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 reported operating
results for its fourth quarter and full year 2022 ending December
31, 2022.
2022 Fourth Quarter
and Subsequent 2023 Corporate Highlights:
- Expansion of HOLO Portal™ into Virginia and Texas; over 30
cases performed since commercial launch
- Launched HOLO™ AI Insights, part of the HOLO AI portfolio, to
provide powerful population analytics of spine MRI images
- HOLO Portal receives 2022 Best New Technology Award from
Orthopedics This Week
- 100th case completed utilizing the Cortera™ Spinal Fixation
System
- Closed $12.0 million Registered Direct Offering in Q4
providing net cash of $10.8 million to balance sheet
- Sold its Coflex® and CoFix product line to Xtant Medical
Holdings, Inc. on February 28, 2023 for $17.0 million, adding net
cash of $14.8 million to balance sheet
- Company continues to execute its corporate restructuring
program; on track to realize targeted cash savings of $30 to $35
million in 2023 (compared to 2022)
"I'm very proud of the team as we continue to transform our
business and realign both products and resources, working
productively with our customers throughout," stated Terry Rich,
President and Chief Executive Officer. “We are focused on becoming
a leader in Digital Health, through both commercialization of new
products and ongoing technology innovation. During the first
quarter, we enhanced our HOLO Portal surgical guidance system and
launched HOLO AI Insights, broadening our future offering and
market potential. We believe our AI platform is leading the market
and has the potential to drive better patient outcomes."
Financial Update
Total revenue for the three months ended December 31, 2022, was
$20.6 million as compared to $21.8 million in the
comparable year-ago period. The decrease in revenue was primarily
related to market and economic conditions in the U.S. and abroad.
On a sequential basis when compared to the 2022 third quarter ended
September 30, 2022, total revenue increased $0.4 million.
A large write-down of inventory related to product
rationalization undertaken by the Company as part of its corporate
restructuring, which began in the fourth quarter of 2022, led to
GAAP gross margin of -13.6% for the three months ended December 31,
2022, as compared to GAAP gross margin of 56.5% in the comparable
year-ago period.
On a non-GAAP basis, the Company reported adjusted gross margin
of 71.9% for the three months ended December 31, 2022, as compared
to adjusted gross margin of 72.5% in the comparable year-ago
period. This compares to non-GAAP gross margin of 74.9% reported in
the 2022 third quarter, with the change primarily due to product
mix shift.
Total GAAP operating expenses for the three months ended
December 31, 2022 were $45.3 million as compared to GAAP
operating expenses of $105.0 million in the comparable
year-ago period. The primary drivers for the year-over-year
improvement were $72.1 million of lower expenses incurred for
the INN acquisition, and a $3.0 million decrease in general
and administrative expenses as a result of cost-efficiency programs
the Company continues to execute. Additionally, asset impairment
and abandonment expenses were lower by $1.3 million and this
related to the impairment of the Company's ERP system in 2021 and a
reduction in capital expenditures during 2022. This was partially
offset by a $16.9 million increase in transaction and
financing expenses, which were predominantly non-cash accounting
charges related to the difference between the fair value of
warrants and the amount raised in the Company’s November 2022
offering.
On a non-GAAP basis, total adjusted operating expenses for the
three months ended December 31, 2022 were $24.6 million, as
compared to $29.3 million for the three months ended December
31, 2021. Excluded from non-GAAP operating expenses for the 2022
fourth quarter was a gain of $0.7 million due to a fair value
adjustment related to the Holo Surgical Inc. milestones,
$1.1 million in asset impairment charges, $1.2 million in
severance and restructuring costs, $1.1 million of non-cash
stock-based compensation, and $18.0 million in transaction and
financing expenses, of which $17.0 million were non-cash and
related to executing the November 2022 warrants. On a sequential
basis when compared to the 2022 third quarter, total adjusted
operating expenses declined by $1.9 million.
The Company reported an operating loss of $48.2 million for
the three months ended December 31, 2022, as compared to an
operating loss of $92.6 million in the comparable year-ago
period. Net loss from continuing operations for the three months
ended December 31, 2022 was $39.1 million, as compared to a
net loss from continuing operations of $88.8 million in the
comparable year-ago period.
