UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~Washington, D.C.~~

WASHINGTON, DC 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the ~~quarterly period ended~~Quarter

Period Ended March 31, ~~2021~~

2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File ~~Number~~ Number:

001-37906

ORGANOGENESIS HOLDINGS INC.

(Exact ~~name~~Name of ~~registrant~~Registrant as ~~specified~~Specified in ~~its charter)~~

Its Charter)


Delaware		98-1329150
(State or ~~other jurisdiction~~Other Jurisdiction of ~~incorporation or organization)~~		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

~~85 Dan Road~~

~~Canton, MA 02021~~

~~(Address of principal executive offices) (Zip Code)~~

~~(781)~~ ~~575-0775~~

~~(Registrant’s telephone number, including area code)~~


~~Title of each class~~ 85 Dan Road Canton, MA	~~Trading~~ ~~Symbol(s)~~ 02021
(Address of principal executive offices)	~~Name of each exchange~~ ~~on which registered~~
~~Class A Common Stock, $0.0001 par value~~	~~ORGO~~	~~Nasdaq Capital Market~~ (Zip Code)

(781)

575-0775

(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.~~

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 Regulation

S-T (§

(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate

by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange

Act.


Large accelerated filer	☐☒	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 Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

The number of ~~May 1, 2021, the registrant had a total of 128,218,266~~ shares of ~~its~~the registrant’s Class A common stock ~~$0.0001 par value per share, outstanding.~~

outstanding as of May 1, 2022 was 129,130,179.

Table of Contents

Organogenesis Holdings Inc.

Quarterly Report on Form

10-Q

For the Quarterly Period Ended March 31, ~~2021~~

2022

Table of Contents


		Page
PART I. FINANCIAL INFORMATION			4
Item 1.	Unaudited Consolidated Financial Statements		4
	Consolidated Balance Sheets		4
	Consolidated Statements of Operations		5
	Consolidated Statements of Stockholders’ Equity		6
	Consolidated Statements of Cash Flows		7
	Notes to Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2522
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		3431
Item 4.	Controls and Procedures		31

PART II. OTHER INFORMATION			32
Item 1.	Legal Proceedings		32
Item 1A	Risk Factors		33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 3.	Defaults Upon Senior Securities		33
Item 4.	Mine Safety Disclosures		33
Item 5.	Other Information		33
Item 6.	Exhibits		34

~~PART II. OTHER INFORMATION~~SIGNATURES			36
~~Item 1.~~	~~Legal Proceedings~~		36
~~Item 1A~~	~~Risk Factors~~		36
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~		36
~~Item 3.~~	~~Defaults Upon Senior Securities~~		36
~~Item 4.~~	~~Mine Safety Disclosures~~		36
~~Item 5.~~	~~Other Information~~		36
~~Item 6.~~	~~Exhibits~~		37

~~SIGNATURES~~			3835

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on

Form 10-Q

(this “Form

10-Q”)

contains forward-looking statements. These statements may relate to, but are not limited to, expectations of our future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under “Risk Factors.” In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Form

10-Q

may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Form

10-Q

and in “Part I, Item 1A—Risk Factors” in our Annual Report on Form

10-K

for the year ended December 31, ~~2020.~~2021. These forward-looking statements speak only as of the date of this Form

10-Q.

Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this

Form 10-Q.

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.

Table of Contents

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)

   March 31, December 31,
   2021 2020
Assets

Current assets:

Cash
   $ 77,458 $ 84,394
Restricted cash
   500 412
Accounts receivable, net
   72,003 56,804
Inventory
   29,721 27,799
Prepaid expenses and other current assets
   5,557 4,935


Total current assets
   185,239 174,344
Property and equipment, net
   62,431 60,068
Intangible assets, net
   29,379 30,622
Goodwill
   28,772 28,772
Operating lease right-of-use assets, net
   12,706 —
Deferred tax asset, net
   18 18
Other assets
   636 670


Total assets
   $ 319,181 $ 294,494


Liabilities and Stockholders’ Equity

Current liabilities:

Deferred acquisition consideration
   $ —   $ 483
Current portion of term loan
   16,875 16,666
Current portion of finance lease obligations
   3,870 3,619
Current portion of operating lease obligations
   4,004 —
Current portion of deferred rent and lease incentive obligation
   —   95
Accounts payable
   23,877 23,381
Accrued expenses and other current liabilities
   25,383 23,973


Total current liabilities
   74,009 68,217
Line of credit
   10,000 10,000
Term loan, net of current portion
   42,876 43,044
Deferred acquisition consideration, net of current portion
   1,436 1,436
Earnout liability
   3,689 3,985
Deferred rent and lease incentive obligation, net of current portion
   —   2,315
Finance lease obligations, net of current portion
   10,516 11,442
Operating lease obligations, net of current portion
   11,031 —
Other liabilities
   8,332 7,971


Total liabilities
   161,889 148,410


Commitments and contingencies (Note 18)

Stockholders’ equity:

Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued
   —   —
Common stock, $0.0001 par value; 400,000,000 shares authorized; 128,830,803 and 128,460,381 shares issued; 128,102,255 and 127,731,833 shares outstanding at March 31, 2021 and December 31, 2020, respectively.
   13 13
Additional paid-in capital
   298,095 296,830
Accumulated deficit
   (140,816 ) (150,759 )


Total stockholders’ equity
   157,292 146,084


Total liabilities and stockholders’ equity
   $ 319,181 $ 294,494

March 31,

December 31,


2022

2021

Assets

Current assets:
Cash
and cash equivalents
   $ 107,897 $ 113,929
Restricted cash    605 599
Accounts receivable, net    79,477 82,460
Inventory
, net
   22,737 25,022
Prepaid expenses and other current assets    7,135 4,969

Total current assets    217,851 226,979
Property and equipment, net    84,268 79,160
Intangible assets, net    24,452 25,673
Goodwill    28,772 28,772
Operating lease
right-of-use
assets, net
   47,468 49,144
Deferred tax asset, net    31,994 31,994
Other assets    1,467 1,537

Total assets    $ 436,272 $ 443,259

Liabilities and Stockholders’ Equity

Current liabilities:
D
eferred acquisition consideration
   $ 1,436 $ 1,436
Current portion of term loan    3,126 2,656
F
inance lease obligations
   101 200
Current portion of operating lease obligations    11,775 11,785
Accounts payable    27,935 29,339
Accrued expenses and other current liabilities    32,419 36,589

Total current liabilities    76,792 82,005
Term loan, net of current portion    69,869 70,769
Operating lease obligations, net of current portion    45,323 46,893
Other liabilities    1,060 1,557

Total liabilities    193,044 201,224

Commitments and contingencies (Note 18)    0 0
Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; NaN issued    0—   0—
Common stock, $0.0001 par value; 400,000,000 shares authorized; 129,615,732 and 129,408,740 shares issued; 128,887,184 and 128,680,192 shares outstanding at March 31, 2022 and December 31, 2021, respectively.    13 13
Additional
paid-in
capital
   303,261 302,155
Accumulated deficit    (60,046 ) (60,133 )

Total stockholders’ equity    243,228 242,035

Total liabilities and stockholders’ equity    $ 436,272 $ 443,259

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

Table of Contents
ORGANOGENESIS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(amounts in thousands, except share and per share data)

   Three Months Ended
March 31,
   2021 2020
Net revenue
   $ 102,552 $ 61,732
Cost of goods sold
   25,495 18,793


Gross profit
   77,057 42,939
Operating expenses:

Selling, general and administrative
   58,232 52,613
Research and development
   6,209 5,410


Total operating expenses
   64,441 58,023


Income (loss) from operations
   12,616 (15,084 )


Other expense, net:

Interest expense, net
   (2,470 ) (2,510 )
Gain on settlement of deferred acquisition consideration
   —   1,295
Other income (expense), net
   (3 ) 21


Total other expense, net
   (2,473 ) (1,194 )


Net income (loss) before income taxes
   10,143 (16,278 )
Income tax expense
   (200 ) (35 )


Net income (loss)
   $ 9,943 $ (16,313 )


Net income (loss), per share:

Basic
   $ 0.08 $ (0.16 )


Diluted
   $ 0.07 $ (0.16 )


Weighted-average common shares outstanding

Basic
   127,870,065 104,486,924


Diluted
   133,451,950 104,486,924



Three Months Ended

March 31,


2022

2021

Net revenue    $ 98,117 $ 102,552
Cost of goods sold    25,080 25,495

Gross profit    73,037 77,057
Operating expenses:
Selling, general and administrative    63,578 58,232
Research and development    8,587 6,209

Total operating expenses    72,165 64,441

Income from operations    872 12,616

Other expense, net:
Interest expense    (737 ) (2,470 )
Other expense, net    (3 ) (3 )

Total other expense, net    (740 ) (2,473 )

Net income before income taxes    132 10,143
Income tax expense    (45 ) (200 )

Net income    $ 87 $ 9,943

Net income, per share:
Basic    $ 0.00 $ 0.08

Diluted    $ 0.00 $ 0.07

Weighted-average common shares outstanding
Basic    128,788,721 127,870,065

Diluted    132,805,154 133,451,950

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

Table of Contents
ORGANOGENESIS HOLDINGS INC.
CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY
(unaudited)
(amounts in thousands, except share data)

   Three Months Ended March 31, 2021
         Additional
   Common Stock    Paid-in Accumulated Total
   Shares    Amount    Capital Deficit Stockholders’ Equity
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 —
Balance as of December 31, 2020 (as adjusted)
   127,731,833    13    296,830 (150,759 ) 146,084
Exercise of stock options
   285,344    —      984 —   984
Vesting of RSUs, net of shares surrendered to pay taxes
   85,078    —      (417 ) —   (417 )
Stock-based compensation expense
   —      —      698 —   698
Net income
   —      —      —   9,943 9,943






Balance as of March 31, 2021
   128,102,255    $ 13    $ 298,095 $ (140,816 ) $ 157,292






   Three Months Ended March 31, 2020
         Additional
   Common Stock    Paid-in Accumulated Total
   Shares    Amount    Capital Deficit Stockholders’ Equity
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 —
Balance as of December 31, 2019 (as adjusted)
   104,870,886    10    224,281 (168,708 ) 55,583
Exercise of stock options
   489,129    1    815 —   816
Stock-based compensation expense
   —      —      209 —   209
Net loss
   —      —      —   (16,313 ) (16,313 )






Balance as of March 31, 2020 (as adjusted)
   105,360,015    $ 11    $ 225,305 $ (185,021 ) $ 40,295







Three Months Ended March 31, 2022


Additional


Common Stock

Paid-in

Accumulated

Total


Shares

Amount

Capital

Deficit

Stockholders’ Equity

Balance as of December 31, 2021
   128,680,192    $ 13    $ 302,155 $ (60,133 ) $ 242,035
Exercise of stock options    86,121    —      291 —   291
Vesting of RSUs, net of shares surrendered to pay taxes    120,871    —      (488 ) —   (488 )
Stock-based compensation expense    —      —      1,303 —   1,303
Net income    —      —      —   87 87

Balance as of March 31, 2022
   128,887,184    13    303,261 (60,046 ) 243,228


Three Months Ended March 31, 2021


Additional


Common Stock

Paid-in

Accumulated

Total


Shares

Amount

Capital

Deficit

Stockholders’ Equity


Balance as of December 31, 2020
   127,731,833    13    296,830 (155,035 ) 141,808
Exercise of stock options    285,344    —      984 —   984
Vesting of RSUs, net of shares surrendered to pay taxes    85,078    —      (417 ) —   (417 )
Stock-based compensation expense    —      —      698 —   698
Net income    —      —      —   9,943 9,943

Balance as of March 31, 2021
   128,102,255    $ 13    $ 298,095 $ (145,092 ) $ 153,016

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

Table of Contents

ORGANOGENESIS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(amounts in thousands)

   Three Months Ended
March 31,
   2021 2020
Cash flows from operating activities:

Net income (loss)
   $ 9,943 $ (16,313 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation
   1,010 902
Amortization of intangible assets
   1,243 817
Amortization of operating lease right-of-use assets
   1,129 —
Non-cash interest expense
   72 46
Deferred interest expense
   525 470
Deferred rent expense and lease incentive obligation
   —   92
Gain on settlement of deferred acquisition consideration
   —   (1,295 )
Recovery of certain notes receivable from related parties
   (179 ) —
Provision recorded for sales returns and doubtful accounts
   1,103 217
Loss on disposal of property and equipment
   239 201
Adjustment for excess and obsolete inventories
   2,290 769
Stock-based compensation
   698 209
Change in fair value of Earnout liability
   (296 ) —
Changes in operating assets and liabilities:

Accounts receivable
   (16,301 ) 6,325
Inventory
   (4,212 ) (4,287 )
Prepaid expenses and other current assets
   (622 ) (2,099 )
Operating leases
   (1,210 ) —
Accounts payable
   1,842 (1,910 )
Accrued expenses and other current liabilities
   1,411 (1,274 )
Other liabilities
   (164 ) (153 )


Net cash used in operating activities
   (1,479 ) (17,283 )
Cash flows from investing activities:

Purchases of property and equipment
   (4,957 ) (4,243 )
Proceeds from the repayment of notes receivable from related parties
   179 —


Net cash used in investing activities
   (4,778 ) (4,243 )
Cash flows from financing activities:

Proceeds from term loan
   —   10,000
Payments of withholding taxes in connection with RSUs vesting
   (417 ) —
Proceeds from the exercise of stock options
   984 816
Principal repayments of finance lease obligations
   (675 ) (544 )
Payment of deferred acquisition consideration
   (483 ) (2,042 )


Net cash (used in) provided by financing activities
   (591 ) 8,230
Change in cash and restricted cash
   (6,848 ) (13,296 )
Cash and restricted cash, beginning of period
   84,806 60,370


Cash and restricted cash, end of period
   $ 77,958 $ 47,074


Supplemental disclosure of cash flow information:

Cash paid for interest
   $ 1,937 $ 2,244
Cash paid for income taxes
   $ —   $ —
Supplemental disclosure of non-cash investing and financing activities:

Purchases of property and equipment included in accounts payable and accrued expenses
   $ 306 $ 2,942
Right-of-use assets obtained through operating lease obligations
   $ 310 $ —

Three Months Ended

March 31,


2022

2021

Cash flows from operating activities:

Net income    $ 87 $ 9,943
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation    1,347 1,010
Amortization of intangible assets    1,221 1,243
Amortization of operating lease
right-of-use
assets
   1,847 1,129
Non-cash
interest expense
   108 72
Deferred interest expense    151 525
Provision recorded for doubtful accounts    40 921
Loss on disposal of property and equipment    0   239
Adjustment for excess and obsolete inventories    2,205 2,290
Stock-based compensation    1,303 698
Change in fair value of Earnout liability    0   (296 )
Changes in operating assets and liabilities:
Accounts receivable    2,942 (16,119 )
Inventory    80 (4,212 )
Prepaid expenses and other current assets    (2,165 ) (622 )
Operating leases    (1,751 ) (1,210 )
Accounts payable    (1,186 ) 1,842
Accrued expenses and other current liabilities    (4,828 ) 1,411
Other liabilities    10   (164 )

Net cash provided by (used in) operating activities    1,411 (1,300 )
Cash flows from investing activities:

Purchases of property and equipment    (6,672 ) (4,957 )

Net cash used in investing activities    (6,672 ) (4,957 )
Cash flows from financing activities:

Payments of term loan    (469 ) 0
Payments of withholding taxes in connection with RSUs vesting    (488 ) (417 )
Proceeds from the exercise of stock options    291 984
Principal repayments of finance lease obligations    (99 ) (675 )
Payment of deferred acquisition consideration    0   (483 )

