Organogenesis (ORGO) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements This section presents the company's unaudited condensed consolidated financial statements and accompanying notes for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Total Assets | $461,128 | $497,886 | | Total Liabilities | $99,909 | $112,570 | | Redeemable Convertible Preferred Stock | $127,977 | $122,419 | | Total Stockholders' Equity | $233,242 | $262,897 | | Cash and cash equivalents | $73,076 | $135,571 | | Accounts receivable, net | $120,382 | $109,861 | | Inventories, net | $33,042 | $26,219 | | Total current assets | $260,223 | $285,941 | | Total current liabilities | $65,839 | $77,477 | - Total assets decreased by $36.76 million from December 31, 2024, to June 30, 2025, primarily driven by a significant reduction in cash and cash equivalents[11] - Cash and cash equivalents decreased by $62.495 million, from $135.571 million at December 31, 2024, to $73.076 million at June 30, 2025[11] Condensed Consolidated Statements of Operations and Comprehensive Loss | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $101,005 | $130,234 | $187,698 | $240,210 | | Loss from Operations | $(12,576) | $(13,892) | $(39,322) | $(17,744) | | Net Loss and Comprehensive Loss | $(9,392) | $(17,043) | $(28,235) | $(19,143) | | Net Loss Attributable to Common Stockholders | $(12,202) | $(17,043) | $(33,793) | $(19,143) | | Basic and Diluted Net Loss Per Share | $(0.10) | $(0.13) | $(0.27) | $(0.14) | - Total revenue decreased by 22.4% for the three months ended June 30, 2025, and by 21.8% for the six months ended June 30, 2025, compared to the same periods in 2024[13] - Net loss attributable to common stockholders improved for the three months ended June 30, 2025, decreasing to $(12,202) thousand from $(17,043) thousand in 2024, but worsened for the six months ended June 30, 2025, increasing to $(33,793) thousand from $(19,143) thousand in 2024[13] Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity | Metric (in thousands) | December 31, 2024 | June 30, 2025 | | :--- | :--- | :--- | | Redeemable Convertible Preferred Stock | $122,419 | $127,977 | | Common Stock | $13 | $13 | | Additional Paid-in Capital | $302,994 | $301,574 | | Accumulated Deficit | $(40,110) | $(68,345) | | Total Stockholders' Equity | $262,897 | $233,242 | - Total stockholders' equity decreased by $29.655 million from December 31, 2024, to June 30, 2025, primarily due to the net loss incurred during the period and accretion of redeemable convertible preferred stock[16] - The accumulated deficit increased significantly from $(40,110) thousand at December 31, 2024, to $(68,345) thousand at June 30, 2025, reflecting the net losses[16] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(52,808) | $(5,424) | | Net cash used in investing activities | $(7,264) | $(4,102) | | Net cash used in financing activities | $(2,344) | $(4,335) | | Net change in cash, cash equivalents and restricted cash | $(62,416) | $(13,861) | | Cash, cash equivalents, and restricted cash, end of period | $73,735 | $90,477 | - Net cash used in operating activities increased substantially to $(52,808) thousand for the six months ended June 30, 2025, compared to $(5,424) thousand in the prior year, driven by net loss and changes in operating assets and liabilities[19][137] - Cash, cash equivalents, and restricted cash at the end of the period decreased by $62.416 million to $73.735 million as of June 30, 2025[19] Notes to Condensed Consolidated Financial Statements - The Company is a leading regenerative medicine and tissue innovations company focused on advanced wound care, and surgical and sports medicine markets[22] - New accounting policies for 2025 include performance-based share awards, assets held for sale, and government assistance, with performance-based share awards recognized when achievement of conditions is probable[24][30] Revenue by Category | Revenue Category (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Advanced Wound Care | $92,696 | $123,237 | $172,623 | $227,101 | | Surgical & Sports Medicine | $8,083 | $6,997 | $14,849 | $13,109 | | Total Net Product Revenue | $100,779 | $130,234 | $187,472 | $240,210 | | Grant Income | $226 | $— | $226 | $— | - The Company received a $5 million government grant in Q2 2025 for its Smithfield Facility, with $2.5 million cash received and the remaining $2.5 million considered probable[38] - Accounts receivable, net, increased to $120.382 million at June 30, 2025, from $109.861 million at December 31, 2024, with the allowance for credit losses increasing to $11.153 million[39] - Inventories, net, increased to $33.042 million at June 30, 2025, from $26.219 million at December 31, 2024, with charges for excess and obsolescence of $6.093 million for the six months ended June 30, 2025[40] - Property and equipment, net, decreased to $75.607 million at June 30, 2025, from $89.128 million at December 31, 2024, partly due to a $8.313 million write-down of an asset held for sale in the six months ended June 30, 2025[41][45] - Goodwill remained stable at $28.772 million, and intangible assets, net, decreased to $10.785 million at June 30, 2025, from $12.468 million at December 31, 2024[46] - Accrued expenses and other current liabilities decreased to $26.348 million at June 30, 2025, from $39.453 million at December 31, 2024, mainly due to decreases in personnel costs and accrued taxes[47] - The Company had no outstanding borrowings under its Term Loan Facility or Revolving Facility as of June 30, 2025, after prepaying the Term Loan Facility in November 2024[54] - Shareholders approved the issuance of Class A common stock upon conversion of Convertible Preferred Stock in excess of Ownership Limitations, allowing conversion into an