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What changed in Enovis CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Enovis CORP'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.

+317 added−268 removedSource: 10-K (2024-02-22) vs 10-K (2023-03-01)

Top changes in Enovis CORP's 2023 10-K

317 paragraphs added · 268 removed · 213 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

41 edited+27 added−11 removed117 unchanged
Biggest changeThe FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA. 6 FDA Premarket Clearance and Approval Requirements Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, grant of a de novo application, or approval of a premarket approval (“PMA”).
Biggest changeThe FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA.
Following the the completion of the Separation, the Company revised its reporting structure and conducts its business through two operating segments, “Prevention & Recovery” and “Reconstructive”.
Following the completion of the Separation, the Company revised its reporting structure and conducts its business through two operating segments, “Prevention & Recovery” and “Reconstructive”.
We compete in the Reconstructive segment with large companies that have significantly greater financial, marketing and other resources than we do, as well as numerous smaller niche companies. Key competitors competitors for our Reconstructive segment include Stryker, Zimmer Biomet, and DePuy Synthes, the medical device business within Johnson & Johnson.
We compete in the Reconstructive segment with large companies that have significantly greater financial, marketing and other resources than we do, as well as numerous smaller niche companies. Key competitors for our Reconstructive segment include Stryker, Zimmer Biomet, and DePuy Synthes, the medical device business within Johnson & Johnson.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers to follow stringent design, testing, control, documentation and other quality assurance procedures during the design and manufacturing process; • labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of “off-label” uses of cleared or approved products; • requirements related to promotional activities; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of cleared devices, or approval of certain modifications to PMA-approved devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health or to remedy a violation of the FDCA that may present a risk to health; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that violates governing laws and regulations; and 8 • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers to follow stringent design, testing, control, documentation and other quality assurance procedures during the design and manufacturing process; • labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of “off-label” uses of cleared or approved products; • requirements related to promotional activities; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of cleared devices, or approval of certain modifications to PMA-approved devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health or to remedy a violation of the FDCA that may present a risk to health; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that violates governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
The False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of themselves and the federal government alleging violations of the statute and to share in any monetary recovery. • The U.S. civil monetary penalties statute prohibits, among other things, the offer or transfer of remuneration, including waivers of copayments and deductible amounts (or any part thereof), to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program, subject to certain exceptions. • The U.S.
The False Claims Act also permits a private individual acting as a “whistleblower” to bring actions on behalf of themselves and the federal government alleging violations of the statute and to share in any monetary recovery. 12 • The U.S. civil monetary penalties statute prohibits, among other things, the offer or transfer of remuneration, including waivers of copayments and deductible amounts (or any part thereof), to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program, subject to certain exceptions. • The U.S.
In order to obtain reimbursement in some European Economic Area (“EEA”), countries, we may be required to compile additional data comparing the cost-effectiveness of our products to other available therapies. Health Technology Assessment (“HTA”) of both medicinal products and medical devices is becoming an increasingly common part of 10 pricing and reimbursement procedures in some EEA countries.
In order to obtain reimbursement in some European Economic Area (“EEA”), countries, we may be required to compile additional data comparing the cost-effectiveness of our products to other available therapies. Health Technology Assessment (“HTA”) of both medicinal products and medical devices is becoming an increasingly common part of pricing and reimbursement procedures in some EEA countries.
These procedures require an assessment of available clinical evidence, literature data, and post-market experience in respect of similar marketed products. For all devices other than low risk devices, a conformity assessment procedure requires the involvement of a notified body to audit and examine technical documentation and the manufacturer’s quality management system.
These procedures generally require an assessment of available clinical evidence, literature data, and post-market experience in respect of similar marketed products. For all devices other than low risk devices, a conformity assessment procedure requires the involvement of a notified body to audit and examine technical documentation and the manufacturer’s quality management system.
If the states in which we conduct our business are more protective, we may have to comply with the stricter provisions. The legislative and regulatory landscape for privacy and data security continues to evolve, and there has been an increasing focus on privacy and data security issues with the potential to affect our business.
If the states in which we conduct our business are more protective, we may have to comply with the stricter provisions. 13 The legislative and regulatory landscape for privacy and data security continues to evolve, and there has been an increasing focus on privacy and data security issues with the potential to affect our business.
Our failure to maintain compliance with FDA regulatory requirements could result in the shut-down of, or restrictions on, our manufacturing operations and the recall or seizure of our products, which would have a material adverse effect on our business. The FDA has broad regulatory compliance and enforcement powers.
Our failure to maintain compliance with FDA regulatory requirements could result in the shut-down of, or restrictions on, our manufacturing operations and the recall or seizure of our products, which would have a material adverse effect on our business. 8 The FDA has broad regulatory compliance and enforcement powers.
Patient Protection and Affordable Care Act (“ACA”), enacted in 2010, was a sweeping measure generally designed to expand access to affordable health insurance, control health care spending, and improve health care quality. Several ACA provisions specifically affect the medical equipment industry.
Patient 11 Protection and Affordable Care Act (“ACA”), enacted in 2010, was a sweeping measure generally designed to expand access to affordable health insurance, control health care spending, and improve health care quality. Several ACA provisions specifically affect the medical equipment industry.
The FDA will approve the device for commercial distribution if it determines that the data and information in the PMA application constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s).
The FDA will approve the device for commercial distribution if it determines that the data and information in the PMA application 7 constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s).
Practices that may be alleged to be intended to induce purchases or recommendations, including any payments of more than fair market value, may be 11 subject to scrutiny if they do not qualify for an exception or safe harbor.
Practices that may be alleged to be intended to induce purchases or recommendations, including any payments of more than fair market value, may be subject to scrutiny if they do not qualify for an exception or safe harbor.
Under the FDCA, medical devices are classified into either Class I, Class II or Class III, depending on the degree of associated risk and the extent of manufacturer and regulatory control needed to ensure safety and effectiveness.
Under the FDCA, medical devices are classified into either Class I, Class II or Class III, depending on the degree of associated 6 risk and the extent of manufacturer and regulatory control needed to ensure safety and effectiveness.
Healthcare providers that prescribe our products and from which we obtain patient health information are subject to privacy and security requirements under 12 HIPAA, as are we in certain circumstances.
Healthcare providers that prescribe our products and from which we obtain patient health information are subject to privacy and security requirements under HIPAA, as are we in certain circumstances.
We believe the principal elements of competition are innovation to create better patient outcomes, product quality, product reliability, brand names, and price. Key competitors for our Prevention & Recovery segment include Össur and Breg, Inc. Our Reconstructive segment generates approximately 69% of its revenues in the U.S. and the majority of the remaining balance in Europe.
We believe the principal elements of competition are innovation to create better patient outcomes, product quality, product reliability, brand names, and price. Key competitors for our Prevention & Recovery segment include Össur and Breg, Inc. Our Reconstructive segment generates approximately 68% of its revenues in the U.S. and the majority of the remaining balance in Europe.
If satisfied that the product conforms to the relevant GSPR and the company has an MDR-compliant quality management system meeting, the notified body issues a CE Certificate of Conformity, which the manufacturer uses as a basis for its own declaration of conformity.
If satisfied that the product conforms to the relevant GSPR and the company has an MDR-compliant quality management system meeting, the notified body issues an EU certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity.
A November 2020 California ballot initiative introduced amendments to the CCPA and established and funded a dedicated privacy regulator, the California Privacy Protection Agency (the “CPPA”). These amendments become effective in January 2023, and we expect the CPPA to introduce implementing regulations.
A November 2020 California ballot initiative introduced amendments to the CCPA and established and funded a dedicated privacy regulator, the California Privacy Protection Agency (the “CPPA”). These amendments became effective in January 2023, and we expect the CPPA to introduce implementing regulations.
Other GSPRs include requirements that the device must achieve the manufacturer’s intended performance and be designed, manufactured and packaged in a suitable manner, and that the manufacturer must establish, implement, document and maintain a risk management plan. To demonstrate GSPR compliance, manufacturers must undergo a conformity assessment procedure that varies by medical device type and classification.
Other GSPRs include requirements that the device must achieve the manufacturer’s intended performance and be designed, manufactured and packaged in a suitable manner, and that the manufacturer must establish, implement, document and maintain a risk management plan. To demonstrate GSPR compliance, manufacturers must undergo a conformity assessment procedure that varies according to the medical device type and its risk classification.
Additionally, the SEC maintains an Internet site that contains our reports, proxy statements and other information that we electronically file with, or furnish to, the SEC at www.sec.gov. 14
Additionally, the SEC maintains an Internet site that contains our reports, proxy statements and other information that we electronically file with, or furnish to, the SEC at www.sec.gov. 15
Food and Drug Administration Regulation In the United States, our products generally are subject to regulation by the FDA as medical devices pursuant to the Federal Food Drug and Cosmetic Act (the “FDCA”).
Food and Drug Administration Regulation In the United States, our products generally are subject to regulation by the Food and Drug Administration (the “FDA”) as medical devices pursuant to the Federal Food Drug and Cosmetic Act (the “FDCA”).
Research and Development Our research and development activities vary by operating segment, focusing on innovation; developing new products, software and services, as well as the enhancement of existing products with the latest technology and updated designs; creating new applications for existing products; lowering the cost of manufacturing our existing products; and redesigning existing product lines to increase efficiency, improve durability, enhance performance and usability.
“Risk Factors — Risks Related to Our Business and Operations”. 5 Research and Development Our research and development activities vary by operating segment, focusing on innovation; developing new products, software and services, as well as the enhancement of existing products with the latest technology and updated designs; creating new applications for existing products; lowering the cost of manufacturing our existing products; and redesigning existing product lines to increase efficiency, improve durability, enhance performance and usability.
Once a device is placed on the market in the EU, strict post-marketing obligations apply, including requirements to maintain post-market surveillance and vigilance systems, to report serious incidents and field safety corrective actions, and to submit periodic safety update reports or post-market surveillance reports. Authorities in the EU closely monitor the marketing programs implemented by device companies.
Once a device is placed on the market in the EU, strict post-marketing obligations apply, including requirements to maintain post-market surveillance and vigilance systems, to report serious incidents and field safety corrective actions, and to submit periodic safety update reports or post-market surveillance reports.
For the year ended December 31, 2022, approximately 32% of our Net sales were derived from operations outside the U.S., the majority of which is in Europe with the remaining portion mostly in the Asia-Pacific region. 5 Our international operations subject us to certain risks. See Part I. Item 1A. “Risk Factors — Risks Related to Our Business and Operations”.
For the year ended December 31, 2023, approximately 32% of our Net sales were derived from operations outside the U.S., the majority of which is in Europe with the remaining portion mostly in the Asia-Pacific region. Our international operations subject us to certain risks. See Part I. Item 1A.
The PMA process is more demanding than the 510(k) process. In a PMA application, the manufacturer must demonstrate that the device is safe and effective, and the PMA application must be supported by extensive data, including data from preclinical studies and human clinical trials.
In a PMA application, the manufacturer must demonstrate that the device is safe and effective, and the PMA application must be supported by extensive data, including data from preclinical studies and human clinical trials.
Under the MDR, a medical device placed on the EU market must meet applicable General Safety and Performance Requirements (“GSPRs”), including that the device’s risks to patient condition or safety or to the safety and health of others must not outweigh its benefits.
However, all medical devices placed on the EU market must meet applicable General Safety and Performance Requirements (“GSPRs”), including that the device’s risks to patient condition or safety or to the safety and health of others must not outweigh its benefits.
We develop, manufacture and distribute high-quality medical devices and services across the continuum of patient care from injury prevention to joint replacement to rehabilitation after surgery, injury or from degenerative disease, enabling people to regain or maintain their natural motion.
Reportable Segments We report our operations through the Prevention & Recovery and Reconstructive segments. We develop, manufacture and 4 distribute high-quality medical devices and services across the continuum of patient care from injury prevention to joint replacement to rehabilitation after surgery, injury or from degenerative disease, enabling people to regain or maintain their natural motion.
During the year ended December 31, 2022, we completed four acquisitions and one investment within our Prevention & Recovery segment, and two acquisitions within our Reconstructive segment. See Note 5, “Acquisitions”, for further information. Our business management system, EGX, is integral to our operations. EGX is our culture and incorporates our values and drives our behaviors.
During the year ended December 31, 2023, we completed three acquisitions within our Reconstructive segment and two investments within our Prevention & Recovery segment. See Note 5, “Acquisitions and Investments”, for further information. Our business management system, EGX, is integral to our operations. EGX is our culture and incorporates our values and drives our behaviors.
Regulation of Medical Devices in the EU In the EU, our products generally are regulated as medical devices under Regulation (EU) 2017/745 (“MDR”), which as of May 2021 repealed and replaced the Medical Devices Directive (93/42/EEC) (“MDD”).
Regulation of Medical Devices in the EU In the EU, our products generally are regulated as medical devices. Until May 25, 2021, medical devices were regulated by the Medical Devices Directive (93/42/EEC) (“MDD”) which has been repealed and replaced by Regulation (EU) No 2017/745 (“MDR”).
We empower our associates through our culture that is centered on our corporate purpose – “Creating Better Together,” which means we are committed to attracting and developing great talent and rewarding our associates to build and sustain our company.
Culture and associate development are critical to our success. We are a diverse team of associates around the world. We empower our associates through our culture that is centered on our corporate purpose – “Creating Better Together,” which means we are committed to attracting and developing great talent and rewarding our associates to build and sustain our company.
After de novo authorization, an authorized device may be used as a predicate for future devices going through the 510(k) process. 7 PMA Approval Pathway Class III devices require approval of a PMA before they can be marketed, although some pre-amendment Class III devices for which the FDA has not yet required a PMA are cleared through the 510(k) process.
PMA Approval Pathway Class III devices require approval of a PMA before they can be marketed, although some pre-amendment Class III devices for which the FDA has not yet required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) process.
Regulation of Medical Devices in the United Kingdom In the United Kingdom, medical devices are regulated under the largely MDD-derived Medical Devices Regulations 2002 (“UK MDR 2002”). The UK route to market and UK Conformity Assessed (“UKCA”) marking requirements are thus based on 9 the requirements derived from EU legislation, although the MDR does not apply in the UK.
The UK route to market and UK Conformity Assessed (“UKCA”) marking requirements are thus based on the requirements derived from EU legislation, although the MDR does not apply in the UK.
To avoid requiring PMA review of low- to moderate-risk devices classified in Class III by operation of law, Congress enacted a provision allowing FDA to classify a low- to moderate-risk device not previously classified into Class I or II.
To avoid requiring PMA review of low- to moderate-risk devices classified in Class III by operation of law, Congress enacted a provision allowing FDA to classify a low- to moderate-risk device not previously classified into Class I or II. After de novo authorization, an authorized device may be used as a predicate for future devices going through the 510(k) process.
We have a practice of entering into contractual arrangements with such third parties to ensure that they process personal data 13 only according to our instructions, and that they have instituted adequate security measures.
We have a practice of entering into contractual arrangements with such third parties to ensure that they process personal data only according to our instructions, and that they have instituted adequate security measures. Where personal data is being transferred outside the EEA (or the UK), our policy is that it is done so in compliance with applicable data export requirements.
We consider our relations with our associates to be good. At Enovis, we believe that the best team wins. Our growth model is focused in part on acquiring good companies, empowering our talent and using EGX to make them great. Culture and associate development are critical to our success. We are a diverse team of associates around the world.
