0001564590-20-048946 | 10-Q | XBRL Viewer

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Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2020	Oct. 27, 2020
Cover [Abstract]
Entity Registrant Name	NUVASIVE, INC
Entity Central Index Key	0001142596
Entity Current Reporting Status	Yes
Document Type	10-Q
Document Period End Date	Sep. 30, 2020
Amendment Flag	false
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Trading Symbol	NUVA
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		51,283,615
Entity Shell Company	false
Entity File Number	000-50744
Entity Tax Identification Number	33-0768598
Entity Address, Address Line One	7475 Lusk Boulevard
Entity Address, City or Town	San Diego
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92121
City Area Code	(858)
Local Phone Number	909-1800
Title of 12(b) Security	Common Stock, par value $0.001 per share
Entity Interactive Data Current	Yes
Security Exchange Name	NASDAQ
Entity Incorporation, State or Country Code	DE
Document Quarterly Report	true
Document Transition Report	false

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 774,544	$ 213,034
Short-term marketable securities	207,605
Accounts receivable, net of allowances of $20,924 and $17,019, respectively	205,255	211,532
Inventory, net	305,634	312,419
Prepaid income taxes	13,322	10,434
Prepaid expenses and other current assets	15,576	16,917
Total current assets	1,521,936	764,336
Property and equipment, net	281,339	266,318
Intangible assets, net	165,499	201,092
Goodwill	558,985	561,064
Operating lease right-of-use assets	103,994	66,932
Deferred tax assets	9,291	9,162
Restricted cash and investments	1,494	1,494
Other assets	14,033	14,892
Total assets	2,656,571	1,885,290
Current liabilities:
Accounts payable and accrued liabilities	112,392	97,160
Contingent consideration liabilities	7,275	15,727
Accrued payroll and related expenses	53,005	86,458
Operating lease liabilities	7,513	5,567
Income tax liabilities	760	2,005
Senior convertible notes	639,682
Total current liabilities	820,627	206,917
Long-term senior convertible notes	756,167	623,298
Deferred and income tax liabilities	8,236	14,655
Operating lease liabilities	113,105	73,153
Other long-term liabilities	48,734	52,060
Commitments and contingencies
Redeemable equity component of senior convertible notes	10,318
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized, none outstanding
Common stock, $0.001 par value; 150,000,000 and 120,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively; 57,813,261 and 57,524,658 issued and outstanding at September 30, 2020 and December 31, 2019, respectively	62	62
Additional paid-in capital	1,533,409	1,429,854
Accumulated other comprehensive loss	(10,152)	(9,418)
Retained earnings	43,630	82,475
Treasury stock at cost; 6,540,526 shares and 5,379,536 shares at September 30, 2020 and December 31, 2019, respectively	(667,565)	(587,766)
Total equity	899,384	915,207
Total liabilities and equity	$ 2,656,571	$ 1,885,290

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Statement Of Financial Position [Abstract]
Accounts receivable, allowances	$ 20,924	$ 17,019
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	120,000,000
Common stock, shares issued	57,813,261	57,524,658
Common stock, shares outstanding	57,813,261	57,524,658
Treasury stock at cost, shares	6,540,526	5,379,536

Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Net sales:
Net sales	$ 295,282	$ 290,835	$ 758,775	$ 857,716
Cost of sales (excluding below amortization of intangible assets):
Cost of sales	84,633	77,028	237,003	229,101
Gross profit	210,649	213,807	521,772	628,615
Operating expenses:
Selling, general and administrative	146,260	152,887	402,935	450,816
Research and development	20,404	18,143	58,067	53,271
Amortization of intangible assets	13,826	12,596	39,150	38,498
Purchase of in-process research and development			1,011
Business transition costs	3,107	(333)	2,541	5,146
Total operating expenses	183,597	183,293	503,704	547,731
Interest and other expense, net:
Interest income	271	620	1,306	1,356
Interest expense	(21,123)	(9,654)	(49,164)	(28,817)
Other income (expense), net	251	(5,696)	(18,819)	(6,053)
Total interest and other expense, net	(20,601)	(14,730)	(66,677)	(33,514)
Income (loss) before income taxes	6,451	15,784	(48,609)	47,370
Income tax (expense) benefit	(579)	(4,774)	9,764	(12,012)
Consolidated net income (loss)	$ 5,872	$ 11,010	$ (38,845)	$ 35,358
Net income (loss) per share:
Basic	$ 0.11	$ 0.21	$ (0.76)	$ 0.68
Diluted	$ 0.11	$ 0.21	$ (0.76)	$ 0.67
Weighted average shares outstanding:
Basic	51,261	52,057	51,440	51,901
Diluted	51,805	53,056	51,440	52,667
Product [Member]
Net sales:
Net sales	$ 267,571	$ 260,173	$ 685,922	$ 765,377
Cost of sales (excluding below amortization of intangible assets):
Cost of sales	66,049	57,164	182,067	169,263
Service [Member]
Net sales:
Net sales	27,711	30,662	72,853	92,339
Cost of sales (excluding below amortization of intangible assets):
Cost of sales	$ 18,584	$ 19,864	$ 54,936	$ 59,838

Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement Of Income And Comprehensive Income [Abstract]
Consolidated net income (loss)	$ 5,872	$ 11,010	$ (38,845)	$ 35,358
Other comprehensive income (loss):
Unrealized gain on marketable securities, net of tax	101		53
Translation adjustments, net of tax	1,922	(2,780)	(787)	(2,704)
Other comprehensive income (loss)	2,023	(2,780)	(734)	(2,704)
Total consolidated comprehensive income (loss)	$ 7,895	$ 8,230	$ (39,579)	$ 32,654

- Definition

Amount after tax and reclassification adjustments of other comprehensive income (loss).

