Surgalign Holdings, Inc., (NASDAQ: SRGA) a global medical
technology company focused on elevating the standard of care by
driving the evolution of digital surgery, today announced financial
results for its 2022 second quarter ended June 30, 2022.
2022 Second Quarter Key Highlights and Subsequent
Events:
- First successful surgical procedures utilizing the HOLO Portal™
Surgical Guidance System in Indiana and further expansion in Ohio
with more sites in the pipeline.
- Launch of the Surgalign® Patient Access Program: formed
strategic partnership with PRIA Healthcare to support Program and
improve patient healthcare coverage.
- Relaunch of the CervAlign® Anterior Cervical Plate system.
- Launch of Fortilink®-A interbody with TiPlus™ technology
expanding addressable market.
- 1-for-30 reverse stock split completed in May 2022.
“We've made significant progress in bringing new products to
market while building a strong foundation for the future,” stated
Terry Rich, President and Chief Executive Officer of Surgalign
Holdings. “We expanded the reach of our HOLO Portal Surgical
Guidance System, with successful cases performed in Indiana and
Ohio, and we are close to securing additional sites throughout the
United States. Our plan remains to have between 10-15 sites up and
running by year-end and we are in discussions with approximately 20
additional potential sites.”
Mr. Rich continued, “Our focus near-term is on the
commercialization of the HOLO Portal system, integrating procedural
technologies, and expanding our HOLO™ AI Platform capabilities.
Concurrently, we will continue to build out our engineering
capabilities, bring new products to market, and leverage our
distribution to expand spine product sales globally. The new
products we have launched are gaining traction and there is a lot
of excitement building at Surgalign. We believe we are well
positioned for growth in the second half of the year, particularly
in the fourth quarter, with significantly greater prospects in the
future.”
Second Quarter Comparisons
Total revenue for the three months ended June 30, 2022, was
$20.6 million as compared to $24.8 million in the comparable
year-ago period. The decrease in revenue was primarily related to
hospital and surgical center staffing shortage, delays in
procedures caused by the pandemic, and supply chain
constraints.
The Company reported gross margins of 68.9% and 70.9% for the
three months ended June 30, 2022 and 2021 respectively, with the
decline related to an increase in inventory write-offs related to
continued product rationalization.
On a non-GAAP basis, the Company reported gross margin of 73.5%
for the three months ended June 30, 2022, as compared to gross
margin of 73.1% in the comparable year-ago period.
Total operating expenses for the three months ended June 30,
2022 were $27.6 million as compared to $30.9 million in the
comparable year-ago period, a decrease of $3.3 million or 10.6%.
The primary driver was a $1.3 million decrease in “General and
administrative” expenses caused by a reduction in spending through
continued simplification of the distribution and administrative
infrastructure. Additionally, there was a decrease in “Asset
impairment and abandonment” of $1.2 million due to impairment
of the ERP system in 2021 and a reduction in capital expenditures
during 2022. This was partially offset by a $0.9 million
increase in “Research and development” expenses related to the
continued development of the HOLO AI platform and obtaining
regulatory approval.
On a non-GAAP basis, total operating expenses for the three
months ended June 30, 2022 were $27.5 million and three months
ended June 30, 2021, were $27.4 million. Excluded from 2022 Q2
non-GAAP operating expense was approximately $1.0 million in asset
impairment charges related to the impairment of instruments during
the quarter, $0.2 million in transaction and integration expenses
related to issuance costs associated to the newly issued warrants,
non-cash stock-based compensation of $0.9 million and a gain of
$2.0 million due to adjustments to the fair value of the Holo
Surgical Inc. contract milestones.
The Company reported an operating loss of $13.4 million for the
three months ended June 30, 2022 as compared to an operating loss
of $13.3 million in the comparable year-ago period. Net loss from
continuing operations for the three months ended June 30, 2022 was
$5.7 million as compared to a net loss from continuing operations
of $10.6 million in the comparable year-ago period.
Adjusted earnings before interest, taxes, depreciation and
amortization (Adjusted EBITDA), for the three months ended June 30,
2022 was a loss of $11.7 million as compared to an Adjusted EBITDA
loss of $8.5 million in the comparable year-ago period.
As of June 30, 2022, cash and cash equivalents were
approximately $29.3 million. This compares to $51.3 million
reported as of December 31, 2021.
Six Month Year-to-Date Comparisons
Total revenue for the six months ended June 30, 2022, was $41.2
million as compared to $48.1 million in the comparable year-ago
period. The decrease in revenue was primarily related to the impact
of the global pandemic, which has led to fewer surgical procedures
and hospital staffing shortages throughout the U.S., among other
factors.
The Company reported gross margins of 68.9% and 72.0% for the
six months ended June 30, 2022 and 2021 respectively, with the
decline related to an increase in inventory write-offs related to
continued product rationalization.