Adjusted earnings before interest, taxes, depreciation and
amortization (Adjusted EBITDA) for the three months ended December
31, 2022 was a loss of $9.1 million as compared to an Adjusted
EBITDA loss of $12.9 million in the comparable year-ago
period. On a sequential basis when compared to the 2022 third
quarter, Adjusted EBITDA improved by $2.1 million.
As of December 31, 2022, cash and cash equivalents were
approximately $16.3 million, as compared to $51.3 million
reported as of December 31, 2021.
The Company continues to implement a corporate-wide review of
its organizational structure, processes and costs, along with
continued product rationalization initiatives. As announced on
March 6, 2023, the Company remains on track to achieve its target
cash savings of $30.0 - $35.0 million in 2023 compared to 2022.
Coupled with the cash received from the sale of its Coflex family
of products to Xtant Medical Holdings in the 2023 first quarter,
the Company believes it has cash on hand to fund the Company into
the 2023 fourth quarter. Surgalign continues to evaluate all
options to further improve its liquidity position.
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 (866)
604-1616 (U.S.) or (201) 689-8043 (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 to drive transformation
across the surgical landscape. Uniquely aligned and resourced to
advance the standard of care, the company is building technologies
physicians and other health providers will look to for what is
truly possible for their patients. Surgalign is focused on
developing solutions that predictably deliver superior clinical and
economic outcomes. Surgalign markets products throughout the United
States and in approximately 40 countries worldwide through its
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 Statements
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, and such forward-looking statements include
(among others) statements regarding anticipated future financial
and operating performance (including forecasted full-year revenue
and number of HOLO sites secured), product rationalization and
expense reduction initiatives and the results thereof, potential
third party financing and anticipated cash needs. 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, 10-Q 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) 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; (ii) risks
relating to existing or potential litigation or regulatory actions;
(iii) the identification of control deficiencies, including
material weaknesses in internal control over financial reporting;
(iv) general worldwide economic conditions and related
uncertainties; (v) the continued impact of the COVID-19 and the
Company’s attempts at mitigation, particularly in international
markets served by the Company; (vi) the failure by the Company to
identify, develop and successfully implement its strategic
initiatives, particularly with respect to its digital surgery
strategy ; (vii) the reliability of our supply chain; (viii) our
ability to meet obligations, including purchase minimums, under our
vendor and other agreements; (ix) whether or when the demand for
procedures involving our products will increase; (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 Twelve Months Ended |
|
|
December 31, |
|
December 31, |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Revenues |
|
$ |
20,573 |
|
|
$ |
21,830 |
|
|
$ |
81,979 |
|
|
$ |
90,500 |
|
Costs of goods sold |
|
|
23,381 |
|
|
|
9,497 |
|
|
|
41,691 |
|
|
|
29,775 |
|
Gross profit |
|
|
(2,808 |
) |
|
|
12,333 |
|
|
|
40,288 |
|
|
|
60,725 |
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
General and administrative |
|
|