Net cash used in financing activities    (765 ) (591 )
Change in cash
, cash equivalents,
and restricted cash
   (6,026 ) (6,848 )
Cash
, cash equivalents,
and restricted cash, beginning of period
   114,528 84,806

Cash
, cash equivalents,
and restricted cash, end of period
   $ 108,502 $ 77,958

Supplemental disclosure of cash flow information:

Cash paid for interest    $ 627 $ 1,937
Cash paid for income taxes    $ 4 $ 0
Supplemental disclosure of
non-cash
investing and financing activities:

Purchases of property and equipment included in accounts payable and accrued expenses    $ 1,869 $ 306
Right-of-use
assets obtained through operating lease obligations
   $ 171 $ 310
The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents
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 service centers (“ASCs”) and physician offices. The Company has ~~one~~1 operating and reportable segment.
COVID-19
pandemic
The ~~emergence of the~~ coronavirus
(COVID-19)
pandemic around the world, and particularly in the United States, continues to present risks to the Company. While the
COVID-19
pandemic has not materially adversely affected the Company’s financial results and business operations through ~~the first quarter ended~~ March 31, ~~2021,~~2022, the Company is unable to predict the impact that
COVID-19
will have on its financial position and operating results because of the numerous uncertainties created by the unprecedented nature of the pandemic.
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. ~~The Company has reviewed and implemented cost-saving measures and will continue to review and implement additional cost-saving measures, as necessary, to address the evolving~~ ~~COVID-19~~ ~~challenges.~~
~~Merger with Avista Healthcare Public Acquisition Corp~~
On December 10, 2018, Avista Healthcare Public Acquisition Corp., our predecessor company (“AHPAC”), consummated the previously announced merger (the “Avista Merger”) pursuant to an Agreement and Plan of Merger, dated as of August 17, 2018 (as amended, the “Avista Merger Agreement”), by and among AHPAC, Avista Healthcare Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of AHPAC (“Avista Merger Sub”) and Organogenesis Inc., a Delaware corporation (“Organogenesis Inc.”). As a result of the Avista Merger and the other transactions contemplated by the Avista Merger Agreement, Avista Merger Sub merged with and into Organogenesis Inc., with Organogenesis Inc. surviving the Avista Merger and becoming a wholly-owned subsidiary of AHPAC. AHPAC changed its name to Organogenesis Holdings Inc. (ORGO).
The Avista Merger was accounted for as a reverse merger in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Under this method of accounting, AHPAC was treated as the “acquired” company for accounting purposes. This determination was primarily based on Organogenesis Inc.’s equity holders having a majority of the voting power of the combined company, Organogenesis Inc. comprising the ongoing operations of the combined entity, Organogenesis Inc. comprising a majority of the governing body of the combined company, and Organogenesis Inc.’s senior management comprising the senior management of the combined company. Accordingly, for accounting purposes, the Avista Merger was treated as the equivalent of Organogenesis Inc. issuing stock for the net assets of AHPAC, accompanied by a recapitalization. The net assets of AHPAC were recorded at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Avista Merger are those of Organogenesis Inc.
~~Liquidity and Financial Conditions~~
~~In accordance with ASC~~ ~~205-40,~~ ~~Going Concern~~ ~~(“ASC~~ ~~205-40”),~~ the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Since its inception, the Company has funded its operations primarily with cash flow from product sales, proceeds from loans from affiliates and entities controlled by its affiliates, sales of its Class A common stock and third-party debt. As of March 31, 2021, the Company had an accumulated deficit of $140,816 and working capital of $111,230. The Company also had up to $30,000 available (subject to Borrowing Base) for future revolving borrowings under our Revolving Facility (see Note “13. Long-Term Debt Obligations”). For the three months ended March 31, 2021, the Company has generated net income of $9,943 and used $1,479 of cash from operations. The Company expects that its cash of $77,458 and other components of working capital of $33,772 as of March 31, 2021, plus net cash flows from product sales and availability under the 2019 Credit Agreement, will be sufficient to fund its operating expenses, capital expenditure requirements and debt service payments for at least 12 months beyond the filing date of this quarterly report.

The Company expects to continue investing in product development, sales and marketing, and customer support for its products. The Company may seek to raise additional funding through public and/or private equity financings, debt financings, or other strategic transactions. There can be no assurance that the Company will be able to obtain additional debt or equity financing on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial condition.

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 ~~in accordance with~~ the rules and regulations of the Securities and Exchange Commission (the “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 Form~~ ~~10-K~~ ~~for the fiscal year ended December 31, 2020 (the “Annual Report”).~~
Report.

The unaudited consolidated financial statements include the accounts and results of operations of Organogenesis Holdings Inc. and its wholly-owned ~~or controlled~~ 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 three months ended March 31, ~~2021~~2022 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 of~~liabilities 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 ~~could~~and outcomes may differ significantly from those ~~estimates.~~
~~Summary~~estimates and assumptions.

Table 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 Annual Report. There have been no material changes to the significant accounting policies previously disclosed in the Annual Report, other than as it related to the recently adopted accounting pronouncement disclosed below.
~~Revision to Previously Issued Financial Statements~~
On April 12, 2021, the Staff of the SEC issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”). 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, 2018, the Company had 4.1 million private warrants outstanding, which were issued to Avista Capital Partners IV, L.P. and Avista Capital Partners IV (Offshore), L.P. in connection with the Avista Merger on December 10, 2018 (the “Private Warrants”), and 31.0 million public warrants outstanding that were issued in connection with the initial public offering of Avista Healthcare Public Acquisition Corp. on October 10, 2016 (the “Public Warrants”, together with the Private Warrants, the “Warrants”). The Company originally classified the Warrants as equity on its financial statements. In 2019, the outstanding Warrants were exchanged for 3.3 million shares of the Company’s Class A common stock. There were no Warrants outstanding as of December 31, 2019.
As a result of the SEC Statement, the Company reevaluated the historical accounting treatment of its Public Warrants and Private Warrants and determined that the Private Warrants should have been recorded at fair value as a liability in the Company’s consolidated balance sheet with changes to the fair value recorded to the consolidated statements of operations. The Company assessed the materiality of this error on prior period financial statements in accordance with SEC Staff Accounting Bulletin Number 99, Materiality, and ASC ~~250-10,~~ Accounting Changes and Error Corrections. The Company determined that this error was not material to the financial statements of any prior annual or interim period. The Company reclassified $2,299 from additional ~~paid-in~~ ~~capital to accumulated deficit on the consolidated balance sheet as of December 31, 2020 as the cumulative adjustment for this error.~~
Contents

Recently Adopted Accounting Pronouncements

In ~~February 2016,~~December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting ~~Standards~~Standard Update (“ASU”)
No. ~~2016-02~~ ~~(“ASU~~ ~~2016-02”), Leases~~ ~~(Topic 842), as further amended (“ASC 842”),~~2019-12,
Income Taxes— Simplifying the Accounting for Income Taxes
. The standard intends to ~~increase transparency~~simplify and ~~comparability among organizations by requiring~~reduce the ~~recognition~~cost of ataccounting for income taxes. The new guidance removes certain exceptions for recognizing deferred taxes for foreign investments, the ~~lease commencement~~incremental approach to performing intraperiod allocation, and calculating income taxes in interim periods for year to date losses that exceed anticipated full year losses. The standard also adds guidance to reduce complexity in certain areas, including accounting for franchise taxes that are partially based on income, transactions with a ~~lease liability for the obligation to make lease payments, and~~government that result with a ~~right-of-use~~ (“ROU”) asset for the right to use the underlying asset, on the balance sheet. Although the Company remains an emerging growth company until December 31, 2021, it elected to early adopt ASC 842 on January 1, 2021. ASC 842 requires a modified retrospective transition method that could either be applied at the earliest comparative periodstep up in the tax basis of goodwill, changes in tax law enacted during interim periods, and allocating taxes to members of a consolidated group which are not subject to tax. For public business entities, the amendments in ASU
2019-12
are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted for all periods in which financial statements ~~or in the period of adoption.~~have not yet been issued, including interim periods. The Company elected to use the period of adoption (January 1, 2021) transition method and therefore did not recast prior periods. Results for reporting periods beginning on January 1, 2021 are presented under ASC 842, while prior period amounts continue to be reported and disclosed in accordance with the Company’s historical accounting treatment under Accounting Standards Codification 840, Leases (“ASC 840”). In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company: (1) to carry forward the historical lease classification; (2) not to reassess whether expired or existing contracts are or contain leases; and, (3) not to reassess the treatment of initial direct costs for existing leases. The Company made an accounting policy election under ASC 842 not to recognize ROU assets and lease liabilities for leases with a term of 12 months or less. The Company also elected to account for lease components and the associated ~~non-lease~~ ~~components in the contracts as a single lease component for most of the leased assets. Upon the adoption of~~adopted this standard on January 1, 2021 and noted no impact to the ~~Company recognized an operating lease liability of $15,935, representing the present value of the minimum lease payments remaining as of the adoption date, and a~~ ~~right-of-use~~ ~~asset in the amount of $13,525. The~~ ~~right-of-use~~ ~~asset reflects adjustments for~~ ~~de-recognition~~ of deferred lease liabilities and lease incentives. The Company’s accounting for finance leases (previously classified as capital leases under ASC 840) remained substantially unchanged. See Note “17. Leases” for further disclosures.
financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued
ASU 2016-13
, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”). Subsequent
to the issuance of
ASU 2016-13, the
FASB has issued the following updates:
ASU 2018-19,
Codification Improvements to Topic 326, Financial Instruments- Credit Losses
,
ASU 2019-04,
Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
,
ASU 2019-05,
Financial Instruments—Credit Losses (Topic 326)—Targeted Transition Relief
and
ASU 2019-11,
Codification Improvements to Topic 326, Financial Instruments—Credit Losses
. The objective of
ASU 2016-13 and
all the related updates is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
ASU 2016-13 and
the related updates are effective for fiscal years, and interim periods within those years, beginning after December 15, 2019 for public business entities excluding entities eligible to be smaller reporting companies and for fiscal years, and interim periods within those years, beginning after December 15, 2022 for all other entities. Early adoption is permitted. ~~The~~As the Company iswas a smaller reporting company ~~and follows~~when the ~~private company adoption timelines and~~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 assessing the adoption of
ASU 2016-13
and the related impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU
No. 2020-04,
Reference Rate Reform
(Topic 848): Facilitation of the Effects of
Reference Rate Reform
on 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 aggregate consideration amounted to $19,024 as of the Acquisition ~~Date. Total consideration consisted~~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 ~~an Acquisition Date~~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 ~~(the “Holdback”)~~ and ~~will be paid or issued, as applicable, eighteen months after~~was released in April 2022 by the ~~Acquisition Date, subject~~Company paying additional $739 in cash and issuing additional 203,485 shares of the Company’s Class A common stock to ~~any offsetting indemnification claims against~~the former
equityholders
of CPN.

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The Company is obligated to pay anthe Earnout to CPN’s former ~~shareholders~~
equityholders
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), exceeds CPN’s 2019 revenue. The amount of the Earnout, if any, will be equal to 70% of the excess and will be payable 60 days after the expiration of the Earnout Period. The ~~post-closing sales meeting happened in April 2021 and the Earnout Period will be July 1, 2021 to June 30, 2022. The~~ Company recorded a
non-current
liability of $3,782 on the Acquisition Date for the fair value of the contingent consideration related to the expected Earnout. The Company assesses the fair value of the Earnout liability at each reporting period. As of March 31, ~~2021,~~2022, the Earnout liability was estimated at ~~$3,689.~~$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 are reflected in earnings until the liability is ~~settled (see~~settled. See Note “5. Fair Value Measurement of Financial ~~Instruments”).~~
~~This transaction was accounted for as a business combination using the acquisition method of accounting in accordance with ASC Topic 805,~~ ~~Business Combinations~~.
Assets ~~acquired~~ and liabilities assumed have been recorded at their estimated fair values as of the Acquisition Date. The fair values of intangible assets were based on valuations using various income approaches and methods, such as the multi-period excess earnings method, relief from royalty method, etc., which require the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.
~~Based upon the valuation, the total purchase price allocation was as follows:~~

Total purchase price
      $ 19,024


Assets acquired:

Accounts receivable
   1,155
Inventory
   1,230
Prepaid expenses and other current assets
   5
Property and equipment
   85
Intangible assets
   13,570
Other assets
   4



Total assets acquired
   16,049
Liabilities assumed:

Accounts payable
   27
Accrued expenses and other current liabilities
   231



Total liabilities assumed
   258
Total identifiable assets acquired, net
      15,791


Goodwill
      $ 3,233


Liabilities”.

The purchase price allocation resulted in goodwill of $3,233, which will be deductible for income tax purposes. The resulting amount of goodwill is primarily attributed to expected synergies from cross-sale opportunities and future growth. Intangible assets of $13,570 include customer relationships of $10,690, developed technologies of $2,050, ~~non-competition~~ ~~agreements of $750, and trademarks of $80, which are being amortized on a straight-line basis, over weighted-average useful lives of 10 years, 6 years, 5 years and 1 year, respectively.~~

At the time of the acquisition, CPN had approximately 30 employees. The results of operations of CPN have been included in the Company’s consolidated financial statements beginning on the Acquisition Date.

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”) 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 March 31, ~~2021~~2022 and ~~2020,~~2021, the Company recorded GPO fees of ~~$700~~$619 and ~~$960,~~$700, respectively, as a direct reduction of revenue.

The following tables set forth revenue by product category:

   Three Months Ended
March 31,
   2021    2020
Advanced Wound Care
   $ 90,708    $ 51,288
Surgical & Sports Medicine
   11,844    10,444




Total net revenue
   $ 102,552    $ 61,732

Three Months Ended

March 31,


2022

2021

Advanced Wound Care    $ 90,950    $ 90,708
Surgical & Sports Medicine    7,167    11,844

Total net revenue    $ 98,117    $ 102,552

For all periods presented, net revenue generated outside the United States represented less than 1% of total net revenue.
5. Fair Value
Measurement
of Financial Assets and Liabilities
~~The following table presents information about~~
As of March 31, 2022 and December 31, 2021, the Company’s financial assets and liabilities measured at fair value on a recurring basis ~~and indicates~~only included the ~~level of the fair value hierarchy utilized to determine such fair values~~Earnout liability as ~~of March 31, 2021 and December 31, 2020.~~

   Fair Value Measurements
   as of March 31, 2021 Using:
   Level 1    Level 2    Level 3    Total
Liabilities:

Earnout liability
   $ —      $ —      $ 3,689    $ 3,689








   $ —      $ —      $ 3,689    $ 3,689








   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








discussed below.

