Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

As of ~~April 29,~~July 28, 2022, there were ~~101,759,170~~104,656,433 shares of the registrant’s common stock outstanding.

See accompanying notes to unaudited condensed consolidated financial statements.


	Common stock				Additional paid-in			Treasury			Accumulated other comprehensive			Accumulated			Total stockholders’			Common stock				Additional paid-in			Treasury			Accumulated other comprehensive			Accumulated			Total stockholders’
	Shares		Par Value		capital			stock			loss			deficit			equity			Shares		Par Value		capital			stock			loss			deficit			equity
Balance at December 31, 2021		99,537	$	10	$	892,828		$	(25,097	)	$	(5,994	)	$	(782,325	)	$	79,422			99,537	$	10	$	892,828		$	(25,097	)	$	(5,994	)	$	(782,325	)	$	79,422
Stock-based compensation		—		—		7,730			—			—			—			7,730			—		—		7,730			—			—			—			7,730
Distributor equity incentives		199		—		2,178			—			—			—			2,178
Sales agent equity incentives																					199		—		2,178			—			—			—			2,178
Common stock issued for warrant exercises		551		—		1,289			—			—			—			1,289			551		—		1,289			—			—			—			1,289
Common stock issued for stock option exercises		39		—		140			—			—			—			140			39		—		140			—			—			—			140
Common stock issued for vesting of restricted stock units, net of shares withheld for tax liability		852		—		(4,751	)		—			—			—			(4,751	)		852		—		(4,751	)		—			—			—			(4,751	)
Foreign currency translation adjustments		—		—		—			—			(1,180	)		—			(1,180	)		—		—		—			—			(1,180	)		—			(1,180	)
Net loss		—		—		—			—			—			(42,844	)		(42,844	)		—		—		—			—			—			(42,844	)		(42,844	)
Balance at March 31, 2022		101,178	$	10	$	899,414		$	(25,097	)	$	(7,174	)	$	(825,169	)	$	41,984			101,178	$	10	$	899,414		$	(25,097	)	$	(7,174	)	$	(825,169	)	$	41,984
Stock-based compensation																					—		—		10,109			—			—			—			10,109
Sales agent equity incentives																					20		—		361			—			—			—			361
Common stock issued for conversion of Series A preferred stock																					29		—		—			—			—			—			—
Common stock issued for warrant exercises																					1,914		1		2,674			—			—			—			2,675
Common stock issued for employee stock purchase plan and stock option exercises																					535		—		2,331			—			—			—			2,331
Common stock issued for vesting of restricted stock units, net of shares withheld for tax liability																					819		—		(4,562	)		—			—			—			(4,562	)
Common stock issued for asset acquisition																					23		—		250			—			—			—			250
Foreign currency translation adjustments																					—		—		—			—			(5,289	)		—			(5,289	)
Net loss																					—		—		—			—			—			(37,320	)		(37,320	)
Balance at June 30, 2022																					104,518	$	11	$	910,577		$	(25,097	)	$	(12,463	)	$	(862,489	)	$	10,539

See accompanying notes to unaudited condensed consolidated financial statements.

8. Contract ~~Liability~~Liabilities

Contract ~~liability~~liabilities consists of the following (in thousands):

March 31,
2022

December 31,
2021

Contract liability

$
17,427

$
18,151

Less: Non-current portion of contract liability

(2,534
)

(2,896
)
Current portion of contract liability

$
14,893

$
15,255


	June 30, 2022			December 31, 2021
Contract liabilities	$	16,650		$	18,151
Less: Non-current portion of contract liabilities		(2,800	)		(2,896	)
Current portion of contract liabilities	$	13,850		$	15,255

The non-current contract ~~liability~~liabilities balance is included in other long-term liabilities on the condensed consolidated balance sheets. Contract ~~liability~~liabilities relates to contracts with customers for which partial or complete payment of the transaction price has been received from the customer and the related obligations must be completed before revenue can be recognized. These amounts primarily ~~related~~relate to undelivered equipment, services, or maintenance agreements. The Company recognized ~~$4.3~~$5.8 million and $10.1 million of revenue from its contract liabilities during the three and six months ended ~~March 31, 2022.~~ June 30, 2022, respectively, and $3.4 million of revenue from its contract liabilities during the three and six months ended June 30, 2021. The opening and closing balances of the Company’s contract ~~liability~~liabilities are as follows (in thousands):

Balance at December 31, 2021

$
18,151

Payments received

3,592

Revenue recognized

(4,316
)
Balance at March 31, 2022

$
17,427


Balance at December 31, 2021	$	18,151
Payments received		8,634
Revenue recognized		(10,135	)
Balance at June 30, 2022	$	16,650

9. Debt

0.75% Senior Convertible Notes due 2026

In August 2021, the Company issued $ ~~$316.3~~316.3 million aggregate principal amount of unsecured Senior Convertible Notes (the "2026 Notes") with a stated interest rate of ~~0.75%~~0.75% and a maturity date of August 1, 2026. Interest on the 2026 Notes is payable semi-annually in arrears on February 1 and August 1 of each year, beginning on February 1, ~~2022.~~2022. The net proceeds from the sale of the 2026 Notes were approximately ~~$306.2~~$306.2 million after deducting the initial purchasers’ offering expenses and before cash use for the privately negotiated capped call transactions (the “Capped Call Transactions”), as described below, the repurchase of stock, and the repayment of the outstanding term loan with Squadron Medical Finance Solutions, LLC (“Squadron Medical”) and outstanding obligation under the Inventory Financing Agreement, as described below. The 2026 Notes do not contain any financial ~~covenants.~~covenants.

The 2026 Notes are convertible into shares of the Company’s common stock based upon an initial conversion rate of 54.5316 shares of the Company’s common stock per ~~$1,000~~$1,000 principal amount of 2026 Notes (equivalent to an initial conversion price of approximately ~~$18.34~~$18.34 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events, including certain distributions and dividends to all or substantially all of the holders of the Company’s common stock. Based on the terms of the 2026 Notes, when a conversion notice is received, the Company has the option to pay or deliver cash, shares of the Company’s common stock, or a combination thereof.

Holders of the Convertible Notes have the right to convert their notes in certain circumstances and during specified periods. Prior to the close of business on the business day immediately preceding February 2, 2026, holders may convert all or a portion of their 2026 Notes only under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on September 30, 2021, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to ~~130%~~130% of the conversion price on each applicable trading day; (2) during the 5 consecutive business days immediately after any 10 consecutive trading day period (the “measurement period”) in which the trading price per ~~$1,000~~$1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than ~~98%~~98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. From and after February 2, 2026, holders of the 2026 Notes may convert their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. As of ~~March 31,~~June 30, 2022, none of the conditions permitting the holders of the 2026 Notes to convert have been met. The 2026 Notes are classified as long-term debt on the condensed consolidated balances sheet as of ~~March 31,~~June 30, 2022.

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The 2026 Notes are redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after August 6, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds ~~130%~~130% of the conversion price for a specified period of time. In addition, calling any note for redemption will constitute a “make-whole fundamental change” with respect to that note, in which case the conversion rate applicable to the conversion of that note will be increased in certain circumstances if such note is converted after it is called for redemption.

If a fundamental change occurs prior to the maturity date, holders may require the Company to repurchase all or a portion of their 2026 Notes for cash at a price equal to ~~100%~~100% of the principal amount of the 2026 Notes plus accrued and unpaid interest. NaN principal payments are otherwise due on the 2026 Notes prior to maturity.

The Company recorded the full principal amount of the 2026 Notes as a long-term liability net of deferred issuance costs. The annual effective interest rate for the 2026 Notes is ~~1.4%~~1.4%. The interest expense recognized on the 2026 Notes for the three and six months ended ~~March 31,~~June 30, 2022 includes ~~$0.6~~$1.1 million and $2.2 million for the contractual coupon interest, respectively, and ~~$0.5~~$0.5 million and $1.0 million for the amortization of debt issuance ~~costs.~~costs, respectively. The Company uses the if-converted method for assumed conversion of the 2026 Notes to compute the weighted-average shares of common stock outstanding for diluted earnings per share, if applicable.

The outstanding principal amount and carrying value of the 2026 Notes consist of the following (in thousands):


	March 31, 2022			June 30, 2022
Principal	$	316,250		$	316,250
Unamortized debt issuance costs		(8,776	)		(8,286	)
Net carrying value	$	307,474		$	307,964

Capped Call Transactions

In connection with the offering of the 2026 Notes, the Company entered into the Capped Call Transactions with certain financial institutions. The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset the cash payments the Company is required to make in excess of the principal amount of the 2026 Notes upon conversion of the 2026 Notes in the event that the market price per share of the Company’s common stock is greater than the strike price of the Capped Call Transactions with such reduction and/or offset subject to a cap. The Capped Call Transactions have an initial cap price of ~~$27.68~~$27.68 per share of the Company’s common stock, which represents a premium of ~~100%~~100% over the last reported sale price of the Company’s common stock on August 5, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions. Collectively, the Capped Call Transactions cover, initially, the number of shares of the Company’s common stock underlying the 2026 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2026 Notes. The cost of the Capped Call Transactions was approximately ~~$39.9~~$39.9 million.

The Capped Call Transactions are separate transactions and are not part of the terms of the 2026 Notes and will not affect any holder’s rights under the notes. Holders of the 2026 Notes will not have any rights with respect to the Capped Call Transactions.

The Capped Call Transactions meet all of the applicable criteria for equity classification and, as a result, the related ~~$39.9~~$39.9 million cost was recorded as a reduction to additional paid-in capital on the Company’s condensed consolidated statements of shareholders’ equity.

OCEANE Convertible Bonds

On May 31, 2018, EOS issued 4,344,651 OCEANE convertible bonds, denominated in Euros, due May 2023 for aggregate gross proceeds of ~~$34.3~~$34.3 million (€29.5 million). The OCEANEs are unsecured obligations of EOS, rank equally with all other unsecured and unsubordinated obligations of EOS, and pay interest at a rate equal to 6%6% per year, payable semiannually in arrears on May 31 and November 30 of each year, beginning November 30, ~~2018.~~2018. Unless either earlier converted or repurchased, the OCEANEs will mature on May 31, ~~2023.~~2023. Interest expense was ~~$0.2~~$0.2 million and $0.4 million for the three and six months ended ~~March 31, 2022.~~June 30, 2022, respectively, and $0.1 million for the three and six months ended June 30, 2021.

As discussed in Note 3, in connection with the Offer to acquire EOS, the Company purchased 2,486,135 OCEANE convertible bonds, and as such, 1,858,516 OCEANE convertible bonds with a principal amount of ~~$15.3~~$15.3 million (€12.6 million) remained outstanding at the time of acquisition.