22,427 |
|
|
|
25,414 |
|
|
|
95,888 |
|
|
|
104,460 |
|
Severance and restructuring costs |
|
|
1,148 |
|
|
|
(10 |
) |
|
|
1,148 |
|
|
|
208 |
|
Research and development |
|
|
3,334 |
|
|
|
4,928 |
|
|
|
15,736 |
|
|
|
13,888 |
|
Gain on acquisition contingency |
|
|
(683 |
) |
|
|
(1,034 |
) |
|
|
(17,867 |
) |
|
|
(4,587 |
) |
Asset acquisition expenses |
|
|
— |
|
|
|
72,087 |
|
|
|
— |
|
|
|
72,087 |
|
Asset impairment and abandonments |
|
|
1,082 |
|
|
|
2,401 |
|
|
|
5,352 |
|
|
|
12,195 |
|
Transaction and financing expenses |
|
|
18,039 |
|
|
|
1,179 |
|
|
|
19,391 |
|
|
|
3,689 |
|
Total operating expenses |
|
|
45,347 |
|
|
|
104,965 |
|
|
|
119,648 |
|
|
|
201,940 |
|
Other operating income, net |
|
|
— |
|
|
|
— |
|
|
|
(898 |
) |
|
|
(3,932 |
) |
Operating loss |
|
|
(48,155 |
) |
|
|
(92,632 |
) |
|
|
(78,462 |
) |
|
|
(137,283 |
) |
|
|
|
|
|
|
|
|
|
Other expense (income) - net |
|
|
|
|
|
|
|
|
Other expense (income) - net |
|
|
(353 |
) |
|
|
19 |
|
|
|
26 |
|
|
|
(202 |
) |
Interest expense |
|
|
253 |
|
|
|
— |
|
|
|
1,009 |
|
|
|
— |
|
Foreign exchange (gain) loss |
|
|
(1,699 |
) |
|
|
526 |
|
|
|
978 |
|
|
|
1,447 |
|
Change in fair value of warrant liability |
|
|
(5,910 |
) |
|
|
(4,474 |
) |
|
|
(24,827 |
) |
|
|
(14,736 |
) |
Total other income - net |
|
|
(7,709 |
) |
|
|
(3,929 |
) |
|
|
(22,814 |
) |
|
|
(13,491 |
) |
Loss before income tax
provision |
|
|
(40,446 |
) |
|
|
(88,703 |
) |
|
|
(55,648 |
) |
|
|
(123,792 |
) |
Income tax (benefit)
provision |
|
|
(1,335 |
) |
|
|
118 |
|
|
|
(1,043 |
) |
|
|
(886 |
) |
Net loss from continuing operations |
|
|
(39,111 |
) |
|
|
(88,821 |
) |
|
|
(54,605 |
) |
|
|
(122,906 |
) |
Discontinued operations (Note
5) |
|
|
|
|
|
|
|
|
Loss from operations of discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,316 |
) |
Income tax benefit |
|
|
— |
|
|
|
(1,562 |
) |
|
|
— |
|
|
|
(2,674 |
) |
Net loss from discontinued operations |
|
|
— |
|
|
|
1,562 |
|
|
|
— |
|
|
|
(3,642 |
) |
Net loss |
|
|
(39,111 |
) |
|
|
(87,259 |
) |
|
|
(54,605 |
) |
|
|
(126,548 |
) |
Net loss applicable to noncontrolling interests |
|
|
— |
|
|
|
41,897 |
|
|
|
— |
|
|
|
41,897 |
|
Net loss applicable to
Surgalign Holdings, Inc. |
|
$ |
(39,111 |
) |
|
$ |
(45,362 |
) |
|
$ |
(54,605 |
) |
|
$ |
(84,651 |
) |
|
|
|
|
|
|
|
|
|
Net loss from continuing
operations per share applicable to Surgalign Holdings, Inc. -
basic |
|
$ |
(5.77 |
) |
|
$ |
(19.23 |
) |
|
$ |
(8.33 |
) |
|
$ |
(30.08 |
) |
Net loss from continuing
operations per share applicable to Surgalign Holdings, Inc. -
diluted |
|
$ |
(5.77 |
) |
|
$ |
(19.23 |
) |
|
$ |
(8.33 |
) |
|
$ |
(30.08 |
) |
Net gain (loss) from discontinued
operations per share applicable to Surgalign Holdings, Inc. -
basic |
|
$ |
— |
|
|
$ |
0.34 |
|
|
$ |
— |
|
|
$ |
(0.89 |
) |
Net gain (loss) from discontinued
operations per share applicable to Surgalign Holdings, Inc. -
diluted |
|
$ |
— |
|
|
$ |
0.34 |
|
|
$ |
— |
|
|
$ |
(0.89 |
) |
Net loss per share applicable to
Surgalign Holdings, Inc. - basic |
|
$ |
(5.77 |
) |
|
$ |
(9.82 |
) |
|
$ |
(8.33 |
) |
|
$ |
(20.72 |
) |
Net loss per share applicable
to Surgalign Holdings, Inc. - diluted |
|
$ |
(5.77 |
) |
|
$ |
(9.82 |
) |
|
$ |
(8.33 |
) |
|
$ |
(20.72 |
) |
Weighted average shares
outstanding - basic |
|
|
6,780,777 |
|
|
|
4,617,806 |
|
|
|
6,555,207 |
|
|
|
4,086,409 |
|
Weighted average shares
outstanding - diluted |
|
|
6,780,777 |
|
|
|
4,617,806 |
|
|
|
6,555,207 |
|
|
|
4,086,409 |
|
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Condensed Consolidated Balance Sheets |
(Unaudited, in thousands) |
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
|
2022 |
|
|
|
2021 |
