UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number:
ORGANOGENESIS HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 98-1329150 | |
(State or Other Jurisdiction of | ||
Incorporation or 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)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock, $0.0001 par value | ORGO | Nasdaq Capital Market |
Indicate
Indicate
Indicate
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated | ☐ | 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 ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
The number of shares of the registrant’s Class A common stock outstanding as of May 1, 20222023 was 129,130,179.
Organogenesis Holdings Inc.
Quarterly Report on Form
For the Quarterly Period Ended March 31, 2022
Table of Contents
Page | ||||||
4 | ||||||
Item 1. | 4 | |||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
8 | ||||||
Item 2. | 20 | |||||
Item 3. | 27 | |||||
Item 4. | 28 | |||||
�� | ||||||
29 | ||||||
Item 1. | 29 | |||||
Item 1A | 29 | |||||
Item 2. | 30 | |||||
Item 3. | 30 | |||||
Item 4. | 30 | |||||
Item 5. | 30 | |||||
Item 6. | 31 | |||||
32 |
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on(this (this “Form2021.2022. These forward-looking statements speak only as of the date of this FormSECU.S. Securities and Exchange Commission (the “SEC”) after the date of this
As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” “the Company,” “Organogenesis” and “ORGO” will refer to Organogenesis Holdings Inc. and its subsidiaries.
3
PART I—FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements.
ORGANOGENESIS HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(amounts in thousands, except share and per share data)
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 107,897 | $ | 113,929 | ||||
Restricted cash | 605 | 599 | ||||||
Accounts receivable, net | 79,477 | 82,460 | ||||||
Inventory , net | 22,737 | 25,022 | ||||||
Prepaid expenses and other current assets | 7,135 | 4,969 | ||||||
Total current assets | 217,851 | 226,979 | ||||||
Property and equipment, net | 84,268 | 79,160 | ||||||
Intangible assets, net | 24,452 | 25,673 | ||||||
Goodwill | 28,772 | 28,772 | ||||||
Operating lease right-of-use | 47,468 | 49,144 | ||||||
Deferred tax asset, net | 31,994 | 31,994 | ||||||
Other assets | 1,467 | 1,537 | ||||||
Total assets | $ | 436,272 | $ | 443,259 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
D eferred acquisition consideration | $ | 1,436 | $ | 1,436 | ||||
Current portion of term loan | 3,126 | 2,656 | ||||||
F inance lease obligations | 101 | 200 | ||||||
Current portion of operating lease obligations | 11,775 | 11,785 | ||||||
Accounts payable | 27,935 | 29,339 | ||||||
Accrued expenses and other current liabilities | 32,419 | 36,589 | ||||||
Total current liabilities | 76,792 | 82,005 | ||||||
Term loan, net of current portion | 69,869 | 70,769 | ||||||
Operating lease obligations, net of current portion | 45,323 | 46,893 | ||||||
Other liabilities | 1,060 | 1,557 | ||||||
Total liabilities | 193,044 | 201,224 | ||||||
Commitments and contingencies (Note 18) | 0 | 0 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; NaN issued | 0— | 0— | ||||||
Common stock, $0.0001 par value; 400,000,000 shares authorized; 129,615,732 and 129,408,740 shares issued; 128,887,184 and 128,680,192 shares outstanding at March 31, 2022 and December 31, 2021, respectively. | 13 | 13 | ||||||
Additional paid-in capital | 303,261 | 302,155 | ||||||
Accumulated deficit | (60,046 | ) | (60,133 | ) | ||||
Total stockholders’ equity | 243,228 | 242,035 | ||||||
Total liabilities and stockholders’ equity | $ | 436,272 | $ | 443,259 | ||||
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 88,694 |
|
| $ | 102,478 |
|
Restricted cash |
|
| 721 |
|
|
| 812 |
|
Accounts receivable, net |
|
| 92,021 |
|
|
| 89,450 |
|
Inventory, net |
|
| 25,539 |
|
|
| 24,783 |
|
Prepaid expenses and other current assets |
|
| 9,847 |
|
|
| 5,086 |
|
Total current assets |
|
| 216,822 |
|
|
| 222,609 |
|
Property and equipment, net |
|
| 106,637 |
|
|
| 102,463 |
|
Intangible assets, net |
|
| 19,560 |
|
|
| 20,789 |
|
Goodwill |
|
| 28,772 |
|
|
| 28,772 |
|
Operating lease right-of-use assets, net |
|
| 42,839 |
|
|
| 43,192 |
|
Deferred tax asset, net |
|
| 30,014 |
|
|
| 30,014 |
|
Other assets |
|
| 1,463 |
|
|
| 1,520 |
|
Total assets |
| $ | 446,107 |
|
| $ | 449,359 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Current portion of term loan |
| $ | 5,009 |
|
| $ | 4,538 |
|
Current portion of operating lease obligations |
|
| 12,160 |
|
|
| 11,708 |
|
Accounts payable |
|
| 30,310 |
|
|
| 32,330 |
|
Accrued expenses and other current liabilities |
|
| 28,597 |
|
|
| 26,447 |
|
Total current liabilities |
|
| 76,076 |
|
|
| 75,023 |
|
Term loan, net of current portion |
|
| 64,860 |
|
|
| 66,231 |
|
Operating lease obligations, net of current portion |
|
| 40,325 |
|
|
| 41,314 |
|
Other liabilities |
|
| 1,145 |
|
|
| 1,122 |
|
Total liabilities |
|
| 182,406 |
|
|
| 183,690 |
|
Commitments and contingencies (Note 18) |
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
| ||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued |
|
| - |
|
|
| - |
|
Common stock, $0.0001 par value; 400,000,000 shares authorized; 131,954,935 and 131,647,677 shares issued; 131,226,387 and 130,919,129 shares outstanding at March 31, 2023 and December 31, 2022, respectively. |
|
| 13 |
|
|
| 13 |
|
Additional paid-in capital |
|
| 312,573 |
|
|
| 310,957 |
|
Accumulated deficit |
|
| (48,885 | ) |
|
| (45,301 | ) |
Total stockholders’ equity |
|
| 263,701 |
|
|
| 265,669 |
|
Total liabilities and stockholders’ equity |
| $ | 446,107 |
|
| $ | 449,359 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
ORGANOGENESIS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(amounts in thousands, except share and per share data)
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Net revenue | $ | 98,117 | $ | 102,552 | ||||
Cost of goods sold | 25,080 | 25,495 | ||||||
Gross profit | 73,037 | 77,057 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative | 63,578 | 58,232 | ||||||
Research and development | 8,587 | 6,209 | ||||||
Total operating expenses | 72,165 | 64,441 | ||||||
Income from operations | 872 | 12,616 | ||||||
Other expense, net: | ||||||||
Interest expense | (737 | ) | (2,470 | ) | ||||
Other expense, net | (3 | ) | (3 | ) | ||||
Total other expense, net | (740 | ) | (2,473 | ) | ||||
Net income before income taxes | 132 | 10,143 | ||||||
Income tax expense | (45 | ) | (200 | ) | ||||
Net income | $ | 87 | $ | 9,943 | ||||
Net income, per share: | ||||||||
Basic | $ | 0.00 | $ | 0.08 | ||||
Diluted | $ | 0.00 | $ | 0.07 | ||||
Weighted-average common shares outstanding | ||||||||
Basic | 128,788,721 | 127,870,065 | ||||||
Diluted | 132,805,154 | 133,451,950 | ||||||
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net revenue |
| $ | 107,642 |
|
| $ | 97,117 |
|
Cost of goods sold |
|
| 26,607 |
|
|
| 25,080 |
|
Gross profit |
|
| 81,035 |
|
|
| 72,037 |
|
Operating expenses: |
|
|
|
|
|
| ||
Selling, general and administrative |
|
| 73,834 |
|
|
| 63,578 |
|
Research and development |
|
| 11,202 |
|
|
| 8,587 |
|
Total operating expenses |
|
| 85,036 |
|
|
| 72,165 |
|
Loss from operations |
|
| (4,001 | ) |
|
| (128 | ) |
Other expense, net: |
|
|
|
|
|
| ||
Interest expense |
|
| (649 | ) |
|
| (737 | ) |
Other income (expense), net |
|
| 23 |
|
|
| (3 | ) |
Total other expense, net |
|
| (626 | ) |
|
| (740 | ) |
Net loss before income taxes |
|
| (4,627 | ) |
|
| (868 | ) |
Income tax benefit (expense) |
|
| 1,658 |
|
|
| (45 | ) |
Net loss |
| $ | (2,969 | ) |
| $ | (913 | ) |
|
|
|
|
|
|
| ||
Net loss, per share: |
|
|
|
|
|
| ||
Basic |
| $ | (0.02 | ) |
| $ | (0.01 | ) |
Diluted |
| $ | (0.02 | ) |
| $ | (0.01 | ) |
Weighted-average common shares outstanding |
|
|
|
|
|
| ||
Basic |
|
| 131,083,841 |
|
|
| 128,788,721 |
|
Diluted |
|
| 131,083,841 |
|
|
| 128,788,721 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
ORGANOGENESIS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(amounts in thousands, except share data)
Three Months Ended March 31, 2022 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Total | |||||||||||||||||
Shares | Amount | Capital | Deficit | Stockholders’ Equity | ||||||||||||||||
Balance as of December 31, 2021 | 128,680,192 | $ | 13 | $ | 302,155 | $ | (60,133 | ) | $ | 242,035 | ||||||||||
Exercise of stock options | 86,121 | — | 291 | — | 291 | |||||||||||||||
Vesting of RSUs, net of shares surrendered to pay taxes | 120,871 | — | (488 | ) | — | (488 | ) | |||||||||||||
Stock-based compensation expense | — | — | 1,303 | — | 1,303 | |||||||||||||||
Net income | — | — | — | 87 | 87 | |||||||||||||||
Balance as of March 31, 2022 | 128,887,184 | 13 | 303,261 | (60,046 | ) | 243,228 | ||||||||||||||
Three Months Ended March 31, 2021 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Total | |||||||||||||||||
Shares | Amount | Capital | Deficit | Stockholders’ Equity | ||||||||||||||||
Balance as of December 31, 2020 | 127,731,833 | 13 | 296,830 | (155,035 | ) | 141,808 | ||||||||||||||
Exercise of stock options | 285,344 | — | 984 | — | 984 | |||||||||||||||
Vesting of RSUs, net of shares surrendered to pay taxes | 85,078 | — | (417 | ) | — | (417 | ) | |||||||||||||
Stock-based compensation expense | — | — | 698 | — | 698 | |||||||||||||||
Net income | — | — | — | 9,943 | 9,943 | |||||||||||||||
Balance as of March 31, 2021 | 128,102,255 | $ | 13 | $ | 298,095 | $ | (145,092 | ) | $ | 153,016 | ||||||||||
|
| Three Months Ended March 31, 2023 |
| |||||||||||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
| Total |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Stockholders’ Equity |
| |||||
Balance as of December 31, 2022 |
|
| 130,919,129 |
|
| $ | 13 |
|
| $ | 310,957 |
|
| $ | (45,301 | ) |
| $ | 265,669 |
|
Cumulative effect of adopting new accounting principle ASU 2016-13 |
|
|
|
|
|
|
|
|
|
| $ | (615 | ) |
|
| (615 | ) | |||
Vesting of RSUs, net of shares surrendered to pay taxes |
|
| 307,258 |
|
|
| - |
|
|
| (298 | ) |
|
| - |
|
|
| (298 | ) |
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| 1,914 |
|
|
| - |
|
|
| 1,914 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,969 | ) |
|
| (2,969 | ) |
Balance as of March 31, 2023 |
|
| 131,226,387 |
|
| $ | 13 |
|
| $ | 312,573 |
|
| $ | (48,885 | ) |
| $ | 263,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
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|
|
|
|
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|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Three Months Ended March 31, 2022 |
| |||||||||||||||||
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| |||||
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
| Total |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Stockholders’ Equity |
| |||||
Balance as of December 31, 2021 |
|
| 128,680,192 |
|
| $ | 13 |
|
| $ | 302,155 |
|
| $ | (60,833 | ) |
| $ | 241,335 |
|
Exercise of stock options |
|
| 86,121 |
|
|
| - |
|
|
| 291 |
|
|
| - |
|
|
| 291 |
|
Vesting of RSUs, net of shares surrendered to pay taxes |
|
| 120,871 |
|
|
|
|
|
| (488 | ) |
|
|
|
|
| (488 | ) | ||
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| 1,303 |
|
|
| - |
|
|
| 1,303 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (913 | ) |
|
| (913 | ) |
Balance as of March 31, 2022 |
|
| 128,887,184 |
|
| $ | 13 |
|
| $ | 303,261 |
|
| $ | (61,746 | ) |
| $ | 241,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
ORGANOGENESIS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(amounts in thousands)
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 87 | $ | 9,943 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 1,347 | 1,010 | ||||||
