Explanatory Note
On December 30, 2020, Surgalign Holdings, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Original Form 8-K”) with the U.S. Securities and Exchange Commission (“SEC”) to reflect certain retrospective revisions for discontinued operations and changes in reportable segments that were made to the consolidated financial statements of the Company in its Annual Report on Form 10-K for the year ended December 31, 2019 that was previously filed with the SEC on June 8, 2020. This Current Report on Form 8-K/A is being filed solely to amend Exhibit 99.1 to the Original Form 8-K to correct errors in values included in the reconciliation table under the heading “Non-GAAP Financial Measures” and in the covenant calculation table under the heading “Liquidity and Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Original Form 8-K. Except as disclosed in this Form 8-K/A, all other information in the Original Form 8-K (including the exhibits thereto) remains unchanged.
The reconciliation table included under the heading “Non-GAAP Financial Measures” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Exhibit 99.1 to the Original Form 8-K is hereby updated and restated in its entirety by the below table.
To supplement our consolidated financial statements presented on a GAAP basis, we disclose non-GAAP net income applicable to common shares and non-GAAP gross profit adjusted for certain amounts. The calculation of the tax effect on the adjustments between GAAP net loss applicable to common shares and non-GAAP net income applicable to common shares is based upon our US federal and estimated blended state tax rate, adjusted to account for items excluded from GAAP net loss applicable to common shares in calculating non-GAAP net income applicable to common shares. Reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP measures are included in the reconciliations below:
| | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
Net loss from continuing operations, as reported | | $ | (248,778 | ) | | $ | (49,649 | ) | | $ | (44,404 | ) |
Severance and restructuring costs | | | — | | | | 773 | | | | 8,522 | |
Executive transition costs | | | — | | | | — | | | | 2,818 | |
Gain on acquisition contingency | | | (76,033 | ) | | | — | | | | — | |
Asset impairment and abandonments | | | 97,341 | | | | 5,070 | | | | 442 | |
Goodwill Impairment | | | 140,003 | | | | — | | | | — | |
Inventory purchase price adjustment | | | 3,225 | | | | 594 | | | | — | |
Inventory write-off | | | 361 | | | | 7,582 | | | | — | |
Acquisition and integration expenses | | | 13,999 | | | | 4,928 | | | | 630 | |
Net change in valuation allowance | | | 48,637 | | | | (2,113 | ) | | | 159 | |
Tax effect on new tax legislation | | | — | | | | (650 | ) | | | 2,187 | |
Tax effect on other adjustments | | | (27,017 | ) | | | (3,769 | ) | | | (3,326 | ) |
Non-GAAP net (loss) income applicable to common shares, adjusted | | $ | (48,262 | ) | | $ | (37,234 | ) | | $ | (32,972 | ) |
| | | | | | | | | | | | |
The covenant calculation table included under the heading “Liquidity and Capital Resources” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Exhibit 99.1 to the Original Form 8-K is hereby updated and restated in its entirety by the below table.
| | | | | | | | | | | | | | | | | | | | | | |
| Credit Facility | | Balance as of
12/31/2019
(000s) | | | Financial Covenant | | Measurement
Period | | | Financial
Covenant
Required | | | Financial
Covenant
Metric as
of
12/31/2019 | | | Financial
Covenant
Metric as
of
3/31/2020 | |
JPM Revolver | | $ | 71,000 | | | Fixed Charge Coverage Ratio | | | Quarterly | | | | >1.00:1.00 | | | | 1.88:1.00 | | | | 1.32:1.00 | |
Ares Term Loan | | $ | 104,406 | | | Fixed Charge Coverage Ratio | | | Quarterly | | | | >0.91:1.00 | | | | 1.88:1.00 | | | | 1.32:1.00 | |
Ares Term Loan | | $ | 104,406 | | | Total Net Leverage Ratio* | | | Quarterly | | | | <5.00:1.00 | | | | 4.96:1.00 | | | | 5.65:1.00 | |
| * | As described in the Note 18 - Short and Long-Term Obligations - to the consolidated financial statements, the Ares Term Loan agreement steps down the original 9.00 : 1.00 Total Net Leverage Ratio each quarter, ending at a 3.50:1.00 ratio on September 30, 2021. The required ratio at December 31, 2019 was 5.00:1.00. At March 31, 2020 and June 30, 2020, the required ratio is 5.75:1.00 per the terms of the 2019 Credit Agreement. |
Additionally, Exhibit 99.1 to the Original Form 8-K mistakenly referenced the Company’s leverage ratio as of December 31, 2019 as being 5.51:1. Such referenced ratio is hereby updated and replaced with 4.96:1.
Except as set forth above, Exhibit 99.1 to the Original Form 8-K remains unchanged.
