Full Press Release Details
Paragon 28 Reports Third Quarter 2021 Financial Results and Provides 2021 Fourth Quarter Net Revenue Guidance
ENGLEWOOD, Colo., November 22, 2021 -- Paragon 28, Inc. (NYSE: FNA) ( PARAGON ), a leading medical device company exclusively focused on the foot and ankle orthopedic market, today reported financial results for the quarter and nine months ended September 30, 2021.
Financial Highlights
Net revenue $35.9 million for the third quarter of 2021, representing 18% and 45% growth over the third quarters of 2020 and 2019, respectively, driven by sales channel expansion and new product revenue
Net revenue $104.7 million for the nine months ended September 30, 2021, representing 38% and 41% growth over the nine months ended September 30, 2020 and 2019, respectively, driven by sales channel expansion and new product revenue
Gross margin 80.2% for the third quarter 2021 compared to 76.7% for the third quarter of 2020, reflecting a greater mix of higher margin products sold and lower excess and obsolete inventory expenses in the current period
Operating expenses $33.1 million for the third quarter of 2021 compared to $19.3 million for the third quarter of 2020, reflecting higher levels of product development and selling and marketing initiatives, plus general and administrative investments related to becoming a publicly traded company
Net loss $5.1 million for the third quarter of 2021 compared to net income $3.8 million for the third quarter of 2020
Adjusted EBITDA negative $1.0 million for the third quarter 2021 compared to $6.3 million for the third quarter of 2020
I am very pleased with our quarter and year to date revenue growth despite a very challenging COVID-19 environment, said Albert DaCosta, Chairman and Chief Executive Officer. Our U.S. business delivered impressive third quarter 2021 growth of 16% and was also sequentially up 2% compared to a strong second quarter of 2021. Our international business grew 42% in the third quarter 2021 despite COVID-19 challenges which impacted our largest markets of Australia, South Africa, and the United Kingdom. Finally, P28's successful IPO has provided us with the financial strength to accelerate our growth strategies, and we are grateful for the support of our new and legacy investors. We are the largest pure play foot and ankle orthopedics company with LTM revenue of $140 million, and I am more excited now than ever about the potential of Paragon 28.
2021 Financial Guidance
The Company expects fourth quarter 2021 net revenue to be in a range of $38.0 million to $39.0 million, representing growth of 8% to 11% compared to the fourth quarter of 2020. COVID-19 patient deferrals and surgical disruptions from staffing shortages have been considered in the Company's fourth quarter 2021 revenue guidance.
The foregoing forward-looking statements reflect our expectations as of today's date. Given the number of risk factors, uncertainties and assumptions discussed below, actual results may differ materially. We do not intend to update our financial outlook until our next quarterly results announcement.
Webcast and Conference Call Information
Paragon 28 will host a conference call to discuss third quarter 2021 financial results on Monday, November 22, 2021 at 5:30 a.m. Pacific Time / 8:30 a.m. Eastern Time. Investors interested in listening to the conference call may do so by dialing (844)-200-6205 for domestic callers or (929)-526-1599 for international callers, using conference ID: 353414. Live audio of the webcast will be available on the Investors section of the company's website at ir.paragon28.com. The webcast will be archived and available for replay for at least 90 days after the event.
About Paragon 28, Inc.
Based in Englewood, Colo., Paragon 28, is a leading medical device company exclusively focused on the foot and ankle orthopedic market and is dedicated to improving patient lives. From the onset, Paragon 28 has provided innovative orthopedic solutions, procedural approaches and instrumentation that cover a wide range of foot and ankle ailments including fracture fixation, hallux valgus (bunions), hammertoe, ankle, progressive collapsing foot deformity (PCFD) or flatfoot, charcot foot and orthobiologics. The company designs products with both the patient and surgeon in mind, with the goal of improving outcomes, reducing ailment recurrence and complication rates, and making the procedures simpler, consistent, and reproducible.
