SEC Filing | Organogenesis Holdings Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2023

☐ 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 Incorporation or Organization)	(I.R.S. Employer Identification No.)

85 Dan Road
Canton, MA	02021
(Address of principal executive offices)	(Zip Code)

(781) 575-0775

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.0001 par value	ORGO	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s Class A common stock outstanding as of May 1, 2023 was 131,261,833.

Organogenesis Holdings Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2023

Table of Contents


		Page
PART I. FINANCIAL INFORMATION		4
Item 1.	Unaudited Consolidated Financial Statements	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION		29
Item 1.	Legal Proceedings	29
Item 1A	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31

SIGNATURES		32

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements. These statements may relate to, but are not limited to, expectations of our future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. These risks and other factors include, but are not limited to, those listed under “Risk Factors.” In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “might,” “would,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Form 10-Q and in “Part I, Item 1A—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. These forward-looking statements speak only as of the date of this Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the U.S. Securities and Exchange Commission (the “SEC”) after the date of this Form 10-Q.

As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” “the Company,” “Organogenesis” and “ORGO” will refer to Organogenesis Holdings Inc. and its subsidiaries.

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements.

ORGANOGENESIS HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(amounts in thousands, except share and per share data)


	March 31,			December 31,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	88,694		$	102,478
Restricted cash		721			812
Accounts receivable, net		92,021			89,450
Inventory, net		25,539			24,783
Prepaid expenses and other current assets		9,847			5,086
Total current assets		216,822			222,609
Property and equipment, net		106,637			102,463
Intangible assets, net		19,560			20,789
Goodwill		28,772			28,772
Operating lease right-of-use assets, net		42,839			43,192
Deferred tax asset, net		30,014			30,014
Other assets		1,463			1,520
Total assets	$	446,107		$	449,359
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of term loan	$	5,009		$	4,538
Current portion of operating lease obligations		12,160			11,708
Accounts payable		30,310			32,330
Accrued expenses and other current liabilities		28,597			26,447
Total current liabilities		76,076			75,023
Term loan, net of current portion		64,860			66,231
Operating lease obligations, net of current portion		40,325			41,314
Other liabilities		1,145			1,122
Total liabilities		182,406			183,690
Commitments and contingencies (Note 18)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued		-			-
Common stock, $0.0001 par value; 400,000,000 shares authorized; 131,954,935 and 131,647,677 shares issued; 131,226,387 and 130,919,129 shares outstanding at March 31, 2023 and December 31, 2022, respectively.		13			13
Additional paid-in capital		312,573			310,957
Accumulated deficit		(48,885	)		(45,301	)
Total stockholders’ equity		263,701			265,669
Total liabilities and stockholders’ equity	$	446,107		$	449,359

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ORGANOGENESIS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(amounts in thousands, except share and per share data)


	Three Months Ended March 31,
	2023			2022
Net revenue	$	107,642		$	97,117
Cost of goods sold		26,607			25,080
Gross profit		81,035			72,037
Operating expenses:
Selling, general and administrative		73,834			63,578
Research and development		11,202			8,587
Total operating expenses		85,036			72,165
Loss from operations		(4,001	)		(128	)
Other expense, net:
Interest expense		(649	)		(737	)
Other income (expense), net		23			(3	)
Total other expense, net		(626	)		(740	)
Net loss before income taxes		(4,627	)		(868	)
Income tax benefit (expense)		1,658			(45	)
Net loss	$	(2,969	)	$	(913	)

Net loss, per share:
Basic	$	(0.02	)	$	(0.01	)
Diluted	$	(0.02	)	$	(0.01	)
Weighted-average common shares outstanding
Basic		131,083,841			128,788,721
Diluted		131,083,841			128,788,721

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ORGANOGENESIS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(amounts in thousands, except share data)