Earnout Liability

In connection with accounting for the CPN acquisition on September 17, 2020, the Company recorded ~~the~~an Earnout liability of $3,782 on the Acquisition Date, representing the fair value of contingent consideration payable upon the achievement of a certain revenue target. The Earnout ~~Liability~~liability is classified as a Level 3 measurement within the fair value hierarchy for which fair value is derived from inputs that are unobservable and significant to the overall fair value measurement. The fair value of such Earnout ~~Liability~~liability is estimated using a Monte Carlo simulation model that utilizes key assumptions including forecasted revenues and volatilities of the underlying financial metrics during the Earnout ~~period.~~Period. The Company assesses the fair value of the Earnout liability at each reporting period. Any subsequent changes in the estimated fair value of the liability are reflected in selling, general and administrative expenses until the liability is settled. For more information about the Earnout liability, refer to Note “3. Acquisition”. As of December 31, 2021 and March 31, ~~2021,~~2022, the Earnout liability ~~decreased to $3,689 due to the finalization~~was $0 as a result of the ~~Earnout Period and changes in certain~~Company’s updated assessment of the near-term market ~~data assumptions.~~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 is determined using Level 3
inputs:

   Earnout liability
Balance as of December 31, 2020
   $ 3,985
Change in fair value
   (296 )


Balance as of March 31, 2021
   $ 3,689

Three Months Ended

March 31,


2022

2021

Beginning balance
   $ 0      $ 3,985
Change in fair value
   0      (296 )

Ending balance
   $ 0      $ 3,689


10
Table of Contents
The Company did not have any financial assets ~~and~~ a
nd
liabilities measured at fair value on a
non-recurring
basis as of March 31, ~~2021~~2022 or December 31, ~~2020.~~
2021.
6. Accounts Receivable, Net
Accounts receivable consisted of the following:

   March 31    December 31,
   2021    2020
Accounts receivable
   $ 78,079    $ 61,792
Less — allowance for sales returns and doubtful accounts
   (6,076 )    (4,988 )




   $ 72,003    $ 56,804





March 31

December 31,


2022

2021

Accounts receivable    $ 84,604    $ 87,613
Less — allowance for doubtful accounts    (5,127 )    (5,153 )

   $ 79,477    $ 82,460


The Company’s allowance for ~~sales returns and~~ doubtful accounts was comprised of the following:

   Three Months Ended
March 31,
   2021    2020
Balance at beginning of period
   $ 4,988    $ 3,049
Additions (reductions)
   1,103    217
Write-offs
   (15 )    (62 )




Balance at end of period
   $ 6,076    $ 3,204






Three Months Ended

March 31,


2022

2021

Balance at beginning of period    $ 5,153    $ 2,669
Additions    40    921
Write-offs    (66 )    (14 )

Balance at end of period    $ 5,127    $ 3,576

7. Inventories
Inventories, net of related reserves for excess and obsolescence, consisted of the following:

   March 31,    December 31,
   2021    2020
Raw materials
   $ 11,436    $ 10,075
Work in process
   764    1,305
Finished goods
   17,521    16,419




   $ 29,721    $ 27,799





March 31,

December 31,


2022

2021

Raw materials    $ 9,524    $ 9,023
Work in process    995    991
Finished goods    12,218    15,008

   $ 22,737    $ 25,022

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 March 31, ~~2021~~2022 and ~~2020,~~2021, the Company charged ~~$2,290~~$2,205 and ~~$769,~~$2,290, respectively, for inventory excess and obsolescence to cost of goods sold within the consolidated statements of operations.

8. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

   March 31,
2021    December 31,
2020
Prepaid subscriptions
   $ 2,529    $ 2,013
Prepaid conferences and marketing expenses
   240    63
Prepaid deposits
   1,586    1,438
Reimbursement of offering expenses
   —      1,009
Other
   1,202    412




   $ 5,557    $ 4,935




~~Prepaid deposits~~

March 31,

2022

December 31,

2021

Subscriptions    $ 2,685    $ 2,745
Conferences and marketing expenses    2,060    538
Deposits    1,344    1,216
Insurance    1,001    358
Other    45    112

   $ 7,135    $ 4,969

Deposits are ~~deposits~~funds held by vendors which are expected to be released within twelve months and therefore they are recorded as current assets.

11
Table of Contents
9. Property and Equipment, Net
Property and equipment consisted of the following:

   March 31,    December 31,
   2021    2020
Leasehold improvements
   $ 39,977    $ 39,574
Furniture, computers and equipment
   48,792    48,236




   88,769    87,810
Accumulated depreciation and amortization
   (70,525 )    (69,521 )
Construction in progress
   44,187    41,779




   $ 62,431    $ 60,068





March 31,
2022

December 31,
2021

Leasehold improvements    $ 33,973    $ 30,531
Buildings    4,943    4,943
Furniture, computers and equipment    54,822    53,959

   93,738    89,433
Accumulated depreciation and amortization    (59,075 )    (57,729 )
Construction in progress    49,605    47,456

   $ 84,268    $ 79,160

Depreciation expense was ~~$1,010~~$1,347 and ~~$902~~$1,010, for the three months ended March 31, 2022 and 2021, and 2020. As of March 31, 2021 and December 31, 2020, the Company had $21,689 of buildings under finance leases recorded within leasehold improvements. As of March 31, 2021 and December 31, 2020, the Company had $15,274 and $14,974 recorded within accumulated depreciation and amortization related to buildings under finance leases, respectively.
Construction in progress primarily represents unfinished ~~construction~~c
ons
truction work on a purchased building ~~under a finance lease~~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 as of March 31, ~~2021~~2022 and December 31, ~~2020.~~
~~In April 2019, the Company purchased $750 of intangibles related to patent and~~ ~~know-how~~ which were recorded within the developed technology category. The Company paid $250 at the time of the transaction with the remaining purchase price being paid over two years after the transaction closed. As of March 31, 2021, $250 was remaining and was recorded in accrued expenses and other current liabilities on the consolidated balance sheets.
2021.
Identifiable intangible assets consisted of the following as of March 31, ~~2021:~~

   Original    Accumulated    Net Book
   Cost    Amortization    Value
Developed technology
   $ 32,620    $ (15,175 )    $ 17,445
Trade names and trademarks
   2,080    (981 )    1,099
Customer relationships
   10,690    (579 )    10,111
Non-compete agreements
   1,010    (286 )    724






Total
   $ 46,400    $ (17,021 )    $ 29,379






2022:

Original
Cost

Accumulated
Amortization

Net Book
Value

Developed technology    $ 32,620    $ (18,573 )    $ 14,047
Trade names and trademarks    2,080    (1,236 )    844
Customer relationships    10,690    (1,648 )    9,042
Independent sales agency network    4,500    (4,500 )    —
Patent    7,623    (7,623 )    —
Non-compete
agreements
   1,010    (491 )    519

Total    $ 58,523    $ (34,071 )    $ 24,452

Identifiable intangible assets consisted of the following as of December 31, ~~2020:~~

   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






2021:

Original
Cost

Accumulated
Amortization

Net Book
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

Amortization of intangible assets, calculated on a straight-line basis or using an accelerated method, was ~~$1,243~~$1,221 and ~~$817~~$1,243 for the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively.

12
Table of Contents
11. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:

   March 31,    December 31,
   2021    2020
Accrued personnel costs
   $ 20,374    $ 18,943
Accrued royalties
   2,851    2,971
Other
   2,158    2,059




   $ 25,383    $ 23,973





March 31,
2022

December 31,
2021

Personnel costs    $ 23,060    $ 26,865
Royalties    3,190    3,458
Accrued but unpaid lease obligations and interest    3,981    3,963
Other    2,188    2,303

   $ 32,419    $ 36,589

The accrued but unpaid lease obligations and the interest accrual on these obligations are related to the buildings in Canton, Massachusetts. See Note “17. Leases”.
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 ~~consolidate~~operations in its La Jolla, ~~facilities~~California facilities. The restructuring involved approximately
65 employees and was substantially completed as ~~part~~ of December 31, 2021, with certain facility and storage activities continuing through 2024.

On March 9, 2022, the ~~Company’s long-term~~Company committed
to
a plan to ~~consolidate manufacturing~~restructure the workforce and operations ~~into Massachusetts~~ in ~~order to reduce the Company’s cost structure.~~its Birmingham facilities. The restructuring is expected to be completed by the end of ~~2021~~2022 and will result in a charge of approximately ~~$5.5~~
$3.0 million, of which approximately ~~$4.5~~$2.0 million is attributable to the retention benefits associated with approximately 7025 employees and the remaining $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.
As a result of ~~this~~the restructuring ~~activity,~~activities, the Company incurred
a pre-tax charge
of $264 and $927 during the three months ended March 31, ~~2021. This charge was primarily related to employee retention benefits~~2022 and ~~was~~2021, respectively. These charges were included in selling, general and administrative expenses in the consolidated statements of operations. The liability related to the restructuring activities was ~~$1,545~~$132 and $3,168 as of March 31, 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    Facility
Liability balance as of December 31, 2020
   $ 618    $ —
Expenses
   910    17
Payments
   —      —




Liability balance as of March 31, 2021
   $ 1,528    $ 17

Employee

Other

Total

Liability balance as of December 31, 2021    $ 2,517    $ 651
$

3,168

Expenses    115    149
264

Payments    (2,517 )    (783 )
(3,300
)


Liability balance as of March 31, 2022    $ 115    $ 17
$
132


13. Long-Term Debt Obligations
Long-term debt obligations consisted of the following:

   March 31,    December 31,
   2021    2020
Line of credit
   $ 10,000    $ 10,000




Term loan
   60,000    60,000
Less debt discount and debt issuance cost
   (249 )    (290 )
Less current maturities
   (16,875 )    (16,666 )




Term loan, net of debt discount, debt issuance cost and current maturities
   $ 42,876    $ 43,044




~~2019~~


March 31,
2022

December 31,
2021

Line of credit    $ 0      $ 0

Term loan    73,593    74,062
Less debt discount and debt issuance cost    (598 )    (637 )

Term loan, net of debt discount, debt issuance cost    $ 72,995    $ 73,425

13
Table of Contents

2021 Credit Agreement
In ~~March 2019,~~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 ~~as amended~~ (the ~~“2019~~“2021 Credit Agreement”), providing 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”) ~~in an aggregate principal amount~~. The Company’s obligations to the Lenders are secured by substantially all of ~~$100,000.~~the Company’s assets, including intellectual property. Capitalized terms used herein and not otherwise defined are defined as set forth in the ~~2019~~2021 Credit Agreement.
~~The Term Loan Facility is structured in three tranches, as follows: (i)~~
Advances
made under the ~~first tranche of $40,000 was made available to~~2021 Credit Agreement may be either Eurodollar Loans or ABR Loans, at the ~~Company and fully funded on March 14, 2019; (ii)~~Company’s option. For Eurodollar Loans, the second tranche of $10,000 was made available to the Company and fully funded in September 2019 upon achievement of certain financial metrics; and (iii) the third tranche of $10,000 was made available to the Company and fully funded in March 2020 upon achievement of a certain financial metric. The interest rate ~~for the Term Loan Facility~~ is a ~~floating~~ per annum interest rate equal to LIBOR plus an Applicable Margin between 2.00% to 3.25% based on the ~~greater~~Total Net Leverage Ratio. For ABR Loans, the interest rate is equal to (1) the highest of ~~3.75% above~~(a) the Wall Street Journal Prime Rate, (b) the Federal Funds Rate plus 0.50% and ~~9.25%.~~ (c) the LIBOR rate plus 1.0%,
plus
(2) an Applicable Margin between 1.00% to 2.25% based on the Total Net Leverage Ratio.
The ~~interest rate as of March 31,~~ 2021 ~~was 9.25%. The 2019~~ Credit Agreement requires the Company to make ~~monthly interest-only~~consecutive quarterly installment payments ~~on outstanding balances under~~equal to the ~~Term Loan Facility~~following: (a) from September 30, 2021 through and including June ~~2021. Thereafter,~~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 ~~term loan advance will be repaid in~~ ~~thirty-two~~ ~~equal monthly installments of principal, plus accrued interest, with the Term Loan Facility maturing on February 1, 2024~~quarter thereafter until August 6, 2026 (the “Term Loan Maturity Date”).
The Company’s final payment on the Term Loan Facility, due on the Term Loan Maturity Date, will include all outstanding principal and accrued and unpaid interest under the Term Loan Facility, plus a final payment (the “Final Payment”) equal to the original aggregate principal amount of the Term Loan Facility multiplied by 6.5%., $1,875. The Company may prepay the Term Loan Facility, ~~subject~~provided that any Term Loans prepaid prior to ~~paying the Prepayment Premium (described below) and the Final Payment. The Prepayment Premium is~~August 6, 2022 must be accompanied by a prepayment premium equal to ~~1.50%~~1.00% of the ~~outstanding principal~~aggregate amount of ~~the~~ Term ~~Loan Facility if the prepayment occurs after the two year anniversary but prior to the three year anniversary of the closing, and 0.50% thereafter.~~Loans prepaid. Once repaid, amounts borrowed under the Term Loan Facility may not
be re-borrowed.
The Revolving Facility is equal to the lesser of $40,000 and the amount determined by the Borrowing Base, which is defined as a percentage of the Company’s book value of qualifying finished goods inventory and eligible accounts receivable. The interest rate for advances under the Revolving Facility is a floating per annum interest rate equal to the greater of the Wall Street Journal Prime Rate and 5.50%. The interest rate as of March 31, 2021 was 5.50%. If the actual outstanding advances are less than 25% of the then-available Revolving Commitments, the Company must pay ~~monthly interest equal~~in arrears, on the first day of each quarter prior to August 6, 2026 (the “Revolving Termination Date”) and on the ~~interest that would have accrued if~~Revolving Termination Date, a fee for the ~~average outstanding advances had been 25%~~
Company’s non-use of ~~the then-available Revolving Commitments.~~
available funds (the “Commitment Fee”). The ~~Company~~Commitment Fee rate is ~~also required~~between 0.25% to ~~pay an unused line fee equal to 0.25% per annum, calculated~~0.45% based on the ~~difference of $40,000~~ ~~minus~~ the greater of (i) the average balance outstanding under the Revolving Facility for such period and (ii) 25% of the then-available Revolving Commitments. The maturity date for advances made under the Revolving Facility is March 1, 2024.
Total Net Leverage 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, awith respect to any such reduction or termination ~~fee equal~~of the Revolving Commitments made prior to ~~2.00%~~August 6, 2022, 1.00% of the aggregate amount of the Revolving Commitments so reduced or ~~terminated if~~terminated.

Under the ~~reduction or termination occurs after~~2021 Credit Agreement, the ~~two year anniversary but prior to the three year anniversary of the closing, and $0 thereafter.~~
~~The~~ Company is required to ~~achieve~~comply with certain financial covenants ~~under~~including the ~~2019 Credit Agreement, including Minimum Trailing Twelve Month~~ Consolidated ~~Revenue~~Fixed Charge Coverage Ratio and ~~Non-PuraPly~~ ~~Revenue,~~Consolidated Total Net Leverage Ratio, tested quarterly. In addition, the Company is also required to ~~maintain Minimum Liquidity equal 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 ~~greater~~payment of ~~(i) 6 months Monthly Burn~~dividends, repurchase of stock, incurrence of indebtedness, dispositions and ~~(ii) $10,000.~~
acquisitions.

~~As of March 31, 2021, the~~The Company had outstanding borrowings of ~~$60,000~~$73,593 and $74,062 under the Term Loan Facility and ~~$10,000~~$0 under the Revolving Facility with ~~up to $30,000~~$125,000 available ~~(subject to Borrowing Base)~~ for future revolving ~~borrowings. The Company accrues for the Final Payment of $3,900 over the term of the Term Loan Facility through a charge to the interest expense. The related liability of $2,144 and $1,858~~borrowings as of March 31, ~~2021~~2022 and December 31, ~~2020, respectively, was included in other liabilities on the consolidated balance sheets.~~2021, respectively. The Company ~~incurred~~recorded additional debt issuance costs and related fees of ~~$554~~$604 in connection with the Term Loan Facility, which are recorded as a reduction of the carrying value of the term loan on the Company’s consolidated balance sheets. In connection with the Revolving Facility, the Company ~~incurred~~recorded debt issuance costs and related fees of ~~$370,~~$1,223, which are recorded as other assets. Both of these costs are being amortized to interest expense through the maturity date of the facilities.

