What changed in Orthofix Medical Inc.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of Orthofix Medical Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+133 added−140 removedSource: 10-K (2024-03-05) vs 10-K (2023-03-06)
Top changes in Orthofix Medical Inc.'s 2023 10-K
133 paragraphs added · 140 removed · 88 edited across 1 sections
- Item 3. Legal Proceedings+133 / −140 · 88 edited
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
88 edited+45 added−52 removed67 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
88 edited+45 added−52 removed67 unchanged
2022 filing
2023 filing
Biggest changeInvesting Activities Cash flows from investing activities decreased $1.5 million • Decrease of $3.6 million associated with capital expenditures compared to the prior year period • Partially offset by an increase of $2.2million due to cash paid for purchases of investment securities in 2021 Financing Activities Cash flows from financing activities increased $3.5 million • Increase of $8.4 million associated with cash paid in 2021 for the achievement of a revenue-based milestone associated with the Spinal Kinetics acquisition; the milestone payment totaled $15.0 million with a portion of the payment reflected in both operating and financing activities • Decrease in net proceeds of $3.7 million from the issuance of common shares, primarily related to the exercise of stock options in the prior year period • Decrease of $2.0 million related to the conclusion of the FITBONE Contract Manufacturing and Supply Agreement with Wittenstein, resulting in a $2.0 million payment in 2022 • Increase of $0.9 million attributable to other financing activities Credit Facilities On October 25, 2019, we entered into a Second Amended and Restated Credit Agreement (the “Amended Credit Agreement”), which provides for a five year $300 million secured revolving credit facility.
Biggest changeInvesting Activities Cash flows from investing activities decreased $8.6 million • Primarily driven by an increase of $38.9 million in capital expenditures, largely due to the inclusion of SeaSpine's financial results within the 2023 financial results • Partially offset by an increase of $29.4 million attributable to cash acquired as a result of the Merger • Further offset by a favorable change of $0.9 million associated with certain asset acquisitions and other investing activities Financing Activities Cash flows from financing activities increased $65.4 million • Increase of $95.5 million in net borrowings associated with proceeds from our new Financing Agreement during 2023, borrowings made under our Prior Credit Agreement, and the repayment of our Prior Credit Agreement upon execution of the Financing Agreement • Increase of $2.0 million related to the conclusion of the Fitbone Contract Manufacturing and Supple Agreement with Wittenstein in 2022, which was accounted for as a finance lease obligation • Partially offset by a decrease of $26.9 million associated with the termination and repayment of SeaSpine's credit facility • Further offset by a decrease of $2.7 million for tax withholdings obligations from shares traded and a decrease in other financing activities of $2.3 million Credit Facilities On November 6, 2023, we entered into a Financing Agreement (the "Financing Agreement") with Blue Torch Finance LLC and certain lenders party thereto, which provides for a $100.0 million senior secured term loan (the "Initial Term Loan"), a $25.0 million senior secured delayed draw term loan facility (the "Delayed Draw Term Loan") which, subject to certain conditions specified in the Financing Agreement, may be drawn on or prior to March 30, 2024, and a $25.0 million senior secured revolving credit facility (the "Revolving Credit Facility", and together with the Initial Term Loan and the Delayed Draw Term Loan, the "Credit Facilities"), each of which mature on November 6, 2027.
A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of 75 the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
If conditions or assumptions used in determining the market value or forecasted demand change, additional inventory adjustments in the future may be necessary. Our inventory allowance is a “critical accounting estimate” because changes in the assumptions used to develop the estimate could materially affect key financial measures, including gross profit, operating income, EBITDA, net income, and inventory.
If conditions or assumptions used in determining the market value or forecasted demand change, additional inventory adjustments in the future may be necessary. Our inventory allowance is a “critical accounting estimate” because changes in the assumptions used to develop the estimate could materially affect key financial measures, including gross profit, operating income, adjusted EBITDA, net income, and inventory.
Litigation and contingent liabilities are “critical accounting estimates” because changes in the assumptions used to develop the estimates could materially affect key financial measures, including operating income, EBITDA, and net income. Tax Matters We and each of our subsidiaries are taxed at the rates applicable within each of their respective jurisdictions.
Litigation and contingent liabilities are “critical accounting estimates” because changes in the assumptions used to develop the estimates could materially affect key financial measures, including operating income, adjusted EBITDA, and net income. Tax Matters We and each of our subsidiaries are taxed at the rates applicable within each of their respective jurisdictions.
Our valuation of intangible assets is a “critical accounting estimate” because changes in the assumptions used to develop these estimates could materially affect key financial measures, including operating income, EBITDA, and net income. Goodwill Our goodwill represents the excess of cost over fair value of net assets acquired from business combinations.
Our valuation of intangible assets is a “critical accounting estimate” because changes in the assumptions used to develop these estimates could materially affect key financial measures, including operating income and net income. Goodwill Our goodwill represents the excess of cost over fair value of net assets acquired from business combinations.
As consideration for the License Agreement, we agreed to pay up to $4.0 million, of which $0.5 million was paid in 2021, with certain payments contingent upon achieving an FDA milestone. In May 2022, the Company achieved FDA approval pertaining to the acquired technology, triggering a contingent consideration milestone obligation of $3.5 million.
As consideration for the License Agreement, we agreed to pay up to $4.0 million, of which $0.5 million was paid in 2021, with certain payments contingent upon achieving an FDA milestone. In May 2022, we achieved FDA approval pertaining to the acquired technology, triggering a contingent consideration milestone obligation of $3.5 million.
Our share-based compensation is a “critical accounting estimate” because changes in the assumptions used to develop estimates of fair value or the requisite service period could materially affect key financial measures, including gross profit, operating income, EBITDA, and net income.
Our share-based compensation is a “critical accounting estimate” because changes in the assumptions used to develop estimates of fair value or the requisite service period could materially affect key financial measures, including gross profit, operating income, and net income.
