What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-03 compared with 2023-08-08 · 176 added, 142 removed, 543 unchanged (37% of the section changed)

4 unchanged sentences

(in thousands, except per share data)

September 30,

Current assets:

46 unchanged sentences

Preferred stock, $ 0.01 par value;

1,250 shares authorized, no shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

1,250 shares authorized, no shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

Common stock, $ 0.01 par value;

90,000 shares authorized, 14,816 issued and 14,657 outstanding and 14,625 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

90,000 shares authorized, 14,825 issued and 14,637 outstanding and 14,625 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

Additional paid-in-capital

16 unchanged sentences

(in thousands, except per share data)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Cost of revenue

4 unchanged sentences

Loss from operations

Interest and other income (expense), net

Interest and other income, net

Loss before income taxes

7 unchanged sentences

and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

Condensed Consolidated Statements of Stockholders ’

(in thousands, except per share data)

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Additional Paid

Other Comprehensive

Total Stockholders'

Total Stockholders ’

Balance, January 1, 2023

13 unchanged sentences

Balance, June 30, 2023

Six Months Ended June 30, 2022

Vesting of restricted stock units

Stock-based compensation expense

Repurchase of common stock

Retirement of common stock for minimum tax withholdings

Other comprehensive loss

Balance, September 30, 2023

Nine Months Ended September 30, 2022

Additional Paid

6 unchanged sentences

Retirement of common stock for minimum tax withholdings

Other comprehensive income

Other comprehensive loss

Balance, March 31, 2022

5 unchanged sentences

Balance, June 30, 2022

Vesting of restricted stock units

Stock-based compensation expense

Retirement of common stock for minimum tax withholdings

Other comprehensive loss

Balance, September 30, 2022

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

3 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

2 unchanged sentences

Non-cash operating lease cost

Loss on disposal of property and equipment

Stock-based compensation expense

17 unchanged sentences

Payments made on finance leases

Contingent consideration payout

Repurchases of common stock

32 unchanged sentences

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual financial statements filed with its Annual Report on Form 10 -K for the year ended December 31, 2022.

The results of operations for the three -month and six -month periods ended June 30, 2023 are not indicative of the results to be expected for the year ending December 31, 2023.

The results of operations for the three -month and nine -month periods ended September 30, 2023 are not indicative of the results to be expected for the year ending December 31, 2023.

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 June 30, 2023 was its President and Chief Executive Officer.

The Company’s chief operating decision maker as of September 30, 2023 was its President and Chief Executive Officer.

Based on the criteria established by Accounting Standards Codification 280, Segment Reportin g, the Company has one operating and reportable segment.

Accounts Receivable

Accounts Receivable, net

The Company estimates an allowance for credit losses with its accounts receivable resulting from the inability of its customers to make required payments, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

1 unchanged sentence

The components of the Company’s accounts receivable are as follows:

September 30,

Accounts Receivable

2 unchanged sentences

A summary of activity in the allowance for credit losses is as follows:

As of June 30,

As of September 30,

Balance, beginning of the period

7 unchanged sentences

For cash, accounts receivables, accounts payable, and accrued interest, the carrying amounts approximate fair value, because of the short maturity of these instruments, and therefore fair value information is not included in the table below.

There were no transfers between fair value levels during the six -month periods ended June 30, 2023 or 2022.

There were no transfers between fair value levels during the nine -month periods ended September 30, 2023 or 2022.

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

September 30,

for Identical

5 unchanged sentences

Inventories consist of the following:

September 30,

Raw materials

16 unchanged sentences

$ 56,489  

Inventories are stated net of inventory reserves of approximately $ 10.2 million and $ 9.9 million, as of June 30, 2023 and December 31, 2022, respectively.

Intangible Assets

Intangible assets as of June 30, 2023 and December 31, 2022 consisted of the following:

Six Months Ended June 30, 2023

Inventories are stated net of inventory reserves of approximately $ 11.5 million and $ 9.9 million, as of September 30, 2023 and December 31, 2022, respectively.

Intangible Assets, net

Intangible assets, net as of September 30, 2023 and December 31, 2022 consisted of the following:

Nine Months Ended September 30, 2023

Developed technology

$ 89,580  

$ 61,388  

$ 64,286  

Customer relationships

Distributor relationships

$ 112,136  

$ 70,707  

$ 74,599  

The aggregate amortization expense related to intangible assets was $ 2.0 million and $ 1.9 million for the three -month periods ended June 30, 2023 and 2022, respectively, and $ 3.9 million for each of the six -month periods ended June 30, 2023 and 2022, respectively.

