WMGI Wright Medical Group NV

WRIGHT MEDICAL GROUP N.V.

(Exact name of registrant as specified in its charter)

The Netherlands		98-0509600
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Prins Bernhardplein 200 1097 JB Amsterdam, The Netherlands (Address of principal executive offices)		None (Zip Code)

(+31) 20 521 4777

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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.      þ Yes o No

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). þ Yes o No

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 þ		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o Emerging growth company o

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). o Yes þ No

Securities registered pursuant to Section 12(b) of the Act :

Title of each class		Trading Symbol(s)	Name of each exchange on which registered
Ordinary shares, par value €0.03 per share		WMGI	Nasdaq Global Select Market

As of May 3, 2019 , there were 126,122,077 ordinary shares outstanding.

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WRIGHT MEDICAL GROUP N.V.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).	5
Condensed Consolidated Balance Sheets as of March 31, 2019 and December 30, 2018	5
Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2019 and April 1, 2018	7
Condensed Consolidated Statements of Comprehensive Loss for the Three Months ended March 31, 2019 and April 1, 2018	8
Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2019 and April 1, 2018	9
Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three Months ended March 31, 2019 and April 1, 2018	11
Notes to Condensed Consolidated Financial Statements	12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	42
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	54
Item 4. Controls and Procedures.	57
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.	59
Item 1A. Risk Factors.	61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	61
Item 3. Defaults Upon Senior Securities.	61
Item 4. Mine Safety Disclosures.	61
Item 5. Other Information.	61
Item 6. Exhibits.	62
SIGNATURES	64

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and that are subject to the safe harbor created by those sections. These statements reflect management’s current knowledge, assumptions, beliefs, estimates, and expectations and express management’s current view of future performance, results, and trends. Forward looking statements may be identified by their use of terms such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will, and other similar terms. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those described in the forward-looking statements. The reader should not place undue reliance on forward-looking statements. Such statements are made as of the date of this report, and we undertake no obligation to update such statements after this date. Risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements are discussed in our filings with the U.S. Securities and Exchange Commission (SEC) (including our most recent Annual Report on Form 10-K, which was filed with the SEC on February 27, 2019 ). By way of example and without implied limitation, such risks and uncertainties include:

•	inability to achieve or sustain profitability;

•	failure to achieve our financial guidance or projected goals and objectives, including long-term financial targets, in the time periods that we anticipate or announce publicly;

•	failure to realize the anticipated benefits from previous acquisitions and dispositions, including our recent acquisition of Cartiva, Inc. (Cartiva);

•	failure to obtain anticipated commercial sales of our AUGMENT ® Bone Graft and AUGMENT ® Injectable Bone Graft products;

•	liability for product liability claims on hip/knee (OrthoRecon) products sold by Wright Medical Technology, Inc. (WMT) prior to the divestiture of the OrthoRecon business;

•	risks and uncertainties associated with our metal-on-metal master settlement agreements and the settlement agreements with certain of our insurance companies, including without limitation, the resolution of the remaining unresolved claims, the effect of the broad release of certain insurance coverage for present and future claims, and the resolution of WMT’s dispute with the remaining carrier;

•	adverse outcomes in existing product liability litigation;

•	copycat claims against modular hip systems resulting from a competitor’s recall of its modular hip product;

•	the ability of a creditor of any one particular entity within our corporate structure to reach the assets of the other entities within our corporate structure not liable for the underlying claims of the one particular entity, despite our corporate structure which is intended to ring-fence liabilities;

•	new product liability claims;

•	pending and future other litigation, which could have an adverse effect on our business, financial condition, or operating results;

•	challenges to our intellectual property rights or inability to defend our products against the intellectual property rights of others;

•	the possibility of private securities litigation or shareholder derivative suits;

•	inadequate insurance coverage;

•	inability to generate sufficient cash flow to satisfy our capital requirements, including future milestone payments, and existing debt, including the conversion features of our convertible senior notes, or refinance our existing debt as it matures;

•	risks associated with our credit, security and guaranty agreement for our senior secured asset-based line of credit and term loan facility;

•	inability to raise additional financing when needed and on favorable terms;

•	the loss of key suppliers, which may result in our inability to meet customer orders for our products in a timely manner or within our budget;

•	the incurrence of significant expenditures of resources to maintain relatively high levels of inventory, which could reduce our cash flows and increase the risk of inventory obsolescence, which could harm our operating results;

•	our inability to timely manufacture products or instrument sets to meet demand;

•	our private label manufacturers failing to provide us with sufficient supply of their products, or failing to meet appropriate quality requirements;

•	our plans to bring the manufacturing of certain of our products in-house and possible disruptions we may experience in connection with such transition;

•	our plans to increase our gross margins by taking certain actions designed to do so;

•	inventory reductions or fluctuations in buying patterns by wholesalers or distributors;

•	not successfully competing against our existing or potential competitors and the effect of significant recent consolidations amongst our competitors;

•	not successfully developing and marketing new products and technologies and implementing our business strategy;

•	insufficient demand for and market acceptance of our new and existing products;

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•	the reliance of our business plan on certain market assumptions;

•	lack of suitable business development opportunities;

•	inability to capitalize on business development opportunities;

•

future actions of the SEC, the United States Attorney’s office, the U.S. Food and Drug Administration (FDA), the Department of Health and Human Services, or other U.S. or foreign government authorities, including those resulting from increased scrutiny under the U.S. Foreign Corrupt Practices Act and similar laws, that could delay, limit, or suspend our development, manufacturing, commercialization, and sale of products, or result in seizures, injunctions, monetary sanctions, or criminal or civil liabilities;

•	failure or delay in obtaining FDA or other regulatory clearance for our products;

•	the compliance of our products and activities with the laws and regulations of the countries in which they are marketed, which compliance may be costly and time-consuming;

•	the use, misuse or off-label use of our products that may harm our image in the marketplace or result in injuries that may lead to product liability suits, which could be costly to our business or result in governmental sanctions;

•	changes in healthcare laws, which could generate downward pressure on our product pricing;

•	ability of healthcare providers to obtain reimbursement for our products or a reduction in the current levels of reimbursement, which could result in reduced use of our products and a decline in sales;

•	the potentially negative effect of our ongoing compliance efforts on our relationships with customers and on our ability to deliver timely and effective medical education, clinical studies, and new products;

•	failures of, interruptions to, or unauthorized tampering with, our information technology systems;

•	our inability to maintain effective internal controls;

•	product quality or patient safety issues;

•	geographic and product mix impact on our sales;

•	deriving a significant portion of our revenues from operations in certain geographic markets that are subject to political, economic, and social instability, including in particular France, and risks and uncertainties involved in launching our products in certain new geographic markets;

•	the negative impact of the commercial and credit environment on us, our customers, and our suppliers;

•	inability to retain key sales representatives, independent distributors, and other personnel or to attract new talent;

•	consolidation in the healthcare industry that could lead to demands for price concessions or the exclusion of some suppliers from certain of our markets, which could have an adverse effect on our business, financial condition, or operating results;

•	our clinical trials and their results and our reliance on third parties to conduct them;

•	potentially burdensome tax measures; and

•	fluctuations in foreign currency exchange rates.

For more information regarding these and other uncertainties and factors that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements or otherwise could materially adversely affect our business, financial condition, or operating results, see “ Part I. Item 1A. Risk Factors ” of our most recent Annual Report on Form 10-K and “ Part II. Item 1A. Risk Factors ” of this report. The risks and uncertainties described above and in “Part I. Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K and “ Part II. Item 1A. Risk Factors ” of this report are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time. We assume no obligation to update, amend, or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K we file with or furnish to the SEC.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited).

Wright Medical Group N.V. Condensed Consolidated Balance Sheets (In thousands, except share data) (unaudited)
	March 31, 2019				December 30, 2018
Assets:
Current assets:
Cash and cash equivalents	$	161,516			$	191,351
Accounts receivable, net	138,666				141,019
Inventories	186,910				180,690
Prepaid expenses	14,436				11,823
Other current assets 1	308,955				78,349
Total current assets	810,483				603,232
Property, plant and equipment, net	233,368				224,929
Goodwill	1,262,525				1,268,954
Intangible assets, net	278,224				282,332
Deferred income taxes	933				942
Other assets 1	243,815				314,012
Total assets	$	2,829,348			$	2,694,401
Liabilities and Shareholders’ Equity:
Current liabilities:
Accounts payable	$	44,471			$	48,359
Accrued expenses and other current liabilities 1	434,523				217,081
Current portion of long-term obligations 1	410,311				201,686
Total current liabilities	889,305				467,126
Long-term debt and finance lease obligations 1	721,719				913,441
Deferred income taxes	12,293				13,146
Other liabilities 1	292,776				368,229
Total liabilities	1,916,093				1,761,942
Commitments and contingencies ( Note 13 )
Shareholders’ equity:
Ordinary shares, €0.03 par value, authorized: 320,000,000 shares; issued and outstanding: 126,105,530 shares at March 31, 2019 and 125,555,751 shares at December 30, 2018	4,608				4,589
Additional paid-in capital	2,542,747				2,514,295
Accumulated other comprehensive loss	(19,386		)		(8,083		)
Accumulated deficit	(1,614,714		)		(1,578,342		)
Total shareholders’ equity	913,255				932,459
Total liabilities and shareholders’ equity	$	2,829,348			$	2,694,401

___________________________

1	As of March 31, 2019, the closing price of our ordinary shares was greater than 130% of the 2021 Notes conversion price for 20 or more of the 30 consecutive trading days preceding the quarter-end; and, therefore, the holders of the 2021 Notes may convert the notes during the succeeding quarterly period. Due to the ability of the holders of the 2021 Notes to convert the

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notes during this period, the carrying value of the 2021 Notes and the fair value of the 2021 Notes Conversion Derivative were classified as current liabilities, and the fair value of the 2021 Notes Hedges were classified as current assets as of March 31, 2019. The respective balances were classified as long-term as of December 30, 2018. See Note 6 and Note 10 .

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Wright Medical Group N.V. Condensed Consolidated Statements of Operations (In thousands, except per share data) (unaudited)
	Three months ended
	March 31, 2019				April 1, 2018
Net sales	$	230,127			$	198,537
Cost of sales 1	46,317				41,139
Gross profit	183,810				157,398
Operating expenses:
Selling, general and administrative 1	153,306				137,248
Research and development 1	16,972				13,899
Amortization of intangible assets	7,587				7,141
Total operating expenses	177,865				158,288
Operating income (loss)	5,945				(890		)
Interest expense, net	19,695				19,812
Other expense (income), net	12,895				(1,000		)
Loss from continuing operations before income taxes	(26,645		)		(19,702		)
Provision for income taxes	3,611				205
Net loss from continuing operations	(30,256		)		(19,907		)
Loss from discontinued operations, net of tax	(6,345		)		(5,607		)
Net loss	$	(36,601	)		$	(25,514	)
Net loss from continuing operations per share-basic and diluted ( Note 12 ):	$	(0.24	)		$	(0.19	)
Net loss from discontinued operations per share-basic and diluted ( Note 12 ):	$	(0.05	)		$	(0.05	)
Net loss per share-basic and diluted ( Note 12 ):	$	(0.29	)		$	(0.24	)
Weighted-average number of ordinary shares outstanding-basic and diluted:	125,812				105,904

___________________________

1	These line items include the following amounts of non-cash, share-based compensation expense for the periods indicated:

	Three months ended
	March 31, 2019				April 1, 2018
Cost of sales	$	120			$	165
Selling, general and administrative	6,987				4,522
Research and development	514				331

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Wright Medical Group N.V.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(unaudited)

	Three months ended
	March 31, 2019				April 1, 2018
Net loss	$	(36,601	)		$	(25,514	)
Other comprehensive (loss) income:
Changes in foreign currency translation	(11,303		)		12,458
Other comprehensive (loss) income	(11,303		)		12,458
Comprehensive loss	$	(47,904	)		$	(13,056	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Wright Medical Group N.V. Condensed Consolidated Statements of Cash Flows (In thousands) (unaudited)
	Three months ended
	March 31, 2019				April 1, 2018
Operating activities:
Net loss	$	(36,601	)		$	(25,514	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	15,501				14,499
Share-based compensation expense	7,621				5,018
Amortization of intangible assets	7,587				7,141
Amortization of deferred financing costs and debt discount	13,547				13,302
Deferred income taxes	(619		)		(780		)
Provision for excess and obsolete inventory	3,506				5,020
Amortization of inventory step-up adjustment	352				—
Non-cash adjustment to derivative fair values	(996		)		1,694
Net loss on exchange of cash convertible notes	14,274				—
Mark-to-market adjustment for CVRs ( Note 6 )	(420		)		(3,924		)
Other	(485		)		215
Changes in assets and liabilities:
Accounts receivable	2,426				565
Inventories	(11,868		)		(10,403		)
Prepaid expenses and other current assets	(286		)		22,034
Accounts payable	(4,597		)		975
Accrued expenses and other liabilities	(3,392		)		(20,478		)
Metal-on-metal product liabilities ( Note 13 )	(12,971		)		(28,172		)
Net cash used in operating activities	(7,421		)		(18,808		)
Investing activities:
Capital expenditures	(25,448		)		(11,886		)
Purchase of intangible assets	(1,850		)		(553		)
Acquisition of business	722				—
Other investing	(500		)		—
Net cash used in investing activities	(27,076		)		(12,439		)
Financing activities:
Issuance of ordinary shares	11,001				2,639
Issuance of stock warrants	21,210				—
Payment of notes hedge options	(30,144		)		—
Repurchase of stock warrants	(11,026		)		—
Payment of equity issuance costs	(350		)		—
Proceeds from notes hedge options	16,849				—
Proceeds from other debt	2,974				2,042
Payments of debt	(1,270		)		(1,266		)
Payment of convertible notes exchange costs	(2,589		)		—
Payment of contingent consideration	—				(919		)
Payments of capital lease obligations	(1,793		)		(1,388		)
Net cash provided by financing activities	4,862				1,108