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- Definition

The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

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+ Details

Consolidated Statements of Equity - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Loss [Member]	Retained Earnings [Member]	Treasury Stock [Member]
Beginning Balance at Dec. 31, 2018	$ 834,525	$ 61	$ 1,397,829	$ (8,628)	$ 17,241	$ (571,978)
Beginning Balance, Shares at Dec. 31, 2018		56,648				(5,116)
Issuance of common stock under employee and director equity option and purchase plans	(8,177)	$ 0	202	0	0	$ (8,379)
Issuance of common stock under employee and director equity option and purchase plans, Shares		399				(146)
Stock-based compensation expense	4,766	$ 0	4,766	0	0	$ 0
Issuance of common stock in connection with royalty milestone achievement	0	$ 0	0	0	0	0
Issuance of common stock in connection with royalty milestone achievement, Shares		72
Consolidated net income (loss)	9,386	$ 0	0	0	9,386	0
Other comprehensive (loss) income	(494)	0	0	(494)	0	0
Ending Balance at Mar. 31, 2019	840,006	$ 61	1,402,797	(9,122)	26,627	$ (580,357)
Ending Balance, Shares at Mar. 31, 2019		57,119				(5,262)
Beginning Balance at Dec. 31, 2018	834,525	$ 61	1,397,829	(8,628)	17,241	$ (571,978)
Beginning Balance, Shares at Dec. 31, 2018		56,648				(5,116)
Consolidated net income (loss)	35,358
Other comprehensive (loss) income	(2,704)
Ending Balance at Sep. 30, 2019	876,614	$ 62	1,421,235	(11,332)	52,599	$ (585,950)
Ending Balance, Shares at Sep. 30, 2019		57,421				(5,354)
Beginning Balance at Mar. 31, 2019	840,006	$ 61	1,402,797	(9,122)	26,627	$ (580,357)
Beginning Balance, Shares at Mar. 31, 2019		57,119				(5,262)
Issuance of common stock under employee and director equity option and purchase plans	364	$ 1	4,315	0	0	$ (3,952)
Issuance of common stock under employee and director equity option and purchase plans, Shares		238				(66)
Stock-based compensation expense	6,822	$ 0	6,822	0	0	$ 0
Consolidated net income (loss)	14,962	0	0	0	14,962	0
Other comprehensive (loss) income	570	0	0	570	0	0
Ending Balance at Jun. 30, 2019	862,724	$ 62	1,413,934	(8,552)	41,589	$ (584,309)
Ending Balance, Shares at Jun. 30, 2019		57,357				(5,328)
Issuance of common stock under employee and director equity option and purchase plans	(1,641)	$ 0	0	0	0	$ (1,641)
Issuance of common stock under employee and director equity option and purchase plans, Shares		64				(26)
Stock-based compensation expense	7,096	$ 0	7,096	0	0	$ 0
Consolidated net income (loss)	11,010	0	0	0	11,010	0
Consideration paid in excess of non-controlling interests	205	0	205	0	0	0
Other comprehensive (loss) income	(2,780)	0	0	(2,780)	0	0
Ending Balance at Sep. 30, 2019	876,614	$ 62	1,421,235	(11,332)	52,599	$ (585,950)
Ending Balance, Shares at Sep. 30, 2019		57,421				(5,354)
Beginning Balance at Dec. 31, 2019	915,207	$ 62	1,429,854	(9,418)	82,475	$ (587,766)
Beginning Balance, Shares at Dec. 31, 2019		57,525				(5,380)
Issuance of common stock under employee and director equity option and purchase plans	(3,818)	$ 0	119	0	0	$ (3,937)
Issuance of common stock under employee and director equity option and purchase plans, Shares		167				(59)
Stock-based compensation expense	2,786	$ 0	2,786	0	0	$ 0
Tax benefits related to convertible note issuance	484	0	484	0	0	0
Shares repurchased	(75,000)	$ 0	0	0	0	$ (75,000)
Shares repurchased ,Shares		0				(1,085)
Sale of warrants	47,070	$ 0	47,070	0	0	$ 0
Convertible note hedge	(78,300)	0	(78,300)	0	0	0
Equity component of convertible note issuance	78,268	0	78,268	0	0	0
Debt issuance costs attributable to convertible feature	(1,987)	0	(1,987)	0	0	0
Consolidated net income (loss)	5,298	0	0	0	5,298	0
Other comprehensive (loss) income	(3,809)	0	0	(3,809)	0	0
Ending Balance at Mar. 31, 2020	886,199	$ 62	1,478,294	(13,227)	87,773	$ (666,703)
Ending Balance, Shares at Mar. 31, 2020		57,692				(6,524)
Beginning Balance at Dec. 31, 2019	915,207	$ 62	1,429,854	(9,418)	82,475	$ (587,766)
Beginning Balance, Shares at Dec. 31, 2019		57,525				(5,380)
Consolidated net income (loss)	(38,845)
Other comprehensive (loss) income	(734)
Ending Balance at Sep. 30, 2020	899,384	$ 62	1,533,409	(10,152)	43,630	$ (667,565)
Ending Balance, Shares at Sep. 30, 2020		57,813				(6,541)
Beginning Balance at Mar. 31, 2020	886,199	$ 62	1,478,294	(13,227)	87,773	$ (666,703)
Beginning Balance, Shares at Mar. 31, 2020		57,692				(6,524)
Issuance of common stock under employee and director equity option and purchase plans	3,663	$ 0	3,871	0	0	$ (208)
Issuance of common stock under employee and director equity option and purchase plans, Shares		87				(4)
Stock-based compensation expense	7,081	$ 0	7,081	0	0	$ 0
Sale of warrants	46,845	0	46,845	0	0	0
Debt issuance costs attributable to convertible feature	65	0	65	0	0	0
Consolidated net income (loss)	(50,015)	0	0	0	(50,015)	0
Other comprehensive (loss) income	1,052	0	0	1,052	0	0
Ending Balance at Jun. 30, 2020	894,890	$ 62	1,536,156	(12,175)	37,758	$ (666,911)
Ending Balance, Shares at Jun. 30, 2020		57,779				(6,528)
Issuance of common stock under employee and director equity option and purchase plans	(654)	$ 0	0	0	0	$ (654)
Issuance of common stock under employee and director equity option and purchase plans, Shares		34				(13)
Stock-based compensation expense	7,571	$ 0	7,571	0	0	$ 0
Convertible note hedge	(37,292)	0	(37,292)	0	0	0
Equity component of convertible note issuance	37,292	0	37,292	0	0	0
Reclassification of redeemable equity component of senior convertible notes	(10,318)	0	(10,318)	0	0	0
Consolidated net income (loss)	5,872	0	0	0	5,872	0
Other comprehensive (loss) income	2,023	0	0	2,023	0	0
Ending Balance at Sep. 30, 2020	$ 899,384	$ 62	$ 1,533,409	$ (10,152)	$ 43,630	$ (667,565)
Ending Balance, Shares at Sep. 30, 2020		57,813				(6,541)