The aggregate amortization expense related to intangible assets was $ 1.9 million for each of the three -month periods ended September 30, 2023 and 2022, respectively, and $ 5.8 million for each of the nine -month periods ended September 30, 2023 and 2022, 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, 2023 were as follows:

Six Months Ended

Changes in the carrying value of goodwill for the nine -months ended September 30, 2023 were as follows:

Nine Months Ended

September 30,

Balance, beginning of period

3 unchanged sentences

Accrued expenses consist of the following:

September 30,

Compensation and related expenses

1 unchanged sentence

Operating lease liability - current

Clinical trial costs

Discontinuation of software implementation project

Income taxes payable

Clinical trial costs

Commitments and Contingencies

5 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, 2023 or December 31, 2022 and has no history of claims paid.

The Company had no accrued warranties as of September 30, 2023 or December 31, 2022 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 flow.

On October 21, 2021, the Company received notice that the former unitholders of Parcus Medical had filed an arbitration request regarding the earnout provisions of up to $ 60 million, of which the Company paid $ 4.3 million, agreed to in the Parcus Medical Merger Agreement.

On April 24, 2023, the Company and the former unitholders of Parcus Medical entered into a settlement agreement to end the arbitration case.

The Company recorded a charge to the statement of operations and a liability of $ 3.3 million at March 31, 2023 which was paid to the former unitholders of Parcus Medical in April 2023.

The Company recorded a charge to the statement of operations and a liability of $ 3.3 million at March 31, 2023 which was paid to the former unitholders of Parcus Medical in April 2023 in connection with the settlement agreement.

Revenue and Geographic Information

Revenue by product family is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

OA Pain Management

13 unchanged sentences

$ 123,691  

$ 116,614  

Effective January 1, 2023, the Company beganto report revenue from product sales to veterinary customers within the Non-Orthopedic product family whereas such revenue had been previously reported within the OA Pain Management product family.

Revenue from product sales to veterinary customers amounted to $ 1.1 million and $ 1.6 million for the three months ended June 30, 2023 and 2022, respectively, and $ 1.6 million and $ 3.4 million for the six months ended June 30, 2023 and 2022, respectively, and are included within the Non-Orthopedic product family for all periods presented.

Revenue from product sales to veterinary customers amounted to $ 1.6 million and $ 1.2 million for the three months ended September 30, 2023 and 2022, respectively, and $ 3.2 million and $ 4.6 million for the nine months ended September 30, 2023 and 2022, respectively, and are included within the Non-Orthopedic product family for all periods presented.

Accordingly, revenue from product sales to veterinary customers in the prior period have been reclassified to conform to the current period presentation.

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 48 % and 45 % for the three months ended June 30, 2023 and 2022, respectively, and 46 % and 42 % for the six months ended June 30, 2023 and 2022, respectively.

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 44 % and 45 % for the three months ended September 30, 2023 and 2022, respectively, and 45 % and 43 % for the nine months ended September 30, 2023 and 2022, 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 June 30,

Three Months Ended September 30,

Percentage of

6 unchanged sentences

$ 40,264  

Six Months Ended June 30,

Nine Months Ended September 30,

Percentage of

9 unchanged sentences

$ 123,691  

$ 116,614  

Equity Incentive Plan

6 unchanged sentences

Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 5,285,000 shares of common stock may be issued under the 2017 Plan.

There were 0.8 million shares available for future grant at June 30, 2023 under the 2017 Plan.

There were 1.0 million shares available for future grant at September 30, 2023 under the 2017 Plan.

The Anika Therapeutics, Inc.

3 unchanged sentences

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

There were 10,374 shares available for future grant at June 30, 2023 under the Inducement Plan.

There were 5,908 shares available for future grant at September 30, 2023 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.

2 unchanged sentences

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue

20 unchanged sentences

$ 36.40  

Outstanding as of June 30, 2023

Outstanding as of September 30, 2023

1,830,444  

$ 33.84  

Vested, June 30, 2023

Vested, September 30, 2023

975,230  

$ 36.70  

Vested or expected to vest, June 30, 2023

Vested or expected to vest, September 30, 2023

1,830,444  

$ 33.84  

The aggregate intrinsic value of options exercised for the six -month period ended June 30, 2023 was immaterial.

The Company granted 361,745 stock options during the six -month period ended June 30, 2023.

The aggregate intrinsic value of options exercised for the nine -month period ended September 30, 2023 was immaterial.

The Company granted 402,403 stock options during the nine -month period ended September 30, 2023.

