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 June 30, 2024
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-40902
Paragon 28, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 27-3170186 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
14445 Grasslands Drive Englewood, CO | 80112 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (720) 912-1332
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 |
Common stock, $0.01 par value per share | FNA | The New York Stock Exchange |
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 ☒
As of August 2, 2024, there were 83,542,291 shares of the registrant’s common stock, $0.01 par value per share, outstanding.
EXPLANATORY NOTE
As previously disclosed in Amendment No. 1 to our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on August 8, 2024 (the “Amended 2023 Annual Report”) and Amendment No. 1 to our Quarterly Report on Form 10-Q/A for the three months ended March 31, 2024, filed with the SEC on August 8, 2024 (the “Amended 2024 Quarterly Report”), we restated our audited consolidated financial statements for the fiscal year ended December 31, 2023, and the unaudited interim condensed consolidated financial statements for the periods ended March 31, 2023, June 30, 2023, September 30, 2023 and March 31, 2024. Accordingly, the audited consolidated financial statements as of December 31, 2023, and the unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2023 included in this Quarterly Report on Form 10-Q have been restated to reflect the restatement as described in the Amended 2023 Annual Report and the Amended 2024 Quarterly Report.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our business model and strategic plans for our products, technologies and business, including our implementation thereof, the impact on our business, financial condition and results of operations from macroeconomic conditions, the timing of and our ability to obtain and maintain regulatory approvals, our commercialization efforts, our acquisitions, including resulting synergies and future milestone payouts, marketing and manufacturing capabilities and strategy, our expectations about the commercial success and market acceptance of our products, the sufficiency of our cash, cash equivalents and marketable securities, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.
The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties, and assumptions, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon these forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. We intend the forward-looking statements contained in this Quarterly Report to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Table of Contents
i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
PARAGON 28, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
|
| |||||
June 30, 2024 | December 31, 2023 | |||||
(As Restated) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 46,741 | $ | 75,639 | ||
Trade receivables, net of allowance for doubtful accounts of $931 and $1,339, respectively | 36,708 | 37,323 | ||||
Inventories, net | 96,406 | 90,046 | ||||
Income taxes receivable | 1,018 | 794 | ||||
Other current assets | 3,575 | 3,997 | ||||
Total current assets | 184,448 | 207,799 | ||||
| ||||||
Property and equipment, net | 74,904 | 74,122 | ||||
Intangible assets, net | 20,977 | 21,674 | ||||
Goodwill | 25,465 | 25,465 | ||||
Deferred income taxes | 714 | 705 | ||||
Other assets | 3,959 | 2,918 | ||||
Total assets | $ | 310,467 | $ | 332,683 | ||
| ||||||
LIABILITIES & STOCKHOLDERS' EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 23,136 | $ | 21,696 | ||
Accrued expenses | 26,531 | 27,781 | ||||
Other current liabilities | 962 | 883 | ||||
Current maturities of long-term debt | 640 | 640 | ||||
Income taxes payable | 422 | 243 | ||||
Total current liabilities | 51,691 | 51,243 | ||||
| ||||||
Long-term liabilities: | ||||||
Long-term debt net, less current maturities | 109,913 | 109,799 | ||||
Other long-term liabilities | 1,159 | 1,048 | ||||
Deferred income taxes | 231 | 233 | ||||
Income taxes payable | 638 | 635 | ||||
Total liabilities | 163,632 | 162,958 | ||||
| ||||||
Commitments and contingencies (Note 10) | ||||||
| ||||||
Stockholders' equity: | ||||||
Common stock, $0.01 par value, 300,000,000 shares authorized; 84,417,725 and 83,738,974 shares issued, and 83,504,206 and 82,825,455 shares outstanding as of June 30, 2024 and December 31, 2023, respectively | 833 | 827 | ||||
Additional paid in capital | 307,524 | 298,394 | ||||
Accumulated deficit | (154,827) | (123,646) | ||||
Accumulated other comprehensive (loss) income | (713) | 132 | ||||
Treasury stock, at cost; 913,519 shares as of June 30, 2024 and December 31, 2023 | (5,982) | (5,982) | ||||
Total stockholders' equity | 146,835 | 169,725 | ||||
Total liabilities & stockholders' equity | $ | 310,467 | $ | 332,683 | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
PARAGON 28, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
(unaudited)
| Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||
2024 |
| 2023 | 2024 |
| 2023 | |||||||
(As Restated) | (As Restated) | |||||||||||
Net revenue | $ | 61,016 | $ | 51,009 | $ | 122,098 | $ | 103,045 | ||||
Cost of goods sold | 15,261 | 11,599 | 29,103 | 21,828 | ||||||||
Gross profit | 45,755 | 39,410 | 92,995 | 81,217 | ||||||||
| ||||||||||||
Operating expenses: | ||||||||||||
Research and development costs | 7,083 | 7,683 | 14,667 | 14,732 | ||||||||
Selling, general, and administrative | 49,439 | 43,827 | 104,221 | 87,647 | ||||||||
Total operating expenses | 56,522 | 51,510 | 118,888 | 102,379 | ||||||||
Operating loss | (10,767) | (12,100) | (25,893) | (21,162) | ||||||||
| ||||||||||||
Other income (expense): | ||||||||||||
Other income (expense), net | 132 | (76) | 647 | (692) | ||||||||
Interest expense, net | (2,917) | (803) | (5,539) | (2,008) | ||||||||
Total other expense, net | (2,785) | (879) | (4,892) | (2,700) | ||||||||
Loss before income taxes | (13,552) | (12,979) | (30,785) | (23,862) | ||||||||
Income tax expense | 230 | 269 | 396 | 198 | ||||||||
Net loss | $ | (13,782) | $ | (13,248) | $ | (31,181) | $ | (24,060) | ||||
Foreign currency translation adjustment | 252 | (283) | (845) | (382) | ||||||||
Comprehensive loss | $ | (13,530) | $ | (13,531) | $ | (32,026) | $ | (24,442) | ||||
Weighted average number of shares of common stock outstanding: | ||||||||||||
Basic | 83,115,861 | 82,373,441 | 82,984,878 | 81,536,607 | ||||||||
Diluted | 83,115,861 | 82,373,441 | 82,984,878 | 81,536,607 | ||||||||
Net loss per share attributable to common stockholders: | ||||||||||||
Basic | $ | (0.17) | $ | (0.16) | $ | (0.38) | $ | (0.30) | ||||
Diluted | $ | (0.17) | $ | (0.16) | $ | (0.38) | $ | (0.30) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
PARAGON 28, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except for number of shares)
(unaudited)
Accumulated | ||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||
Common Stock | Paid-in- | Accumulated | Comprehensive | Treasury | Stockholders' | |||||||||||||||
For the Three Months Ended June 30, 2024 |
| Shares |
| Amount |
| Capital |
| Deficit |
| Loss |
| Stock |
| Equity | ||||||
Balance, March 31, 2024 (As Restated) | 82,945,411 | $ | 828 | $ | 301,459 | $ | (141,045) | $ | (965) | $ | (5,982) | $ | 154,295 | |||||||
Net Loss | — | — | — | (13,782) | — | — | (13,782) | |||||||||||||
Options exercised | 424,999 | 5 | 2,575 | — | — | — | 2,580 | |||||||||||||
Restricted stock vested | 64,477 | — | (24) | — | — | — | (24) | |||||||||||||
Foreign currency translation | — | — | — | — | 252 | — | 252 | |||||||||||||
Employee stock purchase plan | 69,319 | — | 490 | — | — | — | 490 | |||||||||||||
Stock-based compensation | — | — | 3,024 | — | — | — | 3,024 | |||||||||||||
Balance, June 30, 2024 | 83,504,206 | $ | 833 | $ | 307,524 | $ | (154,827) | $ | (713) | $ | (5,982) | $ | 146,835 | |||||||
For the Six Months Ended June 30, 2024 | ||||||||||||||||||||
Balance, December 31, 2023 (As Restated) | 82,825,455 | $ | 827 | $ | 298,394 | $ | (123,646) | $ | 132 | $ | (5,982) | $ | 169,725 | |||||||
Net Loss | — | — | — | (31,181) | — | — | (31,181) | |||||||||||||
Options exercised | 473,749 | 5 | 2,873 | — | — | — | 2,878 | |||||||||||||
Restricted stock vested | 135,683 | 1 | (425) | — | — | — | (424) | |||||||||||||
Foreign currency translation | — | — | — | — | (845) | — | (845) | |||||||||||||
Employee stock purchase plan | 69,319 | — | 570 | — | — | — | 570 | |||||||||||||
Stock-based compensation | — | — | 6,112 | — | — | — | 6,112 | |||||||||||||
Balance, June 30, 2024 | 83,504,206 | $ | 833 | $ | 307,524 | $ | (154,827) | $ | (713) | $ | (5,982) | $ | 146,835 | |||||||
Accumulated | ||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||
Common Stock | Paid-in- | Accumulated | Comprehensive | Treasury | Stockholders' | |||||||||||||||
For the Three Months Ended June 30, 2023 |
| Shares |
| Amount |
| Capital |
| Deficit |
| Loss |
| Stock |
| Equity | ||||||
Balance, March 31, 2023 (As Restated) | 82,306,873 | $ | 821 | $ | 287,286 | $ | (76,924) | $ | (132) | $ | (5,982) | $ | 205,069 | |||||||
Net loss (As Restated) | — | — | — | (13,248) | — | — | (13,248) | |||||||||||||
Offering costs associated with public offering | — | — | 4 | — | — | — | 4 | |||||||||||||
Options exercised | 192,027 | 3 | 840 | — | — | — | 843 | |||||||||||||
Foreign currency translation | — | — | — | — | (283) | — | (283) | |||||||||||||
Employee stock purchase plan | 37,146 | — | 620 | — | — | — | 620 | |||||||||||||
Stock-based compensation | — | — | 3,600 | — | — | — | 3,600 | |||||||||||||
Balance, June 30, 2023 (As Restated) | 82,536,046 | $ | 824 | $ | 292,350 | $ | (90,172) | $ | (415) | $ | (5,982) | $ | 196,605 | |||||||
For the Six Months Ended June 30, 2023 | ||||||||||||||||||||
Balance, December 31, 2022 (As Restated) | 77,770,588 | $ | 776 | $ | 213,956 | $ | (66,112) | $ | (33) | $ | (5,982) | $ | 142,605 | |||||||
Net loss (As Restated) | — | — | — | (24,060) | — | — | (24,060) | |||||||||||||
Issuance of common stock, net of issuance costs of $827 | 4,312,500 | 43 | 68,410 | — | — | — | 68,453 | |||||||||||||
Options exercised | 415,812 | 5 | 2,460 | — | — | — | 2,465 | |||||||||||||
Foreign currency translation | — | — | — | — | (382) | — | (382) | |||||||||||||
Employee stock purchase plan | 37,146 | — | 742 | — | — | — | 742 | |||||||||||||
Stock-based compensation | — | — | 6,782 | — | — | — | 6,782 | |||||||||||||
Balance, June 30, 2023 (As Restated) | 82,536,046 | $ | 824 | $ | 292,350 | $ | (90,172) | $ | (415) | $ | (5,982) | $ | 196,605 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
