What changed in this filing

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Item 1. Financial Statements

2021-11-05 compared with 2021-08-06 · 349 added, 157 removed, 733 unchanged (41% of the section changed)

4 unchanged sentences

(in thousands, except per share data)

September 30,

Current assets:

2 unchanged sentences

$ 95,817  

Accounts receivable, net of reserves of $1,413 and $1,523 at June 30, 2021 and December 31, 2020, respectively

Accounts receivable, net of reserves of $1,358 and $1,523 at September 30, 2021 and December 31, 2020, respectively

32,352  

32 unchanged sentences

13,090  

Total current liabilities

13 unchanged sentences

Preferred stock, $0.01 par value;

1,250 shares authorized, no shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

1,250 shares authorized, no shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

Common stock, $0.01 par value;

90,000 shares authorized, 14,418 and 14,329 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

90,000 shares authorized, 14,436 and 14,329 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

Additional paid-in-capital

12 unchanged sentences

$ 365,605  

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

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

Anika Therapeutics, Inc.

4 unchanged sentences

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Cost of revenue

6 unchanged sentences

Income (loss) from operations

Interest and other income (expense), net

Interest and other expense, net

Income (loss) before income taxes

6 unchanged sentences

Comprehensive income (loss)

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

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

Anika Therapeutics, Inc.

2 unchanged sentences

(in thousands)

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Additional Paid

2 unchanged sentences

Balance, January 1, 2021

14,329  

$ 55,355  

$ 221,444  

$ 272,400  

Issuance of common stock for equity awards

4 unchanged sentences

Balance, March 31, 2021

14,366  

$ 57,281  

$ 224,282  

$ 276,656  

Issuance of common stock for equity awards

2 unchanged sentences

Retirement of common stock for minimum tax withholdings

( 19 )  

Other comprehensive income

Balance, June 30, 2021

Six Months Ended June 30, 2020

14,418  

60,699  

230,813  

( 4,852 )  

286,804  

Issuance of common stock for equity awards

Vesting of restricted stock units

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

( 71 )  

Other comprehensive income

( 467 )  

Balance, September 30, 2021

14,436  

63,864  

231,371  

( 5,319 )  

290,060  

Nine Months Ended September 30, 2020

Additional Paid

2 unchanged sentences

Balance, January 1, 2020

14,308  

$ 48,707  

$ 245,426  

$ 288,378  

Vesting of restricted stock units

5 unchanged sentences

Balance, March 31, 2020

14,198  

$ 48,360  

$ 251,219  

$ 293,694  

Issuance of common stock for equity awards

4 unchanged sentences

Balance, June 30, 2020

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

14,204  

$ 50,609  

$ 243,511  

$ 288,444  

Vesting of restricted stock units

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

Other comprehensive income

Balance, September 30, 2020

14,208  

$ 52,505  

$ 237,100  

$ 284,451  

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

Anika Therapeutics, Inc.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

Net income (loss)

$ 9,927  

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Depreciation 

Amortization of acquisition related intangible assets  

Amortization of acquisition related inventory step-up  

Non-cash operating lease cost

Goodwill impairment

18,144  

Change in fair value of contingent consideration

( 21,920 )  

Loss on disposal of fixed assets

2 unchanged sentences

Deferred income taxes

Provision (recovery) for doubtful accounts

Recovery for doubtful accounts

( 60 )  

Provision for inventory

Amortization of acquisition related inventory step-up

( 13 )  

Changes in operating assets and liabilities:

Accounts receivable

( 8,321 )  

( 7,117 )  

Prepaid expenses, other current and long-term assets

Accounts payable

( 702 )  

Operating lease liabilities

( 1,247 )  

Accrued expenses, other current and long-term liabilities

Contingent consideration

( 2,780 )  

( 423 )  

Net cash provided by operating activities

10,478  

Cash flows from investing activities:

Acquisition of Parcus Medical and Arthrosurface, net of cash acquired

( 363 )  

Proceeds from maturities of investments

27,000  

Purchases of investments

Purchases of property and equipment

( 4,016 )  

Net cash used in investing activities

( 1,878 )  

Cash flows from financing activities:

Payments made on finance leases

( 210 )  

Repayments of long term debt

Proceeds from long term debt

50,000  

Cash paid for contingent consideration

( 7,220 )  

Cash paid for tax withheld on vested restricted stock awards

( 423 )  

Proceeds from exercises of equity awards

Net cash provided by financing activities

Net cash (used in) provided by financing activities

( 6,839 )  

24,338  

Exchange rate impact on cash and cash equivalents

Increase (decrease) in cash and cash equivalents

( 49 )  

Decrease in cash and cash equivalents

( 4,841 )  

Cash and cash equivalents at beginning of period

95,817  

157,463  

Cash and cash equivalents at end of period

$ 90,976  

$ 104,216  

Supplemental disclosure of cash flow information:

3 unchanged sentences

Consideration for acquisitions included in accounts payable and accrued expenses

$ 1,209  

Acquisition related contingent consideration

$ 69,076  

Non-cash Financing Activities:

Operating lease liabilities

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

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

ANIKA THERAPEUTICS, INC.

4 unchanged sentences

Anika Therapeutics, Inc.

(“the Company”) is a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care, including in the areas of osteoarthritis (“OA”) pain management, regenerative solutions, soft tissue repair and bone preserving joint technologies.

( the “Company”) is a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care, including in the areas of osteoarthritis (“OA”) pain management, regenerative solutions, soft tissue repair and bone preserving joint technologies.

In early 2020, the Company expanded its overall technology platform through its strategic acquisitions of Parcus Medical, LLC (“Parcus Medical”), a sports medicine implant and instrumentation solutions provider focused on sports medicine and soft tissue repair, and Arthrosurface, Inc.

1 unchanged sentence

These acquisitions broadened the Company’s product portfolio, developed over its nearly 30 years of expertise in hyaluronic acid technology, into joint preservation and restoration, added high-growth revenue streams, increased its commercial capabilities, diversified its revenue base, and expanded its product pipeline and research and development expertise.

The Company is subject to risks common to companies in the biotechnology and medical device industries including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with U.S.

The Company is subject to risks common to companies in the life sciences industry including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with U.S.

Food and Drug Administration (“FDA”) and foreign regulations and approval requirements, as well as the ability to grow the Company’s business through appropriate commercial strategies.

5 unchanged sentences

Basis of Presentation

The accompanying unaudited consolidated financial statements and related notes have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”).

The accompanying unaudited consolidated financial statements and related notes have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”).

The financial statements include the accounts of Anika Therapeutics, Inc.

6 unchanged sentences

10 -K for the year ended December 31, 2020.

The results of operations for the three - and six -month periods ended June 30, 2021 are not indicative of the results to be expected for the year ending December 

The results of operations for the three - and nine -month periods ended September 30, 2021 are not indicative of the results to be expected for the year ending December 

Segment Information

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company’s chief operating decision maker is its President and Chief Executive Officer as of June 30, 2021.