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 assumptions used in the Black-Scholes pricing model for options granted during the six months ended June 30, 2023 and 2022, along with the weighted-average grant-date fair values, were as follows:

Six Months Ended

The assumptions used in the Black-Scholes pricing model for options granted during the nine months ended September 30, 2023 and 2022, along with the weighted-average grant-date fair values, were as follows:

Nine Months Ended

September 30,

Risk free interest rate

Expected volatility

48.2 %  

49.4 %  

53.8 %  

Expected life (years)

Expected dividend yield  

Fair value per option

1 unchanged sentence

$ 11.26  

As of June 30, 2023, there was $ 8.5 million of unrecognized compensation cost related to unvested stock options.

As of September 30, 2023, there was $ 7.2 million of unrecognized compensation cost related to unvested stock options.

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

3 unchanged sentences

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 six -month period ended June 30, 2023 was as follows:

RSU activity for the nine -month period ended September 30, 2023 was as follows:

Outstanding as of December 31, 2022

6 unchanged sentences

$ 27.11  

Outstanding as of June 30, 2023

Outstanding as of September 30, 2023

774,163  

$ 27.25  

The weighted-average grant-date fair value per share of RSUs granted was $ 26.93 and $ 25.18 for the six -month periods ended June 30, 2023 and 2022, respectively.

The total fair value of RSUs vested was $ 6.6 million and $ 5.4 million for the six -month periods ended June 30, 2023 and 2022, respectively. 

As of June 30, 2023, there was $ 17.9 million of unrecognized compensation cost related to time-based RSUs, which was expected to be recognized over a weighted-average period of 2.1 years.

The weighted-average grant-date fair value per share of RSUs granted was $ 26.66 and $ 25.14 for the nine -month periods ended September 30, 2023 and 2022, respectively.

The total fair value of RSUs vested was $ 6.8 million and $ 5.8 million for the nine -month periods ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, there was $ 14.4 million of unrecognized compensation cost related to time-based RSUs, which was expected to be recognized over a weighted-average period of 1.9 years.

Performance Stock Units

PSU activity for the six -month ended June 30, 2023 was as follows:

PSU activity for the nine -months ended September 30, 2023 was as follows:

Outstanding as of December 31, 2022

3 unchanged sentences

$ 34.98  

Outstanding as of June 30, 2023

The total fair value of PSUs vested was $ 0 and $ 0.6 million for the six -month periods ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, there are no outstanding PSUs.

The Company recorded an income tax benefit of $ 0.3 million and $ 2.0 million for the three - and six -month periods ended June 30, 2023, resulting in effective tax rates of 10.7 % and 13.2 %, respectively.

The income tax benefit 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 change in the effective tax rate for the three -months ended June 30, 2023, as compared to the same period in 2022, is primarily due to a discrete charge of $ 0.4 million related to non-deductible stock compensation during the three -months ended June 30, 2022, partially offset by the valuation allowance recorded against domestic deferred tax assets of $ 0.3 million during the three -months ended June 30, 2023.

The change in the effective tax rate for the six -months ended June 30, 2023, as compared to the same period in 2022, is primarily due to the valuation allowance recorded against domestic deferred tax assets of $ 1.2 million for the six -months ended June 30, 2023, partially offset by a discrete charge of $ 0.6 million related to non-deductible stock compensation during the six -months ended June 30, 2022.

Outstanding as of September 30, 2023

The total fair value of PSUs vested was $ 0 and $ 0.6 million for the nine -month periods ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, there are no outstanding PSUs.

The Company recorded an income tax benefit of $ 0.5 million and $ 2.5 million for the three - and nine -month periods ended September 30, 2023, resulting in effective tax rates of 6.6 % and 11.1 %, respectively.

The income tax benefit was $ 1.2 million and $ 2.4 million for the three - and nine -month periods ended September 30, 2022, resulting in effective tax rates of 22.1 % and 19.5 %, respectively.

The change in the effective tax rate for the three -months ended September 30, 2023, as compared to the same period in 2022, is primarily due to the valuation allowance recorded against domestic deferred tax assets of $ 1.1 million for the three -months ended September 30, 2023.

The change in the effective tax rate for the nine -months ended September 30, 2023, as compared to the same period in 2022, is primarily due to the valuation allowance recorded against domestic deferred tax assets of $ 2.3 million for the nine -months ended September 30, 2023, partially offset by a discrete charge of $ 0.7 million related to non-deductible stock compensation during the nine -months ended September 30, 2022.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized.

5 unchanged sentences

are not more likely than not to be realizable.