On a non-GAAP basis, the Company reported gross margin of 72.2%
for the six months ended June 30, 2022 as compared to gross margin
of 74.3% in the comparable year-ago period.
Total operating expenses for the six months ended June 30, 2022
were $50.7 million as compared to $62.4 million in the comparable
year-ago period, a decrease of $11.7 million or 18.7%. The primary
driver was the decrease in the Holo contract milestone valuation of
approximately $8.1 million, which is recorded through the
“Gain on acquisition contingency” line item on the condensed
consolidated statements of comprehensive loss. This was further
reduced by a $2.1 million decrease in “General and administrative”
expenses caused by a reduction in spending through the continued
simplification of the distribution and administrative
infrastructure. Additionally, there was a decrease in “Asset
impairment and abandonment” of $2.4 million due the impairment
of the ERP system costs occurring in 2021 and a reduction in
capital expenditures. This was partially offset by an increase of
$2.5 million in “Research and development” expenses related to
the continued development of the HOLO AI platform and obtaining
regulatory approval.
On a non-GAAP basis, total operating expenses for the six months
ended June 30, 2022 were $55.8 million as compared to $55.3 million
in the comparable year-ago period. Excluded from Q2 non-GAAP
operating expense was approximately $1.9 million in asset
impairment charges related to the impairment of instruments during
the quarter, $1.1 million in transaction and integration expenses
related to financings, non-cash stock-based compensation of $2.3
million and a gain of $10.5 million due to adjustments to the fair
value of the Holo Surgical Inc. contract milestones.
The Company reported an operating loss of $22.3 million in the
six months ended June 30, 2022 as compared to an operating loss of
$27.7 million in the comparable year-ago period. Net loss
continuing operations for the six months ended June 30, 2022 was
$5.7 million as compared to a net loss from continuing operations
of $25.8 million for the comparable year-ago period.
Adjusted earnings before interest, taxes, depreciation and
amortization for the six months ended June 30, 2022 was a loss of
$25.0 million as compared to an Adjusted EBITDA loss of $18.3
million for the comparable year-ago period.
Fiscal 2022 Business Outlook
The Company has reconfirmed its full year revenue outlook to be
in the range of $86 to $90 million.
Conference Call
Surgalign will host a conference call and audio webcast at 4:30
p.m. ET today. The conference call can be accessed by dialing (888)
645-4404 (U.S.) or (404) 267-0371 (International). The webcast can
be accessed through the investor section of Surgalign’s website at
surgalign.com/investors/. A replay of the conference call will be
available on Surgalign’s website for one month following the
call.
About Surgalign Holdings, Inc.
Surgalign Holdings, Inc. is a global medical technology company
committed to the promise of digital health and is building out its
digital surgery platform to drive transformation across the
surgical landscape. Uniquely aligned and resourced to advance the
standard of care, the company is building technologies surgeons
will look to for what is truly possible for their patients.
Surgalign is focused on bringing surgeons solutions that
predictably deliver superior clinical and economic outcomes.
Surgalign markets products throughout the United States and in
approximately 50 countries worldwide through an expanding network
of top independent distributors. Surgalign is headquartered in
Deerfield, IL, with commercial, innovation and design centers in
San Diego, CA, Warsaw and Poznan, Poland and Wurmlingen, Germany.
Learn more at www.surgalign.com and connect on LinkedIn and
Twitter.
Forward Looking Statement
This press release contains forward-looking statements based on
management’s current expectations, estimates and projections about
our industry, our management’s beliefs and certain assumptions made
by our management. Words such as “anticipates,” “expects,”
“intends,” “plans,” “believes,” “seeks,” “estimates,” variations of
such words and similar expressions are intended to identify such
forward-looking statements. The forward-looking statements are not
guarantees of future performance and are based on certain
assumptions including general economic conditions, as well as those
within the Company’s industry, and numerous other factors and risks
identified in the Company’s most recent Form 10-K and other filings
with the SEC. Our actual results may differ materially from the
anticipated results reflected in these forward-looking statements.