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Operating activities:
Consolidated net income (loss)	$ (38,845)	$ 35,358
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	106,097	101,245
Amortization of non-cash interest	33,714	15,853
Stock-based compensation	9,806	20,447
Reserves on current assets	44,927	11,539
Purchase of in-process research and development	1,011
Net loss on strategic investments	278	4,767
Net loss recognized on change in fair value of derivatives	12,301
Other non-cash adjustments	13,899	10,168
Deferred income taxes	(6,257)	9,810
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable	2,388	(8,645)
Inventory	(37,523)	(45,571)
Prepaid expenses and other current assets	(1,620)	(2,499)
Accounts payable and accrued liabilities	10,176	6,593
Accrued payroll and related expenses	(33,529)	4,108
Income taxes	(3,625)	(2,588)
Net cash provided by operating activities	113,198	160,585
Investing activities:
Acquisitions and investments		(4,100)
Proceeds from other investments	1,132
Purchases of intangible assets	(3,810)	(7,501)
Purchases of property and equipment	(77,857)	(94,430)
Purchases of marketable securities	(207,695)
Net cash used in investing activities	(288,230)	(106,031)
Financing activities:
Proceeds from the issuance of common stock	3,871	3,888
Purchases of treasury stock	(79,680)	(13,343)
Payment of contingent consideration	(7,053)	(809)
Proceeds from issuance of convertible debt, net of issuance costs	873,890
Proceeds from sale of warrants	93,915
Purchases of convertible note hedges	(147,825)
Other financing activities	(1,405)	2,283
Net cash provided by (used in) financing activities	735,713	(7,981)
Effect of exchange rate changes on cash	829	(1,014)
Increase in cash, cash equivalents and restricted cash	561,510	45,559
Cash, cash equivalents and restricted cash at beginning of period	214,528	120,235
Cash, cash equivalents and restricted cash at end of period	$ 776,038	$ 165,794

Consolidated Statements of Cash Flows (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Sep. 30, 2019
Statement Of Cash Flows [Abstract]
Cash and cash equivalents	$ 774,544	$ 163,399
Restricted cash	1,494	2,395
Total cash, cash equivalents and restricted cash shown in the Unaudited Consolidated Statement of Cash Flows	$ 776,038	$ 165,794

Description of Business and Basis of Presentation

9 Months Ended

Sep. 30, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Description of Business and Basis of Presentation

1. Description of Business and Basis of Presentation

Description of Business

NuVasive, Inc. (the “Company” or “NuVasive”) was incorporated in Delaware on July 21, 1997, and began commercializing its products in 2001. The Company’s principal product offering includes a minimally disruptive surgical platform called Maximum Access Surgery, or MAS. The MAS platform combines three categories of solutions that collectively minimize soft tissue disruption during spine fusion surgery, provide maximum visualization and are designed to enable safe and reproducible outcomes for the surgeon and the patient. The platform includes the Company’s proprietary software-driven nerve detection and avoidance systems and Intraoperative Monitoring (“IOM”) services and support; MaXcess, an integrated split-blade retractor system; and a wide variety of specialized implants and biologics. To assist with surgical procedures, the Company offers a technology platform called Integrated Global Alignment (“iGA”), in which products and computer assisted technology under the MAS platform help achieve more precise spinal alignment. The individual components of the MAS platform, and many of the Company’s products, can also be used in open or traditional spine surgery. The Company continues to focus research and development efforts to expand its MAS product platform and advance the applications of its unique technology into procedurally integrated surgical solutions. The Company dedicates significant resources toward training spine surgeons on its unique technology and products.

The Company’s procedurally integrated solutions use innovative, technological advancements and the MAS platform to provide surgical efficiency, operative reliability, and procedural versatility. The Company offers a range of implants for spinal surgery, which include its porous titanium and polyetheretherketone (“PEEK”) implants under its Advanced Materials Science portfolio, fixation products such as customizable rods, plates and screws, bone allograft in patented saline packaging, allogeneic and synthetic biologics, and disposables used in IOM. The Company makes available MAS instrument sets, MaXcess and neuromonitoring systems to hospitals to facilitate surgeon access to the spine to perform restorative and fusion procedures using the Company’s implants and fixation products. The Company sells MAS instrument sets, MaXcess and neuromonitoring systems to hospitals, however, such sales are immaterial to the Company’s results of operations.