Accordingly, the estimated annual effective tax rate used to compute the income tax provision for the three - and six -month periods ended June 30, 2023 includes an adjustment for the valuation allowance required against the U.S deferred tax assets.

As of June 30, 2023, the Company continues to believe its foreign deferred tax assets are realizable based upon future reversals of existing taxable temporary differences and projected future taxable income.

Accordingly, the estimated annual effective tax rate used to compute the income tax provision for the three - and nine -month periods ended September 30, 2023 includes an adjustment for the valuation allowance required against the U.S deferred tax assets.

As of September 30, 2023, the Company continues to believe its foreign deferred tax assets are realizable based upon future reversals of existing taxable temporary differences and projected future taxable income in the Company’s foreign jurisdictions.

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

6 unchanged sentences

(“Bank of America”) pursuant to a Fixed Dollar Accelerated Share Repurchase Transaction (“ASR Agreement”) to purchase $ 5.0 million of shares of its common stock.

Pursuant to the terms of the ASR Agreement, the Company delivered $ 5.0 million in cash to Bank of America and received an initial delivery of 158,983 shares of the Company’s common stock on May 12, 2023 based on a closing market price of $ 25.16 and the applicable contractual discount. 

This was approximately 80 % of the then estimated total number of shares expected to be repurchased under the ASR Agreement.

1 unchanged sentence

equity on the condensed consolidated balance sheet at June 30, 2023.

Per the terms of the ASR Agreement, the final number of shares and average purchase price would be determined at the end of the applicable purchase period, which was completed in July 2023. 

Upon final settlement in July 2023, the Company received 29,046 additional shares at a final settlement price based on the average purchase price of $ 26.59 per share. 

Per the terms of the ASR Agreement, the final number of shares and average purchase price would be determined at the end of the applicable purchase period, which was completed in July 2023.

Upon final settlement in July 2023, the Company received 29,046 additional shares at a final settlement price based on the average purchase price of $ 26.59 per share.

Earnings Per Share ( “

2 unchanged sentences

Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding share-based awards using the treasury stock method.

Due to the Company's loss position, the share-based payment awards are anti-dilutive.

The Company had a net loss during the three - and six -month periods ended June 30, 2023 and 2022, respectively, and therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS.

Stock options of 1.8 million shares and 1.5 million shares were outstanding at June 30, 2023 and 2022, respectively.

Restricted stock units and performance stock units totaling 0.8 million were outstanding at each of June 30, 2023 and 2022.

Due to the Company’s loss position, the share-based payment awards are anti-dilutive.

The Company had a net loss during the three - and nine -month periods ended September 30, 2023 and 2022, respectively, and therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS.

Stock options of 1.8 million shares and 1.5 million shares were outstanding at September 30, 2023 and 2022, respectively.

Restricted stock units and performance stock units totaling 0.8 million were outstanding at each of September 30, 2023 and 2022.

These securities were not included in the computation of diluted EPS because the awards’

30 unchanged sentences

Introducing key HA-based products into the U.S.

market upon FDA approval/clearance, such as Cingal, Hyalofast and our arthroscopic patch system for rotator cuff repair;

market upon FDA approval/clearance, such as Cingal, Hyalofast and Integrity, our HA-based, arthroscopic patch system for rotator cuff repair;

Robust network of stakeholders in our target markets that will allow us to identify evolving unmet patient treatment needs;

12 unchanged sentences

Our Joint Preservation and Restoration product family consists of:

(a) our portfolio of orthopedic regenerative solutions products utilizing HA, including Hyalofast, currently available outside the United States in over 30 countries and Tactoset products and the planned upcoming release of our arthroscopic regenerative patch system for rotator cuff repair;

(a) our portfolio of orthopedic regenerative solutions products utilizing HA, including Tactoset, an HA-enhanced injectable bone repair therapy, Hyalofast, a HA-based biodegradable support used for cartilage regeneration currently available outside the United States in over 30 countries, and the planned release in 2024 of the Integrity Implant System, our FDA-cleared HA-based arthroscopic regenerative patch system for rotator cuff repair;

(b) our line of sports medicine solutions used to repair and reconstruct damaged ligaments and tendons due to sports injuries, trauma and disease;

2 unchanged sentences

Our Non-Orthopedic product family consists of legacy HA-based products that are marketed principally for non-orthopedic applications, including our anti-adhesion barrier product, advanced wound care products, our ear, nose and throat products, and our ophthalmic products.

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

Hyvisc was previously reported in the OA Pain Management product family but has been reclassified to the Non-Orthopedic product family.