Future payments of the ~~2019~~2021 Credit Agreement, as of March 31, ~~2021,~~2022, are as follows for the calendar years ending December 31:

2021
   $ 11,250
2022
   22,500
2023
   22,500
2024
   13,750


Total
   $ 70,000

2022    $ 2,343
2023    4,687
2024    5,625
2025    6,563
2026    54,375

Total    $ 73,593

2019 Credit Agreement
In March 2019, the Company, its 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 the Company elected to prepay the loan or terminate the facilities, the Company was 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 of the maturity date of the term loan or prepayment of all outstanding principal
.

14
Table of Contents
In August 2021, upon entering into the 2021 Credit Agreement, the Company paid an aggregate amount of $70,559 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 $1,883 as loss on the extinguishment of the loan for the year ended December 31, 2021.
14. Stockholders’ Equity
Common Stock
As of March 31, 2021, 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. 128,830,803 shares of Class A common stock were issued and 128,102,255 shares were outstanding as of March 31, 2021. No shares of preferred stock were outstanding as of March 31, 2021. The2022,
t
he 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.
As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company reserved the following shares of Class A common stock for future issuance:

   March 31    December 31,
   2021    2020
Shares reserved for issuance for outstanding options
   7,171,415    6,425,040
Shares reserved for issuance for outstanding restricted stock units
   933,214    806,048
Shares reserved for issuance for future grants
   5,578,422    6,832,649




Total shares of authorized common stock reserved for future issuance
   13,683,051    14,063,737





March 31
2022

December 31,
2021

Shares reserved for issuance for outstanding options    7,924,792    6,596,969
Shares reserved for issuance for outstanding restricted stock units    1,496,853    764,871
Shares reserved for issuance for future grants    3,373,334    5,644,691

Total shares of authorized common stock reserved for future issuance    12,794,979    13,006,531


15. Stock-Based Compensation
Stock Incentive
Plans-the
2018 Plan
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 2018 Plan authorizes the Company’s Board of Directors or a committee of not less than two independent directors (in either case, the “Administrator”) to grant the following types of awards:
non-statutory
stock options; incentive stock options; restricted stock awards; restricted stock units; stock appreciation rights; unrestricted stock awards; performance share awards; and dividend equivalent rights. The 2018 Plan is administered by the Company’s Board of Directors.

~~As of March 31, 2021, a~~

A total of

9,198,996
shares of Class A common stock have been 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).
There has been no change to the total authorized shares since the adoption of the 2018 Plan.

Stock Incentive
Plans-the
2003 Plan

The Organogenesis 2003 Stock Incentive Plan (the “2003 Plan”), provides for the Company to issue restricted stock awards, or to grant incentive stock options or
non-statutory
stock options. Incentive stock options may be granted only to the Company’s employees. Restricted stock awards and
non-statutory
stock options may be granted to employees, members of the Board of Directors, outside advisors 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. Restricted stock units awarded typically vest over four years.

Table of Contents
Stock-based compensation expense was ~~$698~~$1,303 and ~~$209~~$698 for the three months ended March 31, ~~2021~~2022 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)
~~In the three months ended March 31, 2021, the~~
The Company granted 931,431 and 284,708 time-based restricted stock units to its employees, executives and the Board of ~~Directors.~~Directors in the three months ended March 31, 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.
The activity of restricted stock units is set forth below:

   Number
of Shares    Weighted
Average
Grant Date
Fair Value
Unvested at December 31, 2020
   806,048    $ 3.82
Granted
   284,708    14.33
Vested
   (133,811 )    4.04
Canceled/Forfeited
   (23,731 )    5.95




Unvested at March 31, 2021
   933,214    $ 6.94





Number of
Shares

Weighted
Average
Grant Date
Fair Value

Unvested at December 31, 2021    764,871    $ 7.52
Granted    931,431    7.59
Vested    (179,714 )    7.81
Canceled/Forfeited    (19,735 )    6.83

Unvested at March 31, 2022    1,496,853    $     7.54

As of March 31, ~~2021,~~2022, the total unrecognized compensation cost related to unvested restricted stock units expected to vest was ~~$4,391~~$7,892 and the weighted average remaining recognition period for unvested awards was ~~3.25~~3.19 years.
Stock Option Valuation
The stock options granted during the three months ended March 31, 2022 and 2021 were ~~1,037,099. No stock options were granted during the three months ended March 31, 2020.~~1,418,224 and 1,037,099, respectively. The assumptions that the Company used to determine the grant-date fair value of stock options granted during ~~this period~~these periods were as follows, presented on a weighted-average basis:

Three Months Ended

March 31,


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

   March 31,
   2021
Risk-free interest rate
   0.82 %
Expected term (in years)
   6.21
Expected volatility
   39.30 %
Expected dividend yield
   0.0 %
Exercise price
   $ 13.54
Underlying stock price
   $ 13.54

16
Table of Contents
These assumptions resulted in an estimated weighted-average grant-date fair value per share of stock options granted during the three months ended March 31, 2022 and 2021 of ~~$5.31.~~
$3.94 and $5.31, respectively.
Stock Option Activity
The following table summarizes the Company’s stock option activity since December 31, ~~2020:~~

         Weighted
         Average
      Weighted    Remaining
      Average    Contractual    Aggregate
   Number of    Exercise    Term    Intrinsic
   Shares    Price    (in years)    Value
Outstanding as of December 31, 2020
   6,620,318    $ 2.33    5.22    $ 34,458
Granted
   1,037,099    13.54
Exercised
   (480,622 )    2.04       4,283
Canceled / forfeited
   (5,380 )    4.10



Outstanding as of March 31, 2021
   7,171,415    3.96    5.80    102,239



Options exercisable as of March 31, 2021
   4,418,977    1.64    3.76    73,271



Options vested or expected to vest as of March 31, 2021
   6,588,701    $ 3.54    5.50    $ 96,754



2021:

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

(in years)

Aggregate
Intrinsic
Value

Outstanding as of December 31, 2021    6,596,969    $ 4.10    5.20    $ 38,524
Granted    1,418,224    8.03
Exercised    (86,121 )    3.38       441
Canceled / forfeited    (4,280 )    2.69

Outstanding as of March 31, 2022    7,924,792    4.82    5.83    29,053

Options exercisable as of March 31, 2022    4,600,567    2.52    3.57    25,113

Options vested or expected to vest as of March 31, 2022    7,215,073    $ 4.44    5.50    $ 28,567

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 three months ended March 31, 2022 and 2021 was $1,612 and ~~2020 was~~ $143, ~~and $144,~~ respectively.
As of March 31, ~~2021,~~2022, the total unrecognized stock compensation expense related to unvested stock options expected to vest was ~~$5,098~~$7,579 and was expected to be recognized over a weighted-average period of ~~3.46~~3.29 years.
As of December 31, 2019, there were partial recourse notes outstanding totaling $635. These notes were taken by a former executive to exercise his 675,990 shares of stock options and the notes were secured with these shares held by the former executive. When the loans were outstanding, the options were not considered exercised and were included within the options outstanding for accounting purposes. As of December 31, 2020, $334 of the principal balance of the partial recourse notes was outstanding and 195,278 shares were not considered outstanding for accounting purposes. In the three months ended March 31, 2021, the former executive repaid the remaining principal balance of the notes (see Note “19. Related Parties Transactions”). The repayments were treated as the exercise price for 195,278 shares of the options and were included in the consolidated statement of stockholders’ equity. As of March 31, 2021, $0 of the principal balance of the partial recourse notes was outstanding and all of the 675,990 shares used to secure the notes were considered outstanding for accounting purposes.
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 outstanding 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~~denomina
to
r 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
March 31,

   2021    2020
Numerator:

Net Income (loss)
   $ 9,943    $ (16,313 )
Denominator:

Weighted average common shares outstanding —basic
   127,870,065    104,486,924
Dilutive effect of restricted stock units
   527,658    —
Dilutive effect of options
   5,054,227    —




Weighted-average common shares outstanding—diluted
   133,451,950    104,486,924
Earnings (loss) per share—basic
   $ 0.08    $ (0.16 )




Earnings (loss) per share—diluted
   $ 0.07    $ (0.16 )

Three Months Ended
March 31,


2022

2021

Numerator:
Net Income    $ 87    $ 9,943
Denominator:
Weighted average common shares outstanding —basic

   128,788,721    127,870,065
Dilutive effect of restricted stock units    264,075    527,658
Dilutive effect of options    3,752,358    5,054,227

Weighted-average common shares outstanding—diluted    132,805,154    133,451,950
Earnings per share—basic    $ 0.00    $ 0.08

Earnings per share—diluted    $ 0.00    $ 0.07


17

Table of Contents
For the three months ended March 31, ~~2021,~~2022 and
20
21, outstanding stock-based awards of 155,207 and 1,202,193 were excluded from the diluted EPS calculation as they were anti-dilutive. For the three months ended March 31, 2020, the Company had a net loss. As such, 7,169,780 shares of potentially dilutive securities were excluded from the computation of diluted net loss per share as these securities had anti-dilutive effect and including them would reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders was the same for this period.
17. Leases
As of December 31, ~~2020~~2021 and March 31, ~~2021,~~2022, the Company’s contracts that contained a lease consisted 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 to ten years.
The Company leases vehicles under operating leases for certain employees and has fleet services agreements for service on these vehicles. The minimum lease term for each newly leased vehicle is 367 days with renewal options. The Company may terminate the vehicle lease after the minimum lease term upon thirty days’ prior notice.
The Company also leases other equipment under noncancelable operating and finance leases that expire at various dates through 2025.
The Company determines if an arrangement is a lease at lease inception. The options to extend or terminate a lease are included in the lease terms when it is reasonably certain that the Company will exercise the options. Operating leases are included in operating lease
right-of-use
assets and operating lease obligations on the consolidated balance sheets. Finance ~~leases~~ lease
right-of-use
assets are included in property and equipment, net, and the related liabilities are included in finance lease obligations on the consolidated balance sheets.
Right-of-use
assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the leases.
Right-of-use
assets and lease liabilities are recognized based on the present value of the fixed lease payments over the lease term at the commencement date. The~~Right-of-use~~
right-of-use
assets also include any initial direct costs incurred and lease payments made at or before the commencement date and are reduced by lease incentives. The Company uses its incremental borrowing rate as the discount rate to determine the present value of the lease payments for leases that do not have a readily determinable implicit discount rate. The Company’s incremental borrowing rate is the rate of interest that it would have to borrow on a collateralized basis over a similar term and amount in a similar economic environment. The Company determines the incremental borrowing rates for its leases by adjusting the risk-free interest rate with a credit risk premium corresponding to the Company’s credit rating.
The Company records rent expense for its operating leases on a straight-line basis from the lease commencement date until the end of the lease term. The Company records finance lease cost as a combination of the depreciation expense for the
right-of-use
assets and interest expense for the outstanding lease liabilities using the discount rate discussed above. Variable lease payments are primarily related to the office and fleet leases which include but are not limited to taxes, insurance, common area maintenance and maintenance programs for leased vehicles. Variable lease payments are based on the occurrence or usage; therefore, they are not included as part of the initial
right-of-use
assets and liabilities calculation.

In August 2020, the Company entered into a lease for approximately 23,000 square feet in San Diego, California for office and laboratory use. The lease commences on April 1, 2021. The initial lease term is ten years from the lease commencement date, with an option to extend the term for a period of five years. Annual lease payments during the first year are $1,562 with 3% increase each year during the lease term. A security deposit of $237 is required throughout the term of the lease.

In conjunction with the acquisition of NuTech Medical in March 2017, the Company entered into an operating lease with Oxmoor Holdings, LLC, an entity that is affiliated with the former sole shareholder of NuTech Medical, related to the facility at NuTech Medical’s headquarters in Birmingham, Alabama. Under the lease, the Company is required to make monthly rent payments of approximately $22 through the lease termination date on December 31, 2022.

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. ~~The~~Other than the lease with 275 Dan Road SPE, LLC which was terminated in August 2021 as discussed below, the remaining three leases were set to terminate on December 31, 2022 and each ~~contains~~contained a renewal option for a five-year period with ~~the~~a rental rate at the greater of (i) rent for the last year of the prior term, or (ii) the then fair market value. ~~Notice~~The Company exercised the option to extend the leases for an additional five years in November 2021. These leases were reclassified from finance leases to operating leases upon the Company’s reassessment of the ~~exercise~~lease classification according to ASC
842-10-25-1
Lease Classification.
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 ~~this renewal option is due one year prior to the expiration of the initial term. Aggregate annual lease payments are approximately $4,308 with future rent increases of 10% effective January 1, 2022.~~
December 31, 2021.

As of ~~March 31, 2021 and~~ December 31, 2020, the Company owed an aggregate of $10,336 of accrued but unpaid lease obligations which are subordinated to the 2019 Credit Agreement and will not be paid until the debt under the 2019 Credit Agreement is paid off in 2024 even though the finance leases expire in December 2022. The accrued but unpaid lease obligations include rent in arrears and unpaid operating and common area maintenance costs under the aforementioned leases. The principal portion of rent in arrears on the finance leases totaled $7,120 and $6,946 as of March 31, 2021 and December 31, 2020, respectively, and is included in the long-term portion of finance lease obligations. The interest portion of rent in arrears totaled $2,676 and $2,865 as of March 31, 2021 and December 31, 2020, respectively, and is included in other liabilities on the consolidated balance sheets. The unpaid operating and common area maintenance costs totaled $540 and $525 as of March 31, 2021 and December 31, 2020, respectively, and are included in other liabilities on the consolidated balance sheets.
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 in 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”)~~. The accrued interest is also~~ in August 2021, these obligations are no longer subordinated to the ~~2019 Credit Agreement~~Company’s existing loans.

Table of Contents
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. In connection with the purchase of the 275 Dan Road Building, the Company paid 50% of the accrued but unpaid lease obligations associated with this building and the accrued interest thereof. The remaining balance is being paid in five quarterly installments ending on January 3, 2023. The interest on the balance of the accrued but unpaid lease obligations associated with the 275 Dan Road Building was reduced to an annual simple rate of 4.5%.
The accrued but unpaid lease obligations as ~~such, is~~well as the related interest accruals are shown below.

March 31

December 31,


2022

2021

Principal portion of rent in arrears    7,246    7,246
Unpaid operating and common area maintenance costs    52    558

Total accrued but unpaid lease obligations    7,298    7,804
Accrued interest on accrued but unpaid lease obligations    1,956    1,938
The principal portion of rent in arrears was included in the short-term portion of operating lease obligations other than the balance related to the 275 Dan Road Building that was included in accrued expenses and other current liabilities on the consolidated balance ~~sheet. Interest accrual~~sheets as of March 31, ~~2021~~2022 and December 31, ~~2020 totaled $2,144~~2021. The unpaid operating and ~~$1,673, respectively.~~
common area maintenance costs, and the accrued interest on the accrued but unpaid lease obligations were included in accrued expenses and other current liabilities on the consolidated balance sheets as of March 31, 2022 and December 31, 2021
.

