Results
Bioventus Inc.
03/05/2026 | Press release | Distributed by Public on 03/05/2026 06:38
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Part I, Item 1A. Risk Factors and our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K ("Annual Report"). In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Part 1, Item 1A. Risk Factors and elsewhere in this Annual Report. A discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023 has been reported previously in our Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 11, 2025, under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Executive Summary
We are a global medical device company focused on helping patients recover and live life to the fullest by relieving pain and addressing musculoskeletal challenges through a diverse portfolio of high-quality, innovative, and clinically proven solutions. We operate our business through two reporting segments, U.S. and International, and our portfolio of products is comprised of five patient-focused areas, grouped into three businesses based on clinical use: (i) Pain Treatments & PRP ("Pain Treatments"), (ii) Surgical Solutions and (iii) Restorative Therapies.
•Pain Treatments, consisting of:
◦Knee Osteoarthritis ("KOA"): Our product portfolio includes a range of intra-articular, hyaluronic acid ("HA") injections that help relieve patient discomfort and improve quality of life. In the U.S., we also distribute the XCELL Platelet-Rich Plasma ("PRP") system, a technology that is synergistic with our existing physician call points, as many surgeons who use HA also use PRP.
◦Peripheral Nerve Stimulation ("PNS"): We are focused on developing a full portfolio of peripheral nerve stimulation products with solutions for acute, temporary and chronic pain.
•Surgical Solutions, consisting of:
◦Ultrasonics:Our Ultrasonics business offers precision bone resection for patients with degenerative spine conditions and spinal deformities. This portfolio also enables precision ultrasonic neuro and general surgery to address brain tumors and pathologies of the liver and other organs.
◦Bone Graft Substitutes ("BGS"): Our BGS product portfolio includes a range of products that facilitate optimal bone fusion following a surgical procedure.
•Restorative Therapies, consisting of:
◦Fracture Care:We provide low-intensity pulse ultrasound to help patients who suffer from bone fractures that do not heal through traditional methods. We plan to expand our U.S. clinical fracture care indications to address the healing of fresh fractures, especially for high-risk patients.
The following table sets forth total net sales, net income (loss) and Adjusted EBITDA for the periods presented:
| Years Ended December 31, | |||||||||||
| (in thousands, except for income (loss) per share) | 2025 | 2024 | |||||||||
| Net sales | $ | 568,087 | $ | 573,280 | |||||||
| Net income (loss) | $ | 27,274 | $ | (47,049) | |||||||
|
Adjusted EBITDA(a)
|
$ | 116,277 | $ | 108,882 | |||||||
| Income (loss) per Class A common stock | |||||||||||
| Basic | $ | 0.34 | $ | (0.56) | |||||||
| Diluted | 0.33 | (0.56) | |||||||||
(a)See below under Results of Operations-Adjusted EBITDAfor a reconciliation of net income (loss) to Adjusted EBITDA.
Significant Developments
2025 Credit Agreement
On July 31, 2025, we entered into a Credit Agreement (the "2025 Credit Agreement") that provides for a $300.0 million term loan facility (the "2025 Term Loan") and a $100.0 million revolving credit facility (the "2025 Revolver"). Proceeds from the 2025 Term Loan, borrowings of $30.0 million under the 2025 Revolver, and $2.6 million of available cash were used to fully repay the outstanding balance under the 2019 Credit and Guaranty Agreement, as amended, which totaled $332.6 million at the time of repayment. We recorded a $0.3 million loss on extinguishment and incurred $0.8 million in third-party costs as a result of these refinancing transactions.
The 2025 Credit Agreement is expected to provide $2.0 million of annual interest expense savings, increased liquidity and extended debt maturity to July 2030. On August 1, 2025, we entered into two interest rate swaps totaling $150.0 million to hedge the interest rate risk associated with our floating-rate SOFR-based borrowings under the 2025 Credit Agreement.
XCELL PRP System
In August 2025, we fully launched the XCELL PRP System in the Orthopedic and Sports Medicine specialties across the U.S. market. The XCELL PRP System is designed to deliver customization, precision and efficiency with high platelet count in a single 10-minute process, allowing providers to select between leukocyte-rich and leukocyte-poor options with flexible dosing to meet individual patient and procedural needs.
Peripheral Nerve Stimulation
In July 2025, we received FDA 510(k) clearances for both TalisMann and StimTrial, expanding our innovative growth portfolio of PNS solutions for chronic pain management. These clearances mark an important step forward and represent a substantial growth opportunity as we look to expand in the PNS market. With TalisMann and StimTrial now FDA-cleared, we offer a comprehensive PNS portfolio that empowers physicians to potentially treat a broader spectrum of patients-from initial assessment to long-term therapy-with greater confidence and flexibility. This development also reinforces our commitment to delivering non-opioid, minimally invasive therapies designed to address real-world clinical needs.
TalisMann combines our patented electric field conduction technology with an integrated pulse generator to potentially reach deeper, larger nerves. This combination is designed to provide long-term relief from chronic nerve pain for patients, potentially increasing the number of patients who respond to neuromodulation therapy. From a physician's perspective, the increase in power allows for easier lead placement and potentially broadens addressable nerves. StimTrial provides physicians the ability to evaluate patient response to PNS therapy, which we expect will facilitate physician adoption and payer reimbursement where trial assessments are required. We began a limited commercial release of both TalisMann and StimTrial in select U.S. markets during the third quarter of 2025. The broader market launch of these products commenced in early 2026.
Advanced Rehabilitation Business
On December 31, 2024, we completed the sale of certain products within our Advanced Rehabilitation Business, including the L100, L300 Go, L360, H200, Vector Gait & Safety System and Bioness Integrated Therapy System (collectively, the "Advanced Rehabilitation Business"). This divestiture reflects our strategic decision to focus on core business areas and streamline operations. The Advanced Rehabilitation Business was considered non-core and required additional research and development investment to achieve its next stage of growth. We received $24.7 million of cash proceeds at closing, net of transactional fees, which were subject to a post-closing adjustment for net working capital. We paid $0.7 million in the second quarter of 2025 to settle the adjustment for net working capital. The net proceeds were used to pay $20.0 million in long-term debt obligations on December 31, 2024. We may also receive an aggregate of $20.0 million in potential earn-out payments based on the achievement of certain revenue and financial performance thresholds related to the Advanced Rehabilitation Business during the fiscal years ending December 31, 2025 and 2026. The revenue and specified financial performance criteria for the fiscal year ended December 31, 2025 were not achieved.
