SEC Filing | Artivion, Inc.

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aort-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

o 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: 1-13165

ARTIVION, INC.

(Exact name of registrant as specified in its charter)


Delaware						59-2417093
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1655 Roberts Boulevard, NW, Kennesaw, Georgia						30144
(Address of principal executive offices)						(Zip Code)

(770) 419-3355

(Registrant’s telephone number, including area code)

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, $0.01 par value	AORT	New York Stock Exchange

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 x No o

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 x No o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


Class						Outstanding at July 29, 2022
Common Stock, $0.01 par value						40,316,054

Table of Contents

TABLE OF CONTENTS


Part I – FINANCIAL INFORMATION

Item 1. Financial Statements.			3
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income			3
Condensed Consolidated Balance Sheets			4
Condensed Consolidated Statements of Cash Flows			5
Condensed Consolidated Statements of Shareholders’ Equity			6
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			36
Item 4. Controls and Procedures.			36

Part II - OTHER INFORMATION			38

Item 1. Legal Proceedings.			38
Item 1A. Risk Factors.			38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			52
Item 3. Defaults Upon Senior Securities.			53
Item 4. Mine Safety Disclosures.			53
Item 5. Other Information.			53
Item 6. Exhibits.			54
Signatures			55

Table of Contents

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Artivion, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

In Thousands, Except Per Share Data

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues:
Products	$	58,936	$	56,076	$	116,478	$	109,421
Preservation services	21,404		20,072		41,075		37,814
Total revenues	80,340		76,148		157,553		147,235

Cost of products and preservation services:
Products	18,230		16,178		35,638		31,089
Preservation services	9,938		9,457		19,024		17,795
Total cost of products and preservation services	28,168		25,635		54,662		48,884

Gross margin	52,172		50,513		102,891		98,351

Operating expenses:
General, administrative, and marketing	38,983		40,830		77,938		79,468
Research and development	8,648		8,360		18,776		16,114
Total operating expenses	47,631		49,190		96,714		95,582

Operating income	4,541		1,323		6,177		2,769

Interest expense	4,101		4,855		8,049		8,895
Interest income	(30)		(18)		(46)		(42)
Other expense (income), net	3,770		(1,331)		3,903		600

Loss before income taxes	(3,300)		(2,183)		(5,729)		(6,684)
Income tax expense (benefit)	959		(5)		1,919		(1,368)

Net loss	$	(4,259)	$	(2,178)	$	(7,648)	$	(5,316)

Loss per share:
Basic	$	(0.11)	$	(0.06)	$	(0.19)	$	(0.14)
Diluted	$	(0.11)	$	(0.06)	$	(0.19)	$	(0.14)

Weighted-average common shares outstanding:
Basic	40,031		38,943		39,941		38,841
Diluted	40,031		38,943		39,941		38,841

Net loss	$	(4,259)	$	(2,178)	$	(7,648)	$	(5,316)
Other comprehensive (loss) income:
Foreign currency translation adjustments	(14,796)		2,973		(18,571)		(7,317)
Comprehensive (loss) income	$	(19,055)	$	795	$	(26,219)	$	(12,633)

See accompanying Notes to Condensed Consolidated Financial Statements

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Artivion, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

In Thousands


	June 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	40,382	$	55,010
Trade receivables, net	57,558		53,019
Other receivables	7,995		5,086
Inventories, net	74,318		76,971
Deferred preservation costs, net	44,785		42,863
Prepaid expenses and other	15,390		14,748
Total current assets	240,428		247,697

Goodwill	240,939		250,000
Acquired technology, net	154,866		166,994
Operating lease right-of-use assets, net	42,659		45,714
Property and equipment, net	36,268		37,521
Other intangibles, net	32,470		34,502
Deferred income taxes	9,916		2,357
Other assets	7,318		8,267
Total assets	$	764,864	$	793,052

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	10,545	$	10,395
Accrued compensation	9,732		13,163
Accrued expenses	7,842		7,687
Taxes payable	4,709		3,634
Accrued procurement fees	2,130		3,689
Current maturities of operating leases	3,207		3,149
Current portion of long-term debt	1,590		1,630
Other liabilities	1,891		1,606
Total current liabilities	41,646		44,953

