# Orthofix Medical Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Orthofix Medical Inc.](/companies/ofix.md) (CIK 884624)
- Form: 10-Q
- Filed: 2024-11-07
- Accepted by EDGAR: Nov 7, 2024, 07:08 ET
- Period: 2024-09-30
- Accession: 0000950170-24-122782
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/884624/000095017024122782/ofix-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/884624/000095017024122782/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $196.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $583.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $61.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $186.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $135.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $397.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $17.3m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $54.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$18.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$73.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $751.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $2.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$27.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$96.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.71 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$2.55 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.71 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$2.55 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 38,488,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 37,941,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $2.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $25.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $30.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $386.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $867.9m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $161.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $341.9m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $112.2m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $6.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $525.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,758 characters.

The following discussion and analysis of Orthofix Medical Inc.’s (sometimes referred to as “we,” “us” or “our”) financial condition and results of operations should be read in conjunction with the discussion under the heading “Forward-Looking Statements” and our condensed consolidated financial statements and related notes thereto appearing elsewhere in this Form 10-Q.

### Executive Summary

We are a global medical technology company headquartered in Lewisville, Texas. By providing medical technologies that heal musculoskeletal pathologies, we deliver exceptional experiences and life-changing solutions to patients around the world. We offer a comprehensive portfolio of spinal hardware, bone growth therapies, specialized orthopedic solutions, biologics, and enabling technologies, including the 7D FLASH navigation system. To learn more, visit Orthofix.com and follow on LinkedIn. Information included on our website is not incorporated into, or otherwise creates a part of, this report.

Notable financial metrics in the third quarter of 2024 and recent achievements include the following:

- Third quarter 2024 net sales of $196.6 million, an increase of 7% on a reported and constant currency basis compared to third quarter 2023
- U.S. Spine Fixation net sales growth of 18% compared to third quarter 2023, driven by distribution expansion and further penetration in existing accounts
- Bone Growth Therapies net sales growth of 9% and Bone Growth Therapies Fracture growth of 13% compared to third quarter 2023
- U.S. Orthopedics net sales growth of 15% compared to third quarter of 2023
- Entered into record number of 7D FLASH Navigation System earnout agreements and matched record for highest number of 7D placements in any quarter to date
- Achieves free cash flow of $5.9 million in third quarter 2024, a significant improvement in cash usage compared to previous quarters
- Announces new $275 million credit facility that replaces existing financing and further optimizes our capital structure to support long-term profitable growth

### Results of Operations

The following table provides certain items in our condensed consolidated statements of operations as a percent of net sales:

*(Unaudited)*

|  | Three Months Ended September 30, 2024 (%) | 2023 (%) | Nine Months Ended September 30, 2024 (%) | 2023 (%) |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100.0 | 100.0 | 100.0 | 100.0 |
| Cost of sales | 31.3 | 34.9 | 32.0 | 36.0 |
| Gross profit | 68.7 | 65.1 | 68.0 | 64.0 |
| Sales and marketing | 49.1 | 51.7 | 50.8 | 52.7 |
| General and administrative | 17.1 | 14.7 | 17.0 | 20.2 |
| Research and development | 8.8 | 10.1 | 9.4 | 11.2 |
| Acquisition-related amortization and remeasurement | 3.3 | 1.9 | 3.3 | 2.0 |
| Operating loss | (9.6) | (13.3) | (12.5) | (22.1) |
| Net loss | (13.9) | (15.7) | (16.6) | (23.7) |

22

### Net Sales by Product Category and Reporting Segment

Our operations are managed through two reporting segments: Global Spine and Global Orthopedics. The following tables provide net sales by product category by reporting segment:

*(Unaudited, U.S. Dollars, in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Percentage Change Reported | Constant Currency |
| --- | ---: | ---: | ---: | ---: |
| Bone Growth Therapies | $57,925 | $53,359 | 8.6% | 8.6% |
| Spinal Implants, Biologics, and Enabling Technologies | 108,179 | 100,993 | 7.1% | 7.1% |
| Global Spine | 166,104 | 154,352 | 7.6% | 7.6% |
| Global Orthopedics | 30,502 | 29,654 | 2.9% | 2.5% |
| Net sales | $196,606 | $184,006 | 6.8% | 6.8% |

*(Unaudited, U.S. Dollars, in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 | Percentage Change Reported | Constant Currency |
| --- | ---: | ---: | ---: | ---: |
| Bone Growth Therapies | $169,537 | $153,735 | 10.3% | 10.3% |
| Spinal Implants, Biologics, and Enabling Technologies | 325,894 | 307,799 | 5.9% | 5.9% |
| Global Spine | 495,431 | 461,534 | 7.3% | 7.3% |
| Global Orthopedics | 88,403 | 84,692 | 4.4% | 4.2% |
| Net sales | $583,834 | $546,226 | 6.9% | 6.9% |

