What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-05-06 · 370 added, 206 removed, 715 unchanged (45% of the section changed)

2 unchanged sentences

and Subsidiaries

Condensed Consolidated Balance Sheets

Consolidated Balance Sheets

(in thousands, except per share data)

June 30,  

Current assets:

2 unchanged sentences

$ 94,386  

Accounts receivable, less allowance for credit losses of $1,350 and $1,442 at March 31, 2022 and December 31, 2021, respectively

Accounts receivable, less allowance for credit losses of $ 1,405 and $ 1,442 at June 30, 2022 and December 31, 2021, respectively

32,172  

4 unchanged sentences

Prepaid expenses and other current assets

10,459  

Total current assets

36 unchanged sentences

Preferred stock, $ 0.01 par value;

1,250 shares authorized, no shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

1,250 shares authorized, no shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

Common stock, $ 0.01 par value;

90,000 shares authorized, 14,518 and 14,441 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

90,000 shares authorized, 14,598 and 14,441 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

Additional paid-in-capital

15 unchanged sentences

and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share data)

Three Months Ended March 31,

(unaudited)  

For the Three Months Ended June 30,

For the Six Months Ended June 30,

$ 39,657  

$ 38,145  

Cost of revenue

$ 76,350  

$ 72,437  

Cost of product revenue

14,795  

17,333  

29,684  

30,651  

24,862  

20,812  

46,666  

41,786  

Operating expenses:

Research and development

Selling, general and administrative

Research & development

13,132  

13,654  

Selling, general & administrative

21,268  

17,989  

40,469  

36,164  

Change in fair value of contingent consideration

( 13,650 )  

Total operating expenses

1 unchanged sentence

11,632  

53,601  

31,348  

(Loss) income from operations

( 3,381 )  

( 6,935 )  

10,438  

Interest and other income (expense), net

( 50 )  

( 58 )  

(Loss) income before income taxes

( 3,285 )  

Benefit from income taxes

( 6,993 )  

10,345  

(Benefit from) provision for income taxes

( 442 )  

( 1,217 )  

Net (loss) income

1 unchanged sentence

$ 6,531  

$ ( 5,776 )  

$ 9,369  

Net (loss) income per share:

3 unchanged sentences

$ 0.65  

$ ( 0.20 )  

$ 0.45  

$ ( 0.40 )  

$ 0.64  

Weighted average common shares outstanding:

3 unchanged sentences

14,368  

14,555  

14,627  

14,511  

14,583  

Net (loss) income

1 unchanged sentence

$ 6,531  

$ ( 5,776 )  

$ 9,369  

Foreign currency translation adjustment

( 847 )  

( 928 )  

Comprehensive (loss) income

1 unchanged sentence

$ 6,730  

$ ( 6,704 )  

$ 9,059  

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

1 unchanged sentence

and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

Consolidated Statements of Stockholders' Equity

(in thousands)

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Additional Paid

14 unchanged sentences

( 2,933 )  

Other comprehensive loss

Other comprehensive income

( 81 )  

5 unchanged sentences

$ 285,787  

Three Months Ended March 31, 2021

Vesting of restricted stock units

Issuance of ESPP shares

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

( 25 )  

( 2,843 )  

Other comprehensive income

( 847 )  

Balance, June 30, 2022

14,598  

$ 72,851  

$ 219,802  

$ ( 6,646 )  

$ 286,153  

Six Months Ended June 30, 2021

Additional Paid

6 unchanged sentences

$ ( 4,542 )  

$ 272,400  

Issuance of common stock for equity awards

Vesting of restricted stock units

Forfeiture of restricted stock awards

Stock-based compensation expense

1 unchanged sentence

( 333 )  

Other comprehensive loss

Repurchase of common stock

Other comprehensive income

( 509 )  

5 unchanged sentences

$ 276,656  

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

Issuance of common stock for equity awards

Vesting of restricted stock units

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

( 19 )  

Other comprehensive income

Balance, June 30, 2021

14,418  

$ 60,699  

$ 230,813  

$ ( 4,852 )  

$ 286,804  

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

Anika Therapeutics, Inc.

and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Consolidated Statements of Cash Flows

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

1 unchanged sentence

$ ( 5,776 )  

$ 9,369  

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

6 unchanged sentences

Deferred income taxes

Provision (recovery) for credit losses

( 2,020 )  

Provision (recovery) for doubtful accounts

Provision for inventory

1 unchanged sentence

Accounts receivable

( 3,103 )  

( 1,541 )  

Prepaid expenses, other current and long-term assets

( 948 )  

Accounts payable

Operating lease liabilities

( 764 )  

Accrued expenses, other current and long-term liabilities

Net cash used in operating activities

( 1,169 )  

Net cash provided by operating activities

Cash flows from investing activities:

2 unchanged sentences

Purchases of property and equipment

Net cash (used in) provided by investing activities

( 3,266 )  

Net cash used in investing activities

( 3,266 )  

Cash flows from financing activities:

Payments made on finance leases

( 53 )  

Cash paid for tax withheld on vested restricted stock awards

( 870 )  

Proceeds from exercises of equity awards

Payments made on finance leases

Net cash used in financing activities

Net cash (used in) provided by financing activities

( 908 )  

Exchange rate impact on cash

Decrease in cash and cash equivalents

( 39 )  

(Decrease)/Increase in cash and cash equivalents

( 2,994 )  

Cash and cash equivalents at beginning of period

6 unchanged sentences

Non-cash investing activities:

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

Right-of-use assets obtained in exchange for operating lease liabilities

$ 11,589  

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

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

ANIKA THERAPEUTICS, INC.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share amounts or as otherwise noted)

2 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.

(“Arthrosurface”), a company specializing in less invasive, bone preserving partial and total joint replacement solutions.

These acquisitions broadened the Company's product portfolio, developed over its 30 years of expertise in hyaluronic acid technology, into joint preservation and restoration space with higher market potential, added new revenue streams, increased and accelerated its commercial capabilities, diversified its revenue base, and expanded its product pipeline and research and development expertise.