Long-term debt	306,941		307,493
Contingent consideration	44,400		49,400
Non-current maturities of operating leases	42,141		44,869
Non-current finance lease obligation	3,766		4,374
Deferred income taxes	32,609		28,799
Deferred compensation liability	5,154		5,952
Other liabilities	6,698		6,484
Total liabilities	$	483,355	$	492,324

Commitments and contingencies

Shareholders' equity:
Preferred stock	—		—
Common stock (issued shares of 41,744 in 2022 and 41,397 in 2021)	417		414
Additional paid-in capital	329,871		322,874
Retained (deficit) earnings	(5,673)		1,975
Accumulated other comprehensive loss	(28,458)		(9,887)
Treasury stock, at cost, 1,487 shares as of June 30, 2022 and December 31, 2021	(14,648)		(14,648)
Total shareholders' equity	281,509		300,728

Total liabilities and shareholders' equity	$	764,864	$	793,052

See accompanying Notes to Condensed Consolidated Financial Statements

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Artivion, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

In Thousands

(Unaudited)


	Six Months Ended June 30,
	2022		2021
Net cash flows from operating activities:
Net loss	$	(7,648)	$	(5,316)

Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	11,497		11,999
Non-cash compensation	6,100		4,595
Non-cash lease expense	3,803		3,575
Write-down of inventories and deferred preservation costs	2,177		2,988
Change in fair value of contingent consideration	(5,000)		4,270
Deferred income taxes	(1,611)		(4,269)
Other	940		2,174
Changes in operating assets and liabilities:
Prepaid expenses and other assets	(205)		(2,076)
Inventories and deferred preservation costs	(3,653)		(11,712)
Receivables	(9,635)		(5,454)
Accounts payable, accrued expenses, and other liabilities	(5,677)		(1,166)
Net cash flows used in operating activities	(8,912)		(392)

Net cash flows from investing activities:
Capital expenditures	(4,055)		(7,249)
Other	(939)		205
Net cash flows used in investing activities	(4,994)		(7,044)

Net cash flows from financing activities:
Proceeds from exercise of stock options and issuance of common stock	2,318		2,321
Payment of debt issuance costs	—		(2,219)
Redemption and repurchase of stock to cover tax withholdings	(1,739)		(1,831)
Repayment of term loan	(1,370)		(1,405)
Other	(241)		(603)
Net cash flows used in financing activities	(1,032)		(3,737)

Effect of exchange rate changes on cash and cash equivalents	310		242
Decrease in cash and cash equivalents	(14,628)		(10,931)

Cash and cash equivalents beginning of period	55,010		61,958
Cash and cash equivalents end of period	$	40,382	$	51,027

See accompanying Notes to Condensed Consolidated Financial Statements

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Artivion, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity

In Thousands

(Unaudited)


	Common Stock			Additional Paid-In Capital		Retained Deficit		Accumulated Other Comprehensive Loss		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at March 31, 2022	41,688	$	417	$	326,799	$	(1,414)	$	(13,662)	(1,487)	$	(14,648)	$	297,492
Net loss	—	—		—		(4,259)		—		—	—		(4,259)
Other comprehensive loss	—	—		—		—		(14,796)		—	—		(14,796)
Equity compensation	57	—		3,081		—		—		—	—		3,081


Redemption and repurchase of stock to cover tax withholdings	(1)	—		(9)		—		—		—	—		(9)
Balance at June 30, 2022	41,744	$	417	$	329,871	$	(5,673)	$	(28,458)	(1,487)	$	(14,648)	$	281,509


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Loss		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at December 31, 2021	41,397	$	414	$	322,874	$	1,975	$	(9,887)	(1,487)	$	(14,648)	$	300,728
Net loss	—	—		—		(7,648)		—		—	—		(7,648)
Other comprehensive loss	—	—		—		—		(18,571)		—	—		(18,571)
Equity compensation	262	2		6,419		—		—		—	—		6,421
Exercise of options	140	2		1,678		—		—		—	—		1,680
Employee stock purchase plan	37	—		638		—		—		—	—		638
Redemption and repurchase of stock to cover tax withholdings	(92)	(1)		(1,738)		—		—		—	—		(1,739)
Balance at June 30, 2022	41,744	$	417	$	329,871	$	(5,673)	$	(28,458)	(1,487)	$	(14,648)	$	281,509

