10-Q 1 orgo-20240331.htm 10-Q 10-Q
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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, 2024

OR

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 April 30, 2024 was 132,572,465.

 

 

 

 


Organogenesis Holdings Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2024

Table of Contents

 

Page

PART I. FINANCIAL INFORMATION

4

Item 1.

Unaudited Condensed Consolidated Financial Statements

4

Condensed Consolidated Balance Sheets

4

Condensed Consolidated Statements of Operations and Comprehensive Loss

5

Condensed Consolidated Statements of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

 

 

PART II. OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

29

Item 5.

Other Information

29

Item 6.

Exhibits

30

 

 

SIGNATURES

31

 

2


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, clinical development and commercialization of our product candidates, 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, 2023. 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.

3


PART I—FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements.

ORGANOGENESIS HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

88,626

 

 

$

103,840

 

Restricted cash

 

 

720

 

 

 

498

 

Accounts receivable, net

 

 

96,148

 

 

 

81,999

 

Inventories, net

 

 

27,694

 

 

 

28,253

 

Prepaid expenses and other current assets

 

 

13,979

 

 

 

10,454

 

Total current assets

 

 

227,167

 

 

 

225,044

 

Property and equipment, net

 

 

114,245

 

 

 

116,228

 

Intangible assets, net

 

 

14,970

 

 

 

15,871

 

Goodwill

 

 

28,772

 

 

 

28,772

 

Operating lease right-of-use assets, net

 

 

38,616

 

 

 

40,118

 

Deferred tax asset, net

 

 

28,002

 

 

 

28,002

 

Other assets

 

 

6,709

 

 

 

5,990

 

Total assets

 

$

458,481

 

 

$

460,025

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of term loan

 

$

5,489

 

 

$

5,486

 

Current portion of finance lease obligations

 

 

1,103

 

 

 

1,081

 

Current portion of operating lease obligations - related party

 

 

8,543

 

 

 

8,413

 

Current portion of operating lease obligations

 

 

4,675

 

 

 

4,731

 

Accounts payable

 

 

23,230

 

 

 

30,724

 

Accrued expenses and other current liabilities

 

 

39,759

 

 

 

30,074

 

Total current liabilities

 

 

82,799

 

 

 

80,509

 

Term loan, net of current portion

 

 

59,371

 

 

 

60,745

 

Finance lease obligations, net of current portion

 

 

1,604

 

 

 

1,888

 

Operating lease obligations, net of current portion - related party

 

 

11,052

 

 

 

11,954

 

Operating lease obligations, net of current portion

 

 

24,383

 

 

 

25,053

 

Other liabilities

 

 

1,242

 

 

 

1,213

 

Total liabilities

 

 

180,451

 

 

 

181,362

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

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; 133,267,888 and 132,044,944 shares issued; 132,539,340 and 131,316,396 shares outstanding at March 31, 2024 and December 31, 2023, respectively.

 

 

13

 

 

 

13

 

Additional paid-in capital

 

 

321,088

 

 

 

319,621

 

Accumulated deficit

 

 

(43,071

)

 

 

(40,971

)

Total stockholders’ equity

 

 

278,030

 

 

 

278,663

 

Total liabilities and stockholders’ equity

 

$

458,481

 

 

$

460,025

 

 

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

4


ORGANOGENESIS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

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

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Net revenue

 

$

109,976

 

 

$

107,642

 

Cost of goods sold

 

 

28,696

 

 

 

26,607

 

Gross profit

 

 

81,280

 

 

 

81,035

 

Operating expenses:

 

 

 

 

 

 

Selling, general and administrative

 

 

72,322

 

 

 

73,834

 

Research and development

 

 

12,810

 

 

 

11,202

 

Total operating expenses

 

 

85,132

 

 

 

85,036

 

Loss from operations

 

 

(3,852

)

 

 

(4,001

)

Other expense, net:

 

 

 

 

