GlobeNewswire Inc | Aug 5, 2020 04:01PM EDT

August 05, 2020

ALACHUA, Fla., Aug. 05, 2020 (GLOBE NEWSWIRE) -- Axogen, Inc. (NASDAQ: AXGN), a global leader in developing and marketing innovative surgical solutions for peripheral nerve injuries, today reported financial results and business highlights for the second quarter ended June 30, 2020.

Second Quarter 2020 Financial Results and Recent Business Highlights

-- Net revenue was $22.1 million during the quarter, a decrease of 17% compared to second quarter 2019 revenue of $26.7 million. -- Gross margin was 74.7% for the quarter, compared to 84.1% in the second quarter of 2019. -- Net loss was $8.1 million for the quarter, or $0.20 per share, compared to a net loss of $7.0 million, or $0.18 per share, in the second quarter of 2019. -- Adjusted net loss was $5.9 million for the quarter, or $0.15 per share, compared with adjusted net loss of $3.7 million, or $0.10 per share, in the second quarter of 2019. -- Adjusted EBITDA loss was $5.7 million for the quarter, compared to an adjusted EBITDA loss of $4.1 million in the second quarter of 2019. -- On June 30, 2020 the Company announced a new seven-year, interest-only financing agreement with Oberland Capital, which provides up to $75.0 million in total financing commitments, with $35 million drawn at the close. -- The balance of cash, cash equivalents, and investments on June 30, 2020 was $109.9 million, compared to a balance of $89.0 million on March 31, 2020. The net change reflects the receipt of net debt proceeds of $34.7 million, partially offset by capital expenditures in the quarter of $7.8 million and net operating cash burn of $6.0 million. -- On July 22, 2020 the Company reported that its RECONSM Clinical Study had completed target enrollment of 220 subjects.

We are encouraged by the performance of our commercial team and the demand for our products over the course of the quarter as surgery schedules opened and hospitals quickly moved to complete nerve repair procedures, commented Karen Zaderej, chairman, CEO, and president of Axogen. We expect that most deferred nerve repair procedures will be scheduled by the end of the summer and believe that regional COVID-19 resurgence may continue to negatively impact the incidence of trauma and surgical procedure volumes in certain geographies. As a result, we remain measured in our outlook for the remainder of the year and expect that revenue in the third and fourth quarters will continue to trend below prior-year results. However, we are pleased with the resilience we have seen with our business and we believe that the strength of our balance sheet, along with our cost mitigation initiatives, will allow us to emerge from this pandemic-related downturn as a stronger, leaner organization on a path to profitability.

Additional Operational and Business Highlights

-- Ended the second quarter with 112 direct sales representatives, an increase of three from last quarter, and up from 100 at the end of Q2 2019. -- Active accounts in the second quarter were 789, an increase of 4% compared to 762 in the second quarter a year ago. -- Ended the quarter with 126 peer-reviewed clinical publications featuring Axogens nerve repair product portfolio.

RECON Clinical Study Enrollment and Follow-UpRECON is a pivotal clinical study supporting the Companys Biologics License Application (BLA) for Avance Nerve Graft. The study protocol requires a one-year follow-up assessment with an allowance for an additional three-month visit window. With the final subject enrolled in July of 2020, the last patient is expected to complete the study no later than October of 2021. The Company anticipates it will provide a preliminary report of study data in the second quarter of 2022 and expects to file the BLA in 2023.

2020 Financial Guidance On April 1, 2020, the Company disclosed that it was suspending its 2020 annual financial guidance as previously provided on February 24, 2020 due to factors associated with COVID-19. At this date, the Company cannot predict the extent or duration of the impact of the COVID-19 pandemic on its financial results but expects the current environment will lead to revenues below the prior year in the third and fourth quarter.

Conference CallThe Company will host a conference call and webcast for the investment community today at 4:30 p.m. ET. Investors interested in participating by phone are invited to call toll free at 1-877-407-0993 or use the direct dial-in number 1-201-689-8795. Those interested in listening to the conference call live via the Internet can do so by visiting the Investors page of the Companys website at www.axogeninc.com and clicking on the webcast link on the Investors home page.