Amortization of intangible assets | 1,221 | 1,243 | ||||||
Amortization of operating lease right-of-use | 1,847 | 1,129 | ||||||
Non-cash interest expense | 108 | 72 | ||||||
Deferred interest expense | 151 | 525 | ||||||
Provision recorded for doubtful accounts | 40 | 921 | ||||||
Loss on disposal of property and equipment | 0 | 239 | ||||||
Adjustment for excess and obsolete inventories | 2,205 | 2,290 | ||||||
Stock-based compensation | 1,303 | 698 | ||||||
Change in fair value of Earnout liability | 0 | (296 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 2,942 | (16,119 | ) | |||||
Inventory | 80 | (4,212 | ) | |||||
Prepaid expenses and other current assets | (2,165 | ) | (622 | ) | ||||
Operating leases | (1,751 | ) | (1,210 | ) | ||||
Accounts payable | (1,186 | ) | 1,842 | |||||
Accrued expenses and other current liabilities | (4,828 | ) | 1,411 | |||||
Other liabilities | 10 | (164 | ) | |||||
Net cash provided by (used in) operating activities | 1,411 | (1,300 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (6,672 | ) | (4,957 | ) | ||||
Net cash used in investing activities | (6,672 | ) | (4,957 | ) | ||||
Cash flows from financing activities: | ||||||||
Payments of term loan | (469 | ) | 0 | |||||
Payments of withholding taxes in connection with RSUs vesting | (488 | ) | (417 | ) | ||||
Proceeds from the exercise of stock options | 291 | 984 | ||||||
Principal repayments of finance lease obligations | (99 | ) | (675 | ) | ||||
Payment of deferred acquisition consideration | 0 | (483 | ) | |||||
Net cash used in financing activities | (765 | ) | (591 | ) | ||||
Change in cash , cash equivalents, and restricted cash | (6,026 | ) | (6,848 | ) | ||||
Cash , cash equivalents, and restricted cash, beginning of period | 114,528 | 84,806 | ||||||
Cash , cash equivalents, and restricted cash, end of period | $ | 108,502 | $ | 77,958 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 627 | $ | 1,937 | ||||
Cash paid for income taxes | $ | 4 | $ | 0 | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Purchases of property and equipment included in accounts payable and accrued expenses | $ | 1,869 | $ | 306 | ||||
Right-of-use | $ | 171 | $ | 310 |
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (2,969 | ) |
| $ | (913 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
| ||
Depreciation |
|
| 2,694 |
|
|
| 1,347 |
|
Amortization of intangible assets |
|
| 1,230 |
|
|
| 1,221 |
|
Reduction in the carrying value of right-of-use assets |
|
| 1,939 |
|
|
| 1,847 |
|
Non-cash interest expense |
|
| 107 |
|
|
| 108 |
|
Deferred interest expense |
|
| 122 |
|
|
| 151 |
|
Provision recorded for credit losses |
|
| 243 |
|
|
| 40 |
|
Loss on disposal of property and equipment |
|
| 63 |
|
|
| - |
|
Adjustment for excess and obsolete inventories |
|
| 1,407 |
|
|
| 2,205 |
|
Stock-based compensation |
|
| 1,914 |
|
|
| 1,303 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (3,429 | ) |
|
| 2,942 |
|
Inventory |
|
| (2,163 | ) |
|
| 80 |
|
Prepaid expenses and other current assets |
|
| (4,774 | ) |
|
| (2,165 | ) |
Operating leases |
|
| (2,122 | ) |
|
| (1,751 | ) |
Accounts payable |
|
| (1,390 | ) |
|
| (1,186 | ) |
Accrued expenses and other current liabilities |
|
| 2,029 |
|
|
| (3,828 | ) |
Other liabilities |
|
| 22 |
|
|
| 10 |
|
Net cash provided by (used in) operating activities |
|
| (5,077 | ) |
|
| 1,411 |
|
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchases of property and equipment |
|
| (7,562 | ) |
|
| (6,672 | ) |
Net cash used in investing activities |
|
| (7,562 | ) |
|
| (6,672 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Payments of term loan under the 2021 Credit Agreement |
|
| (938 | ) |
|
| (469 | ) |
Payments of withholding taxes in connection with RSUs vesting |
|
| (298 | ) |
|
| (488 | ) |
Proceeds from the exercise of stock options |
|
| - |
|
|
| 291 |
|
Principal repayments of finance lease obligations |
|
| - |
|
|
| (99 | ) |
Net cash used in financing activities |
|
| (1,236 | ) |
|
| (765 | ) |
Change in cash, cash equivalents and restricted cash |
|
| (13,875 | ) |
|
| (6,026 | ) |
Cash, cash equivalents, and restricted cash, beginning of period |
|
| 103,290 |
|
|
| 114,528 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 89,415 |
|
| $ | 108,502 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 1,271 |
|
| $ | 627 |
|
Cash paid for income taxes |
| $ | 128 |
|
| $ | 4 |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
| ||
Purchases of property and equipment included in accounts payable and accrued expenses |
| $ | 1,986 |
|
| $ | 1,869 |
|
Right-of-use assets obtained through operating lease obligations |
| $ | 1,586 |
|
| $ | 171 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
ORGANOGENESIS HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
1. Nature of 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, 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 1one operating and reportable segment.
COVID-19
On April 10, 2023, President Biden signed a joint congressional resolution ending the world,national emergency related to COVID-19 and particularly in the United States, continuesBiden Administration previously announced it will end the public health emergency declaration related to present risks to the Company.COVID-19 on May 11, 2023. While the2022,2023, the COVID-19 pandemic continues to present risks to the Company, and the Company is unable to predict the impact thatbecause ofin the numerous uncertainties created by the unprecedented nature of the pandemic.future.
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 Form2021, as amended2022 (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 GAAPgenerally accepted accounting principles in the United States (“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 principlesGAAP 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 Annual Report.
The unaudited consolidated financial statements include the accounts and results of operations of Organogenesis Holdings Inc. and its wholly-owned subsidiaries, of Organogenesis Inc., including Organogenesis GmbH (a Switzerland corporation) and Prime Merger Sub, LLC. All intercompany balances and transactions have been eliminated in consolidation. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position, results of operations and cash flows at the dates and for the periods indicated. The results for the three months ended March 31, 20222023 are not necessarily indicative of the results to be expected for the year ending December 31, 2022,2023, 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 liabilities at the date of the 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 and outcomes may differ significantly from those estimates and assumptions.
8
Concentration of Credit Risk
Financial instruments that potentially subject the Financial Accounting Standards BoardCompany to concentration of credit risk consist of cash and cash equivalents. The Company invests its cash equivalents in highly rated money market funds. Deposits may exceed federally insured limits, and the Company is exposed to credit risk on deposits in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation (“FASB”FDIC”) issued Accounting Standard Update (“ASU”)No. 2019-12,Income Taxes— Simplifying. However, the Accounting for Income Taxes. The standard intends to simplifyCompany mitigates the risk by sweeping cash daily overnight and reduce the cost of accounting for income taxes. The new guidance removes certain exceptions for recognizing deferred taxes for foreign investments, the incremental approach to performing intraperiod allocation, and calculating income taxes in interim periods for year to date losses that exceed anticipated full year losses. The standard also adds guidancediversifies among financial institutions to reduce complexity in certain areas, including accounting for franchise taxes that are partially based on income, transactions with a government that result with a step up in the tax basis of goodwill, changes in tax law enacted during interim periods, and allocating taxes to members of a consolidated group which are not subject to tax. For public business entities, the amendments in ASU2019-12are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted for all periods in which financial statements have not yet been issued, including interim periods. The Company adopted this standard on January 1, 2021 and noted no impact to the financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
Credit Loss
In June 2016, the FASB issued (“ASU 2016-13”). Subsequentto the issuance ofASU 2016-13, theFASB 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 andASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Lossesobjective of 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 GAAPpreviously required under generally accepted accounting principles, with aan expected loss 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 Company adoptedthe 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. Asstandard as of January 1, 2023 using the modified retrospective method. Under this method, the Company was a smaller reporting company whenapplied the standard was issued,new credit loss measurement guidance to trade accounts receivable, the only financial asset of the Company took advantage ofthat is impacted by the extended transition period and will adopt this standardASU and the related improvements onupdates. The Company recorded a net reduction of $615 to the opening balance of retained earnings as the cumulative effect of initially applying the standard. Results for reporting periods beginning after January 1, 2023 by recognizing a cumulative-effect adjustment to retained earnings for any impact. The Company is currently assessing the adoption ofASU 2016-13the related impact on the Company’s consolidated financial statements.are reported in accordance with legacy GAAP requirements.
3. Acquisition
On September 17, 2020 (the “Acquisition Date”), the Company acquired certain assets and assumed certain liabilities of CPN Biosciences, LLC (“CPN”) pursuant to an asset purchase agreement dated July 24, 2020. CPN offered a physician office management solution and advanced wound care products.
The aggregate consideration amounted to $19,024$19,024 as of the Acquisition Date, consisting of $6,427$6,427 in cash, 2,151,438 shares of the Company’s Class A common stock with a fair value of $8,815,$8,815, and contingent consideration (the “Earnout”) with a fair value of $3,782.$3,782. On the Acquisition Date, the Company paid $5,820$5,820 in cash and issued 1,947,953 shares of the Company’s Class A common stock. The remaining consideration of $1,436$1,436 was held back and was released in April 2022 by the Company paying additional $739$608 in cash and issuing additional 203,485 shares of the Company’s Class A common stock to the formerequityholders
The Company iswas obligated to pay the Earnout to CPN’s formerequityholdersexceedsexceeded 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 Company recorded anon-currentliability of $3,782 on the Acquisition Date for the fair valueAs of the contingent consideration relatedconclusion of the Earnout Period on June 30, 2022, the Company calculated the Earnout liability to be $0. During the expected Earnout. TheEarnout Period, the Company assessesassessed the fair value of the Earnout liability at each reporting period. As of March 31, 2022, the Earnout liability was estimated at $0 as a result of the Company’s updated assessment of the near-term market for the CPN product portfolio. Subsequent changes in the estimated fair value of the liability arewere reflected in earnings until the liability iswas settled. See Note “5. Fair Value Measurement of FinancialLiabilities”.
