[PART I](index=3&type=section&id=PART%20I) [Business](index=3&type=section&id=Item%201.%20Business) Organogenesis is a leading regenerative medicine company specializing in Advanced Wound Care and Surgical & Sports Medicine, offering FDA-approved solutions and leveraging a direct sales force [Overview](index=3&type=section&id=Overview) Organogenesis provides regenerative medicine solutions for Advanced Wound Care and Surgical & Sports Medicine, backed by clinical data and FDA approvals, to improve patient outcomes - Organogenesis focuses on developing, manufacturing, and commercializing regenerative medicine solutions for Advanced Wound Care and Surgical & Sports Medicine markets[15](index=15&type=chunk) - The company's products, including Apligraf, Dermagraft, PuraPly AM, Affinity, Novachor, and NuShield, are supported by clinical data and FDA approvals (PMA or 510(k) clearance)[16](index=16&type=chunk)[17](index=17&type=chunk) - As of December 31, 2021, Organogenesis had approximately **950 full-time employees** worldwide[20](index=20&type=chunk) [Competitive Strengths](index=4&type=section&id=Competitive%20Strengths) Organogenesis leverages its leadership in regenerative medicine, strong brand recognition, and extensive clinical data to maintain a competitive advantage in growing markets - Organogenesis is a leader in regenerative medicine technology with strong brand recognition for products like Apligraf, Dermagraft, and PuraPly AM[21](index=21&type=chunk) - The company is well-positioned in large, attractive, and growing global markets, including Advanced Wound Care and Surgical & Sports Medicine, driven by favorable demographics and increasing adoption of regenerative medicine[21](index=21&type=chunk) - Organogenesis possesses a large and growing body of clinical data and FDA-approved products, including PMA approvals and 510(k) clearances, which provide a strong competitive advantage due to the extensive time and cost required for such approvals[21](index=21&type=chunk) [Our Business Strategy](index=5&type=section&id=Our%20Business%20Strategy) The company's strategy focuses on strengthening customer relationships, expanding market penetration in Advanced Wound Care and Surgical & Sports Medicine, and launching new products - Organogenesis aims to deepen penetration in the Advanced Wound Care market by leveraging its comprehensive product portfolio and relationships with over **4,000 healthcare facilities**[23](index=23&type=chunk) - The company plans to accelerate expansion into the Surgical & Sports Medicine market using placental-based and collagen biomaterial products, supported by its commercial and operational infrastructure and a growing direct sales force[23](index=23&type=chunk)[24](index=24&type=chunk) - Strategic growth drivers include launching a robust pipeline of products, driving innovation through R&D, expanding sales force reach and productivity, and supplementing organic growth with selective acquisitions[27](index=27&type=chunk) [Industry Overview](index=6&type=section&id=Industry%20Overview) The company operates in the $24 billion Advanced Wound Care and Surgical & Sports Medicine markets, driven by demographics, comorbidities, and regenerative medicine adoption - The addressable Advanced Wound Care and Surgical & Sports Medicine markets totaled approximately **$24 billion in 2021**, with **$10 billion** for Advanced Wound Care and **$14 billion** for Surgical & Sports Medicine[26](index=26&type=chunk) - Key growth drivers include favorable global demographics, an aging population, increased incidence of comorbidities (diabetes, obesity), and growing acceptance of advanced technologies for complex wounds and musculoskeletal injuries[31](index=31&type=chunk) - Chronic wounds, including VLUs, DFUs, pressure ulcers, and surgical wounds, are characterized by uncontrolled inflammatory processes and shortages of critical healing factors[30](index=30&type=chunk) [Advanced Wound Care Market](index=7&type=section&id=Advanced%20Wound%20Care%20Market) The $10 billion Advanced Wound Care market, driven by chronic wounds, sees skin substitutes as a fast-growing segment where Organogenesis is a leader - The Global Advanced Wound Care market was estimated at approximately **$10 billion in 2021** and is expected to grow at a CAGR of **4% through 2028**[36](index=36&type=chunk) - Skin substitutes, a category within wound biologics, are one of the fastest-growing segments, projected to grow from **$1.1 billion in 2021 to $2 billion in 2026**[39](index=39&type=chunk) - Organogenesis is a leading skin substitute company in the U.S., with a diverse product array and experienced sales force, addressing a market where penetration remains low despite vast need[43](index=43&type=chunk) [Surgical & Sports Medicine Market](index=10&type=section&id=Surgical%20%26%20Sports%20Medicine%20Market) The $14 billion Surgical & Sports Medicine market, driven by aging and injuries, focuses on wound coverings and soft tissue healing solutions - The immediate addressable Surgical & Sports Medicine market for Organogenesis's products is approximately **$14 billion**, with a CAGR of approximately **6% through 2028**[44](index=44&type=chunk)[50](index=50&type=chunk) - This market includes surgical/acute wounds, chronic inflammatory and degenerative conditions (e.g., OA, tendonitis), and tendon and ligament injuries[28](index=28&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) - Organogenesis's strategy in this market focuses on providing wound covering and soft tissue healing solutions with placental-based technologies in the short term, and addressing chronic inflammatory and degenerative conditions like OA in the long term[50](index=50&type=chunk) [Our Products](index=12&type=section&id=Our%20Products) The company offers a diverse portfolio of Advanced Wound Care and Surgical & Sports Medicine products, including FDA-approved skin substitutes and placental-based solutions - The Advanced Wound Care portfolio includes Apligraf (PMA-approved for VLUs and DFUs), Dermagraft (PMA-approved for DFUs, manufacturing suspended for transition), PuraPly AM (510(k) cleared antimicrobial barrier), and placental-based products Affinity, Novachor, and NuShield[17](index=17&type=chunk)[60](index=60&type=chunk) - Surgical & Sports Medicine products include NuShield (surgical barrier), Affinity, Novachor, PuraPly AM (wound coverings for acute surgical wounds), PuraForce (collagen surgical matrix for soft tissue reinforcement), and bone allograft products (FiberOS, OCMP) for bony fusion[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) - PuraPly AM is designed to control biofilm and excessive inflammation in wounds, functioning as an antimicrobial barrier via PHMB[67](index=67&type=chunk)[68](index=68&type=chunk) [Ongoing Clinical Studies](index=16&type=section&id=Ongoing%20Clinical%20Studies) Organogenesis conducts ongoing clinical studies for Advanced Wound Care and Surgical & Sports Medicine products to generate data and enhance sales and reimbursement - Organogenesis has **six ongoing prospective trials** and comparative effectiveness studies, with additional studies planned for 2022, to generate clinical data for its Advanced Wound Care and Surgical & Sports Medicine products[72](index=72&type=chunk) - Ongoing Advanced Wound Care studies include RESPOND Registry for PuraPly AM, Comparative Effectiveness Analyses for PuraPly AM and Apligraf against competitors, and RCTs for NuShield and Affinity in DFUs and VLUs[74](index=74&type=chunk) - In Sports Medicine, a Phase 3 prospective, multicenter, double-blind, randomized, placebo-controlled study is underway to evaluate the efficacy of ReNu for knee osteoarthritis, with an estimated completion date in Q3 2023[75](index=75&type=chunk) [Recently Published Clinical Studies](index=18&type=section&id=Recently%20Published%20Clinical%20Studies) Recent clinical studies demonstrate the efficacy of products like PuraPly AM, Affinity, NuShield, and ReNu in wound closure and pain reduction - PuraPly AM achieved **73% wound closure at 32 weeks** in a multicenter cohort study of 307 patients with various cutaneous wounds[76](index=76&type=chunk) - Affinity, in a randomized controlled trial for diabetic foot ulcers, resulted in **60% wound closure at 12 weeks** compared to **38% for standard of care** (p=0.04)[77](index=77&type=chunk) - ReNu demonstrated a clinically meaningful and statistically significant reduction in VAS pain and higher OMERACT-OARSI responder rate at 12 months for knee OA patients compared to hyaluronic acid or saline[80](index=80&type=chunk) [Previously Published Clinical Studies for FDA-Approved Products](index=20&type=section&id=Previously%20Published%20Clinical%20Studies%20for%20FDA-Approved%20Products) Extensive clinical evidence supports FDA-approved Apligraf and Dermagraft for wound healing, demonstrating efficacy and cost-effectiveness in various patient populations - Apligraf is the only product with FDA approval for both Venous Leg Ulcers (VLUs) and Diabetic Foot Ulcers (DFUs)[84](index=84&type=chunk) Apligraf DFU Pivotal Trial Results (12 Weeks) | Treatment Group | 100% Wound Closure | | :---------------- | :------------------- | | Apligraf + Conventional Therapy | 56% (63 of 112 patients) | | Conventional Therapy Alone | 38% (36 of 96 subjects) | - A study showed Medicare treatment costs for DFUs treated with Apligraf were **$5,253 lower per patient** and for Dermagraft were **$6,991 lower per patient** compared to standard of care, due to reduced amputations, hospitalizations, and emergency visits[96](index=96&type=chunk) [Product Pipeline](index=25&type=section&id=Product%20Pipeline) The company maintains a robust product pipeline for Advanced Wound Care and Surgical & Sports Medicine, including PuraPly MZ, Cord Membrane, and re-introduction of TransCyte - The product pipeline includes PuraPly MZ, a micronized particulate version of PuraPly for deep and tunneling wounds, with a 510(k) application submitted and commercial launch planned for early 2022 if FDA cleared[108](index=108&type=chunk) - Organogenesis is developing a Cord Membrane product as a thick, strong wound covering with a long shelf life, and is researching other placental products[109](index=109&type=chunk)[110](index=110&type=chunk) - The company plans to re-introduce TransCyte for deep second- and third-degree burns and launch FortiShield as a temporary wound covering, pending FDA clearance and manufacturing facility completion[112](index=112&type=chunk)[113](index=113&type=chunk) [Platform Technologies](index=27&type=section&id=Platform%20Technologies) Organogenesis's R&D leverages bioengineered cellular, collagen biomaterial, placental-based, and PHMB antimicrobial technology platforms for product development - Organogenesis possesses deep expertise in bioengineered cultured cellular products, exemplified by Apligraf, Dermagraft, and TransCyte[118](index=118&type=chunk) - The company utilizes a collagen biomaterial technology platform for products like the PuraPly family, allowing for bioengineering products with controlled thickness, strength, and remodeling rates[118](index=118&type=chunk) - Proprietary processing methods like AlloFresh and LayerLoc are used for placental-based products (Affinity, NuShield, Novachor) to preserve native tissue benefits and structure[118](index=118&type=chunk) [Commercial Infrastructure](index=27&type=section&id=Commercial%20Infrastructure) The company maintains a robust U.S. commercial infrastructure with a direct sales force and extensive in-house customer support for Advanced Wound Care and Surgical & Sports Medicine - Organogenesis has a multi-faceted sales capability in the United States, with approximately **340 direct sales representatives** and **160 independent agencies** as of December 31, 2021[116](index=116&type=chunk) - The company offers extensive in-house customer support services, including third-party reimbursement, medical, and technical support through its 'Circle of Care' program[119](index=119&type=chunk) - While historically focused on the U.S., Organogenesis has obtained marketing registrations and is selling products in several countries outside the U.S., including Switzerland, Saudi Arabia, and Kuwait[117](index=117&type=chunk) [Research and Development](index=28&type=section&id=Research%20and%20Development) The R&D team focuses on developing regenerative medicine products to improve patient outcomes, simplify techniques, and reduce costs, with expertise across regulatory classifications - The R&D team is focused on designing products that improve patient outcomes, simplify techniques, shorten procedures, and reduce hospitalization/rehabilitation times and costs[120](index=120&type=chunk) - Organogenesis has proven competencies in bringing products to market via a broad range of regulatory classifications, including PMA, BLA, 510(k) clearance, and 361 HCT/P allograft products[121](index=121&type=chunk) - R&D activities are conducted at laboratory facilities in Canton, MA, Birmingham, AL, and San Diego, CA, with ongoing efforts to build clinical operations for multicenter trials[120](index=120&type=chunk)[121](index=121&type=chunk) [Manufacturing and Suppliers](index=28&type=section&id=Manufacturing%20and%20Suppliers) Organogenesis manufactures non-placental products internally and uses third-party manufacturers for placental products, relying on qualified suppliers for raw materials - Organogenesis manufactures primary non-placental products internally and uses third-party manufacturers for placental-based products, with significant expansion capabilities in-house[122](index=122&type=chunk) - The company maintains robust internal compliance processes and undergoes annual internal and external audits by regulatory agencies (e.g., FDA, AATB) to monitor quality control[123](index=123&type=chunk) - Product manufacturing depends on sufficient quantities of source tissue (human, porcine, bovine) from qualified third-party suppliers, all compliant with FDA cGTP regulations and AATB standards[125](index=125&type=chunk) [Reimbursement](index=29&type=section&id=Reimbursement) Reimbursement for products is crucial, with Medicare coverage varying by setting and the loss of pass-through status impacting certain products - Medicare payment for skin substitutes in physician offices is separate from the application procedure, based on Average Sales Price (ASP) plus **6%**[129](index=129&type=chunk)[138](index=138&type=chunk) - In outpatient hospital and ASC settings, Medicare payment for all Organogenesis's products is bundled into the payment for the application procedure, with a two-tier system for high-cost vs low-cost products[129](index=129&type=chunk)[132](index=132&type=chunk) - PuraPly AM and PuraPly had pass-through status from October 2018 to September 2020, but as of October 1, 2020, payment for these products is bundled into the application procedure[130](index=130&type=chunk)[135](index=135&type=chunk) [Competition](index=32&type=section&id=Competition) The company operates in highly competitive markets, leveraging clinical efficacy, a broad product portfolio, and customer support as key competitive advantages - Organogenesis operates in highly competitive markets subject to rapid technological change, with competition based on product efficacy, ease of use, price, reimbursement, and customer support[147](index=147&type=chunk) - The company's competitive strengths include demonstrated clinical efficacy, a broad product portfolio, in-house customer support services, and FDA PMA approved and 510(k) cleared products[148](index=148&type=chunk) - Key competitors include 3M, Amniox Medical, Arthrex, Integra LifeSciences, MiMedx Group, Smith & Nephew, Bioventus Inc., and Vivex Biologics[149](index=149&type=chunk) [Intellectual Property](index=32&type=section&id=Intellectual%20Property) Organogenesis protects its intellectual property through trademarks, trade secrets, and patents, though many key products are not patent-covered - Organogenesis relies on trademarks, trade secrets, patents, copyrights, and other intellectual property rights to protect its technology and competitive position[152](index=152&type=chunk) - As of December 31, 2021, the company owned **20 issued patents globally** (**12 U.S.**) and **13 pending patent applications** (**10 U.S.**), with many issued patents expiring between 2027 and 2038[154](index=154&type=chunk) - Many key products, including Apligraf, Dermagraft, and NuShield, are not covered by the company's issued patents or pending patent applications, relying instead on trade secrets and know-how[154](index=154&type=chunk) [Government Regulation](index=33&type=section&id=Government%20Regulation) Medical products are subject to extensive FDA regulation, including premarket review, post-approval requirements, and strict healthcare fraud and abuse laws - Medical products are regulated by the FDA under the PHSA or FDCA, requiring 510(k) clearance, PMA approval, or BLA approval prior to marketing, with certain modifications also requiring review[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - Certain HCT/Ps (e.g., Affinity, NuShield) may be regulated solely under Section 361 of the PHSA if minimally manipulated and for homologous use, exempting them from premarket clearance/approval, but subject to cGTPs and other requirements[165](index=165&type=chunk) - The company is subject to federal and state healthcare fraud and abuse laws, including the Anti-Kickback Statute and False Claims Act, which prohibit improper payments and false claims to federal healthcare programs[184](index=184&type=chunk)[185](index=185&type=chunk) [Seasonality](index=40&type=section&id=Seasonality) Revenues exhibit seasonality, with the fourth quarter typically strongest due to hospital budget cycles and patient deductible fulfillment - Revenues are typically stronger in the fourth quarter due to hospitals increasing purchases at the end of their budget cycles and patient deductibles being satisfied[191](index=191&type=chunk) - The first quarter generally has lower revenues, with the second and third quarters showing higher revenues than the first, and the fourth quarter being the highest[191](index=191&type=chunk) [Human Capital Resources](index=40&type=section&id=Human%20Capital%20Resources) As of December 31, 2021, the company had 950 employees, prioritizing diversity, competitive compensation, professional development, and employee well-being - As of December 31, 2021, Organogenesis had approximately **950 full-time employees** worldwide, with no collective bargaining agreements[192](index=192&type=chunk) - The company focuses on diversity, open communication, competitive compensation (no healthcare contribution increases for **6 years**), professional development, and employee health and safety, including COVID-19 measures[193](index=193&type=chunk)[197](index=197&type=chunk) [Available Information](index=41&type=section&id=Available%20Information) The company provides SEC filings, including annual and quarterly reports, free of charge on its investor relations website - The company provides its annual, quarterly, and current reports, along with proxy statements, free of charge on its investor relations website (http://www.organogenesis.com) after filing with the SEC[196](index=196&type=chunk) - Organogenesis is a leading regenerative medicine company focused on Advanced Wound Care and Surgical & Sports Medicine markets, offering solutions that support tissue healing and improve patient outcomes[15](index=15&type=chunk) - The company's products address large and growing markets driven by aging demographics and increased comorbidities like diabetes and obesity[15](index=15&type=chunk) 2021 Key Financials | Metric | Value (Millions USD) | | :----- | :------------------- | | Revenue | $468.1 | | Operating Expenses | $280.9 | [Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including operational fluctuations, internal control weaknesses, rapid technological change, supply chain disruptions, and evolving regulatory and reimbursement policies [Summary of Risk Factors](index=42&type=section&id=Summary%20of%20Risk%20Factors) Key risks include fluctuating operating results, uncertain reimbursement, material weakness in internal controls, intense competition, and FDA regulatory compliance - Key risks include fluctuating operating results, potential future losses, and uncertainty regarding coverage and adequate reimbursement for products from government and private payers[199](index=199&type=chunk) - The company has identified a material weakness in internal control over financial reporting, and its disclosure controls and procedures are not effective[199](index=199&type=chunk) - Other significant risks involve intense competition, rapid