Alphatec Holdings, Inc. [ATEC] Filings

10-Q 1 atec-20240630.htm 10-Q 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-52024

ALPHATEC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


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)

Registrant’s telephone number, including area code: (760) 431-9286

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	ATEC	The NASDAQ Global Select Market

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.


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

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 July 25, 2024, there were 140,459,773 shares of the registrant’s common stock outstanding.

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ALPHATEC HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

June 30, 2024

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		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Comprehensive Loss	5

	Condensed Consolidated Statements of Stockholders’ Equity (Deficit)	6

	Condensed Consolidated Statements of Cash Flows	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 5.	Other Information	30

Item 6.	Exhibits	31

SIGNATURES		32

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ALPHATEC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for par value data)


	June 30, 2024			December 31, 2023
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	99,828		$	220,970
Accounts receivable, net of allowances of $4,760 and $910, respectively		83,985			72,613
Inventories		172,314			136,842
Prepaid expenses and other current assets		20,478			20,666
Total current assets		376,605			451,091
Property and equipment, net		180,614			149,835
Right-of-use assets		37,178			26,410
Goodwill		72,008			73,003
Intangible assets, net		99,152			102,451
Other assets		3,029			2,418
Total assets	$	768,586		$	805,208
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	72,739		$	48,985
Accrued expenses and other current liabilities		75,925			87,712
Contract liabilities		11,775			13,910
Short-term debt		2,289			1,808
Current portion of operating lease liabilities		6,723			5,159
Total current liabilities		169,451			157,574
Long-term debt		516,881			511,035
Operating lease liabilities, less current portion		29,626			23,677
Other long-term liabilities		11,914			11,203
Commitments and contingencies (Note 9)
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at June 30, 2024 and December 31, 2023; 3,319 shares issued and outstanding at June 30, 2024 and December 31, 2023		23,603			23,603
Stockholders' equity:
Common stock, $0.0001 par value; 200,000 authorized; 143,014 shares issued and outstanding at June 30, 2024; and 139,257 shares issued and 139,245 shares outstanding at December 31, 2023		14			14
Treasury stock, 1,808 shares, at cost		(25,097	)		(25,097	)
Additional paid-in capital		1,261,860			1,230,484
Accumulated other comprehensive loss		(11,529	)		(8,323	)
Accumulated deficit		(1,208,137	)		(1,118,962	)
Total stockholders’ equity		17,111			78,116
Total liabilities and stockholders’ equity	$	768,586		$	805,208

See accompanying notes to unaudited condensed consolidated financial statements.

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ALPHATEC HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share amounts)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Revenue from products and services	$	145,573		$	116,920		$	284,050		$	226,030
Cost of sales		42,979			52,379			84,105			91,064
Gross profit		102,594			64,541			199,945			134,966
Operating expenses:
Research and development		19,105			14,571			37,117			27,831
Sales, general and administrative		112,731			87,287			226,458			178,549
Litigation-related expenses		2,090			6,908			6,518			10,100
Amortization of acquired intangible assets		3,836			3,705			7,690			6,588
Transaction-related expenses		—			1,900			(117	)		1,900
Restructuring expenses		139			29			927			204
Total operating expenses		137,901			114,400			278,593			225,172
Operating loss		(35,307	)		(49,859	)		(78,648	)		(90,206	)
Other expense, net:
Interest expense, net		(5,815	)		(3,892	)		(11,156	)		(7,766	)
Other income, net		156			2,324			274			3,030
Total other expense, net		(5,659	)		(1,568	)		(10,882	)		(4,736	)
Net loss before taxes		(40,966	)		(51,427	)		(89,530	)		(94,942	)
Income tax benefit		(286	)		(50	)		(355	)		(36	)
Net loss	$	(40,680	)	$	(51,377	)	$	(89,175	)	$	(94,906	)
Net loss per share, basic and diluted	$	(0.29	)	$	(0.43	)	$	(0.63	)	$	(0.83	)
Weighted average shares outstanding, basic and diluted		142,687			118,719			141,845			114,260

See accompanying notes to unaudited condensed consolidated financial statements.

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ALPHATEC HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

(In thousands)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Net loss	$	(40,680	)	$	(51,377	)	$	(89,175	)	$	(94,906	)
Foreign currency translation adjustments		(742	)		178			(3,206	)		1,283
Comprehensive loss	$	(41,422	)	$	(51,199	)	$	(92,381	)	$	(93,623	)

See accompanying notes to unaudited condensed consolidated financial statements.