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

Hyvisc was previously reported in the OA Pain Management product family but was reclassified to the Non-Orthopedic product family at the beginning of 2023.

Results of Operations

Three and Six Months Ended June 30, 2023 Compared to Three and Six Months Ended June 30, 2022

Three Months Ended June 30,

Six Months Ended June 30,

Three and Nine Months Ended September 30, 2023 Compared to Three and Nine Months Ended September 30, 2022

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except percentages)

9 unchanged sentences

Benefit from income taxes

The following table presents revenue by product family for the three- and six-month periods ended June 30, 2023 and 2022, respectively, as follows:

Three Months Ended June 30,

The following table presents revenue by product family for the three- and nine-month periods ended September 30, 2023 and 2022, respectively, as follows:

Three Months Ended September 30,

(in thousands, except percentages)

2 unchanged sentences

Non-Orthopedic

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands, except percentages)

2 unchanged sentences

Non-Orthopedic

Revenue from our OA Pain Management product family increased 22% and 15%, respectively, for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, due to growing customer demand and favorable strategic partner ordering patterns from U.S.

and international customers.

Revenue from our Joint Preservation and Restoration product family increased 5% and 8%, respectively, for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, due primarily to improving elective procedure volumes and growing commercial adoption of our newest products.

Revenue from our Non-Orthopedic product family decreased 33% and 41%, respectively, for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, primarily due to unfavorable timing of distributor ordering patterns as well as due to end of life of certain legacy products.

Revenue from our OA Pain Management product family increased 2% for the three months ended September 30, 2023, as compared to the same period in 2022, due to growing customer demand, offset by unfavorable strategic partner ordering patterns in the U.S.

during the quarter.

Revenue from our OA Pain Management product family increased 11% for the nine months ended September 30, 2023, as compared to the same period in 2022, due to growing customer demand and favorable strategic partner ordering patterns.

Revenue from our Joint Preservation and Restoration product family increased 14% and 10%, respectively, for the three- and nine-month periods ended September 30, 2023, as compared to the same period in 2022, due primarily to growing commercial adoption of our newest products and increased commercial focus with our key distributors.

Revenue from our Non-Orthopedic product family decreased 22% and 34%, respectively, for the three- and nine-month periods ended September 30, 2023, as compared to the same period in 2022, primarily due to unfavorable timing of distributor ordering patterns as well as due to end of life of certain legacy products.

Gross Profit and Margin

Gross profit for the three- and six-month periods ended June 30, 2023 increased $4.1 million and $5.1 million, to $29.0 million and $51.8 million, respectively.

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

The increases in gross profit for the three- and six-month periods ended June 30, 2023, as compared to the same period in 2022, primarily resulted from revenue growth and favorable product mix in the period.

Gross margin for the three- and six-month periods ended June 30, 2023 was 65% and 63%, respectively.

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

The increases in gross margin compared to the same periods of the prior year were due primarily to higher revenue, particularly on Mitek sales and improved production volumes.

Gross profit for the three- and nine-month periods ended September 30, 2023 increased $2.1 million and $7.4 million, to $24.9 million and $76.8 million, respectively.

Gross profit for the three- and nine-month periods ended September 30, 2022, was $22.8 million and $69.4 million, respectively.

The increases in gross profit for the three- and nine-month periods ended September 30, 2023, as compared to the same period in 2022, primarily resulted from revenue growth, favorable product mix and lower inventory reserves in the period.

Gross margin for the three- and nine-month periods ended September 30, 2023 was 60% and 62%, respectively.

Gross margin for the three- and nine-month periods ended September 30, 2022 was 57% and 60%, respectively.

The increases in gross margin compared to the same periods of the prior year were due primarily to higher revenue, improved production volumes and lower inventory reserves.

Research and Development

Research and development expenses for the three- and six-month periods ended June 30, 2023 were $8.9 million and $17.3 million, an increase of $1.9 million and $4.2 million respectively as compared to the same periods in 2022.

The increase was primarily related to increased costs to comply with growing regulatory requirements globally as well as new product development associated with our research and development pipeline.

Research and development expenses for the three- and nine-month periods ended September 30, 2023 were $7.8 million and $25.1 million, an increase of $0.5 million and $4.7 million respectively as compared to the same periods in 2022.

The increase was primarily related to increased costs to comply with growing regulatory requirements globally as well as new product development associated with our research and development pipeline, primarily on Integrity Implant System, our FDA-cleared HA-based, arthroscopic patch system for rotator cuff repair, which we expect to launch in early 2024.

