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Item 1A. Risk Factors

2024-02-28 compared with 2023-02-22 · 188 added, 178 removed, 281 unchanged (57% of the section changed)

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The continuing worldwide macroeconomic and geopolitical uncertainty may adversely affect our business and prospects.

Global economic disruptions, including the COVID-19 pandemic, have continued to impact the global supply chain, primarily through constraints on raw materials and electronic components.

Additionally, we have observed a reduction in both inbound and outbound transportation capacity as a result of port closures and delays associated with the pandemic, which is causing longer lead times in receiving raw materials, as well as increased freight costs.

Geopolitical instability and other macroeconomic factors, including inflation, supply chain disruptions, interest rate and foreign currency rate fluctuations, and volatility in the capital markets could negatively impact our business, financial condition, and results of operations.

Global economic disruptions have continued to impact the global supply chain, primarily through constraints on raw materials and electronic components.

Additionally, we have observed a reduction in both inbound and outbound transportation capacity as a result of port closures, shipping lane disruptions and delays since the Coronavirus Disease ("COVID-19") pandemic, all of which is causing longer lead times in receiving raw materials, as well as increased freight costs.

These highly competitive and constrained supply chain conditions are increasing our cost of sales, which has and may continue to adversely impact our profitability.

Given the ongoing uncertainty regarding the duration and extent of the COVID-19 pandemic, we are uncertain as to the duration and extent of constraint on our supply chain and are unable to predict the extent to which it will affect our global operations.

Continued concerns about the systemic impact of potential long-term and wide-spread recession and geopolitical issues, including the war in Ukraine, have contributed to increased market volatility and diminished expectations for economic growth in the world.

Our business and results of operations have been and may continue to be adversely impacted by changes in macroeconomic conditions, including inflation, rising interest rates and the accessibility of capital markets.

Continued concerns about the systemic impact of potential long-term and wide-spread recession and geopolitical issues, including wars and acts of terrorism, have contributed to increased market volatility and diminished expectations for economic growth in the world.

Our business and results of operations have been and may continue to be adversely impacted by changes in macroeconomic conditions, including inflation, rising interest rates, bank failures and the accessibility of capital markets.

Uncertainty about global economic conditions may also cause decreased demand for our products and services and increased competition, which could result in lower sales volume and downward pressure on the prices for our products, longer sales cycles, and slower adoption of new technologies.

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Furthermore, governments and other third-party payors around the world facing tightening budgets could move to further reduce the reimbursement rates or the scope of coverage offered, which could adversely affect sales of our products.

Public health crises, such as the COVID-19 pandemic, have had, and could in the future have, a negative effect on our business.

Our global operations and interactions with healthcare systems, providers and patients around the world expose us to risks associated with public health crises, including epidemics and pandemics such as COVID-19.

In particular, the COVID-19 pandemic continues to cause significant volatility and uncertainty in the global and regional economies, leading to changes in consumer and business behavior, market fluctuations, materials and product shortages and restrictions on business and individual activities, all of which are materially impacting supply and demand in broad sectors of the world markets.

Additionally, the COVID-19 pandemic, together with general macroeconomic conditions, have led to disruptions in the global supply chain, primarily through a lack of availability of raw materials and electronic components.

We have experienced challenges associated with material and component availability for certain product lines, longer shipping and delivery times for raw materials and components, constrained logistics capacity related to the movement of our products, availability of skilled labor and increased costs of raw materials, components, labor, and freight and courier services.

Regional COVID-19 case volumes (including those related to subsequent variants), actions taken by governmental authorities, private businesses and individuals, such as “shelter-in-place” orders and restrictions on travel and access to our customers or temporary closures of our facilities or the facilities of our suppliers, disruption and/or higher costs to the Company’s supply chain, staffing shortages in hospitals and labor constraints in our facilities, could further impact our gross margins and our ability to ship our products and supply our customers.

The emergence of new variants, vaccinations and public health measures are driving the pace of economic recovery unevenly in various regions.

The direct and indirect disruptions caused by the pandemic and the responses of both governments and individuals could negatively impact the number of surgical and medical intervention procedures performed and have a material adverse effect on our business, financial condition, results of operations, or cash flows.

The extent to which fear of exposure to or actual effects of COVID-19, new variants, disease outbreak, epidemic or a similar widespread health concern impacts our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the speed and extent of geographic spread of the disease, the duration of the outbreak, travel restrictions, the efficacy of vaccination and treatment;

impact on the U.S.

and international healthcare systems, the U.S.

economy and worldwide economy;

the timing, scope and effectiveness of U.S.

and international governmental response;

and the impact on the health, well-being and productivity of our employees.

RISKS RELATING TO OUR BUSINESS

Our operating results may fluctuate.

Our operating results, including components of operating results such as gross margin and operating expenses, may fluctuate from time to time, and such fluctuations could affect our stock price.

Our operating results, including components of operating results such as gross margin and operating expenses, may fluctuate from time to time.

Our operating results have fluctuated in the past and can be expected to do so from time to time in the future.

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• the impact of acquisitions, our ability to integrate acquisitions, and our restructuring activities including portfolio rationalization, and divestitures;

• risks related to COVID-19 and other epidemics or similar widespread health concerns;

• expenditures for major initiatives, including acquired businesses and integrations thereof and restructuring;

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• potential backorders, lost sales and expenses incurred in connection with product recalls or field corrective actions;

• disruption of our operations and sales resulting from extreme weather conditions or natural disasters that damage our manufacturing, distribution, or infrastructure of those facilities, or the suppliers and service providers for those facilities;

• disruption of our operations and sales resulting from political instability, war, insurrections, extreme weather conditions, the outbreak of disease, natural disasters, or other events outside our control that damage our manufacturing, distribution, or infrastructure of those facilities, or the suppliers and service providers for those facilities;

• our ability to manufacture and ship our products efficiently or in sufficient quantities to meet sales demands;

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• reimbursement for our products by third-party payors such as Medicare, Medicaid, private and public health insurers and foreign governmental health systems;

• risks related to epidemics or similar widespread health concerns;

• the ability to maintain existing distribution rights to and from certain third parties;

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• the impact of goodwill and intangible asset impairment charges if future operating results of the acquired businesses are significantly less than the results anticipated at the time of the acquisitions.