PARAGON 28, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Six Months Ended June 30, | |||||
2024 |
| 2023 | ||||
(As Restated) | ||||||
Cash flows from operating activities | ||||||
Net loss | $ | (31,181) | $ | (24,060) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation and amortization | 8,868 | 6,414 | ||||
Allowance for doubtful accounts | 785 | 147 | ||||
Provision for excess and obsolete inventories | 5,932 | 923 | ||||
Stock-based compensation | 6,112 | 6,782 | ||||
Change in fair value of financial instruments | (601) | 366 | ||||
Other | (581) | 394 | ||||
Changes in other assets and liabilities, net of acquisitions: | ||||||
Accounts receivable | (360) | 3,138 | ||||
Inventories | (12,631) | (20,959) | ||||
Accounts payable | 1,456 | 14,745 | ||||
Accrued expenses | 809 | 1,845 | ||||
Accrued legal settlement | — | (22,000) | ||||
Income tax receivable/payable | (23) | (359) | ||||
Other assets and liabilities | 211 | (779) | ||||
Net cash used in operating activities | (21,204) | (33,403) | ||||
| ||||||
Cash flows from investing activities | ||||||
Purchases of property and equipment | (9,491) | (15,354) | ||||
Proceeds from sale of property and equipment | 724 | 635 | ||||
Purchases of intangible assets | (462) | (544) | ||||
Net cash used in investing activities | (9,229) | (15,263) | ||||
| ||||||
Cash flows from financing activities | ||||||
Payments on long-term debt | (320) | (396) | ||||
Payments of debt issuance costs | (18) | — | ||||
Proceeds from issuance of common stock, net of issuance costs | — | 68,453 | ||||
Options exercised | 2,878 | 2,464 | ||||
RSU vesting, taxes paid | (424) | — | ||||
Proceeds from employee stock purchase plan | 403 | 560 | ||||
Payments on earnout liability | (2,000) | (4,250) | ||||
Net cash provided by financing activities | 519 | 66,831 | ||||
| ||||||
Effect of exchange rate changes on cash and cash equivalents | 1,016 | 114 | ||||
Net (decrease) increase in cash and cash equivalents | (28,898) | 18,279 | ||||
Cash and cash equivalents at beginning of period | 75,639 | 38,468 | ||||
Cash and cash equivalents at end of period | $ | 46,741 | $ | 56,747 | ||
|
| |||||
Supplemental disclosures of cash flow information: | ||||||
Restricted cash | — | 2,250 | ||||
Cash paid for income taxes | 839 | 456 | ||||
Cash paid for interest | 5,479 | 2,068 | ||||
Purchase of property and equipment included in accounts payable | 3,325 | 5,617 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Business
Paragon 28, Inc. (collectively with its subsidiaries, “we,” “us,” “our,” “P28” or the “Company”) develops, distributes, and sells medical devices in the foot and ankle segment of the orthopedic implant marketplace. Our approach to product development is procedurally focused, resulting in a full range of procedure-specific foot and ankle products designed specifically for foot and ankle anatomy. Our products and product families include plates and plating systems, screws, staples, and nails aimed to address all major foot and ankle procedures including fracture fixation, forefoot or hallux valgus - which includes bunion and hammertoe, ankle, flatfoot or progressive collapsing foot deformity (“PCDF”), charcot foot and orthobiologics. P28 is a United States (“U.S.”) based company incorporated in the State of Delaware, with headquarters in Englewood, Colorado. Our sales representatives and distributors are located globally with the majority concentrated in the U.S., Australia, South Africa, and the United Kingdom.
Basis of Presentation and Consolidation
The accompanying Condensed Consolidated Financial Statements include the accounts of Paragon 28, Inc. and its subsidiaries, all of which are wholly-owned. The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information required by U.S. GAAP for complete financial statements. The interim Condensed Consolidated Financial Statements reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair representation of the results for the periods presented and should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2023, which include a complete set of footnote disclosures, including our significant accounting policies. The audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2023, are included in the Company’s Amended 2023 Annual Report. The results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period. All intercompany balances and transactions have been eliminated in consolidation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with U.S. 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 amounts of revenues and expenses during the reporting period. Because future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Any changes in these estimates will be reflected in the Company’s Condensed Consolidated Financial Statements. Significant items subject to such estimates and assumptions include the determination of the credit loss reserves for trade receivables, inventory obsolescence, impairment of long-lived assets, recoverability of goodwill and intangible assets, contingent earnout liabilities, interest rate swap valuation, income taxes and stock-based compensation. On January 1, 2024, the Company revised the inputs used in estimating the reserve on obsolete and slow-moving inventory to include forecasted sales, in addition to current inventory levels and historical sales. The effect of this change in estimate was a decrease of $47 to the Company’s reserve for obsolete and slow-moving inventory during the six months ended June 30, 2024.
Foreign Currency Translation
The Condensed Consolidated Financial Statements are presented in U.S. dollars. The Company’s non-U.S. subsidiaries have a functional currency (i.e., the currency in which operational activities are primarily conducted) that is other than the U.S. dollar, generally the currency of the country in which such subsidiaries are domiciled. Such subsidiaries’ assets and liabilities are translated into U.S. dollars at quarter-end exchange rates, while revenue and expenses are translated at average exchange rates during the quarter based on the daily closing exchange rates. Adjustments that result from translating amounts from a subsidiary’s functional currency to U.S. dollars are reported in Accumulated other comprehensive income (loss), a separate component of stockholders’ equity.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
(unaudited)
Transactions made in a currency other than the functional currency are remeasured to the functional currency at the exchange rates on the dates of the transactions. Foreign exchange gains and losses are recorded within Other income (expense), net on the consolidated statements of operations and comprehensive loss.
Significant Accounting Policies
There have been no changes in the Company’s significant accounting policies as disclosed in Note 2 to our audited Consolidated Financial Statements included in our Amended 2023 Annual Report on Form 10-K/A.
Recently Issued Accounting Pronouncements
In October 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. The amendments in ASU 2023-06 modify the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. ASU 2023-06 is applicable to all entities subject to the SEC’s existing disclosure requirements. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company is currently evaluating the amendments in ASU 2023-06 and does not expect the adoption to have a significant impact on the Company’s Consolidated Financial Statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which provides amendments to improve reportable segment disclosures requirements. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the amendments in this guidance to determine the impact it will have on the Company's Consolidated Financial Statements and related notes for the year ended December 31, 2024, upon adoption.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), to enhance the transparency and decision usefulness of income tax disclosures. The main provisions in ASU 2023-09 enhance the disclosure requirements of rate reconciliations and income taxes paid. For public business entities, the amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this update should be applied on a prospective basis, retrospective application is permitted. The Company is currently evaluating the amendments in this guidance to determine the impact it will have on the Company’s Consolidated Financial Statements and related disclosures.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
(unaudited)
NOTE 3. INTANGIBLE ASSETS
Intangibles
Intangible assets as of June 30, 2024, were as follows:
| Gross |
| Accumulated |
| Net Carrying | ||||
Trademarks and tradenames, indefinite-lived | $ | 607 | $ | — | $ | 607 | |||
Patents, trademarks and tradenames, definite-lived | 8,718 | 2,995 | 5,723 | ||||||
Customer relationships | 1,733 | 705 | 1,028 | ||||||
Developed technology | 17,690 | 4,071 | 13,619 | ||||||
Other intangibles | 30 | 30 | — | ||||||
Total intangible assets, net | $ | 28,778 | $ | 7,801 | $ | 20,977 | |||
Intangible assets as of December 31, 2023, were as follows:
Amortization expense is included in Selling, general, and administrative expenses, on the Condensed Consolidated Statements of Operations and Comprehensive Loss, and was $668 and $508 for the three months ended June 30, 2024 and 2023, respectively. Amortization expense for the six months ended June 30, 2024 and 2023 totaled $1,138 and $1,011, respectively. During the three months ended June 30, 2024, the Company recategorized one of its intangible assets from Trademarks and tradenames, indefinite-lived to Patents, trademarks and tradenames, definite-lived and recorded the related amortization expense.
Expected future amortization expense is as follows:
2024 (Remaining) |
| $ | 1,019 |
2025 | 2,033 | ||
2026 | 2,033 | ||
2027 | 1,952 | ||
2028 | 1,953 | ||
Thereafter | 11,380 | ||
Total future amortization expense | $ | 20,370 |
No impairment charges related to intangibles were recorded for the three and six months ended June 30, 2024 and 2023.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
(unaudited)
NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures certain financial assets and liabilities at fair value. There is a fair value hierarchy which prioritizes inputs used in measuring fair value into three broad levels:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2- Includes other inputs that are directly or indirectly observable in the marketplace, such as quoted market prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Unobservable inputs which are supported by little or no market activity.