We have not experienced any work stoppages or strikes that have had a material adverse impact on operations. We consider our relations with our associates to be good. At Enovis, we believe that the best team wins. Our growth model is focused in part on acquiring good companies, empowering our talent and using EGX to make them great.
The UKCA marking is a UK product marking used for certain goods, including medical devices, being placed on the UK market. For the purposes of the UKCA marking, a UK Approved Body must be used in cases where third party conformity assessment is required.
The UKCA marking is a UK product marking used for certain goods, including medical devices, being placed on the UK market.
The manufacturer may then affix the CE mark to the device, which affirms conformity with applicable requirements and allows the device to be placed on the market throughout the EU.
The manufacturer may then affix the European conformity marking (“CE mark”) to the device, which affirms conformity with applicable requirements and allows the device to be placed on the market throughout the EU. Throughout the term of the certificate of conformity, the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements.
The COVID-19 pandemic has caused economic disruptions since its emergence in 2020. The emergence of variants and outbreaks have continued to cause some volatility which slowed the pace of recovery in 2022.
The COVID-19 pandemic, actions taken in response to it, as well as other market dynamics caused economic disruptions impacting the results of operations in 2021 and 2022. The emergence of variants and outbreaks caused some volatility which slowed the pace of recovery in 2022.
Any failure by us or third parties to follow these policies or practices, or otherwise comply with applicable data laws, could lead to a security or privacy breach, regulatory enforcement, or regulatory or financial harm.
Any failure by us or third parties to follow these policies or practices, or otherwise comply with applicable data laws, could lead to a security or privacy breach, regulatory enforcement, or regulatory or financial harm. 14 Human Capital Management As of December 31, 2023, we employed approximately 6,550 persons, of whom approximately 2,175 were employed in the United States and approximately 4,375 were employed outside of the United States.
Other Healthcare Laws Third-party Coverage and Reimbursement Sales of our medical device products depend largely on whether there is coverage and adequate reimbursement by government healthcare programs, such as Medicare and Medicaid, and by private payors. Third-party payors review their coverage policies carefully and can, without notice, reduce or eliminate reimbursement.
For the purposes of the UKCA marking, a UK Approved Body must be used in cases where third party conformity assessment is required. 10 Other Healthcare Laws Third-party Coverage and Reimbursement Sales of our medical device products depend largely on whether there is coverage and adequate reimbursement by government healthcare programs, such as Medicare and Medicaid, and by private payors.
Approximately 46% of our associates are represented by foreign trade unions and work councils in Europe, Asia, Central America, and Australia, which could subject us to arrangements very similar to collective bargaining agreements. We have not experienced any work stoppages or strikes that have had a material adverse impact on operations.
None of our associates are covered by collective bargaining agreements with U.S. trade unions. Approximately 19.5% of our associates are represented by foreign trade unions and work councils in Europe, Africa, and Australia, which could subject us to arrangements very similar to collective bargaining agreements.
We continue to experience cost inflation, supply chain challenges, such as logistics delays, as well as staffing shortages experienced by our customers (healthcare providers) that continue to reduce capacity and procedures.
We also experienced cost inflation, supply chain challenges, such as logistics delays in 2022, as well as staffing shortages experienced by our customers (healthcare providers) that reduced capacity and procedures. The actions taken to mitigate impacts to our supply chain, including purchasing and producing additional inventory helped to protect our ability to meet customer demand during this time.
Removed
The pandemic and actions taken in response to it, as well as other market dynamics in recent periods, have had a variety of impacts on our results of operations during the periods presented, including adverse impacts on sales levels.
Added
FDA Premarket Clearance and Approval Requirements Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, grant of a de novo application, or approval of a premarket approval (“PMA”).
Removed
We are taking actions in an effort to mitigate impacts to our supply chain, including purchasing and producing additional inventory to protect our ability to meet customer demand; however, we expect these pressures to continue. In addition, there may be developments outside our control that require us to further adjust our operations.
Added
Unlike directives, regulations are directly applicable in all EU member states without the need for member states to implement into national law. [Most of our current certificates have been granted under the MDD].
Removed
Given the potential dynamic nature of this situation, including the rise, prevalence and severity of variants of the 4 virus, we cannot reasonably estimate the full impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. Reportable Segments We report our operations through the Prevention & Recovery and Reconstructive segments.
Added
However, as of May 26, 2021, some of the MDR requirements apply in place of the corresponding requirements of the MDD with regard to registration of economic operators and of devices, post-market surveillance and vigilance requirements.
Removed
The majority of our sales are derived from international operations. We are subject to specific risks associated with international operations.
Added
Pursuing marketing of medical devices in the EU will require all our devices to be certified under the new regime set forth in the MDR. We are actively working towards obtaining MDR-certification with our notified body. In the EU, there is currently no premarket government review of medical devices.
Removed
Each EU Member State enforces the MDR’s requirements against manufacturers, importers, authorized representatives and distributors, among others, that place or make medical devices available in the EU market. The MDR also includes provisions for national authorities to inform other competent authorities, the European Commission (the “EC”), and certain other bodies of certain non-compliance.
Added
Notified bodies must presume that quality systems which implement the relevant harmonized standards – which is ISO 13485:2016 for Medical Devices Quality Management Systems – conform to these requirements.
Removed
The MDR prohibits making misleading claims, including promoting the product for or suggesting a use that is not part of its intended purpose. Although the MDR now applies in the EU, transitional provisions apply to legacy devices CE marked under the MDD.
Added
In particular, there will be a new audit by the notified body before it will renew the relevant certificate(s). The MDR became effective on May 26, 2021.
Removed
During a transitional period, certificates issued for medical devices under the MDD before May 26, 2021 remain valid until the earlier of the expiry date indicated on the Certificate of Conformity and May 27, 2024.
Added
In accordance with its recently extended transitional provisions, both (i) devices lawfully placed on the market pursuant to the MDD prior to May 26, 2021 and (ii) legacy devices lawfully placed on the EU market after May 26, 2021 in accordance with the MDR transitional provisions may generally continue to be made available on the market or put into service, provided that the requirements of the transitional provisions are fulfilled and in particular, no substantial change must be made to the device.
Removed
So long as there are no significant changes in the design and intended purpose of these devices, and provided that the manufacturer comply with MDR provisions regarding vigilance, post-market surveillance and registration of economic operators and medical devices, such devices can continue to be marketed in the EU until a revised EU MDR deadline in 2026.
Added
However, even in this case, manufacturers must comply with a number of new or reinforced requirements set forth in the MDR, in particular the obligations described below.
Removed
We are actively working toward being MDR-compliant and interactions with our notified body are underway. Because of the permitted transitional periods, our medical devices will require recertification prior to the dates on which the Certificates of Conformity under the MDD become void.
Added
In particular, serious incidents and Field Safety Corrective Actions (“FSCAs”) must be reported to the relevant authorities of the EU member states.
Removed
Where personal data is being transferred outside the EEA (or the UK), our policy is that it is done so in compliance with applicable data export requirements.
Added
Manufacturers are required to take FSCAs defined as any corrective action for technical or medical reasons to prevent or reduce a risk of a serious incident associated with the use of a medical device that is made available on the market. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device.
Removed
Human Capital Management As of December 31, 2022, we employed approximately 6,800 persons, of whom approximately 2,100 were employed in the United States and approximately 4,700 were employed outside of the United States. None of our associates are covered by collective bargaining agreements with U.S. trade unions.
Added
The advertising and promotion of medical devices is subject to some general principles set forth in the EU legislation. According to the MDR, only devices that are CE-marked may be marketed and advertised in the EU in accordance with their intended purpose.
Added
Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on 9 unfair commercial practices, while not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules, for example, requiring that advertisements are evidenced, balanced and not misleading. Specific requirements are defined at a national level.
Added
EU member states’ laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals.
Added
In the EU, regulatory authorities have the power to carry out announced and, if necessary, unannounced inspections of companies, as well as suppliers and/or sub-contractors and, where necessary, the facilities of professional users.
Added
Failure to comply with regulatory requirements (as applicable) could require time and resources to respond to the regulatory authorities’ observations and to implement corrective and preventive actions, as appropriate.
Added
Regulatory authorities have broad compliance and enforcement powers and if such issues cannot be resolved to their satisfaction can take a variety of actions, including untitled or warning letters, fines, consent decrees, injunctions, or civil or criminal penalties.
Added
The aforementioned EU rules are generally applicable in the European Economic Area (“EEA”) which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland.
Added
Regulation of Medical Devices in the United Kingdom Since January 1, 2021, the United Kingdom (“UK”) Medicines and Healthcare Products Regulatory Agency (“MHRA”) has been the sovereign regulatory authority responsible for the medical device market in Great Britain (i.e. England, Wales and Scotland).
Added
The regulations on medical devices in Great Britain continue to be based largely on the MDD and Active Implantable Medical Devices Directive (“AIMDD”), which preceded the (EU) MDR, as implemented into national law by the Medical Devices Regulations 2002 (“SI 2002 No 618”, as amended).
Added
However, under the terms of the Protocol on Ireland/Northern Ireland, the (EU) MDR applies to Northern Ireland. On June 26, 2022, the MHRA published its response to a 10-week consultation on the post-Brexit regulatory framework for medical devices and diagnostics.
Added
The MHRA seeks to amend the Medical Devices Regulations 2002, in particular to create a new access pathway to support innovation, create an innovative framework for regulating software and artificial intelligence as medical devices, reform in-vitro diagnostic medical device regulation and foster sustainability through the reuse and remanufacture of medical devices.
Added
Regulations implementing the new regime were originally scheduled to come into force in July 2023, but the Government has recently confirmed that the core elements of the new regulations are likely to apply from July 2025. Devices which have valid CE certification issued by EU notified bodies under the (EU) MDR or (EU) MDD are subject to transitional arrangements.
Added
The MHRA has introduced legislation which provides that CE marked medical devices may be placed on the Great Britain market along following timelines: • general medical devices compliant with the (EU) MDD or (EU) AIMDD with a valid declaration and CE marking can be placed on the Great Britain market up until the sooner of the expiration of the certificate or June 30, 2028; and • general medical devices, including custom-made devices, compliant with the (EU) MDR can be placed on the Great Britain market up until June 30, 2030.
Added
Following these transitional periods, it is expected that all medical devices will require a UK Conformity Assessment (“UKCA”) mark. Manufacturers may choose to use the UKCA mark on a voluntary basis prior to the regulations coming into force.
Added
However, from July 2025, products which do not have existing and valid certification under the (EU) MDD or (EU) MDR and are therefore not subject to the transitional arrangements will be required to carry the UKCA mark if they are to be sold into the market in Great Britain. UKCA marking will not be recognized in the EU.
Added
The rules for placing medical devices on the market in Northern Ireland, which is part of the UK, differ from those in Great Britain and continues to be based on EU law. In the United Kingdom, medical devices are regulated under the largely MDD-derived Medical Devices Regulations 2002 (“UK MDR 2002”).
Added
Third-party payors review their coverage policies carefully and can, without notice, reduce or eliminate reimbursement.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

53 edited+32 added−17 removed189 unchanged
Biggest changeThe following benefits, among others, were expected to result from the Separation: • the Separation is expected to allow investors to value the Company based on its distinct investment identity, and enable investors to evaluate the merits, performance and future prospects of the Company’s businesses based on their distinct characteristics; • the Separation is expected to facilitate incentive compensation structures for employees more directly tied to the performance of the Company’s businesses, and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives; and • the Separation is expected to allow us to more effectively pursue our operating priorities and strategies, and enable management to focus on unique opportunities for long-term growth and profitability. 27 We may not achieve these and other anticipated benefits for a variety of reasons, including, among others: • certain costs and liabilities that were otherwise less significant to the Company prior to the Separation will be more significant for us as a separate company after the Separation • we may be more susceptible to market fluctuations and other adverse events than we were prior to the Separation; and • following the Separation, our businesses are less diversified than they were prior to the Separation.
Biggest changeThe following benefits, among others, were expected to result from the Separation: • the Separation is expected to allow investors to value the Company based on its distinct investment identity, and enable investors to evaluate the merits, performance and future prospects of the Company’s businesses based on their distinct characteristics; • the Separation is expected to facilitate incentive compensation structures for employees more directly tied to the performance of the Company’s businesses, and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives; and • the Separation is expected to allow us to more effectively pursue our operating priorities and strategies, and enable management to focus on unique opportunities for long-term growth and profitability.
If we or our employees, agents, independent contractors, consultants, commercial partners and vendors violate these laws, we may be subject to investigations, enforcement actions and/or significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, disgorgement, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal health care programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if we become subject to a 24 corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
If we or our employees, agents, independent contractors, consultants, commercial partners and vendors violate these laws, we may be subject to investigations, enforcement actions and/or significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, disgorgement, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal health care programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Moreover, industry associations closely monitor the activities of their member companies. If these organizations or national authorities were to name us as having breached our obligations under their laws, regulations, rules or standards, our reputation would suffer and our business, financial condition, operating results, cash flows and prospects could be adversely affected.
Moreover, industry associations closely monitor the activities of their member companies. If these organizations or national authorities were to name us as having breached our obligations under their laws, regulations, 26 rules or standards, our reputation would suffer and our business, financial condition, operating results, cash flows and prospects could be adversely affected.
However, if the FDA determines that our educational and promotional activities or training constitutes promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, as discussed in “Regulatory Environment – Medical Device Regulation” in Part I, Item 1.
However, if the FDA determines that our educational and promotional activities or training constitutes promotion of an off-label use, it could request 22 that we modify our training or promotional materials or subject us to regulatory or enforcement actions, as discussed in “Regulatory Environment – Medical Device Regulation” in Part I, Item 1.
Even if future debt financing is available, it may result in (i) increased interest 15 expense, (ii) increased term loan payments, (iii) increased leverage and (iv) decreased income available to fund further acquisitions and expansion. It may also limit our ability to withstand competitive pressures and make us more vulnerable to economic downturns.
Even if future debt financing is available, it may result in (i) increased interest expense, (ii) increased term loan payments, (iii) increased leverage and (iv) decreased income available to fund further acquisitions and expansion. It may also limit our ability to withstand competitive pressures and make us more vulnerable to economic downturns.
In addition, our Board of Directors has the right to issue Preferred stock without stockholder approval, which our Board of Directors could use to affect a rights plan or “poison pill” that could dilute the stock ownership of a potential hostile acquirer and may have the effect of delaying, discouraging or preventing an acquisition of Enovis. 29
In addition, our Board of Directors has the right to issue Preferred stock without stockholder approval, which our Board of Directors could use to affect a rights plan or “poison pill” that could dilute the stock ownership of a potential hostile acquirer and may have the effect of delaying, discouraging or preventing an acquisition of Enovis.
Other countries have enacted or are enacting data localization 26 laws that require data to stay within their borders. All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time. We are subject to anti-bribery laws such as the U.S.
Other countries have enacted or are enacting data localization laws that require data to stay within their borders. All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time. We are subject to anti-bribery laws such as the U.S.
The development of new technologies by competitors that may compete with our technologies could reduce demand for our products and affect our financial performance. For example, our present and future medical device products could be rendered obsolete or uneconomical by technological advances by one or more of our present or future competitors or by other therapies, 18 including biological therapies.