The Company’s chief operating decision maker is its President and Chief Executive Officer as of September 30, 2021.

Based on the criteria established by Accounting Standards Codification (“ASC”) 280,  

26 unchanged sentences

The fair value of contingent consideration related to net sales as of January 24, 2020 was determined based on a Monte Carlo simulation model in an option pricing framework at the acquisition date, whereby a range of possible scenarios were simulated.

There was deferred consideration related to certain purchase price holdbacks, which was resolved within one year of the acquisition date in accordance with the Parcus Merger Agreement and was recorded in accounts payable as of December 31, 2020.

There also was deferred consideration related to certain purchase price holdbacks, which was resolved within one year of the acquisition date in accordance with the Parcus Merger Agreement and was recorded in accounts payable as of December 31, 2020.

There was no deferred consideration as of September 30, 2021.

The liability for contingent and deferred consideration is included in current and long-term liabilities on the consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved.

See Note 4, Fair Value Measurements , for additional discussion of contingent consideration as of June 30, 2021 and December 31, 2020.

See Note 4, Fair Value Measurements , for additional discussion of contingent consideration as of September 30, 2021 and December 31, 2020.

Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred.

24 unchanged sentences

$ 75,136  

Subsequent to the acquisition date, during the three -month period ended September 30, 2020, the Company completed the identification and confirmation of Parcus Medical inventory in the possession of its direct and distributor sales force, which resulted in an increase to the fair value of inventory of $ 1.9 million as of the January 24, 2020 acquisition date.

As a result, the Company recorded this addition to inventory with a corresponding reduction to goodwill as a measurement period adjustment which was reflected to the goodwill amount included in the table above.

The impact to the consolidated statement of operations related to this adjustment was not material.

The acquired intangible assets based on estimates of fair value as of January 24, 2020 are as follows:

33 unchanged sentences

The liability for contingent consideration is included in current and long-term liabilities on the consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved.

See Note 4, Fair Value Measurements , for additional discussion of contingent consideration as of June 30, 2021 and December 31, 2020.

See Note 4, Fair Value Measurements , for additional discussion of contingent consideration as of September 30, 2021 and December 31, 2020.

Acquisition-related costs are not included as a component of consideration transferred but are expensed in the periods in which the costs are incurred.

44 unchanged sentences

The Company has combined legacy Anika, Parcus Medical and Arthrosurface pro forma supplemental information as follows.

The unaudited pro forma information for the three - and six -month periods ended June 30, 2021 and 2020 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments.

The unaudited pro forma information for the nine -month periods ended September 30, 2021 and 2020 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments.

The pro forma financial information presents the combined results of operations of Anika, Parcus Medical and Arthrosurface as if the acquisitions had occurred on January 1, 2019 after giving effect to certain pro forma adjustments.

8 unchanged sentences

The following table presents unaudited supplemental pro forma information:

Six Months ended June 30,

Nine Months Ended

September 30, 2020

Total revenue

$ 101,722  

$ 70,028  

Net income (loss)

Fair Value Measurements

2 unchanged sentences

Unrealized losses and the associated tax impact on the Company’s available-for-sale securities were insignificant at December 31, 2020.

There were no available-for-sale securities as of June 30, 2021.

There were no available-for-sale securities as of September 30, 2021.

The Company’s investments are all classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets.

7 unchanged sentences

Unobservable Inputs

September 30, 2021

Amortized Cost

8 unchanged sentences

$ 3,490  

Contingent Consideration - Long Term

Total other current and long-term liabilities

$ 16,940  

Active Markets

3 unchanged sentences

Unobservable Inputs

December 31, 2020

Amortized Cost

21 unchanged sentences

Three Months Ended

June 30, 2021

Six Months Ended

June 30, 2021

September 30, 2021

Nine Months Ended

September 30, 2021

Balance, beginning

9 unchanged sentences

The unobservable inputs used in the fair value measurement of the Company’s contingent consideration are the probabilities of successful achievement, the net sales estimates, the weighted average cost of capital used for the Monte Carlo simulation, discount rate and the periods in which the milestones are expected to be achieved.

The discount rates used for the net sales milestones ranged from 2.2 % - 2.3 %, and for the regulatory earn-out milestones the discount rate was 2.7 %.

The weighted average cost of capital for Arthrosurface and Parcus increased from 11.4 % as of December 31, 2020 to 11.8 % as of June 30, 2021.

The discount rates used for the net sales milestones ranged from 3.2 % - 3.3 %.

The weighted average cost of capital for Parcus increased from 11.4 % as of December 31, 2020 to 11.6 % as of September 30, 2021.

Increases or decreases in the discount rate would result in a lower or higher fair value measurement, respectively.

As of December 31, 2020, the probability of successful achievement of the regulatory earn-out milestones was determined to be in a range of 60 %- 75 %.

As of June 30, 2021, the probability of successful achievement of one of the regulatory earn-out milestones was determined to be 100 % as the Company achieved a regulatory milestone prior to June 30, 2021.

The probability of successful achievement of the remaining regulatory milestone was determined to be 0 % as of June 30, 2021.

The overall fair value of the contingent consideration decreased by $ 13.7 million and $ 18.5 million during the three - and six -month periods ended June 30, 2021, respectively, to $ 16.9 million, due primarily to the decrease in the likelihood that certain contingent milestones would be achieved and result in payment.

The Company achieved a regulatory milestone in June 2021.

The probability of successful achievement of the remaining regulatory milestone was determined to be 0 % as of September 30, 2021.

The overall fair value of the contingent consideration decreased by $ 3.5 million and $ 21.9 million during the three - and nine -month periods ended September 30, 2021, respectively, due primarily to the decrease in the likelihood that certain contingent milestones would be achieved.

The fair value of remaining contingent consideration is assessed on a quarterly basis.

1 unchanged sentence

In June 2021, the Company received regulatory clearance for a reverse shoulder implant system, which triggered a $ 10.0 million regulatory milestone payment per the terms of the Arthrosurface Merger Agreement.

This amount is included as contingent consideration in current liabilities in the Company’s consolidated balance sheet as of June 30, 2021 and was paid in July 2021.

This amount was paid in July 2021.

Inventories consist of the following:

September 30,

Raw materials

14 unchanged sentences

14,801  

The Company recorded an inventory reserve of $2.5 million during the three -month period ended June 30, 2021, of which $ 0.4 million was associated with the acquisition related inventory step-up, as a result of the Company's product rationalization efforts.

Intangible Assets

Intangible assets as of June 30, 2021 and December 31, 2020 consisted of the following:

Six Months Ended June 30, 2021

Intangible assets as of September 30, 2021 and December 31, 2020 consisted of the following:

Nine Months Ended September 30, 2021

Currency Translation

20 unchanged sentences

$ 91,157  

The aggregate amortization expense related to intangible assets was $ 2.0 million and $ 2.2 million for the three -month periods ended June 30, 2021 and 2020, respectively, and $ 3.9 million and $ 3.5 million for the six -month periods ended June 30, 2021 and 2020, respectively. 

