Paragon 28, Inc. (NYSE: FNA) (“Paragon 28” or “Company”), a leading medical device company exclusively focused on the foot and ankle orthopedic market, today announced that Chadi Chahine has been appointed Chief Financial Officer and Executive Vice-President of Supply Chain Operations, effective August 5, 2024. The Company also reported financial results for the quarter ended June 30, 2024, and narrowed its 2024 net revenue guidance.
Recent Business Updates
- Strengthened executive leadership team with appointment of Chadi Chahine as CFO & EVP Supply Chain Operations, effective August 5, 2024
- Recorded global revenue of $61.0 million in the second quarter, representing 19.6% and 19.7% reported and constant currency growth compared to the prior year period, respectively
- Drove 840 basis point improvement in operating expense as a percent of revenue in the second quarter compared to the prior year period
- Initiated an operational efficiency strategy targeted at optimizing the organizational structure, minimizing costs and preserving cash without compromising revenue growth opportunities
- Narrowed 2024 net revenue guidance of $249 million to $255 million, representing 15.1% to 17.8% reported growth compared to 2023
- Filed an amended Form 10-K/A for the 2023 fiscal year and an amended Form 10-Q/A for the quarter ended March 31, 2024 in connection with the financial restatement detailed in the Form 8-K filed July 30, 2024
Appointment of Chadi Chahine as Chief Financial Officer
The appointment of Chadi Chahine concludes an extensive search process conducted by the Company. Mr. Chahine will succeed Kristina “Krissy” Wright who has been serving as Interim CFO since April 3, 2024.
“We are thrilled to welcome Chadi to our executive team,” said Albert DaCosta, CEO and Chairman of Paragon 28. “Chadi’s extensive experience in orthopedics and finance combined with his strategic vision and proven ability to drive growth and operational efficiency will be invaluable as we continue to expand our presence in the foot and ankle market and further scale our business operations. We also extend our sincere gratitude to Krissy Wright for her exceptional leadership as interim CFO and look forward to her continued contributions on our Board.”
Chadi Chahine brings over 25 years of extensive global experience in finance and business operations, including a proven track record in the orthopedic industry, to Paragon 28. Before joining Paragon 28, Mr. Chahine served as Group CFO of the Global Business Group for Zimmer Biomet Holdings Inc. (“Zimmer Biomet”), where he oversaw $7 billion in revenue and had full P&L, balance sheet, and commercial finance responsibilities, across all geographic regions. During his tenure at Zimmer Biomet, Mr. Chahine helped drive record revenue and profit in 2022 and 2023 and identified additional efficiencies in inventory and research & development investments.
Prior to his tenure at Zimmer Biomet, Mr. Chahine served as COO and CFO of Global Stanley Security at Stanley Black & Decker prior to the business’s $4.1 billion sale. He also previously served as CFO at CIRCOR International, leading takeover defense efforts and implementing significant cost-saving measures. Earlier in his career, he held divisional CFO roles at Smith+Nephew responsible for International Markets and the US where he led initiatives to accelerate sustainable growth. Mr. Chahine holds a Bachelor of Commerce in Accounting from Université du Québec à Montréal and a Bachelor of Science in Math and Economics from Université de Montréal.
“Paragon 28 is a truly unique business in the world of orthopedics. The Company’s commitment to innovation and excellence in foot and ankle aligns perfectly with my professional values and goals,” said Chadi Chahine, CFO. “I am excited to join Paragon 28 at such a critical time and look forward to contributing to its continued growth and success.”
Chadi Chahine’s appointment as CFO & EVP Supply Chain Operations marks a significant step forward for Paragon 28 as it strengthens its leadership team and positions the Company for continued growth and success in the foot and ankle market.
Second Quarter 2024 and Six Months Ended June 30, 2024 Financial Results
- Consolidated net revenue for the second quarter of 2024 was $61.0 million, representing 19.6% and 19.7% reported and constant currency growth, respectively, compared to the second quarter of 2023. Consolidated net revenue for the six months ended June 30, 2024 was $122.1 million, representing 18.5% reported and constant currency growth compared to the six months ended June 30, 2023.
- U.S. net revenue for the second quarter of 2024 and six months ended June 30, 2024 was $49.7 million and $100.8 million, respectively, representing 17.6% and 15.5% reported growth, respectively, compared to the prior year periods.
- International net revenue for the second quarter of 2024 and six months ended June 30, 2024 was $11.3 million and $21.3 million, respectively, representing 29.4% and 35.1% reported growth respectively, compared to the prior year periods.