See accompanying Notes to Condensed Consolidated Financial Statements

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Artivion, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity (continued)

In Thousands

(Unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at March 31, 2021	40,585	$	406	$	301,449	$	13,671	$	(3,547)	(1,487)	$	(14,648)	$	297,331
Net loss	—	—		—		(2,178)		—		—	—		(2,178)
Other comprehensive income	—	—		—		—		2,973		—	—		2,973
Equity compensation	37	—		2,267		—		—		—	—		2,267
Exercise of options	121	1		1,459		—		—		—	—		1,460

Redemption and repurchase of stock to cover tax withholdings	(1)	—		(18)		—		—		—	—		(18)
Balance at June 30, 2021	40,742	$	407	$	305,157	$	11,493	$	(574)	(1,487)	$	(14,648)	$	301,835


	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Shareholders' Equity
	Shares	Amount								Shares	Amount
Balance at December 31, 2020	40,394	$	404	$	316,192	$	20,022	$	6,743	(1,487)	$	(14,648)	$	328,713
Net loss	—	—		—		(5,316)		—		—	—		(5,316)
Other comprehensive loss	—	—		—		—		(7,317)		—	—		(7,317)
Impact of adoption of ASU 2020-06	—	—		(16,426)		(3,213)		—		—	—		(19,639)
Equity compensation	244	2		4,902		—		—		—	—		4,904
Exercise of options	140	1		1,730		—		—		—	—		1,731
Employee stock purchase plan	37	1		589		—		—		—	—		590
Redemption and repurchase of stock to cover tax withholdings	(73)	(1)		(1,830)		—		—		—	—		(1,831)
Balance at June 30, 2021	40,742	$	407	$	305,157	$	11,493	$	(574)	(1,487)	$	(14,648)	$	301,835

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Artivion, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Overview

The accompanying Condensed Consolidated Financial Statements include the accounts of Artivion, Inc. and its subsidiaries (“Artivion,” the “Company,” “we,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying Condensed Consolidated Balance Sheet as of December 31, 2021 has been derived from audited financial statements. The accompanying unaudited Condensed Consolidated Financial Statements as of, and for the three and six months ended, June 30, 2022 and 2021 have been prepared in accordance with (i) accounting principles generally accepted in the US for interim financial information and (ii) the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the US Securities and Exchange Commission (the “SEC”). Accordingly, such statements do not include all the information and disclosures that are required by accounting principles generally accepted in the US for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes included in Artivion’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 22, 2022.

Significant Accounting Policies

A summary of our significant accounting policies is included in Note 1 of the “Notes to Consolidated Financial Statements” contained in our Form 10-K for the year ended December 31, 2021. Management believes that the consistent application of these policies enables us to provide users of the financial statements with useful and reliable information about our operating results and financial condition. The Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the US, which require us to make estimates and assumptions. We did not experience any significant changes during the three and six months ended June 30, 2022 in any of our Significant Accounting Policies from those contained in our Form 10-K for the year ended December 31, 2021.

New Accounting Standards

Recently Adopted

In August 2020 the Financial Accounting Standards Board (the “FASB”) issued Accounting Standard Update (“ASU”) Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). The update simplifies the accounting for convertible instruments by eliminating two accounting models (i.e., the cash conversion model and beneficial conversion feature model) and reducing the number of embedded conversion features that could be recognized separately from the host contract. ASU 2020-06 also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. On January 1, 2021 we adopted ASU 2020-06 using the modified retrospective approach. See Note 8 for further discussion of convertible debt.

Not Yet Effective

In March 2020 the FASB issued ASU 2020-04, Reference Rate Reform Topic 848 (“ASC 848”). The amendments in this ASU were put forth in response to the market transition from the LIBOR and other interbank offered rates to alternative reference rates. Accounting principles generally accepted in the United States of America require entities to evaluate whether a contract modification, such as the replacement or change of a reference rate, results in the establishment of a new contract or continuation of an existing contract. ASC 848 allows an entity to elect not to apply certain modification accounting requirements to contracts affected by reference rate reform. The standard provides this temporary election through December 31, 2022 and cannot be applied to contract modifications that occur after December 31, 2022. We are in the process of evaluating the effect that the adoption of this standard will have on our financial position and results of operations.

