INTEGRA LIFESCIENCES HOLDINGS CORPORATION The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and our consolidated financial statements for the year endedDecember 31, 2021 included in our Annual Report on Form 10-K. We have made statements in this report which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). These forward-looking statements are subject to a number of risks, uncertainties and assumptions about the Company and other matters. These forward-looking statements include, but are not limited to, statements related to the Company's expectations regarding the potential impacts of the COVID-19 pandemic on our business, financial condition, and results of operations. These statements should, therefore, be considered in light of various important factors, including, but not limited to, the following: risk of the COVID-19 pandemic could lead to further material delays and cancellations of, or reduced demand for, procedures; delayed capital spending by the Company's customers; disruption and/or higher costs to the Company's supply chain; staffing shortages in hospitals; labor impacts in our facilities; delays in gathering clinical evidence; diversion of management and other resources to respond to the COVID-19 outbreak; the impact of global and regional economic and credit market conditions on healthcare spending; the risk that the COVID-19 virus disrupts local economies and causes economies in our key markets to enter prolonged recessions. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under the heading "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , under the heading "Risk Factors" in this report, and in other filings with theSEC . We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. You can identify these forward-looking statements by forward-looking words such as "believe," "may," "might," "could," "will," "estimate," "continue," "anticipate," "intend," "seek," "plan," "expect," "should," "would" and similar expressions in this report. GENERAL Integra, headquartered inPrinceton, New Jersey , is a world leader in medical technology. The Company was founded in 1989 with the acquisition of an engineered collagen technology platform used to repair and regenerate tissue. Since then, Integra has developed numerous product lines from this technology for applications ranging from burn and deep tissue wounds to the repair of dura mater in the brain, as well as nerves and tendons. The Company has expanded its base regenerative technology business to include surgical instruments, neurosurgical products and advanced wound care through global acquisitions and product development to meet the evolving needs of its customers and enhance patient care. Integra manufacture and sell medical technologies and products in two reportable business segments: Codman Specialty Surgical ("CSS") and Tissue Technologies ("TT"). The CSS segment, which represents two-thirds of our total revenue, consists of market-leading technologies and instrumentation used for a wide range of specialties, such as neurosurgery, neurocritical care and otolaryngology. We are the world leader in neurosurgery and one of the top three providers in instruments used in precision, specialty, and general surgical procedures. Our TT segment generates about one-third of our overall revenue and focuses on three main areas: complex wound surgery, surgical reconstruction, and peripheral nerve repair. We have key manufacturing and research facilities located inCalifornia ,Indiana ,Maryland ,Massachusetts ,New Jersey ,Ohio ,Puerto Rico ,Tennessee ,Utah ,Canada ,China ,France ,Germany ,Ireland andSwitzerland . We source most of our handheld surgical instruments and dural sealant products through specialized third-party vendors. Integra is committed to delivering high quality products that positively impact the lives of millions of patients and their families. We focus on four key pillars of our strategy: 1) enabling an execution-focused culture, 2) optimizing relevant scale, 3) advancing innovation and agility, and 4) leading in customer experience. We believe that by sharpening our focus on these areas through improved planning and communication, optimization of our infrastructure, and strategically aligned acquisitions, we can build scale, increase competitiveness, and achieve our long-term goals. 31
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To this end, the executive leadership team has established the following key priorities aligned to the following areas of focus:
Strategic Acquisitions. An important part of the Company's strategy is pursuing strategic transactions and licensing agreements that increase relevant scale in the clinical areas in which Integra competes. During 2021, the Company acquiredACell Inc. ("ACell"), an innovative regenerative medicine company specializing in the manufacturing of porcine urinary bladder extracellular matrices. This acquisition not only expanded the Company's product offering of regenerative technologies, but it is also expected to support the Company's long-term growth and profitability strategy as this product line has a financial profile similar to Integra's other regenerative tissue products. All critical components ofACell have been integrated into the Company's TT segment. See Note 2, Acquisitions and Divestitures, to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for additional details. In 2022, we continued to advance the development of pioneering neurosurgical technologies from our 2019 