The Company also designs and sells expandable growing rod implant systems that can be non-invasively lengthened following implantation with precise, incremental adjustments via an external remote controller using magnetic technology called MAGnetic External Control, or MAGEC, which allows for the minimally invasive treatment of early-onset and adolescent scoliosis. This technology is also the basis for the Company’s Precice limb lengthening system, which allows for the correction of long bone limb length discrepancy, as well as enhanced bone healing in patients that have experienced traumatic injury.

The Company has developed a procedural solution for spine surgery that includes IOM services, iGA and hardware and software technology offerings. The Company has also invested in the development of capital equipment designed to further improve clinical and economic outcomes through proceduralization, including LessRay and Pulse. LessRay is an image enhancement platform designed to reduce radiation exposure in the operating room by allowing surgeons to take low-quality, low-dose images and improve them to look like conventional full-dose images. Pulse integrates multiple enabling technologies within a single, expandable platform and is engineered to improve workflow, reduce variability, and increase the reproducibility of surgical outcomes. Selling and leasing of capital equipment do not make up a material portion of the Company’s total net sales.

In December 2019, a novel strain of coronavirus, which causes COVID-19, was identified. Due to the rapid and global spread of the virus, on March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. To slow the proliferation of COVID-19, governments domestically and around the world have implemented extraordinary measures, which include the mandatory closure of businesses, restrictions on travel and gatherings, and quarantine and physical distancing requirements. In addition, many government agencies in conjunction with hospitals and healthcare systems have, to varying degrees, deferred or suspended elective surgical procedures. While certain spine surgeries are deemed essential and certain surgeries, like in cases of trauma, cannot be delayed, the Company has seen and may continue to see a significant reduction in procedural volumes as hospital systems and/or patients elect to defer spine surgery procedures. As a result of these measures, the Company has experienced substantial reductions this year in procedural volumes and anticipates this trend may continue during the pandemic. Although the Company cannot predict the specific extent, duration, or scope of the impact that the COVID-19 pandemic will have on its financial results, the Company has experienced, and may continue to experience, material declines in its net sales, cash flow, and/or profitability in one or more quarterly periods in 2020 as compared to the corresponding prior-year periods and compared to its expectations at the beginning of the 2020 fiscal year.

Basis of Presentation and Principles of Consolidation

The accompanying Unaudited Consolidated Financial Statements include the accounts of the Company and its majority-owned or controlled subsidiaries, collectively referred to as either NuVasive or the Company. The Company translates the financial statements of its foreign subsidiaries using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations. When there is a portion of equity in an acquired subsidiary not attributable, directly or indirectly, to the respective parent entity, the Company records the fair value of the non-controlling interest at the acquisition date and classifies the amounts attributable to non-controlling interest separately in equity in the Company's Consolidated Financial Statements. Any subsequent changes in a parent's ownership interest while the parent retains its controlling financial interest in its subsidiary are accounted for as equity transactions. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company has replaced the caption “Revenue” with “Net sales,” and the caption “Sales, marketing and administrative” with “Selling, general and administrative,” within the Unaudited Consolidated Statements of Operations and corresponding changes have been made throughout this Quarterly Report to conform to this presentation. These updated captions have no impact on previously reported results of operations or financial position.

The accompanying Unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnote disclosures it normally includes in its annual Consolidated Financial Statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for any other interim period or for the full year. These Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC. In the opinion of management, the Unaudited Consolidated Financial Statements and notes thereto include all adjustments that are of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial position and of the results of operations and cash flows for the periods presented.

Use of Estimates

To prepare financial statements in conformity with GAAP, management must make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Recent Accounting Pronouncements Not Yet Adopted

In January 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force), which clarifies the interaction of the accounting for equity securities, investments accounted for under the equity method, and certain forward contracts and purchased options. This update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, and early adoption is permitted. The Company is in the process of determining the impact the adoption will have on its Consolidated Financial Statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments. ASU 2020-06 allows for a modified or full retrospective method of transition. This update is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, and early adoption is permitted. The Company is in the process of determining the impact the adoption will have on its Consolidated Financial Statements as well as whether to early adopt the new guidance.

Recently Adopted Accounting Standards

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The amendments in this update were adopted using a modified retrospective transition method as of January 1, 2020, which had no cumulative impact to retained earnings. The adoption of this guidance did not have a material impact on the Company’s Unaudited Consolidated Financial Statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles – Goodwill and Other, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The Company adopted the amendments in this update on January 1, 2020, which will be applied using a prospective transition method. The adoption did not have a material impact on the Company’s Unaudited Consolidated Financial Statements.

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. The Company adopted ASU 2018-13 as of January 1, 2020. The adoption did not have a material impact on the Company’s Unaudited Consolidated Financial Statements. See Note 4 to the Unaudited Consolidated Financial Statements for further discussion on fair value measurements.

In September 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangible – Goodwill and Other – Internal-Use Software (“ASU 2018-15”), which requires a customer in a cloud computing arrangement to determine whether implementation costs should be capitalized as assets or expensed as incurred. Under the new guidance, capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The amendments in this update will be applied using a prospective transition method to each period presented. The Company adopted ASU 2018-15 as of January 1, 2020. The adoption did not have a material impact on the Company’s Unaudited Consolidated Financial Statements.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which modifies Accounting Standard Codification 740 – Income Taxes (“ASC 740”). ASU 2019-12 enhances and simplifies various aspects of the income tax accounting guidance in ASC 740. This update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, and early adoption is permitted. The Company elected to early adopt ASU 2019-12 in the quarter ended June 30, 2020. The Company applied the updated guidance for year-to-date losses in the Company’s interim period tax accounting on a prospective basis. The early adoption had no impact on the expected full year tax expense for 2020, but rather accelerated certain tax benefits to earlier quarters in 2020 that would otherwise have been limited under ASC 740.