The development of new technologies by competitors that may compete with our technologies could reduce demand for our products and affect our financial performance. For example, our present and future medical device products could be rendered obsolete or uneconomical by technological advances by one or more of our present or future competitors or by other therapies, including biological therapies.
Private payors may conduct similar reviews and audits. Additionally, we participate in the government’s Federal Supply Schedule program for medical equipment, whereby we contract with the government to supply certain of our medical products. Participation in this program requires us to follow 23 certain pricing practices and other contract requirements.
Private payors may conduct similar reviews and audits. Additionally, we participate in the government’s Federal Supply Schedule program for medical equipment, whereby we contract with the government to supply certain of our medical products. Participation in this program requires us to follow certain pricing practices and other contract requirements.
A failure of or breach in information technology security of our own systems, or those of our third-party vendors, could expose us and our employees, customers, dealers and suppliers to risks of misuse of information or systems, the compromise of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions.
A failure of or breach in information technology security of our own systems, or those of our third-party vendors or partners, could expose us and our employees, customers, dealers and suppliers to risks of misuse of information or systems, the compromise of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions.
Once a device is on the EEA market, manufacturers must comply with certain vigilance requirements, such 20 as reporting serious incidents and fielding safety corrective actions. Noncompliance could lead to penalties and a suspension or withdrawal of our CE Certificate of Conformity.
Once a device is on the EEA market, manufacturers must comply with certain vigilance requirements, such as reporting serious incidents and fielding safety corrective actions. Noncompliance could lead to penalties and a suspension or withdrawal of our CE Certificate of Conformity.
If any of these actions were to occur, it would harm our reputation and cause our product sales and profitability to suffer and may prevent us from generating revenue. 22 Our medical device businesses subject us to the possibility of product liability lawsuits, which could harm our business.
If any of these actions were to occur, it would harm our reputation and cause our product sales and profitability to suffer and may prevent us from generating revenue. Our medical device businesses subject us to the possibility of product liability lawsuits, which could harm our business.
Any recovery under our property damage and business 16 interruption insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could adversely affect our business, financial condition and results of operations.
Any recovery under our property damage and business interruption insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could adversely affect our business, financial condition and results of operations.
Further, we may be subject to foreign currency translation losses depending upon whether foreign nations devalue their currencies. 17 We are dependent on the availability of raw materials, as well as parts and components used in our products.
Further, we may be subject to foreign currency translation losses depending upon whether foreign nations devalue their currencies. We are dependent on the availability of raw materials, as well as parts and components used in our products.
For devices covered by CE Certificates of Conformity issued under the EU MDD, no significant changes in design or intended purpose are allowed. If changes are anticipated, new certificates must be obtained under the MDR.
For devices covered by CE Certificates of Conformity issued under the EU MDD, no significant 21 changes in design or intended purpose are allowed. If changes are anticipated, new certificates must be obtained under the MDR.
Success in pre-clinical studies and early clinical trials does not ensure that later clinical trial success, and we cannot be sure that later trials will replicate the results of prior trials and pre-clinical studies.
Success in pre-clinical studies and early clinical trials does not ensure that later clinical trial 23 success, and we cannot be sure that later trials will replicate the results of prior trials and pre-clinical studies.
As a result of the COVID-19 pandemic, we experienced adverse impacts on sales in 2020 and 2021, as well as material delays and periodic cancellations of elective medical procedures, orthopedic clinics and physical therapy centers operating at reduced levels, and periodic cancellation of sports programs impacting our business.
For example, as a result of the COVID-19 pandemic, we experienced adverse impacts on sales in 2020 and 2021, as well as material delays and periodic cancellations of elective medical procedures, orthopedic clinics and physical therapy centers operating at reduced levels, and periodic cancellation of sports programs impacting our business.
Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, systems, controls, technologies, personnel, services and products of the acquired company, the potential loss of key employees, customers, suppliers and distributors of the acquired company, and the diversion of our management’s attention from other business concerns.
Acquisitions involve numerous risks, including difficulties in the assimilation of the operations, systems, controls (financial and otherwise), technologies, personnel, services and products of the acquired company, the potential loss of key employees, customers, suppliers and distributors of the acquired company, and the diversion of our management’s attention from other business concerns.
Additionally, advanced persistent attempts to gain unauthorized access or deny access to, or otherwise disrupt, our systems and those of third-party service providers we rely on are increasing in sophistication and frequency.
Additionally, advanced persistent attempts to gain unauthorized access or deny access to, or otherwise disrupt, our systems and those of third-party service providers and business partners we rely on are increasing in sophistication and frequency.
The FTC also sets expectations for failing to take appropriate steps to keep consumers’ personal information secure, or failing to provide a level of security commensurate to promises made to individual about the security of their personal information (such as in a privacy notice) may constitute unfair or deceptive acts or practices in violation of Section 5(a) of the 25 FTC Act.
The FTC also sets expectations for failing to take appropriate steps to keep consumers’ personal information secure, or failing to provide a level of security commensurate to promises made to individuals about the security of their personal information (such as in a privacy notice) may constitute unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act.
Our information technology infrastructure could be subject to service interruptions, data corruption, cyber-based attacks, or network security breaches, which could result in the disruption of operations or the loss of data confidentiality.
Our information technology infrastructure and information are vulnerable to service interruptions, data corruption, cyber-based attacks, or network security breaches, which could result in the disruption of operations or the loss of data confidentiality.
We have received (i) a private letter ruling from the IRS and (ii) an opinion from outside tax counsel regarding the qualification of the separation and distribution of ESAB as a transaction that is described in Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code.
We could incur significant liability if the separation and distribution of ESAB is determined to be a taxable transaction. 29 We have received (i) a private letter ruling from the IRS and (ii) an opinion from outside tax counsel regarding the qualification of the separation and distribution of ESAB as a transaction that is described in Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code.
We are also subject to U.S. export controls and economic sanctions laws, regulations and other legal requirements, including the Export Administration Regulations and economic sanctions administered and enforced by the Office of Foreign Assets Control, as well as other laws and regulations that limit our ability to market, sell, distribute or otherwise transfer our products or technology directly or indirectly to restricted persons and prohibited countries or regions.
We also could be subject to criminal and civil penalties, disgorgement, substantial expenditures related to remedial actions, and reputational harm. 28 We are also subject to U.S. export controls and economic sanctions laws, regulations and other legal requirements, including the Export Administration Regulations and economic sanctions administered and enforced by the Office of Foreign Assets Control, as well as other laws and regulations that limit our ability to market, sell, distribute or otherwise transfer our products or technology directly or indirectly to restricted persons and prohibited countries or regions.
If we fail to achieve some or all of the benefits we expected to result from the Separation, or if such benefits are delayed, our businesses, operating results and financial condition could be adversely affected. We could incur significant liability if the separation and distribution of ESAB is determined to be a taxable transaction.
If we fail to achieve some or all of the benefits we expected to result from the Separation, or if such benefits are delayed, our businesses, operating results and financial condition could be adversely affected.
The global economy has been negatively impacted by the military conflict between Russia and Ukraine. Furthermore, governments in the United States, United Kingdom and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia, and Russia has imposed counter-sanctions in response.
Furthermore, governments in the United States, United Kingdom and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia, and Russia has imposed counter-sanctions in response.
Further escalation of geopolitical tensions related to the military conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, additional supply disruptions, lower consumer demand and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain.
Further escalation of geopolitical tensions related to the military conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, additional supply disruptions, lower consumer demand and changes to foreign exchange rates and financial markets, any of which may adversely affect our business and supply chain. 30 The loss of key leadership or the inability to attract, develop, engage, and retain qualified employees could have a material adverse effect on our ability to run our business.
We are highly dependent on our senior leadership team as a result of their expertise in our industry and our business. The loss of key leadership or the inability to attract, retain and motivate sufficient numbers of qualified management personnel could have a material adverse effect on our business, financial condition and results of operations.
The loss of key leadership or the inability to attract, retain and motivate sufficient numbers of qualified management personnel could have a material adverse effect on our business, financial condition and results of operations.
As such, we have incurred and expect to continue to incur expenses relating to restructuring activities. We may not achieve or sustain the anticipated benefits, including any anticipated savings, of these restructuring programs or initiatives.
We have implemented, and plan to continue to implement, restructuring programs designed to facilitate key strategic initiatives and maintain long-term sustainable growth. As such, we have incurred and expect to continue to incur expenses relating to restructuring activities. We may not achieve or sustain the anticipated benefits, including any anticipated savings, of these restructuring programs or initiatives.
Our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and Delaware law contain provisions that may make it difficult for a third-party to acquire us without the consent of our Board of Directors.
Provisions in our governing documents and Delaware law may delay or prevent an acquisition of Enovis that may be beneficial to our stockholders. Our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and Delaware law contain provisions that may make it difficult for a third-party to acquire us without the consent of our Board of Directors.
It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be. 21 The clinical trial process is lengthy and expensive with uncertain outcomes, often requires the enrollment of large numbers of patients, suitable patients may be difficult to identify and recruit, and delays or failures will prevent us from commercializing new or modified products and will adversely affect our business, operating results and prospects.
The clinical trial process is lengthy and expensive with uncertain outcomes, often requires the enrollment of large numbers of patients, suitable patients may be difficult to identify and recruit, and delays or failures will prevent us from commercializing new or modified products and will adversely affect our business, operating results and prospects.
Reduced reimbursement rates will also lower our margins on product sales and could adversely impact the profitability and viability of the affected products. Medicare payment for DMEPOS also can be impacted by the DMEPOS competitive bidding program, under which Medicare rates are based on bid amounts for certain products in designated geographic areas, rather than the Medicare fee schedule amount.
Medicare payment for DMEPOS also can be impacted by the DMEPOS competitive bidding program, under which Medicare rates are based on bid amounts for certain products in designated geographic areas, rather than the Medicare fee 24 schedule amount.
A number of countries where we do business, including the United States and many countries in the European Union, have implemented, and are considering implementing, changes in relevant tax, accounting and other laws, regulations and interpretations. Additionally, longstanding international tax norms that determine each country’s jurisdiction to tax cross-border international trade are subject to potential evolution.
A number of countries where we do business, including the United States and many countries in the European Union, have implemented, and are considering implementing, changes in relevant tax, accounting and other laws, regulations and interpretations.
If our customers lack liquidity or are unable to access the credit markets, it may impact customer demand for our products and services and we may not be able to collect amounts owed to us.
If our customers lack liquidity or are unable to access the credit markets, it may impact customer demand for our products and services and we may not be able to collect amounts owed to us. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
It is uncertain when and to what extent lingering conditions will completely subside.
These challenges continue to impact us to varying degrees, and it is uncertain when and to what extent lingering conditions will completely subside.
Given the unpredictability of these possible changes, it is very difficult to assess whether the overall effect of such potential tax changes would be cumulatively positive or negative for our earnings and cash flow, but such changes could adversely impact our financial results.
Given the unpredictability of these possible changes, it is very difficult to assess whether the overall effect of such potential tax changes would be cumulatively positive or negative for our earnings and cash flow, but such changes could adversely impact our long-term financial results. 20 In addition, the amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities.
Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, fines, imprisonment and, within the United States, exclusion from participation in government healthcare programs, including Medicare, Medicaid and Veterans Administration health programs.
Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, fines, imprisonment and, within the United States, exclusion from participation in government healthcare programs, including Medicare, Medicaid and Veterans Administration health programs. 25 Greater scrutiny of marketing practices in the medical device industry has resulted in numerous government investigations, and this enforcement activity is expected to continue.
Our information technology networks and systems are subject to security threats and sophisticated cyber-based attacks, including, but not limited to, denial-of-service attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, employee or insider error, malfeasance, social engineering, or physical breaches, that can cause deliberate or unintentional damage, destruction or misuse, manipulation, denial of access to or disclosure of confidential or important information by our employees, suppliers or third-party service providers.
If these information technology systems suffer severe damage, disruption or shutdown and business continuity plans do not effectively resolve the issues in a timely manner, our business, financial condition, results of operations, and liquidity could be materially adversely affected. 27 Our information technology networks and systems are subject to security threats and sophisticated cyber-based attacks, including, but not limited to, denial-of-service attacks, hacking, “phishing” attacks, computer viruses, ransomware, malware, software-based misconfigurations, “bugs” and other security vulnerabilities, employee or insider error, malfeasance, social engineering, or physical breaches, that can cause deliberate or unintentional damage, destruction or misuse, manipulation, denial of access to or disclosure of confidential or important information by our employees, suppliers or third-party service providers.
If we fail to attract and maintain relationships with third-party distributors and skilled independent sales representatives or fail to adequately train and monitor the efforts of the third-party distributors and sales representatives that market and sell our products, or if our existing third-party distributors and independent sales representatives choose not to carry our products, our results of operations and future growth could be adversely affected. 19 Risks Related to Government Regulation and Litigation Our products and our operations are subject to extensive government regulation and oversight, and if we fail to maintain regulatory approvals and clearances, or are unable to obtain, or experience significant delays in obtaining, FDA clearances or approvals or their foreign equivalent for our current and future products or product enhancements, our ability to commercially distribute and market these products could suffer.
Risks Related to Government Regulation and Litigation Our products and our operations are subject to extensive government regulation and oversight, and if we fail to maintain regulatory approvals and clearances, or are unable to obtain, or experience significant delays in obtaining, FDA clearances or approvals or their foreign equivalent for our current and future products or product enhancements, our ability to commercially distribute and market these products could suffer.
The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. 28 Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine.
Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine. The global economy has been negatively impacted by the military conflict between Russia and Ukraine.
We are vulnerable to raw material, energy and labor price fluctuations and supply shortages, which have impacted and could continue to impact our results of operations, financial condition and cash flows.
We are vulnerable to raw material, energy and labor price fluctuations and supply shortages, which have impacted and could continue to impact our results of operations, financial condition and cash flows. 19 In the normal course of our business, we are exposed to market risks related to the availability of and price fluctuations in the purchase of raw materials, energy and commodities used in the manufacturing of our products.
Any significant change in the supply of, or price for, these raw materials, parts or components could materially affect our business, financial condition and results of operations. Certain of our products use components obtained from single sources. For example, the microprocessor used in our OL1000 and SpinaLogic devices is from a single manufacturer.
Any significant change in the supply of, or price for, these raw materials, parts or components could materially affect our business, financial condition and results of operations.
Additionally, under our Amended and Restated Certificate of Incorporation, there are additional authorized shares of our Common stock. Furthermore, we may issue a significant number of additional shares, in connection with acquisitions or otherwise. We also may issue a significant number of additional shares, either into the marketplace through an existing shelf registration statement or through other mechanisms.
The issuances of additional common and preferred stock may adversely affect the market price of our Common stock. Under our Amended and Restated Certificate of Incorporation, there are additional authorized shares of our common stock. Furthermore, we may issue a significant number of additional shares, in connection with acquisitions or otherwise.
We rely on a variety of distribution methods to market and sell our medical device products and if we fail to effectively manage the distribution of such products, our results of operations and future growth could be adversely impacted. We use a variety of distribution methods to market and sell our medical device products, each of which has distinct risks.
If these audits result in assessments different from amounts recorded, our future financial results may include unfavorable tax adjustments. We rely on a variety of distribution methods to market and sell our medical device products and if we fail to effectively manage the distribution of such products, our results of operations and future growth could be adversely impacted.
We can provide no assurance that our efforts to actively manage technology risks potentially affecting our systems and networks will be successful in eliminating or mitigating risks to our systems, networks and data or in effectively resolving such risks when they materialize.