 

 

Interest expense, net

 

 

(514

)

 

 

(649

)

Other income, net

 

 

23

 

 

 

23

 

Total other expense, net

 

 

(491

)

 

 

(626

)

Net loss before income taxes

 

 

(4,343

)

 

 

(4,627

)

Income tax benefit

 

 

2,243

 

 

 

1,658

 

Net loss and comprehensive loss

 

$

(2,100

)

 

$

(2,969

)

 

 

 

 

 

 

 

Net loss, per share:

 

 

 

 

 

 

Basic and diluted

 

$

(0.02

)

 

$

(0.02

)

Weighted-average common shares outstanding

 

 

 

 

 

 

Basic and diluted

 

 

131,861,772

 

 

 

131,083,841

 

 

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

5


ORGANOGENESIS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(amounts in thousands, except share data)

 

 

 

Three Months Ended March 31, 2024

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Stockholders’ Equity

 

Balance as of December 31, 2023

 

 

131,316,396

 

 

$

13

 

 

$

319,621

 

 

$

(40,971

)

 

$

278,663

 

Exercise of stock options

 

 

152,250

 

 

 

 

 

 

180

 

 

 

 

 

 

180

 

Vesting of RSUs, net of shares surrendered to pay taxes

 

 

1,070,694

 

 

 

 

 

 

(1,120

)

 

 

 

 

 

(1,120

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,407

 

 

 

 

 

 

2,407

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,100

)

 

 

(2,100

)

Balance as of March 31, 2024

 

 

132,539,340

 

 

$

13

 

 

$

321,088

 

 

$

(43,071

)

 

$

278,030

 

 

 

 

 

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 adjustment from adoption of ASU 2016-13, net of tax (Note 2)

 

 

 

 

 

 

 

 

 

 

 

(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 loss

 

 

 

 

 

 

 

 

 

 

 

(2,969

)

 

 

(2,969

)

Balance as of March 31, 2023

 

 

131,226,387

 

 

$

13

 

 

$

312,573

 

 

$

(48,885

)

 

$

263,701

 

 

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

6


ORGANOGENESIS HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(2,100

)

 

$

(2,969

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

3,072

 

 

 

2,694

 

Amortization of intangible assets

 

 

901

 

 

 

1,230

 

Reduction in the carrying value of right-of-use assets

 

 

2,203

 

 

 

1,939

 

Non-cash interest expense

 

 

105

 

 

 

107

 

Deferred interest expense

 

 

122

 

 

 

122

 

Provision recorded for credit losses

 

 

968

 

 

 

243

 

Loss on disposal of property and equipment

 

 

347

 

 

 

63

 

Adjustment for excess and obsolete inventories

 

 

2,515

 

 

 

1,407

 

Stock-based compensation

 

 

2,407

 

 

 

1,914

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(15,117

)

 

 

(3,429

)

Inventories

 

 

(4,670

)

 

 

(2,163

)

Prepaid expenses and other current assets and other assets

 

 

(4,315

)

 

 

(4,774

)

Operating leases

 

 

(2,199

)

 

 

(2,122

)

Accounts payable

 

 

(4,391

)

 

 

(1,390

)

Accrued expenses and other current liabilities

 

 

9,962

 

 

 

2,029

 

Other liabilities

 

 

28

 

 

 

22

 

Net cash used in operating activities

 

 

(10,162

)

 

 

(5,077

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,222

)

 

 

(7,562

)

Net cash used in investing activities

 

 

(2,222

)

 

 

(7,562

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments of term loan under the 2021 Credit Agreement

 

 

(1,406

)

 

 

(938

)

Payments of withholding taxes in connection with RSUs vesting

 

 

(1,120

)

 

 

(298

)

Proceeds from the exercise of stock options

 

 

180

 

 

 

-

 

Principal repayments of finance lease obligations

 

 

(262

)

 

 

-

 

Net cash used in financing activities

 