In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. This update is effective upon issuance. The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date. The adoption of ASU 2020-04 did not have a material impact on the Company’s Unaudited Consolidated Financial Statements.

Revenue Recognition

In accordance with Accounting Standards Codification 606 Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue upon the transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. The principles in ASC 606 are applied using the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation(s). Specifically, revenue from the sale of implants, fixation products and disposables is generally recognized at an amount that reflects the expected consideration upon notice that the Company’s products have been used in a surgical procedure or upon shipment to a third-party customer assuming control of the products. Revenue from IOM services is recognized in the period the service is performed for the amount of consideration expected to be received. Revenue from the sale of surgical instrument sets is generally recognized upon receipt of a purchase order and the subsequent shipment to a customer who assumes control. In certain cases, the Company does offer the ability for customers to lease surgical instrumentation primarily on a non-sales type basis. Revenue from the sale or lease of capital equipment is generally recognized following the execution of a contract and upon the installation of the equipment and the acceptance by the customer. Selling and leasing of surgical instrument sets and capital equipment represents an immaterial amount of the Company’s total net sales in all periods presented. Revenue associated with products holding rights of return or trade-in are recognized when the Company concludes there is not a risk of significant revenue reversal in future periods for the expected consideration in the transaction. Costs incurred by the Company associated with sales contracts with customers are deferred over the performance obligation period and recognized in the same period as the related revenue, with the exception of contracts that complete within one year or less, in which case the associated costs are expensed as incurred.

Allowance for Credit Losses

The Company maintains an allowance for credit losses resulting from the inability of its customers, including hospitals, ambulatory surgery centers, and distributors, to make required payments. The allowance for credit losses is calculated quarterly, and is estimated on a region-by-region basis considering a number of factors including age of account balances, collection history, historical account write-offs, third party credit reports, identified trends, current economic conditions, and supportable forecasted economic expectations. The allowance is adjusted on a specific identification basis for certain accounts as well as pooling of accounts with similar characteristics. An increase in the provision for credit losses may be required when the financial condition of the Company’s customers or its collection experience deteriorates. An increase to the allowance for credit losses results in a corresponding charge to selling, general and administrative expenses. The Company has a diverse customer base and no single customer represented greater than ten percent of net sales or accounts receivable. Historically, the Company’s reserves have been adequate to cover credit losses.

The Company's exposure to credit losses may increase if its customers are adversely affected by changes in healthcare laws, coverage and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors. It is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables as customers’ cash flows are impacted by their response to the COVID-19 pandemic and the deferral of elective surgical procedures.

The following table summarizes the changes in the allowance for credit losses:

(in thousands)	September 30, 2020
Allowance for credit losses at January 1, 2020	$	9,423
Current-period provision for expected losses		1,471
Write-offs charged against the allowance		(637	)
Recoveries of amounts previously written off		145
Changes resulting from foreign currency fluctuations		134
Allowance for credit losses at end of period	$	10,536

Inventory, Net

Net inventory as of September 30, 2020 consisted of $290.7 million of finished goods, $7.1 million of work in progress and $7.8 million of raw materials. Net inventory as of December 31, 2019 consisted of $298.7 million of finished goods, $6.4 million of work in progress and $7.3 million of raw materials.

Finished goods primarily consists of specialized implants, fixation products and disposables and are stated at the lower of cost or net realizable value determined by utilizing a standard cost method, which includes capitalized variances, which approximates the weighted average cost. Work in progress and raw materials represent the underlying material, and labor for work in progress, that ultimately yield finished goods upon completion and are subject to lower of cost or net realizable value. The Company reviews the components of its inventory on a periodic basis for excess and obsolescence and adjusts inventory to its net realizable value as necessary.

The Company provides an inventory reserve for estimated excess and obsolete inventory based upon historical turnover and assumptions about future demand for its products and market conditions. The Company’s allograft products have shelf lives ranging from two to five years and are subject to demand fluctuations based on the availability and demand for alternative products. The Company’s inventory, which consists primarily of disposables, specialized implants and fixation products, is at risk of obsolescence following the introduction and development of new or enhanced products. A stated goal of the Company is to focus on continual product innovation and to obsolete its own products, which increases the risk that products will become obsolete prior to the end of their anticipated useful life. The Company’s estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis. The estimates the Company uses for demand are also used for near-term capacity planning and inventory purchasing and are consistent with its revenue forecasts. Increases in the reserve for excess and obsolete inventory result in a corresponding charge to cost of sales.

For the three months ended September 30, 2020 and 2019, the Company recorded a reserve for excess and obsolete inventory of $10.6 million and $1.6 million, respectively. For the nine months ended September 30, 2020 and 2019, the Company recorded a reserve for excess and obsolete inventory of $41.1 million and $8.0 million, respectively. The increase is primarily attributable to updates to the Company’s estimates and assumptions about future demand for certain spinal hardware products associated with market conditions affected by the COVID-19 pandemic.

Derivative Financial Instruments

The Company recognizes all derivative instruments as assets or liabilities in its Unaudited Consolidated Balance Sheets and measures these instruments at fair value by revaluing these assets and liabilities at the end of each reporting period. Gains and losses are recorded as a component of other (expense) income, net in the Unaudited Consolidated Statements of Operations.