These acquisitions broadened the Company’s product portfolio, developed over its 30 years of expertise in hyaluronic acid technology, into the broader joint preservation and restoration market with greater market potential, added high-growth revenue streams, increased the Company’s 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 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.

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There continue to be uncertainties regarding the pandemic of the novel coronavirus (“COVID- 19”

), and the Company is closely monitoring the impact of COVID- 19 on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and broader impact on elective surgeries.

The Company is unable to predict the specific impact that COVID- 19 may have on its financial position and operations moving forward due to the numerous uncertainties.

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Basis of Presentation

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

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

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10 -K for the year ended December 31, 2021.

The results of operations for the three -month period ended March 31, 2022 are not indicative of the results to be expected for the year ending December 

The results of operations for the three -month and six -month periods ended June 30, 2022, 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 as of March 31, 2022 was its President and Chief Executive Officer.

The Company’s chief operating decision maker is its President and Chief Executive Officer as of June 30, 2022.

Based on the criteria established by Accounting Standards Codification 280,  

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

The unobservable inputs used in the fair value determination are 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 as of March 31, 2022 ranged from 3.2 % - 4.1 %.

The weighted average cost of capital was 11.5 % as of March 31, 2022.

The deferred consideration related to certain purchase price holdbacks was resolved within one year of the acquisition date in accordance with the Parcus Merger.

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

As of March 31, 2022, the net sales related contingent consideration amounted to $ 4.3 million which was included in current liabilities.

As of March 31, 2022 the Company did not expect any further milestones to be achieved.

As of June 30, 2022, the net sales related contingent consideration amounted to $ 4.3 million which was included in current liabilities and the Company does not expect any further milestones to be achieved.

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

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The Company paid $ 5.0 million in October 2020 and $ 10.0 million in July 2021 based upon the achievement of two distinct regulatory milestones.

As of December 31, 2021, there were no milestones remaining.

As of June 30, 2022, there were no milestones remaining.

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

38 unchanged sentences

Contingent consideration related to the previously described business combinations are classified within Level 3 of the fair value hierarchy as the determination of fair value uses considerable judgement and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability.

There were no transfers between fair value levels during the three -month periods ended March 31, 2022 or 2021.

See Note 3, Business Combinations for additional discussion of contingent consideration as of March 31, 2022.

The classification of the Company’s cash equivalents and other current liabilities within the fair value hierarchy was as follows:

Active Markets  

for Identical Assets  

There were no transfers between fair value levels during the six -month periods ended June 30, 2022 or 2021.

See Note 3, Business Combinations for additional discussion of contingent consideration as of June 30, 2022.

Active Markets

Significant Other

for Identical Assets

Observable Inputs

Unobservable Inputs

March 31, 2022

June 30, 2022

Amortized Cost

8 unchanged sentences

$ 4,315  

Active Markets  

for Identical Assets

Active Markets

Significant Other

for Identical Assets

Observable Inputs

11 unchanged sentences

$ 4,315  

Contingent Consideration

The following table provides a rollforward of the contingent consideration related to business acquisitions discussed in Note 3, Business Combinations

Three Months Ended March 31,

Six Months Ended June 30,

Balance, beginning

24 unchanged sentences

$ 55,054  

Inventories are stated net of inventory reserves of approximately $ 6.9 million and $ 9.1 million, as of March 31, 2022 and December 31, 2021, respectively.

Inventories are stated net of inventory reserves of $ 7.2 million and $ 9.1 million as of June 30, 2022 and December 31, 2021, respectively.

Intangible Assets

Intangible assets as of March 31, 2022 and December 31, 2021 consisted of the following:

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Currency Translation

20 unchanged sentences

$ 82,382  

The aggregate amortization expense related to intangible assets was $ 1.9 million for the three -month periods ended March 31, 2022 and 2021.

The aggregate amortization expense related to intangible assets was $ 1.9 million and $ 2.0 million for the three -month periods ended June 30, 2022 and 2021, respectively, and $ 3.9 million for each of the six -month periods ended June 30, 2022 and 2021.

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 three -month ended March 31, 2022 were as follows:

Three Month Ended

March 31, 2022

Changes in the carrying value of goodwill for the six months ended June 30, 2022 were as follows:

Six Month Ended June 30, 2022

Balance, beginning

3 unchanged sentences

$ 7,169  

Accrued Expenses

Accrued expenses consist of the following:

The Company leases its buildings and manufacturing facilities under operating leases.

As of June 30, 2022, the Company had real estate leases in Bedford, Massachusetts, Franklin, Massachusetts, Sarasota, Florida, Warsaw, Indiana and Padova, Italy.

In June 2022, the Company finalized renewal options to extend the current term of its leases for its building and manufacturing facility in Bedford as well as its two facilities in Sarasota.

With the extension of these renewal options, the Bedford lease term extends to 2027 with several lease renewal options into 2038 and the two leases in Sarasota extend to 2027 but may be extended by mutual agreement.

The Sarasota leases also include a right to terminate in 2025 at the Company’s option.

The current term of the Franklin lease extends to 2023 and the current term of the Padova lease extends to 2032, with a right to terminate at the Company’s option without penalty.

The following table summarizes the Company’s significant commitments under lease agreements as of June 30, 2022:

Operating Leases

Financing Leases

2022 (Remainder of Year)

$ 1,304  

$ 1,370  

27,873  

Present value adjustment

( 9,636 )  

Present value of lease payments

31,474  

31,713  

Less current portion included in accrued expenses and other current liabilities

( 1,742 )  

( 132 )  

Total lease liabilities

$ 29,732  

$ 29,839  

During the three and six months ended June 30, 2022, the Company incurred lease expense of $ 0.6 million and $ 1.3 million, respectively.

During the three and six months ended June 30, 2021, the Company incurred lease expense of $ 0.7 million and $ 1.3 million, respectively.

As of June 30, 2022, the weighted average remaining operating lease term was 15.2 years and the weighted average incremental borrowing rate used to determine the operating lease liability was 3.6 %.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

June 30, 

December 31, 

Compensation and related expenses

2 unchanged sentences

Professional fees

Operating lease liability - current

Operating lease liability –

Clinical trial costs

Financing lease liability - current

Financing lease liability –

$ 16,951  

7 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 March 31, 2022 or December 31, 2021 and has no history of claims paid.

