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Commitments and Contingencies | 9 Months Ended
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Sep. 30, 2022
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | 10. Commitments and Contingencies Leases The Company determines if an arrangement is a lease at inception by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. The Company recognizes right-of-use assets (“ROU assets”) and lease liabilities for office buildings and certain equipment with lease terms of 1 year to 10 years, some of which include options to extend and/or terminate the leases. Any short-term leases defined as twelve months or less or month-to-month leases were excluded and continue to be expensed each month. Total costs associated with these short-term leases is immaterial to all periods presented. The Company aggregates all lease and non-lease components for each class of underlying assets into a single lease component and variable charges for common area maintenance and other variable costs are recognized as expense as incurred. Total variable costs associated with leases for the three and nine months ended September 30, 2022 were immaterial. The Company had an immaterial amount of financing leases as of September 30, 2022, which is included in property and equipment, net, accrued expenses and other current liabilities, and other long-term liabilities, on the condensed consolidated balance sheets. Operating Lease The Company occupies approximately 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. On December 4, 2019, the Company entered into a 10-year operating lease that commenced on February 1, 2021 and will terminate on January 31, 2031, subject to two sixty-month options to renew which are not reasonably certain to be exercised. The Company recognized a $21.1 million ROU asset and $21.5 million lease liability on the condensed consolidated balance sheet upon taking control of the premises on the lease commencement date. Base rent under the building lease for the first twelve months of the term will be $0.2 million per month subject to full abatement during months two through ten, and thereafter will increase annually by 3.0% throughout the remainder of the lease. On May 11, 2022, the Company entered into a lease amendment for the build out of additional space within the building which resulted in a lease modification increasing the ROU asset and lease liability. On April 9, 2021, the Company entered into a 7-year operating lease agreement for a distribution center which consists of approximately 75,643 square feet of office and warehouse space in Memphis, Tennessee. The term of the lease commenced on May 1, 2021 and will terminate on May 1, 2028, subject to two thirty-six-month options to renew which were not reasonably certain to be exercised. The Company recognized a $1.7 million ROU asset and $1.6 million lease liability upon taking control of the premises on the lease commencement date. Base rent under the building lease will be commensurate with the Company’s proportionate share of occupancy of the building and will increase annually by 3.0% throughout the remainder of the lease. With the acquisition of EOS, the Company assumed its ROU assets and lease liabilities in the amount of $4.3 million. EOS occupies its main office in Paris, France. The EOS office in Paris, France is a 10-year operating lease that commenced in 2019 and will terminate in September 2028. Base rent under the lease is approximately $0.6 million per year. Future minimum annual lease payments for all operating leases of the Company are as follows as of September 30, 2022 (in thousands):
Remainder of 2022 |  | $ | 1,101 |
2023 |  |  | 4,773 |
2024 |  |  | 4,900 |
2025 |  |  | 4,944 |
2026 |  |  | 5,013 |
Thereafter |  |  | 18,093 |
Total undiscounted lease payments |  |  | 38,824 |
Less: imputed interest |  |  | (7,343 | )
Operating lease liabilities |  |  | 31,481 |
Less: current portion of operating lease liabilities |  |  | (4,529 | )
Operating lease liabilities, less current portion |  | $ | 26,952 |
The Company’s weighted average remaining lease term and weighted average discount rate as of September 30, 2022 and December 31, 2021 are as follows:
|  | September 30, 2022 |  |  | December 31, 2021 |
Weighted-average remaining lease term (years) |  |  | 7.8 |  |  |  | 8.6 |
Weighted-average discount rate |  |  | 5.5 | % |  |  | 8.5 | %
Information related to the Company’s operating leases is as follows (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Rent expense |  | $ | 1,210 |  |  | $ | 1,156 |  |  | $ | 3,457 |  |  | $ | 3,358 |
Cash paid for amounts included in measurement of lease liabilities |  | $ | 1,032 |  |  | $ | 393 |  |  | $ | 3,183 |  |  | $ | 1,268 |