Global Spine

Global Spine offers the following product categories:

- Bone Growth Therapies, which manufactures, distributes, sells, and provides support services for market-leading devices used adjunctively in high-risk spinal fusion procedures and treats both nonunion and acute fractures in the orthopedic space. Bone Growth Therapies uses distributors and a direct sales channel to sell its devices and provide associated support services to hospitals, healthcare providers, and patients in the U.S.
- Spinal Implants, Biologics, and Enabling Technologies is comprised of a broad portfolio of spine fixation and motion preservation implant products used in surgical procedures of the spine, which includes one of the most comprehensive biologics portfolios in both the demineralized bone matrix and cellular allograft market segments and image-guided surgical solutions to facilitate degenerative, minimally invasive, and complex surgical procedures. Spinal Implants, Biologics, and Enabling Technologies products are sold through a network of distributors and sales representatives to hospitals and healthcare providers on a global basis for Spinal Implants and Enabling Technologies, and primarily within the U.S. for Biologics.

#### Three months ended September 30, 2024 compared to 2023

Net sales of $166.1 million, an increase of $11.8 million or 7.6%

- Bone Growth Therapies net sales increased $4.6 million, or 8.6%, largely driven by (i) an increase in gross order volumes resulting from our continued investment in our direct sales channel for both the spine and fracture markets, (ii) capitalization of cross-selling opportunities, and (iii) continued growth and adoption of AccelStim, which is used in the healing of fresh and nonunion fractures
- Spinal Implants, Biologics, and Enabling Technologies net sales increased $7.2 million, or 7.1%, primarily due to increased sales growth from new and existing high-volume distribution partners, particularly within Spinal Implants, which saw growth in each of our cervical, interbody, and thoracolumbar franchises

#### Nine months ended September 30, 2024 compared to 2023

Net sales of $495.4 million, an increase of $33.9 million or 7.3%

- Bone Growth Therapies net sales increased $15.8 million or 10.3%, driven by (i) an increase in gross order volumes resulting from our continued investment in our direct sales channel for both the spine and fracture markets, (ii) capitalization of cross-selling opportunities, and (iii) continued growth and adoption of AccelStim
- Spinal Implants, Biologics, and Enabling Technologies net sales increased $18.1 million, or 5.9%, primarily due to increased sales growth from new and existing high-volume distribution partners, particularly within Spinal Implants and Biologics, which saw growth in each of our cervical, interbody, thoracolumbar, and demineralized bone matrices franchises

Global Orthopedics

Global Orthopedics offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions specifically related to limb reconstruction and deformity correction unrelated to the spine. Global Orthopedics distributes its products worldwide through a network of distributors and sales representatives to sell orthopedic products to hospitals and healthcare providers.

#### Three months ended September 30, 2024 compared to 2023

Net sales of $30.5 million, an increase of $0.8 million or 2.9%

- U.S. growth of $1.1 million, or 15.0%, largely due to investments made in recent product launches, commercial execution within our sales channel, and from growth within our OSCAR PRO product line
- International decline of $0.4 million, or (1.8)% on a constant currency basis, primarily driven by the timing of certain tender offers and stocking distributor orders
- Increase of $0.1 million due to movement in foreign currency exchange rates, which had a favorable impact on net sales in the third quarter of 2024

#### Nine months ended September 30, 2024 compared to 2023

Net sales of $88.4 million, an increase of $3.7 million or 4.4%

- U.S. growth of $3.2 million, or 14.8%, largely due to investments made in recent product launches, commercial execution within our sales channel, and from growth within our OSCAR PRO product line
- International growth of 0.6% on a constant currency basis, driven by recent product launches in Europe and offset by the timing of certain tender offers and stocking distributor orders
- Increase of $0.2 million due to movement in foreign currency exchange rates, which had a favorable impact on net sales in 2024

### Gross Profit

*(Unaudited, U.S. Dollars, in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $196,606 | $184,006 | 6.8% | $583,834 | $546,226 | 6.9% |
| Cost of sales | 61,553 | 64,243 | (4.2%) | 186,790 | 196,583 | (5.0%) |
| Gross profit | $135,053 | $119,763 | 12.8% | $397,044 | $349,643 | 13.6% |
| Gross margin | 68.7% | 65.1% | 3.6% | 68.0% | 64.0% | 4.0% |

#### Three months ended September 30, 2024 compared to 2023

Gross profit increased $15.3 million

- Increase in gross profit driven primarily by net sales growth across all principal product categories
- Increase of $4.9 million driven by a reduction of amortization of the inventory fair value step-up recognized in the merger with SeaSpine Holdings Corporation ("SeaSpine"), consummated on January 5, 2023 (the "Merger"), which is being amortized over the expected sales cycles of the acquired inventory
- Increase of $0.5 million driven by a reduction in certain inventory-related charges, primarily due to portfolio rationalization decisions made in the prior year related to the Merger