The Company had no accrued warranties as of June 30, 2022 or December 31, 2021 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.

7 unchanged sentences

Revenue by product family was as follows: 

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

OA Pain Management

1 unchanged sentence

$ 24,321  

$ 48,474  

$ 43,637  

Joint Preservation and Restoration

1 unchanged sentence

11,884  

Non-Orthopedic

24,234  

24,103  

Revenue from the Company’s sole significant customer, DePuy Synthes Mitek Sports Medicine, part of the Johnson & Johnson Medical Companies, as a percentage of the Company’s total revenue was 39 % and 41 % for the three months ended March 31, 2022 and 2021, respectively.

The Company receives payments from its customers based on billing schedules established in each contract.

Up-front payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements.

Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

Deferred revenue was $ 0.3 million and $ 1.0 million as of March 31, 2022 and December 31, 2021, respectively.

Total revenue by geographic location based on the location of the customer in total and as a percentage of total revenue were as follows: 

Three Months Ended March 31,

Non-Orthopedics

$ 39,657  

$ 38,145  

$ 76,350  

$ 72,437  

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 45 % and 46 % for the three months ended June 30, 2022 and 2021, respectively, and 42 % and 44 % for the six months ended June 30, 2022 and 2021, respectively

The Company receives payments from our customers based on billing schedules established in each contract.

Up-front payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements.

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

Deferred revenue was $ 0.3 million and $ 1.0 million as of June 30, 2022 and December 31, 2021, respectively.

Total revenue by geographic location was as follows:

Three Months Ended June 30,

Percentage of

6 unchanged sentences

$ 38,145  

Six Months Ended June 30,

Percentage of

Geographic Location:

United States

$ 56,459  

$ 55,074  

11,088  

10,570  

$ 76,350  

$ 72,437  

Equity Incentive Plan

1 unchanged sentence

The Anika Therapeutics, Inc.

2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and subsequently amended on June 18, 2019, June 16, 2020 and June 16, 2021.

2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and subsequently amended on June 18, 2019, June 16, 2020, June 16, 2021 and June 8, 2022.

On June 8, 2022, the Company’s stockholders approved an amendment to the 2017 Plan increasing the number of shares by 250,000 shares from 4.6 million shares to 4.85 million shares.

The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards, 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.

1 unchanged sentence

Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 4.85 million shares of common stock may be issued under the 2017 Plan.

There were 0.9 million shares available for future grant at March 31, 2022 under the 2017 Plan.

There were 1.2 million shares available for future grant at June 30, 2022 under the 2017 Plan.

The Anika Therapeutics, Inc.

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

There were 70,591 shares available for future grant at March 31, 2022 under the Inducement Plan.

There were 4,883 shares available for future grant at June 30, 2022 under the Inducement Plan.

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.

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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 March 31,

Cost of revenue

Research and development

Selling, general and administrative

Three Months Ended June 30,

Six Months Ended June 30,

Cost of product revenue

Research & development

Selling, general & administrative

Total stock-based compensation expense

1 unchanged sentence

$ 2,797  

 Stock Options

$ 6,626  

$ 5,056  

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 or, in the case of premium options, are granted with an exercise price at 110 % of the market price of the Company’s common stock on the date of grant.

18 unchanged sentences

$ 44.25  

Outstanding as of March 31, 2022

Outstanding as of June 30, 2022

1,509,406  

$ 35.53  

Vested, March 31, 2022

Vested, June 30, 2022

459,732  

$ 40.07  

Vested or expected to vest, March 31, 2022

Vested or expected to vest, June 30, 2022

1,509,406  

$ 35.53  

The aggregate intrinsic value of options exercised for the three -month period ended March 31, 2021 was immaterial.

The Company granted 416,197 stock options during the three -month ended March 31, 2022, of which 382,201 shares were premium-priced options.

The aggregate intrinsic value of options exercised for the six -month period ended June 30, 2022 was immaterial.

The Company granted 464,775 stock options during the six -month ended June 30, 2022, of which 382,201 shares were premium-priced options.

As of June 30, 2022, there was $ 10.4 million of unrecognized compensation cost related to unvested stock options.

This expense is expected to be recognized over a weighted average period of 2.0 years.

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

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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.

There were 104,638 TSRs as of March 31, 2022.

 The assumptions used in the Black-Scholes pricing model for options granted during the three months ended March 31, 2022 and 2021, along with the weighted-average grant-date fair values, were as follows:

Three Months Ended

There were 104,638 TSRs as of June 30, 2022.

The assumptions used in the Black-Scholes pricing model for options granted during the six months ended June 30, 2022 and 2021, along with the weighted-average grant-date fair values, were as follows:

Six Months Ended June 30,

Risk free interest rate

Expected volatility

1.3% - 3.0%  

0.3% - 0.6%  

Expected volatility

53.8 % - 55.2 %  

54.8 % - 55.9 %  

Expected life (years)

1 unchanged sentence

Fair value per option

$ 11.37  

$ 13.90  

As of March 31, 2022, there was $ 11.8 million of unrecognized compensation cost related to unvested stock options.

This expense is expected to be recognized over a weighted average period of 2.1 years.

Restricted Stock Units

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

RSU activity for the three -month period ended March 31, 2022 was as follows:

RSU activity for the six -month period ended June 30, 2022 was as follows:

Number of Shares

10 unchanged sentences

$ 33.75  

Outstanding as of March 31, 2022

Outstanding as of June 30, 2022

720,387  

$ 28.78  

The weighted-average grant-date fair value per share of RSUs granted was $ 34.07 for the three -month ended March 31, 2021.

The total fair value of RSUs vested was $ 3.3 million and $ 2.1 million for the three months period ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, there was $ 18.4 million of unrecognized compensation cost related to time-based RSUs, which was expected to be recognized over a weighted-average period of 2.4 years.

The weighted-average grant-date fair value per share of RSUs granted was $ 34.99 for the six -month ended June 30, 2021.