Components of our results of operations
Net Sales
We generate net sales from a portfolio of active healing products that serve physicians spanning the orthopedic continuum, including sports medicine, total joint reconstruction, hand and upper extremities, foot and ankle, podiatric surgery, trauma, spine and neurosurgery. We report sales net of contractual allowances, rebates and returns.
We sell our products primarily through our direct sales team, which manages and maintains the sales relationship with healthcare providers, distribution centers or specialty pharmacies. Certain Surgical Solutions products are sold through independent distributors to hospitals so our neurosurgeon and orthopedic spine surgeon customers can use them in procedures. In certain international markets, we also sell to independent distributors on prearranged business terms, who manage or maintain the sales relationship with their physician customers. Refer toItem 8. Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-Note 2. Significant Accounting Policies for further information.
We generally recognize revenue at the point in time when control is transferred to the customer, for example, when the product is shipped to the customer, when the patient has accepted the product or upon consumption in a surgical procedure.
Cost of Sales
Our cost of sales primarily consists of costs of products purchased from our third-party suppliers, direct labor and allocated overhead associated with manufacturing and assembly, excess and obsolete inventory charges, shipping, inspection and related costs incurred in making our products available for sale or use. In addition, cost of sales includes depreciation related to production as well as amortization of product-related intellectual property and distribution rights associated with marketed products. Certain products are manufactured by or obtained from third-party suppliers primarily located in Japan, Switzerland, Sweden and the United States.
Gross Profit and Gross Margin
Gross profit consists of net sales less cost of sales. We calculate gross margin as gross profit divided by net sales. Our gross margin has been and will continue to be affected by a variety of factors, including costs of products purchased from our third-party suppliers, manufacturing costs, product mix and implementation over time of cost-reduction strategies. We expect net sales and product mix to vary quarter by quarter and therefore our gross profit will likely fluctuate from quarter to quarter.
Selling, General and Administrative Expense
Selling, general and administrative expense primarily consists of salaries, benefits and other related costs, including equity-based compensation, for personnel employed in sales, marketing, finance, legal, compliance, administrative, information technology, medical education and training, quality and human resource departments. Selling, general and administrative expense also includes third-party marketing, supply chain and distribution, product recall costs, information technology, legal, human resources, insurance and facilities expenses, selling, general and administrative expenses also include commissions, generally based on a percentage of sales, to our direct sales team and independent distributors. We expect our selling, general and administrative expenses will increase with the continued expansion of our sales organization and marketization of our current and pipeline products. We plan to hire more personnel to support the growth of our business. However, over time, as we grow our net sales, we expect selling, general and administrative expenses to decline as a percentage of net sales.
Research and Development Expense
Research and development expense primarily consists of employee compensation, equity-based compensation and related expenses, as well as contract research organization service expenses related to clinical trials. We expense internal research and development costs as incurred and research and development costs incurred by third parties as they perform contracted work. Our research and development expenses may vary substantially from period to period based on the timing of research and development activities. We are focused on internal research and development to broaden our portfolio across all products and undertake clinical research to support their marketization. As a result, we expect our research and development expenses to vary from low to the mid-single digits as a percentage of net sales as we introduce new products, extend existing product lines and expand indications. We see significant opportunity to develop innovative and clinically differentiated products in-house with our experienced research and development team. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.
Restructuring Costs
We have restructured portions of our operations and future restructuring activities are possible. Identifying and calculating the cost to exit operations requires certain assumptions, the most significant of which are anticipated future liabilities. Although our estimates have been reasonably accurate in the past, significant judgment is required, and these estimates and assumptions may change as additional information becomes available and facts or circumstances change. Restructuring costs are recorded at estimated fair value. Key assumptions in determining the restructuring costs include negotiated terms and payments to terminate contractual obligations. In 2025, restructuring costs primarily related to severance costs associated with the elimination of several positions in order to optimize our organizational structure.
Depreciation and Amortization
Depreciation expense primarily consists of depreciation of computer equipment and software as well as demonstration and consignment inventory, leasehold improvements, furniture, fixtures, machinery and equipment. Amortization expense primarily consists of amortization expense related to customer relationships and other intangible assets.
Interest Expense
Interest expense primarily consists of interest on our indebtedness, which currently consists of our term loan and revolving credit facility, which was incurred pursuant to the 2025 Credit Agreement. We have entered into interest rate swaps to limit our exposure to changes in the variable interest rate on our 2025 Term Loan. Interest expense includes any fair value gain or losses on these swaps.
Other Expense
Other expense primarily consists of foreign currency transaction and remeasurement gains and losses on transactions denominated in currencies other than our functional currency. Our foreign currency transaction and remeasurement gains and losses are primarily related to cash, liabilities and intercompany receivables and payables denominated in foreign currency. Other expense may also include certain nonrecurring items.
Income Tax Expense
The Company's subsidiary, Bioventus LLC ("BV LLC"), is a partnership for U.S. federal tax purposes. Accordingly, the members include the profits and losses of BV LLC in their income tax returns. Certain wholly-owned subsidiaries of BV LLC are taxable entities for U.S. or foreign tax purposes and file tax returns in their local jurisdictions. Bioventus Inc. is subject to U.S. federal, state and local income taxes at the prevailing corporate tax rates with respect to our taxable income. In addition to tax expenses, we are obligated to make payments under the tax receivable agreement ("TRA"), which could be significant. The TRA obligates us to pay to Smith & Nephew, Inc. ("Continuing LLC Owner") 85% of the amount of any realized tax benefits (or in some circumstances are deemed to realize) resulting from (i) increases in the tax basis of assets of BV LLC as a result of (a) any future redemptions or exchanges of LLC Interests and (b) certain distributions (or deemed distributions) by BV LLC and (ii) certain other tax benefits arising from payments we make under the TRA. For more information, see Item 8. Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-Note 11. Income Taxesfor additional information.