This increase was offset somewhat by lower spending on clinical trials due to the completion of the Cingal phase III pivotal trial in late 2022.

Selling, General and Administrative

Selling, general and administrative expenses for the three- and six-month periods ended June 30, 2023 were $23.7 million and $50.7 million representing an increase of $2.4 million and $10.2 million, respectively, as compared to the same periods in 2022.

This increase for the three- and six-month periods ended June 30, 2023 was primarily due to $2.7 million and $8.5 million of non-recurring costs incurred during the three- and six-month periods ended June 30, 2023, respectively, related to the Parcus Medical unitholder arbitration settlement, shareholder activism and other non-recurring corporate costs.

The growth in SG&A expenses also was due to expansion of our commercial capabilities and marketing activities.

The benefit from income taxes was $0.3 million and $2.0 million for the three- and six-month periods ended June 30, 2023, resulting in an effective tax rate of 10.7% and 13.2%, respectively.

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 change in the effective tax rate for the three-months ended June 30, 2023, as compared to the same period in 2022, is primarily due to a discrete charge of $0.4 million related to non-deductible stock compensation during the three-months ended June 30, 2022, partially offset by the valuation allowance recorded against domestic deferred tax assets of $0.3 million during the three-months ended June 30, 2023.

The change in the effective tax rate for the six-months ended June 30, 2023, as compared to the same period in 2022, is primarily due to the valuation allowance recorded against domestic deferred tax assets of $1.2 million for the six-months ended June 30, 2023, partially offset by a discrete charge of $0.6 million related to non-deductible stock compensation during the six-months ended June 30, 2022.

For the three- and six-month periods ended June 30, 2023, net loss was $2.7 million and $13.1 million, or $0.19 per diluted share and $0.89 per diluted share, respectfully, compared to net loss of $2.8 million and $5.8 million, or $0.20 per diluted share and $0.44 per diluted share, for the same periods in prior year.

The increase in net loss and diluted loss per share for the six-months ended June 30, 2023 was primarily due to the non-recurring expenses related to the Parcus Medical arbitration settlement, shareholder activism and other non-recurring corporate costs.

Selling, general and administrative expenses for the three- and nine-month periods ended September 30, 2023 were $24.8 million and $75.5 million representing an increase of $3.6 million and $13.8 million, respectively, as compared to the same periods in 2022.

This increase for the three-months ended September 30, 2023 was primarily the result of charges totaling $4.5 million during the quarter associated with the discontinuation of a software development project.

This increase for the nine-months ended September 30, 2023 was primarily due to $13.0 million of non-recurring costs incurred during 2023 related to the Parcus Medical unitholder arbitration settlement, shareholder activism, discontinuation of a software development project and other non-recurring corporate costs.

The growth in SG&A expenses also was due to commissions on increased sales.

The Company recorded an income tax benefit of $0.5 million and $2.5 million for the three- and nine-month periods ended September 30, 2023, resulting in effective tax rates of 6.6% and 11.1%, respectively.

The income tax benefit was $1.2 million and $2.4 million for the three- and nine-month periods ended September 30, 2022, resulting in effective tax rates of 22.1% and 19.5%, respectively.

The change in the effective tax rate for the three-months ended September 30, 2023, as compared to the same period in 2022, is primarily due to the valuation allowance recorded against domestic deferred tax assets of $1.1 million for the three-months ended September 30, 2023.

The change in the effective tax rate for the nine-months ended September 30, 2023, as compared to the same period in 2022, is primarily due to the valuation allowance recorded against domestic deferred tax assets of $2.3 million for the nine-months ended September 30, 2023, partially offset by a discrete charge of $0.7 million related to non-deductible stock compensation during the nine-months ended September 30, 2022.

For the three- and nine-month periods ended September 30, 2023, net loss was $6.6 million and $19.7 million, or $0.45 per diluted share and $0.29 per diluted share, respectfully, compared to net loss of $4.2 million and $10.0 million, or $0.29 per diluted share and $0.68 per diluted share, for the same periods in prior year.

The increase in net loss and diluted loss per share for the nine-months ended September 30, 2023 was primarily due to the non-recurring expenses related to the Parcus Medical arbitration settlement, shareholder activism, discontinuation of a software development project and other non-recurring corporate costs.