#### Nine months ended September 30, 2024 compared to 2023

Gross profit increased $47.4 million

- Increase in gross profit driven primarily by net sales growth across all principal product categories
- Increase of $19.9 million driven by a reduction of amortization of the inventory fair value step-up recognized in the Merger, which is being amortized over the expected sales cycles of the acquired inventory
- Increase of $3.0 million driven by a reduction in certain inventory-related charges, primarily due to portfolio rationalization decisions made in the prior year related to the Merger

### Sales and Marketing Expense

*(Unaudited, U.S. Dollars, in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales and marketing | $96,576 | $94,947 | 1.7% | $296,843 | $287,987 | 3.1% |
| As a percentage of net sales | 49.0% | 51.6% | (2.6%) | 50.8% | 52.7% | (1.9%) |

#### Three months ended September 30, 2024 compared to 2023

Sales and marketing expense increased $1.6 million

- Increase of $2.7 million in variable compensation expenses, including commissions, largely resulting from changes in sales volume and sales mix
- Increase of $2.3 million in depreciation expense related to an increase in deployed instrumentation to support increased sales demand
- Partially offset by a decrease of $2.2 million in other compensation expenses, including share-based compensation, primarily due to the realization of synergies following the Merger

#### Nine months ended September 30, 2024 compared to 2023

Sales and marketing expense increased $8.9 million

- Increase of $8.0 million in variable compensation expenses, including commissions, largely resulting from changes in sales volume and sales mix
- Increase of $6.6 million in depreciation expense related to an increase in deployed instrumentation to support increased sales demand
- Partially offset by a decrease of $5.7 million in other compensation expenses, including share-based compensation, primarily due to the realization of synergies following the Merger

### General and Administrative Expense

*(Unaudited, U.S. Dollars, in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | $33,561 | $27,136 | 23.7% | $99,203 | $110,124 | (9.9%) |
| As a percentage of net sales | 17.1% | 14.7% | 2.4% | 17.0% | 20.2% | (3.2%) |

#### Three months ended September 30, 2024 compared to 2023

General and administrative expense increased $6.4 million

- Increase of $4.9 million driven by an unfavorable change in litigation and investigation-related costs
- Increase of $1.2 million in share-based compensation expense primarily due to accelerated vesting of certain equity-based awards as a result of the departure of certain executives in 2024
- Increase of $0.6 million in succession charges as a result of recent changes in executive leadership positions
- Partially offset by a reduction in general and administrative expenses by the realization of Merger-related synergies, primarily within professional fees

#### Nine months ended September 30, 2024 compared to 2023

General and administrative expense decreased $10.9 million

- Decrease in integration-related expenses of $17.4 million compared to prior year, primarily comprised of professional fees, advisor fees, and severance and retention costs
- Reduction in general and administrative expenses by the realization of Merger-related synergies, primarily from headcount and within professional fees
- Decrease of $4.1 million in share-based compensation expense primarily due to accelerated vesting of certain equity-based awards as a result of the Merger recorded in 2023
- Partially offset by an increase of $7.9 million in succession charges as a result of recent changes in executive leadership positions
- Further offset by an increase of $5.9 million driven by an unfavorable change in litigation and investigation-related costs

### Research and Development Expense

*(Unaudited, U.S. Dollars, in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $17,294 | $18,559 | (6.8%) | $54,835 | $61,290 | (10.5%) |
| As a percentage of net sales | 8.8% | 10.1% | (1.3%) | 9.4% | 11.2% | (1.8%) |

#### Three months ended September 30, 2024 compared to 2023

Research and development expense decreased $1.3 million

- Decrease of $1.6 million in costs to comply with the European Union Medical Device Regulations
- Decrease of $0.3 million related to merger and integration-related expenses, primarily related to severance and retention costs. In addition, research and development expenses were further reduced by the realization of Merger-related synergies

#### Nine months ended September 30, 2024 compared to 2023

Research and development expense decreased $6.5 million

- Decrease of $5.6 million in costs to comply with the European Union Medical Device Regulations
- Decrease of $2.0 million related to merger and integration-related expenses, primarily related to severance and retention costs. In addition, research and development expenses were further reduced by the realization of Merger-related synergies
- Partially offset by an increase in product development and clinical expenses

### Acquisition-related Amortization and Remeasurement

*(Unaudited, U.S. Dollars, in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Acquisition-related amortization and remeasurement | $6,521 | $3,570 | 82.7% | $19,305 | $11,037 | 74.9% |
| As a percentage of net sales | 3.3% | 1.9% | 1.4% | 3.3% | 1.9% | 1.4% |

Acquisition-related amortization and remeasurement consists of (i) amortization related to intangible assets acquired through business combinations or asset acquisitions and (ii) remeasurement of related contingent consideration arrangements, which are recognized immediately upon acquisition.