|
Assets |
|
|
|
|
Cash |
|
$ |
16,295 |
|
|
$ |
51,287 |
|
Accounts receivable - net |
|
|
16,057 |
|
|
|
19,197 |
|
Current inventories - net |
|
|
17,710 |
|
|
|
26,204 |
|
Prepaid and other assets |
|
|
6,649 |
|
|
|
9,984 |
|
Total current assets |
|
$ |
56,711 |
|
|
$ |
106,672 |
|
Non-current inventories - net |
|
|
5,947 |
|
|
|
10,212 |
|
Property, plant and equipment - net |
|
|
2,057 |
|
|
|
945 |
|
Other assets - net |
|
|
5,527 |
|
|
|
5,970 |
|
Total assets |
|
$ |
70,242 |
|
|
$ |
123,799 |
|
|
|
|
|
|
Liabilities, Mezzanine Equity and Stockholders'
Equity |
|
|
|
|
Accounts payable |
|
$ |
7,705 |
|
|
$ |
10,204 |
|
Current portion of acquisition contingency - Holo |
|
|
— |
|
|
|
25,585 |
|
Accrued expenses and other current liabilities |
|
|
13,146 |
|
|
|
17,769 |
|
Accrued income taxes |
|
|
296 |
|
|
|
484 |
|
Total current liabilities |
|
$ |
21,147 |
|
|
$ |
54,042 |
|
Notes payable - related party |
|
|
10,192 |
|
|
|
9,982 |
|
Acquisition contingencies - Holo |
|
|
24,061 |
|
|
|
26,343 |
|
Warrant liability |
|
|
22,982 |
|
|
|
12,013 |
|
Other Long-term liabilities |
|
|
7,583 |
|
|
|
3,176 |
|
Total liabilities |
|
$ |
85,965 |
|
|
$ |
105,556 |
|
|
|
|
|
|
Mezzanine equity |
|
|
10,006 |
|
|
|
10,006 |
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
Common stock and additional paid-in capital |
|
|
601,329 |
|
|
|
579,670 |
|
Accumulated other comprehensive loss |
|
|
(2,840 |
) |
|
|
(1,820 |
) |
Accumulated deficit |
|
|
(624,218 |
) |
|
|
(569,613 |
) |
Total stockholders' equity |
|
$ |
(25,729 |
) |
|
$ |
8,237 |
|
Total liabilities and stockholders' equity |
|
$ |
70,242 |
|
|
$ |
123,799 |
|
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Cash
Flows |
(Unaudited, in thousands) |
|
|
|
For the Twelve Months Ended December 31, |
|
|
|
2022 |
|
|
|
2021 |
|
Cash flows from
operating activities: |
|
|
|
|
Net loss |
|
$ |
(54,605 |
) |
|
$ |
(126,548 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
|
|
Depreciation and amortization
expense |
|
|
2,183 |
|
|
|
2,479 |
|
Provision for bad debts and
product returns |
|
|
1,895 |
|
|
|
2,064 |
|
Change in fair value of
warrant liability |
|
|
(24,827 |
) |
|
|
(14,736 |
) |
Provision for inventory
write-downs |
|
|
19,972 |
|
|
|
9,096 |
|
Investor fee for warrant
financing |
|
|
916 |
|
|
|
2,119 |
|
Financing fee for warrant
financing |
|
|
17,042 |
|
|
|
— |
|
Deferred income tax
provision |
|
|
(1,251 |
) |
|
|
(171 |
) |
Stock-based compensation |
|
|
4,634 |
|
|
|
5,212 |
|
Asset impairment and
abandonments |
|
|
5,352 |
|
|
|
12,195 |
|
Asset acquisition
expenses |
|
|
— |
|
|
|
72,087 |
|
Gain on acquisition
contingency |
|
|
(17,867 |
) |
|
|
(4,587 |
) |
Bargain purchase gain |
|
|
— |
|
|
|
(90 |
) |
Loss on sale of OEM business
(discontinued operations) |
|
|
— |
|
|
|
6,316 |
|
Other |
|
|
(3 |
) |
|
|
24 |
|
Change in assets and
liabilities: |
|
|
|
|
Accounts receivable |
|
|
1,182 |
|
|
|
5,701 |
|
Inventories |
|
|
(7,858 |
) |
|
|
(15,480 |
) |
Accounts payable |
|
|
(2,442 |
) |
|
|
(3,112 |
) |
Accrued expenses and income
taxes payable |
|
|
(20,317 |
) |
|
|
10,542 |
|
Right-of-use asset and lease
liability |
|
|
(174 |
) |
|
|
(2,542 |
) |
Other operating assets and
liabilities |
|
|
24,059 |
|
|
|
(12,361 |
) |
Net cash used in operating
activities |
|
$ |
(52,109 |
) |
|
$ |
(51,792 |
) |
Cash flows from
investing activities: |
|
|
|
|
Payments for OEM working
capital adjustment |
|
|
— |
|
|
|
(5,430 |
) |
Purchases of property and
equipment |
|
|
(6,781 |
) |
|
|
(13,423 |
) |
Patent and acquired intangible
asset costs |
|
|
(475 |
) |
|
|
(649 |
) |
Acquisition of INN |
|
|
— |
|
|
|
(5,000 |
) |
Business acquisitions, net of