4. Product and Geographic Sales
The Company generates revenue through the sale of Advanced Wound Care and Surgical & Sports Medicine products. There is a single performance obligation in all of the Company’s contracts, which is the Company’s promise to transfer the Company’s products to customers based on specific payment and shipping terms in the arrangement. The entire transaction price reflects a single performance obligation. Product revenue is recognized when a customer obtains control of the Company’s products which occurs at a point in time and may be upon shipment, procedure date, or delivery, based on the terms of the contract. Revenue is recorded net of a reserve for returns, discounts,20222023 and 2021,2022, the Company recorded GPO fees of $619$1,424 and $700,$1,619, respectively, as a direct reduction of revenue.
9
The following tables set forth revenue by product category:
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Advanced Wound Care |
| $ | 100,917 |
|
| $ | 90,090 |
|
Surgical & Sports Medicine |
|
| 6,725 |
|
|
| 7,027 |
|
Total net revenue |
| $ | 107,642 |
|
| $ | 97,117 |
|
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Advanced Wound Care | $ | 90,950 | $ | 90,708 | ||||
Surgical & Sports Medicine | 7,167 | 11,844 | ||||||
Total net revenue | $ | 98,117 | $ | 102,552 | ||||
For all periods presented, net revenue generated outside the United States represented less than 1%1% of total net revenue.
5. Fair Value
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 iswas 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 iswas 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. ThePeriod that ended on June 30, 2022. Before its settlement, the Company assessesassessed 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. Since September 30, 2021, the Earnout liability remained at $0 through its settlement. For more information about the Earnout liability, refer to Note “3. Acquisition”. As of December 31, 2021 and March 31, 2022, the Earnout liability was $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 is determined using Level 3inputs:
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Beginning balance | $ | 0 | $ | 3,985 | ||||
Change in fair value | 0 | (296 | ) | |||||
Ending balance | $ | 0 | $ | 3,689 | ||||
The Company did not have any financial assets and2022 or2023 and December 31, 2021.2022.
6. Accounts Receivable, Net
Accounts receivable consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Accounts receivable |
| $ | 98,942 |
|
| $ | 95,812 |
|
Less — allowance for credit losses |
|
| (6,921 | ) |
|
| (6,362 | ) |
| $ | 92,021 |
|
| $ | 89,450 |
|
March 31 | December 31, | |||||||
2022 | 2021 | |||||||
Accounts receivable | $ | 84,604 | $ | 87,613 | ||||
Less — allowance for doubtful accounts | (5,127 | ) | (5,153 | ) | ||||
$ | 79,477 | $ | 82,460 | |||||
The Company’s allowance for doubtful accountscredit losses was comprised of the following:
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Balance at beginning of period |
| $ | 6,362 |
|
| $ | 5,153 |
|
Cumulative effect of adopting ASU 2016-13 |
|
| 615 |
|
|
| - |
|
Additions |
|
| 243 |
|
|
| 40 |
|
Write-offs |
|
| (299 | ) |
|
| (66 | ) |
Balance at end of period |
| $ | 6,921 |
|
| $ | 5,127 |
|
10
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Balance at beginning of period | $ | 5,153 | $ | 2,669 | ||||
Additions | 40 | 921 | ||||||
Write-offs | (66 | ) | (14 | ) | ||||
Balance at end of period | $ | 5,127 | $ | 3,576 | ||||
7. Inventories
Inventories, net of related reserves for excess and obsolescence, consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Raw materials |
| $ | 13,126 |
|
| $ | 12,282 |
|
Work in process |
|
| 1,158 |
|
|
| 1,022 |
|
Finished goods |
|
| 11,255 |
|
|
| 11,479 |
|
|
| $ | 25,539 |
|
| $ | 24,783 |
|
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
Raw materials | $ | 9,524 | $ | 9,023 | ||||
Work in process | 995 | 991 | ||||||
Finished goods | 12,218 | 15,008 | ||||||
$ | 22,737 | $ | 25,022 | |||||
Raw materials include various components used in the Company’s manufacturing process. The Company’s excess and obsolete inventory review process includes analysis of sales forecasts and historical sales as compared to inventory level, and working with operations to maximize recovery of excess inventory. During the three months ended March 31, 20222023 and 2021,2022, the Company charged $2,205$1,407 and $2,290,$2,205, respectively, for inventory excess and obsolescence to cost of goods sold within the consolidated statements of operations.
8. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
Subscriptions |
| $ | 5,334 |
|
| $ | 4,211 |
|
Conferences and marketing expenses |
|
| 1,277 |
|
|
| 106 |
|
Deposits |
|
| 652 |
|
|
| 635 |
|
Insurance |
|
| 2,519 |
|
|
| 54 |
|
Other |
|
| 65 |
|
|
| 80 |
|
| $ | 9,847 |
|
| $ | 5,086 |
|
March 31, 2022 | December 31, 2021 | |||||||
Subscriptions | $ | 2,685 | $ | 2,745 | ||||
Conferences and marketing expenses | 2,060 | 538 | ||||||
Deposits | 1,344 | 1,216 | ||||||
Insurance | 1,001 | 358 | ||||||
Other | 45 | 112 | ||||||
$ | 7,135 | $ | 4,969 | |||||
Deposits are funds held by vendors which are expected to be released within twelve months and therefore they are recorded as current assets.
9. Property and Equipment, Net
Property and equipment consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Leasehold improvements |
| $ | 52,369 |
|
| $ | 37,607 |
|
Buildings |
|
| 4,943 |
|
|
| 4,943 |
|
Furniture, computers and equipment |
|
| 58,282 |
|
|
| 57,147 |
|
|
| 115,594 |
|
|
| 99,697 |
| |
Accumulated depreciation |
|
| (65,490 | ) |
|
| (62,798 | ) |
Construction in progress |
|
| 56,533 |
|
|
| 65,564 |
|
| $ | 106,637 |
|
| $ | 102,463 |
|
March 31, 2022 | December 31, 2021 | |||||||
Leasehold improvements | $ | 33,973 | $ | 30,531 | ||||
Buildings | 4,943 | 4,943 | ||||||
Furniture, computers and equipment | 54,822 | 53,959 | ||||||
93,738 | 89,433 | |||||||
Accumulated depreciation and amortization | (59,075 | ) | (57,729 | ) | ||||
Construction in progress | 49,605 | 47,456 | ||||||
$ | 84,268 | $ | 79,160 | |||||
Depreciation expense was $1,347$2,694 and $1,010,$1,347 for the three months ended March 31, 2023 and 2022, and 2021, respectively.
11
10. Goodwill and Intangible Assets
Goodwill was $28,772$28,772 as of March 31, 20222023 and December 31, 2021.
Identifiable intangible assets consisted of the following as of March 31, 2022:
Original Cost | Accumulated Amortization | Net Book Value | ||||||||||
Developed technology | $ | 32,620 | $ | (18,573 | ) | $ | 14,047 | |||||
Trade names and trademarks | 2,080 | (1,236 | ) | 844 | ||||||||
Customer relationships | 10,690 | (1,648 | ) | 9,042 | ||||||||
Independent sales agency network | 4,500 | (4,500 | ) | — | ||||||||
Patent | 7,623 | (7,623 | ) | — | ||||||||
Non-compete agreements | 1,010 | (491 | ) | 519 | ||||||||
Total | $ | 58,523 | $ | (34,071 | ) | $ | 24,452 | |||||
|
| Original |
|
| Accumulated |
|
| Net Book |
| |||
|
| Cost |
|
| Amortization |
|
| Value |
| |||
Developed technology |
| $ | 32,620 |
|
| $ | (22,040 | ) |
| $ | 10,580 |
|
Trade names and trademarks |
|
| 2,080 |
|
|
| (1,442 | ) |
|
| 638 |
|
Customer relationships |
|
| 10,690 |
|
|
| (2,717 | ) |
|
| 7,973 |
|
Independent sales agency network |
|
| 4,500 |
|
|
| (4,500 | ) |
|
| - |
|
Patent |
|
| 7,623 |
|
|
| (7,623 | ) |
|
| - |
|
Non-compete agreements |
|
| 1,010 |
|
|
| (641 | ) |
|
| 369 |
|
Total |
| $ | 58,523 |
|
| $ | (38,963 | ) |
| $ | 19,560 |
|
Identifiable intangible assets consisted of the following as of December 31, 2021: 2022:
|
| Original |
|
| Accumulated |
|
| Net Book |
| |||
|
| Cost |
|
| Amortization |
|
| Value |
| |||
Developed technology |
| $ | 32,620 |
|
| $ | (21,164 | ) |
| $ | 11,456 |
|
Trade names and trademarks |
|
| 2,080 |
|
|
| (1,393 | ) |
|
| 687 |
|
Customer relationship |
|
| 10,690 |
|
|
| (2,450 | ) |
|
| 8,240 |
|
Independent sales agency network |
|
| 4,500 |
|
|
| (4,500 | ) |
|
| - |
|
Patent |
|
| 7,623 |
|
|
| (7,623 | ) |
|
| - |
|
Non-compete agreements |
|
| 1,010 |
|
|
| (604 | ) |
|
| 406 |
|
Total |
| $ | 58,523 |
|
| $ | (37,734 | ) |
| $ | 20,789 |
|
Original Cost | Accumulated Amortization | Net Book Value | ||||||||||
Developed technology | $ | 32,620 | $ | (17,709 | ) | $ | 14,911 | |||||
Trade names and trademarks | 2,080 | (1,183 | ) | 897 | ||||||||
Customer relationship | 10,690 | (1,381 | ) | 9,309 | ||||||||
Independent sales agency network | 4,500 | (4,500 | ) | — | ||||||||
Patent | 7,623 | (7,623 | ) | — | ||||||||
Non-compete agreements | 1,010 | (454 | ) | 556 | ||||||||
Total | $ | 58,523 | $ | (32,850 | ) | $ | 25,673 | |||||
Amortization of intangible assets, calculated on a straight-line basis or using an accelerated method, was $1,221$1,230 and $1,243$1,221 for the three months ended March 31, 2023 and 2022, and 2021, respectively.
11. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Personnel costs |
| $ | 22,049 |
|
| $ | 17,113 |
|
Royalties |
|
| 3,041 |
|
|
| 3,320 |
|
Accrued but unpaid lease obligations and interest |
|
| 1,960 |
|
|
| 2,463 |
|
Accrued taxes |
|
| 771 |
|
|
| 2,625 |
|
Other |
|
| 776 |
|
|
| 926 |
|
| $ | 28,597 |
|
| $ | 26,447 |
|
March 31, 2022 | December 31, 2021 | |||||||
Personnel costs | $ | 23,060 | $ | 26,865 | ||||
Royalties | 3,190 | 3,458 | ||||||
Accrued but unpaid lease obligations and interest | 3,981 | 3,963 | ||||||
Other | 2,188 | 2,303 | ||||||
$ | 32,419 | $ | 36,589 | |||||
The accrued but unpaid lease obligations and the interest accrual on these obligations are related to the buildings in Canton, Massachusetts. See Note “17. Leases”.
