# Organogenesis Holdings Inc. (ORGO) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Organogenesis Holdings Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1661181/000095017025029137/orgo-20241231.htm
Accession: 0000950170-25-029137
Filing date: 2025-02-27
Report date: 2024-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/ORGO/
All MD&A years: /company/ORGO/mda/
Previous year: /company/ORGO/mda/fy2023/ (FY 2023)
Next year: /company/ORGO/mda/fy2025/ (FY 2025)

Overview

Organogenesis is a leading regenerative medicine and tissue innovations company focused on empowering healing through the development, manufacturing, and sale of products for the advanced wound care, and surgical and sports medicine markets. Our products have been shown through clinical and scientific studies to support and in some cases accelerate tissue healing and improve patient outcomes. We are advancing the standard of care in each phase of the healing process through multiple breakthroughs in tissue engineering and cell therapy. Our solutions address large and growing markets driven by aging demographics and increases in comorbidities such as diabetes, obesity, cardiovascular and peripheral vascular disease. We offer our differentiated products and in-house customer support to a wide range of health care customers including hospitals, wound care centers, government facilities, ASCs and physician offices. Our mission is to provide an integrated portfolio of healing and tissue solutions that improve lives while lowering the overall cost of health care.

We offer a comprehensive portfolio of products in the markets we serve that address patient needs across the continuum of care. We have and intend to continue to generate data from clinical trials, real-world outcomes and health economics research that validate the clinical efficacy and value proposition offered by our products. Several of our existing and pipeline products in our portfolio have PMA, or 510(k) clearance from the FDA. Given the extensive time and cost required to conduct clinical trials and receive FDA approvals, we believe that our data and regulatory approvals provide us with a strong competitive advantage. Our product development expertise and multiple technology platforms provide a robust product pipeline, which we believe will drive future growth.

In the Advanced Wound Care market, we focus on the development and commercialization of advanced wound care products for the treatment of chronic and acute wounds in various treatment settings. We have a comprehensive portfolio of regenerative medicine products capable of supporting patients from early in the wound healing process through wound closure regardless of wound type. Our Advanced Wound Care products include Apligraf for the treatment of VLUs and DFUs; Dermagraft for the treatment of DFUs (manufacturing and distribution currently suspended pending transition to a new manufacturing facility or engagement of a third-party manufacturer); PuraPly AM and PuraPly XT as antimicrobial barriers and native, cross-linked ECM scaffold for a broad variety of wound types; CYGNUS Dual as a dual-layered amniotic membrane that promotes an optimal environment for wound healing; and VIA Matrix, Affinity, Novachor, and NuShield placental allografts to address a variety of wound sizes and types as a protective barrier and extracellular matrix scaffold. We have a highly trained and specialized direct wound care sales force paired with comprehensive customer support services.

In the Surgical & Sports Medicine market, we are leveraging our broad regenerative medicine capabilities to address chronic and acute surgical wounds and tendon and ligament injuries. Our Sports Medicine products include NuShield for surgical applications in targeted soft tissue repairs; and Affinity, Novachor, PuraPly MZ, PuraPly AM, and PuraPly SX for management of open wounds in the surgical setting. We currently sell these products through independent agencies and our direct sales force.

Dermagraft

As previously disclosed, manufacturing of Dermagraft was suspended in the fourth quarter of 2021 and sales of Dermagraft were suspended in the second quarter of 2022. We currently plan to transition our Dermagraft manufacturing to our newly-leased biomanufacturing facility in Smithfield, Rhode Island, which we expect will begin in 2027, and will result in substantial long-term cost savings. If there are significant delays in the build out of the Smithfield Facility or in approval of the facility for manufacturing of Dermagraft, it could have an adverse effect on our consolidated net revenue and results of operations.