The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest-level input that is significant to the fair value measurement in its entirety.
The Company’s significant financial assets and liabilities measured at fair value as of June 30, 2024, were as follows:
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||
Financial Assets: | ||||||||||
Interest rate swap | $ | — | 1,590 | — | $ | 1,590 | ||||
Financial Liabilities: | ||||||||||
Contingent consideration | $ | — | — | 340 | $ | 340 | ||||
The Company's significant financial assets and liabilities measured at fair value as of December 31, 2023, were as follows:
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||
Financial Assets: | ||||||||||
Interest rate swap | $ | — | 991 | — | $ | 991 | ||||
Financial Liabilities: | ||||||||||
Contingent consideration | $ | — | — | 340 | $ | 340 | ||||
The Company’s Level 2 asset pertains to an interest rate swap associated with the Company’s Zions Facility (as defined below), used to manage interest rate risk related to variable rate borrowings and manage exposure to the variability of cash flows. The interest rate swap is not designated for hedge accounting and is measured utilizing inputs observable in active markets. For the three and six months ended June 30, 2024, we reassessed the fair value of our swap which resulted in an increase of $82 and $601, respectively to the swap asset. The swap asset is recorded in Other assets on the Condensed Consolidated Balance Sheet and the change in fair value is recorded in Other income (expense), net within the Condensed Consolidated Statement of Operations and Comprehensive Loss.
As of June 30, 2024, the Company’s Level 3 contingent earnout liability of $340 is included in Other current liabilities on the Condensed Consolidated Balance Sheet. The Company’s Level 3 liability is related to the remaining two milestones associated with the Additive Orthopaedics acquisition.
As of December 31, 2023, one project milestone associated with the Disior acquisition and one project milestone associated with the Additive Orthopaedics acquisition was included in Accrued expenses on the Consolidated Balance Sheet totaling $2,000. During the first quarter of 2024, $1,000 was paid in cash related to the Additive Orthopaedics milestone and the remaining $1,000 related to the Disior acquisition was paid during the second quarter of 2024. For additional information on the Disior and Additive Orthopaedics acquisitions refer to Note 4 to our Consolidated Financial
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
(unaudited)
Statements included in the Company’s Amended 2023 Annual Report on Form 10-K/A for the year ended December 31, 2023.
NOTE 5. DEBT
Long-term debt as of June 30, 2024 and December 31, 2023 consists of the following:
| June 30, 2024 |
| December 31, 2023 | |||
Ares Revolving Loan | $ | 25,000 | $ | 25,000 | ||
Ares Term Loan | 75,000 | 75,000 | ||||
Zions Term Loan | 14,613 | 14,933 | ||||
| 114,613 | 114,933 | ||||
Less: deferred issuance costs | (4,060) | (4,494) | ||||
Total debt, net of issuance costs | 110,553 | 110,439 | ||||
Less: current portion | (640) | (640) | ||||
Long-term debt, net, less current maturities | $ | 109,913 | $ | 109,799 | ||
Ares Credit Agreement
On November 2, 2023, the Company entered into a new credit agreement with Ares Capital Corporation to provide a total of $150,000, inclusive of a revolving credit facility of up to $50,000 (the “Ares Revolving Loan”) and a term loan facility of up to $100,000 (the “Ares Term Loan”). The obligations under the Ares Credit Agreement are guaranteed by each of the Borrowers’ current and future domestic subsidiaries and secured by liens on substantially all of the Borrowers’ and guarantors’ present and after-acquired assets, in each case, subject to certain customary exceptions. In connection with the closing of the Ares Credit Agreement, the Company drew down $25,000 and $75,000 on the Ares Revolving Loan and Ares Term Loan, respectively. The Ares Revolving Loan and Ares Term Loan bear interest at variable rates of plus 4% and plus 6.75%, respectively, subject in the case of the Ares Term Loan to certain step-downs and adjustments as set forth in the Ares Credit Agreement, and mature on the earlier of (i) November 2, 2028, and (ii) with respect to the Ares Revolving Loan, 6 months prior to the maturity date of any other indebtedness in a principal or stated amount in excess of $12,500. The Ares Credit Agreement contains a financial covenant requiring the Company to maintain certain minimum revenue levels. As of June 30, 2024, the Company was in compliance with all financial covenants under the Ares Credit Agreement. Total debt issuance costs associated with the Ares Credit Agreement were $3,849 as of June 30, 2024. Amortization expense associated with such debt issuance costs totaled $222 and $426 for the three and six months ended June 30, 2024, respectively and are included in Interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Loss. There were no debt issuance costs associated with the Ares Credit Agreement during the three and six months ended June 30, 2023.
Vectra Bank Colorado Loan Agreements
On March 24, 2022, the Company entered into a secured term loan facility (the “Zions Facility”) with Zions Bancorporation, N.A. dba Vectra Bank Colorado in the principal amount of $16,000. The loans under the Zions Facility (i) bear interest at a variable rate per annum equal to the sum of (a) a based rate, plus (b) 1.75%, adjusted on a and (ii) mature on March 24, 2037. Principal and interest payments are payable monthly, with optional prepayments allowed without premium or penalty.
Effective as of November 10, 2022, the Company entered into the First Amendment to the Zions Facility. The amendment to the Zions Facility amends the financial covenants to require the Company to maintain (i) the Liquidity Ratio, if the Cash Flow as of the last day of any quarter measured on a trailing three month basis is less than or equal to $0, and (ii) the Fixed Charge Coverage Ratio which will be calculated as of the last day of each quarter on a trailing four quarter basis, as well as a certain level of Liquidity, if the Cash Flow is greater than $0. In addition, a Net Revenue Growth covenant was added which will be calculated as of the last day of each quarter on a year-over-year basis.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
(unaudited)
Effective as of November 2, 2023, the Company entered into the Second Amendment to the Zions Facility (the “Second Amendment”). The Second Amendment replaces references to MidCap Financial Trust and MidCap Credit Agreements with references to Ares and the Ares Credit Agreement. As of June 30, 2024, the Company was in compliance with all financial covenants under the Second Amendment. Total debt issuance costs associated with the Zions Facility were $211 as of June 30, 2024. Amortization expense associated with such debt issuance costs was $4 and $8 for the three and six months ended June 30, 2024, and is included in Interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Loss, respectively and totaled $4 and $8 for the three and six months ended June 30, 2023, respectively.
NOTE 6. STOCKHOLDERS’ EQUITY
Under its Amended and Restated Certificate of Incorporation, the Company has a total of 310,000,000 shares of capital stock authorized for issuance, consisting of 300,000,000 shares of common stock, par value of $0.01 per share, and 10,000,000 shares of convertible preferred stock, par value of $0.01 per share.
Common Stock
On January 30, 2023, the Company completed an underwritten public offering (“the Offering”) of 6,500,000 shares of its common stock at an offering price of $17.00 per share, which consisted of 3,750,000 shares of common stock issued and sold by the Company and 2,750,000 shares of common stock sold by certain selling securityholders. On February 17, 2023, the underwriters exercised in full their option to purchase an additional 562,500 shares and 412,500 shares of common stock from the Company and the selling securityholders, respectively.
The Company received aggregate net proceeds from the Offering of approximately $68,453 after deducting underwriting discounts and commissions and offering expenses payable by the Company. The selling securityholders received aggregate net proceeds from the Offering of approximately $50,700 after deducting underwriting discounts and commissions. The Company did not receive any of the proceeds from the sale of shares of Common Stock by the selling securityholders.
Treasury Stock
The Company did not purchase any of its common stock during the six months ended June 30, 2024 and 2023. All previously repurchased shares were recorded in Treasury stock at cost.
NOTE 7. LOSS PER SHARE
Basic net loss per share is computed by dividing net loss attributable to common stockholders (the numerator) by the weighted average number of common stock outstanding for the period (the denominator). Diluted net income per share of common stock attributable to common stockholders is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period adjusted for the dilutive effects of common stock equivalents using the treasury stock method or the method based on the nature of such securities. In periods when losses from operations are reported, the weighted-average number of shares of common stock outstanding excludes common stock
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
(unaudited)
equivalents because their inclusion would be anti-dilutive. The computation of net loss per share for the three and six months ended June 30, 2024 and 2023 was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
(As Restated) | (As Restated) | |||||||||||
Net loss | $ | (13,782) | $ | (13,248) | $ | (31,181) | $ | (24,060) | ||||
Weighted-average common stock outstanding: | ||||||||||||
Basic | 83,115,861 | 82,373,441 | 82,984,878 | 81,536,607 | ||||||||
Diluted | 83,115,861 | 82,373,441 | 82,984,878 | 81,536,607 | ||||||||
Loss per share: | ||||||||||||
Basic | $ | (0.17) | $ | (0.16) | $ | (0.38) | $ | (0.30) | ||||
Diluted | $ | (0.17) | $ | (0.16) | $ | (0.38) | $ | (0.30) | ||||
The following outstanding potentially dilutive securities were excluded from the calculation of diluted net loss per share attributable to common stockholders because their impact would have been antidilutive for the period presented:
As of June 30, | ||||||
| 2024 |
| 2023 | |||
Stock options | 5,153,186 | 6,154,824 | ||||
Restricted stock units | 2,563,064 | 1,339,989 | ||||
NOTE 8. STOCK-BASED COMPENSATION
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (“ESPP”) provides participating employees with the opportunity to purchase the Company’s common stock at 85% of the market price at the lesser of the date the purchase right is granted or exercisable. Eligible employees can contribute up to 15% of their gross base earnings for purchases under the ESPP through regular payroll deductions, limited to $25 worth of the Company’s shares of common stock for each calendar year in which the purchase right is outstanding. The Company currently holds offerings consisting of six-month periods commencing on January 1st and July 1st of each calendar year, with a single purchase date at the end of the purchase period on June 30th and December 31st of each calendar year.