Comprehensive Income

Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income includes net of tax, unrealized gains or losses on the Company’s marketable securities and foreign currency translation adjustments. The cumulative translation adjustments included in accumulated other comprehensive loss were $10.2 million and $9.4 million at September 30, 2020 and December 31, 2019, respectively.

Product Shipment Costs

Product shipment costs, included in selling, general and administrative expense in the accompanying Unaudited Consolidated Statements of Operations, were $7.9 million and $19.9 million for the three and nine months ended September 30, 2020, respectively, and $7.3 million and $20.6 million for the three and nine months ended September 30, 2019, respectively. The majority of the Company’s shipping costs are associated with providing instrument sets to hospitals for use in individual surgical procedures. Amounts billed to customers for shipping and handling of products are reflected in net sales and are not material for any period presented.

Business Transition Costs

The Company incurs certain costs related to acquisition, integration and business transition activities, which include severance, relocation, consulting, leasehold exit costs, third-party merger and acquisition costs, contingent consideration fair value adjustments and other costs directly associated with such activities. Contingent consideration is accrued based on the fair value of the expected payment, and such accruals are subject to increase or decrease based on the assessment of the likelihood that the contingent milestones will be achieved resulting in payment. If an accrual for contingent consideration decreases during a particular period, it results in a reduction of costs during such period.

During the three months ended September 30, 2020, the Company recorded $3.1 million of costs related to acquisition, integration and business transition activities, which included $1.2 million of fair value adjustments on contingent consideration liabilities associated with the Company’s 2017 and 2016 acquisitions. During the nine months ended September 30, 2020, the Company recorded $2.5 million of costs related to acquisition, integration and business transition activities, which included $(0.4) million of fair value adjustments on contingent consideration liabilities associated with the Company’s 2017 and 2016 acquisitions.

During the three months ended September 30, 2019, the Company recorded a reduction of costs of $(0.3) million related to acquisition, integration and business transition activities, which included $(0.5) million of fair value adjustments on contingent consideration liabilities associated with the Company’s 2017 and 2016 acquisitions. During the nine months ended September 30, 2019, the Company recorded $5.1 million of costs related to acquisition, integration and business transition activities, which included $1.4 million of fair value adjustments on contingent consideration liabilities associated with the Company’s 2017 and 2016 acquisitions.

Net Income (Loss) Per Share

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Net Income (Loss) Per Share

2. Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted consolidated net income (loss) per share:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2020		2019		2020			2019
Numerator:
Net income (loss)	$	5,872	$	11,010	$	(38,845	)	$	35,358
Denominator for basic and diluted net income (loss) per share:
Weighted average common shares outstanding for basic		51,261		52,057		51,440			51,901
Dilutive potential common stock outstanding:
Stock options and employee stock purchase plan		14		17		—			15
Restricted stock units		530		516		—			596
Senior Convertible Notes		—		466		—			155
Weighted average common shares outstanding for diluted		51,805		53,056		51,440			52,667
Basic net income (loss) per share	$	0.11	$	0.21	$	(0.76	)	$	0.68
Diluted net income (loss) per share	$	0.11	$	0.21	$	(0.76	)	$	0.67

The following weighted average outstanding common stock equivalents were not included in the calculation of net income (loss) per diluted share because their effects were anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Stock options, employee stock purchase plan, and restricted stock units		382		10		1,089		111
Warrants		21,034		10,865		21,034		10,865
Senior Convertible Notes		21,034		—		21,034		7,244
Total		42,450		10,875		43,157		18,220

Marketable Securities

9 Months Ended

Sep. 30, 2020

Investments Debt And Equity Securities [Abstract]

Marketable Securities

3. Marketable Securities

Short-Term Marketable Securities

The Company invests in available-for-sale marketable debt securities consisting of corporate notes and commercial paper. The Company has the ability, if necessary, to liquidate without penalty any of its marketable debt securities to meet its liquidity needs in the next 12 months. As such, those investments with contractual maturities greater than one year from the date of purchase are classified as short-term on the accompanying Unaudited Consolidated Balance Sheets.

As of September 30, 2020, the Company’s outstanding marketable debt securities all have contractual maturities due within one year. The carrying value and amortized cost of the Company’s marketable debt securities, summarized by major security type, consisted of the following:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2020:
Debt securities, available for sale:
Corporate notes	$	51,675	$	17	$	(11	)	$	51,681
Commercial paper		155,860		64		—			155,924
Total debt securities, available for sale	$	207,535	$	81	$	(11	)	$	207,605

In accordance with, and subsequent to the adoption of ASU 2016-13, the Company no longer evaluates whether its available-for-sale debt securities in an unrealized loss position are other-than-temporarily impaired. Instead, at each reporting date, the Company performs an evaluation of impairment to determine if any unrealized losses are the result of credit losses. Impairment is assessed at the individual security level. Factors considered in determining whether a loss resulted from a credit loss or other factors include the Company’s intent and ability to hold the investment until the recovery of its amortized cost basis, the extent to which the fair value is less than the amortized cost basis, the length of time and extent to which fair value has been less than the cost basis, the financial condition of the issuer, any historical failure of the issuer to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, any adverse legal or regulatory events affecting the issuer or issuer’s industry, and any significant deterioration in economic conditions.

The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income in the Unaudited Consolidated Statement of Operations through an allowance for credit losses. Unrealized gains and losses that are not credit-related are included in accumulated other comprehensive income (loss). Unrealized losses on available-for-sale debt securities as of September 30, 2020 were not significant and were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities. Accordingly, the Company has not recorded an allowance for credit losses with these investments.

Financial Instruments and Fair Value Measurements

9 Months Ended

Sep. 30, 2020

Investments Debt And Equity Securities [Abstract]

Financial Instruments and Fair Value Measurements

4. Financial Instruments and Fair Value Measurements

Foreign Currency and Derivative Financial Instruments

The Company translates the financial statements of its foreign subsidiaries using end-of-period exchange rates for assets and liabilities, and average exchange rates during each reporting period for results of operations.

