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•Advance our Position in Less-Invasive Spine Surgery. We believe that surgeons, providers and patients will continue to recognize the benefits of less-invasive surgical techniques and our procedurally integrated solutions will promote better clinical, financial, and operational outcomes. It has been demonstrated clinically that XLIF and other less-invasive procedures facilitated by our procedurally integrated solutions decrease trauma and blood loss, and lead to faster overall patient recovery times compared to traditional, open spine surgery procedures. We believe our solutions have the potential to dramatically improve the clinical results of spine surgery and drive better reproducibility through enabling technologies. Because of this belief, we dedicate significant resources to researching clinical outcomes data as well as educating surgeons, providers and patients on the benefits of our products, and we intend to continue to capitalize on the growing demand for less-invasive surgical procedures. |
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•Strengthen Proceduralization Supported by Enabling Technologies and Surgeon Education. We believe through continued innovation and a focus on providing comprehensive procedural solutions integrated with enabling technologies for our customers, we will simultaneously increase our market share and improve patient care. In 2019, we launched the X360 portfolio, a comprehensive lateral approach to single-position surgery that leverages advanced techniques and technologies to deliver patient specific-care while enhancing operating room workflow and efficiency. In 2020, we launched the C360 portfolio, a comprehensive procedurally integrated solution to anterior and posterior cervical spine surgery. In 2021, we acquired Simplify Medical and incorporated the Simplify Cervical Disc into our C360 portfolio. In addition, in the third quarter of 2021, we launched the Pulse platform, which together with other enabling technology, establishes the foundation for our strategy to use data and technology to make spine surgery more intelligent. The Pulse platform is a software ecosystem that integrates multiple hardware technologies, including: radiation reduction, imaging enhancement, rod bending, navigation, IONM, and spinal alignment tools. The Pulse platform provides surgeons with integrated technologies that can enable faster decision-making and streamline operating room workflow. In 2022, we launched the P360 portfolio, a comprehensive solution for surgery from the prone position, including the NuVasive Tube System. These and other launches of procedural systems and enhancements to existing solutions which integrate enabling technologies expand the ability of surgeons to use our products in a variety of surgical approaches and procedures for the spine. We believe that our surgeon education and training program is a strategic differentiator for us, and our Clinical Professional Development team has developed comprehensive, in-person training labs and virtual content to demonstrate the benefits of our innovative products and procedures. Education and training of surgeons will continue to be a focus as we advance our less-invasive solutions integrated with enabling technology. |
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•Expand the Reach of Our Sales Force and Drive Growth Globally. We believe there is significant opportunity for us to further penetrate existing markets and to enter new markets by increasing the size and geographic scope of our sales force, particularly in international markets. Our global sales force consists of a mix of directly employed and independent sales representatives who are responsible for particular geographic regions. Outside of the United States, or U.S., we also utilize third-party distributors. We expect to expand into new geographic territories and to deepen our penetration in existing territories in the U.S. Internationally, we intend to make investments in infrastructure in order to better support existing markets and to drive expansion into new markets. |
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•Selectively License or Acquire Complementary Products and Technologies. In addition to building our company through internal product development and global expansion efforts, we intend to selectively license or acquire complementary products and technologies and enter into strategic relationships designed to keep us on the forefront of innovation and to pursue opportunities that allow us to expand our presence in international markets. Over the past several years, we have acquired companies and technologies to grow our product portfolio, enter new market segments, expand our international presence, and enhance our enabling technology platforms. In furtherance of our enabling technology strategy, we entered into a Spine Precision Partnership with Siemens Healthineers in 2018 to advance operating room workflow efficiency and provide increased precision in the delivery of minimally-disruptive spine surgery technologies through the integration of our Pulse platform with Siemens Healthineers’ mobile 3D C-arm, Cios Spin. In 2021, we expanded and differentiated our cervical portfolio through the acquisition of Simplify Medical, allowing us to address one- and two-level cTDR procedures with the Simplify Cervical Disc. By acquiring complementary products, entering into strategic relationships, and executing on domestic and international footprint expansion opportunities, we believe we can leverage our expertise of bringing new products to market that are intended to improve patient outcomes, simplify or better integrate techniques, reduce hospitalization and rehabilitation times across the globe, and, as a result, reduce overall costs to the healthcare system and continue to grow our global presence. |
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•Demand for Surgical Alternatives with Less Tissue Disruption. As has been demonstrated in other surgical markets, we anticipate the broader acceptance of less-invasive surgical treatments with reduced tissue disruption and patient trauma will result in increased demand. |
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•U.S. Population Demographics. The population segment most likely to experience back pain is expected to increase as a result of aging “baby boomers” (people born between 1946 and 1965). This large population segment is expected to increasingly demand a quicker return to activities of daily living following surgery. |
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•Access to Care in Emerging Markets. Healthcare reforms in many emerging markets are expanding access to treatments to a greater proportion of their populations, which is expected to continue to drive strong increases in demand for healthcare-related product volumes. Increasing economic affluence in key developing regions will further drive demand for healthcare treatments. |
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•Decompression, which is removal of a portion of bone or disc from over or under the nerve root to relieve impingement of the nerve; |
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•Lumbar and thoracic fusion procedures in which the surgeon approaches the spine through the patient’s back (posterior), side (lateral) or abdomen (anterior); |
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•Cervical fusion procedures, for either the posterior occipito-cervico-thoracic region or the anterior cervical region, and motion-preserving cTDR procedures; and |
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Integrated Global Alignment
Current and emerging data illustrates a direct correlation between proper spinal alignment and long-term clinical outcomes. To assist with surgical procedures, we offer a platform called Integrated Global Alignment, or iGA, which offers a global approach for assessing, preserving, and restoring spinal alignment in an effort to promote surgical effectiveness and efficiencies, lasting patient outcomes, and improved quality
Imaging Technology
Ourbending, and Lessray system is an image enhancement, platformwhich is designed to help surgeons and hospital staff manage radiation exposure associated with x-ray and other imaging technology, without compromising intraoperative images or visual accuracy. This is achieved throughby using digital imaging processing technology that generates high-resolutionto generate high resolution images of the surgical field from low-resolution fluoroscopy (or x-ray)low resolution images. We currently offer Lessray as a standalone productPulse also includes navigation, spinal alignment tools, and the Lessray technology will also be incorporated into our Pulse platform.
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Integrated Surgical Automation Platform
The Pulse platform is our integrated technology platformother features designed to comprehensively addressimprove operating room workflow for all spine cases. Pulse seeks to facilitate and optimize clinical decision making while maintaining surgeon control through integrated technologies that inform one another—producing a seamless and efficient workflow. Pulse is designed to increase safety, efficiency, and surgical procedure reproducibility, while addressing some of the uniquemost common clinical and operational challenges ofin spine surgery. Pulse integrates multiple enabling technologies within a single, expandableoffers wireless device capabilities, allowing connectivity and control of the Pulse platform and is engineered to improve workflow, reduce variability, and increasefrom all members of the reproducibility of surgical outcomes. The Pulse platform’s modular architecture is designed to incorporate applications for neuromonitoring, iGA surgical planning, patient-specific rod bending, smart imaging, navigation, and integration with robotics and other smart toolsteam in the future. We expect tooperating room. Its extensible architecture can support future surgical applications as we continue to invest inand develop this technology platform. Further, our goal is to use technology and data to make spine surgery more intelligent, and we are investing to develop and expand the Pulse platform to support a full commercial launch of the technologyinclude applications and technologies designed to developimprove pre-operative treatment selection and expand its application offerings, including investments related toplanning and post-operative workflow and analytics, as well as intra-operative surgical automation and robotics.
technology. Our MAGEC system is designed to overcome the limitations of conventional adjustable rod treatments for early onset scoliosis, or EOS, and reduce the number of surgical procedures required throughout childhood. EOS refers to severely deformed curvatures of the spine diagnosed before the age of ten. EOS is a challenging health issue and can lead to more severe progressive deformities. Surgical treatments for EOS include the use of surgically adjustable expandable rods to control the spine deformity while still allowing the spine to grow until a child reaches an appropriate size or age for a more permanent solution, such as spinal fusion. Surgeries to adjust traditional growing rods are typically performed every six to nine months and are associated with scarring, elevated infection rates, postoperative pain, and impaired mobility as the child heals from surgery. Additionally, these surgeries involve repetitive exposure to general anesthesia, which can delay development and impair long-term cognitive function. Once our magnetically adjustable MAGEC growing rods are surgically implanted in a patient, they can be adjusted non-invasively using an external remote controller. The ability to adjust growing rods without surgical intervention means that EOS patients can be treated with fewer planned surgeries. Our non-invasive adjustment technology enables physicians to perform more frequent adjustments in a non-surgical outpatient setting, thereby improving deformity correction and allowing for optimal spinal growth.
Specialized Orthopedics
Through our NuVasive Specialized Orthopedics subsidiary, we develop and manufacture magnetically adjustable orthopedics products using
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raw materials or components on commercially reasonable terms or in a timely manner, our ability to manufacture our products on a timely and cost-competitive basis may be compromised.
for, among other things, conformance to Quality System Regulations and Current Good Manufacturing Practice requirements and other foreign or international standards.
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•Surgical access instrumentation and methodology, relating to our XLIF and X360 procedures and aspects thereof, as well as technologies and methods related to our C360 portfolio; |
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•Artificial discs, including the Simplify Cervical Disc and related instrumentation; |
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•Neurophysiology enabled instrumentation and methodology, including pedicle screw test systems, software hunting algorithms, navigated guidance, rod bending and surgical access systems; |
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•Spinal implants and related instrumentation and targeting systems; |
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•Biologics, including Osteocel Plus and Osteocel Pro, Formagraft and AttraX; |
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•Magnetic technology for non-invasive distraction of an implanted device, including the MAGEC technology platform; |
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•Digital imaging processing technology that generates high resolution images of the surgical field from low resolution scans, including the Lessray technology platform; |
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Our NSO subsidiary competes with divisions of traditional orthopedics companies, including Stryker Orthopedics and Smith & Nephew, as well as Orthofix Medical and other smaller companies that offer specialized orthopedics solutions.
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•device listing and establishment registration; |
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•adherence to the Quality System Regulation which requires stringent design, testing, control, documentation and other quality assurance procedures; |
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•labeling requirements and FDA prohibitions against the promotion of off-label uses or indications; |
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•adverse event reporting; |
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•post-approval restrictions or conditions, which could include post-approval clinical trials or other required testing; |
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•post-market surveillance requirements; |
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In 2017, the European Unionhas also adopted the EU Medical Device Regulation, (Council Regulations 2017/745)or MDR, which imposes stricter requirements for the marketing and sale of medical devices, including new quality system and post-market surveillance requirements. In 2017, the European Union adopted the EU Medical Device Regulation (Council Regulations 2017/745) which will replacereplaced existing directives and imposeimposes stricter requirements for the marketing and sale of medical devices, including new clinical evaluation, quality system, and post-market surveillance requirements. The regulation initially provided for a three-year implementation period, with full application of the regulation to occur in May 2020, but this timeline has been delayed to May 2021 due to the COVID-19 pandemic. AfterEffective May 2021, medical devices marketed in the European Union will require certification according to these new requirements, except that devices with valid CE certificates, issued pursuant to the Medical Device Directive, or MDD, before May 2021, may be placed on the market until May 2024. In February 2023, the European Parliament approved a proposal by the European Commission which further extends the transition period from May 2024 to December 2027 or December 2028, depending on the device classification. Complying with this new regulation will require us to incur significant costs and failure to meet the requirements of the regulation could adversely impact our business in the European Union and other countries that utilize or rely on European Union requirements for medical device registrations.
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We believe that success comes from investing in our people and ensuring our work force is aligned with our missioncultural mindset—The Cheetah Way. The Cheetah Way is the foundation of our culture that aligns our beliefs, actions, and values.how we work to fulfill our commitments. The Cheetah Way is how we deliver on our vision to change a patient’s life every minute. To achieve this goal, we devote time and resources to ensure that throughout our organization, employees are familiar with our business, industry and product offerings. Training is offered to new employees which teaches the anatomy and pathologies of the spine and our surgical procedures, and our sales representatives receive additional comprehensive training on our various product offerings. In addition, a key driver of the Company’sour future growth is our ability to develop leaders. Employees are encouraged to partner with their manager to create individual plans to guide their development path and to incorporate training offerings and resources to support their growth and drive their continued success. Additionally, we regularly conduct talent reviews and succession planning to identify and develop our current and future leaders. We are committed to identifying and developing talent to help those employees accelerate their growth and achieve their career goals.
Communication
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our customers, patients, and communities we serve.
In Our Environmental, Health & Safety personnel develop global safety practices and procedures, train employees, host annual safety campaigns, and monitor compliance with safety procedures. We have also taken additional measures in response to the COVID-19 pandemic, we adopted a broad approach to increased safety, including work-at-homeremote work arrangements for employees who wereare able to do so working shift adjustmentsand implementing safety protocols and guidelines as recommended or required by federal, state, local and foreign governments.
recognition awards to promote an active lifestyle.
The contents of our website and the information we post through social media are not a part of, and are not incorporated by reference into, this Annual Report on Form 10-K or any other report or document we file with the Securities and Exchange Commission, or the Commission, and any references to our website and social media sites are intended to be inactive textual references only.
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Risks Related to our Commercial Operations and Plans for Future Growth
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Risks Related to Litigation and Intellectual Property
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Risks Related to Our Financial Results and Need for Financing
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Risks Related to the Securities Markets and Ownership of Our Common Stock
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Risk Factors
Risks Related to Our Business and Industry
We are subject to risks associated with public health threats, including the ongoing COVID-19 pandemic, which has had, and we expect willmay continue to have, a material adverse effect on our business.
The COVID-19 pandemic is straining healthcare systems worldwide, which will further impact our business, results of operations, financial condition and liquidity.
Due to thecash flows.
financial hardship.
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•lack of experience with less-invasive surgical products and procedures; |
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•lack or perceived lack of evidence supporting additional patient benefits; |
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•perceived liability risks generally associated with the use of new products and procedures; |
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•existing relationships with competitors; |
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•limited or lack of availability of coverage and reimbursement within healthcare payment systems; |
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•higher pricing associated with new products and procedures; |
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•increased competition in procedural offerings; |
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•lack or perceived lack of differentiation among procedures; |
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•costs associated with the purchase of new products and equipment; and |
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•properly identify and anticipate surgeon and patient needs; |
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•develop and introduce new products or product enhancements in a timely and cost-effective manner; |
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•adequately protect our intellectual property and avoid infringing upon the intellectual property rights of third parties; |
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•demonstrate the safety and efficacy of new products through clinical investigations or the collection of existing relevant clinical data; |
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•qualify for adequate reimbursement from third-party payers; and |
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obtain the necessary regulatory clearances or approvals for new products or product enhancements. •significantly greater name recognition; •established relationships with a greater number of surgeons, hospitals, other healthcare providers and third-party payers; •larger and more well-established distribution networks domestically and/or internationally; •products supported by long-term clinical data; •greater experience in obtaining and maintaining FDA and other regulatory approvals or clearances for products and product enhancements; •fully integrated and scaled manufacturing and assembly capabilities; •greater experience in, and resources for, sourcing, manufacturing, launching, marketing, distributing and selling products, including capital equipment; •greater ability to cross-sell their products or create bundled offerings to incentivize hospitals and surgeons to use their products; •difficulties in finding suitable partners or acquisition candidates; •difficulties in completing transactions on favorable terms, if at all; •the possibility that we will pay more than the value we derive from the acquisition, which could result in future non-cash impairment charges and/or a dilution of future earnings per share; •difficulties in integration of the operations, technologies, personnel, and products of acquired companies, which may require significant attention of our management team that otherwise would be available for the ongoing development of our business; •the applicability of additional laws, regulations and policies that have particular application to our acquisitions, including those relating to patient privacy, insurance fraud and abuse, false claims, prohibitions against self-referrals, anti-kickbacks, direct billing practices, HIPAA compliance, and prohibitions against the corporate practice of medicine and fee-splitting; •the assumption of certain known and unknown liabilities of acquired companies; •the incurrence of debt, contingent liabilities, or future write-offs of intangible assets or goodwill; •problems with quality control and assurance, including manufacturing nonconformances and product design defects; •defective raw materials or defects in product components that we source from third-party suppliers; •delays in obtaining raw materials or components from third-party suppliers and raw material and component supply shortages; •failing to predict demand accurately, resulting in a failure to increase production of products to meet demand; •potential adverse effects on existing business relationships with current third-party suppliers as we expand our in-house manufacturing capabilities; •maintaining control over manufacturing expenses as production expands, including increasing labor costs and costs of third-party components, commodities and other materials used in our products; •difficulties associated with compliance with local, state, federal and foreign regulatory requirements; •shortages of qualified personnel or workforce disruptions; •the inability to modify production lines to enable the efficient manufacture of new products or to quickly implement changes to current products in response to regulatory requirements; •disruptions caused by equipment malfunctions, facility closures from public protests or demonstrations, natural disasters such as hurricanes, tornadoes earthquakes or wildfires, and the impact of epidemics or pandemics, such as the COVID-19 pandemic; and •difficulties in staffing and managing foreign and geographically dispersed operations; •having to comply with various U.S. and international laws, including the FCPA and anti-money laundering laws; •having to comply with U.S. and foreign trade, import and export and customs regulations and laws, including, but not limited to, the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury, as well as the laws and regulations administered by the Department of Commerce; •differing complex regulatory requirements for obtaining clearances or approvals to market our products, including the EU MDR, CE product marking in Europe, and UKCA product marking in the UK, and the PMD Act in Japan; •changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell our products, perform services or repatriate profits to the U.S.; •tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell our products in certain foreign markets; •fluctuations in foreign currency exchange rates; •limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures; •differing multiple payer reimbursement regimes, government payers or patient self-pay systems; •differing labor laws and standards; •changes in, or uncertainties relating to foreign laws around value-added taxes or permanent establishment that may impact our international indirect and income tax expense and related compliance costs; •complex data privacy and protection requirements, including the GDPR; •environmental laws, including regulations relating to climate change and the emission of greenhouse gases; •public health emergencies, including the COVID-19 pandemic; •economic, political or social instability in foreign countries and regions, including as a result of wars and military conflicts; financial condition and results of operations. •manage the complexities associated with a larger, faster growing and more geographically diverse organization; •expand our clinical development resources to manage and execute increasingly global, larger and more complex clinical trials and studies; •manage our directly-employed sales personnel as well as independent distributors and sales representatives operating in international markets often pursuant to laws, regulations and customs that may be different than those that are customary for our U.S. operations; •expand our sales and marketing presence in international markets generally to avoid concentration of sales in a small number of markets that would subject us to the risk of business disruption as a result of economic or political problems in concentrated locations; •upgrade our internal business processes and capabilities (e.g., information technology platform and systems, product distribution and tracking) to create scalability and properly handle the transaction volumes that our growing geographically diverse organization demands; suffer, and we could face potential legal and financial exposure and liability. •stop making, selling or using products or technologies that allegedly infringe the asserted intellectual property; •lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others; •incur significant legal expenses; •pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing; •pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing; •decreased demand for our products; •injury to our reputation; •significant litigation costs; •substantial monetary awards to or costly settlements with patients; •product recalls; •material defense costs; •loss of net sales; •increased insurance costs; •additional testing prior to obtaining clearance or approval; Any of these changes could require substantial time and cost and could harm our business and our financial results. •fines, injunctions, and civil penalties; •recall or seizure of our products; •operating restrictions, partial suspension or total shutdown of production; •refusing our request for 510(k) clearance or premarket approval of new products; •withdrawing 510(k) clearance or premarket approvals that are already granted; and •requiring a portion of our cash flow from operations to make interest payments on this debt; •increasing our vulnerability to general adverse economic and industry conditions; •reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business; •limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and In addition, to the extent we draw •general market conditions and other factors related to the economy or otherwise, including factors unrelated to our operating performance or the operating performance of our competitors; •people’s expectations, favorable or unfavorable, as to the likely growth of the markets in which we participate; •negative publicity regarding spine surgeon’s practices or outcomes, whether warranted or not, that cast the sector in a negative light; •the introduction of new products or product enhancements by us or our competitors; •changes in the availability of third-party reimbursement in the U.S. or other countries; •disputes or other developments with respect to intellectual property rights or other potential legal actions; •our ability to develop, obtain regulatory clearance or approval for, and market new and enhanced products on a timely basis; •quarterly variations in our or our competitor’s results of operations; •sales of large blocks of our common stock, including sales by our executive officers and directors; •public campaigns by activist stockholders, such as public proposals and requests for special meetings, potential nominations of candidates for election to our Board of Directors, requests to pursue a strategic combination or other transaction, or other special requests; •announcements of technological or medical innovations for the treatment of spine pathology; •changes in governmental regulations or in the status of our regulatory approvals, clearances or applications; •the acquisition or divestiture of businesses, products, assets or technology by us or by our competitors; •litigation (including intellectual property litigation) and any associated negative verdicts or ruling; •authorize the issuance of preferred stock which can be created and issued by the Board of Directors without prior stockholder approval, with rights senior to those of the common stock; •provide for a classified Board of Directors, with each director serving a staggered three-year term; •provide that our stockholders may remove our directors only for cause; •prohibit our stockholders from filling board vacancies, calling special stockholder meetings, or taking action by written consent; •prohibit our stockholders from making certain changes to our certificate of incorporation or bylaws except with 66 2/3% stockholder approval; and Location Corporate 252,000 San Diego, CA Manufacturing facilities (1) 180,000 West Carrollton, OH Fulfillment and warehouse operations (1) 100,000 Memphis, TN Office facilities and warehouse Japan Office facilities, manufacturing facilities and warehouse operations Netherlands Office facilities 21,000 Columbia, MD Office facilities and warehouse Australia Office facilities and warehouse 15,000 Germany Office facilities 2022. 