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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-22 · 216 added, 181 removed, 290 unchanged (58% of the section changed)

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The following discussion and analysis provides information management believes to be relevant to understanding our financial condition and results of operations.

For a full understanding of financial condition and results of operations, it should be read together with the selected consolidated financial data and our financial statements with the related notes appearing elsewhere in this report.

For a full understanding of financial condition and results of operations, it should be read together with the selected unaudited consolidated financial data and our financial statements with the related notes appearing elsewhere in this report.

The discussion focuses on our financial results for the year ended December 31, 2023 and 2022.

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

These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company and other matters.

The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under Item 1A.

Risk Factors.

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

These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company and other matters.

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

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Risk Factors and Item 15.

Financial Statements and Supplementary Data.

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

Founded in 1989 with the acquisition of an engineered collagen technology platform used to repair and regenerate tissue, Integra LifeSciences Holdings Corporation common stock trades on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “IART.” Integra has developed numerous product lines from this technology for applications ranging from burn and deep tissue wounds to the repair of dura mater in the brain, as well as nerves and tendons.

The Company has expanded its base regenerative technology business to include surgical instruments, neurosurgical products and advanced wound care through global acquisitions and product development to meet the evolving needs of its customers and enhance patient care.

Integra manufactures and sells medical technologies and products in two reportable business segments:

Exhibits and Financial Statement Schedules.

We are a leading global medical technology company innovating treatment pathways in surgical, neurologic and regenerative care to advance patient outcomes and set new standards of surgical, neurologic and regenerative care.

Founded in 1989 with the acquisition of an engineered collagen technology platform used to repair and regenerate tissue, our common stock trades on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “IART.” We have 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 our customers and enhance patient care.

Our products are sold in more than 130 countries through a direct sales force as well as distributors and wholesalers.

We manufacture and sell medical technologies and products in two reportable business segments:

Codman Specialty Surgical (“CSS”) and Tissue Technologies (“TT”).

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

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

We focus on four key pillars of our strategy:

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

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

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

Strategic Acquisitions .

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

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

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

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

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

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

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

Portfolio Optimization and New Product Introductions .

We are investing in innovative product development to drive a multi-generational pipeline for our key product franchises.

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

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

In addition to acquisitions and organic reinvestment, we continually look to optimize our portfolio towards higher growth and higher margin businesses.

As such, we may opportunistically divest businesses or discontinue products where we see limited runway for future value creation in line with our aspirations due in part to changes in the market, business fundamentals or the regulatory environment.

Commercial Channel Investments .

Investing in our sales channels is a core part of our strategy to create specialization and greater focus on reaching new and existing customers and addressing their needs.

To support our commercial efforts in Tissue Technologies, we utilize a two-tier specialist model to increase our presence in focused segments to help serve the evolving needs of our customers.

In addition, we continue to build upon our leadership brands across our product franchises in both CSS and TT to engage customers through enterprise-wide contracts with leading hospitals, integrated delivery networks and global purchasing organizations in the United States.

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

Domestically, we have also increased our TT sales force in the United States to support the expanded regenerative tissue product portfolio that includes ACell products.

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

Customer Experience .

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

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

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

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

Following the completion of our strategic refresh in 2023, we refocused our strategies around five pillars.

Of these five pillars, we have identified three core growth drivers:

(1) innovating for outcomes, (2) growing internationally, and (3) broadening our impact on care pathways.

Our execution of the core growth drivers is enabled by two key levers:

(4) driving operational and customer excellence and (5) cultivating a high-performance culture.

As outlined in greater detail below, we believe these five pillars will enable us to realize and advance our integrated growth strategy.

To this end, the executive leadership team has established the following key priorities aligned to the following five pillars:

Innovating for Outcomes .

An important part of Integra’s growth strategy is introducing new products to strengthen and expand our portfolio, including via acquisitions.

For example, we entered into a stock purchase agreement to acquire Acclarent, Inc.

(“Acclarent”) from Ethicon, Inc., a subsidiary of Johnson & Johnson in December 2023.

Acclarent is an innovator and market leader in ear, nose and throat (“ENT”) procedures and we believe that the acquisition of Acclarent will provide Integra with the opportunity to become a leading provider of ENT products and technologies.

Furthermore, we believe that, owing to the ENT segment being an anatomical adjacency to neurosurgery, the acquisition will allow Integra to deliver future innovation both within the ENT segment and across our other CSS technology platforms.

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.

For example, in 2021, we filed a pre-market approval (“PMA”) application for a specific indication for Surgimend® in the use of post-mastectomy breast reconstruction.

In 2022, we acquired SIA, which is also pursuing a pre-market approval for DuraSorb for use in implant-based breast reconstruction (“IBBR”), and in June 2023 we completed enrollment in the DuraSorb U.S.

IDE clinical study for two-stage breast reconstruction;

the primary follow-up period is one year after device implantation.

We hope to obtain FDA approvals for both products in 2025.