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ALPHATEC HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)


	Common stock				Additional paid-in			Treasury			Accumulated other comprehensive			Accumulated			Total stockholders’
	Shares		Par Value		capital			stock			loss			deficit			equity
Balance at December 31, 2023		139,245	$	14	$	1,230,484		$	(25,097	)	$	(8,323	)	$	(1,118,962	)	$	78,116
Stock-based compensation		—		—		17,322			—			—			—			17,322
Common stock issued for warrant exercises		30		—		150			—			—			—			150
Common stock issued for stock option exercises		56		—		156			—			—			—			156
Common stock issued for vesting of restricted stock units, net of shares withheld for tax liability		3,079		—		(7,560	)		—			—			—			(7,560	)
Reclassification of equity-based liability		—		—		327			—			—			—			327
Foreign currency translation adjustments		—		—		—			—			(2,464	)		—			(2,464	)
Net loss		—		—		—			—			—			(48,495	)		(48,495	)
Balance at March 31, 2024		142,410	$	14	$	1,240,879		$	(25,097	)	$	(10,787	)	$	(1,167,457	)	$	37,552
Stock-based compensation		—		—		16,960			—			—			—			16,960
Common stock issued for employee stock purchase plan and stock option exercises		283		—		2,524			—			—			—			2,524
Common stock issued for vesting of restricted stock units, net of shares withheld for tax liability		303		—		(265	)		—			—			—			(265	)
Common stock issued for asset acquisition		18		—		250			—			—			—			250
Reclassification of equity-based liability		—		—		1,512			—			—			—			1,512
Foreign currency translation adjustments		—		—		—			—			(742	)		—			(742	)
Net loss		—		—		—			—			—			(40,680	)		(40,680	)
Balance at June 30, 2024		143,014	$	14	$	1,261,860		$	(25,097	)	$	(11,529	)	$	(1,208,137	)	$	17,111

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ALPHATEC HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(In thousands)


	Common stock				Additional paid-in			Treasury			Accumulated other comprehensive			Accumulated			Total stockholders’
	Shares		Par Value		capital			stock			loss			deficit			deficit
Balance at December 31, 2022		106,640	$	11	$	933,537		$	(25,097	)	$	(10,794	)	$	(932,324	)	$	(34,667	)
Stock-based compensation		—		—		16,462			—			—			—			16,462
Common stock issued for warrant exercises		4,443		1		456			—			—			—			457
Common stock issued for stock option exercises		349		—		768			—			—			—			768
Common stock issued for vesting of restricted stock units, net of shares withheld for tax liability		2,027		—		(2,331	)		—			—			—			(2,331	)
Reclassification of equity-based liability		—		—		3,373			—			—			—			3,373
Foreign currency translation adjustments		—		—		—			—			1,105			—			1,105
Net loss		—		—		—			—			—			(43,529	)		(43,529	)
Balance at March 31, 2023		113,459	$	12	$	952,265		$	(25,097	)	$	(9,689	)	$	(975,853	)	$	(58,362	)
Stock-based compensation		—		—		24,194			—			—			—			24,194
Common stock issued for warrant exercises		1,121		—		172			—			—			—			172
Common stock issued for employee stock purchase plan and stock option exercises		274		—		2,277			—			—			—			2,277
Common stock issued for vesting of restricted stock units, net of shares withheld for tax liability		2,711		—		(2,934	)		—			—			—			(2,934	)
Common stock offering, net of offering costs of $2,489		4,286		—		57,511			—			—			—			57,511
Reclassification of equity-based liability		—		—		188												188
Foreign currency translation adjustments		—		—		—			—			178			—			178
Net loss		—		—		—			—			—			(51,377	)		(51,377	)
Balance at June 30, 2023		121,851	$	12	$	1,033,673		$	(25,097	)	$	(9,511	)	$	(1,027,230	)	$	(28,153	)

See accompanying notes to unaudited condensed consolidated financial statements.