	Three Months Ended March 31, 2023
					Additional
	Common Stock				Paid-in			Accumulated			Total
	Shares		Amount		Capital			Deficit			Stockholders’ Equity
Balance as of December 31, 2022		130,919,129	$	13	$	310,957		$	(45,301	)	$	265,669
Cumulative effect of adopting new accounting principle ASU 2016-13								$	(615	)		(615	)
Vesting of RSUs, net of shares surrendered to pay taxes		307,258		-		(298	)		-			(298	)
Stock-based compensation expense		-		-		1,914			-			1,914
Net income		-		-		-			(2,969	)		(2,969	)
Balance as of March 31, 2023		131,226,387	$	13	$	312,573		$	(48,885	)	$	263,701




	Three Months Ended March 31, 2022
					Additional
	Common Stock				Paid-in			Accumulated			Total
	Shares		Amount		Capital			Deficit			Stockholders’ Equity
Balance as of December 31, 2021		128,680,192	$	13	$	302,155		$	(60,833	)	$	241,335
Exercise of stock options		86,121		-		291			-			291
Vesting of RSUs, net of shares surrendered to pay taxes		120,871				(488	)					(488	)
Stock-based compensation expense		-		-		1,303			-			1,303
Net loss		-		-		-			(913	)		(913	)
Balance as of March 31, 2022		128,887,184	$	13	$	303,261		$	(61,746	)	$	241,528

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ORGANOGENESIS HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(amounts in thousands)


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(2,969	)	$	(913	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		2,694			1,347
Amortization of intangible assets		1,230			1,221
Reduction in the carrying value of right-of-use assets		1,939			1,847
Non-cash interest expense		107			108
Deferred interest expense		122			151
Provision recorded for credit losses		243			40
Loss on disposal of property and equipment		63			-
Adjustment for excess and obsolete inventories		1,407			2,205
Stock-based compensation		1,914			1,303
Changes in operating assets and liabilities:
Accounts receivable		(3,429	)		2,942
Inventory		(2,163	)		80
Prepaid expenses and other current assets		(4,774	)		(2,165	)
Operating leases		(2,122	)		(1,751	)
Accounts payable		(1,390	)		(1,186	)
Accrued expenses and other current liabilities		2,029			(3,828	)
Other liabilities		22			10
Net cash provided by (used in) operating activities		(5,077	)		1,411
Cash flows from investing activities:
Purchases of property and equipment		(7,562	)		(6,672	)
Net cash used in investing activities		(7,562	)		(6,672	)
Cash flows from financing activities:
Payments of term loan under the 2021 Credit Agreement		(938	)		(469	)
Payments of withholding taxes in connection with RSUs vesting		(298	)		(488	)
Proceeds from the exercise of stock options		-			291
Principal repayments of finance lease obligations		-			(99	)
Net cash used in financing activities		(1,236	)		(765	)
Change in cash, cash equivalents and restricted cash		(13,875	)		(6,026	)
Cash, cash equivalents, and restricted cash, beginning of period		103,290			114,528
Cash, cash equivalents, and restricted cash, end of period	$	89,415		$	108,502
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,271		$	627
Cash paid for income taxes	$	128		$	4
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued expenses	$	1,986		$	1,869
Right-of-use assets obtained through operating lease obligations	$	1,586		$	171

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ORGANOGENESIS HOLDINGS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

1. Nature of Business and Basis of Presentation

Organogenesis Holdings Inc. (“ORGO” or the “Company”) is a leading regenerative medicine company focused on the development, manufacture, and commercialization of solutions for the Advanced Wound Care and Surgical & Sports Medicine markets. Several of the existing and pipeline products in the Company’s portfolio have Premarket Application (“PMA”) approval, or Premarket Notification 510(k) clearance from the United States Food and Drug Administration (“FDA”). The Company’s customers include hospitals, wound care centers, government facilities, ambulatory service centers (“ASCs”) and physician offices. The Company has one operating and reportable segment.

COVID-19 pandemic

On April 10, 2023, President Biden signed a joint congressional resolution ending the national emergency related to COVID-19 and the Biden Administration previously announced it will end the public health emergency declaration related to COVID-19 on May 11, 2023. While the COVID-19 pandemic has not materially adversely affected the Company’s financial results and business operations through March 31, 2023, the COVID-19 pandemic continues to present risks to the Company, and the Company is unable to predict the impact that COVID-19 (including the emergence of new variants) will have on its financial position and operating results in the future.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in Note “2. Significant Accounting Policies” to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report”). There have been no material changes to the significant accounting policies previously disclosed in the Annual Report.