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Wright Medical Group N.V. Consolidated Statements of Cash Flows (Continued) (In thousands)
	Three months ended
	March 31, 2019				April 1, 2018
Effect of exchange rates on cash and cash equivalents	$	(200	)		$	450
Net decrease in cash and cash equivalents	(29,835		)		(29,689		)
Cash and cash equivalents, beginning of period	191,351				167,740
Cash and cash equivalents, end of period	$	161,516			$	138,051

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Wright Medical Group N.V.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(In thousands)

(unaudited)

	Three months ended March 31, 2019
	Ordinary shares							Additional paid-in capital				Accumulated other comprehensive loss				Accumulated deficit				Total shareholders’ equity
	Number of shares			Amount
Balance at December 30, 2018	125,555,751			$	4,589			$	2,514,295			$	(8,083	)		$	(1,578,342	)		$	932,459
2019 Activity:
Net loss	—			—				—				—				(36,601		)		(36,601		)
Cumulative impact of lease accounting adoption	—			—				—				—				229				229
Foreign currency translation	—			—				—				(11,303		)		—				(11,303		)
Issuances of ordinary shares	546,560			19				10,982				—				—				11,001
Vesting of restricted stock units	3,219			—				—				—				—				—
Share-based compensation	—			—				7,636				—				—				7,636
Issuance of stock warrants, net of repurchases and equity issuance costs	—			—				9,834				—				—				9,834
Balance at March 31, 2019	126,105,530			$	4,608			$	2,542,747			$	(19,386	)		$	(1,614,714	)		$	913,255
	Three months ended April 1, 2018
	Ordinary shares							Additional paid-in capital				Accumulated other comprehensive income				Accumulated deficit				Total shareholders’ equity
	Number of shares			Amount
Balance at December 31, 2017	105,807,424			$	3,896			$	1,971,347			$	22,290			$	(1,408,837	)		$	588,696
2018 Activity:
Net loss	—			—				—				—				(25,514		)		(25,514		)
Foreign currency translation	—			—				—				12,458				—				12,458
Issuances of ordinary shares	141,566			5				2,634				—				—				2,639
Vesting of restricted stock units	655			—				—				—				—				—
Share-based compensation	—			—				4,896				—				—				4,896
Balance at April 1, 2018	105,949,645			$	3,901			$	1,978,877			$	34,748			$	(1,434,351	)		$	583,175

The accompanying notes are an integral part of these condensed consolidated financial statements.

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WRIGHT MEDICAL GROUP N.V.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization and Description of Business

Wright Medical Group N.V. (Wright or we) is a global medical device company focused on extremities and biologics products. We are committed to delivering innovative, value-added solutions improving quality of life for patients worldwide and are a recognized leader of surgical solutions for the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics markets, three of the fastest growing segments in orthopaedics. We market our products in approximately 50 countries worldwide.

Our global corporate headquarters are located in Amsterdam, the Netherlands. We also have significant operations located in Memphis, Tennessee (U.S. headquarters, research and development, sales and marketing administration, and administrative activities); Bloomington, Minnesota (upper extremities sales and marketing and warehousing operations); Arlington, Tennessee (manufacturing and warehousing operations); Franklin, Tennessee (manufacturing and warehousing operations); Columbia City, Indiana (research and development); Alpharetta, Georgia (manufacturing and warehousing operations); Montbonnot, France (manufacturing and warehousing operations); Plouzané, France (research and development); and Macroom, Ireland (manufacturing). In addition, we have local sales and distribution offices in Canada, Australia, Asia, Latin America, and throughout Europe. For purposes of this report, references to “international” or “foreign” relate to non-U.S. matters while references to “domestic” relate to U.S. matters.

Our fiscal year-end is generally determined on a 52-week basis and runs from the Monday nearest to the 31st of December of a year and ends on the Sunday nearest to the 31st of December of the following year. Every few years, it is necessary to add an extra week to the year making it a 53-week period.

The condensed consolidated financial statements and accompanying notes present our consolidated results for each of the three months ended March 31, 2019 and April 1, 2018 . The three months ended March 31, 2019 and April 1, 2018 each consisted of thirteen weeks.

All amounts are presented in U.S. dollars ($), except where expressly stated as being in other currencies, e.g., Euros (€).

References in these notes to the condensed consolidated financial statements to “we,” “our” and “us” refer to Wright Medical Group N.V. and its subsidiaries after the merger with Tornier N.V. (legacy Tornier) (Wright/Tornier merger) and Wright Medical Group, Inc. (WMG or legacy Wright) and its subsidiaries before the Wright/Tornier merger.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation.  The unaudited condensed consolidated interim financial statements of Wright Medical Group N.V. have been prepared in accordance with U.S. generally accepted accounting principles (US GAAP) for interim financial statements and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to these rules and regulations. Accordingly, these unaudited condensed consolidated interim financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended  December 30, 2018 , as filed with the SEC on February 27, 2019 .

In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments necessary for a fair presentation of our interim financial results. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not indicative of results for the full fiscal year. The accompanying unaudited condensed consolidated interim financial statements include our accounts and those of our controlled subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates.

Revenue recognition. Our revenues are primarily generated through two types of customers, hospitals and surgery centers and stocking distributors, with the majority of our revenue derived from sales to hospitals and surgery centers. Our products are sold through a network of employee and independent sales representatives in the United States and by a combination of employee sales representatives, independent sales representatives, and stocking distributors outside the United States. We record revenues from sales to hospitals and surgery centers upon transfer of control of promised products in an amount that reflects the consideration we expect to receive in exchange for those products, which is generally when the product is surgically implanted in a patient.

We record revenues from sales to our stocking distributors at a point in time upon transfer of control of promised products to the distributor. Our stocking distributors, who sell the products to their customers, take control of the products and assume all risks

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WRIGHT MEDICAL GROUP N.V.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

of ownership upon transfer. Our stocking distributors are obligated to pay us within specified terms regardless of when, if ever, they sell the products. In general, our stocking distributors do not have any rights of return or exchange; however, in limited situations, we have repurchase agreements with certain stocking distributors. Those certain agreements require us to repurchase a specified percentage of the inventory purchased by the distributor within a specified period of time prior to the expiration of the contract. During those specified periods, we defer the applicable percentage of the sales. An insignificant amount of sales related to these types of agreements was deferred and not yet recognized as revenue as of March 31, 2019 and April 1, 2018.

We must make estimates of potential future product returns related to current period product sales. We base our estimate for sales returns on historical sales and product return information, including historical experience and trend information. Our reserve for sales returns has historically been immaterial. We incur shipping and handling costs associated with the shipment of goods to customers, independent distributors, and our subsidiaries. Amounts billed to customers for shipping and handling of products are included in net sales. Costs incurred related to shipping and handling of products to customers are included in selling, general and administrative expenses. We also record depreciation on surgical instruments used by our hospital and surgery center customers within selling, general and administrative expense as these costs are considered to be similar to shipping and handling costs, necessary to deliver the implant products to the end customer.

Discontinued Operations. On January 9, 2014, pursuant to an Asset Purchase Agreement, dated as of June 18, 2013 (the MicroPort Agreement), by and among us and MicroPort Scientific Corporation (MicroPort), we completed the divestiture and sale of our business operations operating under our prior OrthoRecon operating segment to MicroPort.

All historical operating results for the OrthoRecon business is reflected within discontinued operations in the condensed consolidated financial statements. See Note 4 for further discussion of discontinued operations. Other than Note 4 , unless otherwise stated, all discussion of assets and liabilities in these Notes to the condensed consolidated financial statements reflects the assets and liabilities held and used in our continuing operations, and all discussion of revenues and expenses reflects those associated with our continuing operations.

Recent Accounting Pronouncements. On February 25, 2016, the FASB issued ASU 2016-02, Leases , and has subsequently issued several supplemental and/or clarifying ASUs (collectively ASC 842). ASC 842 introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in FASB ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized). We adopted ASC 842 during the quarter ended March 31, 2019 using the hindsight practical expedient, the practical expedient for short-term leases, and the practical expedient package which primarily limited the need for reassessing lease classification on existing leases and allowed us to issue our financial statements showing comparative lease disclosures under previous GAAP. See additional details related to the impact of this adoption in Note 9 .

On June 16, 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments and has subsequently issued several supplemental and/or clarifying ASUs. The new standard adds an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU will be effective for us beginning in fiscal year 2020. We do not believe this guidance will have a significant impact to our consolidated financial statements.

On August 29, 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) to provide guidance on implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40, Internal Use Software , to determine which implementation costs should be capitalized in such a CCA. The ASU will be effective for us beginning in fiscal year 2020. We are in the initial phases of our adoption plans and, accordingly, we are unable to estimate any effect this may have on our consolidated financial statements.

3. Acquisitions

Cartiva, Inc.

On October 10, 2018, we completed the acquisition of Cartiva, Inc. (Cartiva), an orthopaedic medical device company focused on treatment of osteoarthritis of the great toe. Under the terms of the agreement with Cartiva, we acquired 100% of the outstanding equity on a fully diluted basis of Cartiva for a total price of $435 million in cash, subject to certain adjustments which totaled $1.1 million , as set forth in the purchase agreement, $0.7 million of which was refunded in 2019. We funded the acquisition with the proceeds from a registered underwritten public offering of 18.2 million ordinary shares which had net proceeds of $423.0 million . This acquisition adds a differentiated premarket approval (PMA) approved technology for a high-volume foot and ankle procedure

13

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WRIGHT MEDICAL GROUP N.V.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

and further accelerates growth opportunities in our global extremities business. The results of operations of Cartiva are included in our condensed consolidated financial statements for all periods after completion of the acquisition.

The acquired business contributed net sales of $9.2 million and operating income of $3.4 million to our consolidated results of operations for the quarter ended March 31, 2019 , which included $0.4 million of inventory step-up amortization, $0.4 million of transition expenses and $1.9 million of intangible asset amortization.

Purchase Consideration and Net Assets Acquired

The following presents the preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed on October 10, 2018 (in thousands):

Cash and cash equivalents	$	309
Accounts receivable	4,352
Inventories	2,686
Other current assets	486
Property, plant and equipment	1,446
Intangible assets	81,000
Total assets acquired	90,279
Current liabilities	(4,226		)
Deferred income taxes	(3,622		)
Total liabilities assumed	(7,848		)
Net assets acquired	$	82,431
Goodwill	351,445
Total preliminary purchase consideration	$	433,876

The acquisition was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. The fair values were based on management’s analysis, including work performed by third-party valuation specialists. Wright’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as we finalize our valuations of assets acquired and liabilities assumed in connection with the acquisition. The primary areas of the purchase price allocation that are not yet finalized relate to identifiable intangible assets.

Trade receivables and payables, as well as certain other current assets and property, plant and equipment, were valued at the existing carrying values as they approximated the fair value of those items at the acquisition date, based on management’s judgments and estimates. Trade receivables included gross contractual amounts of $5.8 million and our best estimate of $1.4 million which represented contractual cash flows not expected to be collected at the acquisition date. Inventory was recorded at estimated selling price less costs of disposal and a reasonable selling profit. The resulting inventory step-up adjustment is being recognized in cost of sales as the related inventory is sold.

In determining the fair value of intangibles, we used an income method which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), technology life cycles, customer attrition rates, and the discount rate applied to the cash flows.

Of the $81.0 million of acquired intangible assets, $52.0 million was assigned to customer relationships ( 15 year life), $28.0 million was assigned to developed technology ( 7 year life), and $1.0 million was assigned to in-process research and development.

The excess of the cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill. The goodwill is primarily attributable to strategic opportunities that arose from the acquisition of Cartiva. The goodwill is not expected to be deductible for tax purposes.

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WRIGHT MEDICAL GROUP N.V.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

Pro Forma Condensed Combined Financial Information (Unaudited)

The following unaudited pro forma combined financial information summarizes the results of operations for the periods indicated as if the Cartiva acquisition had been completed as of January 1, 2018.

Pro forma information reflects adjustments that are expected to have a continuing impact on our results of operations and are directly attributable to the acquisition. The unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up and the incremental intangible asset amortization to be incurred based on the preliminary values of each identifiable intangible asset. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of January 1, 2018 or that may be obtained in the future, and do not reflect future synergies, integration costs, or other such costs or savings.

(in thousands)	Three months ended
	March 31, 2019				April 1, 2018
Net sales	$	230,127			$	207,444
Net loss from continuing operations	(29,904		)		(20,154		)

4. Discontinued Operations

For the three months ended March 31, 2019 and April 1, 2018 , our loss from discontinued operations, net of tax, totaled $6.3 million and $5.6 million , respectively. Our operating results from discontinued operations during 2019 and 2018 were attributable primarily to expenses, net of insurance recoveries, associated with legacy Wright’s former OrthoRecon business as described in Note 13 .

OrthoRecon Business

On January 9, 2014, legacy Wright completed the divestiture and sale of its OrthoRecon business to MicroPort Scientific Corporation. Certain liabilities associated with the OrthoRecon business, including product liability claims associated with hip and knee products sold by legacy Wright prior to the closing, were not assumed by MicroPort. Charges associated with these product liability claims, including legal defense, settlements and judgments, income associated with product liability insurance recoveries, and changes to any contingent liabilities associated with the OrthoRecon business have been reflected within results of discontinued operations, and we will continue to reflect these within results of discontinued operations in future periods.

All current and historical operating results for the OrthoRecon business are reflected within discontinued operations in the condensed consolidated financial statements. The following table summarizes the results of discontinued operations for the OrthoRecon business (in thousands):

	Three months ended
	March 31, 2019				April 1, 2018
Net sales	$	—			$	—
Selling, general and administrative	6,345				5,437
Loss from discontinued operations before income taxes	(6,345		)		(5,437		)
Provision for income taxes	—				—
Total loss from discontinued operations, net of tax	$	(6,345	)		$	(5,437	)

We will incur continuing cash outflows associated with legal defense costs and the ultimate resolution of these contingent liabilities, net of insurance proceeds, until these liabilities are resolved. Cash used in operating activities by the OrthoRecon business totaled $23.2 million and $24.0 million for the three months ended March 31, 2019 and April 1, 2018 , respectively.