Important factors that could cause actual results to differ
materially from the anticipated results reflected in these
forward-looking statements include risks and uncertainties relating
to the following: (i) risks relating to existing or potential
litigation or regulatory actions; (ii) the identification of
control deficiencies, including material weaknesses in internal
control over financial reporting; (iii) general worldwide economic
conditions and related uncertainties; (iv) the continued impact of
the COVID-19 and the Company’s attempts at mitigation, particularly
in international markets served by the Company; (v) the failure by
the Company to identify, develop and successfully implement its
strategic initiatives, particularly with respect to its digital
surgery strategy; (vi) the reliability of our supply chain; (vii)
our ability to meet obligations, including purchase minimums, under
our vendor and other agreements; (viii) whether or when the demand
for procedures involving our products will increase; (ix) the
Company’s access to adequate operating cash flow, trade credit,
borrowed funds and equity capital to fund its operations and pay
its obligations as they become due, and the terms on which external
financing may be available, including the impact of adverse trends
or disruption in the global credit and equity markets; (x) our
financial position and results, total revenue, product revenue,
gross margin, and operations; (xi) failure to realize, or
unexpected costs in seeking to realize, the expected benefits of
the Holo Surgical Inc. (“Holo Surgical”) and Inteneural Networks
Inc. (“INN”) acquisitions, including the failure of Holo Surgical’s
and INN’s products and services to be satisfactorily developed or
achieve applicable regulatory approvals or as a result of the
failure to commercialize and distribute its products; (xii) the
failure to effectively integrate Holo Surgical’s and INN’s
operations with those of the Company, including: retention of key
personnel; the effect on relationships with customers, suppliers,
and other third parties; and the diversion of management time and
attention to the integration; (xiii) the number of shares and
amount of cash that will be required in connection with any
post-closing milestone payments, including as a result of changes
in the trading price of the Company’s common stock and their effect
on the amount of cash needed by the Company to fund any
post-closing milestone payments in connection with the
acquisitions; (xiv) the continuation of recent quality issues with
respect to our global supply chain (xv) the effect and timing of
changes in laws or in governmental regulations; and (xvi) other
risks described in our public filings with the SEC. These factors
should be considered carefully, and undue reliance should not be
placed on the forward-looking statements. Each forward-looking
statement in this communication speaks only as of the date of the
particular statement. Copies of the Company’s SEC filings may be
obtained by contacting the Company or the SEC or by visiting
Surgalign’s website at http://www.surgalign.com/or the SEC’s
website at http://www.sec.gov/. We undertake no obligation to
update these forward-looking statements except as may be required
by law.
Investor and Media Relations Contact: Glenn
WienerGW CommunicationsT: +1 (917) 887
8434E: gwiener@gwcco.com
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of
Operations |
(Unaudited, in thousands, except share and per share
data) |
|
|
For the Three Months Ended |
|
For the Six Months Ended |
|
June 30, |
|
June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Revenues |
$ |
20,623 |
|
|
$ |
24,834 |
|
|
$ |
41,228 |
|
|
$ |
48,125 |
|
Cost of goods sold |
|
6,414 |
|
|
|
7,229 |
|
|
|
12,824 |
|
|
|
13,467 |
|
Gross profit |
|
14,209 |
|
|
|
17,605 |
|
|
|
28,404 |
|
|
|
34,658 |
|
Operating Expenses: |
|
|
|
|
|
|
|
General and administrative |
|
24,289 |
|
|
|
25,541 |
|
|
|
49,606 |
|
|
|
51,701 |
|
Research and development |
|
4,082 |
|
|
|
3,183 |
|
|
|
8,530 |
|
|
|
6,059 |
|
Gain on acquisition contingency |
|
(1,990 |
) |
|
|
(2,236 |
) |
|
|
(10,493 |
) |
|
|
(2,287 |
) |
Asset impairment and abandonments |
|