Forward Looking Statements
Except for the historical information contained herein, the matters set forth in this press release are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to: Paragon 28's potential to shape a better future for foot and ankle patients and its estimated fourth quarter 2021 net revenue. You are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements are only predictions based on our current expectations, estimates, and assumptions, valid only as of the date they are made, and subject to risks and uncertainties, some of which we are not currently aware. Forward looking statements should not be read as a guarantee of future performance or results and may not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. These forward looking statements are based on Paragon 28's current expectations and inherently involve significant risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in such forward looking statements as a result of these risks and uncertainties. These risks and uncertainties are described more fully in the section titled Risk Factors in Paragon 28's filings with the Securities and Exchange Commission (the SEC ), including Paragon 28's final prospectus filed with the SEC pursuant to Rule 424(b)(4) on October 19, 2021. Paragon 28 does not undertake any obligation to update forward looking statements and expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained herein. These forward-looking statements should not be relied upon as representing Paragon 28's views as of any date subsequent to the date of this press release. Paragon 28's results for the quarter ended September 30, 2021 are not necessarily indicative of our operating results for any future periods.
Use of Non-GAAP Financial Measures and Their Limitations
In addition to our results and measures of performance determined in accordance with U.S. GAAP presented in this press release, we believe that certain non-GAAP financial measures are useful in evaluating and comparing our financial and operational performance over multiple periods, identifying trends affecting our business, formulating business plans and making strategic decisions.
Adjusted EBITDA is a key performance measure that our management uses to assess our financial performance and is also used for internal planning and forecasting purposes.
We believe that Adjusted EBITDA, together with a reconciliation to net income, helps identify underlying trends in our business and helps investors make comparisons between our company and other companies that may have different capital structures, tax rates, or different forms of employee compensation. 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 a key financial metric used by our management in its financial and operational decision-making. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider these measures in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these potential limitations include:
other companies, including companies in our industry which have similar business arrangements, may report Adjusted EBITDA, or similarly titled measures but calculate them differently, which reduces their usefulness as comparative measures;
although depreciation and amortization expenses are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditures for such replacements or for new capital expenditure requirements;
Adjusted EBITDA also does not reflect changes in, or cash requirements for, our working capital needs or the potentially dilutive impact of stock based compensation; and
Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur.
Because of these and other limitations, you should consider our non-GAAP measures only as supplemental to other GAAP-based financial measures.
PARAGON 28, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| September 30, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 7,876 | $ | 17,501 | ||||
| Trade receivables, less allowance for doubtful accounts of $802 and $1,296, respectively | 21,237 | 19,972 | ||||||
| Inventories, net | 37,689 | 32,226 | ||||||