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2. Financial Instruments

The following is a summary of our financial instruments measured at fair value on a recurring basis (in thousands):


June 30, 2022	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	10,025	$	—	$	—	$	10,025
Total assets	$	10,025	$	—	$	—	$	10,025

Long-term liabilities:
Contingent consideration	—		—		(44,400)		(44,400)
Total liabilities	$	—	$	—	$	(44,400)	$	(44,400)


December 31, 2021	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	10,015	$	—	$	—	$	10,015
Total assets	$	10,015	$	—	$	—	$	10,015

Long-term liabilities:
Contingent consideration	—		—		(49,400)		(49,400)
Total liabilities	$	—	$	—	$	(49,400)	$	(49,400)

We used prices quoted from our investment advisors to determine the Level 1 valuation of our investments in money market funds.

On September 2, 2020 we entered into a Securities Purchase Agreement to acquire 100% of the outstanding equity interests of Ascyrus Medical LLC (“Ascyrus”). Ascyrus developed the AMDS, the world’s first aortic arch remodeling device for use in the treatment of acute Type A aortic dissections. As part of the acquisition, we may be required to pay additional consideration in cash of up to $100.0 million to the former shareholders of Ascyrus upon the achievement of certain milestones and the sales-based additional earn-out.

The contingent consideration represents the estimated fair value of future potential payments. The fair value of the contingent consideration liability was estimated by discounting to present value the contingent payments expected to be made based on a probability-weighted scenario approach. We applied a discount rate based on our unsecured credit spread and the term commensurate risk-free rate to the additional consideration to be paid, and then applied a risk-based estimate of the probability of achieving each scenario to calculate the fair value of the contingent consideration. This fair value measurement was based on unobservable inputs, including management estimates and assumptions about the future achievement of milestones and future estimate of revenues, and is, therefore, classified as Level 3 within the fair value hierarchy. We used a discount rate of approximately 12% and estimated future achievement of milestone dates between 2025 and 2026 to calculate the fair value of contingent consideration as of June 30, 2022. We will remeasure this liability at each reporting date and will record changes in the fair value of the contingent consideration in General, administrative, and marketing expenses on the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. Increases or decreases in the fair value of the contingent consideration liability can result from changes in passage of time, discount rates, the timing and amount of our revenue estimates, and the timing and expectation of regulatory approvals.

We performed an assessment of the fair value of the contingent consideration and recorded income of $3.2 million and $5.0 million for the three and six months ended June 30, 2022, respectively, and expense of $3.3 million and $4.3 million for the three and six months ended June 30, 2021, respectively, in General, administrative, and marketing expenses on the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income, as a result of this assessment.

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The fair value of the contingent consideration component of the Ascyrus acquisition was updated using Level 3 inputs. Changes in fair value of Level 3 assets and liabilities are listed in the tables below (in thousands):


	Contingent Consideration
Balance as of December 31, 2021	$	(49,400)
Change in valuation	5,000
Balance as of June 30, 2022	$	(44,400)

3. Cash Equivalents

The following is a summary of cash equivalents (in thousands):


June 30, 2022	Cost Basis		Unrealized Holding Gains		Estimated Market Value
Cash equivalents:
Money market funds	$	10,025	$	—	$	10,025
Total assets	$	10,025	$	—	$	10,025


December 31, 2021	Cost Basis		Unrealized Holding Gains		Estimated Market Value
Cash equivalents:
Money market funds	$	10,015	$	—	$	10,015
Total assets	$	10,015	$	—	$	10,015

There were no gross realized gains or losses on cash equivalents for the three and six months ended June 30, 2022 and 2021.

4. Inventories, net and Deferred Preservation Costs

Inventories at June 30, 2022 and December 31, 2021 were comprised of the following (in thousands):


	June 30, 2022		December 31, 2021
Raw materials and supplies	$	34,565	$	35,780
Work-in-process	11,856		9,712
Finished goods	27,897		31,479
Total inventories, net	$	74,318	$	76,971

To facilitate product usage, we maintain consignment inventory of our On-X heart valves at domestic hospital locations and On-X heart valves and aortic stent grafts at international hospital locations. We retain title and control over this consignment inventory until the device is implanted, at which time we invoice the hospital and recognize revenue. As of June 30, 2022 we had $14.2 million in consignment inventory, with approximately 39% in domestic locations and 61% in international locations. As of December 31, 2021 we had $12.9 million in consignment inventory, with approximately 43% in domestic locations and 57% in international locations.

