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, 2022 included in our Annual Report on Form 10-K. We have made statements in this report that 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”). All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”), including statements regarding our future results of operations and financial position, business strategy and plans, objectives of management for future operations and current expectations or forecasts of future results, are forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company and other matters that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Our forward-looking statements may include statements related to our growth and growth strategies, developments in the markets for our products and services, financial results, development launches and effectiveness, research and development strategy, regulatory approvals, competitive strengths, the potential or anticipated direct or indirect impact of the Coronavirus pandemic on our business, results of operations, and/or financial condition, restructuring and cost-saving initiatives, intellectual property rights, litigation and tax matters, governmental proceedings and investigations, mergers and acquisitions, divestitures, market acceptance of our products and services, accounting estimates, financing activities, ongoing contractual obligations, working capital adequacy, value of our investments, our effective tax rate, our expected returns to shareholders, and sales efforts. In some cases, these forward-looking statements may be identified by forward-looking words such as “believe,” “may,” “might,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar words and expressions in this report. Forward-looking statements in this Quarterly Report include, but are not limited to, statements regarding our ability to drive long-term shareholder value, development and future launches of products and continued or future acceptance of products and services in our segments; our ability to navigate and mitigate any on-going or future impact associated with economic disruptions, including supply chain constraints and inflation; expected timing for completion of research studies relating to our products; market positioning and performance of our products; divestitures and the potential benefits thereof; the costs and benefits of integrating previous acquisitions; anticipated timing for Food and Drug Administration (“FDA”) in the U.S., as well as for non-U.S. regulatory approval of new products; increased presence in new markets, including markets outside the U.S.; changes in the market and our market share; acquisitions and investment initiatives, including the timing of regulatory approvals as well as integration of acquired companies into our operations; the resolution of tax matters; the effectiveness of our development activities in reducing patient care costs and hospital stay lengths; our approach towards cost containment; our expectations regarding healthcare costs; general economic conditions; and the potential impact of our compliance with governmental regulations and accounting guidance. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations, financial condition, and/or cash flows. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022. As forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. One must carefully consider forward-looking statements and understand that such forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, and involve a variety of risks and uncertainties, known and unknown, including, among others, those discussed in the sections entitled “Government Regulation” within “Item 1. Business” and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. 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. 30 Table of Contents " GENERAL Integra, headquartered in Princeton, New Jersey, is a world leader in neurosurgical solutions and regenerative tissue technologies. The Company was founded in 1989 with the acquisition of an engineered collagen technology platform used to repair and regenerate tissue. 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. We have expanded our 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 LifeSciences Holdings Corporation common stock trades on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “IART.” We manufacture and sell medical technologies and products in two reportable business segments: Codman Specialty Surgical ("CSS") and Tissue Technologies ("TT"). 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. 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 sealant products through specialized third-party vendors. Integra is committed to restoring patients’ lives through transformative technologies and products in the segments in which we compete. Our mission is to innovate treatment pathways to advance patient outcomes and set new standards of care. We refocused our strategies around five pillars, specifically three core growth drivers -- innovating for outcomes, growing internationally, broadening our impact on care pathways – enabled by two key levers: driving operational and customer excellence and cultivating a high-performance culture. These five pillars drive how and where we aim to accelerate in 2023 and in the coming years. Innovating for Outcomes. An important part of Integra’s growth strategy is introducing new products to strengthen and expand our portfolio. Additionally, we seek clinical evidence to support regulatory approval and strong reimbursement of our product portfolio around the world, including new indications for existing technologies. On December 