#### Three months ended September 30, 2024 compared to 2023

Acquisition-related amortization and remeasurement increased $3.0 million

- Increase of $2.8 million recognized in 2024 associated with the remeasurement of a contingent consideration obligation with Lattus Spine LLC assumed in the Merger
- Increase of $0.2 million in amortization expense of intangible assets acquired in the Merger

#### Nine months ended September 30, 2024 compared to 2023

Acquisition-related amortization and remeasurement increased $8.3 million

- Increase of $8.3 million recognized in 2024 associated with the remeasurement of a contingent consideration obligation with Lattus Spine LLC assumed in the Merger

### Non-operating Income and Expense

*(Unaudited, U.S. Dollars, in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest expense, net | $(5,210) | $(1,576) | 230.6% | $(14,711) | $(4,131) | 256.1% |
| Other expense, net | (2,528) | (2,360) | 7.1% | (6,312) | (1,704) | 270.4% |

#### Three months ended September 30, 2024 compared to 2023

Interest expense, net increased $3.6 million

- Increase of $3.3 million attributable to an increase in outstanding indebtedness as part of our Financing Agreement in 2024 compared to prior year
- Decrease of $0.3 million of interest income resulting from the conversion of the convertible loan with Neo Medical into preferred equity securities in the second quarter of 2024

Other expense, net increased $0.2 million

- Increase of $3.0 million associated with the impairment of certain investments measured at fair value
- Offset by a decrease of $3.1 million associated with changes in foreign currency exchange rates, as we recorded a non-cash remeasurement gain of $1.2 million in the third quarter of 2024 compared to a loss of ($1.9 million) in the third quarter of 2023

#### Nine months ended September 30, 2024 compared to 2023

Interest expense, net increased $10.6 million

- Increase of $10.1 million attributable to an increase in outstanding indebtedness as part of our Financing Agreement in 2024 compared to prior year
- Increase of $0.6 million resulting from the conversion of the convertible loan with Neo Medical into preferred equity securities in the second quarter of 2024

Other expense, net increased $4.6 million

- Increase of $5.7 million associated with the impairment of certain investments measured at fair value
- Increase of $0.2 million associated with changes in foreign currency exchange rates, as we recorded a non-cash remeasurement loss of ($1.3 million) in 2024 compared to a loss of ($1.1 million) in 2023
- Decrease of $1.7 million associated with the gain recognized on conversion of the Neo Medical convertible loan into shares of equity

### Income Taxes

*(Unaudited, U.S. Dollars, in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Income tax expense | $751 | $472 | 59.1% | $2,686 | $2,591 | 3.7% |
| Effective tax rate | (2.8%) | (1.7%) | (1.1%) | (2.9%) | (2.0%) | (0.9%) |

27

#### Three months ended September 30, 2024 compared to 2023

- The increase in tax expense compared to the prior year period is primarily due to increased tax on foreign operations
- The primary factor affecting our tax expense for the third quarter of 2024 compared to the prior year period was tax amortization on certain acquired intangibles and financial statement losses not benefited

#### Nine months ended September 30, 2024 compared to 2023

- The increase in tax expense compared to the prior year period is primarily due to increased tax on foreign operations
- The primary factor affecting our tax expense through the third quarter of 2024 compared to the prior year was tax amortization on certain acquired intangibles and financial statement losses not benefited

### Liquidity and Capital Resources

Cash, cash equivalents, and restricted cash at September 30, 2024, totaled $32.6 million compared to $37.8 million at December 31, 2023. The following table presents the net change in cash, cash equivalents, and restricted cash for the nine months ended September 30, 2024, and 2023, respectively:

*(Unaudited, U.S. Dollars, in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: |
| Net cash provided by (used in) operating activities | $2,060 | $(39,059) | $41,119 |
| Net cash (used in) investing activities | (26,445) | (18,078) | (8,367) |
| Net cash provided by financing activities | 19,222 | 40,042 | (20,820) |
| Effect of exchange rate changes on cash | (40) | 58 | (98) |
| Net change in cash and cash equivalents | $(5,203) | $(17,037) | $11,834 |

The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating activities:

*(Unaudited, U.S. Dollars, in thousands)*

|  | Nine Months Ended September 30, 2024 | 2023 | Change |
| --- | ---: | ---: | ---: |
| Net cash provided by (used in) operating activities | $2,060 | $(39,059) | $41,119 |
| Capital expenditures | (26,345) | (46,997) | 20,652 |
| Free cash flow | $(24,285) | $(86,056) | $61,771 |