 

(2,608

)

 

 

(1,236

)

Change in cash, cash equivalents and restricted cash

 

 

(14,992

)

 

 

(13,875

)

Cash, cash equivalents, and restricted cash, beginning of period

 

 

104,338

 

 

 

103,290

 

Cash, cash equivalents, and restricted cash, end of period

 

$

89,346

 

 

$

89,415

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

1,375

 

 

$

1,271

 

Cash paid for income taxes

 

$

35

 

 

$

128

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Cumulative effect adjustment for adoption of ASU No. 2016-13 (Note 2)

 

$

 

 

$

615

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

786

 

 

$

1,986

 

Right-of-use assets obtained through operating lease obligations

 

$

701

 

 

$

1,586

 

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

7


ORGANOGENESIS HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED 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 surgery centers (“ASCs”) and physician offices. The Company has one operating and reportable segment.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles in the United States (“GAAP”), pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, for the year ended December 31, 2023, included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 29, 2024 (the “Annual Report”). The results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024, any other interim periods, or any future years or periods.

2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2023, and the notes thereto, which are included in the Annual Report. There have been no material changes to the significant accounting policies previously disclosed in the Annual Report.

These unaudited condensed 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.

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have had or may have a material impact on its condensed consolidated financial statements or disclosures.

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 at the date of the financial statements and the reported results of operations during the reporting periods. In preparing the condensed consolidated financial statements, the estimates and assumptions that management considers 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 assets; 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 sweeps cash daily overnight and diversifies among financial institutions to reduce such exposure.

 

8


Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities to disclose specific categories in the effective tax rate reconciliation, as well as additional information for reconciling items that exceed a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid disaggregated by federal, state and foreign taxes, and further disaggregated for specific jurisdictions that exceed 5% of total income taxes paid, among other expanded disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-09.

Correction of Immaterial Classification Error

Subsequent to the issuance of the consolidated financial statements as of and for the year ended December 31, 2023, the Company determined that as of December 31, 2023, it had incorrectly classified $5,273 of accrued but unpaid lease obligations as current portion of operating lease obligations instead of as current portion of operating lease obligations - related party. As a result, the Company also incorrectly classified $5,273 of operating lease obligations, net of current portion as operating lease obligations, net of current portion - related party. These misclassifications have been corrected in the accompanying condensed consolidated balance sheets and conform to the current period presentation of operating lease obligations. These reclassifications had no impact on reported results of operations, stockholders’ equity, cash flows, total current liabilities, or total liabilities.

3. Revenue from Contracts with Customers

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, 2024 and 2023, the Company recorded GPO fees of $1,394 and $1,424, respectively, as a direct reduction of revenue.

The following tables set forth revenue by product category:

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Advanced Wound Care

 

$

103,864

 

 

$

100,917

 

Surgical & Sports Medicine

 

 

6,112

 

 

 

6,725

 

Total net revenue

 

$

109,976

 

 

$

107,642

 

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

4. Accounts Receivable, Net

Accounts receivable consisted of the following:

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accounts receivable

 

$

103,623

 

 

$

88,859

 

Less — allowance for credit losses

 

 

(7,475

)

 

 

(6,860

)

 

$

96,148

 

 

$

81,999

 

 

9


 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Balance at beginning of period

 

$

6,860

 

 

$

6,362

 

Cumulative effect of adopting ASU 2016-13

 

 

 

 

 

615

 

Additions (adjustments)

 

 

968

 

 

 

243

 

Write-offs

 

 

(356

)

 

 

(299

)

Recoveries

 

 

3

 

 

 

 

Balance at end of period

 

$

7,475

 

 

$

6,921

 

 

5. Inventories

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Raw materials

 

$

13,341

 

 

$

12,988

 

Work in process

 

 

858

 

 

 

810

 

Finished goods

 

 

13,495

 

 

 

14,455

 

 

 

$

27,694

 

 

$

28,253

 

 

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, 2024 and 2023, the Company charged $2,515 and $1,407, respectively, for inventory excess and obsolescence to cost of goods sold within the condensed consolidated statements of operations and comprehensive loss.

