Table of Contents

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

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

For the quarterly period ended Quarterly Period Ended June 30, 2021

or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
2022

OR

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

Commission File

Number 001-37906

ORGANOGENESIS HOLDINGS INC.

(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)

Its Charter)

Delaware

98-1329150

(State or other jurisdictionOther Jurisdiction of

incorporation

Incorporation or organization)

Organization)

(I.R.S. Employer

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

Trading
Symbol(s)
Name of each exchange
on which registered

Class A Common Stock, $0.0001 par value

85 Dan Road

Canton, MA

ORGO

02021

                                    (Address of principal executive offices)

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 ☒
As

The number of August 1, 2021, the registrant had a total of 128,583,801 shares of itsthe registrant’s Class A common stock $0.0001 par value per share, outstanding.

outstanding as of August 1, 2022 was 130,887,817.

Table of Contents

Organogenesis Holdings Inc.

Quarterly Report on Form

10-Q

For the Quarterly Period Ended June 30, 2021

2022

Table of Contents

Page

PART I. FINANCIAL INFORMATION

4

Item 1.

Unaudited ConsolidatedFinancial 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

25

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

32

Item 4.

Controls and Procedures

36

33

PART II. OTHER INFORMATION

38

34

Item 1.

Legal Proceedings

38

34

Item 1A

Risk Factors

38

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

34

Item 3.

Defaults Upon Senior Securities

39

34

Item 4.

Mine Safety Disclosures

39

34

Item 5.

Other Information

39

34

Item 6.

Exhibits

Exhibits
40

35

SIGNATURES

41

36

2

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 SECU.S. Securities and Exchange Commission (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.

3

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)

   
June 30,
  
December 31,
 
   
2021
  
2020
 
Assets
         
Current assets:
         
Cash
  $89,790  $84,394 
Restricted cash
   517   412 
Accounts receivable, net
   76,767   56,804 
Inventory
   28,106   27,799 
Prepaid expenses and other current assets
   6,583   4,935 
   
 
 
  
 
 
 
Total current assets
   201,763   174,344 
Property and equipment, net
   69,739   60,068 
Intangible assets, net
   28,136   30,622 
Goodwill
   28,772   28,772 
Operating lease
right-of-use
assets, net
   26,531   —   
Deferred tax asset, net
   18   18 
Other assets
   605   670 
   
 
 
  
 
 
 
Total assets
  $355,564  $294,494 
   
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders’ Equity
         
Current liabilities:
         
Deferred acquisition consideration
  $—  $483 
Current portion of term loan
   22,500   16,666 
Current portion of finance lease obligations
   4,134   3,619 
Current portion of operating lease obligations
   4,504   —   
Current portion of deferred rent and lease incentive obligation
   —     95 
Accounts payable
   26,789   23,381 
Accrued expenses and other current liabilities
   26,618   23,973 
   
 
 
  
 
 
 
Total current liabilities
   84,545   68,217 
Line of credit
   10,000   10,000 
Term loan, net of current portion
   37,290   43,044 
Deferred acquisition consideration, net of current portion
   1,436   1,436 
Earnout liability
   927   3,985 
Deferred rent and lease incentive obligation, net of current portion
   —     2,315 
Finance lease obligations, net of current portion
   9,553   11,442 
Operating lease obligations, net of current portion
   24,224   —   
Other liabilities
   8,667   7,971 
   
 
 
  
 
 
 
Total liabilities
   176,642   148,410 
   
 
 
  
 
 
 
Commitments and contingencies (Note 18)
   0    0  
Stockholders’ equity:
         
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; 0ne issued
   0—     0—   
Common stock, $0.0001 par value; 400,000,000 shares authorized; 129,011,789 and 128,460,381 shares issued; 128,283,241 and 127,731,833 shares outstanding at June 30, 2021 and December 31, 2020, respectively.
   13   13 
Additional
paid-in
capital
   299,038   296,830 
Accumulated deficit
   (120,129)   (150,759) 
   
 
 
  
 
 
 
Total stockholders’ equity
   178,922   146,084 
   
 
 
  
 
 
 
Total liabilities and stockholders’ equity
  $355,564  $294,494 
   
 
 
  
 
 
 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

112,279

 

 

$

113,929

 

Restricted cash

 

 

665

 

 

 

599

 

Accounts receivable, net

 

 

88,824

 

 

 

82,460

 

Inventory, net

 

 

23,235

 

 

 

25,022

 

Prepaid expenses and other current assets

 

 

6,540

 

 

 

4,969

 

Total current assets

 

 

231,543

 

 

 

226,979

 

Property and equipment, net

 

 

93,292

 

 

 

79,160

 

Intangible assets, net

 

 

23,231

 

 

 

25,673

 

Goodwill

 

 

28,772

 

 

 

28,772

 

Operating lease right-of-use assets, net

 

 

45,860

 

 

 

49,144

 

Deferred tax asset, net

 

 

31,994

 

 

 

31,994

 

Other assets

 

 

1,665

 

 

 

1,537

 

Total assets

 

$

456,357

 

 

$

443,259

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Deferred acquisition consideration

 

$

-

 

 

$

1,436

 

Current portion of term loan

 

 

3,596

 

 

 

2,656

 

Finance lease obligations

 

 

-

 

 

 

200

 

Current portion of operating lease obligations

 

 

11,871

 

 

 

11,785

 

Accounts payable

 

 

36,373

 

 

 

29,339

 

Accrued expenses and other current liabilities

 

 

36,390

 

 

 

37,289

 

Total current liabilities

 

 

88,230

 

 

 

82,705

 

Term loan, net of current portion

 

 

68,969

 

 

 

70,769

 

Operating lease obligations, net of current portion

 

 

43,700

 

 

 

46,893

 

Other liabilities

 

 

1,073

 

 

 

1,557

 

Total liabilities

 

 

201,972

 

 

 

201,924

 

Commitments and contingencies (Note 18)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 1,000,000 shares authorized; NaN issued

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value; 400,000,000 shares authorized; 131,613,917 and 129,408,740 shares issued; 130,885,369 and 128,680,192 shares outstanding at June 30, 2022 and December 31, 2021, respectively.

 

 

13

 

 

 

13

 

Additional paid-in capital

 

 

307,374

 

 

 

302,155

 

Accumulated deficit

 

 

(53,002

)

 

 

(60,833

)

Total stockholders’ equity

 

 

254,385

 

 

 

241,335

 

Total liabilities and stockholders’ equity

 

$

456,357

 

 

$

443,259

 

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

4

Table of Contents

ORGANOGENESIS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(amounts in thousands, except share and per share data)

   
Three Months Ended

June 30,
  
Six Months Ended

June 30,
 
   
2021
  
2020
  
2021
  
2020
 
Net revenue
  $123,196  $68,960  $225,748  $130,692 
Cost of goods sold
   29,940   20,042   55,435   38,835 
   
 
 
  
 
 
  
 
 
  
 
 
 
Gross profit
   93,256   48,918   170,313   91,857 
Operating expenses:
                 
Selling, general and administrative
   62,349   46,502   120,581   99,115 
Research and development
   7,320   4,668   13,529   10,078 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
   69,669   51,170   134,110   109,193 
   
 
 
  
 
 
  
 
 
  
 
 
 
Income (loss) from operations
   23,587   (2,252)   36,203   (17,336) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Other expense, net:
                 
Interest expense, net
   (2,431)   (2,912)   (4,901)   (5,422) 
Gain on settlement of deferred acquisition consideration
   —     —     —     1,295 
Other income, net
   18   25   15   46 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total other expense, net
   (2,413)   (2,887)   (4,886)   (4,081) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss) before income taxes
   21,174   (5,139)   31,317   (21,417) 
Income tax expense
   (487)   (27)   (687)   (62) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income (loss)
  $20,687  $(5,166)  $30,630  $(21,479) 
   
 
 
  
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss), per share:
                 
Basic
  $0.16  $(0.05)  $0.24  $(0.21) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Diluted
  $0.15  $(0.05)  $0.23  $(0.21) 
   
 
 
  
 
 
  
 
 
  
 
 
 
Weighted-average common shares outstanding
                 
Basic
   128,235,224   104,714,725   128,053,654   104,600,825 
   
 
 
  
 
 
  
 
 
  
 
 
 
Diluted
   133,988,413   104,714,725   133,721,191   104,600,825 
   
 
 
  
 
 
  
 
 
  
 
 
 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net revenue

 

$

121,401

 

 

$

123,196

 

 

$

218,518

 

 

$

225,748

 

Cost of goods sold

 

 

26,652

 

 

 

29,940

 

 

 

51,732

 

 

 

55,435

 

Gross profit

 

 

94,749

 

 

 

93,256

 

 

 

166,786

 

 

 

170,313

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

72,609

 

 

 

62,349

 

 

 

136,187

 

 

 

120,581

 

Research and development

 

 

10,205

 

 

 

7,320

 

 

 

18,792

 

 

 

13,529

 

Total operating expenses

 

 

82,814

 

 

 

69,669

 

 

 

154,979

 

 

 

134,110

 

Income from operations

 

 

11,935

 

 

 

23,587

 

 

 

11,807

 

 

 

36,203

 

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(730

)

 

 

(2,431

)

 

 

(1,467

)

 

 

(4,901

)

Other expense, net

 

 

(21

)

 

 

18

 

 

 

(24

)

 

 

15

 

Total other expense, net

 

 

(751

)

 

 

(2,413

)

 

 

(1,491

)

 

 

(4,886

)

Net income before income taxes

 

 

11,184

 

 

 

21,174

 

 

 

10,316

 

 

 

31,317

 

Income tax expense

 

 

(2,440

)

 

 

(487

)

 

 

(2,485

)

 

 

(687

)

Net income

 

$

8,744

 

 

$

20,687

 

 

$

7,831

 

 

$

30,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income, per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.07

 

 

$

0.16

 

 

$

0.06

 

 

$

0.24

 

Diluted

 

$

0.07

 

 

$

0.15

 

 

$

0.06

 

 

$

0.23

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

129,635,682

 

 

 

128,235,224

 

 

 

129,214,541

 

 

 

128,053,654

 

Diluted

 

 

132,600,579

 

 

 

133,988,413

 

 

 

132,705,206

 

 

 

133,721,191

 

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

5

Table of Contents

ORGANOGENESIS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(amounts in thousands, except share data)

   
Three and Six Months Ended June 30, 2021
 
  
 
  
 
Additional
  
 
  
 
 
   
Common Stock
   
Paid-in
  
Accumulated
  
Total
 
   
Shares
   
Amount
   
Capital
  
Deficit
  
Stockholders’ Equity
 
Balance as of March 31, 2021
  
 
128,102,255   $13   $298,095  $(140,816)  $157,292
 
Exercise of stock options
   78,163    —      221   —     221 
Vesting of RSUs, net of shares surrendered to pay taxes
   102,823    —      (320)       (320) 
Stock-based compensation expense
 �� —      —      1,042   —     1,042 
Net income
   —      —      —     20,687   20,687 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance as of June 30, 2021
   128,283,241   $13   $299,038  $(120,129)  $178,922 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
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
   363,507    —      1,205   —     1,205 
Vesting of RSUs, net of shares surrendered to pay taxes
   187,901    —      (737)       (737) 
Stock-based compensation expense
   —      —      1,740   —     1,740 
Net income
   —      —      —     30,630   30,630 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance as of June 30, 2021
   128,283,241   $13   $299,038  $(120,129)  $178,922 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
  
   
Three and Six Months Ended June 30, 2020
 
  
 
  
Additional
 
  
 
  
 
 
   
Common Stock
   
 Paid-in 
  
Accumulated
  
Total
 
   
Shares
   
Amount
   
Capital
  
Deficit
  
Stockholders’ Equity
 
Balance as of March 31, 2020 (as reported)
   105,360,015   $11   $227,604  $(187,320)  $40,295 
Adjustment due to Private Warrant reclassification
   —      —      (2,299)   2,299   —   
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance as of March 31, 2020 (as adjusted)
   105,360,015    11    225,305   (185,021)   40,295 
Exercise of stock options
   57,153    —      152   —     152 
Stock-based compensation expense
   —      —      469   —     469 
Net loss
   —      —      —     (5,166)   (5,166) 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance as of June 30, 2020 (as adjusted)
   105,417,168   $11   $225,926  $(190,187)  $35,750 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
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
   546,282    1    967   —     968 
Stock-based compensation expense
   —      —      678   —     678 
Net loss
   —      —      —     (21,479)   (21,479) 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 
Balance as of June 30, 2020 (as adjusted)
   105,417,168   $11   $225,926  $(190,187)  $35,750 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
 

 

 

Three and Six Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Stockholders’ Equity

 

Balance as of March 31, 2022 (as reported)

 

 

128,887,184

 

 

$

13

 

 

$

303,261

 

 

$

(60,046

)

 

$

243,228

 

Adjustment due to settlement of GPO fee dispute

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,700

)

 

 

(1,700

)

Balance as of March 31, 2022 (as adjusted)

 

 

128,887,184

 

 

 

13

 

 

 

303,261

 

 

 

(61,746

)

 

 

241,528

 

Exercise of stock options

 

 

1,759,776

 

 

 

-

 

 

 

1,751

 

 

 

-

 

 

 

1,751

 

Vesting of RSUs, net of shares surrendered to pay taxes

 

 

34,924

 

 

 

-

 

 

 

(158

)

 

 

-

 

 

 

(158

)

Issuance of common stock associated with business acquisition

 

 

203,485

 

 

 

-

 

 

 

828

 

 

 

-

 

 

 

828

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1,692

 

 

 

-

 

 

 

1,692

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,744

 

 

 

8,744

 

Balance as of June 30, 2022

 

 

130,885,369

 

 

$

13

 

 

$

307,374

 

 

$

(53,002

)

 

$

254,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2021 (as reported)

 

 

128,680,192

 

 

$

13

 

 

$

302,155

 

 

$

(60,133

)

 

$

242,035

 

Adjustment due to settlement of GPO fee dispute

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(700

)

 

 

(700

)

Balance as of December 31, 2021 (as adjusted)

 

 

128,680,192

 

 

 

13

 

 

 

302,155

 

 

 

(60,833

)

 

 

241,335

 

Exercise of stock options

 

 

1,845,897

 

 

 

-

 

 

 

2,042

 

 

 

-

 

 

 

2,042

 

Vesting of RSUs, net of shares surrendered to pay taxes

 

 

155,795

 

 

 

-

 

 

 

(646

)

 

 

-

 

 

 

(646

)

Issuance of common stock associated with business acquisition

 

 

203,485

 

 

 

-

 

 

 

828

 

 

 

-

 

 

 

828

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

2,995

 

 

 

-

 

 

 

2,995

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,831

 

 

 

7,831

 

Balance as of June 30, 2022

 

 

130,885,369

 

 

$

13

 

 

$

307,374

 

 