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles in the United States (“GAAP”), and the rules and regulations of the SEC regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. While we believe that the disclosures presented are adequate in order to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report.

The unaudited consolidated financial statements include the accounts and results of operations of Organogenesis Holdings Inc. and its wholly-owned subsidiaries, Organogenesis Inc., Organogenesis GmbH (a Switzerland corporation) and Prime Merger Sub, LLC. All intercompany balances and transactions have been eliminated in consolidation. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of the Company’s financial position, results of operations and cash flows at the dates and for the periods indicated. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, any other interim periods, or any future years or periods.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported results of operations during the reporting periods. In preparing the consolidated financial statements, the estimates and assumptions that management consider to be significant and that present the greatest amount of uncertainty include: revenue recognition; sales returns and credit losses; inventory reserve; recognition and measurement of current and deferred income tax assets and liabilities; the assessment of recoverability of long-lived and indefinite lived assets (including intangible assets); assessing impairment of goodwill; valuation of assets and liabilities that use unobservable inputs; and the valuation and recognition of stock-based compensation. Actual results and outcomes may differ significantly from those estimates and assumptions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents. The Company invests its cash equivalents in highly rated money market funds. Deposits may exceed federally insured limits, and the Company is exposed to credit risk on deposits in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation (“FDIC”). However, the Company mitigates the risk by sweeping cash daily overnight and diversifies among financial institutions to reduce such exposure.

Recently Issued Accounting Pronouncements Adopted

Credit Loss

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB subsequently issued a few amendments to ASU 2016-13. ASU 2016-13 and all the related updates replace the incurred loss impairment methodology previously required under generally accepted accounting principles, with an expected loss methodology that requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The Company adopted the standard as of January 1, 2023 using the modified retrospective method. Under this method, the Company applied the new credit loss measurement guidance to trade accounts receivable, the only financial asset of the Company that is impacted by the ASU and the related updates. The Company recorded a net reduction of $615 to the opening balance of retained earnings as the cumulative effect of initially applying the standard. Results for reporting periods beginning after January 1, 2023 are presented in accordance with Topic 326. Prior period amounts have not been restated and are reported in accordance with legacy GAAP requirements.

3. Acquisition

On September 17, 2020 (the “Acquisition Date”), the Company acquired certain assets and assumed certain liabilities of CPN Biosciences, LLC (“CPN”) pursuant to an asset purchase agreement dated July 24, 2020. CPN offered a physician office management solution and advanced wound care products.

The aggregate consideration amounted to $19,024 as of the Acquisition Date, consisting of $6,427 in cash, 2,151,438 shares of the Company’s Class A common stock with a fair value of $8,815, and contingent consideration (the “Earnout”) with a fair value of $3,782. On the Acquisition Date, the Company paid $5,820 in cash and issued 1,947,953 shares of the Company’s Class A common stock. The remaining consideration of $1,436 was held back and was released in April 2022 by the Company paying $608 in cash and issuing 203,485 shares of the Company’s Class A common stock to the former equity holders of CPN.

The Company was obligated to pay the Earnout to CPN’s former equity holders if CPN’s legacy product revenue in the Earnout Period (July 1, 2021 to June 30, 2022), exceeded CPN’s 2019 revenue. The amount of the Earnout, if any, would be equal to 70% of the excess and would be payable 60 days after the expiration of the Earnout Period. As of the conclusion of the Earnout Period on June 30, 2022, the Company calculated the Earnout liability to be $0. During the Earnout Period, the Company assessed the fair value of the Earnout liability at each reporting period. Subsequent changes in the estimated fair value of the liability were reflected in earnings until the liability was settled. See Note “5. Fair Value Measurement of Financial Assets and Liabilities.”

