Surgalign Holdings, Inc.
10-Q on 11/16/2020   Download
SEC Document
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission file number 001-38832

 

SURGALIGN HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

83-2540607

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

520 Lake Cook Road, Suite 315,

Deerfield, Illinois

 

60015

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (224) 303-4651

 

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of exchange on which registered

common stock, $0.001 par value

 

SRGA

 

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit such files.) Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes      No  

Shares of common stock, $0.001 par value, outstanding on October 31, 2020:  81,396,449

 

 

 


SURGALIGN HOLDINGS, INC.

FORM 10-Q For the Quarter Ended September 30, 2020

Index

 

 

 

 

 

Page #

 

 

 

 

 

Part I    Financial Information

 

 

 

 

 

 

 

Item 1

 

Unaudited Condensed Consolidated Financial Statements

 

1 - 23

 

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24 - 31

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

 

Item 4

 

Controls and Procedures

 

32

 

 

 

 

 

Part II    Other Information

 

 

 

 

 

 

 

Item 1  

 

Legal Proceedings

 

33

 

 

 

 

 

Item 1A

 

Risk Factors

 

34

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

36

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

36

 

 

 

 

 

Item 5

 

Other Information

 

36

 

 

 

 

 

Item 6

 

Exhibits

 

38

 

 

 

 

 

Signatures

 

39

 

 

 

 


Part I

Financial Information

Item 1.

Unaudited Condensed Consolidated Financial Statements

SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

95,790

 

 

$

5,608

 

Accounts receivable - less allowances of $6,638 at September 30, 2020 and $4,795 at December 31, 2019

 

 

24,485

 

 

 

23,216

 

Inventories - net

 

 

28,195

 

 

 

24,574

 

Prepaid and other current assets

 

 

4,278

 

 

 

4,034

 

Current assets of discontinued operations

 

 

-

 

 

 

138,382

 

Total current assets

 

 

152,748

 

 

 

195,814

 

Non-current inventories - net

 

 

4,872

 

 

 

6,637

 

Property, plant and equipment - net

 

 

617

 

 

 

789

 

Other assets - net

 

 

10,107

 

 

 

5,418

 

Noncurrent assets of discontinued operations

 

 

-

 

 

 

135,851

 

Total assets

 

$

168,344

 

 

$

344,509

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

10,760

 

 

$

11,116

 

Accrued expenses

 

 

13,720

 

 

 

15,099

 

Accrued income taxes

 

 

29,106

 

 

 

424

 

Current liabilities of discontinued operations

 

 

-

 

 

 

213,749

 

Total current liabilities

 

 

53,586

 

 

 

240,388

 

Deferred tax liability

 

 

2,559

 

 

 

-

 

Other long-term liabilities

 

 

1,323

 

 

 

2,862

 

Noncurrent liabilities of discontinued operations

 

 

-

 

 

 

285

 

Total liabilities

 

 

57,468

 

 

 

243,535

 

Commitments and contingencies (Note 19)

 

 

 

 

 

 

 

 

Preferred stock Series A, $.001 par value: 5,000,000 shares authorized; 50,000 shares issued and outstanding

 

 

-

 

 

 

66,410

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $.001 par value: 150,000,000 shares authorized; 75,146,449 and 75,213,515 shares issued and outstanding, respectively

 

 

75

 

 

 

75

 

Additional paid-in capital

 

 

503,901

 

 

 

498,438

 

Accumulated other comprehensive loss

 

 

(2,619

)

 

 

(7,629

)

Accumulated deficit

 

 

(384,922

)

 

 

(451,179

)

Less treasury stock, 1,429,141 and 1,285,224 shares, respectively, at cost

 

 

(5,559

)

 

 

(5,141

)

Total stockholders' equity

 

 

110,876

 

 

 

34,564

 

Total liabilities and stockholders' equity

 

$

168,344

 

 

$

344,509

 

 

See notes to unaudited condensed consolidated financial statement.

