axgn-20210331

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 March 31, 2021


☐			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: 001-36046

Axogen, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Minnesota

(State or other jurisdiction of

incorporation or organization)

13631 Progress Blvd., Suite 400 Alachua, FL

(Address of principal executive offices)

41-1301878

(I.R.S. Employer

Identification No.)

32615

(Zip Code)

386-462-6800

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(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 each exchange on which registered
Common Stock, $0.01 par value	AXGN	The Nasdaq Stock 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 pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the 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 ☒

As of May 3, 2021, the registrant had 41,003,269 shares of common stock outstanding.

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Part I - Financial Information
Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	30

Part II - Other Information

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	33

	Signature Page	34

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Forward-Looking Statements

From time to time, in reports filed with the U.S. Securities and Exchange Commission (the “SEC”) (including this Quarterly Report on Form 10-Q), in press releases, and in other communications to shareholders or the investment community, Axogen, Inc. (including Axogen, Inc.’s wholly owned subsidiaries, Axogen Corporation, Axogen Processing Corporation and Axogen Europe GmbH, the “Company,” “Axogen,” “we,” “our,” or “us”) may provide forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, concerning possible or anticipated future results of operations or business developments. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,” “continue,” “may,” “should,” “will,” “goals,” variations of such words and similar expressions are intended to identify such forward-looking statements. The forward-looking statements may include, without limitation, statements regarding our assessment of our internal controls over financial reporting, our growth, the impact of COVID-19, product development, product potential, financial performance, sales growth, product adoption, market awareness of our products, data validation, and our visibility at and sponsorship of, conferences and educational events. The forward-looking statements are and will be subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in such forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q should be evaluated together with the many uncertainties that affect the our business and our market, particularly those discussed in the risk factors and cautionary statements set forth in the our filings with the SEC, including as described in “Risk Factors” included in Item 1A and “Risk Factor Summary” included in our 2020 Annual Report on Form 10-K. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those projected. Forward-looking statements are representative only as of the date they are made, and, except as required by applicable law, we assume no responsibility to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise.

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PART 1 — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

Axogen, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(In Thousands, Except Share and Per Share Amounts)


	March 31, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	39,843	$	48,767
Restricted cash	6,333		6,842
Investments	51,062		55,199
Accounts receivable, net of allowance for doubtful accounts of $351 and $416, respectively	19,825		17,618
Inventory	13,388		12,529
Prepaid expenses and other	4,694		4,296
Total current assets	135,145		145,251
Property and equipment, net	44,395		38,398
Operating lease right-of-use assets	15,442		15,614
Finance lease right-of-use assets	59		64
Intangible assets	2,328		2,054
Total assets	$	197,369	$	201,381

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	20,831	$	21,968
Current maturities of long-term lease obligations	1,442		863
Total current liabilities	22,273		22,831

Long-term debt, net of financing fees	32,140		32,027
Long-term lease obligations	20,731		20,874
Debt derivative liability	2,519		2,497
Other long-term liabilities	2		3
Total liabilities	77,665		78,232

Commitments and contingencies - see Note 13

Shareholders’ equity:
Common stock, $0.01 par value per share; 100,000,000 shares authorized; 40,842,717 and 40,618,766 shares issued and outstanding	408		406
Additional paid-in capital	329,603		326,390
Accumulated deficit	(210,307)		(203,647)
Total shareholders’ equity	119,704		123,149
Total liabilities and shareholders’ equity	$	197,369	$	201,381

See notes to condensed consolidated financial statements.

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Axogen, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(In Thousands, Except Share and Per Share Amounts)


	Three Months Ended
	March 31, 2021		March 31, 2020

Revenues	$	31,037	$	24,261
Cost of goods sold	5,172		4,816
Gross profit	25,865		19,445
Costs and expenses:
Sales and marketing	17,973		17,838
Research and development	5,748		4,614
General and administrative	8,364		5,502
Total costs and expenses	32,085		27,954
Loss from operations	(6,220)		(8,509)
Other (expense) income:
Investment income	34		311
Interest expense	(444)		(31)

Other (expense)/income	(30)		37
Total other (expense) income, net	(440)		317
Net Loss	$	(6,660)	$	(8,192)
Weighted average common shares outstanding — basic and diluted	40,705,840		39,697,790
Loss per common share — basic and diluted	$	(0.16)	$	(0.21)

See notes to condensed consolidated financial statements.