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The OCEANEs are convertible by their holders into new EOS Shares or exchangeable for existing EOS Shares, at the Company’s option, at an initial conversion rate of 1 share per OCEANE, and the initial conversion rate is subject to customary anti-dilution adjustments. The OCEANEs are convertible at any time until the seventh business day prior to maturity or seventh business day prior to an earlier redemption of the OCEANE. If the number of shares calculated is not a whole number, the holder may request allocation of either the whole number of shares immediately below the number and receive an amount in cash equal to the remaining fractional share value, or the whole number of shares immediately above the number and pay an amount in cash equal to the remaining fractional share value. Holders of the OCEANEs have the option to convert all or any portion of such OCEANEs, regardless of any conditions, at any time until the close of seventh business day immediately preceding the maturity date.

EOS has a right to redeem all of the OCEANEs at its option any time after June 20, 2021 at a cash redemption price equal to the par value of the OCEANEs plus accrued and unpaid interest if the product of the volume-weighted-average price of the shares and the conversion ratio as specified in the agreement in effect on each trading day exceeds ~~150%~~150% of the par value of each OCEANE on each of at least 20 consecutive trading days during any 40 consecutive trading days, if EOS redeems the OCEANEs when the number of OCEANEs outstanding is ~~15%~~15% or less of the number of OCEANEs originally issued, or the occurrence of a tender or exchange offer. As a result of the Company’s acquisition of EOS, the OCEANEs are now convertible into new shares of EOS, as a wholly-owned subsidiary of the Company. OCEANE holders can redeem the notes upon the occurrence of an event of default or upon the occurrence of a change of control. In July 2021, in connection with the change of control, holders of 25,971 OCEANEs chose to redeem their bonds for approximately ~~$0.2~~$0.2 million (€0.2 million).

The carrying value of the outstanding OCEANEs was ~~$13.9~~$13.0 million (€12.5 million) as of ~~March 31, 2022~~June 30, 2022..

Other Debt Agreements

In January and April 2021, prior to the acquisition, EOS obtained 2 loan agreements, denominated in Euros, under French government sponsored COVID-19 relief initiatives (pret garanti par l’etat or “PGE” loans). Each loan contains a ~~12-month~~12-month term and ~~90%~~90% of the principal balance of each loan is state guaranteed. The cost of the state guaranty is ~~0.25%~~0.25% of the loan amounts. The loans carry an interest-free rate from the commercial banks (€3.3 million) and a ~~1.75%~~1.75% interest from the lender (€1.5 million). The loan capital and loan guaranty costs are payable in full at the end of the 12-month term or the loan may be extended up to 5 additional years. If the Company chooses to extend the debt, the election must be made by the Company between months 8 and 11 of the 12-month term.The extension will carry an interest rate at the banks’ refinancing cost, to be applied from year 2 to year 6 and an increased state guaranty cost (50 to 200 bps, as per a scale with company size and extension year).

In February 2022, the Company extended the maturity for each loan agreement to ~~2027.~~2027. Each loan has a ~~12-month~~12-month period from the applicable extension date where interest only payments will occur (the “Interest Only Period”). Following the Interest Only Period, monthly and quarterly installments of principal and interest under each loan agreement will be due until the original principal amounts and applicable interest is fully repaid in 2027. The ~~Company has recorded the debt as long-term debt on the condensed consolidated balance sheets as of March 31, 2022. The~~ outstanding obligation under each loan as of ~~March 31,~~June 30, 2022 was ~~$3.6~~$3.4 million and ~~$1.6~~$1.5 million (€3.3 million and ~~€1.5~~€1.5 million) at weighted average interest rates of ~~0.98%~~0.98% and ~~1.25%~~1.25%, respectively, and weighted average costs of the state guaranty of ~~0.69%~~0.69% and ~~1.00%~~1.00%, respectively.

Total Indebtedness

Principal payments remaining on the Company's debt are as follows as of ~~March 31,~~June 30, 2022 (in thousands):


Remainder of 2022	$	1,781		$	1,207
2023		14,585			13,936
2024		1,331			1,500
2025		1,314			1,233
2026		317,564			317,483
Thereafter		629			590
Total		337,204			335,949
Less: debt discount		(8,776	)		(8,286	)
Total		328,428			327,663
Less: current portion of long-term debt		(1,789	)		(14,266	)
Long-term debt	$	326,639		$	313,397

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10. Commitments and Contingencies

Leases

The Company determines if an arrangement is a lease at inception by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. The Company recognizes right-of-use assets (“ROU assets”) and lease liabilities for office buildings and certain equipment with lease terms of 1 ~~year��~~ year to 10 years, some of which include options to extend and/or terminate the leases. Any short-term leases defined as twelve months or less or month-to-month leases were excluded and continue to be expensed each month. Total costs associated with these short-term leases is immaterial to all periods presented.

The Company aggregates all lease and non-lease components for each class of underlying assets into a single lease component and variable charges for common area maintenance and other variable costs are recognized as expense as incurred. Total variable costs associated with leases for the three and six months ended ~~March 31,~~June 30, 2022 were immaterial. The Company had an immaterial amount of financing leases as of ~~March 31,~~June 30, 2022, which is included in property and equipment, net, and accrued expenses and other current liabilities, on the condensed consolidated balance sheets.

Operating Lease

The Company occupies approximately 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. On December 4, 2019, the Company entered into a ~~10-year~~10-year operating lease that commenced on February 1, 2021 and will terminate on January 31, 2031, subject to two sixty-month options to renew which are not reasonably certain to be exercised. The Company recognized a ~~$21.1~~$21.1 million ROU asset and ~~$21.5~~$21.5 million lease liability on the condensed consolidated balance sheet upon taking control of the premises on the lease commencement date. Base rent under the building lease for the first twelve months of the term will be ~~$0.2~~$0.2 million per month subject to full abatement during months two through ten, and thereafter will increase annually by ~~3.0%~~3.0% throughout the remainder of the lease. On May 11, 2022, the Company entered into a lease amendment for the build out of additional space within the building which resulted in a lease modification increasing the ROU asset and lease liability.

On April 9, 2021, the Company entered into a ~~7-year~~7-year operating lease agreement for a distribution center which consists of approximately 75,643 square feet of office and warehouse space in Memphis, Tennessee. The term of the lease commenced on May 1, 2021 and will terminate on May 1, 2028, subject to two thirty-six-month options to renew which were not reasonably certain to be exercised. The Company recognized a ~~$1.7~~$1.7 million ROU asset and ~~$1.6~~$1.6 million lease liability upon taking control of the premises on the lease commencement date. Base rent under the ~~new~~ building lease will be commensurate with the Company’s proportionate share of occupancy of the ~~new~~ building and will increase annually by ~~3.0%~~3.0% throughout the remainder of the lease.

With the acquisition of EOS, the Company assumed its ROU assets and lease liabilities in the amount of ~~$4.3~~$4.3 million. EOS occupies its main office in Paris, France. The EOS office in Paris, France is a ~~10-year~~10-year operating lease that commenced in 2019 and will terminate in September ~~2028.~~2028. Base rent under the lease is approximately ~~$0.6~~$0.6 million per year.

Future minimum annual lease payments for all operating leases of the Company are as follows as of ~~March 31,~~June 30, 2022 (in thousands):


Remainder of 2022	$	3,245		$	2,193
2023		4,471			4,667
2024		4,547			4,782
2025		4,580			4,752
2026		4,684			4,857
Thereafter		17,830			18,014
Total undiscounted lease payments		39,357			39,265
Less: imputed interest		(11,389	)		(7,766	)
Operating lease liability		27,968
Less: current portion of operating lease liability		(4,034	)
Operating lease liability, less current portion	$	23,934
Operating lease liabilities					31,499
Less: current portion of operating lease liabilities					(4,164	)
Operating lease liabilities, less current portion				$	27,335

The Company’s weighted average remaining lease term and weighted average discount rate as of ~~March 31,~~June 30, 2022 and December 31, 2021 are as follows:


	March 31, 2022			December 31, 2021			June 30, 2022			December 31, 2021
Weighted-average remaining lease term (years)		8.3			8.6			8.2			8.6
Weighted-average discount rate		8.5	%		8.5	%		5.5	%		8.5	%

Table of Contents

Information related to the Company’s operating leases is as follows (in thousands):


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021		2022		2021
Rent expense	$	1,156	$	1,083	$	1,091	$	1,119	$	2,247	$	2,202
Cash paid for amounts included in measurement of lease liabilities	$	1,022	$	380	$	1,129	$	495	$	2,151	$	875

Purchase Commitments

With the acquisition of EOS, the Company assumed its inventory purchase commitment agreement with a third-party supplier. The Company is obligated to certain minimum purchase commitment requirements through December 2026. As of ~~March 31,~~June 30, 2022, the remaining minimum purchase commitment required by the Company under the agreement was ~~$32.4~~$28.9 million.

Litigation

The Company is and may become involved in various legal proceedings arising from its business activities. While management is not aware of any litigation matter that in and of itself would have a material adverse impact on the Company’s condensed consolidated results of operations, cash flows or financial position, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in the Company’s condensed consolidated financial statements. An estimated loss contingency is accrued in the Company’s condensed consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of the Company’s potential liability.

In February 2018, NuVasive, Inc. filed suit against the Company in the United States District Court for the Southern District of California (NuVasive, Inc. v. Alphatec Holdings, Inc. et al., Case No. 3:18-cv-00347-CAB-MDD (S.D. Cal.)), alleging that certain of the Company’s products (including components of its Battalion™ Lateral System), ~~infringe,~~infringed, or ~~contribute~~contributed to the infringement of, U.S. Patent Nos. 7,819,801, 8,355,780, 8,439,832, 8,753,270, 9,833,227 ~~(entitled “Surgical~~(“Surgical access system and related methods”), U.S. Patent No. 8,361,156 ~~(entitled “Systems~~(“Systems and methods for spinal fusion”), and U.S. Design Patent Nos. D652,519 (“Dilator”) and D750,252 (“Intervertebral Implant”). NuVasive ~~seeks~~sought unspecified monetary damages and an ~~injunction against future purported infringement.~~injunction.

In March 2018, the Company moved to dismiss NuVasive’s claims of infringement of its design ~~patents for failure to state a cognizable legal claim.~~patents. In May 2018, the Court ~~ruled that NuVasive failed to state a plausible claim for infringement of~~granted the Company’s motion and dismissed the asserted design patents ~~and dismissed those claims~~ with prejudice. The Company filed its answer, affirmative defenses and counterclaims to NuVasive’s remaining claims in May 2018.