12. Restructuring
In order to reduce the Company’s cost structure and achieveimprove operating efficiency, the Company is consolidatingconsolidates its manufacturing operations in various locations into Massachusetts facilities.
On October 21, 2020, the Company committed to a plan to restructure theits workforce and operations in its La Jolla, California facilities. The restructuring involved approximately
12
On February 3, 2023, the Company committed to a plan to restructure its workforce to increase productivity and enhance profitability. The reduction in force reduced the Company’s headcount by the end71 employees, or approximately 7% of 2022 and will result inall employees. The Company incurred a total charge of approximately
As a result of the restructuring activities, the Company incurred$264$1,908 and $927$264 during the three months ended March 31, 20222023 and 2021,2022, 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 $132$1,087 and $3,168$1,192 as of March 31, 20222023 and December 31, 2021,2022, 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 December 31, 2022 |
| $ | 1,010 |
|
| $ | 182 |
|
| $ | 1,192 |
|
Expenses |
|
| 1,817 |
|
|
| 91 |
|
|
| 1,908 |
|
Payments |
|
| (1,740 | ) |
|
| (273 | ) |
|
| (2,013 | ) |
Liability balance as of March 31, 2023 |
| $ | 1,087 |
|
| $ | - |
|
| $ | 1,087 |
|
|
|
|
|
|
|
|
|
|
|
|
| Employee |
|
| Other |
|
| Total |
| |||
Liability balance as of December 31, 2021 |
| $ | 2,517 |
|
| $ | 651 |
|
| $ | 3,168 |
|
Expenses |
|
| 115 |
|
|
| 149 |
|
|
| 264 |
|
Payments |
|
| (2,517 | ) |
|
| (783 | ) |
|
| (3,300 | ) |
Liability balance as of March 31, 2022 |
| $ | 115 |
|
| $ | 17 |
|
| $ | 132 |
|
Employee | Other | Total | ||||||||||
Liability balance as of December 31, 2021 | $ | 2,517 | $ | 651 | $ | |||||||
Expenses | 115 | 149 | 264 | |||||||||
Payments | (2,517 | ) | (783 | ) | (3,300 | ) | ||||||
Liability balance as of March 31, 2022 | $ | 115 | $ | 17 | $ | 132 | ||||||
13. Long-Term Debt Obligations
Long-term debt obligations consisted of the following:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Line of credit |
| $ | - |
|
| $ | - |
|
Term loan |
|
| 70,313 |
|
|
| 71,250 |
|
Less debt discount and debt issuance cost |
|
| (444 | ) |
|
| (481 | ) |
Term loan, net of debt discount and debt issuance cost |
| $ | 69,869 |
|
| $ | 70,769 |
|
March 31, 2022 | December 31, 2021 | |||||||
Line of credit | $ | 0 | $ | 0 | ||||
Term loan | 73,593 | 74,062 | ||||||
Less debt discount and debt issuance cost | (598 | ) | (637 | ) | ||||
Term loan, net of debt discount, debt issuance cost | $ | 72,995 | $ | 73,425 | ||||
2021 Credit Agreement
In August 2021, the Company, as borrower, its subsidiaries, as guarantors, and Silicon Valley Bank (“SVB”), and the several other lenders thereto (collectively, the “Lenders”) entered into a credit agreement, as amended (the “2021 Credit Agreement”), providing for a term loan facility not to exceed $75,000$75,000 (the “Term Loan Facility”) and a revolving credit facility not to exceed $125,000$125,000 (the “Revolving Facility”). The Company’s obligations to the Lenders are secured by substantially all of the Company’s assets, including intellectual property. Capitalized terms used herein and not otherwise defined are defined as set forth in the 2021 Credit Agreement.
Advances
The 2021 Credit Agreement requires the Company to make consecutive quarterly installment payments equal to the following: (a) from September 30, 2021 through and including June 30, 2022, $469;$469; (b) from September 30, 2022 through and including June 30, 2023, $938;$938; (c) from September 30, 2023 through and including June 30, 2025, $1,406$1,406 and (d) from September 30, 2025 and the last
13
day of each quarter thereafter until August 6, 2026 (the “Term Loan Maturity Date”), $1,875.$1,875. The remaining principal balance of $50,625 is also due on the Term Loan Maturity Date. The Company 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.Facility. Once repaid, amounts borrowed under the Term Loan Facility may not
The Company must pay in arrears, on the first day of each quarter prior to August 6, 2026 (the “Revolving Termination Date”) and on the Revolving Termination Date, a fee for the0.25%0.25% to 0.45%0.45% based on the 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 and unpaid accrued interest and, with respect to any such reduction or termination of the Revolving Commitments made prior to August 6, 2022, 1.00% of the aggregate amount of the Revolving Commitments so reduced or terminated.
Under the 2021 Credit Agreement, the Company is required to comply with certain financial covenants including the Consolidated Fixed Charge Coverage Ratio and Consolidated Total Net Leverage Ratio, tested quarterly. In addition, the Company is also required to make representations and warranties and comply with certain
The Company recorded additional debt issuance costs and related fees of $604$604 in connection with entering into 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 entering into the Revolving Facility, the Company recorded debt issuance costs and related fees of $1,223, which are recorded$1,223 as other assets. Both of these costs are being amortized to interest expense through the maturity date of the facilities.
As of March 31, 2023 and December 31, 2022, the Company had outstanding borrowings of $70,313 and $71,250 under the Term Loan Facility, respectively, and $0 under the Revolving Facility with $125,000 available for future revolving borrowings.
Future payments of the 2021 Credit Agreement, as of March 31, 2022,2023, are as follows for the calendar years ending December 31:
|
|
|
| |
2023 |
|
| 3,750 |
|
2024 |
|
| 5,625 |
|
2025 |
|
| 6,563 |
|
2026 |
|
| 54,375 |
|
Total |
| $ | 70,313 |
|
2022 | $ | 2,343 | ||
2023 | 4,687 | |||
2024 | 5,625 | |||
2025 | 6,563 | |||
2026 | 54,375 | |||
Total | $ | 73,593 | ||
14. Stockholders’ Equity
Common Stock
As of March 31, 2022,the2023, 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.
As of March 31, 20222023 and December 31, 2021,2022, the Company reserved the following shares of Class A common stock for future issuance:
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Shares reserved for issuance for outstanding options |
|
| 9,456,596 |
|
|
| 5,931,742 |
|
Shares reserved for issuance for outstanding restricted stock units |
|
| 4,111,720 |
|
|
| 1,381,500 |
|
Shares reserved for issuance for future grants |
|
| 4,831,088 |
|
|
| 11,394,962 |
|
Total shares of authorized common stock reserved for future issuance |
|
| 18,399,404 |
|
|
| 18,708,204 |
|
March 31 2022 | December 31, 2021 | |||||||
Shares reserved for issuance for outstanding options | 7,924,792 | 6,596,969 | ||||||
Shares reserved for issuance for outstanding restricted stock units | 1,496,853 | 764,871 | ||||||
Shares reserved for issuance for future grants | 3,373,334 | 5,644,691 | ||||||
Total shares of authorized common stock reserved for future issuance | 12,794,979 | 13,006,531 | ||||||
15. Stock-Based Compensation
Stock Incentive
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
14
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:
At the adoption of the 2018 Plan, a total of
Stock Incentive
The Organogenesis 2003 Stock Incentive Plan (the “2003 Plan”), provides for the Company to issue restricted stock awards, or to grant incentive stock options or
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 overfour fouror or five years.years. Restricted stock units awarded typically vest over four years.
Stock-based compensation expense was $1,303$1,914 and $698$1,303 for the three months ended March 31, 20222023 and 2021,2022, respectively. The total amount of stock-based compensation expense was included within selling, general and administrative expenses on the consolidated statements of operations.
Restricted Stock Units (RSUs)
The Company granted 931,4313,192,372 and 284,708931,431 time-based restricted stock units to its employees, executives and the Board of Directors in the three months ended March 31, 20222023 and 2021,2022, respectively. Each restricted stock unit represents the contingent right to receive one share of the Company’s Class A common stock. A majority of the restricted stock units will vest in four equal annual installments.The fair value of the restricted stock units was based on the fair market value of the Company’s stock on the date of grant.
The activity of restricted stock units is set forth below:
| Number |
|
| Weighted Average |
| |||
| of Shares |
|
| Grant Date |
| |||
|
|
|
| Fair Value |
| |||
Unvested at December 31, 2022 |
|
| 1,381,500 |
|
| $ | 7.62 |
|
Granted |
|
| 3,192,372 |
|
|
| 2.47 |
|
Vested |
|
| (416,753 | ) |
|
| 7.71 |
|
Canceled/Forfeited |
|
| (45,399 | ) |
|
| 7.25 |
|
Unvested at March 31, 2023 |
|
| 4,111,720 |
|
| $ | 3.61 |
|
Number of Shares | Weighted Average Grant Date Fair Value | |||||||
Unvested at December 31, 2021 | 764,871 | $ | 7.52 | |||||
Granted | 931,431 | 7.59 | ||||||
Vested | (179,714 | ) | 7.81 | |||||
Canceled/Forfeited | (19,735 | ) | 6.83 | |||||
Unvested at March 31, 2022 | 1,496,853 | $ | 7.54 | |||||
As of March 31, 2022,2023, the total unrecognized compensation cost related to unvested restricted stock units expected to vest was $7,892$10,551 and the weighted average remaining recognition period for unvested awards was 3.193.00 years.
The stock options granted during the three months ended March 31, 2023 and 2022 were 3,554,528and 2021 were 1,418,224 and 1,037,099,, respectively. The assumptions that the Company used to determine the grant-date fair value of stock options granted during these periods were as follows, presented on a weighted-average basis:
|
| March 31, |
|
| March 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Risk-free interest rate |
|
| 3.99 | % |
|
| 1.92 | % |
Expected term (in years) |
|
| 6.24 |
|
|
| 6.25 |
|
Expected volatility |
|
| 51.00 | % |
|
| 50.66 | % |
Expected dividend yield |
|
| 0.0 | % |
|
| 0.0 | % |
Exercise price |
| $ | 2.51 |
|
| $ | 8.03 |
|
Underlying stock price |
| $ | 2.47 |
|
| $ | 7.87 |
|
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Risk-free interest rate | 1.92 | % | 0.82 | % | ||||
Expected term (in years) | 6.25 | 6.21 | ||||||
Expected volatility | 50.66 | % | 39.30 | % | ||||
Expected dividend yield | 0.0 | % | 0.0 | % | ||||
Exercise price | $ | 8.03 | $ | 13.54 | ||||
Underlying stock price | $ | 7.87 | $ | 13.54 |
These assumptions resulted in an estimated weighted-average grant-date fair value per share of stock options granted during the three months ended March 31, 2023 and 2022 of $1.32and 2021 of $3.94 and $5.31,$3.94, respectively.