$

(53,002

)

 

$

254,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three and Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Stockholders’ Equity

 

Balance as of March 31, 2021

 

 

128,102,255

 

 

$

13

 

 

$

298,095

 

 

$

(145,092

)

 

$

153,016

 

Exercise of stock options

 

 

78,163

 

 

 

-

 

 

 

221

 

 

 

-

 

 

 

221

 

Vesting of RSUs, net of shares surrendered to pay taxes

 

 

102,823

 

 

 

-

 

 

 

(320

)

 

 

-

 

 

 

(320

)

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1,042

 

 

 

-

 

 

 

1,042

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,687

 

 

 

20,687

 

Balance as of June 30, 2021

 

 

128,283,241

 

 

$

13

 

 

$

299,038

 

 

$

(124,405

)

 

$

174,646

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

 

127,731,833

 

 

 

13

 

 

 

296,830

 

 

 

(155,035

)

 

 

141,808

 

Exercise of stock options

 

 

363,507

 

 

 

-

 

 

 

1,205

 

 

 

-

 

 

 

1,205

 

Vesting of RSUs, net of shares surrendered to pay taxes

 

 

187,901

 

 

 

-

 

 

 

(737

)

 

 

-

 

 

 

(737

)

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

1,740

 

 

 

-

 

 

 

1,740

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

30,630

 

 

 

30,630

 

Balance as of June 30, 2021

 

 

128,283,241

 

 

$

13

 

 

$

299,038

 

 

$

(124,405

)

 

$

174,646

 

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

6

Table of Contents

ORGANOGENESIS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(amounts in thousands)

   
Six Months Ended

June 30,
 
   
2021
  
2020
 
Cash flows from operating activities:
         
Net income (loss)
  $30,630  $(21,479) 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
         
Depreciation
   2,073   1,793 
Amortization of intangible assets
   2,486   1,633 
Amortization of operating lease
right-of-use
assets
   2,562   —   
Non-cash
interest expense
   143   103 
Deferred interest expense
   1,036   1,022 
Deferred rent expense
   —     64 
Gain on settlement of deferred acquisition consideration
   —     (1,295) 
Provision recorded for sales returns and doubtful accounts
   2,158   970 
Loss on disposal of property and equipment
   239   201 
Adjustment for excess and obsolete inventories
   4,678   1,709 
Stock-based compensation
   1,740   678 
Change in fair value of Earnout liability
   (3,058)   —   
Changes in operating assets and liabilities:
         
Accounts receivable
   (22,122)   (5,727) 
Inventory
   (4,984)   (7,353) 
Prepaid expenses and other current assets
   (1,649)   (1,302) 
Operating leases
   (2,774)   —   
Accounts payable
   716   235 
Accrued expenses and other current liabilities
   2,646   1,266 
Other liabilities
   (340)   864 
   
 
 
  
 
 
 
Net cash provided by (used in) operating activities
   16,180   (26,618) 
Cash flows from investing activities:
         
Purchases of property and equipment
   (9,290)   (6,411) 
Proceeds from the repayment of notes receivable from related parties
   —   293 
   
 
 
  
 
 
 
Net cash used in investing activities
   (9,290)   (6,118) 
Cash flows from financing activities:
         
Line of credit borrowings
   —     5,869 
Proceeds from term loan
   —     10,000 
Payments of withholding taxes in connection with RSUs vesting
   (737)   —   
Proceeds from the exercise of stock options
   1,205   968 
Principal repayments of finance lease obligations
   (1,374)   (1,149) 
Payment of deferred acquisition consideration
   (483)   (2,568) 
   
 
 
  
 
 
 
Net cash (used in) provided by financing activities
   (1,389)   13,120 
Change in cash and restricted cash
   5,501   (19,616) 
Cash and restricted cash, beginning of period
   84,806   60,370 
   
 
 
  
 
 
 
Cash and restricted cash, end of period
  $90,307  $40,754 
   
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
         
Cash paid for interest
  $3,836  $4,626 
Cash paid for income taxes
  $582  $—   
Supplemental disclosure of
non-cash
investing and financing activities:
         
Purchases of property and equipment included in accounts payable and accrued expenses
  $4,349  $4,692 
Right-of-use
assets obtained through operating lease obligations
  $29,092  $—   

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

7,831

 

 

$

30,630

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation

 

 

2,875

 

 

 

2,073

 

Amortization of intangible assets

 

 

2,442

 

 

 

2,486

 

Amortization of operating lease right-of-use assets

 

 

3,649

 

 

 

2,562

 

Non-cash interest expense

 

 

217

 

 

 

143

 

Deferred interest expense

 

 

291

 

 

 

1,036

 

Provision recorded for doubtful accounts

 

 

122

 

 

 

1,496

 

Loss on disposal of property and equipment

 

 

196

 

 

 

239

 

Adjustment for excess and obsolete inventories

 

 

5,228

 

 

 

4,678

 

Stock-based compensation

 

 

2,995

 

 

 

1,740

 

Change in fair value of Earnout liability

 

 

-

 

 

 

(3,058

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(6,485

)

 

 

(21,460

)

Inventory

 

 

(3,441

)

 

 

(4,984

)

Prepaid expenses and other current assets

 

 

(1,839

)

 

 

(1,649

)

Operating leases

 

 

(3,472

)

 

 

(2,774

)

Accounts payable

 

 

2,671

 

 

 

716

 

Accrued expenses and other current liabilities

 

 

(1,697

)

 

 

2,646

 

Other liabilities

 

 

23

 

 

 

(340

)

Net cash provided by operating activities

 

 

11,606

 

 

 

16,180

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(12,840

)

 

 

(9,290

)

Net cash used in investing activities

 

 

(12,840

)

 

 

(9,290

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments of term loan

 

 

(938

)

 

 

-

 

Payments of withholding taxes in connection with RSUs vesting

 

 

(646

)

 

 

(737

)

Proceeds from the exercise of stock options

 

 

2,042

 

 

 

1,205

 

Principal repayments of finance lease obligations

 

 

(200

)

 

 

(1,374

)

Payment of deferred acquisition consideration

 

 

(608

)

 

 

(483

)

Net cash used in financing activities

 

 

(350

)

 

 

(1,389

)

Change in cash, cash equivalents and restricted cash

 

 

(1,584

)

 

 

5,501

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

114,528

 

 

 

84,806

 

Cash, cash equivalents, and restricted cash, end of period

 

$

112,944

 

 

$

90,307

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

1,041

 

 

$

3,836

 

Cash paid for income taxes

 

$

974

 

 

$

582

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

6,546

 

 

$

4,349

 

Right-of-use assets obtained through operating lease obligations

 

$

364

 

 

$

29,092

 

Shares issued for deferred acquisition consideration

 

$

828

 

 

$

-

 

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

7

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 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 second quarter ended June 30, 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 clos

e
lyclosely 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.

Merger with Avista Healthcare Public Acquisition Corp
On December 10, 2018, Avista Healthcare Public Acquisition Corp., our predecessor company (“AHPAC”), consummated
a business combination
(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 June 30, 2021, the Company had an accumulated deficit of $120,129 and working capital of $117,218. 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 six months ended June 30, 2021, the Company has generated a net income of $30,630 and $16,180 of cash in operations. The Company expects that its cash of $89,790 and other components of working capital of $27,428 as of June 30, 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.
8
Table of Contents
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 the rules and regulations of the Securities and Exchange Commission (the “SEC”)SEC regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. While we believe that the disclosures presented are adequate in order to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on 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 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 six months ended June 30, 20212022 are not necessarily indicative of the results to be expected for the year ending December 31, 2021,2022, any other interim periods, or any future years or periods.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and the related disclosure as ofliabilities at the date of the consolidated financial statements and the reported results of operations during the reporting periods. In preparing the consolidated financial statements, the estimates and assumptions that management consider to be significant and that present the greatest amount of uncertainty include: revenue recognition; sales returns and credit losses; inventory reserve; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived and indefinite lived assets (including intangible assets); assessing impairment of goodwill; valuation of assets and liabilities that use unobservable inputs; and the valuation and recognition of stock-based compensation. Actual results couldand outcomes may differ significantly from those estimates.estimates and assumptions.

Summary

8

Table of Significant Accounting Policies
Contents

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,August 2022, the Company had 4.1 million private warrants outstanding, which were issuedreached an agreement with a Group Purchasing Organization (“GPO”) 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”)settle previously disputed GPO fees for $3,300. The Company originally classified the Warrants as equity on its financial statements. In 2019, the outstanding Warrants were exchanged for 3.3 million sharesidentified that part of the Company’s Class A common stock. There were 0 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 Warrantssettlement fee should have been recorded at fair valueaccrued as a liabilityof March 31, 2022 and December 31, 2021. This error resulted in an overstatement of revenue and understatement of accrued expenses and other current liabilities and accumulated deficit in the financial statements included in the Company’s consolidated balance sheetquarterly reports on Form 10-Q and the Company’s annual reports on Form 10-K previously filed with changes to
9
Table of Contents
the fair value recorded to the consolidated statements of operations.SEC. The Company assessed the materiality of this error on prior period financial statements in accordance with the 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 onTo correct the consolidated balance sheet as of December 31, 2020 as the cumulative adjustment for this error.
Recently Adopted Accounting
Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
No. 2016-02
(“ASU
2016-02”), Leases
(Topic 842), as further amended (“ASC 842”), to increase transparency and comparability among organizations by requiring the recognition of, at the lease commencement date, a lease liability for the obligation to make lease payments, and a
right-of-use
(“ROU”) asset for the right to use the underlying asset, on the balance sheet. Althoughimmaterial misstatement, 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 period in therevised its previously issued financial statements or in the periodas follows:

 

 

As of March 31, 2022

 

 

 

As of December 31, 2021

 

CONSOLIDATED BALANCE SHEETS

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

Accrued expenses and other current liabilities

 

$

32,419

 

 

$

1,700

 

 

$

34,119

 

 

 

$

36,589

 

 

$

700

 

 

$

37,289

 

Total current liabilities

 

$

76,792

 

 

$

1,700

 

 

$

78,492

 

 

 

$

82,005

 

 

$

700

 

 

$

82,705

 

Total liabilities

 

$

193,044

 

 

$

1,700

 

 

$

194,744

 

 

 

$

201,224

 

 

$

700

 

 

$

201,924

 

Accumulated deficit

 

$

(60,046

)

 

$

(1,700

)

 

$

(61,746

)

 

 

$

(60,133

)

 

$

(700

)

 

$

(60,833

)

Total stockholders’ equity

 

$

243,228

 

 

$

(1,700

)

 

$

241,528

 

 

 

$

242,035

 

 

$

(700

)

 

$

241,335

 

 

 

For the Three Months Ended March 31, 2022

 

 

 

For the Year Ended December 31, 2021

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

Net revenue

 

$

98,117

 

 

$

(1,000

)

 

$

97,117

 

 

 

$

468,059

 

 

$

(700

)

 

$

467,359

 

 

 

Gross profit

 

$

73,037

 

 

$

(1,000

)

 

$

72,037

 

 

 

$

353,860

 

 

$

(700

)

 

$

353,160

 

 

 

Income from operations

 

$

872

 

 

$

(1,000

)

 

$

(128

)

 

 

$

72,918

 

 

$

(700

)

 

$

72,218

 

 

 

Net income before income taxes

 

$

132

 

 

$

(1,000

)

 

$

(868

)

 

 

$

63,786

 

 

$

(700

)

 

$

63,086

 

 

 

Net income

 

$

87

 

 

$

(1,000

)

 

$

(913

)

 

 

$

94,902

 

 

$

(700

)

 

$

94,202

 

 

 

 

 

Three Months Ended March 31, 2022

 

 

 

For the Year Ended December 31, 2021

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

Net income / (loss)

 

$

87

 

 

$

(1,000

)

 

$

(913

)

 

 

$

94,902

 

 

$

(700

)

 

$

94,202

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities

 

$

(4,828

)

 

$

1,000

 

 

$

(3,828

)

 

 

$

8,654

 

 

$

700

 

 

$

9,354

 

 

 

Three Months Ended March 31, 2022

 

 

 

For the Year Ended December 31, 2021

 

Revenue by Product Category:

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

Advanced Wound Care

 

$

90,950

 

 

$

(860

)

 

$

90,090

 

 

 

$

430,839

 

 

$

(602

)

 

$

430,237

 

Surgical & Sports Medicine

 

$

7,167

 

 

$

(140

)

 

$

7,027

 

 

 

$

37,220

 

 

$

(98

)

 

$

37,122

 

Net revenue

 

$

98,117

 

 

$

(1,000

)

 

$

97,117

 

 

 

$

468,059

 

 

$

(700

)

 

$

467,359

 

 

 

Three Months Ended March 31, 2022

 

 

 

For the Year Ended December 31, 2021

 

Miscellaneous Items

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

 

 

As Previously Reported

 

 

Adjustments

 

 

As Revised

 

GPO fees

 

$

619

 

 

$

1,000

 

 

$

1,619

 

 

 

$

2,963

 

 

$

700

 

 

$

3,663

 

PuraPly revenue

 

$

53,300

 

 

$

(500

)

 

$

52,800

 

 

 

$

198,400

 

 

$

(350

)

 

$

198,050

 

9

Table of adoption. 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 this standard on January 1, 2021, 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-useContents

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.

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. TheAs the Company was a smaller reporting company when the standard was issued, the Company took advantage of the extended transition period and will adopt this standard and the related improvements on January 1, 2023 by recognizing a cumulative-effect adjustment to retained earnings for any impact. The Company is currently assessingevaluated the adoptioneffects of
adopting ASU 2016-13
and the related improvements and does not expect a material 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 Reformon Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform(Topic 848): Scope (“ASU 2021-01”), to clarify certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting to apply to derivatives that are affected by the discounting transition. Both ASU 2020-04 and ASU 2021-01 are effective upon issuance through December 31, 2022. The Company’s debt agreement that utilizes LIBOR has conventional LIBOR replacement language. Since the debt agreement has not discontinued the use of LIBOR, this ASU is not yet effective for the Company. To the extent the interest rate changes to the rate specified in the debt agreement, the Company will utilize the relief in this ASU. The Company evaluated the effects of adopting the provisions of ASU 2020-04 and ASU 2021-01 and does not expect a material impact on the Company’s consolidated financial statements.

10
Table of Contents

3. Acquisition

On September 17, 2020 (the “Acquisition Date”), the Company acquired certain assets and assumed certain liabilities of CPN Biosciences, LLC (“CPN”) pursuant to an asset purchase agreement dated July 24, 2020. CPN offered a physician office management solution and advanced wound care products.

