INTEGRA LIFESCIENCES HOLDINGS CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our 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, 2024. 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, our growth and growth strategies, developments in the markets for our products and services, financial results, our planned product launches and effectiveness, our research and development strategy, regulatory approvals, our competitive strengths, objectives of management for future operations and current expectations or forecasts of future results, our expectations regarding the Boston facility and plans to operationalize the Company's 38 Table of Contents manufacturing facility in Braintree, Massachusetts (“the Braintree facility”), our transition of the manufacture of SurgiMend® and PriMatrix® to the Braintree facility, our ability to obtain a pre-market approval (“PMA”) of SurgiMend PRS in implant-based breast reconstruction and to obtain a PMA for Durasorb® in 2026 for multiple indications for implant-based breast reconstruction, our expectations regarding the Compliance Master Plan (“the CMP”) implementation and engagement, our restructuring and cost-saving initiatives, our 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 and compliance with restrictive and financial covenants of our outstanding indebtedness, working capital adequacy, value of our investments, our effective tax rate, estimates regarding the impact of tariffs adopted or implemented by the U.S. or other countries on our business, financial condition and results of operations, our expected returns to shareholders, and our 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. 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, 2024 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, political instability, violent conflicts, and other macroeconomic 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; 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; difficulties or delays in obtaining and maintaining required regulatory approvals related to the transition of manufacturing SurgiMend and PriMatrix to the Braintree facility and obtain pre-market approval of SurgiMend PRS in implant-based breast reconstruction; the possibility that costs or difficulties related to building and the operationalization of the Braintree facility or the transition of manufacturing activities from the Company’s Boston facility to the Braintree facility will be greater than expected; 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; 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 both product and non-product costs and expenses; the amount and timing of divestiture, acquisition and integration-related costs; the geographic distribution of where the Company generates its taxable income; new U.S. 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 (“EU MDR”); 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; our ability to comply with the covenants under the agreements governing our indebtedness and the potential negative consequences caused by non-compliance; potential negative impacts resulting from environmental, social and governance matters; disruptions at the FDA, including due to a reduction in the FDA's and CMS' workforce and/or inadequate funding for the FDA or CMS; and the potential impact of our compliance with governmental regulations and accounting guidance. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations, financial condition, and/or cash flows. These forward-looking statements speak only as of the date of this Quarterly Report and 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- 39 Table of Contents 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. GENERAL Integra LifeSciences Holdings Corporation was founded in 1989 and is a leading global medical technology company innovating treatment pathways to advance patient outcomes and set new standards of surgical, neurologic, ear, nose, and throat (“ENT”) and regenerative care. Our common stock trades on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “IART.” We have developed numerous product lines from our technologies 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 ENT, 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. Integra 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: Codman Specialty Surgical (“CSS”) and Tissue Technologies (“TT”). The CSS segment, which represents approximately two-thirds of our total revenue, consists of market-leading technologies and instrumentation used for a wide range of specialties, such as neurosurgery, neurocritical care and otolaryngology. We are the world leader in neurosurgery and one of the top three providers in the U.S. in instruments used in precision, specialty, and general surgical procedures. Our TT segment generates about one-third of our overall revenue and focuses on three main areas: complex wound surgery, surgical reconstruction, and peripheral nerve repair. We have key manufacturing and research facilities located in California, Maryland, Massachusetts, New Jersey, Ohio, Puerto Rico, Tennessee, Utah, France, Germany, Ireland, Israel 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, three are 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 additional pillars: (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 our five pillars: Innovating for Outcomes . An important part of Integra’s growth strategy is introducing new products to strengthen and expand our portfolio through clinical evidence to support regulatory approval and strong reimbursement of our product portfolio around the world, including new indications for existing technologies. In 2021, we filed a PMA application for a specific indication for SurgiMend in the use of post-mastectomy implant-based breast reconstruction (“IBBR”). We currently anticipate PMA approval following the completion of the construction, FDA approval and operationalization of our Braintree facility, which is expected in the first half of 2026. We are also pursuing a PMA for DuraSorb for multiple indications in the use in IBBR. We completed enrollment for the DuraSorb U.S. investigational device exemption (“IDE”) clinical trial for two-stage breast reconstruction in 2023 and we continue to advance the PMA application. Currently, we hope to secure PMA approval for DuraSorb in 2026. In 2024 we expanded our urinary bladder matrix platform with the U.S. launch of MicroMatrix® Flex, a dual-syringe system enabling the convenient mixing and precise delivery of MicroMatrix paste to provide convenient access to hard-to-reach spaces and to help prepare an even wound surface in challenging wound areas. Additionally, in 2024, we successfully re-launched our CereLink ® intracranial pressure (“ICP”) monitor system. CereLink provides advanced continuous ICP monitoring when treating patients with traumatic brain injuries and offers enhanced accuracy, usability and advanced data presentation compared to other leading ICP monitoring systems. 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 to build out our assembly capabilities in our facility in Suzhou, China. Several new products were introduced in select international markets in 2023 and 2024, 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, and Certas Plus were approved in China. 40 Table of Contents Broadening Impact on Care Pathways . We seek ways to develop and acquire 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. In April 2024, we successfully completed the acquisition of Acclarent, Inc. (“Acclarent”). Acclarent is an innovator and market leader in ENT procedures and the acquisition of Acclarent has positioned Integra as one of the leading providers of ENT products and technologies. Furthermore, we believe that, owing to the ENT business being an anatomical adjacency to neurosurgery, the acquisition will allow Integra to deliver future innovation both within the ENT business and across our other CSS technology platforms. Driving Operations and Customer Excellence. We have been making investments to build more responsive and scalable processes, enhance the reliability of our quality systems and supply chain, and drive productivity initiatives to further supply and lower costs. We continue to invest in technologies, systems and processes to enhance the customer experience. We also continue to invest in our capacity expansion. This includes ongoing projects of transferring manufacturing from our Boston facility to our Braintree facility in Massachusetts and further investing in capacity and validating manufacturing processes in our manufacturing facility in Plainsboro, New Jersey. We are implementing the CMP, a systematic and holistic approach to improving our quality management system across our manufacturing and supply network. The primary objectives of the CMP are to remediate quality system gaps, harmonize the quality management system across the Company, and enhance the quality culture at the Company. Cultivating a High-Performance Culture. In seeking to sustain a culture of excellence and accountability, we focus on employee empowerment, professional development and building an environment where all employees can contribute to their fullest potential. These efforts have been recognized through our inclusion in several best workplace lists globally. Additionally, we continue to advance our broader organizational sustainability initiatives and published our third annual environmental, social and governance (“ESG”) report. 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 on Form 10-Q. 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. Neurosurgical Solutions, Surgical Instruments, and ENT Solutions. The CSS neurosurgical business consists of a broad portfolio of market-leading brands, such as Codman®, DuraGen, DuraSeal®, CUSA®, CereLink, 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 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 and the surgical management of intracerebral hemorrhage. Our lighting franchise is among the most dynamic in the industry. We continue 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”), a catheter with Endexo® technology, a permanent additive which has shown to be effective in reducing platelet adhesion in-vitro, reducing thrombus accumulation in-vitro and in vivo, and reducing the clinical incidence of 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 product. We also continue 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 15mm x 60mm and 15mm x 80mm Aurora Surgiscope System received 510(k) clearance from the FDA in 2025. In 2024 we acquired Acclarent, expanding our capabilities in the U.S. ENT market. Acclarent pioneered the balloon sinuplasty market and has a broad portfolio including the RELIEVA SPINPLUS® Balloon Sinuplasty System. Acclarent also pioneered eustachian tube balloon dilation and currently markets the AERA® Eustachian Tube Dilation System, which received 510(k) 41 Table of Contents clearance for expanded pediatric indications in 2023. Acclarent also sells the TruDi® Navigation System, which includes a portfolio of navigated surgical instrumentation. Regenerative Technologies . We were the first company to receive FDA approval 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 management 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, provides us with strong platform technologies for multiple indications. In 2021, we filed a PMA application for a specific indication for SurgiMend for use in post-mastectomy IBBR and in 2024 received approvable pending GMP status from FDA, which approved and closed out the