The following table summarizes the Company’s stock option activity since December 31, 2021: 2022:
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
|
|
|
| Average |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Contractual |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Term |
|
| Intrinsic |
| ||||
|
| Shares |
|
| Price |
|
| (in years) |
|
| Value |
| ||||
Outstanding as of December 31, 2022 |
|
| 5,931,042 |
|
| $ | 5.91 |
|
|
| 6.14 |
|
| $ | 2,245 |
|
Granted |
|
| 3,554,528 |
|
|
| 2.51 |
|
|
|
|
|
|
| ||
Exercised |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
| |
Canceled / forfeited |
|
| (28,974 | ) |
|
| 11.12 |
|
|
|
|
|
|
| ||
Outstanding as of March 31, 2023 |
|
| 9,456,596 |
|
|
| 4.62 |
|
|
| 7.39 |
|
|
| 1,475 |
|
Options exercisable as of March 31, 2023 |
|
| 3,695,292 |
|
|
| 4.61 |
|
|
| 4.58 |
|
|
| 1,475 |
|
Options vested or expected to vest as of March 31, 2023 |
|
| 8,153,239 |
|
| $ | 4.67 |
|
|
| 7.06 |
|
| $ | 1,475 |
|
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding as of December 31, 2021 | 6,596,969 | $ | 4.10 | 5.20 | $ | 38,524 | ||||||||||
Granted | 1,418,224 | 8.03 | ||||||||||||||
Exercised | (86,121 | ) | 3.38 | 441 | ||||||||||||
Canceled / forfeited | (4,280 | ) | 2.69 | |||||||||||||
Outstanding as of March 31, 2022 | 7,924,792 | 4.82 | 5.83 | 29,053 | ||||||||||||
Options exercisable as of March 31, 2022 | 4,600,567 | 2.52 | 3.57 | 25,113 | ||||||||||||
Options vested or expected to vest as of March 31, 2022 | 7,215,073 | $ | 4.44 | 5.50 | $ | 28,567 | ||||||||||
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s Class A common stock for those stock options that have exercise prices lower than the fair value of the Company’s Class A common stock.
The total fair value of options vested during the three months ended March 31, 2023 and 2022 was $2,653and 2021 was $1,612 and $143,$1,612, respectively.
As of March 31, 2022,2023, the total unrecognized stock compensation expense related to unvested stock options expected to vest was $7,579$8,575 and was expected to be recognized over a weighted-average period of 3.292.95 years.
16. Net IncomeEarnings (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.
The Company’s potentially dilutive securities include restricted stock units and stock options to purchase shares of Class A reconciliation ofcommon stock. As the numerator and denominator usedCompany had a net loss in the calculationperiods presented, the potentially dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net incomeloss per share attributable to the Class A common stockholders is as follows.
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Numerator: | ||||||||
Net Income | $ | 87 | $ | 9,943 | ||||
Denominator: | ||||||||
Weighted average common shares outstanding —basic | 128,788,721 | 127,870,065 | ||||||
Dilutive effect of restricted stock units | 264,075 | 527,658 | ||||||
Dilutive effect of options | 3,752,358 | 5,054,227 | ||||||
Weighted-average common shares outstanding—diluted | 132,805,154 | 133,451,950 | ||||||
Earnings per share—basic | $ | 0.00 | $ | 0.08 | ||||
Earnings per share—diluted | $ | 0.00 | $ | 0.07 | ||||
16
17. Leases
The Company’s contracts that contained a lease consistedleases consist primarily of real estate, equipment and vehicle leases.
The Company leases real estate for office, lab, warehouse and production space under noncancelable leases that expire at various dates through 2035, subject to the Company’s options to terminate or renew certain leases for an additional five to ten years.
On January 1, 2013, the Company entered into finance lease arrangements with 65 Dan Road SPE, LLC, 85 Dan Road Associates, LLC, Dan Road Equity I, LLC and 275 Dan Road SPE, LLC for office and laboratory space in Canton, Massachusetts. 65 Dan Road SPE, LLC, 85 Dan Road Associates, LLC, Dan Road Equity I, LLC and 275 Dan Road SPE, LLC are related parties as the owners of these entities are also directors, former directors and / or stockholders of the Company. In August 2021, the Company purchased the building under the lease with 275 Dan Road SPE, LLC (the “275 Dan Road Building”) for $6,013 and the lease was terminated. Other than the lease with 275 Dan Road SPE, LLC which was terminated in August 2021, as discussed below, the remaining three leases were set to terminate on December 31, 2022, and each contained a renewal option for a five-year period with a rental rate at the greater of (i) rent for the last year of the prior term, or (ii) the then fair market value. The Company exercised the option to extend the leases for an additional five years in November 2021. TheseIt remeasured the lease assets and liabilities based on its best estimate of the market rental rate 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 upon the Company’s reassessment of the lease classification according to ASC842-10-25-1Lease Classification.
The Company owes some accrued but unpaid lease obligations under the aforementioned leases. Effective April 1, 2019, the Company agreed to accrue interest on the accrued but unpaid lease obligations at an interest rate equal to the rate charged inunder the 2019 Credit Agreement. These accrued but unpaid lease obligations as well as the accrued interest on these obligations were subordinated to the 2019 Credit Agreement. With the termination of the 2019 Credit Agreement and the execution of the 2021 Credit Agreement (see Note “13. Long-Term Debt Obligations”) in August 2021, these obligations are no longer subordinated to the Company’s existing loans.
The accrued but unpaid lease obligations as well as the related interest accruals are shown below.
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Principal portion of rent in arrears |
|
| 5,273 |
|
|
| 5,779 |
|
Total accrued but unpaid lease obligations |
|
| 5,273 |
|
|
| 5,779 |
|
|
|
|
|
|
| |||
Accrued interest on accrued but unpaid lease obligations |
|
| 1,960 |
|
|
| 1,956 |
|
March 31 | December 31, | |||||||
2022 | 2021 | |||||||
Principal portion of rent in arrears | 7,246 | 7,246 | ||||||
Unpaid operating and common area maintenance costs | 52 | 558 | ||||||
Total accrued but unpaid lease obligations | 7,298 | 7,804 | ||||||
Accrued interest on accrued but unpaid lease obligations | 1,956 | 1,938 |
Before being paid off in January 2023, the principal portion of rent in arrears related to the 275 Dan Road Building as well as the interest accrual were included in accrued expenses and other current liabilities on the consolidated balance sheet as of December 31, 2022. For the other three buildings, the principal portion of rent in arrears was included in the short-term portion of operating lease obligations other thanon the consolidated balance related tosheets as of March 31, 2023 and December 31, 2022. The accrued interest on the 275 Dan Road Building thataccrued but unpaid lease obligations was included in accrued expenses and other current liabilities on the consolidated balance sheets as of March 31, 20222023 and December 31, 2021. The unpaid operating and common area maintenance costs, and the accrued interest on the accrued but unpaid lease obligations were included in accrued expenses and other current liabilities on the consolidated balance sheets as of March 31, 2022 and December 31, 20212022.
The components of lease cost were as follows:
|
| Classification |
| Three Months Ended |
| |||||
|
|
|
| 2023 |
|
| 2022 |
| ||
Finance lease |
|
|
|
|
|
|
|
| ||
Amortization of right-of-use assets |
| COGS and SG&A |
| $ | - |
|
| $ | 107 |
|
Interest on lease liabilities |
| Interest Expense |
|
| - |
|
|
| 5 |
|
Total Finance lease cost |
|
|
|
| - |
|
|
| 112 |
|
Operating lease cost |
| COGS, R&D, SG&A |
|
| 2,291 |
|
|
| 2,434 |
|
Short-term lease cost |
| COGS, R&D, SG&A |
|
| 758 |
|
|
| 669 |
|
Variable lease cost |
| COGS, R&D, SG&A |
|
| 1,794 |
|
|
| 918 |
|
Total lease cost |
|
|
| $ | 4,843 |
|
| $ | 4,133 |
|
17
Three Months Ended March 31, | ||||||||||
Classification | 2022 | 2021 | ||||||||
Finance lease | ||||||||||
Amortization of right-of-use | COGS and SG&A | $ | 107 | $ | 299 | |||||
Interest on lease liabilities | Interest Expense | 5 | 349 | |||||||
Total Finance lease cost | 112 | 648 | ||||||||
Operating lease cost | COGS, R&D, SG&A | 2,434 | 1,280 | |||||||
Short-term lease cost | COGS, R&D, SG&A | 669 | 715 | |||||||
Variable lease cost | COGS, R&D, SG&A | 918 | 1,363 | |||||||
Total lease cost | $ | 4,133 | $ | 4,006 | ||||||
Supplemental balance sheet information related to finance leases was as follows:
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Property and equipment, gross |
| $ | 1,174 |
|
| $ | 1,174 |
|
Accumulated depreciation |
|
| (1,174 | ) |
|
| (1,174 | ) |
Property and equipment, net |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
| |||
Finance lease obligations |
| $ | - |
|
| $ | - |
|
March 31, 2022 | December 31, 2021 | |||||||
Property and equipment, gross | $ | 1,174 | $ | 1,174 | ||||
Accumulated depreciation | (1,067 | ) | (961 | ) | ||||
Property and equipment, net | $ | 107 | $ | 213 | ||||
Finance lease obligations | $ | 101 | $ | 200 | ||||
Supplemental cash flow information related to leases was as follows:
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows for operating leases |
|
| 2,468 |
|
|
| 2,337 |
|
Operating cash flows for finance leases |
|
| - |
|
|
| 5 |
|
Financing cash flows for finance leases |
|
| - |
|
|
| 99 |
|
|
|
|
|
|
|
| ||
Right-of-use assets obtained in exchange for lease obligations |
|
|
|
|
|
| ||
Operating leases |
|
| 1,586 |
|
|
| 171 |
|
Finance leases |
|
| - |
|
|
| - |
|
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Weighted-average remaining lease term |
|
|
|
|
|
| ||
Finance leases |
|
| - |
|
|
| - |
|
Operating leases |
|
| 7.25 |
|
|
| 7.54 |
|
|
|
|
|
|
|
| ||
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Weighted-average discount rate |
|
|
|
|
|
| ||
Finance leases |
|
| - |
|
|
| - |
|
Operating leases |
|
| 4.65 | % |
|
| 4.61 | % |
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows for operating leases | $ | 2,337 | $ | 1,362 | ||||
Operating cash flows for finance leases | $ | 5 | $ | 523 | ||||
Financing cash flows for finance leases | $ | 99 | $ | 675 | ||||
Right-of-use | ||||||||
Operating leases | $ | 171 | $ | 310 | ||||
Finance leases | $ | — | $ | — |
March 31, 2022 | December 31, 2021 | |||||||
Weighted-average remaining lease term | ||||||||
Finance leases | 0.21 | 0.45 | ||||||
Operating leases | 8.04 | 8.22 | ||||||
March 31, 2022 | December 31, 2021 | |||||||
Weighted-average discount rate | ||||||||
Finance leases | 11.30 | % | 11.30 | % | ||||
Operating leases | 4.53 | % | 4.51 | % |
As of March 31, 2021,2023, maturities of lease liabilities were as follows:
|
| Operating leases |
| |
2023 (remaining 9 months) |
| $ | 12,157 |
|
2024 |
|
| 7,798 |
|
2025 |
|
| 7,678 |
|
2026 |
|
| 7,542 |
|
2027 |
|
| 8,002 |
|
Thereafter |
|
| 18,612 |
|
Total lease payments |
|
| 61,789 |
|
Less: interest |
|
| (9,304 | ) |
Total lease liabilities |
| $ | 52,485 |
|
Operating leases | Finance leases | |||||||
2022 | $ | 11,873 | $ | 103 | ||||
2023 | 8,104 | 0 | ||||||
2024 | 7,315 | 0 | ||||||
2025 | 7,526 | 0 | ||||||
2026 | 7,435 | 0 | ||||||
Thereafter | 25,966 | 0 | ||||||
Total lease payments | 68,219 | 103 | ||||||
Less: interest | (11,121 | ) | (2 | ) | ||||
Total lease liabilities | $ | 57,098 | $ | 101 | ||||
18. Commitments and Contingencies
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
18
$1,187 as of March 31, 20222023 and December 31, 2021,2022, respectively, and were classified as part of accrued expenses and other current liabilities on the Company’s consolidated balance sheets. There was 0no royalty expense incurred during the three months ended March 31, 20222023 or 20212022 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 $1,601$1,440 and $1,220$1,601 during the three months ended March 31, 20222023 and 2021,2022, respectively, within selling, general and administrative expenses on the consolidated statements of operations.