We also continued to advance the development of pioneering neurosurgical technologies with the expansion of our product offerings.

In 2023 we launched the CUSA® Clarity Tips for use in surgical procedures requiring the controlled fragmentation, emulsification and aspiration of bone as well as in laparoscopic liver surgery.

Growing Internationally:

Over the years, we have been significantly expanding our global footprint through investments in our commercial organization, the expansion and development of international markets and new product introductions.

As part of our In-China-For-China strategy, we continue the build out of our assembly capabilities in our new facility in Suzhou, China.

Several new products were introduced in select international markets in 2023, including MicroMatrix® and Certas Plus® Programmable Valve which were launched in Europe, and CUSA Clarity Laparoscopic tip which was launched in Australia, New Zealand, Japan, Canada, South Africa and Israel.

In addition, DuraGen Secure, received approval in Japan, while DuraGen Plus, an absorbable and sutureless collagen onlay indicated as a dura substitute for the repair of dura mater, was approved in China.

Broadening Impact on Care Pathways .

We seek 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.

We are well-established in acute care in the hospital setting and continue 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.

We have 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 2023, we continued to invest in our capacity expansion.

This includes ongoing projects of transferring our Boston manufacturing to a new location in Braintree, Massachusetts., validating manufacturing processes in our manufacturing facility in Plainsboro, New Jersey and increasing cleanroom capacity in our Memphis, Tennessee location.

Cultivating a High-Performance Culture.

In seeking to sustain a culture of excellence and accountability, we have focused on employee empowerment and agility and building a diverse and inclusive workplace.

These efforts resulted in our being named in several best workplace lists globally in 2023.

Additionally, we have been making further strides in advancing our environmental, social and governance ("ESG") agenda to drive sustainability across the organization and recently published our second annual ESG report in the third quarter of 2023.

For more information on our ESG strategy, goals, performance, and achievements, please visit “Our Company—ESG Report” at https://www.integralife.com/esg-report.

Information on our website is not incorporated by reference herein and is not part of this Annual Report on Form 10-K.

New Product Introductions and Research and Development Updates

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

We continue 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.

Electromechanical Technologies and Instrumentation .

The CSS business consists of a broad portfolio of market-leading brands, such as Codman ® , DuraGen ® , DuraSeal ® , CUSA ® , Mayfield ® ,Bactiseal ® , and Certas ® Plus,which are used for the management of multiple disease states, including brain tumors, traumatic brain injury, hydrocephalus and other neurological conditions.

The growth in this business in recent years has been fueled by geographic expansion and new product registrations in markets, such as China, Japan, and Europe, which we expect to continue in the near-to-long term.

Because our electromechanical products and instruments address significant needs in surgical procedures and limit uncertainty for surgeons, we continue to invest in registrations, clearances, and approvals for new indications and next generation improvements to our market-leading products.

We have several active programs focused on life cycle management and innovation for capital and disposable products in our portfolio.

Our product development efforts are focused on core clinical applications in cerebrospinal fluid ("CSF") management, neuro-critical care monitoring, minimally invasive instruments and electrosurgery and ultrasonic medical technologies, as well as our ambition to transform the standard of care in neurosurgery with product advancements in minimally invasive surgery ("MIS") and the surgical management of intracerebral hemorrhage ("ICH").

Our lighting franchise is among the most dynamic in the industry.

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

We continue to update our CUSA Clarity platform by incorporating new ultrasonic handpiece and integrated electrosurgical capabilities.

In 2022, we made progress to several enhancements to our CUSA Clarity Tissue Ablation System.

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to enhance laparoscopic liver procedures.

In addition, a single-sided bone tip received 510(k) clearance.

Commercial launch is expected in the first quarter of 2023.

We continue to update our CUSA Clarity platform by incorporating new ultrasonic handpiece and integrated electrosurgical capabilities.

In each area, we continue to benefit from products launched over the past several years, including our new electrosurgery generator and irrigator system, an innovative customer-centric toolkit for our Certas ® Plus Programmable Valve along with additional shunt configurations.

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

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

Through the acquisition of Arkiss, we added a platform technology, CerebroFlo EVD, which is a catheter with Endexo technology, a permanent additive designed to reduce the potential for catheter obstruction due to thrombus formation.

In addition, a single-sided bone tip received 510(k) clearance from the FDA.

Commercial launch was completed successfully in early 2023.

In August 2023, we launched a modified 23 kHz CUSA Electrosurgery Module (CEM) for Clarity handpieces that can be used with additional electrosurgery generators.

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

Throughout 2023 we also 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.

In 2019, we also acquired Rebound Therapeutics which specialized in a single-use medical device, known as Aurora Surgiscope, which is the only tubular retractor system designed for cranial surgery with an integrated access channel, camera and lighting.

In 2021, we began and continued to conduct a limited clinical launch of the Aurora Surgiscope for use in minimally invasive neurosurgery as well as initiated a registry called MIRROR to collect data on early surgical intervention using this same technology platform for the treatment of ICH.