In the event of a decrease in demand for our products, excess product production, or a higher 70 incidence of inventory obsolescence, we could be required to increase our inventory reserves, which would increase cost of sales and decrease gross profit. We regularly evaluate our exposure for inventory write-downs.
In the event of a decrease in demand for our products, excess product production, or a higher incidence of inventory obsolescence, we could be required to increase our inventory reserves, which would increase cost of sales and decrease gross profit. We regularly evaluate our exposure for inventory write-downs.
Fair Value Measurements 71 Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Fair Value Measurements Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Dollar against the Euro, Brazilian Real, Australian Dollar, Swiss Franc, or British Pound. We are subject to transactional currency exposures when our subsidiaries (or the Company itself) enter into transactions denominated in a currency other than their functional currency.
Dollar against the Euro, Brazilian Real, Australian Dollar, Swiss Franc, British Pound, or Canadian Dollar. We are subject to transactional currency exposures when our subsidiaries (or the Company itself) enter into transactions denominated in a currency other than their functional currency.
This information will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate this information by reference. 59 The following graph compares our annual percentage change in cumulative total return on common shares over the past five years with the cumulative total return of companies comprising the NASDAQ Composite Index and the NASDAQ Stocks (SIC 3840-3849 US & Foreign) Surgical, Medical, and Dental Instruments and Supplies Index.
This information will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate this information by reference. 57 The following graph compares our annual percentage change in cumulative total return on common shares over the past five years with the cumulative total return of companies comprising the NASDAQ Composite Index and the NASDAQ Stocks (SIC 3840-3849 US & Foreign) Surgical, Medical, and Dental Instruments and Supplies Index.
In such instances, we 72 believe that there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss, fine, penalty or business impact, if any.
In such instances, we believe that there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss, fine, penalty, or business impact, if any.
We have reviewed these critical accounting estimates with the Audit Committee of the Board of Directors. Revenue Recognition The process for recognizing revenue involves significant assumptions and judgments for certain of our revenue streams.
We have reviewed these critical accounting estimates with the Audit Committee of the Board of Directors. 66 Revenue Recognition The process for recognizing revenue involves significant assumptions and judgments for certain of our revenue streams.
In connection with the preparation and filing of this Annual Report, the Company’s management, including our President and Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the framework set forth in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
In connection with the preparation and filing of this Annual Report, the Company’s management, including our President and Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the framework set forth in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Off-balance Sheet Arrangements As of December 31, 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, cash flows, liquidity, capital expenditures, or capital resources that are material to investors.
Off-balance Sheet Arrangements As of December 31, 2023, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, cash flows, liquidity, capital expenditures, or capital resources that are material to investors.
Equity Compensation Plan Information Information about our equity compensation plan is incorporated herein by reference to Part III, Item 12 of this report. Recent Sales of Unregistered Securities During the fourth quarter of 2022, we did not issue any securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act").
Equity Compensation Plan Information Information about our equity compensation plan is incorporated herein by reference to Part III, Item 12 of this report. Recent Sales of Unregistered Securities During the fourth quarter of 2023, we did not issue any securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act").
Item 3. Legal Proceedings For a description of material pending legal proceedings, refer to Note 13 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report. I tem 4 . Mine Safety Disclosures Not applicable. 58 PART II I tem 5.
Item 3. Legal Proceedings For a description of material pending legal proceedings, refer to Note 13 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report. I tem 4 . Mine Safety Disclosures Not applicable. 56 PART II I tem 5.
Dollar increased in value by 10% relative to all foreign currencies of our international operations it would result in a decrease in net sales of $9.0 million and a decrease in operating income of $0.8 million. I tem 8. Financial Statements and Supplementary Data See “Index to Consolidated Financial Statements” on page F-1 of this Annual Report. I tem 9.
Dollar increased in value by 10% relative to all foreign currencies of our international operations it would result in a decrease in net sales of $9.4 million and a decrease in operating income of $0.6 million. 72 I tem 8. Financial Statements and Supplementary Data See “Index to Consolidated Financial Statements” on page F-1 of this Annual Report.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. I tem 9A.
I tem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. I tem 9A.
Wholesale revenue is related to the sale of our bone growth stimulators directly to physicians and other healthcare providers. Wholesale revenues are recognized upon shipment and receipt of a confirming purchase order, which is when the customer obtains control of the promised goods.
Wholesale revenue is related to the sale of our Bone Growth Therapies products directly to physicians and other healthcare providers. Wholesale revenues are recognized upon shipment and receipt of a confirming purchase order, which is when the customer obtains control of the promised goods.
Opinion on Internal Control over Financial Reporting We have audited Orthofix Medical Inc.’s internal control over financial reporting as of December 31, 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, Orthofix Medical Inc.
Opinion on Internal Control over Financial Reporting We have audited Orthofix Medical Inc.’s internal control over financial reporting as of December 31, 2023, 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).
Dollar decreased in value by 10% relative to all foreign currencies of our international operations it would result in an increase in net sales of $9.0 million and an increase in operating income of $0.8 million. If the U.S.
Dollar decreased in value by 10% relative to all foreign currencies of our international operations it would result in an increase in net sales of $9.4 million and an increase in operating income of $0.6 million. If the U.S.
The discussion and analysis below is focused on our 2022 and 2021 financial results, including comparisons of our year-over-year performance between these years.
The discussion and analysis below is focused on our 2023 and 2022 financial results, including comparisons of our year-over-year performance between these years.
We believe the estimates and assumptions involved in the impairment assessment to be critical because significant changes in such estimates and assumptions could materially affect key financial measures, including operating income, EBITDA, and net income. In the fourth quarter of 2021, we performed a quantitative assessment of goodwill as part of our annual goodwill impairment analysis.