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Local Coverage Determinations

On April 25, 2024, seven Medicare Part A/B MACs published new proposed LCDs for skin substitute grafts/CTPs for the treatment of DFUs and VLUs in the Medicare population. These LCDs were finalized by the MACs on November 14, 2024, and were originally set to become effective on February 12, 2025. However, on January 24, 2025, the MACs announced a delay in the implementation of the LCDs until April 13, 2025. Under the new LCDs finalized in November 2024, should they take effect as scheduled, eighteen products would remain covered, including our Apligraf and Dermagraft products for DFU and VLU, and our Affinity and NuShield products for DFU; however, more than 200 products would be classified as “non-covered,” including our PuraPly, PuraPly AM, PuraPly XT, Novachor, TransCyte, Dual and Matrix products for DFU and VLU. The LCDs as finalized apply only to DFU and VLU indications for skin substitute products; other indications would remain subject to case-by-case review of medical necessity by the MACs if the LCDs take effect. It is uncertain if there will be further delays in implementing the new LCDs and/or if the new LCDs will be revised or rescinded going forward. If implemented, the LCDs could materially impact utilization of these products, our business, and our revenue. Any future changes or other developments related to these or other LCDs also could affect utilization of our products, our business, and our revenue.

License And Manufacturing Agreement

We have a trademark license and manufacturing agreement with Vivex for Dual, Matrix, and VIA. We paid an upfront licensing fee to Vivex to sell Dual and Matrix, and also agreed to pay a fixed milestone payment for Dual in the event that its average sales price (ASP) is published by certain government agencies for a specified period of time, which we remitted in December 2024. Additionally, we are required to pay a low double-digit royalty on the Net Sales of Dual and VIA, and a high single-digit royalty on the Net Sales of Matrix, respectively, during the royalty term, as defined in the Vivex Agreement. The royalty term is commensurate with the initial term of the contract and will continue for each subsequent renewal period. The initial term of the agreement expires on December 31, 2026 and can be renewed for up to five additional one-year terms.

Management’s Use of Non-GAAP Measures

Our management uses financial measures that are not in accordance with GAAP (Non-GAAP), in addition to financial measures in accordance with GAAP, to evaluate our operating results. These Non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. Our management uses Adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. Our management believes Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the items that we exclude. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.

We define EBITDA as net income (loss) before depreciation and amortization, interest expense and income taxes. We define Adjusted EBITDA as EBITDA, further adjusted for the impact of certain items that we do not consider indicative of our core operating performance. These items include non-cash equity compensation, restructuring charges, write-off of the capitalized costs related to certain unfinished construction work and other long-term assets, fees paid in connection with settlement of previously disputed GPO fees, the cancellation fee for terminating certain agreements or pausing a certain construction project, legal and consulting fees associated with, as well as compensation expense related to retention for certain sales employees impacted by the published and subsequently withdrawn LCDs, impairment charges of a purchased building and associated unfinished construction work, and the write-down of costs previously capitalized in the development of internal-use software, that the Company determined have no future value. We have presented Adjusted EBITDA in this Annual Report on Form 10-K because it is a key measure used by our management and Board of Directors to understand and evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the exclusion of certain items in calculating Adjusted EBITDA can produce a useful measure for period-to-period comparisons of our business.

Our Adjusted EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net income (loss), which is the most directly comparable financial measure calculated and presented in accordance with GAAP. Some of these limitations are:

•
Although depreciation and amortization are non-cash charges, the assets that we currently depreciate and amortize will likely have to be replaced in the future, and Adjusted EBITDA does not reflect the cash required to fund such replacements;

•
Adjusted EBITDA does not reflect interest expense or the cash requirements necessary to service payments on our debt;

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•
Adjusted EBITDA excludes stock-based compensation expense which has been, and will continue to be for the foreseeable future, a significant recurring non-cash expense for our business and an important part of our compensation strategy;

•
Adjusted EBITDA does not reflect the effect of earnings or charges resulting from matters that our management does not consider to be indicative of our ongoing operations. However, some of these charges and gains (such as restructuring and impairment charges) have recurred and may recur; and

•
Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, we consider, and you should consider, Adjusted EBITDA together with other operating and financial performance measures presented in accordance with GAAP. A reconciliation of Adjusted EBITDA from net income (loss), the most directly comparable financial measure calculated in accordance with GAAP, has been included herein.

