Organogenesis Holdings Inc

The following table sets forth, for the periods indicated, our results of operations:

EBITDA and Adjusted EBITDA

Our management uses financial measures that are not in accordance with generally accepted accounting principles in the United States (non-GAAP), in addition to financial measures in accordance with generally accepted accounting principles in the United States (GAAP) to evaluate our operating results. These non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. Our management uses Adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. Our management believes Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the items that we exclude. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.

The following is a reconciliation of GAAP net loss to non-GAAP EBITDA and non-GAAP Adjusted EBITDA for each of the periods presented:

(1)

Amounts reflect employee severance, retention and benefits as well as other exit costs associated with the Company’s restructuring activities. See Note 9, Restructuring, to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Comparison of Three Months Ended March 31, 2024 and 2023

Revenue

Net revenue from our Advanced Wound Care products increased by $2.9 million, or 3%, to $103.9 million in the three months ended March 31, 2024, from $100.9 million in the three months ended March 31, 2023. The increase in Advanced Wound Care net revenue was primarily attributable to an increase in product sales of certain of our products to our existing and new customers.

Net revenue from our Surgical & Sports Medicine products decreased by $0.6 million, or 9% to $6.1 million in the three months ended March 31, 2024 from $6.7 million in the three months ended March 31, 2023. The decrease in Surgical & Sports Medicine net revenue was primarily due to a decrease in certain customer buying patterns.

Cost of goods sold and gross profit

Cost of goods sold increased by $2.1 million, or 8%, to $28.7 million in the three months ended March 31, 2024, from $26.6 million in the three months ended March 31, 2023. The increase in cost of goods sold in the three months ended March 31, 2024 was primarily due to an increase in sales volume as well as a shift in product mix.

Gross profit increased by $0.2 million to $81.3 million in the three months ended March 31, 2024 from $81.0 million in the three months ended March 31, 2023. Gross profit remained consistent from the three months ended March 31, 2023 to the three months ended March 31, 2024, but decreased as a percentage of revenue, due to a shift in product mix.

Research and Development Expenses

Research and development expenses increased by $1.6 million, or 14%, to $12.8 million in the three months ended March 31, 2024 from $11.2 million in the three months ended March 31, 2023. The increase in research and development expenses was primarily due to expenses associated with clinical research and trials, primarily related to ReNu, and support of Biologics License Application (BLA) efforts.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $1.5 million, or 2%, to $72.3 million in the three months ended March 31, 2024 from $73.8 million in the three months ended March 31, 2023. The decrease in selling, general and administrative expenses was primarily due to a $5.2 million reduction in headcount-related expenses, including $1.9 million in severance expense incurred in the three months ended March 31, 2023 and not repeated in the three months ended March 31, 2024; partially offset by $3.5 million in royalty expense.

Other Expense, net

Other expense, net, decreased by $0.1 million, or 17%, to $0.5 million in the three months ended March 31, 2024 from $0.6 million in the three months ended March 31, 2023. Other expense, net is comprised primarily of interest expense, and the decrease is due to the decreased debt balance under the 2021 Credit Agreement.

Income Tax Benefit

Income tax benefit increased by $0.6 million, or 35%, to $2.2 million in the three months ended March 31, 2024 from $1.7 million in the three months ended March 31, 2023. The change in the income tax benefit is primarily attributable to a higher estimated effective tax rate for the twelve months ended December 31, 2024 resulting from a reduction in expected pre-tax income in 2024 compared to 2023.

Liquidity and Capital Resources

As of March 31, 2024, we had working capital of $144.4 million, which included $88.6 million in cash and cash equivalents. We also have $125.0 million available for future revolving borrowings under our Revolving Facility (see Note 10, Long-Term Debt Obligations to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q). We expect that our cash on hand and other components of working capital as of March 31, 2024, availability under the 2021 Credit Agreement, plus net cash flows from product sales, will be sufficient to fund our operating expenses, capital expenditure requirements and debt service payments for at least 12 months beyond the filing date of this quarterly report.

Our primary uses of cash are working capital requirements, capital expenditure and debt service payments. Additionally, from time to time, we may use capital for acquisitions and other investing and financing activities. Working capital is used principally for our personnel as well as manufacturing costs related to the production of our products. Our working capital requirements vary from period to period depending on manufacturing volumes, the timing of shipments and the payment cycles of our customers and payers. Our capital expenditures consist primarily of building improvements, manufacturing equipment, and computer hardware and software.