Income tax expense includes U.S. federal, state and international income taxes, including certain taxes applicable to BV LLC. Certain income and expense items in income tax returns are not reported in the same year as financial statements. We report the income tax effects of these differences as deferred income taxes. Valuation allowances recognized reduce the related deferred tax assets to an amount which are more likely than not to be realized. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Non-GAAP Financial Measures - Adjusted EBITDA
We present Adjusted EBITDA, a non-GAAP financial measure, because we believe it is a useful indicator that management uses to measure operating performance and for planning purposes, including the preparation of our annual operating budget and financial projections. We believe that Adjusted EBITDA is useful to our investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. We define Adjusted EBITDA as net income (loss) before depreciation and amortization, provision of income taxes and interest expense, net, adjusted for the impact of certain cash, non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include acquisition and divestiture related costs, certain shareholder litigation costs, impairment of assets, restructuring costs, equity-based compensation expense, debt refinancing, loss on extinguishment of debt, and other items. Adjusted EBITDA by segment consists of net sales and costs directly attributable to a segment, as well as an allocation of corporate overhead costs primarily based on a ratio of net sales by segment to total consolidated net sales.
Non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for, or as superior to, the financial information prepared and presented in accordance with U.S. GAAP. These measures might exclude certain normal recurring expenses. Therefore, these measures might not provide a complete understanding of the Company's performance and should be reviewed in conjunction with the U.S. GAAP financial measures. Additionally, other companies might define their non-GAAP financial measures differently than we do. Investors are encouraged to review the reconciliation of the non-GAAP measure provided in this Annual Report on Form 10-K, including all tables referencing Adjusted EBITDA to its most directly comparable U.S. GAAP measure.
Results of Operations
The following table sets forth components of our consolidated statements of operations as a percentage of net sales for the periods presented:
| Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net sales | 100.0 | % | 100.0 | % | |||||||
|
Cost of sales (including depreciation and amortization)
|
31.7 | % | 32.3 | % | |||||||
| Gross profit | 68.3 | % | 67.7 | % | |||||||
| Selling, general and administrative expense | 55.3 | % | 60.1 | % | |||||||
| Research and development expense | 2.1 | % | 2.4 | % | |||||||
| Restructuring costs | 0.4 | % | - | % | |||||||
| Change in fair value of contingent consideration | - | % | 0.2 | % | |||||||
| Depreciation and amortization | 1.0 | % | 1.3 | % | |||||||
| Impairment of assets | - | % | 6.3 | % | |||||||
| Loss on disposals | - | % | 0.1 | % | |||||||
| Operating income (loss) | 9.5 | % | (2.7 | %) | |||||||
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:
| Years Ended December 31, | |||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| Net income (loss) | $ | 27,274 | $ | (47,049) | |||||||
| Interest expense, net | 26,486 | 38,792 | |||||||||
| Income tax benefit, net | (1,565) | (5,293) | |||||||||
|
Depreciation and amortization(a)
|
47,011 | 49,555 | |||||||||
|
Acquisition and related costs(b)
|
- | 1,339 | |||||||||
|
Shareholder litigation costs(c)
|
51 | 13,802 | |||||||||
|
Restructuring costs(d)
|
2,235 | (57) | |||||||||
|
Equity-based compensation(e)
|
12,673 | 13,274 | |||||||||
|
Debt refinancing(f)
|
902 | 351 | |||||||||
|
Loss on extinguishment(g)
|
326 | - | |||||||||
|
Impairment of assets(h)
|
- | 36,357 | |||||||||
|
Loss on disposal of a business(i)
|
81 | 292 | |||||||||
|
Other items(j)
|
803 | 7,519 | |||||||||
| Adjusted EBITDA | $ | 116,277 | $ | 108,882 | |||||||
(a)Includes for the years ended December 31, 2025 and 2024, respectively, depreciation and amortization of $41.3 million and $41.9 million in cost of sales and $5.7 million and $7.7 million in operating expenses presented in the consolidated statements of operations and comprehensive income (loss).
(b)Includes acquisition and integration costs related to completed acquisitions and changes in fair value of contingent consideration.
(c)Costs incurred as a result of certain shareholder litigation unrelated to our ongoing operations.
(d)Restructuring costs in 2025 primarily related to severance associated with the elimination of several positions and the consolidation of certain administrative functions and roles. Costs incurred during 2024 reflect a reversal of expenses associated with employee transitions resulting from the sale of the Advanced Rehabilitation Business and certain contract terminations.
(e)Includes compensation expense resulting from awards granted under our equity-based compensation plans.
(f)Debt refinancing in 2025 related to certain third-party fees associated with our 2025 Credit Agreement. Activity in 2024 is attributable to advisory fees and debt amendment related costs related to our 2019 Credit and Guaranty Agreement, as amended.
(g)Losses recognized in connection with the refinancing of long-term debt.
(h)Includes a non-cash impairment charge of $33.9 million for intangible assets solely attributable to our Advanced Rehabilitation Business, driven by the decision to divest and a $2.5 million non-cash impairment charge for right-of-use assets associated with exited office and warehouse spaces.
(i)Represents the loss on the disposal of the Advanced Rehabilitation Business.
(j)Other items during the year ended December 31, 2025 primarily consisted of $0.5 million of expenses related to the divestiture of the Advanced Rehabilitation Business, which was completed on December 31, 2024.
Other items during the year ended December 31, 2024 primarily consisted of $4.7 million, net of transactional fees, of expenses related to the divestiture of the Advanced Rehabilitation Business and transformative project costs of $1.7 million.