### Operating Activities

Cash flows from operating activities increased $41.1 million

- Favorable change in net loss of $32.4 million
- Unfavorable change of $4.2 million associated with non-cash gains and losses, such as amortization of the inventory fair value step-up recognized in the Merger, share-based compensation, inventory reserve expenses, depreciation and amortization, and gains and losses resulting from changes in fair value of certain assets and liabilities
- Favorable change of $13.0 million relating to changes in working capital accounts, primarily attributable to changes in inventories, accounts payable, and other current liabilities

Two of our primary working capital accounts are accounts receivable and inventory. Days sales in receivables were 58 days at September 30, 2024, compared to 57 days at September 30, 2023 (calculated using third quarter net sales and ending accounts receivable). Inventory turns improved to 1.2 times as of September 30, 2024 compared to 1.0 times as of September 30, 2023 (calculated using trailing twelve month cost of goods sold and ending net inventories).

### Investing Activities

Cash flows from investing activities decreased $8.4 million

- Decrease of $29.4 million attributable to cash acquired as a result of the Merger in 2023
- Partially offset by a decrease in spend of $20.7 million in capital expenditures and $0.4 million in other investing activities

### Financing Activities

Cash flows from financing activities decreased $20.8 million

- Decrease of $18.1 million associated with net borrowing activities related to our credit facilities and from our assumption of SeaSpine's outstanding indebtedness at the time of the Merger
- Decrease of $1.9 million in debt issuance costs associated with the Financing Agreement with Blue Torch Financing LLC
- Decrease in net proceeds of $0.7 million from the issuance of common shares

#### Credit Facilities

On November 6, 2023, we entered into a Financing Agreement (the “Financing Agreement”) with Blue Torch Finance LLC and certain lenders party thereto. The Financing Agreement provides for a $100.0 million senior secured term loan (the “Initial Term Loan”), a $25.0 million senior secured delayed draw term loan facility (the “Delayed Draw Term Loan”), and a $25.0 million senior secured revolving credit facility (the “Revolving Credit Facility,” and together with the Initial Term Loan and the Delayed Draw Term Loan, the “Credit Facilities”), each of which mature on November 6, 2027. As of September 30, 2024, we had $100.0 million outstanding under the Initial Term Loan and $25.0 million outstanding under the Delayed Draw Term Loan.

The Financing Agreement contains financial covenants requiring us to maintain a minimum level of liquidity at all times, a maximum consolidated leverage ratio (measured on a quarterly basis), and a minimum asset coverage ratio (measured on a monthly basis). As of September 30, 2024, we were in compliance with all required financial covenants.

On March 15, 2024, we entered into Amendment No.1 to the Financing Agreement with Blue Torch Finance LLC (the "First Amendment"). Under the terms of the First Amendment, the parties agreed to reduce the number of business days to submit a notice of borrowing for the Delayed Draw Term Loan and redefine certain terms within the asset coverage financial covenant. The maturity date remains November 6, 2027, for each of the Initial Term Loan, Delayed Draw Term Loan, and Revolving Credit Facility.

As of September 30, 2024, we had no borrowings on our available lines of credit in Italy, which provide up to an aggregate amount of €5.5 million ($6.1 million).

On November 7, 2024, the Company, as borrower, and its U.S. subsidiaries entered into a $275 million secured credit agreement (the “New Credit Agreement”) with Oxford Finance LLC, as administrative agent and as collateral agent (“Oxford”) and certain lenders party thereto, including Oxford and K2 Healthventures LLC. Certain of the Company’s foreign subsidiaries are expected to join the New Credit Agreement as guarantors shortly after the signing date. The New Credit Agreement provides for a $160 million senior secured term loan (the “Initial Term Loan”), and a $65 million senior secured delayed draw term loan facility (the “Term B Loan”). Draws under the Term B Loan are at the Company’s option from January 1, 2025 through June 30, 2026, subject to, among other conditions, the Company’s continuing compliance with a pro-forma total debt-to-EBITDA leverage ratio of less than 4.0x. EBITDA is a non-GAAP financial measure which represents earnings before interest income (expense), income taxes, depreciation, amortization, and other negotiated addbacks and adjustments. In addition, at Oxford's discretion, an additional $50 million of draw capacity is available to the Company, through January 1, 2029 (the “Term C Loan” and, together with the Term B Loan, the “Delayed Draw Term Loans” and collectively with the Initial Term Loan, the “Credit Facilities”). The Initial Term Loan and Delayed Draw Term Loans, to the extent ultimately drawn, will each mature in November 2029, following an interest-only payment period ending December 2028, and monthly amortization of principal and accrued interest between January 2029 and November 2029.