Components of Our Consolidated Results of Operations

In assessing the performance of our business, we consider a variety of performance and financial measures. We believe the items discussed below provide insight into the factors that affect these key measures.

Revenue

We derive our net revenue from our portfolio of Advanced Wound Care and Surgical & Sports Medicine products. We primarily sell our Advanced Wound Care products through direct sales representatives who manage and maintain the sales relationships with hospitals, wound care centers, government facilities, ASCs, and physician offices. We primarily sell our Surgical & Sports Medicine products through third-party agencies. As of December 31, 2024, we had 256 direct sales representatives and approximately 160 independent agencies.

We recognize revenue from sales of our Advanced Wound Care and Surgical & Sports Medicine products when the customer obtains control of our product, which occurs at a point in time and may be upon procedure date, shipment, or delivery, based on the contractual terms of a contract. We record revenue net of a reserve for returns, discounts and GPO rebates, which represent a direct reduction to the revenue we recognize.

Several factors affect our reported revenue in any period, including product, payer and geographic sales mix, operational effectiveness, pricing realization, marketing and promotional efforts, the timing of orders and shipments, regulatory actions including healthcare reimbursement scenarios, competition and business acquisitions.

Cost of goods sold and gross profit

Cost of goods sold includes personnel costs, product testing costs, quality assurance costs, raw materials and product costs, manufacturing costs, and the costs associated with our manufacturing and warehouse facilities. The changes in our cost of goods sold correspond with the changes in sales units and are also affected by product mix.

Gross profit is calculated as net revenue less cost of goods sold and generally increases as revenue increases. Our gross profit is affected by product and geographic sales mix, realized pricing of our products, the efficiency of our manufacturing operations and the costs of materials used and fees charged by third-party manufacturers to produce our products. Regulatory actions, including healthcare reimbursement scenarios, which may require costly expenditures or result in pricing pressures, may decrease our gross profit.

Selling, general and administrative expenses

Selling, general and administrative expenses generally include personnel costs for sales, marketing, sales support, customer support, and general and administrative personnel, sales commissions, incentive compensation, insurance, professional fees, depreciation, amortization, bad debt expense, royalties, information systems costs, gain or loss on disposal of long-lived assets, and costs associated with our administrative facilities. We generally expect our selling, general and administrative expenses to continue to increase due to increased investments in market development and the geographic expansion of our sales forces as we drive for continued revenue growth.

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Research and development expenses

Research and development expenses include expenses for clinical trials, personnel costs for our research and development personnel, expenses related to improvements in our manufacturing processes, enhancements to our currently available products, and additional investments in our product and platform development pipeline. We expense research and development costs as incurred. We generally expect that research and development expenses will increase as we continue to conduct clinical trials on new and existing products, move products through the regulatory pathway (e.g., seek BLA approval), add personnel to support product enhancements as well as to bring new products to market, and enhance our manufacturing process and procedures.

Other expense, net

Other expense, net comprises primarily interest expense on our indebtedness that was outstanding until November 2024, including amortization of debt discount and debt issuance costs, net of interest income recognized.

Income taxes

We account for income taxes using an asset and liability approach. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized.

In determining whether a valuation allowance for deferred tax assets is necessary, we analyze both positive and negative evidence related to the realization of deferred tax assets including projected future taxable income, recent financial results and estimates of future reversals of deferred tax assets and liabilities. In addition, we consider whether it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. We believe that our net U.S. deferred tax assets did not require a valuation allowance as of December 31, 2024.

Our U.S. provision for income taxes relates to current tax expense associated with taxable income that could not be offset by net operating losses or research and development credits. The utilization of our remaining federal net operating losses is subject to an 80% taxable income limitation and for certain states we have no net operating losses remaining to offset state taxable income or the utilization of the remaining state net operating losses are subject to a limitation. We have also recorded a foreign provision for income taxes related to our wholly-owned subsidiary in Switzerland.