Legal 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 March 31, 20222023 and December 31, 2021 in relation to2022, for certain pending lawsuits.
19. Related Party Transactions
Lease obligations to affiliates, including accrued but unpaid lease obligations, and purchase of an asset under a finance lease with an affiliate, and renewal of leases with affiliates are further described in Note “17. Leases”.Leases.”
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. As net operating loss carryovers become limited or are fully utilized, the Company will accrue current federal and state income tax expense. The Company’s wholly owned Swiss subsidiary, Organogenesis Switzerland GmbH, is subject to taxation in Switzerland and has a transfer pricing arrangement in place with Organogenesis Inc., its U.S. parent and a wholly owned subsidiary of the Company.
The income tax rate for the three months ended March 31, 20222023 varied from the U.S. statutory rate of 21%21% primarily due to the tax adjustments related to executive compensation, other permanent tax adjustments, and discrete items. The Company has a pre-tax book loss for the three months ended March 31, 2023 and expects to benefit from this loss through the forecasted pre-tax book income for the twelve months ended December 31, 2023. The income tax benefit for the three months ended March 31, 2023 was $1,658, which included a discrete tax expense of $22 related primarily to the interest on certain uncertain tax positions. Income tax expense for the three months ended March 31, 2022 was $45,$45, which included$10,and$10 related primarily to federal and state taxes. Incomethe interest on certain uncertain tax expense for the three months ended March 31, 2021 was $200, which included a discrete expense of $10, and related primarily to state and foreign taxes.
The Company examines all positive and negative evidence to estimate whether sufficient future taxable income in the U.S. will be generated to permit the use of existing deferred tax assets. In the fourth quarter of 2021, the Company released the valuation allowance recorded against its U.S. deferred tax assets. Upon reviewing the positive evidence of net operating loss utilization, cumulative profits, and forecasted taxable income, the Company believed that it was more likely than not that these United StatesU.S. deferred tax assets willwould be utilized. There are no material deferred tax assets in the other jurisdictions. On a quarterly basis, the Company reassesses the need for a valuation allowance on deferred income tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. After assessing both the positive and negative evidence, including net operating loss utilization, cumulative profits, and forecasted taxable income, the Company determined that it is more likely than not the U.S. deferred assets will be realized in full. As such, the Company hasdid not recordedrecord a valuation allowance against its U.S. deferred tax20222023 and December 31, 2021.
21. Subsequent Events
The Company has evaluated subsequent events through May 10, 2022,2023, the date on which these consolidated financial statements were issued and has determined that there wereare no such events to report.
19
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 Form2021,2022, filed with the Securities and Exchange Commission, or the SEC, on March 1, 2022, as amended.2023. Please refer to our cautionary note regarding forward-looking statements on page 3 of this Form
Overview
Organogenesis is a leading regenerative medicine company focused on the development, manufacture, and commercialization of solutions for the Advanced Wound Care and Surgical & Sports Medicine markets. Our products have been shown through clinical and scientific studies to support and in some cases accelerate tissue healing and improve patient outcomes. We are advancing the standard of care in each phase of the healing process through multiple breakthroughs in tissue engineering and cell therapy. Our solutions address large and growing markets driven by aging demographics and increases in comorbidities such as diabetes, obesity, cardiovascular and peripheral vascular disease and smoking. We offer our differentiated products and
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, 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 with 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 (manufacturing currently suspended pending transition to our Massachusetts baseda new manufacturing facilities)facility or engagement of a third-party manufacturer); PuraPly AM as an antimicrobial barrier for a broad variety of wound types; and the Affinity, Novachor and NuShield wound coverings to address a variety of wound sizes and types. We have a highly trained and specialized direct wound care sales force paired with comprehensive customer support services.
In the Surgical & Sports Medicine market, we focus on products that support the healing of musculoskeletal injuries, including degenerative conditions such as osteoarthritis and tendonitis. We are leveraging our broad regenerative medicine capabilities in this attractive, adjacent market.to address chronic and acute surgical wounds and tendon and ligament injuries. Our Surgical & Sports Medicine products include NuShield for surgical applicationapplications in targeted soft tissue repairs; and Affinity, Novachor, PuraPly MZ and PuraPly AM for management of open wounds in the surgical setting. We currently sell these products through independent agencies and our growing direct sales force.
For the three months ended March 31, 2022,2023, we generated $98.1 million of net revenue of $107.6 million and $0.1reported a net loss of $3.0 million of net income compared to $102.6 million of net revenue of $97.1 million and $9.9a net loss of $0.9 million of net income for the three months ended March 31, 2021. While2022. We have incurred significant losses since inception and, while we reported net income for the most recent twothree years, we have incurred significant losses since inception and, we may incur operating losses in the future as we expend resources as part of our efforts to grow our organization to support the planned expansion of our business. As of March 31, 2022,2023, we had an accumulated deficit of $60.0$48.9 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 as one segment of regenerative medicine.
COVID-19
On April 10, 2023, President Biden signed a joint congressional resolution ending the coronavirus(COVID-19)aroundnational emergency related to COVID-19 and the world, and particularly inBiden Administration previously announced it will end the United States, continuespublic health emergency declaration related to present risks toCOVID-19 on May 11, 2023. While the Company. While thethe first quarter ended March 31, 2022,2023, COVID-19 continues to present risks to the Company, and we are unablecontinue to predictclosely monitor the impact thatCOVID-19will 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 are unable to predict the impact that COVID-19 (including the emergence of new variants) will have implemented a numberon our financial position and operating results in the future.
Dermagraft
20
As part of our long-term plan to consolidate manufacturing operations in Massachusetts,previously disclosed, manufacturing of Dermagraft was suspended in the fourth quarter of 2021 and sales of Dermagraft will bewere suspended in the second quarter of 2022. We currently plan to transition our Dermagraft manufacturing to our Massachusetts-baseda new manufacturing facilities,facility or engage a third-party manufacturer, which we expect will result in substantial long-term cost savings. In the period when Dermagraft is not available, (possibly for a few years), we expect that customers will be willing to substitute Apligraf for Dermagraft and that the suspension of Dermagraft sales will not have a material impact on our net revenue. However, if we do not realize the expected substantial long-term cost savings or if customers are unwilling to substitute Apligraf for Dermagraft during the period in which Dermagraft is unavailable, it could have an adverse effect on our net revenue and results of operations.
Components of Our Consolidated Results of Operations
In assessing the performance of our business, we consider a variety of performance and financial measures. We believe the items discussed below provide insight into the factors that affect these key measures.
Revenue
We derive our net revenue from our portfolio of Advanced Wound Care and Surgical & Sports Medicine products. We primarily sell our Advanced Wound Care products through direct sales representatives who manage and maintain the sales relationships with hospitals, wound care centers, government facilities, ASCs and physician offices. We primarily sell our Surgical & Sports Medicine products through third party agencies. As of March 31, 2022,2023, we had approximately 340315 direct sales representatives and approximately 150155 independent agencies.
We recognize revenue from sales of our Advanced Wound Care and Surgical & Sports Medicine products when the customer obtains control of our product, which occurs at a point in time and may be upon procedure date, shipment, or delivery, based on the contractual terms of a contract. We record revenue net of a reserve for returns, discounts and GPO rebates, which represent a direct reduction to the revenue we recognize.
Several factors affect our reported revenue in any period, including product, payer and geographic sales mix, operational effectiveness, pricing realization, marketing and promotional efforts, the timing of orders and shipments, regulatory actions including healthcare reimbursement scenarios, competition and business acquisitions.
Cost of goods sold and gross profit
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 drivenand are also affected by the expansion of our sales force and sales territories, expansion of our product portfolio offerings, and the number of healthcare facilities that offer our products. We expect our cost of goods sold to increase due primarily to the anticipated increase in sales volumes.
Gross profit is calculated as net revenue less cost of goods sold and generally increases as revenue increases. Our gross profit is affected by product and geographic sales mix, realized pricing of our products, the efficiency of our manufacturing operations, and the costs of materials used and fees charged by third-party manufacturers to produce our products. Regulatory actions, including healthcare reimbursement scenarios, which may require costly expenditures or result in pricing pressures, may decrease our gross profit.
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, gain or loss on disposal of long-lived assets, and costs associated with our administrative facilities. We generally expect our selling, general and administrative expenses to continue to increase due to increased investments in market development and the geographic expansion of our sales forces as we drive for continued revenue growth.
Research and development expenses
Research and development expenses include personnel costs for our research and development personnel, expenses related to improvements in our manufacturing processes, enhancements to our currently available products, and additional investments in our product and platform development pipeline. Our research and development expenses also include expenses for clinical trials. We expense research and development costs as incurred. We generally expect that research and development expenses will increase as we continue to conduct clinical trials on new and existing products, move products through the regulatory pathway (e.g., seek BLAbiologics license application approval), add personnel to support product enhancements as well as to bring new products to market, and enhance our manufacturing process and procedures.
Interest expense
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 including projected future taxable income, recent financial results and estimates of future reversals of deferred tax assets and 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 aIn consideration of the factors discussed above, in the fourth quarter of 2021, we have determined it was more likely than not that our deferred tax assets would be realized in the future and released the valuation allowance on our net U.S. deferred tax assets as of December 31, 2021, resulting in a benefit of $48.3 million in income taxes. We maintained the same position that our net U.S. deferred tax assets dodid not require a valuation allowance as of March 31, 20222023 and December 31, 2021.