clinical portion of this PMA application. We anticipate PMA approval following FDA approval and operationalization of the Braintree facility, which is expected in the first half of 2026. In 2022, we acquired SIA, which also submitted a PMA application for multiple indications for DuraSorb for use in IBBR. In 2023 we completed enrollment in the DuraSorb U.S. IDE clinical trial for two-stage breast reconstruction; and continue to advance the PMA application. Currently, we hope to secure PMA approval for DuraSorb for use in IBBR in 2026. By offering two distinct product solutions for multiple indications for use in IBBR, we believe we have the opportunity to build a leading position in the IBBR market. In 2024, MicroMatrix Flex, used in the management of wounds with hard-to-reach geometries, such as deep wounds that present with tunneling or undermining, became commercially available in the U.S. In 2024, we also acquired the product rights for Durepair Dural Regeneration Matrix, which is expected to strengthen our dural repair product portfolio and will be manufactured at the Braintree facility. European Union Medical Device Regulation Updates We continue to work towards certifying our products under the EU MDR. In recent years, we received EU MDR certification in our CSS segment for Hakim Programmable Valves, Certas Plus with and without Bactiseal catheters, Surgical Patties & Strips, DuraSeal Dural, and DuraGen Suturable, as well as IDRT, BioPatch, MicroMatrix, and Cytal in our TT segment. Although we do not currently anticipate any disruption to our commercial activities in Europe related to EU MDR, we cannot provide assurance of our ability to timely comply with all applicable requirements of EU MDR and our failure to meet the applicable EU MDR requirements could adversely impact our business in the EU and other regions that tie their product registrations to the EU requirements. FDA Matters On December 19, 2024, a subsidiary of the Company received a warning letter from the FDA (the “2024 Warning Letter”). The 2024 Warning Letter relates to quality system issues identified during FDA inspections at three of the Company’s facilities located in Mansfield, Massachusetts; Plainsboro, New Jersey; and Princeton, New Jersey. The 2024 Warning Letter did not identify any new observations that had not already been provided in the Form 483s previously issued to the Company by the FDA at the conclusion of its three inspections in June and August of 2024 (the “2024 Form 483s”). In the 2024 Form 483s, the FDA deemed certain of the Company's devices, including cranial perforators, disposable cottonoid patties and strips, and collagen-based products, to be out of compliance with respect to quality system regulations. At that time, the Company took a number of voluntary actions including the initiation of shipping holds for several products and a voluntary recall of the disposable patties and strips. The 2024 Warning Letter does not restrict the Company’s ability to manufacture or ship products, require recall of any products, nor restrict the Company’s ability to seek FDA 510(k) clearance of products. The 2024 Warning Letter states that 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 Company has submitted several responses to the 2024 Form 483s issued to each of the three manufacturing facilities to the FDA and has submitted two updates to the 2024 Warning Letter in the first quarter of 2025. 42 Table of Contents On March 7, 2019, TEI Biosciences, Inc. (“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 was related to quality systems issues at TEI’s manufacturing facility located in Boston, Massachusetts (the “Boston facility”). 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. We submitted our initial response to the 2019 Warning Letter on March 28, 2019 and provide regular progress reports to the FDA as to our 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 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. 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 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 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. Following its assessment of the results of a third-party audit of the Boston facility, the Company announced in the second quarter of 2024 that it no longer plans to restart the manufacture of PriMatrix and SurgiMend at its Boston facility and will, instead, restart manufacturing of these products at its new tissue manufacturing at the Braintree facility. In addition, the Company also plans to manufacture Durepair Dural Regeneration Matrix at the Braintree facility. The Company anticipates the Braintree facility to be operational with FDA approval in the first half of 2026. We cannot give any assurances that the FDA will be satisfied with our response to the issues identified by the FDA in any of the foregoing Form 483s or warning letters 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. Optimization and Integration Activities As a result of our ongoing acquisition strategy and significant growth in recent years, we have undertaken cost-saving initiatives to consolidate manufacturing operations, distribution facilities and transfer activities, eliminate duplicative positions, realign various sales and marketing activities, and expand and upgrade production capacity for our regenerative technology products. These efforts are expected to continue and while we expect a positive impact from ongoing restructuring, integration, and manufacturing transfer and expansion activities, such results remain uncertain. As a result of both audits by regulatory agencies as well as our own reviews of the Company’s quality management system, we are in the process of implementing the CMP, a systematic and holistic approach to improving our quality management system across our manufacturing and supply network. The primary objectives of the CMP are to remediate quality system gaps, harmonize the quality management system across the Company, and enhance the quality culture at the Company. RESULTS OF OPERATIONS Executive Summary Net loss for the three months ended March 31, 2025 was $(25.3) million, or $(0.33) per diluted share, as compared to net loss of $(3.3) million or $(0.04) per diluted share for the three months ended March 31, 2024. The decrease in net income for the three months ended March 31, 2025, was primarily driven by the impact of quality and operational issues on revenue and associated costs. 