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WRIGHT MEDICAL GROUP N.V.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

5. Inventories

Inventories consist of the following (in thousands):

	March 31, 2019				December 30, 2018
Raw materials	$	10,057			$	9,612
Work-in-process	28,896				26,839
Finished goods	147,957				144,239
	$	186,910			$	180,690

Level 1:	Financial instruments with unadjusted, quoted prices listed on active market exchanges.

Level 2:	Financial instruments determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3:	Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or valuation techniques.

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	Three months ended
	March 31, 2019
2023 Notes Hedges	$	55,190
2023 Notes Conversion Derivative	(55,723		)
Net (loss) on changes in fair value	$	(533	)

	March 31, 2019						December 30, 2018
	Location on condensed consolidated balance sheet		Amount				Location on condensed consolidated balance sheet		Amount
2021 Notes Hedges	Other current assets		$	250,222			Other assets		$	188,301
2021 Notes Conversion Derivative	Accrued expenses and other current liabilities		$	248,299			Other liabilities		$	187,539

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	Three months ended
	March 31, 2019				April 1, 2018
2021 Notes Hedges	$	61,921			$	(11,694	)
2021 Notes Conversion Derivative	(60,760		)		10,721
Net gain (loss) on changes in fair value	$	1,161			$	(973	)

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	Three months ended
	March 31, 2019				April 1, 2018
2020 Notes Hedges	$	8,250			$	(3,100	)
2020 Notes Conversion Derivative	(7,882		)		2,379
Net gain (loss) on changes in fair value	$	368			$	(721	)

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(1)	Volatility selected based on historical and implied volatility of ordinary shares of Wright Medical Group N.V.

(2)	Credit spread implied from traded price.

(3)	Credit spread of each bank is estimated using CDS curves. Source: Bloomberg.

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	Total			Quoted prices in active markets (Level 1)			Prices with other observable inputs (Level 2)			Prices with unobservable inputs (Level 3)
At March 31, 2019
Assets
Cash and cash equivalents	$	161,516		$	161,516		$	—		$	—
2020 Notes Hedges	9,223			—			—			9,223
2021 Notes Hedges	250,222			—			—			250,222
2023 Notes Hedges	201,257			—			—			201,257
Total	$	622,218		$	161,516		$	—		$	460,702
Liabilities
2020 Notes Conversion Derivative	$	8,991		$	—		$	—		$	8,991
2021 Notes Conversion Derivative	248,299			—			—			248,299
2023 Notes Conversion Derivative	201,431			—			—			201,431
Contingent consideration	19,191			—			—			19,191
Total	$	477,912		$	—		$	—		$	477,912

	Total			Quoted prices in active markets (Level 1)			Prices with other observable inputs (Level 2)			Prices with unobservable inputs (Level 3)
At December 30, 2018
Assets
Cash and cash equivalents	$	191,351		$	191,351		$	—		$	—
2020 Notes Hedges	17,822			—			—			17,822
2021 Notes Hedges	188,301			—			—			188,301
2023 Notes Hedges	115,923			—			—			115,923
Total	$	513,397		$	191,351		$	—		$	322,046
Liabilities
2020 Notes Conversion Derivative	$	17,386		$	—		$	—		$	17,386
2021 Notes Conversion Derivative	187,539			—			—			187,539
2023 Notes Conversion Derivative	116,833			—			—			116,833
Contingent consideration	19,248			—			—			19,248
Contingent consideration (CVRs)	420			420			—			—
Total	$	341,426		$	420		$	—		$	341,006

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	March 31, 2019				December 30, 2018
Property, plant and equipment, at cost	$	562,393			$	534,366
Less: Accumulated depreciation	(329,025		)		(309,437		)
	$	233,368			$	224,929

	U.S. Lower Extremities & Biologics				U.S. Upper Extremities				International Extremities & Biologics				Total
Goodwill at December 30, 2018	$	569,970			$	627,850			$	71,134			$	1,268,954
Foreign currency translation	—				(1,549		)		(4,880		)		(6,429		)
Goodwill at March 31, 2019	$	569,970			$	626,301			$	66,254			$	1,262,525
Goodwill at December 31, 2017	$	218,525			$	630,650			$	84,487			$	933,662
Foreign currency translation	—				3,275				5,642				8,917
Goodwill at April 1, 2018	$	218,525			$	633,925			$	90,129			$	942,579

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•	We elected the package of practical expedients available for transition which allows us to not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.

•	We elected to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset.

•	For all asset classes, we elected to not recognize a right-of-use asset and lease liability for short-term leases.

•	For all asset classes, we elected to not separate non-lease components from lease components to which they relate and have accounted for the combined lease and non-lease components as a single lease component.

•	The determination of the discount rate used in a lease is our incremental borrowing rate which is based on what we would normally pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term.

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2019	$	6,988
2020	7,509
2021	5,859
2022	4,286
2023	2,841
Thereafter	8,154
Total minimum payments	35,637
Less amount representing interest	(6,675		)
Present value of minimum lease payments	28,962
Current portion	(7,847		)
Long-term portion	$	21,115

2019	$	9,606
2020	7,498
2021	6,019
2022	4,433
2023	2,678
Thereafter	10,998
Total minimum payments	$	41,232

	March 31, 2019			December 30, 2018
Buildings	$	12,017		$	12,017
Machinery and equipment	28,004			24,331
Furniture, fixtures and office equipment	544			559
	40,565			36,907
Less: Accumulated depreciation	(13,131		)	(11,906		)
	$	27,434		$	25,001

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	March 31, 2019
Lease cost
Finance lease cost:
Depreciation	$	1,225
Interest on lease liabilities	269
Operating lease cost	2,621
Short-term lease cost	42
Variable lease cost	105
Total lease cost	$	4,262
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	269
Operating cash flows from operating leases	$	2,566
Financing cash flows from finance leases	$	1,793
Weighted-average remaining lease term - finance leases	5.05
Weighted-average remaining lease term - operating leases	5.80
Weighted-average discount rate - finance leases	4.63		%
Weighted-average discount rate - operating leases	7.25		%

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1

As of March 31, 2019, the closing price of our ordinary shares was greater than 130% of the 2021 Notes conversion price for 20 or more of the 30 consecutive trading days preceding the quarter-end; and, therefore, the holders of the 2021 Notes may convert the notes during the succeeding quarterly period. Due to the ability of the holders of the 2021 Notes to convert the notes during this period, the carrying value of the 2021 Notes were classified as current liabilities as of March 31, 2019. The holders of the 2020 Notes may convert their notes at any time prior to August 15, 2019 solely into cash upon satisfaction of certain circumstances as described below. On or after August 15, 2019, holders may convert their 2020 Notes solely into cash, regardless of the foregoing circumstances. Due to the ability of the holders of the 2020 Notes to convert within the next year, the carrying value of the 2020 Notes were classified as current liabilities as of March 31, 2019 and December 30, 2018.

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	March 31, 2019				December 30, 2018
Principal amount of 2023 Notes	$	814,556			$	675,000
Unamortized debt discount	(125,881		)		(114,554		)
Unamortized debt issuance costs	(12,702		)		(12,370		)
Net carrying amount of 2023 Notes	$	675,973			$	548,076

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	March 31, 2019				December 30, 2018
Principal amount of 2021 Notes	$	395,000			$	395,000
Unamortized debt discount	(64,085		)		(69,382		)
Unamortized debt issuance costs	(4,002		)		(4,332		)
Net carrying amount of 2021 Notes	$	326,913			$	321,286

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	Three months ended
	March 31, 2019			April 1, 2018
Weighted-average number of ordinary shares outstanding-basic and diluted	125,812			105,904

13. Commitments and Contingencies

Legal Contingencies

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	Three months ended March 31, 2019
	U.S. Lower Extremities & Biologics			U.S. Upper Extremities			International Extremities & Biologics			Corporate 1			Total
Net sales from external customers	$	94,816		$	82,951		$	52,360		$	—		$	230,127
Depreciation expense	2,688			3,151			3,763			5,899			15,501
Amortization expense	—			—			—			7,587			7,587
Segment operating income (loss)	$	28,941		$	31,448		$	(1,489	)	$	(52,179	)	$	6,721
Other:
Inventory step-up amortization													352
Transition expenses													424
Operating income													5,945
Interest expense, net													19,695
Other expense, net													12,895
Loss before income taxes													$	(26,645	)

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1

The Corporate category primarily reflects general and administrative expenses not specifically associated with the U.S. Lower Extremities & Biologics, U.S. Upper Extremities, and International Extremities & Biologics segments. These non-allocated corporate expenses relate to global administrative expenses that support all segments, including salaries and benefits of certain executive officers and expenses such as: information technology administration and support; corporate headquarters; legal, compliance, and corporate finance functions; insurance; and all share-based compensation.

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	March 31, 2019
	U.S. Lower Extremities & Biologics			U.S. Upper Extremities			International Extremities & Biologics			Corporate			Total
Total assets	$	953,637		$	926,256		$	284,312		$	665,143		$	2,829,348

	December 30, 2018
	U.S. Lower Extremities & Biologics			U.S. Upper Extremities			International Extremities & Biologics			Corporate			Total
Total assets	$	940,075		$	923,036		$	272,127		$	559,163		$	2,694,401

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition for the three months ended  March 31, 2019 . This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements, our Annual Report on Form 10-K for the year ended  December 30, 2018 , which includes additional information about our critical accounting policies and practices and risk factors, and “Special Note Regarding Forward-Looking Statements.”

Background

On January 9, 2014, legacy Wright completed the sale of its former hip and knee (OrthoRecon) business to MicroPort Scientific Corporation (MicroPort). The financial results of the OrthoRecon business are reflected within discontinued operations for all periods presented, unless otherwise noted.

All current and historical operating results for the OrthoRecon business are reflected within discontinued operations in the condensed consolidated financial statements.

Other than the discontinued operations discussed above, unless otherwise stated, all discussion of assets and liabilities in the notes to the condensed consolidated financial statements and in this section, reflects the assets and liabilities held and used in our continuing operations, and all discussion of revenues and expenses reflects those associated with our continuing operations.

On August 24, 2018, we entered into a definitive agreement to acquire 100% of the outstanding equity on a fully diluted basis of Cartiva, Inc. (Cartiva), an orthopaedic medical device company focused on treatment of osteoarthritis of the great toe, for a total price of $435 million in cash, subject to certain adjustments as set forth in the agreement. On October 10, 2018, we completed the acquisition, which adds a differentiated PMA approved technology for a high-volume foot and ankle procedure and further accelerates growth opportunities in our global extremities business. We funded the acquisition with the proceeds from a registered underwritten public offering of 18.2 million ordinary shares which had net proceeds of $423.0 million .

References in this section to “we,” “our” and “us” refer to Wright Medical Group N.V. and its subsidiaries after the Wright/Tornier merger and Wright Medical Group, Inc. and its subsidiaries before the merger. Our fiscal year-end is generally determined on a 52-week basis and runs from the Monday nearest to the 31st of December of a year and ends on the Sunday nearest to the 31st of December of the following year. Every few years, it is necessary to add an extra week to the year making it a 53-week period. The three months ended March 31, 2019 and April 1, 2018 each consisted of thirteen weeks.

Executive Overview

Company Description. We are a global medical device company focused on extremities and biologics products. We are committed to delivering innovative, value-added solutions improving quality of life for patients worldwide and are a recognized leader of surgical solutions for the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics markets, three of the fastest growing segments in orthopaedics. Our product portfolio consists of the following product categories:

•	Upper extremities, which include joint implants and bone fixation devices for the shoulder, elbow, wrist, and hand;

•	Lower extremities, which include joint implants and bone fixation devices for the foot and ankle;

•	Biologics, which include products used to support treatment of damaged or diseased bone, tendons, and soft tissues or to stimulate bone growth; and

•	Sports medicine and other, which include products used across several anatomic sites to mechanically repair tissue-to-tissue or tissue-to-bone injuries and other ancillary products

Our global corporate headquarters are located in Amsterdam, the Netherlands. We also have significant operations located in Memphis, Tennessee (U.S. headquarters, research and development, sales and marketing administration, and administrative activities); Bloomington, Minnesota (upper extremities sales and marketing and warehousing operations); Arlington, Tennessee (manufacturing and warehousing operations); Franklin, Tennessee (manufacturing and warehousing operations); Columbia City, Indiana (research and development); Alpharetta, Georgia (manufacturing and warehousing operations); Montbonnot, France (manufacturing and warehousing operations); Plouzané, France (research and development); and Macroom, Ireland (manufacturing). In addition, we have local sales and distribution offices in Canada, Australia, Asia, Latin America, and throughout Europe.

We promote our products in approximately 50 countries with principal markets in the United States, Europe, Asia, Canada, Australia, and Latin America. Our products are sold primarily through a network of employee and independent sales representatives in the United States and by a combination of employee sales representatives, independent sales representatives, and stocking distributors outside the United States.

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Principal Products. We have focused our efforts into growing our position in the high-growth extremities and biologics markets. We believe a more active and aging patient population with higher expectations regarding “quality of life,” an increasing global awareness of extremities and biologics solutions, improved clinical outcomes as a result of the use of such products, and technological advances resulting in specific designs for such products that simplify procedures and address unmet needs for early interventions, and the growing need for revisions and revision-related solutions will drive the market for extremities and biologics products.

Our principal upper extremities products include the AEQUALIS ASCEND ^® FLEX™ convertible shoulder system and SIMPLICITI ^® total shoulder replacement system, AEQUALIS ^®  PERFORM™ Glenoid System, and the AEQUALIS ^® REVERSED II™ reversed shoulder system. SIMPLICITI ^® is the first minimally invasive, canal sparing total shoulder available in the United States. We believe SIMPLICITI ^® allows us to expand the market to include younger patients that historically have deferred these procedures. Our BLUEPRINT™ 3D Planning Software can be used with our products to assist surgeons in accurately positioning the glenoid and humeral implants and replicating the pre-operative surgical plan. Other principal upper extremities products include the EVOLVE ^® radial head prosthesis for elbow fractures, the EVOLVE ^® Elbow Plating System, and the RAYHACK ^® osteotomy system. FDA 510(k) clearance of the AEQUALIS ^® FLEX REVIVE™ shoulder system was received in the third quarter of 2018. AEQUALIS ^® FLEX REVIVE™ was launched to limited users early in the first quarter of 2019 and full commercial launch is anticipated during the first half of 2019.