 

6. Property and Equipment, Net

Property and equipment consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Leasehold improvements

 

$

62,129

 

 

$

60,819

 

Buildings

 

 

4,943

 

 

 

4,943

 

Furniture, computers and equipment

 

 

63,528

 

 

 

64,585

 

 

 

130,600

 

 

 

130,347

 

Accumulated depreciation

 

 

(74,745

)

 

 

(73,186

)

Construction in progress

 

 

58,390

 

 

 

59,067

 

 

$

114,245

 

 

$

116,228

 

 

Depreciation expense was $3,072 and $2,694 for the three months ended March 31, 2024 and 2023, respectively. Construction in progress primarily represents the ongoing ERP system implementation and the unfinished construction work on a purchased building located on the Company’s Canton, Massachusetts campus and improvements at the Company’s leased facilities in Canton and Norwood, Massachusetts.

10


7. Goodwill and Intangible Assets

Goodwill was $28,772 as of March 31, 2024 and December 31, 2023. There was no impairment of goodwill recorded during the three months ended March 31, 2024 and 2023.

Intangible assets consisted of the following as of March 31, 2024:

 

 

 

Original

 

 

Accumulated

 

 

Net Book

 

 

 

Cost

 

 

Amortization

 

 

Value

 

Developed technology

 

$

32,620

 

 

$

(25,226

)

 

$

7,394

 

Customer relationships

 

 

10,690

 

 

 

(3,786

)

 

 

6,904

 

Patent

 

 

7,623

 

 

 

(7,623

)

 

 

 

Independent sales agency network

 

 

4,500

 

 

 

(4,500

)

 

 

 

Trade names and trademarks

 

 

2,080

 

 

 

(1,627

)

 

 

453

 

Non-compete agreements

 

 

1,010

 

 

 

(791

)

 

 

219

 

Total

 

$

58,523

 

 

$

(43,553

)

 

$

14,970

 

 

Intangible assets consisted of the following as of December 31, 2023:

 

 

 

Original

 

 

Accumulated

 

 

Net Book

 

 

 

Cost

 

 

Amortization

 

 

Value

 

Developed technology

 

$

32,620

 

 

$

(24,666

)

 

$

7,954

 

Customer relationship

 

 

10,690

 

 

 

(3,519

)

 

 

7,171

 

Patent

 

 

7,623

 

 

 

(7,623

)

 

 

 

Independent sales agency network

 

 

4,500

 

 

 

(4,500

)

 

 

 

Trade names and trademarks

 

 

2,080

 

 

 

(1,590

)

 

 

490

 

Non-compete agreements

 

 

1,010

 

 

 

(754

)

 

 

256

 

Total

 

$

58,523

 

 

$

(42,652

)

 

$

15,871

 

 

Amortization of intangible assets, calculated on a straight-line basis or using an accelerated method, was $901 and $1,230 for the three months ended March 31, 2024 and 2023, respectively. The weighted average remaining useful lives for developed technology, trade names and trademarks, customer relationship, and non-compete agreements are 4.2 years, 4.2 years, 6.5 years, and 1.5 years, respectively, as of March 31, 2024.

8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Personnel costs

 

$

24,078

 

 

$

18,287

 

Royalties

 

 

6,582

 

 

 

3,075

 

Accrued but unpaid lease obligations and interest

 

 

2,448

 

 

 

2,326

 

Accrued milestone payment (Note 14)

 

 

2,500

 

 

 

2,500

 

Accrued option payment (Note 14)

 

 

2,500

 

 

 

 

Accrued taxes

 

 

483

 

 

 

2,799

 

Other

 

 

1,168

 

 

 

1,087

 

 

$

39,759

 

 

$

30,074

 

The accrued but unpaid lease obligations and the interest accrual on these obligations are related to the buildings in Canton, Massachusetts. See Note 13, Leases.