1


SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income / (Loss)

(Unaudited, in thousands, except share and per share data)

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues

$

27,926

 

 

$

28,702

 

 

$

75,562

 

 

$

85,849

 

Cost of goods sold

 

11,892

 

 

 

7,607

 

 

 

30,336

 

 

 

24,711

 

Gross profit

 

16,034

 

 

 

21,095

 

 

 

45,226

 

 

 

61,138

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing, general and administrative

 

27,754

 

 

 

34,247

 

 

 

97,095

 

 

 

95,454

 

Research and development

 

2,208

 

 

 

4,271

 

 

 

9,764

 

 

 

12,475

 

Gain on acquisition contingency

 

-

 

 

 

 

 

 

(130

)

 

 

(1,590

)

Asset impairment and abandonments

 

9,356

 

 

 

4

 

 

 

12,117

 

 

 

15

 

Transaction and integration expenses

 

3,411

 

 

 

3,089

 

 

 

5,826

 

 

 

13,999

 

Total operating expenses

 

42,729

 

 

 

41,611

 

 

 

124,672

 

 

 

120,353

 

Operating loss

 

(26,695

)

 

 

(20,516

)

 

 

(79,446

)

 

 

(59,215

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

21

 

 

 

4

 

 

 

92

 

 

 

161

 

Foreign exchange gain (loss)

 

21

 

 

 

(51

)

 

 

(28

)

 

 

(88

)

Total other expense - net

 

42

 

 

 

(47

)

 

 

64

 

 

 

73

 

Loss before income tax benefit

 

(26,653

)

 

 

(20,563

)

 

 

(79,382

)

 

 

(59,142

)

Income tax benefit

 

 

 

 

3,591

 

 

 

3,492

 

 

 

9,955

 

Net loss from continuing operations

 

(26,653

)

 

 

(16,972

)

 

 

(75,890

)

 

 

(49,187

)

Discontinued operations (Note 4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations of discontinued operations (including gain on disposition of $210,866 for the three and nine months ended 9/30/2020)

 

191,871

 

 

 

13,292

 

 

 

181,337

 

 

 

39,987

 

Income tax provision

 

(42,534

)

 

 

(1,458

)

 

 

(39,189

)

 

 

(5,101

)

Net income on discontinued operations

 

149,337

 

 

 

11,834

 

 

 

142,148

 

 

 

34,886

 

Net income (loss) applicable to common shares

 

122,684

 

 

 

(5,138

)

 

 

66,258

 

 

 

(14,301

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized foreign currency translation gain (loss)

 

(108

)

 

 

(1,122

)

 

 

(180

)

 

 

(1,120

)

Comprehensive income (loss)

$

122,576

 

 

$

(6,260

)

 

$

66,078

 

 

$

(15,421

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations per common share - basic

$

(0.36

)

 

$

(0.23

)

 

$

(1.04

)

 

$

(0.71

)

Net loss from continuing operations per common share - diluted

$

(0.36

)

 

$

(0.23

)

 

$

(1.04

)

 

$

(0.71

)

Net income from discontinued operations per common share - basic

$

2.04

 

 

$

0.16

 

 

$

1.95

 

 

$

0.50

 

Net income from discontinued operations per common share - diluted

$

2.04

 

 

$

0.16

 

 

$

1.95

 

 

$

0.50

 

Weighted average shares outstanding - basic

 

73,212,662

 

 

 

72,472,591

 

 

 

72,933,038

 

 

 

69,340,006

 

Weighted average shares outstanding - diluted

 

73,212,662

 

 

 

72,472,591

 

 

 

72,933,038

 

 

 

69,340,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

2


SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders' Equity

(Unaudited, in thousands)

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Treasury

Stock

 

 

Total

 

Balance, January 1, 2020

$

75

 

 

$

498,438

 

 

$

(7,629

)

 

$

(451,179

)

 

$

(5,141

)

 

$

34,564

 

Net loss

 

 

 

 

 

 

 

 

 

 

(17,863

)

 

 

 

 

 

(17,863

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

(370

)

 

 

 

 

 

 

 

 

(370

)

Exercise of common stock options

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

20

 

Stock-based compensation

 

 

 

 

1,310

 

 

 

 

 

 

 

 

 

 

 

 

1,310

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(193

)

 

 

(193

)

Amortization of preferred stock series A issuance costs

 

