UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberQuarterly Period Ended June 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
ORGANOGENESIS HOLDINGS INC.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)
Delaware | 98-1329150 | |
(State or Incorporation or | (I.R.S. Employer Identification No.) | |
85 Dan Road | ||
Canton, MA | 02021 | |
(Address of principal executive offices) | (Zip Code) |
MA 02021
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock, $0.0001 par value | ORGO | Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of(§ (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in
The number of November 1, 2021,shares of the registrant had a total of
Organogenesis Holdings Inc.
Quarterly Report on Form
For the Quarterly Period Ended SeptemberJune 30, 2021
Table of Contents
Page | ||||||
4 | ||||||
Item 1. | 4 | |||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
8 | ||||||
Item 2. | 23 | |||||
Item 3. | 32 | |||||
Item 4. | 33 | |||||
34 | ||||||
Item 1. | 34 | |||||
Item 1A | 34 | |||||
Item 2. | 34 | |||||
Item 3. | 34 | |||||
Item 4. | 34 | |||||
Item 5. | 34 | |||||
Item 6. | 35 | |||||
36 | ||||||
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on2020, as amended.2021. These forward-looking statements speak only as of the date of this FormSECU.S. Securities and Exchange Commission (the “SEC”) after the date of this
As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” “the Company,” “Organogenesis” and “ORGO” will refer to Organogenesis Holdings Inc. and its subsidiaries.
3
PART I—FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements.
ORGANOGENESIS HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(amounts in thousands, except share and per share data)
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 102,237 | $ | 84,394 | ||||
Restricted cash | 487 | 412 | ||||||
Accounts receivable, net | 74,583 | 56,804 | ||||||
Inventory | 29,495 | 27,799 | ||||||
Prepaid expenses and other current assets | 5,033 | 4,935 | ||||||
Total current assets | 211,835 | 174,344 | ||||||
Property and equipment, net | 74,774 | 55,792 | ||||||
Intangible assets, net | 26,896 | 30,622 | ||||||
Goodwill | 28,772 | 28,772 | ||||||
Operating lease right-of-use | 26,522 | — | ||||||
Deferred tax asset, net | 18 | 18 | ||||||
Other assets | 1,606 | 670 | ||||||
Total assets | $ | 370,423 | $ | 290,218 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Deferred acquisition consideration | $ | — | $ | 483 | ||||
Current portion of term loan | 2,186 | 16,666 | ||||||
Current portion of finance lease obligations | 8,531 | 3,619 | ||||||
Current portion of operating lease obligations | 4,667 | — | ||||||
Current portion of deferred rent and lease incentive obligation | — | 95 | ||||||
Accounts payable | 28,488 | 23,381 | ||||||
Accrued expenses and other current liabilities | 37,128 | 23,973 | ||||||
Total current liabilities | 81,000 | 68,217 | ||||||
Line of credit | 0 | 10,000 | ||||||
Term loan, net of current portion | 71,667 | 43,044 | ||||||
Deferred acquisition consideration, net of current portion | 1,436 | 1,436 | ||||||
Earnout liability | 0 | 3,985 | ||||||
Deferred rent and lease incentive obligation, net of current portion | — | 2,315 | ||||||
Finance lease obligations, net of current portion | 831 | 11,442 | ||||||
Operating lease obligations, net of current portion | 24,204 | — | ||||||
Other liabilities | 2,111 | 7,971 | ||||||
Total liabilities | 181,249 | 148,410 | ||||||
Commitments and contingencies (Note 18) | 0 | 0 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; 0ne issued | 0— | 0— | ||||||
Common stock, $0.0001 par value; 400,000,000 shares authorized; 129,365,209 and 128,460,381 shares issued; 128,636,661 and 127,731,833 shares outstanding at September 30, 2021 and December 31, 2020, respectively. | 13 | 13 | ||||||
Additional paid-in capital | 300,989 | 296,830 | ||||||
Accumulated deficit | (111,828 | ) | (155,035 | ) | ||||
Total stockholders’ equity | 189,174 | 141,808 | ||||||
Total liabilities and stockholders’ equity | $ | 370,423 | $ | 290,218 | ||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 112,279 |
|
| $ | 113,929 |
|
Restricted cash |
|
| 665 |
|
|
| 599 |
|
Accounts receivable, net |
|
| 88,824 |
|
|
| 82,460 |
|
Inventory, net |
|
| 23,235 |
|
|
| 25,022 |
|
Prepaid expenses and other current assets |
|
| 6,540 |
|
|
| 4,969 |
|
Total current assets |
|
| 231,543 |
|
|
| 226,979 |
|
Property and equipment, net |
|
| 93,292 |
|
|
| 79,160 |
|
Intangible assets, net |
|
| 23,231 |
|
|
| 25,673 |
|
Goodwill |
|
| 28,772 |
|
|
| 28,772 |
|
Operating lease right-of-use assets, net |
|
| 45,860 |
|
|
| 49,144 |
|
Deferred tax asset, net |
|
| 31,994 |
|
|
| 31,994 |
|
Other assets |
|
| 1,665 |
|
|
| 1,537 |
|
Total assets |
| $ | 456,357 |
|
| $ | 443,259 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Deferred acquisition consideration |
| $ | - |
|
| $ | 1,436 |
|
Current portion of term loan |
|
| 3,596 |
|
|
| 2,656 |
|
Finance lease obligations |
|
| - |
|
|
| 200 |
|
Current portion of operating lease obligations |
|
| 11,871 |
|
|
| 11,785 |
|
Accounts payable |
|
| 36,373 |
|
|
| 29,339 |
|
Accrued expenses and other current liabilities |
|
| 36,390 |
|
|
| 37,289 |
|
Total current liabilities |
|
| 88,230 |
|
|
| 82,705 |
|
Term loan, net of current portion |
|
| 68,969 |
|
|
| 70,769 |
|
Operating lease obligations, net of current portion |
|
| 43,700 |
|
|
| 46,893 |
|
Other liabilities |
|
| 1,073 |
|
|
| 1,557 |
|
Total liabilities |
|
| 201,972 |
|
|
| 201,924 |
|
Commitments and contingencies (Note 18) |
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
| ||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; NaN issued |
|
| - |
|
|
| - |
|
Common stock, $0.0001 par value; 400,000,000 shares authorized; 131,613,917 and 129,408,740 shares issued; 130,885,369 and 128,680,192 shares outstanding at June 30, 2022 and December 31, 2021, respectively. |
|
| 13 |
|
|
| 13 |
|
Additional paid-in capital |
|
| 307,374 |
|
|
| 302,155 |
|
Accumulated deficit |
|
| (53,002 | ) |
|
| (60,833 | ) |
Total stockholders’ equity |
|
| 254,385 |
|
|
| 241,335 |
|
Total liabilities and stockholders’ equity |
| $ | 456,357 |
|
| $ | 443,259 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
ORGANOGENESIS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(amounts in thousands, except share and per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net revenue | $ | 113,753 | $ | 100,799 | $ | 339,501 | $ | 231,491 | ||||||||
Cost of goods sold | 26,167 | 22,964 | 81,602 | 61,799 | ||||||||||||
Gross profit | 87,586 | 77,835 | 257,899 | 169,692 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 62,369 | 51,325 | 182,950 | 150,797 | ||||||||||||
Research and development | 8,953 | 3,709 | 22,482 | 13,787 | ||||||||||||
Total operating expenses | 71,322 | 55,034 | 205,432 | 164,584 | ||||||||||||
| Income from operations | 16,264 | 22,801 | 52,467 | 5,108 | ||||||||||||
Other expense, net: | ||||||||||||||||
Interest expense, net | (1,482 | ) | (2,969 | ) | (6,383 | ) | (8,391 | ) | ||||||||
Loss on extinguishment of debt | (1,883 | ) | — | (1,883 | ) | — | ||||||||||
Gain on settlement of deferred acquisition consideration | — | 951 | — | 2,246 | ||||||||||||
Other income, net | (19 | ) | 44 | (4 | ) | 90 | ||||||||||
Total other expense, net | (3,384 | ) | (1,974 | ) | (8,270 | ) | (6,055 | ) | ||||||||
Net income (loss) before income taxes | 12,880 | 20,827 | 44,197 | (947 | ) | |||||||||||
Income tax expense | (303 | ) | (72 | ) | (990 | ) | (134 | ) | ||||||||
Net income (loss) | $ | 12,577 | $ | 20,755 | $ | 43,207 | $ | (1,081 | ) | |||||||
Net income (loss), per share: | ||||||||||||||||
Basic | $ | 0.10 | $ | 0.20 | $ | 0.34 | $ | (0.01 | ) | |||||||
Diluted | $ | 0.09 | $ | 0.19 | $ | 0.32 | $ | (0.01 | ) | |||||||
Weighted-average common shares outstanding | ||||||||||||||||
Basic | 128,546,301 | 105,040,035 | 128,219,674 | 104,748,297 | ||||||||||||
Diluted | 133,850,216 | 108,489,768 | 133,766,004 | 104,748,297 | ||||||||||||
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net revenue |
| $ | 121,401 |
|
| $ | 123,196 |
|
| $ | 218,518 |
|
| $ | 225,748 |
|
Cost of goods sold |
|
| 26,652 |
|
|
| 29,940 |
|
|
| 51,732 |
|
|
| 55,435 |
|
Gross profit |
|
| 94,749 |
|
|
| 93,256 |
|
|
| 166,786 |
|
|
| 170,313 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling, general and administrative |
|
| 72,609 |
|
|
| 62,349 |
|
|
| 136,187 |
|
|
| 120,581 |
|
Research and development |
|
| 10,205 |
|
|
| 7,320 |
|
|
| 18,792 |
|
|
| 13,529 |
|
Total operating expenses |
|
| 82,814 |
|
|
| 69,669 |
|
|
| 154,979 |
|
|
| 134,110 |
|
Income from operations |
|
| 11,935 |
|
|
| 23,587 |
|
|
| 11,807 |
|
|
| 36,203 |
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| (730 | ) |
|
| (2,431 | ) |
|
| (1,467 | ) |
|
| (4,901 | ) |
Other expense, net |
|
| (21 | ) |
|
| 18 |
|
|
| (24 | ) |
|
| 15 |
|
Total other expense, net |
|
| (751 | ) |
|
| (2,413 | ) |
|
| (1,491 | ) |
|
| (4,886 | ) |
Net income before income taxes |
|
| 11,184 |
|
|
| 21,174 |
|
|
| 10,316 |
|
|
| 31,317 |
|
Income tax expense |
|
| (2,440 | ) |
|
| (487 | ) |
|
| (2,485 | ) |
|
| (687 | ) |
Net income |
| $ | 8,744 |
|
| $ | 20,687 |
|
| $ | 7,831 |
|
| $ | 30,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income, per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.07 |
|
| $ | 0.16 |
|
| $ | 0.06 |
|
| $ | 0.24 |
|
Diluted |
| $ | 0.07 |
|
| $ | 0.15 |
|
| $ | 0.06 |
|
| $ | 0.23 |
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 129,635,682 |
|
|
| 128,235,224 |
|
|
| 129,214,541 |
|
|
| 128,053,654 |
|
Diluted |
|
| 132,600,579 |
|
|
| 133,988,413 |
|
|
| 132,705,206 |
|
|
| 133,721,191 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
ORGANOGENESIS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(amounts in thousands, except share data)
Three and Nine Months Ended September 30, 2021 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Total | |||||||||||||||||
Shares | Amount | Capital | Deficit | Stockholders’ Equity | ||||||||||||||||
Balance as of June 30, 2021 (as reported) | 128,283,241 | $ | 13 | $ | 299,038 | $ | (120,129 | ) | $ | 178,922 | ||||||||||
| Adjustment due to right of use asset amortization | — | — | — | (4,276 | ) | (4,276 | ) | |||||||||||||
Balance as of June 30, 2021 (as adjusted) | 128,283,241 | 13 | 299,038 | (124,405 | ) | 174,646 | ||||||||||||||
Exercise of stock options | 353,420 | — | 910 | — | 910 | |||||||||||||||
Stock-based compensation expense | — | — | 1,041 | — | 1,041 | |||||||||||||||
Net income | — | — | — | 12,577 | 12,577 | |||||||||||||||
Balance as of September 30, 2021 | 128,636,661 | $ | 13 | $ | 300,989 | $ | (111,828 | ) | $ | 189,174 | ||||||||||
Balance as of December 31, 2020 (as reported) | 127,731,833 | $ | 13 | $ | 299,129 | $ | (153,058 | ) | $ | 146,084 | ||||||||||
Adjustment due to Private Warrant reclassification | — | — | (2,299 | ) | 2,299 | — | ||||||||||||||
| Adjustment due to right of use asset amortization | — | — | — | (4,276 | ) | (4,276 | ) | |||||||||||||
Balance as of December 31, 2020 (as adjusted) | 127,731,833 | 13 | 296,830 | (155,035 | ) | 141,808 | ||||||||||||||
Exercise of stock options | 716,927 | — | 2,115 | — | 2,115 | |||||||||||||||
Vesting of RSUs, net of shares surrendered to pay taxes | 187,901 | — | (737 | ) | — | (737 | ) | |||||||||||||
Stock-based compensation expense | — | — | 2,781 | — | 2,781 | |||||||||||||||
Net income | — | — | — | 43,207 | 43,207 | |||||||||||||||
Balance as of September 30, 2021 | 128,636,661 | $ | 13 | $ | 300,989 | $ | (111,828 | ) | $ | 189,174 | ||||||||||
Three and Nine Months Ended September 30, 2020 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Total | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Stockholders’ Equity | ||||||||||||||||
Balance as of June 30, 2020 (as reported) | 105,417,168 | $ | 11 | $ | 228,225 | $ | (192,486 | ) | $ | 35,750 | ||||||||||
Adjustment due to Private Warrant reclassification | — | — | (2,299 | ) | 2,299 | — | ||||||||||||||
| Adjustment due to right of use asset amortization | — | — | — | (3,918 | ) | (3,918 | ) | |||||||||||||
Balance as of June 30, 2020 (as adjusted) | 105,417,168 | 11 | 225,926 | (194,105 | ) | 31,832 | ||||||||||||||
Exercise of stock options | 92,033 | — | 318 | — | 318 | |||||||||||||||
Issuance of common stock associated with business acquisition | 1,947,953 | — | 7,986 | — | 7,986 | |||||||||||||||
Stock-based compensation expense | — | — | 486 | — | 486 | |||||||||||||||
Net income | — | — | — | 20,755 | 20,755 | |||||||||||||||
Balance as of September 30, 2020 (as adjusted) | 107,457,154 | $ | 11 | $ | 234,716 | $ | (173,350 | ) | $ | 61,377 | ||||||||||
Balance as of December 31, 2019 (as reported) | 104,870,886 | $ | 10 | $ | 226,580 | $ | (171,007 | ) | $ | 55,583 | ||||||||||
Adjustment due to Private Warrant reclassification | — | — | (2,299 | ) | 2,299 | — | ||||||||||||||
| Adjustment due to right of use asset amortization | — | — | — | (3,561 | ) | (3,561 | ) | |||||||||||||
Balance as of December 31, 2019 (as adjusted) | 104,870,886 | 10 | 224,281 | (172,269 | ) | 52,022 | ||||||||||||||
Exercise of stock options | 638,315 | 1 | 1,285 | — | 1,286 | |||||||||||||||
Issuance of common stock associated with business acquisition | 1,947,953 | — | 7,986 | — | 7,986 | |||||||||||||||
Stock-based compensation expense | — | — | 1,164 | — | 1,164 | |||||||||||||||
Net loss | — | — | — | (1,081 | ) | (1,081 | ) | |||||||||||||
Balance as of September 30, 2020 (as adjusted) | 107,457,154 | $ | 11 | $ | 234,716 | $ | (173,350 | ) | $ | 61,377 | ||||||||||
|
| Three and Six Months Ended June 30, 2022 |
| |||||||||||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
| Total |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Stockholders’ Equity |
| |||||
Balance as of March 31, 2022 (as reported) |
|
| 128,887,184 |
|
| $ | 13 |
|
| $ | 303,261 |
|
| $ | (60,046 | ) |
| $ | 243,228 |
|
Adjustment due to settlement of GPO fee dispute |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,700 | ) |
|
| (1,700 | ) |
Balance as of March 31, 2022 (as adjusted) |
|
| 128,887,184 |
|
|
| 13 |
|
|
| 303,261 |
|
|
| (61,746 | ) |
|
| 241,528 |
|
Exercise of stock options |
|
| 1,759,776 |
|
|
| - |
|
|
| 1,751 |
|
|
| - |
|
|
| 1,751 |
|
Vesting of RSUs, net of shares surrendered to pay taxes |
|
| 34,924 |
|
|
| - |
|
|
| (158 | ) |
|
| - |
|
|
| (158 | ) |
Issuance of common stock associated with business acquisition |
|
| 203,485 |
|
|
| - |
|
|
| 828 |
|
|
| - |
|
|
| 828 |
|
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| 1,692 |
|
|
| - |
|
|
| 1,692 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,744 |
|
|
| 8,744 |
|
Balance as of June 30, 2022 |
|
| 130,885,369 |
|
| $ | 13 |
|
| $ | 307,374 |
|
| $ | (53,002 | ) |
| $ | 254,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance as of December 31, 2021 (as reported) |
|
| 128,680,192 |
|
| $ | 13 |
|
| $ | 302,155 |
|
| $ | (60,133 | ) |
| $ | 242,035 |
|
Adjustment due to settlement of GPO fee dispute |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (700 | ) |
|
| (700 | ) |
Balance as of December 31, 2021 (as adjusted) |
|
| 128,680,192 |
|
|
| 13 |
|
|
| 302,155 |
|
|
| (60,833 | ) |
|
| 241,335 |
|
Exercise of stock options |
|
| 1,845,897 |
|
|
| - |
|
|
| 2,042 |
|
|
| - |
|
|
| 2,042 |
|
Vesting of RSUs, net of shares surrendered to pay taxes |
|
| 155,795 |
|
|
| - |
|
|
| (646 | ) |
|
| - |
|
|
| (646 | ) |
Issuance of common stock associated with business acquisition |
|
| 203,485 |
|
|
| - |
|
|
| 828 |
|
|
| - |
|
|
| 828 |
|
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| 2,995 |
|
|
| - |
|
|
| 2,995 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,831 |
|
|
| 7,831 |
|
Balance as of June 30, 2022 |
|
| 130,885,369 |
|
| $ | 13 |
|
| $ | 307,374 |
|
| $ | (53,002 | ) |
| $ | 254,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Three and Six Months Ended June 30, 2021 |
| |||||||||||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
| Total |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Stockholders’ Equity |
| |||||
Balance as of March 31, 2021 |
|
| 128,102,255 |
|
| $ | 13 |
|
| $ | 298,095 |
|
| $ | (145,092 | ) |
| $ | 153,016 |
|
Exercise of stock options |
|
| 78,163 |
|
|
| - |
|
|
| 221 |
|
|
| - |
|
|
| 221 |
|
Vesting of RSUs, net of shares surrendered to pay taxes |
|
| 102,823 |
|
|
| - |
|
|
| (320 | ) |
|
| - |
|
|
| (320 | ) |
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| 1,042 |
|
|
| - |
|
|
| 1,042 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 20,687 |
|
|
| 20,687 |
|
Balance as of June 30, 2021 |
|
| 128,283,241 |
|
| $ | 13 |
|
| $ | 299,038 |
|
| $ | (124,405 | ) |
| $ | 174,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance as of December 31, 2020 |
|
| 127,731,833 |
|
|
| 13 |
|
|
| 296,830 |
|
|
| (155,035 | ) |
|
| 141,808 |
|