technological change, challenges in physician adoption of products, FDA regulatory compliance, and dependence on a limited group of suppliers and manufacturers[199](index=199&type=chunk)[202](index=202&type=chunk) [Risks Related to Organogenesis and its business](index=43&type=section&id=Risks%20Related%20to%20Organogenesis%20and%20its%20business) Business risks include fluctuating results, potential future losses, internal control weaknesses, rapid technological change, supply chain disruptions, and product liability claims - Operating results may fluctuate significantly due to factors such as competitor products, reimbursement policies, regulatory changes, and general economic conditions[203](index=203&type=chunk)[204](index=204&type=chunk) - The company has incurred significant losses since inception, and while profitable in 2020 and 2021, may incur future losses due to expansion costs[205](index=205&type=chunk) - A material weakness in internal control over financial reporting persists as of December 31, 2021, due to a lack of formal policies, inconsistent application of controls, and turnover in key positions[206](index=206&type=chunk)[209](index=209&type=chunk) [Risks Related to Regulation of Our Products and Other Government Regulations](index=57&type=section&id=Risks%20Related%20to%20Regulation%20of%20Our%20Products%20and%20Other%20Government%20Regulations) Regulatory risks include clinical trial delays, challenges in obtaining FDA approvals, potential reclassification of HCT/Ps, and non-compliance with healthcare fraud and abuse laws - Substantial delays or difficulties in clinical trials, including those for ReNu, could result in additional costs or impair the ability to generate revenues[266](index=266&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk) - The FDA may determine that certain HCT/Ps (e.g., Affinity, NuShield) do not qualify for regulation solely under Section 361 of the PHSA, requiring premarket approval or clearance and potentially disrupting marketing[285](index=285&type=chunk)[286](index=286&type=chunk) - Non-compliance with federal, state, and foreign healthcare fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act) could lead to substantial penalties, exclusion from government programs, and reputational harm[304](index=304&type=chunk)[305](index=305&type=chunk)[311](index=311&type=chunk) [Risks Related to Reimbursement for our Products](index=69&type=section&id=Risks%20Related%20to%20Reimbursement%20for%20our%20Products) Reimbursement risks stem from uncertain government and private insurer coverage, Medicare's bundled payment policies, and cost-containment efforts by purchasing groups - The rate of reimbursement and coverage for Organogenesis's products by government and private insurance is unstable and subject to changes, which can adversely affect business, results of operations, and financial condition[322](index=322&type=chunk)[324](index=324&type=chunk) - Medicare's bundled payment policy in the hospital outpatient setting creates incentives to use competitors' cheaper products, and the loss of pass-through status for PuraPly AM and PuraPly has reduced revenue[323](index=323&type=chunk)[326](index=326&type=chunk) - Cost-containment efforts by GPOs, IDNs, and other purchasing groups can lead to pricing concessions and exclusion from contracts, adversely affecting the company's business[333](index=333&type=chunk) [Risks Related to Our Intellectual Property](index=71&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Intellectual property risks include reliance on trade secrets, expired patents, potential litigation, and uncertainties from evolving U.S. patent law - The company's success depends on maintaining proprietary technology, but trade secrets are difficult to protect, and many key patents for marketed products (e.g., Apligraf, Dermagraft, NuShield) have expired[334](index=334&type=chunk)[336](index=336&type=chunk)[338](index=338&type=chunk) - Organogenesis operates in an industry with extensive intellectual property litigation, and defending against infringement claims can be expensive, time-consuming, and may result in significant damages or injunctions[340](index=340&type=chunk)[342](index=342&type=chunk) - Changes in U.S. patent law, including the Leahy-Smith America Invents Act and Supreme Court rulings, have narrowed patent scope and increased uncertainty regarding the value and enforceability of patents[352](index=352&type=chunk)[353](index=353&type=chunk) [Risks Related to Our Indebtedness](index=75&type=section&id=Risks%20Related%20to%20Our%20Indebtedness) Indebtedness of $74.1 million increases vulnerability to economic conditions, limits cash flow, and poses risks of covenant non-compliance and accelerated repayment - As of December 31, 2021, Organogenesis had approximately **$74.1 million in outstanding indebtedness**, increasing its vulnerability to adverse economic conditions and limiting cash flow for operations[354](index=354&type=chunk) - The company's ability to service its debt depends on future cash generation, which is subject to economic, financial, and regulatory factors beyond its control[358](index=358&type=chunk) - Failure to comply with restrictive covenants in credit agreements could result in an event of default, leading to immediate repayment of debt and potential adverse effects on business and financial condition[360](index=360&type=chunk)[362](index=362&type=chunk)[363](index=363&type=chunk) [Risks Related to Our Class A Common Stock](index=78&type=section&id=Risks%20Related%20to%20Our%20Class%20A%20Common%20Stock) Risks to Class A common stock include potential Nasdaq delisting, compliance with 'controlled company' rules, and significant stockholder group voting control - There is no assurance that the company's Class A common stock will continue to be listed on Nasdaq, and delisting could lead to reduced liquidity and trading activity[366](index=366&type=chunk)[367](index=367&type=chunk) - Organogenesis ceased to be a 'controlled company' on May 6, 2021, and must now comply with Nasdaq's independent board and committee requirements within specified phase-in periods, with potential enforcement actions if not met[369](index=369&type=chunk)[370](index=370&type=chunk)[372](index=372&type=chunk) - The Significant Stockholder Group collectively beneficially owns approximately **46% of the Class A common stock**, allowing them to effectively determine the outcome of stockholder matters, potentially conflicting with other investors' interests[373](index=373&type=chunk)[374](index=374&type=chunk) [General Risk Factors](index=81&type=section&id=General%20Risk%20Factors) General risks include intense competition, uncertain capital needs, dependence on key employees, business disruptions, and compliance with environmental and tax regulations - The company faces significant and continuing competition, which could adversely affect its business, results of operations, and financial condition due to rapid technological change and price competition[380](index=380&type=chunk) - Future capital needs are uncertain, and the company may need to raise additional funds through equity or debt, potentially leading to dilution or unfavorable terms[381](index=381&type=chunk)[383](index=383&type=chunk) - The business is highly dependent on retaining key employees, consultants, and advisors, and a shortage of skilled personnel in the industry poses a risk to success[384](index=384&type=chunk) - Operating results may fluctuate significantly due to factors like competitor product introductions, reimbursement changes, cost-containment efforts, and regulatory actions[199](index=199&type=chunk)[203](index=203&type=chunk) - The company has identified a material weakness in internal control over financial reporting, indicating a risk of inaccurate financial reporting or fraud[199](index=199&type=chunk)[206](index=206&type=chunk) - Significant risks include rapid technological change, challenges in convincing physicians of product efficacy, product liability claims, supply chain interruptions (especially for human tissue), and the potential for new products to become obsolete[202](index=202&type=chunk)[211](index=211&type=chunk)[213](index=213&type=chunk)[220](index=220&type=chunk)[222](index=222&type=chunk)[227](index=227&type=chunk) [Unresolved Staff Comments](index=86&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments from the SEC[409](index=409&type=chunk) [Properties](index=87&type=section&id=Item%202.%20Properties) The company's properties include a 300,000 sq ft corporate headquarters in Canton, MA, and leased facilities in Norwood, San Diego, and Birmingham - Corporate headquarters is a four-building campus in Canton, Massachusetts, with approximately **300,000 square feet** for manufacturing, shipping, operations, and R&D[410](index=410&type=chunk) - Three Canton buildings are leased, with leases extended to December 31, 2027. The company also leases facilities in Norwood, MA (office/lab), San Diego, CA (office/lab and warehouse), and Birmingham, AL (amniotic products)[410](index=410&type=chunk)[411](index=411&type=chunk)[412](index=412&type=chunk)[413](index=413&type=chunk) [Legal Proceedings](index=87&type=section&id=Item%203.%20Legal%20Proceedings) The company faces a class action complaint alleging federal securities law violations related to product billing, which it intends to vigorously contest - A class action complaint was filed on December 10, 2021, alleging federal securities law violations related to billing for Affinity and PuraPly XT products and inducing doctors to use them through lucrative reimbursements[414](index=414&type=chunk) - Organogenesis believes the claims are without merit and intends to vigorously contest them[414](index=414&type=chunk) - Other legal proceedings arising from ordinary business are not expected to have a material adverse effect on the company's financial position, results of operations, or cash flows[415](index=415&type=chunk) [Mine Safety Disclosures](index=87&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to the company - Item 4, Mine Safety Disclosures, is not applicable to Organogenesis Holdings Inc[416](index=416&type=chunk) [PART II](index=88&type=section&id=PART%20II) [Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=88&type=section&id=Item%205.%20Market%20For%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Class A common stock is listed on Nasdaq under 'ORGO', with 128.8 million shares outstanding, and the company retains earnings for growth - Organogenesis Class A common stock is listed on the Nasdaq Capital Market under the symbol **"ORGO"**[418](index=418&type=chunk) Class A Common Stock Statistics (as of Feb 15, 2022) | Metric | Value | | :----- | :---- | | Shares Outstanding | 128,765,237 | | Holders of Record | 399 | - The company has never declared or paid cash dividends and intends to retain all available funds and future earnings to finance business growth, with dividend payments restricted by the 2021 Credit Agreement[419](index=419&type=chunk) [Reserved](index=89&type=section&id=Item%206.%20Reserved) Item 6 is reserved in this Annual Report on Form 10-K [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=89&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Organogenesis's financial performance, including $468.1 million net revenue and $94.9 million net income in 2021, liquidity, and critical accounting policies [Overview](index=89&type=section&id=Overview) Organogenesis, a regenerative medicine company, reported $468.1 million net revenue and $94.9 million net income in 2021, despite an accumulated deficit - Organogenesis is a leading regenerative medicine company focused on developing, manufacturing, and commercializing solutions for Advanced Wound Care and Surgical & Sports Medicine markets[423](index=423&type=chunk) Net Revenue and Net Income (Loss) (in millions USD) | Year | Net Revenue | Net Income (Loss) | | :--- | :---------- | :---------------- | | 2021 | $468.1 | $94.9 | | 2020 | $338.3 | $17.2 | | 2019 | $261.0 | $(38.7) | - As of December 31, 2021, the company had an accumulated deficit of **$60.1 million**, despite reporting net income in the last two fiscal years[428](index=428&type=chunk) [COVID-19 pandemic](index=90&type=section&id=COVID-19%20pandemic) The COVID-19 pandemic has not materially impacted financial results through 2021, but the company continues to monitor risks and ensure business continuity - The COVID-19 pandemic has not materially adversely affected Organogenesis's financial results and business operations through December 31, 2021[429](index=429&type=chunk) - The company is closely monitoring the evolving impact of the pandemic, implementing measures to protect employee health and safety, support customers, and promote business continuity[429](index=429&type=chunk) [CPN Acquisition](index=90&type=section&id=CPN%20Acquisition) Organogenesis acquired CPN Biosciences, LLC on September 17, 2020, for $19.0 million, including cash, stock, and an Earnout liability - Organogenesis acquired CPN Biosciences, LLC on September 17, 2020, for an aggregate consideration of **$19.0 million**[430](index=430&type=chunk) - The consideration included **$6.4 million in cash**, **2,151,438 shares of Class A common stock** (fair value **$8.8 million**), and a contingent Earnout liability (fair value **$3.8 million**)[430](index=430&type=chunk) - The results of CPN's operations have been included in Organogenesis's consolidated financial statements since the acquisition date[430](index=430&type=chunk) [Dermagraft](index=90&type=section&id=Dermagraft) Dermagraft manufacturing was suspended in Q4 2021, with sales suspension in Q2 2022, for manufacturing consolidation and cost savings - Manufacturing of Dermagraft was suspended in Q4 2021, and sales will be suspended in Q2 2022, as part of a plan to consolidate manufacturing operations in Massachusetts[431](index=431&type=chunk) - The transition is expected to result in substantial long-term cost savings[431](index=431&type=chunk) - Organogenesis expects customers to substitute Apligraf for Dermagraft, anticipating no material impact on net revenue during the period of Dermagraft's unavailability[433](index=433&type=chunk) [Management's Use of Non-GAAP Measures](index=91&type=section&id=Management's%20Use%20of%20Non-GAAP%20Measures) Management uses Adjusted EBITDA, a non-GAAP measure, to evaluate operating performance and identify business trends, despite its inherent limitations - Management uses Adjusted EBITDA, a non-GAAP measure, to evaluate operating performance, identify trends, and make planning decisions[434](index=434&type=chunk) - Adjusted EBITDA is defined as net income (loss) before depreciation, amortization, interest expense, and income taxes, further adjusted for specific non-core items[435](index=435&type=chunk) - Limitations of Adjusted EBITDA include the exclusion of significant non-cash expenses (stock-based compensation, depreciation), cash interest requirements, and the impact of fair value changes and restructuring charges[436](index=436&type=chunk) [Components of Our Consolidated Results of Operations](index=92&type=section&id=Components%20of%20Our%20Consolidated%20Results%20of%20Operations) Key components of consolidated results include net revenue from product sales, cost of goods sold, operating expenses, and income taxes, all subject to management estimates - Net revenue is derived from Advanced Wound Care and Surgical & Sports Medicine products, recognized when customers obtain control, net of reserves for returns, discounts, and GPO rebates[439](index=439&type=chunk)[440](index=440&type=chunk) - Cost of goods sold includes personnel, testing, quality assurance, raw materials, and manufacturing costs, expected to increase with sales volumes[442](index=442&type=chunk) - Research and development expenses, including clinical trials and product/platform development, are expensed as incurred and are expected to increase with ongoing investments[446](index=446&type=chunk) [Results of Operations](index=94&type=section&id=Results%20of%20Operations) In 2021, net revenue grew 38% to $468.1 million, net income reached $94.9 million, and Adjusted EBITDA was $89.1 million, driven by Advanced Wound Care growth Consolidated Results of Operations (in thousands USD) | Metric | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | Net revenue | $468,059 | $338,298 | $260,981 | | Gross profit | $353,860 | $250,979 | $185,033 | | Total operating expenses | $280,942 | $224,279 | $214,887 | | Income (loss) from operations | $72,918 | $26,700 | $(29,854) | | Net income (loss) | $94,902 | $17,234 | $(38,709) | EBITDA and Adjusted EBITDA (in thousands USD) | Metric | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | EBITDA | $81,752 | $37,226 | $(19,737) | | Adjusted EBITDA | $89,143 | $38,825 | $(18,163) | - Income tax benefit of **$31.1 million in 2021** was primarily due to the release of a **$48.3 million valuation allowance** on net U.S. deferred tax assets[481](index=481&type=chunk) [Liquidity and Capital Resources](index=99&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by $113.9 million cash and $125.0 million Revolving Facility, with a new 2021 Credit Agreement providing $75.0 million Term Loan Cash and Debt (in thousands USD) | Metric | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | :----------- | | Cash and cash equivalents | $113,929 | $84,394 | $60,174 | | Total debt | $73,625 | $84,771 | $100,606 | Cash Flows from Activities (in thousands USD) | Activity | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | Operating Activities | $61,978 | $5,466 | $(33,528) | | Investing Activities | $(31,220) | $(23,498) | $(6,234) | | Financing Activities | $(1,036) | $42,468 | $78,727 | - In August 2021, Organogenesis entered into a new 2021 Credit Agreement, providing a **$75.0 million Term Loan Facility** and a **$125.0 million Revolving Facility**, replacing previous debt agreements[498](index=498&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=103&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Financial statements rely on significant estimates and judgments in revenue recognition, inventory, goodwill, income taxes, and contingent liabilities, which can materially impact performance - Critical accounting policies involve significant judgments and estimates in revenue recognition, accounts receivable, inventory, goodwill, long-lived assets, income taxes, contingent purchase earnout, and stock-based compensation[510](index=510&type=chunk) - Revenue is recognized net of reserves for variable consideration (returns, discounts, GPO rebates) based on historical experience and market conditions[511](index=511&type=chunk) - The company assesses the realizability of deferred tax assets and released a **$48.3 million valuation allowance** in Q4 2021, based on projected future taxable income and recent financial results[523](index=523&type=chunk)[525](index=525&type=chunk) - The company reported net income for the most recent two years (2021 and 2020) but has an accumulated deficit of **$60.1 million** as of December 31, 2021[428](index=428&type=chunk) - Manufacturing of Dermagraft was suspended in Q4 2021, with sales suspension in Q2 2022, as part of a long-term plan to consolidate manufacturing in Massachusetts, expected to result in substantial cost savings[431](index=431&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=106&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks primarily from interest rate fluctuations and minimal foreign currency exposure, with no material impact expected from a 10% rate change - Organogenesis is exposed to market risks from fluctuations in interest rates and, minimally, foreign currency exchange rates[534](index=534&type=chunk) - Borrowings under the 2021 Credit Agreement bear variable interest rates, but a **10% immediate change** is not expected to materially impact financial position, results of operations, or cash flows[535](index=535&type=chunk) - Foreign currency risk is minimal due to short transaction durations and the U.S. dollar functional currency of its foreign subsidiary[536](index=536&type=chunk) [Financial Statements and Supplementary Data](index=106&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Consolidated financial statements and supplementary data, along with the auditor's report, are presented on pages F-1 through F-40 - The consolidated financial statements and supplementary data, along with the auditor's report, are included on pages **F-1 through F-40** of the Annual Report on Form 10-K[537](index=537&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=106&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure - There have been no changes in or disagreements with accountants on accounting and financial disclosure[538](index=538&type=chunk) [Controls and Procedures](index=106&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to a material weakness in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2021, due to a material weakness in internal control over financial reporting[541](index=541&type=chunk) - The material weakness involves a lack of formal accounting, business operations, and IT policies, procedures, and controls, specifically regarding account reconciliations, journal entries, and segregation of duties[544](index=544&type=chunk)[546](index=546&type=chunk) - Remediation efforts include implementing a new ERP system in 2022, training employees, supplementing internal resources with third-party assistance, and regular control testing and reporting[548](index=548&type=chunk) [Other Information](index=108&type=section&id=Item%209B.