Organogenesis (US:ORGO)2023-08-09 20:34PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements present the company's financial position, operational results, and cash flows for the reported periods Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $88,917 | $102,478 | | Accounts receivable, net | $93,615 | $89,450 | | Total current assets | $216,435 | $222,609 | | Total assets | $450,313 | $449,359 | | Total current liabilities | $73,455 | $75,023 | | Term loan, net | $68,969 | $70,769 | | Total liabilities | $179,031 | $183,690 | | Total stockholders' equity | $271,282 | $265,669 | Condensed Consolidated Statements of Operations Three Months Ended June 30, (in thousands, except per share data) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net revenue | $117,316 | $121,401 | | Gross profit | $91,000 | $94,749 | | Income from operations | $9,745 | $11,935 | | Net income | $5,316 | $8,744 | | Diluted EPS | $0.04 | $0.07 | Six Months Ended June 30, (in thousands, except per share data) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net revenue | $224,958 | $218,518 | | Gross profit | $172,035 | $166,786 | | Income from operations | $5,744 | $11,807 | | Net income | $2,347 | $7,831 | | Diluted EPS | $0.02 | $0.06 | Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased from $265.7 million at December 31, 2022, to $271.3 million at June 30, 2023. The increase was primarily driven by a net income of $2.3 million and stock-based compensation expense of $4.2 million for the six-month period18 Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30, (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,569 | $11,606 | | Net cash used in investing activities | ($15,061) | ($12,840) | | Net cash used in financing activities | ($2,290) | ($350) | | Change in cash, cash equivalents, and restricted cash | ($13,782) | ($1,584) | Notes to Condensed Consolidated Financial Statements - The company is a regenerative medicine company focused on Advanced Wound Care and Surgical & Sports Medicine markets. It has one operating and reportable segment25 - As of June 30, 2023, the company believes its cash on hand, working capital, and availability under its credit agreement are sufficient to fund operations, capital expenditures, and debt service for at least the next 12 months27 - On February 3, 2023, the company initiated a restructuring plan, reducing headcount by 71 employees (approx. 7%), incurring a total charge of $1.6 million in H1 2023, primarily for severance51 - As of June 30, 2023, the company had $69.4 million outstanding under its Term Loan Facility and $125 million available under its Revolving Facility61155 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion analyzes financial performance, highlighting revenue trends, expense changes, and the company's liquidity position Overview - Organogenesis is a regenerative medicine company specializing in solutions for the Advanced Wound Care and Surgical & Sports Medicine markets, offering a comprehensive portfolio of products like Apligraf, Dermagraft, and PuraPly100102 - The company's mission is to improve medical outcomes and lower overall healthcare costs by providing integrated healing solutions100 Results of Operations Revenue by Product Category (in thousands) | Category | Q2 2023 | Q2 2022 | Change | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Advanced Wound Care | $110,075 | $113,791 | -3% | $210,992 | $203,881 | +3% | | Surgical & Sports Medicine | $7,241 | $7,610 | -5% | $13,966 | $14,637 | -5% | | Total Net Revenue | $117,316 | $121,401 | -3% | $224,958 | $218,518 | +3% | - The decrease in Q2 Advanced Wound Care revenue was attributed to changes in customer buying patterns, while the increase for the six-month period was due to higher sales to existing and new customers125126 - Selling, general and administrative (SG&A) expenses decreased by 3% in Q2 2023 due to lower sales commissions, but increased by 6% for the six-month period, driven by higher travel, marketing, and ERP implementation costs133134 - Research and development (R&D) expenses increased by 18% for the six months ended June 30, 2023, primarily due to costs for pipeline products, clinical studies, and increased headcount132 GAAP Net Income to Non-GAAP Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $5,316 | $8,744 | $2,347 | $7,831 | | EBITDA | $13,230 | $14,663 | $13,176 | $17,100 | | Adjusted EBITDA | $15,403 | $18,598 | $19,171 | $23,602 | Liquidity and Capital Resources - As of June 30, 2023, the company had $88.9 million in cash and cash equivalents and working capital of $143.0 million138 - The company has $125.0 million available for future borrowing under its Revolving Facility138 - Management expects current cash, working capital, credit availability, and cash flows from sales to be sufficient to fund operations, capital expenditures, and debt service for at least the next 12 months138 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there were no material changes to its market risk disclosures during the six months ended June 30, 2023 - There were no material changes to the company's market risk disclosures during the six months ended June 30, 2023159 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting - Management concluded that as of June 30, 2023, the company's disclosure controls and procedures were ineffective161 - The ineffectiveness is due to a material weakness in internal control over financial reporting, specifically related to controls for non-routine transactions and IT general controls161 - Remediation efforts are underway, including the implementation of a new company-wide ERP system anticipated to go live in 2024, but the material weakness has not yet been fully remediated164165 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in a class action lawsuit alleging federal securities law violations, which it believes are without merit - A class action complaint (Somogyi v. Organogenesis Holdings Inc., et al.) was filed against the company and its CEO/CFO, alleging false and misleading statements regarding revenue and sales growth for certain products between August 2020 and August 2022167 - The company believes the claims are without merit, intends to vigorously contest them, and has a pending motion to dismiss the litigation167 Item 1A. Risk Factors Significant new risks include Medicare non-coverage for key products and adverse general economic conditions impacting the company's revenue - A major risk has arisen from three Medicare Administrative Contractors (MACs) publishing final local coverage determinations (LCDs) that list key products (PuraPly, Novachor, Affinity, NuShield) as non-covered for DFUs and VLUs, effective September 17, 2023170171 - This non-coverage determination could have a material adverse effect on the utilization of these products, the company's business, and its revenue170171 - The company also notes risks related to adverse general economic conditions and recent turmoil in the global banking system, such as the failure of Silicon Valley Bank (SVB), which could negatively affect business operations and financial condition172173 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None174 Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during Q2 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during Q2 2023177 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and required certifications