acquisitions,Arkis Biosciences, Inc. andRebound Therapeutics Corporation Portfolio Optimization and New Product Introductions. We are investing in innovative product development to drive a multi-generational pipeline for our key product franchises. Our product development efforts span across our key global franchises focused on potential for significant returns on investment. In addition to new product development, we are funding studies to gather clinical evidence to support launches, ensure market access and improve reimbursement for existing products. In addition to acquisitions and organic reinvestment, we continually look to optimize our portfolio towards higher growth and higher margin businesses. As such, we may opportunistically divest businesses or discontinue products where we see limited runway for future value creation in line with our aspirations due in part to changes in the market, business fundamentals or the regulatory environment. InJanuary 2021 , we completed the sale of our Extremity Orthopedics business toSmith & Nephew USD Limited ("Smith & Nephew"), a subsidiary of Smith & Nephew plc, for approximately$240 million in cash. This transaction enables us to increase our investments in our core neurosurgery and tissue technologies businesses and fund pipeline opportunities to expand our addressable markets to strengthen our existing leadership positions in these segments and drive future growth. See Note 2, Acquisitions and Divestitures, to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for details. Commercial Channel Investments. Investing in our sales channels is a core part of our strategy to create specialization and greater focus on reaching new and existing customers and addressing their needs. To support our commercial efforts in Tissue Technologies, we utilize a two-tier specialist model to increase our presence in focused segments by creating a virtual selling organization to help serve the evolving needs of our customers. In addition, we continue to build upon our leadership brands across our product franchises in both CSS and TT to engage customers through enterprise-wide contracts with leading hospitals, integrated delivery networks and global purchasing organizations inthe United States . Internationally, we have increased our commercial resources significantly in key emerging markets and are making investments to support our sales organization and maximize our commercial opportunities. Domestically, we have also increased our TT sales force inthe United States to support the expanded regenerative tissue product portfolio that includedACell products. These investments in our international and dometic sales channel position us well for expansion and long-term growth. Customer Experience. We aspire to be ranked as a best-in-class provider and are committed to strengthen our relationships with all customers. We continue to invest in technologies, systems and processes to enhance the customer experience. Additionally, we launched digital tools and programs, resources and virtual product training to drive continued customer familiarity with our growing portfolio of medical technologies globally.
Clinical and Product Development Activities
We continue to invest in collecting clinical evidence to support the Company's existing products and new product launches, and to ensure that we obtain market access for broader and more cost-effective solutions. In the third quarter of 2021, we launched our CereLink™ ICP Monitor System in theU.S. andEurope direct markets. CereLink provides enhanced accuracy, usability and advanced data presentation that provides clinicians with uncompromised, advanced continuous ICP monitoring that until now, has not been available when treating patients with traumatic brain injuries. Through the first quarter of 2022, we have continued the global rollout of Cerelink with product launches inAustralia andCanada , as well as several other indirect markets in EMEA. We are focused on the development of core clinical applications in our electromechanical technologies portfolio. Also, we continue to update our CUSA Clarity platform by incorporating new ultrasonic handpiece, surgical tips and integrated electrosurgical capabilities. We continue to work with several instrument partners to bring new surgical instrument platforms to the market. 32
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In 2022 we continued to advance the early-stage technology platforms we acquired
in 2019. Through the acquisition of Arkis Biosciences, we added a platform
technology, CerebroFlo® external ventricular drainage ("EVD"), catheter with
Endexo® technology, a permanent additive designed to reduce the potential for
catheter obstruction due to thrombus formation. The CerebroFlo EVD Catheter has
demonstrated an average of 99% less thrombus accumulation onto its surface, in
vitro, compared to a market leading EVD catheter. In 2019, we also acquired
Rebound Therapeutics Corporation which specialized in a single-use medical
device, known as Aurora Surgiscope, which is the only tubular retractor system
designed for cranial surgery with an integrated access channel, camera and
lighting. In the third quarter of 2021, we conducted a limited clinical launch
of the Aurora Surgiscope for use in minimally invasive neurosurgery as well as
initiated a registry called MIRROR to collect data on early surgical
intervention using this same technology platform for the treatment of
intracerebral hemorrhages ("ICH").
Within our TT segment, during 2021, we completed one of the largest diabetic
foot ulcers ("DFU"), randomized controlled trials of the PriMatrix® Dermal
Repair Scaffold for the management of DFU. This multi-center study enrolled more
than 225 patients with chronic DFU's over the course of 12-week treatments and
4-week follow-up phases. The results of this study, which was published in the
Journal of Wound Care , demonstrated that PriMatrix plus standard of care ("SOC")
consisting of sharp debridement, infection elimination, use of dressings and
offloading was significantly more likely to achieve complete wound closure
compared with SOC alone, with a median number of one application of the product.
In the first quarter of 2022, we launched NeuraGen® 3D Guide Matrix, a
resorbable implant for repair of peripheral nerve discontinuities and designed
to optimize the environment for nerve regeneration to allow for more complete
functional recovery.
COVID-19 Pandemic
During this global crisis, the Company's focus remained on supporting patients,
providing customers with life-saving products, and protecting the well-being of
our employees. The rapid and evolving spread of the virus and subsequent
variants have resulted in an unprecedented challenges to the global healthcare
industry. In response to the pandemic, we acted swiftly by implementing
protocols to ensure continuity of our manufacturing and distribution sites
around the world and to provide for the safety of our employees.
The COVID-19 pandemic may continue to have widespread and unpredictable impacts
and the Company has continued to manage risks in this uncertain environment. We
remain confident that the underlying markets in which the Company competes
remain attractive. We also remain focused on managing the business for the
long-term. The Company's adaptability and resiliency in the face of this
unprecedented crisis is made possible in part by prior investments in technology
infrastructure and operations, as well as our talented and committed global
workforce.
Capital markets and worldwide economies have also been significantly impacted by
the COVID-19 pandemic, and it is possible that the pandemic could cause a local
and/or global economic recession. Any such economic recession could have a
material adverse effect on the Company's long-term business as hospitals curtail
and reduce capital as well as overall spending. The COVID-19 pandemic and local
actions, such as "shelter-in-place" orders and restrictions on travel and access
to our customers or temporary closures of our facilities or the facilities of
our suppliers and their contract manufacturers, disruption and/or higher costs
to the Company's supply chain, staffing shortages in hospitals and labor
constraints in our facilities, could further impact our sales margins and our
ability to ship our products and supply our customers. Any of these events could
negatively impact the number of surgical and medical intervention procedures
performed and have a material adverse effect on our business, financial
condition, results of operations, or cash flows.
FDA Matters
We manufacture and distribute products derived from human tissue for which FDA
has specific regulations governing human cells, tissues and cellular and
tissue-based products ("HCT/Ps"). An HCT/P is a product containing or consisting
of human cells or tissue intended for transplantation into a human patient.
Refer to Item 1. Business and Item 1A. Risk Factors in our 2021 10-K report for
further details around these FDA regulations and their potential effect on the
Company's portfolio of morselized amniotic material-based products as well as
the impact on consolidated revenues.
On June 22, 2015 , the FDA issued an Untitled Letter (the "Untitled Letter")
alleging that BioD LLC's morselized amniotic membrane tissue-based products do
not meet the criteria for regulation as HCT/Ps solely under Section 361 of the
Public Health Services Act ("Section 361") and that, as a result, BioD LLc
("BioD") would need a biologics license to lawfully market those morselized
products. Since the issuance of the Untitled Letter, BioD and the Company have
made known to the FDA their disagreement with the FDA's assertion that certain
products are more than minimally manipulated. The FDA has not changed its
position that certain of the BioD acquired products are not eligible for
marketing solely under Section 361. In July 2020 , the FDA issued the final
guidance document related to human tissue titled, "Regulatory Considerations for
Human Cells, Tissues, and Cellular and Tissue-Based Products: Minimal
Manipulation and Homologous Use" (the "2020 HCT/P Final Guidance"). The 2020
HCT/P Final Guidance document supersedes the November 2017 guidance by the same
title.
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The HCT/P Final Guidance maintains theFDA's position that products such as the Company's morselized amniotic membrane tissue-based products do not meet the criteria for regulation solely as HCT/Ps. In addition, in theNovember 2017 guidance, the FDA articulated a risk-based approach to enforcement and, while some uses for amniotic membrane tissue-based products would have as much as thirty-six months of enforcement discretion, other high risk uses could be subject to immediate enforcement action. The 2020 HCT/P Final Guidance maintained this approach and extended the discretionary enforcement period toMay 31, 2021 . Considering the risk of enforcement action, the Company discontinued the manufacturing of all morselized amniotic membrane tissue-based products prior toMay 31, 2021 . We no longer distribute these products. As ofMarch 31, 2022 , the Company has not received any further notice of enforcement action from the FDA regarding its morselized amniotic membrane tissue-based products. OnMarch 7, 2019 ,TEI Biosciences, Inc. ("TEI"), a wholly-owned subsidiary of the Company received a Warning Letter (the "Warning Letter"), datedMarch 6, 2019 , from the FDA. The warning letter related to quality systems issues at TEI's manufacturing facility located inBoston, Massachusetts . The letter resulted from an inspection held at that facility in October andNovember 2018 and did not identify any new observations that were not already provided in the Form 483 that followed the inspection. The Company submitted its initial response to the FDA Warning Letter onMarch 28, 2019 and provides regular progress reports to the FDA as to its corrective actions and, since the conclusion of the inspection, has undertaken significant efforts to remediate the observations and continues to do so. OnOctober 28, 2021 the FDA initiated an inspection of the facility and at the conclusion of the inspection issued a FDA Form 483 onNovember 12, 2021 (the "2021 Form 483"). The Company provided an initial response to the inspection observations and will continue to provide responses to FDA. The Warning Letter and the 2021 FDA Form 483 do not restrict the Company's ability to manufacture or ship products or require the recall of any products, nor do they restrict our ability to seek FDA 510(k) clearance of products. Additionally, premarket approval applications for Class III devices to which the Quality System regulation violations are reasonably related will not be approved until the violations have been corrected. The TEI Boston facility manufactures extracellular bovine matrix products. We cannot give any assurances that the FDA will be satisfied with our response to the Warning Letter or as to the expected date of the resolution of the matters included in the letter. Until the issues cited in the letter are resolved to theFDA's satisfaction, the FDA may initiate additional regulatory action without further notice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and selling our products and could have a material adverse effect on our business, financial condition and results of operations.
Revenues of products manufactured in the TEI Boston facility for the three
months ended
ACQUISITIONS & DIVESTITURES Divestiture OnJanuary 4, 2021 , the Company completed its sale of its Extremity Orthopedics business to Smith & Nephew. The transaction included the sale of the Company's upper and lower Extremity Orthopedics product portfolio, including ankle and shoulder arthroplasty and hand and wrist product lines. The Company received an aggregate purchase price of$240.0 million from Smith & Nephew and concurrently paid$41.5 million to theConsortium of Focused Orthopedists , LLC ("CFO"), effectively terminating the licensing agreement between Integra and CFO relating to the development of shoulder arthroplasty products. The Company recognized a gain of$42.9 million in connection with the sale that is presented in "Gain from the sale of business" in the consolidated statement of operations for the year endedMarch 31, 2021 , and was finalized at$41.8 million during the year endedDecember 31, 2021 , as a result of$1.3 million in net working payments, pursuant to the divestiture agreement. See Note 2, Acquisitions and Divestitures, to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for details.
Acquisition
Our growth strategy includes the acquisition of businesses, assets or products lines to increase the breadth of our offerings and the reach of our product portfolios and drive relevant scale to our customers.
OnJanuary 20, 2021 , the Company acquiredACell, Inc. for an acquisition purchase price of$306.9 million plus contingent consideration obligations of up to$100 million , that may be payable upon achieving certain revenue-based performance milestones in 2022, 2023 and 2025.ACell was a privately-held company that offered a portfolio of regenerative products for complex wound management, including developing and commercializing products based on MatriStem Urinary Bladder Matrix ("UBM"), a technology platform derived from porcine urinary bladder extracellular matrix. See Note 2, Acquisitions and Divestitures, to the Notes to Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for details. 34
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OPTIMIZATION AND INTEGRATION ACTIVITIES
As a result of our ongoing acquisition strategy and significant growth in recent years, we have undertaken cost-saving initiatives to consolidate manufacturing operations, distribution facilities and transfer activities, implement a common ERP system, eliminate duplicative positions, realign various sales and marketing activities, and expand and upgrade production capacity for our regenerative technology products. These efforts are expected to continue and while we expect a positive impact from ongoing restructuring, integration, and manufacturing transfer and expansion activities, such results remain uncertain.
RESULTS OF OPERATIONS
Executive Summary
Net income for the three months endedMarch 31, 2022 was$32.9 million , or$0.39 per diluted share, as compared to$45.4 million or$0.53 per diluted share for the three months endedMarch 31, 2021 . The decrease in net income for the three months endedMarch 31, 2022 , was primarily driven by the prior year gain of$42.9 million as a result of the sale of its Extremity Orthopedics business to Smith & Nephew. Excluding this gain, net income increased for the three months period endedMarch 31, 2022 , principally driven by earnings from higher revenues compared to the prior period, partially offset by an increase in operating expenses for key growth priorities in research and development, selling and marketing areas.
Special Charges
Income before taxes includes the following special charges:
Three Months Ended March 31,
Dollars in thousands 2022 2021
Acquisition, divestiture and integration-related charges(1) $ 574 $ (27,001)
Structural optimization charges 6,320 3,979
EU medical device regulation 9,513 5,748
Total $ 16,407 $ (17,274)
(1) The Company completed its sale of its Extremity Orthopedics business and
recognized a gain of $42.9 million for the three months ended March 31, 2021
which was partially offset by other acquisition, divestiture and
integration-related charges. See Note 2, Acquisitions and Divestitures for
details.
The items reported above are reflected in the condensed consolidated statements
of operations as follows:
Three Months Ended March 31,
Dollars in thousands 2022 2021
Cost of goods sold $ 4,530 $ 10,179
Research and development 4,267 5,515
Selling, general and administrative 8,902 11,494
Gain from the sale of business(1) -
(42,876)
Other income (1,292) (1,586)
Total $ 16,407 $ (17,274) (1) See Note 2, Acquisitions and Divestitures for details.
We typically define special charges as items for which the amounts and/or timing
of such expenses may vary significantly from period to period, depending upon
our acquisition, divestiture, integration and restructuring activities, and for
which the amounts are non-cash in nature, or for which the amounts are not
expected to recur at the same magnitude. We believe that given our ongoing
strategy of seeking acquisitions, our continuing focus on rationalizing our
existing manufacturing and distribution infrastructure and our continuing review
of various product lines in relation to our current business strategy, some of
the special charges discussed above could recur with similar materiality in the
future.
We believe that the separate identification of these special charges provides
important supplemental information to investors regarding financial and business
trends relating to our financial condition and results of operations. Investors
may find this information useful in assessing comparability of our operating
performance from period to period, against the business model objectives that
management has established, and against other companies in our industry. We
provide this information to investors so that they can analyze our operating
results in the same way that management does and to use this information in
their assessment of our core business and valuation of Integra.
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Revenues and Gross Margin
The Company's revenues and gross margin on product revenues were as follows:
Three Months Ended March 31,
Dollars in thousands 2022 2021
Segment Net Sales
Codman Specialty Surgical $ 247,308 $ 241,241
Tissue Technologies 129,330 118,830
Total revenues $ 376,638 $ 360,071
Cost of goods sold 142,569 145,823
Gross margin on total revenues $ 234,069 $ 214,248
Gross margin as a percentage of total revenues 62.1 % 59.5 %
Three Months Ended
Revenues For the three months endedMarch 31, 2022 , total revenues increased by$16.6 million to$376.6 million from$360.1 million for the same period in 2021, inclusive of a unfavorable foreign currency impact of$4.6 million on revenues. Domestic revenues increased by$15.6 million , or 6.3%, to$263.4 million and were 69.9% of total revenues for the three months endedMarch 31, 2022 compared to$247.8 million during the same period in the prior year. International revenues increased by$1.0 million or 0.9% to$113.3 million for the three months endedMarch 31, 2022 compared to$112.3 million during the same period in the prior year. The increase in revenues was primarily driven by strong recovery of surgical procedures as well as favorable order timing for our private label business. In the CSS segment, revenues were$247.3 million which was an increase of$6.1 million , or 2.5% as compared to the prior-year period, inclusive of a$4.2 million unfavorable foreign currency impact on revenue. The increase was as a result of the continued procedure recovery across neurosurgery and capital sales from the recent launch of the CereLink ICP monitoring system. Excluding the impact of foreign exchange, Neurosurgery portfolio grew mid single digits primarily due to sales in neuromonitoring and CSF Management. Sales in our instruments portfolio increased low single digits as compared to the same period in the prior year. In the TT segment, revenues were$129.3 million which was an increase of$10.5 million , or 8.8% from the prior-year period, inclusive of a$0.4 million unfavorable foreign currency impact on revenue. Sales in our Wound Reconstruction business, after adjusting for comparative number of selling days forACell revenue, increased low single digits, led by Integra Skin and PriMatrix. Sales in our Private Label business increased low double digits driven by continued COVID-19 recovery for our private label partners and timing of orders. Gross Margin Gross margin was$234.1 million for the three months endedMarch 31, 2022 , an increase of$19.8 million from$214.2 million for the same period in 2021. Gross margin as a percentage of revenues was 62.1% for the three months endedMarch 31, 2022 and 59.5% or the same period in 2021. This increase in gross margin was due to higher revenues, favorable product mix, a decrease in amortization associated with technology-based intangible assets and a reduction of inventory step-up amortization in connection with the acquisition ofACell in 2021. Operating Expenses The following is a summary of operating expenses as a percent of total revenues: Three Months Ended March 31, 2022 2021 Research and development 6.4 % 6.2 % Selling, general and administrative 42.5 % 43.5 % Intangible asset amortization 1.0 % 1.3 % Total operating expenses 49.9 % 51.0 % 36
-------------------------------------------------------------------------------- Table of Contents Total operating expenses, which consist of research and development, selling, general and administrative, and amortization expenses, increased by$4.4 million , or 2.4% to$187.9 million in the three months endedMarch 31, 2022 , compared to$183.5 million in the same period in 2021. The increase in operating expenses compared to the prior year primarily reflects increased selling costs associated with higher revenue, as well as higher spending for key growth initiatives in research and development, selling and marketing areas.
The Company continues to prioritize its operating costs to increase organic
investments that will drive long-term growth including the support of new
product development and introductions, clinical studies, geographic expansion
and targeted
Research and Development
Research and development expenses for the three months endedMarch 31, 2022 increased by$1.7 million as compared to the same period in the prior year. This increase in spending resulted from additional spending on new product development, clinical studies and spending related to the European Union Medical Device Regulation compliance activities.
Selling, General and Administrative
Selling, general and administrative costs for the three months endedMarch 31, 2022 increased by$3.3 million as compared to the same period in the prior year driven primarily due to increased selling costs associated with higher revenue, as well as increases to support key growth initiatives.
Intangible Asset Amortization
Amortization expense (excluding amounts reported in cost of product revenues for technology-based intangible assets) for the three months endedMarch 31, 2022 was$3.9 million compared to$4.5 million for the same period in prior year.
Non-Operating Income and Expenses
The following is a summary of non-operating income and expenses:
Three Months Ended March 31,
Dollars in thousands 2022 2021
Interest income $ 1,377 $ 1,748
Interest expense (11,655) (12,929)
Gain (loss) from the sale of business - 42,876
Other income, net 3,429
4,869
Total non-operating income and expense$ (6,849) $ 36,564 Interest Income
Interest income for the three months ended
Interest Expense
Interest expense for the three months endedMarch 31, 2022 decreased by$1.3 million as compared to the same period in the prior year primarily due to the impact of a$100 million interest rate swap that matured in second quarter of 2021 and related pay down on the revolving credit component of the Senior Credit Facility.
Gain from the sale of business
OnJanuary 4, 2021 , the Company completed its sale of its Extremity Orthopedics business and recognized a gain of$42.9 million for the three months endedMarch 31, 2021 . Other Income, net Other income, net for the three months endedMarch 31, 2022 decreased by$1.4 million compared to the same period in the prior year primarily due to less income associated with the transition services agreement from the divestiture of the Extremity Orthopedics business and by a unfavorable impact of foreign exchange as compared to the prior year. 37
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Income Taxes
Three Months Ended March 31,
Dollars in thousands 2022 2021
Income before income taxes $ 39,315 $ 67,278
Income tax (benefit) expense 6,414 21,884
Effective tax rate 16.3 % 32.5 %
The Company's effective income tax rates for the three months ended
For the three months endedMarch 31, 2022 , the primary drivers of the tax rate are a favorable jurisdictional mix of income, as well as a$0.8M benefit related to excess tax benefit from stock compensation. For the three months endedMarch 31, 2021 , the primary driver of the higher tax rate is the tax impact of the gain on the sale of the Extremity Orthopedics business, which closed during the first quarter of 2021. The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of taxable earnings and losses, tax planning and settlements with various taxing authorities. We consider these factors and others, including the Company's history of generating taxable earnings, in assessing our ability to realize tax assets on a quarterly basis. Additionally, changes to income tax laws and regulations, in any of the tax jurisdictions in which the Company operates, could impact the effective tax rate. Various governments, bothU.S. and non-U.S. , are increasingly focused on tax reform and revenue-raising legislation. The currentU.S. administration has proposed tax reform which, if enacted, may increase the Company'sU.S. federal income tax liability. Further, legislation in foreign jurisdictions may be enacted, in response to the base erosion and profit-shifting project begun by theOrganization for Economic Cooperation and Development ("OECD"). TheOECD recently finalized major reform of the international tax system with respect to a implementing a global minimum tax rate. Such changes inU.S. and non-U.S. jurisdictions could have an adverse effect on the Company's effective tax rate. While it is often difficult to predict the outcome or the timing of the resolution of a particular matter with the various federal, state, and foreign tax authorities, we believe that our reserves reflect the most probable outcome of known tax contingencies. Settlement of a particular issue would usually require the use of cash. A favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution. The Company's tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items that we expect to pay in the coming year, which would be classified as current income taxes payable.
GEOGRAPHIC PRODUCT REVENUES AND OPERATIONS
The Company attributes revenues to geographic areas based on the location of the
customer. Total revenue by major geographic area consisted of the following:
Three Months Ended March 31,
Dollars in thousands 2022 2021
United States $ 263,351 $ 247,793
Europe 43,744 45,819
Asia Pacific 47,717 47,295
Rest of World 21,826 19,164
Total Revenues $ 376,638 $ 360,071
The Company generates significant revenues outside the U.S. , a portion of which
are U.S. dollar-denominated transactions conducted with customers that generate
revenue in currencies other than the U.S. dollar. As a result, currency
fluctuations between the U.S. dollar and the currencies in which those customers
do business could have an impact on the demand for the Company's products in
foreign countries. Local economic conditions, regulatory compliance or political
considerations, the effectiveness of our sales representatives and distributors,
local competition and changes in local medical practice all may combine to
affect our sales into markets outside the U.S.
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Domestic revenues increased by$15.6 million for the three months endedMarch 31, 2022 compared to the same period last year. European sales decreased by$2.1 million for the three months endedMarch 31, 2022 compared to the same period last year. Sales to customers inAsia Pacific increased by$0.4 million for the three months endedMarch 31, 2022 . The Rest of World for the three months endedMarch 31, 2022 increased by$2.7 million compared to the same period last year. The international revenues were impacted by$4.6 million of unfavorable foreign exchange impact, with the larger impact inEurope . The increase in global revenues, inclusive of a$4.6 million unfavorable foreign exchange impact on revenue, was primarily driven by the strong recovery of procedures as well as favorable order timing for our private label business. Sales inChina ,Japan ,Europe ,Canada and our indirect markets continue to drive international growth.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
The Company's working capital as ofMarch 31, 2022 andDecember 31, 2021 was$750.2 million and$813.7 million , respectively. Working capital consists of total current assets less total current liabilities as presented in the consolidated balance sheets.
The Company had cash and cash equivalents totaling approximately$407.1 million and$513.4 million atMarch 31, 2022 andDecember 31, 2021 respectively, which are valued based on Level 1 measurements in the fair value hierarchy. AtMarch 31, 2022 , our non-U.S. subsidiaries held approximately$260.5 million of cash and cash equivalents that are available for use outside theU.S. The Company asserts that it has the ability and intends to indefinitely reinvest the undistributed earnings from its foreign operations unless there is no material tax cost to remit the earnings into theU.S.
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