Revenue recognition and accounts receivable

3 Months Ended

Mar. 31, 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 March 31,
(U.S. Dollars, in thousands)	2021		2020		Change
Bone Growth Therapies	$	42,947	$	45,443		-5.5	%
Spinal Implants		25,701		22,926		12.1	%
Biologics		13,692		13,949		-1.8	%
Global Spine		82,340		82,318		0.0	%
Global Orthopedics		23,253		22,505		3.3	%
Net sales	$	105,593	$	104,823		0.7	%

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 March 31,
(U.S. Dollars, in thousands)	2021		2020
Product sales	$	92,263	$	91,421
Marketing service fees		13,330		13,402
Net sales	$	105,593	$	104,823

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. Revenues exclude any value added or other local taxes, intercompany sales and trade discounts. Shipping and handling costs for products shipped to customers are included in cost of sales.

Accounts receivable and related allowances

The Company’s allowance for expected credit losses represents the portion of the receivable’s amortized cost basis that an entity does not expect to collect over the receivable’s contractual life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions.

The following table provides a detail of changes in the Company’s allowance for expected credit losses for the three months ended March 31, 2021 and 2020:

(U.S. Dollars, in thousands)	Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
Allowance for expected credit losses beginning balance	$	4,848		$	3,987
Impact of adoption of ASU 2016-13		—			1,120
Current period provision (recovery) for expected credit losses		(182	)		679
Writeoffs charged against the allowance and other		(46	)		(114	)
Effect of changes in foreign exchange rates		(114	)		(81	)
Allowance for expected credit losses ending balance	$	4,506		$	5,591

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 intended to increase cash flow to providers of services and suppliers impacted by the COVID-19 pandemic.

On October 1, 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. Under these new terms, recoupment will be delayed until one year after payment was issued. After that first year, Medicare will automatically recoup 25% of Medicare payments otherwise owed to the provider or supplier for 11 months. At the end of the 11-month period, 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. Medicare began to recoup these funds beginning in April 2021.

As of March 31, 2021, the Company has classified $13.7 million of this contract liability within other current liabilities and $0.2 million within other long-term liabilities based upon the Company’s estimates of when such funds will be recouped. The Company did not recognize any net sales during the three months ended March 31, 2021, respectively, attributable to the satisfaction of performance obligations related to the CMS prepayment.

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 $1.8 million and $2.0 million as of March 31, 2021 and December 31, 2020, respectively.