Exercise of stock options |
|
| 363,507 |
|
|
| - |
|
|
| 1,205 |
|
|
| - |
|
|
| 1,205 |
|
Vesting of RSUs, net of shares surrendered to pay taxes |
|
| 187,901 |
|
|
| - |
|
|
| (737 | ) |
|
| - |
|
|
| (737 | ) |
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| 1,740 |
|
|
| - |
|
|
| 1,740 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 30,630 |
|
|
| 30,630 |
|
Balance as of June 30, 2021 |
|
| 128,283,241 |
|
| $ | 13 |
|
| $ | 299,038 |
|
| $ | (124,405 | ) |
| $ | 174,646 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
ORGANOGENESIS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(amounts in thousands)
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 43,207 | $ | (1,081 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 4,010 | 3,285 | ||||||
Amortization of intangible assets | 3,726 | 2,518 | ||||||
Amortization of operating lease right-of-use | 4,117 | — | ||||||
Non-cash interest expense | 236 | 160 | ||||||
Deferred interest expense | 1,331 | 1,577 | ||||||
Deferred rent expense | — | 33 | ||||||
Gain on settlement of deferred acquisition consideration | — | (2,246 | ) | |||||
Provision recorded for sales returns and doubtful accounts | 2,862 | 2,559 | ||||||
Loss on disposal of property and equipment | 1,397 | 201 | ||||||
Adjustment for excess and obsolete inventories | 8,045 | 2,024 | ||||||
Stock-based compensation | 2,781 | 1,164 | ||||||
Change in fair value of Earnout liability | (3,985 | ) | — | |||||
Loss on extinguishment of debt | 1,883 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (20,642 | ) | (19,160 | ) | ||||
Inventory | (9,741 | ) | (7,757 | ) | ||||
Prepaid expenses and other current assets | (98 | ) | (1,647 | ) | ||||
Operating leases | (4,179 | ) | — | |||||
Accounts payable | 5,237 | (3,778 | ) | |||||
Accrued expenses and other current liabilities | 6,765 | 3,521 | ||||||
Other liabilities | (2,922 | ) | 878 | |||||
Net cash provided by (used in) operating activities | 44,030 | (17,749 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (25,993 | ) | (12,260 | ) | ||||
Cash paid for business acquisition | — | (5,820 | ) | |||||
Net cash used in investing activities | (25,993 | ) | (18,080 | ) | ||||
Cash flows from financing activities: | ||||||||
Line of credit borrowings (repayments) under the 2019 Credit Agreement | (10,000 | ) | 5,869 | |||||
Term loan borrowings (repayments) under the 2019 Credit Agreement | (60,000 | ) | 10,000 | |||||
Proceeds from term loan under the 2021 Credit Agreement, net of debt discount and issuance cost | 73,174 | — | ||||||
Term loan repayments under the 2021 Credit Agreement | (469 | ) | — | |||||
Payments of withholding taxes in connection with RSUs vesting | (737 | ) | — | |||||
Proceeds from the exercise of stock options | 2,115 | 1,286 | ||||||
Principal repayments of finance lease obligations | (2,099 | ) | (1,776 | ) | ||||
Payment to extinguish debt | (1,620 | ) | — | |||||
Payment of deferred acquisition consideration | (483 | ) | (3,034 | ) | ||||
Net cash (used in) provided by financing activities | (119 | ) | 12,345 | |||||
Change in cash and restricted cash | 17,918 | (23,484 | ) | |||||
Cash and restricted cash, beginning of period | 84,806 | 60,370 | ||||||
Cash and restricted cash, end of period | $ | 102,724 | $ | 36,886 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 5,830 | $ | 7,130 | ||||
Cash paid for income taxes | $ | 582 | $ | — | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Fair value of shares issued for business acquisition | $ | — | $ | 7,986 | ||||
Deferred acquisition consideration and earnout liability recorded for business acquisition | $ | — | $ | 5,218 | ||||
Purchases of property and equipment included in accounts payable and accrued expenses | $ | 1,523 | $ | 2,628 | ||||
Right-of-use | $ | 30,639 | $ | — | ||||
|
| Six Months Ended |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 7,831 |
|
| $ | 30,630 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation |
|
| 2,875 |
|
|
| 2,073 |
|
Amortization of intangible assets |
|
| 2,442 |
|
|
| 2,486 |
|
Amortization of operating lease right-of-use assets |
|
| 3,649 |
|
|
| 2,562 |
|
Non-cash interest expense |
|
| 217 |
|
|
| 143 |
|
Deferred interest expense |
|
| 291 |
|
|
| 1,036 |
|
Provision recorded for doubtful accounts |
|
| 122 |
|
|
| 1,496 |
|
Loss on disposal of property and equipment |
|
| 196 |
|
|
| 239 |
|
Adjustment for excess and obsolete inventories |
|
| 5,228 |
|
|
| 4,678 |
|
Stock-based compensation |
|
| 2,995 |
|
|
| 1,740 |
|
Change in fair value of Earnout liability |
|
| - |
|
|
| (3,058 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (6,485 | ) |
|
| (21,460 | ) |
Inventory |
|
| (3,441 | ) |
|
| (4,984 | ) |
Prepaid expenses and other current assets |
|
| (1,839 | ) |
|
| (1,649 | ) |
Operating leases |
|
| (3,472 | ) |
|
| (2,774 | ) |
Accounts payable |
|
| 2,671 |
|
|
| 716 |
|
Accrued expenses and other current liabilities |
|
| (1,697 | ) |
|
| 2,646 |
|
Other liabilities |
|
| 23 |
|
|
| (340 | ) |
Net cash provided by operating activities |
|
| 11,606 |
|
|
| 16,180 |
|
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchases of property and equipment |
|
| (12,840 | ) |
|
| (9,290 | ) |
Net cash used in investing activities |
|
| (12,840 | ) |
|
| (9,290 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Payments of term loan |
|
| (938 | ) |
|
| - |
|
Payments of withholding taxes in connection with RSUs vesting |
|
| (646 | ) |
|
| (737 | ) |
Proceeds from the exercise of stock options |
|
| 2,042 |
|
|
| 1,205 |
|
Principal repayments of finance lease obligations |
|
| (200 | ) |
|
| (1,374 | ) |
Payment of deferred acquisition consideration |
|
| (608 | ) |
|
| (483 | ) |
Net cash used in financing activities |
|
| (350 | ) |
|
| (1,389 | ) |
Change in cash, cash equivalents and restricted cash |
|
| (1,584 | ) |
|
| 5,501 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
| 114,528 |
|
|
| 84,806 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 112,944 |
|
| $ | 90,307 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 1,041 |
|
| $ | 3,836 |
|
Cash paid for income taxes |
| $ | 974 |
|
| $ | 582 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
| ||
Purchases of property and equipment included in accounts payable and accrued expenses |
| $ | 6,546 |
|
| $ | 4,349 |
|
Right-of-use assets obtained through operating lease obligations |
| $ | 364 |
|
| $ | 29,092 |
|
Shares issued for deferred acquisition consideration |
| $ | 828 |
|
| $ | - |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
ORGANOGENESIS HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
1. Nature of the Business and Basis of Presentation
Organogenesis Holdings Inc. (formerly Avista Healthcare Public Acquisition Corp.) (“ORGO” or the “Company”) is a leading regenerative medicine company focused on the development, manufacture, and commercialization of solutions for the Advanced Wound Care and Surgical & Sports Medicine markets. Several of the existing and pipeline products in the Company’s portfolio have Premarket Application (“PMA”) approval, Business License Applicant (“BLA”) approval or Premarket Notification 510(k) clearance from the United States Food and Drug Administration (“FDA”). The Company’s customers include hospitals, wound care centers, government facilities, ambulatory serviceservice centers (“ASCs”) and physician offices. The Company has 1 operating and reportable segment.
COVID-19
The emergence ofcoronavirus (COVID-19) pandemic around the coronavirus(COVID-19)around thethirdsecond quarter ended SeptemberJune 30, 2021,2022, the Company is unable to predict the impact that
The Company is closely monitoring the evolving impact of the pandemic on all aspects of its business. The Company has implemented a number of measures designed to protect the health and safety of its employees, support its customers and promote business continuity.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note “2. Significant Accounting Policies” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as amended (the “Annual Report”). There have been no material changes to the significant accounting policies previously disclosed in the Annual Report.
Unaudited Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared by management in accordance with GAAP and the rules and regulations of the Securities and Exchange Commission (the “SEC”)SEC regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. While we believe that the disclosures presented are adequate in order to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form10-Kfor the fiscal year ended December 31, 2020, as amended (the “Annual Report”).
The unaudited consolidated financial statements include the accounts and results of operations of Organogenesis Holdings Inc. and its wholly-owned subsidiaries of Organogenesis Inc., including Organogenesis GmbH (a Switzerland corporation) and Prime Merger Sub, LLC. All intercompany balances and transactions have been eliminated in consolidation. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position, results of operations and cash flows at the dates and for the periods indicated. The results for the ninesix months ended SeptemberJune 30, 20212022 are not necessarily indicative of the results to be expected for the year ending December 31, 2021,2022, any other interim periods, or any future years or periods.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and the related disclosure as ofliabilities at the date of the consolidated financial statements and the reported results of operations during the reporting periods. In preparing the consolidated financial statements, the estimates and assumptions that management consider to be significant and that present the greatest amount of uncertainty include: revenue recognition; sales returns and credit losses; inventory reserve; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived and indefinite lived assets (including intangible assets); assessing impairment of goodwill; valuation of assets and liabilities that use unobservable inputs; and the valuation and recognition of stock-based compensation. Actual results couldand outcomes may differ significantly from those estimates.estimates and assumptions.
Revision to Previously Issued Financial Statements
In the SEC Statement, the SEC Staff expressed its view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s financial statements as opposed to equity.
As of December 31, 2020 | ||||||||||||
CONSOLIDATED BALANCE SHEETS | As Previously Reported | Adjustments | As Revised | |||||||||
Property and equipment, net | $ | 60,068 | $ | (4,276 | ) | $ | 55,792 | |||||
Total assets | $ | 294,494 | $ | (4,276 | ) | $ | 290,218 | |||||
Accumulated deficit | $ | (150,759 | ) | $ | (4,276 | ) | $ | (155,035 | ) | |||
Total stockholders’ equity | $ | 146,084 | $ | (4,276 | ) | $ | 141,808 | |||||
Total liabilities and stockholders’ equity | $ | 294,494 | $ | (4,276 | ) | $ | 290,218 | |||||
|
| As of March 31, 2022 |
|
|
| As of December 31, 2021 |
| ||||||||||||||||||
CONSOLIDATED BALANCE SHEETS |
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
|
|
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
| ||||||
Accrued expenses and other current liabilities |
| $ | 32,419 |
|
| $ | 1,700 |
|
| $ | 34,119 |
|
|
| $ | 36,589 |
|
| $ | 700 |
|
| $ | 37,289 |
|
Total current liabilities |
| $ | 76,792 |
|
| $ | 1,700 |
|
| $ | 78,492 |
|
|
| $ | 82,005 |
|
| $ | 700 |
|
| $ | 82,705 |
|
Total liabilities |
| $ | 193,044 |
|
| $ | 1,700 |
|
| $ | 194,744 |
|
|
| $ | 201,224 |
|
| $ | 700 |
|
| $ | 201,924 |
|
Accumulated deficit |
| $ | (60,046 | ) |
| $ | (1,700 | ) |
| $ | (61,746 | ) |
|
| $ | (60,133 | ) |
| $ | (700 | ) |
| $ | (60,833 | ) |
Total stockholders’ equity |
| $ | 243,228 |
|
| $ | (1,700 | ) |
| $ | 241,528 |
|
|
| $ | 242,035 |
|
| $ | (700 | ) |
| $ | 241,335 |
|
|
| For the Three Months Ended March 31, 2022 |
|
|
| For the Year Ended December 31, 2021 |
|
|
| ||||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS |
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
|
|
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
|
|
| ||||||
Net revenue |
| $ | 98,117 |
|
| $ | (1,000 | ) |
| $ | 97,117 |
|
|
| $ | 468,059 |
|
| $ | (700 | ) |
| $ | 467,359 |
|
|
|
Gross profit |
| $ | 73,037 |
|
| $ | (1,000 | ) |
| $ | 72,037 |
|
|
| $ | 353,860 |
|
| $ | (700 | ) |
| $ | 353,160 |
|
|
|
Income from operations |
| $ | 872 |
|
| $ | (1,000 | ) |
| $ | (128 | ) |
|
| $ | 72,918 |
|
| $ | (700 | ) |
| $ | 72,218 |
|
|
|
Net income before income taxes |
| $ | 132 |
|
| $ | (1,000 | ) |
| $ | (868 | ) |
|
| $ | 63,786 |
|
| $ | (700 | ) |
| $ | 63,086 |
|
|
|
Net income |
| $ | 87 |
|
| $ | (1,000 | ) |
| $ | (913 | ) |
|
| $ | 94,902 |
|
| $ | (700 | ) |
| $ | 94,202 |
|
|
|
|
| Three Months Ended March 31, 2022 |
|
|
| For the Year Ended December 31, 2021 |
| ||||||||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
|
|
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
| ||||||
Net income / (loss) |
| $ | 87 |
|
| $ | (1,000 | ) |
| $ | (913 | ) |
|
| $ | 94,902 |
|
| $ | (700 | ) |
| $ | 94,202 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accrued expenses and other current liabilities |
| $ | (4,828 | ) |
| $ | 1,000 |
|
| $ | (3,828 | ) |
|
| $ | 8,654 |
|
| $ | 700 |
|
| $ | 9,354 |
|
|
| Three Months Ended March 31, 2022 |
|
|
| For the Year Ended December 31, 2021 |
| ||||||||||||||||||
Revenue by Product Category: |
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
|
|
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
| ||||||
Advanced Wound Care |
| $ | 90,950 |
|
| $ | (860 | ) |
| $ | 90,090 |
|
|
| $ | 430,839 |
|
| $ | (602 | ) |
| $ | 430,237 |
|
Surgical & Sports Medicine |
| $ | 7,167 |
|
| $ | (140 | ) |
| $ | 7,027 |
|
|
| $ | 37,220 |
|
| $ | (98 | ) |
| $ | 37,122 |
|
Net revenue |
| $ | 98,117 |
|
| $ | (1,000 | ) |
| $ | 97,117 |
|
|
| $ | 468,059 |
|
| $ | (700 | ) |
| $ | 467,359 |
|
|
| Three Months Ended March 31, 2022 |
|
|
| For the Year Ended December 31, 2021 |
| ||||||||||||||||||
Miscellaneous Items |
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
|
|
| As Previously Reported |
|
| Adjustments |
|
| As Revised |
| ||||||
GPO fees |
| $ | 619 |
|
| $ | 1,000 |
|
| $ | 1,619 |
|
|
| $ | 2,963 |
|
| $ | 700 |
|
| $ | 3,663 |
|
PuraPly revenue |
| $ | 53,300 |
|
| $ | (500 | ) |
| $ | 52,800 |
|
|
| $ | 198,400 |
|
| $ | (350 | ) |
| $ | 198,050 |
|
9
For September | For September | |||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | As Previously Reported | Adjustments | As | As Previously Reported | Adjustments | As | ||||||||||||||||||
Selling, general and administrative | $ | 51,146 | $ | 179 | $ | 51,325 | $ | 150,261 | $ | 536 | $ | 150,797 | ||||||||||||
Total operating expenses | $ | 54,855 | $ | 179 | $ | 55,034 | $ | 164,048 | $ | 536 | $ | 164,584 | ||||||||||||
Income from operations | $ | 22,980 | $ | (179 | ) | $ | 22,801 | $ | 5,644 | $ | (536 | ) | $ | 5,108 | ||||||||||
Net income (loss) before income taxes | $ | 21,006 | $ | (179 | ) | $ | 20,827 | $ | (411 | ) | $ | (536 | ) | $ | (947 | ) | ||||||||
Net income (loss) | $ | 20,934 | $ | (179 | ) | $ | 20,755 | $ | (545 | ) | $ | (536 | ) | $ | (1,081 | ) | ||||||||
Nine Months Ended September 30, 2020 | ||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | As Previously Reported | Adjustments | As | |||||||||
Net loss | $ | (545 | ) | $ | (536 | ) | $ | (1,081 | ) | |||
Depreciation | $ | 2,749 | $ | 536 | $ | 3,285 | ||||||
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued (“(“ASU 2016-13”). SubsequentTheAs the Company was a smaller reporting company when the standard was issued, the Company took advantage of the extended transition period and will adopt this standard and the related improvements on January 1, 2023 by recognizing a cumulative-effect adjustment to retained earnings for any impact. The Company is currently assessingevaluated the adoptioneffects of
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform(Topic 848): Facilitation of the Effects of Reference Rate Reformon Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform(Topic 848): Scope (“ASU 2021-01”), to clarify certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting to apply to derivatives that are affected by the discounting transition. Both ASU 2020-04 and ASU 2021-01 are effective upon issuance through December 31, 2022. The Company’s debt agreement that utilizes LIBOR has conventional LIBOR replacement language. Since the debt agreement has not discontinued the use of LIBOR, this ASU is not yet effective for the Company. To the extent the interest rate changes to the rate specified in the debt agreement, the Company will utilize the relief in this ASU. The Company evaluated the effects of adopting the provisions of ASU 2020-04 and ASU 2021-01 and does not expect a material impact on the Company’s consolidated financial statements.