Fluctuations in our operating results, including any of the above factors, may cause the market price of our common stock to fluctuate.

The industry and market segments in which we operate are highly competitive, and we may be unable to compete effectively with other companies.

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They may be able to gain market share by offering lower-cost products or products that enjoy better reimbursement from third-party payors and foreign governmental health systems.

Our competitive position depends on our ability to achieve market acceptance for our products, develop new products, implement marketing plans, secure regulatory approval for products under development, demonstrate clinical and economic effectiveness, obtain and maintain reimbursement coverage and funding under third-party payors and foreign governmental health systems, obtain patent protection and produce products consistently in sufficient quantities to meet demand.

Our competitive position depends on our ability to achieve market acceptance for our products, develop new products, enhance existing products, implement marketing plans, secure regulatory approval for products under development and maintain previously-obtained approvals, demonstrate clinical and economic effectiveness, obtain and maintain reimbursement coverage and funding under third-party payors and foreign governmental health systems, obtain patent protection and produce products consistently in sufficient quantities to meet demand.

We may need to develop new applications for our products to remain competitive.

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• in the U.S., we are party to contracts with group purchasing organizations, which negotiate pricing for many member hospitals, require us to discount our prices for certain of our products and limit our ability to raise prices for certain of our products, particularly surgical instruments;

• there is economic pressure to contain healthcare costs in domestic and international markets, and, regardless of the consolidation discussed above, providers generally are exploring ways to cut costs by eliminating purchases or driving reductions in the prices that they pay for medical devices, or increasing clinical or economic evidence thresholds for product formularies;

• there is economic pressure to contain healthcare costs in domestic and international markets, and, regardless of the consolidation discussed above, providers generally are exploring ways to cut costs by eliminating purchases or driving reductions in the prices that they pay for medical devices, implementing national and provincial tender pricing, as recently implemented in China, or increasing clinical or economic evidence thresholds for product formularies;

• there are proposed and existing laws, regulations and industry policies in domestic and international markets regulating the sales and marketing practices and the pricing and profitability of companies in the healthcare industry;

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Both of these acquisitions added products to our complex wound management and plastic and reconstructive surgery product portfolios, respectively, and provides additional growth opportunities for our TT segment.

In December 2023, we entered into a definitive agreement to acquire Acclarent from Johnson & Johnson, for $275.0 million in cash, subject to customary purchase price adjustments, and a cash payment of $5.0 million upon the achievement of a regulatory milestone.

Completion of our pending acquisition of Acclarent is conditioned upon the receipt of certain regulatory approvals, and we cannot provide assurance that these approvals will be obtained.

If any conditions, including with respect to divestitures, or changes to the proposed structure of the acquisition are required to obtain these regulatory approvals, they may have the effect of jeopardizing or delaying completion of the pending acquisition or reducing the anticipated benefits of the pending acquisition.

If we are required to agree to any material conditions in order to obtain any approvals required to complete the pending acquisition, the business and results of operations of our company following the closing may be adversely affected.

We may be unable to continue to implement our growth strategy and it may ultimately be unsuccessful.

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We engage in evaluations of potential acquisitions and are in various stages of discussion regarding possible acquisitions, certain of which, if consummated, could be significant to us.

Failure to complete the Acclarent acquisition, on a timely basis or at all, could negatively impact our future business and financial results and those of the acquired business.

Any new acquisition could result in material transaction expenses, increased operating, amortization and interest expenses, and possible in-process research and development charges for acquisitions that do not meet the definition of a “business,” any of which could have a material, adverse effect on our operating results.

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As a result of our acquisitions of other healthcare businesses, we may be subject to the risk of unanticipated business uncertainties, regulatory and other compliance matters or legal liabilities relating to those acquired businesses for which the sellers of the acquired businesses may not indemnify us, for which we may not be able to obtain insurance (or adequate insurance), or for which the indemnification may not be sufficient to cover the ultimate liabilities.

may not be able to identify suitable acquisition candidates in the future, obtain acceptable financing or consummate any future acquisitions.

We may not be able to identify suitable acquisition candidates in the future, obtain acceptable financing or consummate any future acquisitions.

Certain potential acquisitions are subject to antitrust and competition laws, which laws could impact our ability to pursue strategic acquisitions and could result in mandated divestitures.

If we are unsuccessful in our acquisition strategy, we may be unable to meet our financial targets and our financial performance could be materially and adversely affected.

These risks may be heightened in cases where the majority of the former businesses’ operations, employees and customers are located outside the U.S.

Any one or all of these factors could increase operating costs or lower anticipated financial performance.

Many of these factors are also outside of our control.

In addition, dispositions of certain key products, technologies and other rights, including pursuant to conditions imposed on us to obtain regulatory approvals, may affect our business operations.

These risks may be heightened in cases where a substantial portion of an acquired businesses’ operations, employees or customers are located outside the U.S.

Any one or all of these factors could complicate the integration of acquired employees and operations, increase operating costs or lower anticipated financial performance.

Many of these factors are also outside of our control.

For example, following the anticipated consummation of the Acclarent acquisition, the ongoing conflict in Israel, including any escalation or expansion thereof, and the measures enacted by the Israeli and other governments in response may make it more difficult for us to both integrate Acclarent and realize the anticipated benefits of the acquisition.

Even if the operations of the businesses are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings or sales or growth opportunities that we expect.

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All of these factors could cause a reduction to our earnings per share, decrease or delay the expected accretive effect of the transaction, and negatively impact the price of our common stock.

Our global business exposes us to operational and economic risks.