We believe the estimates and assumptions involved in the impairment assessment to be critical because significant changes in such estimates and assumptions could materially affect key financial measures, including operating income and net income. In the fourth quarter of 2021, we performed a quantitative assessment for our annual goodwill impairment analysis.
Our fair value measurements are a “critical accounting estimate” because changes in the assumptions used to develop the estimate could materially affect key financial measures, including operating income, EBITDA, and net income.
These fair value measurements are a “critical accounting estimate” because changes in the assumptions used to develop the estimate could materially affect key financial measures, including operating income and net income.
Additionally, we have restrictions on our ability to pay dividends in certain circumstances pursuant to our Amended Credit Agreement. We currently intend to retain all of our consolidated earnings to finance the continued growth of our business.
Additionally, we have restrictions on our ability to pay dividends in certain circumstances pursuant to our Financing Agreement. We currently intend to retain all of our consolidated earnings to finance the continued growth of our business.
Additionally, we believe our estimate to establish contractual allowances is sufficient to cover customer credit risks; however, a 10% change in our reserve for contractual allowances as of December 31, 2022, would result in an increase or decrease to net sales of $0.3 million.
Additionally, we believe our estimate to establish contractual allowances is sufficient to cover customer credit risks; however, a 10% change in our reserve for contractual allowances as of December 31, 2023, would result in an increase or decrease to net sales of $0.4 million.
Discussion and analysis of our 2020 fiscal year specifically, as well as the year-over-year comparison of our 2021 financial performance to 2020, is located in Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022, which is available on our website at www.orthofix.com and the SEC’s website at www.sec.gov.
Discussion and analysis of our 2021 fiscal year specifically, as well as the year-over-year comparison of our 2022 financial performance to 2021, is located in Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 6, 2023, which is available on our website at www.orthofix.com and the SEC’s website at www.sec.gov.
We believe our allowance for credit losses is sufficient to cover customer credit risks; however, a 10% change in our allowance for credit losses as of December 31, 2022, would result in an increase or decrease to sales and marketing expense of $0.6 million.
We believe our allowance for credit losses is sufficient to cover customer credit risks; however, a 10% change in our allowance for credit losses as of December 31, 2023, would result in an increase or decrease to sales and marketing expense of $0.7 million.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Our Common Stock Our common stock is traded on the Nasdaq Global Select Market under the symbol “OFIX.” As of March 1, 2023, we had 493 holders of record of our common stock.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Our Common Stock Our common stock is traded on the Nasdaq Global Select Market under the symbol “OFIX.” As of March 1, 2024, we had 456 holders of record of our common stock.
Bone Growth Therapies revenue is largely attributable to the U.S. and is comprised of third-party payor transactions and wholesale revenue. 69 For revenue derived from third-party payors, including commercial insurance carriers, health maintenance organizations, preferred provider organizations, and governmental payors, such as Medicare, in connection with the sale of our stimulation products, we recognize revenue when the stimulation product is fitted to and accepted by the patient and all applicable documents that are required by the third-party payor have been obtained.
For revenue derived from third-party payors, including commercial insurance carriers, health maintenance organizations, preferred provider organizations, and governmental payors, such as Medicare, in connection with the sale of our Bone Growth Therapies products, we recognize revenue when the stimulation product is fitted to and accepted by the patient and all applicable documents that are required by the third-party payor have been obtained.
A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions. The closing price of our common stock on March 1, 2023 was $20.18.
A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions. The closing price of our common stock on March 1, 2024, was $13.00.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Dallas, Texas March 6, 2023 77 I tem 9B.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Dallas, Texas March 5, 2024 I tem 9B. Other Information None.
Dollars, in thousands) 2022 2021 2020 2022/2021 2021/2020 Interest expense, net $ (1,288 ) $ (1,837 ) $ (2,483 ) -29.9 % -26.0 % Other income (expense) (3,150 ) (3,343 ) 8,381 -5.8 % -139.9 % Non-operating income and expense largely consists of interest income and expense, transaction gains and losses from changes in foreign currency exchange rates, changes in fair value related to our equity holdings in certain privately-held companies, and credit losses recognized on certain convertible debt investments.
Dollars, in thousands) 2023 2022 2021 2023/2022 2022/2021 Interest expense, net $ (8,631 ) $ (1,288 ) $ (1,837 ) 570.1 % -29.9 % Other expense, net (938 ) (3,150 ) (3,343 ) -70.2 % -5.8 % Non-operating income and expense largely consists of interest income and expense, transaction gains and losses from changes in foreign currency exchange rates, changes in fair value related to our equity holdings in certain privately-held companies, and credit losses recognized on certain convertible debt investments.
Dollar against all of the foreign functional currencies for our international operations. As we continue to distribute and manufacture our products in selected foreign countries, we expect that future sales and costs associated with our activities in these markets will continue to be denominated in the applicable foreign currencies, which could cause currency fluctuations to materially impact our operating results.
As we continue to distribute and manufacture our products in selected foreign countries, we expect that future sales and costs associated with our activities in these markets will continue to be denominated in the applicable foreign currencies, which could cause currency fluctuations to materially impact our operating results.
This presentation assumes that $100 was invested in shares of the relevant issuers on December 31, 2017, and that dividends received were immediately invested in additional shares. The graph plots the value of the initial $100 investment at one-year intervals for the fiscal years shown.
This presentation assumes that $100 was invested in shares of the relevant issuers on December 31, 2018, and that dividends received were immediately invested in additional shares. The graph plots the value of the initial $100 investment at one-year intervals for the fiscal years shown. I tem 6. Reserved 58 I tem 7.
Upon estimating the fair value of each of its reporting units, we determined the Global Orthopedics reporting unit’s fair value was less than its carrying value of net assets. This resulted in recording a full impairment of the Global Orthopedics goodwill of $11.8 million, which is reflected within Acquisition-related amortization and remeasurement.
