What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-06 compared with 2023-10-25 · 225 added, 291 removed, 164 unchanged (76% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and our consolidated financial statements for the year ended December 31, 2022 included in our Annual Report on Form 10-K.

We have made statements in this report that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).

All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”), including statements regarding our future results of operations and financial position, business strategy and plans, objectives of management for future operations and current expectations or forecasts of future results, are forward-looking statements.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.

We have made statements in this Quarterly Report that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).

All statements other than statements of historical fact contained in this Quarterly Report, including, but not limited to, statements regarding our business strategy and plans, growth and growth strategies, developments in the markets for our products and services, financial results, development launches and effectiveness, research and development strategy, regulatory approvals, competitive strengths, the potential or anticipated direct or indirect impact of the Coronavirus pandemic on our business, results of operations, and/or financial condition, objectives of management for future operations and current expectations or forecasts of future results, our expectations regarding the Boston facility;

restructuring and cost-saving initiatives, intellectual property rights, litigation and tax matters, governmental proceedings and investigations, mergers and acquisitions, divestitures, market acceptance of our products and services, accounting estimates, financing activities, ongoing contractual obligations, working capital adequacy, value of our investments, our effective tax rate, our expected returns to shareholders, and sales efforts, are forward-looking statements.

In some cases, these forward-looking statements may be identified by forward-looking words such as “believe,” “may,” “might,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” or the negative version of these words or other similar words and expressions in this Quarterly Report.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company and other matters that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

These statements involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

Our forward-looking statements may include statements related to our growth and growth strategies, developments in the markets for our products and services, financial results, development launches and effectiveness, research and development strategy, regulatory approvals, competitive strengths, the potential or anticipated direct or indirect impact of the Coronavirus pandemic on our business, results of operations, and/or financial condition, restructuring and cost-saving initiatives, intellectual property rights, litigation and tax matters, governmental proceedings and investigations, mergers and acquisitions, divestitures, market acceptance of our products and services, accounting estimates, financing activities, ongoing contractual obligations, working capital adequacy, value of our investments, our effective tax rate, our expected returns to shareholders, and sales efforts.

Forward-looking statements in this Quarterly Report include, but are not limited to, statements regarding our ability to drive long-term shareholder value, development and future launches of products and continued or future acceptance of products and services in our segments;

our ability to navigate and mitigate any on-going or future impact associated with economic disruptions, including supply chain constraints and inflation;

expected timing for completion of research studies relating to our products;

market positioning and performance of our products;

divestitures and the potential benefits thereof;

the costs and benefits of integrating previous acquisitions;

anticipated timing for Food and Drug Administration (“FDA”) in the U.S., as well as for non-U.S.

regulatory approval of new products;

statements regarding the issues causing the voluntary removal of the Company’s CereLink ICP Monitor System and the Company’s voluntary recall of all products manufactured at its Boston facility;

the potential effects of the process deviations identified at the Boston manufacturing facility;

the anticipated impact of the voluntary removal and recall and manufacturing stoppage on the Company’s business;

the Company’s ability to address in a timely manner the product-related issues discussed herein and re-initiate sales of Cerelink and resume manufacturing activities at its Boston facility;

our future financial performance;

increased presence in new markets, including markets outside the U.S.;

changes in the market and our market share;

acquisitions and investment initiatives, including the timing of regulatory approvals as well as integration of acquired companies into our operations;

the resolution of tax matters;

the effectiveness of our development activities in reducing patient care costs and hospital stay lengths;

our approach towards cost containment;

our expectations regarding healthcare costs;

general economic conditions;

We believe these risks include but are not limited to those described under the headings “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2023 and in this Quarterly Report, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (the “SEC”), which are accessible on the SEC’s website at https://www.sec.gov.

Such risks and uncertainties include, but are not limited, to the following:

the ongoing and possible future effects of global challenges, including macroeconomic uncertainties, inflation, supply chain disruptions, trade regulation and tariffs, other economic disruptions and U.S.

and global recession concerns, on the Company’s customers and on the Company’s business, financial condition, results of operations and cash flows;

the Company's ability to execute its operating plan effectively;

the Company’s ability to successfully integrate acquired businesses;

the Company’s ability to achieve sales growth in a timely fashion;

the Company’s ability to manufacture and ship sufficient quantities of its products to meet its customers’ demands;

the ability of third-party suppliers to supply us with raw materials and finished products;

global macroeconomic and political conditions, including the war in Ukraine and the conflict in Israel and Gaza;

the Company’s ability to manage its direct sales channels effectively;

the sales performance of third-party distributors on whom the Company relies to generate revenue for certain products and geographic regions;

the Company’s ability to access and maintain relationships with customers of acquired entities and businesses;

physicians’ willingness to adopt and third-party payors’ willingness to provide or maintain reimbursement for the Company’s recently launched, planned and existing products;

initiatives launched by the Company's competitors;

downward pricing pressures from customers;

the Company's ability to secure regulatory approval for products in development;

the Company’s ability to remediate quality systems violations;

fluctuations in hospitals’ spending for capital equipment;

the Company’s ability to comply with regulations regarding products of human origin and products containing materials derived from animal source;

difficulties in controlling expenses, including costs to procure and manufacture our products;

the impact of changes in management or staff levels;

the impact of goodwill and intangible asset impairment charges if future operating results of acquired businesses are significantly less than the results anticipated at the time of the acquisitions, the Company’s ability to leverage its existing selling organizations and administrative infrastructure;

the Company’s ability to increase product sales and gross margins, and control non-product costs;

the Company’s ability to achieve anticipated growth rates, margins and scale and execute its strategy generally;

the amount and timing of divestiture, acquisition and integration-related costs;

the geographic distribution of where the Company generates its taxable income;

and foreign government laws and regulations, and changes in existing laws, regulations and enforcement guidance, which affect areas of our operations including, but not limited to, those affecting the health care industry, including the EU Medical Devices Regulation;

the scope, duration and effect of additional U.S.

and international governmental, regulatory, fiscal, monetary and public health responses to public health crises;

fluctuations in foreign currency exchange rates;

the amount of our bank borrowings outstanding and other factors influencing liquidity;

potential negative impacts resulting from environmental, social and governance matters;

and the potential impact of our compliance with governmental regulations and accounting guidance.