Also in March 2018, NuVasive moved for a preliminary injunction. In March 2018, the Court denied that motion without ~~prejudice for failure to comply with the Court’s chambers rules.~~prejudice. In April 2018, NuVasive again moved for a preliminary injunction. In July 2018, ~~after a hearing on the matter in June 2018,~~ the Court again denied that ~~motion on the grounds that NuVasive failed to establish either likelihood of success on the merits or that it would suffer irreparable harm absent injunction.~~motion.

In September 2018, NuVasive filed an Amended Complaint, asserting ~~additional~~ infringement claims of U.S. Patent Nos. 9,924,859, 9,974,531 and 8,187,334. The Company filed its answer, affirmative defenses and counterclaims to these new claims in October 2018. ~~Also in October 2018,~~ NuVasive moved to dismiss certain of the Company’s ~~counterclaims that NuVasive intentionally had misled the U.S. Patent and Trademark Office as a means of obtaining certain patents asserted against the Company.~~counterclaims. In January 2019, the Court denied NuVasive’s motion as to all but one counterclaim ~~but~~and granted the Company leave to amend that ~~counterclaim to cure dismissal.~~counterclaim. The Company amended ~~that~~the counterclaim ~~in February 2019~~ and ~~that same month,~~ NuVasive again moved to dismiss it. In March 2019, the Court denied NuVasive’s motion. NuVasive filed its ~~Answer to the amended counterclaim~~answer in April 2019.

~~Table of Contents~~

In December 2018, the Company filed a petition with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of certain claims of the ’156 and ’334 Patents. In July 2019, PTAB instituted inter partes ~~review (“IPR”) of the validity of asserted claims of the two patents at issue.~~review. In July ~~2019, PTAB instituted IPR of the validity of asserted claims of the two patents at issue and held a hearing on the matter in April 2020. In July~~ 2020, ~~the~~ PTAB ruled that all challenged claims of the ‘156 Patent were valid, ~~(not unpatentable) and ruled~~ that several challenged claims of the ‘334 Patent were invalid ~~while finding~~and that other challenged claims of the ‘334 Patent valid. ~~NuVasive and the Company both appealed the PTAB’s written decision on the matter.~~ In February 2022, the U.S. Court of Appeals for the Federal Circuit affirmed the ~~PTAB’s ruling without opinion.~~ruling.

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In January 2020, NuVasive ~~filed a Motion~~moved for Partial Summary Judgment of infringement and validity of the ’832, ’780 and ’270 Patents and the Company ~~filed a Motion~~moved for Summary Judgment of non-infringement of all asserted claims and of invalidity of the ’832 Patent and for dismissal of NuVasive’s claim for lost profits and its allegations of assignor estoppel. In April 2020, the Court granted NuVasive’s Motion as to ~~the~~ alleged infringement of the ’832 Patent ~~only~~ and denied NuVasive’s Motion in all other respects. ~~Also, in April 2020, the~~The Court granted the Company’s Motion as to dismissal of the allegations of assignor estoppel and denied the Company’s Motion in all other respects.

~~In November 2020, NuVasive filed a Motion to Strike the Company’s Invalidity Contentions concerning the ’156 and ’334 Implant Patents. In April 2021, the Court denied NuVasive’s motion.~~

In January 2021, NuVasive ~~filed a Motion~~moved for Partial Summary Judgment of infringement and validity of the ’156 and ’334 Implant Patents and the Company ~~filed a Motion~~moved for Summary Judgment of invalidity of those same patents. ~~These motions were argued to the Court on June 29, 2021.~~ In August 2021, the Court denied NuVasive’s motion and granted the Company’s motion for summary judgment of invalidity of the ’156 Patent. In September 2021, NuVasive elected not to proceed with its remaining claims for the ’334 Patent, ’780 Patent, ’270 Patent, ’227 Patent, and ’859 Patent. Trial on the remaining patents (’801 Patent, ’832 Patent, and ’531 Patent) began on March 1, 2022, and ~~completed~~concluded on March 11, 2022. On March 15, 2022, the Court ordered the parties to participate in post-trial settlement conference. ~~The Court has not entered judgement,~~In June 2022, following several post-trial settlement conferences and oncontinued negotiations, the parties reached a final resolution of all matters in dispute and executed a confidential settlement agreement. Following the joint motion of the parties notifying the Court ~~has extended~~of the ~~deadlines for post-trial motions until May 20, 2022.~~settlement agreement and requesting dismissal, the Court dismissed the action with prejudice. The ~~post-trial settlement conference took place on March 28, 2022. The parties remain engaged in settlement discussions and the Company continues to contest vigorously all claims asserted.~~

~~The Company does~~outcome of these proceedings did not ~~anticipate that~~have any ~~outcome will have a~~ material adverse effect on the Company’s consolidated results of operations, cash flows or financial position.

Indemnifications

In the normal course of business, the Company enters into agreements under which it occasionally indemnifies third-parties for intellectual property infringement claims or claims arising from breaches of representations or warranties. In addition, from time to time, the Company provides indemnity protection to third-parties for claims relating to past performance arising from undisclosed liabilities, product liabilities, environmental obligations, representations and warranties, and other claims. In these agreements, the scope and amount of remedy, or the period in which claims can be made, may be limited. It is not possible to determine the maximum potential amount of future payments, if any, due under these indemnities due to the conditional nature of the obligations and the unique facts and circumstances involved in each agreement.

In October 2017, NuVasive filed a lawsuit in Delaware Chancery Court against Mr. Miles, the Company’s Chairman and CEO, who was a former officer and board member of NuVasive. The Company itself was not initially a named defendant in this lawsuit; however, onin June ~~28,~~ 2018, NuVasive amended its complaint to add the Company as a defendant. OnIn October ~~12,~~ 2018, the Delaware Court ordered that NuVasive ~~begin advancing~~advance legal fees for Mr. Miles’ defense in the lawsuit, as well as Mr. Miles’ legal fees incurred in pursuing advancement of his fees, pursuant to an indemnification agreement between NuVasive and Mr. Miles. As of ~~March 31,~~June 30, 2022, the Company has not recorded any liability on the condensed consolidated balance sheet related to this matter.

Royalties

The Company has entered into various intellectual property agreements requiring the payment of royalties based on the sale of products that utilize such intellectual property. These royalties primarily relate to products sold by Alphatec Spine and are based on fixed fees or are calculated either as a percentage of net sales or on a per-unit sold basis. Royalties are included on the accompanying condensed consolidated statements of operations as a component of cost of sales.

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11. Orthotec Settlement

On September 26, 2014, the Company entered into a Settlement and Release Agreement, dated as of August 13, 2014, by and among the Company and its direct subsidiaries, including Alphatec Spine, Inc., Alphatec Holdings International C.V., Scient'x S.A.S. and Surgiview S.A.S.; HealthpointCapital, LLC, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., John H. Foster and Mortimer Berkowitz III; and Orthotec, LLC and Patrick Bertranou, (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay Orthotec, LLC ~~$49.0~~$49.0 million in cash, including initial cash payments totaling ~~$1.75~~$1.75 million, which the Company ~~previously~~ paid in March 2014, and an additional lump sum payment of ~~$15.75~~$15.75 million, which the Company ~~previously~~ paid in April 2014. The Company agreed to pay the remaining ~~$31.5~~$31.5 million in 28 quarterly installments of ~~$1.1~~$1.1 million and 1 additional quarterly installment of ~~$0.7~~$0.7 million, commencing October 1, 2014. The unpaid balance of the principal amount due accrues interest at the rate of 7%7% per year until the balance is paid in full. The accrued but unpaid interest will be paid in quarterly installments of ~~$1.1~~$1.1 million (or the full amount of the accrued but unpaid interest if less than ~~$1.1~~$1.1 million) following the full payment of the ~~$31.5~~$31.5 million in quarterly installments.

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The payments set forth above are guaranteed by Stipulated Judgments held against the Company, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., HealthpointCapital, LLC, John H. Foster and Mortimer Berkowitz III and, in the event of a default, will be entered and enforced against these entities and/or individuals in that order. In September 2014, the Company and HealthpointCapital entered into an agreement for joint payment of settlement whereby HealthpointCapital ~~has~~ agreed to contribute ~~$5.0~~$5.0 million to the ~~$49.0~~$49.0 million settlement amount. During the year ended December 31, 2021, HealthpointCapital ~~made $4.0 million in payments and~~ completed its contribution to the settlement amount.

As of ~~March 31,~~June 30, 2022, the Company has made installment payments in the aggregate of ~~$50.1~~$51.2 million, with a remaining outstanding balance of ~~$7.7~~$6.5 million (including imputed interest). The Settlement Agreement provides for mutual releases of all claims in the Orthotec, LLC v. Surgiview, S.A.S, et al. matter in the Superior Court of California, Los Angeles County and all other related litigation matters involving the Company and its directors and affiliates.

A reconciliation of the total net settlement obligation is as follows (in thousands):


	March 31, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Litigation settlement obligation - short-term portion	$	4,400	$	4,400	$	4,400	$	4,400
Litigation settlement obligation - long-term portion		2,965		3,587		1,865		3,587
Total		7,365		7,987		6,265		7,987
Future imputed interest		358		478		254		478
Total settlement obligation, net	$	7,723	$	8,465	$	6,519	$	8,465

The short-term portion of the litigation settlement obligation is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets and the long-term portion of the litigation settlement obligation is included in other long-term liabilities on the condensed consolidated balance sheets.

12. Stock-Benefit Plans and Equity Transactions

Stock-Based Compensation

The Company has stock-based compensation plans under which it grants stock options, RSUs, and PRSUs to officers, directors and third parties. Total stock-based compensation for the periods presented were as follows (in thousands):


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31,				June 30,				June 30,
	2022		2021		2022		2021		2022		2021
Cost of sales	$	256	$	95	$	449	$	235	$	705	$	330
Research and development		972		498		1,362		664		2,334		1,162
Sales, general and administrative		8,956		3,881		7,392		10,597		16,348		14,478
Total	$	10,184	$	4,474	$	9,203	$	11,496	$	19,387	$	15,970

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As of ~~March 31,~~June 30, 2022, there was ~~$57.9~~$53.3 million of unamortized compensation expense for RSUs and PRSUs to be recognized over a weighted average period of ~~1.81~~1.80 years.