The total fair value of RSUs vested was $ 5.4 million and $ 3.5 million for the six -month periods ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, there was $ 17.6 million of unrecognized compensation cost related to time-based RSUs, which was expected to be recognized over a weighted-average period of 2.2 years.

Performance Stock Units

PSU activity for the three -month ended March 31, 2022 was as follows:

PSU activity for the six -month ended June 30, 2022 was as follows:

Number of Shares

10 unchanged sentences

$ 41.86  

Outstanding as of March 31, 2022

Outstanding as of June 30, 2022

117,897  

$ 34.98  

The total fair value of PSUs vested was $ 0.6 million for the three -month period ended March 31, 2022.

As of March 31, 2022, none of the milestones related to the outstanding PSUs were expected to be achieved.

Employee Stock Purchase Plan

On March 17, 2021, the Company adopted the 2021 Employee Stock Purchase Plan (“ESPP”).

The ESPP is authorized to issue up to 200,000 shares of common stock to participating employees.

Employees that participate in the Company’s ESPP may purchase up to a maximum of 800 shares per six -month offering period or $ 25,000 worth of common stock per calendar year by authorizing payroll deductions of up to 10 % of their base salary.

The purchase price for each share purchased is 85 % of the lower of the fair market value of the common stock on the first or last day of the offering period.

The Company uses the Black-Scholes pricing model to determine the fair value of shares purchased under the ESPP.

The calculation of the fair value of shares purchased is affected by the stock price on the grant date, the expected volatility of the Company’s stock over the expected term and the risk-free interest rate.

The estimated fair value of shares purchased under the ESPP were based on the following assumptions:

Risk-free interest rate

Expected stock price volatility

Expected life of options (in years)

Expected dividend yield

The Company recorded an income tax benefit of $ 0.8 million for the three -month period ended March 31, 2022, resulting in an effective tax rate of 20.9 %.

The income tax benefit was $ 1.6 million for the three -month period ended March 31, 2021, based on an effective tax rate of ( 133.6 %).

The net change in the effective tax rate for the three -month period ended March 31, 2022, as compared to the same period in 2021, was primarily due to the discrete tax benefit on the decrease in the fair value of contingent consideration that occurred in the first quarter of 2021.

The Company’s effective tax rate for the first quarter of 2022 primarily reflects statutory rates, offset partially by a reduction of stock compensation related tax deductions.

The total fair value of PSUs vested was $ 0.6 million and $ 0 for the six -month period ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, none of the milestones related to the outstanding PSUs were expected to be achieved.

The Company recorded an income tax benefit of $ 0.4  million and $ 1.2  million for the 

three - and 

six -month periods ended 

June 30, 2022, 

resulting in effective tax rates of 

13.5 % and 

17.4 %, respectively.

The Company recorded income tax expense of $ 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 decrease in the effective tax rate for the 

three -month period ended 

June 30, 2022 ,  as compared to the same period in 

2021 ,  was primarily due to $ 0.7 million recorded as tax expense for the change in the fair value of contingent consideration, recognized as a discrete charge in the second quarter of 2021 and a discrete charge of $ 0.6 million during second quarter of 2022 related to non-deductible stock compensation.

The increase in the effective tax rate for the 

six -month period ended 

June 30, 2022 ,  as compared to the same period in 

2021 ,  was primarily due to the year-to-date net tax benefit in 2021 on the change in the fair value of contingent consideration, in the amount of $ 1.1 million resulting in a net decrease in the effective tax rate for the six -month period ended June 30, 2021.

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

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On December 31, 2021, the Company released a valuation allowance that had been previously recorded related to its net deferred tax assets in Italy in the amount of $ 0.9 million.

The Company did not record a valuation allowance on its deferred tax balances as of March 31, 2022.

The Company did not record a valuation allowance on its deferred tax balances as of June 30, 2022.

Earnings Per Share ( “

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

Three Months Ended March 31,

Shares used in the calculation of basic EPS

Three Month Period Ended June 30,

Six Months Ended June 30,

Shares used in the calculation of basic earnings per share

14,555  

14,393  

14,511  

14,368  

Effect of dilutive securities:

Share based awards

Diluted shares used in the calculation of EPS

Share-based payment awards

Diluted shares used in the calculation of earnings per share

14,555  

14,627  

The Company had a net loss during the three -month ended March 31, 2022, and therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS.

Stock options of 1.2 million shares were outstanding for the three -month periods ended March 31, 2021 and were not included in the computation of diluted EPS because the awards’

14,511  

14,583  

The Company had a net loss during the three and six -months ended June 30, 2022, and therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS.

Stock options of 1.1 million shares were outstanding for the six -month period ended June 30, 2021, respectively, 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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Prioritized investment in differentiated pipeline of regenerative solutions, bone preserving implants and sports medicine soft tissue repair products;

Leveraging our global commercial expertise to drive growth across the portfolio, with an intentional and increased focus on the ambulatory surgery centers site of care in the United States;

Leveraging our global commercial expertise and building out our capabilities to drive growth across the portfolio, with an intentional and increased focus on the ambulatory surgery centers site of care in the United States;

Opportunity to pursue strategic inorganic growth opportunities, including potential partnerships and smaller acquisitions, technology licensing, and leveraging our strong financial foundation and operational capabilities;

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We have had some disruption in our ability to supply products to our customers due to supply chain disruptions and staffing shortages which has caused back orders or delays in certain shipments to our customers.

The companies that produce our products, product components or otherwise support our manufacturing processes, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers, including third parties that sterilize and store our products, are or could be disrupted, temporarily close or experience worker shortages for a sustained period of time.

To date, we believe we have taken adequate precaution to mitigate the impact of the current disruption of key materials, components and parts to the extent possible and reasonable.

We expect, however, the current supply chain disruption with certain key suppliers to continue, which could have a material adverse effect on our operations.

For additional information on the impact of supply chain disruption related to the COVID-19 pandemic on our manufacturing operations, please refer to the section captioned “Part II, Item 1A.

Risk Factors.

Our commercial day-to-day operations have been impacted due to the worldwide cancellations and/or delays of elective procedures and restrictions on travel for both our employees and our clinician customers, and timelines associated with certain clinical studies and research and development programs have been delayed.