On September 12, 2023, a securities class action complaint, captioned Pembroke Pines Firefighters & Police Officers Pension Fund v.

Integra LifeSciences Holdings Corporation , No.

23-cv-20321 (D.N.J.), was filed by a purported stockholder of the Company in the United States District Court for the District of New Jersey (the “Pembroke Litigation”) against the Company and certain of the Company’s current and former executive officers.

The Pembroke Litigation, filed on behalf of a putative class of stockholders who purchased or acquired the Company’s common stock between March 11, 2019 and May 22, 2023, inclusive, alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, on the basis of purportedly materially false and misleading statements and omissions relating to certain quality systems issues identified by the U.S.

Food and Drug Administration at the Company’s Boston, Massachusetts manufacturing facility, the Company’s efforts to remediate those issues, and the Company’s forecasts for certain products in its Tissue Technologies segment.

The complaint seeks, among other things, compensatory damages, attorneys’ fees, expert fees, and other costs.

The Company believes that it has strong defenses to the allegations in the Pembroke Litigation, as we intend to defend the matter vigorously.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations, financial condition, and/or cash flows.

These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions described in the “Risk Factors” section and elsewhere in our Annual Report on Form 10-K for the year ended

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December 31, 2022.

As forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events.

One must carefully consider forward-looking statements and understand that such forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, and involve a variety of risks and uncertainties, known and unknown, including, among others, those discussed in the sections entitled “Government Regulation and Compliance” within “Item 1.

Business” and “Item 1A.

Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.

Integra LifeSciences is a world leader in medical technologies and products that transform surgical, neurologic and regenerative care to help restore patients’ lives.

Our mission is to innovate treatment pathways to advance patient outcomes and set new standards of 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.

These forward-looking statements speak only as of the date of this Quarterly Report and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law.

You should carefully consider forward-looking statements and understand that such forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, and involve a variety of risks and uncertainties.

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 120 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:

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complex wound surgery, surgical reconstruction, and peripheral nerve repair.

We have key manufacturing and research facilities located in California, Indiana, Maryland, Massachusetts, New Jersey, Ohio, Puerto Rico, Tennessee, Utah, France, Germany, Ireland and Switzerland.

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

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

We have key manufacturing and research facilities located in California, Maryland, Massachusetts, New Jersey, Ohio, Puerto Rico, Tennessee, Utah, France, Germany, Ireland and Switzerland.

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

Our strategies are focused 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.

We have enabled by two key levers:

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, our 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.

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

For example, On April 1, 2024, the Company successfully completed the acquisition of Acclarent from Ethicon, Inc., a subsidiary of Johnson & Johnson.

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.

On December 6, 2022, we completed the acquisition of Surgical Innovation Associates, Inc.

(“SIA”), which develops, markets and sells DuraSorb, a resorbable synthetic matrix for plastic and reconstructive surgery.

This acquisition advances our global strategy in breast reconstruction, expanding plans to access the U.S.

market where SIA is pursuing pre-market approval for use in implant-based breast reconstruction ("IBBR").

As part of our commitment to implant-based breast reconstruction strategy and innovating new treatment pathways, in June 2023 we completed enrollment in the DuraSorb U.S.

investigational device exemption (IDE) clinical study for two-stage breast reconstruction.

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 PMA for DuraSorb for use in implant-based breast reconstruction (“IBBR”), and in June 2023 we completed enrollment in the DuraSorb U.S.

investigational device exemption clinical study for two-stage breast reconstruction;

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

We hope to have approval for DuraSorb in 2025.

For SurgiMend, we are not currently able to predict an approval date because of the delays in remediating our Boston manufacturing site.

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

In early 2023, the CUSA® Clarity Bone Tip was launched in U.S., which is used when controlled fragmentation, emulsification and aspiration of bone is necessary.

This follows the CUSA® Clarity extended laparoscopic tip, launched in the U.S.

in late 2022 to enhance the benefits of ultrasonic ablation to minimally invasive laparoscopic liver surgery.

Growing International.

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

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

In addition, DuraGen Secure received approval in Japan, while DuraGen Plus was approved in China.

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 and manufacturing organizations, 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.

Integra seeks ways to develop products and technologies that impact the lives of patients, starting with the journey that a patient takes from diagnosis and treatment planning to surgery and postoperative care.

Integra is well-established in acute care in the hospital setting and plans to leverage that strong position to grow in this segment and shape treatment pathways into preoperative care and additional sites of care.

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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.

Integra has been making investments to build more responsive and scalable processes, enhance the reliability of our supply chain, and drive productivity initiatives to further supply and lower costs.

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 continue to invest in our capacity expansion.

This includes ongoing projects of transferring our Boston manufacturing to a new location in Braintree, MA., validating manufacturing processes in our 109 facility in Plainsboro, and increasing cleanroom capacity in our Memphis location.

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

We continue 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.

Creating a culture focused on empowerment and agility and building a diverse and inclusive workplace are cornerstones of our people strategy.