The Company is obligatedaggregate consideration amounted to pay$19,024 as of the Acquisition Date, consisting of $6,427 in cash, 2,151,438 shares of the Company’s Class A common stock with a fair value of $8,815, and contingent consideration (the “Earnout”)

with a fair value of $3,782. On the Acquisition Date, the Company paid $5,820 in cash and issued 1,947,953 shares of the Company’s Class A common stock. The remaining consideration of $1,436 was held back and was released in April 2022 by the Company paying $608 in cash and issuing 203,485 shares of the Company’s Class A common stock to the former equity holders of CPN.

The Company was obligated to pay the Earnout to CPN’s former shareholdersequity holders if CPN’s legacy product revenue in the Earnout Period (defined as a twelve-month period, starting on the first day of the next calendar quarter immediately following the post-closing sales meeting)(July 1, 2021 to June 30, 2022), exceedsexceeded CPN’s 2019 revenue. The amount of the Earnout, if any, willwould be equal to 70%70% of the excess and willwould be payable 60 days after the expiration of the Earnout Period. The post-closing sales meeting

took place
in April 2021 andAs of the conclusion of the Earnout Period is July 1, 2021 toon June 30, 2022. The2022, the Company recorded a
non-current
calculated the Earnout liability of $3,782 onto be $0. During the Acquisition Date forEarnout Period, the fair value of the contingent consideration related to the expected Earnout. The Company assessesassessed the fair value of the Earnout liability at each reporting period. As of June 30, 2021, the Earnout liability was estimated at $927. Subsequent changes in the estimated fair value of the liability arewere reflected in earnings until the liability is settled (seewas settled. See Note “5. Fair Value Measurement of Financial Instruments”)Assets and Liabilities”.

10

Table of Contents

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,

w
hich which is the Company’s promise to transfer the Company’s products to customers based on specific payment and shipping t
e
rmsterms in the arrangement. The entire transaction price reflects a single performance obligation. Product revenue is recognized when a customer obtains control of the Company’s products which occurs at a point in time and may be upon shipment, procedure date, or delivery, based on the terms of the contract. Revenue is recorded net of a reserve for returns, discounts and Group Purchasing Organization (“GPO”)GPO rebates, which represent a direct reduction to the revenue recognized. These reductions are accrued at the time revenue is recognized, based upon historical experience and specific circumstances. For the three months ended June 30, 20212022 and 2020,2021, the Company recorded GPO fees of $829$2,334 and $837,$829, respectively, as a direct reduction of revenue. For the six months ended June 30, 20212022 and 2020,2021, the Company recorded GPO fees of $1,529$3,953 and $1,797,$1,529, respectively, as a direct reduction of revenue.

In August 2022, the Company reached an agreement with a GPO to settle previously disputed GPO fees for $3,300. The settlement fee was included in the GPO fees as a direct reduction of revenue. The Company recorded $1,600 of the settlement fee during the three months ended June 30, 2022, and has revised the historical financial statements to include $1,000 of the settlement fee in the three months ended March 31, 2022 and $700 of the settlement fee during the year ended December 31, 2021. As such, the previously issued financial statements were revised accordingly. See Note "2. Summary of Significant Accounting Policies".

The following tables set forth revenue by product category:

 

 

Three Months Ended
June 30,

 

 

 

2022

 

 

2021

 

Advanced Wound Care

 

$

113,791

 

 

$

111,436

 

Surgical & Sports Medicine

 

 

7,610

 

 

 

11,760

 

Total net revenue

 

$

121,401

 

 

$

123,196

 

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

Advanced Wound Care

 

$

203,881

 

 

$

202,144

 

Surgical & Sports Medicine

 

 

14,637

 

 

 

23,604

 

Total net revenue

 

$

218,518

 

 

$

225,748

 

   
Three Months Ended

June 30,
 
   
2021
   
2020
 
Advanced Wound Care
  $111,436   $
 
59,731 
Surgical & Sports Medicine
   11,760    9,229 
   
 
 
   
 
 
 
Total net revenue
  $123,196   $68,960 
   
 
 
   
 
 
 
   
Six Months Ended

June 30,
 
   
2021
   
2020
 
Advanced Wound Care
  $202,144   $111,019 
Surgical & Sports Medicine
   23,604    19,673 
   
 
 
   
 
 
 
Total net revenue
  $225,748   $130,692 
   
 
 
   
 
 
 

For all periods presented, net revenue generated outside the United States represented less than 1%1% of total net revenue.

5. Fair Value Measurement of Financial Assets and Liabilities

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of June 30, 2021 and December 31, 2020.
11
Table of Contents
   
Fair Value Measurements

as of June 30, 2021 Using:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Liabilities:
        
Earnout liability
  $
 
—     $
 
—     $
 
927   $
 
927 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
$
 
—  
 
  
$
 
—  
 
  
$
 
927   $927
 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
Fair Value Measurements

as of December 31, 2020 Using:
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Liabilities:
                    
Earnout liability
  $—     $—     $3,985   $3,985 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
$
—  
 
  
$
—  
 
  $3,985   $3,985
 
   
 
 
   
 
 
   
 
 
   
 
 
 

Earnout Liability

In connection with accounting for the CPN acquisition on September 17, 2020, the Company recorded an Earnout liability of $3,782$3,782 on the Acquisition Date, representing the fair value of contingent consideration payable upon the achievement of a certain revenue target. The Earnout Liability isliability was classified as a Level 3 measurement within the fair value hierarchy for which fair value iswas derived from inputs that arewere unobservable and significant to the overall fair value measurement. The fair value of such Earnout Liability isliability was estimated using a Monte Carlo simulation model that utilizesutilized key assumptions including forecasted revenues and volatilities of the underlying financial metrics during the Earnout period.Period. The Earnout Period ended on June 30, 2022 and the Company assessescalculated the Earnout liability to be $0. Before its settlement, the Company assessed the fair value of the Earnout liability at each reporting period. Any subsequent changes in the estimated fair value of the liability arewere reflected in selling, general and administrative expenses until the liability iswas settled. For more information about the Earnout liability, refer to Note “3. Acquisition”.

As of June 30,December 31, 2021, the Earnout liability decreased to $927was $0 as a result of the Company’s updated assessment of the near-term market for the CPN product portfolio. The following table provides a roll-forward of the fair value of the Company’s Earnout liability, for which fair value iswas determined using Level 3 inputs:inputs until the end of the Earnout Period on June 30, 2022.

11

Table of Contents

 

 

 

 

Six Months Ended
June 30,

 

 

 

 

 

2022

 

 

2021

 

Beginning balance

 

 

 

$

0

 

 

$

3,985

 

Change in fair value

 

 

 

 

0

 

 

 

(3,058

)

Ending balance

 

 

 

$

0

 

 

$

927

 

   
Earnout liability
 
Balance as of December 31, 2020
  $3,985 
Change in fair value
   (3,058) 
   
 
 
 
Balance as of June 30, 2021
  $927 
   
 
 
 

The Company did not have any financial assets and liabilities measured at fair value on a

non-recurring
basis as of June 30, 20212022 and December 31, 2020.2021.

6. Accounts Receivable, Net

Accounts receivable consisted of the following:

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Accounts receivable

 

$

93,846

 

 

$

87,613

 

Less — allowance for doubtful accounts

 

 

(5,022

)

 

 

(5,153

)

 

 

$

88,824

 

 

$

82,460

 

   
June 30,
   
December 31,
 
   
2021
   
2020
 
Accounts receivable
  $    83,880   $61,792 
Less — allowance for sales returns and doubtful accounts
   (7,113)    (4,988) 
   
 
 
   
 
 
 
   $76,767   $56,804 
   
 
 
   
 
 
 
12
Table of Contents

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

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Balance at beginning of period

 

$

5,127

 

 

$

3,576

 

 

$

5,153

 

 

$

2,669

 

Additions

 

 

82

 

 

 

575

 

 

 

122

 

 

 

1,496

 

Write-offs

 

 

(187

)

 

 

(19

)

 

 

(253

)

 

 

(33

)

Balance at end of period

 

$

5,022

 

 

$

4,132

 

 

$

5,022

 

 

$

4,132

 

   
Three Months Ended

June 30,
   
Six Months Ended

June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Balance at beginning of period
  $6,076   $3,204   $4,988   $3,049 
Additions 
   1,056    753    2,158    970 
Write-offs
   (19)    (29)    (33)    (91) 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at end of period
  $7,113   $3,928   $7,113   $3,928 
   
 
 
   
 
 
   
 
 
   
 
 
 

7. Inventories

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

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Raw materials

 

$

10,228

 

 

$

9,023

 

Work in process

 

 

1,041

 

 

 

991

 

Finished goods

 

 

11,966

 

 

 

15,008

 

 

 

$

23,235

 

 

$

25,022

 

   
June 30,
   
December 31,
 
   
2021
   
2020
 
Raw materials
  $
 
     10,144   $10,075 
Work in process
   1,732    1,305 
Finished goods
   16,230    16,419 
   
 
 
   
 
 
 
   $28,106   $27,799 
   
 
 
   
 
 
 

Raw materials include various components used in the Company’s manufacturing process. The Company’s excess and obsolete inventory review process includes analysis of

s
ales 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 June 30, 20212022 and 2020,2021, the Company charged $2,388$3,023 and $940,$2,388, respectively, for inventory excess and obsolescence to cost of goods sold within the consolidated statements of operations. During the six months ended June 30, 20212022 and 2020,2021, the Company charged $4,678$5,228 and $1,709,$4,678, respectively, for inventory excess and obsolescence to cost of goods sold within the consolidated statements of operations.

12

Table of Contents

8. Prepaid Expenses and

Other Current Assets

Prepaid expenses and other current assets consisted of the following:

 

 

June 30,
2022

 

 

December 31,
2021

 

Subscriptions

 

$

2,147

 

 

$

2,745

 

Conferences and marketing expenses

 

 

2,371

 

 

 

538

 

Deposits

 

 

958

 

 

 

1,216

 

Insurance

 

 

1,021

 

 

 

358

 

Other

 

 

43

 

 

 

112

 

 

 

$

6,540

 

 

$

4,969

 

   
June 30,

2021
   
December 31,

2020
 
Subscriptions  $
 
 
 
      2,211   $2,013 
Conferences and marketing expenses   921    63 
Deposits   1,796    1,438 
Reimbursement of offering expenses
   0      1,009 
Other
   1,655    412 
   
 
 
   
 
 
 
   $
6,583
 
  $
4,935
 
   
 
 
   
 
 
 
Prepaid deposits

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

13
Table of Contents

9. Property and Equipment, Net

Property and equipment consisted of the following:

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Leasehold improvements

 

$

35,309

 

 

$

30,531

 

Buildings

 

 

4,943

 

 

 

4,943

 

Furniture, computers and equipment

 

 

55,799

 

 

 

53,959

 

 

 

 

96,051

 

 

 

89,433

 

Accumulated depreciation

 

 

(60,600

)

 

 

(57,729

)

Construction in progress

 

 

57,841

 

 

 

47,456

 

 

 

$

93,292

 

 

$

79,160

 

   
June 30,
   
December 31,
 
   
2021
   
2020
 
Leasehold improvements
  $
 
    48,503   $39,574 
Furniture, computers and equipment
   50,221    48,236 
   
 
 
   
 
 
 
    98,724    87,810 
Accumulated depreciation and amortization
   (71,593)    (69,521) 
Construction in progress
   42,608    41,779 
   
 
 
   
 
 
 
   $69,739   $60,068 
   
 
 
   
 
 
 

Depreciation expense was $1,063$1,528 and $891$1,063 for the three months ended June 30, 20212022 and 2020.2021. Depreciation expense was $2,073$2,875 and $1,793$2,073 for the six months ended June 30, 20212022 and 2020. As of June 30, 2021 and December 31, 2020, the Company had $21,689 of buildings under finance leases recorded within leasehold improvements. As of June 30, 2021 and December 31, 2020, the Company had $15,573 and $14,974 recorded within accumulated depreciation and amortization related to buildings under finance leases, respectively.2021. Construction in progress primarily represents unfinished construction work on a purchased building under a finance leaselocated on the Company’s Canton, Massachusetts campus and more recently, improvements at the Company’s leased facilities in Canton and Norwood, Massachusetts.

10. Goodwill and Intangible Assets

Goodwill was $28,772$28,772 as of June 30, 20212022 and December 31, 2020.

2021.

Identifiable intangible assets consisted of the following as of June 30, 2021:

   
Original
   
Accumulated
   
Net Book
 
   
Cost
   
Amortization
   
Value
 
Developed technology
  $32,620   $(16,020)   $16,600 
Trade names and trademarks
   2,080    (1,056)    1,024 
Customer relationships
   10,690    (846)    9,844 
Non-compete
agreements
   1,010    (342)    668 
   
 
 
   
 
 
   
 
 
 
Total
  $46,400   $(18,264)   $28,136 
   
 
 
   
 
 
   
 
 
 
2022:

 

 

Original

 

 

Accumulated

 

 

Net Book

 

 

 

Cost

 

 

Amortization

 

 

Value

 

Developed technology

 

$

32,620

 

 

$

(19,437

)

 

$

13,183

 

Trade names and trademarks

 

 

2,080

 

 

 

(1,288

)

 

 

792

 

Customer relationships

 

 

10,690

 

 

 

(1,915

)

 

 

8,775

 

Independent sales agency network

 

 

4,500

 

 

 

(4,500

)

 

 

-

 

Patent

 

 

7,623

 

 

 

(7,623

)

 

 

-

 

Non-compete agreements

 

 

1,010

 

 

 

(529

)

 

 

481

 

Total

 

$

58,523

 

 

$

(35,292

)

 

$

23,231

 

13

Table of Contents

Identifiable intangible assets consisted of the following as of December 31, 2020:2021:

 

 

Original

 

 

Accumulated

 

 

Net Book

 

 

 

Cost

 

 

Amortization

 

 

Value

 

Developed technology

 

$

32,620

 

 

$

(17,709

)

 

$

14,911

 

Trade names and trademarks

 

 

2,080

 

 

 

(1,183

)

 

 

897

 

Customer relationship

 

 

10,690

 

 

 

(1,381

)

 

 

9,309

 

Independent sales agency network

 

 

4,500

 

 

 

(4,500

)

 

 

-

 

Patent

 

 

7,623

 

 

 

(7,623

)

 

 

-

 

Non-compete agreements

 

 

1,010

 

 

 

(454

)

 

 

556

 

Total

 

$

58,523

 

 

$

(32,850

)

 

$

25,673

 

   
Original
   
Accumulated
   
Net Book
 
   
Cost
   
Amortization
   
Value
 
Developed technology
  $32,620   $(14,330)   $18,290 
Trade names and trademarks
   2,080    (906)    1,174 
Customer relationship
   10,690    (312)    10,378 
Non-compete
agreements
   1,010    (230)    780 
   
 
 
   
 
 
   
 
 
 
Total
  $46,400   $(15,778)   $30,622 
   
 
 
   
 
 
   
 
 
 

Amortization of intangible assets, calculated on a straight-line basis or using an accelerated method, was $1,243$1,221 and $816$1,243 for the three months ended June 30, 20212022 and 2020,2021, respectively, and $2,486$2,442 and $1,633$2,486 for the six months ended June 30, 2022 and 2021, and 2020, respectively.

respectively.