6, 2022, we completed the acquisition of Surgical Innovation Associates, Inc. (“SIA”), which develops, markets and sells DuraSorb, a resorbable synthetic matrix for plastic and reconstructive surgery. This acquisition advances our global strategy in breast reconstruction, expanding plans to access the U.S. market where SIA is pursuing pre-market approval for use in implant-based breast reconstruction ("IBBR"). We also continued to advance the development of pioneering neurosurgical technologies with the expansion of our product offerings. In early 2023, the CUSA® Clarity Bone Tip was launched in U.S., which is used when controlled fragmentation, emulsification and aspiration of bone is necessary. This follows the CUSA® Clarity extended laparoscopic tip, launched in the U.S. in late 2022 to enhance the benefits of ultrasonic ablation to minimally invasive laparoscopic liver surgery. Growing International. Over the years, we have been significantly expanding our global footprint through investments in our commercial organization, expansion and development of international markets and new product introductions. Several new products were introduced in 2023, including MicroMatrix® and Certas Plus® Programmable Valve which were launched in Europe, and CUSA Clarity Laparoscopic ("Lap") tip which was launched in Australia and New Zealand. Broadening Impact on Care Pathways. Integra seeks ways to develop products and technologies that impact the lives of patients, starting with the journey that a patient takes from diagnosis and treatment planning to surgery and postoperative care. Integra is well-established in acute care in the hospital setting and plans to leverage that strong position to grow in this segment and shape treatment pathways into preoperative care and additional sites of care. Driving Operations and Customer Excellence. Integra has been making investments to build more responsive and scalable processes, enhance the reliability of our supply chain, and drive productivity initiatives to further supply and lower costs. Additionally, we continue to invest in technologies, systems and processes to enhance the customer experience. In 2022, certain transactional back-office finance and customer service activities were outsourced to enhance customer quality, build scale for future growth, and capture cost efficiencies. Cultivating a High-Performance Culture. Creating a culture focused on empowerment and agility and building a diverse and inclusive workplace are cornerstones of our people strategy. These efforts resulted in Integra being named in several best workplace lists globally in 2022. Most recently, Integra China was recognized as a Great Place to Work in Greater China. 31 Table of Contents " Additionally, we have been making great strides in advancing our environmental, social and governance ("ESG") agenda to drive sustainability across the organization and recently published our first ESG report in late 2022. Clinical and Product Development Activities Integra continues to invest in collecting clinical evidence to support our 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. In early 2023, we had our commercial launch with initial surgeries successfully completed. We continue to update our CUSA Clarity platform by incorporating new ultrasonic handpiece and integrated electrosurgical capabilities. In 2022, we continued to advance the early-stage technology platforms we acquired in 2019. Through the acquisition of Arkis Biosciences, Inc. ("Arkis") 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. Our work to combine our bactiseal antimicrobial technology with the Endexo anti-occlusive technology obtained through our 2019 acquisition of Arkis continues to progress for both a silicone-based hydrocephalus and EVD project. In 2019, we also acquired Rebound Therapeutics Corporation ("Rebound Therapeutics"), a company that specialized in 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. In 2022, 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 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. Refer below to the information appearing in the "FDA Matters" section 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. In the third quarter of 2021, we filed the PMA application for a specific indication for SurgiMend in the use of post-mastectomy breast reconstruction, for which we hope to obtain FDA approval in 2024. On December 6, 2022, we completed the acquisition of SIA, which develops, markets and sells DuraSorb®, a resorbable synthetic matrix for plastic and reconstructive surgery. This acquisition advances our global strategy in breast reconstruction, expanding plans to access the U.S. market where SIA is pursuing pre-market approval for use in IBBR. FDA Matters On August 18, 2022, we, 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. We believe 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, we removed all CereLink monitors from the field. We are continuing our 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 and required regulatory reviews have been completed. Based on the outlook for returning the product to market and feedback from customers, we 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. In the first quarter of 2023 we recorded an additional $0.8M in provision for product returns as a reduction of net revenue, and no additional rework costs . 