3. Acquisition
On September 17, 2020 (the “Acquisition Date”), the Company acquired certain assets and assumed certain liabilities of CPN Biosciences, LLC (“CPN”) pursuant to an asset purchase agreement dated July 24, 2020. CPN offered a physician office management solution and advanced wound care products.
The Company is obligatedaggregate consideration amounted to pay$19,024 as of the Acquisition Date, consisting of $6,427 in cash, 2,151,438 shares of the Company’s Class A common stock with a fair value of $8,815, and contingent consideration (the “Earnout”) with a fair value of $3,782. On the Acquisition Date, the Company paid $5,820 in cash and issued 1,947,953 shares of the Company’s Class A common stock. The remaining consideration of $1,436 was held back and was released in April 2022 by the Company paying $608 in cash and issuing 203,485 shares of the Company’s Class A common stock to the former equity holders of CPN.
The Company was obligated to pay the Earnout to CPN’s former shareholdersequity holders if CPN’s legacy product revenue in the Earnout Period (defined as a twelve-month period, starting on the first day of the next calendar quarter immediately following the post-closing sales meeting)(July 1, 2021 to June 30, 2022), exceedsexceeded CPN’s 2019 revenue. The amount of the Earnout, if any, willwould be equal to 70%70% of the excess and willwould be payable 60 days after the expiration of the Earnout Period. The post-closing sales meeting took place in April 2021 andAs of the conclusion of the Earnout Period is July 1, 2021 toon June 30, 2022. The2022, the Company recorded anon-currentof $3,782 onto be $0. During the Acquisition Date forEarnout Period, the fair value of the contingent consideration related to the expected Earnout. The Company assessesassessed the fair value of the Earnout liability at each reporting period. As of September 30, 2021, the Earnout liability was estimated at $0 as a result of the Company’s updated assessment of the near-term market for the CPN product portfolio. Subsequent changes in the estimated fair value of the liability arewere reflected in earnings until the liability is settled (seewas settled. See Note “5. Fair Value Measurement of Financial Instruments”)Assets and Liabilities”.
10
4. Product and Geographic Sales
The Company generates revenue through the sale of Advanced Wound Care and Surgical & Sports Medicine products. There is a single performance obligation in all of the Company’s contracts, which is the Company’s promise to transfer the Company’s products to customers based on specific payment and shipping terms in the arrangement. The entire transaction price reflects a single performance obligation. Product revenue is recognized when a customer obtains control of the Company’s products which occurs at a point in time and may be upon shipment, procedure date, or delivery, based on the terms of the contract. Revenue is recorded net of a reserve for returns, discounts and Group Purchasing Organization (“GPO”)GPO rebates, which represent a direct reduction to the revenue recognized. These reductions are accrued at the time revenue is recognized, based upon historical experience and specific circumstances. For the three months ended SeptemberJune 30, 20212022 and 2020,2021, the Company recorded GPO fees of $794$2,334 and $1,013,$829, respectively, as a direct reduction of revenue. For the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the Company recorded GPO fees of $2,323$3,953 and $2,810,$1,529, respectively, as a direct reduction of revenue.
In August 2022, the Company reached an agreement with a GPO to settle previously disputed GPO fees for $3,300. The settlement fee was included in the GPO fees as a direct reduction of revenue. The Company recorded $1,600 of the settlement fee during the three months ended June 30, 2022, and has revised the historical financial statements to include $1,000 of the settlement fee in the three months ended March 31, 2022 and $700 of the settlement fee during the year ended December 31, 2021. As such, the previously issued financial statements were revised accordingly. See Note "2. Summary of Significant Accounting Policies".
The following tables set forth revenue by product category:
|
| Three Months Ended |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Advanced Wound Care |
| $ | 113,791 |
|
| $ | 111,436 |
|
Surgical & Sports Medicine |
|
| 7,610 |
|
|
| 11,760 |
|
Total net revenue |
| $ | 121,401 |
|
| $ | 123,196 |
|
|
| Six Months Ended |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Advanced Wound Care |
| $ | 203,881 |
|
| $ | 202,144 |
|
Surgical & Sports Medicine |
|
| 14,637 |
|
|
| 23,604 |
|
Total net revenue |
| $ | 218,518 |
|
| $ | 225,748 |
|
Three Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Advanced Wound Care | $ | 107,341 | $ | 89,990 | ||||
Surgical & Sports Medicine | 6,412 | 10,809 | ||||||
Total net revenue | $ | 113,753 | $ | 100,799 | ||||
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Advanced Wound Care | $ | 309,485 | $ | 201,009 | ||||
Surgical & Sports Medicine | 30,016 | 30,482 | ||||||
Total net revenue | $ | 339,501 | $ | 231,491 | ||||
For all periods presented, net revenue generated outside the United States represented less than 1%1% of total net revenue.
5. Fair Value Measurement of Financial Assets and Liabilities
Fair Value Measurements | ||||||||||||||||
as of September 30, 2021 Using: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities: | ||||||||||||||||
Earnout liability | $ | — | $ | — | $ | 0 | $ | 0 | ||||||||
| $ | — | $ | — | $ | 0 | $ | 0 | |||||||||
Fair Value Measurements | ||||||||||||||||
as of December 31, 2020 Using: | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities: | ||||||||||||||||
Earnout liability | $ | — | $ | — | $ | 3,985 | $ | 3,985 | ||||||||
| $ | — | $ | — | $ | 3,985 | $ | 3,985 | |||||||||
Earnout Liability
In connection with accounting for the CPN acquisition on September 17, 2020, the Company recorded an Earnout liability of $3,782$3,782 on the Acquisition Date, representing the fair value of contingent consideration payable upon the achievementachievement of a certain revenue target. The Earnout Liability isliability was classified as a Level 3 measurement within the fair value hierarchy for which fair value iswas derived from inputs that arewere unobservable and significant to the overall fair value measurement. The fair value of such Earnout Liability isliability was estimated using a Monte Carlo simulation model that utilizesutilized key assumptions including forecasted revenues and volatilities of the underlying financial metrics during the Earnout period.Period. The Earnout Period ended on June 30, 2022 and the Company assessescalculated the Earnout liability to be $0. Before its settlement, the Company assessed the fair value of the Earnout liability at each reporting period. Any subsequent changes in the estimated fair value of the liability arewere reflected in selling, general and administrative expenses until the liability iswas settled. For more information about the Earnout liability, refer to Note “3. Acquisition”.
As of September 30,December 31, 2021, the Earnout liability decreased to $0was $0 as a result of the Company’s updated assessment of the near-term market for the CPN product portfolio. The following table provides a roll-forward of the fair value of the Company’s Earnout liability, for which fair value iswas determined using Level 3 inputs:inputs until the end of the Earnout Period on June 30, 2022.
11
|
|
|
| Six Months Ended |
| |||||
|
|
|
| 2022 |
|
| 2021 |
| ||
Beginning balance |
|
|
| $ | 0 |
|
| $ | 3,985 |
|
Change in fair value |
|
|
|
| 0 |
|
|
| (3,058 | ) |
Ending balance |
|
|
| $ | 0 |
|
| $ | 927 |
|
Earnout liability | ||||
Balance as of December 31, 2020 | $ | 3,985 | ||
Change in fair value | (3,985 | ) | ||
Balance as of September 30, 2021 | $ | 0 | ||
The Company did not have any financial assets and liabilities measured at fair value on aSeptemberJune 30, 20212022 and December 31, 2020.2021.
6. Accounts Receivable, Net
Accounts receivable consisted of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Accounts receivable |
| $ | 93,846 |
|
| $ | 87,613 |
|
Less — allowance for doubtful accounts |
|
| (5,022 | ) |
|
| (5,153 | ) |
|
| $ | 88,824 |
|
| $ | 82,460 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Accounts receivable | $ | 81,925 | $ | 61,792 | ||||
Less — allowance for sales returns and doubtful accounts | (7,342 | ) | (4,988 | ) | ||||
| $ | 74,583 | $ | 56,804 | |||||
The Company’s allowance for sales returns and doubtful accounts was comprised of the following:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Balance at beginning of period |
| $ | 5,127 |
|
| $ | 3,576 |
|
| $ | 5,153 |
|
| $ | 2,669 |
|
Additions |
|
| 82 |
|
|
| 575 |
|
|
| 122 |
|
|
| 1,496 |
|
Write-offs |
|
| (187 | ) |
|
| (19 | ) |
|
| (253 | ) |
|
| (33 | ) |
Balance at end of period |
| $ | 5,022 |
|
| $ | 4,132 |
|
| $ | 5,022 |
|
| $ | 4,132 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Balance at beginning of period | $ | 7,113 | $ | 3,928 | $ | 4,988 | $ | 3,049 | ||||||||
Additions | 704 | 1,589 | 2,862 | 2,559 | ||||||||||||
Write-offs | (475 | ) | (392 | ) | (508 | ) | (483 | ) | ||||||||
Balance at end of period | $ | 7,342 | $ | 5,125 | $ | 7,342 | $ | 5,125 | ||||||||
7. Inventories
Inventories, net of related reserves for excess and obsolescence, consisted of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Raw materials |
| $ | 10,228 |
|
| $ | 9,023 |
|
Work in process |
|
| 1,041 |
|
|
| 991 |
|
Finished goods |
|
| 11,966 |
|
|
| 15,008 |
|
|
| $ | 23,235 |
|
| $ | 25,022 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Raw materials | $ | 8,761 | $ | 10,075 | ||||
Work in process | 2,144 | 1,305 | ||||||
Finished goods | 18,590 | 16,419 | ||||||
| $ | 29,495 | $ | 27,799 | |||||
Raw materials include various components used in the Company’s manufacturing process. The Company’s excess and obsolete inventory review process includes analysis of sales forecasts and historical sales as compared to inventory level, and working with operations to maximize recovery of excess inventory. During the three months ended SeptemberJune 30, 20212022 and 2020,2021, the Company charged $3,367$3,023 and $315,$2,388, respectively, for inventory excess and obsolescence to cost of goods sold within the consolidated statements of operations. During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the Company charged $8,045$5,228 and $2,024,$4,678, respectively, for inventory excess and obsolescence to cost of goods sold within the consolidated statements of operations.
12
8. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
|
| June 30, |
|
| December 31, |
| ||
Subscriptions |
| $ | 2,147 |
|
| $ | 2,745 |
|
Conferences and marketing expenses |
|
| 2,371 |
|
|
| 538 |
|
Deposits |
|
| 958 |
|
|
| 1,216 |
|
Insurance |
|
| 1,021 |
|
|
| 358 |
|
Other |
|
| 43 |
|
|
| 112 |
|
|
| $ | 6,540 |
|
| $ | 4,969 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Subscriptions | $ | 2,091 | $ | 2,013 | ||||
Conferences and marketing expenses | 623 | 63 | ||||||
Deposits | 1,185 | 1,438 | ||||||
Reimbursement of offering expenses | 0 | 1,009 | ||||||
| Insurance | 997 | 240 | ||||||
Other | 137 | 172 | ||||||
| $ | 5,033 | $ | 4,935 | |||||
Deposits are funds held by vendors which are expected to be released within twelve months and therefore they are recorded as current assets.
9. Property and Equipment, Net
Property and equipment consisted of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Leasehold improvements |
| $ | 35,309 |
|
| $ | 30,531 |
|
Buildings |
|
| 4,943 |
|
|
| 4,943 |
|
Furniture, computers and equipment |
|
| 55,799 |
|
|
| 53,959 |
|
|
|
| 96,051 |
|
|
| 89,433 |
|
Accumulated depreciation |
|
| (60,600 | ) |
|
| (57,729 | ) |
Construction in progress |
|
| 57,841 |
|
|
| 47,456 |
|
|
| $ | 93,292 |
|
| $ | 79,160 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Leasehold improvements | $ | 45,050 | $ | 39,574 | ||||
Building | 4,943 | $ | — | |||||
Furniture, computers and equipment | 52,696 | 48,236 | ||||||
| 102,689 | 87,810 | |||||||
Accumulated depreciation and amortization | (73,894 | ) | (73,797 | ) | ||||
Construction in progress | 45,979 | 41,779 | ||||||
| $ | 74,774 | $ | 55,792 | |||||
Depreciation expense was $1,937$1,528 and $1,135$1,063 for the three months ended SeptemberJune 30, 20212022 and 2020.2021. Depreciation expense was $4,010$2,875 and $3,285$2,073 for the ninesix months ended SeptemberJune 30, 20212022 and 2020. As of December 31, 2020, the Company had $21,689 of buildings under finance leases recorded within leasehold improvements and had $18,716recorded within accumulated depreciation related to these buildings. In August 2021, the Company purchased one building previously under a finance lease (see Note “17. Leases”) from a related party and removed the lease from leasehold improvements and recorded the asset to buildings. As of September 30, 2021, the Company had$17,370 of buildings under finance leases recorded within leasehold improvements and had $15,873 recorded within accumulated depreciation related to these buildings.2021. Construction in progress primarily represents unfinished construction work on the aforementioneda purchased building located on the Company’s Canton, Massachusetts campus and more recently, improvements at the Company’s leased facilities in Canton and Norwood, Massachusetts.
10. Goodwill and Intangible Assets
Goodwill was $28,772$28,772 as of SeptemberJune 30, 20212022 and December 31, 2020.
