Paragon 28 Reports Fourth Quarter and Full Year 2021 Financial Results and Provides 2022 Net Revenue Guidance

ENGLEWOOD, Colo.--(BUSINESS WIRE)--Paragon 28, Inc. (NYSE: FNA) (“Paragon 28” or “P28”), a leading medical device company exclusively focused on the foot and ankle orthopedic market, today reported financial results for the quarter and twelve months ended December 31, 2021.

2021 Highlights

• Net revenue $42.8 million for the fourth quarter of 2021, representing 22% growth over the fourth quarter of 2020, driven by increased revenue per US surgeon and US sales force expansion, plus strong growth in South Africa and the UK
• Net revenue $147.5 million for the twelve months ended December 31, 2021, representing 33% growth over 2020
• Gross margin 81.7% for the fourth quarter 2021 compared to 72.3% for the fourth quarter of 2020, reflecting lower excess and obsolete inventory expenses and a greater mix of higher margin products sold in the current period
• Operating expenses $40.0 million for the fourth quarter of 2021 compared to $24.7 million for the fourth quarter of 2020
  • Research and Development expense $4.9 million compared to $3.0 million in the prior year quarter, driven by 30 new products in development, plus three new products receiving FDA clearance in the fourth quarter of 2021
  • Selling, General and Administrative expense $35.1 million compared to $21.7 million in the prior year quarter, including increased selling and marketing expenses driven by more US marketing and medical education events, increased variable commission expense, and investments in US and International commercial teams, and increased general and administrative expenses, driven primarily by additional costs related to becoming a publicly traded company
• Net loss $6.2 million for the fourth quarter of 2021 compared to net income $4.2 million for the fourth quarter of 2020
• Adjusted EBITDA $0.1 million for the fourth quarter 2021 compared to $6.3 million for the fourth quarter of 2020
• Cash $109.4 million as of December 31, 2021

“Our teams are foot and ankle specialists, and their focus, resilience, and passion for serving foot and ankle patients and surgeons drove our strong fourth quarter and full year revenue growth, further expanding our market share in the US and internationally,” said Albert DaCosta, Chairman and Chief Executive Officer. “I am thrilled with the team's execution in 2021, including receiving approvals for eight new products, expanding our commercial teams and surgeon base, training over 800 surgeons in-person at our Denver headquarters and across the US in the second half of 2021, and building critical corporate infrastructures to go public and scale for future growth. We reached these commercial and operational successes, and continued reporting positive Adjusted EBITDA, realizing $3.1 million for 2021.”

Mr. DaCosta continued, “The current foot and ankle market is large and growing rapidly with potential for even greater future growth to be driven by potential improvements in patient outcomes. P28 is uniquely positioned as foot and ankle specialists to continue to gain market share and lead the way to drive future improvements in patient outcomes.”

2022 Net Revenue Guidance

The Company expects 2022 net revenue to be in a range of $167.0 million to $171.0 million, representing annual growth of approximately 13% to 16%. For the first quarter of 2022, the Company also expects net revenue growth to be in a range of 13% to 16%, compared to the first quarter of 2021. In recent weeks, COVID-19 net revenue headwinds have waned as compared to those experienced earlier in the first quarter. However, given the unpredictable nature of COVID-19, our revenue guidance incorporates the risk of COVID-19 headwinds similar to those experienced first quarter of 2022 to date.

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 fourth quarter and full year 2021 financial results on Tuesday, March 8, 2022 at 1:30 p.m. Pacific Time / 4:30 p.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 2022 and first quarter 2022 net revenues. 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 annual report on Form 10-K filed with the SEC on March 8, 2022. 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 and year ended December 31, 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 CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
	As of December 31,
	2021			2020
ASSETS
Current assets:
Cash	$	109,352		$	17,501
Trade receivables, less allowance for doubtful accounts of $1,032 and $1,296, respectively		25,939			19,972
Inventories, net		40,241			32,226
Income taxes receivable		920			1,479
Other current assets		3,078			617
Total current assets		179,530			71,795
Property and equipment, net		32,181			22,363
Intangible assets, net		16,505			3,325
Goodwill		6,329			—
Deferred income taxes		—			100
Total assets	$	234,545		$	97,583
LIABILITIES, CONVERTIBLE PREFERRED SERIES EQUITY & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	13,028		$	8,812
Accrued expenses		18,232			10,052
Other current liabilities		1,929			469
Current maturities of long-term debt		153			2,231
Income taxes payable		615			504
Total current liabilities		33,957			22,068
Long-term liabilities:
Long-term debt net, less current maturities		7,476			4,030
Other long-term liabilities		840			—
Deferred income taxes		78			—
Total liabilities		42,351			26,098
Commitments and contingencies (Note 14)
Convertible preferred series equity:
Series A convertible preferred stock, $0.01 par value, $0 cumulative preferred dividends, as of December 31, 2021 and December 31, 2020, respectively; 0 shares and 13,812,500 shares authorized, issued and outstanding as of December 31, 2021 and December 31, 2020, respectively		—			4,250
Series B convertible preferred stock, $0.01 par value, $0 and $812 cumulative preferred dividends as of December 31, 2021 and December 31, 2020, respectively; 0 and 6,608,700 shares authorized, issued and outstanding as of December 31, 2021 and December 31, 2020, respectively		—			36,842
Stockholders' equity:
Common stock, $0.01 par value, 300,000,000 and 72,187,845 shares authorized; 77,360,806 and 47,567,010 shares issued, and 76,447,287 and 46,738,540 shares outstanding as of December 31, 2021 and December 31, 2020, respectively		763			467
Additional paid-in-capital		197,868			22,107
Retained earnings (accumulated deficit)		(463	)		12,418
Accumulated other comprehensive income		8			823
Treasury stock, at cost; 913,519 and 828,470 shares as of December 31, 2021 and December 31, 2020, respectively		(5,982	)		(5,422	)
Total stockholders' equity		192,194			30,393
Total liabilities, convertible preferred series equity & stockholders' equity	$	234,545		$	97,583