32 Table of Contents " On March 7, 2019, TEI Biosciences, Inc. ("TEI"), one of our wholly-owned subsidiaries , 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. We submitted our initial response to the FDA Warning Letter on March 28, 2019 and provide regular progress reports to the FDA as to its corrective actions and, since the conclusion of the inspection, we have undertaken significant efforts to remediate the observations and continue 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"). We provided an initial response to the inspection observations and will continue to provide responses to the FDA. On March 1, 2023, the FDA commenced an inspection of the facility, and we anticipate that the FDA will issue an FDA Form 483 at the conclusion of this inspection. The Warning Letter and the 2021 FDA Form 483 do not restrict our 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 three months ended March 31, 2023 were approximately 4.4% of consolidated revenues. 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, 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 transferred production to our existing Switzerland facility . 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. RESULTS OF OPERATIONS Executive Summary Net income for the three months ended March 31, 2023 was $24.2 million, or $0.29 per diluted share, as compared to $32.9 million or $0.39 per diluted share for the three months ended March 31, 2022. The decrease in net income for the three months ended March 31, 2023, was primarily driven by impacts from the SIA acquisition, including additional amortization, research and development, and other costs. 33 Table of Contents " Special Charges Income before taxes includes the following special charges : Three Months Ended March 31, Dollars in thousands 2023 2022 Acquisition, divestiture and integration-related charges $ 8,776 $ 574 Structural optimization charges 4,335 6,320 EU medical device regulation 11,404 9,513 Total $ 24,515 $ 16,407 The items reported above are reflected in the condensed consolidated statements of operations as follows: Three Months Ended March 31, Dollars in thousands 2023 2022 Cost of goods sold $ 6,066 $ 4,530 Research and development 4,218 4,267 Selling, general and administrative 14,730 8,902 Other income (499) (1,292) Total $ 24,515 $ 16,407 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, and for which the amounts are not expected to recur at the same magnitude. We believe that given our ongoing strategy of seeking acquisitions, our continuing focus on rationalizing our existing manufacturing and distribution infrastructure and our continuing review of various product lines in relation to our current business strategy, some of the special charges discussed above could recur with similar materiality in the future. We believe that the separate identification of these special charges provides important supplemental information to investors regarding financial and business trends relating to our financial condition and results of operations. Investors may find this information useful in assessing comparability of our operating performance from period to period, 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 March 31, Dollars in thousands 2023 2022 Segment Net Sales Codman Specialty Surgical $ 248,136 $ 247,308 Tissue Technologies 132,710 129,330 Total revenues $ 380,846 $ 376,638 Cost of goods sold 147,975 142,569 Gross margin on total revenues $ 232,871 $ 234,069 Gross margin as a percentage of total revenues 61.1 % 62.1 % Three Months Ended March 31, 2023 as Compared to Three Months Ended March 31, 2022 Revenues For the three months ended March 31, 2023, total revenues increased by $4.2 million to $380.8 million from $376.6 million for the same period in 2022, inclusive of a unfavorable foreign currency impact of $7.0 million on revenues, as well as a $4.5 million decrease that impacts both domestic and international revenues related to the divestiture of the TWC business. This also includes an increase of $1.8 million related to the SIA acquisition. Excluding the impacts of these items, domestic revenues increased by $6.8 million, or 2.6% as compared to the prior year period. International revenues increased by $7.1 million or 6.5% as compared to the prior period. The increase in domestic revenues was primarily driven by strong sales in our TT segment. The increase in international revenues was primarily driven by Advanced Energy. 34 Table of Contents " In the CSS segment, revenues were $248.1 million which was an increase of $0.8 million, or 0.3% as compared to the prior-year period, inclusive of a $6.4 million unfavorable foreign currency impact on revenue. Excluding the impact of foreign exchange, Neurosurgery portfolio grew low single digits primarily due to sales in Advanced Energy. Sales in our instruments portfolio increased mid- single digits as compared to the same period in the prior year. In the TT segment, revenues were $132.7 million which was an increase of $3.4 million, or 2.6% from the prior-year period, inclusive of a $0.6 million unfavorable foreign currency impact on revenue, as well as a $4.5 million decrease that impacts both domestic and international revenues related to the divestiture of the TWC business. This also includes an increase of $1.8 million related to the SIA acquisition. Excluding the impact of these items, our sales increased mid single digits, driven by strong customer demand and increased burn cases. Gross Margin Gross margin was $232.9 million for the three months ended March 31, 2023, a decrease of $1.2 million from $234.1 million for the sa me period in 2022. Gross margin as a percentage of revenues was 61.1% for the three months ended March 31, 2023 and 62.1% f or the sa me period in 2022. This decrease in gross margin is a result of unfavorable product mix and an increase in manufacturing costs. Operating