conducted 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 ICH.

Within our TT segment, during 2020, we 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, IBWM helps address the efficiency needed in operating rooms by reducing both the operating time and costs to hospitals and patients.

In 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.

Refer below to the information appearing under the FDA Matters heading for additional information on the voluntary 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 engineered to create an optimized environment for nerve regeneration.

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

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 global COVID-19 pandemic, together with the preventative and precautionary measures taken by businesses, communities and governments, has resulted in an unprecedented challenge to the global healthcare industry.

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.

The COVID-19 pandemic continues to have widespread and unpredictable impacts and the Company has continued to manage the risks in this uncertain environment.

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

We also remain focused on managing the business for the long-term.

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.

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.

Any such economic recession could have a material adverse effect on the Company's long-term business as hospitals curtail and reduce capital as well as overall spending.

The COVID-19 pandemic and local actions, 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 and their contract manufacturers, 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 and our ability to ship our products and supply our customers.

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.

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").

During 2020, we 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.

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 $1.9 million provision for product returns, as a reduction of net revenue, and a $0.8 million rework accrual in cost of goods sold in 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/P").

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

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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 FDA initiated an inspection of the facility and at the conclusion of the inspection issued a Form 483 on November 12, 2021 (the "2021 Form 483").

The Company provided an initial response to the inspectional observations and will continue to provide responses to FDA.

The Warning Letter and the 2021 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.

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

However, due to our monthly progress reports, the FDA agreed to issue Certificates to Foreign Governments for the products manufactured at TEI due to substantial progress and the length of time it takes to resolve the Warning Letter.

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.

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ACQUISITIONS & DIVESTITURES

Ou r growth strategy includes the acquisition of businesses, assets or products lines to increase the breadth of our offerings and the reach of our product portfolios and drive relevant scale to our customers.

As a result of several acquisitions from 2021 through 2022, our financial results for the year ended December 31, 2022 may not be directly comparable to those of the corresponding prior-year perio ds.

See Note 4, Acquisitions and Divestitures, of the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for a further discussion.

Surgical Innovation Associates, Inc.

On December 6, 2022, the Company completed its acquisition of SIA for an acquisition purchase price of $51.5 million.

In addition to the purchase price, the acquisition includes two separate contingent considerations payments, which are dependent on 1) achieving certain revenue-based performance milestones in 2023, 2024, and 2025 (up to $50M in additional payments), as well as 2) the approval by the FDA of the PMA application for DuraSorb for certain uses by certain timing targets (up to $40M in additional payments).

SIA was a privately-held company whose core technology, DuraSorb is a fully resorbable scaffold of a globally accepted polymer, cleared for use in hernia repair, abdominal wall, and other soft tissue reinforcement.

DuraSorb sales will be reported within Integra’s TT segment as part of its Wound Reconstruction and Care franchise.

See Note 4, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for details.

On January 20, 2021, the Company acquired ACell 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, a technology platform derived from porcine urinary bladder extracellular matrix.

See Note 4, Acquisitions and Divestitures, to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for additional details.

On August 31, 2022, the Company completed the sale of its TWC business to 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 recogniz ed $0.6 million as a gain from the sale of business in the consolidated statement of operations for year ended December 31, 2022.

The transaction is subject to final working capital adjustments.

See Note 4, Acquisitions and Divestitures , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Form 10-K) for details.

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

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The Company recognized a gain of $41.8 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 December, 31, 2021.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

As a result of several acquisitions from 2019 through 2021, our financial results for the year ended December 31, 2021 may not be directly comparable to those of the corresponding prior-year perio ds.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for a further discussion.

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 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

Arkis BioSciences Inc.

On July 29, 2019, the Company acquired Arkis BioSciences Inc.

("Arkis") for an acquisition purchase price of $30.6 million (the "Arkis Acquisition") plus contingent consideration of up to $25.5 million, that may be payable based on the successful completion of certain development and commercial milestones.

The Company estimated the fair value of the contingent consideration to be $13.1 million at the acquisition date.

The Company estimated fair value of the contingent consideration as of December 31, 2021 to be $15.1 million.

The Company recorded $3.7 million in accrued expenses and other current liabilities and $11.4 million in other liabilities at December 31, 2021 in the consolidated balance sheets of the Company.

Arkis was a privately-held company that marketed the CerebroFlo external ventricular drainage ("EVD") catheter with Endexo technology, a permanent additive designed to reduce the potential for catheter obstruction due to clotting.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

Rebound Therapeutics Corporation

On September 9, 2019, the Company acquired Rebound Therapeutics Corporation (“Rebound”), developers of a single-use medical device known as the Aurora which enables minimally invasive access, using optics and illumination, for visualization, diagnostic and therapeutic use in neurosurgery (the “Rebound transaction”).