In 2022, we have continued to execute on our growth initiatives.

We launched the Aurora Evacuator with Coagulation device in the U.S., designed to be used in conjunction with our Aurora Surgiscope to safely address and evacuate blood in the brain caused by hemorrhagic stroke.

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

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 under the FDA Matters heading for additional information on the voluntary recall of the CereLink ICP Monitor System.

Within our TT segment, in 2022, we launched NeuraGen 3D Nerve Guide Matrix, a resorbable implant for repair of peripheral nerve discontinuities and engineered to create an optimized environment for nerve regeneration.

During 2021, we completed one of the largest diabetic foot ulcers ("DFU"), randomized controlled trials of the PriMatrix Dermal Repair Scaffold for the management of DFU.

This multi-center study enrolled more than 225 patients with chronic DFU's over the course of 12-week treatments and 4-week follow-up phases.

The results of this study, which was published in the Journal of Wound Care, demonstrated that PriMatrix plus standard of care SOC consisting of sharp debridement, infection elimination, use of dressings and offloading was significantly more likely to achieve complete wound closure compared with SOC alone, with a median number of one application of the product.

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

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

On August 18, 2022, the Company, after consultation with the FDA and other regulatory authorities outside of the United States, initiated an immediate voluntary global product removal of all CereLink intracranial pressure monitors as a result of customer reports about monitors whose pressure readings were out of range.

The Company believes that the out-of-range readings are principally caused by electrical interference from the external environment and/or interference from a component on the circuit board of the monitor.

Our work to combine our Bactiseal® antimicrobial technology with the Endexo anti-occlusive technology continues to progress for both a silicone-based hydrocephalus and EVD project.

Throughout 2023, we continued to advance our innovation from the Rebound Therapeutics Corporation ("Rebound Therapeutics"), which was acquired in 2019.

Rebound Therapeutics specializes in a single-use medical device, known as the Aurora Surgiscope, which is the only tubular retractor system designed for cranial surgery with an integrated access channel, camera and lighting.

The 9mm Surgiscope received 510(k) clearance from the FDA in the fourth quarter of 2023.

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

and Europe and continued the global rollout in the first half of 2022.

We believe that the out-of-range readings are principally caused by a combined interaction of electrical noise (originating from sources such as electrical components in the device, other devices set up near the CereLink Monitor, and the hospital power grid) and an electrical potential difference between the patient and monitor.

We submitted a traditional 510(k) submission to the FDA on September 15, 2023 as a result of customer reports about monitors whose pressure readings were out of range.

We have received 510(k) clearance from the FDA on February 4th, 2024.

We plan to resume shipments of CereLink monitors in the U.S.

in the first quarter of 2024.

Shipments resumed in international markets with a limited release in the third quarter of 2023.

Regenerative Technologies .

We were the first company to receive an FDA claim for regeneration of dermal tissue and are a world leader in regenerative technology.

Our regenerative technology development program applies our expertise in bioengineering to a range of biomaterials including natural materials such as purified collagen, intact human or animal tissues, honey as well as resorbable synthetic polymers with our DuraSorb and DuraSeal product lines.

These unique product designs are used for neurosurgical and reconstructive surgical applications, as well as dermal regeneration, including the healing of chronic and acute wounds, tendon and nerve repair.

Our regenerative technology platform includes our legacy Integra ® Dermal Regeneration Template ("IDRT") products and complementary technologies that we have acquired.

Our collagen manufacturing capability, combined with our history of innovation, including our launch of NeuraGen 3D, provides us with strong platform technologies for multiple indications.

In the second quarter of 2023, after consultation with the FDA, The Company initiated a voluntary global recall of all products manufactured at the Boston facility, including Primatrix®, Surgimend®, Revize™, and TissueMend™, distributed between March 1, 2018 and May 22, 2023.

In the third quarter of 2021, we filed a PMA application for a specific indication for Surgimend® in the use of post-mastectomy breast reconstruction.

In 2022, we acquired SIA, which is also PMA for DuraSorb with IBBR, and in June 2023 we completed enrollment in the DuraSorb U.S.

IDE clinical study for two-stage breast reconstruction;

the primary follow-up period is one year after device implantation.

By offering two distinct product solutions, we believe we have the opportunity to build a leading position in the IBBR market.

We hope to obtain FDA approvals in 2025.

Additionally, 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.

Following the completion of design control activities in 2022, we launched both Cytal and MicroMatrix in Europe in 2023.

In 2023, the Company received 510(k) clearance from the FDA for MicroMatrix® Flex.

As part of our ongoing efforts to remain compliant, the Company continues to work towards European Union Medical Device Regulation ("EU MDR") certifications.

In 2023 the Company has received EU MDR certification in the CSS segment for Hakim Programmable Valves, Certas Plus without Bactiseal catheters, and DuraSeal Dural.