These efforts resulted in Integra being named in several best workplace lists globally in 2023, including Integra China being recognized as a Great Place to Work in Greater China.

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

Clinical and Product Development Activities

Integra continues to invest in collecting clinical evidence to support our existing products and new product launches, and to ensure that we obtain market access for broader and more cost-effective solutions.

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

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 Quarterly Report.

New Product Introductions and Research and Development Updates

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.

We have made several enhancements to our CUSA Clarity Tissue Ablation System.

The extended laparoscopic tip was launched in the U.S.

to enhance laparoscopic liver procedures.

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

In early 2023, we had our commercial launch with initial surgeries successfully completed.

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

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

In 2023, we continued to advance the early-stage technology platforms we acquired in 2019.

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.

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.

(“Arkis”) we added a platform technology, CerebroFlo® external ventricular drainage (“EVD”), a catheter with Endexo® technology, a permanent additive designed to reduce the potential for catheter obstruction due to thrombus formation.

The CerebroFlo EVD catheter has demonstrated an average of 99% less thrombus accumulation onto its surface, in vitro, compared to a market leading EVD catheter.

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.

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

Rebound Therapeutics specializes in 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.

In the third quarter of 2021, we conducted a limited clinical launch of the Aurora Surgiscope for use in minimally invasive neurosurgery as well as ini tiated a registry called MIRROR to collect data on early surgical intervention using this same technology platform for blood evacuation.

In 2022, we launched the Aurora® Evacuator with Coagulation device in the U.S., designed to be used in conjunction with our Aurora Surgiscope to safely address and evacuate fluid in the brain.

Additionally, the 9 mm Surgiscope 510(k) was submitted to the FDA in August 2023 and is currently under review, with clearance and launch expected in Q4 2023 or Q1 2024.

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.

We launched our CereLink ICP Monitor System in the U.S.

and Europe direct markets.

Refer below to the information appearing in the "FDA Matters" section for additional information on the voluntary recall of the CereLink ICP Monitor System.

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

In the third quarter of 2021, we filed the PMA application for a specific indication for Surgimend® in the use of post-mastectomy breast reconstruction, for which we hope to obtain FDA approval in 2025.

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

This acquisition advances our global strategy in breast reconstruction, expanding plans to access the U.S.

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

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

We also 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.

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.

Shipments of CereLink monitors to international markets resumed in the third quarter of 2023 and shipments in the U.S.

resumed in the first quarter of 2024.

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 has also submitted a PMA application 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 have approval for DuraSorb in 2025.

For SurgiMend, we are not currently able to predict an approval date because of the delays in remediating our Boston manufacturing site.

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, which is now commercially available in the U.S.

as of March 2024.

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.

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

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

We believe that the out-of-range readings are principally caused by 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.

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

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

We submitted a traditional application for 510(k) to the FDA on September 15, 2023 which includes design changes to remedy the issue.

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

following receipt of 510(k) clearance.

Shipments resumed in international markets with a limited release in Q3 2023.

As of September 30, 2023, we maintained a $1.3 million provision for product returns, and a $0.8 million rework accrual.

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

Additionally, the Company received EU MDR certification in the TT segment for IDRT and BioPatch in 2023, and MicroMatrix and Cytal in 2024.

On March 7, 2019, TEI Biosciences, Inc.

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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.

The Boston facility manufactures extracellular bovine matrix products in our TT 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.

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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”).

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

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.

The Company has submitted periodic responses 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.

Although the Warning Letters and the Form 483s do not restrict our ability to manufacture or ship products or require the recall of any products, 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.

Following implementation of such controls, the Company expects to resume manufacturing at its Boston facility by late in the fourth quarter of 2023.

Additionally, the Warning Letters do not restrict the Company’s ability to seek FDA 510(k) clearance of products, but 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 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.

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.

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.

As required by the 2023 Warning Letter, we retained an outside expert consultant to perform an audit of the Boston facility in March 2024.

While we anticipated this audit would yield findings and there would be remaining work to be completed, the audit yielded more findings than we anticipated.

We are still determining the full scope of the work required to address these additional findings and resume commercial distribution.

Based on a preliminary assessment of the work to be done, we no longer expect to resume commercial distribution in 2024.

As a result, the Company elected to perform impairment testing on certain definite-lived intangibles and goodwill.

For further detail on the impairment testing, see Note 5.

Goodwill and Other Intangible Assets .

We continue to work with our customers in wound reconstruction and care as we move toward commercialization.

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

In the nine months ended September 30, 2023, due to the Boston recall, the Company recorded a $19.7 million provision for product returns, as a reduction of net revenue.

Of this amount, $9.0 million was credited to customers in the nine months ended September 30, 2023.

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

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

The submission included design changes to remedy the out-of-range readings.

Shipments of CereLink monitors in the U.S.

resumed in the first quarter of 2024 and shipments to international markets resumed in the third quarter of 2023.

Optimization and Integration Activities

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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 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.

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RESULTS OF OPERATIONS

Executive Summary

Net income for the three and nine months ended September 30, 2023 was $19.5 million and $47.9 million, or $0.24 and $0.59 per diluted share respectively, as compared to $49.9 million and $127.6 million or $0.60 and $1.53 per diluted share for the three and nine months ended September 30, 2022.

The decrease in net income for the three and nine months ended September 30, 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 $19.7 million for the nine months ended September 30, 2023.

Net loss for the three months ended March 31, 2024 was $3.3 million, or $0.04 per diluted share, as compared to net income of $24.2 million or $0.29 per diluted share for the three months ended March 31, 2023.