Restricted Stock Units and Performance Based Restricted Stock Units Awards

The Company issued approximately ~~1,225,000~~1,310,000 and 2,540,000 shares of common stock, before net share settlement, upon vesting of RSUs and PRSUs during the three and six months ended ~~March 31,~~June 30, 2022, respectively, and issued approximately ~~473,000~~1,605,000 and 2,078,000 shares of common stock, before net share settlement, upon vesting of RSUs and PRSUs during the three and six months ended ~~March 31, 2021.~~June 30, 2021, respectively.

Employee Stock Purchase Plan

Employees are eligible to participate in the ESPP approved by its shareholders. During the three and six months ended ~~March 31,~~June 30, 2022, ~~and 2021, 0~~there were approximately 222,000 shares ~~were~~ issued under the ESPP. During the three and six months ended June 30, 2021, there were approximately 112,000 shares issued under the ESPP.

The Company estimates the fair value of shares issued to employees under the ESPP using the Black-Scholes option-pricing model. The assumptions used to estimate the fair value of stock options granted and stock purchase rights under the ESPP are as follows:


	Three Months Ended						Three and Six Months Ended
	March 31,						June 30,
	2022			2021			2022		2021
Risk-free interest rate		0.07	%		0.10	%	0.07% - 1.54%		0.04% - 0.10 %
Expected dividend yield		—			—			—		—
Expected term (years)		0.50			0.50			0.50		0.50
Volatility		50.29	%		78.51	%	50.29% - 64.53%		49.98% - 78.51%

Warrants Outstanding

2017 PIPE Warrants

The 2017 Common Stock Warrants (the “2017 PIPE Warrants”) have a five-year life and are exercisable by cash exercise only. During the three and six months ended ~~March 31,~~June 30, 2022, ~~and 2021,~~ there were approximately ~~425,000~~1,887,000 and ~~145,000~~2,312,000 2017 PIPE Warrant exercises, respectively, for total cash proceeds of ~~$0.9~~$2.7 million and ~~$0.3~~$3.5 million, respectively. During the three and six months ended June 30, 2021, there were approximately 375,000 and 520,000 2017 PIPE Warrant exercises, respectively, for total cash proceeds of $0.8 million and $1.0 million, respectively. As of ~~March 31,~~June 30, 2022, ~~approximately 1,887,000~~the 2017 PIPE Warrants have expired, and 0 2017 PIPE Warrants remained outstanding.

2018 PIPE Warrants

The 2018 Common Stock Warrants (the “2018 PIPE Warrants”) have a five-year life and are exercisable by cash or cashless exercise. During the three months ended ~~March 31,~~June 30, 2022, there were 0 2018 PIPE Warrant exercises. During the six months ended June 30, 2022, there were approximately 126,000 2018 PIPE Warrant exercises for total cash proceeds of $0.4 million. During the three and six months ended June 30, 2021, there were approximately ~~126,000~~693,000 and ~~2,148,000~~2,841,000 2018 PIPE Warrant exercises, respectively, for total cash proceeds of ~~$0.4~~$1.0 million and ~~$0.3~~$1.3 million, respectively. As of ~~March 31,~~June 30, 2022, approximately 8,354,000 2018 PIPE Warrants remained outstanding.

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SafeOp Surgical Merger Warrants

In conjunction with the Company’s 2018 acquisition of SafeOp, the Company issued warrants to purchase 2,200,000 shares of common stock at an exercise price of ~~$3.50~~$3.50 per share (the “SafeOp ~~Surgical Merger~~ Warrants”), which have a five-year life and are exercisable by cash or cashless exercise. During the three and six months ended June 30, 2022, there were approximately 257,000 SafeOp Warrant cashless exercises. There were 0 SafeOp Warrant exercises during the three months ended ~~March 31, 2022.~~June 30, 2021. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, there were approximately ~~1,000,000~~970,000 SafeOp ~~Surgical Merger~~ Warrant exercises for total cash proceeds of ~~$0.1~~$0.1 million. As of ~~March 31,~~June 30, 2022, approximately ~~1,195,000~~938,000 SafeOp ~~Surgical Merger~~ Warrants remained outstanding.

Squadron Medical Warrants

During the year ended December 31, 2018, in connection with the initial debt financing with Squadron Medical and a participant lender, the Company issued warrants (the “Squadron Medical Warrants”) to purchase 845,000 shares of common stock at an exercise price of ~~$3.15~~$3.15 per share. An additional 4,839,000 Squadron Medical Warrants were issued at an exercise price of ~~$2.17~~$2.17 per share during the second quarter of 2019, in conjunction with the Company’s draw on the expanded credit facility. In May 2020, an additional 1,076,000 Squadron Medical Warrants were issued at an exercise price of ~~$4.88~~$4.88 per share in conjunction with the Company’s second amendment to the Squadron Medical debt for total Squadron Medical Warrants outstanding to Squadron Medical and the participant lender of ~~6,760,000.~~6,760,000. In conjunction with the second amendment, the expiration dates for all existing Squadron Medical Warrants were extended to May 29, 2027 to align all outstanding warrant expiration dates. NaN Squadron Medical Warrants have been exercised as of ~~March 31,~~June 30, 2022.

Executive Warrants

In December 2017, the Company issued warrants to Mr. Patrick S. Miles, the Company’s Chairman and Chief Executive Officer, to purchase approximately 1,327,000 shares of the Company’s common stock for ~~$5.00~~$5.00 per share (the “Executive Warrants”). The Executive Warrants have a five-year term and are exercisable by cash or cashless exercise. The Executive Warrants issued to Mr. Miles were accounted for as share based compensation, and the fair value of the Executive Warrants of approximately ~~$1.4~~$1.4 million were recognized in full in the statement of operations for the year ended December 31, 2017, as the Executive Warrants were immediately vested upon issuance. NaN Executive Warrants have been exercised as of ~~March 31,~~June 30, 2022.

A summary of all outstanding warrants for common stock as of ~~March 31,~~June 30, 2022, were as follows (in thousands, except for strike price data):


	Number of Warrants		Strike Price		Expiration
2018 PIPE Warrants		8,354	$	3.50	May 2023
SafeOp Surgical Merger Warrants		938	$	3.50	May 2023
2018 Squadron Medical Warrants		845	$	3.15	May 2027
2019 Squadron Medical Warrants		4,839	$	2.17	May 2027
2020 Squadron Medical Warrants		1,076	$	4.88	May 2027
Executive Warrants		1,327	$	5.00	December 2022
Other(1)		121	$	5.37	Various through February 2026
Total		17,500

Number of
Warrants

Strike Price

Expiration
2017 PIPE Warrants

1,887

$
2.00

June 2022
2018 PIPE Warrants

8,354

$
3.50

May 2023
SafeOp Surgical Merger Warrants

1,195

$
3.50

May 2023
2018 Squadron Medical Warrants

845

$
3.15

May 2027
2019 Squadron Medical Warrants

4,839

$
2.17

May 2027
2020 Squadron Medical Warrants

1,076

$
4.88

May 2027
Executive Warrants

1,327

$
5.00

December 2022
Other⁽¹⁾

131

$
5.74

Various through February 2026
Total

19,654

(1)

Weighted-average strike price.

~~(1)~~

~~Weighted-average strike price.~~

All outstanding warrants were deemed to qualify for equity classification under authoritative accounting guidance.

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13. Business Segment and Geographic Information

The Company operates in 1 segment based upon the Company’s organizational structure, the way in which the operations and investments are managed and evaluated by the chief operating decision maker (“CODM”) as well as the lack of available discrete financial information at a level lower than the consolidated level. The Company shares common, centralized support functions which report directly to the CODM and decision-making regarding the Company’s overall operating performance and allocation of Company resources is assessed on a consolidated basis.

Net revenue and property ~~plant~~ and equipment, net, by geographic region were as follows (in thousands):


	Revenue				Property and equipment, net				Revenue								Property and equipment, net
	Three Months Ended March 31,				March 31,		December 31,		Three Months Ended June 30,				Six Months Ended June 30,				June 30,		December 31,
(in thousands)	2022		2021		2022		2021		2022		2021		2022		2021		2022		2021
United States	$	67,034	$	43,716	$	91,967	$	85,320	$	77,884	$	59,294	$	143,415	$	103,010	$	94,929	$	85,320
International		3,899		405		4,218		2,081		6,267		2,955		11,669		3,360		4,254		2,081
Total	$	70,933	$	44,121	$	96,185	$	87,401	$	84,151	$	62,249	$	155,084	$	106,370	$	99,183	$	87,401

14. Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss available to common stockholders by the weighted-average number of common shares outstanding for the period. If applicable, diluted net loss per share attributable to common stockholders is calculated by dividing net loss available to common stockholders by the diluted weighted-average number of common shares outstanding for the period.

The following table presents the computation of basic and diluted net loss per share (in thousands, except per share amounts):


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021			2022			2021
Numerator:
Net loss	$	(42,844	)	$	(22,903	)	$	(37,320	)	$	(38,205	)	$	(80,164	)	$	(61,108	)
Denominator:
Weighted average common shares outstanding		99,978			87,223			102,849			98,541			101,422			92,912
Net loss per share, basic and diluted:	$	(0.43	)	$	(0.26	)	$	(0.36	)	$	(0.39	)	$	(0.79	)	$	(0.66	)

The following potentially dilutive shares of common stock were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (in thousands):


	As of March 31,				As of June 30,
	2022		2021		2022		2021
Series A convertible preferred stock		29		29		—		29
Options to purchase common stock and employee stock purchase plan		3,435		3,898		3,050		3,659
Unvested restricted share awards		9,781		8,866
Unvested restricted stock unit awards						8,822		8,678
Warrants to purchase common stock		19,654		21,594		17,500		20,525
Senior convertible notes		17,246		—		17,246		—
Total		50,145		34,387		46,618		32,891

15. Income Taxes

To calculate its interim tax provision, at the end of each interim period the Company estimates the annual effective tax rate, adjusted for discrete items arising in that quarter. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the estimated annual taxable income or loss for the year and projections of the proportion of income earned and taxed in foreign jurisdictions. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained, or the tax environment changes.

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The Company’s effective tax rate from continuing operations was ~~(0.30%~~(0.55%) and ~~(0.22%~~(0.42%) for the three and six months ended ~~March 31,~~June 30, 2022, respectively, and (0.11%) and (0.12%) for the three and six months ended June 30, 2021, respectively. The Company’s effective tax rate differs from the federal statutory rate of ~~21%~~21% in each period primarily due to the Company’s net loss position and valuation allowance.