Additionally, the Company has received EU MDR certification in the TT segment for IDRT and BioPatch.

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.

These out-of-range readings have occurred at a low incidence rate and at a limited number of sites;

however, out of an abundance of caution, the Company removed all CereLink monitors from the field.

The Company Is continuing its investigation into the matter in order to remedy the observed issue and plans to resume shipment of the CereLink monitors as soon as any such issues have been resolved.

Based on outlook for returning the product to market and feedback from customers, the Company recorded a $1.9 million provision for product returns, as a reduction of net revenue, and a $0.8 million rework accrual in cost of goods sold in 2022.

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

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

Refer to Item 1.

Business and Item 1A.

Risk Factors for further details around these FDA regulations and their potential effect on the Company's portfolio of morselized amniotic material-based products as well as the impact on consolidated revenues.

however, out of an abundance of caution, we removed all CereLink monitors from the field.

We submitted a traditional 510(k) premarket notification to the FDA on September 15, 2023 and received 510(k) clearance on February 4th, 2024 from the FDA.

The submission included design changes to remedy the previously-observed issues identified above.

We plan to resume shipments of CereLink monitors in the U.S.

in the first quarter of 2024.

We resumed shipments in international markets with a limited release in the third quarter of 2023.

On March 7, 2019, TEI Biosciences, Inc.

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

("TEI"), one of our wholly-owned subsidiaries, received a Warning Letter (the “2019 Warning Letter”), dated March 6, 2019, from the FDA.

The 2019 Warning Letter related to quality systems issues at TEI's manufacturing facility located in Boston, Massachusetts.

The Boston facility manufactures extracellular bovine matrix products in our Tissue Technologies segment that are sold both in wound reconstruction and care and in private label channels.

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

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

On October 28, 2021 the FDA initiated an inspection of the facility and at the conclusion of the inspection issued a FDA Form 483 on November 12, 2021 (the "2021 Form 483").

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

The Warning Letter and the 2021 FDA Form 483 do not restrict the Company’s ability to manufacture or ship products or require the recall of any products, nor do they restrict our ability to seek FDA 510(k) clearance of products.

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

The TEI Boston facility manufactures extracellular bovine matrix products.

We cannot give any assurances that the FDA will be satisfied with our response to the Warning Letter or as to the expected date of the resolution of the matters included in the letter.

Until the issues cited in the letter are resolved to the FDA’s satisfaction, the FDA may initiate additional regulatory action without further notice.

We submitted our initial response to the 2019 Warning Letter on March 28, 2019 and provide regular progress reports to the FDA as to its corrective actions.

On October 28, 2021, the FDA initiated an inspection of the facility and at the conclusion of the inspection, issued an FDA Form 483 on November 12, 2021 (the "2021 Form 483").

We provided an initial response to the inspection observations.

On March 1, 2023, the FDA commenced an inspection of the Boston facility, and issued an FDA Form 483 at the conclusion of this inspection (the “2023 Form 483”).

In May 2023, after consultation with the FDA, the Company initiated a voluntary recall of products manufactured in the Boston facility distributed between March 1, 2018 and May 22, 2023, and extended the temporary halt of manufacturing at the facility to implement additional detection and quality controls.

On July 19, 2023, TEI received a Warning Letter, dated July 17, 2023, from the FDA related to quality system issues at the Boston facility (the “2023 Warning Letter”).

The 2023 Warning Letter did not identify any new observations that had not already been provided in the 2023 Form 483.

The Company has submitted an initial response to the FDA for both the 2023 Form 483 and the 2023 Warning Letter.

We are committed to resolving the matters identified in the Warning Letters and Form 483s and are continuing our significant efforts to remediate the observations.

Following implementation of upgraded Good Laboratory Practices and expertise and a standardization of corrective and preventative action processes and governance, the Company resumed manufacturing at its Boston facility in the fourth quarter of 2023.

We anticipate submitting a final external audit to the FDA by the end of the first quarter of 2024 with commercialization targeted for the second half of 2024.

Although the Warning Letters do not restrict the Company’s ability to seek FDA 510(k) clearance of products, PMAs for Class III devices to which the quality system regulation violations are reasonably related will not be approved until the violations have been addressed.

We cannot give any assurances that the FDA will be satisfied with our response to the issues identified by the FDA or as to the expected date of the resolution of such issues.

Until the issues cited by the FDA 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 year ended December 31, 2022 were approximately 5.3% of consolidated revenues.

We continue to work with our customers in wound reconstruction and care and in private label as we move toward commercialization in the second half of 2024.

Revenues of products manufactured in the Boston facility for the year ended December 31, 2022 were approximately 5.3% of consolidated revenues.

For the year ended December 31, 2023, due to the Boston recall, the Company recorded a $18.7 million provision for product returns, as a reduction of net revenue.

Of this amount, $9.9 million was credited to customers in the year ended December 31, 2023.

The Company also recorded a $24.6 million write off of inventory that was no longer able to be sold.