Identifiable intangible assets consisted of the following as of SeptemberJune 30, 2021:
Original | Accumulated | Net Book | ||||||||||
Cost | Amortization | Value | ||||||||||
Developed technology | $ | 32,620 | $ | (16,864 | ) | $ | 15,756 | |||||
Trade names and trademarks | 2,080 | (1,128 | ) | 952 | ||||||||
Customer relationships | 10,690 | (1,114 | ) | 9,576 | ||||||||
Non-compete agreements | 1,010 | (398 | ) | 612 | ||||||||
Total | $ | 46,400 | $ | (19,504 | ) | $ | 26,896 | |||||
|
| Original |
|
| Accumulated |
|
| Net Book |
| |||
|
| Cost |
|
| Amortization |
|
| Value |
| |||
Developed technology |
| $ | 32,620 |
|
| $ | (19,437 | ) |
| $ | 13,183 |
|
Trade names and trademarks |
|
| 2,080 |
|
|
| (1,288 | ) |
|
| 792 |
|
Customer relationships |
|
| 10,690 |
|
|
| (1,915 | ) |
|
| 8,775 |
|
Independent sales agency network |
|
| 4,500 |
|
|
| (4,500 | ) |
|
| - |
|
Patent |
|
| 7,623 |
|
|
| (7,623 | ) |
|
| - |
|
Non-compete agreements |
|
| 1,010 |
|
|
| (529 | ) |
|
| 481 |
|
Total |
| $ | 58,523 |
|
| $ | (35,292 | ) |
| $ | 23,231 |
|
13
Identifiable intangible assets consisted of the following as of December 31, 2020:2021:
|
| Original |
|
| Accumulated |
|
| Net Book |
| |||
|
| Cost |
|
| Amortization |
|
| Value |
| |||
Developed technology |
| $ | 32,620 |
|
| $ | (17,709 | ) |
| $ | 14,911 |
|
Trade names and trademarks |
|
| 2,080 |
|
|
| (1,183 | ) |
|
| 897 |
|
Customer relationship |
|
| 10,690 |
|
|
| (1,381 | ) |
|
| 9,309 |
|
Independent sales agency network |
|
| 4,500 |
|
|
| (4,500 | ) |
|
| - |
|
Patent |
|
| 7,623 |
|
|
| (7,623 | ) |
|
| - |
|
Non-compete agreements |
|
| 1,010 |
|
|
| (454 | ) |
|
| 556 |
|
Total |
| $ | 58,523 |
|
| $ | (32,850 | ) |
| $ | 25,673 |
|
Original | Accumulated | Net Book | ||||||||||
Cost | Amortization | Value | ||||||||||
Developed technology | $ | 32,620 | $ | (14,330 | ) | $ | 18,290 | |||||
Trade names and trademarks | 2,080 | (906 | ) | 1,174 | ||||||||
Customer relationship | 10,690 | (312 | ) | 10,378 | ||||||||
Non-compete agreements | 1,010 | (230 | ) | 780 | ||||||||
Total | $ | 46,400 | $ | (15,778 | ) | $ | 30,622 | |||||
Amortization of intangible assets, calculated on a straight-line basis or using an accelerated method, was $1,240$1,221 and $885$1,243 for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $3,726$2,442 and $2,518$2,486 for the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.
11. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Personnel costs |
| $ | 22,101 |
|
| $ | 26,865 |
|
Royalties |
|
| 3,696 |
|
|
| 3,458 |
|
Accrued but unpaid lease obligations and interest |
|
| 3,476 |
|
|
| 3,963 |
|
Accrued settlement fee |
|
| 3,300 |
|
|
| - |
|
Other |
|
| 3,817 |
|
|
| 2,303 |
|
|
| $ | 36,390 |
|
| $ | 36,589 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Personnel costs | $ | 25,482 | $ | 18,943 | ||||
Royalties | 3,338 | 2,971 | ||||||
| Accrued but unpaid lease obligations and interest | 6,390 | — | ||||||
Other | 1,918 | 2,059 | ||||||
| $ | 37,128 | $ | 23,973 | |||||
The accrued but unpaid lease obligations and the interest accrual on these obligations were previously included in the long-term portion of the finance lease obligations, and other liabilities as of December 31, 2020. The reclassification was dueare related to the purchase of a building previously recorded as a finance lease from a related party (seebuildings in Canton, Massachusetts. See Note “17. Leases”). See Note "4. Product and the termination of the 2019 Credit Agreement (see Note “13. Long-Term Debt Obligations”).
12. Restructuring
In order to reduce the Company’s cost structure and achieve operating efficiency, the Company is consolidating its manufacturing operations in various locations into Massachusetts facilities.
On October 21, 2020, the Company committed to a plan to restructure the workforce and consolidateoperations in its La Jolla, facilitiesCalifornia facilities. The restructuring involved approximately 65 employees and was substantially completed as part of the Company’s long-term plan to consolidate manufacturing operations in Massachusetts to reduce the Company’s cost structure. The majority of the restructuring costs are expected to be incurred by the end ofDecember 31, 2021, with certain facility and storage costsactivities continuing through 2024.
On March 9, 2022, the middle of 2024.Company committed to a plan to restructure the workforce and operations in its Birmingham, Alabama facilities. The restructuring is expected to be completed by the end of 2022 and will result in a charge of approximately $6.5$3.0 million, of which approximately $4.0$2.0 million is attributable to the retention benefits associated with approximately 6525 employees and the remaining $2.5$1.0 million is related to the facility closures.other exit activities, including but not limited to contract termination, decommission and transportation of certain fixed assets. As employees are required to provide future services, employee retention and other benefit-related costs related to the Company’s restructuring are expensed over the service period.
14
As a result of thisthe restructuring activity,activities, the Company incurredpre-taxpre-tax charge$1,010$643 and $2,876$939 during the three and nine months ended SeptemberJune 30, 2021. This charge was primarily related to employee retention benefits2022 and was2021, respectively, and $907 and $1,866 during the six months ended June 30, 2022 and 2021, respectively. These charges were included in selling, generalgeneral and administrative expenses in the consolidated statements of operations. The liability related to the restructuring activities was $3,234$661 and $3,168 as of SeptemberJune 30, 2022 and December 31, 2021, respectively, and was included in accrued expenses and other current liabilities in the consolidated balance sheets. The following table provides a roll-forward of the restructuring liability.
|
| Employee |
|
| Other |
|
| Total |
| |||
Liability balance as of March 31, 2022 |
| $ | 115 |
|
| $ | 17 |
|
| $ | 132 |
|
Expenses |
|
| 523 |
|
|
| 120 |
|
|
| 643 |
|
Payments |
|
| 0 |
|
|
| (114 | ) |
|
| (114 | ) |
Liability balance as of June 30, 2022 |
| $ | 638 |
|
| $ | 23 |
|
| $ | 661 |
|
|
|
|
|
|
|
|
|
|
| |||
|
| Employee |
|
| Other |
|
| Total |
| |||
Liability balance as of December 31, 2021 |
| $ | 2,517 |
|
| $ | 651 |
|
| $ | 3,168 |
|
Expenses |
|
| 638 |
|
|
| 269 |
|
|
| 907 |
|
Payments |
|
| (2,517 | ) |
|
| (897 | ) |
|
| (3,414 | ) |
Liability balance as of June 30, 2022 |
| $ | 638 |
|
| $ | 23 |
|
| $ | 661 |
|
Employee | Facility | |||||||
Liability balance as of June 30, 2021 | $ | 2,381 | $ | 29 | ||||
Expenses | 854 | 156 | ||||||
Payments | (26 | ) | (160 | ) | ||||
Liability balance as of September 30, 2021 | $ | 3,209 | $ | 25 | ||||
Employee | Facility | |||||||
Liability balance as of December 31, 2020 | $ | 618 | $ | 0 | ||||
Expenses | 2,617 | 259 | ||||||
Payments | (26 | ) | (234 | ) | ||||
Liability balance as of September 30, 2021 | $ | 3,209 | $ | 25 | ||||
13. Long-Term Debt Obligations
Long-term debt obligations consisted of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Line of credit |
| $ | 0 |
|
| $ | 0 |
|
Term loan |
|
| 73,125 |
|
|
| 74,062 |
|
Less debt discount and debt issuance cost |
|
| (560 | ) |
|
| (637 | ) |
Term loan, net of debt discount and debt issuance cost |
| $ | 72,565 |
|
| $ | 73,425 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Line of credit | $ | 0 | $ | 10,000 | ||||
Term loan | 74,531 | 60,000 | ||||||
Less debt discount and debt issuance cost | (678 | ) | (290 | ) | ||||
Term loan, net of debt discount and debt issuance cost | $ | 73,853 | $ | 59,710 | ||||
2021 Credit Agreement
In August 2021, the Company, as borrower, its subsidiaries, as guarantors, and Silicon Valley Bank (“SVB”), and the several other lenders thereto (collectively, the “Lenders”) entered into a credit agreement (the “2021 Credit Agreement”), providing for a term loan facility not to exceed $75,000$75,000 (the “Term Loan Facility”) and a revolving credit facility not to exceed $125,000$125,000 (the “Revolving Facility”). The Company’s obligations to the Lenders are secured by substantially all of the Company’s assets, including intellectual property. Capitalized terms used hereinherein and not otherwise defined are defined as set forth in the 2021 Credit Agreement.
Advances made under the 2021 Credit Agreement may be either Eurodollar LoansLoans or ABR Loans, at the Company’s option. For Eurodollar Loans, the interest rate is a per annum interest rate equal to LIBOR plus an Applicable Margin as follows: (i) ifbetween 2.00% to 3.25% based on the Total Net Leverage Ratio is greater than or equal to 3.25x, 3.25%; (ii) if the Total Net Leverage Ratio is greater than or equal to 2.50x but less than 3.25x, 2.75% ; (iii) if the Total Net Leverage Ratio is greater than or equal to 2.00x but less than 2.50x, 2.50%; (iv) if the Total Net Leverage Ratio is greater than or equal to 1.50x but less than 2.00x, 2.25% and (v) if the Total Net Leverage Ratio is less than 1.50x, 2.00%.Ratio. For ABR Loans, the interest rate is equal to (1) the highest of (a) the Wall Street Journal Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the LIBOR rate plus 1.0%,as follows: (i) ifbetween 1.00% to 2.25% based on the Total Net Leverage Ratio is greater than or equal to 3.25x, 2.25%; (ii) if the Total Net Leverage Ratio is greater than or equal to 2.50x but less than 3.25x, 1.75% ; (iii) if the Total Net Leverage Ratio is greater than or equal to 2.00x but less than 2.50x, 1.50%; (iv) if the Total Net Leverage Ratio is greater than or equal to 1.50x but less than 2.00x, 1.25%; and (v) if the Total Net Leverage Ratio is less than 1.50x, 1.00%. The interest rate as of September 30, 2021 was 2.08%.
The 2021 Credit Agreement requires the Company to make consecutive quarterly installment payments equal to the following percentages of the original principal amount of the Term Loans:following: (a) from September 30, 2021 through and including June 30, 2022,
15
The Company must pay in arrears, on the first day of each quarter prior to August 6, 2026 (the “Revolving Termination Date”) and on the Revolving Termination Date, a fee for thein an amount equal to the Commitment Fee Rate per annum, multiplied by the difference between (x) the Total Revolving Commitments and (y) the sum of (A) the average for the period of the daily closing balance of the Revolving Loans, excluding the aggregate principal amount of Swingline Loans,(B) the aggregate undrawn amount of all Letters of Credit outstanding at such time and (c) the aggregate amount of all L/C Disbursements that have not yet been reimbursed or converted into Revolving Loans or Swingline Loans.(the “Commitment Fee”). The Commitment Fee Raterate is equalbetween 0.25% to (i) if0.45% based on the Total Net Leverage Ratio is greater than or equal to 3.25x,0.45%; (ii) if the Total Net Leverage Ratio is greater than or equal to 2.50x but less than 3.25x,0.40%; (iii) if the Total Net Leverage Ratio is greater than or equal to 2.00x but less than 2.50x,0.35%; (iv) if the Total Net Leverage Ratio is greater than or equal to 1.50x but less than 2.00x,0.30%; and (v) if the Total Net Leverage Ratio islessthan 1.50x,0.25%. The maturity date for advances made under the Revolving Facility is the Revolving Termination Date.Ratio. The Company may elect to reduce or terminate the Revolving Facility in its entirety at any time by repaying all outstanding principal, unpaid accrued interest and, with respect to any such reduction or termination of the Revolving Commitments made prior to August 6, 2022,1.00%
Under the 2021 Credit Agreement, the Company is required to comply with certain financial covenants. The Company may not permitcovenants including the Consolidated Fixed Charge Coverage Ratio at the last day of any period of four consecutive fiscal quarters, commencing with the fiscal quarter ending September 30, 2021, to be less than 1.25:1.00. Additionally, the Company may not permit theand Consolidated Total Net Leverage Ratio, attested quarterly. In addition, the last dayCompany is also required to make representations and warranties and comply with certain non-financial covenants that are customary in loan agreements of any periodthis type, including restrictions on the payment of four consecutive fiscal quarters, commencing with the fiscal quarter ending September 30, 2021, to exceed the following ratios: (i) for the trailing four fiscal quarters ending September 30, 2021, December 31, 2021, March 31, 2022, June 30, 2022dividends, repurchase of stock, incurrence of indebtedness, dispositions and September 30, 2022, a ratio of 3.50:1.00; (ii) for the trailing four fiscal quarters ending December 31, 2022, March 31, 2023, June 30, 2023 and September 30, 2023, a ratio of 3.25:1.00; and (iii) for the trailing four fiscal quarters ending December 31, 2023 and each fiscal quarter thereafter, a ratio of 3.00:1.00.
The Company had outstanding borrowings of $74,531$73,125 and $74,062 under the Term Loan Facility and $0$0 under the Revolving Facility with $125,000borrowings.borrowings as of June 30, 2022 and December 31, 2021, respectively. The Company recorded additional debt issuance costs and related fees of$1,223,$1,223, which are recorded as other assets. Both of these costs are being amortized to interest expensesexpense through the maturity date of the facilities.
Future payments of the 2021 Credit Agreement, as of SeptemberJune 30, 2021,2022, are as follows for the calendar years ending December 31:
2022 |
| $ | 1,875 |
|
2023 |
|
| 4,687 |
|
2024 |
|
| 5,625 |
|
2025 |
|
| 6,563 |
|
2026 |
|
| 54,375 |
|
Total |
| $ | 73,125 |
|
2021 | 469 | |||
2022 | 2,812 | |||
2023 | 4,687 | |||
2024 | 5,625 | |||
2025 and beyond | 60,938 | |||
Total | $ | 74,531 | ||
2019 Credit Agreement
In March 2019,
In August 2021, upon entering into the 2021 Credit Agreement, the Company paid an aggregate amount of $70,559three and nine monthsyear ended September 30,December 31, 2021.
14. Stockholders’ Equity
Common Stock
As of SeptemberJune 30, 2021,2022, the Company was authorized to issue 400,000,000 shares of $0.0001 par value Class A common stock and 1,000,000 shares of $0.0001 par value preferred stock. 129,365,209 shares of Class A common stock were issued and 128,636,661 shares were outstanding as of September 30, 2021. NaN shares of preferred stock were outstanding as of September 30, 2021. The issued shares of Class A common stock include 728,548 treasury shares that were reacquired in connection with the redemption of redeemable shares in March 2019.
16
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company reserved the following shares of Class A common stock for future issuance:
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Shares reserved for issuance for outstanding options |
|
| 6,132,561 |
|
|
| 6,596,969 |
|
Shares reserved for issuance for outstanding restricted stock units |
|
| 1,471,223 |
|
|
| 764,871 |
|
Shares reserved for issuance for future grants |
|
| 11,187,149 |
|
|
| 5,644,691 |
|
Total shares of authorized common stock reserved for future issuance |
|
| 18,790,933 |
|
|
| 13,006,531 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Shares reserved for issuance for outstanding options | 6,724,574 | 6,425,040 | ||||||
Shares reserved for issuance for outstanding restricted stock units | 768,203 | 806,048 | ||||||
Shares reserved for issuance for future grants | 5,635,822 | 6,832,649 | ||||||
Total shares of authorized common stock reserved for future issuance | 13,128,599 | 14,063,737 | ||||||
15. Stock-Based Compensation
Stock Incentive
On November 28, 2018, the Board of Directors of the Company adopted, and on December 10, 2018 the Company’s stockholders approved, the Organogenesis 2018 Equity and Incentive Plan (the “2018 Plan”). The purposes of the 2018 Plan are to provide long-term incentives and rewards to the Company’s employees, officers, directors and other key persons (including consultants), to attract and retain persons with the requisite experience and ability, and to more closely align the interests of such employees, officers, directors and other key persons with the interests of the Company’s stockholders.
The
At the adoption of September 30, 2021,the 2018 plan, a total of 9,198,996 shares of Class A common stock have beenwas authorized to be issued under the 2018 Plan (subject to adjustment in the case of any stock dividend, stock split, reverse stock split, or similar change in capitalization of the Company).
Stock Incentive
The Organogenesis 2003 Stock Incentive Plan (the “2003 Plan”), provides for the Company to issue restricted stock awards, or to grant incentive stock options oradvisorsadvisors and consultants of the Company.
Effective as of the closing of the Avista Merger on December 10, 2018, no additional awards may be made under the 2003 Plan and as a result (i) any shares in respect of stock options that are expired or terminated under the 2003 Plan without having been fully exercised will not be available for future awards; (ii) any shares in respect of restricted stock that are forfeited to, or otherwise repurchased by the Company, will not be available for future awards; and (iii) any shares of Class A common stock that are tendered to the Company by a participant to exercise an award will not be available for future awards.
Stock-Based Compensation Expense
Stock options awarded under the stock incentive plans expire 10 years after the grant date and typically vest over four or five years.years. Restricted stock units awarded typically vest over four years.
Stock-based compensation expense was $1,041$1,692 and $486$1,042 for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and was $2,781$2,995 and $1,164$1,740 for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. The total amount of stock-based compensation expense was included within selling, general and administrative expenses on the consolidated statements of operations.
Restricted Stock Units (RSUs)
The Company granted 299,352979,257 and 290,027 time-based restricted stock units to its employees, executives and the Board of Directors.Directors in the six months ended June 30, 2022 and 2021, respectively. Each restricted stock unit represents the contingent right to receive one share of the Company’s Class A common stock. A majority of the restricted stock units will vest in four equal annual installments.The fair value of the restricted stock units was based on the fair market value of the Company’s stock on the date of grant.