16. Related Party Transactions

In November 2018, the Company entered into the Term Loan and Inventory Financing Agreement with certain affiliates of Squadron Capital, LLC (“Squadron”), including an inventory supplier (the “Squadron Supplier Affiliate”). The Term Loan was amended in March 2019, May 2020, and December 2020. On August 10, 2021, the Company terminated and repaid all obligations under the Term Loan and the Inventory Financing Agreement. For the three and six months ended ~~March 31,~~June 30, 2022, the Company purchased inventory in the amounts of $2.4 million and $4.8 million, respectively, from the Squadron Supplier Affiliate. For the three and six months ended June 30, 2021, the Company purchased inventory in the amounts of ~~$2.4~~$1.6 million and ~~$2.3~~$3.9 million, respectively, from the Squadron Supplier Affiliate. As of ~~March 31,~~June 30, 2022, and December 31, 2021, the Company had ~~$1.7~~$1.7 million and ~~$0.8~~$0.8 million, respectively, due to the Squadron Supplier Affiliate, for inventory purchases. Squadron was a lead investor in the Private Placement that was closed on March 1, 2021. David Pelizzon, President and Director of Squadron, currently serves on the Company’s Board of Directors.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

You should read the following management's discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto that appear elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). In addition to historical information, the following management’s discussion and analysis of our financial condition and results of operations includes forward-looking information that involves risks, uncertainties, and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, such as those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC.

Overview

We are a medical technology company focused on the design, development, and advancement of technology for better surgical treatment of spinal disorders. We are dedicated to revolutionizing the approach to spine surgery through clinical distinction. We are focused on developing new approaches that integrate seamlessly with our expanding Alpha InformatiX™ product platform to better inform surgery and to achieve the goals of spine surgery more safely and reproducibly. We have a broad product portfolio designed to address the spine’s various pathologies. Our ultimate vision is to be the standard bearer in spine.

We intend to drive growth by capitalizing on our collective spine experience and investing in the research and development to continually differentiate our solutions and improve spine surgery. We believe our future success will be fueled by introducing market-shifting innovation to the spine market, and that we are well-positioned to capitalize on current spine market dynamics.

We market and sell our products through a network of independent ~~distributors~~sales agents and direct sales representatives. An objective of our leadership team is to deliver increasingly consistent, predictable growth. To accomplish this, we have partnered more closely with new and existing ~~distributors~~independent sales agents to create a more dedicated and loyal sales channel for the future. We have added, and intend to continue to add, new high-quality exclusive and dedicated ~~distributors~~independent sales agents and direct sales representatives to expand future growth. We believe this will allow us to reach an untapped market of surgeons, hospitals, and national accounts across the United States of America and internationally, as well as better penetrate existing accounts and territories.

Revenue and Expense Components

The following is a description of the primary components of our revenue and expenses:

Revenue. We derive our revenue primarily from the sale of spinal surgery implants used in the treatment of spine disorders as well as the sale of medical imaging equipment which is used for surgical planning and post-operative assessment. Spinal implant products include pedicle screws and complementary implants, interbody devices, plates, and tissue-based materials. Medical imaging equipment includes our EOS full-body and weight-bearing x-ray imaging devices, and related services. Our revenue is generated by our direct sales force and independent ~~distributors.~~sales agents. Our products are shipped and invoiced to hospitals and surgical centers. Currently, most of our business is conducted with customers within markets in which we have experience and with payment terms that are customary to our business. We may defer revenue until the time of collection if circumstances related to payment terms, regional market risk or customer history indicate that collectability is not certain.

Cost of sales. Cost of sales consists primarily of direct product costs, royalties, service labor hours, and parts. Our product costs consist primarily of raw materials, component parts, direct labor, and overhead. The product costs of certain of our biologics products include the cost of procuring and processing human tissue. We incur royalties related to the technologies that we license from others and the products that are developed in part by surgeons with whom we collaborate in the product development process.

Research and development expenses. Research and development expenses consist of costs associated with the design, development, testing, and enhancement of our products. Research and development expenses also include salaries and related employee benefits, research-related overhead expenses, fees paid to external service providers and development consultants in the form of both cash and equity.

Sales, general and administrative expenses. Sales, general and administrative expenses consist primarily of salaries and related employee benefits, sales commissions and other variable costs, depreciation of our surgical instruments, regulatory affairs, quality assurance costs, professional service fees, travel, medical education, trade show and marketing costs, and insurance.

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Litigation-related expenses. Litigation-related expenses are costs incurred for our ongoing litigation, primarily with NuVasive, Inc.

Amortization of acquired intangible assets. Amortization of acquired intangible assets consists of intangible assets acquired in business combinations and asset purchases.

Transaction-related expenses. Transaction-related expenses are certain costs incurred related primarily to the acquisition and integration of EOS.

Restructuring expenses. Restructuring expenses are costs incurred related primarily to severance, social plan benefits and related taxes in connection with cost rationalization efforts, as well as costs associated with the opening or closing of office and warehouse facilities.

Total interest and other expense, net. Total interest and other expense, net includes interest income, interest expense, gains and losses from foreign currency exchanges and other non-operating gains and losses.

Income tax provision. Income tax provision primarily consists of an estimate of federal, state, and foreign income taxes based on enacted state, and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowances for accounts receivable, inventories, intangible assets, stock-based compensation, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumption conditions.

Critical accounting policies are those that, in management’s view, are most important in the portrayal of our financial condition and results of operations. Management believes there have been no material changes during the three months ended ~~March 31,~~June 30, 2022, to the critical accounting policies discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC.

Results of Operations

Total revenue


	Three Months Ended March 31,				Change						Three Months Ended June 30,				Change						Six Months Ended June 30,				Change
(in thousands, except %)	2022		2021		$			%			2022		2021		$			%			2022		2021		$			%
Revenue:
Revenue from products and services	$	70,918	$	43,716	$	27,202			62	%	$	84,151	$	61,885	$	22,266			36	%	$	155,069	$	105,601	$	49,468			47	%
Revenue from international supply agreement		15		405		(390	)		(96	)%		—		364		(364	)		(100	)%		15		769		(754	)		(98	)%
Total revenue	$	70,933	$	44,121	$	26,812			61	%	$	84,151	$	62,249	$	21,902			35	%	$	155,084	$	106,370	$	48,714			46	%

Revenue associated with our acquisition of EOS accounted for approximately ~~$10.3~~$5.7 million, or ~~38%~~26%, and $16.0 million, or 32%, of the increase in revenue from products and services for the three and six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the three and six months ended ~~March 31, 2021~~.June 30, 2021. Revenue from products and services, excluding EOS, accounted for approximately ~~$16.9~~$16.6 million, or ~~62%~~74%, and $33.5 million, or 68%, of the increase during the three and six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the three and six months ended ~~March 31,~~June 30, 2021. The increase was primarily due to an increase in product volume that was due to the continued expansion of our new product portfolio, increases in our surgeon user base, and progress related to the transformation of our sales ~~network~~network..

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Cost of sales


	Three Months Ended March 31,				Change					Three Months Ended June 30,				Change					Six Months Ended June 30,				Change
(in thousands, except %)	2022		2021		$		%			2022		2021		$		%			2022		2021		$		%
Cost of sales	$	21,717	$	12,263	$	9,454		77	%	$	28,675	$	21,184	$	7,491		35	%	$	50,392	$	33,447	$	16,945		51	%

Cost of sales associated with EOS operations accounted for approximately ~~$5.2~~$4.0 million, or ~~55%~~53%, and $10.1 million, or 60%, of the increase for the three and six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the three and six months ended ~~March 31,~~June 30, 2021. Cost of sales, excluding EOS, accounted for approximately ~~$4.3~~$4.9 million, or ~~45%~~65%, and $8.2 million, or 48%, of the increase during the three and six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the three and six months ended ~~March 31,~~June 30, 2021. The increase was primarily due to product ~~volume.~~ volume, offset by a decrease in inventory expense associated with the purchase accounting of EOS. Inventory expense associated with the purchase accounting of EOS offset the increase by approximately $1.3 million, or 18%, and $1.3 million, or 8%, during the three and six months ended June 30, 2022, respectively, as compared to the three and six months ended June 30, 2021.

Operating expenses


	Three Months Ended March 31,				Change						Three Months Ended June 30,				Change						Six Months Ended June 30,				Change
(in thousands, except %)	2022		2021		$			%			2022		2021		$			%			2022		2021		$			%
Operating expenses:
Research and development	$	9,722	$	5,801	$	3,921			68	%	$	10,596	$	7,839	$	2,757			35	%	$	20,318	$	13,640	$	6,678			49	%
Sales, general and administrative		69,471		40,426		29,045			72	%		72,668		60,659		12,009			20	%		142,139		101,085		41,054			41	%
Litigation-related expenses		7,532		3,335		4,197			126	%		5,495		1,167		4,328			371	%		13,027		4,502		8,525			189	%
Amortization of acquired intangible assets		2,230		172		2,058			1,197	%		2,177		1,208		969			80	%		4,407		1,380		3,027			219	%
Transaction-related expenses		120		1,012		(892	)		(88	)%		—		4,771		(4,771	)		(100	)%		120		5,783		(5,663	)		(98	)%
Restructuring expenses		1,370		158		1,212			767	%		289		1,173		(884	)		(75	)%		1,659		1,331		328			25	%
Total operating expenses	$	90,445	$	50,904	$	39,541			78	%	$	91,225	$	76,817	$	14,408			19	%	$	181,670	$	127,721	$	53,949			42	%

Research and development expenses. Research and development expense associated with EOS accounted for approximately ~~$1.1~~$0.9 million, or ~~28%~~32%, and $2.0 million, or 30%, of the total increase for the three and six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the three and six months ended ~~March 31,~~June 30, 2021. Research and development expense, excluding EOS, accounted for approximately ~~$2.8~~$1.9 million, or ~~72%~~68%, and $4.7 million, or 70%, of the increase during the three and six months ended ~~March 31,~~June 30, 2022, respectively, compared to the three and six months ended ~~March 31,~~June 30, 2021. The increase was primarily due to an increase in personnel to support the expansion of our new product portfolio.

Sales, general and administrative expenses. Sales, general and administrative expenses associated with EOS accounted for approximately ~~$2.9~~$2.6 million, or ~~10%~~21%, and $7.6 million, or 19%, of the total increase for the three and six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the three and six months ended ~~March 31,~~June 30, 2021. Sales, general and administrative expenses, excluding EOS, accounted for approximately ~~$26.1~~$9.4 million, or ~~90%~~79%, and $33.4 million, or 81%, of the increase during the three and six months ended ~~March 31,~~June 30, 2022, respectively, compared to the three and six months ended ~~March 31,~~June 30, 2021. The increase was primarily due to higher compensation-related costs and variable selling expenses associated with the increase in revenue, and our continued investment in building our strategic distribution channel. Additionally, we have increased our investment in our sales and marketing functions by increasing headcount to support the growth of our business, as well as necessary administrative support.