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Axogen, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In Thousands)


	Three Months Ended
	March 31, 2021		March 31, 2020
Cash flows from operating activities:
Net loss	$	(6,660)	$	(8,192)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	772		307
Amortization of right-of-use assets	500		470
Amortization of intangible assets	47		36
Amortization of deferred financing fees	112		—
Provision for bad debt	(26)		22
Provision for inventory write-down	783		924
Changes in fair value of derivatives	22		—
Changes in investment gains and losses	15		(49)
Share-based compensation	2,694		556
Change in operating assets and liabilities:
Accounts receivable	(2,181)		3,902
Inventory	(1,642)		(1,626)
Prepaid expenses and other	(313)		(2,024)
Accounts payable and accrued expenses	(5,061)		(1,903)
Operating lease obligations	119		(472)
Contract and other liabilities	(1)		(3)
Net cash used in operating activities	(10,820)		(8,052)

Cash flows from investing activities:
Purchase of property and equipment	(3,095)		(5,021)
Purchase of investments	(15,279)		(11,760)
Proceeds from sale of investments	19,400		25,450
Cash payments for intangible assets	(156)		(119)
Net cash provided by investing activities	870		8,550

Cash flows from financing activities:




Payments of employee tax withholding in exchange of common stock awards	—		(639)
Cash paid for debt portion of finance leases	(4)		(5)
Proceeds from exercise of stock options	521		316
Net cash provided by (used in) financing activities	517		(328)
Net (decrease) increase in cash, cash equivalents, and restricted cash	(9,433)		170
Cash, cash equivalents, and restricted cash, beginning of period	55,609		41,724
Cash, cash equivalents and restricted cash, end of period	$	46,176	$	41,894

Supplemental disclosures of cash flow activity:
Cash paid for interest	$	312	$	11
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of fixed assets in accounts payable and accrued expenses	$	4,836	$	3,674
Obtaining a right-of-use asset in exchange for a lease liability	$	321	$	120
Acquisition of intangible assets in accounts payable and accrued expenses	$	166	$	—

See notes to condensed consolidated financial statements.

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Axogen, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)

(In Thousands, Except Share Amounts)


	Common Stock			Paid-in Capital		Accumulated Deficit		Shareholders' Equity/(Deficit)
	Shares	Amount
Three Months Ended March 31, 2021
Balance at December 31, 2020	40,618,766	$	406	$	326,390	$	(203,647)	$	123,149
Net Loss	—	—		—		(6,660)		(6,660)
Stock-based compensation	—	—		2,694		—		2,694
Issuance of restricted and performance stock units	94,533	1		(1)		—		—
Exercise of stock options and employee stock purchase plan	129,418	1		520		—		521
Balance at March 31, 2021	40,842,717	$	408	$	329,603	$	(210,307)	$	119,704

Three Months Ended March 31, 2020
Balance at December 31, 2019	39,589,755	$	396	$	311,618	$	(179,861)	$	132,153
Net Loss	—	—		—		(8,192)		(8,192)
Stock-based compensation	—	—		556		—		556
Issuance of restricted and performance stock units	137,634	1		(1)		—		—
Shares surrendered by employees to pay tax withholdings	(36,963)	—		(639)		—		(639)
Exercise of stock options and employee stock purchase plan	48,341	—		316		—		316
Balance at March 31, 2020	39,738,767	$	397	$	311,850	$	(188,053)	$	124,194

See notes to condensed consolidated financial statements.

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Axogen, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(In Thousands, Except Per Share Amounts)

Unless the context otherwise requires, all references in these Notes to “Axogen,” the “Company”, “we,” “us” and “our” refer to Axogen, Inc. and its wholly owned subsidiaries Axogen Corporation (“AC”), Axogen Processing Corporation, and Axogen Europe GmbH.

1.Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company as of March 31, 2021 and December 31, 2020 and for the three-month periods ended March 31, 2021 and 2020. The Company’s condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and therefore, do not include all information and footnotes necessary for a fair presentation of consolidated financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2020, which are included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2020. The interim condensed consolidated financial statements are unaudited and in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results for the periods presented. Results for interim periods are not necessarily indicative of results for the full year. All intercompany accounts and transactions have been eliminated in consolidation.

The results of operations for the three-months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full fiscal year due primarily to the impact of the continued uncertainty of general economic conditions that may impact our markets for the remainder of fiscal year 2021. Specifically, there can be no assurances that the resurgences of coronavirus (“COVID-19”) will not affect future results.

2.Summary of Significant Accounting Policies

Cash and Cash Equivalents and Concentration

The Company considers highly liquid investments with maturities of three months or less at the date of acquisition as cash equivalents in the accompanying consolidated financial statements. The Company has not experienced any losses related to these balances; however, as of March 31, 2021, $39,343 of the cash and cash equivalents balance was in excess of FDIC limits. As of March 31, 2021 and December 31, 2021, the Company had restricted cash balances of $6,333 and $6,842, respectively. The March 31, 2021 and December 31, 2021 balances both include $6,000, which represents collateral for an irrevocable standby letter of credit. The March 31, 2021 and December 31, 2020 balances include $83 and $842, respectively, which is the balance of the Heights Union Escrow Account (see Note 13 - Commitments and Contingencies). Additionally, the March 31, 2021 includes an additional irrevocable standby letter of credit in the amount of $250 (See Note 10 - Long Term Debt).

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows:


	March 31, 2021		December 31, 2020
Cash and cash equivalents	$	39,843	$	48,767
Restricted cash	6,333		6,842
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	46,176	$	55,609

Revenue Recognition

The Company enters into contracts to sell and distribute products and services to hospitals and surgical facilities for use in caring for patients with peripheral nerve damage or transection. Revenue is recognized when the Company has met its performance obligations pursuant to its contracts with its customers in an amount that the Company expects to be entitled to in exchange for the transfer of control of the products and services to the Company’s customers.