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ALPHATEC HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Six Months Ended June 30,
	2024			2023
Operating activities:
Net loss	$	(89,175	)	$	(94,906	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		37,762			25,375
Stock-based compensation		34,282			40,656
Amortization of debt discount and debt issuance costs		2,119			1,710
Amortization of right-of-use assets		2,225			1,689
Write-down for excess and obsolete inventories		6,857			6,734
Loss on disposal of assets		2,151			1,402
Other		4,988			860
Changes in operating assets and liabilities:
Accounts receivable		(15,293	)		98
Inventories		(42,857	)		(22,046	)
Prepaid expenses and other current assets		(119	)		(9,271	)
Other assets		(785	)		(45	)
Accounts payable		22,162			10,324
Accrued expenses		(10,676	)		4,361
Lease liabilities		(2,439	)		(1,570	)
Contract liabilities		(2,017	)		1,839
Other long-term liabilities		983			(3,406	)
Net cash used in operating activities		(49,832	)		(36,196	)
Investing activities:
Purchase of property and equipment		(65,412	)		(35,417	)
Purchase of intangible assets		(4,100	)		(1,962	)
Acquisition of business		—			(55,000	)
Net cash used in investing activities		(69,512	)		(92,379	)
Financing activities:
Proceeds from revolving credit facility		88,400			55,000
Repayment of revolving credit facility		(84,000	)		(47,500	)
Net cash paid for common stock exercises		(5,023	)		(1,551	)
Proceeds from financed insurance		1,156			1,328
Proceeds from term loan, net of debt discount		—			98,473
Payment of debt issuance costs		—			(3,321	)
Proceeds from common stock offering		—			57,511
Repayment of OCEANES		—			(13,315	)
Other		(1,661	)		(1,602	)
Net cash (used in) provided by financing activities		(1,128	)		145,023
Effect of exchange rate changes on cash		(670	)		(124	)
Net change in cash and cash equivalents		(121,142	)		16,324
Cash and cash equivalents at beginning of period		220,970			84,696
Cash and cash equivalents at end of period	$	99,828		$	101,020
Supplemental disclosure of cash flow information:
Cash paid for interest	$	9,758		$	6,840
Cash paid for income taxes	$	275		$	206
Supplemental disclosure of noncash activities:
Financed insurance	$	1,156		$	1,328
Purchase of property and equipment in accounts payable and accrued expenses	$	3,310		$	2,233
Recognition of lease liabilities	$	11,517		$	—

See accompanying notes to unaudited condensed consolidated financial statements.

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ALPHATEC HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization and Significant Accounting Policies

The Company

Alphatec Holdings, Inc. (the “Company”), through its wholly owned subsidiaries, Alphatec Spine, Inc. (“Alphatec Spine”), SafeOp Surgical, Inc. (“SafeOp”), and EOS imaging S.A.S. (“EOS”), is a medical technology company focused on the design, development, and advancement of technology for the better surgical treatment of spinal disorders. The Company, headquartered in Carlsbad, California, markets its products in the United States and internationally via a network of independent sales agents and direct sales representatives.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. 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. All intercompany balances and transactions have been eliminated during consolidation.

The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnotes it normally includes in its annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The unaudited interim condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the financial position and results of operations for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC. Operating results for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any other future periods.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, goodwill, intangible assets, allowances for doubtful accounts, deferred tax assets, inventories, stock-based compensation, revenues, income tax uncertainties, and other contingencies.

Fair Value Measurements

The carrying amount of financial instruments consisting of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, and short-term debt included in the Company’s condensed consolidated financial statements are reasonable estimates of fair value due to their short maturities.

Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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Excess and Obsolete Inventory

Most of the Company’s inventory is comprised of finished goods, which is primarily produced by third-party suppliers. Specialized implants, fixation products, and biologics are valued by utilizing a standard cost method that includes capitalized variances which together approximates the weighted average cost. Imaging equipment and related parts are valued at weighted average cost. Inventories are stated at the 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 records a lower of cost or net realizable value (“LCNRV”) inventory reserve for estimated excess and obsolete inventory. In order to market its products effectively and meet the demands of interoperative product placement, the Company maintains and provides surgeons and hospitals with a variety of inventory products and sizes. For each surgery, fewer than all components will be consumed. The need to maintain and provide a wide variety of inventory causes inventory to be held that is not likely to be used.

The Company’s estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis. The estimates and assumptions are determined primarily based on current usage of inventory and the age of inventory quantities on hand. Additionally, the Company considers recent sales experience to develop assumptions about future demand for its products, while considering product life cycles and new product launches. Increases in the LCNRV reserve for excess and obsolete inventory result in a corresponding charge to cost of sales.

Revenue Recognition

The Company recognizes revenue from product sales in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Revenue from Contracts with Customers (“Topic 606”). This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements, and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

Sales are derived primarily from the sale of spinal implant products, imaging equipment, and related services to hospitals and medical centers through direct sales representatives and independent sales agents. Revenue is recognized when obligations under the terms of a contract with customers are satisfied, which occurs with the transfer of control of products to customers, either upon shipment of the product or delivery of the product to the customer depending on the shipping terms, or when the products are used in a surgical procedure (implanted in a patient). Revenue from the sale of imaging equipment is recognized as each distinct performance obligation is fulfilled and control transfers to the customer, beginning with shipment or delivery, depending on the terms. Revenue from other distinct performance obligations, such as maintenance on imaging equipment and other imaging-related services, is recognized in the period the service is performed, and makes up less than 10% of the Company’s total revenue. Revenue is measured based on the amount of consideration expected to be received in exchange for the transfer of the goods or services specified in the contract with each customer. In certain cases, the Company does offer the ability for customers to lease its imaging equipment primarily on a non-sales type basis, but such arrangements are immaterial to total revenue in the periods presented. The Company generally does not allow returns of products that have been delivered. 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, except for contracts that complete within one year or less, in which case the associated costs are expensed as incurred. Payment terms for sales to customers may vary but are commensurate with the general business practices in the country of sale.