We account for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Results of Operations

The following table sets forth, for the periods indicated, our results of operations:

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[[/GREPCENT_TABLE]]

EBITDA and Adjusted EBITDA

The following table presents a reconciliation of GAAP net income to non-GAAP EBITDA and non-GAAP Adjusted EBITDA, for each of the periods presented:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

(1)
Amounts reflect employee retention and benefits as well as other exit costs associated with our restructuring activities. See Note 11, Restructuring, to our audited consolidated financial statements included in this Annual Report on Form 10-K.

(2)
Amount reflects the disposal of certain equipment related to construction in progress at one of our Canton, Massachusetts facilities. See Note 8, Property and Equipment, Net, to our audited consolidated financial statements included in this Annual Report on Form 10-K.

(3)
Amounts reflect the fee we paid to a GPO to settle previously disputed GPO fees. See Note 2, Significant Accounting Policies to our audited consolidated financial statements included in this Annual Report on Form 10-K.

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(4)
Amount reflects the cancellation fees incurred in connection with the Company’s decision to pause one of its manufacturing facility construction projects. See Note 8, Property and Equipment, Net, to our audited consolidated financial statements included in this Annual Report on Form 10-K.

(5)
Amount reflects the legal and consulting fees incurred related to the published and subsequently withdrawn 2023 LCDs. See Local Coverage Determinations above.

(6)
Amount reflects the compensation expenses related to retention for those sales employees impacted by the published and subsequently withdrawn 2023 LCDs. See Local Coverage Determinations above.

(7)
Amount reflects the impairment of a purchased building and associated unfinished construction work. See Note 8, Property and Equipment, Net to our audited consolidated financial statements included in this Annual Report on Form 10-K.

(8)
Amount reflects the write-down of costs previously capitalized as construction in progress in the development of internal-use software, that the Company determined have no future value. See Note 8, Property and Equipment, Net to our audited consolidated financial statements included in this Annual Report on Form 10-K.

(9)
Amount reflects construction in progress terminated and disposed of at one of our Canton, Massachusetts facilities, resulting from the Company’s decision to move certain operations to the Smithfield Facility.

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Comparison of the Years Ended December 31, 2024, 2023, and 2022

Revenue

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[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, net revenue from our Advanced Wound Care products increased by $48.1 million, or 12%, as compared to the year ended December 31, 2023. The increase in Advanced Wound Care net revenue was primarily attributable to an increase in sales of certain products for new and existing customers.

For the year ended December 31, 2024, net revenue from our Surgical & Sports Medicine products increased by $0.8 million, or 3%, as compared to the year ended December 31, 2023. The increase in Surgical & Sports Medicine net revenue was primarily due to growth in new customers and product mix.

For the year ended December 31, 2023, net revenue from our Advanced Wound Care products decreased by $16.7 million, or 4%, as compared to the year ended December 31, 2022. The decrease in Advanced Wound Care net revenue was primarily attributable to a decrease in sales of certain of our products due to changes in customer buying patterns as well as the impact of the 2023 withdrawn LCDs on sales of certain of our products, partially offset by an increase in sales of certain of our products to our existing and new customers.

For the year ended December 31, 2023, net revenue from our Surgical & Sports Medicine products decreased by $1.0 million, or 4%, as compared to the year ended December 31, 2022. The decrease in Surgical & Sports Medicine net revenue was primarily due to a shift in distributor focus.

Cost of Goods Sold and Gross Profit

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[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, cost of goods sold increased by $9.3 million, or 9%, as compared to the year ended December 31, 2023. The increase in cost of goods sold was primarily driven by an increase in volume along with product mix, as well as the construction in progress terminated and disposed of at one of our Canton, Massachusetts facilities, resulting from the Company’s decision to move certain operations to the Smithfield Facility.