Our principal lower extremities products include the INBONE ^® , INFINITY ^® , and INVISION™ Total Ankle Replacement Systems, all of which can be used with our PROPHECY ^® Preoperative Navigation Guides, which combine computer imaging with a patient’s CT scan, and are designed to provide alignment accuracy while reducing surgical steps. As a result of our recent acquisition of Cartiva, our lower extremities product portfolio now includes Cartiva’s Synthetic Cartilage Implant (SCI), the only PMA approved product for treatment of first MTP joint osteoarthritis. Our lower extremities products also include the Salvation external fixation system for the treatment of Charcot diabetic foot, the CLAW ^® II Polyaxial Compression Plating System, the ORTHOLOC™ 3Di Reconstruction Plating System, the PhaLinx ^® System used for hammertoe indications, PRO-TOE ^® VO Hammertoe System, the DARCO ^® family of locked plating systems, the VALOR ^® ankle fusion nail system, and the Swanson line of toe joint replacement products. The PROstep™ Minimally Invasive Surgery System for Foot and Ankle was launched to limited users in the third quarter of 2017, and was fully launched early in the third quarter of 2018. We also launched a number of line extensions to the SALVATION™ limb salvage portfolio in 2018. We expect continued demand for these new products.

Our biologic products use both biological tissue-based and synthetic materials to allow the body to regenerate damaged or diseased bone and to repair damaged or diseased soft tissue. The newest addition to our biologics product portfolio is AUGMENT ^® Bone Graft, which is based on recombinant human platelet-derived growth factor (rhPDGF-BB), a synthetic copy of one of the body’s principal healing agents. FDA approval of AUGMENT ^® Bone Graft in the United States for ankle and/or hindfoot fusion indications occurred during the third quarter of 2015. Prior to FDA approval, this product was available for sale in Canada for foot and ankle fusion indications and in Australia and New Zealand for hindfoot and ankle fusion indications. In June 2018, we received PMA from the FDA for AUGMENT ^® Injectable Bone Graft. The AUGMENT ^® Bone Graft product line was acquired from BioMimetic in March 2013. Our other principal biologics products include the GRAFTJACKET ^® line of soft tissue repair and containment membranes, the ACTISHIELD™ and VIAFLOW™ products which are derived from amniotic and placental tissues, the ALLOMATRIX ^® line of injectable tissue-based bone graft substitutes, the PRO-DENSE ^® Injectable Graft, the OSTEOSET ^® synthetic bone graft substitute, and the PRO-STIM ^® Injectable Inductive Graft.

Significant Quarterly Business Developments. On February 25, 2019, we amended the ABL Credit Agreement to, among other things, increase the amount of commitments under the line of credit from $150 million to $175 million and under the second tranche of the term loan facility from $20 million to $35 million. 

During February 2019, we issued  $139.6 million  of Additional 2023 Notes and settled $130.1 million  of 2020 Notes. We paid approximately  $30.1 million  for additional 2023 Notes Hedges, and received approximately  $21.2 million  for additional 2023 warrants, resulting in a net cost to us of approximately  $8.9 million . In connection with the above described exchange, we also settled a pro rata share of the 2020 Notes Conversion Derivatives, 2020 Notes Hedges, and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this exchange. We received proceeds of approximately $16.8 million related to the 2020 Notes Hedges and paid $11.0 million related to the 2020 Warrants, generating net proceeds of $5.8 million .

Financial Highlights. Net sales increased 15.9% totaling $230.1 million in the first quarter of 2019 , compared to $198.5 million in the first quarter of 2018 , driven primarily by 22.8% growth in our U.S. net sales.

Our U.S. net sales increased $33.0 million , or 22.8% , in the first quarter of 2019 as compared to the first quarter of 2018 . The continued success of the combination of our BLUEPRINT™ enabling technology, PERFORM™ Reversed Glenoid System, and SIMPLICITI ^® shoulder system, as well as net sales growth of our INFINITY ^® total ankle replacement system and our AUGMENT ^® Injectable Bone Graft products, contributed to non-GAAP, legacy Wright U.S. organic growth of 16.9% . The impact to our net sales from Cartiva products was approximately $8.4 million . As anticipated, our combined non-GAAP pro forma growth of 15.9%

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was less than non-GAAP, legacy Wright U.S. organic growth in the first quarter since the Cartiva business has not yet gained traction in our direct sales force which launched January 1, 2019.

Our international net sales decreased $1.4 million , or 2.6% , in the first quarter of 2019 as compared to the first quarter of 2018 , primarily due to a $3.7 million unfavorable impact from foreign currency exchange rates, partially offset by incremental Cartiva revenue of approximately $0.8 million . Our non-GAAP, legacy Wright international organic sales declined 4.0% driven primarily by the unfavorable impact of currency ( 7 percent age point impact), partially offset by 5.6% growth in our direct markets.

In the first quarter of 2019 , our net loss from continuing operations totaled $30.3 million , compared to a net loss from continuing operations of $19.9 million  for the first quarter of 2018 . This increase in net loss from continuing operations was primarily driven by a loss of $14.3 million on the exchange of the cash convertible notes, primarily due to settlement of related conversion derivative liabilities, and $2.6 million of tax expense due to a change in tax rates on income from deferred intercompany transactions.

This increase in net loss from continuing operations was partially offset by improved profitability in our U.S. lower extremities and U.S. upper extremities businesses due to leveraging fixed expenses over increased net sales.

Opportunities. We intend to continue to leverage the global strengths of our product brands as a pure-play extremities and biologics business. Additionally, we believe the highly complementary nature of our businesses gives us significant diversity and scale across a range of geographies and product categories. We were delighted to add Cartiva’s SCI, the first and only PMA product for the treatment of great toe osteoarthritis, to our market-leading lower extremities portfolio. Supported by compelling clinical performance and backed by Level I clinical evidence, Cartiva is experiencing rapid commercial adoption and is well positioned for future growth as it addresses large markets with significant unmet needs and strong patient demand. We expect this acquisition to support our growth prospects in our core lower extremities business throughout 2019.

Further, we believe our December 2017 acquisition of IMASCAP, a leader in the development of software-based solutions for preoperative planning of shoulder replacement surgery, ensures exclusive access to breakthrough software enabling technology and patents, including BLUEPRINT™, to further differentiate our product portfolio and to further accelerate growth opportunities in our global extremities business. BLUEPRINT™ is proving to be integral to our ability to convert competitive surgeons, and we believe that impact will increase as we execute our plans to make the system easier to use and release additional enhancements. As of March 31, 2019, approximately 40% of our U.S. shoulder customers were using BLUEPRINT™.

We believe we have significant opportunity to increase sales with the recent and anticipated launch of new products, including our AEQUALIS ^® PERFORM™ Reversed Glenoid System, our PROstep™ Minimally Invasive Surgery System, AUGMENT ^® Injectable Bone Graft, and through driving BLUEPRINT™ adoption and by focusing on implementing initiatives to help us better compete at ambulatory surgery centers.

Significant Industry Factors and Challenges. Our industry is affected by numerous competitive, regulatory, and other significant factors. The growth of our business relies on our ability to continue to develop new products and innovative technologies, obtain regulatory clearance and maintain compliance for our products, protect the proprietary technology of our products and our manufacturing processes, manufacture our products cost-effectively, respond to competitive pressures specific to each of our geographic markets, including our ability to enforce non-compete agreements, and successfully market and distribute our products in a profitable manner. We, and the entire industry, are subject to extensive governmental regulation, primarily by the FDA. Failure to comply with regulatory requirements could have a material adverse effect on our business, operating results, and financial condition. We, as well as other participants in our industry, are subject to product liability claims, which could have a material adverse effect on our business, operating results, and financial condition.

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Results of Operations

Comparison of the three months ended March 31, 2019 to the three months ended April 1, 2018

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts (in thousands) and as percentages of net sales:

	Three months ended
	March 31, 2019						April 1, 2018
	Amount			% of net sales			Amount			% of net sales
Net sales	$	230,127		100.0	%		$	198,537		100.0	%
Cost of sales 1	46,317			20.1	%		41,139			20.7	%
Gross profit	183,810			79.9	%		157,398			79.3	%
Operating expenses:
Selling, general and administrative 1	153,306			66.6	%		137,248			69.1	%
Research and development 1	16,972			7.4	%		13,899			7.0	%
Amortization of intangible assets	7,587			3.3	%		7,141			3.6	%
Total operating expenses	177,865			77.3	%		158,288			79.7	%
Operating income (loss)	5,945			2.6	%		(890		)	(0.4	)%
Interest expense, net	19,695			8.6	%		19,812			10.0	%
Other expense (loss), net	12,895			5.6	%		(1,000		)	(0.5	)%
Loss from continuing operations before income taxes	(26,645		)	(11.6	)%		(19,702		)	(9.9	)%
Provision for income taxes	3,611			1.6	%		205			0.1	%
Net loss from continuing operations	$	(30,256	)	(13.1	)%		$	(19,907	)	(10.0	)%
Loss from discontinued operations, net of tax	(6,345		)				(5,607		)
Net loss	$	(36,601	)				$	(25,514	)

__________________________

1	These line items include the following amounts of non-cash, share-based compensation expense for the periods indicated:

	Three months ended
	March 31, 2019			% of net sales			April 1, 2018			% of net sales
Cost of sales	$	120		0.1	%		$	165		0.1	%
Selling, general and administrative	6,987			3.0	%		4,522			2.3	%
Research and development	514			0.2	%		331			0.2	%

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The following tables set forth our net sales by product line for the U.S. and International for the periods indicated (in thousands) and the percentage of year-over-year change:

	Three months ended
	March 31, 2019				April 1, 2018				% change
U.S.
Lower extremities	$	71,308			$	56,823			25.5	%
Upper extremities	81,727				67,658				20.8	%
Biologics	22,640				18,165				24.6	%
Sports med & other	2,092				2,147				(2.6	)%
Total U.S.	$	177,767			$	144,793			22.8	%
International
Lower extremities	$	15,551			$	15,327			1.5	%
Upper extremities	29,465				29,594				(0.4	)%
Biologics	4,538				5,257				(13.7	)%
Sports med & other	2,806				3,566				(21.3	)%
Total International	$	52,360			$	53,744			(2.6	)%
Total net sales	$	230,127			$	198,537			15.9	%

Supplemental Non-GAAP Pro Forma Information. Due to the significance of the Cartiva business that is not included in our results of operations for the three months ended April 1, 2018 and to supplement our condensed consolidated financial statements above prepared in accordance with US GAAP, we use certain non-GAAP financial measures, including organic and combined pro forma net sales. Our non-GAAP financial measures are not in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP financial measures used by other companies. In addition, our non-GAAP financial measures are not based on any comprehensive or standard set of accounting rules or principles. Accordingly, the calculation of our non-GAAP financial measures may differ from the definitions of other companies using the same or similar names limiting, to some extent, the usefulness of such measures for comparison purposes. We believe that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. See table below for a reconciliation of our non-GAAP organic and combined pro forma net sales for the three months ended March 31, 2019 and April 1, 2018 to our net sales for such period as calculated in accordance with US GAAP.

The results of operations discussion that appears below has been presented utilizing a combination of historical unaudited and, where relevant, non-GAAP organic and combined pro forma unaudited information to include the effects on our condensed consolidated financial statements of our acquisition of Cartiva, if the Cartiva acquisition had been completed as of January 1, 2018, the beginning of Wright’s fiscal year 2018. The organic net sales reflect net sales by the legacy Wright business, which do not include net sales of products obtained through the Cartiva acquisition. The pro forma net sales have been adjusted to reflect the effect on our combined net sales of incremental revenues that would have been recognized had Cartiva been acquired on January 1, 2018. The Cartiva acquisition only affected the U.S. and international lower extremities product lines net sales. The non-GAAP organic and combined pro forma net sales have been developed based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the Cartiva acquisition.

The non-GAAP organic and pro forma financial data is not necessarily indicative of results of operations that would have occurred had the Cartiva acquisition been consummated at the beginning of the period presented or which might be attained in the future.