The decrease in net income for the three months ended March 31, 2024, was driven by higher manufacturing costs and impairment charges of $7.1 million , primarily related to our Boston facility.

Special Charges

Income before taxes includes the following special charges :

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Dollars in thousands 2024 2023

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Boston recall expenses (1)

5,636 — 33,687 —

Total $ 30,230 $ 24,515

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

(1) This primarily includes idle capacity charges and inventory write offs.

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

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Dollars in thousands 2024 2023

2 unchanged sentences

Selling, general and administrative 11,411 14,730

Gain from Sale of Business — (644) — (644)

Other income (45) (499)

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We believe that the separate identification of these special charges provides important supplemental information to investors regarding financial and business trends relating to our financial condition and results of operations.

Investors may find this information useful in assessing comparability of our operating performance from period to period, against the business model objectives that management has established, and against other companies in our industry.

We provide this information to investors so that they can analyze our operating results in the same way that management does and to use this information in their assessment of our core business and valuation of Integra.

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Investors may find this information useful in assessing the comparability of our operating performance from period to period, against the business model objectives that management has established, and against other companies in our industry.

Revenues and Gross Margin

The Company’s revenues and gross margin on product revenues were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Dollars in thousands 2024 2023

6 unchanged sentences

Gross margin as a percentage of total revenues 56.1 % 61.1 %

Three Months Ended September 30, 2023 as Compared to Three Months Ended September 30, 2022

For the three months ended September 30, 2023, total revenues decreased by $2.8 million to $382.4 million from $385.2 million for the same period in 2022.

This decrease was primarily driven by the impact of the Boston recall, which was comprised of $6.8 million of return reserve recorded, as well as a decline in revenue of $20.5 million.

The decrease was also inclusive of a favorable foreign currency impact of $1.0 million on revenues, as well as a $4.4 million decrease that impacts both domestic and international revenues related to the divestiture of the TWC business.

This also includes an increase of $2.9 million related to the SIA Acquisition.

Excluding the impacts of these items, domestic revenues increased by $11.2 million, or 4.3% as compared to the prior year period.

Three Months Ended March 31, 2024 as Compared to Three Months Ended March 31, 2023

For the three months ended March 31, 2024, total revenues decreased by $12.0 million to $368.9 million from $380.8 million for the same period in 2023.

This decrease was primarily driven by the impact of the Boston recall of $15.2 million.

The decrease was also inclusive of an unfavorable foreign currency impact of $2.4 million on revenues.

Excluding the impacts of these items, domestic revenues decreased by $1.3 million, or 0.5% compared to the same period in the prior year.

International revenues increased by $8.7 million or 8.1% as compared to the prior period.

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

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

In the CSS segment, revenues were $268.2 million which was an increase of $18.4 million, or 7.4% as compared to the prior-year period , inclusive of a $0.9 million favorable foreign currency impact on revenue.

Excluding the impact of foreign exchange, Neurosurgery portfolio grew mid single digits primarily due to sales in Dural Access, Neuro Monitoring and CSF Management.

Sales in our instruments portfolio increased mid single digits as compared to the same period in the prior year.

The increase in international revenues was primarily driven by increases in our APAC region, including China and Taiwan.

In the CSS segment, revenues were $256.4 million which was an increase of $8.3 million, or 3.3% as compared to the prior-year period , inclusive of a $2.4 million unfavorable foreign currency impact on revenue.

Excluding the impact of foreign exchange, the Neurosurgery portfolio grew mid-single digits primarily due to increased sales in Neuro Monitoring and CSF Management.

In the TT segment, revenues were $112.4 million which was a decrease of $20.3 million, or 15.3% from the prior-year period.

This decrease is primarily driven by the impact of the Boston recall of $6.8 million additional return reserve and $20.5 million decline in revenue.

The decrease is also inclusive of a $0.1 million favorable foreign currency impact on revenue, a $4.4 million decrease that impacts both domestic and international revenues related to the divestiture of the TWC business, and an increase of $2.9 million related to the SIA Acquisition.

Excluding the impact of these items, the TT segment increased high single digits as compared to the same period in the prior year, attributable to strong sales in MicroMatrix®, Cytal®, Gentrix® and amniotics.

Gross margin was $218.3 million for the three months ended September 30, 2023, a decrease of $18.4 million from $236.7 million for the sa me period in 2022.

Gross margin as a percentage of revenues was 57.1% for the three months ended September 30, 2023 and 61.5% f or the sa me period in 2022.

The decrease in gross margin percentage was primarily associated with the Boston recall, which includes a provision for product returns of $6.8 million and idle capacity at the Boston facility of $5.1 million for the three months ended September 30, 2023.

This decrease is primarily driven by the impact of the Boston recall of $15.2 million decline in revenue.

Excluding the impact of these items, the TT segment showed a decrease in sales as compared to the same period in the prior year, primarily attributable to Integra Skin MediHoney® and MicroMatrix®

Gross margin was $206.8 million for the three months ended March 31, 2024, a decrease of $26.0 million from $232.9 million for the sa me period in 2023.

Gross margin as a percentage of revenues was 56.1% for the three months ended March 31, 2024 and 61.1% f or the sa me period in 2023.

The decrease in gross margin percentage was primarily associated with higher costs related to idle capacity at our Boston facility, as well as additional manufacturing expenses across our manufacturing sites.

Operating Ex penses

The following is a summary of operating expenses as a percent of total revenues:

Three Months Ended September 30,

Three Months Ended March 31,

Research and development 7.3 % 7.0 %

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Total operating expenses 54.9 % 51.6 %

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Total operating expenses, which consist of research and development, selling, general and administrative, and amortization expenses, increased by $20.1 million, or 11.7% to $191.8 million in the three months ended September 30, 2023, compared to $171.7 million in the same period in 2022.

