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Note 9 - Leases

12 Months Ended

Dec. 31, 2022

Lessee, Operating Leases and Finance Leases [Text Block]

9. Leases

The Company leases its buildings and manufacturing facilities under operating leases. As of December 31, 2022, the Company had real estate leases in Bedford, Massachusetts, Franklin, Massachusetts, Sarasota, Florida, Warsaw, Indiana and Padova, Italy.

In June 2022, the Company finalized a renewal option to extend the current term for its operating headquarters and manufacturing facility in Bedford through 2027. There are also lease renewal options into 2038. The current term of the Padova lease extends to 2032, with a right to terminate at the Company’s option in 2026 without penalty.

As a result of the acquisition of Parcus Medical and Arthrosurface, the Company acquired operating and finance leases for corporate offices, manufacturing and warehouse facilities and machinery. The operating leases consist of one real estate lease in Franklin, Massachusetts (Franklin lease) and two real estate leases in Sarasota, Florida (Sarasota lease). In October 2022, the Company entered into an option to extend the current term of the Franklin lease through 2024. In June 2022, the Company finalized an option to extend the current term of the two Sarasota leases through 2027. The finance leases include equipment utilized in the Company’s manufacturing facility in Sarasota, Florida and were terminated in September 2022.

The significant assumptions in recognizing the right-of-use asset and lease liability are as follows:

Incremental borrowing rate. The Company derives its incremental borrowing rate from information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rate represents a collateralized rate of interest the Company would have to pay to borrow over a similar term an amount equal to the lease payments in a similar economic environment. The Company’s lease agreements do not provide implicit rates. As the Company did not have any external borrowings at either the transition or subsequent renewal dates with comparable terms to its lease agreements, the Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of the lease. The weighted average discount rate at December 31, 2022 was 3.6% for operating leases.

Lease term. The lease term begins at the lease commencement date and is determined on that date based on the non-cancelable term of the lease together with periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, or periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

The components of lease expense and other information are as follows:

	Years Ended December 31
	2022		2021		2020
Finance lease amortization of right-of-use assets	$	121	$	143	$	185
Interest on finance lease liabilities		11		19		25
Finance lease expense		132		162		210
Operating lease expense		2,839		2,468		2,383
Short-term lease expense		17		2		-
Variable lease expense		413		319		264
Total lease expense	$	3,401	$	2,951	$	2,857

	Years Ended December 31
	2022			2021
Weighted Average Remaining Lease Term (in years)
Operating leases		14.8			15.3
Financing leases		-			2.3
Weighted Average Discount Rate
Operating leases		3.6	%		4.1	%
Financing leases		-			4.9	%
Other information
Operating cash flows from operating leases	$	2,471		$	2,392
Operating cash flows from financing leases	$	121		$	136

Future commitments due under these lease agreements as of December 31, 2022 are as follows:

Years ended December 31,	Operating Leases

2023	$	3,170
2024		3,055
2025		3,066
2026		2,760
2027		2,643
Thereafter		25,230
Present value adjustment		(9,034	)
Present value of lease payments		30,890
Less current portion included in accrued expenses and other current liabilities		(2,073	)
Total lease liabilities	$	28,817