17
The activity of restricted stock units is set forth below:
| Number |
|
| Weighted Average |
| |||
| of Shares |
|
| Grant Date |
| |||
|
|
|
| Fair Value |
| |||
Unvested at December 31, 2021 |
|
| 764,871 |
|
| $ | 7.52 |
|
Granted |
|
| 979,257 |
|
|
| 7.56 |
|
Vested |
|
| (239,245 | ) |
|
| 7.11 |
|
Canceled/Forfeited |
|
| (33,660 | ) |
|
| 6.76 |
|
Unvested at June 30, 2022 |
|
| 1,471,223 |
|
| $ | 7.63 |
|
Weighted Average | ||||||||
Number | Grant Date | |||||||
of Shares | Fair Value | |||||||
Unvested at December 31, 2020 | 787,923 | $ | 3.81 | |||||
Granted | 299,352 | 14.46 | ||||||
Vested | (248,305 | ) | 4.20 | |||||
Canceled/Forfeited | (70,767 | ) | 8.01 | |||||
Unvested at September 30, 2021 | 768,203 | $ | 7.45 | |||||
As of SeptemberJune 30, 2021,2022, the total unrecognized compensation cost related to unvested restricted stock units expected to vest was $3,559$7,479 and the weighted average remaining recognition period for unvested awards was 2.92 years.
Stock Option Valuation
The stock options granted during the ninesix months ended SeptemberJune 30, 2022 and 2021 were 1,418,224and 2020 were 1,069,658 and 1,553,7231,037,099, respectively. The assumptions that the Company used to determine the grant-date fair value of stock options granted during these periods were as follows, presented on a weighted-average basis:
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Risk-free interest rate |
|
| 1.92 | % |
|
| 0.82 | % |
Expected term (in years) |
|
| 6.25 |
|
|
| 6.21 |
|
Expected volatility |
|
| 50.66 | % |
|
| 39.30 | % |
Expected dividend yield |
|
| 0.0 | % |
|
| 0.0 | % |
Exercise price |
| $ | 8.03 |
|
| $ | 13.54 |
|
Underlying stock price |
| $ | 7.87 |
|
| $ | 13.54 |
|
September 30, | September 30, | |||||||
2021 | 2020 | |||||||
Risk-free interest rate | 0.83 | % | 0.46 | % | ||||
Expected term (in years) | 6.22 | 6.22 | ||||||
Expected volatility | 39.31 | % | 37.42 | % | ||||
Expected dividend yield | 0.0 | % | 0.0 | % | ||||
Exercise price | $ | 13.57 | $ | 4.04 | ||||
Underlying stock price | $ | 13.57 | $ | 3.37 | ||||
These assumptions resulted in an estimated weighted-average grant-date fair value per share of stock options granted during the ninesix months ended SeptemberJune 30, 2022 and 2021 of $3.94and 2020 of $5.32 and $1.05,$5.31, respectively.
Stock Option Activity
The following table summarizes the Company’s stock option activity since December 31, 2020:2021:
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
|
|
|
| Average |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Contractual |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Term |
|
| Intrinsic |
| ||||
|
| Shares |
|
| Price |
|
| (in years) |
|
| Value |
| ||||
Outstanding as of December 31, 2021 |
|
| 6,596,969 |
|
| $ | 4.10 |
|
|
| 5.20 |
|
| $ | 38,524 |
|
Granted |
|
| 1,418,224 |
|
|
| 8.03 |
|
|
|
|
|
|
| ||
Exercised |
|
| (1,845,897 | ) |
|
| 1.11 |
|
|
|
|
|
| 8,408 |
| |
Canceled / forfeited |
|
| (36,735 | ) |
|
| 2.50 |
|
|
|
|
|
|
| ||
Outstanding as of June 30, 2022 |
|
| 6,132,561 |
|
|
| 5.92 |
|
|
| 6.65 |
|
|
| 7,509 |
|
Options exercisable as of June 30, 2022 |
|
| 3,167,162 |
|
|
| 3.57 |
|
|
| 4.60 |
|
|
| 6,860 |
|
Options vested or expected to vest as of June 30, 2022 |
|
| 5,504,030 |
|
| $ | 5.61 |
|
|
| 6.38 |
|
| $ | 7,414 |
|
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Number of | Exercise | Term | Intrinsic | |||||||||||||
Shares | Price | (in years) | Value | |||||||||||||
Outstanding as of December 31, 2020 | 6,617,403 | $ | 2.32 | 5.22 | $ | 34,447 | ||||||||||
Granted | 1,069,658 | 13.57 | ||||||||||||||
Exercised | (912,205 | ) | 2.31 | 9,720 | ||||||||||||
Canceled / forfeited | (50,282 | ) | 8.30 | |||||||||||||
Outstanding as of September 30, 2021 | 6,724,574 | 4.07 | 5.36 | 68,605 | ||||||||||||
Options exercisable as of September 30, 2021 | 4,335,117 | 1.74 | 3.57 | 54,186 | ||||||||||||
Options vested or expected to vest as of September 30, 2021 | 6,271,605 | $ | 3.71 | 5.11 | $ | 66,231 | ||||||||||
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s Class A common stock for those stock options that have exercise prices lower than the fair value of the Company’s Class A common stock.
The total fair value of options vested during the ninesix months ended SeptemberJune 30, 2022 and 2021 was $2,029and 2020 was $592 and $387,$586, respectively.
18
As of SeptemberJune 30, 2021,2022, the total unrecognized stock compensation expense related to unvested stock options expected to vest was $4,431$7,106 and was expected to be recognized over a weighted-average period of 3.103.06 years.
16. Net Income (Loss) per Share (EPS)
Basic EPS is calculated by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted EPS is calculated by dividing net income (loss) by the weighted-average number of shares outstandingoutstanding plus the dilutive effect, if any, of outstanding equity awards using the treasury stock method which includes consideration of unrecognized compensation expenses as additional proceeds.
A reconciliation of the numerator and denominator used in the calculation of the basic and diluted net income (loss) attributable to the Class A common stockholders of Organogenesis Holdings Inc. is as follows.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
| $ | 8,744 |
|
| $ | 20,687 |
|
| $ | 7,831 |
|
| $ | 30,630 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding —basic |
|
| 129,635,682 |
|
|
| 128,235,224 |
|
|
| 129,214,541 |
|
|
| 128,053,654 |
|
Dilutive effect of restricted stock units |
|
| 147,600 |
|
|
| 508,015 |
|
|
| 205,838 |
|
|
| 517,837 |
|
Dilutive effect of options |
|
| 2,817,297 |
|
|
| 5,245,174 |
|
|
| 3,284,827 |
|
|
| 5,149,700 |
|
Weighted-average common shares outstanding—diluted |
|
| 132,600,579 |
|
|
| 133,988,413 |
|
|
| 132,705,206 |
|
|
| 133,721,191 |
|
Earnings per share—basic |
| $ | 0.07 |
|
| $ | 0.16 |
|
| $ | 0.06 |
|
| $ | 0.24 |
|
Earnings per share—diluted |
| $ | 0.07 |
|
| $ | 0.15 |
|
| $ | 0.06 |
|
| $ | 0.23 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Numerator: | ||||||||||||||||
Net Income (loss) | $ | 12,577 | $ | 20,755 | $ | 43,207 | $ | (1,081 | ) | |||||||
Denominator: | ||||||||||||||||
Weighted average common shares outstanding | 128,546,301 | 105,040,035 | 128,219,674 | 104,748,297 | ||||||||||||
Dilutive effect of restricted stock units | 458,642 | 134,759 | 498,105 | — | ||||||||||||
Dilutive effect of options | 4,845,273 | 3,314,974 | 5,048,225 | — | ||||||||||||
Weighted-average common shares outstanding—diluted | 133,850,216 | 108,489,768 | 133,766,004 | 104,748,297 | ||||||||||||
Earnings (loss) per share—basic | $ | 0.10 | $ | 0.20 | $ | 0.34 | $ | (0.01 | ) | |||||||
Earnings (loss) per share—diluted | $ | 0.09 | $ | 0.19 | $ | 0.32 | $ | (0.01 | ) | |||||||
For the three and
17. Leases
The Company leases are primarily of real estate, equipment and vehicle leases.
The Company leases real estate for office, lab, warehouse and production space under noncancelable operating and finance leases that expire at various dates through 2031,2035, subject to the Company’s options to terminate or renew certain leases for an additional five toten years.
On January 1, 2013, the Company entered into finance lease arrangements with 65 Dan Road SPE, LLC, 85 Dan Road Associates, LLC, Dan Road Equity I, LLC and 275 Dan Road SPE, LLC for office and laboratory space in Canton, Massachusetts. 65 Dan Road SPE, LLC, 85 Dan Road Associates, LLC, Dan Road Equity I, LLC and 275 Dan Road SPE, LLC are related parties as the owners of these entities are also stockholders of the Company. In August 2021, the Company purchased the building (the “275 Dan Road Building”) under the lease with 275 Dan Road SPE, LLC for $6,013 and the lease was terminated. The Company recorded an asset of $4,943 to buildings within fixed asset, net in accordance with ASC 842-20-40-2 Purchase of the Underlying Asset to account for the purchase of the leased asset. Other than the lease with 275 Dan Road SPE, LLC which was terminated in August 2021, the remaining three leases were set to terminate on December 31, 2022 and each containscontained a renewal option for a five-year period with thea rental rate at the greater ofNoticeThe Company exercised the option to extend the leases for an additional five years in November 2021 and is currently negotiating the rental rate for those properties with the landlord. The Company used its best estimate to calculate the lease assets and liabilities in the renewal period and reassessed the classification for these leases according to ASC 842-10-25-1 Lease Classification. As a result, these leases were reclassified from finance leases to operating leases. The related finance lease assets and liabilities were reclassified to operating lease right-of-use assets and operating lease obligations on the consolidated balance sheet as of the exercise of this renewal option is due one year priorDecember 31, 2021. Due to the expiration ofcompetitive real estate market for biotechnology companies in Massachusetts, the initial term. Excludingnegotiated rental rate could differ materially from management’s estimates, which may significantly increase the lease with 275 Dan Road SPE, LLC which was terminated in August 2021 discussed below, aggregate annualassets and lease payments are approximately $
19
The Company owed an aggregate of $10,336ofowes some accrued but unpaid lease obligations that include rent in arrears and unpaid operating and common area maintenance costs under the aforementioned leases.leases as detailed in the section below. Effective April 1, 2019, the Company agreed to accrue interest on the accrued but unpaid lease obligations at an interest rate equal to the rate charged inunder the 2019 Credit Agreement. These accrued but unpaid lease obligations as well as the accrued interest on these obligations were subordinated to the 2019 Credit Agreement. With the termination of the 2019 Credit Agreement and the execution of the 2021 Credit Agreement (see Note “13. Long-Term Debt Obligations”) in August 2021, these obligations are no longer subordinated to the Company’s existing loans.
In connection with the purchase of the 275 Dan Road Building in August 2021, the Company is required to pay
The accrued but unpaid lease obligations as well as the related interest accruals are shown below.
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Principal portion of rent in arrears |
|
| 6,792 |
|
|
| 7,246 |
|
Unpaid operating and common area maintenance costs |
|
| - |
|
|
| 558 |
|
Total accrued but unpaid lease obligations |
|
| 6,792 |
|
|
| 7,804 |
|
|
|
|
|
|
|
| ||
Accrued interest on accrued but unpaid lease obligations |
|
| 1,957 |
|
|
| 1,938 |
|
The principal portion of rent in arrears totaled $7,393 and $6,946as of September 30, 2021 and December 31, 2020, respectively. This liability was included in the short-term portion of financeoperating lease obligations other than the balance related to the 275 Dan Road Building that was primarily included in accrued expenses and other current liabilities on the consolidated balance sheet. The interest portion of rent in arrears totaled$2,384 and $2,865sheets as of SeptemberJune 30, 20212022 and December 31, 2020, respectively.2021. The unpaid operating and common area maintenance costs, totaled $558 and $525 as of September 30, 2021 and December 31, 2020, respectively. Thethe accrued interest on the accrued but unpaid lease obligations totaled $2,357 and $1,673 as of September 30, 2021 and December 31, 2020, respectively. The above-mentioned mentioned liabilities were included in accrued expenses and other current liabilities and other liabilities on the consolidated balance sheet.
The components of lease cost were as follows:
|
| Classification |
| Six Months Ended |
| |||||
|
|
|
| 2022 |
|
| 2021 |
| ||
Finance lease |
|
|
|
|
|
|
|
| ||
Amortization of right-of-use assets |
| COGS and SG&A |
| $ | 213 |
|
| $ | 603 |
|
Interest on lease liabilities |
| Interest Expense |
|
| 7 |
|
|
| 661 |
|
Total Finance lease cost |
|
|
|
| 220 |
|
|
| 1,264 |
|
Operating lease cost |
| COGS, R&D, SG&A |
|
| 4,808 |
|
|
| 3,015 |
|
Short-term lease cost |
| COGS, R&D, SG&A |
|
| 1,391 |
|
|
| 1,414 |
|
Variable lease cost |
| COGS, R&D, SG&A |
|
| 2,201 |
|
|
| 2,449 |
|
Total lease cost |
|
|
| $ | 8,620 |
|
| $ | 8,142 |
|
Classification | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | ||||||||||
Finance lease | ||||||||||||
Amortization of right-of-use | COGS and SG&A | $ | 793 | $ | 1,396 | |||||||
Interest on lease liabilities | Interest Expense | 218 | 879 | |||||||||
Total Finance lease cost | 1,011 | 2,275 | ||||||||||
Operating lease cost | COGS, R&D, SG&A | 1,857 | 4,872 | |||||||||
Short-term lease cost | COGS, R&D, SG&A | 758 | 2,172 | |||||||||
Variable lease cost | COGS, R&D, SG&A | 1,304 | 3,753 | |||||||||
Total lease cost | $ | 4,930 | $ | 13,072 | ||||||||
Supplemental balance sheet information related to finance leasesleases was as follows:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Property and equipment, gross |
| $ | 1,174 |
|
| $ | 1,174 |
|
Accumulated depreciation |
|
| (1,174 | ) |
|
| (961 | ) |
Property and equipment, net |
| $ | - |
|
| $ | 213 |
|
|
|
|
|
|
|
| ||
Finance lease obligations |
| $ | - |
|
| $ | 200 |
|
20
September 30, 2021 | January 1 2021 | |||||||
Property and equipment, gross | $ | 18,670 | $ | 22,989 | ||||
Accumulated depreciation | (16,736 | ) | (19,250 | ) | ||||
Property and equipment, net | $ | 1,934 | $ | 3,739 | ||||
Current portion of finance lease obligations | $ | 8,531 | $ | 3,619 | ||||
Finance lease long-term obligations | 831 | 11,442 | ||||||
Total finance lease liabilities | $ | 9,362 | $ | 15,061 | ||||
Supplemental cash flow information related to leases was as follows:
|
| Six Months Ended |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows for operating leases |
|
| 4,630 |
|
|
| 3,228 |
|
Operating cash flows for finance leases |
|
| 7 |
|
|
| 1,022 |
|
Financing cash flows for finance leases |
|
| 200 |
|
|
| 1,374 |
|
|
|
|
|
|
|
| ||
Right-of-use assets obtained in exchange for lease obligations |
|
|
|
|
|
| ||
Operating leases |
|
| 364 |
|
|
| 29,092 |
|
Finance leases |
|
| - |
|
|
| - |
|
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Weighted-average remaining lease term |
|
|
|
|
|
| ||
Finance leases |
|
| - |
|
|
| 0.45 |
|
Operating leases |
|
| 7.86 |
|
|
| 8.22 |
|
|
|
|
|
|
|
| ||
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Weighted-average discount rate |
|
|
|
|
|
| ||
Finance leases |
|
| - |
|
|
| 11.30 | % |
Operating leases |
|
| 4.54 | % |
|
| 4.51 | % |
Ended | ||||
2021 | ||||
As of SeptemberJune 30, 2021, the2022, maturities of lease liabilities were as follows:
|
| Operating leases |
|
| Finance leases |
| ||
2022 (remaining 6 months) |
| $ | 9,713 |
|
| $ | - |
|
2023 |
|
| 8,165 |
|
|
| - |
|
2024 |
|
| 7,315 |
|
|
| - |
|
2025 |
|
| 7,526 |
|
|
| - |
|
2026 |
|
| 7,435 |
|
|
| - |
|
Thereafter |
|
| 25,966 |
|
|
| - |
|
Total lease payments |
|
| 66,120 |
|
|
| - |
|
Less: interest |
|
| (10,549 | ) |
|
| - |
|
Total lease liabilities |
| $ | 55,571 |
|
| $ | - |
|
Operating leases | Finance leases | |||||||
2021 (remaining 3 months) | $ | 1,975 | $ | 889 | ||||
2022 | 4,980 | 8,887 | ||||||
2023 | 4,137 | 0 | ||||||
2024 | 3,345 | 0 | ||||||
2025 | 3,249 | 0 | ||||||
Thereafter | 16,644 | 0 | ||||||
Total lease payments | 34,330 | 9,776 | ||||||
Less: interest | (5,459 | ) | (414 | ) | ||||
Total lease liabilities | $ | 28,871 | $ | 9,362 | ||||
18. Commitments and Contingencies
Royalties
The Company entered into a license agreement with a university for certain patent rights related to the development, use, and production of one of its advanced wound care products. Under this agreement, the Company incurred a royalty based on a percentage of net product sales, for the use of these patents until the patents expired, which was in November 2006. Accrued royalties totaled $1,187$1,187 as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively, and were classified as part of accrued expenses and other current liabilities on the Company’s consolidated balance sheets. There was 0 royalty expense incurred during the three and ninesix months ended Septemberended June 30, 20212022 or 20202021 related to this agreement.