4. Revenue

The Company generates revenue through the sale of Advanced Wound Care and Surgical & Sports Medicine products. There is a single performance obligation in all of the Company’s contracts, which is the Company’s promise to transfer the Company’s products to customers based on specific payment and shipping terms in the arrangement. Product revenue is recognized when a customer obtains control of the Company’s products which occurs at a point in time and may be upon shipment, procedure date, or delivery, based on the terms of the contract. Revenue is recorded net of a reserve for returns, discounts and Group Purchasing Organization (“GPO”) rebates, which represent a direct reduction to the revenue recognized. These reductions are accrued at the time revenue is recognized, based upon historical experience and specific circumstances. For the three months ended March 31, 2023 and 2022, the Company recorded GPO fees of $1,424 and $1,619, respectively, as a direct reduction of revenue.

The following tables set forth revenue by product category:


	Three Months Ended March 31,
	2023		2022
Advanced Wound Care	$	100,917	$	90,090
Surgical & Sports Medicine		6,725		7,027
Total net revenue	$	107,642	$	97,117

For all periods presented, net revenue generated outside the United States represented less than 1% of total net revenue.

5. Fair Value Measurement of Financial Assets and Liabilities

Earnout Liability

In connection with accounting for the CPN acquisition on September 17, 2020, the Company recorded an Earnout liability of $3,782 on the Acquisition Date, representing the fair value of contingent consideration payable upon the achievement of a certain revenue target. The Earnout liability was classified as a Level 3 measurement within the fair value hierarchy for which fair value was derived from inputs that were unobservable and significant to the overall fair value measurement. The fair value of such Earnout liability was estimated using a Monte Carlo simulation model that utilized key assumptions including forecasted revenues and volatilities of the underlying financial metrics during the Earnout Period that ended on June 30, 2022. Before its settlement, the Company assessed the fair value of the Earnout liability at each reporting period. Any subsequent changes in the estimated fair value of the liability were reflected in selling, general and administrative expenses until the liability was settled. Since September 30, 2021, the Earnout liability remained at $0 through its settlement. For more information about the Earnout liability, refer to Note “3. Acquisition.”

The Company did not have any financial assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2023 and December 31, 2022.

6. Accounts Receivable, Net

Accounts receivable consisted of the following:


	March 31,			December 31,
	2023			2022
Accounts receivable	$	98,942		$	95,812
Less — allowance for credit losses		(6,921	)		(6,362	)
	$	92,021		$	89,450

The Company’s allowance for credit losses was comprised of the following:


	Three Months Ended March 31,
	2023			2022
Balance at beginning of period	$	6,362		$	5,153
Cumulative effect of adopting ASU 2016-13		615			-
Additions		243			40
Write-offs		(299	)		(66	)
Balance at end of period	$	6,921		$	5,127

7. Inventories

Inventories, net of related reserves for excess and obsolescence, consisted of the following:


	March 31,		December 31,
	2023		2022
Raw materials	$	13,126	$	12,282
Work in process		1,158		1,022
Finished goods		11,255		11,479
	$	25,539	$	24,783

Raw materials include various components used in the Company’s manufacturing process. The Company’s excess and obsolete inventory review process includes analysis of sales forecasts and historical sales as compared to inventory level, and working with operations to maximize recovery of excess inventory. During the three months ended March 31, 2023 and 2022, the Company charged $1,407 and $2,205, respectively, for inventory excess and obsolescence to cost of goods sold within the consolidated statements of operations.

8. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	March 31, 2023		December 31, 2022
Subscriptions	$	5,334	$	4,211
Conferences and marketing expenses		1,277		106
Deposits		652		635
Insurance		2,519		54
Other		65		80
	$	9,847	$	5,086

Deposits are funds held by vendors which are expected to be released within twelve months and therefore they are recorded as current assets.

9. Property and Equipment, Net

Property and equipment consisted of the following:


	March 31,		December 31,
	2023		2022
Leasehold improvements	$	52,369	$	37,607
Buildings		4,943		4,943
Furniture, computers and equipment		58,282