43 Table of Contents Special Charges Income before taxes includes the following special charges : Three Months Ended March 31, Dollars in thousands 2025 2024 Acquisition, divestiture and integration-related charges $ 6,224 $ 4,723 Structural optimization charges 10,663 4,440 EU medical device regulation 10,944 12,023 Boston recall / Braintree transition (1) 14,810 9,044 Total $ 42,641 $ 30,230 (1) This primarily includes idle capacity charges, inventory write offs, site transfer costs, quality remediation costs, right of use and fixed asset impairments. The items reported above are reflected in the condensed consolidated statements of operations as follows: Three Months Ended March 31, Dollars in thousands 2025 2024 Cost of goods sold $ 20,709 $ 13,021 Research and development 3,976 5,843 Selling, general and administrative 17,492 11,411 Other income 464 (45) Total $ 42,641 $ 30,230 We typically define special charges as items for which the amounts and/or timing of such expenses may vary significantly from period to period, depending upon our acquisition, divestiture, integration and restructuring activities; items for which the amounts are non-cash in nature; and items which are not expected to recur at the same magnitude. We believe that given our ongoing strategy of seeking acquisitions, our continuing focus on rationalizing our existing manufacturing and distribution infrastructure and our continuing review of various product lines in relation to our current business strategy, some of the special charges discussed above could recur with similar materiality in the future. We believe that the separate identification of these special charges provides important supplemental information to investors regarding financial and business trends relating to our financial condition and results of operations. Investors may find this information useful in assessing 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. 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 the Company. Revenues and Gross Margin The Company’s revenues and gross margin on product revenues were as follows: Three Months Ended March 31, Dollars in thousands 2025 2024 Segment Net Sales Codman Specialty Surgical $ 280,664 $ 256,434 Tissue Technologies 101,989 112,438 Total revenues $ 382,653 $ 368,872 Cost of goods sold 188,221 162,038 Gross margin on total revenues $ 194,432 $ 206,834 Gross margin as a percentage of total revenues 50.8 % 56.1 % Three Months Ended March 31, 2025 as Compared to Three Months Ended March 31, 2024 Revenues and Gross Margin For the three months ended March 31, 2025, total revenues increased by $13.8 million to $382.7 million from $368.9 million for the same period in 2024. Excluding the impacts of the Acclarent acquisition and foreign currency impact, revenues declined low single digits compared to the same period in the previous year, driven by impacts from quality and operational issues. 44 Table of Contents In the CSS segment, revenues were $280.7 million which was an increase of $24.2 million, or 9% as compared to the prior-year period, inclusive of $29.1 million related to the Acclarent acquisition. Excluding the impact of the Acclarent acquisition, the Neurosurgery portfolio decreased low single digits, primarily driven by a decline in Dural Access and Repair, Advanced Energy and Neuro Monitoring, offset by strong performance in our Instrument business. In the TT segment, revenues were $102.0 million which was a decrease of $10.4 million, or 9% as compared to the prior-year period. This is primarily attributable to declines in Integra Skin and our private label business due to production and supply challenges, partially offset by growth in MicroMatrix & Cytal, and Durasorb. Gross margin was $194.4 million for the three months ended March 31, 2025, a decrease of $12.4 million from $206.8 million for the same period in 2024. Gross margin as a percentage of revenues was 50.8% for the three months ended March 31, 2025 and 56.1% for the same period in 2024. For the three months ended March 31, 2025, gross margins were impacted by expenses associated with quality and operational issues. For the three months ended March 31, 2024, gross margins were impacted by expenses associated with the Boston recall, 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 March 31, 2025 2024 Research and development 6.5 % 7.3 % Selling, general and administrative 47.4 % 44.9 % Intangible asset amortization 1.0 % 2.7 % Total operating expenses 54.9 % 54.9 % Total operating expenses, which consist of research and development, selling, general and administrative, and amortization expenses, increased by $7.1 million, or 3.5%, to $209.9 million in the three months ended March 31, 2025, compared to $202.9 million in the same period in 2024. Research and Development Research and development expenses for the three months ended March 31, 2025 decreased by $2.2 million as compared to the same period in the prior year, primarily attributable to lower spend on EU MDR and other research and development projects. Selling, General and Administrative Selling, general and administrative costs for the