The components of lease cost were as follows:

   Classification    Three
Months
Ended
March 31,
2021
Finance lease

Amortization of right-of-use assets
   COGS and SG&A    $ 299
Interest on lease liabilities
   Interest Expense    349


Total Finance lease cost
      648
Operating lease cost
   COGS, R&D, SG&A    1,280
Short-term lease cost
   COGS, R&D, SG&A    715
Variable lease cost
   COGS, R&D, SG&A    1,363


Total lease cost
      $ 4,006

Three Months Ended

March 31,


Classification


2022

   2021




Finance lease

Amortization of
right-of-use
assets
   COGS and SG&A    $ 107    $ 299
Interest on lease liabilities    Interest Expense    5    349

Total Finance lease cost       112    648
Operating lease cost    COGS, R&D, SG&A    2,434    1,280
Short-term lease cost    COGS, R&D, SG&A    669    715
Variable lease cost    COGS, R&D, SG&A    918    1,363

Total lease cost       $ 4,133    $ 4,006

Supplemental balance sheet information related to finance leases was as follows:

   March 31, 2021    January 1, 2021
Property and equipment, gross
   $ 22,989    $ 22,989
Accumulated depreciation
   (15,274 )    (14,974 )




Property and equipment, net
   $ 7,715    $ 8,015




Current portion of finance lease obligations
   $ 3,870    $ 3,619
Finance lease long-term obligations
   10,516    11,442




Total finance lease liabilities
   $ 14,386    $ 15,061

March 31, 2022

December 31,
2021

Property and equipment, gross    $ 1,174    $ 1,174
Accumulated depreciation    (1,067 )    (961 )

Property and equipment, net
   $ 107    $ 213

Finance lease obligations


$

101
$

200



19
Table of Contents
Supplemental cash flow information related to leases was as follows:
~~Three Months~~
~~Ended~~
~~March 31, 2021~~
~~Cash paid for amounts included in the measurement of lease liabilities:~~
~~Operating cash flows for operating leases~~
~~1,362~~
~~Operating cash flows for finance leases~~
~~523~~
~~Financing cash flows for finance leases~~
~~675~~
~~Right-of-use~~ ~~assets obtained in exchange for lease obligations—upon adoption:~~
~~Operating leases~~
~~13,525~~
~~Finance leases~~
—
~~Right-of-use~~ ~~assets obtained in exchange for lease obligations—post adoption:~~
~~Operating leases~~
~~310~~
~~Finance leases~~
—
~~March 31, 2021~~
~~Weighted-average remaining lease term~~
~~Finance leases~~
~~1.73~~
~~Operating leases~~
~~6.39~~
~~March 31, 2021~~
~~Weighted-average discount rate~~
~~Finance leases~~
~~19.58~~ %
~~Operating leases~~
~~3.98~~ %



Three Months Ended

March 31,


2022

2021

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases    $ 2,337    $ 1,362
Operating cash flows for finance leases    $ 5    $ 523
Financing cash flows for finance leases    $ 99    $ 675
Right-of-use
assets obtained in exchange for lease obligations

Operating leases    $ 171    $ 310
Finance leases    $ —      $ —

March 31,
2022

December 31,
2021

Weighted-average remaining lease term

Finance leases    0.21    0.45
Operating leases    8.04    8.22

March 31,
2022

December 31,
2021

Weighted-average discount rate

Finance leases    11.30 % 11.30 %
Operating leases    4.53 % 4.51 %
As of March 31, 2021, maturities of lease liabilities were as follows:

   Operating leases    Finance leases
2021 (remaining 9 months)
   $ 3,785    $ 3,588
2022
   2,831    4,945
2023
   2,159    —
2024
   1,443    9,796
2025
   1,383    —
Thereafter
   5,631    —




Total lease payments
   17,232    18,329
Less: interest
   (2,197 )    (3,943 )




Total lease liabilities
   $ 15,035    $ 14,386




Under ASC 840, as of December 31, 2020, the Company had total capital lease assets of $22,989 and accumulated depreciation of $14,974, which were included within property and equipment, net, on the unaudited consolidated balance sheet. The related capital lease obligations totaled $15,061 as of December 31, 2020. For the three months ended March 31, 2020, the Company recorded lease expense of $1,514 for operating leases.


Operating leases

Finance leases

2022    $ 11,873    $ 103
2023    8,104    0
2024    7,315    0
2025    7,526    0
2026    7,435    0
Thereafter    25,966    0

Total lease payments    68,219    103
Less: interest    (11,121 )    (2 )

Total lease liabilities    $     57,098    $     101

18. Commitments and Contingencies
~~Royalty Commitments~~
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 as of March 31, ~~2021~~2022 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 no0 royalty expense incurred during the three months ended March 31, ~~2021~~2022 or ~~2020~~2021 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 ~~$1,220~~$1,601 and ~~$979~~$1,220 during the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, within selling, general and administrative expenses on the consolidated ~~statement~~statements of operations.

~~As part~~

Table of the NuTech Medical acquisition, the Company inherited certain product development and consulting agreements for ongoing consulting services and royalty payments based on a percentage of net sales on certain products over a period of 15 years from the execution of the agreements. These product development and consulting agreements were cancelled in January 2020 for total consideration of $1,950 that was paid on February 14, 2020. The $1,950 cancellation fee was recorded within selling, general and administrative expenses on the consolidated statement of operations for the three months ended March 31, 2020.
~~Ransomware Attack~~
In August 2020, the Company’s information technology (“IT”) systems were exposed to a ransomware attack, which partially impaired certain IT systems for a short period of time. The Company finished investigating the incident, together with legal counsel and other incident response professionals. The Company did not experience any material loss related to the incident, and substantially all costs incurred were reimbursed by insurance.
Contents
Legal ~~Proceedings~~
Matters
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 amounts due are probable and estimable.
The Company accrued $150 as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021 in relation to certain pending lawsuits.
The purchase price for NuTech Medical acquired in 2017 included $7,500 deferred acquisition consideration of which the Company paid $2,500 in 2017. The remaining $5,000 of deferred acquisition consideration plus accrued interest owed to the sellers of NuTech Medical was previously in dispute. The Company asserted certain claims for indemnification that would offset in whole or in part its payment obligation and the sellers of NuTech Medical filed a lawsuit alleging breach of contract and seeking specific performance of the alleged payment obligation and attorneys’ fees. In February 2020, the Company entered into a settlement agreement with the sellers of NuTech Medical and settled the dispute for $4,000, of which, $2,000 was paid immediately on February 24, 2020 and the remaining $2,000 was paid in four quarterly installments of $500 each. As of March 31, 2021, the entire settlement was paid off. In addition, the Company assumed from the sellers of NuTech Medical the payment responsibilities related to a legacy lawsuit existing at the acquisition date of NuTech Medical. The assumed legacy lawsuit was settled in October 2020. In connection with the settlement of the deferred acquisition consideration dispute and the legacy lawsuit, the Company recorded a gain of $1,295 and $951 for the three months ended March 31, 2020 and September 30, 2020, respectively. The gain was included as a component of other expense, net, on the consolidated statement of operations.
19. Related Party Transactions
~~Finance lease~~
Lease obligations to affiliates, including accrued but unpaid lease obligations, and purchase of an ~~operating~~asset under a finance lease with ~~affiliates~~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 exercise 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%—~~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 and $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 as a recovery of the previously reserved related party receivables within selling, general and administrative expenses on the consolidated statement of operations for the ~~three months~~year ended ~~March~~December 31, 2021. The $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 owned Swiss subsidiary, Organogenesis Switzerland 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 owned subsidiary of the Company.

The income tax rate for the three months ended March 31, ~~2021~~2022 varied from the U.S. statutory rate of 21% primarily due to the ~~utilization~~tax adjustments related to executive compensation, other permanent tax adjustments, and discrete items. Income tax expense for the three months ended March 31, 2022 was $45, which include
d
a discrete tax expense of ~~net operating losses federally~~ $10
,
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~~related primarily to federal 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.~~taxes. Income tax expense for the three months ended March 31, 2021 was ~~$200 and~~
$200, which included a discrete ~~tax~~ expense of $10, ~~related to the interest on certain uncertain tax positions. Income tax expense for the three months ended March 31, 2020 was $35~~ and 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. ~~As a result~~In the fourth quarter of ~~significant cumulative tax benefits associated with share-based compensation taxable events,~~2021, the Company ~~has significant negative~~released 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 believes~~Company believed that it iswas more likely than not that these United States deferred tax assets will ~~not~~ be utilized. ~~As such, the Company maintained the valuation allowance against its U.S. deferred tax asset as of March 31, 2021.~~ There ~~were~~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 determined that it is more likely than not the U.S. deferred assets will be realized in full. As such, the Company has not recorded a valuation allowance against its U.S. deferred tax
assets as of March 31, 2022 and December 31, 2021.

21. Subsequent Events

The Company has evaluated subsequent events through May 10, ~~2021,~~2022, the date on which these consolidated financial statements were issued and has determined that there were no such events to report.

2
1

Table of Contents
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~~ Form
10-Q
and the financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form
10-K
for the fiscal year ended December 31, ~~2020,~~2021, filed with the Securities and Exchange Commission, or the SEC, on March ~~16, 2021,~~1, 2022, as amended. Please refer to our note regarding forward-looking statements on page 3 of this Form
10-Q,
which is incorporated herein by this reference.
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
in-house
customer support to a wide range of health care customers including hospitals, wound care centers, government facilities, ambulatory service centers (“ASCs”), 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 ~~barriers~~barrier 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 ~~exceptional~~comprehensive 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 ~~ReNu for~~ ~~in-office~~ ~~knee osteoarthritis treatment; NuCel for bony fusion in the lumbar spine;~~ NuShield ~~and Affinity barrier products~~ for surgical application in targeted soft tissue repairs; and Affinity, Novachor and 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.
On December 10, 2018, Avista Healthcare Public Acquisition Corp., our predecessor company (“AHPAC”), consummated the previously announced business combination pursuant to that certain Agreement and Plan
22
Table of Merger, dated as of August 17, 2018 (as amended, the “Avista Merger Agreement”), by and among AHPAC, Avista Healthcare Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of AHPAC (“Avista Merger Sub”) and Organogenesis Inc., a Delaware corporation. As a result of the transactions contemplated by the Avista Merger Agreement, Avista Merger Sub merged with and into Organogenesis Inc., with Organogenesis Inc. surviving the merger (the “Avista Merger”). In addition, in connection with the business combination, AHPAC redomesticated as a Delaware corporation (the “Domestication”). After the Domestication, AHPAC changed its name to “Organogenesis Holdings Inc.” As a result of the Avista Merger, Organogenesis Inc. became a wholly-owned direct subsidiary of Organogenesis Holdings Inc.
Contents

For the three months ended March 31, ~~2021,~~2022, we generated $98.1 million of net revenue and $0.1 million of net income compared to $102.6 million of net revenue and $9.9 million of net income ~~compared to $61.7 million of net revenue and $16.3 million of net loss~~ for the three months ended March 31, ~~2020. We~~2021. 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 three consecutive quarters ended March 31, 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 March 31, ~~2021,~~2022, we had an accumulated deficit of ~~$140.8~~$60.0 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 the coronavirus
(COVID-19)
around the world, and particularly in the United States, continues to present risks to the Company. While the
COVID-19
pandemic has not materially adversely affected our financial results and business operations through the first quarter ended March 31, ~~2021,~~2022, we are unable to predict the impact that
COVID-19
will have on our financial position and operating results because of the numerous uncertainties created by the unprecedented nature of the pandemic. We are closely monitoring the evolving impact of the pandemic on all aspects of our business. We have implemented a number of measures designed to protect the health and safety of our employees, support our customers and promote business continuity. We ~~have reviewed and implemented cost-saving measures and will continue to review and implement additional cost-saving measures, as necessary, to address the evolving~~ ~~COVID-19~~ ~~challenges. We~~ continue to evaluate the Company’s liquidity position, communicate with and monitor the actions of our customers and suppliers, and review our near-term financial performance as we manage the Company through this period of uncertainty.
~~CPN Acquisition~~
On September 17, 2020, we acquired certain assets and assumed certain liabilities of CPN Biosciences, LLC (“CPN”) pursuant to an asset purchase agreement dated July 24, 2020. This transaction was accounted for as a business combination using the acquisition method of accounting in accordance with ASC Topic 805, ~~Business Combinations~~. The aggregated consideration amounted to $19.0 million as of the acquisition date which consisted of $6.4 million in cash, 2,151,438 shares of our common stock with a fair value of $8.8 million, and a contingent consideration (the “Earnout”) with a fair value of $3.8 million. At the closing, we paid $5.8 million in cash and issued 1,947,953 shares of our Class A common stock. The remaining consideration was held back and will be paid or issued, as applicable, eighteen months after the closing date, subject to any offsetting indemnification claims against CPN. The results of operations of CPN have been included in our consolidated financial statements beginning on the acquisition date. Revenue and expenses of CPN since the acquisition date were not material.

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
a 36-month enforcement
grace period to allow time for distributors of HCT/Ps to make any regulatory submissions and obtain any premarket approvals necessary to comply with the guidance. In July 2020, the FDA announced that the enforcement grace period would be extended until May 31, 2021 as a result of the challenges presented by
the COVID-19 public
health emergency. On April 21, 2021, the FDA reaffirmed that the enforcement grace period ~~will~~would end on May 31, 2021, ~~and will not be extended. At that~~at which time ~~the FDA will regulate our~~we ceased commercial distribution of ReNu and ~~NuCel products under Section 351.~~NuCel. We ~~have continued~~are continuing to ~~market our ReNu and NuCel products during the enforcement grace period, but we plan to cease commercial distribution after May 31, 2021 and continue investigating ReNu and NuCel in~~conduct clinical studies ~~until the~~of ReNu to support FDA ~~approves~~approval of a Biologics License ~~Application.~~
Application for the treatment of knee osteoarthritis and, based on favorable feasibility studies, we believe ReNu has potential as a treatment for additional osteoarthritis and tissue regeneration applications. Accordingly, we have decided to focus on clinical development of ReNu and we 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 will be suspended in the second quarter of 2022. We currently plan to transition our Dermagraft manufacturing to our Massachusetts-based manufacturing facilities, 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 party agencies. As of March 31, ~~2021,~~2022, we had approximately ~~290~~340 direct sales representatives and approximately ~~190~~150 independent agencies.

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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.
~~Included within our product revenue is our PuraPly and PuraPly AM products. We launched PuraPly in~~ ~~mid-2015,~~ ~~and introduced PuraPly AM in 2016. In order to encourage the development of innovative medical devices, drugs and biologics, CMS can grant new products an additional~~

“pass-through payment” in addition to the bundled payment amount for a limited period of no more than three years. Our PuraPly and PuraPly AM products were granted pass-through status from launch through December 31, 2017, which created an economic incentive for practitioners to use PuraPly and PuraPly AM over other skin substitutes. As a result, we saw increases in revenue related to these products in 2017. Beginning January 1, 2018, PuraPly AM and PuraPly transitioned to the bundled payment structure for skin substitutes, which provides for a ~~two-tiered~~ ~~payment system in the hospital outpatient and ASC setting. The~~ ~~two-tiered~~ Medicare payment system bundles payment for our Advanced Wound Care products (and all skin substitutes) into the payment for the procedure for applying the skin substitute, resulting in a single payment to the provider that includes reimbursement for both the procedure and the product itself. As a result of the transition to the bundled payment structure, total Medicare reimbursement for procedures using our PuraPly AM and PuraPly products decreased substantially. This reduction in reimbursement resulted in a substantial decrease in revenue from our PuraPly AM and PuraPly products during the first nine months of 2018 and had a negative effect on our business, results of operations and financial condition. On March 23, 2018, Congress passed, and the President signed into law, the Consolidated Appropriations Act of 2018, or the Act. The Act restored the pass-through status of PuraPly and PuraPly AM effective October 1, 2018. As a result, effective October 1, 2018, Medicare resumed making pass-through payments to hospitals using PuraPly and PuraPly AM in the outpatient hospital setting and in ASCs. PuraPly and PuraPly AM had pass-through reimbursement status through September 30, 2020. With the expiration of the pass-through reimbursement status, our net revenue from PuraPly and PuraPly AM may decrease as they transition to the bundled payment structure. As of March 31, 2021, we have not observed such decrease primarily due to our recently launched PuraPly line extensions.

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 increases in our cost of goods sold correspond with the increases in sales units 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 of goods sold to increase due primarily to ~~increased~~the anticipated increase in sales volumes.

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 are~~is 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.~~
profit.