For the year ended December 31, 2024, gross profit increased by $39.6 million, or 12%, as compared to the year ended December 31, 2023. The increase in gross profit resulted primarily from an increase in volume and a shift in product mix.

For the year ended December 31, 2023, cost of goods sold increased by $1.5 million, or 1%, as compared to the year ended December 31, 2022. The increase in cost of goods sold was primarily due to product mix.

For the year ended December 31, 2023, gross profit decreased by $19.2 million, or 6%, as compared to the year ended December 31, 2022. The decrease in gross profit resulted primarily from a decrease in the pricing for certain of our products, as well as a shift in product mix.

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Selling, General and Administrative Expenses

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[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, selling, general and administrative expenses increased by $24.8 million, or 9%, as compared to the year ended December 31, 2023. The increase in selling, general and administrative expenses was primarily due to a $19.8 million increase in royalty expense; a $4.4 million increase in building and other facilities expense; and a $3.1 million increase in the allowance for expected credit losses. These increases in expenses were partially offset by a $1.0 million decrease in commissions, restructuring and other headcount-related expense; and a $1.5 million decrease in amortization expense.

For the year ended December 31, 2023, selling, general and administrative expenses decreased by $14.1 million, or 5%, as compared to the year ended December 31, 2022. The decrease in selling, general and administrative expenses was primarily due to a $6.1 million decrease in compensation and restructuring, largely related to decreased commissions paid to our sales force; a $4.4 million decrease primarily related to disposal of certain equipment related to the construction in progress in one of the Company's Canton, Massachusetts facilities; a $1.5 million decrease in royalty expenses, and a $3.3 million decrease in travel-related expenses. These expenses were partially offset by a $1.2 million increase in legal and consulting costs primarily related to efforts to convince three MACs to withdraw the final LCDs for skin substitutes for the treatment of DFUs and VLUs.

Research and Development Expenses

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, research and development expenses increased by $5.9 million, or 13%, as compared to the year ended December 31, 2023. The increase in research and development expenses was primarily driven by an increase in clinical research and consulting costs associated with our pipeline products not yet commercialized, and an increase in the clinical study and related costs necessary to seek regulatory approvals for certain of our product candidates.

For the year ended December 31, 2023, research and development expenses increased by $4.6 million, or 12%, as compared to the year ended December 31, 2022. The increase in research and development expenses was primarily driven by an increase in compensation expenses of $2.2 million, due to increased headcount associated with our existing Advanced Wound Care and Surgical & Sports Medicine products, an increase of $2.4 million in other clinical research and consulting costs associated with our pipeline products not yet commercialized, and an increase in the clinical study and related costs necessary to seek regulatory approvals for certain of our product candidates.

Impairment and Write Down Expenses

During the year ended December 31, 2024, we recorded a $4.0 million write down of costs related to internal-use software and an $18.8 million impairment of a purchased building and associated unfinished construction work. There were no such costs recorded in the year ended December 31, 2023. See Note 8, Property and Equipment, Net, to our consolidated financial statements included in this Annual Report on Form 10-K.

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Other Expense, Net

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, total other expense, net, decreased by $0.6 million, or 29%, as compared to the year ended December 31, 2023. The decrease resulted primarily from a decrease in the balance of the Term Loan Facility, leading to lower interest expense in 2024.

For the year ended December 31, 2023, total other expense, net, increased by $0.1 million, or 5%, as compared to the year ended December 31, 2022. The increase resulted primarily from increases in interest rates in 2023.

Income Tax (Expense) Benefit

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[[/GREPCENT_TABLE]]

For the year ended December 31, 2024, income tax benefit of $3.7 million included $7.1 million of current income taxes and ($10.7) million of deferred income taxes. The effective tax rate for 2024 was 130.5% and was computed based on the statutory rate of 21% adjusted primarily for tax benefits related to the generation of federal and state research and development tax credits, offset in part by non-deductible transaction costs.