Under the terms of the Rebound transaction, the Company made an upfront payment of $67.1 million and committed to pay up to $35.0 million of contingent development milestones upon achievement of certain regulatory milestones.

The acquisition of Rebound was primarily concentrated in one single identifiable asset and thus, for accounting purposes, the Company concluded that the acquired assets did not meet the accounting definition of a business.

The initial payment was allocated primarily to Aurora, resulting in a $59.9 million in-process research and development ("IPR&D") expense.

The balance of approximately $7.2 million, which included $2.1 million of cash and cash equivalents and a net deferred tax asset of $4.2 million, was allocated to the remaining net assets acquired.

The deferred tax asset primarily resulted from a federal net operating loss carryforward.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) 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.

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, 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.

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 completed in the fourth quarter of 2022.

In 2022, we outsourced certain transactional back-office finance and customer service activities to enhance customer quality, build scale for future growth, and capture cost efficiencies.

This transition also completed in the fourth quarter of 2022.

While the transition was complete in 2022, we are continuing to work with our outsource provider to transform our processes and gain efficiencies.

RESULTS OF OPERATIONS

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Net income for the year ended December 31, 2022 was $180.6 million, or $2.16 per diluted share, compared to $169.1 million, or $1.98 per diluted share for the year ended December 31, 2021.

The increase in net income for the year ended December 31, 2021 , was primarily driven by higher revenues across most franchises driven by continued recovery in surgical procedure volumes from prior year COVID-19 pandemic levels.

This was partially offset by higher operating expenses as costs continued to normalize after 2020 cost reduction actions.

Within non-operating income and expense, the Company benefited from lower interest expense, higher other income and a gain of $41.8 million as a result of the sale of its Extremity Orthopedics business to Smith & Nephew.

The Company also had a net tax benefit in 2020 due to the impact of the intra-entity transfer of certain intellectual property which resulted in the recognition of a deferred tax benefit in the amount of $59.2 million.

Special Charges

Income before taxes includes the following special charges:

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EU medical device regulation 45,147 24,375

Discontinued product lines charges 377 6,342

Expenses related to debt refinancing — 6,168

COVID-19 pandemic related charges (2)

Convertible debt non-cash interest expense — 15,415

Total 49,370 33,425

(1) The Company completed its sale of its Extremity Orthopedics business and recognized a gain of $41.8 million for the year ended December 31, 2021 which was partially offset by other acquisition, divestiture and integration-related charges.

See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

(2) 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.

(1) See Note 4, Acquisitions and Divestitures of the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for details.

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

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Selling, general and administrative 20,584 31,013

Interest expense (1)

Gain from the sale of business (644) (41,798)

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Total 49,370 33,425

(1) Upon adoption of ASU No.

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

See Note 1, Ba sis of Presentation of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K), 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.

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For the year ended December 31, 2022, total revenues increased by $15.2 million, or 1.0%, to $1,557.7 million from $1,542.4 million during the prior year.

Domestic revenues increased by $117.6 million, or 12.1%, to $1,089.5 million and were 70.6% of total revenues for the year ended December 31, 2021.

International revenues increased by $53.0 million or 13.3% to $452.9 million, compared to $399.9 million during 2020.

The increase in revenues was primarily driven by recovery experienced from the COVID-19 pandemic across most franchises compared to the prior year.

Foreign exchange fluctuations had a favorable impact of $9.8 million on revenues for the year.

In the CSS segment, revenues were $1,025.2 million which was an increase of $130.4 million, or 14.6% as compared to the prior-year period as a result of the continued recovery experienced from the COVID-19 pandemic, and the launch of our new CereLink ™ ICP monitoring system in the third quarter in U.S.

and European markets.

The Company saw growth within our Neurosurgery portfolio increasing low double digits primarily due to sales in neuromonitoring, advanced energy and dural access and repair.

Sales in our instruments portfolio increased low double digits as compared to the same period in the prior year driven by order recovery.

This increase is inclusive of an unfavorable foreign currency impact of $37.9 million, as well as a $10.2 million decrease that impacts both domestic and international revenues, related to the divestiture of the TWC business.

Excluding the impacts of these items, domestic revenues increased by $41.6 million, or 3.8%.

International revenues increased by $21.7 million or 4.8%.

In the CSS segment, revenues were $1,019.6 million which was a decrease of $5.7 million, or 0.6% as compared to the prior-year period.

This increase is inclusive of a $34.1 million unfavorable foreign currency impact on revenue.

Excluding the impact of foreign currency, the CSS segment revenues increased $28.4 million as compared to the prior year period.

This increase was driven primarily 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 driven primarily 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 $538.1 million, which was an increase of $20.9 million, or 4.0% as compared to the prior-year period..