In October 2017, the Company entered into a license agreement with a third party. Under the license agreement, the Company is required to pay royalties based on a percentage of net sales of the licensed product that occur, after December 31, 2017, through the expiration of the underlying patent in October 2026, subject to minimum royalty payment provisions. The Company recorded royalty expense of $1,707$2,104 and $1,201$1,134 during the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $4,062$3,705 and $3,020$2,355during the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, within selling, general and administrative expenses on the consolidated statementstatements of operations.
21
Legal Proceedings
In conducting its activities, the Company, from time to time, is subject to various claims and also has claims against others. In management’s opinion, the ultimate resolution of such claims would not have a material effect on the financial position, operating results or cash flows of the Company. The Company accrues for these claims when amountsamounts due are probable and estimable.
19. Related Party Transactions
Lease obligations to affiliates, including accrued but unpaid lease obligations, and purchase of an asset under a finance lease with an affiliate are further described in Note “17. Leases”.
During 2010, the Company’s Board of Directors approved a loan program that permitted the Company to make loans to three executives of the Company (the “Employer Loans”) to (i) provide them with liquidity (“Liquidity Loans”) and (ii) fund the exerciseexercise of vested stock options (“Option Loans”). Two of the executives left the Company in 2014. The Employer Loans matured with all principal and accrued interest due on the tenth anniversary of the issuance date of each subject loan. Interest on the Employer Loans was at various rates ranging from 2.30%—3.86%2.30% - 3.86% per annum, compounded annually. The Employer Loans were secured by shares of the Company’s Class A common stock held by the former executives. With respect to the Liquidity Loans, the Company had no personal recourse against the borrowers beyond the pledged shares. As of December 31, 2020, Liquidity Loans and Option Loans to one former executive were outstanding with an aggregate principal balance of $100$100 and $334,$334, respectively. During the three months ended March 31, 2021, this former executive paid off the outstanding principal balance of his Employer Loans and the related interest receivable. As a result, the Company recorded $179$179 as a recovery of the previously reserved related party receivables within selling, general and administrative expenses on the consolidated statement of operations for the ninethree months ended September 30,March 31, 2021. The $334$334 of the repaid principal balance of the Option Loans was recorded to equity. See Note “15. Share-Based Compensation”.
20. Taxes
The Company is principally subject to taxation in the United States. The Company has a history of net operating losses both federally and in various states and began utilizing those losses to offset current taxable income in 2020. The Company’s wholly-ownedwholly owned Swiss subsidiary, Organogenesis GmbH, is subject to taxation in Switzerland and generally has profits as a result of a transfer pricing arrangement in place with Organogenesis Inc., its U.S. parent and a wholly-ownedwholly owned subsidiary of the Company.
The income tax rate for the ninesix months ended SeptemberJune 30, 20212022 varied from the U.S. statutory rate of 21%21% primarily due to the utilization of net operating losses federallytax adjustments related to executive compensation, other permanent tax adjustments, and in many states as well as the cash taxes in Switzerland. The Company maintains a full valuation allowance against its U.S. deferred tax assets and as such, the Company’s provision for income taxes primarily relates to cash taxes to be paid in certain states where the net operating losses are expected to be fully utilized or limited based on state statute.discrete items. Income tax expense for the ninesix months ended SeptemberJune 30, 20212022 was $990,$2,485, which included a discrete tax expense of $31$23 related primarily to the interest on certain uncertain tax positions. Income tax expense for the ninesix months ended SeptemberJune 30, 20202021 was $134 and$687, which included a discrete tax expense of $20 related primarily to state and foreign taxes.
The Company examines all positive and negative evidence to estimate whether sufficient future taxable income in the U.S. will be generated to permit the use of existing deferred tax assets. TheIn the fourth quarter of 2021, the Company has significant negativereleased the valuation allowance recorded against its U.S. deferred tax assets. Upon reviewing the positive evidence inof net operating loss utilization, cumulative profits, and forecasted taxable income, the form of cumulative losses and believesCompany believed that it iswas more likely than not that these United States deferred tax assets will notwould be utilized. As such, the Company maintained the valuation allowance against its U.S. deferred tax asset as of September 30, 2021.utilized. There are no material deferred tax assets in the other jurisdictions. On a quarterly basis, the Company reassesses the need for a valuation allowance on deferred income tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. After assessing both the positive and negative evidence, including net operating loss utilization, cumulative profits, and forecasted taxable income, the Company may determinedetermined that it is more likely than not the U.S. deferred tax assets
21. Subsequent Events
The Company has evaluated subsequent events through NovemberAugust 9, 2021,2022, the date on which these consolidated financial statements were issued has determinedissued. There was no additional event to report other than that there were no such events to report.disclosed within Note. "4. Product and Geographic Sales".
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form2020, as amended,2021, filed with the Securities and Exchange Commission, or SEC, on March 16, 2021,1, 2022, as amended. Please refer to our note regarding forward-looking statements on page 3 of this Form
Overview
Organogenesis is a leading regenerative medicine company focused on the development, manufacture, and commercialization of solutions for the Advanced Wound Care and Surgical & Sports Medicine markets. Our products have been shown through clinical and scientific studies to support and in some cases accelerate tissue healing and improve patient outcomes. We are advancing the standard of care in each phase of the healing process through multiple breakthroughs in tissue engineering and cell therapy. Our solutions address large and growing markets driven by aging demographics and increases in comorbidities such as diabetes, obesity, cardiovascular and peripheral vascular disease and smoking. We offer our differentiated products and, and physician offices. Our mission is to provide integrated healing solutions that substantially improve medical outcomes and the lives of patients while lowering the overall cost of care.
We offer a comprehensive portfolio of products in the markets we serve that address patient needs across the continuum of care. We have and intend to continue to generate data from clinical trials, real-world outcomes and health economics research that validate the clinical efficacy and value proposition offered by our products. Several of our existing and pipeline products in our portfolio have PMA approval, BLA approval or 510(k) clearance from the FDA. Given the extensive time and cost required to conduct clinical trials and receive FDA approvals, we believe that our data and regulatory approvals provide us a strong competitive advantage. Our product development expertise and multiple technology platforms provide a robust product pipeline, which we believe will drive future growth.
In the Advanced Wound Care market, we focus on the development and commercialization of advanced wound care products for the treatment of chronic and acute wounds in various treatment settings. We have a comprehensive portfolio of regenerative medicine products, capable of supporting patients from early in the wound healing process through wound closure regardless of wound type. Our Advanced Wound Care products include Apligraf for the treatment of venous leg ulcers (“VLUs”) and diabetic foot ulcers (“DFUs”); Dermagraft for the treatment of DFUs;DFUs (manufacturing currently suspended pending transition to our Massachusetts based manufacturing facilities); PuraPly AM and PuraPly XT as an antimicrobial barriersbarrier for a broad variety of wound types; and the Affinity, Novachor and NuShield wound coverings to address a variety of wound sizes and types. We have a highly trained and specialized direct wound care sales force paired with exceptionalcomprehensive customer support services.
In the Surgical & Sports Medicine market, we focus on products that support the healing of musculoskeletal injuries, including degenerative conditions such as osteoarthritis and tendonitis. We are leveraging our regenerative medicine capabilities in this attractive, adjacent market. Our Surgical & Sports Medicine products include ReNufor in-office kneeosteoarthritis treatment; NuShield and Affinity barrier products for surgical application in targeted soft tissue repairs; and Affinity, Novachorand PuraPly AM for management of open wounds in the surgical setting. We currently sell these products through independent agencies and our growing direct sales force other than ReNu and NuCel which we stopped marketing after May 31, 2021. Refer to further discussion in section “End of Enforcement Grace Period for ReNu and NuCel” below.
For the ninesix months ended SeptemberJune 30, 2021,2022, we generated $339.5$218.5 million of net revenue and $43.2$7.8 million of net income compared to $231.5$225.7 million of net revenue and $1.1$30.6 million of net lossincome for the ninesix months ended SeptemberJune 30, 2020. We2021. While we reported net income for the most recent two years, we have incurred significant losses since inception and while we have reported net income for the five consecutive quarters ended September 30, 2021, we may incur operating losses in the future as we expend resources as part of our efforts to grow our organization to support the planned expansion of our business. As of SeptemberJune 30, 2021,2022, we had an accumulated deficit of $111.8$53.0 million. Our primary sources of capital to date have been from sales of our products, borrowings from related parties and institutional lenders and proceeds from the sale of our Class A common stock. We operate inas one segment of regenerative medicine.
COVID-19 pandemic
The emergence of thethirdsecond quarter ended SeptemberJune 30, 2021,2022, we are unable to predict the impact
End of Enforcement Grace Period for ReNu and NuCel
On November 16, 2017, the FDA issued a final guidance document entitled, “Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue-Based Products: Minimal Manipulation and Homologous Use”, or 361 HCT/P Guidance, which provided the FDA’s thinking on how to apply the existing regulatory criteria for regulation as a Section 361 HCT/P. The 361 HCT/P Guidance clarified the FDA’s views about the criteria that differentiate those products subject to regulation under Section 361 of the Public Health Service Act from those considered to be drugs, devices, and/or biological products subject to licensure under Section 351 and related regulations. The 361 HCT/P Guidance originally indicated that the FDA was providing adiscontinuewe discontinued clinical development of NuCel.
Dermagraft
As part of our long-term plan to consolidate manufacturing operations in Massachusetts, manufacturing of Dermagraft was suspended in the fourth quarter of 2021 and sales of Dermagraft were suspended in the second quarter of 2022. We currently plan to transition our Dermagraft manufacturing to Massachusetts, which we expect will result in substantial long-term cost savings. In the period when Dermagraft is not available (possibly for a few years), we expect that customers will be willing to substitute Apligraf for Dermagraft and that the suspension of Dermagraft sales will not have a material impact on our net revenue. However, if we do not realize the expected substantial long-term cost savings or if customers are unwilling to substitute Apligraf for Dermagraft during the period in which Dermagraft is unavailable, it could have an adverse effect on our net revenue and results of operations.
Components of Our Consolidated Results of Operations
In assessing the performance of our business, we consider a variety of performance and financial measures. We believe the items discussed below provide insight into the factors that affect these key measures.
Revenue
We derive our net revenue from our portfolio of Advanced Wound Care and Surgical & Sports Medicine products. We primarily sell our Advanced Wound Care products through direct sales representatives who manage and maintain the sales relationships with hospitals, wound care centers, government facilities, ASCs and physician offices. We primarily sell our Surgical & Sports Medicine products through third-partythird party agencies. As of SeptemberJune 30, 2021,2022, we had approximately 330350 direct sales representatives and approximately 190150 independent agencies.
We recognize revenue from sales of our Advanced Wound Care and Surgical & Sports Medicine products when the customer obtains control of our product, which occurs at a point in time and may be upon procedure date, shipment, or delivery, based on the contractual terms of a contract. We record revenue net of a reserve for returns, discounts and GPO rebates, which represent a direct reduction to the revenue we recognize.
Several factors affect our reported revenue in any period, including product, payer and geographic sales mix, operational effectiveness, pricing realization, marketing and promotional efforts, the timing of orders and shipments, regulatory actions including healthcare reimbursement scenarios, competition and business acquisitions.
Cost of goods sold gross profit and gross profit margin
Cost of goods sold includes personnel costs, product testing costs, quality assurance costs, raw materials and product costs, manufacturing costs, and the costs associated with our manufacturing and warehouse facilities. The increaseschanges in our cost of goods sold correspond with the increaseschanges in sales units and are also affected by product mix. We expect our cost of goods sold to increase due primarily to the anticipated increase in sales volumes driven by the expansion of our sales force and sales territories, expansion of our product portfolio offerings, and the number of healthcare facilities that offer our products. We expect our cost
24
Gross profit is calculated as net revenue less cost of goods sold and generally increases as revenue increases. Gross profit margin is calculated as gross profit divided by total net revenue. Our gross profit and gross profit margin areis affected by product and geographic sales mix, realized pricing of our products, the efficiency of our manufacturing operations and the costs of materials used and fees charged by third-party manufacturers to produce our products. Regulatory actions, including healthcare reimbursement scenarios, which may require costly expenditures or result in pricing pressures, may decrease our gross profit and gross profit margin.
Selling, general and administrative expenses
Selling, general and administrative expenses generally include personnel costs for sales, marketing, sales support, customer support, and general and administrative personnel, sales commissions, incentive compensation, insurance, professional fees, depreciation, amortization, bad debt expense, royalties, information systems costs and costs associated with our administrative facilities. We generally expect our selling, general and administrative expenses to continue to increase due to increased investments in market development and the geographic expansion of our sales forces as we drive for continued revenue growth.
Research and development expenses
Research and development expenses include personnel costs for our research and development personnel, expenses related to improvements in our manufacturing processes, enhancements to our currently available products, and additional investments in our product and platform development pipeline. Our research and development expenses also include expenses for clinical trials. We expense research and development costs as incurred. We generally expect that research and development expenses will increase as we continue to conduct clinical trials on new and existing products, move products through the regulatory pathway (e.g., seek BLA approval), add personnel to support product enhancements as well as to bring new products to market, and enhance our manufacturing process and procedures.
Other expense, net
Interest expense net
Income taxes
We account for income taxes using an asset and liability approach. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized.
In determining whether a valuation allowance for deferred tax assets is necessary, we analyze both positive and negative evidence related to the realization of deferred tax assets and inherent in that, assess the likelihood of sufficientincluding projected future taxable income. We also consider the expected reversalincome, recent financial results and estimates of future reversals of deferred tax liabilitiesassets and analyze the period in which these liabilities would be expected to reverse to determine whether the taxable temporary difference amounts serve as an adequate source of future taxable income to support realizability of the deferred tax assets.liabilities. In addition, we consider whether it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. Based on a consideration of the factors discussed above, we have determined that a valuation allowance is necessary against the full amount of our net U.S. deferred tax assets.
We account for uncertainty in income taxes recognized in the consolidated financial statements by applying
25
Results of Operations
The following table sets forth, for the periods indicated, our results of operations:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net revenue | $ | 113,753 | $ | 100,799 | $ | 339,501 | $ | 231,491 | ||||||||
Cost of goods sold | 26,167 | 22,964 | 81,602 | 61,799 | ||||||||||||
Gross profit | 87,586 | 77,835 | 257,899 | 169,692 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 62,369 | 51,325 | 182,950 | 150,797 | ||||||||||||
Research and development | 8,953 | 3,709 | 22,482 | 13,787 | ||||||||||||
Total operating expenses | 71,322 | 55,034 | 205,432 | 164,584 | ||||||||||||
Income from operations | 16,264 | 22,801 | 52,467 | 5,108 | ||||||||||||
Other expense, net: | ||||||||||||||||
Interest expense, net | (1,482 | ) | (2,969 | ) | (6,383 | ) | (8,391 | ) | ||||||||
Loss on extinguishment of debt | (1,883 | ) | — | (1,883 | ) | — | ||||||||||
Gain on settlement of deferred acquisition consideration | — | 951 | — | 2,246 | ||||||||||||
Other income, net | (19 | ) | 44 | (4 | ) | 90 | ||||||||||
Total other expense, net | (3,384 | ) | (1,974 | ) | (8,270 | ) | (6,055 | ) | ||||||||
Net income (loss) before income taxes | 12,880 | 20,827 | 44,197 | (947 | ) | |||||||||||
Income tax expense | (303 | ) | (72 | ) | (990 | ) | (134 | ) | ||||||||
Net income (loss) | $ | 12,577 | $ | 20,755 | $ | 43,207 | $ | (1,081 | ) | |||||||
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net revenue |
| $ | 121,401 |
|
| $ | 123,196 |
|
| $ | 218,518 |
|
| $ | 225,748 |
|
Cost of goods sold |
|
| 26,652 |
|
|
| 29,940 |
|
|
| 51,732 |
|
|
| 55,435 |
|
Gross profit |
|
| 94,749 |
|
|
| 93,256 |
|
|
| 166,786 |
|
|
| 170,313 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling, general and administrative |
|
| 72,609 |
|
|
| 62,349 |
|
|
| 136,187 |
|
|
| 120,581 |
|
Research and development |
|
| 10,205 |
|
|
| 7,320 |
|
|
| 18,792 |
|
|
| 13,529 |
|
Total operating expenses |
|
| 82,814 |
|
|
| 69,669 |
|
|
| 154,979 |
|
|
| 134,110 |
|
Income from operations |
|
| 11,935 |
|
|
| 23,587 |
|
|
| 11,807 |
|
|
| 36,203 |
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| (730 | ) |
|
| (2,431 | ) |
|
| (1,467 | ) |
|
| (4,901 | ) |
Other expense, net |
|
| (21 | ) |
|
| 18 |
|
|
| (24 | ) |
|
| 15 |
|
Total other expense, net |
|
| (751 | ) |
|
| (2,413 | ) |
|
| (1,491 | ) |
|
| (4,886 | ) |
Net income before income taxes |
|
| 11,184 |
|
|
| 21,174 |
|
|
| 10,316 |
|
|
| 31,317 |
|
Income tax expense |
|
| (2,440 | ) |
|
| (487 | ) |
|
| (2,485 | ) |
|
| (687 | ) |
Net income |
| $ | 8,744 |
|
| $ | 20,687 |
|
| $ | 7,831 |
|
| $ | 30,630 |
|
EBITDA and Adjusted EBITDA
Our management uses financial measures that are not in accordance with generally accepted accounting principles in the United States, or GAAP, in addition to financial measures in accordance with GAAP to evaluate our operating results.