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The following table reconciles our non-GAAP organic and combined pro forma net sales by product line for the three months ended March 31, 2019 and April 1, 2018 (in thousands):

	Three months ended March 31, 2019
	Legacy Wright (organic)				Standalone Cartiva				Wright Medical Group N.V.
U.S.
Lower extremities	$	62,863			$	8,445			$	71,308
Upper extremities	81,727				—				81,727
Biologics	22,640				—				22,640
Sports med & other	2,092				—				2,092
Total U.S.	$	169,322			$	8,445			$	177,767
International
Lower extremities	$	14,760			$	791			$	15,551
Upper extremities	29,465				—				29,465
Biologics	4,538				—				4,538
Sports med & other	2,806				—				2,806
Total International	$	51,569			$	791			$	52,360
Global
Lower extremities	$	77,623			$	9,236			$	86,859
Upper extremities	111,192				—				111,192
Biologics	27,178				—				27,178
Sports med & other	4,898				—				4,898
Total net sales	$	220,891			$	9,236			$	230,127

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	Three months ended April 1, 2018
	Standalone Wright Medical Group N.V.				Standalone Cartiva				Non-GAAP combined pro forma
U.S.
Lower extremities	$	56,823			$	8,611			$	65,434
Upper extremities	67,658				—				67,658
Biologics	18,165				—				18,165
Sports med & other	2,147				—				2,147
Total U.S.	$	144,793			$	8,611			$	153,404
International
Lower extremities	$	15,327			$	296			$	15,623
Upper extremities	29,594				—				29,594
Biologics	5,257				—				5,257
Sports med & other	3,566				—				3,566
Total International	$	53,744			$	296			$	54,040
Global
Lower extremities	$	72,150			$	8,907			$	81,057
Upper extremities	97,252				—				97,252
Biologics	23,422				—				23,422
Sports med & other	5,713				—				5,713
Total net sales	$	198,537			$	8,907			$	207,444
	Non-GAAP organic and combined pro forma net sales growth/(decline)
	Legacy Wright (organic)				Standalone Cartiva				Non-GAAP combined pro forma
U.S.
Lower extremities	10.6%				N/A				9.0%
Upper extremities	20.8%				N/A				20.8%
Biologics	24.6%				N/A				24.6%
Sports med & other	(2.6)%				N/A				(2.6)%
Total U.S.	16.9%				N/A				15.9%
International
Lower extremities	(3.7)%				N/A				(0.5)%
Upper extremities	(0.4)%				N/A				(0.4)%
Biologics	(13.7)%				N/A				(13.7)%
Sports med & other	(21.3)%				N/A				(21.3)%
Total International	(4.0)%				N/A				(3.1)%
Global
Lower extremities	7.6%				N/A				7.2%
Upper extremities	14.3%				N/A				14.3%
Biologics	16.0%				N/A				16.0%
Sports med & other	(14.3)%				N/A				(14.3)%
Total net sales	11.3%				N/A				10.9%

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Net sales

U.S. Sales. U.S. net sales totaled $177.8 million in the first quarter of 2019 , a 22.8% increase from $144.8 million in the first quarter of 2018 , primarily due to continued growth in our U.S. upper extremities business. Additionally, our U.S. lower extremities business had strong sales growth due to continued growth in both our core products and total ankle, as well as $8.4 million of net sales from Cartiva. We had non-GAAP organic growth of 16.9% , along with non-GAAP combined pro forma growth of 15.9% . As anticipated, our non-GAAP combined pro forma growth was less than non-GAAP organic growth in the first quarter since the Cartiva business has not yet gained traction in our direct sales force which launched January 1, 2019. U.S. sales represented approximately 77.2% of total net sales in the first quarter of 2019 , compared to 72.9% of total net sales in the first quarter of 2018 .

Our U.S. lower extremities net sales increased to $71.3 million in the first quarter of 2019 compared to $56.8 million in the first quarter of 2018 , representing growth of 25.5% . This growth was driven by 17.6% net sales growth in our total ankle replacement products, as well as Cartiva net sales of approximately $8.4 million . Additionally, we had above market growth in the ambulatory surgery center portion of our business. Our non-GAAP organic growth of U.S. lower extremities was 10.6% .

Our U.S. upper extremities net sales increased to $81.7 million in the first quarter of 2019 from $67.7 million in the first quarter of 2018 , representing growth of 20.8% . This growth was driven by demand for our innovative shoulder product portfolio, including the combination of our BLUEPRINT™ enabling technology, PERFORM™ Reversed Glenoid System, and SIMPLICITI ^® shoulder system, which enabled us to add more new customers in the first quarter of 2019 than we added in the first quarter of 2018.

Our U.S. biologics net sales totaled $22.6 million in the first quarter of 2019 , from $18.2 million in the first quarter of 2018 , representing a 24.6% increase over the first quarter of 2018 . This increase was driven by net sales volume growth in our core biologics products and AUGMENT ^® Injectable Bone Graft, which launched at the end of the second quarter of 2018 after receiving FDA approval, and an approximate 5 percentage point benefit from a bulk sale of the PDGF raw material resulting from a contractual supply obligation in the original BioMimetic purchase agreement.

International Sales. Net sales in our international regions totaled $52.4 million in the first quarter of 2019 compared to $53.7 million in the first quarter of 2018 . This 2.6% decrease was primarily due to a $3.7 million unfavorable impact from foreign currency exchange rates (a 7 percent age point unfavorable impact to international sales growth rate). This unfavorable impact was offset by incremental Cartiva net sales and growth in direct market sales in our international upper and lower extremities businesses.

Our international lower extremities net sales increased 1.5% to $15.6 million in the first quarter of 2019 from $15.3 million in the first quarter of 2018 . Sales increased primarily due to $0.8 million in Cartiva net sales. Non-GAAP organic sales decreased 3.7% . This decrease was primarily due to a $1.0 million unfavorable impact from foreign currency exchange rates (a 6 percent age point unfavorable impact to international lower extremities sales growth rate), offset by growth in our direct markets.

Our international upper extremities net sales decreased 0.4% to $29.5 million in the first quarter of 2019 from $29.6 million in the first quarter of 2018 . Sales increased by 7.0% in our direct markets in Europe, and a combined 8.9% increase in our Canada, Australia, and Japan direct markets. These increases were offset by a $2.2 million unfavorable impact from foreign currency exchange rates (an 8 percent age point unfavorable impact to international upper extremities sales growth rate).

Our international biologics net sales decreased 13.7% to $4.5 million in the first quarter of 2019 from $5.3 million in the first quarter of 2018 , mostly due to decreased sales volumes to stocking distributors. This decrease also included a $0.3 million unfavorable impact from foreign currency exchange rates (a 5 percent age point unfavorable impact to international biologics sales growth rate).

Cost of sales

Our cost of sales totaled $46.3 million , or 20.1% of net sales, in the first quarter of 2019 , compared to $41.1 million , or 20.7% of net sales, in the first quarter of 2018 . Cost of sales decreased as a percentage of net sales due to favorable manufacturing expenses, favorable customer and product mix, and increased gross margins from Cartiva over legacy Wright.

Selling, general and administrative

Our selling, general and administrative expenses totaled $153.3 million , or 66.6% of net sales, in the first quarter of 2019 , compared to $137.2 million , or 69.1% of net sales, in the first quarter of 2018 . Selling, general and administrative expenses as a percentage of net sales decreased 3 percent age points due to leveraging relatively flat certain general and administrative and distribution expenses over increased net sales.

Research and development

Our research and development expense totaled $17.0 million in the first quarter of 2019 compared to $13.9 million in the first quarter of 2018 . Research and development costs remained relatively constant at approximately 7% of net sales. Our research and development expenses are estimated to range from 7% to 8% as a percentage of net sales in 2019.

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Amortization of intangible assets

Charges associated with amortization of intangible assets totaled $7.6 million  in the first quarter of  2019 , compared to  $7.1 million  in the first quarter of 2018 . Based on intangible assets held at March 31, 2019 , we expect amortization expense to be approximately $30 million per year for the years 2019 through 2023.

Interest expense, net

Interest expense, net, totaled $19.7 million in the first quarter of 2019 and $19.8 million in the first quarter of 2018 . Our interest expense in the first quarter of 2019 related primarily to non-cash interest expense associated with the amortization of the discount on the 2023 Notes, 2021 Notes and 2020 Notes of $5.5 million , $5.3 million and $1.4 million , respectively; amortization of deferred financing charges on our borrowings totaling $1.3 million; and cash interest expense totaling $7.2 million primarily associated with the 2023 Notes, 2021 Notes, 2020 Notes and borrowings under our ABL Facility and the Term Loan Facility that was established during the quarter ended July 1, 2018, partially offset by interest income of $1.0 million as a result of the investment of the net proceeds from the 2023 Notes issued in the second quarter of 2018.

Our interest expense in the first quarter of 2018 related primarily to non-cash interest expense associated with the amortization of the discount on the 2021 Notes and 2020 Notes of $4.8 million and $7.2 million , respectively, amortization of deferred financing charges on the 2021 Notes, 2020 Notes, and our ABL Facility totaling $1.3 million; and cash interest expense totaling $6.2 million primarily associated with the coupon on the 2021 Notes, 2020 Notes, and our ABL Facility.

Other expense (income), net

Other expense, net totaled $12.9 million in the first quarter of 2019 , compared to $1.0 million of other income, net in the first quarter of 2018 .

In the first quarter of 2019 , other expense (income), net, primarily consisted of a loss of $14.3 million on the exchange of the cash convertible notes, primarily due to settlement of related conversion derivative liabilities. This amount was partially offset by non-cash adjustments to derivative fair values. In 2018, other expense (income), net primarily consisted of non-cash adjustments to derivative fair values and CVRs.

Provision for income taxes

We recorded a tax provision from continuing operations of $3.6 million in the first quarter of 2019 , compared to a tax provision from continuing operations of $0.2 million in the first quarter of 2018 . Our income tax provision during the first quarter of 2019 includes a $2.6 million tax provision due a change in tax rates on income from deferred intercompany transactions and tax provision on net earnings in jurisdictions where we do not have a valuation allowance offset by a tax benefit for foreign currency losses. We are unable to recognize a tax benefit in jurisdictions where we are incurring losses (primarily the U.S.) due to the valuation allowance on our net deferred assets. During the first quarter of 2018, our tax provision includes the result of net earnings in jurisdictions where we do not have a valuation allowance offset by a tax benefit for foreign currency losses.

Loss from discontinued operations, net of tax

Loss from discontinued operations, net of tax, consists primarily of the costs associated with legal defense, income/loss associated with product liability insurance recoveries/denials, and changes to any contingent liabilities associated with the OrthoRecon business that was sold to MicroPort. See Note 4 and Note 13 to our condensed consolidated financial statements for further discussion regarding our discontinued operations and our retained contingent liabilities associated with the OrthoRecon business.

Reportable segments

The following tables set forth, for the periods indicated, net sales and operating income of our reportable segments expressed as dollar amounts (in thousands) and as a percentage of net sales:

	Three months ended March 31, 2019
	U.S. Lower Extremities & Biologics				U.S. Upper Extremities				International Extremities & Biologics
Net sales	$	94,816			$	82,951			$	52,360
Operating income (loss)	$	28,941			$	31,448			$	(1,489	)
Operating income (loss) as a percent of net sales	30.5		%		37.9		%		(2.8		)%

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	Three months ended April 1, 2018
	U.S. Lower Extremities & Biologics				U.S. Upper Extremities				International Extremities & Biologics
Net sales	$	75,897			$	68,896			$	53,744
Operating income	$	19,458			$	24,154			$	258
Operating income as a percent of net sales	25.6		%		35.1		%		0.5		%

Net sales of our U.S. lower extremities and biologics segment increased $18.9 million in the three months ended March 31, 2019 compared to the three months ended April 1, 2018 . Operating income of our U.S. lower extremities and biologics segment increased $9.5 million for the three months ended March 31, 2019 compared to the three months ended April 1, 2018 . These increases to both net sales and operating income were driven primarily by net sales growth from our INFINITY ^® total ankle replacement products, our core lower extremities and biologics businesses, AUGMENT ^® Injectable Bone Graft, which received FDA approval in the second quarter of 2018, and leveraging certain selling, general and administrative expenses over increased net sales. Additionally, the impact from the Cartiva acquisition had an impact of approximately $8.4 million and $5.3 million on sales and operating income, respectively, for our U.S. lower extremities and biologics segment.

Net sales of our U.S. upper extremities segment increased $14.1 million in the three months ended March 31, 2019 compared to the three months ended April 1, 2018 . Operating income of our U.S. upper extremities segment increased $7.3 million in the three months ended March 31, 2019 as compared to the three months ended April 1, 2018 . These increases to both net sales and operating income were primarily driven by net sales growth within our innovative shoulder product portfolio, including the combination of our BLUEPRINT™ enabling technology, PERFORM™ Reversed Glenoid System, and SIMPLICITI ^® shoulder system, and leveraging certain selling, general and administrative expenses over increased net sales.

Net sales of our International extremities and biologics segment decreased $1.4 million in the three months ended March 31, 2019 compared to the three months ended April 1, 2018 . International extremities and biologics segment had a $1.5 million operating loss during the three months ended March 31, 2019 compared to $0.3 million of operating income for the three months ended April 1, 2018 , resulting in a $1.7 million decrease in operating income (loss). These decreases were primarily due to unfavorable impacts from foreign currency exchange rates and due to investments made in sales and marketing in our direct markets, as well as spending associated with the new European MDR. These impacts were partially offset by the impact from the Cartiva acquisition and increased sales growth in our direct markets.

Liquidity and Capital Resources

The following table sets forth, for the periods indicated, certain liquidity measures (in thousands):

	March 31, 2019				December 30, 2018
Cash and cash equivalents	$	161,516			$	191,351
Working capital 1	(78,822		)		136,106

___________________________

1

As of March 31, 2019, the closing price of our ordinary shares was greater than 130% of the 2021 Notes conversion price for 20 or more of the 30 consecutive trading days preceding the quarter-end, and, therefore, the holders of the 2021 Notes may convert the notes during the calendar quarter ending June 30, 2019. Due to the ability of the holders of the 2021 Notes to convert the notes during this period, the $327 million carrying value of the 2021 Notes and the $248 million fair value of the 2021 Notes Conversion Derivatives were classified as current liabilities and the $250 million fair value of the 2021 Notes Hedges was classified as current assets as of March 31, 2019. We currently do not expect significant conversions of the 2021 Notes because they currently trade at a premium to the as-converted value, and a converting holder would forego future interest payments. However, any conversions would reduce our cash resources. We believe that, in the event that holders elect to exercise the conversion option, our cash resources and access to additional borrowings would provide the necessary liquidity.

Operating Activities. Cash used in operating activities totaled $7.4 million and $18.8 million in the first three months of 2019 and 2018 , respectively. The decrease in cash used in operating activities in the first three months of 2019 was primarily driven by improved cash profitability of continuing operations.

Investing Activities. Our capital expenditures totaled $25.4 million and $11.9 million in the first three months of 2019 and 2018 , respectively. This increase is primarily due to increased investments in surgical instrumentation to support the continued rollouts and upcoming product launches in our upper extremities business. Historically, our capital expenditures have consisted principally of surgical instrumentation, purchased manufacturing equipment, research and testing equipment, and computer systems. Further, during 2019, we expect to incur approximately $14 million for the purchase and set up of a 40,000 square foot state of the art

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manufacturing and distribution facility in Arlington, Tennessee. In total, we expect to incur capital expenditures of more than $90 million in 2019 .

Financing Activities. During the first three months of 2019 , cash provided by financing activities totaled $4.9 million , compared to $1.1 million in the first three months of 2018 .