The impact of these challenges are currently unknown, but could be significant.

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 or other challenges associated with infections, staffing shortages, volatility in elective surgical procedures or supply chain disruptions due to COVID-19 and its current or new variants in certain jurisdictions. In particular, supply constraints that have continued into 2022 that we have partially been able to mitigate to date could be expected to impact our ability to produce and supply our products.

The impact of these challenges is currently unknown, but could be significant.

OA Pain Management

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Cingal, our novel, third-generation, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a fast-acting steroid.

Cingal is designed to provide both short- and long-term pain relief.

Cingal is designed to provide both short- and long-term pain relief.

Cingal is CE Mark approved and for several years has been sold outside the United States directly in over 30 countries through our network of distributors.

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Results of Operations

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Three Months Ended March 31,

Three and Six Months Ended June 30, 2022 Compared to Three and Six Months Ended June 30, 2021

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except percentages)

Cost of revenue

Operating expenses:

Research and development

Selling, general and administrative

Research & development

Selling, general & administrative

Change in fair value of contingent consideration

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(Loss) income before income taxes

Benefit from for income taxes

(Benefit from) provision for income taxes

Net (loss) income

Revenue for the three-month period ended March 31, 2022 was $36.7 million, an increase of $2.4 million as compared to $34.3 million for the three-month period ended March 31, 2021.

The increase in revenue was primarily driven by continued recovery from the impact of the COVID-19 pandemic on sales volumes and ordering patterns.

Three Months Ended March 31,

(in thousands, except percentages)

Revenue for the three-month period ended June 30, 2022 was $39.7 million, an increase of $1.6 million as compared to $38.1 million for the three-month period ended June 30, 2021.

Revenue for the six-month period ended June 30, 2022 was $76.4 million, an increase of $4.0 million as compared to $72.4 million for the six-month period ended June 30, 2021.

For the three- and six-month periods ended June 30, 2021, the increases in revenue were mainly due an increase in OA Pain Management revenues, primarily related to the continued recovery from the impact of the COVID-19 pandemic on global sales volumes as well as favorable timing of ordering patterns from international distributors and strategic partners.

The following tables present product revenue by product family:

Three Months Ended June 30,

OA Pain Management

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Non-Orthopedic

Revenue from our OA Pain Management product family increased 18% for the three-month period ended March 31, 2022, as compared to the same period in 2021, due primarily to continued recovery from the impact of the COVID-19 pandemic on global sales volumes and strategic partner and distributor ordering patterns which can vary significantly on a quarterly basis.

Revenue from our Joint Preservation and Restoration product family decreased 1% for the three-month period ended March 31, 2022, as compared to the same period in 2021, due primarily to the impact of limitations on access to customers during the early part of the quarter due to a surge in COVID-19 cases caused by a new variant.

Revenue from our Non-Orthopedic product family decreased 34% for the three-month ended March 31, 2022, as compared to the same period in 2021, primarily due to timing of distributor sales as well as due to higher revenues from certain legacy products related to end-of-life purchases during the first quarter of 2021.

Six Months Ended June 30,

OA Pain Management

Joint Preservation and Restoration

Non-Orthopedic

Revenue from our OA Pain Management product family increased 6% and 11%, respectively, for the three-month and six-month periods ended June 30, 2022, as compared to the same periods in 2021, due primarily to continued recovery from the impact of the COVID-19 pandemic on global sales volumes as well as favorable timing of ordering patterns from international distributors and strategic partners which can vary significantly on a quarterly basis.

Revenue from our Joint Preservation and Restoration product family increased 2% and 1%, respectively, for the three-month and six-month periods ended June 30, 2022, as compared to the same periods in 2021, due primarily to recovery in elective procedures from the COVID-19 pandemic, which however remained limited due in part to constraints on staffing.

Revenue from our Non-Orthopedic product family decreased 6% and 22%, respectively, for the three-month and six-month periods ended June 30, 2022, respectively, as compared to the same periods in 2021, primarily due to timing of distributor sales as well as due to higher revenues in 2021 from certain legacy products related to end-of-life purchases.

Gross Profit and Margin

Gross profit for the three-month period ended March 31, 2022 increased $0.8 million to $21.8 million, representing a 59% gross margin for the period as compared to 61% in the prior year.

The increase in gross profit for the three-month period ended March 31, 2022, as compared to the same period in 2021, was primarily resulted from increased revenue.

Gross margin for the three-month period ended March 31, 2022, decreased compared to the same period of prior year due primarily to unfavorable production volumes caused partially by supply chain and staffing challenges, due largely to the impact of the COVID-19 pandemic, and increased inventory reserves.

The gross margin included the impact of inventory step-up associated with the Arthrosurface and Parcus Medical acquisitions, as well as acquisition-related amortization expenses, which together increased cost of revenue by $1.6 million, or 5 points of gross margin, for the three-month period ended March 31, 2022, as compared to increased cost of revenue of $4.1 million, or 12 points of gross margin, for the same period in 2021.

Gross profit for the three -and six -month periods ended June 30, 2022 increased $4.1 million and $4.9 million, to $24.9 million and $46.7 million, respectively.

Gross profit for the three- and six-month periods ended June 30, 2021, was $20.8 million and $41.8 million, respectively.

The increases in gross profit for the three-month and six-month periods ended June 30, 2022, as compared to the same period in 2021 were primarily due to increased revenue as well as the impact of inventory step-up charges associated with the acquisitions of Arthrosurface and Parcus Medical in 2021 and product rationalization charges taken in the second quarter of 2021.

Gross margin for the three- and six-month periods ended June 30, 2022 was 63% and 61%, respectively.

Gross margin for the three- and six-month periods ended June 30, 2021 was 55% and 58%, respectively.

The increases to gross margin for the three-month and six-month periods ended June 30, 2022 was due primarily to the unfavorable impact of inventory step-up charges associated with the Arthrosurface and Parcus Medical in 2021 and product rationalization charges taken in the second quarter of 2021.

Research and Development

Research and development expenses for the three-month period ended March 31, 2022 were $6.2 million, a decrease of $0.2 million as compared to the same period in 2021.

This decrease was primarily due to lower clinical trial activity.