The increase in operating expenses compared to the prior year is primarily a result of the SIA Acquisition combined with higher spend in selling activities as a percentage of revenue.

Total operating expenses, which consist of research and development, selling, general and administrative, and amortization expenses, increased by $6.4 million, or 3.3% to $202.9 million in the three months ended March 31, 2024, compared to $196.5 million in the same period in 2023, mainly driven by intangible amortization.

Research and Development

Research and development expenses for the three months ended September 30, 2023 increased by $1.9 million as compared to the same period in the prior year.

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

Research and development expenses for the three months ended March 31, 2024 increased by $0.2 million as compared to the same period in the prior year.

Selling, General and Administrative

Selling, general and administrative costs for the three months ended September 30, 2023 increased by $18.1 million as compared to the same period in the prior year driven primarily due to increased costs associated with SIA Acquisition and higher spend in commercial selling activities.

Prior year expenses included a reduction in the fair value of contingent consideration for ACell of $13.1 million.

Selling, general and administrative costs for the three months ended March 31, 2024 decreased by $0.9 million as compared to the same period in the prior year.

Intangible Asset Amortization

Amortization expense (exclu din g amounts reported in cost of product revenues for technology-based intangible assets) for the three months ended September 30, 2023 was $3.2 million compared to $3.1 million for the same period in the prior year.

Amortization expense (exclu din g amounts reported in cost of product revenues for technology-based intangible assets) for the three months ended March 31, 2024 was $10.1 million compared to $3.1 million for the same period in the prior year.

The increase is driven by the impairment of customer relationship intangible related to our Boston facility.

Non-Operating Income and Expenses

The following is a summary of non-operating income and expenses:

Three Months Ended September 30,

Three Months Ended March 31,

Dollars in thousands 2024 2023

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Interest expense (13,624) (12,100)

Gain (loss) from the sale of business — 644

Other income, net (610) 1,389

1 unchanged sentence

Interest Income

Interest income for the three months ended September 30, 2023 increased by $1.3 million as compared to the same period in the prior year due to higher interest rates.

Interest income for the three months ended March 31, 2024 increased by $0.9 million as compared to the same period in the prior year primarily due to higher interest rates.

Interest Expense

Interest expense for the three months ended September 30, 2023 increased by $0.3 million as compared to the same period in the prior year.

Interest expense for the three months ended March 31, 2024 increased by $1.5 million as compared to the same period in the prior year primarily due incremental borrowing and higher interest rates.

Other Income, net

Other income, net for the three months ended September 30, 2023 decreased by $2.2 million compared to the same period in the prior year.

The decrease is primarily driven by lower Transition Service Agreement ("TSA") income from our recent divestitures.

Three Months Ended September 30,

Other income, net for the three months ended March 31, 2024 decreased by $2.0 million compared to the same period in the prior year.

The decrease is primarily driven by lower Transition Service Agreement (“TSA”) income from our divestitures.

Three Months Ended March 31,

Dollars in thousands 2024 2023

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Effective tax rate 37.3 % 18.6 %

Our effective income tax rates for the three months ended September 30, 2023 and 2022 were (4.8)% and 15.1%, respectively.

For the three months ended September 30, 2023, the primary drivers of the lower tax rate relate to a reduction to book income in higher-taxed jurisdictions and a $3.3 million benefit related to the filing of the prior year tax returns.

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Our effective income tax rates for the three months ended March 31, 2024 and 2023 were 37.3% and 18.6%, respectively.

For the three months ended March 31, 2024, the primary drivers of the higher tax rate relates to a $1.5 million expense due to a shortfall from stock based compensation, offset by a tax benefit for the intangible asset impairment, as compared to previous year.

The Company does not have tax basis in the impaired intangible asset and has treated the tax impact as a discrete event in this quarter.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of taxable earnings and losses, tax planning and settlements with various taxing authorities.

We consider these factors and others, including the Company’s history of generating taxable earnings, in assessing our ability to realize tax assets on a quarterly basis.

Additionally, changes to income tax laws and regulations, in any of the tax jurisdictions in which we operate, could impact the effective tax rate.

Additionally, changes to income tax laws and regulations, in any of the tax jurisdictions in which the Company operates, could impact the effective tax rate.

Various governments, both U.S.

and non-U.S., are increasingly focused on tax reform and revenue-raising legislation.

The current U.S.

administration has proposed tax reform which, if enacted, may increase the Company’s U.S.

federal income tax liability.

Further, legislation in foreign jurisdictions may be enacted, in response to the base erosion and profit-shifting project begun by the Organization for Economic Cooperation and Development (“OECD”).

The OECD recently finalized major reform of the international tax system with respect to implementing a global minimum tax rate.

Such changes in the U.S.

jurisdictions could have an adverse effect on the Company's effective tax rate.

The OECD released model rules related to a new 15% global minimum tax regime (“Pillar 2”).

Several of the jurisdictions in which we operate have already adopted some form of the model rules, which could impact the amount of taxes that the Company pays during 2024 and future taxable periods.

The rules are complex and provide for delays of implementing the tax during the early transition years, if certain conditions are met.

At this time, the Company is projecting an immaterial amount related to Pillar 2 tax liability for the 2024 year.

The Company will continue to analyze the new Pillar 2 laws and any related guidance to determine potential impacts.

Such changes in U.S.

jurisdictions could have an adverse effect on the Company’s effective tax rate.

As discussed previously, the Company recorded a total impairment charge of $7.1 million in intangible asset amortization during the first quarter of 2024.