%20Other%20Information) No other information is disclosed under Item 9B - There is no other information to disclose under Item 9B[550](index=550&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=109&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) Disclosure regarding foreign jurisdictions that prevent inspections is not applicable - Item 9C, Disclosure Regarding Foreign Jurisdictions that Prevent Inspections, is not applicable[551](index=551&type=chunk) [PART III](index=110&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=110&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information on Directors, Executive Officers, and Corporate Governance is incorporated by reference from the 2022 Definitive Proxy Statement - Information on Directors, Executive Officers, and Corporate Governance is incorporated by reference from the Definitive Proxy Statement for the 2022 Annual Meeting of Stockholders[553](index=553&type=chunk) [Executive Compensation](index=110&type=section&id=Item%2011.%20Executive%20Compensation) Information on Executive Compensation is incorporated by reference from the Definitive Proxy Statement - Information on Executive Compensation is incorporated by reference from the Definitive Proxy Statement[554](index=554&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=110&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on Security Ownership and Related Stockholder Matters is incorporated by reference from the Definitive Proxy Statement - Information on Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters is incorporated by reference from the Definitive Proxy Statement[555](index=555&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=110&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information on Related Transactions and Director Independence is incorporated by reference from the Definitive Proxy Statement - Information on Certain Relationships and Related Transactions, and Director Independence is incorporated by reference from the Definitive Proxy Statement[556](index=556&type=chunk) [Principal Accounting Fees and Services](index=110&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on Principal Accounting Fees and Services is incorporated by reference from the Definitive Proxy Statement - Information on Principal Accounting Fees and Services is incorporated by reference from the Definitive Proxy Statement[557](index=557&type=chunk) [PART IV](index=111&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=111&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the report, including financial statements, schedules, and an extensive exhibit index - This item lists documents filed as part of the report, including financial statements, financial statement schedules, and an exhibit index[559](index=559&type=chunk) - The exhibit index includes corporate documents (Certificate of Incorporation, Bylaws), various agreements (Registration Rights, Leases, License Agreements), and employee-related agreements (Key Employee, Incentive Plans)[561](index=561&type=chunk)[562](index=562&type=chunk)[563](index=563&type=chunk) - Certain exhibits are marked for confidential treatment, and others are identified as management contracts or compensatory plans/arrangements[565](index=565&type=chunk) [Form 10-K Summary](index=114&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K Summary is provided in this report - No Form 10-K Summary is provided in this report[566](index=566&type=chunk) [SIGNATURES](index=115&type=section&id=SIGNATURES) The Annual Report on Form 10-K is signed by the CEO, CFO, and other Directors as of March 1, 2022 - The Annual Report on Form 10-K is signed by Gary S. Gillheeney, Sr. (CEO and President) and David Francisco (CFO) on March 1, 2022[570](index=570&type=chunk)[571](index=571&type=chunk) - Other Directors also signed the report on March 1, 2022[571](index=571&type=chunk) [INDEX TO CONSOLIDATED FINANCIAL STATEMENTS](index=116&type=section&id=INDEX%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) [Report of Independent Registered Public Accounting Firm](index=117&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) RSM US LLP issued an unqualified opinion on financial statements but an adverse opinion on internal controls due to a material weakness, highlighting deferred tax assets as a critical audit matter - RSM US LLP issued an unqualified opinion on the consolidated financial statements for the three years ended December 31, 2021[576](index=576&type=chunk)[577](index=577&type=chunk) - An adverse opinion was issued on the effectiveness of internal control over financial reporting as of December 31, 2021, due to a material weakness in the design and maintenance of formal accounting, business operations, and IT policies, procedures, and controls[577](index=577&type=chunk) - The realizability of deferred tax assets was identified as a critical audit matter due to significant assumptions and judgments involved in management's evaluation[586](index=586&type=chunk)[588](index=588&type=chunk) [Consolidated Balance Sheets](index=120&type=section&id=Consolidated%20Balance%20Sheets) Consolidated balance sheets show total assets increased to $443.3 million in 2021, with total liabilities at $201.2 million and stockholders' equity at $242.0 million Consolidated Balance Sheet Summary (in thousands USD) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Total assets | $443,259 | $290,218 | | Total liabilities | $201,224 | $148,410 | | Total stockholders' equity | $242,035 | $141,808 | Key Current Assets (in thousands USD) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $113,929 | $84,394 | | Accounts receivable, net | $82,460 | $56,804 | | Inventory | $25,022 | $27,799 | Key Liabilities (in thousands USD) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Current portion of term loan | $2,656 | $16,666 | | Term loan, net of current portion | $70,769 | $43,044 | | Earnout liability | $— | $3,985 | [Consolidated Statements of Operations](index=121&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated statements of operations show net revenue of $468.1 million and net income of $94.9 million in 2021, with diluted EPS of $0.71 Consolidated Statements of Operations Summary (in thousands USD) | Metric | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | Net revenue | $468,059 | $338,298 | $260,981 | | Gross profit | $353,860 | $250,979 | $185,033 | | Income (loss) from operations | $72,918 | $26,700 | $(29,854) | | Net income (loss) | $94,902 | $17,234 | $(38,709) | | Diluted EPS | $0.71 | $0.15 | $(0.42) | - Net income significantly increased to **$94.9 million in 2021**, compared to **$17.2 million in 2020**, and a net loss of **$38.7 million in 2019**[593](index=593&type=chunk) - Income tax benefit of **$31.1 million in 2021** contributed to the higher net income, contrasting with tax expenses in prior years[593](index=593&type=chunk) [Consolidated Statements of Redeemable Common Stock and Stockholders' Equity](index=122&type=section&id=Consolidated%20Statements%20of%20Redeemable%20Common%20Stock%20and%20Stockholders'%20Equity) Stockholders' equity increased to $242.0 million in 2021, driven by net income and common stock issuances from warrant exchanges and public offerings Stockholders' Equity Summary (in thousands USD) | Metric | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | | :-------------------------------- | :----------- | :----------- | :----------- | | Common Stock (shares) | 128,680,192 | 127,731,833 | 104,870,886 | | Additional Paid-in Capital | $302,155 | $296,830 | $224,281 | | Accumulated Deficit | $(60,133) | $(155,035) | $(172,269) | | Total Stockholders' Equity | $242,035 | $141,808 | $52,022 | - Total stockholders' equity increased significantly from **$141.8 million in 2020 to $242.0 million in 2021**, driven by net income[597](index=597&type=chunk) - Adjustments were made in 2018 for private warrant reclassification and right-of-use asset amortization, impacting additional paid-in capital and accumulated deficit[597](index=597&type=chunk) [Consolidated Statements of Cash Flows](index=123&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash flows show $62.0 million provided by operating activities in 2021, with investing activities using cash and financing activities shifting to debt repayments Consolidated Statements of Cash Flows Summary (in thousands USD) | Activity | 2021 | 2020 | 2019 | | :-------------------------------- | :----- | :----- | :----- | | Net cash provided by (used in) operating activities | $61,978 | $5,466 | $(33,528) | | Net cash used in investing activities | $(31,220) | $(23,498) | $(6,234) | | Net cash provided by (used in) financing activities | $(1,036) | $42,468 | $78,727 | | Net increase in cash and restricted cash | $29,722 | $24,436 | $38,965 | - Operating activities generated **$62.0 million in cash in 2021**, a substantial increase from **$5.5 million in 2020**, driven by net income and non-cash charges[489](index=489&type=chunk)[599](index=599&type=chunk) - Financing activities used **$1.0 million in 2021**, primarily for debt repayments, contrasting with cash provided in prior years from equity offerings and debt proceeds[495](index=495&type=chunk)[599](index=599&type=chunk) [Notes to Consolidated Financial Statements](index=125&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes provide detailed information on business, significant accounting policies, financial statement line items, and disclosures on debt, equity, and contingencies [1. Nature of Business and Basis of Presentation](index=125&type=section&id=1.%20Nature%20of%20Business%20and%20Basis%20of%20Presentation) Organogenesis is a regenerative medicine company operating as a single segment, with no material COVID-19 impact through 2021 but future uncertainty - Organogenesis is a leading regenerative medicine company focused on Advanced Wound Care and Surgical & Sports Medicine markets[602](index=602&type=chunk) - The company operates as a single operating and reportable segment[602](index=602&type=chunk) - The COVID-19 pandemic has not materially adversely affected financial results through December 31, 2021, but its future impact is uncertain[603](index=603&type=chunk) [2. Significant Accounting Policies](index=125&type=section&id=2.%20Significant%20Accounting%20Policies) Significant accounting policies include revenue recognition, inventory, goodwill, and income taxes, with revisions for warrant reclassification and ROU asset amortization errors - The company revised prior financial statements to correct errors in private warrant classification and right-of-use asset amortization, determining these were not material to prior periods[604](index=604&type=chunk)[608](index=608&type=chunk)[609](index=609&type=chunk) - Revenue is recognized when the customer obtains control of the product, net of reserves for returns, discounts, and GPO rebates[631](index=631&type=chunk)[632](index=632&type=chunk) - Organogenesis early adopted ASC 842 (Leases) on January 1, 2021, recognizing operating lease liabilities of **$15.9 million** and right-of-use assets of **$13.5 million**[656](index=656&type=chunk)[658](index=658&type=chunk) [3. Acquisition](index=138&type=section&id=3.%20Acquisition) The company acquired CPN Biosciences, LLC for $19.0 million in 2020, with the contingent Earnout liability valued at $0 by December 31, 2021 - Organogenesis acquired CPN Biosciences, LLC on September 17, 2020, for an aggregate consideration of **$19.0 million**[664](index=664&type=chunk)[665](index=665&type=chunk) - The consideration included **$6.4 million in cash**, **2,151,438 shares of Class A common stock** (fair value **$8.8 million**), and a contingent Earnout liability (fair value **$3.8 million**)[665](index=665&type=chunk) - As of December 31, 2021, the Earnout liability was estimated at **$0** due to an updated assessment of the near-term market for the CPN product portfolio[666](index=666&type=chunk) [4. Fair Value Measurement of Financial Instruments](index=139&type=section&id=4.%20Fair%20Value%20Measurement%20of%20Financial%20Instruments) Financial instruments measured at fair value include the Earnout liability, which decreased to $0 in 2021, and previously, the warrant liability settled in 2019 Earnout Liability Fair Value (in thousands USD) | Date | Amount | | :--- | :----- | | Dec 31, 2019 | $— | | Acquisition Date | $3,782 | | Dec 31, 2020 | $3,985 | | Dec 31, 2021 | $— | - The Earnout liability, classified as a Level 3 measurement, decreased to **$0** as of December 31, 2021, due to an updated assessment of the near-term market for the CPN product portfolio[669](index=669&type=chunk) - Private warrants, initially classified as a liability and measured at fair value using a Black-Scholes model, were settled in warrant exchange transactions in Q3 2019[670](index=670&type=chunk)[671](index=671&type=chunk) [5. Accounts receivable, net](index=141&type=section&id=5.%20Accounts%20receivable,%20net) Accounts receivable, net, increased to $82.5 million in 2021, with the allowance for doubtful accounts rising to $5.2 million Accounts Receivable, Net (in thousands USD) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Accounts receivable | $87,613 | $59,473 | | Less—allowance for doubtful accounts | $(5,153) | $(2,669) | | **Accounts receivable, net** | **$82,460** | **$56,804** | Allowance for Doubtful Accounts Roll-forward (in thousands USD) | Metric | 2021 | 2020 | 2019 | | :-------------------- | :----- | :----- | :----- | | Balance at beginning of year | $2,669 | $1,988 | $1,988 | | Additions | $2,999 | $1,183 | $239 | | Write-offs | $(515) | $(502) | $— | | **Balance at end of year** | **$5,153** | **$2,669** | **$1,988** | [6. Inventories](index=142&type=section&id=6.%20Inventories) Inventories, net, decreased to $25.0 million in 2021, with a $12.1 million charge for excess and obsolescence due to short shelf life Inventories, Net (in thousands USD) | Category | Dec 31, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Raw materials | $9,023 | $10,075 | | Work in process | $991 | $1,305 | | Finished goods | $15,008 | $16,419 | | **Total Inventories** | **$25,022** | **$27,799** | - The charge for inventory excess and obsolescence significantly increased to **$12.1 million in 2021**, compared to **$3.1 million in 2020** and **$1.3 million in 2019**[675](index=675&type=chunk) - The increase in obsolescence charge is primarily due to inventory with very short shelf life and uncertain production yield[675](index=675&type=chunk) [7. Prepaid Expenses and Other Current Assets](index=143&type=section&id=7.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Prepaid expenses and other current assets remained stable at $5.0 million in 2021, primarily comprising subscriptions and deposits Prepaid Expenses and Other Current Assets (in thousands USD) | Category | Dec 31, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Subscriptions | $2,745 | $2,013 | | Conferences and marketing expenses | $538 | $63 | | Deposits | $1,216 | $1,438 | | Reimbursement of offering expenses | $— | $1,009 | | Insurance | $358 | $240 | | Other | $112 | $172 | | **Total** | **$4,969** | **$4,935** | [8. Property and Equipment, Net](index=143&type=section&id=8.%20Property%20and%20Equipment,%20Net) Property and equipment, net, increased to $79.2 million in 2021, driven by construction in progress and reclassification of finance leases Property and Equipment, Net (in thousands USD) | Category | Dec 31, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Leasehold improvements | $30,531 | $39,574 | | Building | $4,943 | $— | | Furniture, computers and equipment | $53,959 | $48,236 | | Accumulated depreciation and amortization | $(57,729) | $(73,797) | | Construction in progress | $47,456 | $41,779 | | **Total** | **$79,160** | **$55,792** | - Depreciation expense was **$5.8 million in 2021**, up from **$4.4 million in 2020**[678](index=678&type=chunk) - In 2021, the company purchased a building previously under a finance lease and reclassified other finance leases to operating leases, impacting the composition of property and equipment[678](index=678&type=chunk) [9. Goodwill and Intangible Assets](index=145&type=section&id=9.%20Goodwill%20and%20Intangible%20Assets) Goodwill remained at $28.8 million, while identifiable intangible assets, net, decreased to $25.7 million in 2021 due to amortization - Goodwill remained at **$28.8 million** as of December 31, 2021 and 2020, with no impairment charges recorded during 2021, 2020, or 2019[680](index=680&type=chunk)[626](index=626&type=chunk) Identifiable Intangible Assets, Net (in thousands USD) | Category | Dec 31, 2021 Net Book Value | Dec 31, 2020 Net Book Value | | :-------------------- | :-------------------------- | :-------------------------- | | Developed technology | $14,911 | $18,290 | | Trade names and trademarks | $897 | $1,174 | | Customer relationship | $9,309 | $10,378 | | Non-compete agreements | $556 | $780 | | **Total** | **$25,673** | **$30,622** | - Amortization expense for intangible assets was **$4.9 million in 2021**, **$3.7 million in 2020**, and **$6.0 million in 2019**[680](index=680&type=chunk) [10. Accrued Expenses and Other Current Liabilities](index=145&type=section&id=10.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued expenses and other current liabilities increased to $36.6 million in 2021, driven by higher personnel costs and lease obligations Accrued Expenses and Other Current Liabilities (in thousands USD) | Category | Dec 31, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Personnel costs | $26,865 | $18,943 | | Royalties | $3,458 | $2,971 | | Accrued but unpaid lease obligations and interest | $3,963 | $— | | Other | $2,303 | $2,059 | | **Total** | **$36,589** | **$23,973** | - The increase in 2021 was primarily due to additional personnel costs and the reclassification of accrued but unpaid lease obligations and interest to current liabilities[681](index=681&type=chunk)[682](index=682&type=chunk) [11. Restructuring](index=146&type=section&id=11.%20Restructuring) A restructuring plan initiated in October 2020 to consolidate facilities has incurred $4.7 million in charges, with a $3.2 million liability remaining - Organogenesis initiated a restructuring plan in October 2020 to consolidate La Jolla facilities into Massachusetts, aiming to reduce costs[683](index=683&type=chunk) - The restructuring is estimated to result in a total charge of approximately **$7.5 million**, with **$4.0 million** for employee retention benefits and **$3.5 million** for facility closures[683](index=683&type=chunk) Restructuring Liability Roll-forward (in thousands USD) | Metric | Dec 31, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Liability balance | $3,168 | $618 | | Expenses incurred | $4,704 | $618 | | Cash distributions | $(2,154) | $— | [12. Long-Term Debt Obligations](index=147&type=section&id=12.%20Long-Term%20Debt%20Obligations) Total debt decreased to $73.6 million in 2021, following a new 2021 Credit Agreement providing a $75.0 million Term Loan and $125.0 million Revolving Facility Long-Term Debt Obligations (in thousands USD) | Category | Dec 31, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Line of credit | $— | $10,000 | | Term loan, net | $73,425 |

Organogenesis Holdings Inc. (NASDAQ:ORGO) Q3 2021 Results Conference Call November 9, 2021 5:00 PM ET Company Participants Gary Gillheeney - President and Chief Executive Officer David Francisco - Chief Financial Officer Conference Call Participants Ryan Zimmerman - BTIG Matt Miksic - Credit Suisse Steve Lichtman - Oppenheimer Operator Good afternoon, ladies and gentlemen, and welcome to the Third Quarter 2021 Earnings Conference Call for Organogenesis Holdings, Incorporated. At this time all participants h ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-37906 ORGANOGENESIS HOLDINGS INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or or ...