Upon estimating the fair value of each of reporting unit, we determined the Global Orthopedics reporting unit’s fair value was less than its carrying value of net assets. This resulted in recording a full impairment of the Global Orthopedics goodwill of $11.8 million, which was reflected within Acquisition-related amortization and remeasurement for the year ended December 31, 2021.
Day’s sales in receivables were 62 days at December 31, 2022, compared to 58 days at December 31, 2021 (calculated using fourth quarter net sales and ending accounts receivable). Inventory turns were 1.2 times as of December 31, 2022, compared to 1.4 times at December 31, 2021.
Day’s sales in receivables were 59 days at December 31, 2023, compared to 62 days at December 31, 2022 (calculated using fourth quarter net sales and ending accounts receivable). Inventory turns were consistent at 1.2 times as of December 31, 2023, and December 31, 2022, respectively.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022, and 2021, the related consolidated statements of operations and comprehensive income (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated March 6, 2023, expressed an unqualified opinion thereon.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023, and 2022, the related consolidated statements of operations and comprehensive income (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes.
Executive Summary The newly merged Orthofix-SeaSpine organization is a leading global spine and orthopedics company with a comprehensive portfolio of biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions, and a leading surgical navigation system. Its products are distributed in approximately 68 countries worldwide.
Executive Summary Orthofix is a leading global spine and orthopedics company with a comprehensive portfolio of biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions and a leading surgical navigation system. Its products are distributed in more than 60 countries worldwide.
However, our risk management policy does not allow us to hedge positions we do not hold nor do we enter into derivative or other financial investments for trading or speculative purposes.
We may use derivative financial instruments, where appropriate, to manage these risks. However, our risk management policy does not allow us to hedge positions we do not hold nor do we enter into derivative or other financial investments for trading or speculative purposes.
We are exposed to interest rate risk in connection with our Revolving Credit Facility, which bears interest at floating rates based on the Secured Overnight Financing Rate, or SOFR, plus an applicable borrowing margin or at a base rate (as defined in the Amended Credit Agreement) plus an applicable borrowing margin.
We are exposed to interest rate risk in connection with the outstanding debt related to our Initial Term Loan, which bears interest at floating rates based on a three-month Secured Overnight Financing Rate, or SOFR, plus an applicable borrowing margin or at a base rate (as defined in the Financing Agreement) plus an applicable borrowing margin.
The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the expected term of the option award. We estimate expected volatility based on the historical volatility of our stock. We use the Monte Carlo valuation methodology to calculate the fair value of market-based restricted stock units.
The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the expected term of the option award. We estimate expected volatility based on the historical volatility of our stock.
GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. 75 Internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation of reliable financial statements for external purposes in accordance with U.S.
GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Holding other inputs constant, an increase in the assumed cost of equity discount rate by 2% would have resulted in a decrease in the fair value of the convertible loan of $0.1 million, whereas a decrease the cost of equity discount rate by 2% would have resulted in an increase in the fair value of the convertible loan by $0.2 million.
Holding other inputs constant, an increase of the present value factor by 5% would have resulted in a decrease in the fair value of the convertible loan of $0.5 million, whereas a decrease of the present value factor by 5% would have resulted in an increase in the fair value of the convertible loan by $0.2 million.
For the year ended December 31, 2022, we recorded a foreign currency loss of $3.3 million on the statement of operations and comprehensive income (loss) resulting from gains and losses in foreign currency transactions. We are also subject to currency exposure from translating the results of our global operations into the U.S.
For the year ended December 31, 2023, we recorded a foreign currency gain of $1.6 million on the statement of operations and comprehensive loss resulting from gains and losses in foreign currency transactions. We are also subject to currency exposure from translating the results of our global operations into the U.S. Dollar at exchange rates that fluctuate during the period.
Changes in Internal Control over Financial Reporting There have not been any changes in our internal control over financial reporting during the fourth quarter of 2022 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. 76 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Orthofix Medical Inc.
There have been no changes in our internal control over financial reporting during the fourth quarter of 2023 other than the identification of the material weakness and the remediation plan disclosed above that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. 74 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Orthofix Medical Inc.
Dollar at exchange rates that fluctuate during the period. The U.S. Dollar equivalent of international sales denominated in foreign currencies was unfavorably impacted during the year ended December 31, 2022, and favorably impacted during the year ended December 31, 2021, by monthly foreign currency exchange rate fluctuations of the U.S.
The U.S. Dollar equivalent of international sales denominated in foreign currencies was favorably impacted during the year ended December 31, 2023, and unfavorably impacted during the year ended December 31, 2022, by monthly foreign currency exchange rate fluctuations of the U.S. Dollar against all of the foreign functional currencies for our international operations.
Our material contractual obligations include, but are not limited to i) our contingent consideration arrangement associated with the Spinal Kinetics acquisition, ii) contingent consideration arrangements associated with certain asset acquisitions, of which material obligations are described above, iii) operating lease and finance lease obligations, and iv) uncertain tax positions.
Our material contractual obligations include, but are not limited to (i) our contingent consideration arrangement under a purchase agreement between SeaSpine and Lattus assumed in the Merger, (ii) contingent consideration arrangements associated with certain asset acquisitions or business combinations, of which material obligations are described above, (iii) operating lease and finance lease obligations, and (iv) uncertain tax positions.
Constant Currency Constant currency is a non-GAAP measure, which is calculated by using foreign currency rates from the comparable, prior-year period, to present net sales at comparable rates. Constant currency can be presented for numerous GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.
Constant currency can be presented for numerous GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.
Of this amount, $1.5 million was paid in 2022, $1.0 million was accrued within other current liabilities, and $1.0 million was accrued within other long-term liabilities as of December 31, 2022.
Of this amount, $1.5 million was paid in 2022, $1.0 million was paid in May 2023, and $1.0 million was accrued within other current liabilities as of December 31, 2023. Unremitted Foreign Earnings Unremitted foreign earnings were $33.6 million as of December 31, 2023.