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~~

—Interest expense ~~net~~ consists of interest on our outstanding indebtedness, including amortization of debt discount and debt issuance costs, net of interest income recognized.
~~Gain on settlement of deferred acquisition consideration~~—In February 2020, we settled the dispute on the $5.0 million deferred purchase acquisition consideration with the sellers of NuTech Medical for $4.0 million and assumed from the sellers of NuTech Medical the responsibilities related to a legacy lawsuit of NuTech Medical, which was settled in October 2020. In connection with the settlement of this dispute and the legacy lawsuit, we recorded a gain of $1.3 million and $1.0 million for the three months ended March 31, 2020 and December 31, 2020, respectively.

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 sufficient~~including projected future taxable ~~income. We also consider the expected reversal~~income, recent financial results and estimates of future reversals of deferred tax ~~liabilities~~assets 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, ~~including the fact that through the period ended March 31, 2021, our results reflected a twelve-quarter cumulative loss position,~~ we have determined that ~~a valuation allowance is necessary against the full amount of~~ our net U.S. deferred tax ~~assets.~~
~~Our U.S. provision for income taxes relates to current tax expense associated with taxable income that could~~assets do not ~~be offset by state net operating losses. We will utilize net operating losses to offset all~~require a valuation allowance as of ~~the projected 2021 federal taxable income, but have exhausted net operating losses~~March 31, 2022 and ~~are subject to limitations in the net operating loss utilization in certain states. The Company has also recorded a foreign provision for income taxes related to its wholly owned Swiss subsidiary.~~
December 31, 2021.

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We account for uncertainty in income taxes recognized in the consolidated financial statements by applying
a two-step process
to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is
deemed more-likely-than-not to
be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
Results of Operations
The following table sets forth, for the periods indicated, our results of operations:

   Three Months Ended
March 31,
   2021    2020
Net revenue
   $ 102,552    $ 61,732
Cost of goods sold
   25,495    18,793




Gross profit
   77,057    42,939
Operating expenses:

Selling, general and administrative
   58,232    52,613
Research and development
   6,209    5,410




Total operating expenses
   64,441    58,023




Income (loss) from operations
   12,616    (15,084 )




Other expense, net:

Interest expense, net
   (2,470 )    (2,510 )
Gain on settlement of deferred acquisition consideration
   —      1,295
Other income (expense), net
   (3 )    21




Total other expense, net
   (2,473 )    (1,194 )




Net income (loss) before income taxes
   10,143    (16,278 )
Income tax expense
   (200 )    (35 )




Net income (loss)
   $ 9,943    $ (16,313 )

Three Months Ended

March 31,


2022

2021

Net revenue
   $ 98,117    $ 102,552
Cost of goods sold
   25,080    25,495




Gross profit
   73,037    77,057
Operating expenses:

Selling, general and administrative
   63,578    58,232
Research and development
   8,587    6,209




Total operating expenses
   72,165    64,441




Income from operations
   872    12,616




Other expense, net:

Interest expense
   (737 )    (2,470 )
Other expense, net
   (3 )    (3 )




Total other expense, net
   (740 )    (2,473 )




Net income before income taxes
   132    10,143
Income tax expense
   (45 )    (200 )




Net income
   $ 87    $ 9,943




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.
These non-GAAP financial
measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. Our management uses Adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. Our management believes Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the items that we exclude. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.
25
Table of Contents
The following is a reconciliation of GAAP net income ~~(loss)~~ to
non-GAAP
EBITDA and
non-GAAP
Adjusted EBITDA for each of the periods presented:

   Three Months Ended
March 31,
   2021    2020
   (in thousands)
Net income (loss)
   $ 9,943    $ (16,313 )
Interest expense, net
   2,470    2,510
Income tax expense
   200    35
Depreciation
   1,010    902
Amortization
   1,243    817




EBITDA
   14,866    (12,049 )




Stock-based compensation expense
   698    209
Gain on settlement of deferred acquisition consideration (1)
   —      (1,295 )
Recovery of certain notes receivable from related parties (2)
   (179 )    —
Change in fair value of Earnout (3)
   (296 )    —
Restructuring charge (4)
   927    —
Transaction cost (5)
   —      243
Cancellation fee (6)
   —      1,950




Adjusted EBITDA
   $ 16,016    $ (10,942 )





Three Months Ended

March 31,


2022

2021

Net income
   $ 87    $ 9,943
Interest expense
   737    2,470
Income tax expense
   45    200
Depreciation
   1,347    1,010
Amortization
   1,221    1,243




EBITDA
   3,437    14,866




Stock-based compensation expense
   1,303    698
Recovery of certain notes receivable from related parties (1)
   —      (179 )
Change in fair value of Earnout (2)
   —      (296 )
Restructuring charge (3)
   264    927




Adjusted EBITDA
   $ 5,004    $ 16,016




(1)
Amount reflects the gain recognized related to the settlement of the deferred acquisition consideration dispute with the sellers of NuTech Medical in February 2020. See Note “18. Commitments and Contingencies”.
~~(2)~~
Amount reflects the collection of certain notes receivable from related parties previously reserved. See Note “19. Related Party Transactions”.
~~(3)~~(2)
Amount reflects the change in the fair value of the Earnout liability in connection with the CPN acquisition. See Note “3. Acquisition” and “5. Fair Value Measurement of Financial Assets and Liabilities”.
~~(4)~~(3)
Amount reflects employee retention and ~~other benefit-related costs~~benefits as well as the facility-related cost related to the Company’s restructuring activities. See Note “12. Restructuring”.
~~(5)~~
~~Amount reflects the legal, advisory and other professional fees incurred in the three months ended March 31, 2020 related directly to the CPN acquisition. See Note “3. Acquisition”.~~
~~(6)~~
~~Amount reflects the cancellation fee for terminating certain product development and consulting agreements the Company inherited from NuTech Medical. See Note “18. Commitments and Contingencies”.~~
Comparison of the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~
2021
Revenue


Three Months Ended
March 31,
   Change
   2021    2020    $    %
   (in thousands, except for percentages)
Advanced Wound Care
   $ 90,708    $ 51,288    $ 39,420    77 %
Surgical & Sports Medicine
   11,844    10,444    1,400    13 %








Net revenue
   $ 102,552    $ 61,732    $ 40,820    66 %









Three Months Ended
March 31,

Change


2022

2021

$

%



(in thousands, except for percentages)

Advanced Wound Care
   $ 90,950    $ 90,708    $ 242    0 %
Surgical & Sports Medicine
   7,167    11,844    (4,677 )    (39 %)








Net revenue
   $ 98,117    $ 102,552    $ (4,435 )    (4 %)








Net revenue from our Advanced Wound Care products ~~increased by $39.4~~in the three months ended March 31, 2022 was $91.0 million, ~~or 77%, to~~relatively consistent with the net revenue of $90.7 million in the three months ended March 31, 2021 from $51.3 million in the three months ended March 31, 2020. The increase in Advanced Wound Care net revenue was primarily attributable to the expanded sales force, increased sales to existing and new customers and increased adoption of our amniotic product portfolio, including our Affinity product.
2021.
Net revenue from our Surgical & Sports Medicine products ~~increased~~decreased by ~~$1.4~~$4.7 million, or ~~13%~~39%, to $7.2 million in the three months ended March 31, 2022 from $11.8 million in the three months ended March 31, ~~2021 from $10.4 million in the three months ended March 31, 2020.~~2021. The ~~increase~~decrease in Surgical & Sports Medicine net revenue was primarily ~~attributable~~due to the ~~expanded~~continued impact of the suspension of marketing of our ReNu and NuCel products in connection with the expiration of the FDA’s enforcement grace period on May 31, 2021 and, to a lesser extent, the impact of the
COVID-19
pandemic on sales ~~force and penetration~~ of ~~existing and new customer accounts.~~
our Affinity product.

Included within net revenue is PuraPly revenue of ~~$41.3~~$53.3 million and ~~$32.5~~$41.3 million for the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively. ~~PuraPly exited pass-through status on October 1, 2020.~~ The continued increase in PuraPly revenue in the three months ended March 31, ~~2021~~2022 was due to ~~the~~our expanded sales ~~forces,~~force, expanded sites of care, and increased ~~sales to~~adoption, by existing and new customers, ~~and increased adoption~~ of our ~~recently launched~~PuraPly line extensions.

Table of Contents
Cost of goods sold ~~gross profit~~ and gross profit ~~margin~~


Three Months Ended
March 31,
Change
   2021 2020 $    %
   (in thousands, except for percentages)
Cost of goods sold
   $ 25,495 $ 18,793 $ 6,702    36 %




Gross profit
   $ 77,057 $ 42,939 $ 34,118    79 %




Gross profit%
   75 % 70 %


Three Months Ended
March 31,

Change


2022

2021

$

%



(in thousands, except for percentages)

Cost of goods sold
   $ 25,080    $ 25,495    $ (415 )    (2 %)








Gross profit
   $ 73,037    $ 77,057    $ (4,020 )    (5 %)








Cost of goods sold ~~increased~~decreased by ~~$6.7~~$0.4 million, or ~~36%~~2%, to $25.1 million in the three months ended March 31, 2022 from $25.5 million in the three months ended March 31, ~~2021 from $18.8 million in the three months ended March 31, 2020.~~2021. The ~~increase~~decrease in cost of goods sold was primarily due to ~~increased~~decreased unit volumes ~~and additional manufacturing and quality control headcount.~~
in Surgical & Sports Medicine products.
Gross profit ~~increased~~decreased by ~~$34.1~~$4.0 million, or ~~79%~~5%, to ~~$77.1~~$73.0 million in the three months ended March 31, ~~2021~~2022 from ~~$42.9~~$77.1 million the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease in gross profit resulted primarily from ~~increased~~decreased sales volume ~~due to the strength~~ in ~~our Advanced Wound Care and~~ Surgical & Sports Medicine products as well as ~~a shift in product mix to our higher gross margin products.~~
increased manufacturing-related costs.
Research and Development Expenses


Three Months Ended
March 31,
Change
   2021 2020 $    %
   (in thousands, except for percentages)
Research and development
   $ 6,209 $ 5,410 $ 799    15 %




Research and development as a percentage of net revenue
   6 % 9 %


Three Months Ended
March 31,

Change


2022

2021

$

%



(in thousands, except for percentages)

Research and development
   $ 8,587    $ 6,209    $ 2,378    38 %








Research and development expenses increased by ~~$0.8~~$2.4 million, or ~~15%~~38%, to $8.6 million in the three months ended March 31, 2022 from $6.2 million in the three months ended March 31, ~~2021 from $5.4 million in the three months ended March 31, 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. ~~These increases were partially offset by a decrease in process development costs associated with a new contract manufacturer in 2020.~~
Selling, General and Administrative Expenses


Three Months Ended
March 31,
Change
   2021 2020 $    %




   (in thousands, except for percentages)
Selling, general and administrative
   $ 58,232 $ 52,613 $ 5,619    11 %




Selling, general and administrative as a percentage of net revenue
   57 % 85 %





Three Months Ended
March 31,

Change


2022

2021

$

%



(in thousands, except for percentages)

Selling, general and administrative
   $ 63,578    $ 58,232    $ 5,346    9 %








Selling, general and administrative expenses increased by ~~$5.6~~$5.3 million, or ~~11%~~9%, to ~~$58.2~~$63.6 million in the three months ended March 31, 2021 from ~~$52.6~~$58.2 million in the three months ended March 31, 2020. The increase in selling, general and administrative expenses was primarily due to a ~~$9.4~~$4.1 million increase related to additional headcount, primarily in our direct sales force, and ~~increased sales commissions due~~a $2.0 million increase related to increased ~~sales, a $0.9 million increase in restructuring cost associated with closing La Jolla office,~~travel and ~~a $0.9 million increase in legal, consulting fees and other costs associated with~~ marketing programs amid
the ~~ongoing operations of our business.~~relaxed COVID-19 travel
restrictions. These increases were partially offset by a ~~$4.4~~$0.7 million decrease ~~related to reduced travel and marketing programs amid travel restrictions~~ in ~~place~~restructuring costs due to the ~~COVID-19~~ ~~pandemic, and a decrease~~substantial completion of ~~royalty expenses~~the restructuring activities associated with closing the La Jolla, California office.
27
Table of Contents
Other Expense, net


Three
Months Ended
March 31,

Change


2022

2021

$

%



(in thousands, except for percentages)

Interest expense, net
   $ (737 )    $ (2,470 )    $ 1,733    (70 %)
Other expense, net
   (3 )    (3 )    —      **








Total other expense, net
   $ (740 )    $ (2,473 )    $ 1,733    (70 %)








**
not meaningful
Other expense, net, decreased by $1.7 million, ~~of which $2.0~~or 70%, to $0.7 million ~~was the cancellation fee incurred~~ in the three months ended March 31, ~~2020 to cancel certain product development and consulting agreements.~~

~~Other Expense, net~~

Three Months Ended
March 31,
   Change
   2021    2020    $    %
   (in thousands, except for percentages)
Interest expense, net
   $ (2,470 )    $ (2,510 )    $ 40    (2 %)
Gain on settlement of deferred acquisition consideration
   —      1,295    (1,295 )    100 %
Other income (expense), net
   (3 )    21    (24 )    * *








Total other expense, net
   $ (2,473 )    $ (1,194 )    $ (1,279 )    107 %








**
~~not meaningful~~
~~Other expense, net, increased by $1.3 million, or 107%, to~~2022 from $2.5 million in the three months ended March 31, 2021. Interest expense decreased due to the reduced interest rate for borrowings under the 2021 ~~from $1.2~~Credit Agreement.