Financial Data and Key Metrics Changes - The company reported a revenue growth of 79% year-over-year to $123.2 million in Q2 2021, driven by a 87% increase in Advanced Wound Care product sales [8][22] - Adjusted EBITDA increased by nearly $25 million year-over-year to $25.1 million, with an adjusted EBITDA margin of approximately 20.4% of net revenue [18][31] - Net income for Q2 2021 was $20.7 million or $0.15 per share, compared to a net loss of $5.2 million or $0.05 per share in the previous year [30] Business Line Data and Key Metrics Changes - Advanced Wound Care revenue was $111.4 million, up 87% year-over-year, with strong contributions from the amniotic portfolio [22] - Revenue from Surgical & Sports Medicine products was $11.8 million, reflecting a 27% year-over-year increase, despite headwinds from the ReNu and NuCel product lines [23] - PuraPly products generated $37.6 million in revenue, marking a 32% increase, and continued strong performance was noted [24][64] Market Data and Key Metrics Changes - The company observed improving trends across served markets during Q2, with a focus on expanding into new physician specialties and multiple sites of care [16][14] - The company is closely monitoring the impact of COVID-19 surges in key areas, particularly in Missouri, Alabama, Oklahoma, Texas, and Florida [54][55] Company Strategy and Development Direction - The company aims to diversify revenue sources and expand its commercial reach, with a focus on increasing the number of customer accounts and enhancing its sales force [11][15] - The strategic focus includes leveraging a comprehensive product portfolio and expanding into new therapeutic areas [12][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to continue executing growth strategies despite potential COVID-related impacts [17][55] - The company expects to report positive GAAP net income and adjusted EBITDA for the full year 2021, with updated revenue guidance reflecting a 35% to 40% year-over-year increase [42][34] Other Important Information - The company secured a new credit agreement that enhances financial flexibility and reduces borrowing costs [33] - A shareholder agreement was established to prevent large shareholders from selling shares until at least March 1, 2022, to mitigate market volatility [60] Q&A Session Summary Question: Current manufacturing capacity for amniotic products - Management confirmed an increase in capacity for Affinity and amnion products in Q2, which positively impacted sales [46] Question: Dynamics driving performance of non-PuraPly products - Management noted growth in non-PMA products and attributed it to the acquisition of CPN Bioscience and increased sales representative productivity [46] Question: COVID-related risks and their potential impact - Management highlighted specific regions experiencing impacts from COVID-19, particularly in hospital settings, while noting that revenue impacts have not yet been observed [54][55] Question: Contribution of amniotic products in the second half of the year - Management indicated that significant contributions from amniotic products are expected in Q4, with capacity remaining stable in Q3 [57] Question: Update on pipeline products and BLA timelines for ReNu - Management expects to launch TransCyte in 2022 and Novachor by the end of 2021, with ReNu study enrollment completion anticipated by Q1 2022 [68] Question: Impact of competitors post-FDA enforcement grace period - Management stated it is too early to assess the impact on competitors and market share due to the recent changes [72] Question: Thoughts on EBITDA margins and cash generation - Management emphasized the focus on top-line growth while recognizing the potential for significant cash flow generation in the future [79]

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section highlights that the report contains forward-looking statements subject to inherent risks and uncertainties, based on management's current expectations - This report contains forward-looking statements related to future operations, business strategies, financing plans, growth opportunities, market opportunities, and competitive effects, which are subject to inherent risks and uncertainties[12](index=12&type=chunk) - Factors that could cause actual results to differ materially are listed under 'Risk Factors' in this Form 10-Q and the Annual Report on Form 10-K, with no obligation to update these statements unless required by law[12](index=12&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited consolidated financial statements and management's analysis of financial condition [Item 1. Unaudited Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Unaudited%20Consolidated%20Financial%20Statements) This section presents Organogenesis Holdings Inc.'s unaudited consolidated financial statements and detailed notes for periods ended June 30, 2021 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :---------------- | | **Assets** | | | | Total current assets | $201,763 | $174,344 | | Property and equipment, net | $69,739 | $60,068 | | Intangible assets, net | $28,136 | $30,622 | | Goodwill | $28,772 | $28,772 | | Total assets | $355,564 | $294,494 | | **Liabilities & Stockholders' Equity** | | | | Total current liabilities | $84,545 | $68,217 | | Total liabilities | $176,642 | $148,410 | | Total stockholders' equity | $178,922 | $146,084 | | Total liabilities and stockholders' equity | $355,564 | $294,494 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) This section presents the company's financial performance over specific periods, including revenue, expenses, and net income or loss Consolidated Statements of Operations Highlights (Amounts in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net revenue | $123,196 | $68,960 | $225,748 | $130,692 | | Gross profit | $93,256 | $48,918 | $170,313 | $91,857 | | Total operating expenses | $69,669 | $51,170 | $134,110 | $109,193 | | Income (loss) from operations | $23,587 | $(2,252) | $36,203 | $(17,336) | | Net income (loss) | $20,687 | $(5,166) | $30,630 | $(21,479) | | Basic EPS | $0.16 | $(0.05) | $0.24 | $(0.21) | | Diluted EPS | $0.15 | $(0.05) | $0.23 | $(0.21) | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's equity over time, including net income, stock option exercises, and reclassifications Stockholders' Equity Changes (Amounts in thousands) | Item | Three and Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------------- | | Balance as of December 31, 2020 (as adjusted) | $146,084 | | Exercise of stock options | $1,205 | | Vesting of RSUs, net of shares surrendered to pay taxes | $(737) | | Stock-based compensation expense | $1,740 | | Net income | $30,630 | | Balance as of June 30, 2021 | $178,922 | - The company reclassified **$2,299 thousand** from additional paid-in capital to accumulated deficit as of December 31, 2020, due to a revision in accounting for Private Warrants, classifying them as liabilities[19](index=19&type=chunk)[40](index=40&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (Amounts in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $16,180 | $(26,618) | | Net cash used in investing activities | $(9,290) | $(6,118) | | Net cash used in (provided by) financing activities | $(1,389) | $13,120 | | Change in cash and restricted cash | $5,501 | $(19,616) | | Cash and restricted cash, end of period | $90,307 | $40,754 | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements [1. Nature of the Business and Basis of Presentation](index=9&type=section&id=1.%20Nature%20of%20the%20Business%20and%20Basis%20of%20Presentation) Organogenesis, a regenerative medicine company, maintains sufficient liquidity, with the 2018 Avista Merger accounted for as a reverse merger, and no material COVID-19 impact through Q2 2021 - Organogenesis Holdings Inc. is a leading regenerative medicine company focused on Advanced Wound Care and Surgical & Sports Medicine markets, serving hospitals, wound care centers, government facilities, ASCs, and physician offices[25](index=25&type=chunk) - The COVID-19 pandemic has not materially adversely affected the company's financial results or business operations through Q2 2021, but its future impact remains uncertain[26](index=26&type=chunk) - The 2018 Avista Merger was accounted for as a reverse merger, with Organogenesis Inc. treated as the acquired company for accounting purposes, resulting in its operations prior to the merger being reflected[29](index=29&type=chunk) Liquidity and Financial Condition (Amounts in thousands) | Metric | June 30, 2021 | | :-------------------------------- | :------------ | | Accumulated deficit | $(120,129) | | Working capital | $117,218 | | Net income (six months ended) | $30,630 | | Cash from operations (six months ended) | $16,180 | | Cash | $89,790 | | Available revolving borrowings | Up to $30,000 | [2. Summary of Significant Accounting Policies](index=10&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) Interim financial statements follow GAAP and SEC rules, with no material accounting policy changes except early ASC 842 adoption and Private Warrants reclassification - The company early adopted ASC 842 (Leases) on January 1, 2021, recognizing an operating lease liability of **$15,935 thousand** and a right-of-use asset of **$13,525 thousand**, without recasting prior periods[41](index=41&type=chunk) - Following SEC guidance, the company reevaluated and reclassified **$2,299 thousand** from additional paid-in capital to accumulated deficit as of December 31, 2020, to account for Private Warrants as liabilities at fair value[39](index=39&type=chunk)[40](index=40&type=chunk) - The company is assessing the impact of ASU 2016-13 (Credit Losses) and related updates, which will be adopted on January 1, 2023[42](index=42&type=chunk) [3. Acquisition](index=12&type=section&id=3.%20Acquisition) On September 17, 2020, Organogenesis acquired CPN Biosciences, LLC, for an aggregate consideration of $19.0 million, including cash, common stock, and a contingent Earnout liability. The Earnout liability, initially $3,782 thousand, decreased to $927 thousand by June 30, 2021, due to an updated market assessment for CPN's legacy products - The company acquired CPN Biosciences, LLC on September 17, 2020, for **$19.0 million**, comprising cash, common stock, and a contingent Earnout liability[44](index=44&type=chunk)[131](index=131&type=chunk) Earnout Liability Fair Value (Amounts in thousands) | Date | Earnout Liability | | :---------------- | :---------------- | | Acquisition Date | $3,782 | | December 31, 2020 | $3,985 | | June 30, 2021 | $927 | - The Earnout liability decreased significantly due to an updated assessment of the near-term market for CPN's product portfolio[50](index=50&type=chunk) [4. Product and Geographic Sales](index=12&type=section&id=4.%20Product%20and%20Geographic%20Sales) Organogenesis generates revenue from Advanced Wound Care and Surgical & Sports Medicine products, recognizing revenue when customers gain control of products, net of returns, discounts, and GPO rebates. For the three and six months ended June 30, 2021, both product categories showed significant revenue growth compared to the prior year, with minimal revenue from outside the United States - Revenue is recognized when customers obtain control of products, net of reserves for returns, discounts, and GPO rebates[46](index=46&type=chunk) Revenue by Product Category (Amounts in thousands) | Product Category | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Advanced Wound Care | $111,436 | $59,731 | $202,144 | $111,019 | | Surgical & Sports Medicine | $11,760 | $9,229 | $23,604 | $19,673 | | Total net revenue | $123,196 | $68,960 | $225,748 | $130,692 | - Net revenue generated outside the United States represented less than **1%** of total net revenue for all periods presented[47](index=47&type=chunk) [5. Fair Value of Financial Assets and Liabilities](index=12&type=section&id=5.%20Fair%20Value%20of%20Financial%20Assets%20and%20Liabilities) The company's financial liabilities measured at fair value on a recurring basis primarily consist of the Earnout liability from the CPN acquisition, classified as Level 3. The fair value of this liability decreased from $3,985 thousand at December 31, 2020, to $927 thousand at June 30, 2021, reflecting an updated market assessment Fair Value Measurements of Liabilities (Amounts in thousands) | Liability | June 30, 2021 (Level 3) | December 31, 2020 (Level 3) | | :---------------- | :---------------------- | :-------------------------- | | Earnout liability | $927 | $3,985 | | Total | $927 | $3,985 | - The Earnout liability is a Level 3 measurement, estimated using a Monte Carlo simulation model based on forecasted revenues and volatilities[50](index=50&type=chunk) - The change in fair value of the Earnout liability for the six months ended June 30, 2021, was a decrease of **$3,058 thousand**[50](index=50&type=chunk) [6. Accounts Receivable, Net](index=13&type=section&id=6.%20Accounts%20Receivable,%20Net) Accounts receivable, net, increased to $76,767 thousand at June 30, 2021, from $56,804 thousand at December 31, 2020. The allowance for sales returns and doubtful accounts also increased, with additions of $2,158 thousand for the six months ended June 30, 2021 Accounts Receivable, Net (Amounts in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :---------------- | | Accounts receivable | $83,880 | $61,792 | | Less — allowance for sales returns and doubtful accounts | $(7,113) | $(4,988) | | Accounts receivable, net | $76,767 | $56,804 | Allowance for Sales Returns and Doubtful Accounts (Amounts in thousands) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $4,988 | $3,049 | | Additions | $2,158 | $970 | | Write-offs | $(33) | $(91) | | Balance at end of period | $7,113 | $3,928 | [7. Inventories](index=14&type=section&id=7.%20Inventories) Inventories, net of reserves, remained relatively stable at $28,106 thousand at June 30, 2021, compared to $27,799 thousand at December 31, 2020. The company recorded $4,678 thousand in charges for inventory excess and obsolescence for the six months ended June 30, 2021 Inventories, Net (Amounts in thousands) | Category | June 30, 2021 | December 31, 2020 | | :---------------- | :------------ | :---------------- | | Raw materials | $10,075 | $10,144 | | Work in process | $1,305 | $1,732 | | Finished goods | $16,419 | $16,230 | | Total | $27,799 | $28,106 | Inventory Excess and Obsolescence Charges (Amounts in thousands) | Period | Charge | | :----------------------------- | :------- | | Three months ended June 30, 2021 | $2,388 | | Six months ended June 30, 2021 | $4,678 | [8. Prepaid Expenses and Other Current Assets](index=14&type=section&id=8.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Prepaid expenses and other current assets increased to $6,583 thousand at June 30, 2021, from $4,935 thousand at December 31, 2020, driven by increases in conferences and marketing expenses, deposits, and other prepaid items Prepaid Expenses and Other Current Assets (Amounts in thousands) | Category | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :---------------- | | Subscriptions | $2,211 | $2,013 | | Conferences and marketing expenses | $921 | $63 | | Deposits | $1,796 | $1,438 | | Reimbursement of offering expenses | $— | $1,009 | | Other | $1,655 | $412 | | Total | $6,583 | $4,935 | [9. Property and Equipment, Net](index=15&type=section&id=9.%20Property%20and%20Equipment,%20Net) Property and equipment, net, increased to $69,739 thousand at June 30, 2021, from $60,068 thousand at December 31, 2020, primarily due to ongoing construction in progress and leasehold improvements. Depreciation expense for the six months ended June 30, 2021, was $2,073 thousand Property and Equipment, Net (Amounts in thousands) | Category | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :---------------- | | Leasehold improvements | $48,503 | $39,574 | | Furniture, computers and equipment | $50,221 | $48,236 | | Accumulated depreciation and amortization | $(71,593) | $(69,521) | | Construction in progress | $42,608 | $41,779 | | Total | $69,739 | $60,068 | Depreciation Expense (Amounts in thousands) | Period | Depreciation Expense | | :----------------------------- | :------------------- | | Three months ended June 30, 2021 | $1,063 | | Six months ended June 30, 2021 | $2,073 | [10. Goodwill and Intangible Assets](index=15&type=section&id=10.%20Goodwill%20and%20Intangible%20Assets) Goodwill remained constant at $28,772 thousand. Identifiable intangible assets, net, decreased to $28,136 thousand at June 30, 2021, from $30,622 thousand at December 31, 2020, primarily due to amortization. Amortization expense for the six months ended June 30, 2021, was $2,486 thousand - Goodwill remained unchanged at **$28,772 thousand** as of June 30, 2021, and December 31, 2020[57](index=57&type=chunk) Identifiable Intangible Assets, Net (Amounts in thousands) | Category | June 30, 2021 Net Book Value | December 31, 2020 Net Book Value | | :-------------------- | :--------------------------- | :--------------------------- | | Developed technology | $16,600 | $18,290 | | Trade names and trademarks | $1,024 | $1,174 | | Customer relationships | $9,844 | $10,378 | | Non-compete agreements | $668 | $780 | | Total | $28,136 | $30,622 | Amortization of Intangible Assets (Amounts in thousands) | Period | Amortization Expense | | :----------------------------- | :------------------- | | Three months ended June 30, 2021 | $1,243 | | Six months ended June 30, 2021 | $2,486 | [11. Accrued Expenses and Other Current Liabilities](index=16&type=section&id=11.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued expenses and other current liabilities increased to $26,618 thousand at June 30, 2021, from $23,973 thousand at December 31, 2020, primarily due to higher personnel costs Accrued Expenses and Other Current Liabilities (Amounts in thousands) | Category | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Personnel costs | $22,024 | $18,943 | | Royalties | $2,718 | $2,971 | | Other | $1,876 | $2,059 | | Total | $26,618 | $23,973 | [12. Restructuring](index=16&type=section&id=12.