Following the conference call, a replay will be available on the Companys website at www.axogeninc.com under Investors.

About AxogenAxogen (AXGN) is the leading company focused specifically on the science, development and commercialization of technologies for peripheral nerve regeneration and repair. Axogen employees are passionate about helping to restore peripheral nerve function and quality of life to patients with physical damage or transection to peripheral nerves by providing innovative, clinically proven and economically effective repair solutions for surgeons and health care providers. Peripheral nerves provide the pathways for both motor and sensory signals throughout the body. Every day, people suffer traumatic injuries or undergo surgical procedures that impact the function of their peripheral nerves.Physical damage to a peripheral nerve, or the inability to properly reconnect peripheral nerves, can result in the loss of muscle or organ function, the loss of sensory feeling, or the initiation of pain.

Axogen's platform for peripheral nerve repair features a comprehensive portfolio of products, including Avance Nerve Graft, a biologically active off-the-shelf processed human nerve allograft for bridging severed peripheral nerves without the comorbidities associated with a second surgical site; Axoguard Nerve Connector, a porcine submucosa extracellular matrix (ECM) coaptation aid for tensionless repair of severed peripheral nerves; Axoguard Nerve Protector, a porcine submucosa ECM product used to wrap and protect damaged peripheral nerves and reinforce the nerve reconstruction while preventing soft tissue attachments; Axoguard Nerve Cap, a porcine submucosa ECM product used to protect a peripheral nerve end and separate the nerve from the surrounding environment to reduce the development of symptomatic or painful neuroma; and AviveSoft Tissue Membrane, a processed human umbilical cord intended for surgical use as a resorbable soft tissue barrier. The Axogen portfolio of products is available in the United States, Canada, the United Kingdom, South Korea, and several other European and international countries.

Cautionary Statements Concerning Forward-Looking StatementsThis press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations or predictions of future conditions, events, or results based on various assumptions and management's estimates of trends and economic factors in the markets in which we are active, as well as our business plans. Words such as expects, anticipates, intends, plans, believes, seeks, estimates, projects, forecasts, continue, may, should, will, goals, and variations of such words and similar expressions are intended to identify such forward-looking statements. The forward-looking statements may include, without limitation, statements related to the expected impact of COVID-19 on our business, statements regarding our growth, product development, product potential, financial performance, sales growth, product adoption, market awareness of our products, data validation, our assessment of our internal controls over financial reporting, 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 press release should be evaluated together with the many uncertainties that affect our business and our market, particularly those discussed under Part I, Item 1A., Risk Factors, of our Annual Report on Form 10-K, as amended on Form 10-K/A, for the fiscal year ended December 31, 2019, as well as other risks and cautionary statements set forth in our filings with the U.S. Securities and Exchange Commission. Forward-looking statements are not a guarantee of future performance, and actual results may differ materially from those projected. The 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.

About Non-GAAP Financial Measures To supplement our consolidated financial statements, we use the non-GAAP financial measures of EBITDA, which measures earnings before interest, income taxes, depreciation and amortization, and Adjusted EBITDA which further excludes non-cash stock compensation expense. We also use the non-GAAP financial measures of Adjusted Net Loss and Adjusted Net Loss Per Common Share - basic and diluted which excludes non-cash stock compensation expense and loss on extinguishment of debt from Net Loss and Net Loss Per Common Share - basic and diluted, respectively. These non-GAAP measures are not based on any comprehensive set of accounting rules or principles and should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures should be read in conjunction with our financial statements prepared in accordance with GAAP. The reconciliations of Axogens GAAP financial measures to the corresponding non-GAAP measures should be carefully evaluated.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. We believe these non-GAAP financial measures are useful to investors because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the performance of our business.