ACQUISITIONS & DIVESTITURES

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

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

As a result of acquisitions in 2022, our financial results for the year ended December 31, 2023 may not be directly comparable to those of the corresponding prior-year perio ds.

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

Surgical Innovation Associates, Inc.

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

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

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

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

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

On June 28, 2023, we announced the completion of patient enrollment in the DuraSorb U.S.

IDE clinical study for two-stage breast reconstruction.

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

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

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

On January 20, 2021, the Company acquired ACell for an acquisition purchase price of $306.9 million plus contingent consideration obligations of up to $100 million, that may be payable upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025.

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

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

On August 31, 2022, the Company completed the sale of its TWC business to Gentell for $28.8 million, which consists of $27.8 million in cash plus $1.0 million in contingent consideration which may be received upon achieving certain revenue-based performance milestones two years after the closing date.

Acclarent Inc.

In December 2023, we entered into a definitive agreement to acquire Acclarent, Inc.

from Ethicon, Inc., a Johnson & Johnson MedTech company for $275 million in cash at closing, subject to customary purchase price adjustments, and an additional $5 million upon the achievement of certain regulatory milestones.

Acclarent is an innovator and market leader in ENT procedures and we believe that the acquisition of Acclarent will provide Integra with the opportunity to become a leading provider of ENT products and technologies.

On August 31, 2022, the Company completed the sale of its TWC business to Gentell, Inc.

(“Gentell”) for $28.8 million, which consists of $27.8 million in cash plus $1.0 million in contingent consideration which may be received upon achieving certain revenue-based performance milestones two years after the closing date.

The proceeds from the sale of the TWC business of $27.8 million is presented in the consolidated statement of cash flows net of cash transferred of $3.5 million and other transaction fees .

The transaction included the sale of the Company's TWC products, such as sponges, gauze and conforming bandages, and certain advanced wound care dressings, such as supportive, calcium alginate, hydrogel, and foam dressings.

In connection with the sale, the Company recogniz ed $0.6 million as a gain from the sale of business in the consolidated statement of operations for year ended December 31, 2022.

In connection with the sale, the Company recognized $0.6 million as a gain from the sale of business in the consolidated statement of operations for the fiscal year ended December 31, 2022.

The transaction is subject to final working capital adjustments.

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

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

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

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

The Company recognized a gain of $41.8 million in connection with the sale that is presented in "Gain from the sale of business" in the consolidated statement of operations for the year ended December, 31, 2021.

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

OPTIMIZATION AND INTEGRATION ACTIVITIES

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

As a result of our ongoing acquisition strategy and significant growth in recent years, in 2023 we have undertaken cost-saving initiatives to consolidate manufacturing operations, distribution facilities and transfer activities, eliminate duplicative positions, realign various sales and marketing activities, and expand and upgrade production capacity for our regenerative technology products.

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

In support of our continued focus on product margins during 2022, we closed a manufacturing facility located in France and began the transfer of production to the Company’s existing Switzerland facility .

The transfer completed in the fourth quarter of 2022.

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

This transition also completed in the fourth quarter of 2022.

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

In support of our continued focus on product margins we closed a manufacturing facility located in France in 2022, and transferred production to our existing Switzerland facility.

In addition to closing the manufacturing facility, 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

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Net income for the year ended December 31, 2023 was $67.7 million, or $0.84 per diluted share, compared to $180.6 million, or $2.16 per diluted share for the year ended December 31, 2022.

The decrease in net income for the year ended December 31, 2023, was primarily driven by impacts from the Boston recall.

This includes inventory write-offs of $24.6 million, and a provision for product returns of $18.7 million for the year ended December 31, 2023.

Income before taxes includes the following special charges:

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Structural optimization charges 23,020 23,072

Boston recall expenses (2)

EU medical device regulation 46,559 45,147

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

(2) This includes inventory write-offs and idle capacity charges.

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

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Gross margin as a percentage of total revenues 57.4 % 62.3 %

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

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

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

For the year ended December 31, 2023, total revenues decreased by $16.1 million, or 1.0%, to $1,541.6 million from $1,557.7 million during the prior year.

This decrease was primarily driven by the impact of the Boston recall, which was comprised of $18.7 million return reserve recorded, as well as a decline in revenue of $61.9 million.

This decrease is inclusive of an unfavorable foreign currency impact of $6.8 million, as well as a $16.3 million decrease that impacts both domestic and international revenues, related to the divestiture of the TWC business.

This also includes an increase of $9.8 million related to the SIA acquisition.

Excluding the impacts of the Boston recall, foreign currency impact, and TWC divestiture, domestic revenues increased by $38.4 million or 3.7%.

International revenues increased by $39.4 million or 9.6%.

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

The increase in domestic revenues was primarily driven by increases in our Instruments and Neurosurgery portfolio.

The increase in international revenues was primarily driven by our Asia Pacific region including China, Japan, and Australia.