The aggregate amortization expense related to intangible assets was $ 2.0 million and $ 1.9 million for the three -month periods ended September 30, 2021 and 2020, respectively, and $ 5.9 million and $ 5.4 million for the nine -month periods ended September 30, 2021 and 2020, respectively. 

The Company assesses goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment.

Changes in the carrying value of goodwill for the six months ended June 30, 2021 were as follows:

Six Months Ended

June 30, 2021

Changes in the carrying value of goodwill for the nine months ended September 30, 2021 were as follows:

Nine Months Ended

September 30, 2021

Balance, beginning January 1, 2021

1 unchanged sentence

Effect of foreign currency adjustments

Balance, ending June 30, 2021

Balance, ending September 30, 2021

$ 7,950  

1 unchanged sentence

Accrued expenses and other liabilities consist of the following:

September 30,

Compensation and related expenses

13 unchanged sentences

Based on the Company’s historical activity, in combination with its liability insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial.

The Company had no accrued warranties as of June 30, 2021 and December 31, 2020 and has no history of claims paid.

The Company had no accrued warranties as of September 30, 2021 and December 31, 2020 and has no history of claims paid.

The Company is also involved from time-to-time in various legal proceedings arising in the normal course of business.

Although the outcomes of these legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flows.

On October 21, 2021, the Company received notice that the former unitholders of Parcus Medical had filed a request for arbitration regarding the earnout provisions agreed to in the Parcus Medical Merger Agreement.

The Company is unable to estimate the potential liability with respect to this matter at this time.

There are numerous factors that make it difficult to estimate reasonably possible loss or range of loss at this stage of the matter, including the significant number of legal and factual issues still to be resolved in the arbitration process.

The Company intends to vigorously defend against the claims and believes it has strong defenses to the claims asserted.

Revenue by product family was as follows: 

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Joint Pain Management

11 unchanged sentences

$ 111,973  

Revenue from the Company’s sole significant customer, DePuy Synthes Mitek Sports Medicine (“Mitek”), part of the Johnson & Johnson Medical Companies, as a percentage of the Company’s total revenue was 46 % and 54 % for the three months ended June 30, 2021 and 2020, respectively, and 44 % and 54 % for the six months ended June 30, 2021 and 2020, respectively

$ 97,769  

Revenue from the Company’s sole significant customer, DePuy Synthes Mitek Sports Medicine (“Mitek”), part of the Johnson & Johnson Medical Companies, as a percentage of the Company’s total revenue was 51 % and 48 % for the three months ended September 30, 2021 and 2020, respectively, and 46 % and 52 % for the nine months ended September 30, 2021 and 2020, respectively.

We receive payments from our customers based on billing schedules established in each contract.

1 unchanged sentence

Amounts are recorded as accounts receivable when our right to consideration is unconditional.

Deferred revenue was $ 0.9 million and $ 0.2 million as of June 30, 2021 and December 31, 2020, respectively.

Deferred revenue was $ 0.9 million and $ 0.2 million as of September 30, 2021 and December 31, 2020, respectively.

Total revenue by geographic location was as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Percentage of

6 unchanged sentences

$ 31,694  

Six Months Ended June 30,

Nine Months Ended September 30,

Percentage of

7 unchanged sentences

11,181  

Stock-Based Compensation

On June 16, 2021, the Company’s stockholders approved an amendment to the 2017 Plan.

The amendment increased the number of shares of common stock reserved under the 2017 Plan by 1.1 million shares from 3.5 million shares to 4.6 million shares.

The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows:

Three Months Ended June 30,

Six Months Ended June 30,

$ 111,973  

$ 97,769  

Equity Incentive Plan

The Anika Therapeutics, Inc.

2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and amended on June 16, 2020 and June 16, 2021 and provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), total shareholder return options (“TSRs”) and performance options that may be settled in cash, stock, or other property.

In accordance with the 2017 Plan approved by the Company’s stockholders, including the amendments thereto, each share award other than stock options or SAR’s will reduce the number of total shares available for grant by two  shares.

Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 4.6 million shares of common stock may be issued under the 2017 Plan.

There are 1.9 million shares available for future grant at September 

The Company may satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either newly issued shares or shares reacquired by the Company.

Stock-based awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant.

Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over one to four years with a maximum contractual term of ten years.

The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue

6 unchanged sentences

$ 3,954  

The Company recorded an income tax provision of $ 2.6 million and $ 1.0 million for the three - and six -month periods ended June 30, 2021, resulting in effective tax rates of 28.5 % and 9.4 %, respectively.

The benefit from income taxes was $ 2.0 million and $ 0.4 million for the three - and six -month periods ended June 30, 2020, based on effective tax rates of 20.6 % and 17.9 %, respectively.

The net increase in the effective tax rate for the three -month period ended June 30, 2021, as compared to the same period in 2020, was primarily due to $ 0.7 million recorded as tax expense for the change in the fair value of the contingent consideration, recognized as a discrete charge in the second quarter of 2021.

The year to date net tax benefit on the change in the fair value of the contingent consideration, in the amount of $ 1.1 million, resulted in a net decrease in the effective tax rate for the six -month period ended June 30, 2021, as compared to the same period in 2020.

Stock Options

Stock options are granted to purchase common shares at prices that are equal to the fair market value of the shares on the date the options are granted.

Options generally vest in equal annual installments over a period of three to four years and expire 10 years after the date of grant.

The grant-date fair value of options is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The following summarizes the activity under the Company’s stock option plans:

Number of Options

Weighted Average Exercise Price

Weighted Average

Term (in years)

Aggregate Intrinsic

(in thousands)

Outstanding as of December 31, 2020

896,819  

$ 41.50  

493,628  

$ 37.67  

( 27,851 )  

$ 34.62  

Forfeited and canceled

( 177,604 )  

$ 44.32  

Outstanding as of September 30, 2021

1,184,992  

$ 39.65  

$ 4,654  

Vested, September 30, 2021

304,172  

$ 44.01  

Vested and expected to vest, September 30, 2021

1,184,992  

$ 39.65  

$ 4,654  

Of the 493,628 stock options granted during the nine -month period ended September 30, 2021, 314,541 shares were premium-priced options which were granted with an exercise price at 110 % of the market price of the Company’s common stock on the date of grant.

The Company uses the Black-Scholes pricing model to determine the fair value of options granted.

The calculation of the fair value of stock options is affected by the stock price on the grant date, the expected volatility of the Company’s common stock over the expected term of the award, the expected life of the award, the risk-free interest rate and the dividend yield.

The Company estimates the fair value of TSRs using Monte-Carlo simulation model.