cash acquired |
|
|
— |
|
|
|
(330 |
) |
Net cash used in investing
activities |
|
$ |
(7,256 |
) |
|
$ |
(24,832 |
) |
Cash flows from
financing activities: |
|
|
|
|
Share offering proceeds,
net |
|
|
28,563 |
|
|
|
82,326 |
|
Pre-funded warrant
execution |
|
|
1 |
|
|
|
— |
|
Proceeds from exercise of
common stock options |
|
|
— |
|
|
|
23 |
|
Proceeds from Employee Stock
Purchase Program (ESPP) |
|
|
246 |
|
|
|
407 |
|
Repayment of Holo
milestones |
|
|
(4,081 |
) |
|
|
— |
|
Payments for treasury
stock |
|
|
(71 |
) |
|
|
(196 |
) |
Net cash provided by financing
activities |
|
$ |
24,658 |
|
|
$ |
82,560 |
|
Effect of exchange rate
changes on cash and cash equivalents |
|
|
(285 |
) |
|
|
1,389 |
|
Net increase (decrease) in
cash and cash equivalents |
|
|
(34,992 |
) |
|
|
7,325 |
|
Cash and cash equivalents,
beginning of period |
|
|
51,287 |
|
|
|
43,962 |
|
Cash and cash equivalents, end
of period |
|
$ |
16,295 |
|
|
$ |
51,287 |
|
Non-GAAP Financial Measures
To supplement our consolidated financial statements presented on
a GAAP basis, we disclose non-GAAP net loss applicable to common
shares, non-GAAP net loss per diluted share, non-GAAP operating
expenses, and non-GAAP gross profit, in each case adjusted for
certain amounts. In addition, we disclose EBITDA and Adjusted
EBITDA, which are non-GAAP financial measures. The calculation of
the tax effect on the adjustments between GAAP net loss applicable
to common shares and non-GAAP net loss 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 loss applicable to common
shares. Reconciliations of each of these non-GAAP financial
measures to the most directly comparable 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 years ended December 31, 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 loss – These costs relate to the
process of remeasuring international activity into the Company's
functional currency.
2022 and 2021 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 Inventory purchase price adjustment – These costs
relate to the purchase price effects of acquired Paradigm inventory
that was sold during the years ended December 31, 2022 and
2021.
2022 and 2021 Transaction and financing expenses – These costs
relate to professional fees associated with financings and issuance
costs for the registered direct offering and professional fees
associated with the acquisition of INN, Holo Surgical, and Prompt
Prototypes, LLC.
2022 and 2021 Tax effect on other adjustments – These
adjustments represent the tax effects of the non-GAAP measures for
the respective years.
2022 and 2021 Severance and restructuring costs – 2022 costs
relate to employee related severance costs as a result of the
Company’s organization restructuring plan. 2021 costs relate to the
reduction of our organizational structure, primarily driven by
simplification of our Marquette, MI location.
2022 and 2021 Other operating income, net – Gain relates to the
Company’s inventory settlement with OEM.
2022 Inventory write-off – These costs relate to inventory
write-offs associated with reduced sales forecasts applied for the
Company’s continuing inventory product portfolio.
2022 Product rationalization – These costs relate to inventory
write downs associated with the Company’s product portfolio
rationalization initiative and wind down of the international
business.
2021 Bargain purchase gain – Gain related to our acquisition of
Prompt Prototypes, LLC.
2021 Supplier prepayment write-off – Cost related to the
write-off of prepaid royalty payments that the Company assessed
would not be met in future years.
2021 Asset acquisition expenses – The asset acquisition expenses
related to the INN acquisition in 2021.