Within TT, our Extremity Orthopedics business was divested on January 4, 2021 and the acquisition of ACell was completed on January 20, 2021.

Sales in our Wound Reconstruction business, excluding the impact of the divestiture and acquisition, increased low double digits.

Sales in our Private Label business increased low double digits as a result of continued recovery experienced from the COVID-19 pandemic.

As we look forward to 2022 and beyond, we continue to closely monitor local, regional, and global COVID-19 surges as well as recent variants of the virus for an impact on procedures.

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

Excluding the impact of foreign currency of $3.8 million and the divestiture impact of TWC of $10.2 million, the TT segment revenues in the third quarter increased by $34.9 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 was $970.3 million for the year ended December 31, 2022, an increase of $25.7 million from $944.6 million for the same period last year.

Gross margin as a percentage of revenues was 62.3% in 2022 and 61.2% in 2021.

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

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.

These were partially offset by CereLink recall impacts, unfavorable regional mix, and higher material and labor costs.

Operating Expenses

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Total operating expenses 47.0 % 48.4 %

Total operating expenses, which consist of research and development, selling, general and administrative, and intangible asset amortization expenses, increased by $47.7 million or 6.8% to $747.4 million in 2021, compared to $699.7 million in the prior year.

The increase in operating expenses compared to the prior year reflects costs associated with higher employee related costs, increased research and development as well as increased outside spending as revenue recovered.

We also benefited from reduced operating expenses from the sale of the Extremity Orthopedics business and cost synergies as a result of the acquisition of ACell.

Total operating expenses, which consist of research and development, selling, general and administrative, and intangible asset amortization expenses, decreased by $16.0 million or 2.1% to $731.4 million in 2022, compared to $747.4 million in the prior year.

The decrease in operating expenses is due to lower selling, general and administrative costs and amortization partially offset by higher R&D spending.

The Company continues to manage and 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.

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Research and development expenses for the year ended December 31, 2022 increased by $8.1 million as compared to the prior year.

This increase in spending resulted from additional spending on new product development, clinical studies and spending related to European Union Medical Device Regulation compliance activities.

This increase in spending resulted from additional spending on new product development, clinical studies and spending related to the EU Medical Device Regulation compliance activities.

Selling, General and Administrative

Selling, general and administrative expenses for the year ended December 31, 2021 increased by $42.9 million as compared to the prior year driven primarily due to higher employee related costs, higher incentive and stock-based compensation, as well as increased outside spending as revenue recovered.

Selling, general and administrative expenses for the year ended December 31, 2022 decreased by $21.1 million as compared to the prior year driven primarily by the $18.1 million reduction in fair value of contingent consideration for ACell.

The remainder of the decrease is a result of reduced employee related costs and stock-based compensation, partially offset by increased selling costs on commissions and investment in sales force expansion.

Intangible Asset Amortization

Amortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) in 2021 was $16.9 million compared to $27.8 million in 2020 primarily due to a reduction in amortization expense associated with intangible assets sold in conjunction with the sale of the Extremity Orthopedics business during the current year as well as accelerated amortization expense associated with an intangible asset which was recorded in the prior year.

Amortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) in 2022 was $13.9 million compared to $16.9 million in 2021 primarily due to a reduction associated with the end of the amortization period for a certain customer relationship intangible asset.

In addition, there was a decrease in amortization expense as a result of intangible assets sold with the TWC divestiture.

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

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Interest Income

Interest income for the year ended December 31, 2021 decreased by $2.6 million as compared to the same period last year primarily due to the settlement of cross-currency swaps designated as net investment hedges during Q4 2020.

Interest income for the year ended December 31, 2022 increased by $5.2 million as compared to the same period last year primarily due to higher interest rates in 2022 compared to 2021.

Interest Expense

Interest expense for the year ended December 31, 2021 decreased by $21.2 million as compared to the same period last 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.

See Note 2, Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details in relation to the adoption of ASU 2020-06.

Gain from the sale of business

On January 4, 2021, the Company completed its sale of its Extremity Orthopedics business and recognized a gain of $41.8 million in the first quarter of the current year.

Interest expense for the year ended December 31, 2022 decreased by $0.8 million as compared to the same period last year primarily from a lower outstanding borrowing on the Senior Secured Credit Facility partially offset by increased interest rates.

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 year ended December 31, 2022 .

On January 4, 2021, the Company completed its sale of its Extremity Orthopedics business and recognized a gain of $41.8 million in the prior year.

Other Income, Net

Other income, net for the year ended December 31, 2021 increased by $14.9 million primarily due to income associated with the transition services agreement with Smith & Nephew, favorable impact of foreign exchange in the current year and higher income from additional cross currency swaps that were entered into during Q4 2020.

