FNA
Paragon 28, INC
NYSE
10-Q/A: Paragon 28 Restates Q1 2024 Financials Due to Inventory Errors
Sentiment:
Quarterly Report
8 August 2024 4:08 PM
Paragon 28 has restated its first quarter 2024 financial statements due to material accounting errors related to inventory valuation.
Worse than expected
The company's financial results were worse than expected due to the need to restate financials because of material accounting errors.
The company's gross profit margin decreased, and the company reported a net loss and negative adjusted EBITDA.
The company identified material weaknesses in its internal control over financial reporting.
Summary
- Paragon 28 has filed an amended quarterly report to restate its financials for the three months ended March 31, 2024.
- The restatement was necessary due to errors in the calculation of excess and obsolete inventory, as well as accounting for inventory variances.
- These errors led to an overstatement of inventory and an understatement of cost of goods sold in previous reports.
- The company has corrected these errors, along with other immaterial accounting and disclosure errors.
- The amended report includes restated financial statements and related notes.
- The company's net revenue for the quarter was $61.1 million, a 17% increase compared to the same period last year.
- Gross profit margin decreased to 77.3% from 80.3% in the prior year due to increased supplier costs and inventory adjustments.
- The company reported a net loss of $17.4 million for the quarter.
- Adjusted EBITDA was negative $7.7 million, compared to negative $2.7 million in the same period last year.
Sentiment
Score: 3
Explanation: The sentiment is negative due to the restatement of financials, material weaknesses in internal controls, decreased gross profit margin, and a net loss. While revenue growth is positive, the underlying issues raise significant concerns.
Positives
- Net revenue increased by 17% year-over-year, reaching $61.1 million.
- International revenue grew by 42% compared to the prior year, driven by the United Kingdom and Australia.
- The company is actively investing in new product development.
Negatives
- The company had to restate its financial statements due to material accounting errors.
- Gross profit margin decreased to 77.3% from 80.3% in the prior year.
- The company reported a net loss of $17.4 million for the quarter.
- Adjusted EBITDA was negative $7.7 million, a decrease compared to the prior year.
- Material weaknesses were identified in the company's internal control over financial reporting.
Risks
- The company's internal controls over financial reporting were found to have material weaknesses.
- The company's remediation plan may not be successful in addressing these weaknesses.
- The company's future financial results may be negatively impacted by the identified accounting errors.
- The company's gross profit margin is under pressure due to increased supplier costs and inventory adjustments.
- The company's international expansion may be subject to fluctuations in foreign currency exchange rates.
Future Outlook
The company expects net revenue to increase as they expand sales territories, add new customers, and increase product utilization. They also expect research and development and selling, general, and administrative expenses to increase as they grow their business.
Management Comments
- Management is devoting significant time, attention, and resources to remediate the material weaknesses and to strengthen its monitoring, control environment, and internal control over financial reporting.
- Management believes that the measures described above and others that may be implemented will remediate the identified material weaknesses and strengthen the Company's internal control over financial reporting.
Industry Context
The company operates in the competitive and rapidly changing medical device industry, specifically within the foot and ankle orthopedic market. The restatement highlights the importance of accurate inventory management and financial reporting in this sector.
Comparison to Industry Standards
- While the document does not provide specific comparisons to industry standards, the restatement of financials due to inventory errors is a significant issue that would likely be viewed negatively by investors and compared to peers who have not had similar issues.
- Companies like Stryker, Zimmer Biomet, and Medtronic, which are major players in the broader orthopedic market, are expected to have robust internal controls and accurate financial reporting. Paragon 28's restatement would be seen as a deviation from these standards.
- The company's gross margin of 77.3% is within the range of medical device companies, but the decrease from 80.3% is a concern that would be compared to peers.
- The negative Adjusted EBITDA of $7.7 million would be compared to the profitability metrics of other companies in the medical device space.
Stakeholder Impact
- Shareholders will be negatively impacted by the restatement and the identified material weaknesses in internal controls.
- Employees may be impacted by the changes in the organizational structure and reporting structure of the controllership function.
- Customers may be impacted by any potential disruptions in the company's operations.
- Suppliers may be impacted by any changes in the company's purchasing practices.
- Creditors may be impacted by the company's financial performance and ability to meet its obligations.
Next Steps
- The company plans to continue to devote significant time and attention to remediate the material weaknesses in internal controls.
- The company will continue to invest in new product development.
- The company will continue commercialization efforts and expand its sales and marketing infrastructure.
Legal Proceedings
- As of March 31, 2024, the Company is not involved in any legal proceedings that could have a material adverse effect on its condensed consolidated financial position.
Related Party Transactions
- The company has a license agreement with an entity affiliated with one of its directors, under which it pays a royalty of 4% of net revenue related to the licensed intellectual property, with a minimum annual payment of $250.