- Gross margin was 75.0% for the second quarter of 2024 compared to 77.3% in the second quarter of 2023. Gross margin was 76.2% for the six months ended June 30, 2024 compared to 78.8% for the six months ended June 30, 2023.
- Operating expenses were $56.5 million for the second quarter of 2024, an increase of 9.7%, compared to $51.5 million for the second quarter of 2023. Operating expenses were $118.9 million for the six months ended June 30, 2024, an increase of 16.1%, compared to $102.4 million for the six months ended June 30, 2023.
- Net loss was $13.8 million for the second quarter of 2024, a $0.6 million increase, compared to a net loss of $13.2 million for the second quarter of 2023. Net loss was $31.2 million for the six months ended June 30, 2024, a $7.1 million increase, compared to net a loss of $24.1 million for the six months ended June 30, 2023.
- Adjusted EBITDA was a $3.0 million loss for the second quarter of 2024, a $2.4 million improvement, compared to a $5.4 million loss in the second quarter of 2023. Adjusted EBITDA was a $10.7 million loss for the six months ended June 30, 2024, a $2.6 million decrease compared to a $8.1 million loss for the six months ended June 30, 2023.
“We are pleased with our results this quarter and continue to see strong momentum in the U.S. driven in part by the energy around our recent new product launches,” said Albert DaCosta, Chairman and Chief Executive Officer. “Further, we have made significant progress on our cost optimization plans resulting in an 840 basis point year-over-year improvement to operating expenses in the quarter, with more planned in the second half of 2024 and into 2025.”
Operational Efficiency Strategy
The Company also announced an operational efficiency strategy targeted at optimizing the organizational structure, minimizing costs and preserving cash without compromising revenue growth opportunities. This strategy was initiated in the second quarter of 2024 and is expected to result in durable savings for the rest of 2024 and in 2025. Management has determined that this operational efficiency strategy will not result in the Company incurring material charges. This operational efficiency strategy includes:
- An approximately 7% reduction in work force expected to take place in August of 2024, and is intended to result in up to $8 million in annualized savings offset by approximately $1 million in severance costs;
- Detailed review and optimization of functional costs and controls;
- An inventory burn-down plan; and
- One-time realignment of executive compensation for 2024
“Our company has consistently demonstrated strong growth and we remain committed to sustaining that momentum by making thoughtful strategic adjustments,” said Albert DaCosta, Chairman and Chief Executive Officer. “Although these processes are never easy, this initiative is critical to enhance efficiency, minimize costs and preserve cash without compromising our growth initiatives or our high-quality product portfolio.”
2024 Net Revenue Guidance
The Company narrows its prior 2024 net revenue guidance and expects net revenue to be $249 million to $255 million, representing 15.1% to 17.8% reported growth compared to 2023.
The Company’s 2024 net revenue guidance assumes foreign currency translation rates remain consistent with current foreign currency translation rates.
Restatement
As previously announced in our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on July 30, 2024, on July 30, 2024, the Audit Committee (the “Audit Committee”) of the Board of Directors and in consultation with management, concluded that its audited consolidated financial statements for the fiscal year ended December 31, 2023 and its unaudited condensed consolidated financial statements for the periods ended March 31, 2023, June 30, 2023, September 30, 2023, and March 31, 2024 could no longer be relied upon as a result of material accounting errors identified by management. Accordingly, the consolidated financial statements as of and for the fiscal year ended December 31, 2023 have been restated in the Company’s Annual Report on Form 10-K/A filed on August 8, 2024 to reflect the correction of identified errors in the calculation of excess and obsolete inventory, as well as its accounting for inventory variances, which resulted in a net overstatement of inventory as of March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023, and a net understatement in cost of goods sold for the respective interim periods ended on such dates and for the fiscal year ended December 31, 2023. Additionally, the unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2024 have been restated in the Company’s Quarterly Report on Form 10-Q/A filed on August 8, 2024 to reflect the correction of identified errors in the calculation of excess and obsolete inventory, as well as its accounting for inventory variances, which resulted in a net overstatement of inventory as of March 31, 2024 and a net understatement in cost of goods sold for the three months ended March 31, 2024. In connection with the presentation of comparative prior period financial statements in the amended Form 10-K/A for the fiscal year ended December 31, 2023, the Company revised the consolidated financial statements for the year ended December 31, 2022 and the condensed consolidated financial statements for the interim periods for such year, each as presented in the amended Form 10-K/A for the fiscal year ended December 31, 2023, to correct errors identified that were determined to be immaterial both individually and in the aggregate.