Non-GAAP Financial Measures

10 unchanged sentences

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

The following is a reconciliation of GAAP gross profit to Non-GAAP adjusted gross profit for the three- and six-month periods ended June 30, 2023 and 2022, respectively:

The following is a reconciliation of GAAP gross profit to Non-GAAP adjusted gross profit for the three- and nine-month periods ended September 30, 2023 and 2022, respectively:

For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

Product rationalization related charges

Acquisition related intangible asset amortization

1 unchanged sentence

Adjusted gross margin

Adjusted gross profit for the three- and six-month periods ended June 30, 2023 increased $4.1 million and $5.1 million to $30.5 million and $54.9 million, respectively, representing adjusted gross margin of 69% and 67%, respectively.

Adjusted gross profit for the three- and six-month periods ended June 30, 2022 was $26.4 million and $49.8 million, respectively, or adjusted gross margin of 67% and 65%, respectively.

The increases in adjusted gross margin for the three- and six-month periods ended June 30, 2023 as compared to 2022, was largely due to revenue growth, favorable product mix and the impact of improved production volumes in 2023.

Adjusted gross profit for the three- and nine-month periods ended September 30, 2023 increased $0.3 million and $5.4 million to $27.3 million and $82.2 million, respectively, representing adjusted gross margin of 66% and 66%, respectively.

Adjusted gross profit for the three- and nine-month periods ended September 30, 2022 was $27.0 million and $76.8 million, respectively, or adjusted gross margin of 67% and 66%, respectively.

Adjusted gross margin for the three- and nine-month periods ended September 30, 2023 were largely in line with the same periods in 2022, as the benefit of revenue growth, favorable product mix and improved production volumes in 2023 were offset by higher material and manufacturing overhead costs.

Adjusted EBITDA

8 unchanged sentences

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 certain other non-recurring expenses, such as Parcus arbitration settlement and costs associated with shareholder activism;

we exclude certain other non-recurring expenses, such as the arbitration settlement with Parcus Medical, costs associated with shareholder activism and discontinuation of a software development project;

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 GAAP Net loss to Non-GAAP Adjusted EBITDA for the three- and six-month periods ended June 30, 2023 and 2022, respectively:

The following is a reconciliation of GAAP Net loss to Non-GAAP Adjusted EBITDA for the three- and nine-month periods ended September 30, 2023 and 2022, respectively:

For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

Interest and other expense, net

2 unchanged sentences

Share-based compensation

Product rationalization

Arbitration settlement

Acquisition related intangible asset amortization

Discontinuation of software development project

Costs of shareholder activism

Adjusted EBITDA

Adjusted EBITDA in the three-month period ended June 30, 2023 increased $1.9 million as compared with the same period in 2022.

The increase in adjusted EBITDA for the period was primarily due to an increase in revenues partially offset by $0.5 million of certain non-recurring corporate costs.

Adjusted EBITDA for the six-month period ended June 30, 2023, decreased $1.9 million as compared with the same period in 2022.

The decrease in adjusted EBITDA for the period was due to $2.2 million of certain non-recurring corporate costs.

Adjusted EBITDA in the three-month period ended September 30, 2023 increased $0.6 million as compared with the same period in 2022.

The increase in adjusted EBITDA for the period was primarily due to overall business growth.

Adjusted EBITDA for the nine-month period ended September 30, 2023, decreased $1.0 million as compared with the same period in 2022.

The decrease in adjusted EBITDA for the period was due to $2.2 million of certain non-recurring corporate costs incurred during the first half of 2023 offset in part by overall business growth.

Adjusted Net (Loss) Income and Adjusted EPS

5 unchanged sentences

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 GAAP Net Loss to Non-GAAP Adjusted net (loss) income to net (loss) income for the three- and six-month periods ended June 30, 2023 and 2022, respectively:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

The following is a reconciliation of GAAP Net Loss to Non-GAAP Adjusted net (loss) income to net (loss) income for the three- and nine-month periods ended September 30, 2023 and 2022, respectively:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Product rationalization, tax effected

Arbitration settlement, tax effected

Acquisition related intangible asset amortization;

Acquisition related intangible asset amortization, tax effected

Discontinuation of software development project, tax effected

Costs of shareholder activism, tax effected

Adjusted net income (loss)

The following is a reconciliation of GAAP Diluted loss per share (EPS) to Non-GAAP Adjusted diluted earnings (loss) per share EPS for the three- and six-month periods ended June 30, 2023 and 2022, respectively:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Diluted (loss) earnings per share (EPS)

Adjusted net loss

The following is a reconciliation of GAAP Diluted loss per share (EPS) to Non-GAAP Adjusted diluted earnings (loss) per share EPS for the three- and nine-month periods ended September 30, 2023 and 2022, respectively:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Diluted loss per share (EPS)

Product rationalization, tax effected

Arbitration settlement, tax effected

Acquisition related intangible asset amortization;

Acquisition related intangible asset amortization, tax effected

Discontinuation of software development project, tax effected

Cost of shareholder activism, tax effected

Adjusted diluted (loss) earnings per share (EPS)

Adjusted net income (loss) and adjusted diluted income (loss) per share in the three-month period ended June 30, 2023 increased $2.5 million and $0.18, respectively, as compared with the same period in 2022.

