Business Wire | Nov 22, 2021 08:00AM EST

Paragon 28 Reports Third Quarter 2021 Financial Results and Provides 2021 Fourth Quarter Net Revenue Guidance

Nov. 22, 2021

ENGLEWOOD, Colo.--(BUSINESS WIRE)--Nov. 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(r) 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)

(unaudited)

September December 30, 31, 2021 2020

ASSETS

Current assets:

Cash $ 7,876 $ 17,501

Trade receivables, less allowance for doubtful 21,237 19,972 accounts of $802 and $1,296, respectively

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



Convertible preferred series equity:

Series A convertible preferred stock, $0.01 parvalue, $0 cumulative preferred dividends, as ofSeptember 30, 2021 and December 31, 2020, 4,250 4,250 respectively; 13,812,500 shares authorized, issuedand outstanding as of September 30, 2021 andDecember 31, 2020, respectively

Series B convertible preferred stock, $0.01 parvalue, $2,328 and $812 cumulative preferreddividends as of September 30, 2021 and December 31, 38,358 36,842 2020, respectively; 6,608,700 shares authorized,issued and outstanding as of September 30, 2021 andDecember 31, 2020, respectively



Stockholders' equity:

Common stock, $0.01 par value, 74,687,845 and72,187,845 shares authorized; 47,952,733 and47,567,010 shares issued, and 47,039,212 and 470 467 46,738,540 shares outstanding as of September 30,2021 and December 31, 2020, respectively

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 sharesas of September 30, 2021 and December 31, 2020, (5,983 ) (5,422 )respectively

Total stockholders' equity 24,413 30,393

Total liabilities, convertible preferred series $ 121,548 $ 97,583 equity & stockholders' equity

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share and per share data)

(unaudited)

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 OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share and per share data)

(unaudited)

Three Months Ended September Nine Months Ended September 30, 30,

2021 2020 2021 2020

Net revenue $ 35,851 $ 30,268 $ 104,689 $ 75,924

Cost of goods 7,096 7,049 20,209 15,386 sold

Gross profit 28,755 23,219 84,480 60,538



Operating expenses

Research anddevelopment 4,118 2,346 11,254 8,174 costs

Selling,general, and 28,968 16,958 79,009 50,962 administrative

Totaloperating 33,086 19,304 90,263 59,136 expenses



Operating (4,331 ) 3,915 (5,783 ) 1,402 (loss) income



Other expense

Other expense (98 ) (56 ) (124 ) (141 )

Interest (573 ) (70 ) (1,174 ) (532 )expense

Total other (671 ) (126 ) (1,298 ) (673 )expense



(Loss) incomebefore income (5,002 ) 3,789 (7,081 ) 729 taxes

Income taxexpense 105 (19 ) 437 1,396 (benefit)



Net (loss) $ (5,107 ) $ 3,808 $ (7,518 ) $ (667 )income

Less:cumulativedividends onSeries B (574 ) (333 ) (1,516 ) (333 )convertiblepreferredstock

Net (loss)incomeattributable $ (5,681 ) $ 3,475 $ (9,034 ) $ (1,000 )to commonstockholders

Foreigncurrency (121 ) 366 (575 ) (76 )translationadjustment

Comprehensive $ (5,802 ) $ 3,841 $ (9,609 ) $ (1,076 )(loss) income

Weightedaverage numberof common stocksoutstanding:

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 pershare attributableto commonstockholders:

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

(in thousands)

(unaudited)

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

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, - 36,030 net of issuance costs

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 $ 58 $ - accounts payable

Series B convertible preferred stock dividend $ 1,516 $ 333

PARAGON 28, INC. AND SUBSIDIARIES

RECONCILIATION OF NET LOSS TO NON-GAAP ADJUSTED EBITDA

(in thousands)

(unaudited)

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

PARAGON 28, INC. AND SUBSIDIARIES

RECONCILIATION OF NET LOSS TO NON-GAAP ADJUSTED EBITDA

(in thousands)

(unaudited)

Three Months Ended Nine Months Ended September 30, 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 2,424 1,545 6,103 4,479 expense

Stock based compensation 1,032 365 2,747 1,233 expense

Excess and obsolete inventoryexpense related to supply - 519 - 519 chain disruption (1)

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.

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CONTACT: Investor Contact: Gilmartin Group Matt Bacso, CFA Matt.bacso@gilmartinir.com