The actual number of TSR options that may be earned ranges from 0 % to 150 % of the target number, depending on the total shareholder return of the Company relative to the peer group over the vesting period of 2.7 years.

The assumptions used in the Black-Scholes pricing model for options granted during the nine months ended September 30, 2021 and 2020, along with the weighted-average grant-date fair values, were as follows:

Nine Months Ended 

September 30,

Risk-free interest rate

0.30% –

0.21% –

Expected life of options (in years)

Dividend yield

Expected stock price volatility

54.80% –56.06%  

46.48% –52.99%  

As of September 30, 2021, there was $ 10.0 million of unrecognized compensation cost related to non-vested stock options.

This cost is expected to be recognized over a weighted average period of 1.9 years.

Restricted Stock Units

RSUs generally vest in equal annual installments over a three or four year periods.

The grant-date fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The Company determines the fair value of restricted stock units based on the closing price of its common stock on the date of grant.

RSU activity is as follows:

Number of Shares

Weighted Average Fair Value

Outstanding as of December 31, 2020

233,239  

$ 37.50  

308,243  

( 90,013 )  

Forfeited and cancelled

( 48,624 )  

Outstanding as of September 30, 2021

402,845  

$ 36.10  

As of September 30, 2021, there was $ 11.3 million of unrecognized compensation cost related to time-based RSUs, which is expected to be recognized over a weighted-average period of 2.1 years.

Performance Stock Units

PSUs generally vest over a three or four year periods from the grant date and include both a service and performance component.

The PSUs granted to employees contained performance conditions with business and financial targets.

The business target, amounting to 40 % of the total performance conditions, will be measured based on achievement in the 2020 - 2022 fiscal years, while the financial targets, amounting to 60 % of the total performance conditions, will ultimately be measured with respect to the Company’s operating results in the 2020 - 2022 fiscal years.

PSU activity is as follows:

Number of Shares

Weighted Average

Outstanding as of December 31, 2020

178,297  

$ 35.93  

Forfeited and cancelled

( 18,500 )  

Outstanding as of September 30, 2021

159,797  

$ 35.80  

As of September 30, 2021, there was $ 0.1 million of unrecognized compensation cost related to PSUs, which is expected to be recognized over a weighted-average period of 0.4 years.

On November 4, 2021, the Anika Therapeutics, Inc.

2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors.

The Inducement Plan reserves 125,000 shares of common stock for issuance pursuant to equity-based awards granted under the Inducement Plan.

Such awards may be granted only to an individual who was not previously the Company’s employee or director, or who is returning to employment following a bona fide period of non-employment with the Company, in each case as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 

5635 (c)( 4 ) of the Nasdaq Listing Rules.

The Inducement Plan provides for the grant of awards under terms substantially similar to the 2017 Plan (as amended).

For the three - and nine -month periods ended September 30, 2021, the Company recorded an income tax provision of $ 0.7 million and $ 1.7 million, resulting in effective tax rates of 55.4 % and 14.4 %, respectively.

For the three - and nine -month periods ended September 30, 2020, due to losses in those periods, the Company incurred benefits from income taxes of $ 1.7 million and $ 2.2 million, resulting in effective tax rates of 21.4 % and 20.6 %, respectively.

The net increase in the effective tax rate for the three -month period ended September 30, 2021, as compared to the same period in 2020, was primarily due to stock option activity and an adjustment to the Foreign Derived Intangible Income (“FDII”) deduction expected for 2021.

The year-to-date net tax benefit on the change in the fair value of the contingent consideration, in the amount of $ 1.1 million in 2021, resulted in a net decrease in the effective tax rate for the nine -month period ended September 30, 2021, as compared to the same period in 2020.

The Company files income tax returns in the United States on a federal basis, in certain U.S.

8 unchanged sentences

The following table provides share information used in the calculation of the Company's basic and diluted EPS (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Shares used in the calculation of basic EPS

10 unchanged sentences

14,202  

Stock options of 1.0 million shares were outstanding for each of the three -month periods ended June 30, 2021 and 2020 and were not included in the computation of diluted EPS because the awards’

impact on EPS would have been anti-dilutive. Stock options of 1.1 million and 0.9 million shares were outstanding for the six -month periods ended June 30, 2021 and 2020 and were not included in the computation of diluted EPS because the awards’

Stock options of 1.0 million shares were outstanding for each of the three -month periods ended September 30, 2021 and 2020 and were not included in the computation of diluted EPS because the awards’

impact on EPS would have been anti-dilutive. Stock options of 1.1 million and 0.8 million shares were outstanding for the nine -month periods ended September 30, 2021 and 2020 and were not included in the computation of diluted EPS because the awards’

impact on EPS would have been anti-dilutive. 

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Risk Factors”

of our 2020 Form 10-K and in Part II, Item 1A “Risk Factors”

of this report for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements.

of our 2020 Form 10-K for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements.

Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made.

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We are committed to leading in high opportunity spaces within orthopedics, including osteoarthritis, or OA, pain management, regenerative solutions, soft tissue repair and bone preserving joint technologies.

We have nearly thirty years of global expertise developing, manufacturing and commercializing products based on our hyaluronic acid, or HA, technology platform.

We have over thirty years of global expertise developing, manufacturing and commercializing products based on our hyaluronic acid, or HA, technology platform.

HA is a naturally occurring polymer found throughout the body that is vital for proper joint health and tissue function.

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Energized and experienced team focused on strong values, talent, and culture.

Key Developments during the Three Months Ended September 30, 2021

We completed the launch activities for WristMotion Total Wrist Arthroplasty System.

The product is a modular joint preservation system that replaces both the radial and carpal sides of the wrist joint for patients suffering from rheumatoid arthritis, osteoarthritis, or post-traumatic arthritis.

We received 510(k) clearance for Tactoset Injectable Bone Substitute for hardware augmentation.

This product is indicated for filling bone voids or defects of the skeletal system (i.e.

extremities and pelvis) that are not intrinsic to the stability of bony structure.

COVID-19 Pandemic

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There has been significant volatility in our results on a quarterly basis due to the worldwide cancellation or delay of elective procedures, as well as the impact on timelines associated with certain clinical studies.

These fluctuations make future results difficult to predict despite recent advances in the vaccination rates of certain parts of the population.

While elective procedure volume had a limited recovery after the initial pandemic impacts seen in the early parts of second quarter of 2020 due to the easing of COVID-19 related restrictions in certain jurisdictions, areas of the United States and other countries have recently seen, and continue to see, fluctuating infection rates increasing as the result of emerging variants of COVID-19.Continuing fluctuations in infection rates in the United States and other countries make future results difficult to predict despite recent advances in the vaccination rates of certain parts of the population.

In this time of uncertainty as a result of the COVID-19 pandemic, we have taken many precautions to provide a safe work environment for our employees and customers, including the establishment and implementation of a work from home policy, where possible.

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To date, we do not anticipate disruption to our ability to supply products to our customers.