PARAGON 28, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (in thousands) (unaudited – Three Months Ended December 31, 2021 and 2020)
	Three Months Ended December 31,						Years Ended December 31,
	2021			2020			2021			2020
Net revenue	$	42,774		$	35,057		$	147,464		$	110,981
Cost of goods sold		7,815			9,713			28,024			25,099
Gross profit		34,959			25,344			119,440			85,882
Operating expenses
Research and development costs		4,873			2,996			16,128			11,171
Selling, general, and administrative		35,078			21,679			114,087			72,641
Total operating expenses		39,951			24,676			130,215			83,812
Operating (loss) income		(4,992	)		668			(10,775	)		2,070
Other (expense) income
Other (expense) income		(362	)		3,697			(486	)		3,557
Interest expense		(545	)		(69	)		(1,719	)		(602	)
Total other (expense) income		(906	)		3,628			(2,205	)		2,955
(Loss) income before income taxes		(5,898	)		4,296			(12,980	)		5,025
Income tax expense (benefit)		276			131			713			1,527
Net (loss) income	$	(6,174	)	$	4,165		$	(13,693	)	$	3,498

PARAGON 28, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
	Year Ended December 31,
	2021			2020			2019
Cash flows from operating activities
Net (loss) income	$	(13,693	)	$	3,498		$	3,117
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		8,961			6,384			4,202
Allowance for doubtful accounts		1,022			636			300
Provision for excess and obsolete inventories		2,821			7,467			1,712
Stock-based compensation		4,948			1,808			1,754
Amortization of debt issuance costs		576			134			85
Change in fair value of earnout liabilities		440			—			—
Deferred income taxes		170			1,307			(1,115	)
Loss on disposal of property and equipment		237			554			545
Other		31			113			(26	)
Changes in other assets and liabilities, net of acquisitions:
Accounts receivable		(6,461	)		386			(5,221	)
Inventories		(11,098	)		(14,831	)		(3,560	)
Other current assets		(2,468	)		944			(618	)
Accounts payable		3,431			(6,238	)		8,430
Accrued expenses and other current liabilities		7,095			(815	)		3,098
Income tax receivable/payable		671			(236	)		(405	)
Net cash (used in) provided by operating activities		(3,317	)		1,111			12,298
Cash flows from investing activities
Purchases of property and equipment		(18,296	)		(9,653	)		(17,261	)
Proceeds from sale of property and equipment		799			522			580
Purchases of intangible assets		(2,993	)		(1,187	)		(773	)
Acquisition of Additive Orthopaedics		(15,000	)		—			—
Net cash used in investing activities		(35,490	)		(10,318	)		(17,454	)
Cash flows from financing activities
Proceeds from issuance of note payable - related party		—			—			3,000
Payments on note payable - related party		—			(3,000	)		—
Proceeds from revolving credit facility		—			—			780
Payments on revolving credit facility		—			(9,821	)		—
Proceeds from issuance of long-term debt		10,000			458			8,885
Payments on long-term debt		(6,034	)		(1,686	)		(2,200	)
Payments of debt issuance costs		(3,139	)		(53	)		(150	)
Proceeds from issuance of common stock		1,001			1,842			—
Proceeds from IPO, net of issuance costs		129,384			—
Proceeds from issuance of Series B capital stock, net of issuance costs		—			36,030			—
Payments on treasury stock repurchased		(561	)		(1,538	)		(3,885	)
Proceeds from exercise of stock options		445			1,780			115
Net cash provided by financing activities		131,096			24,012			6,545
Effect of exchange rate changes on cash		(438	)		86			29
Net increase in cash		91,851			14,891			1,418
Cash at beginning of period		17,501			2,610			1,192
Cash at end of period	$	109,352		$	17,501		$	2,610
Supplemental disclosures of cash flow information:
Cash paid for taxes	$	678		$	453		$	97
Cash paid for interest		1,086			395			550
Purchase of property and equipment included in accounts payable		881			120			115
Series B convertible preferred stock dividend		—			812			—

PARAGON 28, INC. AND SUBSIDIARIES RECONCILIATION OF NET (LOSS) INCOME TO NON-GAAP ADJUSTED EBITDA (in thousands) (unaudited)
	Three Months Ended December 31,						Years Ended December 31,
	2021			2020			2021			2020
Net Income (loss)	$	(6,174	)	$	4,165		$	(13,693	)	$	3,498
Interest expense		545			69			1,719			602
Income tax expense (benefit)		276			131			713			1,527
Depreciation and amortization expense		2,884			1,905			8,987			6,384
Stock based compensation expense		2,201			576			4,948			1,808
PPP Loan Forgiveness (1)		—			(3,747	)		—			(3,747	)
Excess and obsolete inventory expense related to supply chain disruption (2)		—			3,182			—			3,702
Change in fair value of earnout liability (3)		380			—			440			—
Adjusted EBITDA	$	112		$	6,281		$	3,114		$	13,774

(1)	Represents non-recurring other income received in connection with the forgiveness of the PPP Loan.
(2)	Represents non-recurring excess and obsolete inventory expense caused by supply chain purchasing process disruption during the COVID-19 pandemic.
(3)	Represents non-cash change in the fair value of earnout liability from acquisition date to December 31, 2021.