996 |
|
|
|
2,206 |
|
|
|
1,935 |
|
|
|
4,382 |
|
Transaction and integration expenses |
|
222 |
|
|
|
2,188 |
|
|
|
1,138 |
|
|
|
2,510 |
|
Total operating expenses |
|
27,599 |
|
|
|
30,882 |
|
|
|
50,716 |
|
|
|
62,365 |
|
Operating loss |
|
(13,390 |
) |
|
|
(13,277 |
) |
|
|
(22,312 |
) |
|
|
(27,707 |
) |
Other expense (income) - net |
|
|
|
|
|
|
|
Other expense (income) - net |
|
22 |
|
|
|
(101 |
) |
|
|
49 |
|
|
|
(105 |
) |
Interest expense |
|
252 |
|
|
|
— |
|
|
|
504 |
|
|
|
— |
|
Foreign exchange loss (gain) |
|
1,056 |
|
|
|
(95 |
) |
|
|
1,409 |
|
|
|
450 |
|
Change in fair value of warrant liability |
|
(9,124 |
) |
|
|
(2,523 |
) |
|
|
(18,867 |
) |
|
|
(2,523 |
) |
Total other (income) - net |
|
(7,794 |
) |
|
|
(2,719 |
) |
|
|
(16,905 |
) |
|
|
(2,178 |
) |
(Loss) before income tax
provision |
|
(5,596 |
) |
|
|
(10,558 |
) |
|
|
(5,407 |
) |
|
|
(25,529 |
) |
Income tax provision |
|
92 |
|
|
|
81 |
|
|
|
254 |
|
|
|
300 |
|
Net (loss) from operations |
|
(5,688 |
) |
|
|
(10,639 |
) |
|
|
(5,661 |
) |
|
|
(25,829 |
) |
Discontinued Operations (Note
3) |
|
|
|
|
|
|
|
(Loss) from operations of discontinued operations |
|
— |
|
|
|
(6,316 |
) |
|
|
— |
|
|
|
(6,316 |
) |
Income tax (benefit) |
|
— |
|
|
|
(763 |
) |
|
|
— |
|
|
|
(763 |
) |
Net (loss) from discontinued operations |
|
— |
|
|
|
(5,553 |
) |
|
|
— |
|
|
|
(5,553 |
) |
Net (loss) |
|
(5,688 |
) |
|
|
(16,192 |
) |
|
|
(5,661 |
) |
|
|
(31,382 |
) |
Noncontrolling interests |
|
|
|
|
|
|
|
Net income applicable to noncontrolling interests |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net (loss) applicable to
Surgalign Holdings, Inc. |
|
(5,688 |
) |
|
|
(16,192 |
) |
|
|
(5,661 |
) |
|
|
(31,382 |
) |
|
|
|
|
|
|
|
|
Other comprehensive income
(loss) |
|
|
|
|
|
|
|
Unrealized foreign currency translation (gain) loss |
|
(313 |
) |
|
|
35 |
|
|
|
(422 |
) |
|
|
(36 |
) |
Total other comprehensive
(loss) |
$ |
(5,375 |
) |
|
$ |
(16,227 |
) |
|
$ |
(5,239 |
) |
|
$ |
(31,346 |
) |
|
|
|
|
|
|
|
|
Net (loss) from continuing
operations per share applicable to Surgalign Holdings, Inc. -
basic |
$ |
(0.86 |
) |
|
$ |
(2.79 |
) |
|
$ |
(0.92 |
) |
|
$ |
(7.29 |
) |
Net (loss) from discontinued
operations per share applicable to Surgalign Holdings, Inc. -
basic |
$ |
0.00 |
|
|
$ |
(1.46 |
) |
|
$ |
0.00 |
|
|
$ |
(1.57 |
) |
Net (loss) per share applicable
to Surgalign Holdings, Inc. - basic |
$ |
(0.86 |
) |
|
$ |
(4.25 |
) |
|
$ |
(0.92 |
) |
|
$ |
(8.86 |
) |
Net (loss) from continuing
operations per share applicable to Surgalign Holdings, Inc. -
diluted |
$ |
(0.86 |
) |
|
$ |
(2.79 |
) |
|
$ |
(0.92 |
) |
|
$ |
(7.29 |
) |
Net (loss) from discontinued
operations per share applicable to Surgalign Holdings, Inc. -
diluted |
$ |
0.00 |
|
|
$ |
(1.46 |
) |
|
$ |
0.00 |
|
|
$ |
(1.57 |
) |
Net (loss) per share applicable
to Surgalign Holdings, Inc. - diluted |
$ |
(0.86 |
) |
|
$ |
(4.25 |
) |
|
$ |
(0.92 |
) |
|
$ |
(8.86 |
) |
Weighted average shares
outstanding - basic |
|
6,640,405 |
|
|
|
3,808,475 |
|
|
|
6,174,273 |
|
|
|
3,542,497 |
|
Weighted average shares
outstanding - diluted |
|
6,640,405 |
|
|
|
3,808,475 |
|
|
|
6,174,273 |
|
|
|
3,542,497 |
|
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Condensed Consolidated Balance Sheets |
(Unaudited, in thousands) |
|
|
|
|
|
June 30, |
|
December 31, |
|
2022 |
|
2021 |
Assets |
|
|
|
Cash |
$ |
29,344 |
|
|
$ |
51,287 |
|
Accounts receivable - net |
|
20,502 |
|
|
|
19,197 |
|
Current inventories - net |
|
25,334 |
|
|
|
26,204 |
|
Prepaid and other assets |
|
11,622 |
|
|
|
9,984 |
|
Total current assets |
|
86,802 |
|
|
|
106,672 |
|
Non-current inventories -
net |
|
11,734 |
|
|
|
10,212 |
|
Property, plant and equipment
- net |
|
1,321 |
|
|
|
945 |
|
Other assets - net |
|
5,840 |
|
|
|
5,970 |
|
Total assets |
$ |
105,697 |
|
|
$ |
123,799 |
|
|
|
|
|
Liabilities, Mezzanine Equity and Stockholders'
Equity |
|
|
|
Accounts payable |
$ |
10,557 |
|
|
$ |
10,204 |
|
Current portion of acquisition
contingency - Holo |
|
9,042 |
|
|
|
25,585 |
|
Accrued expenses and other
current liabilities |
|
17,214 |
|
|
|
17,769 |
|
Accrued income taxes |
|
434 |
|
|
|
484 |
|
Total current liabilities |
|