The increase in adjusted net income for the period was primarily due to higher revenue offset in part by certain non-recurring corporate costs.

Adjusted net loss and adjusted diluted loss per share in the six-month period ended June 30, 2023, increased $1.4 million or $0.09, as compared with the same period in 2022.

The increase in adjusted net loss for the period was due to certain non-recurring corporate costs.

Adjusted diluted earnings (loss) per share (EPS)

Adjusted net loss and adjusted diluted earnings (loss) per share in the three-month period ended September 30, 2023 decreased $0.7 million and $0.05, respectively, as compared with the same period in 2022.

The decrease in adjusted net loss for the period was primarily due to overall business growth.

Adjusted net loss and adjusted diluted income (loss) per share in the nine-month period ended September 30, 2023, increased $0.7 million or $0.04, as compared with the same period in 2022.

The increase in adjusted net loss for the period was due to certain non-recurring corporate costs incurred during the first half of 2023 offset by overall business growth.

Liquidity and Capital Resources

1 unchanged sentence

We expect that our requirements for cash to fund these uses will increase as our operations expand.

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 $65.1 million and $86.3 million, and working capital totaled $128.7 million and $141.6 million, at June 30, 2023 and December 31, 2022, respectively.

We 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 and cash equivalents aggregated $70.7 million and $86.3 million, and working capital totaled $128.7 million and $141.6 million, at September 30, 2023 and December 31, 2022, respectively.

On November 12, 2021, we entered into a Third Amendment to Credit Agreement with Bank of America N.A.

1 unchanged sentence

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 June 30, 2023, and December 31, 2022, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

As of September 30, 2023, and December 31, 2022, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

Summary of Cash Flows (in thousands):

Six Months Ended June 30,

Nine Months Ended September 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 six-month period ended June 30, 2023 as compared to the same period in 2022.

The following changes contributed to the net change in cash and cash equivalents in the nine-month period ended September 30, 2023 as compared to the same period in 2022.

Operating Activities

Cash used in operating activities was $11.9 million for the six-month period ended June 30, 2023, as compared to cash provided by operating activities of $1.2 million for the same period in 2022.

The increase in cash used in operating activities in 2023 was primarily due payment of $8.5 million in non-recurring costs incurred during the six-month period ended June 30, 2023 related to the Parcus Medical unitholder arbitration settlement, shareholder activism and other non-recurring corporate costs, as well as an increase in working capital associated with the growth of the business. 

Cash used in operating activities was $5.4 million for the nine-month period ended September 30, 2023, as compared to cash provided by operating activities of $3.9 million for the same period in 2022.

The increase in cash used in operating activities in 2023 was primarily due payment of $8.5 million in non-recurring costs incurred during the first half of 2023 related to the Parcus Medical unitholder arbitration settlement, shareholder activism and other non-recurring corporate costs. 

For the foreseeable future, we expect to continue to invest in research and development as well as our commercial and operational infrastructure to support our growth strategy.

1 unchanged sentence

Investing Activities

Cash used in investing activities was $2.8 million for the six-month period ended June 30, 2023, as compared to cash used in investing activities of $3.3 million for the same period in 2022.

Cash used in investing activities was $3.6 million for the nine-month period ended September 30, 2023, as compared to $5.0 million for the same period in 2022.

The change was primarily due to a decrease in capital expenditures related to software development that occurred in 2022.

Financing Activities

Cash used in financing activities was $6.6 million for the six-month period ended June 30, 2023, as compared to cash used in financing activities of $0.9 million for the same period in 2022.

Cash used in financing activities was $6.7 million for the nine-month period ended September 30, 2023, as compared $5.5 million for the same period in 2022.

The increase in cash used in financing activities was primarily attributable to the repurchase of common stock for $5.0 million during the three-months ended June 30, 2023.

14 unchanged sentences

in our 2022 Form 10-K for the year ended December 31, 2022.

There were no material changes to our contractual obligations reported in our 2022 Form 10-K during the six months ended June 30, 2023.

There were no material changes to our contractual obligations reported in our 2022 Form 10-K during the nine months ended September 30, 2023.

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

2 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