Net Sales
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
| U.S. | |||||||||||||||||||||||
| Pain Treatments | $ | 248,237 | $ | 234,936 | $ | 13,301 | 5.7 | % | |||||||||||||||
| Surgical Solutions | 180,442 | 167,706 | 12,736 | 7.6 | % | ||||||||||||||||||
| Restorative Therapies | 73,418 | 104,167 | (30,749) | (29.5 | %) | ||||||||||||||||||
| Total U.S. net sales | 502,097 | 506,809 | (4,712) | (0.9 | %) | ||||||||||||||||||
| International | |||||||||||||||||||||||
| Pain Treatments | 30,823 | 26,353 | 4,470 | 17.0 | % | ||||||||||||||||||
| Surgical Solutions | 23,211 | 21,549 | 1,662 | 7.7 | % | ||||||||||||||||||
| Restorative Therapies | 11,956 | 18,569 | (6,613) | (35.6 | %) | ||||||||||||||||||
| Total International net sales | 65,990 | 66,471 | (481) | (0.7 | %) | ||||||||||||||||||
| Total net sales | $ | 568,087 | $ | 573,280 | $ | (5,193) | (0.9 | %) | |||||||||||||||
U.S.
Net sales decreased $4.7 million, or 0.9%, compared to the prior year. Net sales from Pain Treatments increased $13.3 million, driven by volume growth in Durolane. Net sales from Surgical Solutions increased $12.7 million due to volume growth in BGS and Ultrasonics. The $30.7 million decrease in net sales from Restorative Therapies was driven by the divestiture of the Advanced Rehabilitation Business, which contributed $38.2 million in net sales during the prior year. This decrease was partially offset by a $6.5 million increase in our net sales for our EXOGEN Bone Stimulation System.
International
Net sales decreased $0.5 million, or 0.7%, primarily due to the divestiture of the Advanced Rehabilitation Business, which contributed $7.3 million in net sales during the prior year. This decrease was mostly offset by volume growth in Pain Treatments for Durolane and in Surgical Solutions for Ultrasonics.
Gross Profit and Gross Margin
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
| U.S. | $ | 350,004 | $ | 348,953 | $ | 1,051 | 0.3 | % | |||||||||||||||
| International | 38,153 | 39,273 | (1,120) | (2.9 | %) | ||||||||||||||||||
| Total | $ | 388,157 | $ | 388,226 | $ | (69) | - | % | |||||||||||||||
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| U.S. | 69.7 | % | 68.9 | % | 0.8 | % | |||||||||||
| International | 57.8 | % | 59.1 | % | (1.3 | %) | |||||||||||
| Total | 68.3 | % | 67.7 | % | 0.6 | % | |||||||||||
U.S.
Gross profit increased $1.1 million, or 0.3%, compared to the prior year, primarily driven by volume growth in Durolane, BGS and our EXOGEN Bone Stimulation System. This increase was partially offset by a $21.3 million reduction resulting from the divestiture of the Advanced Rehabilitation Business. Gross margin increased 0.8% in comparison to the prior year. This improvement was driven by a favorable product mix within BGS as well as enhanced collections associated with our EXOGEN Bone Stimulation System. These gains were partially offset by freight and tariff costs, as well as shifts in channel mix.
International
Gross profit decreased $1.1 million, or 2.9%, due to a $4.0 million reduction resulting from the divestiture of the Advanced Rehabilitation Business. This reduction was partially offset by growth from Durolane and the EXOGEN Bone Stimulation System. Gross margin decreased 1.3% due to product and country mix.
Selling, General and Administrative Expense
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Selling, general and administrative expense | $ | 314,026 | $ | 343,798 | $ | (29,772) | (8.7 | %) | |||||||||||||||
Selling, general and administrative expenses decreased by $29.8 million, or 8.7%, primarily due to: (i) a $14.5 million decrease in compensation-related costs, partially attributable to the sale of the Advanced Rehabilitation Business; (ii) a $13.8 million reduction in shareholder litigation costs settled during 2024; and (iii) a $2.3 million decrease in administrative related expenses.
Research and Development Expense
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Research and development expense | $ | 12,113 | $ | 13,951 | $ | (1,838) | (13.2 | %) | |||||||||||||||
Research and development expense decreased $1.8 million, or 13.2%, primarily due to: (i) a $1.6 million reduction in consulting expenses resulting from the completion of certain projects; and (ii) a $0.7 million decrease in compensation related costs. These decreases were partially offset by a $0.3 million increase in stock-based compensation.
Restructuring Costs
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
|
Restructuring costs
NM - Not Meaningful
|
$ | 2,235 | $ | (52) | $ | 2,287 | NM | ||||||||||||||||
Restructuring costs in 2025 primarily related to severance costs associated with the elimination of several positions in order to optimize our organizational structure. In 2024, there were expense reversals related to employee transition agreements associated with the sale of the Advanced Rehabilitation Business.
Change in Fair Value of Contingent Consideration
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Change in fair value of contingent consideration | $ | - | $ | 1,423 | $ | (1,423) | (100.0 | %) | |||||||||||||||
Activity from the change in fair value of contingent consideration relates to the acquisition of Bioness in 2021. Certain milestones were achieved during the fourth quarter of 2024, and as a result, we ceased revaluing the contingent consideration liability in 2025. We made contingent consideration payments totaling $19.8 million during 2025, which fully settled the Bioness contingent consideration liability.
Depreciation and Amortization
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Depreciation and amortization | $ | 5,727 | $ | 7,652 | $ | (1,925) | (25.2 | %) | |||||||||||||||
Depreciation and amortization decreased during the year ended December 31, 2025 compared with the prior year primarily due to certain information technology assets being fully depreciated in 2025.
Impairment of Assets
In 2024, we evaluated the Advanced Rehabilitation Business for impairment following our decision to divest. Based on this evaluation, we recorded a $33.9 million impairment to reduce intangible assets to fair value less costs to sell, using the consideration agreed upon with the purchaser. Additionally, we recognized $2.5 million of impairment losses during the year ended December 31, 2024 for two right-of-use assets-office and warehouse spaces-that the Company exited during the year.
Loss on Disposals
The loss on disposals during the years ended December 31, 2025 and 2024 related to the sale of the Advanced Rehabilitation Business.