To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute on our business strategy, we anticipate that they will be obtained through additional equity or debt financings, other strategic transactions or a combination of these potential sources of funds. There can be no assurance that we will be able to obtain additional funds on terms acceptable to us, on a timely basis, or at all.

Cash Flows

The following table summarizes our cash flows for each of the periods presented:

Operating Activities

During the three months ended March 31, 2024, net cash used in operating activities was $10.2 million, resulting from our net loss of $2.1 million and non-cash charges of $12.6 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $20.7 million. Net cash used in changes in our operating assets and liabilities included an increase in inventory of $4.7 million, an increase in prepaid expenses and other current assets of $4.3 million, an increase in accounts receivable of $15.1 million, a decrease in operating lease liabilities of $2.2 million, and a decrease in accounts payable of $4.4 million, partially offset by an increase in accrued expenses and other liabilities of $12.3 million.

During the three months ended March 31, 2023, net cash used in operating activities was $5.1 million, resulting from our net loss of $3.0 million and net cash used in connection with changes in our operating assets and liabilities of $11.8 million, partially offset by non-cash charges of $9.7 million. Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $3.4 million, an increase in inventory of $2.2 million, an increase in prepaid expenses and other current assets of $4.8 million, a decrease in operating leases liabilities of $2.1 million, and a decrease in accounts payable of $1.4 million, partially offset by an increase in accrued expenses and other liabilities of $2.1 million.

Investing Activities

During the three months ended March 31, 2024, we used $2.2 million of cash in investing activities consisting exclusively of capital expenditures.

During the three months ended March 31, 2023, we used $7.6 million of cash in investing activities consisting exclusively of capital expenditures.

Financing Activities

During the three months ended March 31, 2024, net cash used in financing activities was $2.6 million. This consisted of the payment of term loan of $1.4 million, principal payments on finance lease obligations of $0.2 million, and net cash payments associated with our stock awards activities of $1.1 million.

During the three months ended March 31, 2023, net cash used in financing activities was $1.2 million. This consisted of the payment of term loan and the stock awards activities.

Indebtedness

2021 Credit Agreement

In August 2021, we and our subsidiaries entered into a credit agreement with SVB and several other lenders, which we refer to as the 2021 Credit Agreement. The 2021 Credit Agreement, as amended, provides for a term loan facility not to exceed $75.0 million (the Term Loan Facility) and a revolving credit facility not to exceed $125.0 million (the Revolving Facility).

Advances made under the 2021 Credit Agreement may be either SOFR Loans or ABR Loans, at our 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 us to make consecutive quarterly installment payments equal to the following: (a) from September 30, 2021 through and including June 30, 2022, $0.5 million; (b) from September 30, 2022 through and including June 30, 2023, $0.9 million; (c) from September 30, 2023 through and including June 30, 2025, $1.4 million and (d) from September 30, 2025 and the last day of each quarter thereafter until August 6, 2026 (the Term Loan Maturity Date), $1.9 million. The remaining principal balance of $50.6 million is also due on the Term Loan Maturity Date. We may prepay the Term Loan Facility. Once repaid, amounts borrowed under the Term Loan Facility may not be re-borrowed.

We 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 our non-use of available funds (the Commitment Fee). The Commitment Fee rate is between 0.25% to 0.45% based on the Total Net Leverage Ratio. We 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, we are required to comply with certain financial covenants including the Consolidated Fixed Charge Coverage Ratio and Consolidated Total Net Leverage Ratio, tested quarterly. In addition, we are 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.

As of March 31, 2024, we were in compliance with the covenants under the 2021 Credit Agreement. We had outstanding borrowings of $65.2 million under our Term Loan Facility and no borrowings outstanding under our Revolving Facility with $125.0 million available for future revolving borrowings, respectively.

Critical Accounting Policies and Significant Judgments and Estimates

Our unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of unaudited condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, and the disclosure at the date of the unaudited condensed consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our unaudited condensed consolidated financial statements, which, in turn, could materially change our results from those reported. Management evaluates its estimates, assumptions and judgments on an ongoing basis. Historically, our critical accounting estimates have not differed materially from actual results. However, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our condensed consolidated statements of operations and comprehensive loss, liquidity and financial condition. See also our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, for information about these accounting policies as well as a description of our other significant accounting policies.

Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently Issued Accounting Pronouncements

We have reviewed all recently issued standards as disclosed in Note 2, Summary of Significant Accounting Policies to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.