Other income, net for the year ended December 31, 2022 decreased by $7.3 million.

This was primarily due to due unfavorable impact of foreign exchange, as well as lower income associated with the transition services agreement invoicing from the divestiture of the Extremity Orthopedics business.

Our effective inco me tax rate was 15.6% and 21.2% of income before income taxes in 2022 and 2021, respectively.

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We consider these factors and others, including our history of generating taxable earnings, in assessing our ability to realize deferred tax assets.

In December 2020, the Company completed an intra-entity transfer of certain intellectual property rights to one of its subsidiaries in Switzerland.

While the transfer did not result in a taxable gain;

the Company’s Swiss subsidiary received a step-up in tax basis based on the fair value of the transferred intellectual property rights.

The Company determined the fair value using a discounted cash flow mo del based on expectations of revenue growth rates, royalty rates, discount rates, and useful lives of the intellectual property.

The Company recorded a $59.2 million deferred tax benefit in Switzerland related to the amortizable tax basis in the transferred intellectual property.

Our effective tax rate could vary from year to year depending on, among other factors, tax law changes, the geographic and business mix and taxable earnings and losses.

We consider these factors and others, including our history of generating taxable earnings, in assessing our ability to realize deferred tax assets.

We estimate our worldwide effective income tax rate for 2022 to be approximately 18.4%.

We estimate our worldwide effective income tax rate for 2023 to be approximately 20.7%, estimated based on existing tax laws.

At December 31, 2022, the Company had $9.7 million of valuation allowance against the remaining $195.2 million of gross deferred tax assets recorded at December 31, 2022.

Our deferred tax asset valuation allowance decreased by $0.1 million in 2021 and remained substantially unchanged in 2020.

Our deferred tax asset valuation allowance decreased by $0.1 million in 2022, remaining substantially unchanged in 2021.

This valuation allowance relates to deferred tax assets for which the Company does not believe it has satisfied the more likely than not threshold for realization.

At December 31, 2022, we had net operating loss carryforwards of $79.5 million for federal income tax purposes, $75.5 million for foreign income tax purposes and $37.9 million for state income tax purposes to offset future taxable income.

The federal net operating loss carryforwards decreased during 2021 due to the use of net operating losses.

The federal net operating loss carryforwards increased during 2022 due to the acquisition of SIA.

Of the total federal net operating loss carryforwards, $60.9 million expire through 2037 and $18.6 million have an indefinite carryforward period.

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The state net operating loss carryforwards expire in 2036.

As of December 31, 2021 , the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed to be indefinitely reinvested.

As of December 31, 2022 , the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed to be indefinitely reinvested unless there is a manner under which to remit the earnings with no material tax cost.

Such taxes would primarily be attributable to foreign withholding taxes and local income taxes when such earnings are distributed.

As such, the Company has determined the tax impact of repatriating these earnings would not be material as of December 31, 2021 .

GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS

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Domestic revenues increased by $37.3 million for the year ended December 31, 2022 compared to the same period last year.

European sales increased by $18.6 million for the year ended December 31, 2021 compared to the same period last year.

Sales to customers in Asia Pacific increased by $24.9 million for the year ended December 31, 2021 compared to the same period last ye ar.

These increases are inclusive of $4.4 million related to the divestiture of the TWC business.

European sales decreased by $20.4 million for the year ended December 31, 2022 compared to the same period last year.

Sales to customers in Asia Pacific decreased by $5.6 million for the year ended December 31, 2022 compared to the same period last ye ar.

The Rest of the World for the year ended December 31, 2022 increased by $3.9 million compared to the same period last year.

The increase in revenues globally was primarily driven by the continued recovery experienced from the COVID-19 pandemic across all franchises compared to the prior year due to rebound in surgical procedure volumes.

Sales in China, Japan Canada, Europe and our indirect markets continue to drive international growth.

The Company also benefited from the launch of the CereLink ICP Monitor which occurred during the second half of the 2021.

The international revenues were impacted by a $37.9 million unfavorable foreign exchange impact as well as $5.8 million related to the divestiture of the TWC business.

LIQUIDITY AND CAPITAL RESOURCES

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Cash Flows Provided by Operating Activities

Operating cash flows for the year ended December 31, 2022 decreased by $48.0 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 year ended December 31, 2022, by approximately $9.6 million as compared to 2021 primarily due to earnings from higher revenues .

The changes in assets and liabilities, net of business acquisitions, decreased cash flows by $39.4 million in 2022 as compared to the increase in cash flows of $18.2 million for the same period in 2021.

The change in 2022 is mainly attributable to increases in inventory and accounts receivable.