Litigation-related expenses. Litigation expenses increased by ~~$4.2~~$4.3 million, or ~~126%~~371%, and $8.5 million, or 189%, during the three and six months ended ~~March 31,~~June 30, 2022, respectively, as compared to the three and six months ended ~~March 31,~~June 30, 2021. Litigation expense is primarily related to our ~~ongoing~~ litigation and settlement with NuVasive, Inc. and other legal activities.

Amortization of acquired intangible assets. The increase in amortization of acquired intangible assets is primarily due to the amortization of intangible assets acquired in the EOS acquisition.

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Transaction-related expenses. The decrease in transaction-related expenses for the three and six months ended ~~March 31,~~June 30, 2022, is primarily due to the closing of the EOS acquisition on May 13, 2021.

Restructuring expenses. The ~~increase~~decrease in restructuring ~~costs~~expenses for the three months ended ~~March 31,~~June 30, 2022 is due to non-recurring costs associated with the opening of our Memphis distribution center and closing costs related to our prior headquarters incurred during the three months ended June 30, 2021. The increase in restructuring expenses for the six months ended June 30, 2022 is due to severance, social plan benefits and related taxes in connection with cost rationalization efforts.

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Total interest and other expense, net


	Three Months Ended March 31,						Change					Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
(in thousands, except %)	2022			2021			$		%			2022			2021			$		%			2022			2021			$		%
Interest and other expense, net:
Interest expense, net	$	(1,456	)	$	(1,938	)	$	482		(25	)%	$	(1,435	)	$	(2,394	)	$	959		(40	)%	$	(2,891	)	$	(4,332	)	$	1,441		(33	)%
Other expense, net		(30	)		(1,889	)		1,859		(98	)%
Other income (expense), net													67			(16	)		83		(519	)%		37			(1,905	)		1,942		(102	)%
Total interest and other expense, net	$	(1,486	)	$	(3,827	)	$	2,341		(61	)%	$	(1,368	)	$	(2,410	)	$	1,042		(43	)%	$	(2,854	)	$	(6,237	)	$	3,383		(54	)%

The decrease in other ~~expense,~~income (expense), net ~~during~~for the three months ended ~~March 31,~~June 30, 2022, as compared to the three months ended ~~March 31,~~June 30, 2021, was primarily due to foreign currency gains. The decrease in other income (expense), net, during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021 was primarily due to foreign currency losses related to the forward contract settlement and the net loss on debt extinguishment associated with the early payoff of the term loan and the PPP loan forgiveness, which were non-recurring expenses incurred during the ~~three~~six months ended ~~March 31,~~June 30, 2021. The decrease in interest expense, net, during the three and six months ended June 30, 2022, was primarily due to lower interest rates on the 2026 Notes compared to the Term Loan that was repaid in full during the year ended December 31, 2021.

Income tax provision


	Three Months Ended March 31,				Change					Three Months Ended June 30,				Change					Six Months Ended June 30,				Change
(in thousands, except %)	2022		2021		$		%			2022		2021		$		%			2022		2021		$		%
Income tax provision	$	129	$	30	$	99		330	%	$	203	$	43	$	160		372	%	$	332	$	73	$	259		355	%

The increase in the income tax provision for the three and six months ended ~~March 31,~~June 30, 2022, as compared to the three and six months ended June 30, 2021, was primarily related to the recognition of uncertain tax positions.

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash and cash equivalents and cash from operations. Our liquidity and capital structure are evaluated regularly within the context of our annual operating and strategic planning process. We consider the liquidity necessary to fund our operations, which include working capital needs, investments in research and development, investments in inventory and instrument sets to support our customers, as well as other operating costs. Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales, marketing and administrative activities, and the timing of introductions of new products and enhancements to existing products. As current borrowing sources become due, we may be required to access the capital markets for additional funding. If we are required to access the debt market, we expect to be able to secure reasonable borrowing rates.

Cash and cash equivalents were ~~$151.8~~$107.5 million and $187.2 million at ~~March 31,~~June 30, 2022, and December 31, 2021, respectively. We believe that our existing funds, cash generated from our operations and our existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditure and debt service requirements, and other business initiatives we plan to strategically pursue.

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Summary of Cash Flows


	Three Months Ended March 31,						Six Months Ended June 30,
(in thousands)	2022			2021			2022			2021
Cash (used in) provided by:
Operating activities	$	(24,712	)	$	(18,604	)	$	(52,050	)	$	(35,110	)
Investing activities		(13,407	)		(25,994	)		(27,817	)		(124,847	)
Financing activities		2,697			130,776			771			128,769
Effect of exchange rate changes on cash		(14	)		(2,806	)		(682	)		4
Net (decrease) increase in cash and cash equivalents	$	(35,436	)	$	83,372
Net decrease in cash and cash equivalents							$	(79,778	)	$	(31,184	)

Operating Activities

We used cash of ~~$24.7~~$52.1 million from operating activities for the ~~three~~six months ended ~~March 31,~~June 30, 2022. The cash used in operating activities primarily related to costs associated with the continued expansion of our business and inventory purchases, offset by the timing of cash payments and receipts.

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Investing Activities

We used cash of ~~$13.4~~$27.8 million in investing activities for the ~~three~~six months ended ~~March 31,~~June 30, 2022, which is primarily related to the purchase of surgical instruments to support the commercial launch of new products and growth of our business.

Financing Activities

Financing activities provided ~~$2.7~~$0.8 million of cash for the ~~three~~six months ended ~~March 31,~~June 30, 2022, which is related to proceeds from financed insurance and proceeds from warrant exercises.

Debt and Commitments

As of ~~March 31,~~June 30, 2022, we had $316.3 million outstanding under the 2026 Notes. The 2026 Notes accrue interest at a rate of 0.75%, payable semi-annually in arrears on February 1 and August 1 of each year. Prior to maturity in August 2026, the holders of the 2026 Notes may, under certain circumstances, choose to convert their notes into shares of our common stock. Based on the terms we have the option to pay or deliver cash, shares of our common stock, or a combination thereof, when a conversion notice is received.

We assumed the OCEANE convertible bonds issued by EOS in connection with our acquisition of EOS. The OCEANEs bear interest at 6% per year, payable semi-annually in arrears on May 31 and November 30 of each year. Unless either earlier converted or repurchased, the outstanding OCEANEs of ~~$13.9~~$13.0 million (€12.5 million) will mature on May 31, 2023.

We also assumed $5.2 million (€4.8 million) in other debts with the acquisition of EOS that are due in monthly and quarterly installments beginning in 2023 through maturity in 2027.

As of ~~March 31,~~June 30, 2022, we have made ~~$50.1~~$51.2 million in Orthotec settlement payments and ~~there remains~~we have an outstanding balance of ~~$7.7~~$6.5 million in Orthotec settlement payments (including imputed interest) to be paid by us.

With the acquisition of EOS, we assumed its inventory purchase commitment agreement with a third-party supplier. We are obligated to certain minimum purchase commitment requirements through December 2026. As of ~~March 31,~~June 30, 2022, the remaining minimum purchase commitment under the agreement was ~~$32.4~~$28.9 million.

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Contractual obligations and commercial commitments

As of ~~March 31,~~June 30, 2022, there have been no material changes, outside the normal course of business, in our outstanding contractual obligations from those disclosed within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Real Property Leases

On April 9, 2021, we entered into a 7-year operating lease agreement for a distribution center which consists of approximately 75,643 square feet of office and warehouse space in Memphis, Tennessee. The term of the lease commenced on May 1, 2021, and will terminate on May 1, 2028, subject to two thirty-six-month options to renew. Base rent under the building lease will be commensurate with our proportionate share of occupancy of the building and will increase annually by 3.0% throughout the remainder of the ~~lease~~.lease.

With the acquisition of EOS, we assumed its right-of-use assets and leases liabilities in the amount of $4.3 million. EOS occupies its main office in Paris, France. The EOS office in Paris, France is an operating lease that commenced in 2019 and will terminate in September 2028.

On December 4, 2019, we entered into a lease agreement for our headquarters location which consists of 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. The term of the lease commenced on February 1, 2021, and will terminate January 31, 2031, subject to two sixty-month options to renew. Base rent under the lease increases annually by 3.0% throughout the remainder of the lease.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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Recent Accounting Pronouncements

Aside from the changes disclosed in Note 2 to the Notes to Condensed Consolidated Financial Statements (Unaudited) under the heading “Recent Accounting Pronouncements,” if any, there have been no new accounting pronouncements or changes to accounting pronouncements during the three months ended ~~March 31,~~June 30, 2022, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2021, that was filed with the SEC.

Forward Looking Statements

This Quarterly Report on Form 10-Q incorporates a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding:

•

our estimates regarding anticipated operating losses, future revenue, expenses, capital requirements, uses and sources of cash and liquidity, including our anticipated revenue growth and cost savings;

•

our ability to achieve profitability, and the potential need to raise additional funding;

•

our ability to ensure that we have effective disclosure controls and procedures;

•

our ability to meet, and potential liability from not meeting, any outstanding commitments and contractual obligations;

•

our ability to maintain compliance with the quality requirements of the U.S. Food and Drug Administration and similar foreign regulatory requirements;

•

our ability to market, improve, grow, commercialize and achieve market acceptance of any of our products or any product candidates that we are developing or may develop in the future;

•

our ability to continue to enhance our product offerings, and to commercialize and achieve market acceptance of any of our products or product candidates;

•

the effect of any existing or future federal, state or international regulations on our ability to effectively conduct our business;

•

our business strategy and our underlying assumptions about market data, demographic trends, reimbursement trends and pricing trends;

•

our ability to maintain an adequate global sales network for our products, including to attract and retain independent sales agents and direct sales representatives;

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•

our ability to increase the use and promotion of our products by training and educating spine surgeons and our global sales network;

•

our ability to attract and retain a qualified management team, as well as other qualified personnel and advisors;

•

our ability to enter into licensing and business combination agreements with third parties and to successfully integrate the acquired technology and/or businesses;

•

the impact of global economic and political conditions and public health crises on our business and industry; and

•

other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 or any document incorporated by reference herein or therein.