Revenue recognition policies are “critical accounting estimates” because changes in the assumptions used to develop the estimates could materially affect key financial measures, including net sales, gross margin, operating income, EBITDA, and net income.
Revenue recognition policies are “critical accounting estimates” because changes in the assumptions used to develop the estimates could materially affect key financial measures, including net sales, gross margin, operating income, adjusted EBITDA, and net income. Bone Growth Therapies revenue is largely attributable to the U.S. and is comprised of third-party payor transactions and wholesale revenue.
The two most significant items that are or were recorded at fair value as of December 31, 2022, and 2021, include (i) contingent consideration attributable to the Spinal Kinetics acquisition and (ii) our convertible loan agreements with Neo Medical.
The two most significant items that are or were recorded at fair value as of December 31, 2023, and 2022, include (i) contingent consideration attributable to Lattus and (ii) our convertible loan agreements with Neo Medical. The contingent consideration obligation consists of future installment payments at certain dates based on future net sales of Lateral Products.
The value is recognized as expense over 73 the derived requisite service period beginning in the period in which the grants are deemed probable to vest. Vesting probability is assessed based upon forecasted financial results and requires significant judgment. Determining the appropriate fair value model and calculating the fair value of employee stock awards requires estimates and judgments.
The value is recognized as expense over the derived requisite service period beginning in the period in which the grants are deemed probable to vest. Vesting probability is assessed based upon forecasted financial results metrics or applicable milestones associated with the grant and requires significant judgment.
Dollars, in thousands) 2022 2021 2020 2022/2021 2021/2020 Income tax expense (benefit) $ 2,043 $ 24,884 $ (2,885 ) -91.8 % -962.5 % Effective tax rate -11.5 % -184.4 % 784.0 % 172.9 % -968.4 % 2022 Compared to 2021 Net income tax expense decreased by $22.8 million • Decrease of $20.2 million related to changes in valuation allowances recorded in 2021 versus 2022 • Decrease of $2.7 million related to the change in fair value of contingent consideration • Partially offset by $1.0 million US tax expense on foreign income inclusion 65 A reconciliation of the effective tax rate for each year is reported in Note 20 to the Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report.
Dollars, in thousands) 2023 2022 2021 2023/2022 2022/2021 Income tax expense $ 2,716 $ 2,043 $ 24,884 32.9 % -91.8 % Effective tax rate -1.8 % -11.5 % -184.4 % 9.7 % 172.9 % 2023 Compared to 2022 Income tax expense increased by $0.7 million • Increase of $8.4 million associated with financial statement expenses not deductible for tax, including executive compensation and Merger-related deal costs • Increase of $1.3 million associated with foreign income inclusion, largely driven by research and development expenses outside of the U.S. • Decrease of $10.1 million associated with higher financial statement losses offset by valuation allowances 2022 Compared to 2021 • Decrease of $20.2 million related to changes in valuation allowances recorded in 2021 versus 2022 • Decrease of $2.7 million related to the change in fair value of contingent consideration • Partially offset by $1.0 million U.S. tax expense on foreign income inclusion A reconciliation of the effective tax rate for each year is reported in Note 20 to the Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report.
Dollars, in thousands) 2022 2021 Change Net cash from operating activities $ (11,538 ) $ 18,475 $ (30,013 ) Net cash from investing activities (24,534 ) (23,013 ) (1,521 ) Net cash from financing activities (78 ) (3,621 ) 3,543 Effect of exchange rate changes on cash and restricted cash (997 ) (815 ) (182 ) Net change in cash, cash equivalents, and restricted cash $ (37,147 ) $ (8,974 ) $ (28,173 ) The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating activities.
Dollars, in thousands) 2023 2022 Change Net cash from operating activities $ (45,753 ) $ (11,538 ) $ (34,215 ) Net cash from investing activities (33,131 ) (24,534 ) (8,597 ) Net cash from financing activities 65,322 (78 ) 65,400 Effect of exchange rate changes on cash and restricted cash 619 (997 ) 1,616 Net change in cash, cash equivalents, and restricted cash $ (12,943 ) $ (37,147 ) $ 24,204 The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating activities.
GAAP. Because of the inherent limitations in any internal control, no matter how well designed, misstatements may occur and not be prevented or detected. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation.
Internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation of reliable financial statements for external purposes in accordance with U.S. GAAP. Because of the inherent limitations in any internal control, no matter how well designed, misstatements may occur and not be prevented or detected.
Some of the limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost that can have a material effect on cash flows. Similarly, certain non-cash expenses, such as equity compensation expense, do not directly impact cash flows, but are part of total compensation costs accounted for under GAAP.
Some of the limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost that can have a material effect on cash flows.
The value is recognized as expense over the requisite service period and adjusted for forfeitures as they occur. The Monte Carlo methodology that we use to estimate the fair value of the awards incorporates the possibility that the market condition may not be satisfied.
The Monte Carlo methodology that we use to estimate the fair value of the awards incorporates the possibility that the market condition may not be satisfied.
Our allowance for credit losses and estimation of contractual allowances are “critical accounting estimates” because changes in the assumptions used to develop the estimates could materially affect key financial measures, including net sales, gross margin, operating income, EBITDA, net income, and accounts receivable.
Our allowance for credit losses and estimation of contractual allowances are “critical accounting estimates” because changes in the assumptions used to develop the estimates could materially affect key financial measures, including net sales, gross margin, operating income, adjusted EBITDA, net income, and accounts receivable. 67 Inventory Allowances Reserves for excess, slow moving, and obsolete inventory are calculated as the difference between the cost of inventory and market value, and are based on assumptions and judgments about new product launch periods, overall product life cycles, forecasted demand, and market conditions.
Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives. I tem 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to certain market risks as part of our ongoing business operations. Primary exposures include changes in interest rates and foreign currency fluctuations.