The following is a reconciliation of GAAP net income (loss) to
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Net income |
| $ | 8,744 |
|
| $ | 20,687 |
|
| $ | 7,831 |
|
| $ | 30,630 |
|
Interest expense, net |
|
| 730 |
|
|
| 2,431 |
|
|
| 1,467 |
|
|
| 4,901 |
|
Income tax expense |
|
| 2,440 |
|
|
| 487 |
|
|
| 2,485 |
|
|
| 687 |
|
Depreciation |
|
| 1,528 |
|
|
| 1,063 |
|
|
| 2,875 |
|
|
| 2,073 |
|
Amortization |
|
| 1,221 |
|
|
| 1,243 |
|
|
| 2,442 |
|
|
| 2,486 |
|
EBITDA |
|
| 14,663 |
|
|
| 25,911 |
|
|
| 17,100 |
|
|
| 40,777 |
|
Stock-based compensation expense |
|
| 1,692 |
|
|
| 1,042 |
|
|
| 2,995 |
|
|
| 1,740 |
|
Recovery of certain notes receivable from related parties (1) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (179 | ) |
Change in fair value of Earnout (2) |
|
| - |
|
|
| (2,762 | ) |
|
| - |
|
|
| (3,058 | ) |
Restructuring charge (3) |
|
| 643 |
|
|
| 939 |
|
|
| 907 |
|
|
| 1,866 |
|
Settlement fee (4) |
|
| 1,600 |
|
|
| - |
|
|
| 2,600 |
|
|
| - |
|
Adjusted EBITDA |
| $ | 18,598 |
|
| $ | 25,130 |
|
| $ | 23,602 |
|
| $ | 41,146 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Net income (loss) | $ | 12,577 | $ | 20,755 | $ | 43,207 | $ | (1,081 | ) | |||||||
Interest expense, net | 1,482 | 2,969 | 6,383 | 8,391 | ||||||||||||
Income tax expense | 303 | 72 | 990 | 134 | ||||||||||||
Depreciation | 1,937 | 1,135 | 4,010 | 3,285 | ||||||||||||
Amortization | 1,240 | 885 | 3,726 | 2,518 | ||||||||||||
EBITDA | 17,539 | 25,816 | 58,316 | 13,247 | ||||||||||||
Stock-based compensation expense | 1,041 | 486 | 2,781 | 1,164 | ||||||||||||
Gain on settlement of deferred acquisition consideration (1) | — | (951 | ) | — | (2,246 | ) | ||||||||||
Recovery of certain notes receivable from related parties (2) | — | (1,111 | ) | (179 | ) | (1,111 | ) | |||||||||
Change in fair value of Earnout (3) | (927 | ) | — | (3,985 | ) | — | ||||||||||
Restructuring charge (4) | 1,010 | — | 2,876 | — | ||||||||||||
Transaction cost (5) | — | 361 | — | 929 | ||||||||||||
Loss on extinguishment of debt (6) | 1,883 | — | 1,883 | — | ||||||||||||
Write-off of a fixed asset (7) | 1,104 | — | 1,104 | — | ||||||||||||
Cancellation fee (8) | — | — | — | 1,950 | ||||||||||||
Adjusted EBITDA | $ | 21,650 | $ | 24,601 | $ | 62,796 | $ | 13,933 | ||||||||
26
Comparison of the Three and Nine months ended SeptemberSix Months Ended June 30, 20212022 and 2020
Revenue
Three Months Ended September 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Advanced Wound Care | $ | 107,341 | $ | 89,990 | $ | 17,351 | 19 | % | ||||||||
Surgical & Sports Medicine | 6,412 | 10,809 | (4,397 | ) | (41 | %) | ||||||||||
Net revenue | $ | 113,753 | $ | 100,799 | $ | 12,954 | 13 | % | ||||||||
Nine Months Ended September 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Advanced Wound Care | $ | 309,485 | $ | 201,009 | $ | 108,476 | 54 | % | ||||||||
Surgical & Sports Medicine | 30,016 | 30,482 | (466 | ) | (2 | %) | ||||||||||
Net revenue | $ | 339,501 | $ | 231,491 | $ | 108,010 | 47 | % | ||||||||
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Advanced Wound Care |
| $ | 113,791 |
|
| $ | 111,436 |
|
| $ | 2,355 |
|
|
| 2 | % |
Surgical & Sports Medicine |
|
| 7,610 |
|
|
| 11,760 |
|
|
| (4,150 | ) |
|
| (35 | %) |
Net revenue |
| $ | 121,401 |
|
| $ | 123,196 |
|
| $ | (1,795 | ) |
|
| (1 | %) |
|
| Six Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Advanced Wound Care |
| $ | 203,881 |
|
| $ | 202,144 |
|
| $ | 1,737 |
|
|
| 1 | % |
Surgical & Sports Medicine |
|
| 14,637 |
|
|
| 23,604 |
|
|
| (8,967 | ) |
|
| (38 | %) |
Net revenue |
| $ | 218,518 |
|
| $ | 225,748 |
|
| $ | (7,230 | ) |
|
| (3 | %) |
Net revenue from our Advanced Wound Care products in the three and six months ended June 30,2022 was $113.8 million and $203.9 million, respectively, increased by $17.4slightly compared to the net revenue of $111.4 million or 19%, to $107.3and $202.1 million in the three and six months ended SeptemberJune 30, 2021, from $90.0 million in the three months ended September 30, 2020. Net revenue from our Advanced Wound Care products increased by $108.5 million, or 54%, to $309.5 million in the nine months ended September 30, 2021 from $201.0 million in the nine months ended September 30, 2020.respectively. The slight increase in Advanced Wound Care net revenue was primarily attributable to the expanded sales force, increased sales to existing and new customers, increased adoption of our amniotic product portfolio, including our Affinity product, as well asand increased adoption of our PuraPly line extensions, launchedpartially offset by the decrease of our Dermagraft product revenue, the sales of which were suspended in the second halfthree months ended June 30, 2022, and the settlement fee with a GPO recorded as a direct reduction of 2020.
Net revenue from our Surgical & Sports Medicine products decreased by $4.4$4.2 million, or 41%35%, to $6.4$7.6 million in the three months ended SeptemberJune 30, 20212022 from $10.8$11.8 million in the three months ended SeptemberJune 30, 2020.2021. Net revenue from our Surgical & Sports Medicine products decreased by $0.5$9.0 million, or 2%38%, to $30.0$14.6 million in the ninesix months ended SeptemberJune 30, 20212022 from $30.5$23.6 million in the ninesix months ended SeptemberJune 30, 2020.2021. The decrease in Surgical & Sports Medicine net revenue was primarily attributabledue to the continued impact of the suspension of marketing of our ReNu and NuCel which we stopped marketing after May 31, 2021 due toproducts in connection with the expiration of the FDA’s enforcement grace period for these products.
Included within net revenue is PuraPly revenue of $57.0$69.4 million and $41.0$37.6 million for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $135.9$122.2 million and $102.0$78.9 million for the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively. PuraPly exited pass-through status on October 1, 2020. The continued increase in PuraPly revenue in the three and ninesix months ended SeptemberJune 30, 20212022 was due to the expanded sales forces,force, expanded sites of care, and increased adoption, by existing and new customers, of our PuraPly line extensions launched in the second half of 2020 as well as expanded sites of care.
Cost of goods sold gross profit and gross profit margin
Three Months Ended September 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Cost of goods sold | $ | 26,167 | $ | 22,964 | $ | 3,203 | 14 | % | ||||||||
Gross profit | $ | 87,586 | $ | 77,835 | $ | 9,751 | 13 | % | ||||||||
Gross profit % | 77 | % | 77 | % | ||||||||||||
Nine Months Ended September 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Cost of goods sold | $ | 81,602 | $ | 61,799 | $ | 19,803 | 32 | % | ||||||||
Gross profit | $ | 257,899 | $ | 169,692 | $ | 88,207 | 52 | % | ||||||||
Gross profit % | 76 | % | 73 | % | ||||||||||||
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Cost of goods sold |
| $ | 26,652 |
|
| $ | 29,940 |
|
| $ | (3,288 | ) |
|
| (11 | %) |
Gross profit |
| $ | 94,749 |
|
| $ | 93,256 |
|
| $ | 1,493 |
|
|
| 2 | % |
|
| Six Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Cost of goods sold |
| $ | 51,732 |
|
| $ | 55,435 |
|
| $ | (3,703 | ) |
|
| (7 | %) |
Gross profit |
| $ | 166,786 |
|
| $ | 170,313 |
|
| $ | (3,527 | ) |
|
| (2 | %) |
27
Cost of goods sold increaseddecreased by $3.2$3.3 million, or 14%11%, to $26.2$26.7 million in the three months ended SeptemberJune 30, 20212022 from $23.0$29.9 million in the three months ended SeptemberJune 30, 2020.2021. Cost of goods sold increaseddecreased by $19.8$3.7 million or 32%7% to $81.6$51.7 million in the ninesix months ended SeptemberJune 30, 20212022 from $61.8$55.4 million in the ninesix months ended SeptemberJune 30, 2020.2021. The increasedecrease in cost of goods sold was primarily due to increased unit volumes, and additional manufacturing and quality control headcount.
Gross profit in the three months ended June 30, 2022 was $94.7 million, increased by $9.8 million, or 13%,slightly compared to $87.6the gross profit of $93.3 million in the three months ended SeptemberJune 30, 2021 from $77.82021. Gross profit decreased by $3.5 million, or 2%, to $166.8 million in the threesix months ended SeptemberJune 30, 2020. Gross profit increased by $88.2 million, or 52%, to $257.92022 from $170.3 million in the ninesix months ended SeptemberJune 30, 2021 from $169.7 million in the nine months ended September 30, 2020.2021. The increasedecrease in gross profit resulted primarily from increaseddecreased sales volume due to the strength of our Advanced Wound Carein Surgical & Sports Medicine products as well asand increased manufacturing-related costs, partially offset by a shift in product mix to our higher gross margin products.
Research and Development Expenses
Three Months Ended September 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Research and development | $ | 8,953 | $ | 3,709 | $ | 5,244 | 141 | % | ||||||||
Research and development as a percentage of net revenue | 8 | % | 4 | % | ||||||||||||
Nine Months Ended September 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Research and development | $ | 22,482 | $ | 13,787 | $ | 8,695 | 63 | % | ||||||||
Research and development as a percentage of net revenue | 7 | % | 6 | % | ||||||||||||
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Research and development |
| $ | 10,205 |
|
| $ | 7,320 |
|
| $ | 2,885 |
|
|
| 39 | % |
|
| Six Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Research and development |
| $ | 18,792 |
|
| $ | 13,529 |
|
| $ | 5,263 |
|
|
| 39 | % |
Research and development expenses increased by $5.2$2.9 million, or 141%39%, to $9.0$10.2 million in the three months ended SeptemberJune 30, 20212022 from $3.7$7.3 million in the three months ended SeptemberJune 30, 2020.2021. Research and development expenses increased by $8.7$5.3 million, or 63%39%, to $22.5$18.8 million in the ninesix months ended SeptemberJune 30, 20212022 from $13.8$13.5 million in the ninesix months ended SeptemberJune 30, 2020.2021. The increase in research and development expenses was primarily due to increased headcount associated with our existing Advanced Wound Care and Surgical & Sports Medicine products, an increase in product costs associated with our pipeline products not yet commercialized and an increase in the clinical study and related costs necessary to seek regulatory approvals for certain of our products.
Selling, General and Administrative Expenses
Three Months Ended September 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Selling, general and administrative | $ | 62,369 | $ | 51,325 | $ | 11,044 | 22 | % | ||||||||
Selling, general and administrative as a percentage of net revenue | 55 | % | 51 | % | ||||||||||||
Nine Months Ended September 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Selling, general and administrative | $ | 182,950 | $ | 150,797 | $ | 32,153 | 21 | % | ||||||||
Selling, general and administrative as a percentage of net revenue | 54 | % | 65 | % | ||||||||||||
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Selling, general and administrative |
| $ | 72,609 |
|
| $ | 62,349 |
|
| $ | 10,260 |
|
|
| 16 | % |
|
| Six Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Selling, general and administrative |
| $ | 136,187 |
|
| $ | 120,581 |
|
| $ | 15,606 |
|
|
| 13 | % |
Selling, general and administrative expenses increased by $11.0$10.3 million, or 22%16%, to $62.4$72.6 million in the three months ended SeptemberJune 30, 20212022 from $51.3$62.3 million in the three months ended SeptemberJune 30, 2020.2021. The increase in selling, general and administrative expenses was primarily due to a $4.8$6.4 million increase related to additional headcount, primarily in our direct sales force and increased sales commissions, due to increased sales,and a $2.3 million increase related to increased travel and marketing programs amid the relaxedCOVID-19travel restrictions, a $1.0$1.3 million increase in restructuring cost associated with closing the La Jolla office, a $1.1 millionwrite-offof certain design and consulting fees previously capitalized related to the unfinished construction work on the 275 Dan Road Building, and a $2.7 million increase in various costs resulting from increased revenue and increase in legal, consulting feesroyalty and other costs associated with the ongoing operations of our business. These increases were partially offset byIn addition, in the three months ended June 30, 2021, the Company recorded a $0.9$2.8 million decrease resulting fromreduction to the selling, general and administrative expenses related to the CPN Earnout fair value adjustment.
28
Selling, general and administrative expenses increased by $32.2$15.6 million, or 21%13%, to $183.0$136.2 million in the ninesix months ended SeptemberJune 30, 20212022 from $150.8$120.6 million in the ninesix months ended SeptemberJune 30, 2020.2021. The increase in selling, general and administrative expenses was primarily due to a $24.2$10.6 million increase related to additional headcount, primarily in our direct sales force, and increased sales commissions due to increased sales, a $2.1 million increase related to increased travel and marketing programs amid the relaxed$2.9$0.9 million increase in restructuring cost associated with closing the La Jolla office, a $1.1 millionwrite-offof certain design and consulting fees previously capitalized related to the unfinished construction work on the 275 Dan Road Building, and a $7.8 million increase in various costs resulting from increased revenue and increase in legal, consulting feesroyalty and other costs associated with the ongoing operations of our business. In addition, in the six months ended June 30, 2021, the Company recorded a $3.1 million reduction to the selling, general and administrative expenses related to the CPN Earnout fair value adjustments. These increases were partially offset by a $4.0 million decrease resulting from the CPN Earnout fair value adjustment and a $2.0$1.0 million decrease in restructuring costs due to the cancellation fee incurredsmaller scale of the restructuring activities associated with closing the Birmingham office in 2022 as compared to the three months ended March 31, 2020 to cancel certain product development and consulting agreements.
Other Expense, net
Three Months Ended September 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Interest expense, net | $ | (1,482 | ) | $ | (2,969 | ) | $ | 1,487 | (50 | %) | ||||||
Loss on extinguishment of debt | (1,883 | ) | — | (1,883 | ) | 100 | % | |||||||||
Gain on settlement of deferred acquisition consideration | — | 951 | (951 | ) | (100 | %) | ||||||||||
Other income (expense), net | (19 | ) | 44 | (63 | ) | (143 | %) | |||||||||
Total other expense, net | $ | (3,384 | ) | $ | (1,974 | ) | $ | (1,410 | ) | 71 | % | |||||
Nine Months Ended September 30, | Change | |||||||||||||||
2021 | 2020 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Interest expense, net | $ | (6,383 | ) | $ | (8,391 | ) | $ | 2,008 | (24 | %) | ||||||
Loss on extinguishment of debt | (1,883 | ) | — | (1,883 | ) | 100 | % | |||||||||
Gain on settlement of deferred acquisition consideration | — | 2,246 | (2,246 | ) | (100 | %) | ||||||||||
Other income, net | (4 | ) | 90 | (94 | ) | (104 | %) | |||||||||
Total other expense, net | $ | (8,270 | ) | $ | (6,055 | ) | $ | (2,215 | ) | 37 | % | |||||
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Interest expense, net |
| $ | (730 | ) |
| $ | (2,431 | ) |
| $ | 1,701 |
|
|
| (70 | %) |
Other income, net |
|
| (21 | ) |
|
| 18 |
|
|
| (39 | ) |
|
| (217 | %) |
Total other expense, net |
| $ | (751 | ) |
| $ | (2,413 | ) |
| $ | 1,662 |
|
|
| (69 | %) |
|
| Six Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Interest expense, net |
| $ | (1,467 | ) |
| $ | (4,901 | ) |
| $ | 3,434 |
|
|
| (70 | %) |
Other income, net |
|
| (24 | ) |
|
| 15 |
|
|
| (39 | ) |
|
| (260 | %) |
Total other expense, net |
| $ | (1,491 | ) |
| $ | (4,886 | ) |
| $ | 3,395 |
|
|
| (69 | %) |
Other expense, net, increaseddecreased by $1.4$1.7 million, or 71%69%, to $3.4$0.8 million in the three months ended SeptemberJune 30, 20212022 from $2.0$2.4 million in the three months ended SeptemberJune 30, 2020. Interest2021. Other expense, net, decreased by $3.4 million or 69% to $1.5 million or 50%in the six months ended June 30, 2022 from $4.9 million in the six months ended June 30, 2021. The decrease is primarily due to the reduceddecrease in interest expense resulting from the lower interest rate for the borrowings under the 2021 Credit Agreement. Loss on extinguishment of debt of $1.9 million was related to loss recognized on the extinguishment of the 2019 Credit Agreement upon repayment in August 2021. Gain on settlement of deferred acquisition consideration of $1.0 million was due to the decrease in legal accruals related to the settlement of a legacy lawsuit in October 2020. We assumed the legacy lawsuit as part of the resolution of the deferred acquisition consideration dispute with the sellers of NuTech Medical in February 2020.