To the extent that the transaction price includes variable consideration, such as discounts, rebates, and customer payment penalties, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company's judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information that is reasonably available, including historical, current, and forecasted information.

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The Company records a contract asset when one or more performance obligations have been completed by the Company and revenue has been recognized, but the customer's payment is contingent on the satisfaction of additional performance obligations. Contract assets are generally short-term in nature. The Company records a contract liability, or deferred revenue, when it has an obligation to provide a product or service to the customer and payment is received in advance of its performance. These amounts primarily relate to undelivered equipment and related services, or maintenance agreements. When the Company sells a product or service with a future performance obligation, revenue is deferred on the unfulfilled performance obligation and recognized over the related performance period. Generally, the Company does not have observable evidence of the standalone selling price related to its future service obligations; therefore, the Company estimates the selling price using an expected cost plus a margin approach. The transaction price is allocated using the relative standalone selling price method. The use of alternative estimates could result in a different amount of revenue deferral.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued Accounting Standard Update ("ASU") No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency of income tax disclosures. The guidance in ASU No. 2023-09 allows for a prospective method of transition, with the option to apply the standard retrospectively. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not intend to early adopt the standard and is in the process of assessing the impact on its consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures that expands disclosure requirements for reportable segments, primarily through enhanced disclosure of significant segment expenses. The guidance in ASU No. 2023-07 allows for a retrospective method of transition. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not intend to early adopt the standard and is in the process of assessing the impact on its consolidated financial statements and related disclosures.

2. Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis include the following as of June 30, 2024, and December 31, 2023 (in thousands):


	June 30, 2024
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	40,471		—		—	$	40,471
Total cash equivalents	$	40,471		—		—	$	40,471

	December 31, 2023
	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	76,662		—		—	$	76,662
Total cash equivalents	$	76,662		—		—	$	76,662

The Company did not have any transfers of assets and liabilities between the levels of the fair value measurement hierarchy during the periods presented.

Fair Value of Long-term Debt

The fair value, based on a quoted market price (Level 1), of the Company’s outstanding Senior Convertible Notes due 2026 (the "2026 Notes") was approximately $305.8 million at June 30, 2024, and approximately $335.4 million at December 31, 2023.

3. Business Combination

The Company recognizes assets acquired, liabilities assumed, and any noncontrolling interest at fair value at the date of acquisition.

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On April 19, 2023, the Company entered into an Asset Purchase Agreement with Integrity Implants Inc. and Fusion Robotics, LLC (collectively, the “Sellers”), whereby the Company acquired certain assets, liabilities, employees, and contracts in connection with the Sellers’ navigation-enabled robotics platform (the “Navigation-enabled Robotics Platform”). The Company paid the Sellers cash consideration of $55.0 million at closing, which represented the total purchase consideration. The acquisition was accounted for as a business combination in accordance with ASC 805 and the Company did not acquire any material assets or assume any material liabilities in connection with the acquisition, excluding intangible assets and goodwill. The acquisition is treated as an asset purchase for income tax purposes; therefore, the goodwill recorded is considered deductible for income tax purposes.

4. Inventories

Inventories reported at the lower of cost or net realizable value consist of the following (in thousands):


	June 30, 2024		December 31, 2023
Raw materials	$	22,131	$	23,394
Work-in-process		101		950
Finished goods		150,082		112,498
Inventories	$	172,314	$	136,842

5. Property and Equipment, net

Property and equipment, net consist of the following (in thousands, except as indicated):


	Useful lives (in years)	June 30, 2024			December 31, 2023
Surgical instruments	4	$	280,261		$	224,357
Machinery and equipment	7		12,115			11,633
Computer equipment	8		30,520			5,778
Office furniture and equipment	5		6,701			6,225
Leasehold improvements	various		4,322			3,986
Construction in progress	n/a		1,694			24,732
			335,613			276,711
Less: accumulated depreciation and amortization			(154,999	)		(126,876	)
Property and equipment, net		$	180,614		$	149,835

Total depreciation expense was $15.7 million and $29.5 million for the three and six months ended June 30, 2024, respectively. Total depreciation expense was $9.8