37,247 |
|
|
|
54,042 |
|
Notes payable - related
party |
|
10,087 |
|
|
|
9,982 |
|
Acquisition contingencies -
Holo |
|
22,393 |
|
|
|
26,343 |
|
Warrant liability |
|
1,554 |
|
|
|
12,013 |
|
Other Long-term
liabilities |
|
3,575 |
|
|
|
3,176 |
|
Total liabilities |
|
74,856 |
|
|
|
105,556 |
|
|
|
|
|
Mezzanine equity |
|
10,006 |
|
|
|
10,006 |
|
|
|
|
|
Stockholders' equity: |
|
|
|
Common stock and additional paid-in capital |
|
598,351 |
|
|
|
579,670 |
|
Accumulated other comprehensive loss |
|
(2,242 |
) |
|
|
(1,820 |
) |
Accumulated deficit |
|
(575,274 |
) |
|
|
(569,613 |
) |
Total stockholders' equity |
|
20,835 |
|
|
|
8,237 |
|
Total liabilities and stockholders' equity |
$ |
105,697 |
|
|
$ |
123,799 |
|
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Cash
Flows |
(Unaudited, in thousands) |
|
|
For the Six Months Ended June 30, |
|
2022 |
|
2021 |
Cash flows from
operating activities: |
|
|
|
Net loss |
$ |
(5,661 |
) |
|
$ |
(31,382 |
) |
Adjustments to reconcile net
income (loss) to net cash used in operating activities: |
|
|
|
Depreciation and amortization
expense |
|
1,180 |
|
|
|
1,153 |
|
Provision for bad debts and
product returns |
|
700 |
|
|
|
2,439 |
|
Investor fee |
|
916 |
|
|
|
— |
|
Change in fair value of
warrant liability |
|
(18,867 |
) |
|
|
(2,523 |
) |
Provision for inventory
write-downs |
|
3,804 |
|
|
|
4,367 |
|
Insurance proceeds related to
operating activities |
|
— |
|
|
|
(1,993 |
) |
Income taxes payable |
|
— |
|
|
|
(13,326 |
) |
Stock-based compensation |
|
2,299 |
|
|
|
2,349 |
|
Asset impairment and
abandonments |
|
1,935 |
|
|
|
4,382 |
|
Gain on acquisition
contingency |
|
(10,493 |
) |
|
|
(2,287 |
) |
Loss on sale of discontinued
operations |
|
— |
|
|
|
6,316 |
|
Bargain purchase gain |
|
— |
|
|
|
(90 |
) |
Other |
|
(3 |
) |
|
|
(33 |
) |
Change in assets and
liabilities: |
|
|
|
Accounts receivable |
|
(2,082 |
) |
|
|
(3,777 |
) |
Inventories |
|
(4,767 |
) |
|
|
(9,111 |
) |
Accounts payable |
|
446 |
|
|
|
(3,818 |
) |
Accrued expenses |
|
(7,025 |
) |
|
|
23,605 |
|
Right-of-use asset and lease
liability |
|
223 |
|
|
|
(3,165 |
) |
Other operating assets and
liabilities |
|
4,986 |
|
|
|
(19,253 |
) |
Net cash used in operating activities |
|
(32,409 |
) |
|
|
(46,147 |
) |
Cash flows from
investing activities: |
|
|
|
Payments for OEM working
capital adjustment |
|
— |
|
|
|
(5,430 |
) |
Purchases of property and
equipment |
|
(3,034 |
) |
|
|
(4,952 |
) |
Business acquisitions, net of
cash acquired |
|
— |
|
|
|
(330 |
) |
Patent and acquired intangible
asset costs |
|
(184 |
) |
|
|
(311 |
) |
Net cash used in investing activities |
|
(3,218 |
) |
|
|
(11,023 |
) |
Cash flows from
financing activities: |
|
|
|
Share offering proceeds
including prefunded warrant exercised, net |
|
17,729 |
|
|
|
82,326 |
|
Proceeds from exercise of
common stock options |
|
— |
|
|
|
23 |
|
Proceeds from Employee Stock
Purchase Program (ESPP) |
|
186 |
|
|
|
— |
|
Payment of Holo Milestones -
contingent consideration |
|
(4,081 |
) |
|
|
— |
|
Payments for treasury
stock |
|
(56 |
) |
|
|
(133 |
) |
Net cash provided by financing activities |
$ |
13,778 |
|
|
$ |
82,216 |
|
Effect of exchange rate
changes on cash and cash equivalents |
$ |
(94 |
) |
|
$ |
249 |
|
Net (decrease) increase in cash and cash equivalents |
$ |
(21,943 |
) |
|
$ |
25,295 |
|
Cash and cash equivalents,
beginning of period |
$ |
51,287 |
|
|
$ |
43,962 |
|
Cash and cash equivalents, end
of period |
$ |
29,344 |
|
|
$ |
69,257 |
|
Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements
presented on a GAAP basis, we disclose non-GAAP net
income applicable to common shares and non-GAAP gross
profit adjusted for certain amounts. The calculation of the tax
effect on the adjustments between GAAP net loss applicable to
common shares and non-GAAP net income applicable to
common shares is based upon our estimated annual GAAP tax rate,
adjusted to account for items excluded from GAAP net loss
applicable to common shares in calculating non-GAAP net
income applicable to common shares. Reconciliations of each of
these non-GAAP financial measures to the corresponding
GAAP measures are included in the reconciliations below.