The Company does not have tax basis in the impaired customer relationship, therefore the charge resulted in a $1.6 million reduction of the Company’s deferred tax liability related to such intangible.

While it is often difficult to predict the outcome or the timing of the resolution of a particular matter with the various federal, state, and foreign tax authorities, we believe that our reserves reflect the most probable outcome of known tax contingencies.

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A favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution.

Our tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items that we expect to pay in the coming year, which would be classified as current income taxes payable.

Nine Months Ended September 30, 2023 as Compared to Nine Months Ended September 30, 2022

Revenues and Gross Margin

For the nine months ended September 30, 2023, total revenues decreased by $15.1 million to $1,144.5 million from $1,159.6 million for the same period in 2022.

This decrease was primarily driven by the impact of the Boston recall, which was comprised of $19.7 million of return reserve recorded, as well as a decline in revenue of $42.4 million.

The decrease was also inclusive of an unfavorable foreign currency impact of $7.7 million on revenues, 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 $7.2 million related to the SIA Acquisition.

Excluding the impacts of these items, domestic revenues increased by $36.8 million, or 4.7% as compared to the prior year period.

International revenues increased by $30.2 million or 9.8% as compared to the prior 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 APAC region including China, Japan, and Australia.

In the CSS Segment, revenues were $787.4 million an increase of $32.4 million, or 4.3% from the prior period, inclusive of a $7.2M unfavorable foreign currency impact on revenue.

Excluding the impact of foreign exchange, Neurosurgery portfolio grew mid single digits primarily due to sales in Dural Access, CSF Management, and Advanced Energy.

Sales in our instruments portfolio increased high single digits as compared to the same period in the prior year.

In the TT segment, revenues w ere $357.2 million, a decrease of $47.5 million, or 11.7% from the prior-year period, inclusive of a $0.5 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 of $7.2 million related to the SIA Acquisition.

This also includes the impact of the Boston recall of $19.7 million return reserve and $42.4 million decline in revenue.

Gross margin was $658.2 million for the nine months ended September 30, 2023, a decrease of $62.0 million from $720.2 million for the same period last year.

Gross margin as a percentage of total revenue decreased to 57.5% for the nine months ended September 30, 2023 from 62.1% in the same period last year.

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 $19.7 million, and idle capacity at the Boston facility of $9.0 million for the nine months ended September 30, 2023.

Operating Expenses

The following is a summary of operating expenses as a percent of total revenues:

Nine Months Ended September 30,

Research and development 7.0 % 6.4 %

Selling, general and administrative 43.1 % 40.0 %

Intangible asset amortization 0.8 % 0.9 %

Total operating expenses 50.9 % 47.4 %

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Total operating expenses, which consist of selling, general and administrative expenses, research and development expenses, and amortization expenses, increased by $33.6 million, or 6.1% to $582.8 million in the nine months ended September 30, 2023, compared to $549.1 million in the same period in 2022.

Research and Development

Research and development expenses for the nine months ended September 30, 2023 increased by $5.5 million as compared to the same period in the prior year.

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

Selling, General and Administrative

Selling , general and administrative costs increased by $29.1 million as compared to the same period in the prior year driven primarily due to increased costs associated with SIA Acquisition and higher spend in commercial selling activities.

Prior year expenses included a reduction in the fair value of contingent consideration for ACell of $13.1 million.

Intangible Asset Amortization

A mortization expense (excludin g amounts reported in cost of product revenues for technology-based intangible assets) for the nine months ended September 30, 2023 was $9.3 million compared to $10.3 million for the same period in prior year.

We expect total annual amortization expense to be approximately $20.7 million for the remainder of 2023, $82.2 million in 2024, $82.1 million in 2025, $82.0 million in 2026, $80.0 million in 2027, $78.5 million in 2028 and $477.1 million thereafter.

Non-Operating Income and Expenses

The following is a summary of non-operating income and expenses:

Nine Months Ended September 30,

Dollars in thousands 2023 2022

Interest income $ 12,653 $ 6,606

Interest expense (37,626) (36,700)

Gain from the sale of business — 644

Other income, net 1,705 8,056

Total non-operating income and expense $ (23,268) $ (21,394)

Interest Income

Interest income for the nine months ended September 30, 2023 increased by $6.0 million as compared to the same period last year due to higher interest rates.

Interest Expense

Interes t expense for the nine months ended September 30, 2023 increased by $0.9 million as compared to the same period last year.

Other Income, net

Othe r income, net for the nine months ended September 30, 2023, decreased by $6.4 million primarily due to lower Transition Service Agreement ("TSA") income from our recent divestitures.

Nine Months Ended September 30,

Dollars in thousands 2023 2022

Income before income taxes $ 52,211 $ 149,686

Income tax (benefit) expense 4,304 22,082

Effective tax rate 8.2 % 14.8 %

The Company’s effective income tax rates for the nine months ended September 30, 2023 and 2022 were 8.2% and 14.8%, r espectively.

For the nine months ended September 30, 2023, the primary drivers of the lower tax rate relate to a reduction to book income in higher-taxed jurisdictions and a $3.8 million benefit related to the filing of the prior year tax returns.

The lower rate from the nine months ended September 30, 2022 was primarily due to a $5.5 million benefit related to excess tax benefits from stock compensation.

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The Company’s tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items that we expect to pay in the coming year, which would be classified as current income taxes payable.

GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS

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Total revenue by major geographic area consisted of the following:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Dollars in thousands 2024 2023

9 unchanged sentences

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 decreased by $12.2 million for the three months ended September 30, 2023 compared to the same period last year.