| Income taxes receivable | 857 | 1,479 | ||||||
| Other current assets | 4,565 | 617 | ||||||
| Total current assets | 72,224 | 71,795 | ||||||
| Property and equipment, net | 26,471 | 22,363 | ||||||
| Intangible assets, net | 15,445 | 3,325 | ||||||
| Goodwill | 7,313 | - | ||||||
| Deferred income taxes | 95 | 100 | ||||||
| Total assets | $ | 121,548 | $ | 97,583 | ||||
| LIABILITIES, CONVERTIBLE PREFERRED SERIES EQUITY & STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 13,013 | $ | 8,812 | ||||
| Accrued expenses | 13,021 | 10,052 | ||||||
| Other current liabilities | 2,361 | 469 | ||||||
| Current maturities of long-term debt | 173 | 2,231 | ||||||
| Income taxes payable | 548 | 504 | ||||||
| Total current liabilities | 29,116 | 22,068 | ||||||
| Long-term liabilities: | ||||||||
| Long-term debt net, less current maturities | 23,351 | 4,030 | ||||||
| Other long-term liabilities | 2,060 | - | ||||||
| Total liabilities | 54,527 | 26,098 | ||||||
| Commitments and contingencies (Note 13) | ||||||||
| Convertible preferred series equity: | ||||||||
| Series A convertible preferred stock, $0.01 par value, $0 cumulative preferred dividends, as of September 30, 2021 and December 31, 2020, respectively; 13,812,500 shares authorized, issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 4,250 | 4,250 | ||||||
| Series B convertible preferred stock, $0.01 par value, $2,328 and $812 cumulative preferred dividends as of September 30, 2021 and December 31, 2020, respectively; 6,608,700 shares authorized, issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 38,358 | 36,842 | ||||||
| Stockholders' equity: | ||||||||
| Common stock, $0.01 par value, 74,687,845 and 72,187,845 shares authorized; 47,952,733 and 47,567,010 shares issued, and 47,039,212 and 46,738,540 shares outstanding as of September 30, 2021 and December 31, 2020, respectively | 470 | 467 | ||||||
| Additional paid in capital | 26,294 | 22,107 | ||||||
| Retained earnings | 3,384 | 12,418 | ||||||
| Accumulated other comprehensive income | 248 | 823 | ||||||
| Treasury stock, at cost; 913,521 and 828,472 shares as of September 30, 2021 and December 31, 2020, respectively | (5,983 | ) | (5,422 | ) | ||||
| Total stockholders' equity | 24,413 | 30,393 | ||||||
| Total liabilities, convertible preferred series equity & stockholders' equity | $ | 121,548 | $ | 97,583 |
PARAGON 28, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net revenue | $ | 35,851 | $ | 30,268 | $ | 104,689 | $ | 75,924 | ||||||||
| Cost of goods sold | 7,096 | 7,049 | 20,209 | 15,386 | ||||||||||||
| Gross profit | 28,755 | 23,219 | 84,480 | 60,538 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development costs | 4,118 | 2,346 | 11,254 | 8,174 | ||||||||||||
| Selling, general, and administrative | 28,968 | 16,958 | 79,009 | 50,962 | ||||||||||||
| Total operating expenses | 33,086 | 19,304 | 90,263 | 59,136 | ||||||||||||
| Operating (loss) income | (4,331 | ) | 3,915 | (5,783 | ) | 1,402 | ||||||||||
| Other expense | ||||||||||||||||
| Other expense | (98 | ) | (56 | ) | (124 | ) | (141 | ) | ||||||||
| Interest expense | (573 | ) | (70 | ) | (1,174 | ) | (532 | ) | ||||||||
| Total other expense | (671 | ) | (126 | ) | (1,298 | ) | (673 | ) | ||||||||
| (Loss) income before income taxes | (5,002 | ) | 3,789 | (7,081 | ) | 729 | ||||||||||
| Income tax expense (benefit) | 105 | (19 | ) | 437 | 1,396 | |||||||||||
| Net (loss) income | $ | (5,107 | ) | $ | 3,808 | $ | (7,518 | ) | $ | (667 | ) | |||||
| Less: cumulative dividends on Series B convertible preferred stock | (574 | ) | (333 | ) | (1,516 | ) | (333 | ) | ||||||||
| Net (loss) income attributable to common stockholders | $ | (5,681 | ) | $ | 3,475 | $ | (9,034 | ) | $ | (1,000 | ) | |||||
| Foreign currency translation adjustment | (121 | ) | 366 | (575 | ) | (76 | ) | |||||||||
| Comprehensive (loss) income | $ | (5,802 | ) | $ | 3,841 | $ | (9,609 | ) | $ | (1,076 | ) | |||||
| Weighted average number of common stocks outstanding: | ||||||||||||||||