In the CSS segment, revenues were $1,059.0 million which was an increase of $39.4 million, or 3.9% as compared to the prior-year period.

This increase is inclusive of a $6.4 million unfavorable foreign currency impact on revenue.

Excluding the impact of foreign currency, the CSS segment revenues increased $45.8 million as compared to the prior year period.

This increase was driven primarily by low single digits growth in both our Neurosurgery and Instruments portfolios as compared to the same period in the prior year.

The increase in our Neurosurgery portfolio was driven primarily by growth in advanced energy and CSF management, partially offset by the voluntary recall of the CereLink ICP monitoring system.

In the TT segment, revenues were $538.1 million, which was an increase of $20.9 million, or 4.0% as compared to the prior-year period..

Excluding the impact of foreign currency of $3.8 million and the divestiture impact of TWC of $10.2 million, the TT segment revenues in the third quarter increased by $34.9 million.

This increase was driven by mid-single digit increases in our Wound Reconstruction business, led by Integra ® Dermal Matrices, SurgiMend and ACell MicroMatrix and low double digit increased in our Private Label business driven by higher customer demand and favorable order timing.

Gross margin was $970.3 million for the year ended December 31, 2022, an increase of $25.7 million from $944.6 million for the same period last year.

This increase was driven primarily by mid single digit growth in both our Neurosurgery and Instruments portfolios as compared to the same period in the prior year.

The increase was driven primarily by growth in dural access & repair, CSF management, as well as instruments.

In the TT segment, revenues were $482.6 million, which was a decrease of $55.5 million, or 10.3% as compared to the prior-year period, inclusive of a $0.4 million unfavorable foreign currency impact on revenue, a $16.3 million decrease that impacts both domestic and international revenues related to the divestiture of the TWC business, and a $9.8 million increase related to the SIA acquisition.

This also includes the impact of the Boston recall of $18.7 million return reserve and $61.9 million decline in revenue.

Excluding the impact of these items, the TT segment increased by $32.0 million as compared to the same period in the prior year, attributable to strong sales in IDRT and MicroMatrix ® and Cytal ®

Gross margin was $884.7 million for the year ended December 31, 2023, a decrease of $85.6 million from $970.3 million for the same period last year.

Gross margin as a percentage of revenues was 57.4% in 2023 and 62.3% in 2022.

The increase in gross margin percentage was due to higher revenues and a reduction of inventory step up amortization in connection with the acquisition of ACell in the prior year.

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

The decrease in gross margin percentage was primarily associated with the Boston recall, which includes inventory write-offs of $24.6 million, a provision for product returns of $18.7 million, and idle capacity at the Boston facility of $15.0 million for the year ended December 31, 2023.

Operating Expenses

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Total operating expenses 50.2 % 47.0 %

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

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

The Company continues to manage and prioritize its operating costs to increase organic investments that will drive long-term growth including the support of new product development and introductions, clinical studies, geographic expansion and targeted U.S.

sales channel expansion.

Total operating expenses, which consist of research and development, selling, general and administrative, and intangible asset amortization expenses, increased by $41.8 million or 5.7% to $773.2 million in 2023, compared to $731.4 million in the prior year.

Research and Development

Research and development expenses for the year ended December 31, 2023 increased by $3.0 million as compared to the prior year.

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

This increase in spending resulted from expenses related to the SIA acquisition, new product development and clinical studies.

Selling, General and Administrative

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

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

Selling, general and administrative expenses for the year ended December 31, 2023 increased by $40.3 million as compared to the prior year driven primarily due to increased costs associated with the SIA acquisition, and higher spend in commercial selling activities.

Current year expenses included an increase in the fair value of contingent considerations of $12.9 million, primarily related to SIA.

Prior year expenses included a reduction in the fair value of contingent consideration for ACell, Inc.

of $18.1 million.

Intangible Asset Amortization

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

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

Amortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) in 2023 was $12.4 million compared to $13.9 million in 2022, a decrease resulting from intangible assets sold with the TWC divestiture.

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

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

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

We expect total annual amortization expense to be approximately $82.7 million in 2024, $82.7 million in 2025, $82.5 million in 2026, $80.6 million in 2027, $79.0 million in 2028 and $481.2 million thereafter.

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Interest Income

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

Interest income for the year ended December 31, 2023 increased by $5.3 million as compared to the same period last year primarily due to higher interest rates.

Interest Expense

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

Interest expense for the year ended December 31, 2023 increased by $1.8 million as compared to the same period last year primarily due to incremental borrowing on the revolver in the second half of 2023.

Gain from the Sale of Businesses

On August 31, 2022, the Company completed its previously announced sale of its TWC business to Gentell and recognized $0.6 million as a gain from the sale of the business f or the year ended December 31, 2022 .

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

On August 31, 2022, the Company completed the sale of its TWC business to Gentell and recognized a gain of $0.6 million million.