14
Table of Contents

11. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Personnel costs

 

$

22,101

 

 

$

26,865

 

Royalties

 

 

3,696

 

 

 

3,458

 

Accrued but unpaid lease obligations and interest

 

 

3,476

 

 

 

3,963

 

Accrued settlement fee

 

 

3,300

 

 

 

-

 

Other

 

 

3,817

 

 

 

2,303

 

 

 

$

36,390

 

 

$

36,589

 

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”. See Note "4. Product and Geographic Sales" for accrued settlement fee.

   
June 30,
   
December 31,
 
  
 
2021
  
2020
 
 
Personnel costs  $    22,024   $18,943 
Royalties   2,718    2,971 
Other
   1,876    2,059 
   
 
 
   
 
 
 
   $26,618   $23,973 
           

12. Restructuring

In order to reduce the Company’s cost structure and achieve operating efficiency, the Company is consolidating its manufacturing operations in various locations into Massachusetts facilities.

On October 21, 2020, the Company committed to a plan to restructure the workforce and consolidateoperations in its La Jolla, facilitiesCalifornia facilities. The restructuring involved approximately 65 employees and was substantially completed as part of the Company’s long-term plan to consolidate manufacturing operations in Massachusetts to reduce the Company’s cost structure. The majority of the restructuring costs are expected to be incurred by the end ofDecember 31, 2021, with certain facility and storage costsactivities continuing through 2024.

On March 9, 2022, the middle of

2024
.Company committed to a plan to restructure the workforce and operations in its Birmingham, Alabama facilities. The restructuring is expected to be completed by the end of 2022 and will result in a charge of approximately $7.0$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 $2.5$1.0 million is related to the facility closures.other exit activities, including but not limited to contract termination, decommission and transportation of certain fixed assets. As employees are required to provide future services, employee retention and other benefit-related costs related to the Company’s restructuring are expensed over the service period.

14

Table of Contents

As a result of thisthe restructuring activity,activities, the Company incurred

a pre-tax charge
of $939$643 and $1,866$939 during the three months ended June 30, 2022 and 2021, respectively, and $907 and $1,866 during the six months ended June 30, 2021. This charge was primarily related to employee retention benefits2022 and was2021, 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 $2,410$661 and $3,168 as of June 30, 2022 and December 31, 2021, respectively, and was included in accrued expenses and other current liabilities in the consolidated balance sheets. The following table provides a roll-forward of the restructuring liability.

 

 

Employee

 

 

Other

 

 

Total

 

Liability balance as of March 31, 2022

 

$

115

 

 

$

17

 

 

$

132

 

Expenses

 

 

523

 

 

 

120

 

 

 

643

 

Payments

 

 

0

 

 

 

(114

)

 

 

(114

)

Liability balance as of June 30, 2022

 

$

638

 

 

$

23

 

 

$

661

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee

 

 

Other

 

 

Total

 

Liability balance as of December 31, 2021

 

$

2,517

 

 

$

651

 

 

$

3,168

 

Expenses

 

 

638

 

 

 

269

 

 

 

907

 

Payments

 

 

(2,517

)

 

 

(897

)

 

 

(3,414

)

Liability balance as of June 30, 2022

 

$

638

 

 

$

23

 

 

$

661

 

   
Employee
   
Facility
 
Liability balance as of March 31, 2021
  $1,528   $17 
Expenses
   853    86 
Payments
   0      (74) 
   
 
 
   
 
 
 
Liability balance as of June 30, 2021
  $2,381   $29 
   
 
 
   
 
 
 
   
   
Employee
   
Facility
 
Liability balance as of December 31, 2020
  $618   $0   
Expenses
   1,763    103 
Payments
   0      (74) 
   
 
 
   
 
 
 
Liability balance as of June 30, 2021
  $ 2,381   $   29 
   
 
 
   
 
 
 

13. Long-Term Debt Obligations

Obligations

Long-term debt obligations consisted of the following:

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Line of credit

 

$

0

 

 

$

0

 

Term loan

 

 

73,125

 

 

 

74,062

 

Less debt discount and debt issuance cost

 

 

(560

)

 

 

(637

)

Term loan, net of debt discount and debt issuance cost

 

$

72,565

 

 

$

73,425

 

         
   
June 30,

2021
   
December 31,
2020
 
Line of credit
  $    10,000   $    10,000 
   
 
 
   
 
 
 
Term loan
   60,000    60,000 
Less debt discount and debt issuance cost
   (210)    (290) 
Less current maturities
   (22,500)    (16,666) 
   
 
 
   
 
 
 
Term loan, net of debt discount, debt issuance cost and current maturities
  $37,290   $43,044 
   
 
 
   
 
 
 
15
Table of Contents
2019

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 20192021 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 to2021 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 greaterTotal 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 June 30, 2021 was 9.25%. The 2019 Credit Agreement requires the Company to make monthly interest-onlyconsecutive quarterly installment payments on outstanding balances underequal to the Term Loan Facilityfollowing: (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 is repaid in

thirty-two
equal monthly installments of principal, plus accrued interest, with the Term Loan Facility maturing on February 1, 2024quarter 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, subjectprovided that any Term Loans prepaid prior to paying the Prepayment Premium (described below) and the Final Payment. The Prepayment Premium isAugust 6, 2022 must be accompanied by a prepayment premium equal to 1.50%1.00% of the outstanding principalaggregate 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

15

Table 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. Contents

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 June 30, 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 equalin 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 ifRevolving 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 CompanyCommitment Fee rate is also requiredbetween 0.25% to pay an unused line fee equal to 0.25% per annum, calculated0.45% 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 equalof 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 ifterminated.

Under the reduction or termination occurs after2021 Credit Agreement, the two year anniversary but prior to the three year anniversary of the closing, and $0 thereafter.

The Company is required to achievecomply with certain financial covenants underincluding the 2019 Credit Agreement, including Minimum Trailing Twelve Month Consolidated RevenueFixed 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 tomake representations and warranties and comply with certain non-financial covenants that are customary in loan agreements of this type, including restrictions on the greaterpayment of (i) 6 months Monthly Burndividends, repurchase of stock, incurrence of indebtedness, dispositions and (ii) $10,000.
As of June 30, 2021, theacquisitions.

The Company had outstanding borrowings of $60,000$73,125 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 $2,416 and $1,858borrowings as of June 30, 20212022 and December 31, 2020, respectively, was included in other liabilities on the consolidated balance sheets.2021, respectively. The Company incurredrecorded 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 incurredrecorded 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 20192021 Credit Agreement, as of June 30, 2021,2022, are as follows for the calendar years ending December 31:

2022

 

$

1,875

 

2023

 

 

4,687

 

2024

 

 

5,625

 

2025

 

 

6,563

 

2026

 

 

54,375

 

Total

 

$

73,125

 

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.

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.

2021
  $11,250 
2022
   22,500 
2023
   22,500 
2024
   13,750 
   
 
 
 
Total
  $70,000 
   
 
 
 
16
Table of Contents

14. Stockholders’ Equity

Common Stock

As of June 30, 2021,2022, the Company was authorized to issue 400,000,000 shares of $0.0001 par value Class A common stock and 1,000,000 shares of $0.0001 par value preferred stock. 129,011,789 shares of Class A common stock were issued and 128,283,241 shares were outstanding as of June 30, 2021. NaNshares of preferred stock were outstanding as of June 30, 2021. The issued shares of Class A common stock include 728,548 treasury shares that were reacquired in connection with the redemption of redeemable shares in March 2019.

16

Table of Contents

As of June 30, 20212022 and December 31, 2020,2021, the Company reserved the following shares of Class A common stock for future issuance:

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Shares reserved for issuance for outstanding options

 

 

6,132,561

 

 

 

6,596,969

 

Shares reserved for issuance for outstanding restricted stock units

 

 

1,471,223

 

 

 

764,871

 

Shares reserved for issuance for future grants

 

 

11,187,149

 

 

 

5,644,691

 

Total shares of authorized common stock reserved for future issuance

 

 

18,790,933

 

 

 

13,006,531

 

   
June 30,
   
December 31,
 
   
2021
   
2020
 
Shares reserved for issuance for outstanding options
   7,070,008    6,425,040 
Shares reserved for issuance for outstanding restricted stock units
   787,023    806,048 
Shares reserved for issuance for future grants
   5,642,864    6,832,649 
   
 
 
   
 
 
 
   
Total shares of authorized common stock reserved for future issuance
   13,499,895    14,063,737 
   
 
 
   
 
 
 

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

At the adoption of June 30, 2021,the 2018 plan, a total of 9,198,996 shares of Class A common stock have beenwas authorized to be issued under the 2018 Plan (subject to adjustment in the case of any stock dividend, stock split, reverse stock split, or similar change in capitalization of the Company).

In June, 2022, an amendment was made to the 2018 Plan, increasing the number of shares of Class A common stock reserved for issuance by 7,826,970 shares.

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.years. Restricted stock units awarded typically vest over four years.

Stock-based compensation expense was $1,042$1,692 and $469$1,042 for the three months ended June 30, 20212022 and 2020,2021, respectively, and was $1,740$2,995 and $678$1,740 for the six months ended June 30, 20212022 and 2020,2021, respectively. The total amount of stock-based compensation expense was included within selling, general and administrative expenses on the consolidated statements of operations.

17
Table of Contents

Restricted Stock Units (RSUs)

In the six months ended June 30, 2021, the

The Company granted 979,257 and 290,027 time-based restricted stock units to its employees, executives and the Board of Directors.Directors in the six months ended June 30, 2022 and 2021, respectively. Each restricted stock unit represents the contingent right to receive one share of the Company’s Class A common stock. A majority of the restricted stock units will vest in four equal annual installments.The fair value of the restricted stock units was based on the fair market value of the Company’s stock on the date of grant.

17

Table of Contents

The activity of restricted stock units is set forth below:

 

Number

 

 

Weighted Average

 

 

of Shares

 

 

Grant Date

 

 

 

 

 

Fair Value

 

Unvested at December 31, 2021

 

 

764,871

 

 

$

7.52

 

Granted

 

 

979,257

 

 

 

7.56

 

Vested

 

 

(239,245

)

 

 

7.11

 

Canceled/Forfeited

 

 

(33,660

)

 

 

6.76

 

Unvested at June 30, 2022

 

 

1,471,223

 

 

$

7.63

 

   
Number

of Shares
   
Weighted
Average

Grant Date

Fair Value
 
Unvested at December 31, 2020
   806,048   $3.82 
Granted
   290,027    14.45 
Vested
   (252,743)    4.20 
Canceled/Forfeited
   (56,309)    8.29 
   
 
 
   
 
 
 
Unvested at June 30, 2021
   787,023   $7.30 
   
 
 
   
 
 
 

As of June 30, 2021,2022, the total unrecognized compensation cost related to unvested restricted stock units expected to vest was $3,891$7,479 and the weighted average remaining recognition period for unvested awards was 3.162.92 years.

Stock Option Valuation

The stock options granted during the six months ended June 30, 2022 and 2021 were 1,418,224and 2020 were 1,037,099 and 1,538,723, respectively. The assumptions that the Company used to determine the grant-date fair value of stock options granted during these periods were as follows, presented on a weighted-average basis:

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

Risk-free interest rate

 

 

1.92

%

 

 

0.82

%

Expected term (in years)

 

 

6.25

 

 

 

6.21

 

Expected volatility

 

 

50.66

%

 

 

39.30

%

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

Exercise price

 

$

8.03

 

 

$

13.54

 

Underlying stock price

 

$

7.87

 

 

$

13.54

 

   
June 30,

2021
  
June 30,

2020
 
Risk-free interest rate
   0.82%   0.46% 
Expected term (in years)
   6.21   6.22 
Expected volatility
   39.30%   37.41% 
Expected dividend yield
   0.0%   0.0% 
Exercise price
  $13.54  $4.04 
Underlying stock price
  $13.54  $3.36 
18
Table of Contents

These assumptions resulted in an estimated weighted-average grant-date fair value per share of stock options granted during the six months ended June 30, 2022 and 2021 of $3.94and 2020 of $5.31 and $1.04,$5.31, respectively.

Stock Option Activity

The following table summarizes the Company’s stock option activity since December 31, 2020:2021:

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Weighted

 

 

Remaining

 

 

 

 

 

 

 

 

 

Average

 

 

Contractual

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Term

 

 

Intrinsic

 

 

 

Shares

 

 

Price

 

 

(in years)

 

 

Value

 

Outstanding as of December 31, 2021

 

 

6,596,969

 

 

$

4.10

 

 

 

5.20

 

 

$

38,524

 

Granted

 

 

1,418,224

 

 

 

8.03

 

 

 

 

 

 

 

Exercised

 

 

(1,845,897

)

 

 

1.11

 

 

 

 

 

 

8,408

 

Canceled / forfeited

 

 

(36,735

)

 

 

2.50

 

 

 

 

 

 

 

Outstanding as of June 30, 2022

 

 

6,132,561

 

 

 

5.92

 

 

 

6.65

 

 

 

7,509

 

Options exercisable as of June 30, 2022

 

 

3,167,162

 

 

 

3.57

 

 

 

4.60

 

 

 

6,860

 

Options vested or expected to vest as of June 30, 2022

 

 

5,504,030

 

 

$

5.61

 

 

 

6.38

 

 

$

7,414

 

   
Number of

Shares
   
Weighted

Average

Exercise

Price
   
Weighted

Average

Remaining

Contractual

Term

(in years)
   
Aggregate

Intrinsic

Value
 
Outstanding as of December 31, 2020
   6,620,318   $2.33    5.22   $34,458 
Granted
   1,037,099    13.54           
Exercised
   (558,785)    2.15         5,526 
Canceled / forfeited
   (28,624)    9.54           
   
 
 
                
Outstanding as of June 30, 2021
   7,070,008    3.95    5.56    89,543 
   
 
 
                
Options exercisable as of June 30, 2021
   4,709,080    1.83    3.91    69,665 
   
 
 
                
Options vested or expected to vest as of June 30, 2021
   6,557,753   $3.57    5.28   $85,578 
   
 
 
                

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 six months ended June 30, 2022 and 2021 was $2,029and 2020 was $586 and $209,$586, respectively.

18

Table of Contents

As of June 30, 2021,2022, the total unrecognized stock compensation expense related to unvested stock options expected to vest was $4,676$7,106 and was expected to be recognized over a weighted-average period of 3.273.06 years.

Between 2010 and 2013, a former executive took several partial recourse notes totaling $635 to exercise his 675,990 shares of stock options. 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
June
30
, 2021,
0
ne
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.