We account for uncertainty in income taxes recognized in the consolidated financial statements by applying
Results of Operations
The following table sets forth, for the periods indicated, our results of operations:
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Net revenue | $ | 98,117 | $ | 102,552 | ||||
Cost of goods sold | 25,080 | 25,495 | ||||||
Gross profit | 73,037 | 77,057 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative | 63,578 | 58,232 | ||||||
Research and development | 8,587 | 6,209 | ||||||
Total operating expenses | 72,165 | 64,441 | ||||||
Income from operations | 872 | 12,616 | ||||||
Other expense, net: | ||||||||
Interest expense | (737 | ) | (2,470 | ) | ||||
Other expense, net | (3 | ) | (3 | ) | ||||
Total other expense, net | (740 | ) | (2,473 | ) | ||||
Net income before income taxes | 132 | 10,143 | ||||||
Income tax expense | (45 | ) | (200 | ) | ||||
Net income | $ | 87 | $ | 9,943 | ||||
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net revenue |
| $ | 107,642 |
|
| $ | 97,117 |
|
Cost of goods sold |
|
| 26,607 |
|
|
| 25,080 |
|
Gross profit |
|
| 81,035 |
|
|
| 72,037 |
|
Operating expenses: |
|
|
|
|
|
| ||
Selling, general and administrative |
|
| 73,834 |
|
|
| 63,578 |
|
Research and development |
|
| 11,202 |
|
|
| 8,587 |
|
Total operating expenses |
|
| 85,036 |
|
|
| 72,165 |
|
Loss from operations |
|
| (4,001 | ) |
|
| (128 | ) |
Other expense, net: |
|
|
|
|
|
| ||
Interest expense |
|
| (649 | ) |
|
| (737 | ) |
Other income (expense), net |
|
| 23 |
|
|
| (3 | ) |
Total other expense, net |
|
| (626 | ) |
|
| (740 | ) |
Net loss before income taxes |
|
| (4,627 | ) |
|
| (868 | ) |
Income tax benefit (expense) |
|
| 1,658 |
|
|
| (45 | ) |
Net loss |
| $ | (2,969 | ) |
| $ | (913 | ) |
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,(“non-GAAP”), in addition to financial measures in accordance with GAAPgenerally accepted accounting principles in the United States (“GAAP”) to evaluate our operating results.
22
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.
The following is a reconciliation of GAAP net income to
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (Unaudited) (in thousands) |
| |||||
Net loss |
| $ | (2,969 | ) |
| $ | (913 | ) |
Interest expense, net |
|
| 649 |
|
|
| 737 |
|
Income tax expense (benefit) |
|
| (1,658 | ) |
|
| 45 |
|
Depreciation |
|
| 2,694 |
|
|
| 1,347 |
|
Amortization |
|
| 1,230 |
|
|
| 1,221 |
|
EBITDA |
|
| (54 | ) |
|
| 2,437 |
|
Stock-based compensation expense |
|
| 1,914 |
|
|
| 1,303 |
|
Restructuring charge (1) |
|
| 1,908 |
|
|
| 264 |
|
Settlement fee (2) |
|
| - |
|
|
| 1,000 |
|
Adjusted EBITDA |
| $ | 3,768 |
|
| $ | 5,004 |
|
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
Net income | $ | 87 | $ | 9,943 | ||||
Interest expense | 737 | 2,470 | ||||||
Income tax expense | 45 | 200 | ||||||
Depreciation | 1,347 | 1,010 | ||||||
Amortization | 1,221 | 1,243 | ||||||
EBITDA | 3,437 | 14,866 | ||||||
Stock-based compensation expense | 1,303 | 698 | ||||||
Recovery of certain notes receivable from related parties (1) | — | (179 | ) | |||||
Change in fair value of Earnout (2) | — | (296 | ) | |||||
Restructuring charge (3) | 264 | 927 | ||||||
Adjusted EBITDA | $ | 5,004 | $ | 16,016 | ||||
Comparison of the Three Months Ended March 31, 20222023 and 2021
Revenue
Three Months Ended March 31, | Change | |||||||||||||||
2022 | 2021 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Advanced Wound Care | $ | 90,950 | $ | 90,708 | $ | 242 | 0 | % | ||||||||
Surgical & Sports Medicine | 7,167 | 11,844 | (4,677 | ) | (39 | %) | ||||||||||
Net revenue | $ | 98,117 | $ | 102,552 | $ | (4,435 | ) | (4 | %) | |||||||
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Advanced Wound Care |
| $ | 100,917 |
|
| $ | 90,090 |
|
| $ | 10,827 |
|
|
| 12 | % |
Surgical & Sports Medicine |
|
| 6,725 |
|
|
| 7,027 |
|
|
| (302 | ) |
|
| (4 | %) |
Net revenue |
| $ | 107,642 |
|
| $ | 97,117 |
|
| $ | 10,525 |
|
|
| 11 | % |
Net revenue from our Advanced Wound Care products in the three months ended March 31, 2022 was $91.0increased by $10.8 million, relatively consistent with the net revenue of $90.7or 12%, to $100.9 million in the three months ended March 31, 2021.
Net revenue from our Surgical & Sports Medicine products decreased by $4.7 million, or 39%,slightly to $7.2$6.7 million in the three months ended March 31, 20222023 from $11.8$7.0 million in the three months ended March 31, 2021.2022. The decrease in Surgical & Sports Medicine net revenue was primarily due to the continued impactattrition within our direct sales force.
23
Cost of marketinggoods sold and gross profit
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Cost of goods sold |
| $ | 26,607 |
|
| $ | 25,080 |
|
| $ | 1,527 |
|
|
| 6 | % |
Gross profit |
| $ | 81,035 |
|
| $ | 72,037 |
|
| $ | 8,998 |
|
|
| 12 | % |
Gross profit% |
|
| 75 | % |
|
| 74 | % |
|
|
|
|
|
|
Cost of our ReNu and NuCel products in connection with the expiration of the FDA’s enforcement grace period on May 31, 2021 and,goods sold increased by $1.5 million, or 6%, to a lesser extent, the impact of theCOVID-19pandemic on sales of our Affinity product.
Three Months Ended March 31, | Change | |||||||||||||||
2022 | 2021 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Cost of goods sold | $ | 25,080 | $ | 25,495 | $ | (415 | ) | (2 | %) | |||||||
Gross profit | $ | 73,037 | $ | 77,057 | $ | (4,020 | ) | (5 | %) | |||||||
Gross profit decreasedincreased by $4.0$9.0 million, or 5%12%, to $73.0$81.0 million in the three months ended March 31, 20222023 from $77.1$72.0 million in the three months ended March 31, 2021.2022. The decreaseincrease in gross profit resulted primarily from decreasedincreased sales volume in Surgical & Sports Medicineour Advanced Wound Care products as well as increased manufacturing-related costs.
Research and Development Expenses
Three Months Ended March 31, | Change | |||||||||||||||
2022 | 2021 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Research and development | $ | 8,587 | $ | 6,209 | $ | 2,378 | 38 | % | ||||||||
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
| (in thousands, except for percentages) |
| ||||||||||||||
Research and development |
| $ | 11,202 |
|
| $ | 8,587 |
|
| $ | 2,615 |
|
|
| 30 | % |
Research and development expenses increased by $2.4$2.6 million, or 38%30%, to $11.2 million in the three months ended March 31, 2023 from $8.6 million in the three months ended March 31, 2022 from $6.2 million in the three months ended March 31, 2021.2022. 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, and increased headcount associated with our existing Advanced Wound Care and Surgical & Sports Medicine products.
Selling, General and Administrative Expenses
Three Months Ended March 31, | Change | |||||||||||||||
2022 | 2021 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Selling, general and administrative | $ | 63,578 | $ | 58,232 | $ | 5,346 | 9 | % | ||||||||
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Selling, general and administrative |
| $ | 73,834 |
|
| $ | 63,578 |
|
| $ | 10,256 |
|
|
| 16 | % |
Selling, general and administrative expenses increased by $5.3$10.3 million, or 9%16%, to $73.8 million in the three months ended March 31, 2023 from $63.6 million in the three months ended March 31, 2021 from $58.2 million in the three months ended March 31, 2020.2022. The increase in selling, general and administrative expenses was primarily due to a $4.1$4.2 million increase related to an annual sales meeting that was held in the first quarter of 2023 (and in 2022, the sales meeting was held in the third quarter instead of the first quarter), a $2.2 million increase related to additional headcount, primarily in our direct sales force andprior to the February 2023 reduction in force, a $2.0$1.9 million increase related to increased travelin legal and marketing programs amidrelaxed COVID-19 travelrestrictions. These increases were partially offset byongoing operations of our business and the ERP system implementation, a $0.7$1.7 million decreaseincrease in restructuring costs primarily due to the substantial completionreduction in force in the first quarter of the restructuring activities associated with closing the La Jolla, California office.
24
Other Expense, net
Three Months Ended March 31, | Change | |||||||||||||||
2022 | 2021 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Interest expense, net | $ | (737 | ) | $ | (2,470 | ) | $ | 1,733 | (70 | %) | ||||||
Other expense, net | (3 | ) | (3 | ) | — | ** | ||||||||||
Total other expense, net | $ | (740 | ) | $ | (2,473 | ) | $ | 1,733 | (70 | %) | ||||||
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
|
| (in thousands, except for percentages) |
| |||||||||||||
Interest expense, net |
| $ | (649 | ) |
| $ | (737 | ) |
| $ | 88 |
|
|
| (12 | %) |
Other income (expense), net |
|
| 23 |
|
|
| (3 | ) |
|
| 26 |
|
| ** |
| |
Total other expense, net |
| $ | (626 | ) |
| $ | (740 | ) |
| $ | 114 |
|
|
| (15 | %) |
** not meaningful
Other expense, net, decreased by $1.7$0.1 million, or 70%15%, to $0.7$0.6 million in the three months ended March 31, 20222023 from $2.5 million in the three months ended March 31, 2021. Interest expense decreased due to the reduced interest rate for borrowings under the 2021 Credit Agreement.
Three Months Ended March 31, | Change | |||||||||||||||
2022 | 2021 | $ | % | |||||||||||||
(in thousands, except for percentages) | ||||||||||||||||
Income tax expense | $ | (45 | ) | $ | (200 | ) | $ | 155 | (78 | %) | ||||||
Income Tax Expense
|
| Three Months Ended |
|
| Change | |||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % | |||
|
| (in thousands, except for percentages) | ||||||||||||
Income tax benefit (expense) |
| $ | 1,658 |
|
| $ | (45 | ) |
| $ | 1,703 |
|
| ** |
** not meaningful
Income tax benefit (expense) changed to a benefit of $1.7 million in the three months ended March 31, 2021 to 26.65%2023 from an expense of $45 thousand in the three months ended March 31, 20222022. The change in income tax benefit (expense) is due to the release of the valuation allowancea higher pre-tax loss in the three months ended March 31, 2023 and a higher effective rate for the twelve months ended December 31, 2021.
Liquidity and Capital Resources
Since our inception, we have funded our operations and capital expenditures through cash flows from product sales, loans from affiliates and entities controlled by certain of our affiliates, third-party debt and proceeds from the sale of our capital stock. As of March 31, 2022,2023, we had an accumulated deficit of $60.0$48.9 million and working capital of $141.1$140.7 million which included $107.9$88.7 million in cash and cash equivalents. We also had $125,000have $125.0 million available for future revolving borrowings under our Revolving Facility (see Note “13. Long-Term Debt Obligations”) to our consolidated financial statements included in this Quarterly Report on Form 10-Q). For the three months ended March 31, 2022,2023, we reported $98.1 million in net revenue $0.1of $107.6 million, ina net incomeloss of $3.0 million and $1.4$5.1 million of cash flowsoutflows from operating activities. We expect that our cash on hand and other components of working capital as of March 31, 2022,2023, availability under the 2021 Credit Agreement, plus net cash flows from product sales, will be sufficient to fund our operating expenses, capital expenditure requirements and debt service payments for at least 12 months beyond the filing date of this quarterly report.
We continue to closely monitor ongoing developments in connection with theimpactaffect our commercial prospects, cash position and access to capital in fiscal 20222023 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.