Other Income, Net

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

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

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

Other income, net for the year ended December 31, 2023 decreased by $8.3 million, primarily due to lower Transition Service Agreement ("TSA") income from our recent divestitures.

Our effective income tax rate was 16.4% and 15.6% of income before income taxes in 2023 and 2022, respectively.

See Note 12, Income Taxes , in our consolidated financial statements for a reconciliation of the United States federal statutory rate to our effective tax rate.

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

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

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

We estimate our worldwide effective income tax rate for 2024 to be approximately 19.8%, estimated based on existing tax laws.

At December 31, 2023, the Company had $12.5 million of valuation allowance against the remaining $239.6 million of gross deferred tax assets recorded at December 31, 2023.

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

Our deferred tax asset valuation allowance increased by $2.8 million in 2023, primarily driven by a $3.3 million increase related to the new Swiss tax credit.

The valuation allowance for 2022 had remained substantially unchanged as compared to 2021.

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

At December 31, 2023, we had net operating loss carryforwards of $64.7 million for federal income tax purposes, $98.4 million for foreign income tax purposes and $19.2 million for state income tax purposes to offset future taxable income.

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

The federal net operating loss carryforwards decreased during 2023 due to usage during the year.

Of the total federal net operating loss carryforwards, $55.8 million expire through 2037 and $8.9 million have an indefinite carryforward period.

Regarding the foreign net operating loss carryforwards, $16.4 million have an indefinite carryforwa rd period.

Regarding the foreign net operating loss carryforwards, $81.0 million expire through 2028 and $17.4 million have an indefinite carryforward period.

The state net operating loss carryforwards expire in 2036.

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Total Revenues $ 1,541,573 $ 1,557,666

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

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.

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

dollar and the currencies in which those customers do business could have an impact on the demand for the Company's products in foreign countries.

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

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

Domestic revenues decreased by $26.1 million for the year ended December 31, 2023 compared to the same period last year.

European sales decreased by $5.7 million for the year ended December 31, 2023 compared to the same period last year.

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

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

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

Sales to customers in Asia Pacific increased by $16.6 million for the year ended December 31, 2023 compared to the same period last ye ar.

The Rest of the World for the year ended December 31, 2023 decreased by $1.0 million compared to the same period last year.

The international revenues were impacted by a $6.8 million unfavorable foreign exchange impact, with the larger impact in Europe.

The decrease in global revenues is primarily the result of the Boston recall which affected both domestic and international markets.

We continue to see growth in our Asia Pacific Market by leveraging our existing portfolios, specifically CUSA ® and DuraGen ® , in China and Japan.

LIQUIDITY AND CAPITAL RESOURCES

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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.

Year Ended December 31,

Short Term Investments

The Company had short term investments totaling approximately $32.7 million at December 31, 2023 and $0.0 million at December 31, 2022.

Years Ended December 31,

Dollars in thousands 2023 2022

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Operating cash flows for the year ended December 31, 2023 decreased by $124.5 million compared to the same period in 2022 .

Net income after removing the impact of non-cash adjustments decreased for the year ended December 31, 2023 , by approximately $82.4 million as compared to 2022 primarily d ue to low er revenues and inventory write-off attributable to the Boston recall along with higher selling expenses.

The changes in assets and liabilities, net of business acquisitions, decreased cash flows by $81.6 million in 2023 as compared to the decrease in cash flows of $39.4 million for the same period in 2022 .

The change in 2023 is mainly attributable to increases in inventory.

Operating cash flows for the year ended December 31, 2022 decreased by $48.0 million compared to the same period in 2021.

Net income after removing the impact of the gain on sale of businesses and non-cash adjustments increased for the year ended December 31, 2022, by approximately $9.6 million as compared to 2021 primarily due to earnings from higher revenues .

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

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

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

Net income after removing the impact of the gain on sale of business and non-cash adjustments increased for the year ended December 31, 2021, by approximately $49.1 million as compared to the same period in 2020 primarily due to the continuing revenue recovery in the current year as compared to the height of the COVID-19 pandemic in the prior year.

The changes in assets and liabilities, net of business acquisitions, increased cash flows from operating activities in the current year by $18.2 million compared to the decrease of $41.3 million for the same period in 2020.

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

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

Cash Flows Used in Investing Activities

During the year ended December 31, 2023 , we paid $66.9 million for capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities, including our Braintree facility in Boston, and other information technology investments.

In addition, we paid $32.7 million related to short-term investments.

This was partially offset by $5.4 million of proceeds on cross-currency swaps designated as net investment hedge.

During the year ended December 31, 2022, we paid $42.3 million for capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments, $51.5 million to acquire SIA, as well as the $4.7 million payment related to the final developmental milestone for Rebound Therapeutics Corporation.

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Additionally, the Company also received $4.9 million proceeds on cross-currency swaps designated as net investment hedge.

During the year ended December 31, 2021, we paid a net cash amount of $303.9 million in relation to the acquisition of ACell and received net proceeds of $190.5 million for the sale of the Extremity Orthopedics business.