Other Expense (Income)
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Interest expense, net | $ | 26,486 | $ | 38,792 | $ | (12,306) | (31.7 | %) | |||||||||||||||
| Loss on extinguishment | $ | 326 | $ | - | $ | 326 | NM | ||||||||||||||||
| Other expense (income) | $ | 1,454 | $ | (1,645) | $ | 3,099 | (188.4 | %) | |||||||||||||||
Interest expense, net decreased during the year ended December 31, 2025 compared to the prior year. This decrease was due to lower debt outstanding and a reduction in interest rates and applicable margins. Loss on extinguishment of debt recognized during the year ended December 31, 2025 was directly related to the refinancing of our debt obligations.
Other expense, net during 2025 was driven primarily by foreign currency losses. Other income, net during 2024 primarily reflected foreign currency gains, inclusive of a $1.0 million gain related to the recognition of previously unrealized gains and losses on the assets and liabilities of the Advanced Rehabilitation Business.
Income Tax Benefit, Net
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Income tax benefit, net | $ | (1,565) | $ | (5,293) | $ | 3,728 | (70.4) | % | |||||||||||||||
| Effective tax rate | 6.1 | % | 10.1 | % | (4.0 | %) | |||||||||||||||||
The effective tax rate of 6.1% for the year ended December 31, 2025 was attributable to the release of reserves for uncertain tax positions and a positive change in the valuation allowance on deferred tax assets due to the utilization of net operating loss carryforwards. The effective rate was 10.1% for the year ended December 31, 2024 due to the recognition of deferred tax benefits from recorded impairments.
Noncontrolling Interest
Subsequent to the IPO and related transactions, we became the sole managing member of BV LLC, holding ownership interests of 81.0% and 80.6% as of December 31, 2025 and 2024, respectively. We consolidate BV LLC's financial statements as we have both a majority economic interest and sole voting control over BV LLC. The portion of BV LLC not owned by us-19.0% as of December 31, 2025-is reflected as a noncontrolling interest, representing the share of BV LLC owned by the Continuing LLC Owner. Period-over-period changes in noncontrolling interest reflect the allocation of net income or loss attributable to the Continuing LLC Owner.
Segment Adjusted EBITDA
Adjusted EBITDA for each of our reportable segments is as follows:
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
| U.S. | $ | 100,967 | $ | 95,421 | $ | 5,546 | 5.8 | % | |||||||||||||||
| International | $ | 15,310 | $ | 13,461 | $ | 1,849 | 13.7 | % | |||||||||||||||
U.S.
Adjusted EBITDA increased $5.5 million, or 5.8%, compared to the prior year period, reflecting lower operating expenses, including: (i) a $5.1 million reduction in selling, general and administrative expenses, most of which was attributable to the divestiture of the Advanced Rehabilitation Business and the corresponding decrease in compensation-related costs; and (ii) a $1.9 million decrease in research and development expenses due to lower consulting costs as certain research and development projects were completed. These improvements were partially offset by a $1.9 million increase in other expense driven by unfavorable movements in foreign currency.
International
Adjusted EBITDA increased $1.8 million or 13.7%, compared to the prior year period. The increase was primarily driven by lower selling, general and administrative expenses, partially offset by lower gross profit primarily resulting from the divestiture of the Advanced Rehabilitation Business.
Liquidity and Capital Resources
Sources of Liquidity
Our principal liquidity needs have historically been for acquisitions, working capital, research and development, clinical trials, and capital expenditures. We expect these needs to continue as we develop and market new products and further expand into international markets.
On December 31, 2024, we closed the sale of the Advanced Rehabilitation Business, which was considered non-core and required additional research and development expenditures to achieve its next stage of growth. We received cash proceeds of $24.7 million at closing, net of transactional fees, which were subject to a post-closing adjustment for net working capital. We paid $0.7 million in the second quarter of 2025 to settle the adjustment for net working capital. Net proceeds from the transaction were used to pay $20.0 million in long-term debt obligations on December 31, 2024. We may also receive up to an additional $20.0 million in contingent earn-out payments, based on the achievement of certain revenue and financial performance thresholds related to the Advanced Rehabilitation Business during the fiscal years ending December 31, 2025 and 2026. The revenue and specified financial performance criteria for the fiscal year ended December 31, 2025 were not achieved.
On July 31, 2025, we entered into the 2025 Credit Agreement that provides for a $300.0 million term loan (the "2025 Term Loan") and a $100.0 million revolving credit facility (the "2025 Revolver"). Proceeds from the 2025 Credit Agreement, including $30.0 million in borrowings under its revolver and $2.6 million in available cash, were used to fully repay the outstanding balance under the 2019 Credit and Guaranty Agreement, as amended, which totaled $332.6 million as of July 31, 2025.
The 2025 Credit Agreement is expected to provide $2.0 million of annual interest expense savings, increased liquidity and extended debt maturity to July 2030. On August 1, 2025, we entered into two interest rate swaps to mitigate the interest rate risk associated with our floating-rate SOFR-based borrowings under the 2025 Credit Agreement. Under the terms of swaps, we pay a fixed interest rate in exchange for SOFR-based variable interest throughout the life of the instruments. The interest rate swaps have a weighted average fixed interest rate of 3.60% and an aggregate notional value of $150.0 million, or 50.0% of the 2025 Term Loan.
The five-year 2025 Revolver includes an initial annual commitment fee of 0.30%, calculated based on the average daily amount of the available revolving commitment, which includes revolving and swingline loans as well as letters of credit ("LOC"). The commitment fee is payable quarterly in arrears on the last day of each calendar quarter and at maturity. The commitment rate is subject to adjustment based on our leverage ratio. Swingline loans are available as base rate option loans and LOCs are limited to $7.5 million under the 2025 Credit Agreement.
As of December 31, 2025, we had $97.8 million available on the 2025 Revolver, net of $2.2 million in outstanding LOCs. This availability, combined with our existing cash balances and expected cash flows from operations, provides us with sufficient liquidity to meet our near-term obligations and support ongoing operations for the next twelve months.
We anticipate that, to the extent additional capital is required, we will seek funding through a combination of equity financings, the incurrence of additional indebtedness, or other strategic sources of capital. Our ability to access these sources will depend on market conditions, our financial performance, and other factors.