9. Restructuring

In order to reduce the Company’s cost structure and improve operating efficiency, the Company has consolidated its manufacturing operations in various locations into Massachusetts facilities.

On February 3, 2023, the Company committed to a plan to restructure its workforce to increase productivity and enhance profitability. The reduction in force reduced the Company’s headcount by 71 employees, or approximately 7% of all employees. The

11


Company incurred a total charge of $1,817 in the three months ended March 31, 2023 in connection with the restructuring, primarily consisting of severance payments. It was substantially completed as of March 31, 2023.

As a result of the restructuring activities, the Company incurred a total pre-tax charge of $1,908 during the three months ended March 31, 2023. These charges were included in selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. The liability related to the restructuring activities was $280 and $904 as of March 31, 2024 and December 31, 2023, respectively, and was included in accrued expenses and other current liabilities in the condensed consolidated balance sheets. The following tables provide a roll-forward of the restructuring liabilities.

 

 

 

Total

 

Liability balance as of December 31, 2023

 

$

904

 

Cash disbursements and other adjustments

 

 

(624

)

Liability balance as of March 31, 2024

 

$

280

 

 

 

 

 

Employee

 

 

Other

 

 

Total

 

Liability balance as of December 31, 2022

 

$

1,010

 

 

$

182

 

 

$

1,192

 

Expenses

 

 

1,817

 

 

 

91

 

 

 

1,908

 

Cash disbursements and other adjustments

 

 

(1,740

)

 

 

(273

)

 

 

(2,013

)

Liability balance as of March 31, 2023

 

$

1,087

 

 

$

 

 

$

1,087

 

 

10. Debt Obligations

Debt obligations consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Revolving Facility

 

$

 

 

$

 

Term loan

 

 

65,156

 

 

 

66,563

 

Less debt discount and debt issuance cost

 

 

(296

)

 

 

(332

)

Term loan, net of debt discount and debt issuance cost

 

$

64,860

 

 

$

66,231

 

 

2021 Credit Agreement

In August 2021, the Company, as borrower, its subsidiaries, as guarantors, and Silicon Valley Bank (“SVB”), and the several other lenders thereto (collectively, the “Lenders”) entered into a credit agreement, as amended (the “2021 Credit Agreement”), providing for a term loan facility not to exceed $75,000 (the “Term Loan Facility”) and a revolving credit facility not to exceed $125,000 (the “Revolving Facility” and, together with the Term Loan Facility, the “Facilities”). The Company’s obligations to the Lenders are secured by substantially all of the Company’s assets, including intellectual property. Capitalized terms used herein and not otherwise defined are defined as set forth in the 2021 Credit Agreement.

Advances made under the 2021 Credit Agreement may be either SOFR Loans or ABR Loans, at the Company’s option. For SOFR Loans, the interest rate is a per annum interest rate equal to the Adjusted Term SOFR plus an Applicable Margin between 2.00% to 3.25% based on the Total Net Leverage Ratio. For ABR Loans, the interest rate is equal to (1) the highest of (a) the Wall Street Journal Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the Adjusted Term SOFR rate plus 1.0%, plus (2) an Applicable Margin between 1.00% to 2.25% based on the Total Net Leverage Ratio. On March 31, 2024, the applicable interest rate for outstanding borrowings is 7.64%.

The 2021 Credit Agreement requires the Company to make consecutive quarterly installment payments equal to the following: (a) from September 30, 2021 through and including June 30, 2022, $469; (b) from September 30, 2022 through and including June 30, 2023, $938; (c) from September 30, 2023 through and including June 30, 2025, $1,406 and (d) from September 30, 2025 and the last day of each quarter thereafter until August 6, 2026 (the “Term Loan Maturity Date”), $1,875. The remaining principal balance of $50,625 is also due on the Term Loan Maturity Date. The Company may prepay the Term Loan Facility. Once repaid, amounts borrowed under the Term Loan Facility may not be re-borrowed.