aggregate of 36,051,283 shares as of June 30, 2025[57] - Stock-based compensation expense for the six months ended June 30, 2025, was $5.909 million, an increase from $4.975 million in the prior year[64] - The Company granted 198,900 Performance Share Units (PSUs) in the six months ended June 30, 2025, with the 2025 performance target deemed probable of being achieved[68] - The income tax benefit for the six months ended June 30, 2025, was $9.382 million, a significant increase from an expense of $(260) thousand in the prior year, due to a higher estimated effective tax rate and R&D tax credits[87][132] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, liquidity, and capital resources for the reported periods Overview - Organogenesis is a leading regenerative medicine and tissue innovations company, focusing on advanced wound care and surgical & sports medicine markets[92] - The company's products, including Apligraf, PuraPly AM, CYGNUS Dual, and NuShield, address chronic and acute wounds, and tendon/ligament injuries, supported by clinical data and FDA approvals[93][94][95] Dermagraft - Manufacturing and sales of Dermagraft were suspended in Q4 2021 and Q2 2022, respectively[96] - The company plans to transition Dermagraft manufacturing to its new Smithfield, Rhode Island facility, with sales expected to resume by the end of 2027, aiming for substantial long-term cost savings[96] Local Coverage Determinations and Centers for Medicare & Medicaid Services (CMS) Proposed Rule - New proposed Local Coverage Determinations (LCDs) for skin substitute grafts/CTPs for DFUs and VLUs, finalized in November 2024, have been delayed until January 1, 2026[97][99] - If implemented in their current form, these LCDs would classify over 200 products, including PuraPly, Novachor, Dual, and Matrix, as 'non-covered' for DFU and VLU indications, while Apligraf and Dermagraft would remain covered[99] - CMS proposed new rules in July 2025 for Medicare payments under the Physician Fee Schedule (PFS) and Hospital Outpatient Prospective Payment System (OPPS) for skin substitute products, effective January 1, 2026[100] - CMS proposes to align skin substitute categorization with FDA regulatory status (361 HCT/Ps, PMAs, 510(k)s) and use a single payment rate for 2026, with differentiated rates planned for future years[100] License And Manufacturing Agreement - The company has a trademark license and manufacturing agreement with Vivex for Dual, Matrix, and VIA products[101] - The company pays a low double-digit royalty on Net Sales of Dual and VIA, and a high single-digit royalty on Net Sales of Matrix, with the initial term expiring December 31, 2026, and renewable for up to five additional one-year terms[101] Components of Our Condensed Consolidated Results of Operations - Net product revenue is derived from Advanced Wound Care and Surgical & Sports Medicine products, sold through direct sales representatives and third-party agencies, respectively[103] - Grant income is recognized through 2027, offsetting expenses related to the Smithfield Facility[106] - Cost of goods sold includes personnel, testing, quality assurance, raw materials, manufacturing, and facility costs, affected by sales units and product mix[107] - Selling, general and administrative expenses are expected to increase due to investments in market development and sales force expansion[109] - Impairment and write-down expenses include adjustments for assets held for sale and write-downs of capitalized internal-use software costs[111] Results of Operations | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $101,005 | $130,234 | $187,698 | $240,210 | | Total Operating Expenses | $113,581 | $144,126 | $227,020 | $257,954 | | Loss from Operations | $(12,576) | $(13,892) | $(39,322) | $(17,744) | | Net Loss and Comprehensive Loss | $(9,392) | $(17,043) | $(28,235) | $(19,143) | EBITDA and Adjusted EBITDA - Management uses Adjusted EBITDA as a non-GAAP financial measure to evaluate operating performance and trends, believing it provides useful information by excluding certain items[119] Reconciliation of Net Loss to EBITDA and Adjusted EBITDA | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | $(9,392) | $(17,043) | $(28,235) | $(19,143) | | EBITDA | $(7,928) | $(9,720) | $(30,386) | $(9,576) | | Adjusted EBITDA | $(3,640) | $15,649 | $(16,164) | $18,200 | - Adjusted EBITDA significantly decreased to $(3,640) thousand for the three months ended June 30, 2025, from $15,649 thousand in the prior year, and to $(16,164) thousand for the six months ended June 30, 2025, from $18,200 thousand in the prior year[120] Comparison of Three and Six Months Ended June 30, 2025 and 2024 Net Product Revenue by Category | Revenue Category (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Advanced Wound Care | $92,696 | $123,237 | $(30,541) | (25%) | | Surgical & Sports Medicine | $8,083 | $6,997 | $1,086 | 16% | | Net Product Revenue | $100,779 | $130,234 | $(29,455) | (23%) | - Advanced Wound Care net product revenue decreased by 25% and 24% for the three and six months ended June 30, 2025, respectively, primarily due to increased ambiguity and disruption from delayed LCD implementation[121] - Surgical & Sports Medicine net product revenue increased by 16% and 13% for the three and six months ended June 30, 2025, respectively, driven by increased customer buying patterns[123] - Cost of goods sold decreased by 5% and 11% for the three and six months ended June 30, 2025, respectively, primarily due to decreased sales volume and a shift in product mix[124] - Gross profit decreased by 28% and 25% for the three and six months ended June 30, 2025, respectively, with gross profit as a percentage of revenue also decreasing due to product mix shift[125] - Research and development