We may explore divestiture opportunities for non-core assets to improve our liquidity position. In addition, we may raise additional funds to finance future cash needs through receivables or royalty financings or corporate collaboration and licensing arrangements. If we raise additional funds by issuing equity securities or convertible debt, our stockholders will experience dilution. If we raise additional funds through collaboration and licensing arrangements with third parties, it might be necessary to relinquish valuable rights to our products, future revenue streams or product candidates, or to grant licenses on terms that might not be favorable to us. We cannot be certain that additional funding will be available on acceptable terms, or at all. Any failure to raise capital in the future might have a negative impact on our financial condition and our ability to pursue our business strategies.
Future Cash Requirements
The following table summarizes certain estimated future cash requirements under our various contractual obligations committed to as of December 31, 2025 in total and disaggregated into current and long-term obligations.
| (in thousands) | Current | Long-Term | Total | ||||||||||||||
|
Long-term debt(a)
|
$ | 15,000 | $ | 281,250 | $ | 296,250 | |||||||||||
|
Interest payments on long-term debt obligations(a)
|
20,242 | 65,330 | 85,572 | ||||||||||||||
|
Lease liabilities(b)
|
5,222 | 15,811 | 21,033 | ||||||||||||||
|
Purchase commitments(c)
|
23,763 | 25,000 | 48,763 | ||||||||||||||
| $ | 64,227 | $ | 387,391 | $ | 451,618 | ||||||||||||
(a)Refer to Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 5. Financial Instrumentsin this Annual Report for further information regarding long-term debt obligations.
(b)Refer to Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 12. Commitments and Contingenciesin this Annual Report for further information regarding operating and finance lease liabilities.
(c)Amounts that are contractually committed to as of December 31, 2025 related to multi-year exclusive supply agreements. Generally, our purchase obligations under these supply agreements are based on forecasted requirements, subject in some cases to an annual contractual minimum.
Other Cash Requirements
We enter into contracts in the normal course of business with various third parties for development, collaboration and other services for operating purposes. These contracts provide for termination upon notice. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. Certain agreements include contingent events that upon occurrence would require payment. For information regarding Commitments and Contingencies, refer to Item 8. Financial Statements and Supplementary Datain this Annual Report.
Tax Receivable Agreement
The BV LLC Agreement provides for the payment of certain distributions to the Continuing LLC Owner in amounts sufficient to cover the income taxes imposed with respect to the allocation of taxable income from BV LLC as well as obligations within the TRA. Under the TRA, we are required to make cash payments to the Continuing LLC Owner equal to 85% of the tax benefits, if any, that we actually realize (or in certain circumstances are deemed to realize), as a result of (1) increases in the tax basis of assets of BV LLC resulting from (a) any future redemptions or exchanges of LLC Interests, and (b) certain distributions (or deemed distributions) by BV LLC and (2) certain other tax benefits arising from payments under the TRA. We expect the amount of the cash payments required to be made under the TRA will be significant. The actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including the timing of redemptions or exchanges by the Continuing LLC Owner, the amount of gain recognized by the Continuing LLC Owner, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable. Any payments made by us to the Continuing LLC Owner under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore accelerate payments due under the TRA.
Indebtedness
The 2025 Credit Agreement contains affirmative and negative covenants applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict our ability to, subject to negotiated exceptions, incur additional indebtedness, liens on our assets, engage in acquisitions or dispositions, pay dividends or make other distributions, enter into transactions with affiliated persons, make investments, change the nature of our business or organizational documents, or prepay or make modifications to other indebtedness that would adversely affect the lenders.
The 2025 Credit Agreement also contains financial covenants including a maximum consolidated total net leverage ratio of 4.00 to 1.00 for the quarter ending September 30, 2025 through the quarter ending December 31, 2025, and starting with the fiscal quarter ending March 31, 2026 and for each fiscal quarter thereafter, a maximum consolidated total net leverage ratio of 3.50 to 1.00. We may elect to increase such ratio level by 0.50 to 1.00 following certain permitted acquisitions. A minimum interest coverage ratio of 2.50 to 1.00 must also be maintained. The 2025 Revolver also includes standard provisions related to conditions of borrowing and customary events of default. We were in compliance with the financial covenants under the 2025 Credit Agreement as of December 31, 2025, and expect to remain in compliance for the next twelve months. We do not expect any of these covenants or restrictions to affect or limit our ability to conduct business in the ordinary course.
As of December 31, 2025, we had $294.0 million outstanding under the 2025 Term Loan, net of original issue discount and deferred financing costs, and no outstanding borrowings under the 2025 Revolver.
Refer to Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 5. Financial Instrumentsfor further details on the Company's indebtedness.
Information Regarding Cash Flows
Cash and cash equivalents as of December 31, 2025 totaled $51.2 million, compared to $41.6 million as of December 31, 2024. As of December 31, 2025, $41.3 million and $9.9 million of our cash and cash equivalents was held within the U.S. and International segments, respectively. The change in cash was primarily due to the following:
| Years Ended December 31, | Change | ||||||||||||||||||||||
| (in thousands, except for percentage) | 2025 | 2024 | $ | % | |||||||||||||||||||
| Net cash from operating activities | $ | 74,673 | $ | 38,795 | $ | 35,878 | 92.5 | % | |||||||||||||||
| Net cash from investing activities | (3,248) | 22,963 | (26,211) | (114.1 | %) | ||||||||||||||||||
| Net cash from financing activities | (62,140) | (54,580) | (7,560) | 13.9 | % | ||||||||||||||||||
| Effect of exchange rate changes on cash | 371 | (2,560) | 2,931 | (114.5 | %) | ||||||||||||||||||
| Net change in cash and cash equivalents | $ | 9,656 | $ | 4,618 | $ | 5,038 | 109.1 | % | |||||||||||||||
Operating Activities
Net cash inflows from operating activities increased $35.9 million due to cash collections on net sales, lower interest payments due to favorable interest rates and reduced debt levels, and one-time charges in 2024 including the payment of certain shareholder litigation costs and expenses related to the divestiture of the Advanced Rehabilitation Business. These operating inflows were partially offset by higher rebate and compensation-related payments.