Expenses The following is a summary of operating expenses as a percent of total revenues: Three Months Ended March 31, 2023 2022 Research and development 7.0 % 6.4 % Selling, general and administrative 43.8 % 42.5 % Intangible asset amortization 0.8 % 1.0 % Total operating expenses 51.6 % 49.9 % Total operating expenses, which consist of research and development, selling, general and administrative, and amortization expenses, increased by $8.6 million, or 4.6% to $196.5 million in the three months ended March 31, 2023, compared to $187.9 million in the same period in 2022. The increase in operating expenses compared to the prior year is primarily a result of the SIA acquisition combined with increases in selling costs associated with higher revenue. Research and Development Research and development expenses for the three months ended March 31, 2023 increased by $2.6 million as compared to the same period in the prior year. This increase in spending resulted from additional spending related to the SIA acquisition, new product development and clinical studies. Selling, General and Administrative Selling, general and administrative costs for the three months ended March 31, 2023 increased by $6.7 million as compared to the same period in the prior year driven primarily due to increased selling costs associated with SIA acquisition and costs associated with consulting activities. Intangible Asset Amortization Amortization expense (exclu din g amounts reported in cost of product revenues for technology-based intangible assets) for the three months ended March 31, 2023 was $3.1 million compared to $3.9 million for the same period in the prior year. 35 Table of Contents " Non-Operating Income and Expenses The following is a summary of non-operating income and expenses: Three Months Ended March 31, Dollars in thousands 2023 2022 Interest income $ 4,107 $ 1,377 Interest expense (12,100) (11,655) Other income, net 1,389 3,429 Total non-operating income and expense $ (6,604) $ (6,849) Interest Income Interest income for the three months ended March 31, 2023 increased by $2.7 million as compared to the same period in the prior year due to higher interest rates. Interest Expense Interest expense for the three months ended March 31, 2023 decreased by $0.4 million as compared to the same period in the prior year. Other Income, net Other income, net for the three months ended March 31, 2023 decreased by $2.0 million compared to the same period in the prior year. The decrease is primarily driven by lower Transition Service Agreement ("TSA") income from the sale of our Extremity orthopedics business, offset by additional TSA income from the sale of our TWC business. Income Taxes Three Months Ended March 31, Dollars in thousands 2023 2022 Income before income taxes $ 29,778 $ 39,315 Income tax (benefit) expense 5,552 6,414 Effective tax rate 18.6 % 16.3 % Our effective income tax rates for the three months ended March 31, 2023 and 2022 were 18.6% and 16.3%, respectively. For the three months ended March 31, 2023, the primary driver of the higher tax rate relates to a reduction of excess tax benefits from stock compensation. 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 we operate, 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 base erosion and profit-shifting project begun by the Organization for Economic Cooperation and Development ("OECD"). The OECD recently finalized major reform of the international tax system with respect to implementing a global 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. Our tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items that we expect to pay in the coming year, which would be classified as current income taxes payable. 36 Table of Contents " GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS We attribute revenues to geographic areas based on the location of the customer. Total revenue by major geographic area consisted of the following: Three Months Ended March 31, Dollars in thousands 2023 2022 United States $ 271,002 $ 263,351 Europe 41,064 43,744 Asia Pacific 50,473 47,717 Rest of World 18,307 21,826 Total Revenues $ 380,846 $ 376,638 We generate 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 our 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 $7.7 million for the three months ended March 31, 2023 compared to the same period last year. European sales decreased by $2.7 million for the three months ended March 31, 2023 compared to the same period last year. Sales to customers in Asia Pacific increased by $2.8 million for the three months ended March 31, 2023. The Rest of World for the three months ended March 31, 2023 decreased by $3.5 million compared to the same period last year. The international revenues were impacted by $7.0 million of unfavorable foreign exchange impact, with the larger impact in Europe. The increase in global revenues, inclusive of a $7.0 million unfavorable foreign exchange impact on revenue, is a result of strong sales in our TT division and our international businesses. Sales in Japan, China, Europe , Canada and our indirect markets continue to drive international growth. LIQUIDITY AND CAPITAL RESOURCES Working Capital The Company's working capital as of March 31, 2023 and December 31, 2022 was $747.2 million and $840.6 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 $307.4 million and $456.7 million at March 31, 2023 and December 31, 2022 respectively, which are valued based on Level 1 measurements in the fair value hierarchy. At March 31, 2023, our non-U.S. subsidiaries held approximately $242.2 million of cash and cash equivalents that are available for use outside the U.S. 