| Basic | 47,005,334 | 43,429,308 | 46,926,344 | 42,792,176 | ||||||||||||
| Diluted | 47,005,334 | 61,376,701 | 46,926,344 | 42,792,176 | ||||||||||||
| Net (loss) income per share attributable to common stockholders: | ||||||||||||||||
| Basic | $ | (0.12 | ) | $ | 0.08 | $ | (0.19 | ) | $ | (0.02 | ) | |||||
| Diluted | $ | (0.12 | ) | $ | 0.06 | $ | (0.19 | ) | $ | (0.02 | ) |
PARAGON 28, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (7,518 | ) | $ | (667 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 6,094 | 4,493 | ||||||
| Allowance for doubtful accounts | 139 | 632 | ||||||
| Provision for excess and obsolete inventories | 2,226 | 2,770 | ||||||
| Stock-based compensation | 2,747 | 1,233 | ||||||
| Amortization of debt issuance costs | 372 | 92 | ||||||
| Change in fair value of earnout liabilities | 60 | - | ||||||
| Deferred income taxes | - | 1,080 | ||||||
| Loss on disposal of property and equipment | 118 | 476 | ||||||
| Unrealized FX gain/loss | 178 | 153 | ||||||
| Changes in other assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | (807 | ) | 1,925 | |||||
| Inventories | (7,860 | ) | (10,018 | ) | ||||
| Other current assets | (3,952 | ) | 948 | |||||
| Accounts payable | 3,404 | (5,220 | ) | |||||
| Accrued expenses and other current liabilities | 2,935 | (2,109 | ) | |||||
| Income tax receivable/payable | 668 | 175 | ||||||
| Net cash used in operating activities | (1,196 | ) | (4,037 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | (10,270 | ) | (7,511 | ) | ||||
| Proceeds from sale of property and equipment | 581 | 373 | ||||||
| Purchases of intangible assets | (1,196 | ) | (495 | ) | ||||
| Acquisition of Additive Orthopaedics | (15,000 | ) | - | |||||
| Net cash used in investing activities | (25,885 | ) | (7,633 | ) | ||||
| Cash flows from financing activities | ||||||||
| Payments on note payable - related party | - | (3,000 | ) | |||||
| Payments on revolving credit facility | - | (9,821 | ) | |||||
| Proceeds from issuance of long-term debt | 25,985 | 472 | ||||||
| Payments on long-term debt | (5,991 | ) | (1,092 | ) | ||||
| Proceeds from PPP loan | - | 3,747 | ||||||
| Payments of debt issuance costs | (3,080 | ) | - | |||||
| Proceeds from issuance of common stock | 1,001 | 1,348 | ||||||
| Proceeds from issuance of Series B capital stock, net of issuance costs | - | 36,030 | ||||||
| Payments on treasury stock repurchased | (561 | ) | (231 | ) | ||||
| Proceeds from exercise of stock options | 442 | 210 | ||||||
| Net cash provided by financing activities | 17,796 | 27,663 | ||||||
| Effect of exchange rate changes on cash | (340 | ) | (257 | ) | ||||
| Net decrease in cash | (9,625 | ) | 15,736 | |||||
| Cash at beginning of period | 17,501 | 2,610 | ||||||
| Cash at end of period | $ | 7,876 | $ | 18,346 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for taxes | $ | 381 | $ | 162 | ||||
| Cash paid for interest | $ | 670 | $ | 466 | ||||
| Purchase of property and equipment included in accounts payable | $ | 58 | $ | - | ||||
| Series B convertible preferred stock dividend | $ | 1,516 | $ | 333 |
PARAGON 28, INC. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP ADJUSTED EBITDA
| Three Months Ended September 30, | Nine Months Ended September 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net Income (loss) | $ | (5,107 | ) | $ | 3,808 | $ | (7,518 | ) | $ | (667 | ) | |||||
| Interest expense | 573 | 70 | 1,174 | 532 | ||||||||||||
| Income tax expense (benefit) | 105 | (19 | ) | 437 | 1,396 | |||||||||||
| Depreciation and amortization expense | 2,424 | 1,545 | 6,103 | 4,479 | ||||||||||||
| Stock based compensation expense | 1,032 | 365 | 2,747 | 1,233 | ||||||||||||
| Excess and obsolete inventory expense related to supply chain disruption (1) | 519 | 519 | ||||||||||||||
| Adjusted EBITDA | $ | (973 | ) | $ | 6,288 | $ | 2,943 | $ | 7,492 |
(1) Represents non-recurring excess and obsolete inventory expense caused by supply chain purchasing process disruption during the COVID-19 pandemic.