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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 June 30, 2021

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 August 4, 2021:  139,410,776

 

 

 

 


SURGALIGN HOLDINGS, INC.

FORM 10-Q For the Quarter Ended June 30, 2021

Index

 

 

 

 

 

Page #

 

 

 

 

 

Part I    Financial Information

 

 

 

 

 

 

 

Item 1

 

Unaudited Condensed Consolidated Financial Statements

 

1

 

 

 

 

 

Item 2

 

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

 

25

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

34

 

 

 

 

 

Item 4

 

Controls and Procedures

 

34

 

 

 

 

 

Part II    Other Information

 

 

 

 

 

 

 

Item 1  

 

Legal Proceedings

 

36

 

 

 

 

 

Item 1A

 

Risk Factors

 

37

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

38

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

38

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

38

 

 

 

 

 

Item 5

 

Other Information

 

38

 

 

 

 

 

Item 6

 

Exhibits

 

39

 

 

 

 

 

Signatures

 

40

 

 

 

 


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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

69,257

 

 

$

43,962

 

Accounts receivable - less allowances of $10,622 at June 30, 2021 and $8,203 at December 31, 2020

 

 

30,503

 

 

 

27,095

 

Inventories - current

 

 

26,466

 

 

 

22,841

 

Prepaid and other current assets

 

 

23,422

 

 

 

10,284

 

Total current assets

 

 

149,648

 

 

 

104,182

 

Non-current inventories

 

 

8,889

 

 

 

7,856

 

Property and equipment - net

 

 

1,045

 

 

 

521

 

Other assets - net

 

 

10,228

 

 

 

10,145

 

Total assets

 

$

169,810

 

 

$

122,704

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,577

 

 

$

13,418

 

Accrued expenses

 

 

42,725

 

 

 

21,644

 

Accrued income taxes

 

 

497

 

 

 

11,761

 

Total current liabilities

 

 

52,799

 

 

 

46,823

 

Acquisition contingencies

 

 

35,743

 

 

 

47,519

 

Warrant liability

 

 

24,226

 

 

 

 

Other long-term liabilities

 

 

4,230

 

 

 

4,192

 

Total liabilities

 

 

116,998

 

 

 

98,534

 

Commitments and contingencies (Note 18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $.001 par value: 300,000,000 shares authorized; 139,416,899 and 81,678,179 shares issued and outstanding, as of June 30, 2021 and December 31, 2020, respectively

 

 

139

 

 

 

81

 

Additional paid-in capital

 

 

577,186

 

 

 

517,123

 

Accumulated other comprehensive loss

 

 

(2,380

)

 

 

(2,416

)

Accumulated deficit

 

 

(516,344

)

 

 

(484,962

)

Less treasury stock, 1,501,257 and 1,444,578 shares, as of June 30, 2021 and December 31, 2020, respectively, at cost

 

 

(5,789

)

 

 

(5,656

)

Total stockholders' equity

 

 

52,812

 

 

 

24,170

 

Total liabilities and stockholders' equity

 

$

169,810

 

 

$

122,704

 

 

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 Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues

$

24,834

 

 

$

20,534

 

 

$

48,125

 

 

$

47,636

 

Cost of goods sold

 

7,229

 

 

 

9,469

 

 

 

13,467

 

 

 

18,693

 

Gross profit

 

17,605

 

 

 

11,065

 

 

 

34,658

 

 

 

28,943

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing, general and administrative

 

25,541

 

 

 

32,148

 

 

 

51,701

 

 

 

69,341

 

Research and development

 

3,183

 

 

 

3,274

 

 

 

6,059

 

 

 

7,556

 

Gain on acquisition contingency

 

(2,236

)

 

 

(130

)

 

 

(2,287

)

 

 

(130

)

Asset impairment and abandonments

 

2,206

 

 

 

882

 

 

 

4,382

 

 

 

2,761

 

Transaction and integration expenses

 

2,188

 

 

 

6

 

 

 

2,510

 

 

 

2,415

 

Total operating expenses

 

30,882

 

 

 

36,180

 

 

 

62,365

 

 

 

81,943

 

Operating loss

 

(13,277

)

 

 

(25,115

)