19
Table of Contents

A reconciliation of the numerator and denominator used in the calculation of the basic and diluted net income (loss) attributable to the Class A common stockholders of Organogenesis Holdings Inc. is as follows.

 

 

Three Months Ended
 June 30,

 

 

Six Months Ended
 June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

8,744

 

 

$

20,687

 

 

$

7,831

 

 

$

30,630

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding —basic

 

 

129,635,682

 

 

 

128,235,224

 

 

 

129,214,541

 

 

 

128,053,654

 

Dilutive effect of restricted stock units

 

 

147,600

 

 

 

508,015

 

 

 

205,838

 

 

 

517,837

 

Dilutive effect of options

 

 

2,817,297

 

 

 

5,245,174

 

 

 

3,284,827

 

 

 

5,149,700

 

Weighted-average common shares outstanding—diluted

 

 

132,600,579

 

 

 

133,988,413

 

 

 

132,705,206

 

 

 

133,721,191

 

Earnings per share—basic

 

$

0.07

 

 

$

0.16

 

 

$

0.06

 

 

$

0.24

 

Earnings per share—diluted

 

$

0.07

 

 

$

0.15

 

 

$

0.06

 

 

$

0.23

 

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Numerator:
                    
Net Income (loss)
  $20,687   $(5,166)   $30,630   $(21,479) 
Denominator:
                    
Weighted average common shares outstanding—basic   128,235,224    104,714,725    128,053,654    104,600,825 
Dilutive effect of restricted stock units
   508,015    —      517,837    —   
Dilutive effect of options
   5,245,174    —      5,149,700    —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Weighted-average common shares outstanding—diluted
   133,988,413    104,714,725    133,721,191    104,600,825 
Earnings (loss) per share—basic
  $0.16   $(0.05)   $0.24   $(0.21) 
   
 
 
   
 
 
   
 
 
   
 
 
 
Earnings (loss) per share—diluted
  $0.15   $(0.05)   $0.23   $(0.21) 
   
 
 
   
 
 
   
 
 
   
 
 
 

For the

three and six months ended June 30, 2022, outstanding stock-based awards of 3,755,497 and 3,378,641 were excluded from the diluted EPS calculation as they were anti-dilutive. For the three and six months ended June 30, 2021, outstanding stock-based awards of 923,907 and 967,146 were excluded from the diluted EPS calculation. For the three and six months ended June 30, 2020, thecalculation as they were anti-dilutive.

17. Leases

The Company had a net loss. As such, 8,695,401 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 these periods.

17. Leases
As of December 31, 2020 and June 30, 2021, the Company’s contracts that contained a lease consistedleases are primarily of real estate, equipment and vehicle leases.

The Company leases real estate for office, lab, warehouse and production space under noncancelable operating and finance leases that expire at various dates through 2031,2035, subject to the Company’s options to terminate or renew certain leases for an additional five to ten years.

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
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 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.
20
Table of Contents
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
commenced
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. In August 2021, the Company purchased the building (the “275 Dan Road Building”) under the lease with 275 Dan Road SPE, LLC for $6,013 and the lease was terminated. The Company recorded an asset of $4,943 to buildings within fixed asset, net in accordance with ASC 842-20-40-2 Purchase of the Underlying Asset to account for the purchase of the leased asset. Other than the lease with 275 Dan Road SPE, LLC which was terminated in August 2021, the remaining three leases were set to terminate on December 31, 2022 and each containscontained a renewal option for a five-year period with thea rental rate at the greater of (i) rent for the last year of the prior term, or (ii) the then fair market value. NoticeThe Company exercised the option to extend the leases for an additional five years in November 2021 and is currently negotiating the rental rate for those properties with the landlord. The Company used its best estimate to calculate the lease assets and liabilities in the renewal period and reassessed the classification for these leases according to ASC 842-10-25-1 Lease Classification. As a result, these leases were reclassified from finance leases to operating leases. The related finance lease assets and liabilities were reclassified to operating lease right-of-use assets and operating lease obligations on the consolidated balance sheet as of the exercise of this renewal option is due one year priorDecember 31, 2021. Due to the expirationcompetitive real estate market for biotechnology companies in Massachusetts, the negotiated rental rate could differ materially from management’s estimates, which may significantly increase the lease assets and lease liabilities currently reported on the consolidated financial statements.

19

Table of the initial term. Aggregate annual lease payments are approximately $4,308 with future rent increases of 10% effective January 1, 2022.
As of June 30, 2021 and December 31, 2020, theContents

The Company owed an aggregate of $10,336 ofowes some 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 $7,307 and $6,946 as of June 30, 2021 and December 31, 2020, respectively, and is includeddetailed in the long-term portion of finance lease obligations. The interest portion of rent in arrears totaled $2,475 and $2,865 as of June 30, 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 $554 and $525 as of June 30, 2021 and December 31, 2020, respectively, and are included in other liabilities on the consolidated balance sheets.

section below. Effective April 1, 2019, the Company agreed to accrue interest on the accrued but unpaid lease obligations at an interest rate equal to the rate charged inunder the 2019 Credit Agreement. These accrued but unpaid lease obligations as well as the accrued interest on these obligations were subordinated to the 2019 Credit Agreement. With the termination of the 2019 Credit Agreement and the execution of the 2021 Credit Agreement (see Note “13. Long-Term Debt Obligations”). The accrued interest is also in August 2021, these obligations are no longer subordinated to the 2019 Credit AgreementCompany’s existing loans.

In connection with the purchase of the 275 Dan Road Building in August 2021, 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, iswell as the related interest accruals are shown below.

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Principal portion of rent in arrears

 

 

6,792

 

 

 

7,246

 

Unpaid operating and common area maintenance costs

 

 

-

 

 

 

558

 

Total accrued but unpaid lease obligations

 

 

6,792

 

 

 

7,804

 

 

 

 

 

 

 

 

Accrued interest on accrued but unpaid lease obligations

 

 

1,957

 

 

 

1,938

 

The principal portion of rent in arrears 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 accrualsheets as of June 30, 20212022 and December 31, 2020 totaled

$2,1512021. 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 June 30, 2022 and December 31, 2021.

The components of lease cost were as follows:

 

 

Classification

 

Six Months Ended
June 30,

 

 

 

 

 

2022

 

 

2021

 

Finance lease

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

COGS and SG&A

 

$

213

 

 

$

603

 

Interest on lease liabilities

 

Interest Expense

 

 

7

 

 

 

661

 

Total Finance lease cost

 

 

 

 

220

 

 

 

1,264

 

Operating lease cost

 

COGS, R&D, SG&A

 

 

4,808

 

 

 

3,015

 

Short-term lease cost

 

COGS, R&D, SG&A

 

 

1,391

 

 

 

1,414

 

Variable lease cost

 

COGS, R&D, SG&A

 

 

2,201

 

 

 

2,449

 

Total lease cost

 

 

 

$

8,620

 

 

$

8,142

 

   
Classification
  
Three
 
Months
Ended
June 30,
 
2021
   
Six Months
Ended

June 30,
2021
 
Finance lease
             
Amortization of
right-of-use
assets
  COGS and SG&A  $        304   $603 
Interest on lease liabilities  Interest Expense   312    661 
      
 
 
   
 
 
 
Total Finance lease cost
      616    1,264 
Operating lease cost
  COGS, R&D, SG&A   1,735    3,015 
Short-term lease cost
  COGS, R&D, SG&A   699    1,414 
Variable lease cost
  COGS, R&D, SG&A   1,086    2,449 
      
 
 
   
 
 
 
Total lease cost     $4,136   $8,142 
      
 
 
   
 
 
 
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Supplemental balance sheet information related to finance leases was as follows:

 

 

June 30, 2022

 

 

December 31, 2021

 

Property and equipment, gross

 

$

1,174

 

 

$

1,174

 

Accumulated depreciation

 

 

(1,174

)

 

 

(961

)

Property and equipment, net

 

$

-

 

 

$

213

 

 

 

 

 

 

 

 

Finance lease obligations

 

$

-

 

 

$

200

 

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June 30, 2021
   
January 1, 2021
 
Property and equipment, gross
  $22,989   $22,989 
Accumulated depreciation
   (15,578)    (14,974) 
   
 
 
   
 
 
 
Property and equipment, net
  $7,411   $8,015 
   
 
 
   
 
 
 
   
Current portion of finance lease obligations
  $4,134   $3,619 
Finance lease long-term obligations
   9,553    11,442 
   
 
 
   
 
 
 
Total finance lease liabilities
  $13,687   $15,061 
   
 
 
   
 
 
 

Supplemental cash flow

information related to leases was as follows:

 

 

Six Months Ended
 June 30,

 

 

 

2022

 

 

2021

 

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

 

 

 

 

 

 

Operating cash flows for operating leases

 

 

4,630

 

 

 

3,228

 

Operating cash flows for finance leases

 

 

7

 

 

 

1,022

 

Financing cash flows for finance leases

 

 

200

 

 

 

1,374

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations

 

 

 

 

 

 

Operating leases

 

 

364

 

 

 

29,092

 

Finance leases

 

 

-

 

 

 

-

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Weighted-average remaining lease term

 

 

 

 

 

 

Finance leases

 

 

-

 

 

 

0.45

 

Operating leases

 

 

7.86

 

 

 

8.22

 

 

 

 

 

 

 

 

 

 

June 30, 2022

 

 

December 31, 2021

 

Weighted-average discount rate

 

 

 

 

 

 

Finance leases

 

 

-

 

 

 

11.30

%

Operating leases

 

 

4.54

%

 

 

4.51

%

Six Months Ended
June 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
3,228
Operating cash flows for finance leases
1,022
Financing cash flows for finance leases
1,374
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
15,567
Finance leases
—  
June 30, 2021
Weighted-average remaining lease term
Finance leases
1.49
Operating leases
8.27
June 30, 2021
Weighted-average discount rate
Finance leases
19.69% 
Operating leases
4.19% 
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As of June 30, 2021,2022, maturities of lease liabilities were as follows:

 

 

Operating leases

 

 

Finance leases

 

2022 (remaining 6 months)

 

$

9,713

 

 

$

-

 

2023

 

 

8,165

 

 

 

-

 

2024

 

 

7,315

 

 

 

-

 

2025

 

 

7,526

 

 

 

-

 

2026

 

 

7,435

 

 

 

-

 

Thereafter

 

 

25,966

 

 

 

-

 

Total lease payments

 

 

66,120

 

 

 

-

 

Less: interest

 

 

(10,549

)

 

 

-

 

Total lease liabilities

 

$

55,571

 

 

$

-

 

   
Operating
 
leases
   
Finance leases
 
2021 (remaining 6 months)
  $        3,319   $2,390 
2022
   4,507    4,945 
2023
   3,845    0   
2024
   3,177    9,782 
2025
   3,164    0   
Thereafter
   16,341    0   
   
 
 
   
 
 
 
Total lease payments
   34,353    17,117 
Less: interest
   (5,625)    (3,430) 
   
 
 
   
 
 
 
Total lease liabilities
  $28,728   $13,687 
   
 
 
   
 
 
 
Under ASC 840, for the three and six months ended June 30, 2020, the Company recorded lease expense of $1,837 and $3,351, respectively for operating leases.

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$1,187 as of June 30, 20212022 and December 31, 2020,2021, respectively, and were classified as part of accrued expenses and other current liabilities on the Company’s consolidated balance sheets. There was 0 royalty expense incurred during the three and six months ended June 30, 20212022 or 20202021 related to this agreement.

In October 2017, the Company entered into a license agreement with a third party. Under the license agreement, the Company is required to pay royalties based on a percentage of net sales of the licensed product that occur, after December 31, 2017, through the expiration of the underlying patent in October 2026, subject to minimum royalty payment provisions. The Company recorded royalty expense of $1,134$2,104 and $839$1,134 during the three months ended June 30, 20212022 and 2020,2021, respectively, and $2,355$3,705 and $1,819$2,355 during the six months ended June 30, 20212022 and 2020,2021, respectively, within selling, general and administrative expenses on the consolidated statementstatements of operations.

As part

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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 six months ended June 30, 2020.
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$150 as of June 30, 20212022 and December 31, 2020
2021 for
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. 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.
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19. Related Party

Transactions
Finance lease

Lease obligations to affiliates, including accrued but unpaid lease obligations, and purchase of an operatingasset under a finance lease with affiliatesan 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%—3.86%2.30% - 3.86% per annum, compounded annually. The Employer Loans were secured by shares of the Company’s Class A common stock held by the former executives. With respect to the Liquidity Loans, the Company had no personal recourse against the borrowers beyond the pledged shares. As of December 31, 2020, Liquidity Loans and Option Loans to one former executive were outstanding with an aggregate principal balance of $100$100 and $334,$334, respectively. During the three months ended March 31, 2021, this former executive paid off the outstanding principal balance of his Employer Loans and the related interest receivable. As a result, the Company recorded $179$179 as a recovery of the previously reserved related party receivables within selling, general and administrative expenses on the consolidated statement of operations for the sixthree months ended June 30,March 31, 2021. The $334$334 of the repaid principal balance of the Option Loans was recorded to eq

uity.
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 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 six months ended June 30, 20212022 varied from the U.S. statutory rate of 21%21% primarily due to the utilization of net operating losses federallytax adjustments related to executive compensation, other permanent tax adjustments, and in many states as well as the cash taxes in Switzerland. The Company maintains a full valuation allowance against its U.S. deferred tax assets and as such, the Company’s provision for income taxes primarily relates to cash taxes to be paid in certain states where the net operating losses are expected to be fully utilized or limited based on state statute.discrete items. Income tax expense for the six months ended June 30, 20212022 was $687,$2,485, which included a discrete tax expense of $20$23 related primarily to the interest on certain uncertain tax positions. Income tax expense for the six months ended June 30, 20202021 was $62 and$687, which included a discrete tax expense of $20 related primarily to state and foreign taxes.

the interest on certain uncertain tax positions.

The Company examines all positive and negative evidence to estimate whether sufficient future taxable income in the U.S. will be generated to permit the use of existing deferred tax assets. TheIn the fourth quarter of 2021, the Company has significant negativereleased the valuation allowance recorded against its U.S. deferred tax assets. Upon reviewing the positive evidence inof net operating loss utilization, cumulative profits, and forecasted taxable income, the form of cumulative losses and believesCompany believed that it iswas more likely than not that these United States deferred tax assets will notwould be utilized. As such, the Company maintained the valuation allowance against its U.S. deferred tax asset as of June 30, 2021. There are no material deferred tax assets in the other jurisdictions.

On a quarterly basis, the Company reassesses the need for a valuation allowance on deferred income tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. After assessing both the positive evidence and the negative evidence, including net operating loss utilization, cumulative profits, and forecasted taxable income, the Company may determinedetermined that it is more likely than not that 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 would be realized in the futureas of June 30, 2022 and the Company would therefore release all or a portion of the valuation allowance related to the net operating loss carryforwards and other deferred tax assets.
December 31, 2021.