•

~~our estimates regarding anticipated operating losses, future revenue, expenses, capital requirements, uses and sources of cash and liquidity, including our anticipated revenue growth and cost savings;~~

•

~~our ability to achieve profitability, and the potential need to raise additional funding;~~

•

~~our ability to ensure that we have effective disclosure controls and procedures;~~

•

~~our ability to meet, and potential liability from not meeting, any outstanding commitments and contractual obligations;~~

•

~~our ability to maintain compliance with the quality requirements of the U.S. Food and Drug Administration and similar foreign regulatory requirements;~~

•

~~our ability to market, improve, grow, commercialize and achieve market acceptance of any of our products or any product candidates that we are developing or may develop in the future;~~

•

~~our ability to continue to enhance our product offerings, and to commercialize and achieve market acceptance of any of our products or product candidates;~~

•

~~the effect of any existing or future federal, state or international regulations on our ability to effectively conduct our business;~~

•

~~our business strategy and our underlying assumptions about market data, demographic trends, reimbursement trends and pricing trends~~

•

~~our ability to maintain an adequate global sales network for our products, including to attract and retain independent distributors and direct sales representatives;~~

•

~~our ability to increase the use and promotion of our products by training and educating spine surgeons and our global sales network;~~

•

~~our ability to attract and retain a qualified management team, as well as other qualified personnel and advisors;~~

•

~~our ability to enter into licensing and business combination agreements with third parties and to successfully integrate the acquired technology and/or businesses;~~

•

~~the impact of global economic and political conditions and public health crises on our business and industry; and~~

•

~~other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 or any document incorporated by reference herein or therein.~~

Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be wrong. They can be affected by inaccurate assumptions and/or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expected results.

We also provide a cautionary discussion of risks and uncertainties under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed there could also adversely affect us.

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Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “estimate,” “may,” “will,” “should,” “could,” “would,” “seek,” “intend,” “continue,” “project,” and similar expressions are intended to identify forward-looking statements. There are a number of factors and uncertainties that could cause actual events or results to differ materially from those indicated by such forward-looking statements, many of which are beyond our control, including the factors set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk~~

We have evaluated the information required under this item that was disclosed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2021, and there have been no significant changes to this information.

Item 4. Controls and Procedures

~~Item 4.~~

~~Controls and Procedures~~

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time lines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in SEC Rules 13a - 15(e) and 15d - 15(e)) as of ~~March 31,~~June 30, 2022. Based on such evaluation, our management has concluded that as of ~~March 31,~~June 30, 2022, our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

We are in the process of implementing a new enterprise resource planning (“ERP”) system that affects many of our financial processes and is expected to improve the efficiency and effectiveness of certain financial and business transaction processes, as well as the underlying systems environment. T~~here~~There have been no changes to our internal control over financial reporting during the three months ended ~~March 31,~~June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Due to the timing of our acquisition of EOS, the internal control over financial reporting of the acquired company and its subsidiaries, including the portion of disclosure controls and procedures that related to internal control over financial reporting, was excluded from the evaluation of the effectiveness of our disclosure controls and procedures as of the period covered by this report. This exclusion is in accordance with the general guidance issued by the Staff of the SEC that an assessment of a recent business combination may be omitted from management's report on internal control over financial reporting in the first twelve months of consolidation.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Litigation

~~Item 1.~~

~~Legal Proceedings~~

~~Litigation~~

We are and may become involved in various legal proceedings arising from our business activities. While the Company has no material accruals for pending litigation or claims for which accrual amounts are not disclosed in the Company’s condensed consolidated financial statements, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect our future condensed consolidated results of operations, cash flows or financial position in a particular period. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in our condensed consolidated financial statements. An estimated loss contingency is accrued in our condensed consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of our potential liability.

Refer to Note 10 to the Notes to Condensed Consolidated Financial Statements included in Item 1, Part I of this Quarterly Report on Form 10-Q for further information regarding the NuVasive, Inc. litigation.~~litigation.~~

Item 1A. Risk Factors

~~Item 1A.~~

~~Risk Factors~~

There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 2, 2022, except for those noted below:

The United States has recently experienced historically high levels of inflation. If the inflation rate continues to increase, such as increases in the costs of labor and supplies, it will likely affect our expenses. Additionally, the United States is experiencing an acute workforce shortage, which in turn, has created a hyper-competitive wage environment that may increase our operating costs. To the extent inflation results in rising interest rates and has other adverse effects on the market, it may adversely affect our business, financial condition or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

During the three months ended ~~March 31,~~June 30, 2022, the Company issued unregistered equity securities as described below:

On February 1, 2022, the Company issued 50,000 restricted shares of the Company’s common stock with a grant date fair value of $10.33, based on the market price of common stock on grant date, to a consultant for consulting services rendered to the Company. The restrictions applicable to the shares will expire if the consultant’s engagement with the Company continues through June 30, 2022.

On each of ~~January 20, 2022, February 22,~~April 21, 2022 and ~~March 17,~~May 18, 2022, the Company issued 10,000 restricted shares of the Company’s common stock with a grant date fair values of ~~$10.61, $9.59~~$12.78 and ~~$10.94,~~$8.25, respectively, based on the market price of common stock on grant dates, to an independent ~~distributor~~sales agent for distribution and related services rendered to the Company.

On ~~each of January 5, 2022 and March 23,~~May 11, 2022, the Company issued ~~10,000~~25,000 restricted shares of the ~~Company’s~~Company's common stock with a grant date fair ~~values~~value of ~~$11.65 and $10.45, respectively,~~$7.43 based on the market price of common stock on grant ~~dates,~~date, to an independent ~~distributor~~sales agent for distribution and related services rendered to the Company.

The issuances of the foregoing securities were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no general solicitation and the transactions did not involve a public offering.

Item 5. Other Information

~~Other Information~~

~~None.~~

33None.

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Item 6. Exhibits


Exhibit	~~Exhibits~~

~~Exhibit~~		Number Exhibit Description

31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from the Alphatec Holdings, Inc. Quarterly Report on Form 10-Q for the Three and Six Months Ended ~~March 31,~~June 30, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of ~~March 31,~~June 30, 2022 and December 31, 2021, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021, (iii) Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Three and Six Months Ended ~~March 31,~~June 30, 2022 and 2021, (iv) Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021, (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2022 and 2021, and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)

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SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ALPHATEC HOLDINGS, INC.

	By:	/s/ Patrick S. Miles
		Patrick S. Miles
		Chairman and Chief Executive Officer
		(principal executive officer)

	By:	/s/ J. Todd Koning
		J. Todd Koning
		Executive Vice President and Chief Financial Officer
		(principal financial officer and principal accounting officer)

Date: ~~May 5,~~August 4, 2022

3536


Delaware	20-2463898
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1950 Camino Vida Roble, Carlsbad, CA	92008
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $.0001 per share	ATEC	The NASDAQ Global Select Market


	March 31, 2022			December 31, 2021			June 30, 2022			December 31, 2021
Assets	(Unaudited)						(Unaudited)
Current assets:
Cash and cash equivalents	$	151,812		$	187,248		$	107,470		$	187,248
Accounts receivable, net of allowances of $1,412 and $2,307, respectively		40,438			41,893
Accounts receivable, net of allowances of $561 and $2,307, respectively								43,928			41,893
Inventories		99,043			91,703			102,796			91,703
Prepaid expenses and other current assets		12,085			10,313			11,045			10,313
Total current assets		303,378			331,157			265,239			331,157
Property and equipment, net		96,185			87,401			99,183			87,401
Right-of-use asset		24,661			25,283
Right-of-use assets								28,116			25,283
Goodwill		40,831			39,689			39,170			39,689
Intangible assets, net		82,090			85,274			78,611			85,274
Other assets		1,544			3,249			1,616			3,249
Total assets	$	548,689		$	572,053		$	511,935		$	572,053
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	34,036		$	25,737		$	33,157		$	25,737
Accrued expenses and other current liabilities		61,152			55,549			55,874			55,549
Contract liability		14,893			15,255
Contract liabilities								13,850			15,255
Short-term debt		1,789			342			14,266			342
Current portion of operating lease liability		4,034			4,212
Current portion of operating lease liabilities								4,164			4,212
Total current liabilities		115,904			101,095			121,311			101,095
Long-term debt		326,639			326,489			313,397			326,489
Operating lease liability, less current portion		23,934			24,383
Operating lease liabilities, less current portion								27,335			24,383
Other long-term liabilities		16,625			17,061			15,750			17,061
Commitments and contingencies (Note 10)
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at March 31, 2022 and December 31, 2021; 3,319 shares issued and outstanding at March 31, 2022 and December 31, 2021		23,603			23,603
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at June 30, 2022 and December 31, 2021; 3,319 shares issued and outstanding at June 30, 2022 and December 31, 2021								23,603			23,603
Stockholders' equity:
Series A convertible preferred stock, $0.0001 par value; 15 shares authorized, and 0 shares issued and outstanding at March 31, 2022 and December 31, 2021		—			—
Common stock, $0.0001 par value; 200,000 authorized; 101,293 shares issued and 101,178 shares outstanding at March 31, 2022; and 99,627 shares issued and 99,537 shares outstanding at December 31, 2021		10			10
Series A convertible preferred stock, $0.0001 par value; 15 shares authorized, and 0 shares issued and outstanding at June 30, 2022 and December 31, 2021								—			—
Common stock, $0.0001 par value; 200,000 authorized; 104,633 shares issued and 104,518 shares outstanding at June 30, 2022; and 99,627 shares issued and 99,537 shares outstanding at December 31, 2021								11			10
Treasury stock, 1,808 shares, at cost		(25,097	)		(25,097	)		(25,097	)		(25,097	)
Additional paid-in capital		899,414			892,828			910,577			892,828
Accumulated other comprehensive deficit		(7,174	)		(5,994	)		(12,463	)		(5,994	)
Accumulated deficit		(825,169	)		(782,325	)		(862,489	)		(782,325	)
Total stockholders’ equity		41,984			79,422			10,539			79,422
Total liabilities and stockholders’ equity	$	548,689		$	572,053		$	511,935		$	572,053