%20Restructuring) In October 2020, the company initiated a restructuring plan to consolidate manufacturing operations in Massachusetts, expecting a total charge of approximately $7.0 million. For the six months ended June 30, 2021, a pre-tax charge of $1,866 thousand was incurred, primarily for employee retention benefits. The restructuring liability stood at $2,410 thousand as of June 30, 2021 - The company committed to a restructuring plan in October 2020 to consolidate manufacturing operations, with an estimated total charge of **$7.0 million** (**$4.5 million** for employee retention, **$2.5 million** for facility closures)[61](index=61&type=chunk) Restructuring Charges and Liability (Amounts in thousands) | Metric | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Pre-tax charge | $939 | $1,866 | | Restructuring liability (June 30, 2021) | | $2,410 | Restructuring Liability Roll-Forward (Amounts in thousands) | Category | Employee | Facility | | :-------------------------- | :------- | :------- | | Balance as of December 31, 2020 | $618 | $— | | Expenses (six months) | $1,763 | $103 | | Payments (six months) | $— | $(74) | | Balance as of June 30, 2021 | $2,381 | $29 | [13. Long-Term Debt Obligations](index=16&type=section&id=13.%20Long-Term%20Debt%20Obligations) The company's long-term debt includes a $10,000 thousand line of credit and a $60,000 thousand term loan under the 2019 Credit Agreement. As of June 30, 2021, the term loan, net of current portion and debt costs, was $37,290 thousand. The company was in compliance with financial covenants and had $30,000 thousand available under the revolving facility. A new credit agreement was entered into on August 6, 2021, terminating the 2019 agreement Long-Term Debt Obligations (Amounts in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :---------------- | | Line of credit | $10,000 | $10,000 | | Term loan (gross) | $60,000 | $60,000 | | Term loan, net of debt discount, debt issuance cost and current maturities | $37,290 | $43,044 | - The 2019 Credit Agreement included a **$60,000 thousand** Term Loan Facility and a **$40,000 thousand** Revolving Credit Facility[65](index=65&type=chunk)[66](index=66&type=chunk) - As of June 30, 2021, the company had **$60,000 thousand** outstanding on the Term Loan Facility and **$10,000 thousand** on the Revolving Facility, with up to **$30,000 thousand** available for future revolving borrowings[71](index=71&type=chunk) - The company was in compliance with all financial covenants under the 2019 Credit Agreement as of June 30, 2021[183](index=183&type=chunk) - On August 6, 2021, the company terminated the 2019 Credit Agreement and entered into a new credit agreement with a term loan facility not to exceed **$75,000 thousand** and a revolving credit facility not to exceed **$125,000 thousand**, both maturing on August 6, 2026[120](index=120&type=chunk)[183](index=183&type=chunk) [14. Stockholders' Equity](index=18&type=section&id=14.%20Stockholders'%20Equity) As of June 30, 2021, Organogenesis had 129,011,789 shares of Class A common stock issued and 128,283,241 shares outstanding. The company reserved 13,499,895 shares for future issuance, including for outstanding options and restricted stock units Common Stock and Shares Reserved for Issuance | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------ | :---------------- | | Authorized Class A common stock | 400,000,000 | 400,000,000 | | Issued Class A common stock | 129,011,789 | 128,460,381 | | Outstanding Class A common stock | 128,283,241 | 127,731,833 | | Shares reserved for outstanding options | 7,070,008 | 6,425,040 | | Shares reserved for outstanding restricted stock units | 787,023 | 806,048 | | Shares reserved for future grants | 5,642,864 | 6,832,649 | | Total shares reserved for future issuance | 13,499,895 | 14,063,737 | [15. Stock-Based Compensation](index=18&type=section&id=15.%20Stock-Based%20Compensation) The company operates under the 2018 Plan for long-term incentives, with 9,198,996 shares authorized, and the legacy 2003 Plan, under which no new awards are made. Stock-based compensation expense for the six months ended June 30, 2021, was $1,740 thousand. The total unrecognized compensation cost for unvested RSUs and stock options was $3,891 thousand and $4,676 thousand, respectively, as of June 30, 2021 - The 2018 Plan authorizes **9,198,996 shares** of Class A common stock for various awards to employees, officers, directors, and consultants[76](index=76&type=chunk) - No additional awards can be made under the 2003 Plan since the Avista Merger on December 10, 2018[78](index=78&type=chunk) Stock-Based Compensation Expense (Amounts in thousands) | Period | Stock-Based Compensation Expense | | :----------------------------- | :------------------------------- | | Three months ended June 30, 2021 | $1,042 | | Six months ended June 30, 2021 | $1,740 | Restricted Stock Unit (RSU) Activity | Metric | Number of Shares (June 30, 2021) | | :-------------------------------- | :------------------------------- | | Unvested at December 31, 2020 | 806,048 | | Granted | 290,027 | | Vested | (252,743) | | Canceled/Forfeited | (56,309) | | Unvested at June 30, 2021 | 787,023 | | Unrecognized compensation cost | $3,891 (weighted average remaining recognition period: 3.16 years) | Stock Option Activity | Metric | Number of Shares (June 30, 2021) | | :-------------------------------- | :------------------------------- | | Outstanding as of December 31, 2020 | 6,620,318 | | Granted | 1,037,099 | | Exercised | (558,785) | | Canceled / forfeited | (28,624) | | Outstanding as of June 30, 2021 | 7,070,008 | | Options exercisable as of June 30, 2021 | 4,709,080 | | Unrecognized stock compensation expense | $4,676 (weighted average period: 3.27 years) | [16. Net Income (Loss) per Share (EPS)](index=19&type=section&id=16.%20Net%20Income%20(Loss)%20per%20Share%20(EPS)) Basic EPS is calculated by dividing net income (loss) by the weighted-average shares outstanding, while diluted EPS includes the dilutive effect of equity awards. For the six months ended June 30, 2021, basic EPS was $0.24 and diluted EPS was $0.23, reflecting net income. In contrast, for the same period in 2020, the company reported a net loss, making all potentially dilutive securities anti-dilutive Net Income (Loss) per Share (EPS) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income (loss) | $20,687 | $(5,166) | $30,630 | $(21,479) | | Weighted average common shares outstanding — basic | 128,235,224 | 104,714,725 | 128,053,654 | 104,600,825 | | Dilutive effect of restricted stock units | 508,015 | — | 517,837 | — | | Dilutive effect of options | 5,245,174 | — | 5,149,700 | — | | Weighted-average common shares outstanding — diluted | 133,988,413 | 104,714,725 | 133,721,191 | 104,600,825 | | Earnings (loss) per share—basic | $0.16 | $(0.05) | $0.24 | $(0.21) | | Earnings (loss) per share—diluted | $0.15 | $(0.05) | $0.23 | $(0.21) | - For periods with a net loss (e.g., three and six months ended June 30, 2020), potentially dilutive securities are excluded from diluted EPS calculation as they are anti-dilutive[90](index=90&type=chunk) [17. Leases](index=21&type=section&id=17.%20Leases) The company leases real estate, equipment, and vehicles under noncancelable operating and finance leases. Upon adoption of ASC 842 on January 1, 2021, the company recognized operating lease ROU assets of $13,525 thousand and liabilities of $15,935 thousand. Lease costs for the six months ended June 30, 2021, totaled $8,142 thousand. Significant finance lease obligations to related parties, including accrued but unpaid amounts, are subordinated to the 2019 Credit Agreement - The company leases real estate, equipment, and vehicles, with lease terms extending through **2031** for real estate[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) Lease Cost Components (Amounts in thousands) | Lease Type | Classification | Six Months Ended June 30, 2021 | | :-------------------- | :------------- | :----------------------------- | | Finance lease cost | COGS and SG&A, Interest Expense | $1,264 | | Operating lease cost | COGS, R&D, SG&A | $3,015 | | Short-term lease cost | COGS, R&D, SG&A | $1,414 | | Variable lease cost | COGS, R&D, SG&A | $2,449 | | Total lease cost | | $8,142 | Supplemental Balance Sheet Information Related to Finance Leases (Amounts in thousands) | Metric | June 30, 2021 | | :-------------------------------- | :------------ | | Property and equipment, net | $7,411 | | Current portion of finance lease obligations | $4,134 | | Finance lease long-term obligations | $9,553 | | Total finance lease liabilities | $13,687 | - As of June 30, 2021, the company owed **$10,336 thousand** in accrued but unpaid lease obligations to affiliates, which are subordinated to the 2019 Credit Agreement and will not be paid until 2024[101](index=101&type=chunk) [18. Commitments and Contingencies](index=24&type=section&id=18.%20Commitments%20and%20Contingencies) The company has royalty commitments for licensed products, incurring $2,355 thousand in royalty expense for the six months ended June 30, 2021. Legal proceedings are not expected to have a material adverse effect, with $150 thousand accrued for pending lawsuits. A gain of $1,295 thousand was recorded in 2020 from the settlement of a deferred acquisition consideration dispute related to the NuTech Medical acquisition Royalty Expense (Amounts in thousands) | Period | Royalty Expense | | :----------------------------- | :-------------- | | Three months ended June 30, 2021 | $1,134 | | Six months ended June 30, 2021 | $2,355 | - The company accrued **$150 thousand** for certain pending lawsuits as of June 30, 2021, and December 31, 2020, and believes the ultimate resolution of legal claims will not materially affect its financial position[111](index=111&type=chunk) - A gain of **$1,295 thousand** was recorded for the six months ended June 30, 2020, due to the settlement of a deferred acquisition consideration dispute and a legacy lawsuit related to the NuTech Medical acquisition[112](index=112&type=chunk) [19. Related Party Transactions](index=25&type=section&id=19.%20Related%20Party%20Transactions) Related party transactions include finance and operating lease obligations to affiliates. Additionally, a former executive repaid outstanding Employer Loans totaling $434 thousand during the three months ended March 31, 2021, resulting in a $179 thousand recovery of previously reserved receivables - Finance lease obligations and an operating lease with affiliates are considered related party transactions[114](index=114&type=chunk) - A former executive repaid **$434 thousand** in outstanding principal balance of Employer Loans (Liquidity Loans and Option Loans) during Q1 2021[115](index=115&type=chunk) - The repayment of related party receivables resulted in a **$179 thousand** recovery recorded within selling, general and administrative expenses for the six months ended June 30, 2021[115](index=115&type=chunk) [20. Taxes](index=25&type=section&id=20.%20Taxes) The company is primarily subject to U.S. taxation and maintains a full valuation allowance against its U.S. deferred tax assets due to cumulative losses. Income tax expense for the six months ended June 30, 2021, was $687 thousand, mainly related to cash taxes in certain states and Switzerland, where its subsidiary operates profitably - The company maintains a full valuation allowance against its U.S. deferred tax assets due to a history of cumulative losses, indicating it is more likely than not that these assets will not be utilized[117](index=117&type=chunk)[118](index=118&type=chunk) Income Tax Expense (Amounts in thousands) | Period | Income Tax Expense | | :----------------------------- | :----------------- | | Six months ended June 30, 2021 | $687 | | Six months ended June 30, 2020 | $62 | - Income tax expense primarily relates to cash taxes in certain states where net operating losses are exhausted or limited, and foreign taxes in Switzerland[117](index=117&type=chunk) [21. Subsequent Events](index=25&type=section&id=21.%20Subsequent%20Events) On August 6, 2021, the company entered into a new credit agreement, providing for a term loan facility up to $75,000 thousand and a revolving credit facility up to $125,000 thousand, both maturing on August 6, 2026. Concurrently, the 2019 Credit Agreement was terminated, with all amounts due, including principal, accrued interest, final payment, and prepayment premium, being paid off - On August 6, 2021, the company entered into a new credit agreement, replacing the 2019 Credit Agreement[120](index=120&type=chunk) - The new credit agreement includes a term loan facility not exceeding **$75,000 thousand** and a revolving credit facility not exceeding **$125,000 thousand**, both maturing on August 6, 2026[120](index=120&type=chunk) - All amounts due under the 2019 Credit Agreement, including principal, accrued interest, Final Payment, and Prepayment Premium, were paid off upon its termination[120](index=120&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results, covering revenue growth, COVID-19 impact, CPN acquisition, regulatory changes for ReNu/NuCel, and key accounting policies [Overview](index=26&type=section&id=Overview) Organogenesis is a leading regenerative medicine company focused on Advanced Wound Care and Surgical & Sports Medicine markets, aiming to improve patient outcomes and lower care costs. The company leverages clinical data and FDA approvals for a competitive advantage and has a robust product pipeline. For the six months ended June 30, 2021, it reported significant net revenue and net income, a turnaround from a net loss in the prior year, but still carries an accumulated deficit - Organogenesis is a leading regenerative medicine company with a comprehensive portfolio of products in Advanced Wound Care and Surgical & Sports Medicine markets, supported by clinical studies and FDA approvals[123](index=123&type=chunk)[124](index=124&type=chunk) - The company's mission is to provide integrated healing solutions that substantially improve medical outcomes and patient lives while lowering overall care costs[123](index=123&type=chunk) Key Financial Performance (Six Months Ended June 30, Amounts in millions) | Metric | 2021 | 2020 | | :---------------- | :--- | :--- | | Net revenue | $225.7 | $130.7 | | Net income (loss) | $30.6 | $(21.5) | | Accumulated deficit (as of June 30, 2021) | $(120.1) | | [COVID-19 pandemic](index=27&type=section&id=COVID-19%20pandemic) The COVID-19 pandemic has not materially impacted the company's financial results or operations through Q2 2021, but the future impact remains uncertain. The company continues to monitor the situation, implement safety measures, and evaluate its liquidity and financial performance - The COVID-19 pandemic has not materially adversely affected the company's financial results and business operations through the second quarter ended June 30, 2021[130](index=130&type=chunk) - The company is unable to predict the future impact of COVID-19 due to numerous uncertainties and is closely monitoring the evolving situation, implementing measures for employee safety, customer support, and business continuity[130](index=130&type=chunk) [CPN Acquisition](index=27&type=section&id=CPN%20Acquisition) On September 17, 2020, Organogenesis acquired CPN Biosciences, LLC, for an aggregate consideration of $19.0 million, including cash, common stock, and a contingent Earnout. The results of CPN's operations have been included in the consolidated financial statements since the acquisition date, though revenue and expenses from CPN have not been material - The company acquired CPN Biosciences, LLC on September 17, 2020, for **$19.0 million**, consisting of **$6.4 million** in cash, **$8.8 million** in common stock, and a **$3.8 million** contingent Earnout[131](index=131&type=chunk) - Revenue and expenses of CPN since the acquisition date were not material to the consolidated financial statements[131](index=131&type=chunk) [End of Enforcement Grace Period for ReNu and NuCel](index=27&type=section&id=End%20of%20Enforcement%20Grace%20Period%20for%20ReNu%20and%20NuCel) The FDA's enforcement grace period for certain HCT/Ps ended on May 31, 2021, leading Organogenesis to cease commercial distribution of its ReNu and NuCel products. The company will focus on clinical development of ReNu for knee osteoarthritis and other applications to support a Biologics License Application, while discontinuing clinical development of NuCel - The FDA's enforcement grace period for certain Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/Ps) ended on May 31, 2021, leading to the regulation of ReNu and NuCel products under Section 351[132](index=132&type=chunk) - The company ceased commercial distribution of ReNu and NuCel after May 31, 2021[132](index=132&type=chunk) - Organogenesis will focus on clinical development of ReNu for knee osteoarthritis and other tissue regeneration applications to support FDA approval of a Biologics License Application, discontinuing NuCel's clinical development[132](index=132&type=chunk) [Components of Our Consolidated Results of Operations](index=27&type=section&id=Components%20of%20Our%20Consolidated%20Results%20of%20Operations) This section outlines key components influencing consolidated results, including revenue, cost of goods sold, gross profit, operating expenses, other income/expense, and income taxes [Revenue](index=27&type=section&id=Revenue) Revenue is derived from Advanced Wound Care and Surgical & Sports Medicine products, primarily sold through direct sales representatives and third-party agencies, respectively. Revenue is recognized net of returns, discounts, and GPO rebates. Factors like product mix, pricing, and regulatory actions, including changes in Medicare pass-through status for PuraPly products, significantly affect reported revenue - Net revenue is derived from Advanced Wound Care and Surgical & Sports Medicine products, sold through direct sales representatives and third-party agencies, respectively[134](index=134&type=chunk) - Revenue is recorded net of reserves for