21. Subsequent Events

The Company has evaluated subsequent events through August 9, 2021,2022, the date on which these consolidated financial statements were issued.

On August 6, 2021, the Company, as borrower, its subsidiaries, as guarantors, There was no additional event to report other than that disclosed within Note. "4. Product and SVB, and the several other lenders entered into a credit agreement (the “2021 Credit Agreement”) providing for a term loan facility not to exceed $Geographic Sales".

75,000
and a revolving credit facility not to exceed $
125,000
, both of which mature on
August 6, 2026
. On the same date, the Company paid all amount due under the 2019 Credit Agreement, including unpaid principal, accrued interest, Final Payment, and Prepayment Premium, and the 2019 Credit Agreement was terminated.

24

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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 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 barriersbarrier for a broad variety of wound types; and the Affinity, Novachor and NuShield wound coverings to address a variety of wound sizes and types. We have a highly trained and specialized direct wound care sales force paired with exceptionalcomprehensive customer support services.

In the Surgical & Sports Medicine market, we focus on products that support the healing of musculoskeletal injuries, including degenerative conditions such as osteoarthritis and tendonitis. We are leveraging our regenerative medicine capabilities in this attractive, adjacent market. Our Surgical & Sports Medicine products include 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, Novachorand PuraPly AM for management of open wounds in the surgical setting. We currently sell these products through independent agencies and our growing direct sales force other than ReNu and NuCel which we stopped marketing after May 31, 2021. Refer to further discussion in section “End of Enforcement Grace Period for ReNu and NuCel” below.
On December 10, 2018, Avista Healthcare Public Acquisition Corp., our predecessor company (“AHPAC”), consummated
a
business combination pursuant to that certain 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. 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.

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force.

For the six months ended June 30, 2021,2022, we generated $218.5 million of net revenue and $7.8 million of net income compared to $225.7 million of net revenue and $30.6 million of net income compared to $130.7 million of net revenue and $21.5 million of net loss for the six months ended June 30, 2020. We2021. While we reported net income for the most recent two years, we have incurred significant losses since inception and while we have reported net income for the four consecutive quarters ended June 30, 2021, we may incur operating losses in the future as we expend resources as part of our efforts to grow our organization to support the planned expansion of our business. As of June 30, 2021,2022, we had an accumulated deficit of $120.1$53.0 million. Our primary sources of capital to date have been from sales of our products, borrowings from related parties and institutional lenders and proceeds from the sale of our Class A common stock. We operate inas one segment of regenerative medicine.

COVID-19 pandemic

The emergence of 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 second quarter ended June 30, 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 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

23

Table 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.
Contents

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 would end on May 31, 2021, and would not be extended. At thatat which time the FDA began regulating our ReNu and NuCel products under Section 351. We continued to market our ReNu and NuCel products during the enforcement grace period, but we ceased commercial distribution after May 31, 2021.of ReNu and NuCel. We are continuing to conduct clinical studies of ReNu to support FDA approval of a Biologics License 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 discontinuewe discontinued clinical development of NuCel.

Dermagraft

As part of our long-term plan to consolidate manufacturing operations in Massachusetts, manufacturing of Dermagraft was suspended in the fourth quarter of 2021 and sales of Dermagraft were suspended in the second quarter of 2022. We currently plan to transition our Dermagraft manufacturing to Massachusetts, which we expect will result in substantial long-term cost savings. In the period when Dermagraft is not available (possibly for a few years), we expect that customers will be willing to substitute Apligraf for Dermagraft and that the suspension of Dermagraft sales will not have a material impact on our net revenue. However, if we do not realize the expected substantial long-term cost savings or if customers are unwilling to substitute Apligraf for Dermagraft during the period in which Dermagraft is unavailable, it could have an adverse effect on our net revenue and results of operations.

Components of Our Consolidated Results of Operations

In assessing the performance of our business, we consider a variety of performance and financial measures. We believe the items discussed below provide insight into the factors that affect these key measures.

Revenue

We derive our net revenue from our portfolio of Advanced Wound Care and Surgical & Sports Medicine products. We primarily sell our Advanced Wound Care products through direct sales representatives who manage and maintain the sales relationships with hospitals, wound care centers, government facilities, ASCs and physician offices. We primarily sell our Surgical & Sports Medicine products through third party agencies. As of June 30, 2021,2022, we had approximately 325350 direct sales representatives and approximately 185150 independent agencies.

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Table of Contents

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 are 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 from October 1, 2018 through September 30, 2020. As a result, during this period, Medicare resumed making pass-through payments to hospitals using PuraPly and PuraPly AM in the outpatient hospital setting and in ASCs. With the expiration of pass-through reimbursement status on September 30, 2020, we anticipated that our net revenue from PuraPly and PuraPly AM might decrease as they transitioned to the bundled payment structure. As of June 30, 2021, we have not observed such a 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 increaseschanges in our cost of goods sold correspond with the increaseschanges in sales units and are also affected by product mix. We expect our cost of goods sold to increase due primarily to the anticipated increase in sales volumes driven by the expansion of our sales force and sales territories, expansion of our product portfolio offerings, and the number of healthcare facilities that offer our products. We expect our cost

24

Table of goods sold to increase due primarily to increased sales volumes.
Contents

Gross profit is calculated as net revenue less cost of goods sold and generally increases as revenue increases. Gross profit margin is calculated as gross profit divided by total net revenue. Our gross profit and gross profit margin areis affected by product and geographic sales mix, realized pricing of our products, the efficiency of our manufacturing operations and the costs of materials used and fees charged by third-party manufacturers to produce our products. Regulatory actions, including healthcare reimbursement scenarios, which may require costly expenditures or result in pricing pressures, may decrease our gross profit and gross profit margin.

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

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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 deferr
ed 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 sufficientincluding projected future taxable income. We also consider the expected reversalincome, recent financial results and estimates of future reversals of deferred tax liabilitiesassets and analyze the period in which these liabilities would be expected to reverse to determine whether the taxable temporary difference amounts serve as an adequate source of future taxable income to support realizability of the deferred tax assets.liabilities. In addition, we consider whether it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. Based on a consideration of the factors discussed above, including the fact that through the period ended June 30, 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 couldassets do not be offset by state net operating losses. We will utilize net operating losses to offset allrequire a valuation allowance as of the projected 2021 federal taxable income; but have exhausted net operating lossesJune 30, 2022 and are subject to limitations in the net operating loss utilization in certain states. We have also recorded a foreign provision for income taxes related to our wholly owned subsidiary in Switzerland.

December 31, 2021.

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.
28

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Table of Contents

Results of Operations

The following table sets forth, for the periods indicated, our results of operations:

   
Three Months Ended

June 30,
   
Six Months Ended

June 30,
 
   
2021
   
2020
   
2021
   
2020
 
Net revenue
  $123,196   $68,960   $225,748   $130,692 
Cost of goods sold
   29,940    20,042    55,435    38,835 
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
   93,256    48,918    170,313    91,857 
Operating expenses:
        
Selling, general and administrative
   62,349    46,502    120,581    99,115 
Research and development
   7,320    4,668    13,529    10,078 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
   69,669    51,170    134,110    109,193 
  
 
 
   
 
 
   
 
 
   
 
 
 
Income (loss) from operations
   23,587    (2,252)    36,203    (17,336) 
  
 
 
   
 
 
   
 
 
   
 
 
 
Other expense, net:
        
Interest expense, net
   (2,431)    (2,912)    (4,901)    (5,422) 
Gain on settlement of deferred acquisition consideration
   —      —      —      1,295 
Other income, net
   18    25    15    46 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total other expense, net
   (2,413)    (2,887)    (4,886)    (4,081) 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss) before income taxes
   21,174    (5,139)    31,317    (21,417) 
Income tax expense
   (487)    (27)    (687)    (62) 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss)
  $20,687   $(5,166)   $30,630   $(21,479) 
  
 
 
   
 
 
   
 
 
   
 
 
 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net revenue

 

$

121,401

 

 

$

123,196

 

 

$

218,518

 

 

$

225,748

 

Cost of goods sold

 

 

26,652

 

 

 

29,940

 

 

 

51,732

 

 

 

55,435

 

Gross profit

 

 

94,749

 

 

 

93,256

 

 

 

166,786

 

 

 

170,313

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

72,609

 

 

 

62,349

 

 

 

136,187

 

 

 

120,581

 

Research and development

 

 

10,205

 

 

 

7,320

 

 

 

18,792

 

 

 

13,529

 

Total operating expenses

 

 

82,814

 

 

 

69,669

 

 

 

154,979

 

 

 

134,110

 

Income from operations

 

 

11,935

 

 

 

23,587

 

 

 

11,807

 

 

 

36,203

 

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(730

)

 

 

(2,431

)

 

 

(1,467

)

 

 

(4,901

)

Other expense, net

 

 

(21

)

 

 

18

 

 

 

(24

)

 

 

15

 

Total other expense, net

 

 

(751

)

 

 

(2,413

)

 

 

(1,491

)

 

 

(4,886

)

Net income before income taxes

 

 

11,184

 

 

 

21,174

 

 

 

10,316

 

 

 

31,317

 

Income tax expense

 

 

(2,440

)

 

 

(487

)

 

 

(2,485

)

 

 

(687

)

Net income

 

$

8,744

 

 

$

20,687

 

 

$

7,831

 

 

$

30,630

 

EBITDA and Adjusted EBITDA

Our management uses financial measures that are not in accordance with generally accepted accounting principles in the United States, or GAAP, in addition to financial measures in accordance with GAAP to evaluate our operating results.

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.
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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
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

 

(in thousands)

 

Net income

 

$

8,744

 

 

$

20,687

 

 

$

7,831

 

 

$

30,630

 

Interest expense, net

 

 

730

 

 

 

2,431

 

 

 

1,467

 

 

 

4,901

 

Income tax expense

 

 

2,440

 

 

 

487

 

 

 

2,485

 

 

 

687

 

Depreciation

 

 

1,528

 

 

 

1,063

 

 

 

2,875

 

 

 

2,073

 

Amortization

 

 

1,221

 

 

 

1,243

 

 

 

2,442

 

 

 

2,486

 

EBITDA

 

 

14,663

 

 

 

25,911

 

 

 

17,100

 

 

 

40,777

 

Stock-based compensation expense

 

 

1,692

 

 

 

1,042

 

 

 

2,995

 

 

 

1,740

 

Recovery of certain notes receivable from related parties (1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(179

)

Change in fair value of Earnout (2)

 

 

-

 

 

 

(2,762

)

 

 

-

 

 

 

(3,058

)

Restructuring charge (3)

 

 

643

 

 

 

939

 

 

 

907

 

 

 

1,866

 

Settlement fee (4)

 

 

1,600

 

 

 

-

 

 

 

2,600

 

 

 

-

 

Adjusted EBITDA

 

$

18,598

 

 

$

25,130

 

 

$

23,602

 

 

$

41,146

 

(1)
Amount reflects the collection of certain notes receivable from related parties previously reserved. See Note “19. Related Party Transactions”.
(2)
Amounts reflect the change in the fair value of the Earnout liability in connection with the CPN acquisition. See Note “3. Acquisition”.
   
Three Months Ended

June 30,
   
Six Months Ended

June 30,
 
   
2021
   
2020
   
2021
   
2020
 
   
(in thousands)
   
(in thousands)
 
Net income (loss)
  $20,687   $(5,166)   $30,630   $(21,479) 
Interest expense, net
   2,431    2,912    4,901    5,422 
Income tax expense
   487    27    687    62 
Depreciation
   1,063    891    2,073    1,793 
Amortization
   1,243    816    2,486    1,633 
  
 
 
   
 
 
   
 
 
   
 
 
 
EBITDA
   25,911    (520)    40,777    (12,569) 
  
 
 
   
 
 
   
 
 
   
 
 
 
Stock-based compensation expense
   1,042    469    1,740    678 
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)
   (2,762)    —      (3,058)    —   
Restructuring charge (4)
   939    —      1,866    —   
Transaction cost (5)
   —      325    —      568 
Cancellation fee (6)
   —      —      —      1,950 
  
 
 
   
 
 
   
 
 
   
 
 
 
Adjusted EBITDA
  $25,130   $274   $41,146   $(10,668) 
  
 
 
   
 
 
   
 
 
   
 
 
 
(3)
Amounts reflect employee retention and benefits as well as other exit cost associated with the Company’s restructuring activities. See Note “12. Restructuring”.
(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”.

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Table of Contents

(4)
Amounts reflect the fee the Company agreed to pay to a GPO to settle previously disputed GPO fees. See Note "4. Product and Geographic Sales".
(2)
Amount reflects the collection of certain notes receivable from related parties previously reserved. See Note “19. Related Party Transactions”.
(3)
Amounts reflect the change in the fair value of the Earnout liability in connection with the CPN acquisition. See Note “3. Acquisition”.
(4)
Amounts reflect employee retention and benefits as well as the facility-related cost associated with the Company’s restructuring activities. See Note “12. Restructuring”.
(5)
Amounts reflect the legal, advisory and other professional fees incurred 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 and Six Months Ended June 30, 20212022 and 2020

2021

Revenue

   
Three Months Ended

June 30,
   
Change
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands, except for percentages)
 
Advanced Wound Care
  $111,436   $59,731   $51,705    87% 
Surgical & Sports Medicine
   11,760    9,229    2,531    27% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net revenue
  $123,196   $68,960   $54,236    79% 
  
 
 
   
 
 
   
 
 
   
 
 
 
   
Six Months Ended

June 30,
   
Change
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands, except for percentages)
 
Advanced Wound Care
  $202,144   $111,019   $91,125    82% 
Surgical & Sports Medicine
   23,604    19,673    3,931    20% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net revenue
  $225,748   $130,692   $95,056    73% 
  
 
 
   
 
 
   
 
 
   
 
 
 
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Three Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Advanced Wound Care

 

$

113,791

 

 

$

111,436

 

 

$

2,355

 

 

 

2

%

Surgical & Sports Medicine

 

 

7,610

 

 

 

11,760

 

 

 

(4,150

)

 

 

(35

%)

Net revenue

 

$

121,401

 

 

$

123,196

 

 

$

(1,795

)

 

 

(1

%)

 

 

Six Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Advanced Wound Care

 

$

203,881

 

 

$

202,144

 

 

$

1,737

 

 

 

1

%

Surgical & Sports Medicine

 

 

14,637

 

 

 

23,604

 

 

 

(8,967

)

 

 

(38

%)

Net revenue

 

$

218,518

 

 

$

225,748

 

 

$

(7,230

)

 

 

(3

%)

Net revenue from our Advanced Wound Care products in the three and six months ended June 30,2022 was $113.8 million and $203.9 million, respectively, increased by $51.7slightly compared to the net revenue of $111.4 million or 87%, to $111.4and $202.1 million in the three months ended June 30, 2021 from $59.7 million in the three months ended June 30, 2020. Net revenue from our Advanced Wound Care products increased by $91.1 million, or 82%, to $202.1 million in theand six months ended June 30, 2021, from $111.0 million in the six months ended June 30, 2020.respectively. The slight increase in Advanced Wound Care net revenue was primarily attributable to the expanded sales force, increased sales to existing and new customers, and increased adoption of our amnioticPuraPly line extensions, partially offset by the decrease of our Dermagraft product portfolio, including our Affinity product.

revenue, the sales of which were suspended in the three months ended June 30, 2022, and the settlement fee with a GPO recorded as a direct reduction of revenue in the three and six months ended June 30, 2022.