Total deferred preservation costs were $44.8 million and $42.9 million as of June 30, 2022 and December 31, 2021, respectively.

Inventory and deferred preservation costs obsolescence reserves were $2.6 million and $3.2 million as of June 30, 2022 and December 31, 2021, respectively.

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5. Goodwill and Other Intangible Assets

Indefinite Lived Intangible Assets

As of June 30, 2022 and December 31, 2021 the carrying values of our indefinite lived intangible assets were as follows (in thousands):


	June 30, 2022		December 31, 2021
Goodwill	$	240,939	$	250,000
In-process R&D	2,025		2,208
Procurement contracts and agreements	2,013		2,013
Trademarks	226		66

We monitor the phases of development of our acquired in-process research and development projects, including the risks associated with further development and the amount and timing of benefits expected to be derived from the completed projects. Incremental costs associated with development are charged to expense as incurred. Capitalized costs are amortized over the estimated useful life of the developed asset once completed. Our in-process research and development projects are reviewed for impairment annually, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. We did not record any impairment of indefinite lived intangible assets during the three and six months ended June 30, 2022. In-process research and development, procurement contracts and agreements, and trademarks are included in Other intangibles, net on the Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021.

Based on our experience with similar agreements, we believe that our acquired procurement contracts and agreements have indefinite useful lives, as we expect to continue to renew these contracts for the foreseeable future. We believe that our trademarks have indefinite useful lives as we currently anticipate that our trademarks will contribute to our cash flows indefinitely.

We evaluate our goodwill and non-amortizing intangible assets for impairment on an annual basis during the fourth quarter of the year, and, if necessary, during interim periods if factors indicate that an impairment review is warranted. As of June 30, 2022 we concluded that our assessment of current factors did not indicate that goodwill or non-amortizing intangible assets are more likely than not to be impaired. We will continue to evaluate the recoverability of these non-amortizing intangible assets in future periods as necessary.

As of June 30, 2022 and December 31, 2021 the carrying value of goodwill, all of which is related to our Medical devices segment, is as follows (in thousands):


	Medical Devices Segment
Balance as of December 31, 2021	$	250,000
Foreign currency translation	(9,061)
Balance as of June 30, 2022	$	240,939

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Definite Lived Intangible Assets

The definite lived intangible assets balance includes balances related to acquired technology, customer relationships, distribution and manufacturing rights and know-how, patents, and other definite lived intangible assets. As of June 30, 2022 and December 31, 2021 the gross carrying values, accumulated amortization, and approximate amortization period of our definite lived intangible assets were as follows (in thousands):


June 30, 2022	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted Average Useful Life (Years)
Acquired technology	$	205,124	$	50,258	$	154,866	17.7
Other intangibles:
Customer lists and relationships	30,981		10,332		20,649		20.6
Distribution and manufacturing rights and know-how	9,031		4,798		4,233		5.0
Patents	4,136		3,160		976		17.0
Other	4,403		2,055		2,348		4.5
Total other intangibles	$	48,551	$	20,345	$	28,206	10.7


December 31, 2021	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Weighted Average Useful Life (Years)
Acquired technology	$	213,626	$	46,632	$	166,994	17.7
Other intangibles:
Customer lists and relationships	31,148		9,618		21,530		20.5
Distribution and manufacturing rights and know-how	9,847		4,308		5,539		5.0
Patents	4,083		3,144		939		17.0
Other	3,969		1,762		2,207		4.4
Total other intangibles	$	49,047	$	18,832	$	30,215	10.6

Amortization Expense

The following is a summary of amortization expense as recorded in General, administrative, and marketing expenses on our Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Amortization expense	$	3,905	$	4,238	$	7,989	$	8,498

As of June 30, 2022 scheduled amortization of intangible assets for the next five years is as follows (in thousands):


	Remainder of 2022		2023	2024	2025	2026	2027	Total
Amortization expense	$	7,437	14,662	14,302	12,452	12,233	12,113	$	73,199

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6. Income Taxes

Income Tax Expense

Our effective income tax rate was an expense of 29% and 34% for the three and six months ended June 30, 2022, respectively, as compared to a benefit of under 1% and 20% for the three and six months ended June 30, 2021, respectively. Our income tax rate for the three and six months ended June 30, 2022 was primarily impacted by changes in our valuation allowance against our net deferred tax assets, non-deductible executive compensation, the foreign derived intangible income deduction, the research and development tax credit, changes in our uncertain tax position liabilities, and tax shortfalls on stock compensation. Our income tax rate for the three and six months ended June 30, 2021 was primarily impacted by non-deductible executive compensation, changes in our valuation allowance against our net deferred tax assets, changes in our uncertain tax position liabilities, the research and development tax credit, and excess tax benefits on stock compensation.