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 Three Months Ended March 31, Dollars in thousands 2023 2022 Net cash provided by operating activities $ 26,156 $ 44,344 Net cash used in investing activities (13,704) (14,067) Net cash used in financing activities (162,683) (133,465) Effect of exchange rate fluctuations on cash 937 (3,168) Cash Flows Provided by Operating Activities Operating cash flows for the three months ended March 31, 2023 decreased by $18.2 million compared to the same period in 2022. Net income after removing the non-cash adjustments decreased for the three months ended March 31, 2023 by approximately $5.3 million as compared to the same period in 2022 primarily due to higher product costs and expenses related to support for key growth initiatives in research and development, selling and marketing areas. 37 Table of Contents " The changes in assets and liabilities in the first quarter of 2023, net of business acquisitions, decreased cash flows by $42.6 million, mainly attributable to increases in inventory to support increased sales and decreases in accrued expenses and other current liabilities due to increased payments processed in the quarter. The changes in assets and liabilities in the first quarter of 2022, net of business acquisitions, decreased cash flows by $29.8 million, primarily due to increases in inventory to support increased sales and decreases in accounts payable, accrued expenses and other current liabilities due to increased payments processed in the quarter. Cash Flows Used in Investing Activities During the three months ended March 31, 2023, we paid $13.7 million for capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments. During the three months ended March 31, 2022, we paid $9.3 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 final $4.7 million payment related to the final developmental milestone for Rebound Therapeutics Corporation. Cash Flows Used in Financing Activities Uses of cash from financing activities in the three months ended March 31, 2023 related to the repurchase of treasury stock of $150.0 million under the 2023 accelerated share repurchase agreement, repayments of $12.4 million under our Senior Credit Facility and Securitization Facility. We also had $7.6 million in payment of debt issuance costs. In addition, the Company had $5.2 million in cash taxes paid for net equity settlements. Sources of cash from financing activities for the three months ended March 31, 2023 were $10.2 million borrowing under our Senior Credit Facility and Securitization Facility and $2.3 million proceeds from the exercise of stock options. Uses of cash from financing activities in the three months ended March 31, 2022 related to the repurchase of treasury stock of $125.0 million under the 2022 accelerated share repurchase agreement, repayments of $11.8 million under our Senior Credit Facility and Securitization Facility. In addition, we had $9.2 million in cash taxes paid for net equity settlements. Sources of cash from financing activities for the three months ended March 31, 2022 were $11.3 million borrowing under our Senior Credit Facility and Securitization Facility and $1.2 million proceeds from the exercise of stock options. 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 Quarterly Report) 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 Quarterly Report) 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 March 2023 Amendment to the Senior Credit Facility. Share Repurchase Plan On January 26, 2023, we entered into ("the 2023 ASR") and received 2.1 million shares of our common stock at inception of the 2023 ASR, which represented approximately 80% of the expected total shares under the 2023 ASR. The remaining repurchase transactions are expected to be completed in the second quarter of 2023. On January 12, 2022, we entered into a $125.0 million accelerated share repurchase ("2022 ASR") and received 1.48 million shares of our 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 under the 2022 ASR was exercised by 2022 ASR counterparty. Upon settlement of the 2022 ASR on March 24, 2022, we received an additional 0.46 million shares determined using the volume-weighted average price of our common stock during the term of the 2022 ASR. See Note 11. Treasury Stock, to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) 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. 38 Table of Contents " 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 three months ended March 31, 2023 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests. Contractual Obligations and Commitments 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 Quarterly Report) for details. We also lease 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 Quarterly Report) for a schedule of our future minimum lease payments. Amounts related to our 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 Quarterly Report) for details. The associated obligations are not fixed. We also have a liability for uncertain tax benefits including interest and penalties. We cannot make a reliable estimate of the period in which the uncertain tax benefits may be realized. OTHER MATTERS Critical Accounting Estimates The critical accounting estimates included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 have not materially changed. Recently Issued Accounting Standards Information regarding new accounting pronouncements is included in Note 1. Basis of Presentation , to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) to the current period’s condensed consolidated financial statements. 39 Table of Contents "