The Company issued 69,319 shares upon exercise of purchase rights during the three and six months ended June 30, 2024, and 37,146 shares during the three and six months ended June 30, 2023. The Company recognizes compensation expense on a straight-line basis over the service period. During the three and six months ended June 30, 2024, the Company recognized $88 and $168, respectively, of compensation expense related to the ESPP. During the three and six months ended June 30, 2023, the Company recognized $60 and $182, respectively of compensation expense related to the ESPP. Stock-based compensation expenses are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
(unaudited)
Stock Options
The following summarizes the Company’s stock option plan and the activity for the six months ended June 30, 2024.
| Shares |
| Weighted-Average |
| Weighted-Average | ||
Outstanding, December 31, 2023 | 5,943,898 | $ | 10.28 | 6.53 | |||
Granted | — | — | |||||
Exercised or released | (473,749) | 6.07 | |||||
Forfeited or expired | (316,963) | 11.22 | |||||
Outstanding, June 30, 2024 | 5,153,186 | $ | 10.61 | 5.86 | |||
Exercisable, June 30, 2024 | 4,207,015 | $ | 9.36 | 5.48 | |||
Vested and expected to vest at June 30, 2024 | 5,149,253 | $ | 10.60 | 5.86 | |||
During the three months ended June 30, 2024 and 2023, the Company recognized $104 and $1,840, respectively, of compensation expense related to stock options. During the six months ended June 30, 2024 and 2023, the Company recognized $1,039 and $3,596, respectively of compensation expense related to stock options. Stock-based compensation expenses are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
Restricted Stock Units
The following table summarizes the Company’s restricted stock units activity for the six months ended June 30, 2024:
| Restricted |
| Weighted-Average | ||
Outstanding, December 31, 2023 | 1,317,402 | $ | 17.06 | ||
Granted | 1,429,133 | 12.67 | |||
Vested | (171,040) | 17.86 | |||
Forfeited or expired | (232,674) | 15.12 | |||
Outstanding, June 30, 2024 | 2,342,821 | $ | 14.51 | ||
Vested and expected to vest at June 30, 2024 | 2,256,319 | $ | 14.56 | ||
During the three months ended June 30, 2024 and 2023, the Company recognized $2,484 and $1,760, respectively of compensation expense related to RSUs. During the six months ended June 30, 2024 and 2023, the Company recognized $4,637 and $3,186, respectively of compensation expense related to RSUs. Stock-based compensation expenses are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
Performance Share Units
On March 8, 2024, the Company granted 241,881 performance share units (“PSUs”) with a weighted-average fair value of $11.69 to certain executives, of which 21,638 were forfeited with a weighted-average fair value of $11.00 during the six months ended June 30, 2024. The grant date fair value of PSUs granted to the Chief Executive Officer was calculated using a Monte Carlo simulation and was based on assumptions, including expected volatility of 59.7%, expected dividends of 0%, and a 4.21% risk-free rate. Other granted PSUs’ fair value were based on the Company’s share price on the date of grant, or $11.00 per share. The PSUs will vest based on the Company’s achievement level relative to Adjusted Free Cash Flow for the trailing twelve months ending December 31, 2026, or the consummation of a change in control if earlier (“Performance Period”). Adjusted Free Cash Flow (“aFCF”) is defined as Total Operating Cash Flow plus Investing
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
(unaudited)
Cash Flow adjusted for certain nonrecurring items. Upon achievement of the minimum threshold performance metric, the executive may earn a pro rata portion of their respective target shares and up to 200% of their target shares upon maximum achievement. The Chief Executive Officer was 166,924 of the 241,881 PSUs which may be further increased or decreased by up 25%, based on the achievement of Relative Total Stockholder Return, as defined as the stockholder return of the Company relative to certain of its peer companies within the Healthcare Equipment Select Industry Index. The PSUs additionally require the executive to provide service over the performance period. Termination of service prior to completion of the Performance Period, except by reason of death or disability, will result in automatic forfeiture of the performance share units. If the executive’s termination of service occurs by reason of death or disability on or after January 1, 2025, a pro-rata number of the PSUs shall vest at the level based on actual performance through the end of the Performance Period, multiplied by a fraction equal to (x) the number of days elapsed between the beginning of the Performance Period and the date of executive’s termination of service, divided by (y) the total number of days in the Performance Period.
Stock-based compensation expense is recognized on a straight-line basis over the vesting period, beginning at the point in time that the performance condition is considered probable of achievement. The probability of achieving the performance condition is assessed at each reporting period. If it is deemed probable that the performance condition will be met, compensation cost will be recognized based on the grant date fair value of the award expected to be earned. If it is deemed that it is not probable that the performance condition will be met, the Company will discontinue the recognition of compensation cost and any compensation cost previously recorded will be reversed. At June 30, 2024, achievement of the performance condition for the performance share units was deemed probable with 334,215 PSUs expected to vest, and the expense recorded for the three and six months ended June 30, 2024, was $436. Stock-based compensation expenses are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
NOTE 9. INCOME TAXES
The effective tax rates for the six months ended June 30, 2024 and 2023 are as follows:
Six Months Ended June 30, | |||||
| 2024 |
| 2023 | ||
(As Restated) | |||||
Effective tax rate | (1.286) | % | (0.830) | % | |
For the three months ended June 30, 2024 and 2023, the Company recorded tax expense of $230 and $269, respectively. For six months ended June 30, 2024 and 2023, the Company recorded tax expense of $396 and $198, respectively.
The Company’s fiscal year 2024 and 2023 income tax expense and rates differed from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily due to the U.S., Finland, Germany and Italy jurisdictions that have a full valuation allowance recorded on deferred tax assets. In addition, the tax rate is lower than the U.S. statutory federal tax rate as a result of foreign earnings that are taxed at lower tax rates.
The Company continues to monitor the realization of its deferred tax assets and assesses the need for a valuation allowance. The Company analyzes available positive and negative evidence to determine if a valuation allowance is needed based on the weight of the evidence. This objectively verifiable evidence includes the current & prior two years’ profit and loss positions after considering pre-tax book income plus or minus permanent adjustments as well as other positive & negative evidence available. This process requires management to make estimates, assumptions, and judgments that are uncertain in nature. The Company has established a valuation allowance with respect to deferred tax assets in the U.S., Finland, Germany, and Italy and continues to monitor and assess potential valuation allowances in all its jurisdictions.
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
(unaudited)
NOTE 10. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved in various lawsuits, claims, inquiries, and other regulatory and compliance matters, most of which are routine to the nature of our business. When it is probable that a loss will be incurred and where a range of the loss can be reasonably estimated, the best estimate within the range is accrued. When the best estimate within the range cannot be determined, the low end of the range is accrued. The ultimate resolution of these claims could affect future results of operations should the exposure be materially different from the estimates or should liabilities be incurred that were not previously accrued. Potential insurance reimbursements are not offset against potential liabilities.
As of June 30 2024, the Company is not involved in any legal proceedings that could have a material adverse effect on its condensed consolidated financial position.
NOTE 11. RELATED PARTY TRANSACTIONS
The Company has a license agreement dated July 1, 2017 for certain intellectual property with an entity that is affiliated with one of the directors of the Company, under which the Company pays a royalty of four percent (4%) of net revenue related to the licensed intellectual property for the 15 years following the date of first sale, including a minimum annual payment of $250. The term of the agreement is 20 years and it automatically renews for five-year periods thereafter. Payments to the entity under this license agreement totaled $53 and $156 for the three months ended June 30, 2024 and 2023, respectively. Payments to the entity under this license agreement totaled $199 and $201 for the six months ended June 30, 2024 and 2023, respectively. Amounts payable to this entity as of June 30, 2024 and December 31, 2023 were $72 and $155, respectively.
The Company paid professional services fees to a related party totaling $5 and $115 for the three months ended June 30, 2024 and 2023, respectively, and $18 and $115 for the six months ended June 30, 2024 and 2023, respectively, and are included in Selling, general, and administrative expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss. Amounts payable as of June 30, 2024 and December 31, 2023 to this related party were $8 and $16, respectively.
NOTE 12. SEGMENT AND GEOGRAPHIC INFORMATION
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, which is our Chief Executive Officer, in deciding how to allocate resources and in assessing performance. We manage our business globally within one operating segment in accordance with ASC Topic 280, Segment Reporting (“ASC 280”). Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.
The following table represents total net revenue by geographic area, based on the location of the customer for the three and six months ended June 30, 2024 and 2023, respectively.
No individual country with net revenue originating outside of the United States accounted for more than 10% of consolidated net revenue for the three and six months ended June 30, 2024 and 2023.
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share data)
(unaudited)
The following table represents total non-current assets, excluding deferred taxes, by geographic area as of June 30, 2024 and December 31, 2023, respectively.
| June 30, 2024 |
| December 31, 2023 | |||
United States | $ | 91,075 | $ | 89,531 | ||
Finland | 24,636 | 25,032 | ||||
Other International | 9,594 | 9,616 | ||||
Total assets | $ | 125,305 | $ | 124,179 | ||
NOTE 13. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan for eligible employees who are 21 years of age with three months of service. Eligible employees can voluntarily contribute up to 100% of their eligible compensation. The Company has elected a in which the Company must contribute 3% of eligible compensation. In addition, the Company may make discretionary contributions which are determined and authorized by the Board of Directors each plan year. The Company made contributions to its employee benefit plan of $328 and $698 and $276 and $589 for three months ended and six months ended June 30, 2024 and 2023, respectively.