2022. A discussion regarding our financial condition and results of operations for 2022 compared to 2021 is presented under “Results of Operations” further below in this Item 7. For discussion regarding our financial condition and the results of operations for 2021 compared to 2020, refer to 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 year ended December 31, 2021. • our differentiated surgical access instruments, including our discrepancy. Precice is an intramedullary device that, once implanted, utilizes the MAGEC technology to non-invasively lengthen the femur and tibia. sales, selling and leasing of capital equipment is expected to increase over time as a result of our commercialization of the Pulse platform in 2021. and Estimates procedures and other macroeconomic challenges. liability as of December 31, 2022 holding other inputs constant, an increase or decrease in our 2023 and 2024 forecasted net sales by 5% would have resulted in an increase or decrease in the fair value by $4 million. See further discussion in Note 3, Business Combinations, and Note 4, Financial Instruments and Fair Value Measurements, in the Notes to Consolidated Financial Statements included in this Annual Report. end. future. Year Ended December 31, 2019 to 2020 2018 to 2019 (in thousands, except %) 2020 2019 2018 $ Change % Change $ Change % Change Spinal hardware $ 783,510 $ 851,440 $ 788,649 $ (67,930 ) (8 )% $ 62,791 8 % Surgical support 267,072 316,630 313,065 (49,558 ) (16 )% 3,565 1 % Total net sales $ 1,050,582 $ 1,168,070 $ 1,101,714 $ (117,488 ) (10 )% $ 66,356 6 % 2021. 2021. sales by approximately 1% in 2022 compared to 2021. Year Ended December 31, 2019 to 2020 2018 to 2019 (in thousands, except %) 2020 2019 2018 $ Change % Change $ Change % Change Cost of sales $ 321,631 $ 312,357 $ 311,159 $ 9,274 3 % $ 1,198 0 % % of total net sales 31 % 27 % 28 % Year Ended December 31, 2019 to 2020 2018 to 2019 (in thousands, except %) 2020 2019 2018 $ Change % Change $ Change % Change Selling, general and administrative $ 547,195 $ 611,181 $ 575,836 $ (63,986 ) (10 )% $ 35,345 6 % % of total net sales 52 % 52 % 52 % Research and development 79,838 72,380 61,695 7,458 10 % 10,685 17 % % of total net sales 8 % 6 % 6 % Amortization of intangibles 51,726 51,097 50,670 629 1 % 427 1 % Purchase of in-process research and development 1,011 — 8,913 1,011 * (8,913 ) (100 )% Litigation liability loss — — 27,800 — * (27,800 ) (100 )% Business transition costs 10,878 (1,995 ) 11,473 12,873 645 % (13,468 ) (117 )% costs. equipment, which was partially offset by lower consulting expenses. Over the course of the COVID-19 pandemic, we have stayed committed to our investment in research and development in order to further advance our leadership position in spine surgery and our enabling technologies portfolio. historical acquisitions becoming fully amortized during 2022. period, which we record as a benefit. Note 4, Financial Instruments and Fair Value Measurements, in the Notes to Consolidated Financial Statements included in this Annual Report. Year Ended December 31, 2019 to 2020 2018 to 2019 (in thousands, except %) 2020 2019 2018 $ Change % Change $ Change % Change Interest income $ 1,472 $ 1,917 $ 586 $ (445 ) (23 )% $ 1,331 227 % Interest expense (70,466 ) (38,525 ) (37,857 ) (31,941 ) 83 % (668 ) 2 % Other (expense) income, net (16,854 ) (5,925 ) (8,174 ) (10,929 ) 184 % 2,249 (28 )% Total interest and other expense, net $ (85,848 ) $ (42,533 ) $ (45,445 ) $ (43,315 ) 102 % $ 2,912 (6 )% % of total net sales 8 % 4 % 4 % Year Ended December 31, 2019 to 2020 2018 to 2019 (in thousands, except %) 2020 2019 2018 $ Change % Change $ Change % Change Income tax (benefit) expense $ (10,392 ) $ 15,283 $ (3,756 ) $ (25,675 ) (168 )% $ 19,039 507 % Effective income tax rate 22 % 19 % 43 % Expense decreased contingent consideration liabilities. . Additionally, the COVID-19 pandemic and general macroeconomic conditions have led to disruptions in the global supply chain. While we have largely been able to mitigate the impact, we have experienced challenges associated with material and component availability for certain product lines, longer shipping and delivery times for raw materials and components, constrained logistics capacity related to the movement of our products, availability of skilled labor and increased costs of raw materials, components, labor, and freight and courier services. 2024 but this date is subject to change based on the achievement of those commercial milestones. Year Ended December 31, 2019 to 2020 2018 to 2019 (in thousands, except %) 2020 2019 2018 $ Change % Change $ Change % Change Cash provided by operating activities $ 185,911 $ 235,290 $ 219,183 $ (49,379 ) (21 )% $ 16,107 7 % Cash used in investing activities (281,934 ) (134,484 ) (161,285 ) (147,450 ) 110 % 26,801 (17 )% Cash provided by (used in) financing activities 736,656 (6,644 ) (14,578 ) 743,300 11,188 % 7,934 (54 )% Effect of exchange rate changes on cash 3,202 131 (1,283 ) 3,071 2,344 % 1,414 (110 )% Increase in cash, cash equivalents and restricted cash $ 643,835 $ 94,293 $ 42,037 $ 549,542 583 % $ 52,256 124 % 2021. Consolidated Balance Sheet. other general corporate purposes, including potential mergers and acquisitions and to refinance indebtedness. Borrowings under the 2020 Facility bear interest, at our option, at a rate equal to an applicable margin plus: (a) the applicable Eurocurrency Rate (as defined in the 2020 Credit Agreement), or (b) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the Bank of America prime rate, and (3) the Eurocurrency Rate Payments Due by Period (in thousands) Total Less Than 1 Year 1 to 3 Years 4 to 5 Years After 5 Years Convertible Notes (1) $ 1,576,156 $ 663,500 $ 460,125 $ 452,531 $ — Operating leases 169,848 14,140 26,740 22,771 106,197 Finance leases 3,337 1,465 1,863 9 — Other long-term obligations 13,750 5,080 4,194 1,476 3,000 Total $ 1,763,091 $ 684,185 $ 492,922 $ 476,787 $ 109,197 Plan Category (A) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (B) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (C) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column(A)) Equity Compensation Plans approved by stockholders 1,629,998 (1) $ — 4,478,472 (2)(3) Equity Compensation Plans not approved by stockholders — — — Total 1,629,998 $ — 4,478,472 2021 2020 2020 2020 2020 (2)Financial Statement Schedules: Schedule II — Valuation Accounts (3)Exhibits Description 3.2 3.3 3.4 3.5 3.6 4.1 4.2 4.3 Description 10.1# Employment Letter dated October 25, 2019 between the Company and Dale Wolf Description Description 23.1 31.1 31.2 32.1* 101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Label Linkbase Document 101.PRE Inline XBRL Taxonomy Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibit 101.INS) # Indicates management contract or compensatory plan. * These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of NuVasive, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing. J. Christopher Barry Signature Chief Executive Officer and Director February J. Christopher Barry (Principal Executive Officer) /s/ Matthew K. Harbaugh Executive Vice President and Chief Financial Officer February Matthew K. Harbaugh (Principal Financial /s/ Vickie L. Capps Director February Vickie L. Capps /s/ John A. DeFord Director February John A. DeFord, Ph.D. /s/ Robert F. Friel Director February Robert F. Friel /s/ R. Scott Huennekens Director February R. Scott Huennekens /s/ Siddhartha C. Kadia /s/ Leslie V. Norwalk Director February Leslie V. Norwalk, Esq. /s/ Director February /s/ Daniel J. Wolterman Director February Daniel J. Wolterman Matters Valuation of inventory The Company's inventories totaled How We Addressed the Matter in Our Audit December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 856,869 $ 213,034 Short-term marketable securities 173,145 — Accounts receivable, net of allowances of $20,631 and $17,019, respectively 207,071 211,532 Inventory, net 300,623 312,419 Prepaid income taxes 4,727 10,434 Prepaid expenses and other current assets 19,749 16,917 Total current assets 1,562,184 764,336 Property and equipment, net 286,369 266,318 Intangible assets, net 152,264 201,092 Goodwill 559,553 561,064 Operating lease right-of-use assets 102,270 66,932 Deferred tax assets 15,755 9,162 Restricted cash and investments 1,494 1,494 Other assets 13,193 14,892 Total assets $ 2,693,082 $ 1,885,290 LIABILITIES AND EQUITY Current liabilities: Accounts payable and accrued liabilities $ 110,401 $ 97,160 Contingent consideration liabilities 7,289 15,727 Accrued payroll and related expenses 63,421 86,458 Operating lease liabilities 7,875 5,567 Income tax liabilities 2,073 2,005 Senior convertible notes 645,303 — Total current liabilities 836,362 206,917 Long-term senior convertible notes 766,226 623,298 Deferred tax liabilities 2,807 14,655 Operating lease liabilities 111,634 73,153 Other long-term liabilities 52,438 52,060 Commitments and contingencies Redeemable equity component of senior convertible notes 4,697 — Stockholders’ equity: Preferred stock, $0.001 par value; 5,000 shares authorized, NaN outstanding — — Common stock, $0.001 par value; 150,000 and 120,000 shares authorized at December 31, 2020 and December 31, 2019, respectively; 57,945 shares issued and 51,376 outstanding at December 31, 2020; 57,525 issued and 52,145 outstanding at December 31, 2019 62 62 Additional paid-in capital 1,550,001 1,429,854 Accumulated other comprehensive loss (7,585 ) (9,418 ) Retained earnings 45,322 82,475 Treasury stock at cost; 6,569 shares and 5,380 shares at December 31, 2020 and December 31, 2019, respectively (668,882 ) (587,766 ) Total equity 918,918 915,207 Total liabilities and equity $ 2,693,082 $ 1,885,290 Year Ended December 31, 2020 2019 2018 Net sales: Products $ 950,189 $ 1,044,569 $ 986,457 Services 100,393 123,501 115,257 Total net sales 1,050,582 1,168,070 1,101,714 Cost of sales (excluding below amortization of intangible assets): Products 247,809 232,474 234,509 Services 73,822 79,883 76,650 Total cost of sales 321,631 312,357 311,159 Gross profit 728,951 855,713 790,555 Operating expenses: Selling, general and administrative 547,195 611,181 575,836 Research and development 79,838 72,380 61,695 Amortization of intangible assets 51,726 51,097 50,670 Purchase of in-process research and development 1,011 — 8,913 Litigation liability loss — — 27,800 Business transition costs 10,878 (1,995 ) 11,473 Total operating expenses 690,648 732,663 736,387 Interest and other expense, net: Interest income 1,472 1,917 586 Interest expense (70,466 ) (38,525 ) (37,857 ) Other (expense) income, net (16,854 ) (5,925 ) (8,174 ) Total interest and other expense, net (85,848 ) (42,533 ) (45,445 ) (Loss) income before income taxes (47,545 ) 80,517 8,723 Income tax benefit (expense) 10,392 (15,283 ) 3,756 Consolidated net (loss) income $ (37,153 ) $ 65,234 $ 12,479 Net (loss) income per share: Basic $ (0.72 ) $ 1.26 $ 0.24 Diluted $ (0.72 ) $ 1.23 $ 0.24 Weighted average shares outstanding: Basic 51,416 51,956 51,382 Diluted 51,416 53,160 52,355 Year Ended December 31, 2020 2019 2018 Consolidated net (loss) income $ (37,153 ) $ 65,234 $ 12,479 Other comprehensive income (loss): Unrealized gain on marketable securities, net of tax 13 — — Translation adjustments, net of tax 1,820 (790 ) (1,695 ) Other comprehensive income (loss): 1,833 (790 ) (1,695 ) Total consolidated comprehensive (loss) income $ (35,320 ) $ 64,444 $ 10,784 Accumulated Total Additional Other NuVasive, Inc. Non- Common Stock Paid-in Comprehensive Treasury Stock Stockholders' Controlling Total Shares Amount Capital Loss Retained Earnings Shares Amount Equity Interests Equity Balance at December 31, 2017 56,164 $ 60 $ 1,363,549 $ (6,933 ) $ 4,762 (5,002 ) $ (565,867 ) $ 795,571 $ 3,845 $ 799,416 Issuance of common stock under employee and director stock option and purchase plans 466 1 11,309 — — (114 ) (6,111 ) 5,199 — 5,199 Stock-based compensation expense — — 27,353 — — — — 27,353 — 27,353 Issuance of common stock in connection with royalty milestone achievement 18 — 4,719 — — — — 4,719 — 4,719 Consolidated net income — — — — 12,479 — — 12,479 — 12,479 Consideration paid in excess of non-controlling interests — — (9,101 ) — — — — (9,101 ) — (9,101 ) Non-controlling interests — — — — — — — — (3,845 ) (3,845 ) Other comprehensive loss — — — (1,695 ) — — — (1,695 ) — (1,695 ) Balance at December 31, 2018 56,648 $ 61 $ 1,397,829 $ (8,628 ) $ 17,241 (5,116 ) $ (571,978 ) $ 834,525 $ — $ 834,525 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Treasury Stock Stockholders' Shares Amount Capital Loss Retained Earnings Shares Amount Equity Balance at December 31, 2018 56,648 $ 61 $ 1,397,829 $ (8,628 ) $ 17,241 (5,116 ) $ (571,978 ) $ 834,525 Issuance of common stock under employee and director stock option and purchase plans 805 1 7,724 — — (264 ) (15,788 ) (8,063 ) Stock-based compensation expense — — 24,096 — — — — 24,096 Issuance of common stock in connection with royalty milestone achievement 72 — — — — — — — Consolidated net income — — — — 65,234 — — 65,234 Consideration paid in excess of non-controlling interests — — 205 — — — — 205 Other comprehensive loss — — — (790 ) — — — (790 ) Balance at December 31, 2019 57,525 $ 62 $ 1,429,854 $ (9,418 ) $ 82,475 (5,380 ) $ (587,766 ) $ 915,207 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Treasury Stock Stockholders' Shares Amount Capital Loss Retained Earnings Shares Amount Equity Balance at December 31, 2019 57,525 $ 62 $ 1,429,854 $ (9,418 ) $ 82,475 (5,380 ) $ (587,766 ) $ 915,207 Issuance of common stock under employee and director stock option and purchase plans 420 — 6,621 — — (104 ) (6,116 ) 505 Stock-based compensation expense — — 25,778 — — — — 25,778 Tax benefits related to convertible note issuance — — 484 — — — — 484 Shares repurchased — — — — — (1,085 ) (75,000 ) (75,000 ) Sale of warrants — — 93,915 — — — — 93,915 Convertible note hedge — — (115,592 ) — — — — (115,592 ) Equity component of convertible note issuance — — 115,559 — — — — 115,559 Debt issuance costs attributable to convertible feature — — (1,921 ) — — — — (1,921 ) Reclassification of redeemable equity component of senior convertible notes — — (4,697 ) — — — — (4,697 ) Consolidated net loss — — — — (37,153 ) — — (37,153 ) Other comprehensive income — — — 1,833 — — — 1,833 Balance at December 31, 2020 57,945 $ 62 $ 1,550,001 $ (7,585 ) $ 45,322 (6,569 ) $ (668,882 ) $ 918,918 Year Ended December 31, 2020 2019 2018 Operating activities: Consolidated net (loss) income $ (37,153 ) $ 65,234 $ 12,479 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 140,937 135,593 129,765 Purchase of in-process research and development 1,011 — 8,913 Deferred income taxes (18,007 ) 5,844 (11,396 ) Amortization of non-cash interest 48,986 21,288 20,123 Stock-based compensation 18,145 30,297 25,673 Net loss on strategic investments 268 4,767 4,421 Net loss recognized on change in fair value of derivatives 12,301 — — Reserves on current assets 53,902 18,382 14,834 Other non-cash adjustments 16,876 5,650 22,186 Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable 3,030 (16,407 ) 4,562 Inventory (40,765 ) (54,872 ) (38,646 ) Prepaid expenses and other current assets (4,986 ) (4,622 ) (1,280 ) Accounts payable and accrued liabilities 8,756 (3,924 ) 22,900 Accrued payroll and related expenses (23,654 ) 24,256 2,595 Income taxes 6,264 3,804 2,054 Net cash provided by operating activities 185,911 235,290 219,183 Investing activities: Acquisitions and investments — (4,100 ) (55,266 ) Proceeds from other investments 1,143 — 3,584 Purchases of intangible assets (3,860 ) (7,501 ) (7,682 ) Purchases of property and equipment (105,729 ) (122,883 ) (101,921 ) Purchases of marketable securities (233,488 ) — — Proceeds from sales and maturities of marketable securities 60,000 — — Net cash used in investing activities (281,934 ) (134,484 ) (161,285 ) Financing activities: Proceeds from the issuance of common stock 6,170 6,415 8,127 Payment of contingent consideration (7,053 ) (809 ) (19,450 ) Purchase of treasury stock (80,665 ) (14,478 ) (2,928 ) Proceeds from issuance of convertible debt, net of issuance costs 873,848 — — Proceeds from sale of warrants 93,915 — — Purchases of convertible note hedges (147,825 ) — — Proceeds from revolving line of credit — — 100,000 Repayments on revolving line of credit — — (100,000 ) Other financing activities (1,734 ) 2,228 (327 ) Net cash provided by (used in) financing activities 736,656 (6,644 ) (14,578 ) Effect of exchange rate changes on cash 3,202 131 (1,283 ) Increase in cash, cash equivalents and restricted cash 643,835 94,293 42,037 Cash, cash equivalents and restricted cash at beginning of period 214,528 120,235 78,198 Cash, cash equivalents and restricted cash at end of period $ 858,363 $ 214,528 $ 120,235 Supplemental disclosure of non-cash transactions: Issuance of common stock in connection with royalty milestone achievement $ — $ — $ 4,719 Supplemental cash flow information: Interest paid $ 19,914 $ 16,145 $ 17,182 Income taxes paid $ 1,873 $ 5,828 $ 5,510 Year Ended December 31, 2020 2019 2018 Cash and cash equivalents $ 856,869 $ 213,034 $ 117,840 Restricted cash 1,494 1,494 2,395 Total cash, cash equivalents and restricted cash reported in the Consolidated Statements of Cash Flows $ 858,363 $ 214,528 $ 120,235 • its surgical access instruments, including its currencies. 2020-06. procedures and other macroeconomic challenges. (in thousands) December 31, 2020 Allowance for credit losses at January 1, 2020 $ 9,423 Current-period provision for expected losses 1,079 Write-offs charged against the allowance (1,305 ) Recoveries of amounts previously written off 220 Changes resulting from foreign currency fluctuations 229 Allowance for credit losses at end of period $ 9,646 Table of Contents•In addition,Additionally, we may evaluate our existing product portfolio from time to time to optimize our inventory and accompanying surgical instrumentation, allowing us to reinvest and focus on products with higher margin profiles. To the extent we have excess or obsolete inventory or surgical instrumentation as we transition to new products or we take steps to rationalize our existing product portfolio, it would result in margin reducing write-offs and charges for obsolete inventory, and our results of operations may suffer. less invasive and less expensive than those of our competitors. In our core spine business, our significant competitors are Medtronic, DePuy/Synthes, a Johnson & Johnson company, Stryker Spine, Globus Medical, and ZimVie, which together represent a significant portion of the spine market. We also face competition from a significant number of smaller spine companies with more limited product offerings and geographic reach than our larger competitors. These companies, who represent intense competition in specific markets, include Orthofix Medical, Alphatec Holdings, and others. With respect to our neuromonitoring systems,IONM and other enabling technologies, we primarily compete with Medtronic and Cadwell Industries.Globus Medical. Our IONM services businessNCS subsidiary competes with Specialty Care, and numerous smaller and regional neuromonitoring companies as well as insourced neuromonitoring functions operated by hospitals. With respect to our productsOur NSO subsidiary competes with divisions of traditional orthopedics companies, including Stryker Orthopedics and technologies for spine surgical procedures, our largest competitors are Medtronic, DePuy/Synthes, Stryker Spine, GlobusSmith & Nephew, as well as Orthofix Medical and Zimmer Biomet Spine. We compete with many of the same companies with respect to our other products. We also compete with numerous smaller companies with respect to our implant products, many of whom have a significant regional market presence.that offer specialized orthopedics solutions. At any time, these companies and other potential market entrants may develop alternative treatments, products or procedures for the treatment of spine disorders that compete directly or indirectly with our offerings. In addition, they may gain a market advantage by developing and patenting competitive products or processes earlier than we can or by obtaining regulatory clearances or market registrations more rapidly than we can.•significantly greater name recognition;•established relationships with a greater number of surgeons, hospitals, other healthcare providers and third-party payers;•larger and more well-established distribution networks domestically and/or internationally;•products supported by long-term clinical data;•greater experience in obtaining and maintaining FDA and other regulatory approvals or clearances for products and product enhancements;•greater experience in, and resources for, launching, marketing, distributing and selling products, including capital equipment;•greater ability to cross-sell their products or create bundled offerings to incentivize hospitals and surgeons to use their products;•more expansive portfolios of intellectual property rights; and•greater financial assets, cash flow, capital markets access and other resources for product research and development, sales and marketing, and litigation.surgeryand other specialized orthopedic products and procedures, we anticipate that existingour competitors will continue to dedicate substantial resources to developing competing products. If we are unable to compete and scale effectively and sustainably, our sales and operating results may suffer.23United StatesU.S. and internationally. Further, certain third-party payers have stated non-coverage decisions concerning our technologies and services. These actions could significantly alter our ability to sell our products and procedural solutions. The continuing efforts of governmental authorities, insurance companies, and other payers of healthcare costs to contain or reduce costs could lead to patients being unable to obtain approval for payment from these third-party payers. Changes in legislation, regulation or reimbursement policies of third-party payers may adversely affect the demand for our products and services as healthcare providers generally rely on third-party payers to reimburse all or part of the costs and fees associated with the procedures performed with these devices and services. Likewise, spine surgeons, neurophysiologists and their supervising physicians rely primarily on third-party reimbursement for the surgical or monitoring fees they earn. Spine surgeons are unlikely to use our products and services if they do not receive reimbursement adequate to cover the cost of their involvement in surgical procedures.United States,U.S., we may not be able to obtain coverage and reimbursement approvals in a timely manner, if at all, for our products and procedural solutions in a particular foreign market. In addition, even if we are able to obtain country-specific coverage and reimbursement approvals, the amount of such coverage and reimbursement may not be adequate and we could incur considerable expense in seeking such approvals. Our failure to obtain such coverage and approvals would negatively affect market acceptance of our products and procedural solutions in the international markets in which such failure occurs and the expenses incurred in connection with obtaining such coverage and approvals could outweigh the benefits of obtaining them.PricingConsolidation and increased purchasing power of our hospital customers and group purchasing organizations has also created pricing pressure, may alsoand we expect, pricing pressure to continue to increase due to continued consolidation among healthcare providers, trends toward managed and value-based care, the shift toward governments becoming the primary payers of healthcare expenses, and reduction in reimbursement levels. For example, group purchasing organizations have concentrated purchasing decisions for some customers, which may lead to downward pricing pressure for medical device companies, including us. Additionally, pricing for our products may be impacted by changes in the ways healthcare services are delivered, including the transition of some procedures from hospitals to ambulatory surgery centers. As healthcare providers and payers look to reduce costs, including by aggregating purchasing decisions, consolidation, and through industry consolidation,shifting care to non-acute settings, they are able to demand lower pricing and limit their number of suppliers. If competitive forces drive down the prices we are able to charge for our products, our profit margins will shrink, which will adversely affect our ability to maintain our profitability and to invest in and grow our business.technology platform and products like LessrayPulse and Pulse,other technology in furtherance of our strategy to make spine surgery more intelligent, risks related to quality and safety issues increase compared to our portfolio of spinal implants and fixation products. Manufacturing flaws, component failures, design defects, or inadequate disclosure of product-related information could result in an unsafe condition or the injury or death of a patient. These problems could lead to a recall of, or issuance of a safety alert relating to our products and result in significant costs and negative publicity. An adverse event, safety alert or recall involving one of our products could result in reduced market acceptance and demand for our products, and could harm our reputation and our ability to market our products in the future. In some circumstances, an adverse event, safety alert or recall could require costly design, engineering, and manufacturing changes, and result in the suspension or delay of regulatory reviews of our applications for new product approvals or clearances. Further, if we substitute, replace or exchange products to address an adverse event, safety alert or recall, or take other steps to address the needs or concerns of our customers and patients, it could disrupt our business and have an adverse effect on our results of operations and financial condition. We may also voluntarily undertake a recall of our products, initiate certain field actions, temporarily shut down production lines, or place products on a shipping hold based on internal safety, quality monitoring and testing data. If we take action to reduce a health risk posed by our products, or to remedy a violation of the Federal, Food, Drug and Cosmetic Act or other regulations caused by our products that may present a risk to health, such action may need to be reported to the FDA or equivalent governmental authority. If the FDA or equivalent governmental authority subsequently determines that a report was required for a quality or safety action related to our products that we did not believe required a report, we could be subject to enforcement actions.24United States,U.S., restrictions on operations or withdrawal or suspension of existing approvals. Any of the foregoing events could disrupt our business and have an adverse effect on our results of operations and financial condition.rapidly develop and commercialize new products and product enhancements,, many of our products do not have a long history of use. Further, many of our products are subject to the FDA’s 510(k) premarket notification clearance process in the United StatesU.S. and similar regulatory processes in other countries, which may not require substantial clinical data. Accordingly, many of our products currently lack the breadth of published long-term clinical data supporting their safety and effectiveness. For these reasons, surgeons may be slow to adopt our products, we may not have comparative data that our competitors have or are generating, and we may be subject to greater regulatory and product liability risks. In particular, as we continue to launch more complex products and technologies, including products based on the MAGEC technology platform and products like LessrayPulse and Pulse,other technology in furtherance of our strategy to make spine surgery more intelligent, we may have to conduct additional studies and gather additional data to support their safety and effectiveness.the Pulse platform,and other enabling technology in furtherance of our strategy to make spine surgery more intelligent, we expect that the selling and leasing of capital equipment will become a larger portion of our total net sales over time. We do not have a long history of selling, leasing or servicing capital equipment, and we intend to continue to invest in building resources and expertise in this area. We may not generate sufficient sales to offset the expenses associated with this investment. There can be no assurance that our capital equipment strategy will be successful