Research and development expenses for the three- and six-month periods ended June 30, 2022 were $7.0 million and $13.1 million, a decrease of $0.3 million and $0.6 million respectively as compared to the same period in 2021.

The decreases for the three-month and six-month periods ended June 30, 2022 was primarily due to lower clinical trial spending, primarily on Cingal pilot study which is expected to be complete in 2022.

Selling, General and Administrative

Selling, general and administrative expenses for the three-month period ended March 31, 2022 were $19.2 million, an increase of $1.0 million, as compared to the same period in 2021.

This increase for the three-month period ended March 31, 2022 was due to expansion of our commercial capabilities in the United States and expanded marketing activities and other operational capabilities to support the growing business needs.

Selling, general and administrative, or SG&A expenses for the three- and six-month periods ended June 30, 2022 were $21.3 million and $40.5 million representing an increase of $3.3 million and $4.3 million, respectively as compared to the same period in 2021.

This increase in SG&A expense for the three-month and six-month periods ended June 30, 2022, was primarily due to expansion of our commercial capabilities in the United States and expanded marketing activities and other operational capabilities to support the growing business needs.

Certain marketing and medical education activities also were more limited in 2021 due to the COVID-19 pandemic.

The increase in SG&A expense was also due to higher stock-based compensation expense in 2022 driven by additional headcount associated with the Company’s strategic transformation that accelerated in 2020 and 2021.

Contingent Consideration Fair Value Change

The fair value of contingent consideration as of March 31, 2022 did not change compared to December 31, 2021.

In the three-month period ended March 31, 2021, the fair value of our contingent consideration liabilities decreased by $4.8 million resulting in a non-cash benefit to net income recorded in that period.

The benefit from income taxes was $0.8 million for the three-month period ended March 31, 2022, resulting in an effective tax rate of 20.9%.

The benefit from income taxes was $1.6 million for the three-month period ended March 31, 2021, resulting in an effective tax rate of (133.6%).

The net change in the effective tax rate for the three-month period ended March 31, 2022, as compared to the same period in 2021, was primarily due to the discrete tax benefit on the decrease in the fair value of contingent consideration that occurred in the first quarter of 2021.

Our effective tax rate for the first quarter of 2022 primarily reflects statutory rates, offset partially by a reduction of stock compensation related tax deductions.

The fair value of contingent consideration as of June 30, 2022 did not change compared to December 31, 2021.

During the three-month and six-month periods ended June 30, 2021, the change in the fair value of contingent consideration liabilities was $13.7 million and $18.5 million, respectively, resulting in a non-cash benefit to net income.

The benefit from income taxes was $0.4 million and $1.2 million for the three- and six-month periods ended June 30, 2022, resulting in effective tax rates of 13.5% and 17.4%, respectively.

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 decrease in the effective tax rate for the three-month period ended June 30, 2022 ,  as compared to the same period in 2021 ,  was primarily due to $0.7 million recorded as tax expense for the change in the fair value of contingent consideration, recognized as a discrete charge in the second quarter of 2021 and a discrete charge of $0.6 million during second quarter of 2022 related to non-deductible stock compensation.

The increase in the effective tax rate for the six-month period ended June 30, 2022 ,  as compared to the same period in 2021 ,  was primarily due to the year to date net tax benefits in 2021 on the change in the fair value of contingent consideration, in the amount of $1.1 million resulting in a net decrease in the effective tax rate for the six-month period ended June 30, 2021.

Net (Loss) Income

For the three-month period ended March 31, 2022, net loss was $2.9 million, or $0.20 per diluted share, compared to net income of $2.8 million, or $0.20 per diluted share, for the same period in prior year.

The decrease in net income and diluted earnings per share was primarily due to the nonrecurring gain recorded in the first quarter of 2021 related to the change in fair value of contingent consideration, as well as increased spending to expand our commercial capability in the United States, partially offset by increased revenue.

For the three and six-month period ended June, 2022, net loss was $2.8 million and $5.8 million, or $0.20 per diluted share and $0.44 per diluted share, respectively, compared to net income of $6.5 million and $9.4 million, or $0.45 per diluted share and $0.64 per diluted share, for the same periods in prior year.

The decrease in net income and diluted earnings per share was primarily due to gains recorded in the three-month and six-month periods ended June 30, 2021 related to the change in fair value of contingent consideration, as well as increased spending to expand our commercial capability in the United States, partially offset by increased revenue.

Non-GAAP Financial Measures

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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-month periods ended March 31, 2022 and 2021, respectively:

Three-Month Periods Ended March 31,

The following is a reconciliation of adjusted gross profit to gross profit for the three- and six-month periods ended June 30, 2022 and 2021, respectively:

For the Three Months Ended

For the Six Months Ended

Product rationalization related charges

Acquisition related intangible asset amortization

2 unchanged sentences

Adjusted Gross Margin

Adjusted gross profit for the three-month period ended March 31, 2022 decreased $1.8 million to $23.4 million representing adjusted gross margin of 64%.

Adjusted gross profit for the three-month period ended March 31, 2021 was $25.1 million, or adjusted gross margin of 73%.

This decrease in adjusted gross profit and adjusted gross margin for the three-month period ended March 31, 2022 as compared to 2021, is due primarily to unfavorable production volumes and increased inventory reserves caused in part by supply chain and staffing challenges, due largely to the impact of the COVID-19 pandemic.

Adjusted EBITDA

We present information below with respect to adjusted EBITDA, which we define as our net income (loss) excluding interest and other expense, net, income tax benefit, depreciation and amortization, stock-based compensation, and acquisition-related expenses.

We have also excluded the impact of changes in the fair value of contingent consideration associated with our acquisition transactions in early 2020.

Adjusted gross profit for the three- and six-month periods ended June 30, 2022 decreased $0.2 million and $2.0 million to $26.4 million and $49.8 million, respectively, representing 67% and 65% of revenue.

Adjusted gross profit for the three- and six-month periods ended June 30, 2021 was $26.6 million and $51.8 million, respectively, or 70% and 71% of revenue for the periods, respectively.

