Revenue recognition and accounts receivable

9 Months Ended

Sep. 30, 2021

Revenue Recognition And Accounts Receivable [Abstract]

Revenue recognition and accounts receivable

10. Revenue recognition and accounts receivable

Revenue Recognition

The Company has two reporting segments, which consist of Global Spine and Global Orthopedics. Within the Global Spine reporting segment there are three product categories: Bone Growth Therapies, Spinal Implants, and Biologics.

The table below presents net sales by major product category by reporting segment:

	Three Months Ended September 30,
(U.S. Dollars, in thousands)	2021		2020		Change
Bone Growth Therapies	$	45,168	$	47,066		-4.0	%
Spinal Implants		28,151		25,505		10.4	%
Biologics		12,806		15,245		-16.0	%
Global Spine		86,125		87,816		-1.9	%
Global Orthopedics		26,303		23,169		13.5	%
Net sales	$	112,428	$	110,985		1.3	%

	Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2021		2020		Change
Bone Growth Therapies	$	137,821	$	120,888		14.0	%
Spinal Implants		83,943		67,025		25.2	%
Biologics		41,351		40,319		2.6	%
Global Spine		263,115		228,232		15.3	%
Global Orthopedics		76,300		60,711		25.7	%
Net sales	$	339,415	$	288,943		17.5	%

Product Sales and Marketing Service Fees

The table below presents product sales and marketing service fees, which are both components of net sales:

	Three Months Ended September 30,				Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2021		2020		2021		2020
Product sales	$	100,004	$	96,305	$	299,214	$	250,161
Marketing service fees		12,424		14,680		40,201		38,782
Net sales	$	112,428	$	110,985	$	339,415	$	288,943

Product sales primarily consist of the sale of bone growth therapies devices, motion preservation products, spine fixation products, and orthopedics products. Marketing service fees are received from MTF Biologics based on total sales of biologics tissues and relate solely to the Global Spine reporting segment.

Accounts receivable and related allowances

The following table provides a detail of changes in the Company’s allowance for expected credit losses for the three and nine months ended September 30, 2021 and 2020:

(U.S. Dollars, in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Allowance for expected credit losses beginning balance	$	4,471		$	6,364		$	4,848		$	3,987
Impact of adoption of ASU 2016-13		—			—			—			1,120
Current period provision (recovery) for expected credit losses		590			(619	)		376			945
Write-offs charged against the allowance and other		(54	)		(309	)		(134	)		(647	)
Effect of changes in foreign exchange rates		(79	)		88			(162	)		119
Allowance for expected credit losses ending balance	$	4,928		$	5,524		$	4,928		$	5,524

Contract Liabilities

The Company’s contract liabilities largely relate to a prepayment of $13.9 million received in April 2020 from the CMS as part of the Accelerated and Advance Payment Program of the CARES Act.

In October 2020, the President of the United States signed the “Continuing Appropriations Act, 2021 and Other Extensions Act,” which relaxed a number of the Medicare Accelerated and Advance Payment Programs recoupment terms for providers and suppliers that received funds from the program. Starting in April 2021, Medicare began to recoup 25% of Medicare payments otherwise owed to the provider or supplier for submitted claims. After 11 months, recoupment will increase to 50% for another 6 months. Thus, during these time periods, rather than receiving the full amount of payment for newly submitted claims, the Company’s outstanding accelerated / advance payment balance will be reduced by the recoupment amount until the full balance has been repaid.

As of September 30, 2021, the balance of the contract liability associated with the Accelerated and Advance Payment Program of the CARES Act totaled $7.9 million. The Company has classified the entire balance of this contract liability within other current liabilities based upon the Company’s estimates of when such funds will be recouped.

The following table provides a detail of changes in the Company’s contract liability associated with the Accelerated and Advanced Payment Program for the three and nine months ended September 30, 2021 and 2020:

(U.S. Dollars, in thousands)	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
Contract liability beginning balance	$	10,971		$	13,851	$	13,851		$	—
Additions		—			—		—			13,851
Recoupment recognized in net sales		(3,071	)		—		(5,951	)		—
Contract liability ending balance	$	7,900		$	13,851	$	7,900		$	13,851

Other Contract Assets

The Company’s contract assets, excluding trade accounts receivable (“Other Contract Assets”), largely consist of payments made to certain distributors to obtain contracts, gain access to customers in certain territories, and to provide the benefit of the exclusive distribution of Orthofix products. Other Contract Assets are included in other long-term assets or other current assets, dependent upon the original term of the related agreement, and totaled $1.7 million and $2.0 million as of September 30, 2021 and December 31, 2020, respectively.