We can provide no assurance that our cybersecurity risk management program and processes will be fully implemented, complied with or effective to protect or mitigate risks to our systems, networks and data or in effectively resolving such risks when they materialize.
Although restrictions in most jurisdictions have eased and some impacts of the pandemic have abated, cost inflation, supply chain challenges such as logistics delays, and healthcare provider staffing shortages, all of which are attributable in some part to the pandemic, continue to impact us, including by reducing capacity and the number of medical procedures.
The effect of the COVID-19 pandemic on the global economy resulted in a number of additional challenges for our business, including cost inflation, supply chain challenges such as logistics delays, and healthcare provider staffing shortages, all of which are attributable in some part to the pandemic.
If we fail to achieve any of these steps, our growth strategy may not be successful.
If we fail to achieve any of these steps, our growth strategy may not be successful. For example, we completed the acquisition of Lima. If the Lima Acquisition is not successfully integrated into our existing operations, our business and financial results may be adversely affected.
It is also possible that others will independently develop technology that will compete with our patented or unpatented technology. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
It is also possible that others will independently develop technology that will compete with our patented or unpatented technology.
Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of planned or future products.
Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of planned or future products. It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be.
For example, in the ordinary course of business, our business collects, stores, and transmits certain sensitive data, including PHI, personally identifiable information, and patient data. These information technology networks and systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components, power outages, hardware failures or computer viruses.
For example, in the ordinary course of business, our business collects, stores, and transmits certain sensitive data, including PHI, personally identifiable information, and patient data.
Sales by the Investors or their permitted transferees of a substantial number of shares of our Common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our Common stock.
A substantial number of shares of our common stock is reserved for issuance upon conversion of the notes, and their issuance or the perception that such issuances may occur could adversely affect the market price of our common stock.
Significant movements in foreign currency exchange rates may harm our financial results. We are exposed to fluctuations in currency exchange rates. During the year ended December 31, 2022, approximately 32% of our sales were derived from operations outside the United States.
During the year ended December 31, 2023, approximately 32% of our sales were derived from operations outside the United States, which percentage is expected to increase as a result of the Lima Acquisition.
On December 12, 2022, European Union member states reached agreement in principle to implement the minimum tax component, known as Pillar 2. The directive has to be transposed into member states’ national law by the end of 2023. As these and other tax laws, regulations and norms change or evolve, our financial results could be materially impacted.
As these and other tax laws, regulations and norms change or evolve, our financial results could be materially impacted.
The loss of key leadership or the inability to attract, develop, engage, and retain qualified employees could have a material adverse effect on our ability to run our business. We may be adversely affected if we lose members of our senior leadership.
We may be adversely affected if we lose members of our senior leadership. We are highly dependent on our senior leadership team as a result of their expertise in our industry and our business.
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We may require additional capital to finance our operating needs and to finance our growth, including acquisitions.
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Further, we are required to assess the effectiveness of the internal control over financial reporting for companies we acquire pursuant to the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”).
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These restrictions could have a material adverse effect on our business, financial condition and results of operations. Our restructuring activities may subject us to additional uncertainty in our operating results. We have implemented, and plan to continue to implement, restructuring programs designed to facilitate key strategic initiatives and maintain long-term sustainable growth.
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In order to comply with the Sarbanes-Oxley Act, we will need to implement or enhance internal control over financial reporting at any company we acquire, and we may identify control deficiencies that require remediation as part of our evaluation and testing of internal controls.
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The effects of the COVID-19 global pandemic have adversely affected our results of operations, financial condition, and business and continue to adversely affect us effects of the COVID-19 global pandemic have adversely affected our results of operations, financial condition, and business and continue to adversely affect us.
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Companies we acquire may not have had previous public reporting obligations and therefore may not have instituted or evaluated internal controls in the context of the Sarbanes-Oxley Act.
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We continue to be adversely affected by the economic and other challenges created by the COVID-19 pandemic and actions taken in response thereto.
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Any failure to implement and maintain effective internal control over financial reporting could result in material weaknesses or significant deficiencies in our internal controls, and could result in a material misstatement of our financial statements or otherwise cause us to fail to meet our financial reporting obligations, which could have an adverse effect on our results of operations, financial condition, and business. 16 We may require additional capital to finance our operating needs and to finance our growth, including acquisitions.
Removed
The degree to which the COVID-19 situation will continue to impact our businesses, results of operations, and financial condition, including the duration and magnitude of such impacts, will depend on future developments, which are highly uncertain and cannot be predicted, including how quickly and to what extent normal economic conditions resume in full.
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These restrictions could have a material adverse effect on our business, financial condition and results of operations. In addition, certain provisions in the indenture governing the 2028 Notes may delay or prevent an attempted takeover of us that might be financially advantageous to stockholders. The convertibility of the 2028 Notes subjects us to various risks.
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Establishment of replacement suppliers for these components cannot be accomplished quickly and the loss of a single-source supplier, the deterioration of our relationship with a single-source supplier, or any unilateral modification to the contractual terms under which we are supplied components by a single-source supplier could have a material adverse effect on our business, financial condition and results of operations.
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If the conditional conversion feature of the 2028 Notes is triggered, holders will be entitled to convert the 2028 Notes at any time during specified periods. In the case of any such election, we would be required to settle any converted principal amount of such notes in cash, which could adversely affect our liquidity.
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In addition, we rely on third parties to manufacture some of our medical device products. For example, we use a single source for many of the consumer devices our Prevention & Recovery segment distributes in a particular country.
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In addition, even if holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current liability rather than long-term liability, resulting in a material reduction of our net working capital.
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If our agreements with these manufacturing companies were terminated, we may not be able to find suitable replacements within a reasonable amount of time or at all. Any such cessation, interruption or delay may impair our ability to meet scheduled deliveries of our products to our customers and may cause our customers to cancel orders.
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In addition, the market price of our common stock could be affected by sales of our common stock by investors who view the 2028 Notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity involving our common stock.
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In the normal course of our business, we are exposed to market risks related to the availability of and price fluctuations in the purchase of raw materials, energy and commodities used in the manufacturing of our products.
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In connection with the pricing of the 2028 Notes, we entered into capped call transactions with the option counterparties. The option counterparties and/or their respective affiliates may modify their hedge positions, which could cause an increase or decrease in the market price of our common stock.
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For example, the Organization for Economic Co-operation and Development, a global coalition of member countries, proposed a two-pillar plan to reform international taxation. The proposals aim to ensure a fairer distribution of profits among countries and to impose a floor on tax competition through the introduction of a global minimum tax.
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In addition, any or all of the option counterparties might default under the capped call transactions. Global economic conditions have resulted in the actual or perceived failure or financial difficulties of several financial institutions and could adversely impact the option counterparties’ performance under the capped call transactions.
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In addition, the amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If these audits result in assessments different from amounts recorded, our future financial results may include unfavorable tax adjustments.
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Upon a default by an option counterparty, we may also suffer adverse tax consequences and/or more dilution than we currently anticipate with respect to our common stock. We can provide no assurance as to the financial stability or viability of the option counterparties. 17 Our restructuring activities may subject us to additional uncertainty in our operating results.
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Greater scrutiny of marketing practices in the medical device industry has resulted in numerous government investigations, and this enforcement activity is expected to continue.
Added
The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. 18 Risks relating to contagious diseases, such as the COVID-19 pandemic, terrorist activity, man-made or natural disasters and war could reduce the demand for our products and have an adverse effect on our results of operations, financial condition, and business.
Removed
If these information technology systems suffer severe damage, disruption or shutdown and business continuity plans do not effectively resolve the issues in a timely manner, our business, financial condition, results of operations, and liquidity could be materially adversely affected.
Added
Contagious diseases, such as the COVID-19 pandemic, terrorist activity, man-made or natural disasters and war, as well as the spread or fear of the spread of contagious diseases, could cause a decline in the demand for our products, which may adversely affect our financial condition and operating performance.
Removed
We also could be subject to criminal and civil penalties, disgorgement, substantial expenditures related to remedial actions, and reputational harm.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, our Prevention & Recovery segment had a total of eight facilities used in production, distribution and warehousing in the U.S., representing a total of 115,000 and 577,000 square feet of owned and leased space, respectively, and thirteen facilities used in production, distribution and warehousing outside the U.S., representing a total of 784,000 square feet of leased space in ten countries in North America, Africa, Europe and Asia.
Biggest changeAs of December 31, 2023, our Prevention & Recovery segment had a total of seven facilities used in production, distribution and warehousing in the U.S., representing a total of 115,000 and 256,000 square feet of owned and leased space, respectively, and fifteen facilities used in production, distribution and warehousing outside the U.S., representing a total of 1,088,000 square feet of leased space in nine countries in North America, Africa, Europe and Asia.
As of December 31, 2022, our Reconstructive segment had a total of four facilities used in production, distribution and warehousing in the U.S., representing a total of 213,000 square feet of leased space, and four facilities used in production, distribution and warehousing outside the U.S., representing a total of 84,000 and 23,000 square feet of owned and leased space, respectively, in two countries in Europe.
As of December 31, 2023, our Reconstructive segment had a total of four facilities used in production, distribution and warehousing in the U.S., representing a total of 213,000 square feet of leased space, and three facilities used in production, distribution and warehousing outside the U.S., representing a total of 84,000 and 15,000 square feet of owned and leased space, respectively, in two countries in Europe.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

9 edited+5 added−0 removed11 unchanged
Biggest changeTandy also served in his capacity as Executive Vice President, General Counsel and Secretary of DJO. Prior to joining DJO, Mr. Tandy served as Senior Vice President, General Counsel and Secretary of Biomet, Inc. from 2006 through 2014. Prior to 31 serving as General Counsel, Mr.
Biggest changeFrom February 2019 through June 2019, he served as our interim general counsel. From February 2020 to April 2022, he served as our Corporate Secretary. Mr. Tandy also served in 34 his capacity as Executive Vice President, General Counsel and Secretary of DJO. Prior to joining DJO, Mr.
Trerotola was Group Executive for Product Identification from 2009 to 2012, and President of the Videojet business from 2007 to 2009. While at McKinsey & Company from 1995 to 1999, Mr. Trerotola focused primarily on helping industrial companies accelerate growth. Mr.
Previously, Mr. Trerotola was Group Executive for Product Identification from 2009 to 2012, and President of the Videojet business from 2007 to 2009. While at McKinsey & Company from 1995 to 1999, Mr. Trerotola focused primarily on helping industrial companies accelerate growth. Mr.
Lang holds a business degree with a concentration in information technology and management from Duquesne University. Additionally, she holds various certifications in human capital management, mergers and acquisitions, global employee benefits including C.E.B.S, as well as complex project management, lean manufacturing business systems and the Toyota production system. 32 PART II
Lang holds a business degree with a concentration in information technology and management from Duquesne University. Additionally, she holds various certifications in human capital management, mergers and acquisitions, global employee benefits including C.E.B.S, as well as complex project management, lean manufacturing business systems and the Toyota production system. Terry D.
Item 4. Mine Safety Disclosures None. 30 INFORMATION ABOUT OUR EXECUTIVE OFFICERS Set forth below are the names, ages, positions and experience of our executive officers. All of our executive officers hold office at the pleasure of our Board of Directors. Name Age Position Matthew L. Trerotola 55 Chief Executive Officer and Director Brady R.
Item 4. Mine Safety Disclosures None. 33 INFORMATION ABOUT OUR EXECUTIVE OFFICERS Set forth below are the names, ages, positions and experience of our executive officers. All of our executive officers hold office at the pleasure of our Board of Directors. Name Age Position Matthew L. Trerotola 56 Chief Executive Officer and Chair of the Board of Directors Brady R.
Tandy served as Vice President, Assistant General Counsel and Chief Compliance Officer of Biomet from 1999 through 2006. He joined Biomet as Assistant General Counsel in 1992. Prior to his employment at Biomet, Mr.
Tandy served as Senior Vice President, General Counsel and Secretary of Biomet, Inc. from 2006 through 2014. Prior to serving as General Counsel, Mr. Tandy served as Vice President, Assistant General Counsel and Chief Compliance Officer of Biomet from 1999 through 2006. He joined Biomet as Assistant General Counsel in 1992. Prior to his employment at Biomet, Mr.
Trerotola’s roles at DuPont involved applying innovation to improve margins and accelerate organic growth in global businesses. Prior to rejoining DuPont in 2013, Mr. Trerotola had served in leadership roles at Danaher Corporation since 2007, and was most recently Vice President and Group Executive for Life Sciences. Previously, Mr.
Trerotola also had corporate responsibility for DuPont’s Asia-Pacific business. Many of Mr. Trerotola’s roles at DuPont involved applying innovation to improve margins and accelerate organic growth in global businesses. Prior to rejoining DuPont in 2013, Mr. Trerotola had served in leadership roles at Danaher Corporation since 2007, and was most recently Vice President and Group Executive for Life Sciences.
Shirley 57 President, Chief Operating Officer and Director Phillip B. Berry 44 Senior Vice President and Chief Financial Officer Daniel A. Pryor 54 Executive Vice President, Strategy and Business Development Bradley J. Tandy 64 Senior Vice President and General Counsel Patricia Lang 59 Senior Vice President and Chief Human Resources Officer Matthew L.
Shirley 58 President, Chief Operating Officer and Director Phillip B. Berry 45 Senior Vice President and Chief Financial Officer Daniel A. Pryor 55 Executive Vice President, Strategy and Business Development Bradley J. Tandy 65 Senior Vice President and General Counsel Patricia Lang 60 Senior Vice President and Chief Human Resources Officer Terry D.
Pryor earned his M.B.A. from Harvard Business School and his Bachelor of Arts in Economics from Williams College. Bradley J. Tandy has been Senior Vice President and General Counsel since July 2019. From February 2019 through June 2019, he served as our interim general counsel. From February 2020 to April 2022, he served as our Corporate Secretary. Mr.
Pryor earned his M.B.A. from Harvard Business School and his Bachelor of Arts in Economics from Williams College. Bradley J. Tandy has been Senior Vice President and Chief Legal Officer since December 2023, and served as Senior Vice President and General Counsel from July 2019 through November 2023.
Trerotola has been Chief Executive Officer since July 2015. Prior to joining Enovis, Mr. Trerotola was an Executive Vice President and a member of DuPont’s Office of the Chief Executive, responsible for DuPont’s Electronics & Communications and Safety & Protection segments. Mr. Trerotola also had corporate responsibility for DuPont’s Asia-Pacific business. Many of Mr.
Ross 54 Group President, Prevention & Recovery Louis Vogt 43 Group President, Reconstructive Matthew L. Trerotola has been Chief Executive Officer since July 2015. Prior to joining Enovis, Mr. Trerotola was an Executive Vice President and a member of DuPont’s Office of the Chief Executive, responsible for DuPont’s Electronics & Communications and Safety & Protection segments. Mr.
Added
Ross was appointed as Group President, Prevention & Recovery in January 2024. Mr.
Added
Ross joined the Company (then known as Colfax) in 2012 as SVP & GM of Colfax Reliability Services and has held a number of leadership roles, including VP of Investor Relations, VP of Strategy & Business Development, and President of the Company’s Recovery Sciences and Bracing and Support Businesses.