expenses decreased by 33% and 26% for the three and six months ended June 30, 2025, respectively, mainly due to reduced clinical research and trial expenses[126] - Selling, general and administrative expenses decreased by 4% and 2% for the three and six months ended June 30, 2025, respectively, primarily due to lower commissions and royalty expense from decreased sales[127][128] - The company recorded a $1.7 million and $8.3 million write-down for assets held for sale during the three and six months ended June 30, 2025, respectively[129] - Other income (expense), net, improved by $1.4 million and $2.8 million for the three and six months ended June 30, 2025, respectively, primarily due to interest income from interest-bearing sweep accounts[130] - Income tax expense shifted to a benefit of $2.4 million and $9.4 million for the three and six months ended June 30, 2025, respectively, driven by a higher estimated effective tax rate and R&D tax credits[131][132] Liquidity and Capital Resources - As of June 30, 2025, the company had working capital of $189.1 million and $73.1 million in cash and cash equivalents[133] - Management expects current cash, working capital, and net cash flows from product sales to fund operating expenses, capital expenditures, and debt service for at least 12 months[133] - Primary uses of cash include working capital, capital expenditures (e.g., Smithfield facility build-out), and debt service payments[134] - Net cash used in operating activities was $(52.8) million for the six months ended June 30, 2025, a significant increase from $(5.4) million in the prior year[136][137] - Net cash used in investing activities was $(7.3) million for the six months ended June 30, 2025, primarily for capital expenditures[136][139] - Net cash used in financing activities was $(2.3) million for the six months ended June 30, 2025, mainly for finance lease obligations and stock award payments[136][140] - The company had no outstanding borrowings under its Term Loan Facility or Revolving Facility as of June 30, 2025, following prepayment of the Term Loan in November 2024[147] - An August 2025 amendment to the 2021 Credit Agreement waived the Consolidated Fixed Charge Coverage Ratio covenant for Q2 2025, but requires new financial covenants by September 30, 2025, or it will constitute an event of default[142] Critical Accounting Policies and Significant Judgments and Estimates - The preparation of financial statements requires management to make estimates, assumptions, and judgments that affect reported amounts, with significant uncertainty in income tax assets/liabilities and long-lived asset recoverability[148] Off-Balance Sheet Arrangements - The company did not have any off-balance sheet arrangements during the periods presented[149] Recently Issued Accounting Pronouncements - The company has reviewed recently issued accounting standards as disclosed in Note 2, Summary of Significant Accounting Policies[150] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states there were no material changes to the company's market risk disclosures during the six months ended June 30, 2025 - No material changes to market risk disclosures occurred during the six months ended June 30, 2025[151] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures - Management concluded that disclosure controls and procedures were effective as of June 30, 2025[152] Changes in Internal Control Over Financial Reporting - No material changes in internal controls over financial reporting occurred during the quarter ended June 30, 2025[153] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section notes the dismissal of a False Claims Act complaint and confirms no other material legal proceedings are currently active - A False Claims Act complaint filed against the company was dismissed without prejudice on May 19, 2025, with consent from the United States and the State of Texas[154][155] - The company is not a party to any other material legal proceedings and believes that the resolution of current claims would not have a material adverse effect on its financial position, operating results, or cash flows[156] Item 1A. Risk Factors This section highlights new material risks related to proposed Medicare coverage policy changes and their potential adverse impact on the business - New proposed LCDs, if implemented, could classify over 200 of the company's products as 'non-covered' for DFU and VLU treatments, potentially having a material adverse effect on utilization and revenue[158] - CMS proposed rules for Medicare payments under the PFS and OPPS, effective January 1, 2026, could materially impact product utilization, business, and revenue by changing payment structures and aligning categorization with FDA regulatory status[159] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states there were no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities or use of proceeds occurred[160] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[161] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[162] Item 5. Other Information This section reports no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[163] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL-related documents - The report includes various exhibits such as Certificate of Incorporation, Bylaws, Certificate of Designations of Series A Convertible Preferred Stock, and certifications from principal executive and financial officers[164] SIGNATURES SIGNATURES This section contains the formal signatures confirming the submission of the Quarterly Report on Form 10-Q on August 7, 2025 - The report was signed by David Francisco, Chief Financial Officer (Principal Financial and Accounting Officer), on behalf of Organogenesis Holdings Inc. on August 7, 2025[168]