For the year ended December 31, 2023, income tax expense of $5.4 million included $3.4 million of current income taxes and $2.0 million of deferred income taxes. The effective tax rate for 2023 was 52.4% and was computed based on the statutory rate of 21% adjusted primarily for state and local income taxes, nondeductible officer compensation and certain meals and other expenses that were fully deductible in prior years pursuant to temporary relief provisions enacted as part of the Taxpayer Certainty and Disaster Tax Relief Act for tax years 2021 and 2022, but that are now subject to a deduction limitation.

Liquidity and Capital Resources

Since our inception, we have funded our operations and capital expenditures through cash flows from product sales, loans from affiliates and entities controlled by certain of our affiliates, third-party debt and proceeds from the sale of our capital stock. In November 2024, we issued 130,000 shares of our newly-created Series A Convertible Preferred Stock, for total net proceeds of $120.6 million. We used $66.6 million of the proceeds to repay the balance on our Term Loan Facility, and $25.5 million for the repurchase of 7,921,731 shares of outstanding Class A common stock from certain members of the Significant Stockholder Group.

As of December 31, 2024, we had an accumulated deficit of $40.1 million and working capital of $208.5 million which included $135.6 million in cash and cash equivalents. We also have $125.0 million available for future revolving borrowings under our Revolving Facility (see Note 12, Long-Term Debt Obligations, to our audited consolidated financial statements included in this Annual Report on Form 10-K). For the year ended December 31, 2024, we reported $482.0 million in net revenue, $0.9 million in net income and $14.2 million of cash inflows from operating activities. We expect that our cash on hand and other components of working capital as of December 31, 2024, availability under the 2021 Credit Agreement as amended by the 2024 Amendment, plus net cash flows from product sales, will be sufficient to fund our operating expenses, capital expenditure requirements and debt service payments for at least 12 months beyond the filing date of this Annual Report on Form 10-K.

Our primary uses of cash are working capital requirements and capital expenditure. Additionally, from time to time, we may use capital for acquisitions and other investing and financing activities, such as our recent repurchase of our Class A common stock. Working capital is used principally for our personnel as well as manufacturing costs related to the production of our products. Our working capital requirements vary from period to period depending on manufacturing volumes, the timing of shipments and the payment cycles of our customers and payers. Our capital expenditures consist primarily of building improvements, manufacturing equipment, and computer hardware and software.

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To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute on our business strategy, we anticipate that they will be obtained through additional equity or debt financings, other strategic transactions or a combination of these potential sources of funds. There can be no assurance that we will be able to obtain additional funds on terms acceptable to us, on a timely basis or at all.

The following table presents our cash and outstanding debt as of the dates indicated:

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2024","","","2023"],["","","(in thousands)"],["Cash and cash equivalents","","$","135,571","","","$","103,840"],["Line of credit","","$","\u2014","","","$","\u2014"],["Term loan net of debt discount and issuance cost","","","\u2014","","","","66,231"],["Finance lease obligations","","","1,888","","","","2,969"],["Total debt","","$","1,888","","","$","69,200"]]
[[/GREPCENT_TABLE]]

Under the Revolving Facility, we have up to $125.0 million available for future revolving borrowings, subject to maintaining compliance with financial and non-financial covenants.

Cash Flows

The following table summarizes our cash flows for each of the periods presented:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023","","","2022"],["","","(in thousands)"],["Net cash provided by operating activities","","$","14,208","","","$","30,917","","","$","24,859"],["Net cash used in investing activities","","","(10,032",")","","","(24,364",")","","","(33,898",")"],["Net cash provided by (used in) financing activities","","","27,637","","","","(5,505",")","","","(2,199",")"],["Net increase (decrease) in cash, cash equivalents, and restricted cash","","$","31,813","","","$","1,048","","","$","(11,238",")"]]
[[/GREPCENT_TABLE]]

Operating Activities

During the year ended December 31, 2024, net cash provided by operating activities was $14.2 million, resulting from our net income of $0.9 million, non-cash charges of $62.2 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $48.9 million. Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $31.8 million, an increase in inventories of $6.2 million, an increase prepaid expenses and other current and other assets of $2.5 million, a decrease in net operating lease liabilities of $14.1 million, and a decrease in accounts payable of $2.4 million; partially offset by an increase in accrued expenses and other current liabilities of $9.2 million, and a decrease in other liabilities of $1.1 million.