Added
Prior to joining the Company, he served in a number of management roles at Danaher and GE. Mr. Ross earned an MBA from Harvard Business School, graduating as a Baker Scholar, and received a B.S. in Mechanical Engineering from West Virginia University. Louis Vogt was appointed as Group President, Reconstructive in January 2024. Mr.
Added
Vogt joined DJO (now Enovis) in 2017, leading the Surgical Global Product Management Organization before becoming President of the Enovis U.S. surgical business. Prior to joining the Company, he spent 15 years with Zimmer and Zimmer Biomet in various commercial leadership roles spanning sales, marketing and product management across their Recon, Trauma, Sports Medicine, and Ortho Biologics divisions. Mr.
Added
Vogt earned his MBA from the University of Notre Dame and a B.S. degree in Business Management from Purdue University. 35 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+3 added−1 removed1 unchanged
Biggest changeThere have been no repurchases made under the repurchase program except the Company’s repurchase of shares of its Common stock under the repurchase program in open market transactions for $200.0 million in 2018. As of December 31, 2022, there are authorized Common stock repurchases of approximately $100 million remaining.
Biggest changeThere have been no repurchases under the program since 2018. As of December 31, 2023, there is a remaining authorization of $100 million of shares that may be repurchased under the program.
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (1) 09/30/22 - 10/27/22 — $ — — $ 99,997,744 10/28/22 - 11/24/22 — — — 99,997,744 11/25/22 - 12/31/22 — — — 99,997,744 Total — $ — — $ 99,997,744 (1) Represents the repurchase program limit authorized by the Board of Directors of $300 million less the value of purchases made under the repurchase program.
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (1) 09/30/23 - 10/27/23 — $ — — $ 99,997,744 10/28/23 - 11/24/23 — — — 99,997,744 11/25/23 - 12/31/23 — — — 99,997,744 Total — $ — — $ 99,997,744 (1) Represents the repurchase program limit authorized by the Board of Directors of $300 million less the value of purchases made under the repurchase program.
As of February 24, 2023, there were 1,305 holders of record of our Common stock. The number of holders of record is based upon the actual number of holders registered at such date and does not include holders of shares in “street name” or persons, partnerships, associates, corporations or other entities identified in security position listings maintained by depositories.
As of February 16, 2024, there were 1,267 holders of record of our common stock. The number of holders of record is based upon the actual number of holders registered at such date and does not include holders of shares in “street name” or persons, partnerships, associates, corporations or other entities identified in security position listings maintained by depositories.
Performance Graph The graph below compares the cumulative total stockholder return on our Common stock with the cumulative total return of the Standard & Poor’s (“S&P”) 400 Industrial Index and the S&P Industrial Machinery Index.
Performance Graph The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the Standard & Poor’s (“S&P”) 500 Index, S&P 500 Healthcare Equipment & Supply Industry Index, the S&P 400 Industrial Index, and the S&P Industrial Machinery Index.
The graph assumes that $100 was invested on December 31, 2017 in our Common stock, the S&P 400 Industrial Index and the S&P Industrial Machinery Index, and that all dividends were reinvested. 33 Issuer Repurchase of Equity Securities On February 12, 2018, the Company’s Board of Directors authorized the repurchase of up to $100.0 million of the Company’s Common stock from time-to-time on the open market or in privately negotiated transactions.
The graph assumes that $100 was invested on December 31, 2018 in our common stock, the S&P 400 Industrial Index, the S&P Industrial Machinery Index, the S&P 500 Index, and the S&P 500 Healthcare Equipment & Supply Industry Index, and that all dividends were reinvested. 36 Issuer Repurchase of Equity Securities In 2018, the Company’s Board of Directors authorized the repurchase of the Company’s common stock from time-to-time on the open market or in privately negotiated transactions.
The repurchase program has no expiration date and does not obligate the Company to acquire any specific number of shares. The repurchase program was conducted pursuant to SEC Rule 10b-18.
The timing and amount of shares repurchased is to be determined by management based on its evaluation of market conditions and other factors. The repurchase program has no expiration date and does not obligate the Company to acquire any specific number of shares. The repurchase program is conducted pursuant to SEC Rule 10b-18.
Removed
The Board of Directors increased the repurchase authorization by an additional $100 million on June 6, 2018, and again for an additional $100 million on July 19, 2018. The timing and amount of shares repurchased is to be determined by management based on its evaluation of market conditions and other factors.
Added
As a result of the Separation in April 2022, fiscal year 2023 was the first full fiscal year following the Separation in which we operated as a standalone specialty medical technology business without ESAB’s fabrication technology business.
Added
Accordingly, beginning in fiscal year 2023, we are using the S&P 500 Index, replacing the S&P 400 Industrial Index, as the broad market index and the S&P 500 Healthcare Equipment & Supply Industry Index, as the included industry or line-of-business index for the purposes of the following performance graph.
Added
Following the Separation, we believe the S&P 500 Index represents a more appropriate broad market index for us and the S&P 500 Healthcare Equipment & Supply Industry Index represents a more appropriate industry index. The cumulative total return for each such index is presented in the graph below as required by Item 201(e)(4) of Regulation S-K.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

97 edited+37 added−26 removed81 unchanged
Biggest changeThe decrease from 2020 to 2021 is primarily due to debt repaid in 2021 with the $745.2 million of proceeds from the issuance of our common stock. • During 2022, 2021, and 2020 cash payments of $18.5 million, $8.0 million and $22.5 million, respectively, were made related to our restructuring initiatives. 48 • Cash provided by operating activities for 2022 included a net one-time $36.7 million inflow attributable to insurance settlements and 2021 includes a one-time cash inflow from a $36.0 million U.S. federal tax refund received in the first quarter of 2021.
Biggest changeAt the time of the Separation, the Company’s total debt of $2.1 billion was repaid and replaced with a $450.0 million term loan that was further reduced by $230.5 million in November 2022 with the exchange of ESAB shares. • During 2023, 2022, and 2021 cash payments of $16.2 million, $18.5 million and $8.0 million, respectively, were made related to our restructuring initiatives. • Cash paid for MDR and other costs were $27.4 million, $16.7 million, and $7.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. • 2023 includes a favorable change in accrued compensation and benefits of approximately $20.0 million. • 2021 includes a one-time cash inflow from a $36.0 million U.S. federal tax refund received in the first quarter of 2021. 52 Cash flows used in investing activities for 2023, 2022 and 2021 include $152.8 million, $73.7 million, and $223.3 million, respectively, for acquisitions and investments.
On April 24, 2021, the Company used the proceeds from its March 2021 equity offering to redeem all of its $600 million 6.0% senior notes due February 14, 2024 (the “2024 Notes”) and $100 million of the outstanding principal of its 2026 Notes for $724.4 million.
On April 24, 2021, the Company used the proceeds from its March 2021 equity offering to redeem all of its $600.0 million 6.0% senior notes due February 14, 2024 (the “2024 Notes”) and $100 million of the outstanding principal of its 2026 Notes for $724.4 million.
In addition, the Enovis Credit Agreement contains financial covenants requiring the Company to maintain (i) a maximum total leverage ratio of not more than 4.00:1.00, with a step-down to 3.75:1.00 commencing with the fiscal quarter ending June 30, 2023, and a step-down to 3.50:1.00 commencing with the fiscal quarter ending June 30, 2024, and (ii) a minimum interest coverage ratio of 3.00:1.00.
In addition, the Enovis Credit Agreement contains financial covenants requiring the Company to maintain (i) a maximum total leverage ratio of not more than 3.75:1.00 commencing with the fiscal quarter ending June 30, 2023, and a step-down to 3.50:1.00 commencing with the fiscal quarter ending June 30, 2024, and (ii) a minimum interest coverage ratio of 3.00:1.00.
If actual results differ from the assumptions made in the evaluation of our valuation allowance, we record a change in valuation allowance through income tax expense in the period such determination is made. Accounting Standards Codification 740, “Income Taxes” prescribes a recognition threshold and measurement attribute for a position taken in a tax return.
If actual results differ from the assumptions made in the evaluation of our valuation allowance, we record a change in valuation allowance through income tax expense in the period such determination is made. 55 Accounting Standards Codification 740, “Income Taxes” prescribes a recognition threshold and measurement attribute for a position taken in a tax return.
The comparability of our operating results for the year ended December 31, 2022 to the comparable periods is affected by the following additional significant items: The Separation On April 4, 2022, we completed the Separation through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB to our stockholders.
The comparability of our operating results for the year ended December 31, 2023 to the comparable periods is affected by the following additional significant items: The Separation On April 4, 2022, we completed the Separation through a tax-free, pro-rata distribution of 90% of the outstanding common stock of ESAB to our stockholders.
On November 18, 2022, we completed an exchange with a lender under our Enovis Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of our retained interest in ESAB, for $230.5 million of the $450 million in term loan outstanding under the Enovis Credit Agreement.
On November 18, 2022, we completed an exchange with a lender under our Enovis Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of our retained interest in ESAB, for $230.5 million of the $450.0 million in term loan outstanding under the Enovis Credit Agreement.
Adjusted EBITDA excludes from Net income (loss) from continuing operations the effect of income tax expense (benefit), Other income, non-operating (gain) loss on investments, debt extinguishment charges, interest expense, net, restructuring and other charges, Medical Device Regulation (MDR) fees and other costs, strategic transaction costs, stock-based compensation, depreciation and other amortization, acquisition-related intangible asset amortization, insurance settlement (gain) loss, and fair value charges on acquired inventory.
Adjusted EBITDA excludes from Net income (loss) from continuing operations the effect of income tax expense (benefit); Other income, net;, non-operating (gain) loss on investments; debt extinguishment charges; interest expense, net; restructuring and other charges; Medical Device Regulation (“MDR”) fees and other costs; strategic transaction costs; stock-based compensation; depreciation and other amortization; acquisition-related intangible asset amortization; insurance settlement (gain) loss; and fair value charges on acquired inventory.
Post-Separation, Enovis conducts its operations through two operating segments: Prevention & Recovery (“P&R”) and Reconstructive (“Recon”). • Prevention & Recovery - a leader in orthopedic solutions, providing devices, software and services across the patient care continuum from injury prevention to rehabilitation after surgery, injury, or from degenerative disease. • Reconstructive - innovation market-leader positioned in the fast-growing surgical implant business, offering a comprehensive suite of reconstructive joint products for the hip, knee, shoulder, elbow, foot, ankle, and finger and surgical productivity tools.
Post-Separation, Enovis conducts its operations through two operating segments: Prevention & Recovery (“P&R”) and Reconstructive (“Recon”). • P&R - a leader in orthopedic solutions, providing devices, software and services across the patient care continuum from injury prevention to rehabilitation after surgery, injury, or from degenerative disease. • Recon - innovation market-leader positioned in the fast-growing surgical implant business, offering a comprehensive suite of reconstructive joint products for the hip, knee, shoulder, elbow, foot, ankle, and finger and surgical productivity tools.
In the third quarter of 2021, the Company acquired Mathys AG Bettlach (“Mathys”), a Switzerland-based company that develops and distributes innovative products for artificial joint replacement, synthetic bone graft solutions and sports medicine, for total acquisition equity consideration of $285.7 million of Colfax Common stock.
In the third quarter of 2021, the Company acquired Mathys AG Bettlach (“Mathys”), a Switzerland-based company that develops and distributes innovative products for artificial joint replacement, synthetic bone graft solutions and sports medicine, for total acquisition equity consideration of $285.7 million of our common stock.
Upon the Separation in April 2022, Goodwill was allocated on a relative fair value basis between the Company’s new reporting units Reconstructive and Prevention & Recovery. 50 For the year ended December 31, 2022, management performed a quantitative assessment of Goodwill for the Reconstructive and Prevention & Recovery reporting units, both of which indicated no impairment existed.
Upon the Separation in April 2022, Goodwill was allocated on a relative fair value basis between the Company’s new reporting units Reconstructive and Prevention & Recovery. For the year ended December 31, 2023, management performed a quantitative assessment of Goodwill for the Reconstructive and Prevention & Recovery reporting units, both of which indicated no impairment existed.
We recognize interest and penalties related to unrecognized tax benefits in the Consolidated Statements of Operations as part of Income tax expense (benefit).
We recognize interest and penalties related to unrecognized tax benefits in the Consolidated Statements of Operations as part of Income tax benefit.
Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. The following tables set forth a reconciliation of net loss from continuing operations, the most directly comparable financial statement measure, to Adjusted EBITDA for the years ended December 31, 2022, 2021 and 2020.
Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. The following tables set forth a reconciliation of net loss from continuing operations, the most directly comparable financial statement measure, to Adjusted EBITDA for the years ended December 31, 2023, 2022 and 2021.
Enovis Term Loan and Revolving Credit Facility On April 4, 2022, we entered into a new credit agreement (the “Enovis Credit Agreement”), consisting of a $900 million revolving credit facility (the “Revolver”) with an April 4, 2027 maturity date and a term loan with an initial aggregate principal 46 amount of $450 million and an April 4, 2023 maturity date (the “Enovis Term Loan”).
Enovis Term Loan and Revolving Credit Facility On April 4, 2022, we entered into a new credit agreement (the “Enovis Credit Agreement”), consisting of a $900 million revolving credit facility (the “Revolver”) with an April 4, 2027 maturity date and a term loan with an initial aggregate principal amount of $450.0 million and an April 4, 2023 maturity date (the “Enovis Term Loan”).
For sensitivity analysis, we estimated the fair value of the Prevention & Recovery and Reconstructive reporting units if we reduced the long-term revenue growth rate by 25 basis points, and the resulting excess fair value over carrying value decreased by 120 and 130 basis points, respectively.
For sensitivity analysis, we estimated the fair value of the Prevention & Recovery and Reconstructive reporting units if we reduced the long-term revenue growth rate by 25 basis points, and the resulting excess fair value over carrying value decreased by 130 and 150 basis points, respectively.
No stock repurchases have been made under this plan since the third quarter of 2018. As of December 31, 2022, the remaining stock repurchase authorization provided by our Board of Directors was $100.0 million. The timing, amount, and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors.
No stock repurchases have been made under this plan since the third quarter of 2018. As of December 31, 2023, the remaining stock repurchase authorization provided by our Board of Directors was $100.0 million. The 49 timing, amount, and method of shares repurchased is determined by management based on its evaluation of market conditions and other factors.
We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures, restructuring cash outflows, and interest and principal repayments on amounts drawn on our revolving credit facility.
We expect that our primary ongoing requirements for cash will be for working capital, funding of acquisitions, capital expenditures, restructuring cash outflows, and interest and principal repayments on our term loan and amounts drawn on our revolving credit facility.
We determined the fair value of the reporting units by equally weighting a discounted cash flow approach and market valuation approach, and the reporting unit’s fair value exceeded its carrying amount by approximately 8% and 9%, respectively.
We determined the fair value of the reporting units by equally weighting a discounted cash flow approach and market valuation approach, and the reporting unit’s fair value exceeded its carrying amount by approximately 4% and 8%, respectively.
Prevention & Recovery We develop, manufacture, and distribute rigid bracing products, orthopedic soft goods, vascular systems and compression garments, and hot and cold therapy products and offer robust recovery sciences products in the clinical rehabilitation and sports medicine markets such as bone growth stimulators and electrical stimulators used for pain management.
P&R We develop, manufacture, and distribute rigid bracing products, orthopedic soft goods, vascular systems and compression garments, and hot and cold therapy products and offer robust recovery sciences products in the clinical rehabilitation and sports medicine markets such as bone growth stimulators and electrical stimulators used for pain management.