The Company also paid for $48.0 million capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments.

Cash Flows (Used in) Provided by Financing Activities

Uses of cash from financing activities for the year ended December 31, 2023 primarily related to the purchase of treasury stock of $275.0 million under the accelerated share repurchase agreements that were completed during the year.

In addition, the Company had $5.9 million in cash taxes paid in net equity settlements related to the vesting of annual grants.

The Company also had repayments of $110.6 million under our Senior Credit Facility (as defined below) and Securitization Facility offset by $165.1 million borrowings under our Senior Credit Facility and Securitization Facility.

The Company also had $4.3 million proceeds from the exercise of stock options.

Uses of cash from financing activities for the year ended December 31, 2022 primarily related to the purchase of treasury stock of $125.0 million under the 2022 accelerated share repurchase agreement that was completed in the first quarter of 2022.

In addition, the Company had $24.6 million in cash taxes paid in net equity settlements as a result of the departure of the former chief executive officer of the Company .

In addition, the Company had $24.6 million in cash taxes paid in net equity settlements, $16.8 million of which resulted from the departure of the former chief executive officer of the Company .

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

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

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

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

In addition, the Company had $4.8 million in cash taxes paid in net equity settlements.

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

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

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

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

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

Share Repurchase Plan

On January 12, 2022, the Company entered into a $125.0 million accelerated share repurchase ("2022 ASR") and received 1.48 million shares of the Company common stock at inception of the 2022 ASR, which represented approximately 80% of the expected total shares under the 2022 ASR.

On March 24, 2022, the early exercise provision was exercised by 2022 ASR counterparty.

Upon settlement on March 24, 2022, the Company received an additional 0.46 million shares determined using the volume-weighted average price of the Company's common stock during the term of the 2022 ASR.

On April 26, 2022, the Board of Directors authorized the Company to repurchase up to $225.0 million of the Company’s common stock.

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

The repurchase authorization expires in December 2024.

This stock repurchase authorization replaces the previous $225 million stock repurchase authorization, of which $100 million remained authorized at the time of its replacement, and which was otherwise set to expire on December 31, 2022.

Purchases may be affected through one or more open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, or a combination of the foregoing.

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

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

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

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

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

Dividend Policy

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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.

Our primary obligations include principal and interest payments on the revolving portion and Term Loan component of the Senior Credit Facility, Securitization Facility and Convertible Securities.

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

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

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

See Note 11, Leases and Related Party Leases , to the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Annual Report on Form 10-K) for a schedule of our future minimum lease payments.

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Employee Termination Benefits

The Company incurred employee termination costs on restructuring activities associated with a closure of a manufacturing facility located in France, outsourcing plans for select transactional back office activities, and executive reorganization in the consolidated statement of operations for the year ended December 31, 2022.

The Company incurred employee termination costs on sales force restructuring activities in the consolidated statement of operations for the year ended December 31, 2023.

In 2022, the Company incurred employee termination costs on restructuring activities associated with the closure of the manufacturing facility in France.

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

Restructuring costs were included in accrued expenses and other current liabilities in the consolidated balance sheet for the year ended December 31, 2023 and 2022.

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

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These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the current circumstances.

As we continue to navigate the COVID-19 pandemic and recent variants of the virus, as well as the adverse impacts to global economic conditions, supply chain and our operations, there may be impact to future estimates including, but not limited to, inventory valuations, fair value measurements, goodwill and long-lived asset impairments, the effectiveness of the Company’s hedging instruments, deferred tax valuation allowances, and allowances for doubtful accounts receivable.

We believe that the following accounting policies, which form the basis for developing these estimates, are those that are most critical to the presentation of our consolidated financial statements and require the more difficult subjective and complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain.

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

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

As of December 31, 2023, our reserve for inventory excess and obsolescence is 9% of total inventory on our consolidated balance sheet.

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

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In an asset acquisition, the amount allocated to acquired IPR&D with no alternative future use is charged to expense at the acquisition date.

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

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

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

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

In the second quarter of 2023, due to the Boston recall, as well as the associated drop in the Company's stock price in that quarter, the Company elected to perform a quantitative analysis, using a combination of a discounted cash flow method and guideline public company method for its TT reporting unit.

The quantitative test utilized key assumptions of revenue growth rate, a terminal growth rate of 2%, a discount rate of 10%, and the range and application of the company guideline multiples.

The Company determined, after performing the quantitative analysis, that the fair value of the goodwill of the reporting unit was not less than the carrying amount, with more than 20% headroom.

During the third quarter of 2023, the Company elected to perform a qualitative analysis for its three reporting units.

The Company determined, after performing the qualitative analysis, that there was no evidence that it is more likely than not that the fair value was less that the carrying amounts, therefore, it was not necessary to perform a quantitative impairment test.

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

40 unchanged sentences

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What changed 10-K

Item 7. Management’s Discussion and Analysis