Income Tax Expense

Three Months Ended
March 31,

Change


2022

2021

$

%



(in thousands, except for percentages)

Income tax expense
   $ (45 )    $ (200 )    $ 155    (78 %)








Income tax expense decreased by $0.2 million, or 78% to $0.0 million in the three months ended March 31, ~~2020. The increase was primarily due to a $1.3~~2022 from $0.2 million ~~gain for~~in the three months ended March 31, ~~2020 related~~2021. The decrease in the provision is primarily attributed to the ~~settlement~~decrease in taxable income from $10.1 million in the three months ended March 31, 2021 to $0.1 million in the three months ended March 31, 2022. The decrease in taxable income is partially offset by the increase in the effective rate from 2.19% in the three months ended March 31, 2021 to 26.65% in the three months ended March 31, 2022 due to the release of the ~~deferred acquisition consideration dispute with~~valuation allowance in the ~~sellers of NuTech Medical.~~
three months ended December 31, 2021.
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 March 31, ~~2021,~~2022, we had ~~$111.2~~an accumulated deficit of $60.0 million and working capital of $141.1 million which included $107.9 million in ~~working capital which included $77.5 million in cash.~~cash and cash equivalents. We also had ~~up to $30,000~~$125,000 available ~~(subject to Borrowing Base)~~ for future revolving borrowings under our Revolving Facility (see Note “13. Long-Term Debt Obligations”). For the three months ended March 31, 2022, we reported $98.1 million in net revenue, $0.1 million in net income and $1.4 million of cash flows from operating activities. We expect that our cash on hand and other components of working capital as of March 31, ~~2021,~~2022, availability under the ~~2019~~2021 Credit Agreement, plus net cash flows from product sales, will be sufficient to fund our operating expenses, capital expenditure requirements and debt service payments for at least 12 months beyond the filing date of this quarterly report.
We continue to closely monitor ongoing developments in connection with the
COVID-19
pandemic, which may negatively impact our commercial prospects, cash position and access to capital in fiscal ~~2021~~2022 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~~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. ~~Any failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results~~
28
Table of ~~operations, and financial condition.~~
Contents

Cash Flows

The following table summarizes our cash flows for each of the periods presented:

   Three Months Ended
March 31,
   2021    2020
   (in thousands)
Net cash used in operating activities
   $ (1,479 )    $ (17,283 )
Net cash used in investing activities
   (4,778 )    (4,243 )
Net cash (used in) provided by financing activities
   (591 )    8,230




Net change in cash and restricted cash
   $ (6,848 )    $ (13,296 )

Three Months Ended
March 31,


2022

2021


(in thousands)

Net cash provided by (used in) operating activities
   $ 1,411    $ (1,300 )
Net cash used in investing activities
   (6,672 )    (4,957 )
Net cash used in financing activities
   (765 )    (591 )




Net change in cash, cash equivalents, and restricted cash
   $ (6,026 )    $ (6,848 )




Operating Activities
During the three months ended March 31, 2022, net cash provided by operating activities was $1.4 million, resulting from our net income of $0.1 million and
non-cash
charges of $8.2 million, partially offset by cash used in connection with changes in our operating assets and liabilities of $6.9 million. Net cash used in changes in our operating assets and liabilities included an increase in prepaid expenses and other current assets of $2.2 million, a decrease in operating leases liability of $1.8 million, a decrease in accounts payable of $1.2 million, and a decrease in accrued expenses and other current liabilities of $4.8 million, all of which were partially offset by a decrease in accounts receivable of $2.9 million.
During the three months ended March 31, 2021, net cash used in operating activities was ~~$1.5~~$1.3 million, resulting from our net cash used in connection with changes in our operating assets and liabilities of ~~$19.3~~$19.1 million, partially offset by net income of $9.9 million
and non-cash charges
of $7.8 million. Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable of ~~$16.3~~$16.1 million, an increase in inventory of $4.2 million, an increase in prepaid expenses and other current assets of $0.6 million, and a decrease in operating leases and other liabilities of $1.4 million, all of which were partially offset by an increase in accounts payable of $1.8 million, and an increase of accrued expenses and other current liabilities of $1.4 million.
Investing Activities
During the three months ended March 31, ~~2020, net~~2022, we used $6.7 million of cash ~~used~~ in ~~operating~~investing activities ~~was $17.3 million, resulting from our net loss~~consisting exclusively of ~~$16.3 million and net cash used in connection with changes in our operating assets and liabilities of $3.4 million, partially offset~~ ~~by non-cash charges~~ of $2.4 million. Net cash used in changes in our operating assets and liabilities included an increase in inventory of $4.3 million, an increase in prepaid expenses and other current assets of $2.1 million, a decrease in accounts payable of $1.9 million, and a decrease in accrued expenses and other liabilities of $1.4 million, all of which were partially offset by a decrease in accounts receivable of $6.3 million.
~~Investing Activities~~
capital expenditures.
During the three months ended March 31, 2021, we used ~~$4.8~~$5.0 million of cash in investing activities consisting exclusively of capital ~~expenditures of $5.0 million partially offset by notes receivable repayment of $0.2 million from our former executives.~~
expenditures.
Financing Activities
During the three months ended March 31, ~~2020, we~~2022, net cash used ~~$4.2~~by financing activities was $0.8 million. This consisted primarily of the payment of term loan and finance lease obligations of $0.6 million, and net payment of ~~cash~~$0.2 million in ~~investing activities solely consisting of capital expenditures.~~
~~Financing Activities~~
connection with the stock awards activities.
During the three months ended March 31, 2021, net cash used by financing activities was $0.6 million. This consisted primarily of the payment of finance lease obligations of $0.7 million, and the payment of $0.5 million related to the NuTech Medical deferred acquisition consideration, ~~and the payments~~partially offset by net proceeds of ~~$0.4~~$0.6 million ~~withholding taxes~~ in connection with ~~stock-based awards. The net cash used by financing activities was partially offset by~~ the ~~$1.0 million in proceeds from the exercise of common~~ stock ~~options.~~
~~During the three months ended March 31, 2020, net cash provided by financing activities was $8.2 million. This consisted primarily of $10.0 million in proceeds from the Term Loan under the 2019~~award activities.
Indebtedness
2021 Credit Agreement and $0.8 million in proceeds from the exercise of common stock options. The net cash provided by financing activities was partially offset by the payment of finance lease obligations of $0.5 million and the payment of $2.0 million related to the NuTech Medical deferred acquisition consideration.
~~Indebtedness~~
~~2019 Credit Agreement~~
~~On March 14, 2019,~~
In August 2021, we and our subsidiaries entered into a credit agreement with SVB and several other lenders, which we refer to as the ~~2019~~2021 Credit Agreement. ~~Capitalized terms used herein and not otherwise defined are defined as set forth in the 2019 Credit Agreement.~~

The ~~2019~~2021 Credit Agreement ~~as amended,~~ 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”).

Table of upContents
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 based on the ~~lesser~~Total Net Leverage Ratio. For ABR Loans, the interest rate is equal to (1) the highest of ~~$40.0 million~~(a) the Wall Street Journal Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the LIBOR rate plus 1.0%,
plus
(2) an Applicable Margin based on the Total Net Leverage Ratio.
The 2021 Credit Agreement requires us to make consecutive quarterly installment payments of principal in an amount ~~determined by~~equal to between 0.625% to 2.50% of the ~~Borrowing Base. Additionally, we entered into a $60.0 million term loan~~original principal amount of the Term Loans starting from September 30, 2021 through August 6, 2026 (the “Term Loan ~~Facility”~~Maturity Date”) ~~structured~~. 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
be re-borrowed.
We must pay a quarterly fee in ~~three tranches.~~arrears (the “Commitment Fee”), for the
Company’s non-use of
available funds through August 6, 2026 (the “Revolving Termination Date”). The ~~first tranche~~Commitment Fee rate is 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 ~~$40.0 million was~~the Revolving Commitments made ~~available~~prior to ~~us and fully funded on March 14, 2019; (ii)~~August 6, 2022, 1.00% of the ~~second tranche~~aggregate amount of ~~$10.0 million was made available to us and fully funded in September 2019 upon achievement of certain financial metrics; and (iii)~~ the ~~third tranche of $10.0 million was made available to us and fully funded in March 2020 upon achievement of a certain financial metric.~~
WeRevolving Commitments so reduced or terminated.
Under the 2021 Credit Agreement, we are required to comply with certain financial covenants ~~and restrictions under the 2019 Credit Agreement. If we fail to comply with these requirements, the lenders will be entitled to exercise certain remedies,~~ including the ~~termination of the lending commitments~~Consolidated Fixed Charge Coverage Ratio and ~~the acceleration of the debt payments under either or both of the Revolving Facility and the Term Loan Facility. We~~Consolidated Total Net Leverage Ratio, tested quarterly. In addition, we are also required to ~~achieve~~make representations and warranties and comply with certain ~~financial~~
non-financial
covenants that are customary in loan agreements of this type, including ~~Minimum Trailing Twelve Month Consolidated Revenue~~restrictions on the payment of dividends, repurchase of stock, incurrence of indebtedness, dispositions and ~~Non-PuraPly~~ Revenue, tested quarterly. The Minimum Trailing Twelve Month Consolidated Revenue requirements for the year ending December 31, 2021 are set at the following levels: $265.6 million for the trailing twelve months ending March 31, 2021; $269.6 million for the trailing twelve months ending June 30, 2021; $306.1 million for the trailing twelve months ending September 30, 2021; and $338.3 million for the trailing twelve months ending December 31, 2021. The Trailing Twelve Month ~~Non-PuraPly~~ Revenue requirements are set at the following levels: $141.6 million for the trailing twelve months ending March 31, 2021; $147.2 million for the trailing twelve months ending June 30, 2021; $176.6 million for the trailing twelve months ending September 30, 2021; and $205.4 million for the trailing twelve months ending December 31, 2021. We are also required to maintain Minimum Liquidity equal to the greater of (i) 6 months Monthly Burn and (ii) $10.0 million.
acquisitions.
As of March 31, ~~2021,~~2022, we were in compliance with the ~~financial~~ covenants under the ~~2019~~2021 Credit ~~Agreement and we~~Agreement. We had outstanding borrowings under the Revolving Facility and Term Loan Facility of the 2021 Credit Agreement of $0.0 million and $73.6 million, respectively.
2019 Credit Agreement
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 ~~$10.0~~the 2019 Credit Agreement, the Company recognized $1.9 million ~~and $60.0 million, respectively.~~
~~Contractual Obligations and Commitments~~
~~There have been no material changes to our contractual obligations and commitments~~ as loss on the extinguishment of ~~March 31, 2021 from those disclosed in our Annual Report on Form~~ ~~10-K~~the loan for the year ended December 31, ~~2019.~~
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, ~~especially given the risks and uncertainties related to~~ ~~COVID-19,~~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 Form
10-K
for the fiscal year ended December 31, ~~2020~~2021 for information about these accounting policies as well as a description of our other significant accounting policies.

~~Emerging Growth Company Status~~

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these exemptions until we are no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards (such as ~~ASU 2016-02,~~~~Leases~~~~(Topic 842)~~) and, as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until December 31, 2021, or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by ~~non-affiliates~~ ~~or we issue more than $1.0 billion of~~ ~~non-convertible~~ ~~debt securities over a three-year period.~~

Off-Balance

Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any
off-balance
sheet arrangements, as defined in the rules and regulations of the SEC.

Table of Contents
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
Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
~~Pursuant~~
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 ~~Regulation~~ ~~S-K,~~market risk and the ~~Company~~ use of financial instruments to manage our exposure to such risk.
Interest Rate Risk
As of March 31, 2022, we had $73.6 million and no borrowings outstanding under our term loan facility and 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 March 31, 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.
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 ~~required~~have 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).~~
foreign currency risk.
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 March 31, ~~2021.~~2022. The term “disclosure controls and procedures,” as defined in
Rules 13a-15(e) ~~and15d-15(e)~~and
15d-15(e) under
the Exchange Act, means controls and other procedures of a company that are 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 recorded, processed, summarized and reported, within the time periods specified in the rules and forms promulgated by the Securities and Exchange Commission (the “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.
~~Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, our management has~~
Management assessed the effectiveness of ~~our~~the Company’s internal control over financial reporting based on the criteria ~~set forth~~established 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-Integrated~~Control— Integrated Framework ~~(2013)~~ issued by the Committee of Sponsoring Organizations of the Treadway Commission ~~(COSO).~~

in 2013. As ~~previously~~a result of this assessment, management concluded that, as of March 31, 2022, our internal control over financial reporting was not effective based on those criteria.

As disclosed ~~under “Item 9A. Controls and Procedures”~~ in ~~our~~the Company’s Annual Report ~~on Form~~ ~~10-K~~for ~~our~~the fiscal year ended December 31, ~~2020, we~~2021, our management team identified the following material weakness ~~that existed as of December 31, 2020 and continued to exist at March 31, 2021. A material weakness is a~~in 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 interim~~over financial ~~statements will not be prevented or detected.~~
Wereporting: we did not design and maintain formal accounting, business operations, and ~~Information Technology~~information technology policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including (i) formalized policies and procedures for reviews over account reconciliations, journal entries, and other accounting analyses, ~~and~~ memos and procedures to ensure completeness and accuracy of information used in these review controls and (ii) controls to support the objectives of proper segregation of the initiation of transactions, the recording of transactions, and the custody of assets.
~~Because~~

Table of ~~the deficiencies noted above,~~Contents
Although management has made significant progress in ~~consultation with~~remediating this material weakness, management ~~our principal executive officer and principal financial officer~~ concluded that ~~we did not maintain effective internal control~~the material weakness described above continued to exist as of March 31, 2022. Specifically, when validating the operating effectiveness of certain controls over financial reporting to gain assurance that such controls are present and ~~our disclosure~~functioning as designed, management identified deficiencies that indicate a lack of sustainability and inconsistent application of certain policies, procedures, and controls, ~~and procedures were not effective as~~including the proper segregation of ~~both December 31, 2020 and March 31, 2021, based on~~duties, exacerbated in part by turnover within key positions during the ~~criteria in Internal Control—Integrated Framework (2013) issued by COSO.~~
past year.
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.
Management is committed to finalizing the remediation of the material weakness during ~~2021.~~2022. Management’s internal control remediation efforts include the following:
~~In 2019, we began~~
We are planning the implementation of a new company-wide enterprise resource planning, or ERP, system to provide additional systematic controls and segregation of duties for our accounting processes. We anticipate that the ~~enterprise resource planning~~ERP system will go live ~~during the second half of 2021.~~
in 2022.
We have ~~designed~~continued to train and ~~implemented more effective controls throughout 2019~~cross train our employees on their internal control responsibilities and ~~2020.~~
how to best support the Company if personnel turnover issues within their departments occur. We ~~completed the risk assessment activities by evaluating whether the design of~~have also supplemented our internal ~~controls appropriately addresses changes in the business (including changes to people, processes and systems) that could impact our system of internal controls.~~
resources with third-party resources, where necessary.
We ~~designed controls that address the completeness and accuracy of any key reports utilized in the execution of internal controls.~~
~~We reported regularly to the audit committee on the progress and results of control remediation.~~
We developed and executed upon a monitoring protocol that allows the Company to validate the operating effectiveness of certain controls over financial reporting to gain assurance that such controls are present and functioning as designed.
~~We will also continue~~have continued to engage an outside firm ~~in 2021~~ to assist management with performing ~~sufficient~~control operating effectiveness testing throughout the ~~year~~year.
We regularly reported the results of control testing to ~~validate~~ the ~~operating effectiveness~~key stakeholders across the organization, including the audit committee, on testing progress and defined corrective actions, and we monitored and reported on the results of ~~certain controls over financial reporting~~
~~Management believes~~control remediation. Through these actions, ~~will be effective in remediating the material weakness described above.~~ we have continued to strengthen our internal policies, processes, and reviews.
As management continues to evaluate and work to improve ~~its~~our 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 March 31, ~~2021~~2022 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.