returns, discounts, and Group Purchasing Organization (GPO) rebates[136](index=136&type=chunk) - The pass-through status for PuraPly and PuraPly AM products expired on September 30, 2020, transitioning them to a bundled payment structure; however, the company has not observed a decrease in PuraPly revenue due to recently launched line extensions[138](index=138&type=chunk) [Cost of goods sold, gross profit and gross profit margin](index=28&type=section&id=Cost%20of%20goods%20sold,%20gross%20profit%20and%20gross%20profit%20margin) Cost of goods sold includes personnel, testing, quality assurance, raw materials, manufacturing, and facility costs, expected to increase with sales volumes. Gross profit and gross profit margin are influenced by sales mix, pricing, manufacturing efficiency, and material costs, with regulatory actions potentially decreasing them - Cost of goods sold includes personnel, product testing, quality assurance, raw materials, manufacturing, and facility costs, and is expected to increase with sales volumes[139](index=139&type=chunk) - Gross profit and gross profit margin are affected by product and geographic sales mix, realized pricing, manufacturing efficiency, and material costs, with regulatory actions and pricing pressures potentially decreasing these margins[140](index=140&type=chunk) [Selling, general and administrative expenses](index=28&type=section&id=Selling,%20general%20and%20administrative%20expenses) Selling, general and administrative expenses encompass personnel costs for sales, marketing, and administrative functions, commissions, insurance, professional fees, depreciation, amortization, bad debt, royalties, and information systems costs. These expenses are generally expected to increase due to investments in market development and sales force expansion to support revenue growth - Selling, general and administrative expenses include personnel costs for sales, marketing, and administrative staff, sales commissions, incentive compensation, insurance, professional fees, depreciation, amortization, bad debt, royalties, and information systems costs[141](index=141&type=chunk) - These expenses are expected to increase due to investments in market development and geographic expansion of sales forces to drive continued revenue growth[141](index=141&type=chunk) [Research and development expenses](index=28&type=section&id=Research%20and%20development%20expenses) Research and development expenses include personnel costs, manufacturing process improvements, product enhancements, and investments in the product pipeline and clinical trials. These costs are expensed as incurred and are expected to increase with ongoing clinical trials, regulatory approvals, personnel additions, and manufacturing process enhancements - Research and development expenses cover personnel, manufacturing process improvements, product enhancements, product and platform development, and clinical trials[142](index=142&type=chunk) - These expenses are expensed as incurred and are expected to increase due to continued clinical trials, efforts to obtain regulatory approvals, and expansion of personnel and manufacturing processes[143](index=143&type=chunk) [Other expense, net](index=29&type=section&id=Other%20expense,%20net) Other expense, net, primarily consists of interest expense on outstanding indebtedness, including amortization of debt discount and issuance costs. It also includes non-recurring items such as the gain on settlement of deferred acquisition consideration, which contributed to a $1.3 million gain in February 2020 - Interest expense, net, includes interest on outstanding indebtedness and amortization of debt discount and issuance costs[144](index=144&type=chunk) - A gain of **$1.3 million** was recognized in February 2020 from the settlement of deferred acquisition consideration related to the NuTech Medical acquisition[145](index=145&type=chunk) [Income taxes](index=29&type=section&id=Income%20taxes) The company uses an asset and liability approach for income taxes, with deferred income taxes reflecting temporary differences. A full valuation allowance is maintained against U.S. deferred tax assets due to cumulative losses, meaning the U.S. provision for income taxes primarily relates to current tax expense not offset by state net operating losses. A foreign provision for income taxes is recorded for its Swiss subsidiary - The company accounts for income taxes using an asset and liability approach, with deferred income taxes reflecting temporary differences[146](index=146&type=chunk) - A full valuation allowance is maintained against U.S. deferred tax assets due to cumulative losses, indicating that these assets are not likely to be realized[147](index=147&type=chunk) - The U.S. provision for income taxes primarily relates to current tax expense not offset by state net operating losses, and a foreign provision is recorded for the Swiss subsidiary[147](index=147&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) The company experienced significant financial improvement for the three and six months ended June 30, 2021, compared to 2020, with substantial increases in net revenue, gross profit, and a shift from net loss to net income. This growth was driven by expanded sales forces, increased customer adoption, and a favorable product mix. Operating expenses also increased due to headcount, marketing, and R&D investments [EBITDA and Adjusted EBITDA](index=30&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) Management uses non-GAAP financial measures like EBITDA and Adjusted EBITDA to evaluate operating performance and trends. For the six months ended June 30, 2021, Adjusted EBITDA was $41,146 thousand, a significant improvement from a negative $10,668 thousand in the prior year, after adjusting for items like stock-based compensation, changes in Earnout fair value, and restructuring charges - Management uses non-GAAP financial measures, including EBITDA and Adjusted EBITDA, to evaluate operating performance and trends, believing they provide useful information by excluding certain items[151](index=151&type=chunk) EBITDA and Adjusted EBITDA Reconciliation (Amounts in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $20,687 | $(5,166) | $30,630 | $(21,479) | | EBITDA | $25,911 | $(520) | $40,777 | $(12,569) | | Stock-based compensation expense | $1,042 | $469 | $1,740 | $678 | | Change in fair value of Earnout | $(2,762) | $— | $(3,058) | $— | | Restructuring charge | $939 | $— | $1,866 | $— | | Adjusted EBITDA | $25,130 | $274 | $41,146 | $(10,668) | [Comparison of the Three and Six Months Ended June 30, 2021 and 2020](index=31&type=section&id=Comparison%20of%20the%20Three%20and%20Six%20Months%20Ended%20June%2030,%202021%20and%202020) The company demonstrated strong financial performance for the three and six months ended June 30, 2021, with significant revenue growth across both Advanced Wound Care and Surgical & Sports Medicine segments. Gross profit margins improved, and while operating expenses increased due to strategic investments, the company transitioned from an operating loss to a substantial operating income [Revenue](index=31&type=section&id=Revenue) Net revenue increased significantly for both the three and six months ended June 30, 2021, driven by expanded sales forces, increased customer adoption, and growth in the amniotic product portfolio. Advanced Wound Care revenue grew by 87% and 82% for the three and six-month periods, respectively, while Surgical & Sports Medicine revenue increased by 27% and 20%. PuraPly revenue also continued to increase despite the expiration of pass-through status Net Revenue Growth by Product Category (Amounts in thousands) | Product Category | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change ($) | Change (%) | | :----------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Advanced Wound Care | $111,436 | $59,731 | $51,705 | 87% | | Surgical & Sports Medicine | $11,760 | $9,229 | $2,531 | 27% | | Net revenue | $123,196 | $68,960 | $54,236 | 79% | | Product Category | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change ($) | Change (%) | | :----------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Advanced Wound Care | $202,144 | $111,019 | $91,125 | 82% | | Surgical & Sports Medicine | $23,604 | $19,673 | $3,931 | 20% | | Net revenue | $225,748 | $130,692 | $95,056 | 73% | - The increase in Advanced Wound Care net revenue was primarily due to an expanded sales force, increased sales to existing and new customers, and increased adoption of the amniotic product portfolio[157](index=157&type=chunk) - PuraPly revenue continued to increase in the three and six months ended June 30, 2021, despite exiting pass-through status, driven by expanded sales forces, increased customer sales, and adoption of recently launched line extensions[159](index=159&type=chunk) [Cost of goods sold, gross profit and gross profit margin](index=32&type=section&id=Cost%20of%20goods%20sold,%20gross%20profit%20and%20gross%20profit%20margin) Cost of goods sold increased by 49% and 43% for the three and six months ended June 30, 2021, respectively, primarily due to higher unit volumes and increased manufacturing headcount. Gross profit saw substantial increases of 91% and 85% for the respective periods, with gross profit margins improving to 76% and 75%, driven by increased sales volume and a shift towards higher gross margin products Cost of Goods Sold, Gross Profit, and Gross Profit Margin (Amounts in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change ($) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Cost of goods sold | $29,940 | $20,042 | $9,898 | 49% | | Gross profit | $93,256 | $48,918 | $44,338 | 91% | | Gross profit % | 76% | 71% | | | | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Cost of goods sold | $55,435 | $38,835 | $16,600 | 43% | | Gross profit | $170,313 | $91,857 | $78,456 | 85% | | Gross profit % | 75% | 70% | | | - The increase in cost of goods sold was primarily due to increased unit volumes and additional manufacturing and quality control headcount[160](index=160&type=chunk) - The increase in gross profit resulted primarily from increased sales volume and a shift in product mix to higher gross margin products[161](index=161&type=chunk) [Research and Development Expenses](index=32&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses increased by 57% and 34% for the three and six months ended June 30, 2021, respectively. This rise was mainly due to increased headcount for existing products, higher product costs for pipeline products, and increased clinical study and regulatory approval costs Research and Development Expenses (Amounts in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Research and development | $7,320 | $4,668 | $2,652 | 57% | | R&D as a percentage of net revenue | 6% | 7% | | | | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Research and development | $13,529 | $10,078 | $3,451 | 34% | | R&D as a percentage of net revenue | 6% | 8% | | | - The increase in R&D expenses was primarily due to increased headcount for existing products, higher product costs for pipeline products not yet commercialized, and increased clinical study and regulatory approval costs[163](index=163&type=chunk) [Selling, General and Administrative Expenses](index=33&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) Selling, general and administrative expenses increased by 34% and 22% for the three and six months ended June 30, 2021, respectively. These increases were primarily driven by additional headcount in the direct sales force, higher sales commissions, increased travel and marketing programs, restructuring costs, and higher legal and consulting fees. These increases were partially offset by a decrease in the CPN Earnout fair value adjustment Selling, General and Administrative Expenses (Amounts in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Selling, general and administrative | $62,349 | $46,502 | $15,847 | 34% | | SG&A as a percentage of net revenue | 51% | 67% | | | | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Selling, general and administrative | $120,581 | $99,115 | $21,466 | 22% | | SG&A as a percentage of net revenue | 53% | 76% | | | - Key drivers for the increase in SG&A expenses include additional headcount in the direct sales force, increased sales commissions, higher travel and marketing programs, restructuring costs, and increased legal and consulting fees[164](index=164&type=chunk)[165](index=165&type=chunk) - These increases were partially offset by a decrease resulting from the CPN Earnout fair value adjustment and a decrease in the cancellation fee incurred in Q1 2020[164](index=164&type=chunk)[165](index=165&type=chunk) [Other Expense, net](index=34&type=section&id=Other%20Expense,%20net) Total other expense, net, decreased by $0.5 million for the three months ended June 30, 2021, primarily due to reduced interest expense. However, for the six months ended June 30, 2021, it increased by $0.8 million, mainly because of the absence of the $1.3 million gain on settlement of deferred acquisition consideration recognized in the prior year Other Expense, Net (Amounts in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Interest expense, net | $(2,431) | $(2,912) | $481 | (17%) | | Other income (expense), net | $18 | $25 | $(7) | (28%) | | Total other expense, net | $(2,413) | $(2,887) | $474 | (16%) | | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Interest expense, net | $(4,901) | $(5,422) | $521 | (10%) | | Gain on settlement of deferred acquisition consideration | $— | $1,295 | $(1,295) | (100%) | | Other income, net | $15 | $46 | $(31) | (67%) | | Total other expense, net | $(4,886) | $(4,081) | $(805) | 20% | - The decrease in total other expense, net, for the three-month period was primarily due to reduced interest expense from lower borrowings[167](index=167&type=chunk) - The increase in total other expense, net, for the six-month period was mainly due to the absence of the **$1.3 million** gain on settlement of deferred acquisition consideration recognized in the prior year[168](index=168&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by $89.8 million in cash and $117.2 million in working capital as of June 30, 2021, along with available revolving borrowings. Management expects these resources, combined with cash flows from product sales, to be sufficient for operating expenses, capital expenditures, and debt service for at least the next 12 months. Primary cash uses include working capital, capital expenditures, and debt service, with potential for future equity or debt financings [Cash Flows](index=35&type=section&id=Cash%20Flows) For the six months ended June 30, 2021, net cash provided by operating activities was $16.2 million, a significant improvement from a net cash used of $26.6 million in the prior year. Investing activities used $9.3 million, primarily for capital expenditures. Financing activities used $1.4 million, mainly for lease obligations and deferred acquisition consideration payments, offset by stock option exercises [Operating Activities](index=35&type=section&id=Operating%20Activities) Net cash provided by operating activities was $16.2 million for the six months ended June 30, 2021, driven by net income and non-cash charges, partially offset by increased accounts receivable, inventory, and prepaid expenses. This contrasts with $26.6 million net cash used in operating activities for the same period in 2020, which was due to a net loss and increases in operating assets - Net cash provided by operating activities was **$16.2 million** for the six months ended June 30, 2021, resulting from net income of **$30.6 million** and non-cash charges of **$14.1 million**, partially offset by **$28.5 million** used in changes in operating assets and liabilities[174](index=174&type=chunk) - Net cash used in operating activities was **$26.6 million** for the six months ended June 30, 2020, due to a net loss of **$21.5 million** and **$12.0 million** used in changes in operating assets and liabilities[175](index=175&type=chunk) [Investing Activities](index=35&type=section&id=Investing%20Activities) Net cash used in investing activities was $9.3 million for the six months ended June 30, 2021, solely for capital expenditures. This compares to $6.1 million used in the prior year, which also included capital expenditures, partially offset by notes receivable repayment - Net cash used in investing activities was **$9.3 million** for the six months ended June 30, 2021, consisting entirely of capital expenditures[176](index=176&type=chunk) - For the six months ended June 30, 2020, **$6.1 million** was used in investing activities, primarily for capital expenditures, partially offset by **$0.3 million** from notes receivable repayment[176](index=176&type=chunk) [Financing Activities](index=35&type=section&id=Financing%20Activities) Net cash used in financing activities was $1.4 million for the six months ended June 30, 2021, primarily due to payments for finance lease obligations, deferred acquisition consideration, and withholding taxes for stock-based awards, partially offset by proceeds from stock option exercises. In contrast, the prior year saw $13.1 million provided by financing activities, mainly from credit agreement proceeds - Net cash used in financing activities was **$1.4 million** for the six months ended June 30, 2021, primarily due to payments of finance lease obligations (**$1.4 million**), deferred acquisition consideration (**$0.5 million**), and withholding taxes for RSUs (**$0.7 million**), partially offset by **$1.2 million** from stock option exercises[177](index=177&type=chunk) - Net cash provided by financing activities was **$13.1 million** for the six months ended June 30, 2020, mainly from **$15.9 million** in proceeds from the 2019 Credit Agreement and **$0.9 million** from stock option exercises, partially offset by lease and deferred acquisition consideration payments[178](index=178&type=chunk) [Indebtedness](index=35&type=section&id=Indebtedness) The company's indebtedness under the 2019 Credit Agreement included a $40.0 million