NOTE 14. SUBSEQUENT EVENT
On August 8, 2024, the Company announced an operational efficiency strategy targeted at optimizing the organizational structure, minimizing costs and preserving cash without compromising revenue growth opportunities. Management does not expect to incur material charges to effect this operational efficiency strategy.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Interim Condensed Consolidated Financial Statements and related notes thereto included in Part I - Item 1 of this Quarterly Report on Form 10-Q. As discussed in the "Explanatory Note", amounts throughout this discussion and analysis for our unaudited interim condensed consolidated statements for the three and six months ended June 30, 2023 have been restated to reflect the impact of the restatement as described in the Amended 2024 Quarterly Report. In addition to historical information, the following discussion contains forward-looking statements, including, but not limited to, statements regarding the Company's expectation for future performance, liquidity and capital resources, that involve risks, uncertainties and assumptions that could cause actual results to differ materially from the Company's expectations. The Company’s actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described in “Special Note Regarding Forward-Looking Statements”. The Company assumes no obligation to update any of these forward-looking statements.
Overview
We are a leading medical device company exclusively focused on the foot and ankle orthopedic market and are dedicated to improving patient lives. Our innovative orthopedic solutions, procedural approaches and instrumentation cover a wide range of foot and ankle ailments including fracture fixation, forefoot, ankle, flatfoot or progressive collapsing foot deformity (“PCFD”), charcot foot and orthobiologics. To treat these painful, debilitating or even life-threatening conditions, we provide a comprehensive portfolio of solutions that includes surgical implants and disposables, as well as surgical instrumentation. We design each of our products with both the patient and surgeon in mind, with the goal of improving outcomes, reducing ailment recurrence and complication rates, and making the procedures simpler, consistent and reproducible. We believe our passion, expertise, and exclusive focus in the foot and ankle market has allowed us to better understand the needs of our patients and physicians, which has enabled us to create innovations and enhanced solutions that disrupt and transform the foot and ankle market. As a result, we have experienced significant growth and momentum in our business.
During the three and six months ended June 30, 2024, our sales increased as a result of U.S sales force expansion, growth in our international business and key product launches in the forefoot and flatfoot segments. As a result, we reported net revenue growth of 20% and 18%, respectively, during the three and six months ended June 30, 2024, as compared to the corresponding prior year periods.
Our gross profit margin was 75.0% and 76.2% for the three and six months ended June 30, 2024, respectively, compared to 77.3% and 78.8% during the three and six months ended June 30, 2023, representing decreases from the corresponding prior year periods driven primarily by higher non-cash excess and obsolete reserve expense, partially offset by lower freight expenses.
Adjusted EBITDA was negative $3.0 million and negative $5.4 million for the three months ended June 30, 2024 and 2023, respectively. Adjusted EBITDA was negative $10.7 million and negative $8.1 million for the six months ended June 30, 2024 and 2023, respectively. The improvement in Adjusted EBITDA for the three months ended June 30, 2024 is primarily attributable to an increase in gross profit, partially offset by an increase in operating expenses. The decrease in Adjusted EBITDA for the six months ended June 30, 2024 is primarily attributable to an increase in operating expenses, partially offset by an increase in gross profit.
Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures and Their Limitations
In addition to our results and measures of performance determined in accordance with U.S. GAAP, we believe that certain non-GAAP financial measures are useful in evaluating and comparing our financial and operational performance over multiple periods, identifying trends affecting our business, formulating business plans and making strategic decisions.
16
Adjusted EBITDA is a key performance measure that our management uses to assess our financial performance and is also used for internal planning and forecasting purposes.
We believe that Adjusted EBITDA, together with a reconciliation to net loss, helps identify underlying trends in our business and helps investors make comparisons between our company and other companies that may have different capital structures, tax rates, or different forms of employee compensation. 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 a key financial metric used by our management in its financial and operational decision-making. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider these measures in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these potential limitations include:
| ● | other companies, including companies in our industry which have similar business arrangements, may report Adjusted EBITDA, or similarly titled measures but calculate them differently, which reduces their usefulness as comparative measures; |
| ● | although depreciation and amortization expenses are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditures for such replacements or for new capital expenditure requirements; |
| ● | Adjusted EBITDA also does not reflect changes in, or cash requirements for, our working capital needs or the potentially dilutive impact of stock-based compensation; and |
| ● | Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur. |
Because of these and other limitations, you should consider our non-GAAP measures only as supplemental to other GAAP-based financial measures. For a full reconciliation of Adjusted EBITDA to the most comparable GAAP financial measure, see “Reconciliation Between GAAP and Non-GAAP Measure”.
Reconciliation Between GAAP and Non-GAAP Measure
We define Adjusted EBITDA as earnings (loss) before interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation expense, employee stock purchase plan expense, non-recurring expenses and certain other non-cash expenses. For a full reconciliation of Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023, to the most comparable GAAP financial measure, refer to the presentation below.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
(in thousands) | (As Restated) | (As Restated) | ||||||||||
Net loss | $ | (13,782) | $ | (13,248) | $ | (31,181) | $ | (24,060) | ||||
Interest expense, net | 2,917 | 803 | 5,539 | 2,008 | ||||||||
Income tax expense | 230 | 269 | 396 | 198 | ||||||||
Depreciation and amortization expense | 4,610 | 3,297 | 8,868 | 6,414 | ||||||||
Stock based compensation expense | 3,024 | 3,600 | 6,112 | 6,782 | ||||||||
Employee stock purchase plan expense | 88 | 60 | 168 | 182 | ||||||||
Change in fair value of financial instruments(1) | (82) | (151) | (601) | 366 | ||||||||
Adjusted EBITDA | $ | (2,995) | $ | (5,370) | $ | (10,699) | $ | (8,110) | ||||
| (1) | Represents the non-cash change in fair value of our interest rate swap contract for all periods presented contingent and earnout liability for the three and six months ended June 30, 2023. |
17
Components of Our Results of Operations
Net Revenue
We derive our revenue from the sale of our foot and ankle orthopedic solutions, primarily implants. We also record as revenue any amounts billed to customers for shipping costs and record as cost of goods sold the actual shipping costs. We have elected to exclude from the measurement of the transaction price all taxes, such as sales, use, value-added, assessed by government authorities and collected from a customer. Therefore, revenue is recognized net of such taxes. In addition, we record revenue net of estimated discounts and other price concessions. No single customer accounted for 10% or more of our net revenue in the three and six months ended June 30, 2024 and 2023. We expect our net revenue to increase in the foreseeable future as we expand our sales territories, add new customers and increase the utilization of our products by our existing customers, though net revenue may fluctuate from quarter to quarter due to a variety of factors, including availability of reimbursement, the size and success of our sales force, the number of hospitals and physicians who are aware of and use our products and seasonality.
Cost of Goods Sold, Gross Profit and Gross Margin
Cost of goods sold consists primarily of finished products purchased from third-party suppliers, shipping costs, excess and obsolete inventory adjustments and royalties. Implants are manufactured to our specifications primarily by third-party suppliers in the United States. Cost of goods sold is recognized at the time the implant is used in surgery and the related revenue is recognized. Prior to use in surgery, the cost of our implants is recorded as inventories, net in our condensed consolidated balance sheets. Cost of goods sold is expected to increase due primarily to increased sales volume.
We calculate gross profit as net revenue less cost of goods sold, and gross margin as gross profit divided by net revenue. We expect our gross profit to increase in the foreseeable future as our net revenue grows, though our gross profit and gross margin have been and will continue to be affected by a variety of factors, primarily average selling prices, third-party manufacturing costs, change in mix of customers, excess and obsolete inventory adjustments, royalties and seasonality of our business. Our gross margin is higher for products we sell in the United States versus internationally due to higher average selling prices. We expect our gross margin to fluctuate from period to period, however, based upon the factors described above and seasonality.
Operating Expenses
Research and Development
Research and development expense is comprised of engineering costs and research programs related to new product and sustaining product development activities, clinical studies and trial expenses, quality and regulatory expenses, and salaries and benefits related to research and development functions. We maintain a procedurally focused approach to product development and have projects underway to add new systems across multiple foot and ankle indications and to add additional functionality to our existing systems. We expect our research and development expenses to increase as we hire additional personnel to develop new product offerings and product enhancements.
Selling, General, and Administrative
Selling, general, and administrative expenses consist primarily of commissions paid to U.S. sales representatives, salaries, bonuses, and benefits related to selling, marketing, and general and administrative functions, and stock-based compensation. In addition, selling, general, and administrative expenses consist of the costs associated with marketing initiatives, physician and sales force medical education programs, surgical instrument depreciation, travel expenses, professional service fees (including legal, finance, audit and tax fees), insurance costs, facility expenses and other general corporate expenses.
We expect selling, general, and administrative expenses to continue to increase in the foreseeable future as we continue to grow our business. We also expect our administrative expenses, including stock-based compensation expense, to increase as we increase our headcount and expand our facilities and business processes to support our operations as a
18
public company. Our selling, general and administrative expenses may fluctuate from period to period due to the seasonality of our business and as we continue to add direct sales territory managers in new territories.
Other Income (Expense)
Other Income (Expense), net
Other income (expense), net consists primarily of changes in fair value related to contingent earn out liabilities and our interest rate swap contract.
Interest Expense, net
Interest expense, net consists of interest incurred, amortization of financing costs and interest income earned during the reported periods.