Income Tax Expense
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Income tax expense |
| $ | (2,440 | ) |
| $ | (487 | ) |
| $ | (1,953 | ) |
|
| 401 | % |
|
| Six Months Ended |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Income tax expense |
| $ | (2,485 | ) |
| $ | (687 | ) |
| $ | (1,798 | ) |
|
| 262 | % |
Income tax expense net, increased by $2.2 million or 37% to $8.3 million in the nine months ended September 30, 2021 from $6.1 million in the nine months ended September 30, 2020. Interest expense, net, decreased by $2.0 million, or 24% primarily401%, to $2.4 million in the three months ended June 30, 2022 from $0.5 million in the three months ended June 30, 2021. Income tax expense increased by $1.8 million, or 262% to $2.5 million in the six months ended June 30, 2022 from $0.7 million in the six months ended June 30, 2021. The increase in the provision is attributed to the increase in the effective rate from 2.21% in the six months ended June 30, 2021 to 26.99% in the six months ended June 30, 2022 due to the reduced interest rate for borrowings under the 2021 Credit Agreement. Loss on extinguishment of debt of $1.9 million was related to loss recognized on the extinguishmentrelease of the 2019 Credit Agreement upon repaymentvaluation allowance in Augustthe three months ended December 31, 2021. The gain
29
Liquidity and Capital Resources
Since our inception, we have funded our operations and capital expenditures through cash flows from product sales, loans from affiliates and entities controlled by certain of our affiliates, third-party debt and proceeds from the sale of our capital stock. As of SeptemberJune 30, 2021,2022, we had an accumulated deficit of $111,828$53.0 million and working capital of $130.8$143.3 million which included $102.2$112.3 million in cash.cash and cash equivalents. We also hadhave $125.0 million available for future revolving borrowings under our Revolving Facility (see Note “13. Long-Term Debt Obligations”). For the ninesix months ended SeptemberJune 30,
We continue to closely monitor ongoing developments in connection with theimpactaffect our commercial prospects, cash position and access to capital in fiscal 20212022 or beyond. We will continue to assess our cash and other sources of liquidity and, if circumstances warrant, we will make appropriate adjustments to our operating plan.
Our primary uses of cash are working capital requirements, capital expenditure and debt service payments. Additionally, from time to time, we may use capital for acquisitions and other investing and financing activities. Working capital is used principally for our personnel as well as manufacturing costs related to the production of our products. Our working capital requirements vary from period to period depending on manufacturing volumes, the timing of shipments and the payment cycles of our customers and payers. Our capital expenditures consist primarily of building improvements, manufacturing equipment, and computer hardware and software.
To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute on our business strategy, we anticipate that they will be obtained through additional equity or debt financings, other strategic transactions or a combination of these potential sources of funds. There can be no assurance that we will be able to obtain additional funds on terms acceptable to us, on a timely basis or at all.
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
(in thousands) | ||||||||
Net cash provided by (used in) operating activities | $ | 44,030 | $ | (17,749 | ) | |||
Net cash used in investing activities | (25,993 | ) | (18,080 | ) | ||||
Net cash provided by (used in) financing activities | (119 | ) | 12,345 | |||||
Net change in cash and restricted cash | $ | 17,918 | $ | (23,484 | ) | |||
|
| Six Months Ended |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
| (in thousands) |
| |||||
Net cash provided by operating activities |
| $ | 11,606 |
|
| $ | 16,180 |
|
Net cash used in investing activities |
|
| (12,840 | ) |
|
| (9,290 | ) |
Net cash used in financing activities |
|
| (350 | ) |
|
| (1,389 | ) |
Net change in cash, cash equivalents, and restricted cash |
| $ | (1,584 | ) |
| $ | 5,501 |
|
Operating Activities
During the ninesix months ended SeptemberJune 30, 2021,2022, net cash provided by operating activities was $44.0$11.6 million, resulting primarily from our net income of $43.2$7.8 million and$24.5$18.0 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $25.6 million. Cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $20.6 million, an increase in inventory of $9.7 million, and a decrease in operating leases and other liabilities of $7.1 million, all of which were partially offset by an increase in accounts payable, accrued expenses and other current liabilities of $12.0 million.
During the six months ended June 30, 2021, net cash provided by operating activities was $16.2 million, resulting from our net income of $30.6 million and non-cash charges of $13.4 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $27.8 million. Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $21.5 million, an increase in inventory of $5.0 million, an increase in prepaid expenses and other current assets of $1.6 million, and a decrease in accounts payableoperating leases and other liabilities of $3.8$3.1 million, all of which were partially offset by an increase in accounts payable, accrued expenses and other liabilities of $4.4$3.4 million.
Investing Activities
During the ninesix months ended SeptemberJune 30, 2021,2022, we used $26.0$12.8 million of cash in investing activities solely consisting of capital expenditures.
30
During the ninesix months ended SeptemberJune 30, 2020,2021, we used $18.1$9.3 million of cash in investing activities solely consisting of capital expendituresexpenditures.
Financing Activities
During the six months ended June 30, 2022, net cash used in financing activities was $0.4 million. This consisted primarily of $12.3the payment of term loan and finance lease obligations of $1.1 million and the payment of $5.8$0.6 million related to the CPN deferred acquisition consideration, partially offset by the net receipts of CPN.
During the ninesix months ended SeptemberJune 30, 2021, net cash used in financing activities was $0.1$1.4 million. This consisted primarily of the repayment of borrowings of $70.0 million under the 2019 Credit Agreement, the payment of $1.6 million to extinguish this debt facility, the payment of finance lease obligations of $2.1 million, the payment of $1.7 million related to other financing activities. The net cash used in financing activities was principally offset by $73.2 million in net proceeds from the 2021 Credit Agreement and $2.1 million in proceeds from the exercise of common stock options.
Indebtedness
2021 Credit Agreement
In August 2021, we and our subsidiaries entered into a credit agreement with SVB and several other lenders, which we refer to as the 2021 Credit Agreement. The 2021 Credit Agreement provides for a term loan facility not to exceed $75,000 (the “Term Loan Facility”) and a revolving credit facility not to exceed $125,000 (the “Revolving Facility”).
Advances made under the 2021 Credit Agreement may be either Eurodollar Loans or ABR Loans, at our option. For Eurodollar Loans, the interest rate is a per annum interest rate equal to LIBOR plus an Applicable Margin between 2.00% to 3.25% based on the Total Net Leverage Ratio. For ABR Loans, the interest rate is equal to (1) the highest of (a) the Wall Street Journal Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the LIBOR rate plus 1.0%,
The 2021 Credit Agreement requires us to make consecutive quarterly installment payments of principal in an amount equal to between 0.625% to 2.50% of the original principal amount of the Term Loans startingfollowing: (a) from September 30, 2021 through and including June 30, 2022, $469; (b) from September 30, 2022 through and including June 30, 2023, $938; (c) from September 30, 2023 through and including June 30, 2025, $1,406 and (d) from September 30, 2025 and the last day of each quarter thereafter until August 6, 2026 (the “Term Loan Maturity Date”)., $1,875. We may prepay the Term Loan Facility, provided that any Term Loans prepaid prior to August 6, 2022, must be accompanied by a prepayment premium equal to 1.00% of the aggregate amount of Term Loans prepaid. Once repaid, amounts borrowed under the Term Loan Facility may not
We must pay a quarterly fee in arrears, (the “Commitment Fee”), foron theCompany’s non-use first day ofavailable funds through each quarter prior to August 6, 2026 (the “Revolving Termination Date”) and on the Revolving Termination Date, a fee for our non-use of available funds (the “Commitment Fee”). The Commitment Fee rate is between 0.25% to 0.45% based on the Total Net Leverage Ratio. We may elect to reduce or terminate the Revolving Facility in its entirety at any time by repaying all outstanding principal, unpaid accrued interest and, with respect to any such reduction or termination of the Revolving Commitments made prior to August 6, 2022, 1.00% of the aggregate amount of the Revolving Commitments so reduced or terminated.
Under the 2021 Credit Agreement, we are required to comply with certain financial covenants. We may not permitcovenants including the Consolidated Fixed Charge Coverage Ratio at the last day of any period of four consecutive fiscal quarters, commencing with the fiscal quarter ending September 30, 2021, to be less than 1.25:1.00. Additionally, we may not permit theand Consolidated Total Net Leverage Ratio, attested quarterly. In addition, we are also required to make representations and warranties and comply with certain non-financial covenants that are customary in loan agreements of this type, including restrictions on the last daypayment of any perioddividends, repurchase of four consecutive fiscal quarters, commencing with the fiscal quarter ending September 30, 2021, to exceed the following ratios: (i) for the trailing four fiscal quarters ending September 30, 2021, December 31, 2021, March 31, 2022,stock, incurrence of indebtedness, dispositions and acquisitions.
As of June 30, 2022, and September 30, 2022, a ratio of 3.50:1.00; (ii) for the trailing four fiscal quarters ending December 31, 2022, March 31, 2023, June 30, 2023 and September 30, 2023, a ratio of 3.25:1.00; and (iii) for the trailing four fiscal quarters ending December 31, 2023 and each fiscal quarter thereafter, a ratio of 3.00:1.00.
In March 2019, we, our subsidiaries and SVB, and the several other lenders thereto entered into a credit agreement, as amended (the “2019 Credit Agreement”), providing for a term loan facility of $40,000 and a revolving credit facility of up to $60,000. Both facilities were set to mature in 2024. The interest rate for the term loan facility was a floating per annum interest rate equal to the greater of 3.75% above the Wall Street Journal Prime Rate and 9.25%. The interest rate for advances under the revolving facility was a floating per annum interest rate equal to the greater of the Wall Street Journal Prime Rate and 5.50%. If we elected to prepay the loan or terminate the facilities, we were required to pay a certain percentage of the outstanding principal as a prepayment fee. A final payment fee (the “Final Payment”) of 6.5% multiplied by the original aggregate principal amount of term loan facility was due upon the earlier to occur, the maturity date of the term loan or prepayment of all outstanding principal.
In August 2021, upon entering into the 2021 Credit Agreement, we paid an aggregate amount of $70.6 million due under the 2019 Credit Agreement, including unpaid principal, accrued interest, the Final Payment and a prepayment fee, with proceeds from the 2021 Credit Agreement, and the 2019 Credit Agreement was terminated. Upon termination of the 2019 Credit Agreement, the Company recognized $1.9 million as loss on the extinguishment of the loan for the nine months ended September 30, 2021.
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited consolidated financial statements have been prepared in accordance with GAAP. The preparation of our unaudited consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, and the disclosure at the date of the unaudited consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our unaudited consolidated financial statements, which, in turn, could materially change our results from those reported. Management evaluates its estimates, assumptions and judgments on an ongoing basis. Historically, our critical accounting estimates have not differed materially from actual results. However, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our consolidated statements of operations, liquidity and financial condition. See also our Annual Report on Form2020, as amended,2021 for information about these accounting policies as well as a description of our other significant accounting policies.
Off-Balance
We did not have, during the periods presented, and we do not currently have, any
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards as disclosed in Note “2. Summary of Significant Accounting Policies” to our consolidated financial statements included in this Report on
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to Item 305(e)various market risks, including fluctuations in interest rates and variability in currency exchange rates. We have established policies, procedures and internal processes governing our management of RegulationS-K,market risk and theCompany use of financial instruments to manage our exposure to such risk.
Interest Rate Risk
As of June 30, 2022, we had $73.1 million in borrowings outstanding under our term loan facility and no borrowings outstanding under our revolving credit facility, respectively. Borrowings under the term loan facility and revolving credit facility bear interest at variable rates. Based on the principal amounts outstanding as of June 30, 2022, an immediate 10% change in the interest rate would not have a material impact on our debt related obligations, financial position or results of operations.
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Foreign Currency and Market Risk
The majority of our employees and our major operations are currently located in the United States. The functional currency of our foreign subsidiary in Switzerland is the U.S. dollar. We have, in the normal course of business, engaged in contracts with contractors or other vendors in a currency other than the U.S. dollar. To date, we have had minimal exposure to fluctuations in foreign currency exchange rates as the time period from the date that transactions are initiated and the date of payment or receipt of payment is generally of short duration. Accordingly, we believe we do not requiredhave a material exposure to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Material Weaknesses on Internal Control over Financial Reporting
The Company’s management, with the participation of its principal executive officer and principal financial officer, evaluated the effectiveness of its disclosure controls and procedures as of SeptemberJune 30, 2021.2022. The term “disclosure controls and procedures,” as defined inand15d-15(e)and 15d-15(e) underSecurities and Exchange Commission (the “SEC”).SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.
Management assessed the effectiveness of ourthe Company’s internal control over financial reporting based on the criteria set forthestablished in the SEC guidance on conducting such assessments as of the end of the period covered by this report. Management conducted the assessment based on certain criteria established in Internal Control-IntegratedControl— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
As disclosed under “Item 9A. Controls and Procedures” in ourthe Company’s Annual Report on Form10-Kourthe fiscal year ended December 31, 2020, as amended, we2021, our management team identified the following material weakness that existed as of December 31, 2020 and continued to exist at September 30, 2021. A material weakness is ain our internal control deficiency or a combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interimover financial statements will not be prevented or detected.
Although management has made significant progress in consultation withremediating this material weakness, management our principal executive officer and principal financial officer concluded that we did not maintain effective internal control over financial reporting and our disclosure controls and procedures were not effectivethe material weakness described above continued to exist as of both December 31, 2020 and SeptemberJune 30, 2021, based on the criteria in Internal Control—Integrated Framework (2013) issued by COSO.
Plans for Remediation of Material Weakness
Management has taken actions to remediate the deficiencies in its internal controls over financial reporting and implemented additional processes and controls designed to address the underlying causes associated with the above-mentioned material weakness. Although the Company has made significant progress in remediating the aforementioned deficiencies, management did not perform sufficient control testing to conclude that the controls were operating effectively for a reasonable period of time.
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As management continues to evaluate and work to improve itsour internal control over financial reporting, management may determine it is necessary to take additional measures to address the material weakness. However, we believe the above actions will be effective in remediating the material weaknesses and we will continue to devote significant time and attention to these remediation efforts. Until the controls have been operating for a sufficient period of time and management has concluded, through testing, that these controls are executed consistently and operating effectively, the material weakness described above will continue to exist.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than those described above related to remediation efforts. However, as the implementation of the new ERP system continues, we will change our processes and procedures, which in turn, could result in changes to our internal control over financial reporting. As such changes occur, we will evaluate quarterly whether such changes materially affect our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings. From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary course of business. These matters may include intellectual property, employment and other general claims. With respect to our outstanding legal matters, based on our current knowledge, we believe that the amount or range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. Our Annual Report on Form2020,2021, as amended, includes a detailed discussion of our risk factors under the heading “Part I, Item 1A—Risk Factors.” Except as set forth below, thereThere have been no material changes from such risk factors during the quarter ended SeptemberJune 30, 2021.2022. You should consider carefully the risk factors discussed in our Annual Report on Form2020, as amended,2021, and all other information contained in or incorporated by reference in this Quarterly Report on Form2020, as amended,2021 or herein actually occur, they may materially harm our business, financial condition, operating results, cash flows or growth prospects. As a result, the market price of our common stock could decline, and you could lose all or part of your investment. Additional risks and uncertainties that are not yet identified or that we think are immaterial may also materially harm our business, financial condition, operating results, cash flows or growth prospects and could result in a complete loss of your investment.
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
None.
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Item 6. Exhibits
Exhibit number | Description | |
3.1 | ||
3.2 | ||
3.3 | ||
10.1† | ||
31.1† | ||
| Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2† | ||
32.1† | ||
101.INS† | XBRL Instance Document XBRL | |
101.SCH† | XBRL Taxonomy Extension Schema Document | |
101.CAL† | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF† | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB† | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE† | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |
† Filed herewith
* Management contract or compensatory plan or arrangement
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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.
Dated: | Organogenesis Holdings Inc. | |||||
(Registrant) | ||||||
/s/ David Francisco | ||||||
David Francisco | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) | ||||||
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