three months ended March 31, 2025 increased by $15.7 million as compared to the same period in the prior year, primarily driven by Acclarent commercial costs. Intangible Asset Amortization Amortization expense (which does not include amounts reported in cost of product revenues for technology-based intangible assets) for the three months ended March 31, 2025 was $3.7 million compared to $10.1 million for the same period in the prior year. The decrease is primarily due to the impairment of customer relationship intangible related to our Boston facility, which was recorded during the three months ended March 31, 2024. Non-Operating Income and Expenses The following is a summary of non-operating income and expense: Three Months Ended March 31, Dollars in thousands 2025 2024 Interest income $ 4,420 $ 5,040 Interest expense (18,815) (13,624) Other expense, net (144) (610) Total non-operating income and expense $ (14,539) $ (9,194) Interest Income Interest income for the three months ended March 31, 2025 decreased by $0.6 million as compared to the same period in the prior year . 45 Table of Contents Interest Expense Interest expense for the three months ended March 31, 2025 increased by $5.2 million as compared to the same period in the prior year primarily due to the expiration of interest rate swap derivative instruments with a notional value of $350.0 million during 2024 that are no longer hedging interest expense in 2025. Other Expense, net Other expense, net for the three months ended March 31, 2025 decreased by $0.5 million compared to the same period in the prior year, primarily driven by foreign exchange impact. Income Taxes Three Months Ended March 31, Dollars in thousands 2025 2024 Loss before income taxes $ (30,036) $ (5,230) Benefit provision for income taxes (4,743) (1,949) Effective tax rate 15.8 % 37.3 % The Company’s effective income tax rates for the three months ended March 31, 2025 and 2024 were 15.8% and 37.3%, respectively. For the three months ended March 31, 2025, the Company’s effective tax rate was driven by federal, state, and international tax benefits generated from operating losses in certain jurisdictions, offset by the inclusion of U.S. Global Intangible Low-Taxed Income (“GILTI”) and additional taxes to meet the global minimum tax in certain foreign jurisdictions. For the three months ended March 31, 2024, the Company’s effective tax rate was driven by a $1.5 million shortfall from stock based compensation, offset by a tax benefit for intangible asset impairment. 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 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 and legislators are considering new tax legislation, which may impact the Company's income tax provision. Further, legislation in foreign jurisdictions may be enacted, in continued response to the base erosion and profit-sharing project begun by the Organization for Economic Cooperation and Development (“OECD”). 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 2025 and future taxable periods. The rules are complex and provide for delays for implementing the tax during the early transition years, if certain conditions are met. At this time, the Company is projecting a $2.7 million expense related to Pillar 2 tax liability for the 2025 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. and non-U.S. jurisdictions could have an adverse effect on the Company’s effective tax rate. The Company will continue to monitor legislative activity across its U.S. and non-U.S. jurisdictions. While it is often difficult to predict the outcome or the timing of the resolution of a particular matter with the various federal, state, and foreign tax authorities, we believe that our reserves reflect the most probable outcome of known tax contingencies. Settlement of a particular issue would usually require the use of cash. A favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution. 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. 46 Table of Contents GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS We attribute revenues to geographic areas based on the location of the customer. Total revenue by major geographic area consisted of the following: Three Months Ended March 31, Dollars in thousands 2025 2024 United States $ 282,217 $ 256,229 Europe 35,326 41,596 Asia Pacific 45,105 49,545 Rest of World 20,005 21,502 Total Revenues $ 382,653 $ 368,872 We generate significant revenues outside the U.S., a portion of which are U.S. dollar-denominated transactions conducted with customers that generate revenue in currencies other than the U.S. dollar. As a result, currency fluctuations between the U.S. dollar and the currencies in which those customers do business could have an impact on the demand for our products in foreign countries. Local economic conditions, regulatory compliance or political considerations, the effectiveness of our sales representatives and distributors, local competition and changes in local medical practice all may combine to affect our sales into markets outside the U.S. Domestic revenues increased by $26.0 million for the three months ended March 31, 2025 compared to the same period in the prior year. European sales decreased by $6.3 million for the three months ended March 31, 2025 compared to the same period in the prior year. Sales to customers in Asia Pacific decreased by $4.4 million for the three months ended March 31, 2025 . Sales to customers in the Rest of World for the three months ended March 31, 2025 decreased by $1.5 million compared to the same period in the prior year . The increase in domestic revenues for the three months ended March 31, 2025 is primarily the result of the Acclarent acquisition, partially offset by a decline in sales of Integra Skin and our private label business. The decrease