The Credit Facilities will be secured by a perfected first priority lien, or the equivalent security interest in each applicable jurisdiction, on substantially all of the assets of the Company and the applicable guarantors (subject to customary carveouts), including their respective U.S. intellectual property assets.

The Company expects to promptly fund the Initial Term Loan under the New Credit Agreement to repay all amounts outstanding under the Revolving Credit Facility with Blue Torch Finance LLC and terminate the Financing Agreement with Blue Torch. In addition to the repayment of existing debt, borrowings under the New Credit Agreement may be used for general corporate purposes.

Borrowings under the Credit Facilities bear interest at a percentage rate equal to the greater of 8.75% or 5.75% plus the one-month term SOFR rate. A facility fee equal to 1.5% of each applicable funded loan tranche is due at the time of funding of such respective tranche, and a 0.5% unused line fee is payable annually on the Term B Loan.

The New Credit Agreement contains customary affirmative and negative covenants, including limitations on the Company’s and its subsidiaries’ ability to incur additional debt, grant or permit additional liens, make certain investments and acquisitions, merge or consolidate with others, dispose of certain assets, pay dividends and distributions, pay subordinated indebtedness, and enter into affiliate transactions, as well as financial covenants that the Company (i) possess at least $45 million of unrestricted cash at the time the Initial Term Loan is funded and thereafter maintain $15 million of unrestricted cash in U.S.-based accounts, and (ii) maintain a maximum total debt-to-EBITDA leverage ratio no greater than 4.0x during the term of the facility.

The Company believes it will be in compliance with the covenants in future fiscal quarters. However, there can be no assurance that the Company will be in such compliance, and if it is not, the failure to do so could result in an event of default, which could have a material adverse effect on the Company’s financial position in the event that it continues to have significant amounts drawn under the Credit Facilities at such time.

### Other

For information regarding contingencies, see Note 8 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein.

#### Lattus Spine LLC ("Lattus") Contingent Consideration

Under the terms of a contingent consideration obligation in a purchase agreement assumed in the Merger, we may be required to make installment payments at certain dates based on future net sales of certain products (the "Lateral Products"). The estimated fair value of the contingent consideration arrangement as of September 30, 2024, was $14.7 million; however, the actual amount ultimately paid could be higher or lower than the estimated fair value of the contingent consideration. As of September 30, 2024, we classified the remaining contingent consideration liability of $6.6 million and $8.1 million within other current liabilities and other long-term liabilities, respectively. For additional discussion of this matter, see Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

#### Legion Innovations, LLC Asset Acquisition

On December 29, 2022, we entered into a technology assignment and royalty agreement with Legion Innovations, LLC, a U.S.-based medical device technology company, whereby we acquired intellectual property rights to certain assets. As consideration, we paid $0.2 million in January 2023, with additional payments contingent upon reaching future commercialization and revenue-based milestones.

#### IGEA S.p.A Exclusive License and Distribution Agreement

In April 2021, we entered into an Exclusive License and Distribution Agreement (the “License Agreement”) with IGEA S.p.A (“IGEA”), an Italian manufacturer and distributor of bone and cartilage stimulation systems. As consideration for the License Agreement, we agreed to pay up to $4.0 million, of which $0.5 million was paid in 2021, with certain payments contingent upon achieving an FDA milestone.

In May 2022, we received FDA approval for the acquired technology, which triggered a contingent consideration milestone obligation of $3.5 million. Of this amount, $1.5 million was paid in 2022, $1.0 million was paid in May 2023, and the remaining $1.0 million was paid in July 2024.

### Off-balance Sheet Arrangements

As of September 30, 2024, we did not have any off-balance sheet arrangements 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, cash flows, liquidity, capital expenditures or capital resources that are material to investors.

### Contractual Obligations

There have been no material changes in any of our material contractual obligations as disclosed in our Form 10-K for the year ended December 31, 2023.

### Critical Accounting Estimates

Our discussion of operating results is based upon the condensed consolidated financial statements and accompanying notes. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our critical accounting estimates are described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes to our critical accounting estimates during the quarter covered by this report.

### Recently Issued Accounting Pronouncements

See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for detailed information regarding the status of recently issued or adopted accounting pronouncements.

### Non-GAAP Financial Measures

We believe that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to the information used by senior management in its financial and operational decision-making. We believe it is important to provide investors with the same non-GAAP financial measures used to supplement information regarding the performance and underlying trends of our business operations to facilitate comparisons to historical operating results and internally evaluate the effectiveness of our operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons of our underlying operating performance with other companies in the industry that also supplement their U.S. GAAP results with non-GAAP financial measures.

The non-GAAP financial measures used in this filing may have limitations as analytical tools and should not be considered in isolation or as a replacement for U.S. GAAP financial measures. Some limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost that can have a material effect on cash flows.

#### Constant Currency

Constant currency is calculated by using foreign currency rates from the comparable, prior year period to present net sales at comparable rates. Constant currency can be presented for numerous U.S. GAAP measures but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.

#### Free Cash Flow

Free cash flow is calculated by subtracting capital expenditures from net cash from operating activities. Management uses free cash flow as an important indicator of how much cash is generated or used by our normal business operations, including capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.

## Market risk

As filed, 123 characters.

There have been no material changes to our market risks as disclosed in our Form 10-K for the year ended December 31, 2023.

## Controls and procedures

As filed, 7,953 characters.

### Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this report, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. As described below, as of December 31, 2023, management identified a material weakness in our internal control over financial reporting, which is an integral component of our disclosure controls and procedures. Our remediation efforts with respect to this material weakness are continuing, and we have determined that this material weakness is continuing as of September 30, 2024, as there have been no further control instances as of this date to conclude that the applicable controls have been remediated. As a result, our President and Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2024.

### Material Weakness in Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in the Exchange Act Rule 13a-15(f)). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation of reliable financial statements for external purposes in accordance with U.S. GAAP. Because of the inherent limitations in any internal control, no matter how well designed, misstatements may occur and not be prevented or detected. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline.

In connection with the preparation and filing of the Annual Report for the year ended December 31, 2023 (the “2023 Annual Report”), the Company’s management, including our President and Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the framework set forth in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on its evaluation, the Company’s management concluded that our internal control over financial reporting was not effective as of December 31, 2023, due to a material weakness in the design and operation of certain management review controls pertaining to business combinations and assessing recoverability of goodwill, resulting from insufficient evidence supporting the precision over the determination of certain estimates and insufficient evidence supporting the operating effectiveness of the associated review controls. This material weakness did not result in any misstatements to the consolidated financial statements or disclosures.

Notwithstanding the material weakness, management has concluded that the financial statements included elsewhere in the 2023 Annual Report presented fairly, in all material respects, our financial position, results of operations, and cash flows in conformity with U.S. GAAP.

### Remediation of the Material Weakness

Our management has worked, and continues to work, to strengthen our disclosure controls and procedures and internal control over financial reporting in connection with the material weakness described above. Subsequent to the identification of the material weakness, the Company has better aligned its current finance department staff to enhance the review and oversight of the accounting and finance functions. The Company has also added several key positions in its finance department, including a new Chief Financial Officer, a Senior Vice President of Finance and Strategy, and other supporting roles with backgrounds in financial reporting, technical accounting, and financial planning and analysis. The Company continues to implement the remediation efforts described herein. These remediation efforts are being undertaken under the supervision of the Audit and Finance Committee of our Board of Directors.

We are in the process of implementing and continuing to refine the plan for remediation of the ineffective internal control over financial reporting described above. In addition, we have designed and are implementing the specific remediation initiatives described below:

- Evaluating skill set gaps and hiring additional accounting, finance, and/or financial reporting personnel, as needed, with relevant public company accounting and financial reporting experience to develop and implement additional policies, procedures, and controls as it pertains to business combinations, asset acquisitions, and/or other processes heavily dependent on the usage of prospective financial information;
- Providing ongoing training for key personnel responsible for internal control over financial reporting; and
- Enhancing and/or implementing new controls over the completeness and accuracy of information used in financial reporting and forecasted financial results, particularly as it relates to the accounting for business combinations and goodwill impairment assessments.

We believe the remediation steps outlined above have improved and will continue to improve the effectiveness of our internal control over financial reporting. We are committed to remediating the material weakness and we are making progress in that effort. The actions we are taking are subject to ongoing senior management review, as well as oversight from the Audit and Finance Committee. When fully implemented and operational, we believe the measures described above will remediate the underlying causes of the control deficiencies that gave rise to the material weakness and will strengthen our internal control over financial reporting. However, remediation efforts are expected to continue beyond the quarter ended September 30, 2024. Further, we will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectively for a sufficient period of time. We may also identify additional measures that may be required to remediate the material weakness in our internal control over financial reporting, necessitating further action.

### Changes in Internal Control over Financial Reporting

Other than the remediation activities described above, there have not been any changes in our internal control over financial reporting during the quarterly period covered by this report that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 6,338 characters.