Additionally, on April 7, 2022, we completed the redemption of our senior unsecured notes due April 2025 (“Euro Senior Notes”) representing all of our outstanding €350 million principal 3.250% Senior Notes due 2025 at a redemption price of 100.813% of the principal amount and accrued interest for $391.2 million.
Additionally, on April 7, 2022, we completed the redemption of our senior unsecured notes due April 2025 (“Euro Senior Notes”) representing all of our outstanding €350.0 million principal 3.25% Senior Notes due 2025 at a redemption price of 100.813% of the principal amount and accrued interest for $391.2 million.
Euro Notes In 2017, we issued senior unsecured notes with an aggregate principal amount of €350 million due in May 2025, with an interest rate of 3.25% (the “Euro Notes”). The Euro Notes were redeemed on April 7, 2022 at 100.813% of the principal amount after the completion of the Separation.
Euro Senior Notes In 2017, we issued senior unsecured notes with an aggregate principal amount of €350.0 million due in May 2025, with an interest rate of 3.25%. The Euro Senior Notes were redeemed on April 7, 2022 at 100.813% of the principal amount after the completion of the Separation.
A sustained decline in our end-markets and geographic markets could increase the risk of impairments in future years. Actual results could differ from our estimates and projections, which would also affect the assessment of impairment. As of December 31, 2022, we have Goodwill of $2.0 billion that is subject to at least annual review for impairment.
A sustained decline in our end-markets and geographic markets could increase the risk of impairments in future years. Actual results could differ from our estimates and projections, which would also affect the assessment of impairment. As of December 31, 2023, we have Goodwill of $2.1 billion that is subject to at least annual review for impairment.
Net liabilities for unrecognized income tax benefits, including accrued interest and penalties, were $42.1 million as of December 31, 2022 and are included in Other liabilities or as a reduction to deferred tax assets in the accompanying Consolidated Balance Sheet. Revenue Recognition We account for revenue in accordance with Topic 606, “Revenue from Contracts with Customers”.
Net liabilities for unrecognized income tax benefits, including accrued interest and penalties, were $34.1 million as of December 31, 2023 and are included in Other liabilities or as a reduction to deferred tax assets in the accompanying Consolidated Balance Sheet. Revenue Recognition We account for revenue in accordance with Topic 606, “Revenue from Contracts with Customers”.
On November 18, 2022, the Company completed an exchange with a lender under the Enovis Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of the retained shares in ESAB following the Separation, for $230.5 million of the $450.0 million in Enovis Term Loan outstanding under the Enovis Credit Agreement, net of cost to sell.
On November 18, 2022, the Company completed an exchange with a lender under the Enovis Credit Agreement of 6,003,431 shares of common stock of ESAB, representing all of the retained shares in ESAB following the Separation, for $230.5 million of the $450.0 million in Enovis Term Loan that was outstanding at that time under the Enovis Credit Agreement, net of cost to sell.
Selling, general and administrative expense increased $107.1 million primarily due to a $50.3 million increase in costs associated with acquisitions and the related integration costs from the newly acquired businesses within our Reconstructive segment and a $37.6 million increase in strategic transaction costs, driven by Separation-related costs incurred in the first half of 2022.
Selling, general and administrative expense increased $107.1 million primarily due to a $50.3 million increase in costs associated with acquisitions and the related integration costs from the newly acquired businesses within Recon and a $37.6 million increase in strategic transaction costs, driven by Separation-related costs incurred in the first half of 2022.
Our Prevention & Recovery products are marketed under several brand names, most notably DJO, to orthopedic specialists, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers, and other healthcare professionals who treat patients with a variety of treatment needs including musculoskeletal conditions resulting from degenerative diseases, deformities, traumatic events and sports-related injuries.
P&R products are marketed under several brand names, most notably DJO, to orthopedic specialists, primary care physicians, pain management specialists, physical therapists, podiatrists, chiropractors, athletic trainers, and other healthcare professionals who treat patients with a variety of treatment needs including musculoskeletal conditions resulting from degenerative diseases, deformities, traumatic events and sports-related injuries.
These two acquisitions were completed for total consideration, net of cash received, of $204.1 million, subject to certain adjustments. The Trilliant and MedShape acquisitions, along with the 2020 acquisition of the Scandinavian Total Ankle Replacement System and Finger Joint Arthroplasty Portfolio, created our growth product portfolio in the foot and ankle surgical market.
These two acquisitions were completed for total consideration, net of cash received, of $204.1 million. The Trilliant and MedShape acquisitions, along with the 2020 acquisition of the Scandinavian Total Ankle Replacement System and Finger Joint Arthroplasty Portfolio, created our growth product portfolio in the foot and ankle surgical market.
These key factors have impacted our results 35 of operations in the past and are likely to affect them in the future.
These key factors have impacted our results 38 of operations in the past and are likely to affect them in the future.
Additionally, related to sales of our medical device products and services, we maintain provisions for estimated contractual allowances for reimbursement amounts from certain third-party payors based on negotiated contracts, historical experience for non-contracted payors, and the impact of new contract terms or modifications of existing arrangements with these customers.
Additionally, related to sales of our medical device products and services, we maintain provisions for estimated contractual allowances for reimbursement amounts from certain third-party payors based on negotiated contracts, historical experience for non-contracted payors, and the impact of new contract terms or modifications of existing arrangements with these customers. We report these allowances as a reduction to Net sales.
Due to overall market declines as a result of the COVID-19 pandemic, management decided to forgo the qualitative assessment and performed quantitative Goodwill impairment tests for the years ended December 31, 2020 and 2021, which resulted in no impairment.
Due to overall market declines as a result of the COVID-19 pandemic, management decided to forgo the qualitative assessment and performed quantitative Goodwill impairment tests for the years ended December 31, 2022 and 2023, which resulted in no impairment.
The repayments were primarily funded by a $1.2 billion cash distribution from ESAB to us upon Separation. Cash flows provided by financing activities in 2021 include $745.2 million in proceeds from the issuance of common stock, partially offset by net debt repayments of $126.0 million. Cash flows used in financing activities for 2020 include net debt repayments of $118.3 million.
The repayments were primarily funded by a $1.2 billion cash distribution from ESAB to us upon Separation. Cash flows provided by financing activities in 2021 include $745.2 million in proceeds from the issuance of common stock, partially offset by net debt repayments of $126.0 million.
Research and development costs also increased compared to the prior year period primarily due to increased spend within recently acquired businesses in our Reconstructive segment. Amortization of acquired intangibles and Depreciation and other amortization also increased compared to the prior year period due to acquisition-related increases.
Research and development costs also increased compared to the prior year period primarily due to increased spend within recently acquired businesses in Recon. Amortization of acquired intangibles and Depreciation and other amortization also increased compared to the prior year period due to acquisition-related increases.
Cash flows from operating activities can fluctuate significantly from period to period due to changes in working capital and the timing of payments for items such as restructuring and strategic transaction costs such as Separation costs.
Cash flows from operating activities can fluctuate significantly from period to period due to changes in working capital and the timing of payments for items such as restructuring, interest, income taxes and strategic transaction costs.
We evaluate our estimates and judgments on an ongoing basis. Our estimates are based upon our historical experience, our evaluation of business and macroeconomic trends and information from other outside sources, as appropriate. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Our estimates are based upon our historical experience, our evaluation of business and macroeconomic trends and information from other outside sources, as appropriate. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
The carrying amount of Goodwill of the Reconstructive and Prevention & Recovery reporting units for the year ended December 31, 2022 was $0.9 billion and $1.1 billion, respectively.
The carrying amount of Goodwill of the Prevention & Recovery and Reconstructive reporting units for the year ended December 31, 2023 was $1.1 billion and $1.0 billion, respectively.
Year Ended December 31, 2022 Prevention & Recovery Reconstructive Total (Dollars in millions) Net loss from continuing operations (GAAP) (1) $ (38.2) Income tax expense 36.1 Other income (2.1) Gain on cost basis investment (8.8) Gain on investment in ESAB Corporation (102.7) Debt extinguishment charges 20.4 Interest expense, net 24.1 Operating loss (GAAP) $ (18.2) $ (52.9) (71.2) Operating loss margin (1.8) % (9.9) % (4.6) % Adjusted to add (deduct): Restructuring and other charges (2) 9.6 9.4 19.0 MDR and other costs (3) 9.8 6.9 16.7 Strategic transaction costs (3) 39.9 21.2 61.0 Stock-based compensation (3) 20.2 11.3 31.5 Depreciation and other amortization 24.4 52.3 76.7 Amortization of acquired intangibles 80.1 46.2 126.3 Insurance settlement gain (3) (24.4) (12.3) (36.7) Inventory step-up — 12.8 12.8 Adjusted EBITDA (non-GAAP) $ 141.3 $ 94.7 $ 236.1 Adjusted EBITDA margin (non-GAAP) 13.8 % 17.7 % 15.1 % (1) Non-operating components of Net loss from continuing operations are not allocated to the segments.
(3) Certain amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment. 41 Year Ended December 31, 2022 P&R Recon Total (Dollars in millions) Net loss from continuing operations (GAAP) (1) $ (38.2) Income tax expense 36.1 Other income, net (2.1) Gain on cost basis investment (8.8) Gain on investment in ESAB Corporation (102.7) Debt extinguishment charges 20.4 Interest expense, net 24.1 Operating loss (GAAP) $ (18.2) $ (52.9) (71.2) Operating loss margin (1.8) % (9.9) % (4.6) % Adjusted to add (deduct): Restructuring and other charges (2) 9.6 9.4 19.0 MDR and other costs 9.8 6.9 16.7 Strategic transaction costs (3) 39.9 21.2 61.0 Stock-based compensation (3) 20.2 11.3 31.5 Depreciation and other amortization 24.4 52.3 76.7 Amortization of acquired intangibles 80.1 46.2 126.3 Insurance settlement gain (3) (24.4) (12.3) (36.7) Inventory step-up — 12.8 12.8 Adjusted EBITDA (non-GAAP) 141.3 94.7 236.1 Adjusted EBITDA margin (non-GAAP) 13.8 % 17.7 % 15.1 % (1) Non-operating components of Net loss from continuing operations are not allocated to the segments.
In our Reconstructive segment, existing business sales increased $47.1 million, or 11.8%, due to significantly higher sales volumes than the prior year across all product lines driven by market outperformance, new product launches, and reduced COVID impacts. In our Prevention & Recovery segment, existing business sales increased $32.5 million, or 3.2%, due to improved sales volumes and inflation-related pricing increases.
In Recon, existing business sales increased $47.1 million, or 11.8%, due to significantly higher sales volumes than the prior year across all product lines driven by market outperformance, new product launches, and reduced COVID impacts. In P&R, existing business sales increased $32.5 million, or 3.2%, due to improved sales volumes and inflation-related pricing increases.
Our Cash and cash equivalents as of December 31, 2022 include $12.6 million held in jurisdictions outside the U.S. Cash repatriation of non-U.S. cash into the U.S. may be subject to taxes, other local statutory restrictions and minority owner distributions.
Our Cash and cash equivalents as of December 31, 2023 include $19.4 million held in jurisdictions outside the U.S. Cash repatriation of non-U.S. cash into the U.S. may be subject to taxes, other local statutory restrictions and minority owner distributions.
(2) Restructuring and other charges in the Prevention & Recovery segment includes $5.2 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations. (3) Certain amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment.
(2) Restructuring and other charges in P&R includes $1.7 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations. (3) Certain amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment.
Net sales from acquisitions increased during 2022 as compared to 2021 primarily due to the Mathys, Trilliant, and Medshape acquisitions in our Reconstructive segment that closed in 2021.
Net sales from acquisitions increased during 2022 as compared to 2021 primarily due to the Mathys, Trilliant, and Medshape acquisitions in Recon that closed in 2021.
Debt extinguishment charges of $20.4 million were recorded in the year ended December 31, 2022. Charges of $20.1 million were recorded in the second quarter of 2022, comprised of $12.7 million in redemption premiums and $7.4 million in noncash write-offs of original issue discount and deferred financing fees in conjunction with the Separation.
Charges of $20.1 million were recorded in the second quarter of 2022, comprised of $12.7 million in redemption premiums and $7.4 million in noncash write-offs of original issue discount and deferred financing fees in conjunction with the Separation.
(3) Certain amounts are allocated to the segments as a percentage of revenue as the costs or gain are not discrete to either segment. 38 Year Ended December 31, 2021 Prevention & Recovery Reconstructive Total (Dollars in millions) Net loss from continuing operations (GAAP) (1) $ (102.3) Income tax benefit (19.5) Debt extinguishment charges 29.9 Interest expense, net 29.1 Operating loss (GAAP) $ (14.9) $ (47.9) (62.8) Operating loss margin (1.5) % (12.0) % (4.4) % Adjusted to add: Restructuring and other charges (2) 11.5 2.4 13.9 MDR and other costs (3) 5.7 2.2 7.9 Strategic transaction costs (3) 14.8 8.6 23.4 Stock-based compensation (3) 17.8 7.9 25.7 Depreciation and other amortization 25.3 44.8 70.1 Amortization of acquired intangibles 72.6 44.3 116.9 Inventory step-up 0.7 10.1 10.8 Adjusted EBITDA (non-GAAP) $ 133.5 $ 72.5 $ 206.0 Adjusted EBITDA margin (non-GAAP) 13.0 % 18.1 % 14.4 % (1) Non-operating components of Net loss from continuing operations are not allocated to the segments.
Year Ended December 31, 2021 P&R Recon Total (Dollars in millions) Net loss from continuing operations (GAAP) (1) $ (102.3) Income tax benefit (19.5) Debt extinguishment charges 29.9 Interest expense, net 29.1 Operating loss (GAAP) $ (14.9) $ (47.9) (62.8) Operating loss margin (1.5) % (12.0) % (4.4) % Adjusted to add: Restructuring and other charges (2) 11.5 2.4 13.9 MDR and other costs 5.7 2.2 7.9 Strategic transaction costs (3) 14.8 8.6 23.4 Stock-based compensation (3) 17.8 7.9 25.7 Depreciation and other amortization 25.3 44.8 70.1 Amortization of acquired intangibles 72.6 44.3 116.9 Inventory step-up 0.7 10.1 10.8 Adjusted EBITDA (non-GAAP) $ 133.5 $ 72.5 $ 206.0 Adjusted EBITDA margin (non-GAAP) 13.0 % 18.1 % 14.4 % (1) Non-operating components of Net loss from continuing operations are not allocated to the segments.
(2) Restructuring and other charges in the Prevention & Recovery segment includes $6.6 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.
(2) Restructuring and other charges in P&R includes $2.6 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.
Net Sales $ % (Dollars in millions) For the year ended December 31, 2020 $ 1,120.7 Components of Change: Existing businesses (1) 154.3 13.8 % Acquisitions (2) 139.5 12.4 % Foreign currency translation (3) 11.7 1.0 % 305.5 27.2 % For the year ended December 31, 2021 $ 1,426.2 Components of Change: Existing businesses (1) 79.6 5.6 % Acquisitions (2) 93.3 6.5 % Foreign currency translation (3) (36.0) (2.5) % 136.9 9.6 % For the year ended December 31, 2022 $ 1,563.1 (1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of change due to factors such as price, product mix and volume.
Net Sales $ % (Dollars in millions) For the year ended December 31, 2021 $ 1,426.2 Components of Change: Existing Businesses (1) 79.6 5.6 % Acquisitions (2) 93.3 6.5 % Foreign Currency Translation (3) (36.0) (2.5) % 136.9 9.6 % For the year ended December 31, 2022 $ 1,563.1 Components of Change: Existing Businesses (1) 123.8 7.9 % Acquisitions (2) 14.3 0.9 % Foreign Currency Translation (3) 6.1 0.4 % 144.1 9.2 % For the year ended December 31, 2023 $ 1,707.2 (1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of change due to factors such as price, product mix and volume.
Seasonality Although sales in our Prevention & Recovery and Reconstructive segments typically peak in the fourth quarter, these historical seasonality trends were disrupted by the commercial impacts caused by the COVID-19 pandemic. General economic conditions may, however, impact future seasonal variations.
Seasonality Although sales in P&R and Recon typically peak in the fourth quarter, these historical seasonality trends were disrupted by the commercial impacts caused by the COVID-19 pandemic. General economic conditions may, however, impact future seasonal variations.
The following table summarizes the change in Cash and cash equivalents during the periods indicated and includes cash flows related to discontinued operations: Year Ended December 31, 2022 2021 2020 (Dollars in millions) Net cash provided by (used in) operating activities $ (55.9) $ 356.1 $ 301.9 Purchases of property, plant and equipment and intangibles (105.5) (104.2) (114.8) Proceeds from sale of property, plant and equipment 2.7 7.0 9.6 Acquisitions, net of cash received, and investments (73.7) (223.3) (69.8) Net cash used in investing activities (176.4) (320.5) (175.1) Repayments of debt, net (1,591.2) (126.0) (118.3) Distribution from ESAB Corporation, net 1,143.4 — — Proceeds from issuance of common stock, net 5.8 745.2 3.5 Payment of debt extinguishment costs (12.7) (24.4) — Deferred consideration payments and other (10.4) (9.9) (16.8) Net cash provided by (used in) financing activities (465.1) 584.9 (131.7) Effect of foreign exchange rates on Cash and cash equivalents 2.3 (2.2) (3.8) Increase (decrease) in Cash and cash equivalents $ (695.1) $ 618.3 $ (8.6) Cash (used in) provided by operating activities related to discontinued operations for the years ended December 31, 2022, 2021, and 2020 was $(27) million, $224 million, and $302 million, respectively.
The following table summarizes the change in Cash and cash equivalents during the periods indicated and includes cash flows related to discontinued operations: Year Ended December 31, 2023 2022 2021 (Dollars in millions) Net cash provided by (used in) operating activities $ 135.0 $ (55.9) $ 356.1 Purchases of property, plant and equipment and intangibles (122.2) (105.5) (104.2) Proceeds from sale of property, plant and equipment 32.6 2.7 7.0 Payments for acquisitions, net of cash received, and investments (152.8) (73.7) (223.3) Net cash used in investing activities (242.5) (176.4) (320.5) Proceeds from (repayments of) borrowings, net 217.2 (1,591.2) (126.0) Distribution from ESAB Corporation, net — 1,143.4 — Proceeds from issuance of common stock, net 1.8 5.8 745.2 Payment of capped call transactions (62.0) — — Payment of debt extinguishment costs — (12.7) (24.4) Other financing (29.2) (10.4) (9.9) Net cash provided by (used in) financing activities 127.8 (465.1) 584.9 Effect of foreign exchange rates on Cash and cash equivalents 0.2 2.3 (2.2) Increase (decrease) in Cash and cash equivalents and restricted cash $ 20.5 $ (695.1) $ 618.3 Cash (used in) provided by operating activities related to discontinued operations for the years ended December 31, 2023, 2022 and 2021 was $(2) million, $(27) million, and $224 million, respectively.
The change in Net sales due to acquisitions for the years ended December 31, 2022 and 2021 presented in this filing represents the incremental sales in comparison to the portion of the prior period during which we did not own the business.
The change in Net sales due to acquisitions for the years ended December 31, 2023 and 2022 presented in this filing represents the incremental sales in comparison to the portion of the prior period during which we did not own the business. During the year ended December 31, 2023, we completed one business combination and two asset acquisitions in Recon.
Year Ended December 31, 2022 2021 2020 (Dollars in millions) Gross profit $ 869.4 $ 777.7 $ 603.6 Gross profit margin 55.6 % 54.5 % 53.9 % Selling, general and administrative expense $ 772.9 $ 665.8 $ 515.5 Research and development expense $ 60.8 $ 49.1 $ 34.3 Operating loss $ (71.2) $ (62.8) $ (66.2) Operating loss margin (4.6) % (4.4) % (5.9) % Net loss from continuing operations $ (38.2) $ (102.3) $ (74.4) Net loss margin from continuing operations (GAAP) (2.4) % (7.2) % (6.6) % Adjusted EBITDA (non-GAAP) $ 236.1 $ 206.0 $ 161.5 Adjusted EBITDA margin (non-GAAP) 15.1 % 14.4 % 14.4 % Items excluded from Adjusted EBITDA: Restructuring and other charges (1) $ 19.0 $ 13.9 $ 23.3 MDR and other costs $ 16.7 $ 7.9 $ 6.9 Strategic transaction costs $ 61.0 $ 23.4 $ 2.8 Stock-based compensation $ 31.5 $ 25.7 $ 22.5 Depreciation and other amortization $ 76.7 $ 70.1 $ 64.6 Amortization of acquired intangibles $ 126.3 $ 116.9 $ 103.3 Insurance settlement gain $ (36.7) $ — $ — Inventory step-up $ 12.8 $ 10.8 $ 4.3 Interest expense, net $ 24.1 $ 29.1 $ 52.8 Debt extinguishment charges $ 20.4 $ 29.9 $ — Income tax expense (benefit) $ 36.1 $ (19.5) $ (44.6) (1) Restructuring and other charges includes $1.7 million, $5.2 million and $6.6 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020, respectively. 2022 Compared to 2021 Gross profit increased $91.7 million during 2022 in comparison to 2021 due to an $89.5 million increase in our Reconstructive segment.
Year Ended December 31, 2023 2022 2021 (Dollars in millions) Gross profit $ 990.8 $ 869.4 $ 777.7 Gross profit margin 58.0 % 55.6 % 54.5 % Selling, general and administrative expense $ 830.3 $ 772.9 $ 665.8 Research and development expense $ 75.3 $ 60.8 $ 49.1 Operating loss $ (65.7) $ (71.2) $ (62.8) Operating loss margin (3.8) % (4.6) % (4.4) % Net loss from continuing operations $ (53.8) $ (38.2) $ (102.3) Net loss margin from continuing operations (GAAP) (3.2) % (2.4) % (7.2) % Adjusted EBITDA (non-GAAP) $ 269.2 $ 236.1 $ 206.0 Adjusted EBITDA margin (non-GAAP) 15.8 % 15.1 % 14.4 % Items excluded from Adjusted EBITDA: Restructuring and other charges (1) $ 20.0 $ 19.0 $ 13.9 MDR and other costs $ 27.4 $ 16.7 $ 7.9 Strategic transaction costs $ 38.3 $ 61.0 $ 23.4 Stock-based compensation $ 32.1 $ 31.5 $ 25.7 Depreciation and other amortization $ 83.6 $ 76.7 $ 70.1 Amortization of acquired intangibles $ 133.5 $ 126.3 $ 116.9 Insurance settlement gain $ — $ (36.7) $ — Inventory step-up $ 0.1 $ 12.8 $ 10.8 Interest expense, net $ 19.7 $ 24.1 $ 29.1 Debt extinguishment charges $ 7.3 $ 20.4 $ 29.9 Other income, net $ (25.7) $ (2.1) $ — Income tax expense (benefit) $ (13.3) $ 36.1 $ (19.5) (1) Restructuring and other charges includes $2.6 million, $1.7 million and $5.2 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021, respectively. 2023 Compared to 2022 Gross profit increased $121.4 million during 2023 in comparison to 2022 due to a $82.1 million increase in Recon and a $39.3 million increase in P&R.
Adjusted EBITDA margin decreased because of recent acquisitions, which were dilutive to the 2021 margins, but are expected to be accretive in future years. 45 Liquidity and Capital Resources Overview We finance our long-term capital and working capital requirements through a combination of cash flows from operating activities, various borrowings and the issuances of equity.
Recent acquisitions were dilutive to the margin by approximately 300 basis points, but are expected to be accretive to margins in future years. 48 Liquidity and Capital Resources Overview We finance our long-term capital and working capital requirements through a combination of cash flows from operating activities, various borrowings and the issuances of equity.
The following table summarizes selected financial data for our Prevention & Recovery segment: Year Ended December 31, 2022 2021 2020 (Dollars in millions) Net sales $ 1,027.6 $ 1,026.0 $ 863.2 Gross profit $ 518.2 $ 516.1 $ 428.8 Gross profit margin 50.4 % 50.3 % 49.7 % Selling, general and administrative expense $ 438.9 $ 421.9 $ 352.8 Research and development expense $ 33.5 $ 30.2 $ 24.1 Operating loss (GAAP) $ (18.2) $ (14.9) $ (43.9) Operating loss margin (GAAP) (1.8) % (1.5) % (5.1) % Adjusted EBITDA (non-GAAP) $ 141.3 $ 133.5 $ 112.6 Adjusted EBITDA margin (non-GAAP) 13.8 % 13.0 % 13.0 % 2022 Compared to 2021 Net sales in our Prevention & Recovery segment increased $1.6 million in the year ended December 31, 2022 compared with the prior year period, driven by organic growth in existing businesses which was aided by pricing increases to mitigate inflation, mostly offset by $30.9 million of currency translation pressure.
The following table summarizes selected financial data for P&R: Year Ended December 31, 2023 2022 2021 (Dollars in millions) Net sales $ 1,076.8 $ 1,027.6 $ 1,026.0 Gross profit $ 557.5 $ 518.2 $ 516.1 Gross profit margin 51.8 % 50.4 % 50.3 % Selling, general and administrative expenses $ 442.7 $ 438.9 $ 421.9 Research and development expense $ 35.1 $ 33.5 $ 30.2 Operating loss (GAAP) $ (24.7) $ (18.2) $ (14.9) Operating loss margin (2.3) % (1.8) % (1.5) % Adjusted EBITDA (non-GAAP) $ 152.5 $ 141.3 $ 133.5 Adjusted EBITDA margin (non-GAAP) 14.2 % 13.8 % 13.0 % 46 2023 Compared to 2022 Net sales in P&R increased $49.2 million, or 4.8%, compared with the prior year period, driven by organic growth in existing businesses which was aided by pricing increases to mitigate inflation.
We report these allowances as a reduction to Net sales. 51 We provide a variety of products and services to our customers. Most of our contracts consist of a single, distinct performance obligation or promise to transfer goods or services to a customer.
We provide a variety of products and services to our customers. Most of our contracts consist of a single, distinct performance obligation or promise to transfer goods or services to a customer.
The discounted cash flow models indicate the fair value of the reporting units based on the present value of the cash flows that the reporting units are expected to generate in the future.
Generally, we measure fair value of reporting units based on a present value of future discounted cash flows and a market valuation approach. The discounted cash flow models indicate the fair value of the reporting units based on the present value of the cash flows that the reporting units are expected to generate in the future.
We recorded a gain of $102.7 million on the disposition of the investment representing the fair value in excess of cost basis. 41 During the year ended December 31, 2022, we recorded a net insurance settlement gain of $36.7 million which was related to the 2019 acquisition of DJO and which, along with the aforementioned gain on the disposition of the ESAB investment, significantly impacted our results.
During the year ended December 31, 2022, we recorded a net insurance settlement gain of $36.7 million which was related to the 2019 acquisition of DJO and which, along with the aforementioned gain on the disposition of the ESAB investment, significantly impacted our results. Debt extinguishment charges of $20.4 million were recorded in the year ended December 31, 2022.
The Enovis Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments or pay dividends.
On March 1, 2023, the Company extinguished the remaining outstanding balance on the Enovis Term Loan with borrowings on the Revolver. The Enovis Credit Agreement contains customary covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt or liens, merge or consolidate with others, dispose of assets, make investments or pay dividends.
Contractual Obligations Debt As of December 31, 2022, the Company’s Term Loan and Revolver had principal amounts outstanding of $219.5 million and $40.0 million, respectively. The Term Loan matures on April 4, 2023. There are no required principal payments due on the Revolver within 12 months and it matures on April 4, 2027.
Contractual Obligations Debt As of December 31, 2023, the Company’s Revolver and senior unsecured convertible notes (the “2028 Notes”) had principal amounts outstanding of $20.0 million and $460.0 million, respectively. There are no required principal payments due on the Revolver within 12 months and it matures on April 4, 2027.
(3) Represents the difference between prior year sales valued at the actual prior year foreign exchange rates and prior year sales valued at current year foreign exchange rates. 2022 Compared to 2021 Net sales increased during 2022 as compared to 2021 primarily due to an increase in sales from existing businesses across both of our segments and sales from acquired businesses in our Reconstructive segment, partially offset by foreign currency headwinds primarily in our Prevention & Recovery segment.
(3) Represents the difference between prior year sales valued at the actual prior year foreign exchange rates and prior year sales valued at current year foreign exchange rates. 2023 Compared to 2022 Net sales increased during 2023 as compared to 2022 primarily due to an increase in sales from existing businesses across both of our segments and to a lesser extent sales from acquired businesses in Recon and favorable foreign currency translation.
As of December 31, 2022, the Company was in compliance with the covenants under the Enovis Credit Agreement. As of December 31, 2022, the weighted-average interest rate of borrowings under the Enovis Credit Agreement was 5.71%, excluding accretion of original issue discount and deferred financing fees, and there was $860.0 million available on the Revolver.
As of December 31, 2023, the weighted-average interest rate of borrowings under the Enovis Credit Agreement was 6.58%, excluding accretion of original issue discount and deferred financing fees, and there was $880.0 million available on the Revolver.
If we determine that it is more likely than not for a reporting unit’s fair value to be less than its carrying value, a calculation of the fair value is performed and compared to the carrying value of that reporting unit. In certain instances, we may elect to forgo the qualitative assessment and proceed directly to the quantitative impairment test.
If we determine that it is more likely than not for a reporting unit’s fair value to be less than its carrying value, a calculation of the fair value is performed and compared to the carrying value of that reporting unit.
The weakening of the U.S. dollar relative to other currencies, most notably the Euro, led to an $11.7 million favorable currency translation impact. 40 Operating Results The following table summarizes our results from continuing operations for the comparable three-year period.
The strengthening of the U.S. dollar relative to other currencies, most notably the Euro, caused a $36.0 million unfavorable currency translation impact. 43 Operating Results The following table summarizes our results from continuing operations for the comparable three-year period.
We believe that our sources of liquidity are adequate to fund our operations for the next twelve months and the foreseeable future. Cash Flows As of December 31, 2022, we had $24.3 million of Cash and cash equivalents, a decrease of $695.1 million from the $719.4 million of Cash and cash equivalents on hand as of December 31, 2021.
We believe that our sources of liquidity are adequate to fund our operations for the next twelve months and the foreseeable future. 51 Cash Flows As of December 31, 2023, we had $44.8 million of Cash and cash equivalents and restricted cash, an increase of $20.5 million from the $24.3 million of Cash and cash equivalents on hand as of December 31, 2022.