Cash provided by financing activities in the first three months of 2019 was primarily attributable to $11.0 million in cash received from the issuance of ordinary shares in connection with option exercises. These proceeds were partially offset by $5.7 million of net payments related to the exchange of 2023 Notes for 2020 Notes (as further described below) and the associated issuance of additional 2023 Notes Hedges and warrants, and settlement of pro rata portions of the 2020 Notes Hedges and warrants.

On February 7, 2019, WMG issued  $139.6 million  of Additional 2023 Notes in exchange for $130.1 million  aggregate principal amount of 2020 Notes. As this was a debt modification, a pro rata share of the 2020 Notes deferred financing costs and discount was transferred to the 2023 Notes deferred financing costs and discount. Additionally, the 2023 Notes discount was adjusted in order for net debt to remain the same subsequent to the exchange. While the debt modification was a non-cash transaction, we paid approximately $ 2.6 million of convertible debt modification costs.

Additionally, on January 30, 2019 and January 31, 2019 , we, along with WMG, entered into cash-settled convertible note hedge transactions with certain option counterparties. WMG paid approximately  $30.1 million  in the aggregate to the option counterparties for the note hedge transactions, and received approximately  $21.2 million  in the aggregate from the option counterparties for the warrants, resulting in a net cost to us of approximately  $8.9 million . In connection with the above described exchange, WMG also settled a pro rata share of the 2020 Notes Hedges and warrants corresponding to the amount of 2020 Notes exchanged pursuant to this transaction. We received proceeds of approximately $16.8 million related to the 2020 Notes Hedges and paid $11.0 million related to the 2020 Warrants, generating net proceeds of $5.8 million .

Cash provided by financing activities in the first three months of 2018 was primarily attributable to $2.6 million in cash received from the issuance of ordinary shares in connection with option exercises and $2.0 million of other debt proceeds.

Repatriation. We provide for tax liabilities in our condensed consolidated financial statements with respect to amounts that we expect to repatriate from subsidiaries (to the extent the repatriation would be subject to tax); however, no tax liabilities are recorded for amounts that we consider to be permanently reinvested. Our current plans do not foresee a need to repatriate funds that are designated as permanently reinvested in order to fund our operations or meet currently anticipated liquidity and capital investment needs.

Discontinued Operations. Our cash flows from discontinued operations during 2019 were attributable primarily to legacy Wright’s former OrthoRecon business as described in Note 13 . Our cash flows from discontinued operations during 2018 were attributable primarily to legacy Wright’s former OrthoRecon business.

Cash flows from discontinued operations are combined with cash flows from continuing operations in the condensed consolidated statements of cash flows. Cash used in operating activities by the OrthoRecon business totaled $23.2 million and $24.0 million for the three months ended March 31, 2019 and April 1, 2018 , respectively.

We expect cash outflows resulting from product liabilities during the remainder of 2019 and 2020, associated with the metal-on-metal settlements, net of insurance recoveries. We do not expect that the future cash outflows from discontinued operations, including the payment of these retained liabilities of the OrthoRecon business, will have an impact on our ability to meet contractual cash obligations and fund our working capital requirements, operations, and anticipated capital expenditures.

Contractual Cash Obligations. As of March 31, 2019 , there were no material changes to our contractual cash obligations and commercial commitments as disclosed in in “ Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Contractual Cash Obligations ” of our Annual Report on Form 10-K for the year ended December 30, 2018 , except for the Additional 2023 Notes and the reclassification of the 2021 Notes as described in Note 10 and a minimum purchase obligation of approximately $3.6 million a year until March 29, 2026.

As of March 31, 2019, the closing price of our ordinary shares was greater than 130% of the 2021 Notes conversion price for 20 or more of the 30 consecutive trading days preceding the quarter-end, and, therefore, the holders of the 2021 Notes may convert the notes during the calendar quarter ending June 30, 2019. Due to the ability of the holders of the 2021 Notes to convert the notes during this period, the carrying value of the 2021 Notes and the fair value of the 2021 Notes Conversion Derivatives were classified as current liabilities and the fair value of the 2021 Notes Hedges was classified as current assets as of March 31, 2019.

We currently do not expect significant conversions of the 2021 Notes because they currently trade at a premium to the as-converted value, and a converting holder would forego future interest payments. However, any conversions would reduce our cash resources. We believe that, in the event that holders elect to exercise the conversion option, our cash resources and access to additional borrowings would provide the necessary liquidity.

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Other Liquidity Information. We have historically funded our cash needs through various equity and debt issuances, more recently borrowings under our ABL Credit Agreement, and through cash flow from operations.

In June 2018, WMG issued $675 million aggregate principal amount of the 2023 Notes, which, after consideration of the exchange of approximately $400.9 million principal amount of the 2020 Notes, generated proceeds of approximately $215.5 million net of premium and interest paid. We also paid $141.3 million for hedges associated with the 2023 Notes and received approximately $102.1 million for the issuance of warrants associated with the 2023 Notes. In July 2018, we settled a pro rata share of the 2020 Notes hedges and 2020 warrants which resulted in net proceeds of $10.6 million.

On February 7, 2019, WMG issued  $139.6 million  of Additional 2023 Notes in exchange for $130.1 million  of 2020 Notes. For each $1,000 principal amount of 2020 Notes validly submitted for exchange, WMG delivered $1,072.40 principal amount of Additional 2023 Notes to the exchanging investor (subject, in each case, to rounding to the nearest $1,000 aggregate principal amount for each such exchanging investor).

On December 23, 2016 , we, together with WMG and certain of our other wholly-owned U.S. subsidiaries (collectively, Borrowers), entered into a Credit, Security and Guaranty Agreement with Midcap Financial Trust, as administrative agent (Agent) and a lender and the additional lenders from time to time party thereto, which agreement was subsequently amended in May 2018 and February 2019 (as amended, the ABL Credit Agreement).

The ABL Credit Agreement provides for a $175 million senior secured asset-based line of credit, subject to the satisfaction of a borrowing base requirement (ABL Facility) and a $55 million term loan facility (Term Loan Facility). The ABL Facility may be increased by up to $75 million upon the Borrowers’ request, subject to the consent of the Agent and each of the other lenders providing such increase. All borrowings under the ABL Facility are subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an updated borrowing base certificate. The initial $20 million term loan tranche was funded at closing in May 2018. The Borrowers may at any time borrow the second $35 million term loan tranche, but are required to do so no later than May 7, 2021. All borrowings under the Term Loan Facility are subject to the satisfaction of customary conditions, including the absence of default and the accuracy of representations and warranties in all material respects. We are in compliance with all covenants as of March 31, 2019 .

As of March 31, 2019 , we had $20.2 million in borrowings outstanding under the ABL Facility and $154.8 million in unused availability under the ABL Facility. As of December 30, 2018 , we had $17.8 million in borrowings outstanding under the ABL Facility and $132.2 million in unused availability under the ABL Facility.

Between November 2016 and October 2017, WMT entered into three MoM Settlement Agreements with Court-appointed attorneys representing plaintiffs in the MDL and JCCP to settle a total of 1,974 cases that met the eligibility requirements of the MoM Settlement Agreements and were either pending in the MDL or JCCP, or subject to court-approved tolling agreements in the MDL or JCCP, for an aggregate sum of $339.2 million . As of March 31, 2019, we had funded $304.4 million under the MoM Settlement Agreements.

As of March 31, 2019 , our accrual for metal-on-metal claims totaled $61.5 million , of which $36.3 million is included in our condensed consolidated balance sheet within “Accrued expenses and other current liabilities” and $25.2 million is included within “Other liabilities.” As of December 30, 2018, our accrual for metal-on-metal claims totaled $74.5 million, of which $51.9 million is included in our condensed consolidated balance sheet within “Accrued expenses and other current liabilities” and $22.6 million is included within “Other liabilities.” See Note 13 to our condensed consolidated financial statements for additional discussion regarding the MoM Settlement Agreements and our accrual methodologies for the metal-on-metal hip replacement product liability claims.

Although it is difficult for us to predict our future liquidity requirements, we believe that our cash and cash equivalents of $161.5 million , the $154.8 million in availability under the ABL Facility and the additional $35 million in availability under the Term Loan Facility, as of March 31, 2019 , will be sufficient for at least the next 12 months to fund the working capital requirements and operations, permit anticipated capital expenditures, pay retained metal-on-metal product and other liabilities of the OrthoRecon business, including without limitation amounts under the MoM Settlement Agreements, fund contingent considerations, and meet our other anticipated contractual cash obligations in 2019 and 2020.

In-process research and development. I n connection with the IMASCAP acquisition, we acquired in-process research and development (IPRD) technology related to a next generation reverse shoulder implant system that had not yet reached technological feasibility as of the acquisition date. This project was assigned a fair value of $5.3 million on the acquisition date.

In connection with the Cartiva acquisition, we acquired IPRD technology related to a thumb implant (CMC) that is in development. This project was assigned a fair value of $1.0 million on the acquisition date.

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The current IPRD projects we acquired in our IMASCAP and Cartiva acquisitions are as follows:

•

The next generation reverse shoulder implant system is a reverse shoulder replacement implant having glenoid or glenoid and humeral implant components. We have an anticipated first clinical use in 2020 and launch in the second half of 2021; however, the risks and uncertainties associated with completion are dependent upon testing validations and FDA and CE mark clearance. We have incurred expenses of less than $0.1 million in the three months ended March 31, 2019. Project cost to complete is estimated to be less than $2 million.

•

The CMC thumb implant is an arthroplasty device designed to resurface the CMC joint for the treatment of osteoarthritis. We anticipate the launch of CMC thumb implant no earlier than 2021; however, the risks and uncertainties associated with completion are dependent upon testing validations and FDA clearance. We have incurred expenses of approximately $0.3 million in the three months ended March 31, 2019. Project cost to complete is estimated to be less than $3 million.

Critical Accounting Policies and Estimates

Information on judgments related to our most critical accounting policies and estimates is discussed in “ Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates ” of our Annual Report on Form 10-K for the year ended December 30, 2018 filed with the SEC on February 27, 2019 . Certain of our more critical accounting estimates require the application of significant judgment by management in selecting the appropriate assumptions in determining the estimate. By their nature, these judgments are subject to an inherent degree of uncertainty. We develop these judgments based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate. Actual results may differ from these judgments under different assumptions or conditions. Different, reasonable estimates could have been used for the current period. Additionally, changes in accounting estimates are reasonably likely to occur from period to period. Both of these factors could have a material impact on the presentation of our financial condition, changes in financial condition or results of operations.

There have been no material changes to our critical accounting policies and estimates discussed in “ Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates ” of our Annual Report on Form 10-K for the year ended December 30, 2018 .

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is included in Note 2 to our condensed consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

Our exposure to interest rate risk arises principally from variable interest rates applicable to borrowings under our ABL Credit Agreement and the interest rates associated with our invested cash balances.

Borrowings under our ABL Credit Agreement, including our ABL Facility and Term Loan Facility, bear interest at variable rates. The interest rate margin applicable to borrowings under the ABL Facility is, at the option of the Borrowers, equal to either (a) 3.25% for base rate loans or (b) 4.25% for LIBOR rate loans, subject to a 0.75% LIBOR floor. The interest rate applicable to borrowings under the Term Loan Facility is equal to one-month LIBOR plus 7.85%, subject to a 1.00% LIBOR floor. As of March 31, 2019 , we had $20.2 million of borrowings under our ABL Facility and $20 million principal outstanding under our Term Loan Facility. Based upon this debt level, and the LIBOR floor on our interest rate, a 100 basis point increase in the annual interest rate on such borrowings would have an immaterial impact on our interest expense on an annual basis.

On March 31, 2019 , we had invested cash and cash equivalents of approximately $161.5 million . We believe that a 10 basis point change in interest rates is reasonably possible in the near term. Based on our current level of investment, an increase or decrease of 10 basis points in interest rates would have an annual impact of approximately $0.2 million to our interest income.

As of March 31, 2019 , we had outstanding an aggregate of $56.5 million , $395.0 million , and $814.6 million , principal amount of our 2020 Notes, 2021 Notes, and 2023 Notes, respectively. We carry these instruments at face value less unamortized discount and unamortized debt issuance costs on our condensed consolidated balance sheets. Since these instruments bear interest at a fixed rate, we have no financial statement risk associated with changes in interest rates. However, the fair value of the 2020 Notes, 2021 Notes, and 2023 Notes fluctuates when interest rates change, and when the market price of our ordinary shares fluctuates. We do not carry the 2020 Notes, 2021 Notes, or 2023 Notes at fair value, but present the fair value of the principal amount of our 2020 Notes, 2021 Notes, and 2023 Notes for disclosure purposes.

Equity Price Risk

On June 28, 2018, we issued  $675 million  aggregate principal amount of the 2023 Notes. Additional 2023 Notes were issued in exchange for a portion of 2020 Notes in February 2019. As of March 31, 2019 , $814.6 million aggregate principal amount was

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outstanding on the 2023 Notes. The holders of the 2023 Notes may convert their 2023 Notes into cash upon the satisfaction of certain circumstances as described in Note 10 . The conversion and settlement provisions of the 2023 Notes are based on the price of our ordinary shares at conversion or at maturity of the notes. In addition, the hedges and warrants associated with these convertible notes also include settlement provisions that are based on the price of our ordinary shares. The amount of cash we may be required to pay, or the number of shares we may be required to provide to note holders at conversion or maturity of these notes, is determined by the price of our ordinary shares. The amount of cash that we may receive from hedge counterparties in connection with the related hedges and the number of shares that we may be required to provide warrant counterparties in connection with the related warrants are also determined by the price of our ordinary shares.