The increase in inventory is due to a build up of safety stock due to supply chain challenges.

The increase in accounts receivable is due to increased sales as well as a decrease in days sales outstanding.

Operating cash flows for the year ended December 31, 2021 increased by $108.6 million compared to the same period in 2020.

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The improvement in 2021 working capital is attributable to a decrease in inventory of $5.4 million due to investments in building safety stock made in the prior year where inventory increased by $48.3 million as well as improved sales in 2021.

Operating cash flows for the year ended December 31, 2020 decreased compared to the same period in 2019.

Net income after non-cash adjustments increased by approximately $0.8 million to $245.1 million from $245.9 million.

The changes in assets and liabilities, net of business acquisitions, decreased cash flows from operating activities by $41.3 million in the year ended December 31, 2020 compared to a decrease of $14.5 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 revenues and continued collection efforts.

Cash Flows Used in Investing Activities

During the year ended December 31, 2022, we paid $42.3 million for capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments, $51.5 million to acquire SIA, 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.

During the year ended December 31, 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 $48.0 million capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments.

During the year ended December 31, 2020, we paid $38.9 million for capital expenditures, most of which were directed to our facilities located in Mansfield, MA;

and Princeton, NJ and $25.0 million associated with achieving developmental milestones paid to the former shareholders of Rebound.

Cash Flows (Used in) Provided by Financing Activities

Uses of cash from financing activities for the year ended December 31, 2022 primarily related to the purchase 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 $24.6 million in cash taxes paid in net equity settlements as a result of the departure of the former chief executive officer of the Company .

The Company also had repayments of $148.6 million under our Senior Credit Facility and Securitization Facility offset by $40.8 million borrowings under our Senior Credit Facility and Securitization Facility.

The Company also had $5.5 million proceeds from the exercise of stock options.

In this Annual Report on Form 10-K, we refer to the sixth amendment and restatement of our Senior Credit Facility with a syndicate of lending banks with Bank of America, N.A., as Administrative Agent as the "Senior Credit Facility."

Uses of cash from financing activities for the year ended December 31, 2021 were repayments of $125.5 million on the revolving portion of our Senior Credit Facility and Securitization Facility.

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These uses were offset by $6.8 million proceeds from the exercise of stock options and $25.5 million borrowings under our Senior Credit Facility and Securitization Facility.

Our principal sources of cash from financing activities for the year ended December 31, 2020 were $515.3 million in proceeds from the issuance of Convertible Senior Notes including the call and warrant transactions and $171.5 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 in debt issuance costs related to the Amended and Restated Senior Credit Agreement and the issuance of Convertible Senior Notes and $100.0 million in purchases of treasury stock.

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

See Note 5, Debt, to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for a discussion of our Amended and Restated Senior Credit Agreement, the 2025 Notes and Securitization Facility and Note 6, Derivative Instruments to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for discussion of our hedging activities.

See Note 5, Debt , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for a discussion of our Amended and Restated Senior Credit Agreement, the 2025 Notes and Securitization Facility and Note 6, Derivative Instruments to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) 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 and July 2020 Amendment to the Senior Credit Facility.

Share Repurchase Plan

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

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 of the 2022 ASR, which represented approximately 80% of the expected total shares under the 2022 ASR.

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.

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.

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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.

For the year ended December 31, 2021, there were no repurchases of the Company’s common stock as part of the share repurchase authorization.

On January 12, 2022, the Company entered into a $125.0 million accelerated share repurchase ("2022 ASR") and received 1.5 million shares of the Company common stock at inception of the 2022 ASR, which represented approximately 80% of the expected total shares under the 2022 ASR.

The remaining 20% of the expected total shares is expected to settle in the first half of 2022, upon which additional shares of common stock may be delivered to the Company or, under certain circumstances, the Company may be required to make a cash payment or may elect to deliver shares of our common stock to the 2022 ASR counterparty in each case pursuant to the terms of the 2022 ASR agreement between the Company and the 2022 ASR counterparty.

The total number of shares to be delivered or the amount of such payment, as well as the final average price per share, will be based on the volume-weighted average price, less a discount, of the Company's common stock during the term of the transaction.

As a result of this transaction, $100.0 million remains available under the $225.0 million stock repurchase authorization .

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

The Company utilized $100.0 million of net proceeds from the offering of convertible 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 ("2020 ASR") to complete the remaining $100.0 million of share repurchase.

The Company received 1.3 million shares at inception of the 2020 ASR, which represented approximately 80% of the expected total shares.

Upon settlement of the 2020 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.

See Note 8, Treasury Stock of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for further details.

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 26, 2023, the Company entered into a $150 million accelerated share repurchase agreement ("2023 ASR") and received 2.1 million shares of the Company common stock at inception of the 2023 ASR, which represented approximately 80% of the expected total shares of under the 2023 SAR.