The decrease in adjusted gross profit for the three- and six-month periods ended June 30, 2022, was primarily due to unfavorable revenue mix and production inefficiencies caused in part by supply chain and staffing challenges.

Adjusted EBITDA  

We present information below with respect to adjusted EBITDA, which we define as our net income (loss) excluding interest and other income, net, income tax benefit (expense), depreciation and amortization, stock-based compensation, product rationalization, and acquisition related expenses.

In light of the COVID-19 pandemic, we have also excluded the impacts of goodwill impairment charges and changes in the fair value of contingent consideration associated with our acquisition transactions in early 2020.

Adjusted EBITDA is not prepared in accordance with US GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with US GAAP.

There are a number of limitations related to the use of adjusted EBITDA rather than net (loss) income, which is the nearest US GAAP equivalent.

There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the nearest US GAAP equivalent.

Some of these limitations are:

adjusted EBITDA excludes depreciation and amortization, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;

we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position;

we exclude acquisition related expenses, including, amortization and depreciation of acquired assets in recent acquisitions, and the impact of inventory fair-value step up on cost of revenue;

we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our employee compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses likely would be higher, which would affect our cash position;

we exclude acquisition related expenses, including transaction costs and other related expenses, amortization and depreciation of acquired assets in recent acquisitions, and the impact of inventory fair-value step up on cost of revenue;

we exclude certain impairment charges, including certain product rationalization charges as a result of managing our financial position in light of our recent acquisitions, the impact of COVID-19 and changing regulatory requirements;

we exclude goodwill impairment charges and changes in the fair value of contingent consideration;

the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;

The following is a reconciliation of adjusted EBITDA to net (loss) income for the three-month periods ended March 31, 2022 and 2021, respectively:

Three Months Ended March 31,

(in thousands)

adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

adjusted EBITDA does not reflect (benefit from) provision for income taxes or the cash requirements to pay taxes; and

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, 2022 and 2021, respectively:

For the Three Months Ended

For the Six Months Ended

Net (loss) income

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Share-based compensation

Product rationalization

Acquisition related intangible asset amortization

2 unchanged sentences

Adjusted EBITDA

Adjusted EBITDA in the three-month period ended March 31, 2022 decreased $2.2 million as compared with the same period in 2021.

The decrease in adjusted EBITDA for the period was primarily due to lower adjusted gross profit, from unfavorable production volumes and increased inventory reserves caused in part by supply chain and staffing challenges due largely to the impact of the COVID-19 pandemic, as well as increased commercial spending to support future growth as certain marketing and medical education activities were more limited in 2021.

Adjusted Net (Loss) Income and Adjusted EPS

We present information below with respect to adjusted net (loss) income and adjusted EPS.

We define adjusted net (loss) income as our net (loss) income excluding amortization and depreciation of acquired assets, the impact of inventory fair-value step up on cost of revenue and changes in the fair value of contingent consideration, on a tax effected basis.

Adjusted EBITDA for the three-month period ended June 30, 2022, decreased $1.7 million as compared with the same period in 2021.

The decrease in adjusted EBITDA for the period was primarily due to increased commercial spending to support future growth as certain marketing and medical education activities were more limited in 2021.

Adjusted EBITDA for the six-month period ended June 30, 2022, decreased $3.9 million as compared with the same period in 2021.

The decrease in adjusted EBITDA for the period was primarily due to lower adjusted gross profit, from unfavorable revenue mix and production inefficiencies caused in part by supply chain and staffing challenges, as well as an increase in operating expenses primarily attributable to expansion of our commercial capability in the United States.

Adjusted Net Income (Loss) and Adjusted EPS

We present information below with respect to adjusted net income (loss) and adjusted EPS.

We define adjusted net income (loss) as our net income (loss) excluding acquisition-related expenses, amortization and depreciation of acquired assets, the impact of inventory fair-value step up on cost of revenue and the impacts of goodwill impairment charges and changes in the fair value of contingent consideration, as well as certain impairment charges, including product rationalization charges, on a tax effected basis.

Acquisition related expenses are those that we would not have incurred except as a direct result of acquisition transactions.

Acquisition related expenses consist of investment banking, legal, accounting, and other professional and related expenses.

The amortized assets contribute to revenue generation, and the amortization of such assets will recur in future periods until such assets are fully amortized.

These assets include the estimated fair value of certain identified assets acquired in acquisitions, including in-process research and development, developed technology, customer relationships and acquired tradenames.

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

 The following is a reconciliation of adjusted net (loss) income to net (loss) income for the three-month periods ended March 31, 2022 and 2021, respectively:

Three Months Ended March 31,

(in thousands)

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 (loss) to net income (loss) for the three- and six-month periods ended June 30, 2022 and 2021, respectively:

For the Three Months Ended June 30,

For the Six Months Ended 

Net (loss) income

Acquisition related intangible asset amortization, tax effected

Product rationalization, tax effected

Acquisition related intangible asset amortization;

Acquisition related inventory step up, tax effected

Change in fair value contingent consideration, tax effected

Change in fair value of contingent consideration, tax effected

Adjusted net (loss) income

The following is a reconciliation of adjusted diluted EPS to diluted EPS for the three-month periods ended March 31, 2022 and 2021, respectively:

Three Months Ended March 31,

Diluted (loss) earnings per share

Acquisition related intangible asset amortization, tax effected

The following is a reconciliation of adjusted EPS to diluted earnings (loss) per share for the three- and six-month periods ended June 30, 2022 and 2021:

For the Three Months Ended 

For the Six Months Ended 

Diluted (loss) earnings per share (EPS)

Product rationalization, tax effected

Acquisition related intangible asset amortization;

Acquisition related inventory step up, tax effected

Change in fair value contingent consideration, tax effected

Adjusted diluted (loss) earnings per share

Adjusted net (loss) income and adjusted diluted (loss) earnings per share in the three-month period ended March 31, 2022 decreased $2.3 million and $0.17, respectively, as compared with the same period in 2021.

The decrease for the period was primarily due to a lower adjusted gross profit, from unfavorable production volumes and increased inventory reserves caused in part by supply chain and staffing challenges due largely to the impact of the COVID-19 pandemic, as well as increased commercial spending to support future growth as certain marketing and medical education activities were more limited in 2021.