Investing Activities
Net cash flows from investing activities decreased $26.2 million for the year ended December 31, 2025 compared to the prior year. Investing cash flows for 2025 primarily consisted of $2.6 million in capital expenditures, largely related to information technology investments, and a $0.7 million working capital settlement associated with the sale of the Advanced Rehabilitation Business. Investing cash flows for 2024 consisted of $24.7 million in proceeds from the sale of the Advanced Rehabilitation Business and $1.7 million in capital expenditures and the purchase of distribution rights.
Financing Activities
Net cash outflows from financing activities increased $7.6 million for the year ended December 31, 2025 compared to the prior year. The increase in cash outflow was driven by a $19.8 million contingent consideration payment related to the acquisition of Bioness in 2021 and the receipt of $4.5 million of deferred consideration in 2024 associated with the prior-year sale of the Wound Business. These cash flows were partially offset by the impact of revolving credit facility activity, as we made $15.0 million of payments on revolving credit facilities during 2024, whereas 2025 activity consisted of offsetting borrowings and repayments in 2025, resulting in no net change in financing cash flows for the year. Also contributing to the offset was $2.2 million in net cash inflows related to the refinancing of long-term debt obligations, including proceeds from the 2025 Credit Agreement, principal payments, and associated financing costs.
Recently Issued Accounting Pronouncements
Refer to Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 2. Significant Accounting Policies for information regarding accounting pronouncements that may impact our financial statements in future periods.
Critical Accounting Estimates
The preparation of the consolidated financial statements requires us to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of sales and expenses during the reporting periods. Certain of our more critical accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty.
We use historical experience and other assumptions as the basis for our judgments in making these estimates. Because future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Any changes in these estimates will be reflected in our consolidated financial statements as they occur. Refer to Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 2. Significant Accounting Policies for a further description of our significant accounting policies. The critical accounting estimates discussed below represent the most significant judgments and assumptions we use to prepare our consolidated financial statements and are important to understanding and interpreting our reported results.
Revenue Recognition Estimates
Variable Consideration Estimates
We recognize revenue generally at a point in time upon transfer of control of the promised product to customers in an amount that reflects the consideration we expect to receive in exchange for those products. We exclude taxes collected from customers and remitted to governmental authorities from revenues.
Revenues are recorded at the transaction price, which is determined as the contracted price net of estimates of variable consideration resulting from discounts, rebates, returns, chargebacks, contractual allowances, estimated third-party payer settlements, and certain distribution and administration fees offered in customer contracts and other indirect customer contracts relating to the sale of products. We establish reserves for the estimated variable consideration based on the amounts earned or eligible to be claimed on the related sales. Where appropriate, these estimates take into consideration a range of possible outcomes, which are probability-weighted for relevant factors such as our historical experience, current contractual requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The amount of variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. We regularly update our reserves as new information becomes available, including newly received payer or customer invoices, by incorporating this information into our reserves at the end of each reporting period, as needed.
At the end of the third quarter of 2025, a large private insurance payer informed us that it had made changes to its claims data management and billing systems and that, as a result, we may experience significantly larger rebate volumes for our HA viscosupplement products than we had previously experienced. Using the expected value method, we estimated the variable consideration related to this contract based on the range of possible outcomes and the probabilities of each outcome. Rebates accrued under this contract, including the estimated impact of the billing system changes, totaled $16.4 million at December 31, 2025 compared to $14.4 million at December 31, 2024.
Accounts Receivable Allowances for Credit Losses
We maintain allowances for credit losses to provide for receivables we do not expect to collect. We base the allowance on an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and other information, as applicable.
Fair Value
We record certain assets and liabilities at fair value. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. Assets and liabilities are categorized based on the lowest level that is significant to the valuation.
The three levels of inputs used to measure fair value are as follows:
•Level 1-Quoted prices in active markets for identical assets or liabilities;
•Level 2-Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and
•Level 3-Unobservable inputs that are supported by little or no market data. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
Business Combinations
We record identifiable assets acquired, liabilities assumed and any noncontrolling interest in an acquiree resulting from a business combination at their estimated fair values on the date of the acquisition. We generally have third-party valuations completed for intangible assets in a business combination using a discounted cash flow analysis, incorporating various assumptions. Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired, including the amount assigned to identifiable intangible assets. The most significant estimates and assumptions inherent in a discounted cash flow analysis include the amount and timing of projected future cash flows, discount rate used to measure the risks inherent in the future cash flows, assessment of the asset's life cycle, and competitive and other trends impacting the asset, including consideration of technical, legal, regulatory, economic and other factors. Each of these factors and assumptions can significantly affect the value of the intangible asset.
Acquired in-process research and development ("IPR&D") is the fair value of projects for which the related products have not received regulatory approval and have no alternative future use and is capitalized as an indefinite-lived intangible asset. Due to inherent uncertainty related to research and development, actual results could differ materially from the assumptions used in the discounted cash flow model. Additionally, there are risks including, but not limited to, delay or failure to receive regulatory requirements to conduct clinical trials, required market clearances, or patent issuance, and that the research and development project does not result in a successful product.
Contingent Consideration
We recognize contingent consideration liabilities resulting from business combinations at estimated fair value on the acquisition date, and at each subsequent reporting period. Significant judgment is employed in determining the appropriateness of the estimates and assumptions as of the acquisition date and in post-acquisition periods. The Company initially values contingent consideration related to business combinations using a probability-weighted calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Significant estimates and assumptions required for these valuations include the probability of achieving regulatory approval under specified time frames, product sales projections under various scenarios and discount rates used to calculate the present value of the estimated payments. After the initial valuation, the Company will use its best estimate to measure contingent consideration at each subsequent reporting period. Gains and losses are recorded in selling, general and administrative expenses within the consolidated statements of operations and comprehensive income (loss).
Impairment of Goodwill and Indefinite-Lived Intangible Assets
We evaluate goodwill for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. We analyze all other indefinite-lived intangible assets qualitatively to determine if it is more likely than not that an impairment exists. If we meet the qualitative criteria, we perform a quantitative analysis to determine if an impairment exists. Our reporting units are U.S. and International and we analyze each reporting unit separately in our impairment evaluations.