Our commercial day-to-day operations have been impacted due to the worldwide cancellation or delay of elective procedures, and timelines associated with certain clinical studies and research and development programs have been delayed.

Our commercial day-to-day operations have been impacted due to the worldwide cancellations and/or delays of elective procedures, and timelines associated with certain clinical studies and research and development programs have been delayed.

While the impact has been limited to these items to date, we caution that there continues to be a possibility for potential future implementation of certain additional restrictions in certain jurisdictions.

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Internationally, we market our Joint Pain Management products through a worldwide network of commercial distributors.

Cingal, our novel, third-generation, single-injection OA product consisting of our proprietary cross-linked HA material combined with a steroid, is designed to provide both short- and long-term pain relief.

Cingal, our novel, third-generation, single-injection OA product consisting of our proprietary cross-linked HA material combined with a steroid, is designed to provide both short- and long-term pain relief.

Cingal is CE Mark approved and has been sold outside the United States in over 35 countries through our network of distributors for several years.

In the United States, Cingal is a pipeline product under clinical development and is not available for commercial sale.

In the United States, Cingal is a pipeline product undergoing clinical trial and is not available for commercial sale.

Hyvisc, our high molecular weight injectable HA veterinary product for the treatment of joint dysfunction in horses due to non-infectious synovitis associated with equine OA.

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Bone Preserving Joint Technologies.

Our portfolio of more than 150 bone preserving joint technologies, including partial joint replacement, joint resurfacing, and minimally invasive and bone sparing implants, is designed to treat upper and lower extremity orthopedic conditions caused by trauma, injury and arthritic disease.

These products span multiple joints including the shoulder, foot/ankle, wrist, knee and hip and are generally intended to mimic a patient’s natural anatomy to the extent feasible.

These products are often used to treat patients with OA progression beyond where our Joint Pain Management products can allow the patients to retain an active lifestyle, when early surgical intervention becomes preferable.

We commercialize these products in the United States by directly selling to hospitals and surgery centers and utilize our distributor network for sales in certain international markets.

We commercialize these products in the United States by selling to hospitals and surgery centers through an independent network of sales representatives and distributors, and utilize our distributor network for sales in certain international markets.

Soft Tissue Repair.

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These more traditional sports medicine solutions include screws, sutures, suture anchors, and other surgical systems that facilitate surgical procedures on the shoulder, knee, hip, upper and lower extremities, and other soft tissues.

We commercialize these products in the United States and utilize our distributor network for sales in over 60 international markets.

Regenerative Solutions.

Regenerative Solutions.

Our portfolio of orthopedic regenerative solutions based on our proprietary technologies based on HA and Hyaff, which is a solid form of HA.

These products include Tactoset, an HA-enhanced injectable bone repair therapy designed to treat insufficiency fractures that we commercialize only in the United States, and Hyalofast, a biodegradable support for human bone marrow mesenchymal stem cells used for cartilage regeneration and as an adjunct for microfracture surgery.

These products include Tactoset Injectable Bone Substitute, an HA-enhanced injectable bone repair therapy designed to treat insufficiency fractures and for augmenting suture anchor fixation that we commercialize only in the United States, and Hyalofast, a biodegradable support for human bone marrow mesenchymal stem cells used for cartilage regeneration and as an adjunct for microfracture surgery.

Hyalofast is CE Mark approved and currently available in Europe, South America, Asia, and certain other international markets.

In the United States, Hyalofast is a pipeline product under clinical development and is not available for commercial sale.

In the United States, Hyalofast is a pipeline product under clinical trial and is not available for commercial sale.

Our Other product family consists of legacy HA-based products that do not fit into one of our other primary product categories.

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Results of Operations

Three and Six Months Ended June 30, 2021 Compared to Three and Six Months Ended June 30, 2020

Three Months Ended June 30,

Six Months Ended June 30,

Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020.

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except percentages)

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Income (loss) from operations

Interest and other income (expense), net

Interest and other expense, net

Income (loss) before income taxes

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Net income (loss)

Revenue for the three-month period ended June 30, 2021 was $38.2 million, an increase of $7.5 million as compared to $30.7 million for the three-month period ended June 30, 2020.

Revenue for the six-month period ended June 30, 2021 was $72.4 million, an increase of $6.4 million as compared to $66.1 million for the six-month period ended June 30, 2020.

For the three- and six-month periods ended June 30, 2021, the increases in revenue were primarily driven by recovery from the initial impact of COVID on prior year sales volumes.

The increase for the six-month period ended June 30, 2021, was also in part due to inclusion of full first quarter results of Parcus Medical and Arthrosurface, which we acquired on January 24, 2020 and February 3, 2020, respectively. 

Revenue for the three-month period ended September 30, 2021 was $39.5 million, an increase of $7.9 million as compared to $31.7 million for the three-month period ended September 30, 2020.

Revenue for the nine-month period ended September 30, 2021 was $112.0 million, an increase of $14.2 million as compared to $97.8 million for the nine-month period ended September 30, 2020.

For the three- and nine-month periods ended September 30, 2021, the increases in revenue were primarily driven by partial recovery from the initial impact of the COVID-19 pandemic on sales volumes and related strategic partner ordering patterns.

The increase for the nine-month period ended September 30, 2021, was also in part due to inclusion of full first quarter results of Parcus Medical and Arthrosurface, which we acquired on January 24, 2020 and February 3, 2020, respectively. 

The following tables present product revenue by product family:

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands, except percentages)

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Joint Preservation and Restoration

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands, except percentages)

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Joint Preservation and Restoration

Revenue from our Joint Pain Management product family increased 9% for the three-month period ended June 30, 2021 as compared to the same period in 2020 due primarily to recovery from the initial impact of the COVID-19 pandemic on sales volumes.

For the six-month period ended June 30, 2021, revenue decreased 9% as compared to the same period in 2020 primarily due to the overall unfavorable impact of the COVID-19 pandemic in the same period of 2020. 

Revenue from our Joint Preservation and Restoration product family increased 79% and 66% for the three- and six-month periods ended June 30, 2021, respectively, as compared to the same periods in 2020 primarily due to organic growth as the impact of the COVID-19 pandemic on elective procedures begins to lift in various worldwide jurisdictions, especially in the United States, and for the six-month period, due also to the inclusion of full quarter results from Parcus Medical and Arthrosurface in the first quarter.

Revenue from our Other product family increased 7% for the three-month period ended June 30, 2021, as compared to the same period in 2020 primarily due to timing of distributor sales.

For the six-month period ended June 30, 2021 revenue increased 23% as compared to the same period in 2020 primarily due to the sell through of legacy wound care products.

Revenue from our Joint Pain Management product family increased 42% and 6% for the three- and nine-month periods ended September 30, 2021, respectively, as compared to the same periods in 2020 due primarily to partial recovery from the initial impact of the COVID-19 pandemic on sales volumes and related strategic partner ordering patterns. In 2020, customer ordering patterns delayed a portion of the initial impact of the COVID-19 pandemic on this product family from the second quarter into the second half of 2020.

