Organogenesis (ORGO) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Consolidated Financial Statements Presents Organogenesis Holdings Inc.'s unaudited consolidated financial statements as of June 30, 2020, detailing balance sheets, operations, cash flows, and accounting notes Consolidated Balance Sheets Details the company's financial position, including assets, liabilities, and stockholders' equity, at June 30, 2020, and December 31, 2019 Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash | $40,455 | $60,174 | | Accounts receivable, net | $44,024 | $39,359 | | Inventory | $28,562 | $22,918 | | Total current assets | $117,706 | $125,600 | | Total assets | $216,487 | $220,687 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $66,058 | $59,894 | | Total liabilities | $180,737 | $165,104 | | Total stockholders' equity | $35,750 | $55,583 | Consolidated Statements of Operations Summarizes the company's financial performance, including net revenue, gross profit, and net loss, for the three and six months ended June 30 Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $68,960 | $64,948 | $130,692 | $122,071 | | Gross profit | $48,918 | $45,502 | $91,857 | $85,645 | | Loss from operations | $(2,252) | $(7,319) | $(17,336) | $(19,440) | | Net loss | $(5,166) | $(9,649) | $(21,479) | $(25,315) | | Net loss per share | $(0.05) | $(0.11) | $(0.21) | $(0.28) | Consolidated Statements of Cash Flows Reports cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2020, and 2019 Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(26,618) | $(21,674) | | Net cash used in investing activities | $(6,118) | $(1,501) | | Net cash provided by financing activities | $13,120 | $21,929 | | Change in cash and restricted cash | $(19,616) | $(1,246) | Notes to Consolidated Financial Statements Provides detailed explanations of the company's business, COVID-19 impact, liquidity, revenue recognition, debt, stock compensation, and legal matters - The company is a regenerative medicine firm focused on Advanced Wound Care and Surgical & Sports Medicine markets. While the COVID-19 pandemic has not materially adversely affected financial results through Q2 2020, significant risks and uncertainties remain regarding future impact[25][26] - Management believes cash on hand ($40.5 million), working capital ($51.6 million), and cash flows from sales will be sufficient to fund operations, capital expenditures, and debt service for at least 12 months from the filing date[31] Revenue by Product Category (in thousands) | Category | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Advanced Wound Care | $59,731 | $111,019 | | Surgical & Sports Medicine | $9,229 | $19,673 | | Total net revenue | $68,960 | $130,692 | - As of June 30, 2020, the company had outstanding borrowings of $60.0 million under its Term Loan Facility and $39.4 million under its Revolving Facility. The company was in compliance with all financial covenants[59][58] - In February 2020, the company settled a dispute over a $5.0 million deferred acquisition consideration related to the NuTech Medical acquisition for $4.0 million, resulting in a gain of $1.3 million[99][127] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2020 financial performance, covering revenue growth, COVID-19 impact, PuraPly reimbursement, liquidity, and debt obligations Results of Operations Q2 2020 net revenue grew 6% to $69.0 million, driven by Advanced Wound Care, with stable gross margin and positive Adjusted EBITDA, while operating loss significantly decreased Revenue Comparison (in thousands) | Category | Q2 2020 | Q2 2019 | % Change | H1 2020 | H1 2019 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Advanced Wound Care | $59,731 | $55,211 | 8% | $111,019 | $103,055 | 8% | | Surgical & Sports Medicine | $9,229 | $9,737 | -5% | $19,673 | $19,016 | 3% | | Total Net Revenue | $68,960 | $64,948 | 6% | $130,692 | $122,071 | 7% | - PuraPly products, which retain pass-through reimbursement status until September 30, 2020, are expected to see a decrease in net revenue after transitioning to a bundled payment structure, potentially not fully offset by growth in other products[120] - Selling, general and administrative (SG&A) expenses decreased by 5% in Q2 2020, primarily due to a $3.8 million reduction in travel and marketing programs amid COVID-19 restrictions, partially offset by increased sales force headcount[142] EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(5,166) | $(9,649) | $(21,479) | $(25,315) | | EBITDA | $(520) | $(5,081) | $(12,569) | $(16,532) | | Adjusted EBITDA | $274 | $(4,847) | $(12,618) | $(14,212) | Liquidity and Capital Resources As of June 30, 2020, the company held $40.5 million in cash and $51.6 million in working capital, deemed sufficient for 12 months, and remained compliant with debt covenants - The company's primary sources of capital are product sales, institutional lenders, and proceeds from stock sales; as of June 30, 2020, cash was $40.5 million and working capital was $51.6 million[148] Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(26,618) | $(21,674) | | Net cash used in investing activities | $(6,118) | $(1,501) | | Net cash provided by financing activities | $13,120 | $21,929 | - The company is required to comply with financial covenants under its 2019 Credit Agreement, including Minimum Trailing Twelve Month Consolidated Revenue and Non-PuraPly Revenue, and was in compliance as of June 30, 2020[160][161] Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," Organogenesis is exempt from providing disclosures under this item - The Company is a "smaller reporting company" as defined by SEC rules and is therefore not required to provide the disclosures under this item[170] Controls and Procedures Management concluded disclosure controls were ineffective as of June 30, 2020, due to a material weakness in internal control over financial reporting, with remediation underway - A material weakness in internal control over financial reporting, identified as of December 31, 2019, continued to exist at June 30, 2020[175] - The weakness stems from a lack of formal accounting policies, procedures, and controls, including inadequate segregation of duties and review controls over financial reporting[175] - Remediation efforts are in progress, including the implementation of a new ERP system (expected in H2 2020), formalizing policies, and engaging an outside firm to assist with enhancing controls and monitoring[181][178] PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings, though it may face litigation in the ordinary course of business - The company is not currently a party to any material legal proceedings[180] Risk Factors Updates the company's risk factors, emphasizing COVID-19's potential adverse impacts on manufacturing, supply chains, sales force, product demand, and financial covenant compliance - The COVID-19 pandemic poses a significant risk to the company's manufacturing facilities, supply chain for raw materials and source tissue, and the ability of its sales force to meet with healthcare providers[183][185][187] - The company may experience unpredictable reductions in product demand if patients are unable to access therapies or if providers prioritize resources to address the pandemic[189] - The economic impact of COVID-19 could adversely affect the company's ability to meet financial covenants in its 2019 Credit Agreement and could negatively impact its ability to raise additional capital[191] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None[192] Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - None[193] Mine Safety Disclosures This item is not applicable to the company's operations - Not Applicable[194] Other Information No other information is reported for the period - None[195] Exhibits Lists exhibits filed with Form 10-Q, including CEO and CFO certifications required by Sarbanes-Oxley Act and XBRL data files - Exhibits filed include Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906, as well as XBRL data files[197]