and will not materially adversely affect our financial condition and operating results.25the acquisition of an acquired companyacquisitions or business,divestitures, including issues related to internal control over financial reporting, regulatory or compliance issues and potential adverse short-term effects on results of operations through increased costs or otherwise. Following our acquisition of Simplify Medical Pty Limited, or Simplify Medical, in February 2021, we also offer cervical artificial disc technology for cervical total disc replacement procedures. Pursuant to the terms of the definitive agreement, we agreed to make an upfront payment of $150.0 million at closing, subject to customary purchase price adjustments, plus additional future payments contingent upon milestones related to regulatory approval and net sales from products incorporating the Simplify Medical cervical artificial disc technology. The closing of the acquisition occurred on February 24, 2021, and Simplify Medical is now our wholly-owned subsidiary. Acquisitions including the acquisition of Simplify Medical, involve numerous risks, including the following:•difficulties in finding suitable partners or acquisition candidates;•difficulties in obtaining financing on favorable terms, if at all;•difficulties in completing transactions•difficulties in obtaining financing on favorable terms, if at all;•the possibility that we will pay more than the value we derive from the acquisition, which could result in future non-cash impairment charges and/or a dilution of future earnings per share;•difficulties in integration of the operations, technologies, personnel, and products of acquired companies, which may require significant attention of our management team that otherwise would be available for the ongoing development of our business;•the applicability of additional laws, regulations and policies that have particular application to our acquisitions, including those relating to patient privacy, insurance fraud and abuse, false claims, prohibitions against self-referrals, anti-kickbacks, direct billing practices, HIPAA compliance, and prohibitions against the corporate practice of medicine and fee-splitting;•the assumption of certain known and unknown liabilities of acquired companies;•the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill;•difficulties in retaining key relationships with employees, customers, partners and suppliers of an acquired company; and•difficulties in operating in different business markets where we may not have historical experience.26Patient Protection and Affordable Care Act (“ACA”),ACA, the U.S. has implemented value-based payment methodologies and has created alternative payment models such as bundled payments to continue to drive improved value. The ACA also significantly altered Medicare and Medicaid reimbursements for medical services and medical devices. We anticipate that Congress, regulatory agencies and certain state legislatures will continue to review and assess alternative healthcare delivery systems and payment methods with an objective of ultimately reducing healthcare costs and expanding access. We cannot predict with certainty what healthcare initiatives, if any, will be implemented at the state level, or what ultimate effect federal healthcare reform or any future legislation or regulation may have on our customers’ purchasing decisions regarding our products and services. However, the implementation of new legislation and regulation may lower reimbursements for our products, reduce medical procedure volumes and adversely affect our business, possibly materially.NuVasive Clinical Services business, including the Biotronic NeuroNetwork business acquired in July 2016 and the SafePassage business acquired in January 2018,NCS subsidiary, we provide onsite and remote monitoring of the neurological systems of patients undergoing spinal and brain-related surgeries. Our neurophysiologists are present in the operating room during procedures and work with supervising physicians who remotely oversee and interpret neurophysiological data gathered via broadband transmission over the Internet. Providing this service subjects us to malpractice exposure. In addition, given the reliance on technology, any disruption to our neuromonitoringIONM equipment or the Internet could harm our service operations and our reputation among our customers. Further, any disruption to our information technology systems could adversely impact the performance of our neurophysiologists and oversight physicians.thethese laws described in the previous sentence or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results.technology platform, which accelerated our entry into the pediatric spine segment. Our MAGEC growing rods are used to treat early-onset scoliosis (EOS) and, once surgically implanted in a patient, can be adjusted non-invasively using an external remote controller. We have further added to our pediatric portfolio with the launch of the Reline Small Stature system, designed as a deformity fixation solution for pediatric spine surgery, and products to support the adolescent deformity market. Designing and engineering specialized products for pediatric patients can be challenging, particularly as products need to accommodate growth in pediatric patients. If we are unable to design safe and effective products that meet the needs of pediatric patients, our ability to compete in the pediatric segment will be adversely impacted. Further, patients with EOSearly-onset scoliosis often have other risk factors and co-morbidities that can make surgeries more risky, which can lead to surgical and post-operative complications and potentially greater exposure for allegations of product liability.WeFor example, we have previously issued field safety notices regarding thefor certain of our MAGEC systemsystems, and we have imposed voluntary ship holds on these products in the past,past. Further, for a portion of 2021, the CE mark for these products was suspended. While we have since resumed MAGEC sales in our key markets, for current and in April 2020,future versions of our MAGEC systems, and other systems we agreed to voluntarily suspend sales of all MAGEC rods in non-essential casesmay offer in the United Kingdom and Ireland while local regulatory authorities conducted a market surveillance review of the MAGEC system. If we are unable to address the issues identified in the market surveillance review,future, we may need to conduct additional studies, gather additional data, or re-design or re-engineer the MAGEC system,such products, which could be costly. Further, ifIn certain cases, we may withdraw products from a market or markets or decide not to launch new products, which could have a material adverse effect on our surgeon customers and their patients choose alternative treatments, it would negatively impact our pediatric business. If we are the subject of anyAdditionally, claims or lawsuits related to the issues identified in the field safety notices,MAGEC, whether from impacted customers, distributors, surgeons or patients, it wouldnot they are successful, could harm our reputation and have ana material adverse impacteffect on our business and results of operations.27United StatesU.S. and abroad or laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in the healthcare industry, including the sale of medical devices, are subject to extensive laws and regulations intended to prevent fraud, bribery, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. It is not always possible to identify and deter misconduct by our employees or third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment of operations, any of which could adversely affect our ability to operate our business and our results of operations. Whether or not we are successful in defending against such actions or investigations, our reputation could be harmed, we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of these claims or investigations.United States,U.S., we sell our products primarily through a combination of directly employed and independent sales representatives and directly-employed sales personnel.representatives. Our international sales force is also comprised of directly employed and independent sales agents, directly-employed sales personnel,representatives, as well as exclusive and non-exclusive independent third-party distributors. If our sales representatives and sales agentsdistributors fail to adequately promote, market and sell our products, or fail to develop strong relationships with customers, our sales could significantly decrease or fail to increase. Further, the termination or transition of a sales representative or distributor could disrupt business and cause us to incur expenses related to such termination or transition, including contract termination fees or expenses associated with claims and lawsuits. Asserting or defending against these types of claims and lawsuits may result in significant legal fees and expenses, and if we are unsuccessful, we could be liable for damages.28manufacturersvendors could limit our ability to meet demand for our products in a timely manner or within our budget.self-manufacturemanufacture many of our products, we continue to rely on a limited number of third-party suppliers, manufacturers and manufacturersvendors to supply, manufacture, and manufactureprocess our products, and we may not be able to find replacements or immediately transition to alternative suppliers, manufacturers or manufacturers. vendors. Many of our key products are manufactured at single locations, with limited alternate facilities, and it could take considerable time and resources for us to replace the capacity of such vendorsmanufacturers in the event of disruptions. In addition, if we are required to change the manufacturer of a critical component of our products, we will be required to verify that the new manufacturer maintains facilities, procedures and operations that comply with our quality and applicable regulatory requirements, which could further impede our ability to manufacture our products in a timely manner.suppliers. suppliers and in certain circumstances engage a limited number of vendors to provide additional services such as sterilization and packaging for our products. To be successful, we rely on our suppliers and vendors to provide us with products, components, and components in substantial quantities,services in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable cost and on a timely basis. In the event we experience delays, shortages, or stoppages of supply or services with any supplier or vendor, we would be forced to identify a suitable alternative supplier or vendor which could take significant time and result in significant expense. Many of these suppliers and vendors have been adversely affected by the COVID-19 pandemic, or have otherwise been disrupted by associated prevailing macroeconomic trends. These disruptions have led to product shortages, service interruptions, and an increase in raw material and component pricing. If these suppliers and vendors are unable or unwilling to deliver critical components and services, we may not be able to deliver certain products at reasonable cost, without significant capital expenditures or at all, and our business and results of operations could suffer. In such cases, we may not be able to establish additional or replacement suppliers or vendors in a timely or cost-effective manner that comply with our quality and applicable regulatory requirements, which could further negatively impact our business and results of operations. In addition, our anticipated growth could strain the ability of suppliers to deliver an increasingly large supply of products, materials and components. If we are required to transition to new third-party suppliers for certain components of our products, the use of components or materials furnished by these alternative suppliers could require us to alter our operations. Any such interruption or alteration could harm our reputation, business, financial condition and results of operations. Transitioning to a new supplier could be time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performance specifications of our products or could require that we modify the design of those systems.29•problems with quality control and assurance, including manufacturing nonconformances and product design defects;•defective raw materials or defects in product components that we source from third-party suppliers;•delays in obtaining components from third-party suppliers and component supply shortages;•failing to predict demand accurately, resulting in a failure to increase production of products to meet demand;•potential adverse effects on existing business relationships with current third-party suppliers as we expand our in-house manufacturing capabilities;•maintaining control over manufacturing expenses as production expands;•difficulties associated with compliance with local, state, federal and foreign regulatory requirements;•shortages of qualified personnel or workforce disruptions;•the inability to modify production lines to enable the efficient manufacture of new products or to quickly implement changes to current products in response to regulatory requirements;•disruptions caused by natural disasters such as hurricanes, tornadoes earthquakes or wildfires, and the impact of epidemics or pandemics, such as COVID-19; and•potential damage to or destruction of our, or our suppliers’ manufacturing equipment or manufacturing facilities.engineerspersonnel with technical, manufacturing and technicians.distribution experience. The ability to recruit and retain such personnel depends on a number of factors, including compensation and benefits, work location, work environment, and competition for labor. We may not be able to adequately attract or retain qualified managers engineers and technicianshighly skilled personnel in the future due to the competition for qualified personnel amongfrom medical device businesses. We also face competition fromand other businesses, universities, and public and private research institutions in recruitinginstitutions. There also may be shortages of skilled labor due to the COVID-19 pandemic, macroeconomic conditions, or other factors that may make it more difficult for us to attract and retaining highlyretain qualified personnel. Recruitingpersonnel and retention difficulties can limit our abilitylead to support our commercial, manufacturing and research and development programs.increased labor costs. All of our U.S. employees are employed on an at-will basis, which means that either we or the employee may terminate his or her employment at any time. The loss of key employees, the failure of any key employees to perform or our inability to attract and retain skilled employees, as needed, or an inability to effectively plan for and implement a succession plan for key employees could harm our business.302020, $228.82022, $276.1 million, or approximately 22%23%, of our net sales was attributable to our international customers (excluding Puerto Rico). We expect to continue to invest in international expansion with a focus on European, Asia-Pacific and Latin American markets. Our international business operations are subject to a variety of risks, including:•difficulties in staffing and managing foreign and geographically dispersed operations;•having to comply with various U.S. and international laws, including the FCPA and anti-money laundering laws;•having to comply with U.S. and foreign trade, import and export and customs regulations and laws, including, but not limited to, the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury, as well as the laws and regulations administered by the Department of Commerce;•differing complex regulatory requirements for obtaining clearances or approvals to market our products, including the EU Medical Device Regulation (Council Regulations 2017/745) and recent regulatory guidance issued by the UK Government in connection with the UK formally withdrawing from the European Union;•changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell our products, perform services or repatriate profits to the United States;•tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell our products in certain foreign markets;•fluctuations in foreign currency exchange rates;•limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures;•differing multiple payer reimbursement regimes, government payers or patient self-pay systems;•differing labor laws and standards;•changes in, or uncertainties relating to foreign laws around value-added taxes or permanent establishment that may impact our international indirect and income tax expense and related compliance costs;•complex data privacy requirements, including the EU GDPR;•economic, political or social instability in foreign countries and regions;•an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government action;•potential changes to U.S. trade policy, including new legislation that could restrict international trade, or protectionist or retaliatory measures taken by governments of other countries; and•availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us.United StatesU.S. are with governmental entities and are therefore subject to such anti-bribery laws. Our internal control policies and procedures may not always prevent or protect us from reckless or criminal acts committed by our employees, distributors or agents. In recent years, both the United StatesU.S. and foreign government regulators have increased regulation, enforcement, inspections and governmental investigations of the medical device industry, including increased United StatesU.S. government oversight and enforcement of the FCPA. Despite implementation of a comprehensive global healthcare compliance program, we may be subject to more regulation, enforcement, inspections and investigations by governmental authorities in the future.31United StatesU.S. or abroad could adversely affect us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities, disgorgement and other remedial measures, disruptions of our operations, and significant management distraction. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our distribution and sales activities. Any reduction in international sales, or our failure to further develop our international markets, could have a material adverse effect on our business, results of operations and financial condition.United States,U.S., we arehave been and will continue to be exposed to foreign currency exchange risk related to our foreign operations. A significant portion of our foreign subsidiaries’ operating expenses are incurred in foreign currencies. If the U.S. dollar weakens, our consolidated operating expenses would increase. An increase in the value of the U.S. dollar relative to foreign currencies could require us to reduce our selling price or risk making our products less competitive in international markets or our costs could increase. Further, when the U.S. dollar strengthens relative to foreign currencies, it has a negative impact on our reported net sales from our international business. Also, as our international sales continue to increase, we may enter into a greater number of transactions denominated in non-U.S. dollars, which could increase our exposure to foreign currency risks, including changes in currency exchange rates. If we are unable to address these risks and challenges effectively, it could negatively impact our international operations, which may not be successful andhave an adverse effect on our business, could be harmed.into international markets.efforts. To execute our anticipated growth in international markets we must:•manage the complexities associated with a larger, faster growing and more geographically diverse organization;•expand our clinical development resources to manage and execute increasingly global, larger and more complex clinical trials and studies;•manage our directly-employed sales personnel as well as independent distributors and sales agents operating in international markets often pursuant to laws, regulations and customs that may be different than those that are customary for our United States operations;•expand our sales and marketing presence in international markets generally to avoid concentration of sales in a small number of markets that would subject us to the risk of business disruption as a result of economic or political problems in concentrated locations;•upgrade our internal business processes and capabilities (e.g., information technology platform and systems, product distribution and tracking) to create scalability and properly handle the transaction volumes that our growing geographically diverse organization demands;•expend time and resources to receive product approvals and clearances to sell and promote products; and•incur significant costs to comply with new and complex regulatory requirements such as the EU Medical Device Regulation (Council Regulations 2017/745) and recent regulatory guidance issued by the UK Government in connection with the UK formally withdrawing from the European Union.into international markets.internationally. International markets may be slower than domestic markets in adopting our products and are expected, in many instances, to yield lower profit margins when compared to our domestic operations. We have only limited experience in expanding into international markets as well as marketing and operating our products and services in such markets.expansion into international marketsexpansion is inherently risky, no assurance can be given that such strategies and initiatives will be successful and will not materially adversely affect our financial condition and operating results. Even if our international expansion is successful, our expenses may increase at a greater pace than our net sales and our operating results could be harmed.manufacturers,vendors, resulting in increased need for us to carefully monitor quality assurance. Any failure by us to manage our international growth effectively could have an adverse effect on our ability to achieve our development and commercialization goals.32(PII)or PII, about our employees, and given the nature of our business, we have access to protected health information, (PHI). Our business thereforeor PHI. Additionally, our goal is to use technology and data to make spine surgery more intelligent, and accordingly, we anticipate collecting and analyzing certain health and clinical data to provide surgeons with pre-operative treatment selection and planning capabilities and support post-operative workflow and analytics. The collection, storage, protection, processing and use of this data and information depends on the continuous, effective, reliable, and secure operation of our computer hardware, software, networks, Internet servers, and related infrastructure. To the extent that our hardware or software malfunctions or access to our data by internal personnel, suppliers or customers through the Internet is interrupted or compromised, our business could suffer.recently enacted legislation, the California Consumer Privacy Act, that, among other things, creates new individual privacy rights and imposes increased obligations on companies handling PII.malware and ransomware, and other cybersecurity threats such as malware, ransomware, and phishing and social engineering attacks. Furthermore, we rely on third-party vendors to supply and/or support certain aspects of our information technology systems and resulting products. Third-party systems and software are also vulnerable to cybersecurity threats and may contain defects in design or manufacture (referred to as “supply-chain attacks”) or other problems that could result in system disruption or compromise the information security of our own systems. These events could lead to the unauthorized access of our information technology systems and result in financial loss and the misappropriation or unauthorized disclosure of confidential and proprietary information belonging to us, our employees, partners, customers, or our suppliers. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures. If our information technology systems are compromised we could be subject to fines, damages, litigation and enforcement actions, incur financial losses, suffer reputational damage, and lose trade secrets or other confidential information, each of which could significantly harm our business.greaterlarge number of our employees are working remotely in response to the COVID-19 pandemic and related government actions and may choose to continue to work remotely after the pandemic has ended, which could expose us to greater risks associated with cybersecurity threats and systems interruptions. Loss of data could interrupt our operations, including our ability to ship products, bill our customers, provide customer support services, conduct research and development activities, process and prepare company financial information, manage various general and administrative aspects of our business and damage our reputation, any of which could adversely affect our business.We conduct a significant portion of our activities, including administration and data processing, at facilitiesSouthernBroomfield, Colorado and San Diego, California, an areawhich are both areas that hashave experienced majorfires, earthquakes fires and other natural disasters. In addition, our primary self-manufacturingmanufacturing facility is located in West Carrollton, Ohio, an areaand our primary distribution and warehouse facility is located in Memphis, Tennessee, areas that hashave experienced tornados, winter storms and other natural disasters. A major earthquake, fire, tornado or other disaster (such as a major flood, tsunami, storm, drought or terrorist attack) affecting these or other NuVasive facilities, or those of our suppliers or vendors, could significantly disrupt our operations, and delay or prevent product shipment or installation during the time required to repair, rebuild or replace our facilities or those of our suppliers. These delayssuppliers or vendors. Global climate change could be lengthyalso result in certain types of natural disasters occurring more frequently or with more extreme effects. For example, increasing intensity of drought and costly. Ifother climate conditions throughout California and Colorado increase the probability of wildfires in these States. Additionally, if our manufacturing facilities or any of our customers’ facilities are negatively impacted by a disaster, shipments of our products could be delayed. Additionally, customers may delay purchases of our products until operations return to normal.delayed or canceled. Even if we are able to quickly respond to a disaster, the ongoing effects of the disaster could create some uncertainty in the operations of our business. In addition, our facilities may be subject to a shortage of available electrical power and other energy supplies. Any shortages may increase our costs for power and energy supplies or could result in blackouts, which could disrupt the operations of our affected facilities and harm our business. In addition,Further, concerns about terrorism, the effects of a terrorist attack, political turmoil or an outbreak of a widespread disease or other public health crisis, such as the COVID-19 pandemic, could have a negative effect on our operations, those of our suppliers and customers and the ability to travel, which could harm our business, financial condition and results of operations.33foreign liability, employee benefits liability, property, umbrella, workers’ compensation, products liability, medical professional liability, cyber-security, employment practice liability, and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations. Thererisk thatcustomer’s facility. Customers may also purchase a supplemental service plan for technical and other services for any required service beyond the initial warranty and service period. If product warranty claims made against us willor service and maintenance obligations exceed our warranty reserveexpectations and reserves, our business, financial condition and results of operations could be harmed.our competitorsthird parties alleging infringement of their intellectual property rights as part of business strategies designed to impede our successful commercialization of updated and new products and entry into new markets.rights. A patent infringement suit brought against us or any of our strategic partners or licensees may force us or such strategic partners or licensees to stop or delay developing, manufacturing or selling potential products that are claimed to infringe a third-party’s intellectual property, unless that party grants us or our strategic partners or licensees rights to use its intellectual property. In such cases, we may be required to obtain licenses to patents or proprietary rights of others in order to continue to commercialize our products. However, we may not be able to obtain any licenses required under any patents or proprietary rights of third parties on acceptable terms, or at all, and any licenses may require substantial royalties or other payments by us. Even if our strategic partners, licensees or we were able to obtain rights to the third-party’s intellectual property, these rights may be non-exclusive, thereby giving our competitors access to the same intellectual property. Ultimately, we may be unable to commercialize some of our potential products or may have to cease some of our business operations as a result of patent infringement claims, which could severely harm our business.34•stop making, selling or using products or technologies that allegedly infringe the asserted intellectual property;•lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others;•incur significant legal expenses;•pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing;•pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing;•redesign those products that contain the allegedly infringing intellectual property, which could be costly, disruptive and/or infeasible; or•attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.35United States.U.S. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop infringement of our foreign patents, if obtained, or the misappropriation of our other intellectual property rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.United StatesU.S. and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property.36 additional potential product liability claims, including due to the risk of transmitting disease to human recipients. Additionally, our IONM services business could become the subject of medical malpractice lawsuits alleging negligence on the part of our neurophysiologists and/or oversight physicians.•decreased demand for our products;•injury to our reputation;•significant litigation costs;•substantial monetary awards to or costly settlements with patients;•product recalls;•material defense costs;•loss of net sales;•increased insurance costs;•the inability to commercialize new products or product candidates; and•diversion of management attention from pursuing our business strategy.37bank.establishment. As a result, we are subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (QSR) and Good Tissue Practices requirements, which require manufacturers of medical devices and tissue banksestablishments to adhere to certain regulations, including testing, quality control and documentation procedures. Our compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. In the European Community, we are required to maintain certain ISO certifications in order to sell our products, and are subject to periodic inspections by Notified Bodies to obtain and maintain these certifications. If we or our suppliers fail to adhere to QSR, ISO or other applicable regulations and standards, it could negatively impact product production and regulatory clearances and could result in fines. Further our products could be subject to field safety corrective actions or recall by the FDA or other regulatory bodies, or voluntarily by us, to investigate potential quality or safety issues, in the event of a material deficiency or defect in the design, manufacture, labeling, or other deficiency of a product or in the event that a product poses an unacceptable risk to health.For example, we have recentlypreviously issued field safety notices for certain of our MAGEC and Precice systems. Ifsystems, and we are unable to resolve the issues identifiedhave imposed voluntary ship holds on these products in the field safety notices,past. Further, for a portion of 2021, the CE mark for these products was suspended. While we have since resumed sales of MAGEC and Precice titanium systems in our key markets, for current and future versions of our MAGEC and Precice systems, and other systems we may offer in the future, we may need to conduct additional studies, gather additional data, or re-design or re-engineer the affected systems,such products, which could be costly. Further,In certain cases, we may withdraw products from a market or markets or decide not to launch new products, which could have a material adverse effect on our business. Additionally, if we are the subject of any claims or lawsuits related to the issues identified in the field safety notices or otherwise, whether from impacted customers, distributors, surgeons or patients, it could have a material adverse effect on our business and results of operations.United States.U.S. In addition, the FDA may require testing and surveillance programs to monitor the effects of approved products that have been commercialized, and can prevent or limit further marketing of a product based upon the results of such post-marketing programs. In addition, the Federal Medical Device Reporting Regulations require us to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, that could cause or contribute to a death or serious injury. Furthermore, most major markets for medical devices outside the United StatesU.S. require clearance, approval or compliance with certain standards before a product can be commercially marketed. The process of obtaining regulatory clearances and approvals to market a medical device, particularly from the FDA and certain foreign governmental authorities, can be costly and time-consuming, and clearances and approvals may not be granted for future products or product improvements on a timely basis, if at all. Delays in receipt of, or failure to obtain, clearances or approvals for future products or product improvements could result in delayed realization of product sales or in substantial additional costs, which could have a material adverse effect on our business or results of operations or prospects. At any time after clearance or approval of a product, the FDA or other applicable regulator, including Notified Bodies, may conduct periodic inspections to determine compliance with our quality system and other laws and regulations governing the development, labeling, testing, manufacturing, packaging, marketing and distribution of our products. products. The results of these inspections can include observations, warning letters, or other forms of enforcement. If the FDA or another regulator were to conclude that we are not in compliance with applicable laws or regulations, or that any of our products are ineffective or pose an unreasonable health risk, they could ban such products, detain or seize adulterated or misbranded products, order a recall, repair, replacement, or refund of payment of such products, revoke existing product clearances or delay clearance of future products, refuse to provide certificates for exports, and/or require us to notify healthcare professionals and others that the products present unreasonable risks of substantial harm to the public health. The FDA or other regulators may also assess civil or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide basis.National Organ Transplant ActNOTA and state rules and regulations which govern, among other things, payments we make to vendors in consideration for the services they provide in connection with the recovery and screening of donors. Failure to comply with such laws could result in enforcement action against us and a disruption to these product lines (and the net sales associated therewith)with these products).38United StatesU.S. or abroad believes we are not conducting our business in compliance with applicable laws or regulations, such governmental authority can initiate investigations or other regulatory proceedings. Responding to such investigations and proceedings may cause us to incur substantial costs, and could place a significant strain on our financial resources and divert the attention of management from our core business. We could be subject to proceedings to detain or seize our products, recall our products, or restrict our operations. Moreover, governmental authorities can ban or request the recall, repair, replacement or refund of the cost of any device or product we manufacture or distribute. Any of the foregoing actions could result in decreased sales as a result of negative publicity and product liability claims, and could have a material adverse effect on our financial condition, results of operations and prospects.internationallyin a number of countries around the world, and we intend to continue to expand our operations in select developed and emerging international markets.operations. International jurisdictions require separate regulatory approvals and compliance with numerous and varying regulatory requirements. The approval procedures vary among countries and may involve requirements for additional studies and gathering of additional data. Clearance or approval by the FDA does not ensure approval or certification by regulatory authorities in other countries or jurisdictions, and approval or certification by one foreign regulatory authority does not ensure approval or certification by regulatory authorities in other foreign countries or by the FDA.“CE”CE conformity marking which designates compliance with existing directives and standards regulating the design, manufacture and distribution of medical devices in member countries of the European Union. In 2017, theThe European Union has also adopted the EU Medical Device Regulation (Council Regulations 2017/745)MDR which will replacereplaced existing directives and imposeimposes stricter requirements for the marketing and sale of medical devices, including new clinical evaluation, quality system, and post-market surveillance requirements. The regulation initially provided for a three-year implementation period, with full application of the regulation to occur in May 2020, but this timeline has been delayed to May 2021 due to the COVID-19 pandemic. AfterEffective May 2021, medical devices marketed in the European Union will require certification according to these new requirements, except that devices with valid CE certificates, issued pursuant to the Medical Device DirectiveMDD before May 2021, may be placed on the market until May 2024. ComplyingIn February 2023, the European Parliament approved a proposal by the European Commission which further extends the transition period from May 2024 to December 2027 or December 2028, depending on the device classification. We have incurred significant costs in complying with this new regulationthese regulations and anticipate we will require uscontinue to incur significantadditional costs and failurein order to maintain our devices under these regulations. Moreover, the availability of European Union Notified Body services certified to the new requirements is limited, which could delay the marketing approval for some of our products. Failure to meet the requirements of the regulation could adversely impact our business in the European Union and other countries that utilize or rely on European Union requirements for medical device registrations.Medicines and Healthcare products Regulatory Agency (MHRA)MHRA became the standalone medicines and medical devices regulator for the UK as of January 1, 2021. A new mark referred to as “UKCA” (UKUKCA, or UK Conformity Assessed)Assessed, has also been introduced and will replace the CE conformity mark.mark in the UK. Obtaining the UKCA conformity mark is optional from January 2021 and will have rolling requirements for MDD/MDR certified devices through 2027. Although CE conformity marketing and certificates issued by Notified Bodies will continue to be recognized in the UK through June 2023,2027, all medical devices mustwere required to be registered with the MHRA as of January 1, 2021.2021 in accordance with the provided grace period depending on the product risk classification. Complying with this new regulatory framework will require us to invest in additional resources and could be expensive, time-consuming and disruptive to our existing operations in the UK.39clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act,clearance or receives approval under the premarket approval application (PMA)PMA process. If clinical trials of our current or future product candidates do not produce results necessary to support regulatory approval, we will be unable to commercialize these products, which could have a material adverse effect on our financial results.processapproval is much more costly, lengthy and uncertaindifficult than the 510(k) clearance process. Additionally, any modification to a 510(k)-cleared device that could significantly affect its safety or efficacy, or that would constitute a major change in its intended use, requires a new 510(k) clearance or, possibly, a PMA. The FDA requires each manufacturer to make the determination of whether a modification requires a new 510(k) notification or PMA application in the first instance, but the FDA can review any such decision. If the FDA disagrees with our decisions regarding whether new clearances or approvals are necessary,, the FDA may retroactively require us to seek 510(k) clearance or PMA approval. For device modifications that we conclude do not require a new regulatory clearance or approval, we may be required to recall and to stop marketing the modified devices if the FDA or other agency disagrees with our conclusion and requires new clearances or approvals for the modifications. Our failure to comply with such regulations could lead to the imposition of injunctions, suspensions or loss of regulatory approvals, product recalls, termination of distribution, or product seizures. In the most egregious cases, criminal sanctions or closure of our manufacturing facilities are possible.United StatesU.S. may make it more difficult and costly for us to obtain regulatory clearances or approvals for our products or to produce, market or distribute our products after clearance or approval is obtained.United States.U.S. In addition, the FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to manufacture, market or distribute our products or future products. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:•additional testing prior to obtaining clearance or approval;•changes to manufacturing methods;•recall, replacement or discontinuance of our products or future products; or•additional record keeping.40•fines, injunctions, and civil penalties;•recall or seizure of our products;•operating restrictions, partial suspension or total shutdown of production;•refusing our request for 510(k) clearance or premarket approval of new products;•withdrawing 510(k) clearance or premarket approvals that are already granted; and•criminal prosecution.41ifif we determine to make any changes to products, processes, or sources of supply, it may result in additional costs, which may adversely affect our business.42rapidsignificant growth since our inception, and we have increased our net sales from $38.4 million in 2004, the year of our initial public offering, to $1.05$1.2 billion in 2020.2022. Our ability to achieve future growth will depend upon, among other things, the effectiveness of our growth strategies, which we cannot assure will be successful. In addition, we may have more difficulty maintaining our prior rate of growth of net sales or recent levels of profitability and cash flow. Our future success will depend upon various factors, including the strength of our brand image, the market success of our current and future products, competitive conditions and our ability to manage increased sales, if any, or implement our growth strategy. In addition, we anticipate investing in and expanding our infrastructure and adding personnel in connection with our anticipated growth, which we expect will cause our selling, marketing and administrative expenses to increase. Because these expenses are generally fixed, particularly in the short-to-medium term, our operating and financial results may be adversely impacted if we do not achieve our anticipated growth.2020,2022, we had outstanding $650.0 million aggregate principal amount of our 2.25% Convertible Senior Notes due 2021 (the “2021 Notes”), $450.0 million aggregate principal amount of our 1.00% Convertible Senior Notes due June 1, 2023, (the “2023 Notes”)or the 2023 Notes, and$450.0 $450.0 million aggregate principal amount of our 0.375% Convertible Senior Notes due March 15, 2025, (the “2025 Notes”).or the 2025 Notes. This significant amount of debt has important risks to us and our investors, including:•requiring a portion of our cash flow from operations to make interest payments on this debt;•increasing our vulnerability to general adverse economic and industry conditions;•reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business;•limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and•limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise.ondown amounts under our $550.0 million 2020 revolving senior credit facility, (the “2020 Facility”) or the 2020 Facility, or otherwise incur additional indebtedness, the risks described above could increase. Further, ifour ability to access other sources of liquidity through the capital markets, enter into additional credit facilities, term loans, or other similar arrangements may also be constrained by volatile financial market conditions, unfavorable lending terms, reduced investor and/or lender interest or capacity, as well as our liquidity, leverage, and general creditworthiness. We can provide no assurance as to successfully completing such transactions, particularly given the continued unpredictability of the COVID-19 pandemic and global macroeconomic conditions which could rapidly and materially deteriorate or otherwise change.2021 Notes, 2023 Notes and 2025 Notes and the warrants that we issued as part of the related bond hedge transactions related to the 2021 Notes, 2023 Notes and 2025 Notes. If any of these shares are issued, the issuance of these shares may depress the market price of our common stock and our existing stockholders could experience dilution.facilitiesfacility and may foreclose upon the assets securing our obligations.(the “2020or the 2020 Credit Agreement”)Agreement, with respect to the 2020 Facility, which replaced the previous Amended and Restated Credit Agreement we had entered into in April 2017. The 2020 Credit Agreement was further amended in May 2020 to, among other things, provide additional flexibility in determining the financial covenant leverage ratios for the second and third fiscal quarters of 2020 and to adjust certain margin and benchmark rates used to determine interest under the 2020 Facility. The 2020 Credit Agreement provides for secured revolving loans, multicurrency loan options and letters of credit in an aggregate amount of up to $550.0 million. The 2020 Credit Agreement also contains an expansion feature, which allows us to increase the aggregate principal amount of the 2020 Facility provided we remain in compliance with the underlying financial covenants on a pro forma basis, including but not limited to, compliance with the consolidated interest coverage ratio and certain consolidated net leverage ratios. All of our assets and the assets of our material domestic subsidiaries are pledged as collateral under the 2020 Facility (subject to customary exceptions) and each of our material domestic subsidiaries guarantee the 2020 Facility. The covenants set forth in the 2020 Credit Agreement impose limitations on, among other things, our ability to: create liens on assets, incur additional indebtedness, make investments, make acquisitions and other fundamental changes, sell and dispose of property or assets, pay dividends and other distributions, change the business conducted, engage in certain transactions with affiliates, enter into burdensome agreements, limit certain use of proceeds, amend organizational documents, change accounting policies or reporting practices, modify or terminate documents related to certain indebtedness, enter into sale and leaseback transactions, fund any person or business that is the subject of sanctions, and use proceeds for any breach of anti-corruption laws. If we fail to comply with the covenants and our other obligations under the 2020 Facility, the lenders would be able to accelerate the required repayment of amounts due under the 2020 Credit Agreement and, if they are not repaid, could foreclose upon our assets securing our obligations under the 2020 Facility.43we may need to seekrequire additional financing in the future to meet our capital needs.sources of financing. As of December 31, 2020,2022, we had $1.0 billion$248.7 million in cash and cash equivalents, and short-term investments, and the ability to draw $550.0 million on our 2020 Facility. Additionally, as of December 31, 2020,2022, we had outstanding $650.0 million aggregate principal amount of the 2021 Notes, which have a maturity date of March 15, 2021, $450.0 million aggregate principal amount of the 2023 Notes, which have a maturity date of June 1, 2023 and $450.0 million aggregate principal amount of the 2025 Notes, which have a maturity date of March 15, 2025. On February 23, 2021, we entered into a definitive agreement to acquire Simplify Medical for an upfront payment of $150.0 million at closing, subject to customary purchase price adjustments, plus additional future payments contingent upon milestones related to regulatory approval and net sales from products incorporating the Simplify Medical cervical artificial disc technology. The closing of the acquisition occurred on February 24, 2021, and Simplify Medical is now our wholly-owned subsidiary. In connection with the closing, the Company funded the $150.0 million upfront payment using available cash and investments on hand.2025. We may seek to raise capital from public and private debt and equity offerings, borrowings under our existing or future credit facilities or other sources. We may be unable to obtain any desired additional financing on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to meet our capital needs, fund our expansion, successfully develop or enhance products or respond to competitive pressures, any of which could negatively affect our business. If we raise additional funds through the issuance of equity securities, our stockholders will experience dilution of their ownership interest. If we raise additional funds by issuing debt, we may be subject to limitations on our operations due to restrictive covenants. Additionally, our ability to make scheduled payments or refinance our obligations will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and financial, business and other factors beyond our control.taxestaxation in the United StatesU.S. and numerous foreign jurisdictions, including the Netherlands, the location of our international headquarters. Significant judgment is required to determine and estimate our worldwide tax liabilities. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. For example, on January 1, 2022, a provision of the Tax Cuts and Jobs Act of 2017 went into effect which eliminated the option to deduct research and development expenditures in the year incurred and requires taxpayers to capitalize and amortize domestic research and development expenditures over five years for regular tax purposes and foreign expenditures research and development expenditures over fifteen years when calculating a domestic corporation's controlled foreign corporation's earnings and profits. This provision adversely impacted our cash flows from operations during the year ended December 31, 2022. Our effective income tax rates have been, and could in the future be, adversely affected by changes in tax laws or interpretations of those tax laws; by stock-based compensation and other non-deductible expenses; by changes in the mix of earnings in countries with differing statutory tax rates; or by changes in the valuation of our deferred tax assets and liabilities.recently enactedpending U.S. tax reform of international business and the continuing development of the Organization for Economic Cooperation and Development Base Erosion and Profit Shifting recommendations, could negatively impact the anticipated tax benefits of our international structure. Any long termlong-term benefits to our tax rate will also depend on our ability to achieve our anticipated international growth projections and to operate our business in a manner consistent with our international structure and intercompany transfer pricing arrangements. If we do not operate our business consistent with the structure and applicable tax provisions, we may fail to achieve the financial efficiencies that we anticipate as a result of the structure and our future operating results and financial condition may be negatively impacted.44•general market conditions and other factors related to the economy or otherwise, including factors unrelated to our operating performance or the operating performance of our competitors;•people’s expectations, favorable or unfavorable, as to the likely growth of the markets in which we participate;•negative publicity regarding spine surgeon’s practices or outcomes, whether warranted or not, that cast the sector in a negative light;•the introduction of new products or product enhancements by us or our competitors;•changes in the availability of third-party reimbursement in the United States or other countries;•disputes or other developments with respect to intellectual property rights or other potential legal actions;•our ability to develop, obtain regulatory clearance or approval for, and market new and enhanced products on a timely basis;•quarterly variations in our or our competitor’s results of operations;•sales of large blocks of our common stock, including sales by our executive officers and directors;•announcements of technological or medical innovations for the treatment of spine pathology;•changes in governmental regulations or in the status of our regulatory approvals, clearances or applications;•the acquisition or divestiture of businesses, products, assets or technology by us or by our competitors;•litigation (including intellectual property litigation) and any associated negative verdicts or ruling;•announcements of actions by the FDA or other regulatory agencies; and•changes in earnings or operating margin estimates or financial guidance provided by us or by reports or ratings by securities analysts.•authorize the issuance of preferred stock which can be created and issued by the Board of Directors without prior stockholder approval, with rights senior to those of the common stock;•provide for a classified Board of Directors, with each director serving a staggered three-year term;•provide that our stockholders may remove our directors only for cause;•prohibit our stockholders from filling board vacancies, calling special stockholder meetings, or taking action by written consent;•prohibit our stockholders from making certain changes to our certificate of incorporation or bylaws except with 66 2/3% stockholder approval; and•require advance written notice of stockholder proposals and director nominations. intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of any future debt or credit facility may preclude us from paying any dividends. As a result, capital appreciation, if any, of our common stock will be our stockholders’ source of potential gain for the foreseeable future.452020,2022, all of which are leased unless otherwise noted as owned:noted:Primary Use Square Footage headquartersOffice facilities42,000Aliso Viejo, CA41,00042,000 Aliso Viejo, CA Corporate office 28,000 Broomfield, CO Office facilities and warehouse 22,00021,000OfficeTraining facilities7,000Brazil7,000United KingdomOffice facilities 10,000 Columbia (1) Owned by the Company7,000 Brazil Office facilities 7,000 United Kingdom Office facilities and warehouse 6,000 Singapore Office facilities 6,000 Spain 12 “Contingencies” of11, Contingencies, in the Notes to the Consolidated Financial Statements included in this Annual Report, which is incorporated herein by reference.467166 stockholders of record as of January 31, 2021.February 20, 2023. The number of beneficial owners is substantially greater than the number of record holders because a large portion of our common stock is held of record through brokerage firms in “street name.”2020. intend to retain future earnings, if any, for development of our business and do not anticipate that we will declare or pay cash dividends on our capital stock in the foreseeable future.472020.2022. The graph assumes that $100 was invested on December 31, 20152017 in our common stock and in each of the comparative indices, and the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
20152017 in stock or index, including reinvestment of dividends.48transactions through October 2020. In February 2020, we announced that our Board of Directors increased the sharetransactions. We did not repurchase authorization from $100 million to $150 millionany of our common stock through during the year ended December 31, 2021. In March 2020, in connection with the issuance of our Convertible Senior Notes due 2025, we repurchased approximately 1,085,000 shares of our common stock for $75.0 million. As of December 31, 2020, $75.0 million remained authorized under the share repurchase program.Selected Financial DataPart II, Item 6 is no longer required. The Company has adopted certain provisions within the amendments to Regulation S-K that eliminate Item 301.492020,2022, we generated net sales of $1.05$1.2 billion, including sales in more than 50 countries.less-invasiveless invasive than traditional, open surgical procedures and clinically proven to enable better patient outcomes. Building off the success of XLIF, we have continued to develop innovative less-invasive techniques and technologies for spine surgery, and we have broadened our portfolio of solutions for traditional, open surgical procedures. Our comprehensive portfolio of solutions can be utilized in procedures for the cervical, thoracic and lumbar spine, supporting surgical approaches from the anterior, including lateral, and posterior. Our solutions are used to treat degenerative conditions and for complex spinal surgery, including adult and pediatric deformities, as well as trauma and tumors.• Maxcess integrated split-blade retractor system, designed to enable less-invasive surgical techniques by minimizing soft tissue disruption during spine surgery;•our neuromonitoring systems, which use proprietary software-driven nerve detection and avoidance technology, and our intraoperative neuromonitoring, or IONM, services and support;•our Advanced Materials Science portfolio of specialized spinal implants, designed to advance spinal fusion by enhancing the osseointegration and biomechanical properties of implant materials, including porous titanium and porous polyetheretherketone, or PEEK;•our comprehensive Reline fixation system, designed to facilitate the preservation and restoration of patient alignment, while addressing a vast array of spinal pathologies from an open or less-invasive approach across all spinal procedures; and•our Integrated Global Alignment platform, or iGA, which is comprised of procedurally-based technologies that help increase the predictability of achieving global alignment in spinal procedures, including our Bendini spinal rod bending system that expedites manual rod manipulation for spinal fixation.We have also invested in enabling technologies, including the development of capital equipment designed to further improve clinical, financial, and operational outcomesenable less-invasive surgical techniques by minimizing soft tissue disruption during spine surgery;currently consists of Lessray and the Pulse platform. Lessray is an image enhancement platformspecialized spinal implants, designed to reduce radiation exposureadvance spinal fusion by enhancing the osseointegration and biomechanical properties of implant materials, including porous titanium and porous polyetheretherketone, or PEEK;by allowing surgeons to take low-quality, low-dose images and improve them to look like conventional full-dose images. Pulse integrates multiple enabling technologies within a single, expandable platform and is engineered to improve workflow, reduce variability, and increase the reproducibility of surgical outcomes. The Pulse platform’s modular architecture is designed to incorporate applications for neuromonitoring, surgical planning, patient-specificincluding: radiation reduction, imaging enhancement, rod bending, smart imaging, navigation, IONM, and integration with robotics and other smart tools in the future. Selling and leasing of capital equipment do not make up a material portion of our total net sales.spinal alignment tools. to our procedurally integrated solutions for spine surgery, we also design and sell expandable growing rod implant systems for the treatment of early-onset scoliosis that can be non-invasively lengthened following implantation with precise, incremental adjustments via an external remote controller using magnetic technology called MAGnetic External Control, or MAGEC, which allows for the minimally invasive treatment of early-onset and adolescent scoliosis.MAGEC. This technology is also the basis for our Precice limb lengthening system,line of products, which allows for the correction of long boneare designed to support complex orthopedic reconstruction, such as trauma and limb length discrepancy, as well as other products for treating specialized orthopedic procedures.50a fullour global launch ofcommercialization plan for the technology and to build-out the platform to enable further improvement of the spine care pathway. Our goal is to use technology and data to make spine surgery more intelligent, and we are investing to develop and expand its application offerings, including investments relatedthe Pulse platform to include applications and technologies designed to improve pre-operative treatment selection and planning and post-operative workflow and analytics, as well as intra-operative surgical automation and robotics. In addition, we expect to continue to pursue business and technology acquisition targets and strategic relationships to identify opportunities to broaden our participation along the spine care continuum.continuum, as well as opportunities outside of traditional spine. Top priorities include opportunities that complement our technology leadership position in spine, targeted geographic expansion, technology that makes procedures even safer, as well as opportunities for surgical automation.In December 2019,which advance our strategy to make spine surgery more intelligent.novel strainwholly-owned subsidiary of coronavirus, which causes COVID-19, was identified. DueGlobus Medical, or Merger Sub. The Merger Agreement provides, among other things, that subject to the rapidsatisfaction or waiver of the conditions set forth therein, Merger Sub will merge with and globalinto NuVasive, referred to as the Merger, with NuVasive surviving the Merger as a wholly-owned subsidiary of Globus Medical, such transaction referred to as the Combination.on March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. To slow the proliferation of COVID-19, governments have implemented extraordinary measures, which includeincluded the mandatory closure of businesses, restrictions on travel and gatherings, and quarantine and physical distancing requirements.requirements, and vaccine mandates. In addition, many government agencies in conjunction with hospitals and healthcare systems have, to varying degrees, deferred, reduced, or suspended elective surgical procedures.procedures due to COVID-19. While certain spine surgeries are deemed essential and certain surgeries, like in cases of trauma, cannot be delayed, we have seen and may continue to seeexperienced a significant reduction in procedural volumes as hospital systems and/or patients elect to deferdeferred spine surgery procedures. As a resultreductionschallenges associated with material and component availability for certain product lines, longer shipping and delivery times for raw materials and components, constrained logistics capacity related to the movement of our products, availability of skilled labor and increased costs of raw materials, components, labor, and freight and courier services. Our net sales and profitability from our foreign operations have also been negatively affected by the unfavorable foreign currency exchange impact of the strengthened U.S. dollar against a number of currencies.procedural volumes duringresearch and development, invest in our people, improve operating processes, and take steps to position ourselves for long-term success. During 2020, we raised additional capital to solidify our financial foundation. Nothwithstanding COVID-19, we continued to train and anticipate this trend may continue. The cumulative effecteducate surgeons on our products and less-invasive surgical techniques through live and virtual settings. Further, we remained focused on developing innovative solutions and enabling technologies to drive increased adoption of these disruptions had a significantless-invasive surgery, including the commercialization of the Simplify Cervical Disc for cTDR procedures and the Pulse platform in 2021. While many countries have removed or reduced the restrictions initially implemented in response to COVID-19, the pandemic continues to evolve, and its impact on our business in 2020will depend on several factors that are highly uncertain and it is not possible for us to accurately predictunpredictable, including, the length orefficacy and adoption of vaccines and treatments, future resurgences of the virus and its variants, the imposition of government lockdowns, quarantine and physical distancing requirements, patient capacity at hospitals and healthcare systems, the duration and severity of healthcare worker shortages, and the COVID-19 pandemicwillingness and ability of patients to seek care and treatment due to safety concerns or financial hardship. Additionally, due to the timing for a broadsignificant uncertainty that exists relative to the duration and sustained resumptionoverall impact of elective surgical procedures.the macroeconomic factors discussed above, our future operating results may be negatively impacted. Further discussion of the potential impacts on our business from the COVID-19 pandemic and global macroeconomic conditions is provided under Part I, Item 1A – Risk Factors.isare recognized in the period the service is performed for the amount of payment we expect to receive. We make available surgical access instrument sets and neuromonitoring systems to hospitals to facilitate surgeon access to the spine to perform restorative and fusion procedures using our implants and fixation products. We sell surgical instrument sets and our proprietary software-driven neuromonitoring systems, however this does not make up a material part of our business. Selling While selling or leasing of capital equipment doeshas not makehistorically made up a material portion of our total net sales.United States,U.S., and the majority of our net sales and cash generation have been made in the United States.U.S. We sell our products in the United StatesU.S. through a sales force comprised primarily of directly employed and independent sales representatives. Our sales force provides a delivery and consultative service to surgeon and hospital customers and is compensated based on sales and product placements in their territories. Sales force commissions are reflected in the selling, general and administrative operating expense line item within our Consolidated Statements of Operations. We continue to invest in international expansion with a focus on European, Asia-Pacific and Latin American markets. Our international sales force is comprised of directly-employed sales personnel, independent sales representatives, as well as exclusive and non-exclusive independent third-party distributors.generally accepted accounting principles in the United States (GAAP).U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses. On an ongoing basis, we evaluate ourincluding those related to revenue recognition, credit losses, inventories, valuation of financial instruments, goodwill, intangibles, property and equipment, contingent liabilities, stock-based compensation, income taxes, and legal proceedings. We base our estimatesassumptions based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for makingwhen preparing these financial statements, as further discussed below. These estimates and assumptions involve judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differwith respect to numerous factors that are difficult to predict. As a result, actual amounts could be materially different from these estimates.51In accordance with Accounting Standards Codification 606 Revenue from Contracts with Customers (“ASC 606”), we The principles in ASC 606 are applied using the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) we satisfy our performance obligation(s). Specifically, revenue from the sale of implants, fixation products and disposables is generally recognized at an amount that reflects the expected consideration upon notice that our products have been used in a surgical procedure or upon shipment to a third-party customer assuming control of the products. Revenue from IONM services is recognized in the period the service is performed for the amount of consideration expected to be received. Revenue from the sale of surgical instrument sets is generally recognized upon receipt of a purchase order and the subsequent shipment to a customer who assumes control. In certain cases, we offer the ability for customers to lease surgical instrumentation primarily on a non-sales type basis. Revenue from the sale or lease of capital equipment is recognized when we transfer control to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery or installation, depending on the terms of the arrangementarrangement. . Revenue from sales and leases of surgical instrument sets and capital equipment represent an immaterial amount of our total revenue in all periods presented.Revenue associated with products holding rights of return or trade-in are recognized when we conclude there is not a risk of significant revenue reversal in future periods for the expected consideration in the transaction. Our costs incurred associated with sales contracts with customers are deferred over the performance obligation period and recognized in the same period as the related revenue, with the exception of contracts that complete within one year or less, in which case the associated costs are expensed as incurred.third partythird-party credit reports, identified trends, current economic conditions, and supportable forecasted economic expectations. The allowance is adjusted on a specific identification basis for certain accounts as well as pooling of accounts with similar characteristics. An increase in the provision for credit losses may be required when the financial condition of our customers or their collection experience deteriorates. An increase to the allowance for credit losses results in a corresponding charge to selling, general and administrative expenses. We have a diverse customer base and no single customer represented greater than ten percent of net sales or accounts receivable. Historically, our reserves have been adequate to cover credit losses.economicmacroeconomic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors. It is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables as customers’ cash flows are impacted by their response to the COVID-19 pandemic and the deferral of elective surgical procedures. Historically, our reserves have been adequate to account for returns and pricing adjustments.Net inventory as of December 31, 2020 consisted of $285.4 million of finished goods, $7.3 million of work in progress and $7.9 million of raw materials. Net inventory as of December 31, 2019 consisted of $298.7 million of finished goods, $6.4 million of work in progress, and $7.3 million of raw materials.52conditions.conditions, such as product life cycles, revenue forecasts and timing of the introduction and development of new or enhanced products. Our allograft products have shelf lives ranging from two to five years and are subject to demand fluctuations based on the availability and demand for alternative products. Our inventory, which consists primarily of disposables, specialized implants and fixation products, is at risk of obsolescence following the introduction and development of new or enhanced products. Increases in the reserve for excess and obsolete inventory result in a corresponding charge to cost of sales.For the year ended December 31, 2020 and December 31, 2019, we recorded a reserve for excess and obsolete inventory of $48.9 million and $14.0 million, respectively. The increase is primarily attributable to updates to our estimates and assumptions about future product demand and product life cycles which have been affected by multiple factors, including the COVID-19 pandemic and general market conditions.ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value and requires usis the price that would be received to establishsell an asset or paid to transfer a framework for measuring fair value and disclosure about fair value measurements.liability in an orderly transaction between market participants at the measurement date. The framework requires the valuation of assets and liabilities subject to fair value measurements usingutilizes a three tiered approach and fair value measurement be classified and disclosed in one of the following three categories. Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions.available.Carryingavailable and may be derived with internally developed methodologies. the financial instruments measured and classified within Level 1 isare based on quoted prices.they use unobservable inputs. For those liabilities,their fair value is determined using unobservable inputs. We estimate the fair value of those liabilities using a discounted cash flow model, probability model, or probabilityMonte Carlo simulation model. The significant unobservable inputs of such models that areinclude projected financial results, volatility rates, probability factors associated with the achievement of defined milestones, and discount rates.include financial metric growth rates, volatility rates, projections associated with milestones,key assumptions including our estimation of the probability of FDA approval, the timing of approval, and the discount rate andapplied. Significant changes to these assumptions could have resulted in a higher or lower fair value prior to achievement of this milestone. In April 2021, the related probabilitiesSimplify Cervical Disc received approval from the FDA for two-level cervical total disc replacement, resulting in the achievement of the regulatory milestone and payment structureby us of $45.8 million.arrangement.53impairment, or comparing a reporting unit’s estimated fair value to its carrying amount.impairment. We may do a qualitative assessment when the results of the previous quantitative test indicated the reporting unit’s estimated fair value was significantly in excess of the carrying value of its net assets and we do not believe there have been significant changes in the reporting unit’s operations that would significantly decrease its estimated fair value or significantly increase its net assets. If a quantitative assessment is performed the evaluation includes management estimates of cash flow projections based on internal future projections and/or use of a market approach by looking at market values of comparable companies. Key assumptions for these projections include net sales growth, future gross and operating margin growth, and its weighted cost of capital and terminal growth rates. The net sales and margin growth is based on increased sales of new and existing products as we maintain our investment in research and development. Additional assumed value creators may include increased efficiencies from capital spending. The resulting cash flows are discounted using a weighted average cost of capital. Operating mechanisms and requirements to ensure that growth and efficiency assumptions will ultimately be realized are also considered in the evaluation, including timing and probability of regulatory approvals for our products to be commercialized. Our market capitalization is also considered as a part of this analysis.20202022 using the qualitative methodassessment. This qualitative analysis considered macroeconomic conditions and determined that no impairment existed.other relevant factors specific to the reporting unit, including market considerations, cost factors, historical and forecasted financial performance, and relevant entity-specific considerations. As part of our qualitative assessment, we also reviewed certain quantitative factors to assess the likelihood of an impairment. In addition, no indicators of impairmentsimpairment were noted through December 31, 20202022 and consequently, no impairment charge was recorded during the year.terms. terms (in each case, with service through the date of vesting being required). No exercise price or other monetary payment is required for receipt of the shares issued in settlement of the respective award; instead, consideration is furnished in the form of the participant’s service.end. The fair value of the PRSUs that are earned based on the achievement of pre-defined market conditions for total shareholder return, is estimated on the date of grant using a Monte Carlo valuation model. The key assumptions in applying this model are an expected volatility and a risk-free interest rate.54future.Based on our review, we concluded that it was more likely than not that we would be able to realize the future benefits of our domestic and foreign deferred tax assets, with the exceptions of California, Malta, Mexico, Brazil and Colombia. This conclusion was based on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets well within the statutory carryover periods. Due to low state apportionment, large net operating losses and the generation of sizeable research credits in California, we concluded that it is not more likely than not that we will be able to utilize our California deferred tax assets. Therefore, we have maintained a full valuation allowance on our California deferred tax assets as of December 31, 2020. Due to a history of losses in Malta, Mexico, Brazil and Colombia, and the lack of alternative sources of future taxable income, we have established a full valuation allowance against these entities’ deferred tax assets as of December 31, 2020.We will continue to assess the need for a valuation allowance on our deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the statement of operations for the period that the adjustment is determined to be required.55notesNotes to the Consolidated Financial Statements. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded. Our significant legal proceedings and investigations are discussed in Note 11, Contingencies, in the Notes 12 to the Consolidated Financial Statements included in this Annual Report.listingdiscussion is not intended to be a comprehensive list of all of our accounting policies.policies and estimates. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP. See our Consolidated Financial Statements and Notes thereto included in this Annual Report, which contain accounting policies and other disclosures required by U.S. GAAP.Year Ended December 31, 2021 to 2022 (in thousands, except %) (in thousands, except %) 2022 2021 $ Change % Change Spinal hardware $ 909,778 $ 856,556 $ 53,222 6 % Surgical support 292,164 282,432 9,732 3 % Total net sales $ 1,201,942 $ 1,138,988 $ 62,954 6 % and biologics, and our capital equipment, all of which are used to aid spine surgery.minimally invasiveless-invasive procedures and deeper penetration into existing accounts and international markets as our sales force executes on our strategy of selling the full mix of our products and services. However, the continued consolidation and increased purchasing power of our hospital customers and group purchasing organizations, continued changes in the public and private insurance markets regarding reimbursement, and ongoing policy and legislative changes in the United StatesU.S. have created less predictability. Although the market for procedurally-integrated spine surgery solutions shouldis expected to continue to grow over the long term, economic, political and regulatory influences are subjecting our industry to significant changes that may slow the growth rate of the spine surgery market. Further,Additionally, the COVID-19 pandemic has ledhad, and may continue to a significant reductionhave, an adverse effect on our business. While procedural volume rates for elective surgeries did recover in procedural volumes in 2020,the U.S. and it is not possible for us to accurately predict the length or severity ofcertain international regions during 2022, the COVID-19 pandemic or the timing for a broadcontinues to evolve and sustained resumption of elective surgical procedures.Our total net sales decreased $117.5 million in 2020 compared to 2019, representing total net sales decline of 10%. In 2019its impact on our totalbusiness will depend on several factors that are highly uncertain and unpredictable.$66.4$63.0 million, or 6%, in 2022 compared to 2018, representing total net sales growth of 6%.Net sales from our spinal hardware product line offerings decreased $67.9 million, or 8%, in 2020 compared to 2019. Product volume in spinal hardware decreased our net sales by approximately 7% in 2020 compared to 2019, primarily due to a reduction in elective surgeries as a result of the COVID-19 pandemic. Additionally, we experienced unfavorable pricing impacts of approximately 1% in 2020 compared to 2019. Foreign currency fluctuation from 2019 to 2020 did not have a material impact on spinal hardware net sales.$62.8$53.2 million, or 8%6%, in 20192022 compared to 2018.2021. Product volume for ourwithin spinal hardware business increased our net sales by approximately 11%, offset by in 2022 compared to 2021, primarily due to net sales growth from the commercial launch of the Simplify Cervical Disc in 2021, as well as higher procedural volumes as the number of elective surgeries continued to increase in 2022. We experienced unfavorable pricing impacts of approximately 2%1% in 2019, as2022 compared to 2018.2021. Foreign currency fluctuation fluctuations decreased our spinal hardware net sales by approximately 1% 4% in 20192022 compared to 2018.Net sales from our surgical support product line offerings decreased $49.6 million, or 16%, in 2020 compared to 2019. Product and service volume in surgical support decreased our net sales by approximately 15% in 2020 compared to 2019, primarily due to a reduction in elective surgeries as a result of the COVID-19 pandemic. Additionally, we experienced unfavorable pricing impacts of approximately 1% in 2020 compared to 2019. Foreign currency fluctuation from 2019 to 2020 did not have a material impact on surgical support net sales.$3.6$9.7 million, or 1%3%, in 20192022 compared to 2018.2021. Product and service volume for ourwithin surgical support business increased our net sales by approximately 2%5% in 2019, offset by2022 compared to 2021, primarily due to net sales growth from the commercial launch of the Pulse platform during the third quarter of 2021, as well as higher IONM services and surgical procedural volumes as the number of elective surgeries continued to increase. We experienced unfavorable pricing impacts of approximately 1% in 2019, as2022 compared to 2018. 2021. Foreign currency fluctuation from 2018 to 2019 did not have a material impact onfluctuations decreased our surgical support net sales.56Year Ended December 31, 2021 to 2022 (in thousands, except %) (in thousands, except %) 2022 2021 $ Change % Change Cost of sales $ 336,507 $ 322,278 $ 14,229 4 % % of total net sales 28 % 28 % — % goodsproducts in the United States,U.S., and accordingly, foreign currency fluctuations have not materially impacted our cost of sales.$9.3$14.2 million or 3%, in 20202022 compared to 2019. However, cost2021. Cost of sales as a percentage of net sales in 2020 increased by 4% compared to 2019.was 28% for both years 2022 and 2021. The increase in cost of sales in 20202022 is dueprimarily associated with higher net sales, compared to anthe same period in 2021. Offsetting this increase is a decrease of $25.0 million in the reserve foramount of our excess and obsolete inventory reserves recorded to cost of $35.0sales as compared to 2021. In 2022, our excess and obsolete inventory reserves decreased by $10.8 million which is primarily attributablecompared to 2021, due to updates to our estimates and assumptions about future product demand for certain spinal hardware products associated with market conditionswhich have been affected by multiple factors, including the COVID-19 pandemic. Offsetting this increase is a proportional reductionpandemic and general market conditions. Further, in cost of sales associated with lower net sales2022, our excess and obsolete inventory reserves decreased by $14.2 million, compared to 2021, due to a reductionreserve recorded in elective surgeries as a resultthe third quarter of 2021 associated with the COVID-19 pandemic.Costwithdrawal of sales increased $1.2 million duringcertain products from the year ended December 31, 2019, compared to 2018. market that did not recur.CostTable of Contentssales for our business increased primarily due to growth in volume, changes in product mix, and shifts in production costs, offset by favorable manufacturing absorption from in-sourced products and improved throughput and plant efficiencies in 2019, compared to 2018.Year Ended December 31, 2021 to 2022 (in thousands, except %) (in thousands, except %) 2022 2021 $ Change % Change Selling, general and administrative $ 634,095 $ 610,085 $ 24,010 4 % % of total net sales 53 % 54 % Research and development 98,524 92,626 5,898 6 % % of total net sales 8 % 8 % Amortization of intangibles 49,376 57,309 (7,933) (14) % Business transition (benefit) costs Business transition (benefit) costs (4,976) 68,719 (73,695) (107) % decreasedincreased by $64.0$24.0 million, or 10%4%, in 20202022 compared to 2019. The decrease in 2020 is primarily due to impacts from the COVID-19 pandemic reducing compensation costs, including stock-based compensation subject to fair value adjustments for certain equity awards, as well as decreases in travel and consulting expenses, as compared to 2019. Additionally, during the year ended December 31, 2020, due to the impacts from the COVID-19 pandemic we implemented temporary actions to reduce expenses, including implementing compensation reductions for our Board of Directors and executive officers, and reducing discretionary spend across the organization.Selling, general and administrative expenses increased by $35.3 million, or 6%, during the year ended December 31, 2019 as compared to 2018.2021. The increase in 20192022 is primarily due to increased employee compensationcommissions and freight costs associated with higher net sales, increased travel expenses coinciding with the easing of COVID-19 related restrictions, increased legal expenses associated with certain ongoing litigation matters and increased headcount, as well asdepreciation costs for surgical sets supporting higher net sales. During 2022, we experienced macroeconomic inflationary pressures within our selling, general and administrative expenses, that increased as a function of the increase in net salesincluding higher travel expenses and international expansion, such as equipment, freight and facility related expenses, as compared to 2018. Stock-based compensation expense increased in 2019 as compared to 2018 due to higher fair value adjustments to certain equity awards that are subject to revaluation on a recurring basis based on stock price performance. These costs were partially offset by decreases in non-recurring consulting fees associated with the implementation of our state tax-planning strategy, which occurred during 2018. Additionally, during 2019 there was an increase in expenses associated with our compliance efforts with the EU Medical Device Regulation, and legal expenses.57$7.5$5.9 million, or 10%6%, in 20202022 compared to 2019, and $10.7 million, or 17%, in 2019 compared to 2018. 2021. The increase in spending is primarily due to increasedhigher headcount related costs, and increased cost associated with further development, enhancement and functionality of our current and future product offerings, including capital equipment.remained relatively constantdecreased by $7.9 million, or (14)% in 20202022 compared to 2019 and in 2019 compared2021 primarily due to 2018.Purchasemultiple intangible assets associated with a number of In-Process Research and DevelopmentDuring the year ended December 31, 2020 and December 31, 2018, we expensed $1.0 million and $8.9 million, respectively, for a purchased in-process research and development asset which had no future alternative use.Litigation Liability LossDuring the year ended December 31, 2018, we settled all outstanding matters with Madsen Medical, Inc. for $27.8 million. We no longer have any remaining liability related to this matter.the assessment of the likelihood that theand amount of contingent milestones will be achievedconsideration achievement resulting in payment. If an accrual for contingent consideration decreases during a particular period, it results in a reduction of costs during such period.2020,2022, we recorded $10.9a benefit of $(5.0) million related to acquisition, integration and business transition activities, which included $(14.7) million of fair value adjustments on contingent consideration liabilities associated with our 2021, 2018, 2017 and 2016 acquisitions.$2.3$53.4 million of fair value adjustments on contingent consideration liabilities associated with our 2021, 2018, 2017 and 2016 acquisitions.During the year ended December 31, 2019, we recorded a reduction of costs of $(2.0) million related to acquisition, integration and business transition activities, which included $(6.3) million of fair value adjustments on contingent consideration liabilities associated with our 2018, 2017 and 2016 acquisitions.During the year ended December 31, 2018, we recorded $11.5acquisitions as well as $4.0 million of costs related to acquisition, integration and business transition activities, which included $(1.5) million of fair value adjustments on contingent consideration liabilities associated with our 2018, 2017the 2021 acquisition of Simplify Medical.2016 acquisitions.Year Ended December 31, 2021 to 2022 (in thousands, except %) (in thousands, except %) 2022 2021 $ Change % Change Interest income $ 2,759 $ 160 $ 2,599 1,624 % Interest expense (17,423) (21,056) 3,633 (17) % Other expense, net Other expense, net (21,430) (25,459) 4,029 (16) % Total interest and other expense, net $ (36,094) $ (46,355) $ 10,261 (22) % % of total net sales 3 % 4 % includedincludes gains and losses from strategic investments, gains and losses from changes in the fair value of derivatives, our pro rata allocation of net income or loss from our equity method investments, and net foreign currency exchange gains and losses.$43.3$2.6 million in 20202022, compared to 2019. The increase in 2020 isthe same period 2021, primarily due to interest earned on our money market funds as a net lossresult of $12.3higher interest rates in 2022, compared to the same period in 2021. Interest expense decreased by $3.6 million recognized forin 2022, compared to the changesame period in fair value derivative assets and liabilities resulting from2021, primarily due to the Senior Convertible Notes due 2023 issued in June 2020, as well as an increase in interest expense associated with the Senior Convertible Notes due 2025 issued2021 which were settled at maturity in March 20202021. Other expense, net decreased by $4.0 million in 2022, compared to the same period in 2021, due primarily to a decrease of $9.8 million in net foreign currency exchange losses and Senior Convertible Notes due 2023 issueda change of $5.9 million in June 2020.58Income Tax (Benefit) ExpenseThe provision for income tax expense as a percentage of pre-tax lossunrealized gains and losses from continuing operations reflected a tax benefit of 22%strategic investments. Net foreign currency exchange losses were $18.8 million and $28.7 million for the yearyears ended December 31, 2020 compared with a tax expense of 19% on pre-tax income2022 and December 31, 2021, respectively. Unrealized (losses) gains from strategic investments were $(2.8) million and $3.1 million for the yearyears ended December 31, 2019.2022 and December 31, 2021, respectively.benefits contributing to the effective tax rate in 2020 were lower than those contributing to the effective tax rate in 2019 primarily due to higher foreign income inclusion, an increase in non-deductible officer’s compensation expense, increased contingent consideration adjustments, and increased valuation allowances, offset by increased tax reserve releases, decrease in state taxes, and increased deferred tax assets due to tax rate changes.Year Ended December 31, 2021 to 2022 (in thousands, except %) 2022 2021 $ Change % Change Income tax expense $ (11,915) $ (5,702) $ (6,213) 109 % Effective income tax rate 23 % (10) % from continuing operations reflected a tax expense of 19%was 23% for the year ended December 31, 20192022 compared with a tax benefit of 43%(10)% on pre-tax incomelosses for the year ended December 31, 2018. Tax benefits contributing to the effective2021. The increase in income tax rate in 2019 were lower than those contributing to the effective tax rate in 2018expense during 2022 was primarily due to reduced tax benefits from expiration of statute of limitations onincreased uncertain tax positions, lessposition reserves, shortfall on share-based compensation, partially offset by decreased valuation allowances, favorable return to provision adjustments, and an increase in non-deductible officer’s compensation expense, offset by an increase in tax benefits associated with share-based payments, increase in research and development credit generation, and a decrease in valuation allowances. and marketable securities, cash generated from operations, proceeds from our convertible notes issuances, and access to our revolving line of credit. We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, which include impacts from the COVID-19 pandemic, working capital requirements and capital deployment decisions. We have historically invested our cash primarily in U.S. treasuries and government agencies, corporate debt, and money market funds. Certain of these investments are subject to general credit, liquidity and other market risks. The general condition of the financial markets and the economy may increase those risks and may affect the value and liquidity of investments and restrict our ability to access the capital markets.marketspandemic.pandemic and global macroeconomic factors. We expect our cash flows from operations to continue to fund the ongoing core business. As borrowings become due, we may be required to access the capital markets or draw upon our line of credit for additional funding. As we assess inorganic growth strategies, we may need to supplement our internally generated cash flow with outside sources. As part of our liquidity strategy, we will continue to monitor our current level of earnings and cash flow generation as well as our ability to secure additional credit facilities, term loans, or other similar arrangements and access the capital markets in light of those earning levels and general financial market conditions.59United States,U.S., and the majority of our net sales and cash generation have been made in the United States. Accordingly, we do not have material net cash flow exposures to foreign currency rate fluctuations.U.S. However, as our business in markets outside of the United StatesU.S. continues to increase, we will be exposedour exposure to foreign currency exchange risk related to our foreign operations.operations will increase. Fluctuations in the rate of exchange between the United StatesU.S. dollar and foreign currencies, primarily in the pound sterling, the euro, the Australian dollar, the Brazilian real, the British pound sterling, the Colombian peso, the euro, the Japanese yen and the Singapore dollar, has and the yen, could continue to adversely affect our financial results, including our net sales, growth rates in net sales, gross margins, incomegains and losses as well as assets and liabilities. In particular, as a result of our acquisition of Simplify Medical, we have additional exposure to fluctuations in the Australian dollar. We established intercompany receivables and payables in Australian dollars in connection with the acquisition of Simplify Medical, a proprietary limited company registered in Australia. Additionally, we have future contingent consideration liabilities denominated in U.S. dollars, in connection with the acquisition of Simplify Medical, which are the financial obligation of NuVasive (AUST/NZ) Pty Limited, an Australian dollar denominated company. Both the intercompany receivables and payables and contingent consideration liabilities are subject to foreign currency remeasurement. While we enter into forward currency contracts for certain currencies to partially offset the impact from fluctuations of the foreign currency rates on our third-party and short-term intercompany receivables and payables between our domestic and international operations. Weoperations, we have not entered into hedges with respect to the Australian dollar. In addition, we currently do not hedge future forecasted transactions but will continue to assess whether that strategy is appropriate. As of December 31,, 2020 2022, the cash balance held by our foreign subsidiaries with currencies other than the United StatesU.S. dollar was approximately $52.3$51.2 million and it is our intention to indefinitely reinvest all of our current foreign earnings to increase working capital within our international business and to expand our existing operations outside the United States.U.S. As of December 31, 20202022, our account receivable balance held by our foreign subsidiaries with currencies other than the United StatesU.S. dollar was approximately $48.3$61.9 million. We have operations in markets in which there is governmental financial instability which could impact funds that flow into the medical reimbursement system. In addition, loss of financial stability within these markets could lead to delays in reimbursement or inability to remit payment due to currency controls. Specifically, we have operations and/or sales in Puerto Rico, Brazil and Argentina. We do not have any material financial exposure to one customer or one country that would significantly hinder our liquidity.for which accrual amountsthat are not disclosed in our Consolidated Financial Statements. It is reasonably possible, however, that an unfavorable outcome that exceeds our accrual estimate for a particular legal proceeding or investigation could have a material adverse effect on our liquidity and access to capital resources. Additionally, it is possible that in connection with a legal proceeding or investigation we are required to pay fees and expenses of the other party or set aside funds in an escrow or purchase a performance bond, regardless of our assessment of the probability of a loss. These requirements to pay fees and expenses or escrow funding in connection with a legal proceeding or investigation could have an adverse impact on our liquidity or affect our access to additional capital resources. We have disclosed all material accruals for pending litigation or investigations in Note 12 of11, Contingencies, in the Notes to Consolidated Financial Statements included in this Annual Report.at varying times by 2024.WeIn March 2022, we paid $7.5 million toward the successful achievement of a second milestone. There are two remaining milestones, and we anticipate the remaining milestonesnext milestone will become payable at varying times between 2021 and 2024, butin 2023 with the final milestone anticipated no earlier than 2027. These dates are subject to change based on the achievement of those manufacturing and commercial milestones.Pty Limited, or Simplify Medical, a developer of cervical artificial disc technology for cervical total disc replacementcTDR procedures. PursuantIn connection with the acquisition, we recorded a purchase accounting fair value estimate of $103.4 million for contingent consideration liabilities related to the termsachievement of the definitive agreement, we agreed to make an upfront payment of $150.0 million at closing, subject to customary purchase price adjustments, plus additional future payments contingent upon milestones related to regulatory approval and net sales from products incorporating the Simplify Medical cervical artificial disc technology. In connection withOn April 1, 2021, the closing, we fundedSimplify Cervical Disc received approval from the $150.0 million upfront payment using available cash and investments on hand. UponFDA for two-level cervical total disc replacement, resulting in the achievement of the regulatory milestone. We made a payment of $45.8 million on April 20, 2021 for the regulatory milestone Simplify Medical will be entitledusing available cash. During the third quarter of 2022, we made a payment of $0.8 million relating to a one-time payment of up to $45.9 million which could become due and payable at any time between 2021 and 2024. Additional milestoneholdback associated with the acquisition. Milestone payments, which are contingent upon net sales from products incorporating the Simplify Medical cervical artificial disc technology, will become payable to Simplify Medical in calendar years 2023, 2024 and 2025.60short-term investments were $1.0 billion and $213.0$246.1 million at December 31, 20202022 and December 31, 2019,2021, respectively. While the unprecedented public health and governmental efforts to contain and manage the spread and impact of COVID-19 have created significant disruptions to the healthcare system and the global economy, as of the filing date of this report, we believe our existing cash, cash equivalents, short-term investments, projected future cash flows from operations and access to external financing sources are sufficient to satisfy our current and reasonably anticipated requirements for funds to conduct our operations in the ordinary course of our business and pay our obligation as they become due for the next twelve months. Given the impact the COVID-19 pandemic has had on demand for elective surgical procedures, we took temporary actions to reduce operating expenses and preserve liquidity such as reducing compensation for our directors and executive officers in 2020, limiting discretionary spend, and adjusting manufacturing capacity based upon demand. Additionally, we have varying needs for cash in connection with our Senior Convertible Notes, and alsoof which $450 million of Senior Convertible Notes are due June 2023, as a result ofwell as for certain acquisition-related obligations and milestonecontingent consideration achievements. As of December 31, 2020, we had outstanding $650.0 million aggregate principal amount of unsecured senior convertible notes with a stated interest rate of 2.25% and a maturity date of March 15, 2021, which we refer to as the 2021 Notes. We anticipate that the 2021 Notes will be settled by satisfying the principal amount outstanding with cash and any note conversion value over the principal amount in shares of our common stock. Future litigation or requirements to escrow funds could also materially impact our liquidity and our ability to invest in and runoperate our business on an ongoing basis. Although we have no cash borrowings under our existing revolving senior credit facility as of the date of this report, we expect to use our cash resources or cash borrowings under our senior credit facility to support our business within the context of prevailing market and economic conditions, which, given the continued unpredictability of the COVID-19 crisis,pandemic and global macroeconomic conditions, could rapidly and materially deteriorate or otherwise change. During this time, we may seek other sources of liquidity through capital market or bank loan transactions to support our business needs. In addition, we may seek to further adjust or amend the terms of and/or expand the capacity of our existing senior credit facility, or enter into additional credit facilities, term loans, or other similar arrangements. However, with thecontinued uncertainty surrounding the COVID-19 crisis,pandemic and the macroeconomic conditions discussed above, our ability to engage in such transactions may be constrained by volatile financial market conditions, unfavorable lending terms, reduced investor and/or lender interest or capacity, as well as our liquidity, leverage, and general creditworthiness and we can provide no assurance as to successfully completing such transactions. Furthermore, our ability to borrow under our existing revolving senior credit facility is subject to remaining in compliance with underlying financial covenants which may be difficult to satisfy if our business experiences additional disruptions as a result of the COVID-19 pandemic continues to adversely impact the healthcare system and our business.or global macroeconomic conditions. Further discussion of the potential impacts on our business from the COVID-19 pandemic is provided under Part I, Item 1A – Risk Factors.20202022, of $817.0$2.6 million was mainlyprimarily driven by timing associated with our operating cash inflows of $873.8 million related to the net issuance of our Senior Convertible Notes due 2023 and 2025 and $185.9flows, $139.2 million in cash provided from operations, partially offset by $105.7 million in cash usedoutflows for purchases of property and equipment, $80.7as well as a $7.5 million in cash used for treasury stock purchases, and $53.9 million net in cash usedpayment for the call spreads onsuccessful achievement of the sales and purchases of our warrants and bond hedges issued in connection withcommercial milestone related to the Senior Convertible Notes due 2023 and 2025.September 2017 acquisition. At December 31, 2020,2022, we had cash totaling $1.5 $1.5 million in restricted accounts which is not available to us to meet any ongoing capital requirements if and when needed.Year Ended December 31, 2021 to 2022 (in thousands, except %) (in thousands, except %) 2022 2021 $ Change % Change Cash provided by operating activities $ 169,118 $ 182,174 $ (13,056) (7) % Cash used in investing activities (155,193) (136,065) (19,128) 14 % Cash used in financing activities Cash used in financing activities (8,590) (653,349) 644,759 (99) % Effect of exchange rate changes on cash (2,763) (3,538) 775 (22) % Increase (decrease) in cash, cash equivalents and restricted cash Increase (decrease) in cash, cash equivalents and restricted cash $ 2,572 $ (610,778) $ 613,350 (100) % $185.9$169.1 million in 2020,2022, compared to $235.3$182.2 million in 2019. 2021. The $49.4 $13.1 million decrease in cash provided by operating activities was primarily due to decreased operational cash flows in 2020 related to lower net salesthe timing of collections and cash receipts resulting from the impact of the COVID-19 pandemic, as well aspayments associated with our accounts receivable, accounts payable and accrued liabilities, and an increase in payments for compensation related accruals, and timing of spending.Cash provided by operating activities was $235.3 million in 2019, compared to $219.2 million in 2018. The $16.1 million increase in cash provided by operating activities was primarily due to the comparable period’s payment of $27.8 million for the settlement of the Madsen litigation matter. Thiswhich was partially offset by increasedthe timing of spending for inventory purchases and general timing of cash receipts and disbursementsduring 2022 compared to the same period in 2019.61$281.9$155.2 million in 2020,2022, compared to $134.5$136.1 million used in 2019. 2021. The $147.4$19.1 million increase in cash used in investing activities was primarily due to $173.5 million in cash used for the net purchases of marketable debt securities, offset by a decrease of $17.2 millionan increase in cash used for purchases of property and equipment and for acquisitions and strategic investments of $28.2 million and $14.5 million, respectively in 2022. This increase was offset by a net decrease of $8.9 million in cash used for acquisitions, strategic investments and intangible assets in 2020 compared to 2019.Cash used in investing activities was $134.5of $22.3 million, as a result of payments of $195.3 million in 2019, compared to $161.3 million used in 2018. The $26.8 million decrease in cash used in investing activities was primarily due to a decreaseconnection with the acquisition of $51.3 million in cash used for business combinations, strategic investmentsSimplify Medical and intangible assets,the associated regulatory milestone being met, offset by a $21.0proceeds of $173.0 million increasefrom sales and maturities of marketable securities in cash used for purchases of property and equipment in 2019 compared to 2018.Cash provided by financing activities was $736.7 million in 2020, compared to $6.6 million cash used in 2019. The $743.3 million increase in cash provided by financing activities was primarily due to the net issuances of our Senior Convertible Notes due 2023 and 2025 of $873.8 million, offset by $53.9 million of net cash used for the call spreads on the sales and purchases of our warrants and bond hedges issued in connection with the Senior Convertible Notes due 2023 and 2025, and an increase in treasury stock purchases of $66.2 million in 2020 compared to 2019.$6.6$8.6 million in 2019,2022, compared to $14.6$653.3 million cash usedfor the same period in 2018. 2021. The $8.0$644.8 million decrease in cash used in financing activities was primarily due to decreased contingent consideration payments of $18.6the $649.4 million offset by increased treasury stock purchases of $11.6 millionpayment made in 2019 compared2021 to 2018.Treasury stock purchases totaled $80.7 million during 2020, relating tosettle our share repurchase program, the vesting of equity awards and stock option exercises. In March 2020, in connection with the issuance of the Senior Convertible Notes due 2025, we repurchased approximately 1,085,000 shares2021. This decrease was partially offset by a $7.5 million payment relating to contingent consideration, of which $6.8 million is reflected within our commonfinancing activities, and the remainder allocated to our operating activities during 2022.for $75.0 million.purchases related to equity award vesting totaled $5.7 million during 2022. We use net share settlement on stock issuances, which results in cash tax payments, as well as a decrease in the cash receipts from the issuance of common stock upon the exercising of stock options.payments. Net share settlement is generally used in lieu of cash payments by employees for minimum tax withholding or exercise costs for equity awards. The net share settlement is accounted for as a treasury share repurchase transaction, with the cost of any deemed repurchased shares included in treasury stock and reported as a reduction in total equity at the time of settlement. Additionally, net share settlement for tax withholding requires us to fund a significant amount of cash for certain tax payment obligations from time-to-time with respect to the employee tax obligations for vested equity awards. We anticipate using cash generated from operating activities to fund such payments.622.25% Senior Convertible Notes due 2021In March 2016, we issued $650.0 million principal amount of unsecured senior convertible notes with a stated interest rate of 2.25% and a maturity date of March 15, 2021, which we refer to as the 2021 Notes. The net proceeds from the offering, after deducting initial purchasers' discounts and costs directly related to the offering, were approximately $634.1 million. Interest on the 2021 Notes began accruing upon issuance and is payable semi-annually. Prior to September 14, 2020, the 2021 Notes provided for settlement in cash, stock, or a combination thereof, solely at our discretion. As of September 14, 2020, combination settlement was deemed to have been elected by us and the 2021 Notes will be settled by satisfying the principal amount outstanding with cash and any note conversion value over the principal amount in shares of our common stock. The initial conversion rate of the 2021 Notes is 16.7158 shares per $1,000 principal amount, which is equivalent to a conversion price of approximately $59.82 per share, subject to adjustments. Prior to September 15, 2020, holders could have converted their 2021 Notes only under the following conditions: (a) during any calendar quarter beginning June 30, 2016, if the reported sale price of our common stock for at least 20 days out of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter was greater than 130% of the conversion price on each applicable trading day; (b) during the five business day period in which the trading price of the 2021 Notes fell below 98% of the product of (i) the last reported sale price of our common stock and (ii) the conversion rate on that date; and (c) upon the occurrence of specified corporate events, as defined in the 2021 Notes. From September 15, 2020 and until the close of business on the second scheduled trading day immediately preceding March 15, 2021, holders may convert their 2021 Notes at any time (regardless of the foregoing circumstances). The 2021 Notes can no longer be redeemed by us. We previously had the ability to redeem the 2021 Notes, at our option, in whole or in part beginning on March 20, 2019 until the close of business on the business day immediately preceding September 15, 2020 if the last reported sale price of our common stock had been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we deliver written notice of a redemption. No principal payments are due on the 2021 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the 2021 Notes do not contain any financial covenants and do not restrict us from paying dividends or issuing or repurchasing any of our other securities. As of September 15, 2020, holders may convert their 2021 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date. The impact of the convertible feature will be dilutive to our earnings per share when our average stock price for the period is greater than the conversion price.In connection with the offering of the 2021 Notes, we entered into transactions for convertible notes hedge, which we refer to as the 2021 Hedge, and warrants, which we refer to as the 2021 Warrants. The 2021 Hedge was entered into with the initial purchasers of the 2021 Notes and/or their affiliates, which we refer to as the 2021 Counterparties, entitling us to purchase up to 10,865,270 shares of our own common stock at an initial stock price of $59.82 per share, each of which is subject to adjustment. The cost of the 2021 Hedge was $111.2 million. The 2021 Hedge will expire on March 15, 2021. The 2021 Hedge is expected to reduce the potential equity dilution upon conversion of the 2021 Notes if the daily volume-weighted average price per share of our common stock exceeds the strike price of the 2021 Hedge. Our assumed exercise of the 2021 Hedge is considered anti-dilutive since the effect of the inclusion would always be anti-dilutive with respect to the calculation of diluted earnings per share.In addition, we sold the 2021 Warrants to the 2021 Counterparties to acquire up to 10,865,270 common shares of our stock. The 2021 Warrants will expire on various dates from June 2021 through December 2021 and may be settled in cash or net shares. It is our current intent and policy to settle all conversions in shares of our common stock. We received $44.9 million in cash proceeds from the sale of the 2021 Warrants. The 2021 Warrants could have a dilutive effect on our earnings per share to the extent that the price of our common stock during a given measurement period exceeds the strike price of the 2021 Warrants, which is $80.00 per share.63Senior Convertible Notessenior convertible notes with a stated interest rate of 1.00% and a maturity date of June 1, 2023, which we refer to as the 2023 Notes. The net proceeds from the offering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $436.7 million. Interest on the 2023 Notes began accruing upon issuance and is payable semi-annually. The 2023 Notes were initially requiredpermit us to be settled in cash as we did not have enough available shares and were unable to reserve the maximum number of shares issuable under the 2023 Notes (“sufficient reserved shares”). On September 10, 2020, we held a Special Meeting of Stockholders and received stockholder approval to amend our Restated Certificate of Incorporation to increase the number of shares of our common stock authorized for issuance from 120,000,000 shares to 150,000,000 shares. As a result of the increase in the number of shares of our common stock authorized for issuance, we currently have sufficient reserved shares and therefore may settle conversions of the 2023 Notes in cash, stock, or a combination thereof, solely at our discretion. It is our current intentdiscretion, and policywe have elected to settle all conversions through combination settlement, which involves satisfyingin cash. Accordingly, we will satisfy the principal amount outstanding with cash and any note conversion value over the principal amount in shares of our common stock. The initial conversion rate of the 2023 Notes is 11.8778 shares per $1,000 principal amount, which is equivalent to a conversion price of approximately $84.19 per share, subject to adjustments. In addition, following certain corporate events that occur prior to the maturity date or if we issue a notice of redemption, we will increase the conversion rate for a holder who elects to convert its 2023 Notes in connection with such a corporate event or in connection with such redemption in certain circumstances. Prior to February 1, 2023, holders may convert their 2023 Notes only under the following conditions: (a) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (b) during the five business day period after any five consecutive trading day period, referred to as the measurement period, in which the trading price of the 2023 Notes per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on such trading day; (c) if we call any or all of the 2023 Notes for redemption, at any time prior to the close of business on the second scheduled trading day preceding the redemption date; or (d) upon the occurrence of specified corporate events, as defined in the 2023 Notes. On or after February 1, 2023, until the close of business on the second scheduled trading day immediately preceding June 1, 2023, holders may convert their 2023 Notes at any time, regardless of the foregoing conditions.cash. We may not redeem the 2023 Notes prior to the maturity date. No principal payments are due on the 2023 Notes prior to maturity. Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the 2023 Notes do not contain any financial covenants and do not restrict us from conducting significant restructurings, paying dividends or issuing or repurchasing any of our other securities. AsPrior to the close of December 31, 2020, we are unaware of any current events or market conditions that would allow holders to convertbusiness on the business day immediately preceding February 1, 2023, the 2023 Notes.Notes were convertible at the option of holders only upon the satisfaction of specified conditions and during certain periods. On or after February 1, 2023, until the close of business on the second scheduled trading day immediately preceding June 1, 2023, holders may convert their 2023 Notes at any time, regardless of these conditions. The impact of2023 Notes are included within current liabilities in the convertible feature will be dilutive to our earnings per share when our average stock price for the period is greater than the conversion price.stock price of $84.19 per share, each of which is subject to adjustment. The cost of the 2023 Hedge was $69.5 million. The 2023 Hedge will expire on the second scheduled trading day immediately preceding June 1, 2023. The 2023 Hedge is expected to reduce the potential equity dilution upon conversion of the 2023 Notes if the daily volume-weighted average price per share of our common stock exceeds the strike price of the 2023 Hedge. Our assumed exercise of the 2023 Hedge is considered anti-dilutive since the effect of the inclusion would always be anti-dilutive with respect to the calculation of diluted earnings per share.toto the 2023 Counterparties to acquire up to 5,345,010 common shares of our stock. The 2023 Warrants initially limited the amount of shares we were required to reserve for issuance under the 2023 Warrants to an aggregate of 3,093,500 shares of our common stock, subject to adjustment upon having a sufficient amount of authorized and unissued shares which are not reserved for other transactions. As a result of receiving stockholder approval to increase the number of shares of our common stock authorized for issuance on September 10, 2020, we subsequently entered into amendment agreements with each of the 2023 Counterparties to increase the number of authorized shares of our common stock required to be reserved under the 2023 Warrants to the aggregate amount of 6,948,512 shares. The 2023 Warrants will expire on various dates from September 2023 through November 2023 and may be settled in net shares or cash, subject to certain conditions. It is our current intent and policy to settle all conversions in shares of our common stock. We received $46.8 million in cash proceeds from the sale of the 2023 Warrants. The 2023 Warrants could have a dilutive effect on our earnings per share to the extent that the price of our common stock during a given measurement period exceeds the strike price of the 2023 Warrants, which is $104.84 per share.64The initial conversion rate of the 2025 Notes is 10.7198 shares per $1,000 principal amount, which is equivalent to a conversion price of approximately $93.29 per share, subject to adjustments. In addition, following certain corporate events that occur prior to the maturity date or if we issue a notice of redemption, we will increase the conversion rate for a holder who elects to convert its 2025 Notes in connection with such a corporate event or in connection with such redemption in certain circumstances. Prior to September 15, 2024, holders may convert their 2025 Notes only under the following conditions: (a) during any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (b) during the five business day period after any five consecutive trading day period, referred to as the measurement period, in which the trading price of the 2025 Notes per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on such trading day; (c) if we call any or all of the 2025 Notes for redemption, at any time prior to the close of business on the second scheduled trading day preceding the redemption date; or (d) upon the occurrence of specified corporate events, as defined in the 2025 Notes. On or after September 15, 2024, until the close of business on the second scheduled trading day immediately preceding March 15, 2025, holders may convert their 2025 Notes at any time, regardless of the foregoing conditions.2020,2022, we are unaware of any current events or market conditions that would allow holders to convert the 2025 Notes. The impact of the convertible feature will be dilutive to our earnings per share when our average stock price for the period is greater than the conversion price.65million. The 2020 Credit Agreement also contains an expansion feature, which allows us to increase the aggregate principal amount of the 2020 Facility provided we remain in compliance with the underlying financial covenants on a pro forma basis, including but not limited to, compliance with the consolidated interest coverage ratio and certain consolidated leverage ratios. The 2020 Facility matures in February 2025 (subject to an earlier springing maturity date), millioand includes a sublimit of $50.0 million for standby letters of credit, a sublimit of $250.0 million for multicurrency borrowings, and a sublimit of $5.0 million for swingline loans. All of our assets including the assets of our material domestic subsidiaries continue to be pledged as collateral under the 2020 Facility (subject to customary exceptions) pursuant to the terms set forth in the Second Amended and Restated Security and Pledge Agreement executed in favor of the administrative agent. Each of our material domestic subsidiaries guarantee the 2020 Facility. In connection with the 2020 Facility, we incurred issuance costs which will be amortized over the term of the 2020 Facility.n. We did not carry any outstanding revolving loans under the 2020 Facility as of December 31, 2022 and 2021.2019. for an interest period of one month plus 1.00%. The margin for the 2020 Facility ranges, based on our consolidated total net leverage ratio, from 0.50% to 1.25% in the case of base rate loans and from 1.50% to 2.25% in the case of Eurocurrency Rate loans. The 2020 Facility includes an unused line fee ranging, based on our consolidated total net leverage ratio, from 0.35% to 0.50% per annum on the revolving commitment.2020,2022, we are in compliance with the 2020 Credit Agreement covenants.2020:(1)Senior Convertible Notes includes the expected coupon interest payments on the outstanding debt. See Note 6 to the Consolidated Financial Statements included in this Annual Report for further discussion of the terms of the Senior Convertible Notes.Payments Due by Period (in thousands) Total Less Than 1 Year 1 to 3 Years 4 to 5 Years After 5 Years Convertible Notes (1) $ 906,469 $ 453,938 $ 452,531 $ — $ — Operating leases 153,071 15,817 27,479 24,620 85,155 Finance leases 2,044 1,139 853 52 — Other obligations 65,842 61,180 1,973 1,091 1,598 Total $ 1,127,426 $ 532,074 $ 482,836 $ 25,763 $ 86,753 7Fair Value Measurements, and Note 6, Commitments, in the Notes to the Consolidated Financial Statements included in this Annual Report for further discussion on the contingent consideration obligations and product development agreements, respectively.662020,2022, we did not have any off-balance sheet activities.QualitativeQualitative Disclosures About Market Risk20202022 is related to our investment portfolio which consists largely of debt instrumentsmoney market funds of high quality corporate issuers.financial institutions. Due to the short-term nature of these investments, we have assessed that there is no material exposure to interest rate risk arising from our investments. Fixed rate investments and borrowings may have their fair market value adversely impacted from changes in interest rates. AtAs of December 31, 2020,2022, we do not hold any material asset-backed investment securities and in 2020,2022, we did not realize any losses related to asset-backed investment securities. Based upon our overall interest rate exposure as of December 31, 2020,2022, a change of 10 percent in interest rates, assuming the amount of our investment portfolio and overall economic environment remains constant, would not have a material effect on interest income.2020,2022, we only held investments in securities of a short-term nature classified as cash equivalents or short-term investments.and marketable equity securities. During the periods presented, we did not hold any investments that were in a significant unrealized loss position and no impairment charges were recorded. Realized gains and losses and interest income related to marketable securitiescash equivalents were immaterial during all periods presented. 2021 Hedge, 2023 Hedge and 2025 Hedge in connection with the issuances of the 2021 Notes, 2023 Notes and 2025 Notes, respectively, entitling us to purchase our common stock. Upon conversion of our convertible notes, the 2021 Hedge, 2023 Hedge and 2025 Hedge are expected to reduce the equity dilution if the daily volume-weighted average price per share of our common stock exceeds the strike price of the applicable hedge. We also entered into warrant transactions with the counterparties of the 2021 Hedge, 2023 Hedge and 2025 Hedge entitling them to acquire shares of our common stock. The warrant transactions could have a dilutive effect on our earnings per share to the extent that the price of our common stock during a given measurement period (the quarter or year to date period) exceeds the strike price of the warrants. SeeSee Note 65, Indebtedness, in the Notes to the Consolidated Financial Statements included in this Annual Report for further discussiondiscussion..United States,U.S., and the majority of our sales since inception have been made in the United StatesU.S. dollars. Accordingly, we have assessed that we do not have any material net exposure to foreign currency rate fluctuations. However, as our business in markets outside of the United StatesU.S. continues to increase, we will be exposedour exposure to foreign currency exchange risk related to our foreign operations.operations will continue to grow. Fluctuations in the rate of exchange between the United StatesU.S. dollar and foreign currencies, primarily the pound sterling, the euro, the Australian dollar, the Brazilian real, the British pound sterling, the Colombian peso, the euro, the Japanese yen, and the Singapore dollar, has had and the yen, could adversely affectcontinue to have an adverse effect on our financial results, including our net sales, net sales growth rates, gross margins, income and losses as well as assets and liabilities. In particular, as a result of our acquisition of Simplify Medical, we have additional exposure to fluctuations in the Australian dollar. We established intercompany receivables and payables in Australian dollars in connection with the acquisition of Simplify Medical, a proprietary limited company registered in Australia. We also have future contingent consideration liabilities denominated in U.S. dollars, in connection with the acquisition of Simplify Medical, which are the financial obligation of NuVasive (AUST/NZ) Pty Limited, an Australian dollar denominated company. In addition, loss of financial stability within these markets could lead to delays in reimbursement or inability to remit payment due to currency controls. Specifically, we have operations in Puerto Rico, Brazil, and Argentina that have financial instability or currency controls. We do not have any material financial exposure to one customer or one country that would significantly hinder our liquidity.United StatesU.S. dollar into the United StatesU.S. dollar for consolidation using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations. Net gains or losses resulting from the translation of foreign financial statements and the effect of exchange rate changes on intercompany receivables and payables of a long-term investment nature are recorded as a separate component of stockholders’ equity. These adjustments will affect net income only upon sale or liquidation of the underlying investment in foreign subsidiaries. Exchange rate fluctuations resulting from the translation of the short-term intercompany balances between domestic entities and our foreign subsidiaries are recorded as foreign currency transaction gains or losses and are included in other income (expense)expense, net in the Consolidated StatementStatements of Operations. For those short-term intercompany balances, we enter into the foreign currency forward contracts to partially offset the impact from fluctuation of the foreign currency rates. The notional amount of the outstanding foreign currency forward contracts was $14.0$15.0 million as of December 31, 2020,2022, which waswill be settled in January 2021.2023. During the year ended December 31, 2020,2022, a lossgain of $(1.0)$2.2 million was recognized in other (expense) income,expense, net due to the change in the fair value of the derivative instruments, and the fair value of the hedge contracts we held was de minimis$(0.2) million on our Consolidated Balance SheetSheets as of December 31, 2020.2022. The derivative instruments are recorded in other current assets or other current liabilities in the Consolidated Balance Sheets commensurate with the nature of the instrument at period end. The notional principal amounts provide one measure of the transaction volume outstanding as of period end, but do not represent the amount of our exposure to market loss. The estimates of fair value are based on applicable and commonly used pricing models using prevailing financial market information. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments. The financial exposures by exchange rate fluctuations are monitored and managed by us as an integral part of our overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce potentially adverse effects on our results.672020.2022. Based on such evaluation, our management has concluded as of December 31, 2020,2022, the Company’s disclosure controls and procedures are effective.the newthis framework during 2014. Management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020,2022, based on those criteria. Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an attestation report on the Company’s internal control over financial reporting which is included herein.682020,2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, NuVasive, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on the COSO criteria.20202022 and 2019,2021, the related consolidated statements of operations, comprehensive income (loss) income,, equity and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes and our report dated February 25, 202122, 2023 expressed an unqualified opinion thereon.25, 20216920212023 annual meeting of stockholders, and certain information included in the Proxy Statement is incorporated herein by reference. Ethical Business Conduct for all officers, directors and employees. The Code of Ethical Business Conduct is available on our website, www.nuvasive.com. We intend to disclose future amendments to, or waivers from, provisions of our Code of Ethical Business Conduct that apply to our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, or Controller, or persons performing similar functions, within four business days of such amendment or waiver.702020:(1)Consists of shares subject to outstanding stock options, restricted stock units and performance restricted stock units under the NuVasive 2004 Amended and Restated Equity Incentive Plan, the NuVasive 2014 Equity Incentive Plan, and the Ellipse Technologies 2015 Incentive Award Plan, some of which are vested and some of which remain subject to the vesting and/or performance criteria of the respective equity award.Plan Category (A)
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights(B)
Weighted Average
Exercise Price of
Outstanding
Options, Warrants
and Rights(C)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (excluding
securities reflected in
column(A))Equity Compensation Plans approved by stockholders 1,923,969 (1) $ — 3,423,002 (2) Equity Compensation Plans not approved by stockholders — — — Total 1,923,969 $ — 3,423,002 (2)(1)Consists of shares subject to outstanding stock options, restricted stock units and performance restricted stock units under the NuVasive 2014 Equity Incentive Plan and the Ellipse Technologies 2015 Incentive Award Plan, some of which are vested and some of which remain subject to the vesting and/or performance criteria of the respective equity award.Consists of shares available for future issuance under the NuVasive 2014 Equity Incentive Plan, the Ellipse Technologies 2015 Incentive Award Plan, and the Amended and Restated 2004 Employee Stock Purchase Plan (ESPP). As of December 31, 2020, an aggregate of 3,056,803 shares of common stock were available for issuance under the NuVasive 2014 Equity Incentive Plan, 593,454 shares of common stock were available for issuance under the Ellipse Technologies 2015 Incentive Award Plan, and 828,215 shares of common stock were available for issuance under the 2004 Amended and Restated Employee Stock Purchase Plan.(3)(2)Consists of shares available for future issuance under the NuVasive 2014 Equity Incentive Plan, the Ellipse Technologies 2015 Incentive Award Plan, and the 2004 Amended and Restated Employee Stock Purchase Plan, or ESPP. As of December 31, 2022, an aggregate of 2,586,396 shares of common stock were available for issuance under the NuVasive 2014 Equity Incentive Plan, 302,648 shares of common stock were available for issuance under the Ellipse Technologies 2015 Incentive Award Plan, and 533,958 shares of common stock were available for issuance under the 2004 Amended and Restated Employee Stock Purchase Plan.The NuVasive 2004 Amended and Restated Equity Incentive Plan terminated in February 2014, upon the tenth anniversary of its effective date, and we are no longer granting awards under that plan. However, awards granted under the plan will remain outstanding until they are exercised, issued, terminated, cancelled or they expire. Pursuant to the terms of the plan, shares subject to awards granted under the NuVasive 2004 Amended and Restated Equity Incentive Plan may be utilized for future grants of awards under the NuVasive 2014 Equity Incentive Plan, to the extent such awards are terminated, cancelled or they expire, or shares subject thereto are withheld to cover taxes.71(a)The following documents are filed as a part of this report:(1)(a)The following documents are filed as a part of this report:Report of Independent Registered Public Accounting Firm20202022 and 20192020, 20192022, 2021 and 20182020, 20192022, 2021 and 20182020, 20192022, 2021 and 20182020, 20192022, 2021 and 2018Financial Statement Schedules: Schedule II — Valuation AccountsExhibitsExhibitNumberDescription2.1†
Number2.1† 2.23.172Exhibit3.7Number4.44.54.64.7
Number4.5 4.84.910.2#10.3#10.4#10.5#10.6#10.7#10.8#73Exhibit10.3#Number10.9#10.4#10.10#10.11#10.12#10.13#10.14#10.15#10.16#10.17#10.18#10.19#10.20#10.21#10.22#74Exhibit10.12#NumberDescription10.23#10.24#10.25#10.14#10.15# 10.16# 10.17# Exhibit
NumberDescription 10.18# 10.26#10.27#10.28#10.29#10.30#10.31#10.32#10.33#10.34#10.35#10.36#10.37#10.38#75ExhibitNumberDescription10.39#10.40#10.41#10.42#Separation Agreement and General Release dated January 28, 2021 between the Company and Matthew Link10.43#10.44#10.45#Employment LetterSeparation Agreement and General Release dated October 14, 2020November 8, 2021 between the Company and Massimo Calafiore (incorporatedBrent Boucher(incorporated by reference to our QuarterlyAnnual Report on Form 10-Q10-K filed with the Commission on October 29, 2020)February 23, 2022)10.46#10.47#10.48#10.49#10.50#10.51#10.52#10.53#10.54#10.5510.5676Exhibit10.33NumberDescription10.5710.5810.5910.6010.6110.6210.6310.6410.6510.6610.6710.6810.6910.7010.7177ExhibitNumberDescription10.72Exhibit
Number10.40 10.7310.7410.7510.7610.7710.7810.7910.8010.8110.8210.8310.8410.8510.8610.8710.8878Exhibit10.57NumberDescription10.8910.9010.91
Number10.59 10.9210.9310.9410.9510.9610.9721.121.1 79ExhibitNumberDescription
† Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the U.S. Securities and Exchange Commission; provided, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules so furnished.†Certain confidential information contained in this exhibit was omitted by means of redacting a portion of the text and replacing it with an asterisk. We have filed separately with the Commission an unredacted copy of the exhibit.#*80NUVASIVE, INC.NUVASIVE, INC. Date: February 25, 202122, 2023By: /s/ J. Christopher Barry Chief Executive Officer (Principal Executive Officer) 81, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes may do or cause to be done by virtue hereof.SignatureTitleDateTitle Date /s/ J. Christopher Barry 25, 202122, 2023 25, 202122, 2023 OfficerOfficer)/s/ Marc Rosenbaum Vice President, Corporate Controller and Chief Accounting Officer February 22, 2023 Marc Rosenbaum (Principal Accounting Officer) 25, 202122, 2023 25, 202122, 2023 25, 202122, 2023 25, 202122, 2023 DirectorDirector February 22, 2023 Siddhartha C. Kadia, Ph.D. /s/ Gregory T. LucierDirectorFebruary 25, 2021Gregory T. Lucier25, 202122, 2023 Donald J. Rosenberg25, 202122, 2023 Donald J. Rosenberg25, 202122, 2023 82848687888992938320202022 and 2019,2021, the related consolidated statements of operations, comprehensive income (loss) income,, equity and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2022, in conformity with U.S. generally accepted accounting principles.2020,2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 25, 202122, 2023 expressed an unqualified opinion thereon.Mattermattermatters communicated below is a matterare matters arising from the current period audit of the financial statements that waswere communicated or required to be communicated to the audit committee and that: (1) relatesrelate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit mattermatters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattermatters below, providing a separate opinionopinions on the critical audit mattermatters or on the accounts or disclosures to which it relates.84Valuation of inventoryDescription of the Matter $300.6$338.6 million as of December 31, 2020.2022. As explained in Note 1 to the consolidated financial statements, the Company reviews the components of its inventory on a periodic basis for excess and obsolescence and adjusts inventory to its net realizable value as necessary.
Auditing management's calculation of estimated excess and obsolete inventory involved subjective auditor judgment because the estimate was sensitive to changes in significant assumptions. In particular, such assumptions include product life cycle and revenuenet sales forecasts as well as specific product considerations such as timing of the introduction and development of new or enhanced products.revenuenet sales forecasts and historical sales and evaluated adjustments to revenuenet sales forecasts for specific product considerations, such as product life cycles and timing of the introduction and development of new or enhanced products. We also assessed the historical accuracy of management's estimate and performed sensitivity analyses over the significant assumptions to evaluate the impact of changes in the obsolete and excess inventory estimate that would result from changes in the underlying assumptions.Valuation of the contingent consideration liability assumed in the Simplify Medical acquisition Description of the Matter How We Addressed the Matter in Our Audit 25, 202185December 31, 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 248,663 $ 246,091 Accounts receivable, net of allowances of $19,601 and $21,064, respectively Accounts receivable, net of allowances of $19,601 and $21,064, respectively 249,373 214,398 Inventory, net 338,601 315,845 Prepaid income taxes 7,118 5,425 Prepaid expenses and other current assets 21,457 20,665 Total current assets 865,212 802,424 Property and equipment, net 346,510 303,664 Intangible assets, net 184,289 242,675 Goodwill 639,663 633,467 Operating lease right-of-use assets 95,112 102,987 Deferred tax assets 68,273 48,003 Restricted cash and investments 1,494 1,494 Other assets 23,952 19,361 Total assets $ 2,224,505 $ 2,154,075 LIABILITIES AND EQUITY Current liabilities: Accounts payable and accrued liabilities $ 120,333 $ 115,614 Contingent consideration liabilities 66,975 7,986 Accrued payroll and related expenses 58,448 66,596 Operating lease liabilities 10,019 9,867 Income tax liabilities 12,217 828 Senior convertible notes 448,056 — Total current liabilities 716,048 200,891 Long-term senior convertible notes 444,202 884,984 Deferred and other tax liabilities Deferred and other tax liabilities 13,088 3,049 Operating lease liabilities 103,806 111,592 Contingent consideration liabilities Contingent consideration liabilities 63,640 139,824 Other long-term liabilities 14,831 18,528 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.001 par value; 5,000 shares authorized, none outstanding Preferred stock, $0.001 par value; 5,000 shares authorized, none outstanding — — Common stock, $0.001 par value; 150,000 shares authorized at December 31, 2022 and December 31, 2021; 58,939 shares issued and 52,134 outstanding at December 31, 2022; 58,469 shares issued and 51,769 outstanding at December 31, 2021 Common stock, $0.001 par value; 150,000 shares authorized at December 31, 2022 and December 31, 2021; 58,939 shares issued and 52,134 outstanding at December 31, 2022; 58,469 shares issued and 51,769 outstanding at December 31, 2021 63 63 Additional paid-in capital 1,469,411 1,434,976 Accumulated other comprehensive loss (3,249) (7,792) Retained earnings 86,115 45,708 Treasury stock at cost; 6,805 shares and 6,700 shares at December 31, 2022 and December 31, 2021, respectively Treasury stock at cost; 6,805 shares and 6,700 shares at December 31, 2022 and December 31, 2021, respectively (683,450) (677,748) Total equity 868,890 795,207 Total liabilities and equity $ 2,224,505 $ 2,154,075 86Year Ended December 31, 2022 2021 2020 Net sales: Products $ 1,090,954 $ 1,034,612 $ 950,189 Services 110,988 104,376 100,393 Total net sales 1,201,942 1,138,988 1,050,582 Cost of sales (excluding below amortization of intangible assets): Products 251,768 245,569 247,809 Services 84,739 76,709 73,822 Total cost of sales 336,507 322,278 321,631 Gross profit 865,435 816,710 728,951 Operating expenses: Selling, general and administrative 634,095 610,085 547,195 Research and development 98,524 92,626 79,838 Amortization of intangible assets 49,376 57,309 51,726 Purchase of in-process research and development — — 1,011 Business transition (benefit) costs Business transition (benefit) costs (4,976) 68,719 10,878 Total operating expenses 777,019 828,739 690,648 Interest and other expense, net: Interest income 2,759 160 1,472 Interest expense (17,423) (21,056) (70,466) Other expense, net Other expense, net (21,430) (25,459) (16,854) Total interest and other expense, net (36,094) (46,355) (85,848) Income (loss) before income taxes Income (loss) before income taxes 52,322 (58,384) (47,545) Income tax (expense) benefit Income tax (expense) benefit (11,915) (5,702) 10,392 Consolidated net income (loss) Consolidated net income (loss) $ 40,407 $ (64,086) $ (37,153) Net income (loss) per share: Net income (loss) per share: Basic $ 0.78 $ (1.24) $ (0.72) Diluted $ 0.76 $ (1.24) $ (0.72) Weighted average shares outstanding: Basic 52,009 51,589 51,416 Diluted 57,359 51,589 51,416 87 INCOMEYear Ended December 31, 2022 2021 2020 Consolidated net income (loss) Consolidated net income (loss) $ 40,407 $ (64,086) $ (37,153) Other comprehensive income (loss): Unrealized (loss) gain on marketable securities, net of tax Unrealized (loss) gain on marketable securities, net of tax — (13) 13 Translation adjustments, net of tax 4,543 (194) 1,820 Other comprehensive income (loss): 4,543 (207) 1,833 Total consolidated comprehensive income (loss) Total consolidated comprehensive income (loss) $ 44,950 $ (64,293) $ (35,320) 88Common Stock Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossRetained Earnings Treasury Stock Total
Stockholders'
EquityShares Amount Shares Amount Balance at December 31, 2019 57,525 $ 62 $ 1,429,854 $ (9,418) $ 82,475 (5,380) $ (587,766) $ 915,207 Issuance of common stock under employee and director stock option and purchase plans 420 — 6,621 — — (104) (6,116) 505 Stock-based compensation expense — — 25,778 — — — — 25,778 Tax benefits related to convertible note issuance — — 484 — — — — 484 Shares repurchased — — — — — (1,085) (75,000) (75,000) Sale of warrants — — 93,915 — — — — 93,915 Convertible note hedge — — (115,592) — — — — (115,592) Equity component of convertible note issuance — — 115,559 — — — — 115,559 Debt issuance costs attributable to convertible feature — — (1,921) — — — — (1,921) Reclassification of redeemable equity component of senior convertible notes — — (4,697) — — — — (4,697) Consolidated net loss — — — — (37,153) — — (37,153) Other comprehensive income — — — 1,833 — — — 1,833 Balance at December 31, 2020 57,945 $ 62 $ 1,550,001 $ (7,585) $ 45,322 (6,569) $ (668,882) $ 918,918 89–- (Continued)Common Stock Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossRetained Earnings Treasury Stock Total
Stockholders'
EquityShares Amount Shares Amount Balance at December 31, 2020 57,945 $ 62 $ 1,550,001 $ (7,585) $ 45,322 (6,569) $ (668,882) $ 918,918 Adjustment for modified retrospective adoption of accounting standard — — (147,161) — 64,472 — — (82,689) Issuance of common stock under employee and director stock option and purchase plans 524 1 6,217 — — (131) (8,813) (2,595) Stock-based compensation expense — — 25,292 — — — — 25,292 Settlement of convertible note hedge (1) — 53 — — — (53) — Equity component of convertible note settlement 1 — 574 — — — — 574 Consolidated net loss — — — — (64,086) — — (64,086) Other comprehensive loss — — — (207) — — — (207) Balance at December 31, 2021 58,469 $ 63 $ 1,434,976 $ (7,792) $ 45,708 (6,700) $ (677,748) $ 795,207 90–- (Continued)Common Stock Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossRetained Earnings Treasury Stock Total
Stockholders'
EquityShares Amount Shares Amount Balance at December 31, 2021 58,469 $ 63 $ 1,434,976 $ (7,792) $ 45,708 (6,700) $ (677,748) $ 795,207 Issuance of common stock under employee and director stock option and purchase plans 470 — 5,839 — — (105) (5,702) 137 Stock-based compensation expense — — 28,596 — — — — 28,596 Consolidated net income — — — — 40,407 — — 40,407 Other comprehensive income — — — 4,543 — — — 4,543 Balance at December 31, 2022 58,939 $ 63 $ 1,469,411 $ (3,249) $ 86,115 (6,805) $ (683,450) $ 868,890 91Year Ended December 31, 2022 2021 2020 Operating activities: Consolidated net income (loss) Consolidated net income (loss) $ 40,407 $ (64,086) $ (37,153) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 147,033 149,524 140,937 Purchase of in-process research and development — — 1,011 Deferred income taxes (10,953) (4,141) (18,007) Amortization of non-cash interest 7,887 8,629 48,986 Stock-based compensation 28,596 25,292 18,145 Net loss (gain) on strategic investments Net loss (gain) on strategic investments 2,837 (3,082) 268 Changes in fair value of contingent consideration Changes in fair value of contingent consideration (14,712) 53,404 2,327 Net loss recognized on change in fair value of derivatives — — 12,301 Net loss from foreign currency adjustment Net loss from foreign currency adjustment 18,849 28,709 4,218 Reserves on current assets (703) 26,218 53,902 Other non-cash adjustments 12,608 11,006 10,331 Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable (37,177) (11,694) 3,030 Inventory (22,649) (37,020) (40,765) Prepaid expenses and other assets Prepaid expenses and other assets 4,619 (3,366) (4,986) Accounts payable and accrued liabilities (9,870) 533 8,756 Accrued payroll and related expenses (7,407) 4,132 (23,654) Income taxes 9,753 (1,884) 6,264 Net cash provided by operating activities 169,118 182,174 185,911 Investing activities: Acquisition of Simplify Medical, net of cash acquired Acquisition of Simplify Medical, net of cash acquired (750) (149,463) — Payment of contingent consideration for Simplify Medical Payment of contingent consideration for Simplify Medical — (45,850) — Acquisitions and investments (14,318) (500) — Proceeds from other investments — — 1,143 Purchases of intangible assets (199) (1,344) (3,860) Purchases of property and equipment (139,228) (111,112) (105,729) Purchases of marketable securities — — (233,488) Proceeds from sales of marketable securities Proceeds from sales of marketable securities — 127,023 60,000 Proceeds from maturities of marketable securities Proceeds from maturities of marketable securities — 46,000 — Other investing activities Other investing activities (698) (819) — Net cash used in investing activities (155,193) (136,065) (281,934) Financing activities: Proceeds from the issuance of common stock 5,839 6,218 6,170 Payment of contingent consideration (6,839) (3) (7,053) Purchase of treasury stock (5,702) (8,813) (80,665) Proceeds from issuance of convertible debt, net of issuance costs — — 873,848 Proceeds from sale of warrants — — 93,915 Purchases of convertible note hedges — — (147,825) Payments upon settlement of senior convertible notes Payments upon settlement of senior convertible notes — (649,426) — Other financing activities (1,888) (1,325) (1,734) Net cash (used in) provided by financing activities Net cash (used in) provided by financing activities (8,590) (653,349) 736,656 Effect of exchange rate changes on cash (2,763) (3,538) 3,202 Increase (decrease) in cash, cash equivalents and restricted cash Increase (decrease) in cash, cash equivalents and restricted cash 2,572 (610,778) 643,835 Cash, cash equivalents and restricted cash at beginning of period 247,585 858,363 214,528 Cash, cash equivalents and restricted cash at end of period $ 250,157 $ 247,585 $ 858,363 Supplemental cash flow information: Interest paid $ 9,072 $ 16,294 $ 19,914 Income taxes paid $ 12,174 $ 11,879 $ 1,873 Year Ended December 31, 2022 2021 2020 Cash and cash equivalents $ 248,663 $ 246,091 $ 856,869 Restricted cash 1,494 1,494 1,494 Total cash, cash equivalents and restricted cash reported in the Consolidated Statements of Cash Flows $ 250,157 $ 247,585 $ 858,363 Statements.92 (the “Company”, or “NuVasive”)the Company, or NuVasive, was incorporated in Delaware on July 21, 1997, and began commercializing its products in 2001. Since its incorporation in 1997, the Company has grown from a small developer of specialty spinal implants into a global medical technology company delivering procedurally integrated solutions for spine surgery. Underlying the Company’s procedurally integrated solutions for spine surgery are technologies designed to enable better clinical, financial, and operational outcomes, including:• Maxcess integrated split-blade retractor system, designed to enable less-invasive surgical techniques by minimizing soft tissue disruption during spine surgery;•its neuromonitoring systems, which use proprietary software-driven nerve detection and avoidance technology, and its intraoperative neuromonitoring (“IONM”) services and support;•its Advanced Materials Science portfolio of specialized spinal implants, designed to advance spinal fusion by enhancing the osseointegration and biomechanical properties of implant materials, including porous titanium and porous polyetheretherketone;•its Reline fixation system, designed to facilitate the preservation and restoration of patient alignment, while addressing a vast array of spinal pathologies from an open or less-invasive approach across all spinal procedures; and•its Integrated Global Alignment platform, which is comprised of procedurally based technologies that help increase the predictability of achieving global alignment in spinal procedures, including its Bendini spinal rod bending system that assist with manual rod manipulation for spinal fixation.The Company has also invested in enabling technologies, including the development of capital equipment designed to further improve clinical, financial,enable less-invasive surgical techniques by minimizing soft tissue disruption during spine surgery;operational outcomesbiomechanical properties of spine surgery. Theimplant materials, including porous titanium and porous polyetheretherketone;capital equipment portfolio currently consists of Lessrayproducts and services for cervical spinal fusion surgery and is designed to offer surgeons capabilities across key performance functions—anatomic, physiologic motion, and radiologic design;platform. Lessray is an image enhancement platform, designed to reduce radiation exposurea software ecosystem that integrates multiple hardware technologies into a single, condensed footprint in the operating room, by allowing surgeons to take low-quality, low-dose images and improve them to look like conventional full-dose images. Pulse integrates multiple enabling technologies within a single, expandable platform and is engineered to improve workflow, reduce variability, and increase the reproducibility of surgical outcomes. The Pulse platform’s modular architecture is designed to incorporate applications for neuromonitoring, surgical planning, patient-specificincluding: radiation reduction, imaging enhancement, rod bending, smart imaging, navigation, IONM, and integration with robotics and other smart tools in the future. Selling and leasing of capital equipment do not make up a material portion of the Company’s total net sales.spinal alignment tools.to the Company’s procedurally integrated solutions for spine surgery, itCompany also designs and sells expandable growing rod implant systems for the treatment of early-onset scoliosis that can be non-invasively lengthened following implantation with precise, incremental adjustments via an external remote controller using magnetic technology called MAGnetic External Control, (“MAGEC”), which allows for the minimally invasive treatment of early-onset and adolescent scoliosis.or MAGEC. This technology is also the basis for the Company’s Precice limb lengthening system,line of products which allows for the correction of long boneis designed to support complex orthopedic reconstruction, such as trauma and limb length discrepancy, as well as other productsdiscrepancy. Precice is an intramedullary device that, once implanted, utilizes the MAGEC technology to non-invasively lengthen the femur and tibia.treating specialized orthopedic procedures.In December 2019, a novel strainfurther background on the combination. coronavirus, which causes COVID-19 was identified. Dueand Global Macroeconomic Conditions on the Company's Business rapid and global spread of the virus, on March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. To slow the proliferation of COVID-19, governments have implemented extraordinary measures, which includeincluded the mandatory closure of businesses, restrictions on travel and gatherings, and quarantine and physical distancing requirements.requirements, and vaccine mandates. In addition, many government agencies in conjunction with hospitals and healthcare systems have, to varying degrees, deferred, reduced, or suspended elective surgical procedures.procedures due to COVID-19. While certain spine surgeries are deemed essential and certain surgeries, like in cases of trauma, cannot be delayed, the Company has seen and may continue to seeexperienced a significant reduction in procedural volumes as hospital systems and/or patients elect to deferdeferred spine surgery procedures. As a resultWhile many countries have removed or reduced the restrictions initially implemented in response to COVID-19, the pandemic continues to evolve, and its impact on the Company's business will depend on several factors that are highly uncertain and unpredictable, including, the efficacy and adoption of these measures,vaccines and treatments, future resurgences of the virus and its variants, the imposition of government lockdowns, quarantine and physical distancing requirements, patient capacity at hospitals and healthcare systems, the duration and severity of healthcare worker shortages, and the willingness and ability of patients to seek care and treatment due to safety concerns or financial hardship.reductions in procedural volumes during 2020challenges associated with material and anticipates this trend may continue. component availability for certain product lines, longer shipping and delivery times for raw materials and components, constrained logistics capacity related to the movement of products, availability of skilled labor and increased costs of raw materials, components, labor, and freight and courier services. The cumulative effect of these disruptions had a significantCompany's net sales and profitability from its foreign operations have also been negatively affected by the unfavorable foreign currency exchange impact on the Company’s business in 2020 and it is not possible to accurately predict the length or severity of the COVID-19 pandemic or the timing forstrengthened U.S. dollar against a broad and sustained resumptionnumber of elective surgical procedures.93The Company has replaced the caption “Revenue” with “Net sales,” and the caption “Sales, marketing and administrative” with “Selling, general and administrative,” within the Consolidated Statements of Operations and corresponding changes have been made throughout this Annual Report to conform to this presentation. These updated captions have no impact on previously reported results of operations or financial position.(“GAAP”)or U.S. GAAP, accepted in the United States,U.S., management must make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual resultsThese estimates and assumptions involve judgments with respect to numerous factors that are difficult to predict. As a result, actual amounts could differbe materially different from thosethese estimates.January 2020,October 2021, the Financial Accounting Standards Board, (“FASB”)or FASB, issued Accounting Standards Update, or ASU, No. 2020-01, Investments—Equity Securities2021-08, Business Combinations (Topic 321)805), Investments—Equity MethodAccounting for Contract Assets and Joint Ventures (Topic 323),Contract Liabilities from Contracts with Customers, which requires an entity (acquirer) to recognize and Derivativesmeasure contract assets and Hedging (Topic 815)—Clarifying the Interactions betweenliabilities acquired in a business combination in accordance with Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force), which clarifies the interaction of the accounting for equity securities, investments accounted for under the equity method, and certain forward contracts and purchased options.606, Revenue from Contracts with Customers. This update is effective for fiscal years beginning after December 15, 2020,2022, and interim periods within those fiscal years, andwith early adoption is permitted. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company will adopt ASU 2020-012021-08 on January 1, 2021,2023, using a prospective transition method, and does not expect a material impact to its Consolidated Financial Statements. (“, or ASU 2020-06”),2020-06, which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments. The guidance also modifies how certain convertible instruments, that may be settled in cash or shares, impact the calculation of diluted earnings per share. ASU 2020-06 allows for a modified or full retrospective method of transition. This update is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, and early adoption is permitted. The Company will adoptearly adopted ASU 2020-06 on January 1, 2021, and will electelecting the modified transition method that allows for a cumulative-effect adjustment in the period of adoption, and willdid not restate prior periods. As a result of the adoption, the Company will increaseincreased its senior convertible debt liabilities and retained earnings on January 1, 2021 by $115.4$115.4 million and $64.5 million, respectively, and decreasedecreased its deferred tax liabilities and additional paid-in capital by approximately $28.0 million and $151.9$147.2 million, respectively.Recently Adopted Accounting StandardsIn June 2016, As a result of the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The amendments in this update were adopted using a modified retrospective transition method as of January 1, 2020, which had 0 cumulative impact to retained earnings. The adoption of this guidance did not have a material impact onASU 2020-06, diluted loss per share decreased by $0.54 for the Company’s Consolidated Financial Statements.In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles – Goodwill and Other, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The Company adopted the amendments in this update on January 1, 2020, which will be applied using a prospective transition method. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.94In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. The Company adopted ASU 2018-13 as of January 1, 2020. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.year ended December 31, 2021. See Note 45, Indebtedness, in the Notes to the Consolidated Financial Statements included in this Annual Report for further discussion on fair value measurements.In September 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangible – Goodwill and Other – Internal-Use Software (“adoption of ASU 2018-15”), which requires a customer in a cloud computing arrangement to determine whether implementation costs should be capitalized as assets or expensed as incurred. Under the new guidance, capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The amendments in this update will be applied using a prospective transition method to each period presented. The Company adopted ASU 2018-15 as of January 1, 2020. The adoption did not have a material impact on the Company’s Consolidated Financial Statements.In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which modifies Accounting Standard Codification 740 – Income Taxes (“ASC 740”). ASU 2019-12 enhances and simplifies various aspects of the income tax accounting guidance in ASC 740. This update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, and early adoption is permitted. The Company elected to early adopt ASU 2019-12 in the quarter ended June 30, 2020. The Company applied the updated guidance for year-to-date losses in the Company’s interim period tax accounting on a prospective basis. The early adoption had no impact on the expected full year tax expense for 2020, but rather accelerated certain tax benefits to earlier quarters in 2020 that would otherwise have been limited under ASC 740.Accounting Standards Update No.ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, (“ASU 2020-04”), which provides temporary optional expedients and exceptions for applying U.S. GAAP on contracts, hedging relationships and other transactions subject to modification due to the guidance on contract modificationsexpected discontinuance of the London Interbank Offered Rate, or LIBOR, and hedge accountingother reference rate reform changes to ease the potential accounting and financial reporting burdens ofrelated to the expected market transition from LIBOR and other interbank offered rates to alternativein market reference rates. This update isguidance permits entities to elect not to apply certain modification accounting requirements to contracts affected by reference rate transition, if certain criteria are met. An entity that makes this election would not be required to remeasure modified contracts at the modification date or reassess a previous accounting determination. The guidance was effective upon issuance. The relief is temporaryissuance on March 12, 2020, and can generally cannot be applied to contract modifications that occur afterthrough December 31, 2022. On December 21, 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 or hedging relationships entered into or evaluated after that date.to December 31, 2024. The adoption of ASU 2020-04 did not have a material impact on the Company’s Consolidated Financial Statements.(“or ASC 606”),606, the Company recognizes revenue upon the transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. The principles in ASC 606 are applied using the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation(s). Specifically, revenue from the sale of implants, fixation products and disposables is generally recognized at an amount that reflects the expected consideration upon notice that the Company’s products have been used in a surgical procedure or upon shipment to a third-party customer assuming control of the products. Revenue from IONM services is recognized in the period the service is performed for the amount of consideration expected to be received. Revenue from the sale of surgical instrument sets is generally recognized upon receipt of a purchase order and the subsequent shipment to a customer who assumes control. In certain cases, the Company does offer the ability for customers to lease surgical instrumentation primarily on a non-sales type basis. Revenue from the sale or lease of capital equipment is recognized when the Company transfers control to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery or installation, depending on the terms of the arrangement. Selling and leasing of surgical instrument sets and capital equipment represents an immaterial amount of the Company’s total net sales in all periods presented. Revenue associated with products holding rights of return or trade-in are recognized when the Company concludes there is not a risk of significant revenue reversal in future periods for the expected consideration in the transaction. Costs incurred by the Company associated with sales contracts with customers are deferred over the performance obligation period and recognized in the same period as the related revenue, with the exception of contracts that complete within one year or less, in which case the associated costs are expensed as incurred.95An increase to the allowance for credit losses results in a corresponding charge to selling, general and administrative expenses. The Company has a diverse customer base and no single customer represented greater than ten percent of net sales or accounts receivable. An increase to the allowance for credit losses results in a corresponding charge to selling, general and administrative expenses. Historically, the Company’s reserves have been adequate to cover creditcredit losses.economicmacroeconomic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors. It is possible that there could be a materialsignificant adverse impact from potential adjustments ofto the carrying amount of trade receivables as customers’ cash flows are impacted by their response to the COVID-19 pandemic and the deferral of elective surgical procedures.(in thousands) December 31, 2022 December 31, 2021 Allowance for credit losses at January 1 Allowance for credit losses at January 1 $ 10,928 $ 9,646 Current-period provision for expected losses 748 2,165 Write-offs charged against the allowance (196) (743) Recoveries of amounts previously written off 31 42 Changes resulting from foreign currency fluctuations (107) (182) Allowance for credit losses at end of period $ 11,404 $ 10,928
96
97
98
2022.
Comprehensive (Loss)
99
period, which the Company records as a benefit.
During the year ended December 31, 2019, the Company recorded a reduction of costs of $(2.0) million related to acquisition, integration and business transition activities, which included $(6.3) million of fair value adjustments on contingent consideration liabilities associated with the Company’s 2018, 2017 and 2016 acquisitions.
During the year ended December 31, 2018, the Company recorded $11.5 million of costs related to acquisition, integration and business transition activities, which included $(1.5) million of fair value adjustments on contingent consideration liabilities associated with the Company’s 2018, 2017 and 2016 acquisitions.
end.
future.
100
Since the Company incurred a net loss in each of the years ended December 31, 2021 and 2020, basic and diluted net loss per share were the same.
|
| Year Ended December 31, |
| |||||||||
(in thousands, except per share data) |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (37,153 | ) |
| $ | 65,234 |
|
| $ | 12,479 |
|
Denominator for basic and diluted net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic |
|
| 51,416 |
|
|
| 51,956 |
|
|
| 51,382 |
|
Dilutive potential common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and ESPP |
|
| — |
|
|
| 15 |
|
|
| 36 |
|
RSUs and PRSUs |
|
| — |
|
|
| 658 |
|
|
| 760 |
|
Senior Convertible Notes |
|
| — |
|
|
| 531 |
|
|
| 177 |
|
Weighted average common shares outstanding for diluted |
|
| 51,416 |
|
|
| 53,160 |
|
|
| 52,355 |
|
Basic net (loss) income per share |
| $ | (0.72 | ) |
| $ | 1.26 |
|
| $ | 0.24 |
|
Diluted net (loss) income per share |
| $ | (0.72 | ) |
| $ | 1.23 |
|
| $ | 0.24 |
|
| Year Ended December 31, | |||||||||||||||||
| (in thousands, except per share data) | 2022 | 2021 | 2020 | ||||||||||||||
| Numerator: | |||||||||||||||||
| Net income (loss) | $ | 40,407 | $ | (64,086) | $ | (37,153) | |||||||||||
| Interest and debt issuance costs on the 1.00% Senior Convertible Notes due 2023, net of tax | $ | — | $ | — | $ | — | |||||||||||
| Interest and debt issuance costs on the 0.375% Senior Convertible Notes due 2025, net of tax | 3,283 | — | — | ||||||||||||||
| Net income (loss) for diluted | $ | 43,690 | $ | (64,086) | $ | (37,153) | |||||||||||
| Denominator for basic and diluted net income (loss) per share: | |||||||||||||||||
| Weighted average common shares outstanding for basic | 52,009 | 51,589 | 51,416 | ||||||||||||||
| Dilutive potential common stock outstanding: | |||||||||||||||||
| ESPP | 3 | — | — | ||||||||||||||
| RSUs and PRSUs | 523 | — | — | ||||||||||||||
| 1.00% Senior Convertible Notes due 2023 | — | — | — | ||||||||||||||
| 0.375% Senior Convertible Notes due 2025 | 4,824 | — | — | ||||||||||||||
| Weighted average common shares outstanding for diluted | 57,359 | 51,589 | 51,416 | ||||||||||||||
| Basic net income (loss) per share | $ | 0.78 | $ | (1.24) | $ | (0.72) | |||||||||||
| Diluted net income (loss) per share | $ | 0.76 | $ | (1.24) | $ | (0.72) | |||||||||||
|
| Year Ended December 31, |
| ||||||||||||||||||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2018 |
| ||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | 2022 | 2021 | 2020 | |||||||||||||||||||||||||
Stock options, ESPP, RSUs and PRSUs |
|
| 1,095 |
|
|
| 115 |
|
|
| 162 |
| Stock options, ESPP, RSUs and PRSUs | 262 | 1,022 | 1,095 | |||||||||||||
Warrants |
|
| 21,034 |
|
|
| 10,865 |
|
|
| 10,865 |
| Warrants | 10,169 | 17,665 | 21,034 | |||||||||||||
Senior Convertible Notes |
|
| 21,034 |
|
|
| 5,433 |
|
|
| 5,433 |
| Senior Convertible Notes | 5,345 | 10,169 | 21,034 | |||||||||||||
Total |
|
| 43,163 |
|
|
| 16,413 |
|
|
| 16,460 |
| Total | 15,776 | 28,856 | 43,163 | |||||||||||||
101
|
|
| December 31, |
| ||||||||||||||||||||||
(in thousands, except years) | Useful Life |
| 2020 |
|
| 2019 |
| |||||||||||||||||||
| (in thousands, except years) | (in thousands, except years) | Useful Life | December 31, | |||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
Instrument sets | 4 |
| $ | 424,696 |
|
| $ | 381,310 |
| Instrument sets | 4 | $ | 556,584 | $ | 472,247 | |||||||||||
Machinery and equipment | 5 to 7 |
|
| 71,616 |
|
|
| 66,482 |
| Machinery and equipment | 3 to 7 | 81,156 | 73,086 | |||||||||||||
Computer equipment and software | 3 to 7 |
|
| 173,364 |
|
|
| 149,134 |
| Computer equipment and software | 2 to 10 | 208,477 | 188,960 | |||||||||||||
Leasehold improvements | 2 to 15 |
|
| 35,372 |
|
|
| 29,542 |
| Leasehold improvements | 2 to 15 | 40,098 | 38,987 | |||||||||||||
Furniture and fixtures | 3 to 7 |
|
| 9,916 |
|
|
| 8,931 |
| Furniture and fixtures | 3 to 7 | 8,772 | 8,941 | |||||||||||||
Building and improvements | 10 to 20 |
|
| 23,207 |
|
|
| 22,921 |
| Building and improvements | 5 to 20 | 23,349 | 22,681 | |||||||||||||
Land | — |
|
| 1,277 |
|
|
| 1,277 |
| Land | — | 1,277 | 1,277 | |||||||||||||
|
|
|
| 739,448 |
|
|
| 659,597 |
| 919,713 | 806,179 | |||||||||||||||
Less: accumulated depreciation and amortization |
|
|
| (453,079 | ) |
|
| (393,279 | ) | Less: accumulated depreciation and amortization | (573,203) | (502,515) | ||||||||||||||
|
|
| $ | 286,369 |
|
| $ | 266,318 |
| $ | 346,510 | $ | 303,664 | |||||||||||||
Goodwill and intangible
|
| Weighted- |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
| Average |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
| Amortization |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
| Period |
| Gross |
|
| Accumulated |
|
| Intangible |
| ||||||||||||||||||||||||||
(in thousands, except years) |
| (in years) |
| Amount |
|
| Amortization |
|
| Assets, net |
| ||||||||||||||||||||||||||
| (in thousands, except years) | (in thousands, except years) | Weighted- Average Amortization Period (in years) | Gross Amount | Accumulated Amortization | Intangible Assets, net | ||||||||||||||||||||||||||||||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Intangible assets subject to amortization: | ||||||||||||||||||||||
Developed technology |
| 8 |
| $ | 271,748 |
|
| $ | (195,283 | ) |
| $ | 76,465 |
| Developed technology | 11 | $ | 366,521 | $ | (241,119) | $ | 125,402 | |||||||||||||||
| Patents | Patents | 10 | 56,719 | (37,420) | 19,299 | ||||||||||||||||||||||||||||||||
Manufacturing know-how and trade secrets |
| 13 |
|
| 30,882 |
|
|
| (22,720 | ) |
|
| 8,162 |
| Manufacturing know-how and trade secrets | 12 | 21,364 | (21,364) | — | ||||||||||||||||||
Trade name and trademarks |
| 9 |
|
| 25,500 |
|
|
| (19,945 | ) |
|
| 5,555 |
| Trade name and trademarks | 9 | 24,967 | (22,124) | 2,843 | ||||||||||||||||||
Customer relationships |
| 9 |
|
| 156,436 |
|
|
| (94,354 | ) |
|
| 62,082 |
| Customer relationships | 9 | 156,681 | (122,436) | 34,245 | ||||||||||||||||||
Total intangible assets subject to amortization |
| 8 |
| $ | 484,566 |
|
| $ | (332,302 | ) |
| $ | 152,264 |
| Total intangible assets subject to amortization | 10 | $ | 626,252 | $ | (444,463) | $ | 181,789 | |||||||||||||||
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
| 559,553 |
| |||||||||||||||||||||||
Total goodwill and intangible assets, net |
|
|
|
|
|
|
|
|
|
|
| $ | 711,817 |
| |||||||||||||||||||||||
| In-process research and development | In-process research and development | $ | 2,500 | $ | — | $ | 2,500 | ||||||||||||||||||||||||||||||
| Total intangible assets, net | Total intangible assets, net | $ | 628,752 | $ | (444,463) | $ | 184,289 | ||||||||||||||||||||||||||||||
102
Goodwill and intangible
|
| Weighted- |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
| Average |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
| Amortization |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
| Period |
| Gross |
|
| Accumulated |
|
| Intangible |
| ||||||||||||||||||||||||||
(in thousands, except years) |
| (in years) |
| Amount |
|
| Amortization |
|
| Assets, net |
| ||||||||||||||||||||||||||
| (in thousands, except years) | (in thousands, except years) | Weighted- Average Amortization Period (in years) | Gross Amount | Accumulated Amortization | Intangible Assets, net | ||||||||||||||||||||||||||||||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Intangible assets subject to amortization: | ||||||||||||||||||||||
Developed technology |
| 8 |
| $ | 271,748 |
|
| $ | (163,459 | ) |
| $ | 108,289 |
| Developed technology | 11 | $ | 374,457 | $ | (209,283) | $ | 165,174 | |||||||||||||||
| Patents | Patents | 10 | 57,783 | (31,903) | 25,880 | ||||||||||||||||||||||||||||||||
Manufacturing know-how and trade secrets |
| 13 |
|
| 30,798 |
|
|
| (20,333 | ) |
|
| 10,465 |
| Manufacturing know-how and trade secrets | 12 | 21,412 | (21,387) | 25 | ||||||||||||||||||
Trade name and trademarks |
| 9 |
|
| 25,500 |
|
|
| (16,947 | ) |
|
| 8,553 |
| Trade name and trademarks | 9 | 25,163 | (19,621) | 5,542 | ||||||||||||||||||
Customer relationships |
| 9 |
|
| 150,744 |
|
|
| (76,959 | ) |
|
| 73,785 |
| Customer relationships | 9 | 156,208 | (110,154) | 46,054 | ||||||||||||||||||
Total intangible assets subject to amortization |
| 9 |
| $ | 478,790 |
|
| $ | (277,698 | ) |
| $ | 201,092 |
| |||||||||||||||||||||||
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
| 561,064 |
| |||||||||||||||||||||||
Total goodwill and intangible assets, net |
|
|
|
|
|
|
|
|
|
|
| $ | 762,156 |
| |||||||||||||||||||||||
| Total intangible assets, net | Total intangible assets, net | 10 | $ | 635,023 | $ | (392,348) | $ | 242,675 | |||||||||||||||||||||||||||||
(in thousands) |
|
|
|
Gross goodwill | $ | 569,364 |
|
Accumulated impairment loss |
| (8,300 | ) |
December 31, 2019 |
| 561,064 |
|
|
|
|
|
Changes to gross goodwill: |
|
|
|
Changes resulting from foreign currency fluctuations |
| (1,511 | ) |
|
| (1,511 | ) |
|
|
|
|
Gross goodwill |
| 567,853 |
|
Accumulated impairment loss |
| (8,300 | ) |
December 31, 2020 | $ | 559,553 |
|
| (in thousands) | |||||
| Gross goodwill | $ | 641,767 | |||
| Accumulated impairment loss | (8,300) | ||||
| December 31, 2021 | 633,467 | ||||
| Changes to gross goodwill: | |||||
| Increases recorded related to business combinations | 10,550 | ||||
| Changes resulting from foreign currency fluctuations | (4,354) | ||||
| 6,196 | |||||
| Gross goodwill | 647,963 | ||||
| Accumulated impairment loss | (8,300) | ||||
| December 31, 2022 | $ | 639,663 | |||
|
|
|
|
|
|
| |||||
(in thousands) |
|
|
|
|
|
| |||||
2021 |
|
|
| $ | 51,876 |
| |||||
2022 |
|
|
|
| 43,843 |
| |||||
| (in thousands) | (in thousands) | ||||||||||
2023 |
|
|
|
| 18,697 |
| 2023 | $ | 27,096 | ||
2024 |
|
|
|
| 12,506 |
| 2024 | 20,846 | |||
2025 |
|
|
|
| 11,705 |
| 2025 | 19,927 | |||
Thereafter through 2031 |
|
|
|
| 13,637 |
| |||||
| 2026 | 2026 | 15,132 | |||||||||
| 2027 | 2027 | 12,374 | |||||||||
| Thereafter through 2038 | Thereafter through 2038 | 86,414 | |||||||||
Total future amortization expense |
|
|
| $ | 152,264 |
| Total future amortization expense | $ | 181,789 | ||
103
|
| December 31, |
| ||||||||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
| |||||||||||||
| December 31, | |||||||||||||||||||
| (in thousands) | (in thousands) | 2022 | 2021 | ||||||||||||||||
Accrued expenses |
| $ | 59,249 |
|
| $ | 58,897 |
| Accrued expenses | $ | 70,487 | $ | 69,054 | ||||||
Accounts payable |
|
| 17,386 |
|
|
| 11,827 |
| Accounts payable | 20,323 | 16,192 | ||||||||
Distributor commissions payable |
|
| 9,891 |
|
|
| 7,983 |
| Distributor commissions payable | 11,187 | 12,546 | ||||||||
Other taxes payable |
|
| 6,425 |
|
|
| 6,501 |
| Other taxes payable | 6,998 | 6,764 | ||||||||
Litigation liability |
|
| 5,346 |
|
|
| 1,370 |
| Litigation liability | 1,931 | 1,744 | ||||||||
Debt interest payable |
|
| 5,203 |
|
|
| 4,266 |
| Debt interest payable | 937 | 937 | ||||||||
Royalties payable |
|
| 4,495 |
|
|
| 4,994 |
| Royalties payable | 5,337 | 5,297 | ||||||||
Other |
|
| 2,406 |
|
|
| 1,322 |
| Other | 3,133 | 3,080 | ||||||||
Accounts payable and accrued liabilities |
| $ | 110,401 |
|
| $ | 97,160 |
| Accounts payable and accrued liabilities | $ | 120,333 | $ | 115,614 | ||||||