in international revenues for the three months ended March 31, 2025 was the result of a decline in sales of Dural Access & Repair, Advanced Energy and Neuro Monitoring. LIQUIDITY AND CAPITAL RESOURCES Working Capital Working capital consists of total current assets less total current liabilities as presented in the consolidated balance sheets. The Company’s working capital as of March 31, 2025 and December 31, 2024 was $188.8 million and $159.6 million, respectively. Cash and Marketable Securities The Company had cash and cash equivalents totaling approximately $239.1 million and $246.4 million at March 31, 2025 and December 31, 2024, respectively, which are valued based on Level 1 measurements in the fair value hierarchy . At March 31, 2025, our non-U.S. subsidiaries held approximately $182.7 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. Short Term Investments The Company had short term investments, primarily consisting of time deposits, which are valued based on Level 1 measurements in the fair value hierarchy, totaling approximately $34.2 million at March 31, 2025 compared to $27.2 million at December 31, 2024. Cash Flows Three Months Ended March 31, Dollars in thousands 2025 2024 Net cash (used in) provided by operating activities $ (11,257) $ 15,756 Net cash used in investing activities (35,920) (53,965) Net cash used in financing activities 35,377 358,676 Effect of exchange rate fluctuations on cash 4,529 (4,963) 47 Table of Contents Cash Flows Provided by or Used in Operating Activities Operating cash flows for the three months ended March 31, 2025 decreased by $27.0 million compared to the same period in 2024. Within operating cash flows, net income less non-cash adjustments decreased for the three months ended March 31, 2025 by approximately $25.7 million as compared to the same period in 2024 due to the impact of quality and operational issues on revenue and associated costs. The changes in assets and liabilities for the three months ended March 31, 2025, net of business acquisitions, decreased cash flows by $24.7 million, mainly attributable to decreases in accrued expenses and other current liabilities due to payment of employee bonuses. 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. Cash Flows Used in Investing Activities Uses of cash from investing activities for the three months ended March 31, 2025 were $28.9 million paid for capital expenditures to support improvement initiatives at a number of our manufacturing facilities, and other technology investments, as well as $7.0 million related to short term investments. There were no sources of cash from investing activities for the three months ended March 31, 2025. Uses of cash from investing activities during 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. Cash Flows Provided by or Used in Financing Activities Uses of cash from financing activities in the three months ended March 31, 2025 related to the repayments of $15.2 million under our Senior Credit Facility and Securitization Facility, as well as $2.6 million related to payment of contingent consideration in connection with our acquisition of Arkis. In addition, the Company had $2.1 million in cash taxes paid for net equity settlements. Sources of cash from financing activities for the three months ended March 31, 2025 were $54.4 million of proceeds from borrowings of long term indebtedness and $1.0 million related to the proceeds from the exercise of stock options. 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 three months ended March 31, 2024 were $370.5 million of proceeds from borrowings of long-term indebtedness and $6.4 million related to the proceeds from the exercise of stock options. Tariffs and Macroeconomic Environment In April 2025, the U.S. government announced new tariffs on goods imported into the U.S. from dozens of countries, including China and the European Union member states. In response, governments have threatened or imposed reciprocal tariffs or taken other measures, and the United States is in the process of negotiating trade agreements with certain governments. Uncertainty remains with respect to trade policies and treaties between the U.S. and other countries and we continue to monitor and evaluate the situation. Tariffs could result in an increase in certain product costs or have adverse impacts on, among other things, demand for our products and supply chains. Any tariff costs will be reported within our cost of goods sold and will be capitalized in inventory and recognized as those products are sold. Particularly, the U.S. import tariffs and reciprocal measures by China, are expected to increase the Company’s cost of goods sold. The Company anticipates that some of its suppliers will incur incremental tariff-related costs, which may be passed on to the Company. Approximately half of our global revenue is generated from products manufactured in the United States. In China, which accounts for approximately 5 percent of our total revenue, roughly half of the products we sell are manufactured in the United States. 