The Company must pay in arrears, on the first day of each quarter prior to August 6, 2026 (the “Revolving Termination Date”) and on the Revolving Termination Date, a fee for the Company’s non-use of available funds (the “Commitment Fee”). The

12


Commitment Fee rate is between 0.25% to 0.45% based on the Total Net Leverage Ratio. The Company may elect to reduce or terminate the Revolving Facility in its entirety at any time by repaying all outstanding principal and unpaid accrued interest.

Under the 2021 Credit Agreement, the Company is required to comply with certain financial covenants including the Consolidated Fixed Charge Coverage Ratio and Consolidated Total Net Leverage Ratio, tested quarterly. In addition, the Company is also required to make representations and warranties and comply with certain non-financial covenants that are customary in loan agreements of this type, including restrictions on the payment of dividends, repurchase of stock, incurrence of indebtedness, dispositions and acquisitions.

The Company recorded debt issuance costs and related fees of $604 in connection with entering into the Term Loan Facility, which are recorded as a reduction of the carrying value of the term loan on the accompanying condensed consolidated balance sheets. In connection with entering into the Revolving Facility, the Company recorded debt issuance costs and related fees of $1,223, which are recorded as other assets. Both of these costs are being amortized to interest expense through the maturity date of the facilities.

As of March 31, 2024 and December 31, 2023, the Company had outstanding borrowings of $65,156 and $66,563 under the Term Loan Facility, respectively, and $0 under the Revolving Facility with $125,000 available for future revolving borrowings.

The future payments due under the Term Loan Facility as of March 31, 2024, are as follows for the calendar years ending December 31:

 

2024 (remaining nine months)

 

 

4,218

 

2025

 

 

6,563

 

2026

 

 

54,375

 

Total

 

$

65,156

 

 

 

11. Stockholders’ Equity and Stock-Based Compensation

Common Stock

As of March 31, 2024, the issued shares of Class A common stock include 728,548 treasury shares that were reacquired in connection with the redemption of redeemable shares in March 2019.

Stock Incentive Plans

On November 28, 2018, the Board of Directors of the Company adopted, and on December 10, 2018 the Company’s stockholders approved, the Organogenesis 2018 Equity Incentive Plan (the “2018 Plan”). At the adoption of the 2018 Plan, a total of 9,198,996 shares of Class A common stock was authorized to be issued (subject to adjustment in the case of any stock dividend, stock split, reverse stock split, or similar change in capitalization of the Company). In June 2022, the 2018 Plan was amended to increase the number of shares of Class A common stock reserved for issuance by 7,826,970 shares.

The Organogenesis 2003 Stock Incentive Plan (the “2003 Plan”), provided for the Company to issue restricted stock awards, or to grant incentive stock options or non-statutory stock options. Effective December 10, 2018, no additional awards may be made under the 2003 Plan.

Stock-Based Compensation Expense

Stock options awarded under the stock incentive plans expire 10 years after the grant date and typically vest over four or five years. Restricted stock units awarded typically vest over four years.

Stock-based compensation expense was $2,407 and $1,914 for the three months ended March 31, 2024 and 2023, respectively. The total amount of stock-based compensation expense was included within selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss.

Restricted Stock Units (RSUs)

The Company granted 1,766,615 and 3,192,372 time-based restricted stock units to its employees, executives and members of the Board of Directors in the three months ended March 31, 2024 and 2023, respectively. Each restricted stock unit represents the contingent right to receive one share of the Company’s Class A common stock. A majority of the restricted stock units will vest in four equal annual installments. The fair value of the restricted stock units was based on the fair market value of the Company’s stock on the date of grant.