Some of the Company’s reporting entities conduct a portion of their business in currencies other than the entity’s functional currency. These transactions give rise to receivables and payables that are denominated in currencies other than the entity’s functional currency. The value of these receivables and payables is subject to changes in currency exchange rates from the point at which the transactions are originated until the settlement in cash. Both realized and unrealized gains and losses in the value of these receivables and payables are included in the determination of net income. Currency exchange (losses) gains, which include gains and losses from derivative instruments, were $(1.0) million and $(6.2) million for the three and nine months ended September 30, 2020, respectively, and $(0.8) million and $(1.0) million for the three and nine months ended September 30, 2019 respectively, and are included in other income (expense), net in the Unaudited Consolidated Statements of Operations.

To manage foreign currency exposure risks, the Company uses derivatives for activities in entities that have short-term intercompany receivables and payables denominated in a currency other than the entity’s functional currency. The fair value is based on a quoted market price (Level 1). As of September 30, 2020 and December 31, 2019 a notional principal amount of $12.0 million and $26.9 million, respectively, was outstanding to hedge currency risk relative to the Company’s foreign receivables and payables. Derivative instrument net (losses) gains on the Company’s forward exchange contracts were $(0.5) million for both the three and nine months ended September 30, 2020, and $0.7 million for both the three and nine months ended September 30, 2019, and are included in other income (expense), net in the Unaudited Consolidated Statements of Operations. The fair value of the forward contract exchange derivative instrument liability was de minimis and $0.1 million as of September 30, 2020 and December 31, 2019, respectively. The derivative instruments are recorded in other current assets or other current liabilities in the Unaudited Consolidated Balance Sheets commensurate with the nature of the instrument at period end.

Fair Value Measurements

The Company measures certain assets and liabilities in accordance with authoritative guidance, which requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between the levels of the fair value measurement hierarchy during the periods presented.

The fair values of the Company’s assets and liabilities, including cash equivalents, marketable debt securities, restricted investments, derivatives, and contingent consideration are measured at fair value on a recurring basis. As of September 30, 2020 and December 31, 2019, the Company held investments in securities classified as cash equivalents. Realized gains and losses and interest income related to marketable securities were immaterial during all periods presented. Cash equivalents are determined under the fair value categories as follows:

			Quoted Price in		Significant Other		Significant
			Active Market		Observable Inputs		Unobservable
(in thousands)	Total		(Level 1)		(Level 2)		Inputs (Level 3)
September 30, 2020:
Cash equivalents:
Money market funds	$	690,107	$	690,107	$	—	$	—
Total cash equivalents		690,107		690,107		—		—

Debt securities, available for sale:
Corporate notes		51,681		—		51,681		—
Commercial paper		155,924		—		155,924		—
Total debt securities, available for sale		207,605		—		207,605		—

Total assets measured at fair value	$	897,712	$	690,107	$	207,605	$	—

December 31, 2019:
Cash equivalents:
Money market funds	$	151,750	$	151,750	$	—	$	—
Total cash equivalents	$	151,750	$	151,750	$	—	$	—

The carrying amounts of certain financial instruments such as cash and cash equivalents, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses, and other current liabilities as of September 30, 2020 and December 31, 2019 approximate their related fair values due to the short-term maturities of these instruments.

The fair value of certain financial instruments was measured and classified within Level 1 of the fair value hierarchy based on quoted prices. Certain financial instruments classified within Level 2 of the fair value hierarchy include the types of instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

Fair Value of Senior Convertible Notes

The fair value, based on a quoted market price (Level 1), of the Company’s outstanding $650.0 million principal amount of Senior Convertible Notes due 2021 at September 30, 2020 and December 31, 2019 was approximately $663.0 million and $869.3 million, respectively. The fair value, based on a quoted market price (Level 1), of the Company’s outstanding $450.0 million principal amount of Senior Convertible Notes due 2023 at September 30, 2020 was approximately $431.3 million. The fair value, based on a quoted market price (Level 1), of the Company’s outstanding $450.0 million principal amount of Senior Convertible Notes due 2025 at September 30, 2020 was approximately $396.0 million. See Note 7 to the Unaudited Consolidated Financial Statements for further discussion on the carrying value of the Company’s outstanding Senior Convertible Notes.

Fair Value of Convertible Note Hedge and Embedded Conversion Derivatives

On June 1, 2020, the Company issued $450.0 million principal amount of 1.00% Senior Convertible Notes due 2023 (the “2023 Notes”). The 2023 Notes were initially required to be settled in cash as the Company did not have enough available shares and was unable to reserve the maximum number of shares issuable under the 2023 Notes (“sufficient reserved shares”). On September 10, 2020, the Company held a Special Meeting of Stockholders and received stockholder approval to amend the Company’s Restated Certificate of Incorporation to increase the number of shares of its common stock authorized for issuance from 120,000,000 shares to 150,000,000 shares. As a result of the increase in the number of shares of the Company’s common stock authorized for issuance, as of September 10, 2020 and as of September 30, 2020, the Company had sufficient reserved shares and therefore may settle conversions of the 2023 Notes in cash, stock, or a combination thereof, solely at the Company’s discretion. In accordance with authoritative guidance, the cash conversion feature of the 2023 Notes requires bifurcation from the 2023 Notes and was initially accounted for as a derivative liability (“Embedded Conversion Derivative”), which was included in long-term liabilities in the Company’s Unaudited Consolidated Balance Sheet. On September 10, 2020, as a result of the increase in the number of shares of the Company’s common stock authorized for issuance, the Company had sufficient reserved shares to settle conversions of the 2023 Notes in cash, stock, or a combination thereof, and in accordance with authoritative literature, the Embedded Conversion Derivative was marked to fair value and reclassified to stockholders’ equity.