During the year ended December 31, 2023, net cash provided by operating activities was $30.9 million, resulting from our net income of $4.9 million, non-cash charges of $44.0 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $18.1 million. Net cash used in changes in our operating assets and liabilities included an increase in inventories and prepaid expenses of a total of $18.3 million, and a decrease in net operating lease liabilities of $8.4 million, partially offset by an increase in accounts payable, accrued expenses, and other current and noncurrent liabilities of $3.1 million, and a decrease in accounts receivable of $5.5 million.

During the year ended December 31, 2022, net cash provided by operating activities was $24.9 million, resulting from our net income of $15.5 million, non-cash charges of $43.4 million, partially offset by net cash used in connection with changes in our operating assets and liabilities of $34.1 million. Net cash used in changes in our operating assets and liabilities included an increase in accounts receivable of $8.8 million, an increase in inventory and prepaid expenses of $9.8 million, a decrease in operating lease liability of $7.0 million and a decrease of accrued expenses of $11.9 million, all of which were partially offset by an increase in accounts payable and other liabilities of $3.3 million.

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Investing Activities

During the year ended December 31, 2024, we used $10.0 million of cash in investing activities solely consisting of capital expenditures.

During the year ended December 31, 2023, we used $24.4 million of cash in investing activities solely consisting of capital expenditures.

During the year ended December 31, 2022, we used $33.9 million of cash in investing activities solely consisting of capital expenditures.

Financing Activities

During the year ended December 31, 2024, net cash provided by financing activities was $27.6 million. This consisted primarily of proceeds from issuance of our Series A Convertible Preferred Stock, net of issuance costs of $120.7 million, and net payments of $0.1 million in connection with stock awards activities; partially offset by repayment of our Term Loan Facility of $66.6 million, payments for repurchases of our Class A common stock of $25.5 million, and payments on our finance lease obligations of $1.1 million.

During the year ended December 31, 2023, net cash used in financing activities was $5.5 million. This consisted primarily of principal payments on the Term Loan of $4.7 million, and on finance lease obligations of $0.5 million, and payments of $0.3 million in connection with stock awards activities.

During the year ended December 31, 2022, net cash used in financing activities was $2.2 million. This consisted primarily of the payment of term loan and finance lease obligations of $3.0 million and the payment of $0.6 million related to the CPN deferred acquisition consideration, partially offset by the net receipts of $1.4 million in connection with stock awards activities.

Indebtedness

2021 Credit Agreement

In August 2021, we and our subsidiaries entered into a credit agreement with SVB and several other lenders (the Lenders), which we refer to as the 2021 Credit Agreement. The 2021 Credit Agreement, as amended, provides for a term loan facility not to exceed $75.0 million (the Term Loan Facility) and a revolving credit facility not to exceed $125.0 million (the Revolving Facility). In November 2024, we and the Lenders amended the 2021 Credit Agreement to allow for the issuance of the Convertible Preferred Stock, and to require the repayment of the Term Loan Facility within one business day of such issuance, among other terms (the 2024 Amendment).

Advances made under the 2021 Credit Agreement were either SOFR Loans or ABR Loans, at our option. For SOFR Loans, the interest rate was a per annum interest rate equal to the Adjusted Term SOFR plus an Applicable Margin between 2.00% to 3.25% based on the Total Net Leverage Ratio. For ABR Loans, the interest rate was equal to (1) the highest of (a) the Wall Street Journal Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the Adjusted Term SOFR rate plus 1.0%, plus (2) an Applicable Margin between 1.00% to 2.25% based on the Total Net Leverage Ratio.