Quantitative and Qualitative Disclosures About Market Risk We are exposed to certain market risks as part of our ongoing business operations. Primary exposures include changes in interest rates and foreign currency fluctuations. These exposures can impact sales, cost of sales, costs of operations, and the cost of financing and yields on cash and short-term investments.
Based upon that evaluation, our President and Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were effective.
Based upon that evaluation, our President and Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were not effective due to a material weakness in the Company's internal control over financial reporting related to management's review activities for business combinations and goodwill as disclosed below.
Dollars, in thousands) 2022 2021 2020 Reported Constant Currency Reported Constant Currency Bone Growth Therapies $ 187,247 $ 187,448 $ 171,396 -0.1 % -0.1 % 9.4 % 9.4 % Spinal Implants 109,546 115,094 94,857 -4.8 % -4.0 % 21.3 % 20.8 % Biologics 56,381 56,421 55,482 -0.1 % -0.1 % 1.7 % 1.7 % Global Spine 353,174 358,963 321,735 -1.6 % -1.4 % 11.6 % 11.4 % Global Orthopedics 107,539 105,516 84,827 1.9 % 11.0 % 24.4 % 21.3 % Net sales $ 460,713 $ 464,479 $ 406,562 -0.8 % 1.5 % 14.2 % 13.5 % 62 Global Spine Global Spine offers the following products categories: - Bone Growth Therapies, which manufactures, distributes, sells, and provides support services for market leading devices that enhance bone fusion.
Dollars, in thousands) 2023 2022 2021 Reported Constant Currency Reported Constant Currency Bone Growth Therapies $ 212,530 $ 187,247 $ 187,448 13.5 % 13.5 % -0.1 % -0.1 % Spinal Implants, Biologics, and Enabling Technologies 418,789 165,927 171,515 152.4 % 152.4 % -3.3 % -2.7 % Global Spine 631,319 353,174 358,963 78.8 % 78.7 % -1.6 % -1.4 % Global Orthopedics 115,322 107,539 105,516 7.2 % 5.2 % 1.9 % 11.0 % Net sales $ 746,641 $ 460,713 $ 464,479 62.1 % 61.6 % -0.8 % 1.5 % Global Spine Global Spine offers the following products categories: - Bone Growth Therapies, which manufactures, distributes, sells, and provides support services for market-leading devices used adjunctively in high-risk spinal fusion procedures and to treat both nonunion and acute fractures in the orthopedic space.
We believe that a concentration of credit risk related to our accounts receivable is limited because our customers are geographically dispersed and the end users are diversified across several industries.
Therefore, interest rate changes generally do not affect the fair market value of the debt, but do impact future earnings and cash flows, assuming other factors are held constant. We believe that a concentration of credit risk related to our accounts receivable is limited because our customers are geographically dispersed and the end users are diversified across several industries.
We establish a valuation allowance when measuring deferred tax assets if it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future.
Such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision, which could have a material impact to the financial statements. 70 We establish a valuation allowance when measuring deferred tax assets if it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future.
High Low 2021 First Quarter $ 48.50 $ 39.34 Second Quarter 45.96 39.23 Third Quarter 43.30 36.35 Fourth Quarter 39.98 28.65 2022 First Quarter $ 35.83 $ 29.75 Second Quarter 34.89 23.54 Third Quarter 25.93 19.11 Fourth Quarter 20.87 14.33 Dividends We have not paid dividends to holders of our common stock in the past and have no present intention to pay dividends in the foreseeable future.
High Low 2022 First Quarter $ 36.13 $ 28.66 Second Quarter 35.34 23.17 Third Quarter 26.35 18.97 Fourth Quarter 21.12 13.76 2023 First Quarter $ 23.19 $ 15.09 Second Quarter 20.65 16.27 Third Quarter 21.60 12.25 Fourth Quarter 14.39 9.57 Dividends We have not paid dividends to holders of our common stock in the past and have no present intention to pay dividends in the foreseeable future.
Biologics revenue is largely attributable to the U.S. and is primarily related to a collaborative arrangement with MTF. We have exclusive global marketing rights and receive marketing fees from MTF based on products distributed by MTF.
Biologics revenue is largely attributable to the U.S. and is mostly processed from within our Irvine facility. In addition, we have a long-standing collaborative arrangement with MTF that provides exclusive global marketing rights to MTF's Trinity and FiberFuse product families. We receive marketing fees from MTF based on sales of products covered under the collaborative arrangement.
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Orthofix Medical Inc. (the Company) has not maintained effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
Free Cash Flow Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating activities. Free cash flow is an important indicator of how much cash is generated or used by our normal business operations, including capital expenditures.
Adjusted EBITDA is the primary metric used by our Chief Operating Decision Maker in managing the business. Free Cash Flow Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating activities.
We estimate the fair value of our convertible loan agreements with Neo Medical using option-pricing models and a probability-weighted discounted cash flow model.
The significant inputs include assumptions related to the timing and probability of certain product launch dates, estimated future sales of the products, revenue risk-adjusted discount rate, revenue volatility, and discount rates matched to the timing of payments. We estimate the fair value of our convertible loan agreements with Neo Medical using option-pricing models and a probability-weighted discounted cash flow model.
Global Orthopedics distributes its products world-wide through a network of distributors and sales representatives to sell orthopedic products to hospitals and healthcare providers. 2022 Compared to 2021 Net sales increased $2.0 million, or 1.9% on a reported basis and 11.0% on a constant currency basis • Double-digit growth internationally on a constant currency basis paired with solid growth in the U.S. from strategic investments in our commercial channels and momentum from new product introductions • Partially offset by a decrease of $9.6 million due to movement in foreign currency exchange rates Gross Profit Percentage Change (U.S.
Global Orthopedics distributes its products world-wide through a network of distributors and sales representatives to sell orthopedic products to hospitals and healthcare providers. 2023 Compared to 2022 Net sales increased $7.8 million, or 7.2% on a reported basis and 5.2% on a constant currency basis • U.S. growth of 11.1% largely due to investments made in recent product launches, commercial execution within our sales channel, and from our best in class surgeon education programs 60 • International growth of 3.3% on a constant currency basis, largely due to an increase in stocking distributor orders and as a result of recent product launches • Increase of $2.2 million due to movement in foreign current exchange rates, which had a favorable impact on net sales in 2023 Gross Profit Percentage Change (U.S.
Bone Growth Therapies uses distributors and sales representatives to sell its devices and provide associated services to hospitals, healthcare providers, and patients. - Spinal Implants, which designs, develops, and markets a broad portfolio of motion preservation and fixation implant products used in surgical procedures of the spine.
Bone Growth Therapies uses distributors and a direct sales channel to sell its devices and provide associated support services to hospitals, healthcare providers, and patients in the U.S. - Spinal Implants, Biologics, and Enabling Technologies is comprised of a broad portfolio of spine fixation and motion preservation implant products used in surgical procedures of the spine, one of the most comprehensive biologics portfolios in both the demineralized bone matrix and cellular allograft market segments, and image-guided surgical solutions to facilitate degenerative, minimally invasive, and complex surgical procedures.
Dollars, in thousands) 2022 2021 2020 2022/2021 2021/2020 Acquisition-related amortization and remeasurement $ (7,404 ) $ 17,588 $ (499 ) -142.1 % -3624.6 % As a percentage of net sales -1.6 % 3.9 % -0.2 % -5.5 % 4.1 % 2022 Compared to 2021 Acquisition-related amortization and remeasurement decreased $25.0 million • Decrease of $14.0 million related to the remeasurement of potential revenue-based milestone payments associated with the Spinal Kinetics acquisition, as we do not expect to achieve the remaining revenue-based milestone prior to April 30, 2023, based on current net sales trends • Decrease of $11.8 million attributable to the impairment of our Global Orthopedics goodwill in 2021 Non-operating Income (Expense) Percentage Change (U.S.
Dollars, in thousands) 2023 2022 2021 2023/2022 2022/2021 Acquisition-related amortization and remeasurement $ 14,757 $ (7,404 ) $ 17,588 -299.3 % -142.1 % As a percentage of net sales 1.9 % -1.6 % 3.9 % 3.5 % -5.5 % 2023 Compared to 2022 Acquisition-related amortization and remeasurement increased $22.2 million • Increase of $17.2 million related to a benefit recognized in 2022 from the remeasurement of potential revenue-based milestone payments associated with the Spinal Kinetics acquisition; we did not achieve the remaining milestone prior to April 30, 2023, the end of the measurement period for achieving such milestone • Increase in amortization expense of $9.4 million during 2023 associated with intangible assets recognized as a result of the Merger • Partially offset by a benefit of $2.7 million recognized in 2023 associated with the remeasurement of a contingent consideration obligation with Lattus Spine LLC assumed in the Merger • Further offset by $1.6 million in costs recognized in 2022 associated with the acquisition of in-process research and development assets, recognized immediately upon acquisition Non-operating Income (Expense) Percentage Change (U.S.
For additional information regarding the credit facility, see Note 11 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report. In addition, we have no outstanding borrowings on our Italian line of credit of €5.5 million ($6.3 million) as of December 31, 2022.
In addition, we intend to utilize the Delayed Draw Term Loan following the completion of the audit of financial statements for the year ended December 31, 2023. For additional information regarding the credit facility, see Note 11 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.
We estimate the fair value of each reporting unit using a weighted average of fair value derived from both an income approach and a market approach.
This quantitative analysis considered all relevant factors specific to the reporting units, including macroeconomic conditions, industry and market considerations, overall financial performance, and relevant entity-specific events. 68 We estimate the fair value of each reporting unit using a weighted average of fair value derived from both an income approach and a market approach.
Dollars, in thousands) 2022 2021 2020 2022/2021 2021/2020 Research and development $ 49,065 $ 49,621 $ 39,056 -1.1 % 27.1 % As a percentage of net sales 10.6 % 10.7 % 9.6 % -0.1 % 1.1 % 2022 Compared to 2021 Research and development expense decreased $0.6 million • Decrease of $0.8 million related to the attainment of a development milestone with MTF Biologics achieved in 2021 that did not recur in 2022 • Decrease in integration activities attributable to certain recent asset acquisitions • Partially offset by an increase of $2.3 million related directly to our European Union medical device regulation implementation efforts 64 Acquisition-related Amortization and Remeasurement Percentage Change (U.S.
Dollars, in thousands) 2023 2022 2021 2023/2022 2022/2021 Research and development $ 80,231 $ 49,065 $ 49,621 63.5 % -1.1 % As a percentage of net sales 10.7 % 10.6 % 10.7 % 0.1 % -0.1 % 2023 Compared to 2022 Research and development expense increased $31.2 million • Increase largely due to the contribution of SeaSpine results in 2023 and resulting integration costs incurred as a result of the Merger • Included within research and development expenses for 2023 are merger and integration-related expenses of $2.8 million, which are mainly comprised of severance and retention costs • Increase of $0.8 million related to the attainment of a development milestone with MTF Biologics achieved in the first quarter of 2023 • Partially offset by a decrease of $1.5 million in costs to comply with the European Union Medical Device Regulations Acquisition-related Amortization and Remeasurement Percentage Change (U.S.
Other For information regarding Contingencies, see Note 13 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report. 67 Legion Innovations, LLC Asset Acquisition On December 29, 2022, we entered into a technology assignment and royalty agreement with Legion Innovations, LLC, a U.S.-based medical device technology company, whereby we acquired intellectual property rights to certain assets.
Legion Innovations, LLC Asset Acquisition On December 29, 2022, we entered into a technology assignment and royalty agreement with Legion Innovations, LLC, a U.S.-based medical device technology company, whereby we acquired intellectual property rights to certain assets. As consideration, we paid $0.2 million in January 2023, with additional payments contingent upon reaching future commercialization and revenue-based milestones.
This unsecured line of credit provides us the option to borrow amounts in Italy at rates which are determined at the time of borrowing. As of December 31, 2022, SeaSpine had a $30.0 million credit facility with Wells Fargo Bank, National Association which was scheduled to mature in July 2025.
We have no outstanding borrowings on our Italian line of credit of €5.5 million ($6.1 million) as of December 31, 2023. This unsecured line of credit provides us the option to borrow amounts in Italy at rates which are determined at the time of borrowing.
Biologics markets its tissues to hospitals and healthcare providers, primarily in the U.S., through a network of employed and independent sales representatives. 2022 Compared to 2021 Net sales decreased $5.8 million or 1.6% • Bone Growth Therapies net sales were relatively flat, primarily driven by a continued slowdown in complex procedure volumes early in the year, which are typically paired with our CervicalStim and Spinalstim devices, largely offset by the successful commercial roll-out of our AccelStim Bone Healing Therapy in 2022 and growth in our PhysioStim product line from an expanding sales force and increased market share • Spinal Implants net sales decreased $5.5 million or 4.8%, primarily due to lower complex procedures case volumes in Spine Fixation as well as global competitive pressures in Motion Preservation • Biologics net sales were relatively flat, primarily driven by a decrease in volume from our cellular allograft offerings, which were largely offset by the impact of successful new product introductions, such as FiberFuse, FiberFuse Strip, Virtuos, and Legacy DBM Global Orthopedics Global Orthopedics offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions specifically related to limb reconstruction and deformity correction unrelated to the spine.
Spinal Implants, Biologics, and Enabling Technologies products are sold through a network of distributors and sales representatives to hospitals and healthcare providers on a global basis for Spinal Implants and Enabling Technologies, primarily within the U.S. for Biologics. 2023 Compared to 2022 Net sales increased $278.1 million or 78.8% • Bone Growth Therapies net sales increased $25.3 million or 13.5%, with above market performance in both the spine and fracture channels, largely driven by (i) an increase in complex spine procedures, which are typically paired within our CervicalStim and SpinalStim devices, (ii) increased reimbursement rates that Medicare approved for 2023, (iii) growth in our spine and fracture sales channels as a result of investments made in the commercial channel in the prior year, and (iv) the launch of AccelStim for the healing of fresh and nonunion fractures • Spinal Implants, Biologics, and Enabling Technologies net sales increased $252.9 million or 152.4%, primarily due to the contribution of SeaSpine net sales and growth driven by the onboarding of new, high-volume distribution partners along with multiple recent product launches Global Orthopedics Global Orthopedics offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions specifically related to limb reconstruction and deformity correction unrelated to the spine.
Our combined global R&D, commercial and manufacturing footprint also includes facilities and offices in Irvine, CA, Toronto, Canada, Sunnyvale, CA, Wayne, PA, Olive Branch, MS, Maidenhead, UK, Munich, Germany, Paris, France and Sao Paulo, Brazil. 61 Notable financial results in 2022 include the following: • Net sales were $460.7 million, a decrease of 0.8% on a reported basis and 1.5% on a constant currency basis • Global Orthopedics net sales growth of 1.9% on a reported basis and 11.0% on a constant currency basis driven by strategic investments in our commercial channels and momentum from new product introductions • FDA granted PMA approval for AccelStim LIPUS bone growth stimulator, expanding our indications into fresh fracture care • Executed partnership with CGBio to commercialize Novosis rhBMP-2 growth factor in the U.S. and Canada • Orthofix and MTF Biologics recognized with the 2022 Spine Technology Award from Orthopedics This Week for Virtuos Lyograft Results of Operations The following table presents certain items in our consolidated statements of operations as a percent of net sales: Year ended December 31, 2022 (%) 2021 (%) 2020 (%) Net sales 100.0 100.0 100.0 Cost of sales 26.8 24.7 25.1 Gross profit 73.2 75.3 74.9 Sales and marketing 49.7 47.6 50.3 General and administrative 17.4 14.9 16.7 Research and development 10.6 10.7 9.6 Acquisition-related amortization and remeasurement (1.6 ) 3.9 (0.2 ) Operating income (loss) (2.9 ) (1.8 ) (1.5 ) Net income (loss) (4.3 ) (8.3 ) 0.6 Net Sales by Reporting Segment The following table provides net sales by major product category by reporting segment: Percentage Change 2022/2021 2022/2021 2021/2020 2021/2020 (U.S.
Spinal Implants, Biologics, and Enabling Technologies growth of 7.6% on a pro forma basis over 2022 • Global Orthopedics net sales growth of 7.2% on a reported basis and 5.2% on a constant currency basis • Adjusted EBITDA of $46.3 million compared to pro forma adjusted EBITDA in 2022 of $27.4 million Results of Operations The following table presents certain items in our consolidated statements of operations as a percent of net sales: Year ended December 31, 2023 (%) 2022 (%) 2021 (%) Net sales 100.0 100.0 100.0 Cost of sales 34.9 26.8 24.7 Gross profit 65.1 73.2 75.3 Sales and marketing 51.7 49.7 47.6 General and administrative 19.4 17.4 14.9 Research and development 10.7 10.6 10.7 Acquisition-related amortization and remeasurement 1.9 (1.6 ) 3.9 Operating loss (18.6 ) (2.9 ) (1.8 ) Net loss (20.3 ) (4.3 ) (8.3 ) 59 Net Sales by Reporting Segment The following table provides net sales by major product category by reporting segment: Percentage Change 2023/2022 2023/2022 2022/2021 2022/2021 (U.S.
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