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 December 31, |
|
For the Twelve Months Ended December 31, |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Revenues |
|
$ |
20,573 |
|
|
$ |
21,830 |
|
|
$ |
81,979 |
|
|
$ |
90,500 |
|
Costs of processing and
distribution |
|
|
23,381 |
|
|
|
9,497 |
|
|
|
41,691 |
|
|
|
29,775 |
|
Gross profit, as reported |
|
|
(2,808 |
) |
|
|
12,333 |
|
|
|
40,288 |
|
|
|
60,725 |
|
Inventory write-off |
|
|
3,174 |
|
|
|
— |
|
|
|
3,709 |
|
|
|
— |
|
Product rationalization |
|
|
13,822 |
|
|
|
— |
|
|
|
13,822 |
|
|
|
— |
|
Supplier prepayment
write-off |
|
|
180 |
|
|
|
3,000 |
|
|
|
180 |
|
|
|
3,000 |
|
Inventory purchase price
adjustment |
|
|
423 |
|
|
|
497 |
|
|
|
1,678 |
|
|
|
2,036 |
|
Non-GAAP gross profit,
adjusted |
|
$ |
14,791 |
|
|
$ |
15,830 |
|
|
$ |
59,677 |
|
|
$ |
65,761 |
|
Non-GAAP gross profit
percentage, adjusted |
|
|
71.9 |
% |
|
|
72.5 |
% |
|
|
72.8 |
% |
|
|
72.7 |
% |
SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES |
Non-GAAP Operating Expenses, Adjusted |
(Unaudited, in thousands) |
|
|
|
|
|
|
|
|
|
For the Three Months Ended December 31, |
|
For the Twelve Months Ended December 31, |
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Operating Expenses |
$ |
45,347 |
|
|
$ |
104,965 |
|
|
$ |
119,648 |
|
|
$ |
201,940 |
|
Non-cash stock-based compensation |
|
1,122 |
|
|
|
994 |
|
|
|
4,634 |
|
|
|
5,212 |
|
Gain on acquisition contingency |
|
(683 |
) |
|
|
(1,034 |
) |
|
|
(17,867 |
) |
|
|
(4,587 |
) |
Asset acquisition expenses |
|
— |
|
|
|
72,087 |
|
|
|
— |
|
|
|
72,087 |
|
Bargain purchase gain |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(90 |
) |
Asset impairment and abandonments |
|
1,082 |
|
|
|
2,401 |
|
|
|
5,352 |
|
|
|
12,195 |
|
Transaction and financing expenses |
|
18,039 |
|
|
|
1,179 |
|
|
|
19,391 |
|
|
|
3,689 |
|
Severance and restructuring costs |
|
1,148 |
|
|
|
(10 |
) |
|
|
1,148 |
|
|
|
208 |
|
Non-GAAP operating expenses,
adjusted* |
$ |
24,639 |
|
|
$ |
29,348 |
|
|
$ |
106,990 |
|
|
$ |
113,226 |
|
Non-GAAP operating expenses,
adjusted, as a percent of revenues |
|
119.8 |
% |
|
|
134.4 |
% |
|
|
130.5 |
% |
|
|
125.1 |
% |
|
|
|
|
|
|
|
|
*Please note this
reconciliation does not include HOLO Portal capitalized costs of
$0.4 million and $0.0 million for the three months ended
December 31, 2022 and 2021, and $1.2 million and $0.0 million
for the years ended December 31, 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 Net
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 |
|
|
December 31, 2022 |
|
December 31, 2021 |
|
|
Net (Loss) Income Applicable to Common Shares |
|
Amount Per Diluted Share |
|
Net (Loss) Income Applicable to Common Shares |
|
Amount Per Diluted Share |
Net loss from continuing operations, as reported |
|
$ |
(39,111 |
) |
|
$ |
(5.77 |
) |
|
$ |
(88,821 |
) |
|
$ |
(19.23 |
) |
Change in fair value of
warrant liability |
|
|
(5,910 |
) |
|
|
(0.87 |
) |
|
|
(4,474 |