Purchase Commitments With the acquisition of EOS, the Company assumed its inventory purchase commitment agreement with a third-party supplier. The Company is obligated to certain minimum purchase commitment requirements through December 2026. As of September 30, 2022, the remaining minimum purchase commitment required by the Company under the agreement is $26.1 million. Litigation The Company is and may become involved in various legal proceedings arising from its business activities. While management is not aware of any litigation matter that in and of itself would have a material adverse impact on the Company’s condensed consolidated results of operations, cash flows or financial position, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in the Company’s condensed consolidated financial statements. An estimated loss contingency is accrued in the Company’s condensed consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of the Company’s potential liability. In February 2018, NuVasive, Inc. filed suit against the Company in the United States District Court for the Southern District of California (NuVasive, Inc. v. Alphatec Holdings, Inc. et al., Case No. 3:18-cv-00347-CAB-MDD (S.D. Cal.)), alleging that certain of the Company’s products, infringed, or contributed to the infringement of, U.S. Patent Nos. 7,819,801, 8,355,780, 8,361,156, 8,439,832, 8,753,270, 9,833,227 and U.S. Design Patent Nos. D652,519 and D750,252. In May 2018, the Court dismissed the asserted design patents with prejudice. In September 2018, NuVasive filed an Amended Complaint, asserting infringement claims of U.S. Patent Nos. 9,924,859, 9,974,531 and 8,187,334. In December 2018, the Company filed a petition with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of certain claims of the ’156 and ’334 Patents. In July 2020, PTAB ruled that all challenged claims of the ‘156 Patent were valid, that several claims of the ‘334 Patent were invalid and that other challenged claims of the ‘334 Patent valid. In February 2022, the U.S. Court of Appeals for the Federal Circuit affirmed that ruling. In August 2021, the Court found the ’156 Patent invalid and, in September 2021, NuVasive elected not to proceed with its remaining claims for the ’334 Patent, ’780 Patent, ’270 Patent, ’227 Patent and ’859 Patent. Trial on the remaining patents concluded on March 11, 2022. On March 15, 2022, the Court ordered the parties to participate in post-trial settlement conference. In June 2022, the parties reached a final resolution of all matters and executed a confidential settlement agreement. The Court dismissed the action with prejudice. The outcome of these proceedings did not have any material adverse effect on the Company’s consolidated results of operations, cash flows or financial position. Indemnifications In the normal course of business, the Company enters into agreements under which it occasionally indemnifies third-parties for intellectual property infringement claims or claims arising from breaches of representations or warranties. In addition, from time to time, the Company provides indemnity protection to third-parties for claims relating to past performance arising from undisclosed liabilities, product liabilities, environmental obligations, representations and warranties, and other claims. In these agreements, the scope and amount of remedy, or the period in which claims can be made, may be limited. It is not possible to determine the maximum potential amount of future payments, if any, due under these indemnities due to the conditional nature of the obligations and the unique facts and circumstances involved in each agreement. In October 2017, NuVasive filed a lawsuit in Delaware Chancery Court against Mr. Miles, the Company’s Chairman and CEO, who was a former officer and board member of NuVasive. The Company itself was not initially a named defendant in this lawsuit; however, in June 2018, NuVasive amended its complaint to add the Company as a defendant. In October 2018, the Delaware Court ordered that NuVasive advance legal fees for Mr. Miles’ defense in the lawsuit, as well as Mr. Miles’ legal fees incurred in pursuing advancement of his fees, pursuant to an indemnification agreement between NuVasive and Mr. Miles. As of September 30, 2022, the Company has not recorded any liability on the condensed consolidated balance sheet related to this matter. Royalties The Company has entered into various intellectual property agreements requiring the payment of royalties based on the sale of products that utilize such intellectual property. These royalties primarily relate to products sold by Alphatec Spine and are based on fixed fees or are calculated either as a percentage of net sales or on a per-unit sold basis. Royalties are included on the accompanying condensed consolidated statements of operations as a component of cost of sales.

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