Revenue from our Joint Preservation and Restoration product family decreased 4% for the three-month period ended September 30, 2021 as compared to the same period in 2020, due primarily to the impact of the COVID-19 pandemic, including rolling suspensions of elective procedures by hospitals in certain regions as well as the limitations on access to customers during the period.

For the nine-month period ended September 30, 2021, revenue from our Joint Preservation and Restoration product family increased 35% as compared to the same period in 2020 due primarily to organic growth as the initial impact of the COVID-19 pandemic on elective procedures begins to lift in various worldwide jurisdictions, especially in the United States during the first half of 2021, as well as due to the inclusion of full quarter results from Parcus Medical and Arthrosurface in the first quarter.

Revenue from our Other product family increased 42% for the three-month period ended September 30, 2021, as compared to the same period in 2020 primarily due to timing of distributor sales.

For the nine-month period ended September 30, 2021 revenue increased 28% as compared to the same period in 2020 primarily due to timing of distributor sales as well as due to the sell through of legacy wound care products during the first quarter.

Gross Profit and Margin

Gross profit for the three- and six-month periods ended June 30, 2021 increased $7.1 million and $6.9 million to $20.8 million and $41.8 million, respectively, representing 55% and 58% of revenue.

Gross profit for the three- and six-month periods ended June 30, 2020 was $13.7 million and $34.9 million, respectively, or 45% and 53% of revenue for the periods, respectively.

These increases in gross profit for the three- and six-month periods ended June 30, 2021, primarily resulted from increased revenue, partially offset by product rationalization charges in the second quarter of 2021.

We recorded an inventory reserve of $2.5 million during the three-month period ended June 30, 2021, of which $0.4 million was associated with the acquisition related inventory step-up, as a result of our product rationalization efforts.

Gross profit for the three- and nine-month periods ended September 30, 2021 increased $5.7 million and $12.5 million to $23.0 million and $64.8 million, respectively, representing 58% of revenue for each of the periods.

Gross profit for the three- and nine-month periods ended September 30, 2020 was $17.3 million and $52.3 million, respectively, or 55% and 53% of revenue for the periods, respectively.

The increase in gross profit for the three- and nine-month periods ended September 30, 2021, primarily resulted from increased revenue.

The increase for the nine-month period ended September 30, 2021 was partially offset by product rationalization charges in the second quarter of 2021.

Gross margins include the impact of inventory step-up associated with the Arthrosurface and Parcus Medical acquisitions, as well as acquisition-related amortization expenses.

These expenses together increased cost of revenue by $3.8 million, or 10 points of gross margin and $8.0 million, or 11 points of gross margin, for the three- and six-month periods ended June 30, 2021, respectively, as compared to increased cost of revenue of $3.8 million, or 13 points of gross margin, and $6.8 million, or 10 points of gross margin, respectively, for the same periods in 2020.

These expenses together increased cost of revenue by $3.0 million, or 8 points of gross margin, and $10.9 million, or 10 points of gross margin, for the three- and nine-month periods ended September 30, 2021, respectively, as compared to increased cost of revenue of $4.8 million, or 15 points of gross margin, and $11.7 million, or 12 points of gross margin, respectively, for the same periods in 2020.

Research and Development

Research and development expenses for the three- and six-month periods ended June 30, 2021 were $7.3 million and $13.7 million, representing an increase of $2.8 million and $3.1 million, respectively, as compared to the same periods in 2020.

The increase in research and development expense for the three- and six-month periods ended June 30, 2021 was primarily due to product development activities associated with the development of new product candidates in our research and development pipeline, preparation activities for the CINGAL Pilot study and certain European post-market clinical studies.

Research and development activities were curtailed in the three- and six-months ended June 30, 2020 due to cost optimization in the light of the early stages of the COVID-19 pandemic.

Research and development expenses for the three- and nine-month periods ended September 30, 2021 were $7.7 million and $21.3 million, representing an increase of $2.5 million and $5.5 million, respectively, as compared to the same periods in 2020.

The increase in research and development expense for the three- and nine-month periods ended September 30, 2021 was primarily due to product development activities associated with the development of new product candidates in our research and development pipeline, execution of the CINGAL Pilot study and certain European post-market clinical studies.

Research and development activities were curtailed in the three- and nine-months ended September 30, 2020 due to cost optimization in the light of the early stages of the COVID-19 pandemic.

Selling, General and Administrative

Selling, general and administrative, or SG&A expenses for the three- and six-month periods ended June 30, 2021 were $18.0 and $36.2 million, an increase of $3.4 million and $7.2 million, respectively, as compared to the same periods in 2020.

The increase in SG&A expenses for the three-month period ended June 30, 2021 was primarily related to increased spending to support our commercial capability through the expansion of our commercial team in the United States, partially offset by the absence of transaction costs incurred in 2020 related to the acquisitions of Parcus Medical and Arthrosurface. 

The increase in SG&A expenses for the six-month period ended June 30, 2021 was primarily related to full period expenses from Parcus Medical and Arthrosurface, increased spending to support our commercial capability in the United States and a non-cash impairment charge related to fixed assets, partially offset by the absence of transaction costs incurred in 2020 related to acquisitions of Parcus and Arthrosurface. Certain activities were curtailed in the three- and six-months ended June 30, 2020 due to cost optimization in light of the early stages of the COVID-19 pandemic.

Selling, general and administrative, or SG&A expenses, for the three- and nine-month periods ended September 30, 2021 were $17.5 million and $53.7 million, an increase of $1.6 million and $8.8 million, respectively, as compared to the same periods in 2020.

The increase in SG&A expenses for the three-month period ended September 30, 2021 was primarily related to an increase in share-based compensation expense due largely to forfeitures of unvested shares during the comparable period and higher sales and marketing activities and events during 2021 which had been suspended in 2020 due to the impact of the COVID-19 pandemic. 

The increase in SG&A expenses for the nine-month period ended September 30, 2021 was primarily related to full period expenses from Parcus Medical and Arthrosurface, increased spending to support our commercial capability in the United States and expanded marketing activities, and a non-cash loss on disposal of fixed assets, partially offset by the absence of transaction costs incurred in 2020 related to acquisitions of Parcus and Arthrosurface. Certain activities were curtailed in the three- and nine-months ended September 30, 2020 due to cost optimization in light of the early stages of the COVID-19 pandemic.

Goodwill Impairment Charge

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The results of these interim impairment tests indicated that the estimated fair value of this reporting unit was less than its carrying value.

Consequently, a non-cash goodwill impairment charge of $18.1 million was recorded in the three-month period ended June 30, 2020.

Consequently, a non-cash goodwill impairment charge of $18.1 million was recorded in the three-month period ended March 31, 2020.

The decline in fair value was primarily due to a decrease in immediate term revenue and related cash flows as a result of the temporary suspension of domestic elective procedures, which directly impacted the Parcus and Arthrosurface reporting units.