Contact:Axogen, Inc.Peter J. Mariani, Chief Financial Officerpmariani@axogeninc.comInvestorRelations@AxogenInc.com

AXOGEN, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(unaudited) June30, December31, 2020 2019Assets Current assets: Cash and cash equivalents $ 75,320 $ 35,724 Restricted Cash 10,610 6,000 Short-term investments 24,009 60,786 Accounts receivable, net 14,049 16,944 Inventory 12,836 13,861 Prepaid expenses and other 3,405 1,706 Total current assets 140,229 135,021 Property and equipment, net 24,858 14,887 Operating lease right-of-use assets 3,138 3,133 Finance lease right-of-use assets 76 87 Intangible assets 1,660 1,515 Total assets $ 169,961 $ 154,643 Liabilities and Shareholders? Equity Current liabilities: Accounts payable and accrued expenses $ 12,451 $ 19,130 Current maturities of long term obligations 1,553 1,736 Contract liabilities, current 14 14 Total current liabilities 14,018 20,880 Long-term Debt, net of financing fees 31,960 ? Debt derivative liability 2,387 ? Common stock derivative option liability 176 ? Other long-term liabilities 1,660 1,610 Total liabilities 50,201 22,490 Shareholders? equity: Common stock, $.01 par value; 100,000,000 sharesauthorized; 40,020,780 and 39,589,775 shares issued 400 396 and outstandingAdditional paid-in capital 315,518 311,618 Accumulated deficit (196,158 ) (179,861 )Total shareholders? equity 119,760 132,153 Total liabilities and shareholders' equity $ 169,961 $ 154,643

AXOGEN, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSThree and Six Months ended June 30, 2020 and 2019(unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019Revenues $ 22,116 $ 26,701 $ 46,377 $ 49,986 Cost of goods sold 5,605 4,244 10,421 7,958 Gross profit 16,511 22,457 35,956 42,028 Costs and expenses: Sales and marketing 14,290 18,467 32,128 34,901 Research and 4,071 4,282 8,685 8,421 developmentGeneral and 6,404 7,380 11,906 16,581 administrativeTotal costs and 24,765 30,129 52,719 59,903 expensesLoss from operations (8,254 ) (7,672 ) (16,763 ) (17,875 )Other income (expense): Interest income 237 654 548 1,370 Interest expense (31 ) (11 ) (62 ) (25 )Interest expense ?deferred financing ? ? ? ? costsLoss on extinguishment ? ? ? ? of debtOther expense (57 ) 6 (20 ) 4 Total other expense 149 649 466 1,349 Net loss $ (8,105 ) $ (7,023 ) $ (16,297 ) $ (16,526 )Weighted average commonshares outstanding ? 39,823 39,175 39,761 39,055 basic and dilutedLoss per common share ? $ (0.20 ) $ (0.18 ) $ (0.41 ) $ (0.42 )basic and diluted Adjusted net loss - non (5,883 ) (3,738 ) (13,519 ) (9,741 )GAAPAdjusted net loss percommon share - basic $ (0.15 ) $ (0.10 ) $ (0.34 ) $ (0.25 )and diluted AXOGEN, INC.RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURESThree and Six Months ended June 30, 2020 and 2019(unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019Net loss $ (8,105 ) $ (7,023 ) $ (16,297 ) $ (16,526 )Depreciation and 346 264 665 514 amortization expense Investment income (237 ) (654 ) (548 ) (1,370 )Income tax 58 (12 ) 38 (12 )Interest expense 31 11 62 25 EBITDA - non GAAP $ (7,907 ) $ (7,414 ) $ (16,080 ) $ (17,369 ) Non cash stock 2,222 2,674 2,778 4,989 compensation expenseLitigation and related ? 611 - 1,796 costsAdjusted EBITDA - non $ (5,685 ) $ (4,129 ) $ (13,302 ) $ (10,584 )GAAP Net loss $ (8,105 ) $ (7,023 ) $ (16,297 ) $ (16,526 )Non cash stock 2,222 2,674 2,778 4,989 compensation expenseLitigation and related ? 611 ? 1,796 costsAdjusted Net Loss - non $ (5,883 ) $ (3,738 ) $ (13,519 ) $ (9,741 )GAAP Weighted average commonshares outstanding ? 39,823 39,175 39,761 39,055 basic and diluted Adjusted net loss percommon share - basic $ (0.15 ) $ (0.10 ) $ (0.34 ) $ (0.25 )and diluted AXOGEN, INC.CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYSix Months Ended June 30, 2019 and 2018(unaudited) Common Additional Accumulated Total Stock Paid-in Deficit Shareholders' Capital EquityFor the Three Months Ended June 30, 2020:Balance at March 31, $ 397 $ 311,850 $ (188,053 ) $ 124,194 2020Net loss - - (8,105 ) (8,105 )Stock-based - 2,222 - 2,222 compensationShares surrendered by - (17 ) - (17 )employees to pay taxesExercise of stockoptions and employee 3 1,463 - 1,466 stock purchase planBalance at June 30, $ 400 $ 315,518 $ (196,158 ) $ 119,760 2020 For the Six Months Ended June 30, 2020:Balance at December 31, $ 396 $ 311,618 $ (179,861 ) $ 132,153 2019Net loss - - (16,297 ) (16,297 )Stock-based - 2,778 - 2,778 compensationIssuance of restricted/performance service 1 (1 ) - - awardsShares surrendered by (1 ) (657 ) - (658 )employees to pay taxesExercise of stockoptions and employee 4 1,780 - 1,784 stock purchase planBalance at June 30, $ 400 $ 315,518 $ (196,158 ) $ 119,760 2020 For the Three Months Ended June 30, 2019:Balance at March 31, $ 391 $ 300,582 $ (160,229 ) $ 140,743 2019Net loss - - (7,023 ) (7,023 )Stock-based - 2,674 - 2,674 compensationExercise of stockoptions and employee 2 1,563 - 1,565 stock purchase planBalance at June 30, $ 393 $ 304,819 $ (167,252 ) $ 137,959 2019 For the Six Months Ended June 30, 2019:Balance at December 31, $ 389 $ 297,319 $ (150,726 ) $ 146,982 2018Net loss - - (16,526 ) (16,526 )Stock-based - 4,989 - 4,989 compensationExercise of stockoptions and employee 4 2,511 - 2,515 stock purchase planBalance at June 30, $ 393 $ 304,819 $ (167,252 ) $ 137,960 2019