The remaining repurchase transactions are expected to be completed in the first half of 2023.

For the year ended December 31, 2021, there were no repurchases of the Company’s common stock as part of the shar e repurchase authorization.

See Note 8, Treasury Stock , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for further details.

Dividend Policy

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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.

We believe that our cash and available borrowings under the Senior Credit Facility are sufficient to finance our operations and capital expenditures over the next twelve months.

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.

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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 5 , Debt , to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

See Note 5 , Debt , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for details.

The Company also leases some of our manufacturing facilities and office buildings which have future minimum lease payments associated.

See Note 11, Leases and Related Party Leases to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for a schedule of our future minimum lease payments.

See Note 11, Leases and Related Party Leases , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) 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 10, Retirement Benefit Plans and Note 15, Commitments and Contingencies to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

The Company has contingent consideration obligations related to prior and current year acquisitions and future pension contribution obligations.

See Note 10, Retirement Benefit Plans , and Note 15, Commitments and Contingencies to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) 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 II, Item 8 of this Form 10-K) for details.

See Note 12, Income Taxes to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) 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 restructuring costs of $3.4 million and $4.9 million in cost of goods sold, $0.5 million and $1.2 million in selling, general and administrative and $0.3 million and $0.3 million in research and development related to employee terminations associated with a future plant closure in the consolidated statement of operations for the years ended December 31, 2021 and 2020, respectively.

Restructuring costs of $10.2 million were included in a ccrued expenses and other current liabilities and $6.4 million were included in other liabilities in the consolidated balance sheet for the year ended December 31, 2021 and 2020, respectively.

See Note 2, Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for further details.

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 year ended December 31, 2022.

In 2021, the Company incurred employee termination costs on restructuring activities associated with the closure of the manufacturing facility in France.

Restructuring costs were included in a ccrued expenses and other current liabilities in the consolidated balance sheet for the year ended December 31, 2022 and 2021.

See Note 2, Summary of Significant Accounting Policies , of the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for further details.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

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Because of this uncertainty, actual results could differ from these estimates.

Allowances for Doubtful Accounts Receivable and Sales Returns and Allowances

We evaluate the collectability of accounts receivable based on a combination of factors.

The Company recognizes a provision for doubtful accounts that reflects the Company’s estimate of expected credit losses for trade accounts receivable.

In circumstances where a specific customer is unable to meet its financial obligations to us, we record an allowance against amounts due to reduce the net recognized receivable to the amount that we reasonably expect to collect.

For all other customers, the Company evaluates measurement of all expected credit losses for trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

If the financial condition of customers or the length of time that receivables are past due were to change, we may change the recorded amount of allowances for doubtful accounts in the future through charges or reductions to selling, general and administrative expense.

We record a provision for estimated sales returns and allowances on revenues in the same period as the related revenues are recorded.

We base these estimates on historical sales returns and allowances and other known factors.

If actual returns or allowances differ from our estimates and the related provisions for sales returns and allowances, we may change the provision in the future through an increase or decrease in revenues.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

We adopted this guidance on January 1, 2020 using a modified retrospective transition method which requires a cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption with no change to financial results reported in prior periods.

The cumulative-effect adjustment recorded on January 1, 2020 was not material.

The adoption of this ASU did not have a significant impact on our consolidated financial statements and related disclosures.

Our exposure to credit losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the COVID-19 pandemic and recent variants of the virus, and other customer-specific factors.

Although we have historically not experienced significant credit losses, it is possible that there could be an adverse impact due to customer and governmental responses to the COVID-19 pandemic.

Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value.

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If future demand or market conditions are lower than our projections, or if we are unable to rework excess or obsolete quantities into other products, we may record further adjustments to the carrying value of inventory through a charge to cost of product revenues in the period the revision is made.

As of December 31, 2022, our reserve for inventory obsolesce is 6% of total inventory on our consolidated balance sheets.

The Company capitalizes inventory costs associated with certain products prior to regulatory approval, based on management's judgment of probable economic benefit.

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Results of operations of acquired companies are included in the Company’s results of operations as of the respective acquisition dates.

The Company accounts for the acquisition of a business in accordance with ASC 805, Business Combinations (ASC 805).

The Company accounts for the acquisition of a business in accordance with ASC Topic 805, Business Combinations ("ASC Topic 805").

Amounts paid to acquire a business are allocated to the assets acquired and liabilities assumed based on the fair values at the date of acquisition.

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The discount rate used is determined at the time of measurement in accordance with accepted valuation methodologies.