 

 

 

(44

)

 

 

 

 

 

 

 

 

 

 

 

(44

)

Balance, March 31, 2020

$

75

 

 

$

499,724

 

 

$

(7,999

)

 

$

(469,042

)

 

$

(5,334

)

 

$

17,424

 

Net loss

 

 

 

 

 

 

 

 

 

 

(38,564

)

 

 

 

 

 

(38,564

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

298

 

 

 

 

 

 

 

 

 

298

 

Stock-based compensation

 

 

 

 

1,023

 

 

 

 

 

 

 

 

 

 

 

 

1,023

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(19

)

 

 

(19

)

Amortization of preferred stock series A issuance costs

 

 

 

 

(46

)

 

 

 

 

 

 

 

 

 

 

 

(46

)

Balance, June 30, 2020

$

75

 

 

$

500,701

 

 

$

(7,701

)

 

$

(507,606

)

 

$

(5,353

)

 

$

(19,884

)

Net income

 

 

 

 

 

 

 

 

 

 

122,684

 

 

 

 

 

 

122,684

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

(108

)

 

 

 

 

 

 

 

 

(108

)

Foreign currency translation adjustment related to the impact of discontinued operations

 

 

 

 

 

 

 

5,190

 

 

 

 

 

 

 

 

 

5,190

 

Stock-based compensation

 

 

 

 

3,217

 

 

 

 

 

 

 

 

 

 

 

 

3,217

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(206

)

 

 

(206

)

Amortization of preferred stock series A issuance costs

 

 

 

 

(17

)

 

 

 

 

 

 

 

 

 

 

 

(17

)

Balance, September 30, 2020

$

75

 

 

$

503,901

 

 

$

(2,619

)

 

$

(384,922

)

 

$

(5,559

)

 

$

110,876

 

 

See notes to unaudited condensed consolidated financial statements.

3


SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders' Equity

(Unaudited, in thousands)

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Treasury

Stock

 

 

Total

 

Balance, January 1, 2019

$

64

 

 

$

433,143

 

 

$

(7,270

)

 

$

(239,537

)

 

$

(4,869

)

 

$

181,531

 

Net loss

 

 

 

 

 

 

 

 

 

 

(9,351

)

 

 

 

 

 

(9,351

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

(393

)

 

 

 

 

 

 

 

 

(393

)

Exercise of common stock options

 

 

 

 

284

 

 

 

 

 

 

 

 

 

 

 

 

284

 

Equity instruments issued in connection with Paradigm Spine acquisition - net of fees

 

11

 

 

 

60,719

 

 

 

 

 

 

 

 

 

 

 

 

60,730

 

Stock-based compensation

 

 

 

 

1,163

 

 

 

 

 

 

 

 

 

 

 

 

1,163

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(130

)

 

 

(130

)

Amortization of preferred stock series A issuance costs

 

 

 

 

(46

)

 

 

 

 

 

 

 

 

 

 

 

(46

)

Balance, March 31, 2019

$

75

 

 

$

495,263

 

 

$

(7,663

)

 

$

(248,888

)

 

$

(4,999

)

 

$

233,788

 

Net income

 

 

 

 

 

 

 

 

 

 

188

 

 

 

 

 

 

188

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

395

 

 

 

 

 

 

 

 

 

395

 

Exercise of common stock options

 

 

 

 

111

 

 

 

 

 

 

 

 

 

 

 

 

111

 

Stock-based compensation

 

 

 

 

1,267

 

 

 

 

 

 

 

 

 

 

 

 

1,267

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

(42

)

 

 

(42

)

Amortization of preferred stock series A issuance costs

 

 

 

 

(45

)

 

 

 

 

 

 

 

 

 

 

 

(45

)

Balance, June 30, 2019

$

75

 

 

$

496,596

 

 

$

(7,268

)

 

$

(248,700

)

 

$

(5,041

)

 

$

235,662

 

Net loss

 

 

 

 

 

 

 

 

 

 

(5,138

)

 

 

 

 

 

(5,138

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

(1,122

)

 

 

 

 

 

 

 

 

(1,122

)

Stock-based compensation

 

 

 

 

969