AXOGEN, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSix Months ended June 30, 2020 and 2019(unaudited) Six Months Ended June 30, June 30, 2020 2019Cash flows from operating activities: Net loss $ (16,297 ) $ (16,526 )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation 618 439 Amortization of right-of-use assets 802 891 Amortization of intangible assets 72 56 Provision for bad debt (115 ) (159 )Provision for inventory write down 1,624 (95 )Change in investment gains and losses (141 ) (602 )Share-based compensation 2,778 4,989 Change in assets and liabilities: Accounts receivable 3,010 (805 )Inventory (600 ) (1,510 )Prepaid expenses and other (1,699 ) (1,312 )Accounts payable and accrued expenses (4,212 ) 816 Operating Lease Obligations (915 ) (846 )Cash paid for interest portion of Finance Leases - (2 )Contract and other liabilities (6 ) (12 )Net cash used in operating activities (15,081 ) (14,678 ) Cash flows from investing activities: Purchase of short-term investments (22,965 ) (84,142 )Purchase of property and equipment (13,183 ) (1,685 )Sale/Maturities of short-term investments 59,883 98,871 Cash payments for intangible assets (216 ) (280 )Net cash provided by/ (used for) investing activities 23,519 12,764 Cash flows from financing activities: Proceeds from the issuance long term debt 35,000 ? Payments of debt issuance costs (350 ) ? Payments for repurchase of common stock for employee (658 ) ? tax withholdingCash paid for debt portion of finance leases (8 ) (17 )Proceeds from exercise of stock options and warrants 1,784 2,515 Net cash provided by financing activities 35,768 2,498 Net increase in cash, cash equivalents and restricted 44,206 584 cashCash, cash equivalents and restricted cash, beginning 41,724 30,294 of yearCash, cash equivalents and restricted cash, end of $ 85,930 $ 30,878 period Supplemental disclosures of cash flow activity: Cash paid for interest 23 25 Supplemental disclosure of non-cash investing and financing activitiesAcquisition of fixed assets in accounts payable and 617 567 accrued expensesRight-of-use asset and operating lease liability 796 26