In our most recent acquisition of SIA, the key areas of judgement relating to the valuation of the acquired definite-lived developed technology intangible assets were the net revenue growth rates, cost of sales, selling and marketing costs, discounts rates, and asset useful life.

The key areas of judgement relating to the valuation of the contingent consideration are the inputs to the Monte-Carlo model including revenue-adjusted discount rate, counterpart discount rate, revenue volatility and forecasted revenue, earnings before income taxes and fixed costs.

These assumptions were developed with the assistance of a third-party valuation expert.

Acquired IPR&D is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use.

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Due to the uncertainty associated with research and development projects, there is risk that actual results will differ materially from the original cash flow projections and that the research and development project will result in a successful commercial product.

The risks associated with achieving commercialization include, but are not limited to, delay or failure to obtain regulatory approvals to conduct clinical trials, delay or failure to obtain required market clearances, delays or issues with patent

issuance, or validity and litigation.

If the acquired net assets do not constitute a business under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill is recognized.

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Payments that would be recognized as contingent consideration in a business combination are expensed when probable in an asset acquisition.

Refer to Note 4, Acquisitions and Divestitures to the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for details.

Refer to Note 4, Acquisitions and Divestitures to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for details.

Valuation of Goodwill

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The Company's assessment of the recoverability of goodwill is based upon a comparison of the carrying value of goodwill with its estimated fair value.

The Company reviews goodwill for impairment in the third quarter every year in accordance with ASC Topic 350 and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

Refer to Note 7, Goodwill and Other Intangibles of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K) for more information.

Key assumptions used to estimate the fair value of goodwill include the Company's discounts rate and forecasted operating results.

The Company had goodwill on the balance sheet of $1 billion as of December 31, 2022.

The Company reviews goodwill for impairment in the third quarter every year in accordance with ASC Topic 350, Intangibles - Goodwill and Other ("ASC Topic 350"), and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.

Refer to Note 7, Goodwill and Other Intangibles , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for more information.

Valuation of Identifiable Intangible Assets

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The Company may elect to bypass this qualitative evaluation and perform a quantitative test.

Product rights and other definite-lived intangible assets are tested periodically for impairment in accordance with ASC Topic 360 when events or changes in circumstances indicate that an asset's carrying value may not be recoverable.

There were no changes to identifiable intangible assets as a result of the Company's assessments.

Product rights and other definite-lived intangible assets are tested periodically for impairment in accordance with ASC Topic 360, Property, Plant and Equipment , ("ASC Topic 360") when events or changes in circumstances indicate that an asset's carrying value may not be recoverable.

The impairment test involves comparing the carrying amount of the asset or asset group to the forecasted undiscounted future cash flows.

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The computed impairment loss is recognized in the period that the impairment occurs.

We develop, manufacture, and sell medical devices globally.

Our earnings and cash flows are exposed to market risk from changes in interest rates and currency exchange rates.

We address these risks through a risk management program that includes the use of derivative financial instruments and operate the program pursuant to documented corporate risk management policies.

All derivative financial instruments are recognized in the financial statements at fair value in accordance with the authoritative guidance.

Under the guidance, for those instruments that are designated and qualify as hedging instruments, the hedging instrument must be designated as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation, based on the exposure being hedged.

The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.

Our derivative instruments do not subject our earnings or cash flows to material risk, and gains and losses on these derivatives generally offset losses and gains on the item being hedged.

We have not entered into derivative transactions for speculative purposes.

From time to time, we may enter into derivatives that are not designated as hedging instruments in order to protect the Company from currency volatility due to intercompany balances.

All derivative instruments are recognized at their fair values as either assets or liabilities on the balance sheet.

We determine the fair value of our derivative instruments, by considering the estimated amount we would receive to sell or transfer these instruments at the reporting date and by taking into account expected forward interest rates, currency exchange rates, the creditworthiness of the counterparty for assets, and our creditworthiness for liabilities.

In certain instances, we may utilize a discounted cash flow model to measure fair value.

Generally, we use inputs that include quoted prices for similar assets or liabilities in active markets, other observable inputs for the asset or liability, and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.

As of December 31, 2022, the Company has $1.1 billion of identifiable intangible assets, net on the balance sheets.

Since we conduct operations on a global basis, our effective tax rate has and will depend upon the geographic distribution of our pre-tax earnings among locations with varying tax rates.

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We maintain strategic management and operational activities in overseas subsidiaries.

See Note 12, Income Taxes of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K), in our consolidated financial statements for disclosures related to foreign and domestic pretax income, foreign and domestic income tax expense (benefit) and the effect foreign taxes have on our overall effective tax rate.

See Note 12, Income Taxes , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K), in our consolidated financial statements for disclosures related to foreign and domestic pretax income, foreign and domestic income tax expense (benefit) and the effect foreign taxes have on our overall effective tax rate.