In 2025, we elected to perform a qualitative goodwill assessment to determine whether it is more likely than not that the carrying amount of any reporting unit exceeded its fair value. This qualitative assessment considered the totality of relevant financial and entity specific factors, and consisted of: (i) comparing the most recent fair value assessment performed in 2024 to the 2025 carrying value; (ii) comparing estimated long-term growth projections and future forecasts completed by third-party specialists in 2024 to updated 2025 projections prepared by management; and (iii) determining whether any events or circumstances occurred since the last quantitative analysis performed in 2024 that would have been likely to effect the fair value of the reporting unit. Based on the qualitative assessment, we concluded that it is not more likely than not that the fair value of any reporting unit is below its carrying value. Accordingly, a quantitative goodwill impairment test was not required.
Our impairment process in 2024 included applying a quantitative impairment analysis to the fair value of the reporting unit and comparing it to its carrying value. We used independent third-party valuation specialists and year-to-date October data to assist management in performing the 2024 annual impairment evaluation. We determined the fair value of U.S. and International reporting units based primarily on an income approach, which incorporated the use of a discounted free cash flow analysis. The discounted free cash flow analysis was based on significant judgments, including the current operating budgets, estimated long-term growth projections and future forecasts for each reporting unit. We discounted future cash flows based on a market comparable weighted average cost of capital rate for each reporting unit. The discount rates used in the discounted free cash flow analyses reflected the risks inherent in the expected future cash flows generated by the respective intangible assets. Market risk, industry risk and a small company premium had impact on the discount rate. The value of each reporting unit was determined on a stand-alone basis from the perspective of a market participant and represents the price we estimated we would have received in a sale of the reporting unit in an orderly transaction between market participants at the measurement date. Significant judgments inherent in this analysis included estimating the amount and timing of future cash flows and the selection of appropriate discount rates, royalty rates and long-term growth rate assumptions. Changes in estimates and assumptions could materially affect the determination of fair value for each reporting unit and could result in an impairment charge, which could be material to our financial position and results of operations.
There were no goodwill impairment charges for the years ended December 31, 2025, 2024 or 2023. Refer to Item 8. Financial Statements and Supplementary Data-Notes to the Consolidated Financial Statements-Note 3. Balance Sheet Information for further discussion regarding goodwill.
Equity-Based Compensation
Equity-based compensation expense generated from the granting of restricted stock units represents the fair value of the stock measured at the market price on the date of grant. Restricted stock equity-based compensation expense is recognized over the vesting period.
We use the Monte Carlo simulation model to determine equity-based compensation expense generated from the granting of performance restricted stock units. This model estimates total shareholder return for our Class A common stock relative to a peer group consisting of companies included in the Russell 2000 Medical Equipment Index, along with additional selected companies.
The fair value of time-based stock options is determined using the Black-Scholes valuation model, with such value recognized as expense over the service period, net of actual forfeitures. Assumptions used in determining stock option fair value include the risk-free interest rate, expected dividend yield, expected price volatility, expected life of stock options and weighted-average fair value of stock options granted. The expected term of the options granted is estimated using the simplified method. Expected volatility is based on the historical volatility of our peers' common stock. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a contractual life that approximates the expected term of the option.
Income Taxes
The tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, we update our estimate of our annual effective tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period. The quarterly tax provision, and estimate of our annual effective tax rate, are subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in how we conduct business, and tax law developments.
We maintain a valuation allowance on certain deferred tax assets that we have determined are not more-likely-than-not to be realizable and assess the need for an adjustment to this valuation allowance on a quarterly basis. The assessment is based on estimates of future sources of taxable income for the jurisdictions in which we operate and the periods over which deferred tax assets will be realizable. In the event we determine we will be able to realize all or part of the net deferred tax assets in the future, all or part of the valuation allowance will be reversed in the period it is determined. The release of all or part of the valuation allowance against deferred tax assets may cause greater volatility in the effective tax rate in the periods in which it is reversed.
We recognize a tax benefit from any uncertain tax positions only if they are more likely than not to be sustained upon examination based on the technical merits of the position. The amount of the accrual for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position. Components of the reserve, if relevant, are classified as a current or noncurrent liability in the consolidated balance sheet based on when we expect each of the items to be settled. Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.
Emerging Growth Company and Smaller Reporting Company Status
We qualify as an "emerging growth company" pursuant to the provisions of the JOBS Act. For as long as we are an "emerging growth company," we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, reduced disclosure obligations relating to the presentation of financial statements in the "Management's discussion and analysis of financial condition and results of operations" section and exemptions from the requirements of holding advisory "say-on-pay" votes on executive compensation and shareholder advisory votes on golden parachute compensation. We have availed ourselves of the reduced reporting obligations and executive compensation disclosure in this Annual Report and expect to continue to avail ourselves of the reduced reporting obligations available to emerging growth companies in future filings.
In addition, an emerging growth company can delay its adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to "opt out" of such extended transition period, and as a result, we plan to comply with any new or revised accounting standards on the relevant dates on which non-emerging growth companies must adopt such standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
We will continue to qualify as an emerging growth company until the earliest of:
•December 31, 2026 (the last day of our fiscal year following the fifth anniversary of the date of our IPO);
•The last day of our fiscal year in which we have annual gross revenues of $1.235 billion or more;
•The date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt;
•The date on which we are deemed to be a "large accelerated filer," which will occur at such time as we (1) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our second fiscal quarter, (2) have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months, (3) have filed at least one annual report pursuant to the Exchange Act, and (4) are not eligible to use the requirements for smaller reporting companies as defined in Rule 12b-2 under the Exchange Act (annual revenue less than $100 million and either no public float or a public float of less than $700 million).
On June 28, 2025, we determined that we no longer qualify as a "smaller reporting company," as defined by Rule 12b-2 of the Exchange Act. Accordingly, we will not be able to avail ourselves of certain exemptions and relief from various reporting requirements available to smaller reporting companies beginning with our Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2026. We will continue to be required to comply with the "accelerated filer" disclosure obligations, subject to certain exemptions and relief from various reporting requirements that are applicable to emerging growth companies.
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