Results of Operations
For the Three Months Ended June 30, 2024 and 2023
The following table summarizes our results of operations for the periods presented:
Three Months Ended June 30, | Change | ||||||||||
| 2024 |
| 2023 |
| Amount |
| % | ||||
(in thousands) | (As Restated) | ||||||||||
Net revenue | $ | 61,016 | $ | 51,009 | $ | 10,007 | 20% | ||||
Cost of goods sold | 15,261 | 11,599 | 3,662 | 32% | |||||||
Gross profit | 45,755 | 39,410 | 6,345 | 16% | |||||||
Operating expenses: | |||||||||||
Research and development costs | 7,083 | 7,683 | (600) | (8)% | |||||||
Selling, general, administrative | 49,439 | 43,827 | 5,612 | 13% | |||||||
Total operating expenses | 56,522 | 51,510 | 5,012 | 10% | |||||||
Operating loss | (10,767) | (12,100) | 1,333 | 11% | |||||||
Other income (expense): | |||||||||||
Other income (expense), net | 132 | (76) | 208 | * | |||||||
Interest expense, net | (2,917) | (803) | (2,114) | * | |||||||
Total other expense, net | (2,785) | (879) | (1,906) | * | |||||||
Income tax expense | 230 | 269 | (39) | 14% | |||||||
Net loss | $ | (13,782) | $ | (13,248) | $ | (534) | (4)% | ||||
* | Not Meaningful |
The following table represents total net revenue by geographic area, based on the location of the customer for the three months ended June 30, 2024 and 2023, respectively.
Three Months Ended June 30, | ||||||
| 2024 |
| 2023 | |||
(in thousands) | ||||||
United States | $ | 49,703 | $ | 42,264 | ||
International | 11,313 | 8,745 | ||||
Total net revenue | $ | 61,016 | $ | 51,009 | ||
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Net Revenue. Net revenue increased $10.0 million, or 20%, from $51.0 million during the three months ended June 30, 2023, to $61.0 million during the corresponding period in 2024. Strengthening of the U.S. dollar reduced net revenue growth for the three months ended June 30, 2024, by less than 1% as compared to the prior year. U.S. net revenue was $49.7 million for the three months ended June 30, 2024, representing growth of 18% compared to the prior year. U.S. net revenue growth was the result of increased surgical volume driven primarily by sales force expansion, changes in product mix, and new product launches in our forefoot and flatfoot segments. International revenue for the three months ended June 30, 2024, was $11.3 million, representing growth of 29% compared to the prior year. International revenue growth was driven primarily by the United Kingdom, Australia, and South Africa, along with our new launch into the Kuwaiti market as we continue to focus on growing our international business.
Cost of Goods Sold and Gross Profit Margin. Cost of goods sold increased $3.7 million, or 32%, from $11.6 million during the three months ended June 30, 2023, to $15.3 million during the corresponding period in 2024, primarily due to an increase in non-cash charges for excess and obsolete inventory, non-cash changes in inventory variances, and higher variable costs. Gross profit margin for the three months ended June 30, 2024 decreased to 75.0%, compared to 77.3% in the same period of 2023. The decrease in gross profit margin is primarily the result of an increase in non-cash charges for excess and obsolete inventory, non-cash changes in inventory variances, higher prices from suppliers and increased International revenue, which has lower average selling prices, partially offset by lower freight expense as a percentage of revenue.
Research and Development Expenses. Research and development expenses decreased $0.6 million, or 8%, from $7.7 million during the three months ended June 30, 2023, to $7.1 million as compared to the corresponding period in 2024. The decrease in research and development expenses is primarily due to the implementation of cost savings initiatives to lower outsourced consulting services as the Company focuses on internalizing new product development, partially offset by increased investments in personnel and surgeon consulting.
Selling, General, and Administrative Expenses. Selling, general and administrative expenses increased $5.6 million, or 13%, from $43.8 million in the three months ended June 30, 2023, to $49.4 million during the corresponding period in 2024. The increase in selling, general, and administrative expenses was primarily driven by increased variable sales representative commission expense related to net revenue growth, increased personnel costs and an increase in depreciation expense.
Other Income (Expense), net. Other income (expense), net increased $0.2 million, from an expense of $0.1 million for the three months ended June 30, 2023, to income of $0.1 million for the three months ended June 30, 2024. The change in other income is primarily related to the changes in fair value of the Company’s contingent earnout liabilities and interest rate swap contract.
Interest Expense, net. Interest expense, net increased $2.1 million, from $0.8 million for the three months ended June 30, 2023, to $2.9 million for the three months ended June 30, 2024, primarily due to higher levels of outstanding debt and higher interest rates on our outstanding debt.
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For the Six Months Ended June 30, 2024 and 2023
The following table summarizes our results of operations for the periods presented:
Six Months Ended June 30, | Change | ||||||||||
| 2024 |
| 2023 |
| Amount |
| % | ||||
(in thousands) | (As Restated) | ||||||||||
Net revenue | $ | 122,098 | $ | 103,045 | $ | 19,053 | 18% | ||||
Cost of goods sold | 29,103 | 21,828 | 7,275 | 33% | |||||||
Gross profit | 92,995 | 81,217 | 11,778 | 15% | |||||||
| |||||||||||
Operating expenses: | |||||||||||
Research and development costs | 14,667 | 14,732 | (65) | 0% | |||||||
Selling, general, administrative | 104,221 | 87,647 | 16,574 | 19% | |||||||
Total operating expenses | 118,888 | 102,379 | 16,509 | 16% | |||||||
Operating loss | (25,893) | (21,162) | (4,731) | 22% | |||||||
| |||||||||||
Other income (expense): | |||||||||||
Other income (expense), net | 647 | (692) | 1,339 | * | |||||||
Interest expense, net | (5,539) | (2,008) | (3,531) | * | |||||||
Total other expense, net | (4,892) | (2,700) | (2,192) | (81)% | |||||||
Income tax expense | 396 | 198 | 198 | 100% | |||||||
Net loss | $ | (31,181) | $ | (24,060) | $ | (7,121) | (30)% | ||||
* | Not Meaningful |
The following table represents total net revenue by geographic area, based on the location of the customer for the six months ended June 30, 2024 and 2023, respectively.
Six Months Ended June 30, | ||||||
| 2024 |
| 2023 | |||
(in thousands) | ||||||
United States | $ | 100,753 | $ | 87,245 | ||
International | 21,345 | 15,800 | ||||
Total net revenue | $ | 122,098 | $ | 103,045 | ||
Net Revenue. Net revenue increased $19.1 million, or 18%, from $103.0 million during the six months ended June 30, 2023 to $122.1 million during the corresponding period in 2024. Strengthening of the U.S. dollar reduced net revenue growth for the six months ended June 30, 2024, by less than 1% as compared to the prior year. U.S. net revenue was $100.8 million for the six months ended June 30, 2024, representing growth of 15% compared to the prior year. U.S. net revenue growth was primarily the result of increased surgical volume driven primarily by sales force expansion, changes in product mix and new product launches in our forefoot, flatfoot and charcot segments. International revenue for the six months ended June 30, 2024, was $21.3 million, representing growth of 35% compared to the prior year. International revenue growth was driven primarily by the United Kingdom, Australia, and South Africa along with our new launch into the Kuwaiti market as we continue to focus on growing our international business.
Cost of Goods Sold and Gross Profit Margin. Cost of goods sold increased $7.3 million, or 33%, from $21.8 million during the six months ended June 30, 2023, to $29.1 million during the corresponding period in 2024, primarily due to an increase in non-cash charges for excess and obsolete inventory, non-cash changes in inventory variances, and higher variable costs. Gross profit margin for the six months ended June 30, 2024, decreased to 76.2%, compared to 78.8% in the same period of 2023. The decrease in gross profit margin is primarily the result of an increase in non-cash charges for excess and obsolete inventory, non-cash changes in inventory variances, higher prices from suppliers and increased International revenue, which has lower average selling prices, partially offset by lower freight expense as a percentage of revenue.
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Research and Development Expenses. Research and development expenses were $14.7 million during both the six months ended June 30, 2023 and 2024. Research and development costs remained consistent year-over year due to increased investments in personnel and surgeon consulting costs being offset by cost savings initiatives to lower outsourced consulting services as the Company focuses on internalizing new product development to improve patient lives.
Selling, General, and Administrative Expenses. Selling, general and administrative expenses increased $16.6 million, or 19%, from $87.6 million in the six months ended June 30, 2023, to $104.2 million during the corresponding period in 2024. The increase in selling, general, and administrative expenses was primarily driven by increased personnel expenses, increased variable sales representative commission expense related to net revenue growth, an increase in depreciation expense and an increase in professional service and legal fees.
Other Income (Expense), net. Other income (expense), net increased $1.3 million, from an expense of $0.7 for the six months ended June 30, 2023, to income of $0.6 million for the six months ended June 30, 2024. The change in other income is primarily related to the changes in fair value of the Company’s contingent earnout liabilities and interest rate swap contract.
Interest Expense, net. Interest expense, net increased $3.5 million, from $2.0 million for the six months ended June 30, 2023, to $5.5 million for the six months ended June 30, 2024, primarily due to higher levels of outstanding debt and higher interest rates on our outstanding debt.
Liquidity and Capital Resources
Our primary sources of capital from inception through June 30, 2024, have been from ongoing operations, private placements of securities, proceeds from our public offerings and the incurrence of indebtedness. As of June 30, 2024, we had cash of $46.7 million and the principal amount of our outstanding consolidated debt aggregated to $110.6 million, of which $0.6 million is classified as current in our Condensed Consolidated Balance Sheet. As of June 30, 2024, we had available borrowing capacity of $50.0 million, comprised of $25.0 million on our Ares Term Loan and $25.0 million on our Ares Revolving Loan.
We believe that our existing cash, additional available borrowing capacity and expected revenues will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months. Our primary short-term needs for capital for our planned operations, which are subject to change, include:
| ● | expanding our research and development initiatives to improve our existing products and develop new products and solutions; and |
| ● | continued commercialization efforts and expansion of our sales and marketing infrastructure and programs to drive anticipated sales growth in the United States and elsewhere; |
We have based our short-term capital needs and planned operating requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Although not anticipated at this time, we may require additional financing to fund our operations and planned growth. We may also seek additional financing opportunistically. We may seek to raise any additional capital through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. If we raise additional capital through collaborations agreements, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product or grant licenses that may not be favorable to us. Debt financing, if available, may involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets. In addition, market conditions impacting
22
financial institutions could impact our ability to access some or all of our cash, cash equivalents and marketable securities, and we may be unable to obtain alternative funding when and as needed on acceptable terms, if at all.