Table of Contents
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. Our Annual Report on Form
10-K
for the year ended December 31, ~~2020,~~2021, as amended, includes a detailed discussion of our risk factors under the heading “Part I, Item 1A—Risk Factors.” There have been no material changes from such risk factors during the quarter ended March 31, ~~2021.~~2022. You should consider carefully the risk factors discussed in our Annual Report on Form
10-K
for the year ended December 31, ~~2020,~~2021, and all other information contained in or incorporated by reference in this Quarterly Report on Form
10-Q
before making an investment decision. If any of the risks discussed in the Annual Report on Form
10-K
for the year ended December 31, ~~2020~~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
~~We and each~~
None.
33
Table of our executive officers entered into a Change in Control Retention Agreement (the “Change in Control Agreement”) effective May 10, 2021. Pursuant to the Change in Control Agreement, if the executive’s employment is terminated during the twenty-four month period following a “Change in Control” (a) by us without “Cause” or (b) by the executive upon the occurrence of an “Event of Constructive Termination” (as those terms are defined in the Change in Control Agreement), the executive will receive from us: (i) a lump-sum amount equal to one times (two times in the case of Gary S. Gillheeney, Sr.) the executive’s base annual salary and the executive’s annual target bonus, in each case at the highest rate in effect at any time during the 12 months immediately preceding the termination of the executive’s employment with us; (ii) for up to 12 months (24 months in the case of Mr. Gillheeney) following the executive’s termination of employment, payment of the difference between the cost of COBRA continuation coverage for the executive and any dependent who received health insurance coverage prior to such termination, and any premium contribution amount applicable to the executive as of such termination; and (iii) full acceleration of the vesting of any time-based equity awards held by the executive. Our obligation to provide the foregoing benefits is subject to the executive entering into a new noncompetition agreement with us and the effectiveness of a release of claims executed by the executive in favor of us.
We and each of our independent directors entered into a Change in Control Retention Agreement (the “Director Change in Control Agreement”) effective May 10, 2021. Pursuant to the Director Change in Control Agreement, if the director is serving on our board of directors immediately prior to a Change in Control, the director will receive full acceleration of the vesting of any time-based equity awards held by the director.
Copies of the Change in Control Agreement with Mr. Gillheeney, the form of Change in Control Agreement with our executive officers other than Mr. Gillheeney and the form of Director Change in Control Agreement are attached as Exhibit 10.2. Exhibit 10.3 and Exhibit 10.4 to this Report. The foregoing summaries of these Agreements are qualified in their entirety by reference to the actual Agreements.
Contents

Item 6. Exhibits


Exhibit number		Description

3.1		Certificate of Incorporation of Organogenesis Holdings Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-3/A (File No. 333-233621) filed with the SEC on September 16, 2019)

3.2		Bylaws of Organogenesis Holdings Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-3/A (File No. 333-233621) filed with the SEC on September 16, 2019)

~~10.1~~		Fourth Amendment to Credit Agreement dated March 31, 2021 among Organogenesis Holdings Inc., Organogenesis Inc. and Prime Merger Sub, LLC, collectively as borrower, and Silicon Valley Bank, in its capacity as the Issuing Lender and Swingline Lender, Silicon Valley Bank, as Administrative Agent, and Silicon Valley Bank and the other lenders listed therein, collectively as Lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form ~~8-K~~ ~~(File~~ ~~No. 001-37906)~~ ~~filed with the SEC on April 2, 2021)~~

10.2†*		~~Change in Control Retention Agreement between Organogenesis Holdings Inc. and Gary S. Gillheeney, Sr. effective as of May 10, 2021~~

10.3†*		~~Form of Change in Control Retention Agreement (Non-CEO Executive Officers)~~

10.4†*		~~Form of Change in Control Retention Agreement (Independent Directors)~~

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†		Certification of Principal Financial 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

32.1††		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

††	~~Filed~~ Furnished herewith

*	Management contract or compensatory plan or arrangement

Table of Contents
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: May 10, ~~2021~~2022
Organogenesis Holdings Inc.
(Registrant)

/s/ David Francisco
~~David Francisco~~

David Francisco
Chief Financial Officer

(Principal Financial and Accounting Officer)
38


	March 31,			December 31,
	2021			2020
Assets
Current assets:
Cash	$	77,458		$	84,394
Restricted cash		500			412
Accounts receivable, net		72,003			56,804
Inventory		29,721			27,799
Prepaid expenses and other current assets		5,557			4,935

Total current assets		185,239			174,344
Property and equipment, net		62,431			60,068
Intangible assets, net		29,379			30,622
Goodwill		28,772			28,772
Operating lease right-of-use assets, net		12,706			—
Deferred tax asset, net		18			18
Other assets		636			670

Total assets	$	319,181		$	294,494

Liabilities and Stockholders’ Equity
Current liabilities:
Deferred acquisition consideration	$	—		$	483
Current portion of term loan		16,875			16,666
Current portion of finance lease obligations		3,870			3,619
Current portion of operating lease obligations		4,004			—
Current portion of deferred rent and lease incentive obligation		—			95
Accounts payable		23,877			23,381
Accrued expenses and other current liabilities		25,383			23,973

Total current liabilities		74,009			68,217
Line of credit		10,000			10,000
Term loan, net of current portion		42,876			43,044
Deferred acquisition consideration, net of current portion		1,436			1,436
Earnout liability		3,689			3,985
Deferred rent and lease incentive obligation, net of current portion		—			2,315
Finance lease obligations, net of current portion		10,516			11,442
Operating lease obligations, net of current portion		11,031			—
Other liabilities		8,332			7,971

Total liabilities		161,889			148,410

Commitments and contingencies (Note 18)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued		—			—
Common stock, $0.0001 par value; 400,000,000 shares authorized; 128,830,803 and 128,460,381 shares issued; 128,102,255 and 127,731,833 shares outstanding at March 31, 2021 and December 31, 2020, respectively.		13			13
Additional paid-in capital		298,095			296,830
Accumulated deficit		(140,816	)		(150,759	)

Total stockholders’ equity		157,292			146,084

Total liabilities and stockholders’ equity	$	319,181		$	294,494


	Three Months Ended March 31,
	2021			2020
Net revenue	$	102,552		$	61,732
Cost of goods sold		25,495			18,793

Gross profit		77,057			42,939
Operating expenses:
Selling, general and administrative		58,232			52,613
Research and development		6,209			5,410

Total operating expenses		64,441			58,023

Income (loss) from operations		12,616			(15,084	)

Other expense, net:
Interest expense, net		(2,470	)		(2,510	)
Gain on settlement of deferred acquisition consideration		—			1,295
Other income (expense), net		(3	)		21

Total other expense, net		(2,473	)		(1,194	)

Net income (loss) before income taxes		10,143			(16,278	)
Income tax expense		(200	)		(35	)

Net income (loss)	$	9,943		$	(16,313	)

Net income (loss), per share:
Basic	$	0.08		$	(0.16	)

Diluted	$	0.07		$	(0.16	)

Weighted-average common shares outstanding
Basic		127,870,065			104,486,924

Diluted		133,451,950			104,486,924


	Three Months Ended March 31,
	2022			2021
Net revenue	$	98,117		$	102,552
Cost of goods sold		25,080			25,495

Gross profit		73,037			77,057
Operating expenses:
Selling, general and administrative		63,578			58,232
Research and development		8,587			6,209

Total operating expenses		72,165			64,441

Income from operations		872			12,616

Other expense, net:
Interest expense		(737	)		(2,470	)
Other expense, net		(3	)		(3	)

Total other expense, net		(740	)		(2,473	)

Net income before income taxes		132			10,143
Income tax expense		(45	)		(200	)

Net income	$	87		$	9,943

Net income, per share:
Basic	$	0.00		$	0.08

Diluted	$	0.00		$	0.07

Weighted-average common shares outstanding
Basic		128,788,721			127,870,065

Diluted		132,805,154			133,451,950


	Three Months Ended March 31, 2021
					Additional
	Common Stock				Paid-in			Accumulated			Total
	Shares		Amount		Capital			Deficit			Stockholders’ Equity
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			—
Balance as of December 31, 2020 (as adjusted)		127,731,833		13		296,830			(150,759	)		146,084
Exercise of stock options		285,344		—		984			—			984
Vesting of RSUs, net of shares surrendered to pay taxes		85,078		—		(417	)		—			(417	)
Stock-based compensation expense		—		—		698			—			698
Net income		—		—		—			9,943			9,943

Balance as of March 31, 2021		128,102,255	$	13	$	298,095		$	(140,816	)	$	157,292


	Three Months Ended March 31, 2020
					Additional
	Common Stock				Paid-in			Accumulated			Total
	Shares		Amount		Capital			Deficit			Stockholders’ Equity
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			—
Balance as of December 31, 2019 (as adjusted)		104,870,886		10		224,281			(168,708	)		55,583
Exercise of stock options		489,129		1		815			—			816
Stock-based compensation expense		—		—		209			—			209
Net loss		—		—		—			(16,313	)		(16,313	)

Balance as of March 31, 2020 (as adjusted)		105,360,015	$	11	$	225,305		$	(185,021	)	$	40,295


	Three Months Ended March 31, 2022
					Additional
	Common Stock				Paid-in			Accumulated			Total
	Shares		Amount		Capital			Deficit			Stockholders’ Equity
Balance as of December 31, 2021		128,680,192	$	13	$	302,155		$	(60,133	)	$	242,035
Exercise of stock options		86,121		—		291			—			291
Vesting of RSUs, net of shares surrendered to pay taxes		120,871		—		(488	)		—			(488	)
Stock-based compensation expense		—		—		1,303			—			1,303
Net income		—		—		—			87			87

Balance as of March 31, 2022		128,887,184		13		303,261			(60,046	)		243,228


Total purchase price		$	19,024

Assets acquired:
Accounts receivable	1,155
Inventory	1,230
Prepaid expenses and other current assets	5
Property and equipment	85
Intangible assets	13,570
Other assets	4

Total assets acquired	16,049
Liabilities assumed:
Accounts payable	27
Accrued expenses and other current liabilities	231

Total liabilities assumed	258
Total identifiable assets acquired, net			15,791

Goodwill		$	3,233


	Fair Value Measurements
	as of March 31, 2021 Using:
	Level 1		Level 2		Level 3		Total
Liabilities:
Earnout liability	$	—	$	—	$	3,689	$	3,689

	$	—	$	—	$	3,689	$	3,689


	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
Balance as of December 31, 2020	$	3,985
Change in fair value		(296	)

Balance as of March 31, 2021	$	3,689


	March 31			December 31,
	2021			2020
Accounts receivable	$	78,079		$	61,792
Less — allowance for sales returns and doubtful accounts		(6,076	)		(4,988	)

	$	72,003		$	56,804


	March 31, 2021		December 31, 2020
Prepaid subscriptions	$	2,529	$	2,013
Prepaid conferences and marketing expenses		240		63
Prepaid deposits		1,586		1,438
Reimbursement of offering expenses		—		1,009
Other		1,202		412

	$	5,557	$	4,935


	March 31, 2022		December 31, 2021
Subscriptions	$	2,685	$	2,745
Conferences and marketing expenses		2,060		538
Deposits		1,344		1,216
Insurance		1,001		358
Other		45		112

	$	7,135	$	4,969


	March 31, 2022			December 31, 2021
Leasehold improvements	$	33,973		$	30,531
Buildings		4,943			4,943
Furniture, computers and equipment		54,822			53,959

		93,738			89,433
Accumulated depreciation and amortization		(59,075	)		(57,729	)
Construction in progress		49,605			47,456

	$	84,268		$	79,160


	Original		Accumulated			Net Book
	Cost		Amortization			Value
Developed technology	$	32,620	$	(15,175	)	$	17,445
Trade names and trademarks		2,080		(981	)		1,099
Customer relationships		10,690		(579	)		10,111
Non-compete agreements		1,010		(286	)		724

Total	$	46,400	$	(17,021	)	$	29,379


	Original Cost		Accumulated Amortization			Net Book Value
Developed technology	$	32,620	$	(18,573	)	$	14,047
Trade names and trademarks		2,080		(1,236	)		844
Customer relationships		10,690		(1,648	)		9,042
Independent sales agency network		4,500		(4,500	)		—
Patent		7,623		(7,623	)		—
Non-compete agreements		1,010		(491	)		519

Total	$	58,523	$	(34,071	)	$	24,452


	March 31, 2022		December 31, 2021
Personnel costs	$	23,060	$	26,865
Royalties		3,190		3,458
Accrued but unpaid lease obligations and interest		3,981		3,963
Other		2,188		2,303

	$	32,419	$	36,589


	Employee		Facility
Liability balance as of December 31, 2020	$	618	$	—
Expenses		910		17
Payments		—		—

Liability balance as of March 31, 2021	$	1,528	$	17


	March 31 2022		December 31, 2021
Shares reserved for issuance for outstanding options		7,924,792		6,596,969
Shares reserved for issuance for outstanding restricted stock units		1,496,853		764,871
Shares reserved for issuance for future grants		3,373,334		5,644,691

Total shares of authorized common stock reserved for future issuance		12,794,979		13,006,531


	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2020		806,048		$	3.82
Granted		284,708			14.33
Vested		(133,811	)		4.04
Canceled/Forfeited		(23,731	)		5.95

Unvested at March 31, 2021		933,214		$	6.94


	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at December 31, 2021		764,871		$	7.52
Granted		931,431			7.59
Vested		(179,714	)		7.81
Canceled/Forfeited		(19,735	)		6.83

Unvested at March 31, 2022		1,496,853		$	7.54


	March 31,
	2021
Risk-free interest rate		0.82	%
Expected term (in years)		6.21
Expected volatility		39.30	%
Expected dividend yield		0.0	%
Exercise price	$	13.54
Underlying stock price	$	13.54


						Weighted
						Average
				Weighted		Remaining
				Average		Contractual		Aggregate
	Number of			Exercise		Term		Intrinsic
	Shares			Price		(in years)		Value
Outstanding as of December 31, 2020		6,620,318		$	2.33		5.22	$	34,458
Granted		1,037,099			13.54
Exercised		(480,622	)		2.04				4,283
Canceled / forfeited		(5,380	)		4.10

Outstanding as of March 31, 2021		7,171,415			3.96		5.80		102,239

Options exercisable as of March 31, 2021		4,418,977			1.64		3.76		73,271

Options vested or expected to vest as of March 31, 2021		6,588,701		$	3.54		5.50	$	96,754


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2021		6,596,969		$	4.10		5.20	$	38,524
Granted		1,418,224			8.03
Exercised		(86,121	)		3.38				441
Canceled / forfeited		(4,280	)		2.69

Outstanding as of March 31, 2022		7,924,792			4.82		5.83		29,053

Options exercisable as of March 31, 2022		4,600,567			2.52		3.57		25,113

Options vested or expected to vest as of March 31, 2022		7,215,073		$	4.44		5.50	$	28,567


	Three Months Ended March 31,
	2021		2020
Numerator:
Net Income (loss)	$	9,943	$	(16,313	)
Denominator:
Weighted average common shares outstanding —basic		127,870,065		104,486,924
Dilutive effect of restricted stock units		527,658		—
Dilutive effect of options		5,054,227		—

Weighted-average common shares outstanding—diluted		133,451,950		104,486,924
Earnings (loss) per share—basic	$	0.08	$	(0.16	)

Earnings (loss) per share—diluted	$	0.07	$	(0.16	)


	Classification		Three Months Ended March 31, 2021
Finance lease
Amortization of right-of-use assets		COGS and SG&A	$	299
Interest on lease liabilities		Interest Expense		349

Total Finance lease cost				648
Operating lease cost		COGS, R&D, SG&A		1,280
Short-term lease cost		COGS, R&D, SG&A		715
Variable lease cost		COGS, R&D, SG&A		1,363

Total lease cost			$	4,006


	March 31, 2021			January 1, 2021
Property and equipment, gross	$	22,989		$	22,989
Accumulated depreciation		(15,274	)		(14,974	)

Property and equipment, net	$	7,715		$	8,015

Current portion of finance lease obligations	$	3,870		$	3,619
Finance lease long-term obligations		10,516			11,442

Total finance lease liabilities	$	14,386		$	15,061


	March 31, 2022			December 31, 2021
Property and equipment, gross	$	1,174		$	1,174
Accumulated depreciation		(1,067	)		(961	)

Property and equipment, net	$	107		$	213

Finance lease obligations	$	101		$	200


	~~Three Months~~ ~~Ended~~ ~~March 31, 2021~~
~~Cash paid for amounts included in the measurement of lease liabilities:~~
~~Operating cash flows for operating leases~~		~~1,362~~
~~Operating cash flows for finance leases~~		~~523~~
~~Financing cash flows for finance leases~~		~~675~~
~~Right-of-use~~ ~~assets obtained in exchange for lease obligations—upon adoption:~~
~~Operating leases~~		~~13,525~~
~~Finance leases~~		—
~~Right-of-use~~ ~~assets obtained in exchange for lease obligations—post adoption:~~
~~Operating leases~~		~~310~~
~~Finance leases~~		—


	~~March 31, 2021~~
~~Weighted-average remaining lease term~~
~~Finance leases~~		~~1.73~~
~~Operating leases~~		~~6.39~~

	~~March 31, 2021~~
~~Weighted-average discount rate~~
~~Finance leases~~		~~19.58~~	%
~~Operating leases~~		~~3.98~~	%