There were no goodwill impairment charges during the three- and six-month period ended June 30, 2021. 

There were no goodwill impairment charges during the three- and nine-month period ended September 30, 2021. 

Contingent Consideration Fair Value Change

We recorded a $13.7 million and $18.5 million net benefit related to changes in the fair value of contingent consideration for the three- and six-month periods ended June 30, 2021, respectively.

We recorded a $4.2 million net expense and $20.3 million net benefit related to changes in the fair value of contingent consideration for the three- and six-month periods ended June 30, 2020, respectively.

The increase in net benefit in the three-month period ended June 30, 2021 compared to the same period in 2020 is due primarily to the decrease in the likelihood that certain contingent milestones would be achieved and result in payment.

The decrease in net benefit in the six-month period ended June 30, 2021 compared to the same period in 2020, is due primarily to the achievement of a regulatory milestone in June 2021, which partially offset the decrease in the likelihood that certain other contingent milestones would be achieved and result in payment.

The provision for income taxes was $2.6 million and $1.0 million for the three- and six-month periods ended June 30, 2021, based on effective tax rates of 28.5% and 9.4%, respectively. The benefit from income taxes was $2.0 million and $0.4 million for the three- and six-month periods ended June 30, 2020, based on effective tax rates of 20.6% and 17.9%, respectively.

The net increase in the effective tax rate for the three-month period ended June 30, 2021, as compared to the same period in 2020, was primarily due to the $0.7 million tax expense on the change in the fair value of the contingent consideration, recognized as a discrete charge in the second quarter of 2021.

The net tax benefit for the six-month period ended June 30, 2021 on the decrease in the fair value of the contingent consideration, in the amount of $1.1 million, resulted in a net decrease in the effective tax rate for the six-month period ended June 30, 2021, as compared to the same period in 2020.

We recorded a $3.5 million and $21.9 million net benefit related to changes in the fair value of contingent consideration for the three- and nine-month periods ended September 30, 2021, respectively.

We recorded a $4.2 million net expense and $16.2 million net benefit related to changes in the fair value of contingent consideration for the three- and nine-month periods ended September 30, 2020, respectively.

The increase in net benefit in the three- and nine-month periods ended September 30, 2021 compared to the same period in 2020 is due primarily to the decrease in the likelihood that certain contingent milestones would be achieved.

For the three- and nine-month periods ended September 30, 2021, the provision for income taxes was $0.7 million and $1.7 million, resulting in effective tax rates of 55.1% and 14.3%, respectively.

For the three- and nine-month periods ended September 30, 2020, due to losses in those periods, we incurred benefits from income taxes of $1.7 million and $2.2 million, resulting in effective tax rates of 21.4% and 20.6%, respectively.

The net increase in the effective tax rate for the three-month period ended September 30, 2021, as compared to the same period in 2020, was primarily due to stock option activity and an adjustment to the Foreign Derived Intangible Income (FDII) deduction expected for 2021.

The year-to-date net tax benefit on the change in the fair value of the contingent consideration, in the amount of $1.1 million in 2021, resulted in a net decrease in the effective tax rate for the nine-month period ended September 30, 2021, as compared to the same period in 2020.

Non-GAAP Financial Measures

We present certain information with respect to adjusted gross profit and adjusted gross margin, adjusted Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”), adjusted net income, adjusted diluted earnings per share or adjusted EPS, which are financial measures not based on any standardized methodology prescribed by accounting principles generally accepted in the United States, or GAAP, and is not necessarily comparable to similarly titled measures presented by other companies.

We present certain information with respect to adjusted gross profit and adjusted gross margin, adjusted Earnings Before Interest, Tax, Depreciation and Amortization, or (EBITDA), adjusted net income, adjusted diluted earnings per share or adjusted EPS, which are financial measures not based on any standardized methodology prescribed by accounting principles generally accepted in the United States, or GAAP, and is not necessarily comparable to similarly titled measures presented by other companies.

We have presented adjusted gross profit and adjusted gross margin, adjusted EBITDA, adjusted net income, adjusted EPS, because they are key measures used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business.

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We define adjusted gross margin as adjusted gross profit divided by total revenue.

The following is a reconciliation of adjusted gross profit to gross profit for the three- and six-month periods ended June 30, 2021 and 2020, respectively:

Three Months Ended June 30,

Six Months Ended June 30,

The following is a reconciliation of adjusted gross profit to gross profit for the three- and nine-month periods ended September 30, 2021 and 2020, respectively:

Three Months Ended September 30,

Nine Months Ended September 30,

Product rationalization charges

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Adjusted gross margin

Adjusted gross profit for the three- and six-month periods ended June 30, 2021 increased $7.2 million and $8.1 million to $26.7 million and $51.8 million, respectively, representing 70% and 71% of revenue.

Adjusted gross profit for the three- and six-month periods ended June 30, 2020 was $19.5 million and $43.7 million, respectively, or 64% and 66% of revenue for the periods, respectively.

This increase in gross profit for the three- and six-month periods ended June 30, 2021, primarily resulted from higher revenue due to the inclusion of full period results from Parcus Medical and Arthrosurface in 2021 as we acquired these businesses in early 2020 and organic growth in existing legacy business as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States.

Adjusted gross profit for the three- and nine-month periods ended September 30, 2021 increased $3.9 million and $11.9 million to $26.0 million and $77.8 million, respectively, representing 66% and 69% of revenue.

Adjusted gross profit for the three- and nine-month periods ended September 30, 2020 was $22.2 million and $65.9 million, respectively, or 70% and 67% of revenue for the periods, respectively.

This increase in adjusted gross profit for the three-month period ended September 30, 2021 as compared with the same period in 2020, primarily resulted from organic growth of Joint Pain Management revenue as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States.

The decrease in adjusted gross margin for the three-month period ended September 30, 2021 as compared with the same period in 2020, is due primarily to unfavorable revenue mix and lower production volumes based on timing related to the COVID-19 pandemic.

This increase in adjusted gross profit and adjusted gross margin for the nine-month period ended September 30, 2021 as compared with the same period in 2020, primarily resulted from higher revenue due to the inclusion of full period results from Parcus Medical and Arthrosurface in 2021 as we acquired these businesses in early 2020 and organic growth of Joint Pain Management revenue as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States.

Adjusted EBITDA

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adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments.

The following is a reconciliation of net income (loss) to adjusted EBITDA for the three- and six-month periods ended June 30, 2021 and 2020, respectively:

Three Months Ended June 30,

Six Months Ended June 30,

The following is a reconciliation of adjusted EBITDA to net income (loss) for the three- and nine-month periods ended September 30, 2021 and 2020, respectively:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Net income (loss)

Interest and other (income) expense, net

Interest and other expense, net

Provision for (benefit) from income taxes

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Adjusted EBITDA

Adjusted EBITDA for the three-month period ended June 30, 2021, increased $0.5 million as compared with the same periods in 2020.