48 Table of Contents The overall macroeconomic and geopolitical environment, including tariffs or changes in trade policies, slower economic growth or recession, market volatility and inflation, and uncertainty regarding all of the foregoing, pose risks that could impact our business, results of operations, financial condition and cash flows. The extent and duration of the tariffs and the resulting impact on general economic conditions and on the business are uncertain and are expected to be impacted by various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that already exist or may be granted, availability and cost of alternative sources of our products and materials, and our ability to offset the effects of any tariffs that might be imposed. For additional information on the risks that tariffs pose to the Company, please see Part II, Item 1A. “Risk Factors” of this Quarterly Report and Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Credit Agreement, Convertible Senior Notes, Securitization and Related Hedging Activities See Note 6. Debt , to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for a discussion of our 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. The Senior Credit Facility is subject to various financial and negative covenants and, at March 31, 2025, the Company was in compliance with all such covenants. Our Consolidated Total Leverage Ratio was 4.30, with the covenant requirement at 5.00 at the end of March 31, 2025. As outlined in the table in Note 6. Debt, the covenant requirement will drop from 5.00 to 4.25 for the fiscal quarter ended December 31, 2025. The recent tariff changes imposed by the U.S. and other countries have created increased risks and uncertainties surrounding the Company’s future results of operations. The impact of tariffs in the first quarter of 2025 was not material. However, should universal tariffs be implemented as initially announced in April 2025, the Company anticipates a significant adverse impact on its future costs of revenue, which will impact its results of operations. Based on the Company’s current financial projections and assuming the successful implementation of management’s plans to mitigate the risks and uncertainties regarding the impact of tariffs on the Company’s future results of operations described in Note 1. Basis of Presentation , management believes the Company will maintain compliance with its financial covenants and the Company’s existing cash, projected operating cash flows, and available borrowing capacity under its revolving credit facility component of the Senior Credit Facility (as defined in Note 6. Debt ) are adequate to meet its operating needs, liabilities and commitments over the next twelve months from the issuance of the accompanying interim unaudited condensed consolidated financial statements. The 2025 Notes are scheduled to mature on August 15, 2025. We have sufficient capacity under the revolving credit facility of the Senior Credit Facility to repay the outstanding principal and accrued interest on the 2025 Notes upon maturity. Share Repurchase Plan 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 We have not paid any cash dividends on our common stock since our formation. Our Senior Credit Facility limits the amount of dividends that we may pay. Any future determinations to pay cash dividends on our common stock will be at the discretion of the Board 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, cash equivalents, short term investments and available borrowings under the Senior Credit Facility are sufficient to finance our operations, capital expenditures and potential repayment of the 2025 Notes for the next twelve 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, and the potential impact of tariffs on our cost of goods sold and consumer demand for our products, among others. Additional sources of liquidity available to us include short term borrowings and the issuance of long term debt and equity securities. Off-Balance Sheet Arrangements We do not have any off-balance sheet financing arrangements during the three months ended March 31, 2025 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. 49 Table of Contents Contractual Obligations and Commitments We will continue to have cash requirements to support seasonal working capital needs and capital expenditures, to pay interest, to service debt, and to fund acquisitions. As part of our ongoing operations, we enter into contractual arrangements that obligate us to make future cash payments. Our primary obligations include principal and interest payments on the revolving credit facility and t erm loan component of the Senior Credit Facility, Securitization Facility and 2025 Notes. See Note 6. Debt , to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for details. The Company also leases some of our manufacturing facilities and office buildings which have required future minimum lease payments. See Note 10. Leases and Related Party Leases , to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for a schedule of our future minimum lease payments. Amounts related to the Company’s other obligations, including employment agreements and purchase obligations were not material. The Company has contingent consideration obligations related to prior and current year acquisitions and future pension contribution obligations. See Note 9. Retirement Plans , and Note 16. Commitments and Contingencies , to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for details. The associated obligations are not fixed. The Company also has a liability for uncertain tax benefits including interest and penalties. See Note 12. Income Taxes to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report) for details. The Company cannot make a reliable estimate of the period in which the uncertain tax benefits may be realized. OTHER MATTERS Critical Accounting Estimates We based the discussion and analysis of our financial condition and results of operations upon our consolidated financial statements, which have been prepared in conformity with GAAP. 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, 2024 did not materially change in the three months ended March 31, 2025. Recently Issued Accounting Standards Information regarding new accounting pronouncements is included in Note 1. Basis of Presentation , to the Notes to Unaudited Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report), and is applicable to the current period’s unaudited condensed consolidated financial statements.