Item 2.05 Costs Associated with Exit or Disposal Activities.
On November 8, 2022, the Board of Directors (the "Board") of Surgalign Holdings,
Inc. (the "Company" or "Surgalign"), approved a plan intended to help the
Company drive growth in the most valuable and profitable parts of its business
(Digital Health and core hardware assets). Throughout 2022, the Company has
focused on bringing new products to market and the commercialization of new
technologies, improving operational efficiencies, and lowering its working
capital requirements. To further support these areas of focus, the Board has
approved certain restructuring programs, which include continued brand and
product portfolio rationalization initiatives and further streamlining
resources, which are anticipated to result in workforce reductions and a
significant decline in non-essential spending, particularly general and
administrative expenses. Estimated cash savings are expected to be realized
throughout 2023 and programs are anticipated to begin late in the fourth quarter
2022 and be substantially complete in the first half of 2023.
The Board has also approved the exploration of further restructuring
initiatives, which include but are not limited to, the potential paring down,
selling or exiting certain aspects of the Company's business, both domestically
and abroad. This exploration coincides with the Company's ongoing efforts to
improve margins and profitability, and free up resources to support what the
Company believes to be greater growth and value creation opportunities. The
Company continues to invest in its research and development and design and
engineering capabilities, bringing to market several new products over the past
year, with plans to develop new offerings based on market feedback and customer
needs.
As a result of the foregoing restructuring programs and initiatives, the Company
expects to reduce its cash expenditures, resulting in estimated cash savings of
approximately $30.0 - $35.0 million, as compared to 2022. To achieve these
savings, the Company expects to incur approximately $3.0 - $3.5 million in
employee-related severance costs and $2.5 - $3.5 million in other exit and
disposal costs during the fourth quarter of 2022 and first quarter of 2023 for a
total estimated restructuring cost of approximately $5.5 - $7.0 million.
Estimated cash savings are expected to be realized throughout 2023.
Efforts to raise additional capital from fundraising initiatives are currently
underway to supplement the cash on hand to fund operations and implement certain
aspects of the restructuring. The Company continues to evaluate and identify
other areas of its business to enhance efficiencies and improve processes, with
a goal to further lower its operating expenses and capital needs.
Forward-Looking Statements
The forward-looking statements contained herein, including those relating to our
expectations regarding expected annualized cash savings, severance costs and
other restructuring charges, involve risks and uncertainties. The
forward-looking statements are not guarantees of future performance and are
based on certain assumptions including general economic conditions, as well as
those within the Company's industry, and numerous other factors and risks
identified in the Company's most recent Form 10-K, 10-Q and other filings with
the SEC. Factors that could cause actual results to differ materially from those
forward-looking statements include: (i) the Company's access to adequate
operating cash flow, trade credit, borrowed funds and equity capital to fund its
operations, implement certain aspects of the restructuring, and pay its
obligations as they become due, and the terms on which external financing may be
available, including the impact of adverse trends or disruption in the global
credit and equity markets; (ii) risks relating to existing or potential
litigation or regulatory actions; (iii) the identification of control
deficiencies, including material weaknesses in internal control over financial
reporting; (iv) general worldwide economic conditions and related uncertainties;
(v) the continued impact of the COVID-19 and the Company's attempts at
mitigation, particularly in international markets served by the Company;
(vi) the failure by the Company to identify, develop and successfully implement
its strategic initiatives, particularly with respect to its digital surgery
strategy ; (vii) the reliability of our supply
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chain; (viii) our ability to meet obligations, including purchase minimums,
under our vendor and other agreements; (ix) whether or when the demand for
procedures involving our products will increase; (x) our financial position and
results, total revenue, product revenue, gross margin, and operations;
(xi) failure to realize, or unexpected costs in seeking to realize, the expected
benefits of the Holo Surgical Inc. ("Holo Surgical") and Inteneural Networks
Inc. ("INN") acquisitions, including the failure of Holo Surgical's and INN's
products and services to be satisfactorily developed or achieve applicable
regulatory approvals or as a result of the failure to commercialize and
distribute its products; (xii) the failure to effectively integrate Holo
Surgical's and INN's operations with those of the Company, including: retention
of key personnel; the effect on relationships with customers, suppliers, and
other third parties; and the diversion of management time and attention to the
integration; (xiii) the number of shares and amount of cash that will be
required in connection with any post-closing milestone payments, including as a
result of changes in the trading price of the Company's common stock and their
effect on the amount of cash needed by the Company to fund any post-closing
milestone payments in connection with the acquisitions; (xiv) the continuation
of recent quality issues with respect to our global supply chain; (xv) the
effect and timing of changes in laws or in governmental regulations; and
(xvi) other risks described in Surgalign's filings with the SEC. These factors
should be considered carefully, and undue reliance should not be placed on the
forward-looking statements. Each forward-looking statement in this Current
Report on Form 8-K speaks only as of the date hereof.
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