In connection with the issuance of the 2023 Notes, the Company entered into convertible note hedge transactions (the “2023 Hedge”) entitling the Company to purchase up to 5,345,010 shares of the Company’s common stock at an initial stock price of $84.19 per share, each of which is subject to adjustment. The 2023 Hedge was initially required to be settled in cash as the Company did not have sufficient reserved shares with respect to the 2023 Notes. As a result, the 2023 Hedge was accounted for as a derivative asset (“Convertible Note Hedge Derivative”), which was included in long-term assets in the Company’s Unaudited Consolidated Balance Sheet. On September 10, 2020, as a result of the increase in the number of shares of the Company’s common stock authorized for issuance, the Company had sufficient reserved shares to settle the 2023 Notes, which therefore allows for the 2023 Hedge to be settled in cash, stock, or a combination thereof. In accordance with authoritative literature, the Convertible Note Hedge Derivative was marked to fair value and reclassified to stockholders’ equity.

Prior to their reclassification to stockholders’ equity on September 10, 2020, the Embedded Conversion Derivative and Convertible Note Hedge Derivative were classified as Level 3 of the fair value hierarchy as these derivative instruments were not actively traded and were valued using significant unobservable inputs.

The following tables set forth the changes in the estimated fair value for the Company’s derivative assets and liabilities measured using significant unobservable inputs (Level 3):

	Three Months Ended September 30,			Nine Months Ended September 30,
(in thousands)	2020			2020
Assets:
Fair value measurement at beginning of period	$	44,936		$	—
Derivative assets recorded in connection with the 2023 Hedge		—			69,525
Change in fair value measurement		(7,644	)		(32,233	)
Derivative asset reclassified to stockholders’ equity		(37,292	)		(37,292	)
Fair value measurement at September 30, 2020	$	—		$	—

	Three Months Ended September 30,			Nine Months Ended September 30,
(in thousands)	2020			2020
Liabilities:
Fair value measurement at beginning of period	$	44,936		$	—
Derivative liability recorded in connection with the 2023 Notes		—			57,224
Change in fair value measurement		(7,644	)		(19,932	)
Derivative liability reclassified to stockholders’ equity		(37,292	)		(37,292	)
Fair value measurement at September 30, 2020	$	—		$	—

Contingent Consideration Liabilities

The fair value of contingent consideration liabilities assumed in business combinations is recorded as part of the purchase price consideration of the acquisition, and is determined using a discounted cash flow model or probability simulation model. The significant inputs of such models are not observable in the market, such as certain financial metric growth rates, volatility rates, projections associated with the applicable milestone, the interest rate, and the related probabilities and payment structure in the contingent consideration arrangement. Fair value adjustments to contingent consideration liabilities are recorded through operating expenses in the Unaudited Consolidated Statement of Operations. Contingent consideration arrangements assumed by an asset purchase will be measured and accrued when such contingency is resolved.

The recurring Level 3 fair value measurements of contingent consideration liabilities associated with commercial sales milestones include the following significant unobservable inputs as of September 30, 2020:

		September 30, 2020
Valuation Technique		Discounted cash flow
Discount Rate Range		4.7% - 5.4%
Weighted Average Discount Rate		4.9%
Expected Years		2021 - 2024

Contingent consideration liabilities at September 30, 2020 and December 31, 2019 were $34.3 million and $42.6 million, respectively, and were recorded in the Unaudited Consolidated Balance Sheet commensurate with the respective payment terms. The following table sets forth the changes in the estimated fair value of the Company’s liabilities measured on a recurring basis using significant unobservable inputs (Level 3):

	Nine Months Ended September 30,
(in thousands)	2020			2019
Fair value measurement at January 1, 2020	$	42,559		$	50,410
Change in fair value measurement		(293	)		1,435
Contingent consideration paid or settled		(7,938	)		(1,435	)
Changes resulting from foreign currency fluctuations		—			(60	)
Fair value measurement at September 30, 2020	$	34,328		$	50,350

Non-financial assets and liabilities measured on a nonrecurring basis

Certain non-financial assets and liabilities are measured at fair value, usually with Level 3 inputs including the discounted cash flow method or cost method, on a nonrecurring basis in accordance with authoritative guidance. These include items such as non-financial assets and liabilities initially measured at fair value in a business combination and non-financial long-lived assets measured at fair value for an impairment assessment. In general, non-financial assets, including goodwill, right-of-use assets, intangible assets and property and equipment, are measured at fair value when there is an indication of impairment and are recorded at fair value only when any impairment is recognized. The carrying values of the Company’s financing lease obligations approximated their estimated fair value as of September 30, 2020 and December 31, 2019.

Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2020

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

5. Goodwill and Intangible Assets

Goodwill and intangible assets consisted of the following:

	Weighted-
	Average
	Amortization
(in thousands, except years)	Period	Gross		Accumulated			Intangible
September 30, 2020:	(in years)	Amount		Amortization			Assets, net
Intangible assets subject to amortization:
Developed technology	8	$	271,748	$	(187,327	)	$	84,421
Manufacturing know-how and trade secrets	13		30,839		(22,103	)		8,736
Trade name and trademarks	9		25,500		(19,195	)		6,305
Customer relationships	9		156,028		(89,991	)		66,037
Total intangible assets subject to amortization	8	$	484,115	$	(318,616	)	$	165,499

Intangible assets not subject to amortization:
Goodwill