Change in fair value of contingent consideration, tax effected

Adjusted diluted (loss) earnings per share (EPS)

Adjusted net (loss) income and adjusted diluted (loss) income per share in the three-month period ended June 30, 2022 decreased by $3.0 million or $0.21, respectively, as compared with the same period in 2021.

The decrease for the period was primarily due to increased commercial spending to support future growth as certain marketing and medical education activities were more limited in 2021.

Adjusted net (loss) income in and adjusted diluted (loss) income per share the six-month period ended June 30, 2022, decreased $5.3 million or $0.36, as compared with the same period in 2021.

The decrease in adjusted net income for the period was primarily due to lower adjusted gross profit, from unfavorable revenue mix and production inefficiencies caused in part by supply chain and staffing challenges due largely to the impact of the COVID-19 pandemic, as well as an increase in selling and marketing expenses primarily attributable to increased cost to support our commercial capability in the United States and an increase in stock-based compensation expense driven by incremental headcount associated with the Company’s strategic transformation that accelerated in 2020 and 2021.

Liquidity and Capital Resources

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We continue to generate cash from operating activities and believe that our operating cash flows, cash currently on our condensed consolidated balance sheet and availability under our credit facility will be sufficient to allow us to continue to invest in our existing business, to manage our capital structure on a short and long-term basis, and to meet our anticipated operating cash needs.

Cash, cash equivalents, and investments aggregated $90.3 million and $94.4 million, and working capital totaled $138.3 million and $138.7 million, at March 31, 2022 and December 31, 2021, respectively.

Cash, cash equivalents, and investments aggregated $91.4 million and $94.4 million, and working capital totaled $138.4 million and $138.7 million, at June 30, 2022 and December 31, 2021, respectively.

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

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Subject to certain conditions, we may request up to an additional $75.0 million for a maximum aggregate commitment of $150.0 million.

As of March 31, 2022, and December 31, 2021, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

Summary of Cash Flows (in thousands):

Three Months Ended March 31,

As of June 30, 2022, and December 31, 2021, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

Six Months Ended June 30,

Cash provided by (used in)

4 unchanged sentences

Net (decrease) in cash and cash equivalents

The following changes contributed to the net change in cash and cash equivalents in the three-month period ended March 31, 2022 as compared to the same period in 2021.

The following changes contributed to the net change in cash and cash equivalents in the three-month period ended June 30, 2022 as compared to the same period in 2021.

Operating Activities

Cash used in operating activities was $1.9 million for the three-month period ended March 31, 2022, as compared to cash used in operating activities of $2.4 million for the same period in 2021.

The decrease in cash used in operating activities in 2021 was primarily due to an improvement in working capital attributable to timing of collections, decrease in inventories and lower income tax payments.

For the foreseeable future, we expect to continue to invest substantial resources in research and development for new products and clinical trials as well as continued investment in our commercial infrastructure to support our growth strategy.

Cash provided by operating activities was $1.2 million for the six-month period ended June 30, 2022, as compared to cash provided by operating activities of $1.9 million for the same period in 2021.

The decrease in cash provided operating activities in 2022 was primarily due to net loss incurred in 2022 and offset by an improvement in working capital attributable to timing of collections and inventory purchases and lower income tax payments.

For the foreseeable future, we expect to continue to invest substantial resources in research and development for new products and clinical studies as well as continued investment in our commercial infrastructure to support our growth strategy.

These costs will be funded with a combination of cash on hand and cash expected to be generated from future operations. 

Investing Activities

Cash used in investing activities was $1.3 million for the three-month period ended March 31, 2022, as compared to cash provided by investing activities of $1.7 million for the same period in 2021.

The change was primarily due to an increase in capital expenditures to support commercial growth of the business in the three-month period ended March 31, 2022 and proceeds from maturities of investments that occurred in 2021.

Cash used in investing activities was $3.3 million for the six-month period ended June 30, 2022, as compared to cash used in investing activities of $0.6 million for the same period in 2021.

The change was primarily due to an increase in capital expenditures to support commercial growth of the business in the six-month period ended June 30, 2022 and proceeds from maturities of investments that occurred in 2021.

Financing Activities

Cash used in financing activities was $0.9 million for the three-month period ended March 31, 2022, as compared to cash used in financing activities of $0.5 million for the same period in 2021.

In both periods, the cash used in financing activities was primarily attributable to utilization of cash for employee tax withholding in exchange for shares surrendered by equity award holders.

Cash used in financing activities was $0.9 million for the six-month period ended June 30, 2022, as compared to cash provided by financing activities of $0.1 million for the same period in 2021.

The change was primarily attributable to an increase in the utilization of cash for employee tax withholding in exchange for shares surrendered by equity award holders and lower stock option exercises in 2022.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

The preparation of our consolidated financial statements in conformity with US GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We believe that our accounting policies for revenue recognition, accounts receivable and allowance for credit losses, goodwill, acquired in-process research and development, inventory and contingencies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties.

We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future.

There have been no significant changes to the above critical accounting policies or in the underlying accounting assumptions and estimates used in such policies from those disclosed in our annual consolidated financial statements and accompanying notes included in our 2021 Form 10-K for the year ended December 31, 2021 We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future.

Changes in estimates are recorded in the period in which they become known.

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Recent Accounting Pronouncements

A discussion of Recent Accounting Pronouncements is included in our 2021 Form 10-K for the fiscal year ended December 31, 2021 and is updated in the Notes to the condensed consolidated financial statements included in this report.

A discussion of Recent Accounting Pronouncements is included in our 2021 Form 10-K for the fiscal year ended December 31, 2021.

Contractual Obligations and Other Commercial Commitments

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in our 2021 Form 10-K for the year ended December 31, 2021.

There were no material changes to our contractual obligations reported in our 2021 Form 10-K during the three months ended March 31, 2022.

There were no material changes to our contractual obligations reported in our 2021 Form 10-K during the six months ended June 30, 2022 other than changes in operating leases reported in Note 8.

For additional discussion, see Note 10 to the condensed consolidated financial statements included in this report.

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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