Organogenesis (US:ORGO)2023-11-09 21:11PART I. FINANCIAL INFORMATION Unaudited Condensed Consolidated Financial Statements This section presents Organogenesis Holdings Inc.'s unaudited condensed consolidated financial statements and accompanying notes for the periods ended September 30, 2023 Condensed Consolidated Balance Sheets As of September 30, 2023, total assets increased to $462,647 thousand from $449,359 thousand at year-end 2022, with total liabilities at $185,782 thousand and total stockholders' equity growing to $276,865 thousand Condensed Consolidated Balance Sheets Table | Balance Sheet Item | September 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :--- | :--- | :--- | | Total Current Assets | 225,573 | 222,609 | | Total Assets | 462,647 | 449,359 | | Total Current Liabilities | 81,482 | 75,023 | | Total Liabilities | 185,782 | 183,690 | | Total Stockholders' Equity | 276,865 | 265,669 | Condensed Consolidated Statements of Operations For Q3 2023, net revenue decreased to $108,531 thousand from $116,859 thousand year-over-year, while net income significantly increased to $3,167 thousand from $215 thousand Condensed Consolidated Statements of Operations Table | Metric | Q3 2023 ($ thousands) | Q3 2022 ($ thousands) | Nine Months 2023 ($ thousands) | Nine Months 2022 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | 108,531 | 116,859 | 333,489 | 335,377 | | Gross Profit | 82,742 | 90,682 | 254,777 | 257,468 | | Income from Operations | 8,050 | 1,779 | 13,794 | 13,586 | | Net Income | 3,167 | 215 | 5,513 | 8,046 | | Diluted EPS | $0.02 | $0.00 | $0.04 | $0.06 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash provided by operating activities was $20,304 thousand, resulting in a net decrease in cash of $4,465 thousand Condensed Consolidated Statements of Cash Flows Table | Cash Flow Activity | Nine Months Ended Sep 30, 2023 ($ thousands) | Nine Months Ended Sep 30, 2022 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 20,304 | 17,059 | | Net cash used in investing activities | (21,040) | (23,242) | | Net cash used in financing activities | (3,728) | (324) | | Change in cash, cash equivalents and restricted cash | (4,465) | (6,507) | Notes to Condensed Consolidated Financial Statements These notes detail the company's accounting policies and provide further information on financial statement line items, including revenue disaggregation and subsequent events Notes to Condensed Consolidated Financial Statements Table | Revenue by Product Category | Q3 2023 ($ thousands) | Q3 2022 ($ thousands) | Nine Months 2023 ($ thousands) | Nine Months 2022 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Advanced Wound Care | 101,357 | 109,514 | 312,349 | 313,395 | | Surgical & Sports Medicine | 7,174 | 7,345 | 21,140 | 21,982 | | Total net revenue | 108,531 | 116,859 | 333,489 | 335,377 | - In February 2023, the company initiated a restructuring plan, reducing headcount by 71 employees (approx. 7%) and incurring a charge of $1,600 thousand in the first nine months of 202354 - As a subsequent event, the company committed to another workforce reduction on October 27, 2023, affecting 49 employees (approx. 5%) with an expected charge of $1,700 thousand in Q4 2023101 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 7% decrease in Q3 2023 net revenue driven by lower Advanced Wound Care sales and the impact of withdrawn Medicare LCDs Results of Operations Q3 2023 net revenue fell 7% year-over-year to $108,531 thousand, primarily due to decreased Advanced Wound Care sales and lower operating expenses - Net revenue from Advanced Wound Care products decreased by $8,200 thousand (7%) in Q3 2023 compared to Q3 2022, attributed to changes in customer buying patterns and the anticipated impact of the now-withdrawn LCDs131 - Selling, general and administrative (SG&A) expenses decreased by $15,100 thousand (19%) in Q3 2023, primarily due to a $7,800 thousand reduction in travel and marketing, and a $4,200 thousand one-time equipment disposal charge in Q3 2022138 Results of Operations Table | Metric | Q3 2023 ($ thousands) | Q3 2022 ($ thousands) | Nine Months 2023 ($ thousands) | Nine Months 2022 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Income | 3,167 | 215 | 5,513 | 8,046 | | EBITDA | 11,854 | 4,460 | 25,031 | 21,560 | | Adjusted EBITDA | 15,970 | 11,605 | 35,143 | 35,207 | Liquidity and Capital Resources As of September 30, 2023, the company had $98,200 thousand in cash and equivalents and $144,100 thousand in working capital, with $125,000 thousand available under its revolving credit facility - The company reported $98,200 thousand in cash and cash equivalents and $144,100 thousand in working capital as of September 30, 2023143 - There is $125,000 thousand available for future borrowings under the Revolving Facility143 Liquidity and Capital Resources Table | Cash Flow Summary | Nine Months Ended Sep 30, 2023 ($ thousands) | Nine Months Ended Sep 30, 2022 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 20,304 | 17,059 | | Net cash used in investing activities | (21,040) | (23,242) | | Net cash used in financing activities | (3,728) | (324) | Quantitative and Qualitative Disclosures About Market Risk There were no material changes to the company's market risk disclosures during the nine months ended September 30, 2023 - There were no material changes to the company's market risk disclosures during the nine months ended September 30, 2023164 Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of September 30, 2023, due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were ineffective as of September 30, 2023166 - The ineffectiveness is due to a material weakness related to controls over significant non-routine transactions and information technology general controls166 - Remediation plans include implementing a new company-wide ERP system, which is anticipated to go live in 2024170 PART II. OTHER INFORMATION Legal Proceedings The company is defending a class action lawsuit alleging federal securities law violations related to statements about revenue and sales growth for certain products - A class action complaint, Somogyi v. Organogenesis Holdings Inc., et al., alleges violations of federal securities law concerning statements about revenue, sales growth, and competition for its Affinity and PuraPly XT products173 - The company believes the claims are without merit, intends to vigorously contest them, and filed a motion to dismiss which is pending as of the report date173 Risk Factors This section highlights material changes to risk factors, including potential future Medicare coverage changes and the impact of general economic conditions - A key risk is that Medicare Administrative Contractors (MACs) may adopt new LCDs in the future that could eliminate or reduce coverage for the company's products, which would materially impact business and revenue, despite the withdrawal of proposed LCDs in September 2023176 - The company faces risks from adverse general economic conditions and recent turmoil in the global banking system (e.g., the failure of Silicon Valley Bank), which could decrease product demand, strain suppliers, and impact the ability to raise capital177178 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None179 Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None180 Mine Safety Disclosures This item is not applicable to the company - Not Applicable181 Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended September 30, 2023182 Exhibits This section lists the exhibits filed with the Form 10-Q, including required certifications by executive officers - The report includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002183