) |
|
|
(0.97 |
) |
Gain on acquisition
contingency |
|
|
(683 |
) |
|
|
(0.10 |
) |
|
|
(1,034 |
) |
|
|
(0.22 |
) |
Non-cash stock-based
compensation |
|
|
1,122 |
|
|
|
0.17 |
|
|
|
994 |
|
|
|
0.22 |
|
Foreign exchange (gain)
loss |
|
|
(1,699 |
) |
|
|
(0.25 |
) |
|
|
526 |
|
|
|
0.11 |
|
Supplier prepayment
write-off |
|
|
180 |
|
|
|
0.03 |
|
|
|
3,000 |
|
|
|
0.65 |
|
Asset acquisition
expenses |
|
|
— |
|
|
|
0.00 |
|
|
|
72,087 |
|
|
|
15.61 |
|
Asset impairment and
abandonments |
|
|
1,082 |
|
|
|
0.16 |
|
|
|
2,401 |
|
|
|
0.52 |
|
Transaction and financing
expenses |
|
|
18,039 |
|
|
|
2.66 |
|
|
|
1,179 |
|
|
|
0.26 |
|
Inventory purchase price
adjustment |
|
|
423 |
|
|
|
0.06 |
|
|
|
497 |
|
|
|
0.11 |
|
Inventory write-off |
|
|
3,174 |
|
|
|
0.47 |
|
|
|
— |
|
|
|
0.00 |
|
Product rationalization |
|
|
13,822 |
|
|
|
2.04 |
|
|
|
— |
|
|
|
0.00 |
|
Severance and restructuring
costs |
|
|
1,148 |
|
|
|
0.17 |
|
|
|
(10 |
) |
|
|
0.00 |
|
Tax effect on other
adjustments |
|
|
33 |
|
|
|
0.00 |
|
|
|
— |
|
|
|
0.00 |
|
Non-GAAP net loss applicable
to common shares, adjusted* |
|
$ |
(8,380 |
) |
|
$ |
(1.22 |
) |
|
$ |
(13,655 |
) |
|
$ |
(2.94 |
) |
|
|
|
|
|
|
|
|
|
*Please note this
reconciliation does not include HOLO Portal capitalized costs of
$0.4 million and $0.0 million for the three months ended
December 31, 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 Net
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 Twelve Months Ended |
|
|
December 31, 2022 |
|
December 31, 2021 |
|
|
Net (Loss) Income Applicable to Common Shares |
|
Amount Per Diluted Share |
|
Net (Loss) Income Applicable to Common Shares |
|
Amount Per Diluted Share |
Net loss from continuing operations, as reported |
|
$ |
(54,605 |
) |
|
$ |
(8.33 |
) |
|
$ |
(122,906 |
) |
|
$ |
(30.08 |
) |
Change in fair value of
warrant liability |
|
|
(24,827 |
) |
|
|
(3.79 |
) |
|
|
(14,736 |
) |
|
|
(3.61 |
) |
Gain on acquisition
contingency |
|
|
(17,867 |
) |
|
|
(2.73 |
) |
|
|
(4,587 |
) |
|
|
(1.12 |
) |
Non-cash stock-based
compensation |
|
|
4,634 |
|
|
|
0.71 |
|
|
|
5,212 |
|
|
|
1.28 |
|
Foreign exchange loss |
|
|
978 |
|
|
|
0.15 |
|
|
|
1,447 |
|
|
|
0.35 |
|
Supplier prepayment
write-off |
|
|
180 |
|
|
|
0.03 |
|
|
|
3,000 |
|
|
|
0.73 |
|
Asset acquisition
expenses |
|
|
— |
|
|
|
0.00 |
|
|
|
72,087 |
|
|
|
17.64 |
|
Bargain purchase gain |
|
|
— |
|
|
|
0.00 |
|
|
|
(90 |
) |
|
|
(0.02 |
) |
Other operating income |
|
|
(898 |
) |
|
|
(0.14 |
) |
|
|
(3,932 |
) |
|
|
(0.96 |
) |
Asset impairment and
abandonments |
|
|
5,352 |
|
|
|
0.82 |
|
|
|
12,195 |
|
|
|
2.98 |
|
Transaction and financing
expenses |
|
|
19,391 |
|
|
|
2.96 |
|
|
|
3,689 |
|
|
|
0.90 |
|
Inventory purchase price
adjustment |
|
|
1,678 |
|
|
|
0.26 |
|
|
|
2,036 |
|
|
|
0.50 |
|
Inventory write-off |
|
|
3,709 |
|
|
|
0.57 |
|
|
|
— |
|
|
|
0.00 |
|
Product rationalization |
|
|
13,822 |
|
|
|
2.11 |
|
|
|
— |
|
|
|
0.00 |
|
Severance and restructuring