The increase in adjusted EBITDA for the period was primarily due to higher revenues as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States, partially offset by an increase in operating expenses primarily attributable to the expansion of our commercial capability in the United States and increase in clinical trial activity.

Adjusted EBITDA for the six-month period ended June 30, 2021, decreased $4.2 million as compared with the same period in 2020.

The decrease in adjusted EBITDA for the period was primarily due to an increase in operating expenses primarily attributable to expansion of our commercial capability in the United States, increase in clinical trial activity, as well as a non-cash impairment charge related to fixed assets, partially offset by increase in revenue.

Adjusted EBITDA for the three-month period ended September 30, 2021, increased $0.9 million as compared with the same periods in 2020.

In 2020, customer ordering patterns delayed a portion of the initial impact of the COVID-19 pandemic on this product family from the second quarter into the second half of 2020.

Adjusted EBITDA for the nine-month period ended September 30, 2021, decreased $3.3 million as compared with the same period in 2020.

Adjusted Net Income and Adjusted EPS

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We define adjusted EPS as US GAAP diluted earnings (loss) per share excluding the above adjustments to net income used in calculating adjusted net income, each on a per share and tax effected basis.

The following is a reconciliation of adjusted net income to net income for the three- and six-month periods ended June 30, 2021 and 2020, respectively:

Three Months Ended June 30,

Six Months Ended June 30,

The following is a reconciliation of adjusted net income to net income (loss) for the three- and nine-month periods ended September 30, 2021 and 2020, respectively:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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Adjusted net income

The following is a reconciliation of adjusted EPS to diluted earnings (loss) per share for the three- and six-month periods ended June 30, 2021 and 2020:

Three Months Ended June 30,

Six Months Ended June 30,

The following is a reconciliation of adjusted EPS to diluted earnings (loss) per share for the three- and nine-month periods ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

Diluted earnings (loss) per share

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Change in fair of value contingent consideration, tax effected

Adjusted net income in the three- month period ended June 30, 2021, increased $0.1 million as compared with the same period in 2020.

The increase in adjusted net income for the period was primarily due to higher revenues as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States partially offset by an increase in selling and marketing expenses primarily attributable to increased cost to support our commercial capability in the United States, an increase in research and development expenses and an increase in tax expenses.

Adjusted net income in the six-month period ended June 30, 2021, decreased $5.6 million as compared with the same period in 2020.

The decrease in adjusted net income for the period was primarily due to an increase in selling and marketing expenses primarily attributable to increased cost to support our commercial capability in the United States, an increase in research and development expenses, an increase in share-based compensation expense due to the forfeiture of unvested shares during the comparable period, a non-cash impairment charge related to fixed assets and an increase in tax expenses.

Adjusted net income in the three- month period ended September 30, 2021 was unchanged from the same period in 2020 as the increase in gross profit was offset by an increase in operating expenses due to higher research and development expenses and increased marketing efforts.

Adjusted net income for the period increased in 2021 due to higher revenues as COVID-19 pandemic related restrictions started lifting in various worldwide jurisdictions, especially in the United States.

This was offset by an increase in operating expenses primarily attributable to an increase in research and development expenses, sales and marketing expenses and share based compensation expenses.

Adjusted net income in the nine-month period ended September 30, 2021, decreased $5.6 million as compared with the same period in 2020.

The decrease in adjusted net income for the period was primarily due to an increase in selling and marketing expenses primarily attributable to increased cost to support our commercial capability in the United States, an increase in research and development expenses, an increase in share-based compensation expense due to forfeitures of unvested shares during the comparable period, a non-cash impairment charge related to fixed assets in the first quarter of 2021 and an increase in tax expenses.

Liquidity and Capital Resources

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Historically we have generated positive cash flow from operations, which, together with our available cash, cash equivalents, investments, and debt, have met our cash requirements.

Cash, cash equivalents, and investments aggregated $97.2 million and $98.3 million, and working capital totaled $136.4 million and $140.5 million as of June 30, 2021 and December 31, 2020, respectively. We are closely monitoring our liquidity and capital resources for any potential impact that the COVID-19 pandemic may have on our operations.

Cash provided by operating activities was $1.9 million for the six-month period ended June 30, 2021, as compared to cash provided by operating activities of $4.6 million for the same period in 2020. The change was primarily attributable to timing of collections, increase in inventories and timing of certain state tax payments, partially off-set by a decrease in cash outflows related to acquisition related expenses for the six-month period ended June 30, 2021.

Cash used in investing activities was $0.6 million for the six-month period ended June 30, 2021, as compared to cash used in investing activities of $94.8 million for the same period in 2020.

The change was primarily due to the consideration paid for the acquisitions of Parcus Medical and Arthrosurface in the six-month period ended June 30, 2020.

Cash provided by financing activities was $0.1 million for the six-month period ended June 30, 2021, as compared to cash provided by financing activities of $49.5 million for the same period in 2020.

The change was primarily due to a drawdown of $50.0 million from our existing credit facility in the six-month period ended June 30, 2020.

Cash, cash equivalents, and investments aggregated $91.0 million and $98.3 million, and working capital totaled $137.0 million and $140.5 million as of September 30, 2021 and December 31, 2020, respectively. 

We are closely monitoring our liquidity and capital resources for any potential impact that the COVID-19 pandemic may have on our operations.

Cash provided by operating activities was $3.9 million for the nine-month period ended September 30, 2021, as compared to cash provided by operating activities of $10.5 million for the same period in 2020. The change was primarily attributable to timing of collections, timing of certain state tax payments and change in contingent consideration and a decrease in cash outflows related to acquisition related expenses for the nine-month period ended September 30, 2021.

In July 2021, the Company paid contingent consideration in the amount of $10.0 million, $2.8 million of which was classified within operating activities and the remaining $7.2 million was classified within financing activities.

Cash used in investing activities was $1.9 million for the nine-month period ended September 30, 2021, as compared to cash used in investing activities of $88.1 million for the same period in 2020.

The change was primarily due to the consideration paid for the acquisitions of Parcus Medical and Arthrosurface in the nine-month period ended September 30, 2020.

Cash used in financing activities was $6.8 million for the nine-month period ended September 30, 2021, as compared to cash provided by financing activities of $24.3 million for the same period in 2020.

The change was primarily due to a drawdown of $50.0 million from our existing credit facility in the nine-month period ended September 30, 2020 and the portion of the contingent consideration payment related to financing activities, as described above, in the nine-month period ended September 30, 2021.

Critical Accounting Policies and Estimates

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in our 2020 Form 10-K.

There were no material changes to our contractual obligations reported in our 2020 Form 10-K during the six months ended June 30, 2021.

There were no material changes to our contractual obligations reported in our 2020 Form 10-K during the nine months ended September 30, 2021.

For additional discussion, see Note 9 to the consolidated financial statements included in this report.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements