Orthofix Medical Inc. (OFIX)
SIC breadcrumb: Manufacturing > SIC Major Group 38 > SIC 3841 Surgical & Medical Instruments & Apparatus
SEC company page: https://www.sec.gov/edgar/browse/?CIK=884624. Latest filing source: 0001193125-26-065189.
Selected Fundamentals
| Metric | Value | Unit | FY | Filed |
|---|---|---|---|---|
| Revenue | 822,312,000 | USD | 2025 | 2026-02-24 |
| Net income | -92,192,000 | USD | 2025 | 2026-02-24 |
| Assets | 850,647,000 | USD | 2025 | 2026-02-24 |
Financials
Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-24. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000884624.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.
| Metric | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | 409,788,000 | 433,823,000 | 453,042,000 | 459,955,000 | 406,562,000 | 464,479,000 | 460,713,000 | 746,641,000 | 799,491,000 | 822,312,000 |
| Net income | 3,056,000 | 6,223,000 | 13,811,000 | -28,462,000 | 2,517,000 | -38,379,000 | -19,749,000 | -151,395,000 | -125,997,000 | -92,192,000 |
| Operating income | 21,067,000 | 40,811,000 | 30,094,000 | -18,784,000 | -6,266,000 | -8,315,000 | -13,268,000 | -139,110,000 | -84,619,000 | -81,428,000 |
| Gross profit | 321,935,000 | 340,786,000 | 356,414,000 | 359,348,000 | 304,673,000 | 349,565,000 | 337,169,000 | 486,273,000 | 545,885,000 | 566,017,000 |
| Diluted EPS | 0.17 | 0.34 | 0.72 | -1.51 | 0.13 | -1.95 | -0.98 | -4.12 | -3.30 | -2.33 |
| Operating cash flow | 59,076,000 | 38,972,000 | 49,918,000 | 32,033,000 | 74,272,000 | 18,475,000 | -11,538,000 | -45,753,000 | 25,790,000 | 33,347,000 |
| Capital expenditures | 23,160,000 | 62,050,000 | 34,876,000 | 34,626,000 | ||||||
| Assets | 372,103,000 | 405,354,000 | 466,641,000 | 495,620,000 | 525,861,000 | 476,623,000 | 458,629,000 | 925,315,000 | 893,294,000 | 850,647,000 |
| Liabilities | 108,626,000 | 108,746,000 | 131,244,000 | 167,989,000 | 168,997,000 | 139,689,000 | 121,769,000 | 326,585,000 | 390,170,000 | 400,610,000 |
| Stockholders' equity | 263,477,000 | 296,608,000 | 335,397,000 | 327,631,000 | 356,864,000 | 336,934,000 | 336,860,000 | 598,730,000 | 503,124,000 | 450,037,000 |
| Cash and cash equivalents | 39,572,000 | 81,157,000 | 69,623,000 | 69,719,000 | 96,291,000 | 87,847,000 | 50,700,000 | 33,107,000 | 83,238,000 | 82,025,000 |
| Free cash flow | -34,698,000 | -107,803,000 | -9,086,000 | -1,279,000 |
Ratios
| Metric | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|---|---|---|---|---|
| Net margin | 0.75% | 1.43% | 3.05% | -6.19% | 0.62% | -8.26% | -4.29% | -20.28% | -15.76% | -11.21% |
| Operating margin | 5.14% | 9.41% | 6.64% | -4.08% | -1.54% | -1.79% | -2.88% | -18.63% | -10.58% | -9.90% |
| Return on equity | 1.16% | 2.10% | 4.12% | -8.69% | 0.71% | -11.39% | -5.86% | -25.29% | -25.04% | -20.49% |
| Return on assets | 0.82% | 1.54% | 2.96% | -5.74% | 0.48% | -8.05% | -4.31% | -16.36% | -14.10% | -10.84% |
| Liabilities / equity | 0.41 | 0.37 | 0.39 | 0.51 | 0.47 | 0.41 | 0.36 | 0.55 | 0.78 | 0.89 |
| Current ratio | 2.33 | 3.17 | 2.85 | 3.07 | 2.60 | 2.55 | 3.06 | 2.54 | 2.57 | 2.45 |
Financial Charts
Quarterly
Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-05. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000884624.json.
| Quarter | End Date | Revenue | Net Income | Diluted EPS | Method |
|---|---|---|---|---|---|
| 2022-Q2 | 2022-06-30 | 0.12 | reported discrete quarter | ||
| 2022-Q3 | 2022-09-30 | -0.53 | reported discrete quarter | ||
| 2023-Q1 | 2023-03-31 | -1.71 | reported discrete quarter | ||
| 2023-Q2 | 2023-03-31 | -60,938,000 | reported discrete quarter | ||
| 2023-Q2 | 2023-06-30 | 187,016,000 | -1.07 | reported discrete quarter | |
| 2023-Q3 | 2023-06-30 | -39,426,000 | reported discrete quarter | ||
| 2023-Q3 | 2023-09-30 | 184,006,000 | -0.77 | reported discrete quarter | |
| 2023-Q4 | 2023-12-31 | 200,415,000 | -22,174,000 | derived Q4 = FY annual - nine-month YTD | |
| 2024-Q1 | 2024-03-31 | 188,608,000 | -36,020,000 | -0.95 | reported discrete quarter |
| 2024-Q2 | 2024-03-31 | -36,020,000 | reported discrete quarter | ||
| 2024-Q2 | 2024-06-30 | 198,620,000 | -0.88 | reported discrete quarter | |
| 2024-Q3 | 2024-06-30 | -33,443,000 | reported discrete quarter | ||
| 2024-Q3 | 2024-09-30 | 196,606,000 | -0.71 | reported discrete quarter | |
| 2024-Q4 | 2024-12-31 | 215,657,000 | -29,146,000 | derived Q4 = FY annual - nine-month YTD | |
| 2025-Q1 | 2025-03-31 | 193,646,000 | -53,094,000 | -1.35 | reported discrete quarter |
| 2025-Q2 | 2025-03-31 | -53,094,000 | reported discrete quarter | ||
| 2025-Q2 | 2025-06-30 | 203,121,000 | -0.36 | reported discrete quarter | |
| 2025-Q3 | 2025-06-30 | -14,081,000 | reported discrete quarter | ||
| 2025-Q3 | 2025-09-30 | 205,634,000 | -0.57 | reported discrete quarter | |
| 2025-Q4 | 2025-12-31 | 219,911,000 | -2,222,000 | derived Q4 = FY annual - nine-month YTD | |
| 2026-Q1 | 2026-03-31 | 196,708,000 | -20,908,000 | -0.52 | reported discrete quarter |
Quarterly Charts
Macro Cross-References
- CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
- UNRATE - Unemployment Rate
- FEDFUNDS - Federal Funds Effective Rate
- CES0500000003 - Average Hourly Earnings of All Employees, Total Private
- DFEDTARU - Federal Funds Target Range - Upper Limit
- DFEDTARL - Federal Funds Target Range - Lower Limit
- DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
- DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
- DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
- DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
- T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
- CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
- CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
- CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
- CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
- PCEPI - Personal Consumption Expenditures: Chain-type Price Index
- PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
- PPIACO - Producer Price Index by Commodity: All Commodities
- T10YIE - 10-Year Breakeven Inflation Rate
- U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
- PAYEMS - All Employees, Total Nonfarm
- CIVPART - Labor Force Participation Rate
- EMRATIO - Employment-Population Ratio
- UNEMPLOY - Unemployed
- CE16OV - Employment Level
- ICSA - Initial Claims
- JTSJOL - Job Openings: Total Nonfarm
- JTSQUR - Quits: Total Nonfarm
- GDPC1 - Real Gross Domestic Product
- A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
- INDPRO - Industrial Production: Total Index
- TCU - Capacity Utilization: Total Index
- HOUST - New Privately-Owned Housing Units Started: Total Units
- PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
- RSAFS - Advance Retail Sales: Retail Trade
- PCE - Personal Consumption Expenditures
- DSPIC96 - Real Disposable Personal Income
- PSAVERT - Personal Saving Rate
- M2SL - M2
- BOPGSTB - U.S. International Trade in Goods and Services: Balance
- MSPUS - Median Sales Price of Houses Sold for the United States
- HSN1F - New One Family Houses Sold: United States
- RHORUSQ156N - Homeownership Rate in the United States
- TTLCONS - Total Construction Spending: Total Construction in the United States
- RRVRUSQ156N - Rental Vacancy Rate in the United States
- TOTALSL - Total Consumer Credit Owned and Securitized
- REVOLSL - Revolving Consumer Credit Owned and Securitized
- DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
- GDP - Gross Domestic Product
- GPDI - Gross Private Domestic Investment
- GCE - Government Consumption Expenditures and Gross Investment
- PCEC - Personal Consumption Expenditures
- NETEXP - Net Exports of Goods and Services
- GFDEBTN - Federal Debt: Total Public Debt
- GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
- FYFSD - Federal Surplus or Deficit
- FGRECPT - Federal Government Current Receipts
- FGEXPND - Federal Government: Current Expenditures
- MANEMP - All Employees, Manufacturing
- USCONS - All Employees, Construction
- USTRADE - All Employees, Retail Trade
- USFIRE - All Employees, Financial Activities
- USGOVT - All Employees, Government
- AWHAETP - Average Weekly Hours of All Employees, Total Private
- DGORDER - Manufacturers' New Orders: Durable Goods
- NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
- BUSINV - Total Business Inventories
- EXPGS - Exports of Goods and Services
- IMPGS - Imports of Goods and Services
- IR - Import Price Index (End Use): All Commodities
- PPIFIS - Producer Price Index by Commodity: Final Demand
Latest quarter (10-Q)
Latest 10-Q source: 0001193125-26-205003.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 dedicated to advancing healing and restoring mobility for patients with complex musculoskeletal conditions. Headquartered in Lewisville, Texas, we deliver technology-enabled solutions that support improved clinical outcomes and more efficient care across the continuum. We offer a focused and differentiated portfolio spanning spinal implants, therapeutic solutions, limb reconstruction systems, biologics and enabling technologies, including the 7D FLASH Navigation System. Learn more at Orthofix.com and follow Orthofix on LinkedIn. Information included on our website is not incorporated into, or otherwise creates a part of, this report. Notable financial metrics in the first quarter of 2026 and recent achievements include the following: • First quarter 2026 reported net sales of $196.7 million, including sales from M6 artificial cervical and lumbar discs. Non-GAAP pro forma net sales of $196.4 million, excluding sales from M6 discs, increased 3% year over year on a constant currency basis, reflecting steady execution during the final stages of distributor transitions, with further improvement expected as productivity increases. • Global Spine Fixation delivered reported net sales growth of 6% and constant currency growth of 6% compared to the prior year period, including U.S. Spine Fixation growth of 4%, driven by enhanced commercial focus, deeper procedural penetration, and continuing benefits from distributor transition initiatives. • Therapeutic Solutions (formerly Bone Growth Therapies) achieved year-over-year net sales growth of 5%, supported by continued demand across the portfolio and effective commercial execution. • Global Limb Reconstruction reported net sales growth of 10% and constant currency growth of 3% compared to the prior year period, reflecting continued demand for core fixation and reconstruction systems. • First quarter 2026 reported net loss of $(20.9) million and non-GAAP pro forma adjusted EBITDA of $9.7 million, reflecting impacts from geography mix and commercial transitions. Results of Operations The following table provides certain items in our condensed consolidated statements of operations as a percent of net sales: Three Months Ended March 31, (Unaudited) 2026 (%) 2025 (%) Net sales 100.0 100.0 Cost of sales 29.1 37.2 Gross profit 70.9 62.8 Sales, general, and administrative 68.5 68.6 Research and development 7.8 10.2 Acquisition-related amortization, impairment, and remeasurement 1.9 9.2 Operating loss (7.3 ) (25.2 ) Net loss (10.6 ) (27.4 ) 22 Net Sales by Product Category and Reporting Segment Our operations are managed through two reporting segments: Global Spine and Global Limb Reconstruction. The following table provides net sales by product category and reporting segment: Three Months Ended March 31, (Unaudited, U.S. Dollars, in millions) 2026 2025 Change Constant Currency Change Therapeutic Solutions $ 57.8 $ 55.1 4.9 % 4.9 % Spinal Implants, Biologics and Enabling Technologies* 105.8 104.3 1.4 % 1.4 % Global Spine* 163.6 159.4 2.6 % 2.6 % Global Limb Reconstruction 32.8 29.8 10.2 % 3.0 % Pro forma net sales* 196.4 189.2 3.8 % 2.7 % Impact from discontinuation of M6 product lines 0.3 4.4 (94.2 %) (94.5 %) Reported net sales $ 196.7 $ 193.6 1.6 % 0.4 % * Results above for each of Spinal Implants, Biologics, and Enabling Technologies; Global Spine; and pro forma net sales exclude the impact from discontinuation of the M6 product lines. Since pro forma net sales represent a non-GAAP measure, see the reconciliation above of the Company's pro forma net sales to its reported figures under U.S. GAAP. The Company's reported figures under U.S. GAAP represent each of the pro forma line items discussed above plus the impact from discontinuation of the M6 product lines. Global Spine Global Spine offers the following product categories: • Therapeutic Solutions 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. Therapeutic Solutions 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 implant products used in surgical procedures of the spine, 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 March 31, 2026 compared to 2025 Net sales of $163.9 million, flat compared to the prior year period • Therapeutic Solutions net sales increased $2.7 million, or 4.9%, largely driven by (i) favorable changes in average sales prices and (ii) increases in gross order volumes from our continued investment in our direct sales channels for both the spine and fracture markets • Spinal Implants, Biologics, and Enabling Technologies net sales, excluding sales from the M6 product lines, increased $1.5 million, or 1.4%, primarily due to increased sales growth from new and existing high-volume distributor partners within Spine Fixation, which saw growth in its cervical, thoracolumbar, and interbody franchises; growth in these areas was partially offset by a decline in Biologics and Enabling Technologies. The decrease in Enabling Technologies was due to the timing of revenue in the prior year from completed contracts under the Voyager Earnout program. • Net sales from the M6 product lines decreased $4.2 million, or 94.2%, as a result of the discontinuation of the product lines in 2025 to focus resources and investments in more profitable growth opportunities Global Limb Reconstruction Global Limb Reconstruction offers products and solutions for the underserved limb reconstruction market that encompasses four pillars: deformity correction, limb lengthening, complex fracture management, and limb preservation. Global Limb Reconstruction sells its products through a global network of distributors and sales representatives to hospitals, healthcare organizations, and healthcare providers. 23 Three months ended March 31, 2026 compared to 2025 Net sales of $32.8 million, an increase of $3.0 million or 10.2% on a reported basis and 3.0% on a constant currency basis • U.S. net sales decline of $0.1 million, or 0.8%, largely due to timing of large capital sales orders, partially offset by growth from new products launched in the past three years • International sales increase of $3.1 million, or 4.6% on a constant currency basis, primarily driven by sales of new products launched in the past three years and partially offset by large tender orders in the prior year • Net sales increase of $2.2 million due to movement in foreign currency exchange rates, which had a favorable impact during the quarter Gross Profit Three Months Ended March 31, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change Net sales $ 196,708 $ 193,646 1.6 % Cost of sales 57,162 72,027 (20.6 %) Gross profit $ 139,546 $ 121,619 14.7 % Gross margin 70.9 % 62.8 % 8.1 % Three months ended March 31, 2026 compared to 2025 Gross profit increased $17.9 million • Increase in gross profit of $12.4 million resulting from significant inventory reserve expenses recorded in the first quarter of 2025, primarily attributable to the discontinuation of the M6 product lines in order to focus resources and investments on more profitable growth opportunities • Increase in gross profit also driven by reduced headcount, overhead costs, and depreciation, resulting from the discontinuation of the M6 product lines • These changes were also partially offset by certain changes in geographical mix of net sales Sales, General, and Administrative Expense Three Months Ended March 31, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change Sales, general, and administrative $ 134,911 $ 132,981 1.5 % As a percentage of net sales 68.6 % 68.7 % (0.1 %) Three months ended March 31, 2026 compared to 2025 Sales, general, and administrative expense increased $1.9 million • Increase of $2.9 million primarily driven by increased compensation and benefit costs, including variable compensation and share-based compensation expense • Increase of $0.7 million in professional fees and insurance costs, mostly pertaining to an increase in accrued settlement fees and costs • Partially offset by a decrease of $2.3 million in depreciation expense, mostly as a result of impairments incurred in the prior year as a result of the discontinuation of the M6 product lines 24 Research and Development Expense Three Months Ended March 31, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change Research and development $ 15,320 $ 19,766 (22.5 %) As a percentage of net sales 7.8 % 10.2 % (2.4 %) Three months ended March 31, 2026 compared to 2025 Research and development expense decreased $4.4 million • Decrease of $4.8 million related to impairments associated with the discontinuation of the M6 product lines and other organizational restructuring activities that occurred in 2025 • Partially offset by an increase of $0.4 million in clinical studies and product development costs Acquisition-related Amortization, Impairment, and Remeasurement Three Months Ended March 31, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change Acquisition-related amortization, impairment, and remeasurement $ 3,751 $ 17,745 (78.9 %) As a percentage of net sales 1.9 % 9.2 % (7.3 %) Acquisition-related amortization, impairment, and remeasurement consists of (i) amortization and impairment 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 March 31, 2026 compared to 2025 Acquisition-related amortization, impairment, and remeasurement decreased $14.0 million • Decrease of $15.4 million in amortization expense primarily associated with the impairment of certain acquired intangible assets as a result of the discontinuation of the M6 product lines • Partially offset by an increase of $1.4 million associated with the remeasurement of a contingent consideration obligation with Lattus Spine LLC assumed in the merger with SeaSpine Holdings Corporation (the "Merger") Non-operating Income and Expense Three Months Ended March 31, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change Interest expense, net $ (5,664 ) $ (4,506 ) 25.7 % Other income (expense), net (734 ) 1,246 (158.9 %) Three months ended March 31, 2026 compared to 2025 Interest expense, net increased $1.2 million • Unfavorable change of $1.4 million attributable to an increase in interest expense following the fund [Excerpt truncated for page length; source filing is linked above.]
Latest 10-K MD&A
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and result of operations should be read in conjunction with "Forward-Looking Statements" and our consolidated financial statements and notes thereto appearing elsewhere in this Annual Report. The discussion and analysis below is focused on our 2025 and 2024 financial results, including comparisons of our year-over-year performance between these years. Discussion and analysis of our 2023 fiscal year, as well as the year-over-year comparison of our 2024 financial performance to 2023, is located in Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 25, 2025, which is available on our website at www.orthofix.com and the SEC’s website at www.sec.gov.
Executive Summary
Orthofix is 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. Orthofix offers a comprehensive portfolio of spinal hardware, bone growth therapies, specialized orthopedic solutions, biologics, and enabling technologies, including the 7D FLASH navigation system.
In January 2023 we completed a “merger of equals” transaction with SeaSpine whereby we acquired SeaSpine via an all-stock merger. For additional discussion of the merger with SeaSpine, see Note 4 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report. The shares of common stock of Orthofix, as the corporate parent entity in the combined company structure, continue to trade on NASDAQ under the symbol "OFIX".
In February 2025, we announced our intent to discontinue our M6-C artificial cervical disc and M6-L artificial lumbar disc product lines (together, the "M6 artificial discs" or "M6 product lines") in order to allocate associated resources and investments to more profitable growth opportunities. All pro forma measures contained within this discussion of our operating results exclude the impact of this decision to discontinue the product lines.
Notable financial results in 2025 include the following:
•
Net sales of $822.3 million, including sales from our M6 artificial cervical and lumbar discs, and pro forma net sales of $811.9 million, excluding net sales from our M6 discs, representing an increase of 2.9% on a reported basis and 4.1% on a pro forma constant currency basis compared to the prior year
•
Global Spine Fixation net sales growth of 10.1% on both a reported and pro forma constant currency basis over the prior year, inclusive of U.S. Spine Fixation net sales growth of 5.5% compared to prior year
•
Bone Growth Therapies ("BGT") net sales of $247.2 million, representing growth of 5.9% compared to the prior year
•
Global Limb Reconstruction net sales of $134.7 million, representing growth of 8.4% on a reported basis and 5.3% on a constant currency basis over the prior year, inclusive of U.S. Limb Reconstruction growth of 15.8% compared to the prior year
Results of Operations
The following table presents certain items in our consolidated statements of operations as a percent of net sales:
Year ended December 31,
2025
(%)
2024
(%)
2023
(%)
Net sales
100.0
100.0
100.0
Cost of sales
31.2
31.7
34.9
Gross profit
68.8
68.3
65.1
Sales, general, and administrative
67.4
66.6
71.0
Research and development
8.0
9.2
10.7
Acquisition-related amortization, impairment, and remeasurement
3.3
3.1
2.0
Operating loss
(9.9
)
(10.6
)
(18.6
)
Net loss
(11.2
)
(15.8
)
(20.3
)
56
Net Sales by Reporting Segment
The following table provides net sales by major product category by reporting segment:
Percentage Change
2025/2024
2025/2024
2024/2023
2024/2023
(U.S. Dollars, in thousands)
2025
2024
2023
Reported
Constant Currency
Reported
Constant Currency
Bone Growth Therapies
$
247,164
$
233,405
$
212,530
5.9
%
5.9
%
9.8
%
9.8
%
Spinal Implants, Biologics, and Enabling Technologies
440,491
441,909
418,789
-0.3
%
-0.3
%
5.5
%
5.5
%
Global Spine
687,655
675,314
631,319
1.8
%
1.8
%
7.0
%
7.0
%
Global Limb Reconstruction
134,657
124,177
115,322
8.4
%
5.3
%
7.7
%
7.9
%
Net sales
$
822,312
$
799,491
$
746,641
2.9
%
2.4
%
7.1
%
7.1
%
Global Spine
Global Spine offers the following products categories:
-
BGT 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. BGT 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 implant products used in surgical procedures of the spine, 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.
2025 Compared to 2024
Net sales increased $12.3 million or 1.8%
•
BGT net sales increased $13.8 million, or 5.9%, driven by (i) favorable changes in average sales prices, (ii) increases in gross order volumes from our continued investment in our direct sales channels for both the spine and fracture markets, and (iii) continued market share growth of AccelStim
•
Spinal Implants, Biologics, and Enabling Technologies net sales, excluding sales from the M6 product lines, increased $11.6 million, or 2.8%, primarily due to increased sales growth from new and existing high-volume distributor partners within Spine Fixation, which saw growth in its cervical, interbody, and thoracolumbar franchises; growth in these areas was partially offset by a decline in Biologics
•
Net sales from the M6 product lines decreased $13.0 million, or 55.4%, as a result of the announcement and discontinuation of the product lines in 2025 to focus resources and investments in more profitable growth opportunities
Global Limb Reconstruction
Global Limb Reconstruction offers products and solutions for the underserved limb reconstruction market that encompasses four pillars: deformity correction, limb lengthening, complex fracture management, and limb preservation. Global Limb Reconstruction sells its products through a global network of distributors and sales representatives to hospitals, healthcare organizations, and healthcare providers.
2025 Compared to 2024
Net sales increased $10.5 million, or 8.4% on a reported basis and 5.3% on a constant currency basis
•
U.S. growth of $5.3 million, or 15.8%, largely due to investments made in recent product launches, commercial execution within our sales channel, and from growth within our TrueLok and Fitbone product lines
57
•
International growth of $1.2 million, or 1.4% on a constant currency basis, primarily driven by sales from new products launched in the past three years and partially offset by large orders made by NGOs in the prior year
•
Increase of $3.9 million due to movement in foreign currency exchange rates, which had a favorable impact on net sales in 2025
Gross Profit
Percentage Change
(U.S. Dollars, in thousands)
2025
2024
2023
2025/2024
2024/2023
Net sales
$
822,312
$
799,491
$
746,641
2.9
%
7.1
%
Cost of sales
256,295
253,606
260,368
1.1
%
-2.6
%
Gross profit
$
566,017
$
545,885
$
486,273
3.7
%
12.3
%
Gross margin
68.8
%
68.3
%
65.1
%
0.5
%
3.2
%
2025 Compared to 2024
Gross profit increased $20.1 million, or 3.7%
•
Increase in gross profit driven by net sales growth across BGT, Spinal Implants, Enabling Technologies, and Limb Reconstruction product categories
•
Increase in gross profit of $12.2 million driven by a reduction in amortization of the inventory fair value step-up recognized in the Merger, which was amortized over the expected sales cycles of the acquired inventory and concluded in December 2024
•
Partially offset by a decrease in gross profit of $4.6 million resulting from increased inventory reserve expenses, primarily driven by our decision to discontinue the M6 product lines in order to focus resources and investments on more profitable growth opportunities
Sales, General, and Administrative Expense
Percentage Change
(U.S. Dollars, in thousands)
2025
2024
2023
2025/2024
2024/2023
Sales, general, and administrative
$
554,329
$
532,525
$
530,395
4.1
%
0.4
%
As a percentage of net sales
67.4
%
66.6
%
71.0
%
0.8
%
-4.4
%
2025 Compared to 2024
Sales, general, and administrative expense increased $21.8 million
•
Increase of $17.6 million associated with certain legal matters, including ongoing arbitration proceedings with former executives and related securities class action and shareholder derivative complaints
•
Increase of $10.1 million related to impairments of certain assets, restructuring costs, and losses incurred as a result of our decision to discontinue the M6 product lines
•
Increase of $4.1 million in certain compensation related costs, including commissions, due to increased headcount and net sales
•
Partially offset by a decrease of $9.9 million in succession charges and share-based compensation expense, primarily as a result of changes made in our executive leadership positions in the prior year
Research and Development Expense
Percentage Change
(U.S. Dollars, in thousands)
2025
2024
2023
2025/2024
2024/2023
Research and development
$
65,847
$
73,643
$
80,231
-10.6
%
-8.2
%
As a percentage of net sales
8.0
%
9.2
%
10.7
%
-1.2
%
-1.5
%
58
2025 Compared to 2024
Research and development expense decreased $7.8 million
•
Decrease of $3.5 million as a result of our decision to discontinue the M6 product lines, with this decrease primarily attributable to decreases in compensation costs, clinical studies, and other product development costs
•
Decrease of approximately $3.2 million in other employee compensation and benefit costs, including share-based compensation expense, as a result of recent integration and restructuring activities
•
Decrease of $1.4 million in costs to comply with the European Union Medical Device Regulations
Acquisition-related Amortization, Impairment, and Remeasurement
Percentage Change
(U.S. Dollars, in thousands)
2025
2024
2023
2025/2024
2024/2023
Acquisition-related amortization, impairment, and remeasurement
$
27,269
$
24,336
$
14,757
12.1
%
64.9
%
As a percentage of net sales
3.3
%
3.1
%
2.0
%
0.2
%
1.1
%
2025 Compared to 2024
Acquisition-related amortization, impairment, and remeasurement increased $2.9 million
•
Increase of $11.0 million in amortization and impairment expense of acquired intangibles, primarily associated with the impairment of certain acquired intangible assets as a result of the discontinuation of the M6 product lines and other product portfolio decisions
•
Decrease of $8.0 million associated with the remeasurement of a contingent consideration obligation with Lattus Spine LLC ("Lattus") assumed in the Merger
Non-operating Income (Expense)
Percentage Change
(U.S. Dollars, in thousands)
2025
2024
2023
2025/2024
2024/2023
Interest expense, net
$
(17,488
)
$
(29,631
)
$
(8,631
)
-41.0
%
243.3
%
Other income (expense), net
8,106
(9,625
)
(938
)
-184.2
%
926.1
%
Non-operating income (expense) largely consists of net interest income and expense, transaction gains and losses from changes in foreign currency exchange rates, changes in fair value related to our equity holdings in certain privately-held companies, and credit losses recognized on certain convertible debt investments. Foreign exchange gains and losses are primarily a result of several of our foreign subsidiaries holding trade and intercompany payables or receivables in currencies (most notably the U.S. Dollar) other than their functional currency.
2025 Compared to 2024
Interest expense, net, decreased $12.1 million
•
Favorable change of $11.4 million associated with the extinguishment of our former Financing Agreement with Blue Torch Finance LLC and from favorable interest rates and amortization of debt issuance costs after refinancing our outstanding indebtedness in November 2024
•
Favorable change of $0.9 million resulting from interest earned on certain Employee Retention Credit refunds received during 2025
•
Partially offset by an unfavorable change of $0.2 million as a result of the conversion of our former convertible loan with Neo Medical into preferred equity securities in the second quarter of 2024
Other income (expense), net, increased $17.7 million
•
Favorable change of $7.3 million associated with foreign currency exchange rates, as we recorded a non-cash remeasurement gain of $2.9 million in 2025 compared to a loss of $4.4 million in 2024
•
Favorable change of $5.1 million, related to impairments totaling $6.8 million on certain investments measured at fair value in prior year and partially offset by a $1.7 million gain recognized in the prior year upon conversion of the Neo Medical convertible loan into shares of equity
59
•
Favorable change of $4.8 million from the receipt of Employee Retention Credit refunds received during 2025
Income Tax Expense
Percentage Change
(U.S. Dollars, in thousands)
2025
2024
2023
2025/2024
2024/2023
Income tax expense
$
1,382
$
2,122
$
2,716
-34.9
%
-21.9
%
Effective tax rate
-1.5
%
-1.7
%
-1.8
%
0.2
%
0.1
%
2025 Compared to 2024
Income tax expense decreased by $0.7 million
•
Decrease of $3.4 million associated with lower financial statement losses offset by valuation allowances
•
Increase of $1.3 million associated with cross border tax impacts
•
Increase of $1.4 million associated with statute expirations on uncertain tax positions in 2024 not recurring in 2025
2024 Compared to 2023
Income tax expense decreased by $0.6 million
•
Increase of $5.2 million associated with lower financial statement losses partially offset by valuation allowances
•
Decrease of $2.0 million associated with foreign income inclusion
•
Decrease of $1.5 million associated with statue expirations on uncertain tax positions
•
Decrease of $2.4 million associated with financial statement expenses not deductible for tax, including executive and equity compensation
A reconciliation of the effective tax rate for each year is reported in Note 20 to the Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report.
Liquidity and Capital Resources
Cash, cash equivalents, and restricted cash at December 31, 2025, was $85.1 million compared to $85.7 million at December 31, 2024.
Year Ended December 31,
(U.S. Dollars, in thousands)
2025
2024
Change
Net cash provided by operating activities
$
33,347
$
25,790
$
7,557
Net cash used in investing activities
(34,598
)
(27,580
)
(7,018
)
Net cash provided by (used in) financing activities
(786
)
50,709
(51,495
)
Effect of exchange rate changes on cash and restricted cash
1,414
(938
)
2,352
Net change in cash, cash equivalents, and restricted cash
$
(623
)
$
47,981
$
(48,604
)
The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash provided by or used in operating activities.
Year Ended December 31,
(U.S. Dollars, in thousands)
2025
2024
Change
Net cash provided by operating activities
$
33,347
$
25,790
$
7,557
Capital expenditures
(34,626
)
(34,876
)
250
Free cash flow
$
(1,279
)
$
(9,086
)
$
7,807
Operating Activities
Cash flows from operating activities increased $7.6 million
60
•
Decrease in net loss of $33.8 million
•
Decrease of $24.0 million associated with non-cash gains and losses, such as depreciation, amortization, and impairments, inventory reserve expenses, the amortization of the inventory fair value step-up recognized in the Merger, remeasurement of contingent consideration obligations, changes in the valuation of investment securities, and share-based compensation expense
•
Decrease of $2.2 million relating to changes in working capital accounts, primarily attributable to changes in accounts receivable, inventories, accounts payable, and other current liabilities
Two of our primary working capital accounts are accounts receivable and inventories. Days sales in receivables were 57 days at both December 31, 2025, and 2024 (calculated using fourth quarter net sales and ending accounts receivable). Inventory turns improved to 1.5 times at December 31, 2025, compared to 1.3 times at December 31, 2024, respectively (calculated using trailing twelve month cost of goods sold and ending net inventories).
Investing Activities
Cash flows from investing activities decreased $7.0 million
•
Decrease of $7.4 million relating to the sale of the Neo Medical preferred equity securities in 2024
•
Partially offset by an decrease in spend of $0.3 million in capital expenditures and $0.1 million in other investing activities
Financing Activities
Cash flows from financing activities decreased $51.5 million
•
Decrease of $55.1 million associated with net borrowing activities related to our credit facilities in the prior year
•
Decrease of $4.0 million associated with contingent consideration payments
•
Partially offset by an increase of $4.6 million in net proceeds from the issuance of common shares
•
Further offset by a favorable change of $3.1 million in debt issuance costs associated with our credit facilities
Credit Facilities
On November 7, 2024, we entered into a $275.0 million secured credit agreement (the "Credit Agreement") with Oxford Finance LLC, as administrative agent and as collateral agent ("Oxford") and certain lenders party thereto, including Oxford, K2 HealthVentures LLC, and HSBC Ventures USA Inc. Certain of our foreign subsidiaries joined the Credit Agreement as guarantors shortly after the signing date. The Credit Agreement provides for a $160.0 million senior secured term loan (the "Initial Term Loan") and a $65.0 million senior secured delayed draw term loan facility (the "Term B Loan"). Draws under the Term B Loan are at our option from January 1, 2025 through June 30, 2026, subject to, among other conditions, our continued 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 $50.0 million of draw capacity is available 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. As of December 31, 2025, we had only utilized the Initial Term Loan, however, on January 15, 2026, we borrowed $65.0 million via the Term B Loan for working capital purposes.
The Credit Agreement contains financial covenants requiring us to maintain a minimum level of liquidity at all times and to maintain a maximum total debt-to-EBITDA leverage ratio (measured on a quarterly basis) during the term of the facility. As of December 31, 2025, we were in compliance with all required financial covenants.
For additional information regarding the credit facility, see Note 11 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.
We had no outstanding borrowings on our Italian line of credit of €5.5 million ($6.5 million) as of December 31, 2025. This unsecured line of credit provides us the option to borrow amounts in Italy at rates which are determined at the time of borrowing.
61
Other
For information regarding Contingencies, see Note 13 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.
Lattus Spine LLC ("Lattus") Contingent Consideration
Under the terms of a contingent consideration obligation in a purchase agreement assumed in the SeaSpine Merger, we may be required to make installment payments at certain dates based on future net sales of certain products (the "Lateral Products"). We made a payment under this arrangement of $6.3 million during the year ended December 31, 2025. The estimated fair value of the remaining contingent consideration arrangement as of December 31, 2025, was $7.9 million; however, the actual amount ultimately paid could be higher or lower than the estimated fair value of the contingent consideration. As of December 31, 2025, we classified the remaining contingent consideration liability of $4.3 million and $3.6 million within other current liabilities and other long-term liabilities, respectively. For additional discussion of this matter, see Note 12 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.
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. Per the terms of the License Agreement, we have the exclusive right to sell IGEA products in the U.S. and Canada. 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 2023, and the remaining $1.0 million was paid in 2024.
Unremitted Foreign Earnings
The Company’s investment in foreign subsidiaries continues to be indefinite in nature; however, the Company may periodically repatriate a portion of these earnings to the extent that it does not incur significant additional tax liability.
Contractual Obligations
As a result of our operations, we are subject to certain contractual obligations with material cash requirements. Our material contractual obligations include, but are not limited to (i) contingent consideration arrangements associated with certain asset acquisitions or business combinations, of which material obligations are described above, (ii) operating lease and finance lease obligations, and (iii) uncertain tax positions.
Refer to the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report for a further description of our contingent consideration arrangements (Notes 12 and 17), lease obligations (Note 9), and uncertain tax positions (Note 20).
Off-balance Sheet Arrangements
As of December 31, 2025, 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. In addition, we do not consider the backlog of firm orders to be material.
Critical Accounting Estimates
Our discussion of operating results is based upon the 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 as of the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, we evaluate these estimates, which are based on historical experience and various other assumptions that management believes to be reasonable under the circumstances at that point in time. Actual results may differ, significantly at times, from these estimates.
We believe the estimates described below are the most critical in preparing our consolidated financial statements. We have reviewed these critical accounting estimates with the Audit and Finance Committee of the Board of Directors.
62
Revenue Recognition
The process for recognizing revenue involves significant assumptions and judgments for certain of our revenue streams. Revenue recognition policies are "critical accounting estimates" because changes in the assumptions used to develop the estimates could materially affect key financial measures, including net sales, gross profit, operating income, adjusted EBITDA, and net income.
BGT revenue is largely attributable to the U.S. and is comprised of third-party payor transactions and wholesale revenue.
For revenue derived from third-party payors, including commercial insurance carriers, health maintenance organizations, preferred provider organizations, and governmental payors, such as Medicare, in connection with the sale of our BGT products, we recognize revenue when the stimulation product is fitted to and accepted by the patient and all applicable documents that are required by the third-party payor have been obtained. Amounts paid by these third-party payors are generally based on fixed or allowable reimbursement rates. These revenues are recorded at the expected or preauthorized reimbursement rates, net of any contractual allowances or adjustments. Certain billings are subject to review by the third-party payors and may be subject to adjustment.
Wholesale revenue is related to the sale of our BGT products directly to physicians and other healthcare providers. Wholesale revenues are typically recognized upon shipment and receipt of a confirming purchase order, which is when the customer obtains control of the promised goods.
Biologics revenue is largely attributable to the U.S. and is mostly processed from within our Irvine facility. In addition, we have a long-standing collaborative arrangement with MTF Biologics ("MTF") that provides exclusive global marketing rights to MTF's Virtuos and Trinity Elite tissues, and exclusive rights to market the FiberFuse tissues in the U.S. We receive marketing fees from MTF based on sales of products covered under the collaborative arrangement. MTF is considered the principal in these arrangements; therefore, we recognize these marketing service fees on a net basis upon shipment of the product to the customer and receipt of a confirming purchase order.
Spinal Implants and Global Limb Reconstruction products are distributed world-wide, with U.S. sales largely comprised of commercial revenue and international sales derived from commercial sales and through stocking distributor arrangements.
Commercial revenue is largely related to the sale of our Spinal Implants and Global Limb Reconstruction products to hospital customers. Commercial revenues are recognized when these products have been utilized and a confirming purchase order has been received from the hospital.
Stocking distributors purchase our products and then re-sell them directly to customers, such as hospitals. Revenue derived from stocking distributor arrangements is recognized upon shipment and receipt of a confirming purchase order, which is when the distributor obtains control of the promised goods. The transaction price is estimated based upon our historical collection experience with the stocking distributor. This percentage, which is specific to each stocking distributor, is then used to calculate the transaction price. Cost of sales is also recorded upon transfer of control of the product to the customer, which is when our performance obligation has been satisfied.
Enabling technologies revenue is primarily comprised of sales of our 7D Flash Navigation Systems and related instruments to hospitals, healthcare providers, and stocking distributors. Revenue is typically recognized from these sales upon installation of the system at the site of the purchasing hospital or upon shipment to a stocking distributor and receipt of a confirming purchase order, as this represents the point in time when our performance obligation has been satisfied.
Allowance for Expected Credit Losses and Contractual Allowances
The process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments. The determination of the contractual life of accounts receivable, the aging of outstanding receivables, as well as the historical collections, write-offs, and payor reimbursement experience over the estimated contractual lives of such receivables, are integral parts of the estimation process related to reserves for expected credit losses and the establishment of contractual allowances. Accounts receivable are analyzed on at least a quarterly basis to assess the adequacy of both reserves for expected credit losses and contractual allowances. Revisions in allowances for expected credit loss estimates are recorded as an adjustment to bad debt expense within sales, general, and administrative expenses. Revisions to contractual allowances are recorded as an adjustment to net sales. These estimates are periodically tested against actual collection experience. In addition, we analyze our receivables by geography and by customer type, where appropriate, in developing estimates for expected credit losses. We elected the practical expedient provided within Accounting Standard Update 2025-05, which allows us to assume that current macroeconomic conditions as of the balance sheet date persist for the remaining contractual life of current accounts receivable.
63
We believe our allowance for credit losses is sufficient to cover customer credit risks; however, a 10% change in our allowance for credit losses as of December 31, 2025, would result in an increase or decrease to sales, general, and administrative expense of $0.8 million. Additionally, we believe our estimate to establish contractual allowances is sufficient to cover risk of subsequent contractual adjustments; however, a 10% change in our reserve for contractual allowances as of December 31, 2025, would result in an increase or decrease to net sales of $0.4 million. Our allowance for credit losses and estimation of contractual allowances are "critical accounting estimates" because changes in the assumptions used to develop the estimates could materially affect key financial measures, including net sales, gross profit, operating income, adjusted EBITDA, net income, and accounts receivable.
Inventory Allowances
Reserves for excess, slow moving, and obsolete inventory are calculated as the difference between the cost of inventory and net realizable value and are based on assumptions and judgments about new product launch periods, overall product life cycles, forecasted demand, and market conditions. In the event of a decrease in demand for our products, excess product production, or a higher incidence of inventory obsolescence, we may be required to increase our inventory reserves, which would increase cost of sales and decrease gross profit. We regularly evaluate our exposure for inventory write-downs. If conditions or assumptions used in determining the market value or forecasted demand change, additional inventory adjustments in the future may be necessary. Our inventory allowance is a "critical accounting estimate" because changes in the assumptions used to develop the estimate could materially affect key financial measures, including gross profit, operating income, adjusted EBITDA, net income, and inventories.
Valuation of Intangible Assets
Our intangible assets are comprised primarily of patents, acquired or developed technology, in-process research and development ("IPR&D"), customer relationships, trade names, trademarks, and licensing arrangements. We make significant judgments in relation to the valuation of intangible assets resulting from business combinations or asset acquisitions. Intangible assets acquired in a business combination that are used for IPR&D activities are considered to have indefinite lives until the completion or abandonment of the associated project. Upon reaching the end of the relevant project, we will either amortize the acquired IPR&D over its estimated useful life or expense the acquired IPR&D should the project be unsuccessful with no future alternative use.
Significant judgment is required related to the forecasting of future operating results within our discounted cash flow valuation models to determine the valuation of intangible assets. Key assumptions include the anticipated useful lives of acquired intangibles, the projected cash flows associated with each intangible asset, the estimated probability of success for acquired IPR&D projects, and projected growth rates and discount rates. It is possible that significant changes in plans or assumptions may affect the recoverability of these assets and could potentially result in impairment. Our valuation of intangible assets is a "critical accounting estimate" because changes in the assumptions used to develop these estimates could materially affect key financial measures, including operating income and net income.
Goodwill
Our goodwill represents the excess of cost over fair value of net assets acquired from business combinations. The determination of the value of goodwill and intangible assets arising from business combinations requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired.
We test goodwill at least annually for impairment, and between annual tests if indicators of potential impairment exist. These indicators include, among others, significant declines in sales, earnings, or cash flows, or the development of a material adverse change in the business climate. Assessing goodwill impairment involves a high degree of judgment due to the estimates and assumptions used. Our valuation of goodwill is a "critical accounting estimate" because significant changes in the estimates and assumptions involved in the impairment assessment could materially affect key financial measures, including operating income and net income.
In the third quarter of 2023, we announced the termination of the former President and Chief Executive Officer, former Chief Financial Officer, and former Chief Legal Officer, from their respective roles. Immediately following the announcement, our market capitalization decreased by approximately 30%, indicating that an impairment may exist. As a result, we performed an interim quantitative assessment of our goodwill as of September 30, 2023. Upon performing our assessment, we determined the Global Spine reporting unit's fair value exceeded its carrying value as of September 30, 2023.
In the fourth quarter of 2023, we performed a qualitative assessment for our goodwill impairment analysis, which did not result in an impairment charge. This quantitative analysis considered all relevant factors specific to the reporting units, including macroeconomic conditions, industry and market considerations, overall financial performance, and relevant entity-specific events.
In the fourth quarters of both 2024 and 2025, we performed a quantitative assessment for our annual goodwill impairment analysis, which did not result in an impairment charge. Upon performing our assessment, we determined the Global Spine reporting unit's fair
64
value exceeded its carrying value and concluded there were no indicators of impairment. These qualitative assessments considered all relevant factors specific to the reporting units, including macroeconomic conditions, industry and market considerations, overall financial performance, and relevant entity-specific events.
We estimate the fair value of each reporting unit using a weighted average of fair value derived from both an income approach and a market approach. The fair value measurements are based on significant inputs that are unobservable in the market, with key assumptions including, but not limited to, our forecasted future net sales and expenses, terminal growth rates, discount rates applied, and allocation of corporate-level expenses to each reporting unit. Significant changes in these assumptions could result in a significantly higher or lower fair value, which in turn can affect the ultimate conclusion regarding if goodwill is impaired.
Fair Value Measurements
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The most significant item that is or was recorded at fair value as of December 31, 2025, and 2024, was the contingent consideration attributable to Lattus.
The contingent consideration obligation consists of future installment payments at certain dates based on future net sales of Lateral Products. The estimated fair value of the contingent consideration arrangement as of December 31, 2025, was $7.9 million; however, the actual amount ultimately paid could be higher or lower than the estimated fair value of the contingent consideration.
The estimated fair value of the Lattus contingent consideration is determined using a Monte Carlo simulation and a discounted cash flow model requiring significant inputs which are not observable in the market. The significant inputs include assumptions related to estimated future sales of the products, revenue risk-adjusted discount rates, revenue volatility, and discount rates matched to the timing of payments.
Prior to our sale of these investments in 2024, we estimated the fair value of our convertible loan agreements with Neo Medical using option-pricing models and a probability-weighted discounted cash flow model. The fair value measurement was based on significant inputs that were unobservable in the market, with significant unobservable inputs including applicable discount rates, implied volatility, the likelihood and projected timing of repayment or conversion, and projected cash flows in support of the estimated enterprise value of Neo Medical. Significant changes in these assumptions could have resulted in a significantly higher or lower fair value. In April 2024, we converted the convertible loan into shares of Neo Medical preferred equity securities, which were recorded in other long-term assets and considered an investment that does not have a readily determinable fair value. The preferred equity securities were recorded at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. In November 2024, we sold our shares of Neo Medical preferred equity for $7.4 million.
Our fair value measurements are a "critical accounting estimate" because changes in the assumptions used to develop the estimate could materially affect key financial measures, including operating income, adjusted EBITDA, and net income.
Other Fair Value Measurements Utilized in Purchase Accounting
Assets acquired and liabilities assumed in a business combination or asset acquisition are recorded at fair value as of the date of acquisition. Common adjustments to historical carrying values recognized for such assets or liabilities include (i) adjusting the basis of acquired inventory from net realizable value to fair value, (ii) adjusting acquired plant, property, and equipment, net of any historical accumulated depreciation, to the asset’s estimated fair value, and (iii) the remeasurement of right-of-use assets and assumed lease liabilities. The determination of the acquisition date fair value of the assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates and assumptions, especially with respect to future expected cash flows, useful lives, and discount rates.
As part of the Merger, we acquired SeaSpine's inventory, including raw materials, work-in-process ("WIP"), and finished goods. Raw materials had not been subjected to any manufacturing processes that would add additional value, therefore we determined book value was representative of fair value. We assessed the fair value of the WIP and finished goods inventory using the comparative sales method. The estimated step-up in fair value on acquired inventory recognized in connection with the Merger was $48.2 million. As of December 31, 2025, the step-up in fair value on acquired inventory was fully amortized.
We estimated the fair value of the various classes of property, plant, and equipment acquired using the income approach, sales comparison approach, and the cost approach. The estimated fair value of property, plant, and equipment acquired in connection with the Merger was $68.9 million as of the acquisition date.
Intangible assets recognized in the Merger primarily included customer relationships, developed technology, and IPR&D. Determining the fair value of intangible assets acquired in the Merger required us to make significant estimates. These estimates
65
included the amount and timing of projected future cash flows, royalty savings, and the discount rate used to discount those cash flows to present value.
We estimated the fair value of acquired right-of-use assets and assumed lease liabilities acquired in connection with the Merger using the yield capitalization method of the income approach. Acquired right-of-use assets and assumed lease liabilities are measured based on the remaining lease payments over the remaining portion of the lease term. As our leases do not provide an implicit rate, our incremental borrowing rate is used as a discount rate, based on the information available as of the acquisition date, in determining the present value of lease payments.
These fair value measurements are a "critical accounting estimate" because changes in the assumptions used to develop the estimate could materially affect key financial measures, including operating income, adjusted EBITDA, and net income.
Litigation and Contingent Liabilities
From time to time, we are parties to or targets of lawsuits, investigations, and proceedings, including product liability, personal injury, patent and intellectual property, health and safety, employment, and healthcare regulatory matters, which are handled and defended in the ordinary course of business. These lawsuits, investigations, or proceedings could involve a substantial number of claims and could also have an adverse impact on our reputation and customer base. Although we maintain various liability insurance programs for liabilities that could result from such lawsuits, investigations, or proceedings, we are self-insured for a significant portion of such liabilities.
We accrue for such claims when it is probable that a liability has been incurred and the amount can be reasonably estimated. The assessments of whether a loss is probable or a reasonable possibility, and whether the loss or range of loss is reasonably estimable, often involve a series of complex judgments about future events. Among the factors that we consider in this assessment are the nature of existing legal proceedings, investigations, and claims, the asserted or possible damages or loss contingency (if reasonably estimable), the progress of the matter, existing law and precedent, the opinions or views of legal counsel and other advisers, the involvement of the U.S. Government and its agencies in such proceedings, our experience in similar matters and the experience of other companies, the facts available to us at the time of assessment, and how we intend to respond, or have responded, to the proceeding, investigation or claim. Our assessment of these factors may change over time as individual proceedings, investigations or claims progress. For matters where we are not currently able to reasonably estimate the range of reasonably possible loss, the factors that have contributed to this determination include the following: (i) the damages sought are indeterminate, or an investigation has not manifested itself in a filed civil or criminal complaint, (ii) the matters are in the early stages, (iii) the matters involve novel or unsettled legal theories or a large or uncertain number of actual or potential cases or parties, and/or (iv) discussions with the government or other parties in matters that may be expected ultimately to be resolved through negotiation and settlement have not reached the point where we believe a reasonable estimate of loss, or range of loss, can be made. In such instances, we believe that there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss, fine, penalty, or business impact, if any.
Changes in the facts and circumstances associated with a claim could have a material impact on our results of operations and cash flows in the period that reserve estimates are recorded or revised. We believe our insurance coverage and reserves are sufficient to cover currently estimated exposures, but we cannot give any assurance that we will not incur liabilities in excess of recorded reserves or our present insurance coverage. Litigation and contingent liabilities are "critical accounting estimates" because changes in the assumptions used to develop the estimates could materially affect key financial measures, including operating income, adjusted EBITDA, and net income.
Tax Matters
We and each of our subsidiaries are taxed at the rates applicable within each of our respective jurisdictions. Our income tax expense, effective tax rate, deferred tax assets, and deferred tax liabilities will vary according to the jurisdiction in which profits arise. Further, certain of our subsidiaries sell products directly to our other subsidiaries or provide administrative, marketing, and support services to our other subsidiaries. These intercompany sales and support services involve subsidiaries operating in jurisdictions with differing tax rates. The tax authorities in such jurisdictions may challenge our treatment under residency criteria, transfer pricing provisions, or other aspects of their respective tax laws, which could affect our composite tax rate and provisions.
We sometimes engage in transactions in which tax consequences may be subject to uncertainty. We account for these uncertain tax positions in accordance with applicable accounting guidance, which requires significant judgment in assessing the estimated tax consequences of a transaction. We evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. We measure the tax benefit as the
66
largest amount that is more than 50% likely to be realized upon ultimate settlement. We re-evaluate our income tax positions periodically to consider factors such as changes in facts or circumstances, changes in or interpretations of tax law, effectively settled issues under audit, and new audit activity. Such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision, which could have a material impact to the financial statements.
We establish a valuation allowance when measuring deferred tax assets if it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. This process requires significant judgment as we must project the current tax liability and estimate the deferred tax assets and liabilities into future periods, including net operating loss and tax credit carry forwards. In assessing the need for a valuation allowance, we consider recent operating results, availability of taxable income in carryback years, future reversals of taxable temporary differences, future taxable income projections (exclusive of reversing temporary differences), and all prudent and feasible tax planning strategies.
We recognize the tax impact of including certain foreign earnings in US taxable income as a period cost.
Tax matters are "critical accounting estimates" because changes in the assumptions used to develop the estimates could materially affect key financial measures, including net income.
Share-based compensation
We use the Black-Scholes valuation model to calculate the fair value of service-based stock options. The value is recognized as expense over the service period net of actual forfeitures. The expected term of options granted is estimated based on a number of factors, including the vesting and expiration terms of the award, historical employee exercise behavior for both options that are currently outstanding and options that have been exercised or are expired, the historical volatility of our common stock, and an employee’s average length of service. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the expected term of the option award. We estimate expected volatility based on the historical volatility of our stock.
Certain of our outstanding stock options contain market-based vesting conditions. The fair value of the market-based stock options is determined at the date of the grant using the Monte Carlo valuation methodology. The Monte Carlo methodology incorporates into the valuation the possibility that the market condition may not be satisfied. Such value is recognized over the three-year service period, net of actual forfeitures.
We use the Monte Carlo valuation methodology to calculate the fair value of market-based restricted stock units, with any discounts for post-vesting restrictions estimated using the Chaffe Model. The value is recognized as expense over the requisite service period and adjusted for forfeitures as they occur. The Monte Carlo methodology that we use to estimate the fair value of the awards incorporates the possibility that the market condition may not be satisfied.
The fair value of performance-based restricted stock units is calculated based upon (i) the closing stock price at the date of grant and (ii) the number of stock units expected to vest at the conclusion of the performance period. The value is recognized as expense over the derived requisite service period beginning in the period in which the grants are deemed probable to vest. Vesting probability is assessed based upon forecasted financial results metrics or applicable milestones associated with the grant and requires significant judgment.
As part of the Merger, our Board of Directors determined to treat the transaction as a "Change in Control" under applicable agreements and equity plans. As a result, all outstanding and previously granted performance-based and market-based restricted stock units were converted to time-based restricted stock units. We used the Monte Carlo valuation methodology to calculate the fair value of the performance-based and market-based restricted stock units. The value is recognized as expense over the requisite service period and adjusted for forfeitures as they occur.
Determining the appropriate fair value model and calculating the fair value of employee stock awards requires estimates and judgments. Our share-based compensation is a "critical accounting estimate" because changes in the assumptions used to develop estimates of fair value or the requisite service period could materially affect key financial measures, including gross profit, operating income, and net income.
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 metrics that senior management uses to supplement information regarding the performance and underlying trends of our business operations in order to facilitate comparisons to historical operating results and internally evaluate
67
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 GAAP results with non-GAAP financial measures.
The non-GAAP financial measures used in this Annual Report may have limitations as analytical tools and should not be considered in isolation or as a replacement for GAAP financial measures. Some of the 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. Similarly, certain non-cash expenses, such as equity compensation expense, do not directly impact cash flows, but are part of total compensation costs accounted for under GAAP.
Constant Currency
Constant currency is a non-GAAP measure, which 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 GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.
Adjusted EBITDA
Adjusted EBITDA represents earnings before interest income (expense), income taxes, depreciation, and amortization, and excludes the impact of share-based compensation, gains and losses related to changes in foreign exchange rates, charges related to the Merger and other strategic investments, restructuring costs and impairments related to the discontinuation of the M6 product lines, acquisition-related fair value adjustments, gains and/or losses on investments, litigation and investigation charges, succession charges, charges related to initial compliance with regulations set forth by the European Union Medical Device Regulations, and refunds associated with the employee retention credit established by the Coronavirus Aid, Relief, and Economic Security Act. Adjusted EBITDA is the primary metric used by our Chief Operating Decision Maker in managing the business.
Free Cash Flow
Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash provided by or used in operating activities. Free cash flow is 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.