25
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Three Months Ended March 31, | ||||||||
2022 | 2021 | |||||||
(in thousands) | ||||||||
Net cash provided by (used in) operating activities | $ | 1,411 | $ | (1,300 | ) | |||
Net cash used in investing activities | (6,672 | ) | (4,957 | ) | ||||
Net cash used in financing activities | (765 | ) | (591 | ) | ||||
Net change in cash, cash equivalents, and restricted cash | $ | (6,026 | ) | $ | (6,848 | ) | ||
|
| Three Months Ended |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
| (in thousands) |
| |||||
Net cash used in (provided by) operating activities |
| $ | (5,077 | ) |
| $ | 1,411 |
|
Net cash used in investing activities |
|
| (7,562 | ) |
|
| (6,672 | ) |
Net cash used in financing activities |
|
| (1,236 | ) |
|
| (765 | ) |
Net change in cash, cash equivalents, and restricted cash |
| $ | (13,875 | ) |
| $ | (6,026 | ) |
Operating Activities
During the three months ended March 31, 2023, net cash used in operating activities was $5.1 million, resulting from our net loss of $3.0 million and net cash used in connection with changes in our operating assets and liabilities of $11.8 million, partially offset by non-cash charges of $9.7 million. Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $3.4 million, an increase in inventory of $2.2 million, an increase in prepaid expenses and other current assets of $4.8 million, a decrease in operating leases liabilities of $2.1 million, and a decrease in accounts payable of $1.4 million, partially offset by an increase in accrued expenses and other liabilities of $2.1 million.
During the three months ended March 31, 2022, net cash provided by operating activities was $1.4 million, resulting from our net income of $0.1 million and$6.9$5.9 million. Net cash used in changes in our operating assets and liabilities included an increase in prepaid expenses and other current assets of $2.2 million, a decrease in operating leases liability of $1.8 million, a decrease in accounts payable of $1.2 million, and a decrease in accrued expenses and other current liabilities of $4.8$3.8 million, all of which were partially offset by a decrease in accounts receivable of $2.9 million.
Investing Activities
During the three months ended March 31, 2021, net2023, we used $7.6 million of cash used in operatinginvesting activities was $1.3 million, resulting from our net cash used in connection with changes in our operating assets and liabilitiesconsisting exclusively of $19.1 million, partially offset by net income of $9.9 millionand non-cash chargesof $7.8 million. Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $16.1 million, an increase in inventory of $4.2 million, an increase in prepaid expenses and other current assets of $0.6 million, and a decrease in operating leases and other liabilities of $1.4 million, all of which were partially offset by an increase in accounts payable of $1.8 million, and an increase of accrued expenses and other current liabilities of $1.4 million.
During the three months ended March 31, 2022, we used $6.7 million of cash in investing activities consisting exclusively of capital expenditures.
Financing Activities
During the three months ended March 31, 2021, we2023, net cash used $5.0 millionin financing activities was $1.2 million. This consisted of cash in investing activities consisting exclusivelythe payment of capital expenditures.
During the three months ended March 31, 2022, net cash used byin financing activities was $0.8 million. This consisted primarily of the payment of $0.6 million for term loan and finance lease obligations, of $0.6 million, and net payment of $0.2 million in connection with the stock awards activities.
Indebtedness
2021 Credit Agreement
In August 2021, we and our subsidiaries entered into a credit agreement with SVB and several other lenders, which we refer to as the 2021 Credit Agreement. The 2021 Credit Agreement, as amended, provides for a term loan facility not to exceed $75,000$75.0 million (the “Term Loan Facility”) and a revolving credit facility not to exceed $125,000$125.0 million (the “Revolving Facility”).
Advances made under the 2021 Credit Agreement may be either EurodollarSOFR Loans or ABR Loans, at our option. For EurodollarSOFR Loans, the interest rate is a per annum interest rate equal to LIBOR the Adjusted Term SOFRplus an Applicable Margin between 2.00% to 3.25% based on the Total Net Leverage Ratio. For ABR Loans, the interest rate is equal to (1) the highest of (a) the Wall Street Journal Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the LIBORAdjusted Term SOFR rate plus 1.0%,
The 2021 Credit Agreement requires us to make consecutive quarterly installment payments of principal in an amount equal to between 0.625% to 2.50% of the original principal amount of the Term Loans startingfollowing: (a) from September 30, 2021 through and including June 30, 2022, $0.5 million; (b) from September 30, 2022 through and including June 30, 2023, $0.9 million; (c) from September 30, 2023 through and including June 30, 2025, $1.4 million and (d) from September 30, 2025
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and the last day of each quarter thereafter until August 6, 2026 (the “Term Loan Maturity Date”)., $1.9 million. The remaining principal balance of $50.6 million is also due on the Term Loan Maturity Date. 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.Facility. Once repaid, amounts borrowed under the Term Loan Facility may not
We must pay a quarterly fee in arrears, (the “Commitment Fee”), foron theCompany’s non-use first day ofavailable funds through each quarter prior to August 6, 2026 (the “Revolving Termination Date”) and on the Revolving Termination Date, a fee for our non-use of available funds (the “Commitment Fee”). The Commitment Fee rate is between 0.25% to 0.45% based on the Total Net Leverage Ratio. We may elect to reduce or terminate the Revolving Facility in its entirety at any time by repaying all outstanding principal and unpaid accrued interest and, with respect to any such reduction or termination of the Revolving Commitments made prior to August 6, 2022, 1.00% of the aggregate amount of the Revolving Commitments so reduced or terminated.
Under the 2021 Credit Agreement, we are required to comply with certain financial covenants including the Consolidated Fixed Charge Coverage Ratio and Consolidated Total Net Leverage Ratio, tested quarterly. In addition, we are also required to make representations and warranties and comply with certain
As of March 31, 2022,2023, we were in compliance with the covenants under the 2021 Credit Agreement. We had outstanding borrowings of $70.3 million under the Revolving Facility andour Term Loan Facility of the 2021 Credit Agreement of $0.0and no borrowings outstanding under our Revolving Facility with $125 million and $73.6 million,available for future revolving borrowings, respectively.
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 Form20212022, for information about these accounting policies as well as a description of our other significant accounting policies.
Off-Balance
We did not have, during the periods presented, and we do not currently have, any
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards as disclosed in Note “2. Summary of Significant Accounting Policies” to our consolidated financial statements included in this Quarterly Report on
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk.
During the three months ended March 31, 2023, there were no material changes to 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 market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the usefiscal year ended December 31, 2022.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of its principal executive officer and principal financial officer, evaluated the effectiveness of its disclosure controls and procedures as of March 31, 2022.2023. The term “disclosure controls and procedures,” as defined inSecurities 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.
Based on their evaluation, our management, including our principal executive officer and principal financial officer, concluded that, as of March 31, 2023, our disclosure controls and procedures were ineffective because, as disclosed in the Company’s Annual Report for the fiscal year ended December 31, 2022, our management team identified the following material weakness in our internal control over financial reporting: we did not design and maintain effective controls (i) to properly identify and assess significant non-routine transactions and (ii) over information technology general controls and proper segregation of duties to support the proper initiation and recording of transactions and the resulting impact on business process controls and applications that rely on such data.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.
Management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria established in the SEC guidance on conducting such assessments as of the end of the period covered by this report. Management conducted the assessment based on certain criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. As a result of this assessment, management concluded that, as of March 31, 2022,2023, our internal control over financial reporting was not effective based on those criteria.
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. Management is committed to finalizing the remediation of the material weakness during 2022.weakness. Management’s internal control remediation efforts include the following:
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As management continues to evaluate and work to improve our internal control over financial reporting, management may determine it is necessary to take additional measures to address the material weakness.weaknesses. 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 weaknessweaknesses described above will continue to exist.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 20222023 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 and our remediation efforts continue, we will change our processes and procedures, which in turn, could result in changes to our internal control over financial reporting. As such changes occur, we will evaluate quarterly whether such changes materially affect our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
On December 10, 2021, a class action complaint captioned Somogyi v. Organogenesis Holdings Inc., et al. was filed on behalf of a putative class of all purchasers of our securities against us and our Chief Executive Officer and Chief Financial Officer in the United States District Court for the Eastern District of New York. The court appointed Donald Martin as lead plaintiff. Mr. Martin filed an amended complaint on October 24, 2022 that brings claims on behalf of a purported class of all purchasers of our securities from August 10, 2020 through August 9, 2022 and alleges violations of federal securities law in connection with alleged false and misleading statements with respect to, among other matters, revenue, sales growth and ability to compete in connection with our Affinity and PuraPly XT products. The complaint alleges violations of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeks unquantified damages as well as attorneys’ fees, expert fees and other costs. The action is in the early stages of litigation. We believe the claims are without merit and intend to vigorously contest them. On March 13, 2023, we filed our motion to dismiss the litigation for failure to state a claim upon which relief can be granted.
We are not a party to any other 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 Class A common stock involves a high degree of risk. Our Annual Report on Form2021, as amended,2022, includes a detailed discussion of our risk factors under the heading “Part I, Item 1A—Risk Factors.” ThereExcept as set forth below, there have been no material changes from such risk factors during the quarter ended March 31, 2022.2023. You should consider carefully the risk factors discussed in our Annual Report on Form2021,2022, and all other information contained in or incorporated by reference in this Quarterly Report on Form20212022, 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 Class A 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.
Uncertainty and adverse changes in the general economic conditions, including recent turmoil in the global banking system, may negatively affect our business, financial condition, stock price and results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For example, the global financial crisis of 2007-2008 caused extreme volatility and disruptions in the capital and credit markets. If general economic conditions in the United States decline, or if consumers fear that economic conditions will decline, sales of our products may decline. Adverse changes may occur as a result of adverse economic conditions, fluctuating oil prices, supply chain problems, inflation, political instability, declining consumer confidence, a continuation or worsening of the COVID-19
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pandemic or another pandemic, unemployment, fluctuations in stock markets, contraction of credit availability, or other factors affecting economic conditions generally. These changes may negatively affect the sales of our existing or development of future products, increase the cost, and decrease the availability of financing, or increase costs associated with producing and distributing our products and potential product candidates.
Moreover, there has been recent turmoil in the global banking system. On March 10, 2023, Silicon Valley Bank (“SVB”), one of our lenders at which we maintained deposit and money market accounts, was closed, followed on March 11, 2023 and May 1, 2023, by Signature Bank and First Republic Bank, respectively, and the FDIC was appointed as receiver for those banks. There have been reports of instability at other banks across the globe including Credit Suisse, which was acquired by UBS. Despite the steps taken to date by U.S. agencies to protect depositors and our current belief that we do not have exposure to loss as a result of SVB’s receivership, the follow-on effects of the events surrounding the SVB, Signature Bank and First Republic Bank failures and pressure on other banks are unknown and could include failures of other financial institutions or significant disruptions to our operations, financial position, and reputation. A severe or prolonged economic downturn, such as the global financial crisis of 2007-2008, could result in a variety of risks to our business, including a decrease in the demand for our products and in our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy also could strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our products. We cannot anticipate all the ways in which the foregoing, and the current economic climate and financial market conditions generally, could adversely impact our business. Furthermore, our stock price may decline due in part to the volatility of the stock market and any general economic downturn.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit number | Description | |
3.1 | ||
3.2 | ||
3.3 | ||
10.1† | ||
31.1† | ||
31.2† | ||
32.1† | ||
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
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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: May 10, | Organogenesis Holdings Inc. | |||||
(Registrant) | ||||||
/s/ David Francisco | ||||||
David Francisco | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) | ||||||
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