Interest expense, net decreased by $5.0 million, primarily due to a reduction in debt balances as a result of the Separation-related debt redemptions at the beginning of the second quarter of 2022.
Debt extinguishment charges of $29.9 million were recorded in the second quarter of 2021 due to an early redemption of certain senior notes. 45 Interest expense, net decreased by $5.0 million, primarily due to a reduction in debt balances as a result of the Separation-related debt redemptions at the beginning of the second quarter of 2022.
Additionally, $0.3 million of noncash write-offs of deferred financing fees were recorded in conjunction with the aforementioned debt-for-equity exchange during the fourth quarter of 2022. Debt extinguishment charges of $29.9 million were recorded in the second quarter of 2021 due to an early redemption of certain senior notes.
Additionally, $0.3 million of noncash write-offs of deferred financing fees were recorded in conjunction with the aforementioned debt-for-equity exchange during the fourth quarter of 2022.
Adjusted EBITDA and Adjusted EBITDA margin increased due to the improved sales volumes, partially offset by increased Selling, general and administrative costs and cost increases over the same period. 44 Reconstructive We develop, manufacture, and market a wide variety of knee, hip, shoulder, elbow, foot, ankle, and finger implant products and surgical productivity solutions that serve the orthopedic reconstructive joint implant market.
Adjusted EBITDA and Adjusted EBITDA margin increased due to the reduction in central cost allocations, partially offset by inflation of supply chain, logistics, and other costs. Recon We develop, manufacture, and market a wide variety of knee, hip, shoulder, elbow, foot, ankle, and finger implant products and surgical productivity solutions that serve the orthopedic reconstructive joint implant market.
On July 28, 2021, the Company issued 2.2 million shares of Common stock, as adjusted for the reverse stock split, to the former shareholders of Mathys for acquisition consideration of $285.7 million. In 2018, our Board of Directors authorized the repurchase of our Common stock from time-to-time on the open market or in privately negotiated transactions.
On July 28, 2021, the Company issued 2.2 million shares of Common stock, as adjusted for the reverse stock split, to the former shareholders of Mathys for acquisition consideration of $285.7 million.
Material Costs Our principal raw materials and components are foam ethylene vinyl acetate, copolymer for our bracing and vascular products in our Prevention & Recovery segment and cobalt chromium alloy, stainless steel alloys, titanium alloy and ultra high molecular weight polyethylene in our Reconstructive segment.
Material Costs Our principal raw materials and components are foam ethylene vinyl acetate, copolymer for our bracing and vascular products in P&R and cobalt chromium alloy, stainless steel alloys, titanium alloy and ultra high molecular weight polyethylene in Recon. Prices for raw materials, energy and commodities are subject to volatility and are influenced by worldwide economic conditions.
Recently Issued Accounting Pronouncements For detailed information regarding recently issued accounting pronouncements and the expected impact on our financial statements, see Note 3, “Recently Issued Accounting Pronouncements” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K. 52
The allowance for credit losses was $9.7 million and $8.0 million as of December 31, 2023 and 2022, respectively. Recently Issued Accounting Pronouncements For detailed information regarding recently issued accounting pronouncements and the expected impact on our financial statements, see Note 3, “Recently Issued Accounting Pronouncements” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K. 56
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that provide liquidity, capital resources, market or credit risk support that expose us to any liability that is not reflected in our Consolidated Financial Statements at December 31, 2022 other than outstanding letters of credit of $7.1 million and unconditional purchase obligations with suppliers of $162.0 million. 49 Critical Accounting Policies The methods, estimates and judgments we use in applying our critical accounting policies have a significant impact on our results of operations and financial position.
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that provide liquidity, capital resources, market or credit risk support that expose us to any liability that is not reflected in our Consolidated Financial Statements at December 31, 2023 other than outstanding letters of credit of $11.5 million and unconditional purchase obligations with suppliers of $145.9 million.
In response, we have been enacting tactical price increases to certain products, mainly in the Prevention & Recovery segment. Although we seek to proactively manage inflation risk, future changes in component and raw material costs may adversely impact earnings or our margins.
Although we seek to proactively manage inflation risk, future changes in component and raw material costs may adversely impact earnings or our margins.
The Company paid $6.5 million, $25.0 million, and $23.4 million of principal on the TEU amortizing notes in the years ended December 31, 2022, 2021, and 2020, respectively. The final installment payment was made on January 15, 2022.
The Company paid $6.5 million and $25.0 million of principal on the TEU amortizing notes in the years ended December 31, 2022 and 2021, respectively. The final installment payment was made on January 15, 2022. Additionally, in the first quarter of 50 2022, all of the remaining related TEU prepaid stock purchase contracts were converted to shares of common stock.
These costs were primarily related to the Separation. • Cash paid for interest was $37.1 million, $85.5 million and $104.6 million for 2022, 2021 and 2020, respectively. The decrease from 2021 to 2022 is primarily a result of the change in our capital structure due to the Separation.
These costs were related to the Separation, business development and integration costs of recent acquisitions. • Cash paid for interest was $16.3 million, $37.1 million and $85.5 million for the years ended December 31, 2023, 2022 and 2021, respectively. The decreases are primarily a result of the change in our capital structure due to the Separation.
Year Ended December 31, 2020 Prevention & Recovery Reconstructive Total (Dollars in millions) Net loss from continuing operations (GAAP) (1) $ (74.4) Income tax benefit (44.6) Interest expense, net 52.8 Operating loss (GAAP) $ (43.9) $ (22.3) (66.2) Operating loss margin (5.1) % (8.6) % (5.9) % Adjusted to add: Restructuring and other charges (2) 19.6 3.8 23.3 MDR and other costs (3) 5.0 1.9 6.9 Strategic transaction costs (3) 2.2 0.6 2.8 Stock-based compensation (3) 17.3 5.2 22.5 Depreciation and other amortization 25.2 39.3 64.6 Amortization of acquired intangibles 82.9 20.4 103.3 Inventory step-up 4.3 — 4.3 Adjusted EBITDA (non-GAAP) $ 112.6 $ 49.0 $ 161.5 Adjusted EBITDA margin (non-GAAP) 13.0 % 19.0 % 14.4 % (1) Non-operating components of Net loss from continuing operations are not allocated to the segments.
Year Ended December 31, 2023 P&R Recon Total (Dollars in millions) Net loss from continuing operations (GAAP) (1) $ (53.8) Income tax benefit (13.3) Other income, net (25.7) Debt extinguishment charges 7.3 Interest expense, net 19.8 Operating loss (GAAP) $ (24.7) $ (41.0) (65.7) Operating loss margin (2.3) % (6.5) % (3.8) % Adjusted to add: Restructuring and other charges (2) 13.5 6.4 20.0 MDR and other costs 14.5 12.9 27.4 Strategic transaction costs (3) 13.2 25.1 38.3 Stock-based compensation (3) 20.2 11.8 32.1 Depreciation and other amortization 22.2 61.4 83.6 Amortization of acquired intangibles 93.6 40.0 133.5 Inventory step-up — 0.1 0.1 Adjusted EBITDA (non-GAAP) $ 152.5 $ 116.7 $ 269.2 Adjusted EBITDA margin (non-GAAP) 14.2 % 18.5 % 15.8 % (1) Non-operating components of Net loss from continuing operations are not allocated to the segments.
The following table summarizes the selected financial data for our Reconstructive segment: Year Ended December 31, 2022 2021 2020 (Dollars in millions) Net sales $ 535.5 $ 400.2 $ 257.6 Gross profit $ 351.1 $ 261.6 $ 174.8 Gross profit margin 65.6 % 65.4 % 67.9 % Selling, general and administrative expense $ 334.0 $ 243.8 $ 162.6 Research and development expense $ 27.4 $ 18.9 $ 10.1 Operating loss (GAAP) $ (52.9) $ (47.9) $ (22.3) Operating loss margin (GAAP) (9.9) % (12.0) % (8.6) % Adjusted EBITDA (non-GAAP) $ 94.7 $ 72.5 $ 49.0 Adjusted EBITDA margin (non-GAAP) 17.7 % 18.1 % 19.0 % 2022 Compared to 2021 Net sales increased for our Reconstructive segment in the year ended December 31, 2022 compared with the prior year, primarily due to acquisition-related sales growth of $93.3 million and existing business sales growth of $47.1 million.
The following table summarizes selected financial data for Recon: Year Ended December 31, 2023 2022 2021 (Dollars in millions) Net sales $ 630.4 $ 535.5 $ 400.2 Gross profit $ 433.2 $ 351.1 $ 261.6 Gross profit margin 68.7 % 65.6 % 65.4 % Selling, general and administrative expenses $ 387.6 $ 334.0 $ 243.8 Research and development expense $ 40.3 $ 27.4 $ 18.9 Operating loss (GAAP) $ (41.0) $ (52.9) $ (47.9) Operating loss margin (6.5) % (9.9) % (12.0) % Adjusted EBITDA (non-GAAP) $ 116.7 $ 94.7 $ 72.5 Adjusted EBITDA margin (non-GAAP) 18.5 % 17.7 % 18.1 % 47 2023 Compared to 2022 Net sal es in creased in Recon by $94.9 million, or 17.7%, primarily due to higher sales volumes driven by broad market strength and market outperformance.
Prices for raw materials, energy and commodities are subject to volatility and are influenced by worldwide economic conditions. Input cost inflation historically has not been a material factor to our gross margin; however, inflation effects have increased since 2021 and are expected to continue to remain elevated for at least the near term.
Input cost inflation historically has not been a material factor to our gross margin; however, inflation effects have increased since 2021 and are expected to continue to remain elevated for at least the near term. In response, we have been enacting tactical price increases to certain products, mainly in P&R.
(2) Restructuring and other charges in the Prevention & Recovery segment includ es $1.7 million of ex pense classified as Cost of sales on the Company’s Consolidated Statements of Operations.
(2) Restructuring and other charges in P&R includes $5.2 million of expense classified as Cost of sales on the Company’s Consolidated Statements of Operations.
Accordingly, the results of our fabrication technology businesses are excluded from continuing operations in the accompanying financials for the years ended December 31, 2022, 2021, and 2020.
Accordingly, the results of our fabrication technology businesses in our financial statements prior to its spin-off as a separate public company are excluded from continuing operations in the accompanying financials for the years ended December 31, 2022 and 2021. Please see Part I. Item 1A.
We have funding requirements associated with our pension plans as of December 31, 2022, which are estimated to be $3.3 million for the year ending December 31, 2023.
Purchase obligations herein exclude open purchase orders for goods or services that are provided on demand as the timing of which is not certain. We have funding requirements associated with our pension plans as of December 31, 2023, which are estimated to be $3.5 million for the year ending December 31, 2024.
Our recent acquisitions were dilutive to the margin by approximately 70 basis points and are expected to be accretive to margins in future years. 2021 Compared to 2020 Gross profit increased $174.0 million during 2021 in comparison to 2020 due to an $87.3 million increase in our Prevention & Recovery Segment and an $86.8 million increase in our Reconstructive segment.
Our recent acquisitions in Recon were dilutive to the net loss margin from continuing operations and to Adjusted EBITDA margin by approximately 20 basis points and are expected to be accretive to margins in future years. 2022 Compared to 2021 Gross profit increased $91.7 million during 2022 in comparison to 2021 due to an $89.5 million increase in Recon.
Interest Payments on Debt Based on December 31, 2022 outstanding balances and our expectation to repay the Term Loan with borrowings on the Revolver on April 4, 2023, we estimate future interest payments associated with the Term Loan and Revolver of $3.3 million and $60.3 million, respectively, with $3.3 million and $11.7 million payable within 12 months.
Interest Payments on Debt Based on December 31, 2023 outstanding balances we estimate future interest payments associated with the senior unsecured convertible notes and Revolver of $83.5 million and $4.9 million, respectively, with $18.1 million and $1.2 million payable within 12 months.
Cash flows used in investing activities for 2022, 2021 and 2020 include $73.7 million, $223.3 million and $69.8 million, respectively, for acquisitions and investments. Refer to Note 5 “Acquisitions” in the accompanying Notes to the Consolidated Financial Statements for more information.
Refer to Note 5 “Acquisitions and Investments” in the accompanying Notes to the Consolidated Financial Statements for more information. Additionally, cash flows used in investing activities in 2023, 2022, and 2021 include $122.2 million, $105.5 million, and $104.2 million, respectively, for purchases of property, plant, equipment, and intangibles.
Adjusted EBITDA margin remained flat due to the above reasons, the impacts of which were offset by costs associated with recent acquisitions which were dilutive to the margin, but are expected to be accretive in future years. 43 Business Segments As discussed further above, we report results in two reportable segments: Prevention & Recovery and Reconstructive.
Our recent acquisitions were dilutive to the margin by approximately 70 basis points and are expected to be accretive to margins in future years. Business Segments As discussed further above, we report results in two reportable segments: P&R and Recon.
Trade receivables are presented net of an allowance for credit losses. The Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments as of January 1, 2020.
Trade receivables are presented net of an allowance for credit losses under ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe do not enter into derivative contracts for speculative purposes. Interest Rate Risk We are subject to exposure from changes in short-term interest rates related to interest payments on our borrowing arrangements. All of our borrowings as of December 31, 2022 are variable rate facilities based on Secured Overnight Financing Rate (“SOFR”).
Biggest changeWe do not enter into derivative contracts for speculative purposes. Interest Rate Risk We are subject to exposure from changes in short-term interest rates related to interest payments on certain borrowing arrangements. Certain borrowings as of December 31, 2023 are variable rate facilities based on Secured Overnight Financing Rate (“SOFR”).
As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. dollar and against the currencies of other countries in which we manufacture and sell products and services. During 2022, approximately 32% of our sales were derived from operations outside the U.S.
As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. dollar and against the currencies of other countries in which we manufacture and sell products and services. During 2023, approximately 32% of our sales were derived from operations outside the U.S.
See Note 17, “Financial Instruments and Fair Value Measurements” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K for additional information regarding our derivative instruments. 53
See Note 17, “Financial Instruments and Fair Value Measurements” in the accompanying Notes to Consolidated Financial Statements included in this Form 10-K for additional information regarding our derivative instruments. 57
The effect of a change in currency exchange rates on our net investment in international subsidiaries is reflected in the Accumulated other comprehensive loss component of Equity. A 10% depreciation in major currencies, relative to the U.S. dollar as of December 31, 2022 would result in a reduction in Equity of approximately $90 million.
The effect of a change in currency exchange rates on our net investment in international subsidiaries is reflected in the Accumulated other comprehensive loss component of Equity. A 10% depreciation in major currencies, relative to the U.S. dollar as of December 31, 2023 would result in a reduction in Equity of approximately $110 million.
In order to mitigate our interest rate risk, we may enter into interest rate swap or collar agreements. A hypothetical increase in the interest rate of 1.00% during 2022 would have increased Interest expense on our variable-rate debt by approximately $4.6 million. Exchange Rate Risk We have manufacturing sites in Europe, Africa, and Asia and sell our products internationally.
In order to mitigate our interest rate risk, we may enter into interest rate swap or collar agreements. A hypothetical increase in the interest rate of 1.00% during 2023 would have increased Interest expense on our variable-rate debt by approximately $2.8 million. Exchange Rate Risk We have manufacturing sites in Europe, Africa, and Asia and sell our products internationally.

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