The following are explanations of the adjustments that
management excluded as part of the non-GAAP measures for
the three and six months ended June 30, 2022 and 2021. Management
removes the amount of these costs including the tax effect on the
adjustments from our operating results to supplement a comparison
to our past operating performance.
2022 and 2021 Non-cash stock-based compensation – These costs
relate to expense amortization for all stock-based awards made to
employees and directors, including restricted stock awards,
restricted stock units, stock options and the employee stock
purchase plan purchase rights.
2022 and 2021 Foreign exchange (gain) loss – These costs relate
to the process of remeasuring international activity into the
Company's functional currency.
2022 Change in fair value of warrant liability – Other income
related to the revaluation of our warrant liability.
2022 and 2021 Gain on acquisition contingency – The gain on
acquisition contingency relates to an adjustment to our estimate of
obligation for future milestone payments on the Holo Surgical
acquisition.
2022 and 2021 Asset impairment and abandonments – These costs
relate to asset impairment and abandonments of certain long-term
assets within the asset group.
2022 and 2021 Transaction and integration expenses – These costs
relate to professional fees associated with financings and with the
acquisition of Holo Surgical and Prompt Prototypes, and other
matters.
2022 and 2021 Inventory purchase price adjustment – These costs
relate to the purchase price effects of acquired Paradigm inventory
that was sold during the three months ended March 31, 2022 and
2021.
2022 Inventory write-off – These costs relate to inventory
write-offs for product rationalization.
2021 Bargain purchase gain – Gain related to our acquisition of
Prompt Prototypes, LLC.
2021 Severance and restructuring costs – These gain and costs
relate to the reduction of our organizational structure, primarily
driven by simplification of our Marquette, MI location.
Material Limitations Associated with the Use
of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA and Adjusted Net Income Applicable to
Common Shares should not be considered in isolation, or as a
replacement for GAAP measures.
Usefulness of Non-GAAP Financial Measures to
Investors
The Company believes that presenting EBITDA, Adjusted EBITDA and
Adjusted Net Income Applicable to Common Shares in addition to the
related GAAP measures provide investors greater transparency to the
information used by management in its financial
decision-making.
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Reconciliation of Revenues to Adjusted Gross
Profit |
(Unaudited, in thousands) |
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
2022 |
|
2021 |
Revenues |
$ |
20,623 |
|
100.0 |
% |
|
$ |
24,834 |
|
100.0 |
% |
Costs of processing and
distribution |
|
6,414 |
|
31.1 |
% |
|
|
7,229 |
|
29.1 |
% |
Gross profit, as reported |
|
14,209 |
|
68.9 |
% |
|
|
17,605 |
|
70.9 |
% |
Inventory write-off |
|
535 |
|
2.6 |
% |
|
|
— |
|
— |
% |
Inventory purchase price
adjustment |
|
414 |
|
2.0 |
% |
|
|
554 |
|
2.2 |
% |
Non-GAAP gross profit,
adjusted |
$ |
15,158 |
|
73.5 |
% |
|
$ |
18,159 |
|
73.1 |
% |
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Reconciliation of Revenues to Adjusted Gross
Profit |
(Unaudited, in thousands) |
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
2022 |
|
2021 |
Revenues |
$ |
41,228 |
|
100.0 |
% |
|
$ |
48,125 |
|
100.0 |
% |
Costs of processing and
distribution |
|
12,824 |
|
31.1 |
% |
|
|
13,467 |
|
28.0 |
% |
Gross profit, as reported |
|
28,404 |
|
68.9 |
% |
|
|
34,658 |
|
72.0 |
% |
Inventory write-off |
|
535 |
|
1.3 |
% |
|
|