costs |
|
|
1,148 |
|
|
|
0.18 |
|
|
|
208 |
|
|
|
0.05 |
|
Tax effect on other
adjustments |
|
|
33 |
|
|
|
0.01 |
|
|
|
(28 |
) |
|
|
(0.01 |
) |
Non-GAAP net loss applicable
to common shares, adjusted* |
|
$ |
(47,272 |
) |
|
$ |
(7.19 |
) |
|
$ |
(46,405 |
) |
|
$ |
(11.37 |
) |
|
|
|
|
|
|
|
|
|
*Please note this
reconciliation does not include HOLO Portal capitalized costs of
$1.2 million and $0.0 million for the years ended December 31,
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 December 31, |
|
For the Twelve Months Ended December 31, |
|
|
|
2022 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2021 |
|
Net loss income for continuing
operations |
|
$ |
(39,111 |
) |
|
$ |
(88,821 |
) |
|
$ |
(54,605 |
) |
|
$ |
(122,906 |
) |
Interest expense, net |
|
|
253 |
|
|
|
— |
|
|
|
1,009 |
|
|
|
— |
|
(Benefit) provision for income taxes |
|
|
(1,335 |
) |
|
|
118 |
|
|
|
(1,043 |
) |
|
|
(886 |
) |
Depreciation |
|
|
398 |
|
|
|
602 |
|
|
|
1,973 |
|
|
|
2,457 |
|
EBITDA |
|
|
(39,795 |
) |
|
|
(88,101 |
) |
|
|
(52,666 |
) |
|
|
(121,335 |
) |
Reconciling items impacting
EBITDA |
|
|
|
|
|
|
|
|
Non-cash stock based compensation |
|
|
1,122 |
|
|
|
994 |
|
|
|
4,634 |
|
|
|
5,212 |
|
Foreign exchange (gain) loss |
|
|
(1,699 |
) |
|
|
526 |
|
|
|
978 |
|
|
|
1,447 |
|
Other reconciling items * |
|
|
|
|
|
|
|
|
Inventory write-off |
|
|
3,174 |
|
|
|
— |
|
|
|
3,709 |
|
|
|
— |
|
Supplier prepayment write-off |
|
|
180 |
|
|
|
3,000 |
|
|
|
180 |
|
|
|
3,000 |
|
Product rationalization |
|
|
13,822 |
|
|
|
— |
|
|
|
13,822 |
|
|
|
— |
|
Other operating income |
|
|
— |
|
|
|
— |
|
|
|
(898 |
) |
|
|
(3,932 |
) |
Inventory purchase price adjustment |
|
|
423 |
|
|
|
497 |
|
|
|
1,678 |
|
|
|
2,036 |
|
Asset acquisition expenses |
|
|
— |
|
|
|
72,087 |
|
|
|
— |
|
|
|
72,087 |
|
Change in fair value of warrant liability |
|
|
(5,910 |
) |
|
|
(4,474 |
) |
|
|
(24,827 |
) |
|
|
(14,736 |
) |
Gain on acquisition contingency |
|
|
(683 |
) |
|
|
(1,034 |
) |
|
|
(17,867 |
) |
|
|
(4,587 |
) |
Bargain purchase gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(90 |
) |
Asset impairment and abandonments |
|
|
1,082 |
|
|
|
2,401 |
|
|
|
5,352 |
|
|
|
12,195 |
|
Transaction and financing expenses |
|
|
18,039 |
|
|
|
1,179 |
|
|
|
19,391 |
|
|
|
3,689 |
|
Severance and restructuring costs |
|
|
1,148 |
|
|
|
(10 |
) |
|
|
1,148 |
|
|
|
208 |
|
Adjusted EBITDA* |
|
$ |
(9,097 |
) |
|
$ |
(12,935 |
) |
|
$ |
(45,366 |
) |
|
$ |
(44,806 |
) |
Adjusted EBITDA as a percent
of revenues |
|
(44.2)% |
|
(59.3)% |
|
(55.3)% |
|
(49.5)% |
|
|
|
|
|
|
|
|
|
*Please note this
reconciliation does not include HOLO Portal capitalized costs of
$0.4 million and $0.0 million for the three months ended
December 31, 2022 and 2021, and $1.2 million and $0.0 million
for the years ended December 31, 2022 and 2021. |
#See explanations
in Non-GAAP Financial Measures above. |
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