	Three Months Ended March 31,
	2022			2021
Operating activities:
Net loss	$	(42,844	)	$	(22,903	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		9,315			3,850
Stock-based compensation		10,184			4,474
Amortization of debt discount and debt issuance costs		489			640
Amortization of right-of-use assets		563			1,022
Write-down for excess and obsolete inventories		1,706			2,096
Loss on disposal of assets		474			369
Other		(243	)		299
Changes in operating assets and liabilities:
Accounts receivable		1,674			(1,891	)
Inventories		(9,154	)		(13,471	)
Prepaid expenses and other current assets		(1,848	)		1,367
Other assets		(119	)		—
Accounts payable		7,637			2,160
Accrued expenses and other current liabilities		(1,268	)		2,958
Lease liability		(562	)		31
Other long-term liabilities		(716	)		395
Net cash used in operating activities		(24,712	)		(18,604	)
Investing activities:
Purchase of property and equipment		(13,257	)		(15,202	)
Purchase of intangible assets		(150	)		—
Purchase of debt and equity securities		—			(9,081	)
Settlement of forward contract		—			(1,711	)
Net cash used in investing activities		(13,407	)		(25,994	)
Financing activities:
Proceeds from common stock offering		—			131,838
Net cash received (paid) from common stock exercises		1,301			(1,048	)
Proceeds from financed insurance		1,617			—
Other		(221	)		(14	)
Net cash provided by financing activities		2,697			130,776
Effect of exchange rate changes on cash		(14	)		(2,806	)
Net (decrease) increase in cash and cash equivalents		(35,436	)		83,372
Cash and cash equivalents at beginning of period		187,248			107,765
Cash and cash equivalents at end of period	$	151,812		$	191,137
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,252		$	1,783
Cash paid for income taxes	$	—		$	21
Supplemental disclosure of noncash activities:
Financed insurance	$	1,617		$	—
Purchases of property and equipment in accounts payable and accrued expenses	$	4,667		$	8,030
Recognition of lease liability	$	—		$	21,505


	Six Months Ended June 30,
	2022			2021
Operating activities:
Net loss	$	(80,164	)	$	(61,108	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		19,007			10,394
Stock-based compensation		19,387			15,970
Amortization of debt discount and debt issuance costs		973			1,292
Amortization of right-of-use assets		1,128			1,950
Write-down for excess and obsolete inventories		4,100			4,317
Loss on disposal of assets		1,194			689
Other		(126	)		2,003
Changes in operating assets and liabilities:
Accounts receivable		(2,255	)		(1,261	)
Inventories		(16,615	)		(15,195	)
Prepaid expenses and other current assets		(1,093	)		1,515
Other assets		(253	)		145
Accounts payable		7,651			3,797
Accrued expenses		(3,646	)		(62	)
Lease liabilities		(1,054	)		(26	)
Contract liabilities		(187	)		(444	)
Other long-term liabilities		(97	)		914
Net cash used in operating activities		(52,050	)		(35,110	)
Investing activities:
Purchase of property and equipment		(26,338	)		(36,028	)
Purchase of intangible assets		(1,479	)		—
Acquisition of business, net of cash acquired		—			(62,133	)
Purchase of OCEANE		—			(21,097	)
Cash paid for investments		—			(3,000	)
Settlement of forward contract		—			(2,589	)
Net cash used in investing activities		(27,817	)		(124,847	)
Financing activities:
Proceeds from common stock offering		—			131,828
Net cash received (paid) from common stock exercises		218			(3,044	)
Proceeds from financed insurance		1,617			—
Principal payments on finance lease obligations		(83	)		(2	)
Principal payments on term loan and notes payable		(981	)		(13	)
Net cash provided by financing activities		771			128,769
Effect of exchange rate changes on cash		(682	)		4
Net decrease in cash and cash equivalents		(79,778	)		(31,184	)
Cash and cash equivalents at beginning of period		187,248			107,765
Cash and cash equivalents at end of period	$	107,470		$	76,581
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,970		$	3,476
Cash paid for income taxes	$	267		$	225
Supplemental disclosure of noncash activities:
Financed insurance	$	1,617		$	—
Financed inventory	$	—		$	3,707
Purchases of property and equipment in accounts payable and accrued expenses	$	2,304		$	591
Purchase of intangible assets	$	750		$	—
Recognition of lease liability	$	—		$	23,159
Modification of lease liability for lease amendment	$	4,288		$	—
Common stock issued for asset acquisition	$	250		$	—


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2022 (unaudited) and December 31, 2021	3

	Condensed Consolidated Statements of Operations for the Three ~~months ended March 31,~~and Six Months Ended June 30, 2022 and 2021 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Loss for the Three ~~months ended March 31,~~and Six Months Ended June 30, 2022 and 2021 (unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~months ended March 31,~~and Six Months Ended June 30, 2022 and 2021 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the ~~Three months ended March 31,~~Six Months Ended June 30, 2022 and 2021 (unaudited)	78

	Notes to Condensed Consolidated Financial Statements (unaudited)	89

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2627

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3233

Item 4.	Controls and Procedures	3233

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	3334

Item 1A.	Risk Factors	3334

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3334

Item 5.	Other Information	3334

Item 6.	Exhibits	3435

SIGNATURES		3536

	Common stock				Additional paid-in			Shareholder note			Treasury			Accumulated other comprehensive			Accumulated			Total stockholders’
	Shares		Par Value		capital			receivable			stock			income (loss)			deficit			equity
Balance at December 31, 2020		82,104	$	8	$	770,764		$	(4,000	)	$	(97	)	$	1,204		$	(637,999	)	$	129,880
Stock-based compensation		—		—		3,889			—			—			—			—			3,889
Distributor equity incentives		—		—		129			—			—			—			—			129
Common stock issued for warrant exercises		2,019		—		756			—			—			—			—			756
Common stock issued for stock option exercises		69		—		210			—			—			—			—			210
Common stock issued for vesting of restricted stock units, net of shares withheld for tax liability		379		—		(1,717	)		—			—			—			—			(1,717	)
Shareholder note receivable		—		—		—			1,100			—			—			—			1,100
Foreign currency translation adjustments		—		—		—			—			—			(3,052	)		—			(3,052	)
Net loss		—		—		—			—			—			—			(22,903	)		(22,903	)
Balance at March 31, 2021		84,571	$	8	$	774,031		$	(2,900	)	$	(97	)	$	(1,848	)	$	(660,902	)	$	108,292


(in thousands)	As of May 13, 2021
Cash paid for purchase of EOS shares at Change in Control Date	$	46,908
Cash paid for purchase of OCEANEs at Change in Control Date		19,620
Total cash paid at Change in Control Date		66,528
Fair value of investment in EOS Shares held prior to Change in Control Date		23,549
Fair value of investment in OCEANEs held prior to Change in Control Date		1,477
Total fair value of investment in EOS held prior to Change in Control Date		25,026
Fair value of noncontrolling interest acquired after Change in Control Date		8,454
	$	100,008

Cash and cash equivalents	$	16,778
Accounts receivable		9,083
Inventory		26,681
Other current assets		4,422
Property, plant and equipment, net		1,650
Deferred tax assets		536
Right-of-use assets		4,341
Goodwill		29,469
Definite-lived intangible assets:
Developed technology		56,000
Customer relationships		9,500
Trade names		6,000
Other noncurrent assets		395
Contract liabilities		21,196
Long-term debt		15,297
Other liabilities assumed		28,354
Total identifiable net assets	$	100,008

	Three Months Ended March 31,
(in thousands, except per share amounts)	2022			2021
Total revenue	$	70,933		$	50,986
Net loss		(42,844	)		(26,707	)
Net loss per share, basic and diluted	$	(0.43	)	$	(0.31	)


	March 31, 2022								June 30, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	120,023		—		—	$	120,023	$	75,043		—		—	$	75,043
Total cash equivalents	$	120,023		—		—	$	120,023	$	75,043		—		—	$	75,043

Liability classified equity award	$	—		—		2,328	$	2,328	$	—		—		1,061	$	1,061

	December 31, 2021								December 31, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	140,010		—		—	$	140,010	$	140,010		—		—	$	140,010
Total cash equivalents	$	140,010		—		—	$	140,010	$	140,010		—		—	$	140,010

Liability classified equity award	$	—		—		2,052	$	2,052	$	—		—		2,052	$	2,052


	Level 3 Liabilities		Level 3 Liabilities
Balance at December 31, 2021	$	2,052	$	2,052
Straight-line recognition of liability classified equity award		196		196
Change in fair value measurement		80		80
Balance at March 31, 2022	$	2,328	$	2,328
Straight-line recognition of liability classified equity award				202
Change in fair value measurement				(1,469	)
Balance at June 30, 2022			$	1,061


	Useful lives (in years)	March 31, 2022			December 31, 2021			Useful lives (in years)	June 30, 2022			December 31, 2021
Surgical instruments	4	$	140,585		$	130,432		4	$	145,123		$	130,432
Machinery and equipment	7		11,135			11,092		7		10,985			11,092
Computer equipment	3		5,796			5,694		3		5,500			5,694
Office furniture and equipment	5		3,880			3,861		5		4,316			3,861
Leasehold improvements	various		1,748			1,754		various		3,404			1,754
Construction in progress	n/a		12,063			7,292		n/a		14,591			7,292
			175,207			160,125				183,919			160,125
Less: accumulated depreciation and amortization			(79,022	)		(72,724	)			(84,736	)		(72,724	)
Property and equipment, net		$	96,185		$	87,401			$	99,183		$	87,401

	Remaining Avg. Useful lives		Gross		Accumulated			Intangible
March 31, 2022:	(in years)		Amount		Amortization			Assets, net
										Remaining Avg. Useful lives	Gross		Accumulated			Intangible
June 30, 2022:										(in years)	Amount		Amortization			Assets, net
Developed product technology		12	$	73,665	$	(7,303	)	$	66,362	11	$	72,740	$	(8,557	)	$	64,183
Trademarks and trade names		10		5,638		(609	)		5,029	9		5,298		(708	)		4,590
Customer relationships		5		14,583		(5,685	)		8,898	4		14,043		(6,031	)		8,012
Distribution network		3		2,413		(1,890	)		523	2		2,413		(1,940	)		473
In-process research and development	n/a			1,278		—			1,278	n/a		1,353		—			1,353
Total			$	97,577	$	(15,487	)	$	82,090		$	95,847	$	(17,236	)	$	78,611

	Remaining Avg. Useful lives		Gross		Accumulated			Intangible		Remaining Avg. Useful lives	Gross		Accumulated			Intangible
December 31, 2021:	(in years)		Amount		Amortization			Assets, net		(in years)	Amount		Amortization			Assets, net
Developed product technology		12	$	74,543	$	(5,768	)	$	68,775	12	$	74,543	$	(5,768	)	$	68,775
Trademarks and trade names		10		5,732		(477	)		5,255	10		5,732		(477	)		5,255
Customer relationships		5		14,732		(5,264	)		9,468	5		14,732		(5,264	)		9,468
Distribution network		3		2,413		(1,840	)		573	3		2,413		(1,840	)		573
In-process research and development	n/a			1,203		—			1,203	n/a		1,203		—			1,203
Total			$	98,623	$	(13,349	)	$	85,274		$	98,623	$	(13,349	)	$	85,274


Year Ending December 31,
Remainder of 2022	$	6,734	$	4,429
2023		8,957		8,859
2024		8,854		8,756
2025		8,269		8,171
2026		8,269		8,171
Thereafter		41,007		40,225
	$	82,090	$	78,611