revolving credit facility and a $60.0 million term loan. As of June 30, 2021, the company had $10.0 million outstanding on the revolving facility and $60.0 million on the term loan, and was in compliance with all financial covenants. This agreement was terminated on August 6, 2021, and replaced by a new credit agreement - The 2019 Credit Agreement provided for a **$40.0 million** Revolving Facility and a **$60.0 million** Term Loan Facility[181](index=181&type=chunk) - As of June 30, 2021, the company had outstanding borrowings of **$10.0 million** under the Revolving Facility and **$60.0 million** under the Term Loan Facility, and was in compliance with all financial covenants[183](index=183&type=chunk) - The 2019 Credit Agreement was terminated on August 6, 2021, and replaced by a new credit agreement[183](index=183&type=chunk) [Contractual Obligations and Commitments](index=36&type=section&id=Contractual%20Obligations%20and%20Commitments) There have been no material changes to the company's contractual obligations and commitments as of June 30, 2021, compared to those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to contractual obligations and commitments as of June 30, 2021, compared to the Annual Report on Form 10-K for December 31, 2020[184](index=184&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) The preparation of consolidated financial statements requires management to make estimates, assumptions, and judgments that affect reported amounts. These are based on historical experience and other reasonable factors, and while historically not materially different from actual results, changes could impact financial statements. Management continuously evaluates these estimates - The preparation of consolidated financial statements requires management to make estimates, assumptions, and judgments that affect reported amounts of assets, liabilities, revenue, and expenses[185](index=185&type=chunk) - Management bases its estimates on historical experience and other reasonable factors, and while historically not materially different from actual results, changes in assumptions could materially affect financial statements[185](index=185&type=chunk) [Emerging Growth Company Status](index=37&type=section&id=Emerging%20Growth%20Company%20Status) The company is an "emerging growth company" under the JOBS Act, allowing it to take advantage of certain exemptions from reporting requirements, including an extended transition period for new accounting standards. It elected to use this extended period and will cease to be an emerging growth company by December 31, 2021, or earlier if certain revenue, market value, or debt thresholds are met - The company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised accounting standards, such as ASU 2016-02 (Leases)[187](index=187&type=chunk) - The company will cease to be an emerging growth company by December 31, 2021, or earlier if it exceeds **$1.07 billion** in annual revenue, **$700.0 million** in market value of non-affiliate held stock, or **$1.0 billion** in non-convertible debt over three years[187](index=187&type=chunk) [Off-Balance Sheet Arrangements](index=37&type=section&id=Off-Balance%20Sheet%20Arrangements) The company did not have any off-balance sheet arrangements during the periods presented, nor does it currently have any, as defined by SEC rules and regulations - The company did not have, and does not currently have, any off-balance sheet arrangements as defined by SEC rules and regulations[188](index=188&type=chunk) [Recently Issued Accounting Pronouncements](index=37&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) The company has reviewed all recently issued accounting standards as disclosed in Note 2 to its consolidated financial statements - The company has reviewed all recently issued accounting standards as disclosed in Note 2 to its consolidated financial statements[189](index=189&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a "smaller reporting company," Organogenesis is not required to provide quantitative and qualitative disclosures about market risk under Item 305(e) of Regulation S-K - As a 'smaller reporting company,' Organogenesis is exempt from providing quantitative and qualitative disclosures about market risk[190](index=190&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the effectiveness of disclosure controls and procedures as of June 30, 2021, and concluded they were not effective due to a material weakness in internal control over financial reporting. This weakness stems from inadequate formal accounting, business operations, and IT policies, procedures, and controls. The company is actively remediating these deficiencies, including implementing a new ERP system and designing more effective controls [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2021, due to a material weakness in internal control over financial reporting. This weakness involves insufficient formal policies and controls for accounting, business operations, and IT, specifically regarding account reconciliations, journal entries, and segregation of duties - Management concluded that disclosure controls and procedures were not effective as of June 30, 2021, due to a material weakness in internal control over financial reporting[196](index=196&type=chunk) - The material weakness identified relates to the lack of designed and maintained formal accounting, business operations, and Information Technology policies, procedures, and controls to ensure complete, accurate, and timely financial accounting, reporting, and disclosures[195](index=195&type=chunk) - Specific deficiencies include inadequate formalized policies for reviews over account reconciliations and journal entries, and insufficient controls for proper segregation of duties[195](index=195&type=chunk) [Plans for Remediation of Material Weakness](index=38&type=section&id=Plans%20for%20Remediation%20of%20Material%20Weakness) Management is committed to remediating the identified material weakness in internal controls during 2021. Remediation efforts include implementing a new ERP system, designing and implementing more effective controls, completing risk assessment activities, designing controls for key report accuracy, and developing a monitoring protocol. An outside firm is assisting with control testing - Management is committed to finalizing the remediation of the material weakness during 2021[197](index=197&type=chunk) - Remediation efforts include implementing a new company-wide ERP system (expected to go live in H1 2022), designing and implementing more effective controls, completing risk assessment activities, designing controls for completeness and accuracy of key reports, and developing a monitoring protocol[198](index=198&type=chunk)[201](index=201&type=chunk) - An outside firm is engaged to assist management with performing sufficient testing to validate the operating effectiveness of certain controls over financial reporting[198](index=198&type=chunk)[201](index=201&type=chunk) [Changes in Internal Control Over Financial Reporting](index=38&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2021, other than those related to remediation efforts. However, the ongoing implementation of a new ERP system will lead to process and procedure changes, which will be evaluated quarterly for their impact on internal controls - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2021, other than those related to remediation efforts[200](index=200&type=chunk) - The ongoing implementation of a new ERP system will result in changes to processes and procedures, which will be evaluated qu

Financial Data and Key Metrics Changes - The company reported total revenue growth of 66% year-over-year, with net revenue for Q1 2021 at $102.6 million compared to $61.7 million in Q1 2020 [8][27] - Gross profit for Q1 2021 was $77.1 million, a 79% increase from $42.9 million in the previous year, resulting in a gross margin of 75% compared to 70% last year [29][30] - Operating income for Q1 2021 was $12.6 million, a significant improvement from an operating loss of $15.1 million in Q1 2020, with an operating margin of 12% [35] - Net income for Q1 2021 was $9.9 million or $0.07 per share, compared to a net loss of $16.3 million or $0.16 per share in the previous year [37] Business Line Data and Key Metrics Changes - Revenue from Advanced Wound Care products increased by 77% year-over-year to $90.7 million, while Surgical & Sports Medicine products saw a 13% increase to $11.8 million [27][28] - PuraPly products generated $41.3 million in revenue, reflecting a 27% increase year-over-year [28] Market Data and Key Metrics Changes - The company noted improving patient traffic in the Advanced Wound Care business, although recovery varied by region and site of care [20][21] - The Surgical & Sports Medicine business faced challenges due to COVID-related headwinds but showed strong growth in March 2021 [18][19] Company Strategy and Development Direction - The company is focusing on expanding its product reach into new physician specialties and multiple sites of care, which has been validated by the strong performance of PuraPly [12][16] - The company plans to take ReNu and NuCel off the market effective June 1, 2021, due to FDA enforcement deadlines, which will impact revenue but is expected to reduce competition in the market [25][83] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth of the amniotic product portfolio and the ability to meet production goals, indicating a positive outlook for the business [56][57] - The company anticipates a revenue guidance range for 2021 of $438 million to $454 million, representing a year-over-year increase of approximately 29% to 34% [39] Other Important Information - The company expects to report positive GAAP net income and adjusted EBITDA for the full fiscal year 2021 [47] - The company is exploring opportunities for additional acquisitions to enhance its product portfolio and expand its market reach [95] Q&A Session Summary Question: Clarification on revenue guidance and product sales - Management highlighted that the strong performance of PuraPly and amniotic products contributed significantly to the revised revenue guidance, despite the planned removal of ReNu and NuCel from the market [53][54] Question: Long-term revenue outlook and market dynamics - Management indicated a more bullish long-term growth outlook, projecting low to mid-teens growth rates, driven by successful new product launches and market share gains [71][74] Question: Impact of regulatory changes on the industry - Management acknowledged that the regulatory changes would lead to fewer players in the market, which could present incremental share gain opportunities for the company [82][85]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-37906 ORGANOGENESIS HOLDINGS INC. (Exact name of registrant as specified in its charter) Delaware 98-1329150 (State or other jurisdiction of inc ...

Financial Data and Key Metrics Changes - The company reported total revenue growth of 43% year-over-year in Q4 2020, with net revenue of $106.8 million compared to $74.6 million in Q4 2019 [28] - Gross profit for Q4 2020 was $81.3 million, a 50% increase from $54.3 million in the previous year, resulting in a gross margin of 76% [32][39] - Operating income for Q4 2020 was $21.8 million, compared to an operating loss of $1.8 million in Q4 2019, reflecting a significant improvement in operating margin to 20% [35][39] - Net income for Q4 2020 was $18.5 million or $0.16 per share, compared to a net loss of $4.4 million or $0.04 per share in the prior year [36] - Adjusted EBITDA for Q4 2020 was $24.9 million, a substantial increase from $0.8 million in Q4 2019 [37] Business Line Data and Key Metrics Changes - Advanced Wound Care products revenue grew by 48% year-over-year to $93.6 million in Q4 2020 [29] - Surgical & Sports Medicine products revenue increased by 17% year-over-year to $13.2 million in Q4 2020 [29] - PuraPly products sales rose by 13% year-over-year to $45.3 million in Q4 2020, despite anticipated pricing headwinds [30][12] Market Data and Key Metrics Changes - The company ended 2020 with approximately 300 direct sales representatives, a 13% increase from 265 at the end of 2019 [10][31] - The company expects net revenue for 2021 to be between $390 million and $405 million, representing a year-over-year increase of approximately 15% to 20% [41] Company Strategy and Development Direction - The company has focused on expanding its sales force and product reach, which has contributed to its strong revenue performance [9][10] - The acquisition of CPN Bioscience is aimed at enhancing access to physician offices and accelerating growth opportunities in that channel [16] - The company plans to leverage its RMAT designation for ReNu to expedite the review process with the FDA [25][26] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are challenges due to COVID-19, the company has seen pockets of strength and improving trends in certain areas [18][20] - The company is optimistic about achieving profitability milestones ahead of previously stated targets, with a focus on strategic growth initiatives [22][23] - Management expects to report GAAP net income and positive adjusted EBITDA for the full fiscal year of 2021 [48] Other Important Information - The company raised approximately $60 million in net proceeds from a public offering of common stock, which was used to pay down $29 million of line of credit borrowings [23] - The company anticipates gross margins of approximately 75% for 2021, with total GAAP operating expenses expected to increase by approximately 22% year-over-year [49] Q&A Session Summary Question: Growth in Physician's Office - Management indicated that they do not provide direct guidance on sales channels but expect strong growth in the office channel, particularly with the acquisition of CPN [53][55] Question: EBITDA Expectations - Management noted that while they do not break down EBITDA by quarter, they expect continued strong growth and significant investments in commercial resources [56][58] Question: PuraPly Guidance - Management acknowledged the challenges due to reimbursement changes but expects unit growth to offset ASP declines, maintaining that flat to slightly down performance is acceptable [66] Question: FDA Enforcement Discretion - Management clarified that they will not remove products from the market unless directed by the FDA and are seeking clarity on the enforcement of regulatory criteria [68][72] Question: ReNu Market Opportunity - Management estimates the market for ReNu to be about $2.4 billion and believes they can capture a significant share upon approval and reimbursement [91][92] Question: Amnion Business Competitiveness - Management reported that amnion technology is expanding and that their product Affinity remains unique in the market, with strong efficacy reported [96] Question: NovaCor Expectations - Management expects to launch NovaCor at the end of the year, with significant revenue impact anticipated in 2022 [100]

PART I [Business](index=4&type=section&id=Item%201.%20Business) Organogenesis develops, manufactures, and commercializes regenerative medicine products for Advanced Wound Care and Surgical & Sports Medicine, achieving **$338.3 million** in 2020 revenue - Organogenesis operates in two primary markets: Advanced Wound Care and Surgical & Sports Medicine, offering a portfolio of regenerative medicine products[17](index=17&type=chunk) Fiscal Year 2020 Financial Highlights | Metric | Value (in millions USD) | | :--- | :--- | | **Revenue** | $338.3 | | **Operating Expenses** | $223.6 | - The company's strategy includes driving deeper penetration in the Advanced Wound Care market, expanding into the Surgical & Sports Medicine market, launching new pipeline products, and expanding its sales force[26](index=26&type=chunk) [Industry Overview](index=7&type=section&id=Item%201.%20Business-Industry%20Overview) The company operates in the **$14.9 billion** Advanced Wound Care and Surgical & Sports Medicine markets, driven by an aging population and comorbidities - The total addressable market for the company's products in Advanced Wound Care and Surgical & Sports Medicine was estimated at **$14.9 billion** in 2018[29](index=29&type=chunk) - The skin substitute market, a key segment for Organogenesis, is significantly underpenetrated, with less than **5%** of the **3.3 million** difficult-to-heal wounds in the U.S. being treated with skin substitutes annually[44](index=44&type=chunk) - The immediate addressable Surgical & Sports Medicine market for the company's products is estimated at approximately **$6.1 billion**, with an expected **CAGR of 8%**, driven by an increase in spinal fusions, bone reconstruction, and musculoskeletal injuries[49](index=49&type=chunk) [Our Products](index=11&type=section&id=Item%201.%20Business-Our%20Products) The company offers a comprehensive product suite for Advanced Wound Care and Surgical & Sports Medicine, including bioengineered therapies and amniotic tissues Advanced Wound Care Product Portfolio | Product | Description | Regulatory Pathway | Clinical Application | | :--- | :--- | :--- | :--- | | **Affinity** | Fresh amniotic membrane wound covering | 361 HCT/P | Chronic and acute wounds | | **Apligraf** | Bioengineered living cell therapy | PMA | VLUs; DFUs | | **Dermagraft** | Bioengineered product with living human fibroblasts | PMA | DFUs | | **NuShield** | Dehydrated placental tissue wound covering | 361 HCT/P | Chronic and acute wounds | | **PuraPly AM** | Antimicrobial barrier with purified native collagen matrix | 510(k) | Chronic and acute wounds | - The company plans to suspend manufacturing of Dermagraft in Q4 2021 and sales in Q1 2022 to consolidate manufacturing in Massachusetts, expecting substantial long-term cost savings without a material impact on net revenue[66](index=66&type=chunk) Surgical & Sports Medicine Product Portfolio | Product | Description | Regulatory Pathway | Clinical Application | | :--- | :--- | :--- | :--- | | **Affinity** | Fresh amniotic membrane barrier | 361 HCT/P | Barrier membrane for soft tissue repair | | **NuCel** | Cellular suspension from amniotic fluid/tissue | 361 HCT/P* | Orthopedic surgical procedures (e.g., bony fusion) | | **NuShield** | Dehydrated placental tissue barrier | 361 HCT/P | Barrier membrane for soft tissue repair | | **PuraPly AM** | Purified native collagen matrix with PHMB | 510(k) | Antimicrobial barrier for open surgical wounds | | **ReNu** | Cryopreserved suspension of amniotic fluid cells/tissue | 361 HCT/P* | Chronic inflammatory conditions (e.g., knee osteoarthritis) | *May require BLA approval per recent FDA guidance [Clinical Studies and Product Pipeline](index=15&type=section&id=Item%201.%20Business-Clinical%20Studies%20and%20Product%20Pipeline) The company conducts clinical studies to validate product efficacy and value, with a pipeline including PuraForce, PuraPly XT, Novachor, and TransCyte - The company has **six** ongoing studies for its Advanced Wound Care and Surgical & Sports Medicine products to generate clinical data, which is expected to enhance sales and reimbursement dynamics[76](index=76&type=chunk) - A pivotal Phase 3 study for ReNu is underway to evaluate its efficacy in treating Knee Osteoarthritis, with completion estimated for Q5 2023[79](index=79&type=chunk) - The product pipeline includes the planned re-introduction of TransCyte, a PMA-approved product for deep second- and third-degree burns, with a full commercial launch targeted for late 2023[114](index=114&type=chunk) [Commercial Infrastructure, Manufacturing, and Reimbursement](index=24&type=section&id=Item%201.%20Business-Commercial%20Infrastructure%2C%20Manufacturing%2C%20and%20Reimbursement) The company leverages a direct sales force and independent agencies, manages in-house and outsourced manufacturing, and relies on complex third-party reimbursement - As of December 31, 2020, the company's commercial team consisted of approximately **300** direct sales representatives and **175** independent agencies[116](index=116&type=chunk) - Production of the Affinity product was suspended in Q1 2019 due to supplier issues and resumed commercial-scale production in Q2 2020 after identifying an alternate supplier[124](index=124&type=chunk) - PuraPly AM and PuraPly's Medicare pass-through payment status expired on September 30, 2020, with payment now bundled into the application procedure rate as of October 1, 2020[131](index=131&type=chunk)[136](index=136&type=chunk) [Government Regulation](index=29&type=section&id=Item%201.%20Business-Government%20Regulation) The company's products are subject to extensive FDA regulation across various pathways, including 510(k), PMA, BLA, and HCT/P, alongside anti-kickback and false claims laws - The company's products are regulated through multiple FDA pathways: **510(k)** clearance (PuraPly), **PMA** approval (Apligraf, Dermagraft), and potentially **BLA** approval[153](index=153&type=chunk)[154](index=154&type=chunk) - Certain products like Affinity and NuShield are regulated as Section 361 HCT/Ps, exempting them from premarket review, though the FDA could challenge this classification[161](index=161&type=chunk) - In January 2021, ReNu received the Regenerative Medicine Advanced Therapy (**RMAT**) designation from the FDA for the management of symptoms associated with knee osteoarthritis[171](index=171&type=chunk) - The company is subject to federal and state fraud and abuse laws, including the Anti-Kickback Statute, with a previous Dermagraft owner settling False Claims Act allegations for **$350 million** related to kickbacks[179](index=179&type=chunk) [Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from fluctuating results, internal control weaknesses, intense competition, regulatory reclassification of products, supply chain issues, and substantial indebtedness - The company has identified a **material weakness** in its internal control over financial reporting due to a lack of formal accounting policies, procedures, and controls, persisting as of December 31, 2020[192](index=192&type=chunk)[196](index=196&type=chunk)[199](index=199&type=chunk) - A key risk is the potential for the FDA to determine that HCT/P products like Affinity, NuCel, and ReNu do not qualify for regulation solely under Section 361 of the PHSA, which would require costly **BLA** or **PMA** approvals and could force a suspension of sales[192](index=192&type=chunk)[260](index=260&type=chunk) - The company is dependent on a limited group of suppliers, as evidenced by the **over one-year suspension** of Affinity production due to sole supplier issues, impacting revenue[209](index=209&type=chunk)[212](index=212&type=chunk) - The company is a "controlled company" under Nasdaq rules, exempting it from certain corporate governance requirements due to majority voting power held by "Controlling Entities"[192](index=192&type=chunk)[331](index=331&type=chunk) [Properties](index=71&type=section&id=Item%202.%20Properties) The company operates from leased facilities, including its Canton, MA headquarters and other sites in Massachusetts, California, and Alabama, with some leases expiring soon - The main corporate headquarters in Canton, MA, is leased from entities controlled by individuals who also control a majority of the company's voting stock[373](index=373&type=chunk) - The company is consolidating its La Jolla, CA operations, with the current lease expiring at the end of 2021, and has entered into a new **10-year lease** for a smaller facility in San Diego, CA[375](index=375&type=chunk) [Legal Proceedings](index=71&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings, with no expected material adverse effects from ordinary course litigation - The company reports no material legal proceedings as of the filing date[377](index=377&type=chunk) PART II [Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=72&type=section&id=Item%205.%20Market%20For%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's Class A common stock trades on Nasdaq under ORGO, with no cash dividends paid or planned due to credit agreement restrictions - The company's Class A Common Stock trades on the NASDAQ Capital Market under the ticker **ORGO**[380](index=380&type=chunk) - The company has never paid cash dividends and does not anticipate doing so in the foreseeable future, partly due to restrictions in its 2019 Credit Agreement[381](index=381&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=73&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company achieved **$338.3 million** in 2020 net revenue, a **30%** increase, turning a **$40.5 million** net loss into a **$17.9 million** net income Financial Performance (2018-2020) | Metric (in millions USD) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net Revenue** | $338.3 | $261.0 | $193.4 | | **Gross Profit** | $251.0 | $185.0 | $124.6 | | **Gross Margin** | 74% | 71% | 64% | | **Income (Loss) from Operations** | $27.4 | $(29.5) | $(51.6) | | **Net Income (Loss)** | $17.9 | $(40.5) | $(64.8) | | **Adjusted EBITDA** | $36.9 | $(18.2) | $(36.2) | - The **30%** year-over-year revenue growth in 2020 was driven by a **33%** increase in the Advanced Wound Care segment and a **9%** increase in the Surgical & Sports Medicine segment[420](index=420&type=chunk)[421](index=421&type=chunk) - The company's PuraPly products had Medicare pass-through reimbursement status from October 1, 2018, through September 30, 2020, with its expiration potentially impacting future revenue[403](index=403&type=chunk) [Liquidity and Capital Resources](index=82&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Liquidity%20and%20Capital%20Resources) As of December 31, 2020, the company held **$84.4 million** in cash, with **$84.8 million** in total debt, and generated **$6.8 million** in operating cash flow Cash and Debt Position (Year-End) | (in thousands USD) | 2020 | 2019 | | :--- | :--- | :--- | | **Cash** | $84,394 | $60,174 | | **Total Debt** | $84,771 | $100,606 | Cash Flow Summary (Year Ended Dec 31) | (in thousands USD) | 2020 | 2019 | | :--- | :--- | :--- | | **Net cash from operating activities** | $6,801 | $(33,528) | | **Net cash used in investing activities** | $(24,833) | $(6,234) | | **Net cash from financing activities** | $42,468 | $78,727 | - The company's 2019 Credit Agreement requires compliance with financial covenants, including minimum revenue thresholds, with which the company was in compliance as of December 31, 2020[459](index=459&type=chunk)[460](index=460&type=chunk) [Critical Accounting Policies](index=85&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations-Critical%20Accounting%20Policies) Critical accounting policies involve significant judgments in revenue recognition, asset valuation, goodwill impairment, income taxes, and contingent earnout liabilities - Revenue is recognized when a customer obtains control of the product, net of estimated reserves for returns, discounts, and GPO rebates based on historical experience[469](index=469&type=chunk) - Goodwill is tested for impairment annually at the consolidated level, with no impairments recorded in 2020, 2019, or 2018[473](index=473&type=chunk)[477](index=477&type=chunk) - Due to a three-year cumulative loss position through December 31, 2020, the company maintains a full valuation allowance against its net deferred tax assets[481](index=481&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=88&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate fluctuations on its **$70.0 million** variable-rate debt and minimal foreign currency exchange variability - The company is exposed to interest rate risk from **$70.0 million** in variable-rate borrowings under its 2019 Credit Agreement as of December 31, 2020[490](index=490&type=chunk) - Foreign currency risk is deemed not material as most business is conducted in the U.S. and the Swiss subsidiary uses the U.S. dollar as its functional currency[491](index=491&type=chunk) [Financial Statements and Supplementary Data](index=88&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2018-2020, including balance sheets, statements of operations, equity, and cash flows [Note 3. Acquisition](index=112&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data-Note%203.%20Acquisition) On September 17, 2020, the company acquired CPN Biosciences for **$19.0 million**, recognizing **$13.6 million** in intangible assets and **$3.2 million** in goodwill CPN Biosciences Acquisition Consideration (Sept 17, 2020) | Consideration Component | Value (in thousands USD) | | :--- | :--- | | Cash | $6,427 | | Class A Common Stock | $8,815 | | Contingent Consideration (Earnout) | $3,782 | | **Total Consideration** | **$19,024** | - The acquisition resulted in **$3.2 million** of goodwill and **$13.6 million** of intangible assets, primarily customer relationships (**$10.7 million**) and developed technologies (**$2.1 million**)[612](index=612&type=chunk) [Note 11. Restructuring](index=116&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data-Note%2011.%20Restructuring) In October 2020, the company initiated a restructuring to consolidate manufacturing, expecting a **$5.5 million** charge by year-end 2021 - The company began a restructuring plan in Q4 2020 to consolidate California manufacturing into Massachusetts, expecting to complete it by year-end 2021[630](index=630&type=chunk) - The total expected restructuring charge is approximately **$5.5 million**, with **$4.5 million** for employee retention benefits and **$1.0 million** for facility closures[630](index=630&type=chunk) [Note 13. Long-Term Debt Obligations](index=117&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data-Note%2013.%20Long-Term%20Debt%20Obligations) The company's primary debt is the 2019 Credit Agreement, with **$70.0 million** outstanding as of December 31, 2020, including a term loan and revolving facility Outstanding Debt as of Dec 31, 2020 | Facility | Outstanding Principal (in thousands USD) | | :--- | :--- | | Line of credit (Revolving Facility) | $10,000 | | Term loan | $60,000 | | **Total** | **$70,000** | - The Term Loan Facility requires interest-only payments through February 2021, followed by **36** equal monthly principal and interest installments, maturing on March 1, 2024[638](index=638&type=chunk) [Note 14. Stockholders' Equity](index=118&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data-Note%2014.%20Stockholders%27%20Equity) As of December 31, 2020, the company had **127.7 million** Class A common shares outstanding, following a **$64.7 million** public offering in November 2020 - In November 2020, the company raised gross proceeds of **$64.7 million** through a public offering of **19.9 million** shares of Class A common stock[661](index=661&type=chunk)[663](index=663&type=chunk) - During Q3 2019, the company exchanged all outstanding public and private placement warrants for approximately **3.3 million** shares of Class A common stock, eliminating all warrants[656](index=656&type=chunk)[658](index=658&type=chunk) [Controls and Procedures](index=89&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of December 31, 2020, due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of December 31, 2020[494](index=494&type=chunk) - A **material weakness** in internal control over financial reporting persists, related to the lack of formal accounting policies, procedures, and controls, including proper segregation of duties[497](index=497&type=chunk) - Remediation efforts include implementing a new company-wide **ERP** system, anticipated to go live in the first half of 2021[503](index=503&type=chunk) PART III [Directors, Executive Officers, Corporate Governance, Compensation, and Related Transactions](index=91&type=section&id=Items%2010-14) Information for Items 10-14, covering governance, compensation, and related transactions, is incorporated by reference from the forthcoming Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's forthcoming Proxy Statement[505](index=505&type=chunk)[506](index=506&type=chunk)[507](index=507&type=chunk)[508](index=508&type=chunk)[509](index=509&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=92&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section provides an index of all exhibits filed with the Form 10-K, including financial statements, material agreements, and corporate governance documents - This section provides an index of all exhibits filed with the Form 10-K, including material agreements and corporate governance documents[512](index=512&type=chunk)[513](index=513&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q3 2020 was $128 million, a 57% increase from $64.3 million in Q3 2019, exceeding preliminary revenue expectations [20][9] - Gross profit for Q3 2020 was $77.8 million, up 72% from $45.1 million in Q3 2019, with a gross profit margin of 77% compared to 70% in the prior year [24][20] - Operating income for Q3 2020 was $23 million, compared to an operating loss of $8.3 million in Q3 2019, marking a significant turnaround [28][20] - Net income for Q3 2020 was $20.9 million or $0.19 per share, compared to a net loss of $10.7 million or $0.12 per share in Q3 2019 [31][20] Business Line Data and Key Metrics Changes - Revenue from Advanced Wound Care products was $90 million in Q3 2020, a 66% increase from $54.3 million in Q3 2019, representing 89% of total revenue [20][21] - Revenue from Surgical & Sports Medicine products was $10.8 million, a 9% increase from $10 million in Q3 2019, accounting for 11% of total revenue [21][20] - Revenue from PuraPly products was $40.9 million, a 29% increase from $31.8 million in Q3 2019, representing approximately 41% of total revenue [22][20] Market Data and Key Metrics Changes - The company reported strong demand in the office channel for Advanced Wound Care products, contributing to the overall revenue growth [11][12] - The acquisition of CPN Biosciences is expected to enhance the company's access to physician offices and broaden its product offerings [14][59] Company Strategy and Development Direction - The company reaffirmed its financial guidance for 2020, expecting total revenue growth of 19% to 20% year-over-year, with positive net income and adjusted EBITDA [16][42] - The strategic focus includes expanding the sales force and leveraging a comprehensive product portfolio to address patient needs [10][17] - The acquisition of CPN Biosciences is seen as a long-term growth opportunity, enhancing the company's office strategy [15][59] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the recovery from COVID-19, noting that the growth in the first nine months of 2020 was a result of strong execution and a differentiated product portfolio [17][18] - The company expects continued performance improvement driven by its growth and profitability strategy [18][16] Other Important Information - The company had $36.5 million in cash and $114.7 million in debt obligations as of September 30, 2020, compared to $60.2 million in cash and $100.6 million in debt obligations at the end of 2019 [38][39] - The acquisition of CPN Biosciences involved a total consideration of $19 million, which included cash and stock [33][34] Q&A Session Summary Question: Impact of rising COVID cases on office channel strategy - Management noted no decline in sales in the office setting despite rising COVID cases, although there was a slight decline in access to outpatient Wound Care Centers [54] Question: Trends in PuraPly revenue post pass-through expiration - Management observed no decline in PuraPly revenue in Q3, which was encouraging, and noted positive trends with new sizes and office growth strategy [56] Question: Rationale for CPN Biosciences acquisition - The acquisition is primarily about gaining access to additional accounts and enhancing product offerings, allowing for better customer engagement [59] Question: Long-term margin performance expectations - Management expressed confidence that the positive margin trends experienced in Q3 would continue, although specific guidance on margins by product was not provided [62] Question: Timing of NovaCor launch - The expected launch for NovaCor is projected for Q4 2021, contingent on the manufacturing capacity for Affinity [71]