There have been no material changes from the risk factors disclosed in "Part I, Item 1A. Risk Factors” in our Form 10-K for the year ended December 31, 2023, except as follows:

*Ongoing litigation and arbitration matters could negatively affect our business operations.*

In September 2023, following an investigation conducted by independent outside legal counsel, our Board of Directors terminated the employment of Keith Valentine, John Bostjancic, and Patrick Keran, who had served respectively as the Company’s President and Chief Executive Officer, Chief Financial Officer, and Chief Legal Officer. The Company notified each of Messrs. Valentine, Bostjancic, and Keran that their respective terminations were being made for “Cause,” as defined in applicable employment-related agreements (including each executive’s respective Change in Control and Severance Agreement, dated June 19, 2023).

Several litigation and arbitration matters against the Company (and in certain cases, current and former directors and officers) are pending in connection with these terminations. These matters include (i) arbitration claims by the three former executives against the Company for alleged breach of contract, defamation, false light invasion of privacy and deceit in connection with such terminations of employment, including payment of severance amounts and the value of forfeited equity grants, (ii) securities class action complaints alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 in connection with the Company’s public disclosures during the periods preceding such terminations, and (iii) a derivative complaint alleging claims against certain of the Company’s current and former officers and directors based on the same allegations made in the securities class action complaints. Additional lawsuits or proceedings against the Company and/or its current or former directors and officers in connection with these matters may be filed in the future.

In the event that any of these claims, or other future related or unrelated claims, are successful, they could result in costs to us that could negatively affect our near-term liquidity and financial condition. In addition, these matters may also divert management’s attention and resources, which could adversely affect the operation of our business while such claims proceed.

*We maintain a $275 million secured credit facility secured by a pledge of substantially all of our property.*

On November 7, 2024, the Company, as borrower, and its U.S. subsidiaries entered into a $275 million secured credit agreement (the “New Credit Agreement”) with Oxford Finance LLC, as administrative agent and as collateral agent (“Oxford”) and certain lenders party thereto, including Oxford and K2 Healthventures LLC. Certain of the Company’s foreign subsidiaries are expected to join the New Credit Agreement as guarantors shortly after the signing date. The New Credit Agreement provides for a $160 million senior secured term loan (the “Initial Term Loan”), and a $65 million senior secured delayed draw term loan facility (the “Term B Loan”). Draws under the Term B Loan are at the Company’s option from January 1, 2025 through June 30, 2026, subject to, among other conditions, the Company’s continuing compliance with a pro-forma total debt-to-EBITDA leverage ratio of less than 4.0x. EBITDA is a non-GAAP financial measure which represents earnings before interest income (expense), income taxes, depreciation, amortization, and other negotiated addbacks and adjustments. In addition, at Oxford's discretion, an additional $50 million of draw capacity is available to the Company, through January 1, 2029 (the “Term C Loan” and, together with the Term B Loan, the “Delayed Draw Term Loans” and collectively with the Initial Term Loan, the “Credit Facilities”). The Initial Term Loan and Delayed Draw Term Loans, to the extent ultimately drawn, will each mature in November 2029, following an interest-only payment period ending December 2028, and monthly amortization of principal and accrued interest between January 2029 and November 2029.

The Credit Facilities will be secured by a perfected first priority lien, or the equivalent security interest in each applicable jurisdiction, on substantially all of the assets of the Company and the applicable guarantors (subject to customary carveouts), including their respective U.S. intellectual property assets.

The Company expects to promptly fund the Initial Term Loan under the New Credit Agreement to repay all amounts outstanding under the Revolving Credit Facility with Blue Torch Finance LLC and terminate the Financing Agreement with Blue Torch. In addition to the repayment of existing debt, borrowings under the New Credit Agreement may be used for general corporate purposes.

Borrowings under the Credit Facilities bear interest at a percentage rate equal to the greater of 8.75% or 5.75% plus the one-month term SOFR rate. A facility fee equal to 1.5% of each applicable funded loan tranche is due at the time of funding of such respective tranche, and a 0.5% unused line fee is payable annually on the Term B Loan.

The New Credit Agreement contains customary affirmative and negative covenants, including limitations on the Company’s and its subsidiaries’ ability to incur additional debt, grant or permit additional liens, make certain investments and acquisitions, merge or consolidate with others, dispose of certain assets, pay dividends and distributions, pay subordinated indebtedness, and enter into affiliate transactions, as well as financial covenants that the Company (i) possess at least $45 million of unrestricted cash at the time the Initial Term Loan is funded and thereafter maintain $15 million of unrestricted cash in U.S.-based accounts, and (ii) maintain a maximum total debt-to-EBITDA leverage ratio no greater than 4.0x during the term of the facility.

We believe that we will be in compliance with the covenants in future fiscal quarters. However, there can be no assurance that we will be in such compliance, and if we are not, the failure to do so could result in an event of default, which could have a material adverse effect on our financial position in the event that we continue to have significant amounts drawn under the facility at such time.

Filed Nov 7, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-122782. Last ingested by Listed: Nov 4, 2026, 16:35 ET. No prices; not investment advice.