Cash Flows
The following table sets forth the primary sources and uses of cash for the periods presented:
Six Months Ended June 30, | Change | ||||||||||
| 2024 |
| 2023 |
| Amount |
| % | ||||
(in thousands) | (As Restated) | ||||||||||
Net cash (used in) provided by: | |||||||||||
Operating activities | $ | (21,204) | $ | (33,403) | $ | 12,199 | 37% | ||||
Investing activities | (9,229) | (15,263) | 6,034 | 40% | |||||||
Financing activities | 519 | 66,831 | (66,312) | * | |||||||
Effect of exchange rate changes on cash and cash equivalents | 1,016 | 114 | 902 | * | |||||||
Net decrease in cash and cash equivalents | $ | (28,898) | $ | 18,279 | $ | (47,177) | * | ||||
* | Not Meaningful |
Net Cash Used in Operating Activities
Net cash used in operating activities for the six months ended June 30, 2024, was $21.2 million consisting of net loss of $31.2 million, partially offset by non-cash expenses of $20.5 million, which primarily consisted of $8.9 million of depreciation and amortization, $6.1 million of stock-based compensation expense, and $5.9 million of excess and obsolete inventory, and negative changes in working capital of $10.5 million. The changes in working capital are comprised of a net inventory increase of $12.6 million and an increase in accounts receivable of $0.4 million, partially offset by an increase in accounts payable of $1.5 million.
Net cash used in operating activities for the six months ended June 30, 2023 was $33.4 million, consisting of net loss of $24.0 million offset by non-cash expenses of $15.0 million, which primarily consisted of $6.8 million of stock-based compensation expense, $6.4 million of depreciation and amortization and $0.9 million of excess and obsolete inventory, and negative changes in working capital of $24.4 million. The changes in working capital are comprised of a $22.0 million legal settlement payment and a net inventory increase of $21.0 million, partially offset by an increase in accounts payable of $14.7 million and a reduction in accounts receivable of $3.1 million.
Net Cash Used in Investing Activities
Net cash used in investing activities for the six months ended June 30, 2024 was $9.2 million, consisting primarily of surgical instrumentation purchases.
Net cash used in investing activities for the six months ended June 30, 2023 was $15.3 million, consisting primarily of surgical instrumentation purchases plus other purchases of property, plant and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2024 was $0.5 million, consisting primarily of funds received from the exercise of options, partially offset by a $1.0 million payment related to the completion of a milestone associated with the Additive Orthopaedics acquisition and a $1.0 million payment related to the completion of a milestone associated with the Disior acquisition.
Net cash provided by financing activities for the six months ended June 30, 2023 was $66.8 million, consisting of $68.5 million of proceeds from the issuance of common stock, net of issuance costs related to the Offering on January 30,
23
2023 and $2.5 million of proceeds from the exercise of stock options, partially offset by $4.3 million in payments related to the completion of certain milestones associated with the Disior and Additive Orthopaedics Acquisitions.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. During the six months ended June 30, 2024, the Company revised the inputs used in estimating the reserve on obsolete and slow-moving inventory to include forecasted sales, in addition to current inventory levels and historical sales.
During the six months ended June 30, 2024, there were no material changes to our critical accounting policies or in the methodology used for estimates from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Amended 2023 Annual Report, other than the item described above.
Recently Issued Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included in this quarterly report for recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
The primary objectives of our investment activities are to preserve principal and provide liquidity. In the normal course of business, we are exposed to market risk related to fluctuating interest rates. The Company has both fixed and variable rate debt to manage the impact of these fluctuations. The Company is the fixed rate payor on an interest rate swap contract to help manage some of this risk. Based on our overall interest rate exposure as of June 30, 2024, we do not believe a hypothetical 10 percent change in interest rates on our variable rate indebtedness would have a material effect on our results of operations.
Foreign Currency Risk
Our business is primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows. As we expand internationally our results of operations and cash flows may become increasingly subject to fluctuations due to changes in foreign currency exchange rates.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
24
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our principal executive officer and principal financial officer have identified certain material weaknesses in our internal controls over financial reporting which were also disclosed in our Amended 2023 Annual Report. As a result of these material weaknesses, management has concluded that our disclosure controls and procedures were not effective as of June 30, 2024 at a reasonable assurance level in ensuring information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Plan for Remediation of the Material Weaknesses
Management, with oversight by the Audit Committee of the Board, is devoting significant time, attention, and resources to remediate the material weaknesses and to strengthen its monitoring, control environment, and internal control over financial reporting. We have developed a remediation plan that includes:
| ● | Evaluating and updating (as appropriate) the organizational design and reporting structure of the controllership function, including evaluating the sufficiency, experience, and training of personnel within our accounting function. |
| ● | Hiring, developing, and retaining accounting resources with appropriate accounting and internal controls expertise related to accounting for inventory in accordance with GAAP. |
| ● | Engaging third-party resources with the appropriate technical knowledge and experience to assist with the accounting for inventory and designing and implementing related control activities. |
| ● | Designing and implementing additional and/or enhancing controls relating to the valuation of inventory, including the calculation of the excess and obsolescence reserve and capitalization of purchase price variances. |
| ● | Designing and implementing effective monitoring activities over the execution of business performance reviews and account analysis and enhance communication of internal control deficiencies to those parties responsible for taking corrective action in a timely manner. |
We plan to continue to devote significant time and attention to remediate these material weaknesses as soon as reasonably practicable. Management believes that the measures described above and others that may be implemented will remediate the identified material weaknesses and strengthen the Company’s internal control over financial reporting. Management has begun to take these actions to remediate the material weaknesses and may take additional measures to address control deficiencies or determine to modify, or in the appropriate circumstances not to complete, certain of the remediation measures identified. The material weaknesses will not be considered remediated until the remediation plan has been implemented and there has been appropriate time to conclude through testing that the controls are operating effectively.
Changes in Internal Control Over Financial Reporting
Other than as described above in connection with our material weaknesses, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
25
Limitations on the Effectiveness of Disclosure Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
26
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We may in the ordinary course of business face various claims brought by third parties and we may, from time to time, make claims or take legal actions to assert our rights, including intellectual property rights as well as claims relating to employment matters and the safety or efficacy of our products. Any of these claims could cause us to incur substantial costs and, while we generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage, may be inadequately capitalized to pay on valid claims, or our policy limits may be inadequate to fully satisfy any associated costs, damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on our operations, cash flows and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business. We were not involved in any legal proceedings as of June 30, 2024, that could have a material adverse effect on our business, financial condition, or operating results.
Item 1A. Risk Factors.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Amended 2023 Annual Report. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable
Item 5. Other Information.
During the three months ended June 30, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
27
Item 6. Exhibits.
The following exhibits are included within or incorporated herein by reference.
|
| Incorporated by Reference | ||||||||||
Exhibit | Description | Form |
| Exhibit |
| Date Filed |
| File |
| Filed | ||
3.1 | Amended and Restated Certificate of Incorporation of Paragon 28, Inc. | 8-K | 3.1 | 10/19/2021 | 001-40902 | |||||||
3.1.1 | Certificate of Amendment to amended and Restated Certificate of Incorporation of Paragon 28, Inc. | 8-K | 3.1 | 05/19/2023 | 001-40902 | |||||||
3.2 | 8-K | 3.2 | 05/19/2023 | 001-40902 | ||||||||
4.1 | S-1/A | 4.2 | 10/08/2021 | 333-259789 | ||||||||
4.2 | S-1 | 4.3 | 09/24/2021 | 333-259789 | ||||||||
10.1 | + | Agreement dated August 5, 2024, by and between Chadi Chahine and the Company. | X | |||||||||
31.1 | X | |||||||||||
31.2 | X | |||||||||||
32.1* | X | |||||||||||
32.2* | X | |||||||||||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |||||||||||
+ | Indicates management contract or compensatory plan. |
* | The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report are deemed furnished and not filed with the U.S. Securities and Exchange Commission and are not to be incorporated by reference into any filing of Paragon 28, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report, irrespective of any general incorporation language contained in such filing. |
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PARAGON 28, INC. | ||
Date: August 8, 2024 | By: | /s/ Albert DaCosta | |
Name: | Albert DaCosta | ||
Title: | Chief Executive Officer (Principal Executive Officer) | ||
Date: August 8, 2024 | By: | /s/ Chadi Chahine | |
Name: | Chadi Chahine | ||
Title: | Chief Financial Officer (Principal Financial Officer) | ||
29
Exhibit 10.1
PARAGON 28, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement”), entered into as of the date of the last signature, between Paragon 28, Inc., a Delaware corporation (the “Company”) and Chadi Chahine (“Executive” and, together with the Company, the “Parties”).
WHEREAS, the Company desires to assure itself of the services of Executive effective as of August 5, 2024 (such date you actually commence services, the “Effective Date”) by engaging Executive to perform services under the terms hereof; and
WHEREAS, Executive desires to provide services to the Company commencing on the Effective Date on the terms herein provided.
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, including the respective covenants and agreements set forth below, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:
| 1. | Employment. |
individually or in the aggregate, interfere with or otherwise prevent the performance of Executive’s duties and responsibilities hereunder. Executive may also serve as a member of the board of directors or board of advisors of another organization provided (i) such organization is not a competitor of the Company; (ii) Executive receives prior written approval from the CEO; and (iii) such activities do not individually or in the aggregate interfere with the performance of Executive’s duties under this Agreement, violate the Company’s standards of conduct then in effect, or raise a conflict under the Company’s conflict of interest policies. For the avoidance of doubt, the CEO has approved Executive’s continued service with those organizations set forth on Exhibit A, such approval to continue until the earlier to occur of (a) the CEO’s revocation of such approval in his or her sole and absolute discretion, or (b) such time as such service interferes with the performance of Executive’s duties under this Agreement, violates the Company’s standards of conflict or raises a conflict under the Company’s conflict of interest policies.
| 3. | Compensation and Related Matters. |
| ● | August 5, 2024: $60,000 |
| ● | February 5, 2025: $60,000 |
| ● | August 5, 2025: $60,000 |
| ● | February 5, 2026: $60,000 |
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| ● | August 5, 2026: $60,000 |
If, during the Term and prior to August 5, 2026, Executive experiences a Covered Termination during a Change in Control Period (as defined below), then, in addition to the payments and benefits described in Section 6(a), the Company shall, subject to Executive’s delivery to the Company of the Release that becomes effective and irrevocable in accordance with Section 11(d) and Executive’s continued compliance with Section 8(a) below, accelerate the then remaining Sign-on Bonus payments. Executive acknowledges that any unpaid portion of the Sign-on Bonus shall be forfeited if: (i) Executive’s employment with the Company is terminated by the Company for cause; or (ii) Executive terminates Executive’s employment with the Company within twelve (12) months of the Effective Date.
| 5. | Termination. |
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without advance notice, and for any or no particular reason or cause. It also means that Executive’s job duties, title, and responsibility and reporting level, work schedule, compensation, and benefits, as well as the Company’s personnel policies and procedures, may be changed with prospective effect, with or without notice, at any time in the sole discretion of the Company (subject to any ramification such changes may have under Section 6 of this Agreement). This “at-will” nature of Executive’s employment shall remain unchanged during Executive’s tenure as an employee and may not be changed, except in an express writing signed by Executive and a duly-authorized officer of the Company. If Executive’s employment terminates for any lawful reason, Executive shall not be entitled to any payments, benefits, damages, award, or compensation other than as provided in this Agreement.
| (e) | Executive’s Obligations upon Termination. |
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documents, or materials, or copies thereof (including computer files), keys, building card keys, company credit cards, telephone calling cards, computer hardware and software, laptop computers, docking stations, cellular and portable telephone equipment, personal digital assistant (PDA) devices and all other proprietary information relating to the business of the Company or its subsidiaries or affiliates. Following termination, Executive shall not retain any written or other tangible material containing any proprietary information of the Company or its subsidiaries or affiliates.
| 6. | Consequences of Termination. |
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and costs in effect on the Date of Termination (excluding, for purposes of calculating cost, an employee’s ability to pay premiums with pre-tax dollars); provided, however, that if (1) any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the continuation coverage period to be, exempt from the application of Section 409A under Treasury Regulation Section 1.409A-1(a)(5), (2) the Company is otherwise unable to continue to cover Executive or Executive’s dependents under its group health plans, or (3) the Company cannot provide the benefit without violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then, in any such case, an amount equal to each remaining Company subsidy shall thereafter be paid to Executive in substantially equal monthly installments over the Non-CIC COBRA Period (or remaining portion thereof).
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application of Section 409A under Treasury Regulation Section 1.409A-1(a)(5), (2) the Company is otherwise unable to continue to cover Executive or Executive’s dependents under its group health plans, or (3) the Company cannot provide the benefit without violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then, in any such case, an amount equal to each remaining Company subsidy shall thereafter be paid to Executive in substantially equal monthly installments over the CIC COBRA Period (or remaining portion thereof).
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(hereinafter defined) following the occurrence of any of the following events, without Executive’s prior written consent: (i) a reduction of Executive’s Annual Base Salary by more than 10% (except in connection with an across-the-board reduction in the salary of all similarly situated employees); (ii) a material diminution of Executive’s authority, duties or responsibilities (other than temporarily while physically or mentally incapacitated or as required by applicable law), provided that a mere change of title alone shall not constitute such a material diminution; or (iii) relocation of Executive’s principal place of employment by more than 30 miles from Executive’s then-current principal place of employment, except for such travel as may be reasonably necessary in the performance of Executive’s duties hereunder.
| 8. | Miscellaneous Provisions. |
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enforce any of the provisions of Section 8(a), none of the Parties shall raise the defense, without a good faith basis for raising such defense, that there is an adequate remedy at law. Executive and the Company understand that by agreement to arbitrate any claim pursuant to this Section 8(h), they will not have the right to have any claim decided by a jury or a court, but shall instead have any claim decided through arbitration. Executive and the Company waive any constitutional or other right to bring claims covered by this Agreement other than in their individual capacities. Except as may be prohibited by applicable law, the foregoing waiver includes the ability to assert claims as a plaintiff or class member in any purported class or representative proceeding. Nothing herein shall limit Executive’s ability to pursue claims for workers’ compensation or unemployment benefits or pursue other claims which by law cannot be subject to mandatory arbitration.
| (i) | If to the Company, to the Board at the Company’s headquarters, |
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confidence to a federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (y) for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal; and (ii) if Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive may disclose the trade secret to Executive’s attorney, and may use the trade secret information in the court proceeding, if Executive files any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order.
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firm, organization, or other entity; (b) Executive is not bound by the terms of any agreement with any previous employer or other party to refrain from competing, directly or indirectly, with the business of such previous employer or other party that would be violated by Executive entering into this Agreement and/or providing services to the Company pursuant to the terms of this Agreement; and (c) Executive’s performance of Executive’s duties under this Agreement will not require Executive to, and Executive shall not, rely on in the performance of Executive’s duties or disclose to the Company or any other person or entity or induce the Company in any way to use or rely on any trade secret or other confidential or proprietary information or material belonging to any previous employer of Executive.
| 10. | Golden Parachute Excise Tax. |
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in Control (if requested at that time by the Company) or such other time as requested by the Company. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it will furnish the Company with documentation reasonably acceptable to the Company that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder will be final, binding and conclusive upon the Company and Executive.
| 11. | Section 409A. |
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of the applicable Section 409A period, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to Executive (or Executive’s estate or beneficiaries), and any remaining payments due to Executive under this Agreement shall be paid as otherwise provided herein.
[Signature Page Follows]
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The Parties have executed this Agreement as of the date of the last signature.
PARAGON 28, INC.
By: /s/ Matthew Millard
Name: Matthew Millard
Title: Chief HR Officer
EXECUTIVE
By:/s/ Chadi Chahine
Name: Chadi Chahine
Address:
EXHIBIT A
Affiliations
EXHIBIT B
RELEASE OF CLAIMS1
This Release of Claims (“Release”) is entered into as of , 2024, between Chadi Chahine (“Executive”) and Paragon 28, Inc. (the “Company”) (collectively referred to herein as the “Parties”), effective [eight days after]OR[as of] Executive’s signature hereto (the “Effective Date”), unless Executive revokes his acceptance of this Release as provided in Paragraph 2(c), below. This Agreement is being executed in connection with the terms of the Employment Agreement by and between the Parties dated as of [ ], 2024 (the “Employment Agreement”), which is incorporated herein by reference.
1 NTD: To be updated for any changes in applicable law.
amended by the Civil Rights Act of 1991, 42 U.S.C. § 2000 et seq.; the Equal Pay Act, 29 U.S.C. § 206(d); the Civil Rights Act of 1866, 42 U.S.C. § 1981; the Family and Medical Leave Act of 1993, 29 U.S.C. § 2601 et seq.; the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq.; the False Claims Act , 31 U.S.C. § 3729 et seq.; the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq.; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et seq. the Fair Labor Standards Act, 29 U.S.C. § 215 et seq., the Sarbanes-Oxley Act of 2002; the Colorado anti-discrimination statute; the Colorado Civil Rights Act (C.R.S. Sections 24-34-301 et seq. and 24-34-401 et seq.); the Colorado Wage Act; the Colorado Minimum Wage Act and Minimum Wage Order 28; Claims any other local, state or federal law governing employment; Claims for breach of contract; Claims arising in tort, including, without limitation, Claims of wrongful dismissal or discharge, discrimination, harassment, retaliation, fraud, misrepresentation, defamation, libel, infliction of emotional distress, violation of public policy, and/or breach of the implied covenant of good faith and fair dealing; and Claims for damages or other remedies of any sort, including, without limitation, compensatory damages, punitive damages, injunctive relief and attorney’s fees.
| (i) | Claims to enforce this Release; |
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Executive does release Executive’s right to secure any damages for alleged discriminatory treatment.
| (iii) | Executive has been given at least [21] days to consider this Release; |
and
| 3. | Executive Representations. Executive represents and warrants that: |
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between Executive and the Company (the “Confidentiality Agreement”). Executive acknowledges and agrees that the severance benefits provided in the Employment Agreement shall be subject to Executive’s continued compliance with Executive’s obligations under the Confidentiality Agreement.
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employment, and supersede and replace any prior agreements as to those matters, whether oral or written, except for the Confidentiality Agreement and any equity award agreements. This Release may not be changed or modified, in whole or in part, except by an instrument in writing signed by Executive and a duly authorized officer or director of the Company.
IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing on the dates shown below.
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Albert DaCosta, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Paragon 28, Inc. (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 8, 2024 | By: | /s/ Albert DaCosta |
| | Albert DaCosta |
| | Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Chadi Chahine, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Paragon 28, Inc. (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 8, 2024 | By: | /s/ Chadi Chahine |
| | Chadi Chahine |
| | Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Paragon 28, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 8, 2024 | By: | /s/ Albert DaCosta |
| | Albert DaCosta |
| | Chief Executive Officer (Principal Executive Officer) |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Paragon 28, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 8, 2024 | By: | /s/ Chadi Chahine |
| | Chadi Chahine |
| | Chief Financial Officer |
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.