 

 

(27,707

)

 

 

(53,000

)

Other (income) expense - net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense - net

 

(101

)

 

 

(21

)

 

 

(105

)

 

 

(71

)

Foreign exchange (gain) loss

 

(95

)

 

 

(195

)

 

 

450

 

 

 

49

 

Change in fair value of warrant liability

 

(2,523

)

 

 

 

 

 

(2,523

)

 

 

 

Total other (income) expense - net

 

(2,719

)

 

 

(216

)

 

 

(2,178

)

 

 

(22

)

(Loss) before income tax provision (benefit)

 

(10,558

)

 

 

(24,899

)

 

 

(25,529

)

 

 

(52,978

)

Income tax provision (benefit)

 

81

 

 

 

47

 

 

 

300

 

 

 

(3,492

)

Net loss from continuing operations

 

(10,639

)

 

 

(24,946

)

 

 

(25,829

)

 

 

(49,486

)

Discontinued operations (Note 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) from operations of discontinued operations

 

(6,316

)

 

 

(16,963

)

 

 

(6,316

)

 

 

(10,286

)

Income tax (benefit)

 

(763

)

 

 

(3,345

)

 

 

(763

)

 

 

(3,345

)

Net (loss) from discontinued operations

 

(5,553

)

 

 

(13,618

)

 

 

(5,553

)

 

 

(6,941

)

Net (loss) applicable to common shares

 

(16,192

)

 

 

(38,564

)

 

 

(31,382

)

 

 

(56,427

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss (gain):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized foreign currency translation loss (gain)

 

35

 

 

 

(298

)

 

 

(36

)

 

 

72

 

Comprehensive loss

$

(16,227

)

 

$

(38,266

)

 

$

(31,346

)

 

$

(56,499

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations per common share - basic

$

(0.09

)

 

$

(0.34

)

 

$

(0.24

)

 

$

(0.68

)

Net loss from continuing operations per common share - diluted

$

(0.09

)

 

$

(0.34

)

 

$

(0.24

)

 

$

(0.68

)

Net loss from discontinued operations per common share - basic

$

(0.05

)

 

$

(0.19

)

 

$

(0.05

)

 

$

(0.10

)

Net loss from discontinued operations per common share - diluted

$

(0.05

)

 

$

(0.19

)

 

$

(0.05

)

 

$

(0.10

)

Weighted average shares outstanding - basic

 

114,271,780

 

 

 

72,642,215

 

 

 

106,279,658

 

 

 

72,981,134

 

Weighted average shares outstanding - diluted

 

114,271,780

 

 

 

72,642,215

 

 

 

106,279,658

 

 

 

72,981,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2021

$

81

 

 

 

 

$

517,123

 

 

 

 

$

(2,416

)

 

 

 

$

(484,962

)

 

 

 

$

(5,656

)

 

 

 

$

24,170

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,190

)

 

 

 

 

 

 

 

 

 

(15,190

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71

 

Exercise of common stock options

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 

Stock-based compensation

 

 

 

 

 

 

936

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

936

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(110

)

 

 

 

 

(110

)

Share offering

 

29

 

 

 

 

 

36,455

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,484

 

Balance, March 31, 2021

$

110

 

 

 

 

$

554,537

 

 

 

 

$

(2,345

)

 

 

 

$

(500,152

)

 

 

 

$

(5,766

)

 

 

 

$

46,384

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,192

)

 

 

 

 

 

 

 

 

 

(16,192

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(35

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35

)

Stock-based compensation

 

 

 

 

 

 

1,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,413

 

Share offering

 

29

 

 

 

 

 

45,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45,842

 

Warrant issuance

 

 

 

 

 

 

(24,798

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,798

)

Equity instruments issued in connection with Prompt Prototypes, LLC

 

 

 

 

 

 

221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

221

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

(23

)

Balance, June 30, 2021

$

139

 

 

 

 

$

577,186

 

 

 

 

$

(2,380

)

 

 

 

$

(516,344

)

 

 

 

$

(5,789

)

 

 

 

$

52,812

 

 

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, 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

)

 

See notes to unaudited condensed consolidated financial statements.

4


SURGALIGN HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2021