— |
|
— |
% |
Inventory purchase price
adjustment |
|
824 |
|
2.0 |
% |
|
|
1,081 |
|
2.2 |
% |
Non-GAAP gross profit,
adjusted |
$ |
29,763 |
|
72.2 |
% |
|
$ |
35,739 |
|
74.3 |
% |
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Non-GAAP Operating Expenses, Adjusted |
(Unaudited, in thousands) |
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
For the Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Operating Expenses |
|
27,599 |
|
|
|
30,882 |
|
|
|
50,716 |
|
|
|
62,365 |
|
Non-cash stock-based compensation |
|
925 |
|
|
|
1,413 |
|
|
|
2,299 |
|
|
|
2,349 |
|
Gain on acquisition contingency |
|
(1,990 |
) |
|
|
(2,236 |
) |
|
|
(10,493 |
) |
|
|
(2,287 |
) |
Bargain purchase gain |
|
— |
|
|
|
(90 |
) |
|
|
— |
|
|
|
(90 |
) |
Asset impairment and abandonments |
|
996 |
|
|
|
2,206 |
|
|
|
1,935 |
|
|
|
4,382 |
|
Transaction and integration expenses |
|
222 |
|
|
|
2,188 |
|
|
|
1,138 |
|
|
|
2,510 |
|
Severance and restructuring costs |
|
— |
|
|
|
20 |
|
|
|
— |
|
|
|
237 |
|
Adjusted Operating
Expenses |
$ |
27,446 |
|
|
$ |
27,381 |
|
|
$ |
55,837 |
|
|
$ |
55,264 |
|
Adjusted Operating Expenses as
a percent of revenues |
|
133.1 |
% |
|
|
110.3 |
% |
|
|
135.4 |
% |
|
|
114.8 |
% |
|
|
|
|
|
|
|
|
*Please note this
reconciliation does not include HOLO Portal capitalized costs of
$0.4 million and $0.0 million for the three months ended June 30,
2022 and 2021, and $0.4 million and $0.0 million for the six months
ended June 30, 2022 and 2021. |
#See explanations
in Non-GAAP Financial Measures above. |
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Reconciliation of Net Loss Applicable to Common Shares and
Loss Income Per Diluted Share to Adjusted Net Loss Applicable to
Common Shares and Adjusted Net Loss Per Diluted Share |
(Unaudited, in thousands except per share
data) |
|
|
For the Three Months Ended |
|
June 30, 2022 |
|
June 30, 2021 |
|
Net Loss Applicable to Common Shares |
|
Amount Per Diluted Share |
|
Net Loss Applicable to Common Shares |
|
Amount Per Diluted Share |
Net loss from continuing operations |
$ |
(5,688 |
) |
|
$ |
(0.86 |
) |
|
$ |
(10,639 |
) |
|
$ |
(2.79 |
) |
Change in fair value of
warrant liability |
|
(9,124 |
) |
|
|
(1.37 |
) |
|
|
(2,523 |
) |
|
|
(0.66 |
) |
Gain on acquisition
contingency |
|
(1,990 |
) |
|
|
(0.30 |
) |
|
|
(2,236 |
) |
|
|
(0.59 |
) |
Non-cash stock-based
compensation |
|
925 |
|
|
|
0.14 |
|
|
|
1,413 |
|
|
|
0.37 |
|
Foreign exchange loss
(gain) |
|
1,056 |
|
|
|
0.16 |
|
|
|
(95 |
) |
|
|
(0.02 |
) |
Bargain purchase gain |
|
— |
|
|
|
0.00 |
|
|
|
(90 |
) |
|
|
(0.02 |
) |
Asset impairment and
abandonments |
|
996 |
|
|
|
0.15 |
|
|
|
2,206 |
|
|
|
0.58 |
|
Transaction and integration
expenses |
|
222 |
|
|
|
0.03 |
|
|
|
2,188 |
|
|
|
0.57 |
|
Inventory purchase price
adjustment |
|
414 |
|
|
|
0.06 |
|
|
|
554 |
|
|
|
0.15 |
|
Inventory write-off |
|
535 |
|
|
|
0.08 |
|
|
|
— |
|
|
|
0.00 |
|
Severance and restructuring
costs |
|
— |
|
|
|
0.00 |
|
|
|
20 |
|
|
|
0.01 |
|
Tax effect on adjustments |
|
— |
|
|
|
0.00 |
|
|
|
(28 |
) |
|
|
(0.01 |
) |
Non-GAAP net loss from
continuing operations |
$ |
(12,654 |
) |
|
$ |
(1.91 |
) |
|
$ |
(9,230 |
) |
|
$ |
(2.41 |
) |
|
|
|
|
|
|
|
|
*Please note this
reconciliation does not include HOLO Portal capitalized costs of
$0.4 million and $0.0 million for the three months ended June 30,
2022 and 2021. |
#See explanations
in Non-GAAP Financial Measures above. |
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Reconciliation of Net Loss Applicable to Common Shares and
Loss Income Per Diluted Share to Adjusted Net Loss Applicable to
Common Shares and Adjusted Net Loss Per Diluted Share |
(Unaudited, in thousands except per share
data) |
|