The 2021 Credit Agreement required us to make consecutive quarterly installment payments equal to the following: (a) from September 30, 2021 through and including June 30, 2022, $0.5 million; (b) from September 30, 2022 through and including June 30, 2023, $0.9 million; (c) from September 30, 2023 through and including June 30, 2025, $1.4 million and (d) from September 30, 2025 and the last day of each quarter thereafter until August 6, 2026 (the Term Loan Maturity Date), $1.9 million. We prepaid the Term Loan Facility in November 2024, and amounts borrowed under the Term Loan Facility may not be re-borrowed.

We must pay in arrears, on the first day of each quarter prior to August 6, 2026 (the Revolving Termination Date) and on the Revolving Termination Date, a fee for our non-use of available funds (the Commitment Fee). The Commitment Fee rate is between 0.25% to 0.45% based on the Total Net Leverage Ratio. We may elect to reduce or terminate the Revolving Facility in its entirety at any time by repaying all outstanding principal and unpaid accrued interest.

Under the 2021 Credit Agreement as amended by the 2024 Amendment, we are required to comply with certain financial covenants including the Consolidated Fixed Charge Coverage Ratio and Consolidated Total Net Leverage Ratio, tested quarterly. In addition, we are also required to make representations and warranties and comply with certain non-financial covenants that are

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customary in loan agreements of this type, including restrictions on the payment of dividends, repurchase of stock, incurrence of indebtedness, dispositions and acquisitions.

As of December 31, 2024, we were in compliance with the covenants under the 2021 Credit Agreement, as amended by the 2024 Amendment. We did not have outstanding borrowings under our Term Loan Facility or our Revolving Facility, with $125 million available for future revolving borrowings.

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of our consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, and the disclosure at the date of the consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could materially change our results from those reported. Management evaluates its estimates, assumptions and judgments on an ongoing basis. Historically, our critical accounting estimates have not differed materially from actual results. However, if our assumptions change, we may need to revise our estimates or take other corrective actions, either of which may also have a material adverse effect on our consolidated statements of operations, liquidity and financial condition.

We believe the following critical accounting estimates involve significant areas where management applies judgments and estimates in the preparation of our consolidated financial statements, and supplement our discussion in Note 2, Significant Accounting Policies, to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Income Taxes

We account for income taxes using an asset and liability approach. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided when necessary to reduce net deferred tax assets to an amount that is more likely than not to be realized.

In determining whether a valuation allowance for deferred tax assets is necessary, we analyze both positive and negative evidence related to the realization of deferred tax assets including projected future taxable income, recent financial results and estimates of future reversals of deferred tax assets and liabilities. In addition, we consider whether it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position.

Impairment of Long-Lived Assets

We review long-lived assets, excluding goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Factors that we consider in deciding when to perform an impairment review include, but are not limited to, significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of our assets. When such an event occurs, we determine whether our asset groups are appropriate for impairment considerations, based on any changed facts and circumstances, and we then determine whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset group’s carrying value. If we determine an asset to be impaired, we reduce its carrying value to fair value, which is determined based on discounted cash flows or its appraised value, depending on the nature of the asset. Judgments and estimates used by management when evaluating long-lived assets for impairment include: an assessment as to whether an adverse event or circumstance has triggered the need for an impairment review; determination of asset groups, the primary asset within each group, and the primary asset's average estimated useful life; undiscounted future cash flows generated by the assets; and determination of fair value when an impairment is deemed to exist. The estimation of fair value may require significant assumptions related to estimated future costs to prepare the impaired asset for potential sale or disposal, and the discount rate applied to estimated future cash flows generated by the assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges against these assets in the reporting period in which the impairment is identified.

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Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently Issued Accounting Pronouncements

For a description of recently issued accounting pronouncements, including the expected dates of adoption and the estimated effects, if any, on our consolidated financial statements, see Note 2, Significant Accounting Policies to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K.