European sales increased by $3.2 million for the three months ended September 30, 2023 compared to the same period last year.

Sales to customers in Asia Pacific increased by $6.0 million for the three months ended September 30, 2023.

Sales to customers in the the Rest of World for the three months ended September 30, 2023 increased by $0.2 million compared to the same period last year .

The international revenues were impacted by $1.0 million of favorable foreign exchange impact, with the larger impact in Europe.

Domestic revenues decreased by $14.8 million for the three months ended March 31, 2024 compared to the same period last year.

European sales increased by $0.5 million for the three months ended March 31, 2024 compared to the same period last year.

Sales to customers in Asia Pacific decreased by $0.9 million for the three months ended March 31, 2024.

Sales to customers in the the Rest of World for the three months ended March 31, 2024 increased by $3.2 million compared to the same period last year .

The international revenues were impacted by $2.4 million of unfavorable foreign exchange impact, with the larger impact in Asia.

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

Sales in China, Japan, and Australia led to continued growth in our Asia Pacific market.

Domestic revenues decreased by $15.1 million for the nine months ended September 30, 2023 compared to the same period last year.

European sales decreased by $8.9 million for the nine months ended September 30, 2023 compared to the same period last year.

Sales to customers in Asia Pacific increased by $13.1 million million for the nine months ended September 30, 2023.

Sales to customers in the Rest of World for the nine months ended September 30, 2023 decreased by $4.3 million million compared to the same period last year.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

The Company's working capital as of September 30, 2023 and December 31, 2022 was $671.5 million and $840.6 million, respectively.

The Company’s working capital as of March 31, 2024 and December 31, 2023 was $1,113.3 million and $751.1 million, respectively.

Working capital consists of total current assets less total current liabilities as presented in the consolidated balance sheets.

Cash and Marketable Securities

The Company had cash and cash equivalents totaling approximately $273.7 million and $456.7 million at September 30, 2023 and December 31, 2022 respectively, which are valued based on Level 1 measurements in the fair value hierarchy.

At September 30, 2023, our non-U.S.

The Company had cash and cash equivalents totaling approximately $591.9 million and $276.4 million at March 31, 2024 and December 31, 2023 respectively, which are valued based on Level 1 measurements in the fair value hierarchy.

At March 31, 2024, our non-U.S.

subsidiaries held approximately $210.6 million of cash and cash equivalents that are available for use outside the U.S.

The Company asserts that it has the ability and intends to indefinitely reinvest the undistributed earnings from its foreign operations unless there is no material tax cost to remit the earnings into the U.S.

Nine Months Ended September 30,

Short Term Investments

The Company had short term investments, primarily consisting of time deposits, totaling approximately $71.2 million at March 31, 2024 compared to $32.7 million at December 31, 2023.

Three Months Ended March 31,

Dollars in thousands 2024 2023

1 unchanged sentence

Net cash used in investing activities (53,965) (13,704)

Net cash used in financing activities (223,035) (154,254)

Net cash provided by (used in) financing activities 358,676 (162,683)

Effect of exchange rate fluctuations on cash (4,963) 937

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Cash Flows Provided by Operating Activities

Operating cash flows for the nine months ended September 30, 2023 decreased by $97.9 million compared to the same period in 2022.

Within operating cash flows, n et income less non-cash adjustments decreased for the nine months ended September 30, 2023 by approximately $55.9 million as compared to the same period in 2022 primarily due to low er revenues attributable to the Boston recall along with higher selling expenses.

The changes in assets and liabilities for the nine months ended September 30, 2023 , net of business acquisitions, decreased cash flows by $91.7 million , mainly attributable to increases in inventory, other current assets, and decreases in accrued expenses and other current liabilities due to reduced payments processed during the year.

The changes in assets and liabilities for the nine months ended September 30, 2022, net of business acquisitions, decreased cash flows by $49.7 million , primarily due to increases in inventory to support increased sales.

Operating cash flows for the three months ended March 31, 2024 decreased by $10.4 million compared to the same period in 2023.

Within operating cash flows, n et income less non-cash adjustments decreased for the three months ended March 31, 2024 by approximately $29.7 million as compared to the same period in 2023 primarily due to low er revenues attributable to the Boston recall, as well as additional manufacturing expenses across our manufacturing sites.

The changes in assets and liabilities for the three months ended March 31, 2024 , net of business acquisitions, decreased cash flows by $23.4 million , mainly attributable to increases in inventory, and decreases in other current liabilities and accounts receivable.

The changes in assets and liabilities for the three months ended March 31, 2023, net of business acquisitions, decreased cash flows by $42.6 million , primarily due to increases in inventory.

Cash Flows Used in Investing Activities

Uses of cash from investing activities for the nine months ended September 30, 2023 related to $42.3 million paid for capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments.

Sources of cash from investing activities for the nine months ended September 30, 2023 were $5.4 million in proceeds from settlement of our net investment hedges.

Uses of cash from investing activities during the nine months ended September 30, 2022 related to $27.9 million paid for capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments as well as the final $4.7 million payment related to the final developmental milestone for Rebound Therapeutics Corporation.

Sources of cash from investing activities during the nine months ended September 30, 2022 included proceeds from the sale of the TWC business of $24.0 million.

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

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

Cash Flows Used in Financing Activities

Uses of cash from financing activities in the nine months ended September 30, 2023 related to the repurchase of shares of treasury stock of $275.0 million under the January and August 2023 accelerated share repurchase agreements, as well as repayments of $85.9 million under our Senior Credit Facility and Securitization Facility.

We also had $7.6 million in payment of debt issuance costs.