|
For the Six Months Ended |
|
June 30, 2022 |
|
June 30, 2021 |
|
Net Loss Applicable to Common Shares |
|
Amount Per Diluted Share |
|
Net Loss Applicable to Common Shares |
|
Amount Per Diluted Share |
Net loss from continuing operations |
$ |
(5,661 |
) |
|
$ |
(0.92 |
) |
|
$ |
(25,829 |
) |
|
$ |
(7.29 |
) |
Change in fair value of
warrant liability |
|
(18,867 |
) |
|
|
(3.06 |
) |
|
|
(2,523 |
) |
|
|
(0.71 |
) |
Gain on acquisition
contingency |
|
(10,493 |
) |
|
|
(1.70 |
) |
|
|
(2,287 |
) |
|
|
(0.65 |
) |
Non-cash stock-based
compensation |
|
2,299 |
|
|
|
0.37 |
|
|
|
2,349 |
|
|
|
0.66 |
|
Foreign exchange loss |
|
1,409 |
|
|
|
0.23 |
|
|
|
450 |
|
|
|
0.13 |
|
Bargain purchase gain |
|
— |
|
|
|
0.00 |
|
|
|
(90 |
) |
|
|
(0.03 |
) |
Asset impairment and
abandonments |
|
1,935 |
|
|
|
0.31 |
|
|
|
4,382 |
|
|
|
1.24 |
|
Transaction and integration
expenses |
|
1,138 |
|
|
|
0.18 |
|
|
|
2,510 |
|
|
|
0.71 |
|
Inventory purchase price
adjustment |
|
824 |
|
|
|
0.13 |
|
|
|
1,081 |
|
|
|
0.31 |
|
Inventory write-off |
|
535 |
|
|
|
0.09 |
|
|
|
— |
|
|
|
0.00 |
|
Severance and restructuring
costs |
|
— |
|
|
|
0.00 |
|
|
|
237 |
|
|
|
0.07 |
|
Tax effect on adjustments |
|
— |
|
|
|
0.00 |
|
|
|
(28 |
) |
|
|
(0.01 |
) |
Non-GAAP net loss from
continuing operations |
$ |
(26,881 |
) |
|
$ |
(4.37 |
) |
|
$ |
(19,748 |
) |
|
$ |
(5.57 |
) |
|
|
|
|
|
|
|
|
*Please note this
reconciliation does not include HOLO Portal capitalized costs of
$0.4 million and $0.0 million for the six months ended June 30,
2022 and 2021. |
#See explanations
in Non-GAAP Financial Measures above. |
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Reconciliation of Net Loss Applicable to Commons Shares to
Adjusted EBITDA |
(Unaudited, in thousands) |
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
For the Six Months Ended June 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Net loss from continuing operations |
$ |
(5,688 |
) |
|
$ |
(10,639 |
) |
|
$ |
(5,661 |
) |
|
$ |
(25,829 |
) |
Interest expense, net |
|
252 |
|
|
|
— |
|
|
|
504 |
|
|
|
— |
|
Provision for income taxes |
|
92 |
|
|
|
81 |
|
|
|
254 |
|
|
|
300 |
|
Depreciation |
|
566 |
|
|
|
633 |
|
|
|
1,075 |
|
|
|
1,153 |
|
EBITDA |
|
(4,778 |
) |
|
|
(9,925 |
) |
|
|
(3,828 |
) |
|
|
(24,376 |
) |
Non-cash stock-based compensation |
|
925 |
|
|
|
1,413 |
|
|
|
2,299 |
|
|
|
2,349 |
|
Foreign exchange loss |
|
1,056 |
|
|
|
(95 |
) |
|
|
1,409 |
|
|
|
450 |
|
Inventory purchase price adjustment |
|
414 |
|
|
|
554 |
|
|
|
824 |
|
|
|
1,081 |
|
Change in fair value of warrant liability |
|
(9,124 |
) |
|
|
(2,523 |
) |
|
|
(18,867 |
) |
|
|
(2,523 |
) |
Gain on acquisition contingency |
|
(1,990 |
) |
|
|
(2,236 |
) |
|
|
(10,493 |
) |
|
|
(2,287 |
) |
Bargain purchase gain |
|
— |
|
|
|
(90 |
) |
|
|
— |
|
|
|
(90 |
) |
Asset impairment and abandonments |
|
996 |
|
|
|
2,206 |
|
|
|
1,935 |
|
|
|
4,382 |
|
Transaction and integration expenses |
|
222 |
|
|
|
2,188 |
|
|
|
1,138 |
|
|
|
2,510 |
|
Inventory write-off |
|
535 |
|
|
|
— |
|
|
|
535 |
|
|
|
— |
|
Severance and restructuring costs |
|
— |
|
|
|
20 |
|
|
|
— |
|
|
|
237 |
|
Adjusted EBITDA |
$ |
(11,744 |
) |
|
$ |
(8,488 |
) |
|
$ |
(25,048 |
) |
|
$ |
(18,267 |
) |
Adjusted EBITDA as a percent
of revenues |
|
(56.9 |
)% |
|
|
(34.2 |
)% |
|
|
(60.8 |
)% |
|
|
(38.0 |
)% |
|
|
|
|
|
|
|
|
*Please note this
reconciliation does not include HOLO Portal capitalized costs of
$0.4 million and $0.0 million for the three months ended June 30,
2022 and 2021, and $0.4 million and $0.0 million for the six months
ended June 30, 2022 and 2021. |
#See explanations
in Non-GAAP Financial Measures above. |
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