Upon the expiration of our warrants issued in connection with the 2023 Notes, we will issue ordinary shares to the purchasers of the warrants to the extent the price of our ordinary shares exceeds the warrant strike price of $40.86 at that time. The following table shows the number of shares that we would issue to warrant counterparties at expiration of the warrants based on the warrants outstanding as of March 31, 2019 assuming various closing prices of our ordinary shares on the date of warrant expiration:

Share price		Shares (in thousands)
$44.95	(10% greater than strike price)	2,219
$49.03	(20% greater than strike price)	4,068
$53.12	(30% greater than strike price)	5,633
$57.20	(40% greater than strike price)	6,974
$61.29	(50% greater than strike price)	8,137

The fair value of the 2023 Notes Conversion Derivative and the 2023 Notes Hedge is directly impacted by the price of our ordinary shares. We entered into the 2023 Notes Hedges in connection with the issuance of the 2023 Notes with the option counterparties. The 2023 Notes Hedges, which are cash-settled, are intended to reduce our exposure to potential cash payments we are required to make upon conversion of the 2023 Notes in excess of the principal amount of converted notes if our ordinary share price exceeds the conversion price. The following table presents the fair values of the 2023 Notes Conversion Derivative and 2023 Notes Hedge as a result of a hypothetical 10% increase and decrease in the price of our ordinary shares. We believe that a 10% change in our share price is reasonably possible in the near term:

(in thousands)
	Fair value of security given a 10% decrease in share price			Fair value of security as of March 31, 2019			Fair value of security given a 10% increase in share price
2023 Notes Hedges (Asset)	$	154,705		$	201,257		$	252,151
2023 Notes Conversion Derivative (Liability)	$	150,362		$	201,431		$	257,710

On May 20, 2016, we issued $395 million aggregate principal amount of the 2021 Notes. The holders of the 2021 Notes may convert their 2021 Notes into cash upon the satisfaction of certain circumstances as described in Note 10 . As of March 31, 2019, the closing price of our ordinary shares was greater than 130% of the 2021 Notes conversion price for 20 or more of the 30 consecutive trading days preceding the quarter-end; and, therefore, the holders of the 2021 Notes may convert the notes during the succeeding quarterly period. Due to the ability of the holders of the 2021 Notes to convert the notes during this period, the carrying value of the 2021 Notes and the fair value of the 2021 Notes Conversion Derivative were classified as current liabilities, and the fair value of the 2021 Notes Hedges was classified as current assets as of March 31, 2019. The respective balances were classified as long-term as of December 30, 2018. We currently do not expect significant conversions because the 2021 Notes currently trade at a premium to the as-converted value, and a converting holder would forego future interest payments. However, any conversions would reduce our cash resources.

The conversion and settlement provisions of the 2021 Notes are based on the price of our ordinary shares at conversion or at maturity of the notes. In addition, the hedges and warrants associated with these convertible notes also include settlement provisions that are based on the price of our ordinary shares. The amount of cash we may be required to pay, or the number of shares we may be required to provide to note holders at conversion or maturity of these notes, is determined by the price of our ordinary shares. The amount of cash that we may receive from hedge counterparties in connection with the related hedges and the number of shares that we may be required to provide warrant counterparties in connection with the related warrants are also determined by the price of our ordinary shares.

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Upon the expiration of our warrants issued in connection with the 2021 Notes, we will issue ordinary shares to the purchasers of the warrants to the extent the price of our ordinary shares exceeds the warrant strike price of $30.00 at that time. The following table shows the number of shares that we would issue to warrant counterparties at expiration of the warrants based on the warrants outstanding as of March 31, 2019 assuming various closing prices of our ordinary shares on the date of warrant expiration:

Share price		Shares (in thousands)
$33.00	(10% greater than strike price)	1,681
$36.00	(20% greater than strike price)	3,082
$39.00	(30% greater than strike price)	4,268
$42.00	(40% greater than strike price)	5,284
$45.00	(50% greater than strike price)	6,164

The fair value of the 2021 Notes Conversion Derivative and the 2021 Notes Hedge is directly impacted by the price of our ordinary shares. We entered into the 2021 Notes Hedges in connection with the issuance of the 2021 Notes with the option counterparties. The 2021 Notes Hedges, which are cash-settled, are intended to reduce our exposure to potential cash payments we are required to make upon conversion of the 2021 Notes in excess of the principal amount of converted notes if our ordinary share price exceeds the conversion price. The following table presents the fair values of the 2021 Notes Conversion Derivative and 2021 Notes Hedge as a result of a hypothetical 10% increase and decrease in the price of our ordinary shares. We believe that a 10% change in our share price is reasonably possible in the near term:

(in thousands)
	Fair value of security given a 10% decrease in share price	Fair value of security as of March 31, 2019	Fair value of security given a 10% increase in share price
2021 Notes Hedges (Asset)	$202,637	$250,222	$299,942
2021 Notes Conversion Derivative (Liability)	$194,649	$248,299	$303,744

On February 13, 2015, WMG issued $632.5 million aggregate principal amount of the 2020 Notes. A portion of the 2020 Notes was exchanged in conjunction with both the 2021 Notes and the 2023 Notes. As of March 31, 2019 , $56.5 million aggregate principal amount was outstanding on the 2020 Notes. The holders of the 2020 Notes may convert their notes at any time prior to August 15, 2019 solely into cash upon satisfaction of certain circumstances as described in Note 10 . On or after August 15, 2019, holders may convert their 2020 Notes solely into cash, regardless of the foregoing circumstances. Due to the ability of the holders of the 2020 Notes to convert within the next year, the carrying value of the 2020 Notes and the fair value of the 2020 Notes Conversion Derivatives were classified as current liabilities and the fair value of the 2020 Notes Hedges was classified as current assets as of March 31, 2019 and December 30, 2018.

The conversion and settlement provisions of the 2020 Notes are based on the price of our ordinary shares at conversion or at maturity of the notes. In addition, the hedges and warrants associated with these convertible notes also include settlement provisions that are based on the price of our ordinary shares. The amount of cash we may be required to pay, or the number of shares we may be required to provide to note holders at conversion or maturity of these notes, is determined by the price of our ordinary shares. The amount of cash that we may receive from hedge counterparties in connection with the related hedges and the number of shares that we may be required to provide warrant counterparties in connection with the related warrants are also determined by the price of our ordinary shares.

Upon the expiration of our warrants associated with the 2020 Notes, we will issue ordinary shares to the purchasers of the warrants to the extent the price of our ordinary shares exceeds the warrant strike price at that time. On November 24, 2015, Wright Medical Group N.V. assumed WMG’s obligations pursuant to the warrants, and the strike price of the warrants was adjusted from $40.00 to $38.8010 per ordinary share. The following table shows the number of shares that we would issue to warrant counterparties at expiration of the warrants based on the warrants outstanding as of March 31, 2019 assuming various closing prices of our ordinary shares on the date of warrant expiration:

Share price		Shares (in thousands)
$42.68	(10% greater than strike price)	171
$46.56	(20% greater than strike price)	314
$50.44	(30% greater than strike price)	435
$54.32	(40% greater than strike price)	539
$58.20	(50% greater than strike price)	628

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The fair value of the 2020 Notes Conversion Derivative and the 2020 Notes Hedge is directly impacted by the price of our ordinary shares. We entered into the 2020 Notes Hedges in connection with the issuance of the 2020 Notes with the option counterparties. In conjunction with the issuance of the 2021 Notes, a portion of the 2020 Notes Conversion Derivative and the 2020 Notes Hedges were settled. In conjunction with the issuance of the 2023 Notes and the Additional 2023 Notes, a portion of the 2020 Notes Conversion Derivative and the 2020 Notes Hedges were settled as described in Note 6 . The remaining 2020 Notes Hedges, which are cash-settled, are intended to reduce our exposure to potential cash payments we are required to make upon conversion of the 2020 Notes in excess of the principal amount of converted notes if our ordinary share price exceeds the conversion price. The following table presents the fair values of the 2020 Notes Conversion Derivative and 2020 Notes Hedges as a result of a hypothetical 10% increase and decrease in the price of our ordinary shares. We believe that a 10% change in our share price is reasonably possible in the near term:

(in thousands)
	Fair value of security given a 10% decrease in share price	Fair value of security as of March 31, 2019	Fair value of security given a 10% increase in share price
2020 Notes Hedges (Asset)	$5,761	$9,223	$13,388
2020 Notes Conversion Derivative (Liability)	$5,451	$8,991	$13,286

Foreign Currency Exchange Rate Fluctuations

Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies could adversely affect our financial results. Approximately 21% of our net sales from continuing operations were denominated in foreign currencies during the three months ended March 31, 2019 and we expect that foreign currencies will continue to represent a similarly significant percentage of our net sales in the future. The cost of sales related to these sales is primarily denominated in U.S. dollars; however, operating costs related to these sales are largely denominated in the same respective currencies, thereby partially limiting our transaction risk exposure. For sales not denominated in U.S. dollars, an increase in the rate at which a foreign currency is exchanged for U.S. dollars will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases, if we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and our competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our prices not being competitive in a market where business is transacted in the local currency.

For the three months ended March 31, 2019 , approximately 89% of our net sales denominated in foreign currencies were derived from European Union countries, which are denominated in the euro; from the United Kingdom, which are denominated in the British pound; from Australia which are denominated in Australian dollar; and from Canada, which are denominated in the Canadian dollar. Additionally, we have significant intercompany receivables, payables, and debt from our foreign subsidiaries that are denominated in foreign currencies, principally the euro, the Japanese yen, the British pound, the Australian dollar, and the Canadian dollar. Our principal exchange rate risk, therefore, exists between the U.S. dollar and the euro, the Japanese yen, British pound, Australian dollar, and the Canadian dollar. Fluctuations from the beginning to the end of any given reporting period result in the revaluation of our foreign currency-denominated intercompany receivables, payables, and debt generating currency translation gains or losses that impact our non-operating income and expense levels in the respective period.

A uniform 10% strengthening in the value of the U.S. dollar relative to the currencies in which our transactions are denominated would have resulted in an increase in operating income of approximately $1.1 million for the three months ended March 31, 2019 . This hypothetical calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. This sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices, which can also be affected by the change in exchange rates.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Our disclosure controls and procedures are designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our principal executive officer and principal financial officer by others within our organization. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of  March 31, 2019 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow

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timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2019 .

Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended March 31, 2019 , there were no changes in our internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we or our subsidiaries are subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of our business and some of which involve claims for damages that are substantial in amount. These actions and proceedings may relate to, among other things, product liability, intellectual property, distributor, commercial, and other matters. These actions and proceedings could result in losses, including damages, fines, or penalties, any of which could be substantial, as well as criminal charges. Although such matters are inherently unpredictable, and negative outcomes or verdicts can occur, we believe we have significant defenses in all of them, are vigorously defending all of them, and do not believe any of them will have a material adverse effect on our financial position. However, we could incur judgments, pay settlements, or revise our expectations regarding the outcome of any matter. Such developments, if any, could have a material adverse effect on our results of operations in the period in which applicable amounts are accrued, or on our cash flows in the period in which amounts are paid.

The actions and proceedings described in this section relate primarily to WMT, an indirect subsidiary of Wright Medical Group N.V., and are not necessarily applicable to Wright Medical Group N.V. or other affiliated entities. Maintaining separate legal entities within our corporate structure is intended to ring-fence liabilities.  We believe our ring-fenced structure should preclude corporate veil-piercing efforts against entities whose assets are not associated with particular claims.

Governmental Inquiries

On August 3, 2012, we received a subpoena from the United States Attorney’s Office for the Western District of Tennessee requesting records and documentation relating to the PROFEMUR ^® series of hip replacement devices. The subpoena covers the period from January 1, 2000 to August 2, 2012. We will continue to cooperate as required.

Patent Litigation

On March 23, 2018, WMT filed suit against Paragon 28, Inc. (Paragon 28) in the United States District Court for the District of Colorado, alleging infringement of ten patents concerning orthopedic plates, plating systems and instruments, and related methods of use. Our complaint seeks damages, injunctive relief and attorneys’ fees. On June 4, 2018, Paragon 28 filed an amended answer and counterclaim seeking declaratory judgment of non-infringement and invalidity of the patent-in-suit, and attorneys’ fees. On September 28, 2018, WMT filed an amended complaint adding claims against Paragon 28 for misappropriation of trade secrets and related wrongdoing. Paragon 28 filed a motion to dismiss those trade secret-related claims, which WMT has opposed, and the motion remains pending. In March 2019, Paragon 28 filed four petitions with the Patent Trial and Appeal Board seeking Inter Partes Reviews of the patents in question. We are in the process of preparing our response to this filing.

Product Liability

We have been named as a defendant, in some cases with multiple other defendants, in lawsuits in which it is alleged that as yet unspecified defects in the design, manufacture, or labeling of certain metal-on-metal hip replacement products rendered the products defective. The lawsuits generally employ similar allegations that use of the products resulted in excessive metal ions and particulate in the patients into whom the devices were implanted, in most cases resulting in revision surgery (collectively, the CONSERVE ^® Claims) and generally seek monetary damages. We anticipate that additional lawsuits relating to metal-on-metal hip replacement products may be brought.

Because of the similar nature of the allegations made by several plaintiffs whose cases were pending in federal courts, upon motion of one plaintiff, Danny L. James, Sr., the United States Judicial Panel on Multidistrict Litigation on February 8, 2012 transferred certain actions pending in the federal court system related to metal-on-metal hip replacement products to the United States District Court for the Northern District of Georgia, for consolidated pre-trial management of the cases before a single United States District Court Judge (the MDL). The consolidated matter is known as In re: Wright Medical Technology, Inc. Conserve Hip Implant Products Liability Litigation .

Certain plaintiffs have elected to file their lawsuits in state courts in California. In doing so, most of those plaintiffs have named a surgeon involved in the design of the allegedly defective products as a defendant in the actions, along with his personal corporation. Pursuant to contractual obligations, we have agreed to indemnify and defend the surgeon in those actions. Similar to the MDL proceeding in federal court, because the lawsuits generally employ similar allegations, certain of those pending lawsuits in California were consolidated for pre-trial handling on May 14, 2012 pursuant to procedures of California State Judicial Counsel Coordinated Proceedings (the JCCP). The consolidated matter is known as In re: Wright Hip Systems Cases, Judicial Counsel Coordination Proceeding No. 4710 . Pursuant to previously disclosed settlement agreements with the Court-appointed attorneys representing plaintiffs in the MDL and JCCP described below (the MoM Settlement Agreements), the MDL and JCCP were closed to new cases effective October 18, 2017 and October 31, 2017, respectively.

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Every hip implant case, including metal-on-metal hip cases, involves fundamental issues of law, science and medicine that often are uncertain, that continue to evolve, and which present contested facts and issues that can differ significantly from case to case. Such contested facts and issues include medical causation, individual patient characteristics, surgery specific factors, statutes of limitation, and the existence of actual, provable injury. We believe we have data that supports the efficacy and safety of these hip products.

Excluding claims resolved in the MoM Settlement Agreements, as of March 31, 2019, there were approximately 169 unresolved metal-on-metal hip cases pending in the U.S. This number includes cases ineligible for settlement under the MoM Settlement Agreements, cases which opted out of such settlements, post-settlement cases, tolled cases, and existing state court cases that were not part of the MDL or JCCP.  As of March 31, 2019, we estimate there also were pending approximately 32 unresolved non-U.S. metal-on metal hip cases, 42 unresolved U.S. modular neck cases alleging claims related to the release of metal ions, and zero non-U.S. modular neck cases with metal ion allegations. We also estimate that as of March 31, 2019, there were approximately 533 non-revision claims either dismissed or awaiting dismissal from the MDL and JCCP, which dismissal is a condition of the MoM Settlement Agreements. Although there is a limited time period during which dismissed non-revision claims may be refiled, it is presently unclear how many non-revision claimants will elect to do so. As of March 31, 2019, no dismissed non-revision cases have been refiled.

As previously disclosed, between November 2016 and October 2017, WMT entered into three MoM Settlement Agreements with Court-appointed attorneys representing plaintiffs in the MDL and JCCP to settle a total of 1,974 cases that met the eligibility requirements of the MoM Settlement Agreements and were either pending in the MDL or JCCP, or subject to court-approved tolling agreements in the MDL or JCCP, for an aggregate sum of $339.2 million. See Note 13 to our condensed consolidated financial statements for additional information regarding the MoM Settlement Agreements.

We have received claims for personal injury against us associated with fractures of the PROFEMUR ^® titanium modular neck product (Titanium Modular Neck Claims). As of March 31, 2019, there were approximately 17 unresolved pending U.S. lawsuits and approximately 55 unresolved pending non-U.S. lawsuits alleging such claims (44 of which are part of a single consolidated class action lawsuit in Canada). These lawsuits generally seek monetary damages.

We are aware that MicroPort has recalled a certain size of its cobalt chrome modular neck product as a result of alleged fractures. As of March 31, 2019, there were twelve pending U.S. lawsuits and five pending non-U.S. lawsuits against us alleging personal injury resulting from the fracture of a cobalt chrome modular neck. These lawsuits generally seek monetary damages.

Insurance Litigation

We have maintained product liability insurance coverage on a claims-made basis. During the fiscal quarter ended September 30, 2012, we received a customary reservation of rights from Federal, our then primary product liability insurance carrier, asserting that certain present and future claims which allege certain types of injury related to the CONSERVE ^®  Claims would be covered as a single occurrence under the policy year the first such claim was asserted. The effect of this coverage position would have been to place CONSERVE ^®  Claims into a single prior policy year in which applicable claims-made coverage was available, subject to the overall policy limits then in effect. We notified Federal that we disputed its characterization of the CONSERVE ^®  Claims as a single occurrence, which resulted in multi-year insurance coverage litigation (the Tennessee Coverage Litigation) that has recently been resolved as discussed below. We continue to separately litigate with Lexington Insurance Company (Lexington), the only remaining insurance carrier with whom coverage for metal on metal hip claims remains in dispute.

As previously disclosed, we entered into settlement agreements with five of the seven insurance carriers with whom metal on metal hip coverage was in dispute - Columbia Casualty Company, Travelers, AXIS Surplus Lines Insurance Company, Federal, and Catlin Underwriting Agencies Limited for and on behalf of Syndicate 2003 at Lloyd’s of London.

Following the foregoing settlements, the only remaining insurer in the Tennessee Coverage Litigation was Catlin Specialty Insurance Company (Catlin). In April 2019, we reached a settlement with Catlin, thus resolving in full the Tennessee Coverage Litigation.

Separately, in March 2017, Lexington Insurance Company (Lexington), which had been dismissed from the Tennessee Coverage Litigation, requested arbitration under five Lexington insurance policies in connection with the CONSERVE ^® Claims. We subsequently engaged in discussions and correspondence with Lexington about the scope of the requested arbitration(s). On or about October 27, 2017, Lexington filed an Application for Order to Compel Arbitration in the Commonwealth of Massachusetts, Suffolk County Superior Court, naming WMT, Wright Medical Group, Inc., and Wright Medical Group N.V. We opposed the Application. On February 28, 2018, the Massachusetts Court ordered the parties to arbitrate the two Lexington insurance policies containing Massachusetts arbitration clauses but did not order arbitration under the remaining three Lexington policies at issue. We have appealed that ruling. While the appeal is pending, we are proceeding with the arbitration, but the selection of the arbitrators is still in dispute. In the arbitration, Lexington has asserted a claim for declaratory relief, and we have asserted counter-claims for breach of contract, declaratory relief, and bad faith.

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On September 26, 2018, Lexington sought to add a claim alleging our filing of the Tennessee lawsuit referred to below was not in good faith. We objected to Lexington’s additional claim and argued that such claim could only be added upon agreement of the arbitrators (who are yet to be selected). The American Arbitration Association agreed with our position.

On May 22, 2018, we initiated a lawsuit against Lexington under the three policies that the court did not order into arbitration in Massachusetts. The lawsuit, filed in the Chancery Court of Tennessee, alleges breach of contract, declaratory relief, and bad faith in connection with Lexington’s failure and refusal to provide coverage for the underlying metal-on-metal claims under policies issued for 2009-2012. On July 12, 2018, Lexington brought a motion to stay the litigation and compel arbitration under the 2009-2011 Lexington policies. On February 21, 2019, we filed a motion to strike Lexington’s motion to stay. On March 13, 2019, we filed an opposition to Lexington’s motion and are awaiting a hearing on the motion.

Wright/Tornier Merger Related Litigation

On November 26, 2014, a class action complaint was filed in the Circuit Court of Tennessee, for the Thirtieth Judicial District, at Memphis (Tennessee Circuit Court), by a purported shareholder of WMG under the caption City of Warwick Retirement System v. Gary D. Blackford et al ., CT-005015-14. An amended complaint in the action was filed on January 5, 2015. The amended complaint names as defendants WMG, Tornier, Trooper Holdings Inc. (Holdco), Trooper Merger Sub Inc. (Merger Sub), and the members of the WMG board of directors. The amended complaint asserts various causes of action, including, among other things, that the members of the WMG board of directors breached their fiduciary duties owed to the WMG shareholders in connection with entering into the merger agreement, approving the merger, and causing WMG to issue a preliminary Form S-4 that allegedly fails to disclose material information about the merger. The amended complaint further alleges that Tornier, Holdco, and Merger Sub aided and abetted the alleged breaches of fiduciary duties by the WMG board of directors. The plaintiff is seeking, among other things, injunctive relief enjoining or rescinding the merger and an award of attorneys’ fees and costs.

On December 2, 2014, a separate class action complaint was filed in the Tennessee Chancery Court by a purported shareholder of WMG under the caption Paulette Jacques v. Wright Medical Group, Inc., et al ., CH-14-1736-1. An amended complaint in the action was filed on January 27, 2015. The amended complaint names as defendants WMG, Tornier, Holdco, Merger Sub, Warburg Pincus LLC and the members of the WMG board of directors. The amended complaint asserts various causes of action, including, among other things, that the members of the WMG board of directors breached their fiduciary duties owed to the WMG shareholders in connection with entering into the merger agreement, approving the merger, and causing WMG to issue a preliminary Form S-4 that allegedly fails to disclose material information about the merger. The amended complaint further alleges that WMG, Tornier, Warburg Pincus LLC, Holdco and Merger Sub aided and abetted the alleged breaches of fiduciary duties by the WMG board of directors. The plaintiff is seeking, among other things, injunctive relief enjoining or rescinding the merger and an award of attorneys’ fees and costs.

In an order dated March 31, 2015, the Tennessee Circuit Court transferred City of Warwick Retirement System v. Gary D. Blackford et al ., CT-005015-14 to the Tennessee Chancery Court for consolidation with Paulette Jacques v. Wright Medical Group, Inc., et al ., CH-14-1736-1 (Consolidated Tennessee Action). In an order dated April 9, 2015, the Tennessee Chancery Court stayed the Consolidated Tennessee Action; that stay expired upon completion of the Wright/Tornier merger. On September 19, 2016, the Tennessee Chancery Court entered an agreed order, dismissing the Jacques case without prejudice.

Other

In addition to those noted above, we are subject to various other legal proceedings, product liability claims, corporate governance, and other matters which arise in the ordinary course of business.

ITEM 1A. RISK FACTORS.

There have been no material changes to the risk factors that were discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 30, 2018, as filed with the SEC on February 27, 2019 .

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable.

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ITEM 6. EXHIBITS.

(a)	Exhibits.

The following exhibits are being filed or furnished with this Quarterly Report on Form 10-Q:

Exhibit No.		Exhibit		Method of Filing
4.1		Form of Note Representing $139,556,000 Aggregate Principal Amount of Wright Medical Group, Inc.’s 1.625% Cash Convertible Senior Notes Due 2023		Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 8, 2019 (File No. 001-35065)
10.1		Amendment to Commercial Supply Agreement, dated January 31, 2019, between BioMimetic Therapeutics, LLC and FUJIFILM Diosynth Biotechnologies U.S.A., Inc. 1		Filed herewith
10.2		Form of Exchange Agreement, dated as of January 30, 2019, among Wright Medical Group, Inc., Wright Medical Group N.V. and Each Investor Party Thereto		Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on January 31, 2019 (File No. 001-35065)
10.3		Bond Hedge Confirmation, dated as of January 30, 2019, among Wright Medical Group N.V., Wright Medical Group, Inc. and JPMorgan Chase Bank, National Association		Filed herewith
10.4		Bond Hedge Confirmation, dated as of January 30, 2019, among Wright Medical Group N.V., Wright Medical Group Inc. and Deutsche Bank AG, London Branch		Filed herewith
10.5		Warrant Confirmation, dated as of January 30, 2019, between Wright Medical Group N.V. and JPMorgan Chase Bank, National Association		Filed herewith
10.6		Warrant Confirmation, dated as of January 30, 2019, between Wright Medical Group N.V. and Deutsche Bank AG, London Branch		Filed herewith
10.7		Call Spread Unwind Agreement, dated as of January 30, 2019, among Wright Medical Group N.V., Wright Medical Group, Inc. and JPMorgan Chase Bank, National Association		Filed herewith
10.8		Call Spread Unwind Agreement, dated as of January 30, 2019, among Wright Medical Group N.V., Wright Medical Group, Inc. and Deutsche Bank AG, London Branch		Filed herewith
10.9		Call Spread Unwind Agreement, dated as of January 30, 2019, among Wright Medical Group N.V., Wright Medical Group, Inc. and Wells Fargo Bank, National Association		Filed herewith
10.10		Bond Hedge Confirmation, dated as of January 31, 2019 among Wright Medical Group N.V., Wright Medical Group, Inc. and JPMorgan Chase Bank, National Association		Filed herewith
10.11		Bond Hedge Confirmation, dated as of January 31, 2019 among Wright Medical Group N.V., Wright Medical Group, Inc. and Deutsche Bank AG, London Branch		Filed herewith
10.12		Warrant Confirmation, dated as of January 31, 2019, between Wright Medical Group N.V. and JPMorgan Chase Bank, National Association		Filed herewith

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Exhibit No.		Exhibit		Method of Filing
10.13		Warrant Confirmation, dated as of January 31, 2019, between Wright Medical Group N.V. and Deutsche Bank AG, London Branch		Filed herewith
10.14		Call Spread Unwind Agreement, dated as of January 31, 2019, among Wright Medical Group N.V., Wright Medical Group, Inc. and JPMorgan Chase Bank, National Association		Filed herewith
10.15		Call Spread Unwind Agreement, dated as of January 31, 2019, among Wright Medical Group N.V., Wright Medical Group, Inc. and Deutsche Bank AG, London Branch		Filed herewith
10.16		Call Spread Unwind Agreement, dated as of January 31, 2019, among Wright Medical Group N.V., Wright Medical Group, Inc. and Wells Fargo Bank, National Association		Filed herewith
10.17		Amendment No. 3 to Amended and Restated Credit, Security and Guaranty Agreement dated as of February 25, 2019 among Wright Medical Group N.V. (as Guarantor), Wright Medical Group, Inc. (as Borrower), Certain Other Direct and Indirect Subsidiaries Listed on the Signature Pages Thereto (each as Borrower), Midcap Funding IV Trust (as Lender and Agent) and the Financial Institutions or other Entities Parties Thereto		Incorporated by reference to Exhibit 10.59 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2018 (File No. 001-35065)
31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002		Filed herewith
31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002		Filed herewith
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002		Furnished herewith
101		The following materials from Wright Medical Group N.V.’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of March 31, 2019 and December 30, 2018, (ii) the Consolidated Statements of Operations for the three months ended March 31, 2019 and April 1, 2018, (iii) the Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2019 and April 1, 2018, (iv) the Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and April 1, 2018, (v) the Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2019 and April 1, 2018, and (vi) Notes to Consolidated Financial Statements		Filed herewith

___________________________

1	Confidential portions of this exhibit have been redacted in compliance with Item 601(b)(10) of SEC Regulation S-K.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

May 7, 2019     

WRIGHT MEDICAL GROUP N.V.
By:	/s/ Robert J. Palmisano
	Robert J. Palmisano
	President and Chief Executive Officer
	(principal executive officer)
By:	/s/ Lance A. Berry
	Lance A. Berry
	Executive Vice President, Chief Financial and Operations Officer
	(principal financial officer)

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