Deferred Income Taxes

We generate deferred tax assets primarily as a result of finance leases, net operating losses, amortization of research and development expenses, excess interest carryforward, stock compensation, and accrued compensation. Our deferred tax liabilities are primarily made up of intangible assets acquired in previous years, finance leases, and unrealized gains and losses.

We maintained a net deferred tax liability of $22.7 million and $26.4 million as of June 30, 2022 and December 31, 2021, respectively. Our valuation allowance against our deferred tax assets was $16.2 million and $13.3 million as of June 30, 2022 and December 31, 2021, respectively, primarily related to net operating loss carryforwards and disallowed excess interest carryforwards.

7. Leases

We have operating and finance lease obligations resulting from the lease of land and buildings that comprise our corporate headquarters and various manufacturing facilities; leases related to additional manufacturing, office, and warehouse space; leases on company vehicles; and leases on a variety of office and other equipment.

On January 6, 2021 we executed a modification to extend the lease of our headquarters located in Kennesaw, Georgia. This modification resulted in an increase in the present value of future lease obligations and corresponding right-of-use asset of $23.3 million, using a discount rate of 6.41%.

On June 1, 2021 we began occupancy of the newly constructed addition to our leased international headquarters located in Hechingen, Germany. This lease resulted in an increase in the present value of future lease obligations and corresponding right-of-use asset of $9.8 million, using a discount rate of 5.46%.

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Information related to leases included in the Condensed Consolidated Balance Sheets is as follows (in thousands, except lease term and discount rate):


Operating leases:	June 30, 2022		December 31, 2021
Operating lease right-of-use assets	$	56,376	$	58,097
Accumulated amortization	(13,717)		(12,383)
Operating lease right-of-use assets, net	$	42,659	$	45,714

Current maturities of operating leases	$	3,207	$	3,149
Non-current maturities of operating leases	42,141		44,869
Total operating lease liabilities	$	45,348	$	48,018

Finance leases:
Property and equipment, at cost	$	6,200	$	6,759
Accumulated amortization	(2,180)		(2,105)
Property and equipment, net	$	4,020	$	4,654

Current maturities of finance leases	$	489	$	528
Non-current maturities of finance leases	3,766		4,374
Total finance lease liabilities	$	4,255	$	4,902

Weighted average remaining lease term (in years):
Operating leases	12.3		12.5
Finance leases	8.4		8.8

Weighted average discount rate:
Operating leases	5.9%		5.8%
Finance leases	2.0%		2.0%

Current maturities of finance leases are included as a component of Other current liabilities on our Condensed Consolidated Balance Sheets. A summary of lease expenses for our finance and operating leases included in General, administrative, and marketing expenses on our Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income are as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Amortization of property and equipment	$	131	$	155	$	268	$	310
Interest expense on finance leases	22		28		47		57
Total finance lease expense	153		183		315		367
Operating lease expense	1,883		1,809		3,803		3,575
Sublease income	(91)		(92)		(183)		(216)
Total lease expense	$	1,945	$	1,900	$	3,935	$	3,726

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A summary of our cash flow information related to leases is as follows (in thousands):


	Six Months Ended June 30,
Cash paid for amounts included in the measurement of lease liabilities:	2022		2021
Operating cash flows for operating leases	$	3,210	$	2,957
Financing cash flows for finance leases	244		306
Operating cash flows for finance leases	44		57

Future minimum lease payments and sublease rental income are as follows (in thousands):


	Finance Leases		Operating Leases		Sublease Income
Remainder of 2022	$	268	$	2,506	$	122
2023	575		5,606		—
2024	570		6,198		—
2025	549		5,124		—
2026	531		4,703		—
Thereafter	2,127		41,447		—
Total minimum lease payments	$	4,620	$	65,584	$