We recognize a tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position.

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acquisitions, loans from a foreign subsidiary, and changes in tax laws.

As of December 31, 2021, the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed to be indefinitely reinvested.

As of December 31, 2022, the Company has not provided deferred income taxes on unrepatriated earnings from foreign subsidiaries as they are deemed to be indefinitely reinvested unless there is a manner under which to remit the earnings with no material tax cost.

Such taxes would primarily be attributable to foreign withholding taxes and local income taxes when such earnings are distributed.

As such, the Company has determined the tax impact of repatriating these earnings would not be material as of December 31, 2021.

Loss Contingencies

We are subject to claims and lawsuits in the ordinary course of our business, including claims by employees or former employees, and claims with respect to our products and involving commercial disputes.

We accrue for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable.

The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, if applicable, and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency.

We consistently accrue legal fees expected to be incurred in connection with loss contingencies as those fees are incurred by outside counsel as a period cost.

Our financial statements do not reflect any material amounts related to possible unfavorable outcomes of claims and lawsuits to which we are currently a party because we currently believe that such claims and lawsuits are not expected, individually or in the aggregate, to result in a material, adverse effect on our financial condition.

However, it is possible that these contingencies could materially affect our results of operations, financial position and cash flows in a particular period if we change our assessment of the likely outcome of these matters.

Pension Benefits

The Company maintains defined benefit pension plans that cover certain employees in France, Japan, Germany and Switzerland.

Various factors are considered in determining the pension liability, including the number of employees expected to be paid their salary levels and years of service, the expected return on plan assets, the discount rate used to determine the benefit obligations, the timing of benefit payments and other actuarial assumptions.

If the actual results and events for the pension plans differ from current assumptions, the benefit obligation may be over or under valued.

We recognize the underfunded status of the defined benefit pension plans as an asset or a liability in the balance sheet, with changes in the funded status recorded through other comprehensive income in the year in which those changes occur.

The Company’s discount rates are determined by considering current yield curves representing high quality, long-term fixed income instruments.

The resulting discount rates are consistent with the duration of plan liabilities.

In 2021, the discount rate was prescribed as the current yield on corporate bonds with an average rating of AA or AAA of equivalent currency and term to the liabilities.

The expected return on plan assets represents the average rate of return expected to be earned on plan assets over the period the benefits included in the benefit obligation are to be paid.

In developing the expected rate of return, the Company considers returns of historical market data as well as actual returns on the plan assets.

Using this reference information, the long-term return expectations for each asset category are developed according to the allocation among those investment categories.

The net plan assets of the pension plans are invested in common trusts as of December 31, 2021.

Common trusts are classified as Level 2 in fair value hierarchy.

The fair value of common trusts are valued at net asset value based on the fair values of the underlying investments of the trusts as determined by the sponsor of the trusts.

The following weighted average assumptions were used to develop net periodic pension benefit cost and the actuarial present value of projected pension benefit obligations for the year ended December 31, 2021 and 2020, respectively:

As of December 31,

Discount rate 0.37 % 0.34 %

Expected return on plan assets 3.59 % 2.04 %

Rate of compensation increase 2.10 % 2.14 %

Interest crediting rate for cash balance plans 1.0 % 1.0 %

A change of plus (minus) 25 basis points on expected rate of return on plan assets, with other assumptions held constant, would have an estimated $0.1 million favorable (unfavorable) impact on pension plan costs.

As of December 31, 2021, contributions expected to be paid to the plan in 2022 are $2.3 million.

We use the corridor approach in the valuation of defined benefit pension benefit plans.

The corridor approach defers all actuarial gains and losses resulting from variances between actual results and actuarial assumptions.

Those unrecognized gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year.

The amount in excess of the corridor is amortized over the average remaining service period to retirement date of active plan participants.

Stock-based Compensation

We apply the authoritative guidance for stock-based compensation.

This guidance requires companies to recognize the expense related to the fair value of their stock-based compensation awards.

Stock-based compensation expense for stock option awards is based on the grant date fair value on using the binomial distribution model.

The Company recognizes compensation expense for stock option awards, restricted stock awards, performance stock awards and contract stock awards on a ratable basis over the requisite service period of the award.

All excess tax benefits and taxes and tax deficiencies from stock-based compensation are included in the provision for income taxes in the consolidated statement of operations.

Recently Issued and Adopted Accounting Standards

Refer to Note 2, Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K), to the consolidated financial statements for recently adopted accounting pronouncements.

Refer to Note 2, Summary of Significant Accounting Policies , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K), to the consolidated financial statements for recently adopted accounting pronouncements.

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-K

Item 7. Management’s Discussion and Analysis