Net revenue from our Surgical & Sports Medicine products increaseddecreased by $2.5$4.2 million, or 27%35%, to $7.6 million in the three months ended June 30, 2022 from $11.8 million in the three months ended June 30, 2021 from $9.2 million in the three months ended June 30, 2020.2021. Net revenue from our Surgical & Sports Medicine products increaseddecreased by $3.9$9.0 million, or 20%38%, to $14.6 million in the six months ended June 30, 2022 from $23.6 million in the six months ended June 30, 2021 from $19.7 million in the six months ended June 30, 2020.2021. The increasedecrease in Surgical & Sports Medicine net revenue was primarily attributabledue to the expandedcontinued 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 $37.6$69.4 million and $28.5$37.6 million for the three months ended June 30, 20212022 and 2020,2021, respectively, and $78.9$122.2 million and $61.0$78.9 million for the six months ended June 30, 2022 and 2021, and 2020, respectively. PuraPly exited pass-through status on October 1, 2020. The continued increase in PuraPly revenue in the three and six months ended June 30, 20212022 was due to the expanded sales forces,force, expanded sites of care, and increased sales toadoption, by existing and new customers, and increased adoption of our recently launchedPuraPly line extensions.

Cost of goods sold gross profit and gross profit margin

   
Three Months Ended

June 30,
  
Change
 
   
        2021        
  
        2020        
  
$
   
%
 
   
(in thousands, except for percentages)
 
Cost of goods sold
  $29,940  $20,042  $9,898    49% 
  
 
 
  
 
 
  
 
 
   
 
 
 
Gross profit
  $93,256  $48,918  $44,338    91% 
  
 
 
  
 
 
  
 
 
   
 
 
 
Gross profit%
   76%   71%    
   
Six Months Ended

June 30,
  
Change
 
   
2021
  
2020
  
$
   
%
 
   
(in thousands, except for percentages)
 
Cost of goods sold
  $55,435  $38,835  $16,600    43% 
  
 
 
  
 
 
  
 
 
   
 
 
 
Gross profit
  $170,313  $91,857  $78,456    85% 
  
 
 
  
 
 
  
 
 
   
 
 
 
Gross profit%
   75%   70%    

 

 

Three Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Cost of goods sold

 

$

26,652

 

 

$

29,940

 

 

$

(3,288

)

 

 

(11

%)

Gross profit

 

$

94,749

 

 

$

93,256

 

 

$

1,493

 

 

 

2

%

 

 

Six Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Cost of goods sold

 

$

51,732

 

 

$

55,435

 

 

$

(3,703

)

 

 

(7

%)

Gross profit

 

$

166,786

 

 

$

170,313

 

 

$

(3,527

)

 

 

(2

%)

27

Table of Contents

Cost of goods sold increaseddecreased by $9.9$3.3 million, or 49%11%, to $26.7 million in the three months ended June 30, 2022 from $29.9 million in the three months ended June 30, 2021 from $20.02021. Cost of goods sold decreased by $3.7 million or 7% to $51.7 million in the threesix months ended June 30, 2020. Cost of goods sold increased by $16.6 million or 43% to2022 from $55.4 million in the six months ended June 30, 2021 from $38.8 million in the six months ended June 30, 2020.2021. The increasedecrease in cost of goods sold was primarily due to increased unit volumes, and additional manufacturing and quality control headcount.

decreased sales volume in our Surgical & Sports Medicine products.

Gross profit in the three months ended June 30, 2022 was $94.7 million, increased by $44.3 million, or 91%,slightly compared to the gross profit of $93.3 million in the three months ended June 30, 2021 from $48.92021. Gross profit decreased by $3.5 million, or 2%, to $166.8 million in the threesix months ended June 30, 2020. Gross profit increased by $78.5 million, or 85%, to2022 from $170.3 million in the six months ended June 30, 2021 from $91.9 million in the six months ended June 30, 2020.2021. The increasedecrease in gross profit resulted primarily from increaseddecreased sales volume due to the strength in our Advanced Wound Care and Surgical & Sports Medicine products as well asand increased manufacturing-related costs, partially offset by a shift in product mix to our higher gross margin products.

Research and Development Expenses

   
Three
Months Ended

June 30,
  
Change
 
   
2021
  
2020
  
$
   
%
 
   
(in thousands, except for percentages)
 
Research and development
  $7,320  $4,668  $2,652    57% 
  
 
 
  
 
 
  
 
 
   
 
 
 
Research and development as a percentage of net revenue
   6%   7%    
31
Table of Contents
   
Six Months Ended

June 30,
  
Change
 
   
2021
  
2020
  
$
   
%
 
   
(in thousands, except for percentages)
 
Research and development
  $13,529  $10,078  $3,451    34% 
  
 
 
  
 
 
  
 
 
   
 
 
 
Research and development as a percentage of net revenue
   6%   8%    

 

 

Three Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Research and development

 

$

10,205

 

 

$

7,320

 

 

$

2,885

 

 

 

39

%

 

 

Six Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Research and development

 

$

18,792

 

 

$

13,529

 

 

$

5,263

 

 

 

39

%

Research and development expenses increased by $2.7$2.9 million, or 57%39%, to $10.2 million in the three months ended June 30, 2022 from $7.3 million in the three months ended June 30, 2021 from $4.7 million in the three months ended June 30, 2020.2021. Research and development expenses increased by $3.5$5.3 million, or 34%39%, to $18.8 million in the six months ended June 30, 2022 from $13.5 million in the six months ended June 30, 2021 from $10.1 million in the six months ended June 30, 2020.2021. The increase in research and development expenses was primarily due to increased headcount associated with our existing Advanced Wound Care and Surgical & Sports Medicine products, an increase in product costs associated with our pipeline products not yet commercialized and an increase in the clinical study and related costs necessary to seek regulatory approvals for certain of our products.

Selling, General and Administrative Expenses

   
Three Months Ended

June 30,
  
Change
 
   
2021
  
2020
  
$
   
%
 
   
(in thousands, except for percentages)
 
Selling, general and administrative
  $62,349  $46,502  $15,847    34% 
  
 
 
  
 
 
  
 
 
   
 
 
 
Selling, general and administrative as a percentage of net revenue
   51%   67%    
   
Six Months Ended

June 30,
  
Change
 
   
2021
  
2020
  
$
   
%
 
   
(in thousands, except for percentages)
 
Selling, general and administrative
  $120,581  $99,115  $21,466    22% 
  
 
 
  
 
 
  
 
 
   
 
 
 
Selling, general and administrative as a percentage of net revenue
   53%   76%    

 

 

Three Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Selling, general and administrative

 

$

72,609

 

 

$

62,349

 

 

$

10,260

 

 

 

16

%

 

 

Six Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Selling, general and administrative

 

$

136,187

 

 

$

120,581

 

 

$

15,606

 

 

 

13

%

Selling, general and administrative expenses increased by $15.8$10.3 million, or 34%16%, to $72.6 million in the three months ended June 30, 2022 from $62.3 million in the three months ended June 30, 2021 from $46.5 million in the three months ended June 30, 2020.2021. The increase in selling, general and administrative expenses was primarily due to a $10.2$6.4 million increase related to additional headcount, primarily in our direct sales force and increased sales commissions, due to increased sales,and a $4.2 million increase related to increased travel and marketing programs amid the relaxed travel restrictions for the

COVID-19,
a $0.9$1.3 million increase in restructuring cost associated with closing La Jolla office, and a $3.3 million increase in various costs resulting from increased revenue and increase in legal, consulting feesroyalty and other costs associated with the ongoing operations of our business. These increases were partially offset byIn addition, in the three months ended June 30, 2021, the Company recorded a $2.8 million decrease resulting fromreduction to the selling, general and administrative expenses related to the CPN Earnout fair value adjustment.
adjustments.

28

Table of Contents

Selling, general and administrative expenses increased by $21.5$15.6 million, or 22%13%, to $136.2 million in the six months ended June 30, 2022 from $120.6 million in the six months ended June 30, 2021 from $99.1 million in the six months ended June 30, 2020.2021. The increase in selling, general and administrative expenses was primarily due to a $19.7$10.6 million increase related to additional headcount, primarily in our direct sales force, and increased sales commissions duea $2.1 million increase related to increased sales,travel and marketing programs amid the relaxed COVID-19 travel restrictions and a $1.9$0.9 million increase in restructuring cost associated with closing La Jolla office, and a $5.1 million increase in various costs resulting from increased revenue and increase in legal, consulting feesroyalty and other costs associated with the ongoing operations of our business. In addition, in the six months ended June 30, 2021, the Company recorded a $3.1 million reduction to the selling, general and administrative expenses related to the CPN Earnout fair value adjustments. These increases were partially offset by a $3.1 million decrease resulting from the CPN Earnout fair value adjustment and a $2.0$1.0 million decrease in restructuring costs due to the cancellation fee incurredsmaller scale of the restructuring activities associated with closing the Birmingham office in 2022 as compared to the restructuring activities associated with closing the La Jolla office in 2021.

Other Expense, net

 

 

Three Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Interest expense, net

 

$

(730

)

 

$

(2,431

)

 

$

1,701

 

 

 

(70

%)

Other income, net

 

 

(21

)

 

 

18

 

 

 

(39

)

 

 

(217

%)

Total other expense, net

 

$

(751

)

 

$

(2,413

)

 

$

1,662

 

 

 

(69

%)

 

 

Six Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Interest expense, net

 

$

(1,467

)

 

$

(4,901

)

 

$

3,434

 

 

 

(70

%)

Other income, net

 

 

(24

)

 

 

15

 

 

 

(39

)

 

 

(260

%)

Total other expense, net

 

$

(1,491

)

 

$

(4,886

)

 

$

3,395

 

 

 

(69

%)

Other expense, net, decreased by $1.7 million, or 69%, to $0.8 million in the three months ended March 31, 2020 to cancel certain product development and consulting agreements.

32
Table of Contents
June 30, 2022 from $2.4 million in the three months ended June 30, 2021. Other Expense, net
   
Three Months Ended

June 30,
   
Change
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands, except for percentages)
 
Interest expense, net
  $(2,431)   $(2,912)   $481    (17%) 
Other income (expense), net
   18    25    (7)    (28%) 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total other expense, net
  $(2,413)   $(2,887)   $474    (16%) 
  
 
 
   
 
 
   
 
 
   
 
 
 
   
Six Months Ended

June 30,
   
Change
 
   
2021
   
2020
   
$
   
%
 
   
(in thousands, except for percentages)
 
Interest expense, net
  $(4,901)   $(5,422)   $521    (10%) 
Gain on settlement of deferred acquisition consideration
   —      1,295    (1,295)    (100%) 
Other income, net
   15    46    (31)    (67%) 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total other expense, net
  $(4,886)   $(4,081)   $(805)    20% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total other expense, net, decreased by $0.5$3.4 million or 16%69% to $1.5 million in the six months ended June 30, 2022 from $4.9 million in the six months ended June 30, 2021. The decrease is primarily due to the decrease in interest expense resulting from the lower interest rate for the borrowings under the 2021 Credit Agreement.

Income Tax Expense

 

 

Three Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Income tax expense

 

$

(2,440

)

 

$

(487

)

 

$

(1,953

)

 

 

401

%

 

 

Six Months Ended
June 30,

 

 

Change

 

 

 

2022

 

 

2021

 

 

$

 

 

%

 

 

 

(in thousands, except for percentages)

 

Income tax expense

 

$

(2,485

)

 

$

(687

)

 

$

(1,798

)

 

 

262

%

Income tax expense increased by $2.0 million, or 401%, to $2.4 million in the three months ended June 30, 20212022 from $2.9$0.5 million in the three months ended June 30, 2020. The decrease is primarily due to decrease in interest2021. Income tax expense resulting from the reduced borrowings under the 2019 Credit Agreement.

Total other expense, net, increased by $0.8$1.8 million, or 20%262% to $4.9$2.5 million in the six months ended June 30, 20212022 from $4.1$0.7 million in the six months ended June 30, 2020. Interest expense, net, decreased by $0.5 million or 10% primarily due2021. The increase in the provision is attributed to the reduced borrowings underincrease in the 2019 Credit Agreement. The gain of $1.3 million on the settlement of deferred acquisition consideration foreffective rate from 2.21% in the six months ended June 30, 2020 was related2021 to 26.99% in the six months ended June 30, 2022 due to the settlementrelease of the deferred acquisition consideration dispute withvaluation allowance in the sellersthree months ended December 31, 2021.

29

Table of NuTech Medical in February 2020.
Contents

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 June 30, 2021,2022, we had $117.2an accumulated deficit of $53.0 million and working capital of $143.3 million which included $112.3 million in working capital which included $89.8 million in cash.cash and cash equivalents. We also had up to $30,000have $125.0 million available (subject to Borrowing Base) for future revolving borrowings under our Revolving Facility (see Note “13. Long-Term Debt Obligations”). For the six months ended June 30, 2022, we reported $218.5 million in net revenue, $7.8 million in net income and $11.6 million of cash inflows from operating activities. We expect that our cash on hand and other components of working capital as of June 30, 2021,2022, availability under the 20192021 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 impactaffect our commercial prospects, cash position and access to capital in fiscal 20212022 or beyond. We will continue to assess our cash and other sources of liquidity and, if circumstances warrant, we will make appropriate adjustments to our operating plan.

Our primary uses of cash are working capital requirements, capital expenditure and debt service payments. Additionally, from time to time, we may use capital for acquisitions and other investing and financing activities. Working capital is used principally for our personnel as well as manufacturing costs related to the production of our products. Our working capital requirements vary from period to period depending on manufacturing volumes, the timing of shipments and the payment cycles of our customers and payers. Our capital expenditures consist primarily of building improvements, manufacturing equipment, and computer hardware and software.

To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute on our business strategy, we anticipate that they will be obtained through additional equity or debt financings, other strategic transactions or a combination of these potential sources of funds. There can be no assurance that we will be able to obtain additional funds on terms acceptable to us, on a timely basis or at all. Any failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.