13


The activity of restricted stock units is set forth below:

 

 

Number

 

 

Weighted Average

 

 

of RSUs

 

 

Grant Date

 

 

 

 

 

Fair Value

 

Unvested at December 31, 2023

 

 

3,898,331

 

 

$

3.54

 

Granted

 

 

1,766,615

 

 

 

3.43

 

Vested

 

 

(1,376,737

)

 

 

3.63

 

Canceled/forfeited

 

 

(15,474

)

 

 

5.52

 

Unvested at March 31, 2024

 

 

4,272,735

 

 

$

3.46

 

As of March 31, 2024, the total unrecognized compensation cost related to unvested restricted stock units expected to vest was $10,968 and the weighted average remaining recognition period for unvested awards was 2.77 years.

Stock Options

The following table summarizes the Company’s stock option activity since December 31, 2023:

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

Weighted

 

 

Remaining

 

 

 

 

 

 

 

 

 

Average

 

 

Contractual

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Term

 

 

Intrinsic

 

 

 

Options

 

 

Price

 

 

(in years)

 

 

Value

 

Outstanding as of December 31, 2023

 

 

9,340,046

 

 

$

4.60

 

 

 

6.66

 

 

$

10,267

 

Granted

 

 

2,640,601

 

 

 

3.43

 

 

 

 

 

 

 

Exercised

 

 

(152,250

)

 

 

1.18

 

 

 

 

 

 

254

 

Canceled/forfeited

 

 

(21,738

)

 

 

5.85

 

 

 

 

 

 

7

 

Outstanding as of March 31, 2024

 

 

11,806,659

 

 

$

4.38

 

 

 

7.28

 

 

$

3,359

 

Options exercisable as of March 31, 2024

 

 

5,258,648

 

 

$

4.92

 

 

 

5.18

 

 

$

2,487

 

Options vested or expected to vest as of March 31, 2024

 

 

10,457,197

 

 

$

4.47

 

 

 

7.03

 

 

$

3,169

 

 

The stock options granted during the three months ended March 31, 2024 and 2023 were 2,640,601 and 3,554,528, respectively.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s Class A common stock for those stock options that have exercise prices lower than the fair value of the Company’s Class A common stock.

The weighted-average grant-date fair value per share of stock options granted during the three months ended March 31, 2024 and 2023 was $1.89 and $1.32, respectively. The total fair value of options vested during the three months ended March 31, 2024 and 2023 was $3,669 and $2,653, respectively.

As of March 31, 2024, the total unrecognized stock compensation expense related to unvested stock options expected to vest was $9,218 and was expected to be recognized over a weighted-average period of 2.84 years.

12. Earnings per Share (EPS)

Basic EPS is calculated by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted EPS is calculated by dividing net income (loss) by the weighted-average number of shares outstanding plus the dilutive effect, if any, of outstanding equity awards using the treasury stock method which includes consideration of unrecognized compensation expenses as additional proceeds.

The Company’s potentially dilutive securities include restricted stock units and stock options to purchase shares of Class A common stock. As the Company had a net loss in the periods presented, the potentially dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same for these periods. For the three months ended March 31, 2024 and 2023, the Company excluded 1,542,861 and 800,395 potential shares of Class A common stock, respectively, presented based on the diluted effects of options and restricted stock units outstanding at each

14


period end, from the computation of diluted net loss per share attributable to the common stockholders for these periods. Basic and diluted net loss attributable to the Class A common stockholders was calculated as follows.

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(2,100

)

 

$

(2,969

)

Denominator:

 

 

 

 

 

 

Weighted-average common shares outstanding — basic and diluted

 

 

131,861,772

 

 

 

131,083,841

 

Net loss per share—basic and diluted

 

$

(0.02

)

 

$

(0.02

)

 

13. Leases

The Company’s leases consist primarily of real estate, equipment and vehicle leases.

The Company leases real estate for office, lab, warehouse and production space under noncancelable leases that expire at various dates through 2035, subject to the Company’s options to terminate or renew certain leases for an additional five to ten years. The Company leases vehicles under operating leases for certain employees and has fleet services agreements for service on these vehicles. The minimum lease term for each newly leased vehicle is 367 days with renewal options. The Company may terminate the vehicle lease after the minimum lease term upon thirty days’ prior notice. The Company also leases other equipment under noncancelable leases that expire at various dates through 2026.

On January 1, 2013, the Company entered into finance lease arrangements with 65 Dan Road SPE, LLC, 85 Dan Road Associates, LLC, Dan Road Equity I, LLC and 275 Dan Road SPE, LLC for office and laboratory space in Canton, Massachusetts (the “Related-Party Leases”). 65 Dan Road SPE, LLC, 85 Dan Road Associates, LLC, Dan Road Equity I, LLC and 275 Dan Road SPE, LLC are related parties as the owners of these entities are also directors, former directors and / or stockholders of the Company.

In August 2021, the Company purchased the building (the “275 Dan Road Building”) under the lease with 275 Dan Road SPE, LLC for $6,013 and the lease was terminated. The Company recorded an asset of $4,943 to buildings within property and equipment, net, to account for the purchase of the leased asset.

The remaining three Related-Party Leases were set to terminate on December 31, 2022 and each contained a renewal option for a five-year period with a rental rate at the greater of (i) rent for the last year of the prior term, or (ii) the then fair market value. In November 2021, the Company exercised the option to extend the leases for an additional five years, and at such time, remeasured the right of use assets and lease liabilities based on its best estimate of the market rental rate in the renewal period and reassessed the classification for these leases. As a result, these leases were reclassified from finance leases to operating leases on the consolidated balance sheets as of December 31, 2021. In December 2022, the Company and the landlord finalized the market rental rate in the renewal period for these properties, resulting in an additional $8,060 to be recorded as variable lease expenses over the renewal period.

Effective April 1, 2019, the Company agreed to accrue interest on accrued but unpaid lease obligations owed for rent in arrears to the owners of the buildings subject to the Related-Party Leases, at an interest rate equal to the rate charged under the 2019 Credit Agreement. The remaining accrued but unpaid lease obligation with respect to the 275 Dan Road Building was paid in five quarterly installments through January 3, 2023, and accordingly at March 31, 2024 and December 31, 2023, there is no remaining balance or accrued interest associated with the 275 Dan Road Building. The accrued but unpaid lease obligations as well as the related accrued interest with respect to the remaining three Related-Party Leases are shown below:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Principal portion of rent in arrears

 

$

5,273

 

 

$

5,273

 

Accrued interest on accrued but unpaid lease obligations

 

$

2,448

 

 

$

2,326

 

 

The accrued but unpaid lease obligations owed for rent in arrears on the three remaining Related-Party Leases was included in current portion of operating lease obligations on the condensed consolidated balance sheets, as of March 31, 2024 and December 31, 2023. The accrued interest on the accrued but unpaid lease obligations was included in accrued expenses and other current liabilities on the condensed consolidated balance sheets as of March 31, 2024 and December 31, 2023.

15


The components of lease cost were as follows:

 

 

 

Classification

 

Three Months Ended March 31,

 

 

 

 

 

2024

 

 

2023

 

Finance lease

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

 

COGS and SG&A

 

$

288

 

 

$

 

Interest on lease liabilities

 

Interest Expense

 

 

57

 

 

 

 

Total finance lease cost

 

 

 

 

345

 

 

 

 

Operating lease cost

 

COGS, R&D, SG&A

 

 

2,203

 

 

 

2,291

 

Short-term lease cost

 

COGS, R&D, SG&A

 

 

661

 

 

 

758

 

Variable lease cost

 

COGS, R&D, SG&A

 

 

1,126

 

 

 

1,794

 

Total lease cost

 

 

 

$