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In the case of products or services sold to a customer under a distribution or purchase agreement, the customers are granted exclusive distribution rights to sell the implants internationally in a territory defined by the contract. These international distributor agreements contain provisions that allow the Company to terminate the distribution agreement with the distributor, and upon termination, the right to repurchase inventory from the distributor at the distributor’s cost. The Company has determined that its contractual rights to repurchase distributor inventory upon termination of the distributor agreement are not substantive and do not impact the timing of when control transfers; and, therefore, the Company has determined it is appropriate to recognize revenue when: i) the product is shipped via common carrier; or ii) the product is delivered to the customer or distributor, depending on the terms of the agreement. Determining the timing of revenue recognition for such contracts is subject to judgment, because an evaluation must be made regarding the distributor’s ability to direct the use of, and obtain substantially all of the remaining benefits from, the implants received from the Company. Changes in these assessments could have an impact on the timing of revenue recognition from sales to distributors.

A portion of the Company’s product revenue is generated from consigned inventory maintained at hospitals and independent sales agencies, and also from inventory physically held by field sales representatives. For these types of products sales, the Company retains control until the product has been used or implanted, at which time revenue is recognized.

The Company accounts for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying products is transferred to the customer. The related shipping and freight charges incurred by the Company are included in cost of sales.

The Company operates in a single reportable segment of peripheral nerve repair, offers similar products to its customers, and enters into consistently structured arrangements with similar types of customers. As such, the Company does not disaggregate revenue from contracts with customers as the nature, amount, timing and uncertainty of revenue and cash flows does not materially differ within and among the contracts with customers.

The contract with the customer states the final terms of the sale, including the description, quantity, and price of each implant distributed. The payment terms and conditions in the Company’s contracts vary; however, as a common business practice, payment terms are typically due in full within thirty to sixty days of delivery. Since the customer agrees to a stated price in the contract that does not vary over the contract term, the contracts do not contain any material types of variable consideration, and contractual rights of return are not material. The Company has several contracts with distributors in international markets which include consideration paid to the customer in exchange for distinct marketing and other services. The Company records such consideration paid to the customer as a reduction to revenue from the contracts with those distributor customers.

In connection with the Acroval Neurosensory and Motor Testing System, the Company sold extended warranty and service packages to some of its customers who purchase this evaluation and measurement tool, and the prepayment of these extended warranties represent contract liabilities until the performance obligations are satisfied ratably over the term of the contract. The sale of the aforementioned extended warranty represents the only performance obligation the Company satisfies over time and creates the contract liability disclosed below. The opening and closing balances of the Company’s contract receivables and liabilities are as follows:


Contract Balances
	Net Receivables		Contract Liabilities, Current		Contract Liabilities, Long-Term
Opening, January 1, 2020	$	16,944	$	14	$	15
Closing, March 31, 2020	13,020		14		12
Increase (decrease)	(3,924)		—		(3)

Opening, January 1, 2021	$	17,618	$	14	$	3
Closing, March 31, 2021	19,825		14		2
Increase (decrease)	2,207		—		(1)

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Allowance for Doubtful Accounts Receivable and Concentration of Credit Risk

The Company evaluates the collectability of accounts receivable to determine the appropriate allowance for doubtful accounts. In determining the amount of the allowance, the Company considers aging of account balances, historical credit losses, customer-specific information, the current economic environment, supportable forecasts and other relevant factors. An increase to the allowance for doubtful accounts results in a corresponding increase in general and administrative expense. The Company reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs has not been significant. The allowance for doubtful accounts balance was approximately $351 and $416 at March 31, 2021 and December 31, 2020, respectively.

Concentrations of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk. The Company also controls credit risk through credit approvals and monitoring procedures.

Derivative Instruments

The Company analyzes all financial instruments with features under Accounting Standards Codification ("ASC") 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. The Company also reviews debt agreements for embedded features. If these features are not clearly and closely related to the debt host, they meet the definition of a derivative and require bifurcation from the host. All derivative instruments are recorded on the balance sheet at their respective fair values. The Company will adjust the carrying value of the derivative liability to fair value at each subsequent reporting date. The changes in the value of the derivatives are recorded in the consolidated statement of operations in the period in which they occur.

Net Loss Per Share

Basic net loss per share is computed by dividing reported net loss by the weighted average number of common shares outstanding for the reported period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during the reporting period. Diluted net loss per share is computed by dividing net loss by the sum of the weighted average number of common shares and the number of potential dilutive common share equivalents outstanding during the period. Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share options and the incremental shares issuable upon conversion of the convertible notes. Potential dilutive common share equivalents consist of stock options, restricted stock units (“RSUs”), and performance stock units (“PSUs”).

Due to net losses for the three months ended March 31, 2021 and 2020, basic and diluted net loss per share were the same as the effect of potentially dilutive securities and would have been anti-dilutive.

3.Recently Issued Standards to be Adopted

The Company’s management has reviewed and considered all other recent accounting pronouncements and believe there are none that could potentially have a material impact on the Company’s consolidated financial condition, results of operations, or disclosures.

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SEC Form 10-Q filed by AxoGen, Inc.