33
Table of Contents

Cash Flows

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

   
Six Months Ended

June 30,
 
   
2021
   
2020
 
   
(in thousands)
 
Net cash provided by (used in) operating activities
  $16,180   $(26,618) 
Net cash used in investing activities
   (9,290)    (6,118) 
Net cash used in (provided by) financing activities
   (1,389)    13,120 
  
 
 
   
 
 
 
Net change in cash and restricted cash
  $5,501   $(19,616) 
  
 
 
   
 
 
 

 

 

Six Months Ended
June 30,

 

 

 

2022

 

 

2021

 

 

 

(in thousands)

 

Net cash provided by operating activities

 

$

11,606

 

 

$

16,180

 

Net cash used in investing activities

 

 

(12,840

)

 

 

(9,290

)

Net cash used in financing activities

 

 

(350

)

 

 

(1,389

)

Net change in cash, cash equivalents, and restricted cash

 

$

(1,584

)

 

$

5,501

 

Operating Activities

During the six months ended June 30, 2022, net cash provided by operating activities was $11.6 million, resulting from our net income of $7.8 million and non-cash charges of $18.0 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $14.2 million. Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $6.5 million, an increase in inventory of $3.4 million, an increase in prepaid expenses and other current assets of $1.8 million, a decrease in operating leases liabilities of $3.5 million, and a decrease in accrued expenses and other current liabilities of $1.7 million, partially offset by an increase in accounts payable of $2.7 million.

During the six months ended June 30, 2021, net cash provided by operating activities was $16.2 million, resulting from our net income of $30.6 million and

non-cash
charges of $14.1$13.4 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $28.5$27.8 million. $28.5 millionNet cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $22.1$21.5 million, an increase in inventory of $5.0 million, an increase in prepaid expenses and other current assets of $1.6 million, and a decrease in operating leases and other liabilities of $3.1 million, all of which were partially offset by an increase in accounts payable, accrued expenses and other liabilities of $3.4 million.

Investing Activities

During the six months ended June 30, 2020, net2022, we used $12.8 million of cash used in operatinginvesting activities was $26.6 million, resulting from our net losssolely consisting of $21.5 million and net cash used in connection with changes in our operating assets and liabilitiescapital expenditures.

30

Table of $12.0 million, partially offset
by non-cash charges
of $6.9 million. Net cash used in changes in our operating assets and liabilities included an increase in inventory of $7.4 million, an increase in prepaid expenses and other current assets of $1.3 million, and an increase in accounts receivable of $5.7 million, all of which were partially offset by an increase in accounts payable, accrued expenses and other liabilities of $2.4 million.
Investing Activities
Contents

During the six months ended June 30, 2021, we used $9.3 million of cash in investing activities solely consisting of capital expenditures.

Financing Activities

During the six months ended June 30, 2020, we2022, net cash used $6.1in financing activities was $0.4 million. This consisted primarily of the payment of term loan and finance lease obligations of $1.1 million and the payment of cash in investing activities consisting of capital expenditures of $6.4$0.6 million related to the CPN deferred acquisition consideration, partially offset by notes receivable repaymentthe net receipts of $0.3$1.4 million from one of our former executives.

Financing Activities
in connection with the stock awards activities.

During the six months ended June 30, 2021, net cash used in financing activities was $1.4 million. This consisted primarily of the payment of finance lease obligations of $1.4 million and the payment of $0.5 million related to the NuTech Medical deferred acquisition consideration, and the payments of $0.7 million withholding taxes in connection with stock-based awards. The net cash used by financing activities was partially offset by the $1.2net receipts of $0.5 million in proceeds fromconnection with the exercise of common stock options.

During the six months ended June 30, 2020, net cash provided by financing activities was $13.1 million. This consisted primarily of $15.9 million in proceeds from our 2019awards activities.

Indebtedness

2021 Credit Agreement and $0.9 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 $1.1 million and the payment of $2.6 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 20192021 Credit Agreement. Capitalized terms used herein and not otherwise defined are defined as set forth in the 2019 Credit Agreement.

34
Table of Contents
The 20192021 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”).

Advances made under the 2021 Credit Agreement may be either Eurodollar Loans or ABR Loans, at our option. For Eurodollar Loans, the interest rate is a per annum interest rate equal to LIBOR plus an Applicable Margin between 2.00% to 3.25% based on the Total Net Leverage Ratio. For ABR Loans, the interest rate is equal to (1) the highest of up(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 between 1.00% to 2.25% based on the Total Net Leverage Ratio.

The 2021 Credit Agreement requires us to make consecutive quarterly installment payments equal to the lesser of $40.0 millionfollowing: (a) from September 30, 2021 through and including June 30, 2022, $469; (b) from September 30, 2022 through and including June 30, 2023, $938; (c) from September 30, 2023 through and including June 30, 2025, $1,406 and (d) from September 30, 2025 and the amount determined by the Borrowing Base. Additionally, we entered into a $60.0 million term loanlast day of each quarter thereafter until August 6, 2026 (the “Term Loan Facility”Maturity Date”), $1,875. We may prepay the Term Loan Facility, provided that any Term Loans prepaid prior to August 6, 2022, must be accompanied by a prepayment premium equal to 1.00% of the aggregate amount of Term Loans prepaid. Once repaid, amounts borrowed under the Term Loan Facility may not be re-borrowed.

We must pay in arrears, on the first day of each quarter prior to August 6, 2026 (the “Revolving Termination Date”) structuredand on the Revolving Termination Date, a fee for our non-use of available funds (the “Commitment Fee”). The Commitment Fee rate is between 0.25% to 0.45% based on the Total Net Leverage Ratio. We may elect to reduce or terminate the Revolving Facility in three tranches. The first trancheits 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 wasthe Revolving Commitments made availableprior to us and fully funded on March 14, 2019; (ii)August 6, 2022, 1.00% of the second trancheaggregate 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 commitmentsConsolidated Fixed Charge Coverage Ratio and the acceleration of the debt payments under either or both of the Revolving Facility and the Term Loan Facility. WeConsolidated Total Net Leverage Ratio, tested quarterly. In addition, we are also required to achievemake representations and warranties and comply with certain financialnon-financial covenants that are customary in loan agreements of this type, including Minimum Trailing Twelve Month Consolidated Revenuerestrictions 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 June 30, 2021,2022, we were in compliance with the financial covenants under the 20192021 Credit Agreement and weAgreement. We had outstanding borrowings under the Revolving Facility and Term Loan Facility of the 20192021 Credit Agreement of $10.0$0.0 million and $60.0$73.1 million, respectively.

On

31

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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 6, 2021, upon entering into the 2021 Credit Agreement, we terminatedpaid an aggregate amount of $70.6 million due under the 2019 Credit Agreement, including unpaid principal, accrued interest, the Final Payment and entered into a new credit agreement. Please refer to Note “21. Subsequent Events” for more information.

Contractual Obligationsprepayment fee, with proceeds from the 2021 Credit Agreement, and Commitments
There have been no material changes to our contractual obligations and commitmentsthe 2019 Credit Agreement was terminated. Upon termination of the 2019 Credit Agreement, the Company recognized $1.9 million as loss on the extinguishment of June 30, 2021 from those disclosed in our Annual Report on Form
10-K
the loan for the year ended December 31, 2020.
2021.

Critical Accounting Policies and Significant Judgments and Estimates

Our unaudited consolidated financial statements have been prepared in accordance with GAAP. The preparation of our unaudited consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, and the disclosure at the date of the unaudited consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our unaudited consolidated financial statements, which, in turn, could materially change our results from those reported. Management evaluates its estimates, assumptions and judgments on an ongoing basis. Historically, our critical accounting estimates have not differed materially from actual results. However, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our consolidated statements of operations, liquidity and financial condition. See also our Annual Report on Form

10-K
for the fiscal year ended December 31, 20202021 for information about these accounting policies as well as a description of our other significant accounting policies.
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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.

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 June 30, 2022, we had $73.1 million in borrowings outstanding under our term loan facility and no borrowings outstanding under our revolving credit facility, respectively. Borrowings under the term loan facility and revolving credit facility bear interest at variable rates. Based on the principal amounts outstanding as of June 30, 2022, an immediate 10% change in the interest rate would not have a material impact on our debt related obligations, financial position or results of operations.

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Foreign Currency and Market Risk

The majority of our employees and our major operations are currently located in the United States. The functional currency of our foreign subsidiary in Switzerland is the U.S. dollar. We have, in the normal course of business, engaged in contracts with contractors or other vendors in a currency other than the U.S. dollar. To date, we have had minimal exposure to fluctuations in foreign currency exchange rates as the time period from the date that transactions are initiated and the date of payment or receipt of payment is generally of short duration. Accordingly, we believe we do not requiredhave a material exposure to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

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 June 30, 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”).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 ourthe Company’s internal control over financial reporting based on the criteria set forthestablished in the SEC guidance on conducting such assessments as of the end of the period covered by this report. Management conducted the assessment based on certain criteria established in Internal Control-IntegratedControl— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

in 2013. As previouslya result of this assessment, management concluded that, as of June 30, 2022, our internal control over financial reporting was not effective based on those criteria.

As disclosed under “Item 9A. Controls and Procedures” in ourthe Company’s Annual Report on Form

10-K
for ourthe fiscal year ended December 31, 2020, we2021, our management team identified the following material weakness that existed as of December 31, 2020 and continued to exist at June 30, 2021. A material weakness is ain our internal control deficiency or a combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interimover financial statements will not be prevented or detected.
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Wereporting: we did not design and maintain formal accounting, business operations, and Information Technologyinformation 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 of the deficiencies noted above,

Although management has made significant progress in consultation withremediating this material weakness, management our principal executive officer and principal financial officer concluded that we did not maintain effective internal control over financial reporting and our disclosure controls and procedures were not effectivethe material weakness described above continued to exist as of both December 31, 2020 and June 30, 2021, based on the criteria in Internal Control—Integrated Framework (2013) issued by COSO.

2022.

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.weakness. Management’s internal control remediation efforts include the following:

•
In 2019, we beganWe 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 planningERP system will go live during the first half of 2022.
in 2023.
•
We have designedcontinued to train and implemented more effective controls throughout 2019cross 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 ofhave also supplemented our internal controls appropriately addresses changes in the business (including changes to people, processes and systems) that could impact our systemresources with third-party resources, where necessary.

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Table of internal controls.
Contents

•
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 also continuehave continued to engage an outside firm to assist management with performing sufficientcontrol operating effectiveness testing throughout the yearyear.
•
We regularly reported the results of control testing to validate the operating effectivenesskey 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 believescontrol 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 itsour internal control over financial reporting, management may determine it is necessary to take additional measures to address the material weakness. However, we believe the above actions will be effective in remediating the material weaknesses and we will continue to devote significant time and attention to these remediation efforts. Until the controls have been operating for a sufficient period of time and management has concluded, through testing, that these controls are executed consistently and operating effectively, the material weakness described above will continue to exist.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than those described above related to remediation efforts. However, as the implementation of the new ERP system continues, we will change our processes and procedures, which in turn, could result in changes to our internal control over financial reporting. As such changes occur, we will evaluate quarterly whether such changes materially affect our internal control over financial reporting.

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PART II – OTHER INFORMATION

We are not a party to any material legal proceedings. From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary course of business. These matters may include intellectual property, employment and other general claims. With respect to our outstanding legal matters, based on our current knowledge, we believe that the amount or range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.

Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. Our Annual Report on 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.” Except as set forth below, thereThere have been no material changes from such risk factors during the quarter ended June 30, 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, 20202021 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.
On May 6, 2021, we ceased to qualify as a “controlled company” within the meaning of the Nasdaq rules. Although we are no longer a controlled company, during the
phase-in
period we may continue to rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other Nasdaq listed companies.
On May 6, 2021, upon the completion of a distribution by Organo PFG LLC, an affiliate of one of our directors and a significant stockholder, of shares of our Class A common stock to its members, we ceased to be a controlled company within the meaning of the Nasdaq rules. The Nasdaq rules exempt controlled companies from certain governance requirements including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement to have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities or independent director involvement in the selection of director nominees, by having director nominees selected or recommended by a majority of its independent directors meeting in executive session and (iii) the requirement to have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
Under the Nasdaq rules, a company that ceases to be a controlled company must comply with the independent board committee requirements as they relate to the nominating and corporate governance committee (if applicable) and compensation committee on the following
phase-in
schedule: (1) one independent committee member at the time it ceases to be a controlled company, (2) a majority of independent committee members within 90 days of the date it ceases to be a controlled company and (3) all independent committee members within one year of the date it ceases to be a controlled company. Additionally, the Nasdaq rules provide a
12-month
phase-in
period from the date a company ceases to be a controlled company to comply with the majority independent board requirement.
Accordingly, following the loss of controlled company status on May 6, 2021, our board of directors determined to have director nominees recommended by a majority of our independent directors meeting in executive session. In addition, one member of our compensation committee was independent on May 6, 2021, a majority of the members of our compensation committee were independent by August 4, 2021 and all of the members of the compensation committee must be independent by May 6, 2022. A majority of the members of our board of directors must be independent by May 6, 2022,
During these
phase-in
periods, our stockholders will not have the same protections afforded to stockholders of companies of which the majority of directors are independent and, if, within the
phase-in
periods, we are not able to recruit additional directors who would qualify as independent, or otherwise comply with the Nasdaq listing requirements, we may be subject to enforcement actions by Nasdaq. In addition, a change in our board of directors and committee membership may result in a change in corporate strategy and operating philosophies, and may result in deviations from our current growth strategy.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit

number

Description

3.1

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

Certificate of Amendment of Certificate of Incorporation of Organogenesis Holdings Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-37906) filed with the SEC on June 27, 2022)

3.3

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

10.1†

Fifth Amendment to Credit Agreement dated and effective as of May 5, 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 2018 Equity Incentive Plan (as amended) (File No. 001-37906) filed with the SEC on May 10, 2021)

10.2*

31.1†

Change in Control Retention Agreement between Organogenesis Holdings Inc. and Gary S. Gillheeney, Sr. effective as of May 10, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37906) filed with the SEC on May 10, 2021)

10.3*Form of Change in Control Retention Agreement (Non-CEO Executive Officers) (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37906) filed with the SEC on May 10, 2021)
10.4*Form of Change in Control Retention Agreement (Independent Directors) (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 001-37906) filed with the SEC on May 10, 2021)
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†

Inline

XBRL Instance Document XBRL

101.SCH†

Inline

XBRL Taxonomy Extension Schema Document

101.CAL†

Inline

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†

Inline

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†

Inline

XBRL Taxonomy Extension Label Linkbase Document

101.PRE†

Inline

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

†
Filed herewith
*
Management contract or compensatory plan or arrangement
40

† Filed herewith

* Management contract or compensatory plan or arrangement

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SIGNATURES

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

Dated: August 9, 2021Organogenesis Holdings Inc.

Dated: August 9, 2022

(Registrant)

Organogenesis Holdings Inc.

(Registrant)

/s/ David Francisco

David Francisco

David Francisco

Chief Financial Officer

(Principal Financial and Accounting Officer)

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