Key Dates
- 2022-03-24: Date of the original secured term loan facility with Zions Bancorporation.
- 2022-11-10: Effective date of the First Amendment to the Zions Facility.
- 2023-01-30: Date of the underwritten public offering of common stock.
- 2023-11-02: Date the company entered into a new credit agreement with Ares Capital Corporation.
- 2024-03-08: Date the company granted performance shares to certain executives.
- 2024-03-31: End of the first quarter of 2024, the period covered by the restated financials.
- 2024-05-03: Date of the share count.
- 2024-05-08: Date the original quarterly report was filed with the SEC.
- 2024-07-30: Date the company announced the restatement of financials.
- 2024-08-08: Date the amended quarterly report was filed with the SEC.
Keywords
restatement, inventory, financial results, accounting errors, internal controls, net revenue, gross profit, EBITDA, medical devices, orthopedic, foot and ankle
FNA
Paragon 28, INC
NYSE
Sector: TBD
Filings with Classifications
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6 March 2025 4:01 PM
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Worse than expected
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SEC Form 4
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Capital raise
29 January 2025 8:06 AM
Merger Announcement
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Better than expected
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Preliminary Earnings Announcement
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- The company's free cash flow improved by 69.5% in 3Q24 compared to 3Q23, demonstrating better than expected operational efficiency.
Worse than expected
10 December 2024 4:43 PM
SEC Form 4 Filing
- The document indicates a reduction in shareholding by a major investor, which is generally viewed negatively by the market.
Worse than expected
26 November 2024 4:29 PM
SEC Form 4 Filing
- The document indicates a reduction in ownership by a major shareholder, which is generally viewed negatively by the market.
Worse than expected
22 November 2024 4:27 PM
SEC Form 4 Filing
- A significant shareholder reducing their stake is generally viewed negatively by the market.
Better than expected
12 November 2024 4:04 PM
Quarterly Report
- The company exceeded expectations by achieving positive Adjusted EBITDA for the first time since its IPO.
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Worse than expected
12 November 2024 4:01 PM
Quarterly Report
- The company's net losses increased despite revenue growth, indicating that expenses are growing faster than revenue.
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- The company identified material weaknesses in its internal controls over financial reporting.
Capital raise
12 November 2024 4:01 PM
Quarterly Report
- The company may require additional financing to fund its operations and planned growth.
- The company may seek to raise additional capital through public or private equity offerings, debt financings, credit or loan facilities, or a combination of these funding sources.
Worse than expected
8 August 2024 4:15 PM
Quarterly Report
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Worse than expected
8 August 2024 4:10 PM
Quarterly Report
- The company's gross margin decreased from 77.3% to 75.0% year-over-year.
- The company reported a net loss of $13.8 million, slightly higher than the $13.2 million loss in the same quarter last year.
- The company has restated its financial statements due to material accounting errors, indicating a weakness in internal controls.
Worse than expected
8 August 2024 4:08 PM
Quarterly Report
- The company's financial results were worse than expected due to the need to restate financials because of material accounting errors.
- The company's gross profit margin decreased, and the company reported a net loss and negative adjusted EBITDA.
- The company identified material weaknesses in its internal control over financial reporting.
Worse than expected
8 August 2024 4:06 PM
Annual Report Amendment
- The company's financial results were worse than expected due to the restatement of financial statements and the identification of material weaknesses in internal controls.
Worse than expected
30 July 2024 5:00 PM
8-K Filing
- The company's financial results for the affected periods were worse than previously reported due to errors in inventory accounting.
- The restatement will decrease net income for the affected periods.
- The company has identified material weaknesses in its internal control over financial reporting.
Worse than expected
8 May 2024 4:03 PM
Quarterly Report
- The company's net loss increased from $9.1 million to $15.2 million year-over-year.
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Worse than expected
8 May 2024 4:01 PM
Quarterly Report
- The company's net loss increased from $9.1 million to $15.2 million year-over-year.
- Adjusted EBITDA decreased from a loss of $1.4 million to a loss of $5.5 million year-over-year.
- The gross profit margin decreased from 82.9% to 80.0% year-over-year.
Capital raise
29 February 2024 4:02 PM
Annual Results
- The company may require additional capital to maintain and expand its operations.
- The company may raise additional funds through the issuance of equity, equity-linked or debt securities.
- The company may also raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties.
Worse than expected
29 February 2024 4:02 PM
Annual Results
- The company's net loss and negative adjusted EBITDA indicate that it is not yet profitable, which is worse than expected for a company of its size and maturity.
Better than expected
29 February 2024 4:02 PM
Annual Results
- The company's net loss decreased significantly compared to the previous year, indicating improved financial performance.
- The company's revenue growth exceeded the market growth rate.
- The company provided positive revenue guidance for 2024.
Disclaimer: This summary was generated by artificial intelligence and its accuracy is not guaranteed. The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.