A significant portion of our current operations are conducted and located outside the United States, and our growth strategy involves expanding our existing foreign operations and entering into new foreign jurisdictions.

We have significant manufacturing and distribution sites in North America and Europe.

Our international operations subject us to laws regarding sanctioned countries, entities and persons, customs, import-export, laws regarding transactions in foreign countries, the U.S.

Foreign Corrupt Practices Act and local anti-bribery and other laws regarding interactions with healthcare professionals, and product registration requirements.

Among other things, these laws restrict, and in some cases prevent, U.S.

companies from directly or indirectly selling goods, technology or services to people or entities in certain countries.

In addition, these laws require that we exercise care in structuring our sales and marketing practices and effecting product registrations in foreign countries.

As we seek to continue to expand and strengthen our international operations, we may experience difficulty in growing our sales in certain new markets and other international markets in which we are attempting to increase our presence due to, among other things, customer acceptance, undeveloped and/or unfamiliar distribution channels, regulatory restrictions and changes, and business knowledge of these markets.

From time to time, proposals are made to significantly change existing trade agreements and relationships between the U.S.

and other countries.

In recent years, the U.S.

government has implemented substantial changes to U.S.

trade policies, including import restrictions, increased import tariffs and changes in U.S.

participation in multilateral trade agreements, such as the United States-Mexico-Canada Agreement to replace the former North American Free Trade Agreement.

The ongoing global economic competition and trade tensions between the U.S.

and China has resulted in the U.S.

government assessing supplemental tariffs on certain goods imported from China and China’s assessment of retaliatory tariffs on certain imports of U.S.

goods into China.

In addition, the United States has assessed or proposed supplemental tariffs and quantitative restrictions on U.S.

imports of certain products from other countries as well.

Owing to the complex relationships between the U.S.

and such other countries, political, diplomatic, military, or other events could result in business disruptions, including increased regulatory enforcement against companies, tariffs, trade embargoes, export restrictions and the termination or modification of existing trade agreements.

The imposition of such restrictions could increase the cost of the Company’s products and the components and raw materials that go into making them, require the Company to change its operations and the products it offers and negatively impact consumer confidence and spending, all of which, both individually and in the aggregate, could materially and adversely affect our business, results of operations and financial condition.

The Russia-Ukraine conflict and resulting sanctions and export restrictions are creating barriers to doing business in Russia and adversely impacting global supply chains.

While we have no manufacturing, distribution or direct material suppliers in the region, we are closely monitoring the potential raw material or supplier impact in both Russia and Ukraine.

Materials like palladium and neon, which are both dependent on Russian supply, are part of broader semiconductor shortages in industry.

Additional sanctions, export restrictions, and potential countermeasures within Russia may lead to greater uncertainty and geopolitical shifts in Asia that could cause additional adverse impacts on global supply chains and our business, results of operations, financial condition and cash flows.

Exchange rate fluctuations and foreign currency hedges could adversely affect our financial results.

We generate significant revenues outside the U.S.

in multiple foreign currencies, and in U.S.

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

For those foreign customers who purchase our products in U.S.

dollars, currency fluctuations between the U.S.

dollar and the currencies in which those customers do business may have a negative impact on the demand for our products in foreign countries where the U.S.

dollar has increased in value compared to the local currency.

Since we have operations based outside the U.S.

and we generate revenues and incur operating expenses in multiple foreign currencies, we experience currency exchange risk with respect to those foreign currency-denominated revenues and expenses.

Our most significant currency exchange risk relates to transactions conducted in Australian dollars, British pounds, Canadian dollars, Chinese yuan, Euros, Japanese yen, and Swiss francs.

We cannot predict the consolidated effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposure and the potential volatility of currency exchange rates.

Although we address currency risk management through regular operating and financing activities, and, on a limited basis, through the use of derivative financial instruments, those actions may not prove to be fully effective.

For a description of our use of derivative financial instruments, see Note 6, Derivative Instruments to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K).

Our future financial results could be adversely affected by impairments or other charges.

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We are also required to test goodwill and indefinite-lived intangible assets for impairment between annual tests if an event occurs such as a significant decline in revenues or cash flows for certain products, or the discount rates used in the calculations of discounted cash flows change significantly, or circumstances change that would more likely than not reduce our enterprise fair value below its book value.

If such a decline, rate change or circumstance were to materialize, we may record an impairment of these intangible assets that could be material to the financial statements.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” of this report.

If such a decline, rate change or circumstance were to materialize, we may record an impairment of these intangible assets that could be material to the financial

See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” of this Annual Report on Form 10K, and Note 7, Goodwill and Other Intangible Assets to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K).

The guidance on long-lived assets requires that we assess the impairment of our long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable as measured by the sum of the expected future undiscounted cash flows.

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

As a result, we may need to record impairment c harges or accelerate amortization on certain trade names or technology-related intangible assets in the future.

As a result, we may need to record impairment charges or accelerate amortization on certain trade names or technology-related intangible assets in the future.

The value of a medical device business is often volatile, and the assumptions underlying our estimates made in connection with our assessments under the guidance may change as a result of that volatility or other factors outside our control and may result in impairment charges.

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To the extent these suppliers are unable to provide sterilization services, whether due to lack of capacity, regulatory requirements, environmental concerns such as those relating to ethylene oxide or otherwise, we may be unable to transition sterilization to other suppliers in a timely or cost effective manner, or at all, which could have an adverse impact on our operating results.

Our supply chain and our cost of goods also may be negatively impacted by unanticipated price increases due to factors such as global economic disruptions, electronic component shortages, fear of future or ongoing pandemics, inflation, including wage inflation, recessionary conditions and geopolitical events, including the war in Ukraine, all of which are beyond our control or the control of our suppliers.

Our supply chain and our cost of goods also may be negatively impacted by unanticipated price increases due to factors such as global economic disruptions, electronic component shortages, fear of future or ongoing pandemics, inflation, including wage inflation, recessionary conditions and geopolitical events, including the wars in Ukraine and Israel, all of which are beyond our control or the control of our suppliers.

While it is our policy to maintain sufficient inventory of components so that our production will not be significantly disrupted even if a particular component or material is not available for a period of time, we remain at risk that we will not be able to qualify new components or materials quickly enough to prevent a disruption if one or more of our suppliers ceases production of important components or materials.

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If we are unable to achieve or maintain all of the resulting savings or benefits to our business or other unforeseen events occur, our business and results of operations may be adversely affected.

If any of our facilities or those of our suppliers were damaged and/or our manufacturing or business processes interrupted, we could experience lost revenues and our business could be seriously harmed.

Damage to our manufacturing, distribution, development and/or research facilities because of fire, extreme weather conditions, natural disaster, power loss, communications failure, geopolitical disruption, unauthorized entry or other events, such as a flu or other health epidemic, could significantly disrupt our operations, the operations of suppliers and critical infrastructure and delay or prevent product manufacture and shipment during the time required to repair, rebuild or replace the damaged facilities.

Certain of our manufacturing facilities are located in Puerto Rico, which in the past has experienced both severe hurricanes and other natural disasters.

Climate change may increase both the frequency and severity of extreme weather conditions and natural disasters and, consequently, risks to our operations and growth.

Although we maintain property damage and business interruption insurance coverage on these facilities, our insurance might not cover all losses under such circumstances, and we may not be able to renew or obtain such insurance in the future on acceptable terms with adequate coverage or at reasonable costs.

Glo bal supply constraints have and may continue to adversely affect our ability to meet customer demand, and increase our costs to manufacture, transport and warehouse a certain subset of our products.

In addition, global supply constraints have resulted in increases to the costs of production of certain of our products that we may not be able to pass on to our customers.

We expect these factors will continue to impact us in the future and obtaining alternative sources of raw materials and components could involve significant costs and regulatory challenges and may not be available to us on commercially reasonable terms, if at a ll.

We may have significant product liability exposure and our insurance may not cover all potential claims.

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Economic and political instability around the world could adversely affect the ability of hospitals and other customers to access funds to enable them to fund their operating and capital budgets.

As a result, hospitals and other customers could reduce budgets or put all or part of their budgets on hold or close their operations, which could have a negative effect on our sales, particularly the sales of capital equipment such as our ultrasonic surgical aspirators, neuromonitors and cranial stabilization products, or result in a reduction in elective and non-reimbursed procedures.

As a result, hospitals and other customers could reduce budgets or put all or part of their budgets on hold or close their operations, which could have a negative effect on our sales, particularly the sales of capital equipment such as our ultrasonic surgical aspirators, neuro monitors and cranial stabilization products, or result in a reduction in elective and non-reimbursed procedures.

The occurrence of those economic conditions could make it more difficult for us to accurately forecast and plan our future business activities and depending on their severity, could have a material, adverse effect on our business, financial condition and results of operations.

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The third parties with whom we have entered into agreements might terminate these agreements for a variety of reasons, including developing other sources for the products that we supply.

Termination of our most important relationships could adversely affect our expectations for the growth of private-label products.

In addition, the voluntary global recall of all products manufactured in our Boston, Massachusetts facility (" the Boston recall") and manufacturing stoppage impacted certain of our private label products and, following the anticipated resumption of the commercialization of products manufactured at the Boston facility, we are unable to predict the effect that the Boston recall will have on our relationships for such private label products.

The diminution or termination of our most important relationships could adversely affect our expectations for the growth of private label products.

RISKS RELATED TO OUR REGULATORY ENVIRONMENT

The adoption of healthcare reform in the U.S.

and initiatives sponsored by other governments may adversely affect our business, results of operations and/or financial condition.

Our operations may be substantially affected by potential fundamental changes in the global political, economic and regulatory landscape of the healthcare industry.

Government and private sector initiatives to limit the growth of healthcare costs are continuing in the U.S., and in many other countries in which we do business, causing the marketplace to put increased emphasis on the delivery of more cost-effective treatments.

These initiatives include price regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements.

The adoption of some or all of these initiatives could have a material, adverse effect on our financial condition and results of operations.

In the United States, the Patient Protection and Affordable Care Act (the “ACA”), signed into law in March 2010, includes several provisions that impact our businesses in the U.S.

The ACA includes provisions that, among other things, reduce and/or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions), and require detailed disclosure of transfers of value made to healthcare professionals.

Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted, including The Budget Control Act of 2011, The American Taxpayer Relief Act of 2012 and Medicare Access and CHIP Reauthorization Act of 2015, which, among other things, have reduced payments under Medicare and Medicaid to certain healthcare providers or altered the formula by which Medicare makes annual payment adjustments.

Congress also drafts and introduces, from time to time, legislation that could significantly change the statutory provisions governing the regulation of medical devices.

In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of our future products under development or impact our ability to modify our currently cleared products on a timely basis.

For example, over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products.

We cannot predict what impact ongoing uncertainty regarding federal and state health reform proposals, including the implementation or repeal of the ACA, judicial review and interpretation of the ACA and other healthcare laws, instability of the insurance markets, changes in the U.S.

administration and policy, an expansion in government’s role in and/or additional proposals and/or changes to the U.S.

health care system or its legislation will have on our customer’s purchasing decisions and/or reimbursement which could have a material adverse effect on our business.

We expect that additional state and federal health care reform measures will be adopted in the future, including those initiatives affecting coverage and reimbursement for our products, any of which could limit the amounts that federal and state governments will pay for health care products and services, which could adversely affect the growth of the market for our products or demand for our products, or result in additional pricing pressures.

We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us.

We continue to monitor the implementation of such legislation and, to the extent new market or industry trends or new governmental programs evolve, we will consider implementing or implement programs in response.

We are subject to stringent domestic and foreign medical device regulations and oversight and any adverse action may adversely affect our ability to compete in the marketplace and our financial condition and business operations.

Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous government agencies, including the FDA and comparable foreign agencies, as discussed in “Part 1, Item 1.

Government Regulation.” To varying degrees, each of these agencies monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices.

Our medical devices and technologies, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous government agencies, including the FDA and comparable foreign agencies, as discussed in “Part 1, Item 1.

Business – Government Regulation” of this Annual Report on Form 10-K.

To varying degrees, each of these agencies monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices.

We are also subject to regulations that may apply to certain of our products that are Drug/Device Combination products or are considered to be subject to pharmaceutical regulations outside the U.S.

Before a new medical device, or a new use of an existing product can be marketed in the United States, it must first receive either premarket clearance under Section 510(k) of the FD&C Act, a grant of a request for de novo classification, or a PMA from the FDA, unless an exemption applies.

The process of obtaining marketing approval or clearance from the FDA and comparable foreign regulatory agencies for new products, or for enhancements or modifications to existing products could be costly, time consuming and burdensome, lead to failed clinical trials or weakened clinical evidence, involve modifications, repairs or replacements of our products and result in limitations on the indicated use of our products, which may negatively impact our ability to market our products and services, result in delays or prevent full commercial realization of future products or service.

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Failure to comply with applicable regulations could result in future product recalls, injunctions preventing the shipment of products or other enforcement actions that could have a material adverse effect on our business.

We also are subject to the European Medical Device Regulation, which was adopted by the European Union (“EU”) as a common legal framework for all EU member states.

The implementation for Class I products occurred on May 26, 2021 and the EUDAMED Database was implemented on May 26, 2022.

Under this regulation, companies that wish to manufacture and distribute medical devices in EU member states must meet certain quality system, and safety requirements as well as ongoing product monitoring responsibilities.

In addition, the FDA has taken the position that device manufacturers are prohibited from promoting their products other than for the uses and indications set forth in the approved product labeling, and any failure to comply could subject us to significant civil or criminal

exposure, administrative obligations and costs, and/or other potential penalties from, and/or agreements with, the federal government.

We also are subject to the European Medical Device Regulation (“MDR”), which was adopted by the European Union (“EU”) as a common legal framework for all EU member states.

The implementation for Class I products occurred on May 26, 2021 and the European Commission recently extended the implementation period to the end of 2027 for high-risk devices and to the end of 2028 for medium and low risk devices.

Under the EU MDR, companies that wish to manufacture and distribute medical devices in EU member states must meet certain quality system, and safety requirements as well as ongoing product monitoring responsibilities.

Companies must also obtain a “CE” marking (i.e., a mandatory conformity marking for certain products sold within the European Economic Area) for their products.

Complying with the requirements of these regulations may require us to incur significant expenditures.

Expenditures for European Union Medical Device Regulation compliance activities amounted to $45.1 million for the year ended December 31, 2022 and we anticipate incurring additional expenditures in connection with our on-going efforts to obtain certification for our products under the European Medical Device Regulation.

Expenditures for EU MDR compliance activities amounted to $46.6 million for the year ended December 31, 2023 and we anticipate incurring additional expenditures in connection with our on-going efforts to obtain certification for our products under the European Medical Device Regulation.

Various penalties exist for non-compliance with the laws implementing the European Medical Device Regulations which if incurred, could have a material adverse impact on our business, results of operations and cash flows.

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It is possible that the Chinese government's current or future interpretation and application of existing or new regulations will negatively impact our China operations, result in regulatory investigations or lead to fines or penalties.

In addition, we are subject to laws and regulations that govern the means by which companies in the healthcare industry may market their products to healthcare professionals and may compete by discounting the prices of their products, including for example, the federal Anti-Kickback Statute, the federal False Claims Act, the federal Health Insurance Portability and Accountability Act of 1996, state law equivalents to these federal laws that are meant to protect against fraud and abuse and analogous laws in foreign countries.

Should we delay or fail to comply with one or more of the regulatory requirements we could have reduced sales, increased costs, delays to new product introductions, enhancements or our strategic plans, or harm to our reputation or competitiveness, which could have a material adverse effect on our business and financial results.

In addition, maintaining compliance with multiple regulators, and multiple centers within the FDA, adds complexity and cost to our manufacturing processes.

Our manufacturing facilities and those of our contract manufacturers are subject to periodic regulatory inspections by the FDA and other regulatory agencies, and these facilities are subject to the FDA's Quality System Regulation and Good Manufacturing Practices.

Please refer to “Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations – FDA Matters" (Part II, Item 7 of this Annual Report on Form 10-K) for more information relating to the warning letter we received from the FDA related to inspection observations of the quality systems at our Boston, Massachusetts manufacturing facility and our remediation efforts and expectations regarding the resumption of commercial distribution of products manufactured at the Boston facility.

We or our contractors may fail to satisfy these regulatory requirements in the future, and any failure to do so may prevent us from selling our products.

Some of our activities may subject us to risks under federal and state laws prohibiting “kickbacks” and false or fraudulent claims.

We are subject to laws and regulations that govern the means by which companies in the healthcare industry may market their products to healthcare professionals and may compete by discounting the prices of their products, including for example, the federal Anti-Kickback Statute, the federal False Claims Act, the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), state law equivalents to these federal laws that are meant to protect against fraud and abuse and analogous laws in foreign countries.

Violations of these laws are punishable by criminal and civil sanctions, including, but not limited to, in some instances civil and criminal penalties, damages, fines, and exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid.

Although we exercise care in structuring our sales and marketing practices and customer discount arrangements to comply with those laws and regulations, we cannot assure that:

• government officials charged with responsibility for enforcing those laws will not assert that our sales and marketing practices or customer discount arrangements are in violation of those laws or regulations;

• government regulators or courts will interpret those laws or regulations in a manner consistent with our interpretation.

Our international operations are subject to the provisions of the U.S.

Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), which prohibits U.S.

companies and their representatives from offering or making improper payments to foreign officials for the purpose of obtaining or retaining business.

In many countries, the healthcare professionals we regularly interact with may meet the definition of a foreign official for purposes of the FCPA.

Our international operations are also subject to various other international anti-bribery laws such as the UK Anti-Bribery Act.

In addition, the Chinese government recently launched a campaign to combat corruption in healthcare with a focus on pharmaceutical and medical device companies covering production, supply, sales, usage, and reimbursement.

The target of the campaign is kickbacks to hospitals and healthcare professionals with a focus on transfers of value to healthcare professionals in the form of grants, donations, event sponsorships, honoraria, and consulting fees.

Despite meaningful measures that we undertake to facilitate lawful conduct, which include training and compliance programs and internal policies and procedures, we may not always prevent unauthorized, reckless or criminal acts by our employees or agents, or employees or agents of businesses or operations we may acquire.

Violations of these laws, or allegations of such violations, could disrupt our operations, involve significant management distraction and have a material adverse effect on our business, financial condition and results of operations.

We also could be subject to adverse publicity, severe penalties, including criminal and civil penalties, disgorgement, further changes or enhancements to our procedures, policies and controls, personnel changes and other remedial actions.

Moreover, our failure to comply with domestic or foreign laws could result in various adverse consequences, including possible delay in approval or refusal to approve a product, recalls, seizures, and withdrawal of an approved product from the market.

We have in place policies and procedures for compliance that we believe are at least as stringent as those set forth in the AdvaMed Code of Ethics which was developed by AdvaMed, a trade association that represents the medical device industry, and which is intended to represent best practices with respect to medical device companies' interactions with healthcare providers.

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Since these laws, regulations and ultimate enforcement continue to evolve, we cannot predict with certainty, what, if any, impact, changes to them may have on our business or our customers.

Outside of the U.S.

we are subject to privacy and data security regulations at the international, national and regional level, as well as on an industry specific basis.

For example, in Europe, we are subject to the EU General Data Protection Regulation ("GDPR") which is related to the collection, processing, storage, transfer and use of personal data.

In the U.S., we are subject to the California Consumer Privacy Act of 2018 (“CCPA”) and other similar laws in the United States, at both the federal and state level.

Noncompliance with GDPR could trigger fines of up to 4% of global annual revenues.

In addition, we are subject to the new China Personal Information Protection Law that went into effect November 1, 2021 which focuses on protecting personal information and cross border transfers of the information.

Compliance with these requirements, either individually or in the aggregate, may require changes in business practices added complexity and additional management oversight.

They also may complicate our clinical research activities, as well as product offerings that involve transmission or use of clinical data.

Non-compliance may result in proceedings against us by governmental or other entities and/or significant fines which could negatively impact our reputation and adversely affect our business.

Our medical device products are subject to reporting requirements and recalls, even after receiving regulatory clearance, approval or certification, which could harm our reputation, business and financial results.

After a device is placed on the market, numerous regulatory requirements apply, which require manufacturers to follow, among other things, design, testing, production, control, documentation and other quality assurance procedures during the manufacturing process;

Both before and after a device is placed on the market, numerous regulatory requirements apply, which require manufacturers to follow, among other things, design, testing, production, control, documentation and other quality assurance procedures during the manufacturing process;

labeling regulations, which prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling;

and medical device reporting regulations that require us to report to FDA or similar governmental bodies in other countries if our products may have caused or contributed to a death or serious injury or malfunction in a way that would be reasonably likely to contribute to death or serious injury if the malfunction were to recur.

The FDA and similar governmental bodies in other countries have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture or in the event that a product poses an unacceptable risk to health.

and medical device reporting regulations that require us to report to FDA or similar governmental bodies in other countries if our products are ineffective or may have caused or contributed to a death or serious injury or malfunction in a way that would be reasonably likely to contribute to death or serious injury if the malfunction were to recur.

The FDA and similar governmental bodies in other countries have the authority to require the recall, repair, replacement, or refund of such products, refuse to grant pending pre-market approval applications or require certificates of non-U.S.

governments for exports, and/or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health, and in certain rare circumstances, ban medical devices.

We may, under own initiative, recall a product if a reasonable possibility of serious injury or any material deficiency in a device is found, or withdraw a product to improve device performance or for other reasons.

Recalls of any of our products may divert managerial and financial resources and have an adverse effect on our financial condition and results of operations.

For example, in May 2023, after consultation with the FDA, we initiated a voluntary global recall of all products manufactured in our Boston, Massachusetts facility distributed between March 1, 2018 and May 22, 2023.

For more information concerning the Boston recall, including our remediation efforts and expectations regarding the resumption of commercial distribution of products manufactured at the Boston facility, please see "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations - FDA Matters" in this Annual Report on Form 10-K.

Recalls of any of our products may divert managerial and financial resources and have an adverse effect on our financial condition and results of operations and cash flows.

A recall could harm our reputation with customers and consumers which could reduce the sales of our products.

In addition, the FDA or other foreign governmental agencies may implement enforcement actions in connection with a recall which could impair our product offerings and be harmful to our business and financial results.

In addition, the FDA or other foreign governmental agencies may implement enforcement actions Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products and limit our ability to obtain future pre-market clearances or approvals, and could result in a substantial modification to our business practices and operations.

The adoption of healthcare reform in the U.S.

and initiatives sponsored by other governments may adversely affect our business, results of operations and/or financial condition.

Our operations may be substantially affected by potential fundamental changes in the global political, economic and regulatory landscape of the healthcare industry.

These initiatives include price regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements.

For example, Congress also drafts and introduces, from time to time, legislation that could significantly change the statutory provisions governing the regulation of medical devices.

The adoption of some or all of these initiatives could have a material, adverse effect on our financial condition and results of operations.

We cannot predict what impact ongoing uncertainty regarding federal and state health reform proposals, instability of the insurance markets, changes in the U.S.

administration and policy, an expansion in government’s role in and/or additional proposals and/or changes to the U.S.

health care system or its legislation will have on our customer’s purchasing decisions and/or reimbursement which could have a material adverse effect on our business.

We expect that additional state and federal and

foreign health care reform measures will be adopted in the future, including those initiatives affecting coverage and reimbursement for our products, any of which could limit the amounts that federal and state governments will pay for health care products and services, which could adversely affect the growth of the market for our products or demand for our products, or result in additional pricing pressures.

We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us.

Certain of our products contain materials derived from animal sources and may become subject to additional regulation.

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and New Zealand.

New Zealand has

never had a case of BSE.

New Zealand has never had a case of BSE.

We received approval in the U.S., the EU, Japan, Taiwan, China, Argentina as well as other countries for the use of New Zealand-sourced tendon in the manufacturing of our products.

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Furthermore, the potential risk of accidental contamination or injury from these materials cannot be eliminated, and there is also a risk that such contamination previously has occurred in connection with one of our facilities or in connection with one of the companies we have purchased.

In the event of such an accident or contamination, we could be held liable for any damages that result and any related liability could exceed the limits or fall outside the coverage of our insurance and could exceed our resources.

We may not be able to maintain insurance on acceptable terms or at all.

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If such laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance burdens and costs to meet the regulatory obligations and such measures may interrupt our operations or the operations of our suppliers, potentially leading to higher costs, and therefore negatively impact our results of operations.

We are subject to requirements relating to information technology which could adversely affect our business.

If we are unable to maintain reliable information technology systems and prevent disruptions, outages, or data breaches, we may suffer regulatory consequences in addition to business consequences.

Our worldwide operations means that we are subject to laws and regulations, including data protection and cyber security laws and regulations, in many jurisdictions.

The variety of U.S.

and international privacy and cybersecurity laws and regulations impacting our operations are described in “Item 1.

Business - Government Regulation - Other Factors - Data Privacy and Cybersecurity Laws and Regulations." We have programs to ensure compliance with such laws and regulations.

However, there is no guarantee that we will avoid enforcement actions by governmental bodies.

Enforcement actions may be costly and interrupt regular operations of our business.

In addition, there has been a developing trend of civil lawsuits and class actions relating to breaches of consumer data held by large companies or incidents arising from other cyber-attacks.

While Integra has not been named in any such suits, if a substantial breach or loss of data were to occur, we could become a target of such litigation.

Environmental, social and corporate governance (ESG) issues, including those related to climate change and sustainability, may have an adverse effect on our business, financial condition and results of operations and damage our reputation.

There is an increasing focus from certain investors, customers, consumers, employees and other stakeholders concerning ESG matters.

Additionally, public interest and legislative pressure related to public companies’ ESG practices continue to grow.

While we may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith.

Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters.

If we do not adapt to or comply with new regulations, or fail to meet evolving investor, industry or stakeholder expectations and concerns regarding ESG issues, investors may reconsider their capital investment in our Company, and customers may choose to stop purchasing our products, which could have a material adverse effect on our reputation, business or financial condition.

If we do not retain our key personnel and attract and retain other highly skilled employees, our business could suffer.

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Competition for these persons in our industry is intense, and we may not be able to successfully recruit, train or retain qualified personnel.

We are experiencing increasing challenges in building and retaining our workforce in certain markets, where pressure from inflation and competition have exacerbated turnover and retention trends continuing from the COVID-19 pandemic.

Labor shortages and competition for qualified personnel could cause disruptions in our business operations.

In addition, we recognize that attracting, retaining and developing a diverse workforce is a critical success factor for our business.

In that regard, we are continuously facing significant competition in our markets and at all levels in the workforce.

We also continue to face the challenges of maintaining employee well-being, recognizing that the continued additional financial, family and health burdens that many employees may be experiencing due to macroeconomic uncertainties, including inflation, and other factors, may adversely impact job performance, employee engagement and employee retention.

Additionally, in our industry, there is substantial competition for key personnel in the regions in which we operate.

Labor shortages and competition for qualified personnel, particularly as employees are increasingly able to work remotely, could cause disruptions in our business operations.

If we fail to effectively manage any organizational and/or strategic changes, our financial condition, results of operations, and reputation, as well as our ability to successfully attract, motivate and retain key employees, could be harmed.

RISKS RELATED TO TAX AND DEBT

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Significant judgment is required in determining our worldwide provision for income taxes.

Although we believe that our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different

from our historical income tax provisions and accruals.

The results of an audit or litigation could have a material, adverse effect on our financial statements in the period or periods for which that determination is made.

Although we believe that our tax estimates are reasonable, tax authorities may disagree with certain positions we have taken and the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals.

In addition, economic and political pressures to increase tax revenue in various jurisdictions may make resolving tax disputes favorably more difficult.

The results of an audit or litigation could have a material, adverse effect on our financial statements in the period or periods for which that determination is made and could result in the imposition of fines and penalties.

Changes in tax laws or exposures to additional tax liabilities could negatively impact the Company's operating results.

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Taxes could significantly increase due to changes in tax laws or changes in our interpretation of those laws.

For example, the Organization for Economic Co-operation and Development, a global policy forum, is developing a global tax framework that, if implemented, includes a global minimum tax rate of 15%.

For example, the Organization for Economic Co-operation and Development, a global policy forum, released model rules related to a new 15% global minimum tax regime.

Several of the jurisdictions that we operate in have already adopted these rules, which could impact the amount of taxes that we pay.

Taxes could also significantly increase due to changes in accounting guidance.

Our future effective tax rate could be unfavorably affected by numerous factors including a change in, or the interpretation of, tax rules and regulations in the jurisdictions in which we operate (including changes in legislation currently being considered), a change in our geographic earnings mix, and/or to the jurisdictions in which we operate, or a change in the measurement of our deferred taxes.

about certain tax agreements in a particular jurisdiction, a change in our geographic earnings mix, and/or to the jurisdictions in which we operate, or a change in the measurement of our deferred taxes.

Our leverage and debt service obligations could adversely affect our business.

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In addition, our ability to comply with, renegotiate or extend the Company’s debt obligations will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and financial, business and other factors beyond our control.

Any disruptions in our operations, the financial markets, or the overall economy, including as a result of COVID-19, may adversely affect the availability and cost of credit to us and/or our ability to comply with our existing obligations.

Changes in the calculation and or complete replacement of LIBOR could have an impact on our business.

The United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced in July 2017 that it will no longer persuade or require banks to submit rates for LIBOR.

On March 5, 2021, the ICE Benchmark Administration, which administers LIBOR, and the FCA announced that all LIBOR settings will either cease to be provided by any administrator, or no longer be representative immediately after December 31, 2021, for all non-U.S.

dollar LIBOR settings and one-week and two-month U.S.

dollar LIBOR settings, and immediately after June 30, 2023 for the remaining U.S.

dollar LIBOR settings.

We have multiple debt facilities which utilizes a variable rate equal to Eurodollar LIBOR rate as a component of our interest rate.

Management expects all LIBOR-based contracts to be replaced by the Secured Overnight Financing Rate (“SOFR”), which is calculated based on overnight transactions under repurchase agreements backed by Treasury securities.

The Alternative Reference Rates Committee, a group of private-market participants convened by the U.S.

Federal Reserve Board and the New York Federal Reserve, has recommended the use of SOFR as a more robust reference rate alternative to LIBOR.

The use of SOFR as a substitute for LIBOR is, however, voluntary and may not be suitable for all market participants.

There can be no assurance that the replacement rate will be economically equivalent to LIBOR, which could result in higher interest rates for us under our debt facilities.

There is no guarantee that a transition from LIBOR to SOFR will not result in financial market disruptions, significant increases in benchmark rates, or our borrowing costs, any of which could have an adverse effect on our business, results of operations and financial condition.

Any disruptions in our operations, the financial markets, or the overall economy, may adversely affect the availability and cost of credit to us and/or our ability to comply with our existing obligations.

GLOBAL PUBLIC HEALTH CONCERNS

Public health crises, such as the COVID-19 pandemic, have had, and could in the future have, a negative effect on our business.

Our global operations and interactions with healthcare systems, providers and patients around the world expose us to risks associated with public health crises, including epidemics and pandemics.

Such pandemics or disease outbreaks, such as the COVID-19 pandemic, have created and may continue to create significant volatility, uncertainty and economic disruption in the markets in which we sell our products and in which we operate.

In response to the COVID-19 pandemic, governments around the world imposed measures designed to reduce the transmission of COVID-19 and individuals responded to the fear of contracting COVID-19.

Additionally, the impact of the COVID-19 pandemic and its aftermath on general macroeconomic conditions has led to disruptions in the global supply chain, primarily through a lack of availability of raw materials and electronic components.

and international healthcare systems, the U.S.

economy and worldwide economy; the timing, scope and effectiveness of U.S.

and international governmental response; and the impact on the health, well-being and productivity of our employees.

RISKS RELATED TO OUR INTELLECTUAL PROPERTY

Our intellectual property rights may not provide meaningful commercial protection for our products, potentially enabling third parties to use our technology or very similar technology and could reduce our ability to compete in the market.

To compete effectively, we depend, in part, on our ability to maintain the proprietary nature of our technologies and manufacturing processes, which includes the ability to obtain, protect and enforce patents on our technology and to protect our

trade secrets.

We own or have licensed patents that cover aspects of some of our product lines.

Our patents, however, may not provide us with any significant competitive advantage.

Our patents, however, may not

provide us with any significant competitive advantage.

Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or rendered unenforceable.

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In addition, some licenses may be nonexclusive and allow our competitors to access the same technology we license.

If we fail to obtain a required license or are unable to design our products so as not to infringe on the proprietary rights of others, we may be unable to sell some of our products, and this potential inability could have a material, adverse effect on our revenues and profitability.

We may be involved in lawsuits relating to our intellectual property rights and promotional practices, which may be expensive.

To protect or enforce our intellectual property rights, we may have to initiate or defend legal proceedings, such as infringement suits or opposition proceedings, against or by third parties.

The medical device industry is characterized by extensive intellectual property litigation and to protect or enforce our intellectual property rights, we may have to initiate or defend legal proceedings, such as infringement suits or opposition proceedings, against or by third parties.

In addition, we may have to institute proceedings regarding our competitors’ promotional practices or defend proceedings regarding our promotional practices.

Legal proceedings are costly, and, even if we prevail, the cost of the legal proceedings could affect our profitability.

Legal proceedings are costly, and, even if we prevail, the cost of the legal proceedings could affect our profitability and cash flows.

In addition, litigation is time-consuming and could divert management's attention and resources away from our business.

Moreover, in response to our claims against other parties, those parties could assert counterclaims against us.

RISKS RELATED TO GLOBAL OPERATIONS

Damage to our manufacturing, distribution, development and/or research facilities because of fire, extreme weather conditions, natural disaster, power loss, communications failure, geopolitical disruption, unauthorized entry or other events, such as a flu or other health epidemic, such as COVID-19, could significantly disrupt our operations, the operations of suppliers and critical infrastructure and delay or prevent product manufacture and shipment during the time required to repair, rebuild or replace the damaged facilities.

Certain of our manufacturing facilities are located in Puerto Rico, which in the past has experienced both severe hurricanes and other natural disasters.

Climate change may increase both the frequency and severity of extreme weather conditions and natural disasters and, consequently, risks to our operations and growth.

We are exposed to a variety of risks relating to our international sales and operations.

We generate significant revenues outside the U.S.

in multiple foreign currencies, and in U.S.

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

For those foreign customers who purchase our products in U.S.

dollars, currency fluctuations between the U.S.

dollar and the currencies in which those

customers do business may have a negative impact on the demand for our products in foreign countries where the U.S.