Uses of cash from investing activities for the three months ended March 31, 2024 related to $38.5 million related to short term investments, and $15.5 million paid for capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments.

There were no sources of cash from investing activities during the three months ended March 31, 2024.

Uses of cash from investing activities during the three months ended March 31, 2023 related to $13.7 million paid for capital expenditures to support operations improvement initiatives at a number of our manufacturing facilities and other information technology investments.

There were no sources of cash from investing activities during the three months ended March 31, 2023.

Cash Flows Provided by or Used in Financing Activities

Uses of cash from financing activities in the three months ended March 31, 2024 related to the repayments of $15.1 million under our Senior Credit Facility and Securitization Facility.

In addition, the Company had $3.1 million in cash taxes paid for net equity settlements.

Sources of cash from financing activities for the nine months ended September 30, 2023 were $146.9 million borrowing under our Senior Credit Facility and Securitization Facility and $4.1 million proceeds from the exercise of stock options.

Uses of cash from financing activities in the nine months ended September 30, 2022 related to the repurchase of treasury stock of $125.0 million under the 2022 accelerated share repurchase agreement, repayments of $40.8 million under our Senior Credit Facility and Securitization Facility.

In addition, we had $24.3 million in cash taxes paid for net equity settlements.

Sources of cash from financing activities for the nine months ended September 30, 2022 were $34.3 million borrowing under our Senior Credit Facility and Securitization Facility and $1.6 million proceeds from the exercise of stock options.

Sources of cash from financing activities for the three months ended March 31, 2024 were $370.5 million p roceeds from borrowings of long-term indebtedness and $6.4 million proceeds from the exercise of stock options.

Uses of cash from financing activities in the three months ended March 31, 2023 related to the repurchase of treasury stock of $150.0 million under the share repurchase agreements , repayments of $12.4 million under our Senior Credit Facility and Securitization Facility.

In addition, we had $7.6 million attributable to debt issuance costs, as well as $5.2 million in cash taxes paid for net equity settlements.

Sources of cash from financing activities for the three months ended March 31, 2023 were $10.2 million borrowing under our Senior Credit Facility and Securitization Facility and $2.3 million proceeds from the exercise of stock options.

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

Debt , to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for a discussion of our Amended and Restated Senior Credit Agreement, the 2025 Notes and Securitization Facility and Note 7, Derivative Instruments , to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for discussion of our hedging activities.

We are forecasting that sales and earnings for the next twelve months will be sufficient to remain in compliance with our financial covenants under the terms of the March 2023 Amendment to the Senior Credit Facility.

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Share Repurchase Plan

On August 15, 2023, the Company entered into a $125.0 million accelerated share repurchase ("August 2023 ASR") and received 2.3 million shares of the Common stock at inception of the August 2023 ASR, which represented approximately 80% of the expected total shares under the August 2023 ASR.

On October 18, 2023 the early exercise provision was exercised by the August 2023 ASR counterparty.

The Company received an additional 0.9 million shares determined using the volume-weighted average price of the Company's common stock during the term of the August 2023 ASR.

On January 26, 2023, the Company entered into a $150.0 million accelerated share repurchase ("January 2023 ASR") and received 2.1 million shares of the common stock at inception of the January 2023 ASR, which represented approximately 80% of the expected total shares under the January 2023 ASR.

The settlement of the ASR agreement was completed in two separate transactions on April 26, 2023 and May 4, 2023, where the Company received an additional 0.30 million and 0.31 million shares respectively, determined using the volume-weighted average price of the Company's common stock during the term of the January 2023 ASR.

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

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

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

Treasury Stock, to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for further details.

See Note 11, Treasury Stock , to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for further details of our share repurchase programs.

Dividend Policy

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Our Senior Credit Facility limits the amount of dividends that we may pay.

Any future determinations to pay cash dividends on our common stock will be at the discretion of the Board and will depend upon our financial condition, results of operations, cash flows and other factors deemed relevant by the Board.

Any future determinations to pay cash dividends on our common stock will be at the discretion of the Board of Directors and will depend upon our financial condition, results of operations, cash flows and other factors deemed relevant by the Board of Directors.

Capital Resources

We believe that our cash and available borrowings under the Senior Credit Facility are sufficient to finance our operations and capital expenditures for the foreseeable future.

We believe that our cash and available borrowings under the Senior Credit Facility are sufficient to finance our operations and capital expenditures for the next 12 months and foreseeable future.

Our future capital requirements will depend on many factors, including the growth of our business, the timing and introduction of new products and investments, strategic plans and acquisitions, among others.

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Off-Balance Sheet Arrangements

We do not have any off–balance sheet financing arrangements during the nine months ended September 30, 2023 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests.

We do not have any off–balance sheet financing arrangements during the three months ended March 31, 2024 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our interests.

Contractual Obligations and Commitments

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Our primary obligations include principal and interest payments on the revolving portion and t erm loan component of the Senior Credit Facility, Securitization Facility and 2025 Notes.

Debt , to the Notes to Unaudited Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for details.

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

Leases and Related Party Leases , to the Notes to Unaudited Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for a schedule of our future minimum lease payments.

Debt , to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for details.

We also lease some of our manufacturing facilities and office buildings which have future minimum lease payments.

Leases and Related Party Leases , to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for a schedule of our future minimum lease payments.

Amounts related to our other obligations, including employment agreements and purchase obligations were not material.

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We cannot make a reliable estimate of the period in which the uncertain tax benefits may be realized.

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OTHER MATTERS

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The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses.

The critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 did not materially change in the nine months ended September 30, 2023.

The critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 did not materially change in the three months ended March 31, 2024.

Recently Issued Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis