ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with “Selected Financial Data” contained in Item 6 of this Form 10-K, our consolidated financial statements and the notes thereto contained in Item 8 of this Form 10-K, the “Cautionary Notice Regarding Forward-Looking Statements” contained in Part 1 of this Form 10-K, “Risk Factors” contained in Item 1A of this Form 10-K, and the other information appearing elsewhere in, or incorporated by reference into, this Form 10-K. Dollar amounts referenced in this Item 7 are in thousands, except per share amounts.

Overview

We are the leading company focused specifically on the science, development and commercialization of technologies for peripheral nerve regeneration and repair. We are passionate about helping to restore peripheral nerve function and quality of life to patients with physical damage or transection to peripheral nerves providing innovative, clinically proven and economically effective repair solutions for surgeons and health care providers. Peripheral nerves provide the pathways for both motor and sensory signals throughout the body. Every day, people suffer traumatic injuries or undergo surgical procedures that impact the function of their peripheral nerves. Physical damage to a peripheral nerve, or the inability to properly reconnect peripheral nerves, can result in the loss of muscle or organ function, the loss of sensory feeling, or the initiation of pain.

Our platform for peripheral nerve repair features a comprehensive portfolio of products, including Avance® Nerve Graft, a biologically active off-the-shelf processed human nerve allograft for bridging severed peripheral nerves without the comorbidities associated with a second surgical site, Axoguard® Nerve Connector, a porcine submucosa extracellular matrix (“ECM”) coaptation aid for tensionless repair of severed peripheral nerves, Axoguard® Nerve Protector, a porcine submucosa ECM product used to wrap and protect injured peripheral nerves and reinforce the nerve reconstruction while preventing soft tissue attachments, Axoguard® Nerve Cap, a porcine submucosa ECM product used to protect a peripheral nerve end and separate the nerve from the surrounding environment to reduce the development of symptomatic or painful neuroma and Avive® Soft Tissue Membrane, a processed human umbilical cord intended for surgical use as a resorbable soft tissue barrier. Along with these core surgical products, we also offer the Axotouch® Two-Point Discriminator, used to measure the innervation density of any surface area of the skin. Our product are available in the United States, Canada, Germany, the United Kingdom, South Korea and several European and other international countries.

Revenue from the distribution of Axogen’s peripheral nerve repair products, Avance Nerve Graft, Axoguard Nerve Connector, Axoguard Nerve Protector, Axoguard Nerve Cap and Avive Soft Tissue Membrane, in the United States is the main contributor to Axogen’s total reported sales and has been the key component of its growth to date.

We have experienced that surgeons initially are cautious adopters for peripheral nerve repair products. Surgeons typically start with a few cases and then wait and see the results of these initial cases. Active accounts are usually past this wait period and have developed some level of product reorder. These active accounts have typically gone through the committee approval process, have at least one surgeon who has converted a portion of his or her treatment algorithms of peripheral nerve repair to the Axogen portfolio and have ordered Axogen products at least six times in the last twelve months. As such, revenue growth primarily occurs from increased purchasing from active accounts, followed by revenue growth from new accounts.

In March 2020, the World Health Organization declared the outbreak of the 2019 novel coronavirus (“COVID-19”) a pandemic. The global impact of COVID-19 has had a negative effect on the global economy, disrupting the financial markets and significantly impacting the medical industry. In response to COVID-19, our top priority has been the health and safety of those we serve, including healthcare professionals and their patients, as well as our employees, communities, and suppliers. We ensured employee compliance with state and local mandates as well as implemented certain cost mitigation initiatives such as a reduction in pay levels, temporary suspension of tissue processing and deferral of certain projects, among other efforts.

As we began to experience some recovery from COVID-19, some of our cost mitigation initiatives were lifted such as the restoration of pay levels, which were lifted for most employees in August 2020, and for executive member and board members in late October. We began to gradually restart tissue processing in June and have continued to increase capacity through the end of the fiscal year. We have also begun to slowly increase investment into projects that were previously on hold, including certain clinical trials, product development, and marketing and administrative initiatives, as well as restarting construction of the biologics processing center in Vandelia, Ohio.

Although COVID-19 had significant impact on our revenue growth, the Company was able to increase revenue in 2020 as compared to 2019.Late last year, we rebalanced our commercial organization toward our largest market opportunity, extremity trauma, and refocused our team on driving deeper penetration with our existing surgeon customers. During COVID-19 pandemic, we kept our sales team and broader commercial organization intact and took the opportunity to provide extensive sales training. Our sales team developed skills and shared best practices around remote case support where hospital access has

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been restricted. We believe this remote support has been appreciated by customers and has expanded our sales team’s ability to support surgeons and their patients during COVID-19 and beyond.

In addition, our professional education group was able to quickly develop a virtual surgeon training program, and combined with our marketing initiatives, was successful in developing new customers and revenue growth through product penetration.

Results of Operations

Comparison of the Years Ended December 31, 2020 and 2019

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of total revenue:

Year Ended December 31,

% of % of

Amount Revenue Amount Revenue

(dollars in thousands)

Costs and expenses:

Other (expense) income:

Change in fair value of derivative liabilities (117) (0.1) — —

Loss on extinguishment of debt — — — —

Other expense (38) — (53) —

Revenue

Revenue for the year ended December 31, 2020 increased 5.2% to $112,300 as compared to $106,712 for the year ended December 31, 2019. During the on-set of COVID-19, certain hospitals and surgery centers discontinued elective surgeries and our sales force was not allowed to enter the hospitals. This significantly reduced our revenue. Once elective surgeries resumed, hospitals allowed our sales representatives to begin entering their facilities once again. As a result, we began to experience a return in revenue as these facilities began scheduling surgeries, although restrictions continue to limit our access in certain accounts as local communities address resurgences of COVID-19. Revenue growth was driven by an increase in unit volume of approximately 2%, as well as the net impact of changes in prices and product mix of approximately 3%. The growth in unit volume increase was primarily attributed to unit growth in our active accounts. In the fourth quarter of 2020, we had 893 active accounts, an increase of 12% from 797 at the end of 2019.

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Gross Profit

Gross profit for the year ended December 31, 2020 increased 1.5% to $90,719 as compared to $89,363 for the year ended December 31, 2019. Gross profit increased during fiscal 2020 due to an increase in revenue, offset by the impact of COVID-19. Gross profit margin in 2020 decreased to 80.8% as compared to 83.7% in 2019. Gross margin was negatively impacted during fiscal year 2020 due to idle facility charges and other increased period costs of approximately $2,000 in the second and third quarters resulting from our temporary suspension of tissue processing, as well as approximately $2,242 of inventory write-downs. Gross margins have continued to improve sequentially in the second half of the year and we expect them to continue to return to historical levels as revenue and nerve processing volumes increase.

Costs and Expenses

Total cost and expenses decreased 5.7% to $113,901 for the year ended December 31, 2020 as compared to $120,769 for the year ended December 31, 2019. The decrease in operating expenses was primarily attributable to the impact of our lower travel and in-person surgeon education program of $9,807 as a result of restrictions associated with COVID-19, as well as a decreased litigation expenses of $2,467 as a result of reaching deductible limits with respect to certain litigation matters. These decreases were slightly offset by higher sales commissions and other compensation related costs of $5,519. As a percentage of revenue, total cost and expenses decreased to 101.4% in 2020 compared to 113.1% in 2019.

Sales and marketing expenses decreased 3.2% to $69,659 for the year ended December 31, 2020 as compared to $71,950 for the year ended December 31, 2019. This decrease was driven by lower travel, surgeon education and conference expenses as we cancelled in-person education programs, and experienced restrictions in hospital access and travel directly related to the impact of COVID-19. The decrease in expenses was slightly offset by salaries and benefits from increased sales commissions. As a percentage of revenue, sales and marketing expenses were 62.0% for the year ended December 31, 2020 compared to 67.4% for the year ended December 31, 2019. We expect sales and marketing expenses will increase as pandemic-related restrictions in hospital access and travel normalize.

General and administrative expenses decreased 15.7% to $26,396 for the year ended December 31, 2020 as compared to $31,305 for the year ended December 31, 2019. The decrease was primarily due to lower litigation expenses as a result of reaching deductible limits with respect to certain litigation matters as well as a decrease in stock compensation. As a percentage of revenue, general and administrative expenses decreased to 23.5% for the year ended December 31, 2020 compared to 29.3% for the year ended December 31, 2019.

Research and development expenses slightly increased to $17,846 for the year ended December 31, 2020, as compared to $17,514 in the prior year ended December 31, 2019. Research and development costs include our product development efforts as well as non-clinical spend in support of our BLA for Avance Nerve Graft, and clinical trials. Product development expenses represented approximately 50% of total research and development expense in the fiscal year ended December 31, 2020 as compared to 52% in the prior year period. It is expected that costs associated with the BLA will continue to increase as we continue to invest in completing the license application. Additionally, we continue to conduct development efforts focused on both new peripheral nerve products and new peripheral nerve applications for our existing products. We pursue research grants to support research and early product development. Clinical trial expenses represented approximately 50% of research and development expense in the fiscal year ended December 31, 2020 as compared to 48% in the prior year period. COVID-19 negatively impacted certain of our clinical study programs as certain study sites restricted access and reallocated their resources to focused on COVID-19 related care; however, we expect activity to recover over the next fiscal year. Included within Clinical trial expenses are clinical trial costs associated with the BLA. Our continued efforts related to the BLA drove the slight increase in research and development expenses year over year. As a percentage of revenue, research and development expenses decreased to 15.9% in 2019 from 16.4% in 2019.

Other Income and Expenses

Interest expense increased to $1,054 as compared to $40 for the year ended December 31, 2019. The change is primarily due to interest expense from our Oberland debt facility, which began on June 30, 2020. We recognized total interest charges of $1,941 in connection with the Oberland debt facility in the current year, but $997 of this interest was capitalized to the construction costs of the APC. For the year ended December 31, 2020, we recognized $605 of investment income from our asset management and cash investment sweep accounts as compared to $2,364 for the year ended December 31, 2019. The decrease is primarily due to lower investment income from our asset management program as a result of lower interest rates from COVID-19 and as we lowered investment balances and increased cash reserves.

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Income Taxes

We had no income tax expenses or income tax benefit for 2020 or 2019 due to incurrence of net operating loss for the year, the benefits of which have been fully value allowed. We do not believe that there are any additional tax expenses or benefits currently available.

Comparison of the Years Ended December 31, 2019 and 2018

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and as percentages of total revenue:

Year Ended December 31,

Amount % ofRevenue Amount % ofRevenue

(dollars in thousands)

Costs and expenses:

Other income (expense):

Loss on extinguishment of debt — — (2,186) (2.6)

Other expense (53) — (28) —

Revenue

Revenue for the year ended December 31, 2019 increased 27.1% to $106,712 as compared to $83,937 for the year ended December 31, 2018. Revenue growth for the year was primarily the result of increases in unit volume, as well as the net impact of price increases and changes in product mix. Our revenue growth was largely driven by increased revenue in active accounts as well as the addition of new active accounts. In the fourth quarter of 2019, we had 797 active accounts, an increase of 12% from 712 at the end of 2018.

Gross Profit

Gross profit for the year ended December 31, 2019 increased 25.8% to $89,363 as compared to $71,014 for the year ended December 31, 2018. The increase was primarily attributable to the increased revenue, but slightly offset by increased processing costs, inventory write downs and additional inventory reserves. Gross profit margin in 2019 decreased to 83.7% as compared to 84.6% in 2018.

Costs and Expenses

Total cost and expenses increased 32.0% to $120,769 for the year ended December 31, 2019 as compared to $91,514 for the year ended December 31, 2018. The increase was primarily due to variable costs associated with increased sales activity, expansion of our commercial team, expanding product development and clinical study activities, expanded surgeon education programs, and increases in compensation and general expenses associated with ongoing expansions of infrastructure to support

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our growth. In addition, general and administrative expenses include approximately $2,467 of litigation expenses and certain expenses associated therewith, as a result of the ongoing litigation described in Legal Proceedings and other litigation that was dismissed during 2019 (the “Litigation”) in the period ending December 31, 2019 as compared to $0 in the prior year period. As a percentage of revenue, total cost and expenses increased to 113.1% in 2019 compared to 109.0% in 2018.

Sales and marketing expenses increased 27.1% to $71,950 for the year ended December 31, 2019 as compared to $56,617 for the year ended December 31, 2018. The increase was primarily due to: (a) increased compensation expenses related to Axogen’s direct sales force as a result of increased sales and hiring of additional personnel; (b) increased travel expenses to support the commercial team’s activities; (c) expansion of our surgeon education program; and (d) increased marketing activity. As a percentage of revenue, sales and marketing expenses were 67.4% for the year ended December 31, 2019 compared to 67.5% for the year ended December 31, 2018.

General and administrative expenses increased 35.4% to $31,305 for the year ended December 31, 2019 as compared to $23,124 for the year ended December 31, 2018. The increase was primarily the result of increased expenses related to infrastructure expansion to support our growth, including professional fees, salaries, and an increase of $1,982 of non-cash stock compensation. As mentioned above, we also recorded $2,467 of legal fees associated the Litigation. As a percentage of revenue, general and administrative expenses increased to 29.3% for the year ended December 31, 2019 compared to 27.5% for the year ended December 31, 2018.

Research and development expenses increased 48.8% to $17,514 in the year ended December 31, 2019 as compared to $11,773 for the year ended December 31, 2018. Research and development costs include our product development and clinical efforts substantially focused on its Biologics License Application, or BLA, for Avance Nerve Graft, the Sensation-NOW and RECON studies and the development of new or next generation products. The increase in expenses for 2019 relate to expenditures for these activities and hiring additional personnel to support clinical and product development activity. It is expected that costs associated with the BLA will continue to increase as we continue to invest in completing the license application. We continue to conduct development efforts focused on both new peripheral nerve products and new peripheral nerve applications for our existing products. We pursue research grants to support research and early product development. Our increased product and clinical pipeline development initiatives contributed to the increase in research and development expenses in 2019. As a result, research and development expenses increased to 16.4% in 2019 from 14.0% in 2018, as a percentage of revenue.

Other Income and Expenses

For the year ended December 31, 2019, we recognized $2,364 of investment income from our asset management and cash investment sweep accounts as compared to $1,525 for the year ended December 31, 2018. Interest expense decreased to $40 as compared to $1,127 for the year ended December 31, 2018 as a result of our paying, in full, the Term Loan and Revolving Loan with MidCap, as defined in “Term and Revolving Loan Agreements in the prior year ended December 31, 2018. For the year ended December 31, 2018, we incurred a loss on the extinguishment of the debt of $2,186 for exit, prepayment fees and the amortization of the remaining balance of the deferred financing costs for which there was no such activity in the current year.

Income Taxes

We had no income tax expenses or income tax benefit for 2019 or 2018 due to incurrence of net operating loss for the year, the benefits of which have been fully value allowed.

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Liquidity and Capital Resources

Cash Flow Information

As of December 31, 2020, we had cash, cash equivalents, investments, and restricted cash of $110,808, an increase of $8,298 from $102,510 at December 31, 2019. The increase includes $35,000 of proceeds from our new debt facility, $3,500 of equity proceeds from the Oberland Option, and $2,630 of net proceeds from employee stock option exercises, partially offset by $21,905 of capital expenditures, and $9,626 of cash used in operating activities including favorable changes in working capital.

We have working capital of $122,420 and a current ratio of 6.4 at December 31, 2020, compared to working capital of $114,141 and a current ratio of 6.5 at December 31, 2019. The increase in working capital at December 31, 2020 as compared to December 31, 2019, was primarily proceeds from our new debt facility, which is recorded as a long-term liability and the year over year improvement in the cash collections cycle, as accounts receivable remained relatively flat with revenue growth of 5.2%.

Our future capital requirements depend on a number of factors including, without limitation, revenue increases consistent with our business plan, cost of products and acquisition and/or development of new products. We could face increasing capital needs. Such capital needs could be substantial depending on the extent to which we are unable to increase revenue.

If we need additional capital in the future, we may raise additional funds through public or private equity offerings, debt financings or from other sources. The sale of additional equity would result in dilution to our shareholders. There is no assurance that we will be able to secure funding on terms acceptable to us, or at all. The increasing need for capital could also make it more difficult to obtain funding through either equity or debt. Should additional capital not become available to us as needed, we may be required to take certain action, such as slowing sales and marketing expansion, delaying regulatory approvals or reducing headcount.

Year Ended

(dollars in thousands)

Net cash (used in) provided by:

Net increase (decrease) in cash and cash equivalents $ 13,885 $ 11,430 $ (6,213)

Net Cash Used in Operating Activities

We used $9,626 of cash for operating activities in 2020, as compared to using $19,872 and $17,862 of cash for operating activities in 2019 and 2018, respectively. This improvement in cash used in operating activities in 2020 was primarily due to favorable changes in working capital as well as a decrease in the net loss year over year.Net cash used in operations decreased in 2019 as compared to 2018 was the result of a higher net loss for the year offset by improvements in working capital.

Net Cash Provided by/Used in Investing Activities

Investing activities for 2020 used $16,963 of cash as compared to providing $27,271 during 2019 and use of $98,193 in 2018.The increase in outflows of cash in the current year as compared to 2019 primarily related to capital expenditures for APC and our Tampa facilities offset by higher proceeds from the sale of investments in prior year. The improvement in cash flow from investing in 2019 over 2018, was primarily the result of the Company beginning to invest in longer term instruments in 2018.

Net Cash Provided by Financing Activities

Financing activities in 2020 provided $40,474 of cash as compared to providing $4,031 and $109,842 of cash in 2019 and 2018, respectively. The 2020 improvement over 2019 was primarily the result of the borrowings from the Oberland Facility of $35,000 as well as $3,500 of proceeds from the exercise of the stock options related to the Oberland Facility, see Footnote 10 - Long-Term Debt in the Notes to the Consolidated Financial Statements for further discussion. The decrease of cash flows in

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2019 as compared to 2018 was the result of the equity financing of $132,964 in 2018. Proceeds from the exercise of stock options, excluding the Oberland stock option exercise, provided $3,300, $4,002, and $3,884 of cash for the years ended December 31, 2020, 2019, and 2018, respectively.

Operating Cash Requirements

On July 9, 2019, we entered into a Standard Form of Agreement Between Owner and Design-Builder (the “Design-Build Agreement”) with CRB Builders, L.L.C., a Missouri limited liability company (“CRB”), pursuant to which CRB will renovate and retrofit the APC (See Footnote 15 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements). We anticipate spending up to approximately $25,002 for renovations, equipment and furniture over the next twelve months and up to $26,821 over the next 18 months.

As previously disclosed, we entered into an agreement with Heights Union, LLC, a Florida limited liability company (“Heights Union”), for the lease of seventy-five thousand square feet of office and lab space. Pursuant to the Heights Union lease, we will use the Heights Union Premises for general office, medical laboratory, training and meeting purposes. We expect to spend $1,573 in the first quarter as we complete our furnishing and final touches on our new facility.

As of December 31, 2020, we had cash, cash equivalents, investments and restricted cash totaling $110,808 and total current liabilities of $22,831. Based on current estimates, we believe that our existing cash, cash equivalents and investments will allow us to fund our operations through at least the next 12 months.

Credit Facilities

On October 25, 2016, we entered into Term Loan and a Revolving Loan with MidCap Financial Trust (“MidCap”) maturing on May 1, 2021.

We have the option at any time to prepay the Term Loan in whole or in part, subject to payment of a prepayment fee and an exit fee. On May 22, 2018, we exercised our option and paid $22,599 to prepay the Term Loan in full, which included exit and pre-payment fees totaling $1,470. In addition, on May 22, 2018, we charged to interest expense the unamortized deferred financing costs associated with the Term Loan of $473.

We also had the option to terminate or permanently reduce the Revolving Loan prior to the maturity date subject to its payment of a deferred origination fee. On May 22, 2018, we exercised its option to terminate and paid $2,958 to prepay the Revolving Loan in full, which amount included fees of $236.

On June 30, 2020, we entered into a seven-year financing agreement with Oberland Capital (the “Oberland Facility”) and obtained the first tranche of $35,000 at closing. The Oberland Facility provides for a total of $75,000 through two additional tranches that can be drawn by December 31, 2021 and requires interest-only payments for the duration of the term. A second tranche of $15,000 may be drawn at our option upon achieving two consecutive quarters with revenue of at least $20,000. Such second tranche may also be put to us at any time by Oberland Capital. A third tranche of $25,000 may be drawn at our option upon achieving two consecutive quarters with revenue of $28,000. The financing costs for this facility are approximately $642 and was recorded as a contra liability to the debt facility.

The Oberland Facility requires quarterly interest payments for seven years. Interest is calculated as 7.5% plus the greater of LIBOR or 2.0% (9.5% as of December 31, 2020). Each tranche of the Oberland Facility, if and when issued, will have a term of seven years from the date of issuance (with the first tranche issued on June 30, 2020 maturing on June 30, 2027). In connection with the Oberland Facility, we entered into a revenue participation agreement with Oberland Capital, which provides that, among other things, an additional quarterly royalty payment as a percentage of our net revenue, up to $70,000 in any given fiscal year, subject to certain limitations set forth therein, during the period commencing on the later of (i) April 1, 2021 and (ii) the date of funding of a tranche of the loan, and ending on the date upon which all amounts owed under the Oberland Facility have been paid in full (the “Revenue Participation Agreement”). Payments will commence on September 30, 2021. This royalty structure results in approximately 1.0% per year of additional interest payments on the outstanding loan amount.

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Contractual Obligations and Commitments

The following table summarizes our obligations with regard to our contractual obligations as of December 31, 2020, and the expected timing of maturities of these contractual obligations. This table should be read in conjunction with the notes to consolidated financial statements included elsewhere in this annual report on Form 10-K.

(dollars in thousands)

Service Agreements disclosed in Footnote 15 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements do not have annual firm commitments.

APC Commitment

On July 9, 2019, we entered into the Design-Build Agreement with CRB (which was subsequently amended on October 6, 2020), pursuant to which CRB will renovate and retrofit the APC. The Design-Build Agreement contains several design phase milestones that began in July 2019 and sets the date for Substantial Completion (as defined in the Design-Build Agreement) in the third quarter of 2021, subject to adjustment in accordance with the terms of the Design-Build Agreement. The estimated cost pursuant to the Design-Build Agreement is $28,846. Additional costs associated with the renovation, purchasing of furniture and equipment, validation and certification of the APC are estimated to be $13,600. These capital expenditure costs will be incurred as they arise until the anticipated full transition of material processing to the APC by late 2022. As of December 31, 2020, we have recorded $9,645 in the current year and $15,671 to date related to renovations and design build in construction in progress. These items are recorded as projects in process as part of the property and equipment in our consolidated balance sheet. In addition, we will capitalize interest expense from its debt facility based on the amount of accumulated expenditures of this asset during the period that is required to get the asset ready for its intended use. During fiscal 2020, we capitalized interest of $489 to construction in progress.

As a result of COVID-19, we implemented a cost reduction strategy designed to defer and reduce certain expenses, including deferment of the APC by up to one year. This deferral had the potential to defer approximately $25,000 of expected 2020 capital expenditures to 2021. In addition, the Company extended its current production facility License and Services agreement with Community Tissue Services (“CTS”) by one year to December 31, 2022. During the fourth quarter of 2020, we determined to resume the APC project. We expect expenditures of approximately $26,000 during 2021.

We expect to receive certain economic development grants from state and local authorities totaling up to approximately $2,685 including $1,250 of cash grants to offset costs to acquire and develop the property. These grants have claw back clauses if the Company does not meet these job creation milestones by 2023. We believe despite the delay in the APC that these incentives will continue to be available.

Subsequent Events

On February 22, 2021, we entered into the Seventh Amendment to the Licenses and Services Agreement with Community Tissue Services (the "CTS Agreement"). The amendment extends the term of the agreement until December 31, 2023.

Tampa Commitment

Pursuant to the Heights Agreement, we will use the leased premises in Tampa, Florida for general office, medical laboratory, training and meeting purposes. The lease term includes several months of free rent. We recorded a right of use asset and liability at the commencement of the lease term as discussed in Footnote 15 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements. We began occupying the premises in September of 2020.

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Public Offering of Common Stock

On November 16, 2017, Axogen entered into a certain underwriting agreement (the “Leerink Underwriting Agreement”) with Leerink Partners LLC, as representative of the several underwriters named therein (collectively, the “2017 Offering Underwriters”) and Essex, pursuant to which (i) we agreed to issue and sell 700,000 shares of our common stock pursuant to a registration statement on Form S-3 (File No. 333-207829), filed with the SEC on November 5, 2015, and declared effective by the SEC on December 11, 2015, and the prospectus contained therein, as supplemented by the prospectus supplement dated November 16, 2017, and (ii) Essex agreed to sell 1,000,000 shares of our common stock pursuant to a registration statement on Form S-3 (File No. 333-220770), filed with the SEC on October 2, 2017, and declared effective by the SEC on October 11, 2017, and the prospectus contained therein, as supplemented by the Prospectus Supplement, in an underwritten registered public offering at an offering price of $21.00 per share. We, together with Essex, granted the 2017 Offering Underwriters a 30-day option to purchase up to an aggregate of 255,000 additional shares of common stock, at the public offering price, less the underwriting discounts and commissions, which was exercised in full on November 16, 2017. We received net proceeds of approximately $15,655 after deducting the underwriting discounts and commissions and estimated offering expenses.

On May 8, 2018, we entered into an underwriting agreement with Jefferies LLC and Leerink Partners LLC, as representatives of the several underwriters named therein (collectively, the “2018 Offering Underwriters”), pursuant to which we agreed to issue and sell 3,000,000 shares of our common stock in an underwritten registered public offering at an offering price of $41.00 per share (the “2018 Offering”). We granted the 2018 Offering Underwriters a 30-day option to purchase up to an aggregate of 450,000 additional shares of common stock, at the public offering price, less the underwriting discounts and commissions, which was exercised in full on May 9, 2018. The 2018 Offering closed on May 11, 2018, and we received proceeds of approximately $132,707 from the sale of the shares (including the sale of 450,000 additional shares issued upon exercise of the 2018 Offering Underwriters’ overallotment option), after deducting the underwriting discounts and commissions and estimated offering expenses.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Effect of Inflation

Inflation has not had a significant impact on our historical operations, and we do not expect it to have a significant impact on our results of operations or financial condition in the foreseeable future.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amount of expenses during the period reported. Management bases its estimates and judgments on historical experience, observance of trends in the industry, information provided by outside sources and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We have described our significant accounting policies in Footnote 3 - Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements included in this Form 10-K.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We enter into contracts to sell and distribute products and services to hospitals and surgical facilities for use in caring for patients with peripheral nerve damage or transection. Revenue is recognized when we have met its performance obligations pursuant to its contracts with its customers in an amount that we expect to be entitled to in exchange for the transfer of control of the products and services to our customers.

In the case of products or services sold to a customer under a distribution or purchase agreement, the distributors are granted exclusive distribution rights to sell the implants internationally in a territory defined by the contract. These international distributor agreements contain provisions that allow us to terminate the distribution agreement with the distributor, and upon termination, the right to repurchase inventory from the distributor at the distributor’s cost. We have determined that its

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contractual rights to repurchase distributor inventory upon termination of the distributor agreement are not substantive and do not impact the timing of when control transfers; and, therefore, we have determined it is appropriate to recognize revenue when: i) the product is shipped via common carrier; or ii) the product is delivered to the customer or distributor, depending on the terms of the agreement. Determining the timing of revenue recognition for such contracts is subject to judgment, because an evaluation must be made regarding the distributor’s ability to direct the use of, and obtain substantially all of the remaining benefits from, the implants received from us. Changes in these assessments could have an impact on the timing of revenue recognition from sales to distributors.

A portion of our product revenue is generated from consigned inventory maintained at hospitals and independent sales agencies, and also from inventory physically held by field sales representatives. For these types of products sales, we retain control until the product has been used or implanted, at which time revenue is recognized.

We elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying products is transferred to the customer. The related shipping and freight charges incurred by us are included in cost of sales.

We operate in a single reportable segment of peripheral nerve repair, offers similar products to its customers, and enters into consistently structured arrangements with similar types of customers. As such,we do not disaggregate revenue from contracts with customers as the nature, amount, timing and uncertainty of revenue and cash flows does not materially differ within and among the contracts with customers.

The contract with the customer states the final terms of the sale, including the description, quantity, and price of each implant distributed. The payment terms and conditions in our contracts vary; however, as a common business practice, payment terms are typically due in full within 30 to 60 days of delivery. Since the customer agrees to a stated price in the contract that does not vary over the contract term, the contracts do not contain any material types of variable consideration, and contractual rights of return are not material. We have several contracts with distributors in international markets which include consideration paid to the customer in exchange for distinct marketing and other services. We record such consideration paid to the customer as a reduction to revenue from the contracts with those distributor customers.

Inventory - Valuation Associated with Excess and Obsolete Inventory

Inventory is comprised of unprocessed tissue, work-in-process, Avance Nerve Graft, Axoguard Nerve Connector, Axoguard Nerve Protector, Axoguard Nerve Cap, Avive Soft Tissue Membrane, Axotouch Two-Point Discriminator and supplies and are valued at the lower of cost (first-in, first-out) or net realizable value.

We monitor the shelf life of our products and historical expiration and spoilage trends, and writes-off inventory based on the estimated amount of inventory that will not be distributed before expiration or spoilage. To estimate the amount of inventory that will expire prior to being sold, we review inventory quantities on hand, historical and projected sales, and historical expiration trends. Our calculation of the amount of inventory that will expire prior to sale has two components: 1) a demand or consumption based component that compares projected sales to inventory quantities on hand; and 2) an expiring inventory component that assesses the risk related to inventory that is near expiration by analyzing historical expiration trends to project inventory that will expire prior to being sold. Our model assumes that inventory will be sold on a first-in-first-out basis. Due to the nature of the inventory (surgical implants with expiration dates) and the fact that a significant portion of our inventory is at medical facility consignment locations, estimating the amount of inventory that will expire and the amount of inventory that should be written-down involves significant judgments and estimates.

Share-Based Compensation

We account for share-based compensation for all share-based payment awards, including stock options, restricted stock units, performance stock units and stock purchases related to an employee stock purchase plan, based on their estimated fair values. We estimate the fair value of time-based options on the date of grant using the multi-point Black-Scholes option pricing model (Black-Scholes model). Our determination of fair value of share-based payment awards is affected by our stock price, as well as assumptions regarding a number of subjective variables. These variables include but are not limited to our expected stock price volatility over the term of the awards. The value of the portion of the awards that are ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statements of Operations.

We estimate the fair value of restricted stock unit and performance stock unit awards based upon the grant date closing market price of our common stock.

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We also have an employee stock purchase plan (ESPP), which is available to all eligible employees as defined by the plan document. Under the ESPP, shares of our common stock may be purchased at a discount, currently fifteen percent (15%). We estimate the number of shares to be purchased under the ESPP at the beginning of the purchase period and calculate estimated compensation expense using the Black-Scholes model based upon the fair value of the stock at the beginning of the purchase period. Compensation expense is recognized over each purchase period, and expense is adjusted at the time of stock purchase.

We believe our critical accounting policies regarding revenue recognition, allowance for uncollectible accounts receivable, investments, inventory and share-based employee compensation affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. We base our judgments and estimates on historical experience, current conditions and other reasonable factors.

Recent Accounting Pronouncements

See Note 3 - Summary of Significant Accounting Policies to our Consolidated Financial Statements for further information.

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to market risk from interest rates. For our cash, cash equivalents and investments, a change in interest rates affects the amount of interest income that can be earned.

With respect to accounts receivable, we perform credit evaluations of our customers and do not require collateral. There have been no material losses on accounts receivables. Concentrations of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk. The Company also controls credit risk through credit approvals and monitoring procedures.

We invest our cash primarily in money market accounts, U.S. government agencies and securities, corporate bonds and commercial paper. Although we believe our cash to be invested in a conservative manner, with cash preservation being the primary investment objective, the value of the securities held will fluctuate with changes in the financial markets including, among other things, changes in interest rates, credit quality and general volatility. This risk is managed by investing in high quality investment grade securities with short-term maturities.

Financial instruments that potentially subject the us to credit risk consist of cash and cash equivalent balances and investments in corporate bonds. Certain of our cash and cash equivalents balances exceed FDIC insured limits or are invested in money market accounts with investment banks that are not FDIC-insured. We place our cash and cash equivalents in what we believe to be credit-worthy financial institutions. As of December 31, 2020, $48,267 of the cash and cash equivalents balance was in excess of FDIC limits.

We are subject to market risk from exposure to changes in interest rates based upon our investing and cash management activities. Changes in interest rates affect interest income earned on cash and cash equivalents. We have not entered into derivative transactions related to cash and cash equivalents.We do not expect changes in interest rates to have a material adverse effect on our income or our cash flows in 2020. However, we can give no assurance that interest rates will not significantly change in the future.

We also have interest rate exposure as a result of the Oberland Facility. As of September 30, 2020, the outstanding principal amount of our loans under the Oberland Facility was $35,000. Interest on our loans under the Oberland Facility is payable quarterly during the term of the loans at a rate per annum, subject to certain exceptions, equal to the sum of (a) the greater of (i) LIBOR and (ii) 2% and (b) 7.5% (which percentage is subject to adjustment as described in the Oberland facility); provided that the interest rate shall never be less than 9.5%. Changes in the LIBOR rate may therefore affect our interest expense associated with the loans. An increase of 100 basis points in interest rates would increase expense by approximately $350 annually based on the amounts currently outstanding and would not materially affect our results of operations.

The value of the U.S. dollar compared to the Euro has little to no effect on our financial results. International business transactions are currently invoiced in U.S. dollars.As a result, the Company has minimal exposure related to exchange rate fluctuations.

In the United States, we sell our products directly to hospitals and clinics in the local currency. Revenue is recognized as disclosed in Footnote 3 - Summary of Significant Accounting Policies - Revenue Recognition in our Notes to the Consolidated Financial Statements.

In all international markets, we distribute our products and services to independent distributors who, in turn, distribute and market to medical clinics. The revenue from the distribution of our products in these countries through independent distributors is denominated in United States dollars.

We do not believe our operations are currently subject to significant market risks for foreign currency exchange rates, commodity prices or other relevant market price risks of a material nature.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONTENTS

Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 79

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2020 AND 2019 81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 86

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS 113

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Axogen, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Axogen, Inc and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America, Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinion

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventory – Valuation Associated with Excess and Obsolete (E&O) Inventory — Refer to Notes 3 and 4 to the financial statements

Critical Audit Matter Description

Inventories are comprised of unprocessed tissue, work-in-process, Avance Nerve Graft, Axoguard Nerve Connector, Axoguard Nerve Protector, Axoguard Nerve Cap, Avive Soft Tissue Membrane, Axotouch Two-Point Discriminator and supplies and are valued at the lower of cost or net realizable value. The Company monitors the shelf life of its products and historical expiration and spoilage trends, and writes-off inventory based on the estimated amount of inventory that will not be sold before expiration or spoilage. To estimate the amount of inventory that will expire prior to being sold, the Company reviews inventory quantities on hand, historical and projected sales, and historical expiration trends. The Company’s calculation of the amount of inventory that will expire prior to sale has two components: 1) a demand or consumption based component that compares projected sales to inventory quantities on hand; and 2) an expiring inventory component that assesses the risk related to inventory that is near expiration by analyzing historical expiration trends to project inventory that will expire prior to being sold. The Company’s model assumes that inventory will be sold on a first-in-first-out basis. Due to the nature of the inventory (surgical implants with expiration dates) and the fact that a significant portion of the Company’s inventory is at medical facility consignment locations, estimating the amount of inventory that will expire and the amount of inventory that should be written-down involves significant judgments and estimates.

Given the significant judgments associated with evaluating the valuation of E&O inventory, auditing the reasonableness of management’s estimates and assumptions involved especially subjective judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s valuation of E&O inventory included the following, among others:

•We tested the effectiveness of controls over the E&O inventory valuation. The controls we tested included those over the calculation and accuracy and completeness of underlying data used in the calculation.

•We performed procedures to evaluate management’s ability to accurately forecast by comparing the historical expiring inventory estimates to subsequent inventory destructions and expirations.

•We obtained the Company’s E&O calculation and tested the mathematical accuracy.

•We assessed the reasonableness of the assumptions used in the E&O calculation by developing an independent expectation and comparing our independent expectation to the results of the Company’s calculation.

•We tested the accuracy and completeness of the underlying data used in the calculation of the Company’s expiring inventory model.

•We made inquiries of the Company’s employees outside of the accounting department and evaluated other areas of the audit to identify business, product, or industry changes that may impact the inputs in the inventory valuation calculation.

/s/ Deloitte & Touche LLP

Miami, Florida

March 1, 2021

We have served as the Company's auditor since 2018.

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AXOGEN, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2020 and 2019

(In Thousands, Except Share Amounts)

Assets

Current assets:

Operating lease right-of-use assets 15,614 3,133

Finance lease right-of-use assets 64 87

Liabilities and Shareholders’ Equity

Current liabilities:

Accounts payable and accrued expenses 21,968 19,144

Current maturities of lease liabilities 863 1,736

Long-term debt, net of financing fees 32,027 —

Debt derivative liability 2,497 —

Other long-term liabilities 3 15

Commitments and contingencies - see Note 15

Shareholders’ equity:

Total liabilities and shareholders’ equity $ 201,381 $ 154,643

The accompanying notes are an integral part of these consolidated financial statements.

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AXOGEN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 2020, 2019 and 2018

(In Thousands, Except Per Share Amounts)

Costs and expenses:

Other (expense) income:

Change in fair value of derivative liabilities (117) — —

Loss on extinguishment of debt — — (2,186)

Loss per common share — basic and diluted $ (0.60) $ (0.74) $ (0.60)

The accompanying notes are an integral part of these consolidated financial statements.

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AXOGEN, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Years ended December 31, 2020, 2019 and 2018

(In Thousands)

Shares Amount

Stock-based compensation — — 7,606 — 7,606

Stock-based compensation — — 8,470 — 8,470

Issuance of restricted and performance stock units 249 2 (2) — —

Shares surrendered by employees to pay tax withholdings (40) — (670) — (670)

Exercise of stock options and employee stock purchase plan 572 6 3,294 — 3,300

Exercise of Oberland option net of settlement 248 2 3,680 — 3,682

The accompanying notes are an integral part of these consolidated financial statements.

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AXOGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2020, 2019 and 2018

(In Thousands)

Year Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of right-of-use assets 1,800 1,821 —

Amortization of intangible assets 153 123 77

Impairment loss on intangible assets — 104 —

Amortization of deferred financing costs 232 — 81

Loss on disposal of equipment 3 — 1

Loss on extinguishment of debt — — 2,186

Changes in investment gains and losses (47) (972) (721)

Changes in fair value of derivatives 117 — —

Change in operating assets and liabilities:

Operating lease obligations (1,086) (1,773) —

Cash paid for interest portion of finance leases (3) (4) —

Contract and other liabilities (12) (30) (66)

Cash flows from investing activities:

Cash payments for intangible assets (692) (562) (321)

Net cash (used for) / provided by investing activities (16,963) 27,271 (98,193)

Cash flows from financing activities:

Proceeds from the issuance of long-term debt 35,000 — —

Proceeds from the paycheck protection program 7,820 — —

Repayment of paycheck protection program (7,820) — —

Proceeds from issuance of common stock 3,500 — 132,964

Cash paid for equity or debt financing fees (642) — (257)

Borrowing on revolving loan — — 26,253

Payments on revolving loan and prepayment penalties — — (30,489)

Repayments of long-term debt and prepayment penalties — — (22,513)

Cash paid for debt portion of finance leases (14) 29 —

Payments of employee tax witholdings in exchange of common stock award (670) — —

The accompanying notes are an integral part of these consolidated financial statements.

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AXOGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2020, 2019 and 2018

(In Thousands)

Year Ended

Supplemental disclosures of cash flow activity:

Cash paid for interest, net of capitalized interest $ 822 $ 34 $ 1,325

Supplemental disclosure of non-cash investing and financing activities:

Acquisition of leasehold asset $ 5,250 $ — $ —

Embedded derivative associated with long-term debt $ 2,563 $ — $ —

Conversion of the Oberland Option $ 182 $ — $ —

The accompanying notes are an integral part of these consolidated financial statements.

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AXOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020, 2019 and 2018

(In Thousands, Except Per Share Amounts)

1.Basis of Presentation

The accompanying consolidated financial statements include the accounts of Axogen, Inc. (the “Company” or “Axogen”) and its wholly owned subsidiaries, Axogen Corporation (“AC”), Axogen Processing Corporation (“APC”) and Axogen Europe GmbH, as of December 31, 2020 and December 31, 2019 and for the three years ended December 31, 2020. The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany accounts and transactions have been eliminated in consolidation.

2.Organization and Business

Axogen is the leading company focused specifically on the science, development, and commercialization of the technologies for peripheral nerve regeneration and repair. Axogen is passionate about providing the opportunity to restore nerve function and quality of life for patients with peripheral nerve injuries. Axogen providing innovative, clinically proven and economically effective repair solutions for surgeons and health care providers. Peripheral nerves provide the pathways for both motor and sensory signals throughout the body. Every day, people suffer traumatic injuries or undergo surgical procedures that impact the function of their peripheral nerves. Physical damage to a peripheral nerve or the inability to properly reconnect peripheral nerves can result in the loss of muscle or organ function, the loss of sensory feeling, or the initiation of pain.

Axogen’s platform for peripheral nerve repair features a comprehensive portfolio of products, including Avance Nerve Graft, a biologically active off-the-shelf processed human nerve allograft for bridging severed peripheral nerves without the comorbidities associated with a second surgical site; Axoguard Nerve Connector, a porcine submucosa extracellular matrix (“ECM”) coaptation aid for tensionless repair of severed peripheral nerves; Axoguard Nerve Protector, a porcine submucosa ECM product used to wrap and protect damaged peripheral nerves and reinforce the nerve reconstruction while preventing soft tissue attachments; Axoguard® Nerve Cap, a porcine submucosa ECM product used to protect a peripheral nerve end and separate the nerve from the surrounding environment to reduce the development of symptomatic or painful neuroma; and Avive Soft Tissue Membrane, a processed human umbilical cord intended for surgical use as a resorbable soft tissue conduit. Along with these core surgical products, Axogen also offers the Axotouch Two-Point Discriminator, used to measure the innervation density of any surface area of skin. The Company’s portfolio of products is available in the United States, Canada, Germany, United Kingdom, Spain, South Korea, and several other countries.

Avance Nerve Graft and Avive Soft Tissue Membrane are processed in the United States by Axogen at its processing facility in Dayton, Ohio. Axoguard Nerve Cap is manufactured by Cook Biotech in the United States for sale by Axogen and Axoguard Nerve Connector and Axoguard Nerve Protector are manufactured in the United States by Cook Biotech and are distributed worldwide exclusively by Axogen. The Axotouch Two Point Discriminator is contract manufactured by Viron Technologies, LLC (doing business as Cybernetics Research Laboratories) (“CLR”) Tucson, Arizona. CRL supplies the Axotouch unpackaged and they are packaged at Axogen’s distribution facility in Burleson, Texas. Axogen maintains its corporate offices in Alachua, Florida and is the parent company of its wholly owned operating subsidiaries, AC, APC and Axogen Europe GmbH.

3.Summary of Significant Accounting Policies

Cash and Cash Equivalents and Concentration

The Company considers highly liquid investments with maturities of three months or less at the date of acquisition as cash equivalents in the accompanying consolidated financial statements. The Company has not experienced any losses related to these balances; however, as of December 31, 2020, $48,267 of the cash and cash equivalents balance was in excess of FDIC limits. As of December 31, 2020 and 2019, the Company had restricted cash balances of $6,842 and $6,000, respectively. The December 31, 2020 and 2019 balances both include $6,000, which represents collateral for an irrevocable standby letter of credit and the December 31, 2020 balance includes $842 which is the balance of the Heights Union Escrow Account (see Note 15 - Commitments and Contingencies).

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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet that sum to the total of the same amounts shown in the statement of cash flows:

Inventory

Inventory is comprised of unprocessed tissue, work-in-process, Avance Nerve Graft, Axoguard Nerve Connector, Axoguard Nerve Protector, Axoguard Nerve Cap, Avive Soft Tissue Membrane, Acroval Neurosensory and Motor Testing System, Axotouch Two-Point Discriminator and supplies and are valued at the lower of cost (first-in, first-out) or net realizable value.

The Company monitors the shelf life of its products and historical expiration and spoilage trends, and writes-off inventory based on the estimated amount of inventory that will not be sold before expiration or spoilage. To estimate the amount of inventory that will expire prior to being sold, the Company reviews inventory quantities on hand, historical and projected sales, and historical expiration trends. The Company’s calculation of the amount of inventory that will expire prior to sale has two components: 1) a demand or consumption based component that compares projected sales to inventory quantities on hand; and 2) an expiring inventory component that assesses the risk related to inventory that is near expiration by analyzing historical expiration trends to project inventory that will expire prior to being sold. The Company’s model assumes that inventory will be sold on a first-in-first-out basis. Due to the nature of the inventory (surgical implants with expiration dates) and the fact that a significant portion of the Company’s inventory is at medical facility consignment locations, estimating the amount of inventory that will expire and the amount of inventory that should be written-down involves significant judgments and estimates.

Investments

The Company invests primarily in U.S. Government securities, corporate bonds and commercial paper and classifies all investments as available-for-sale. Investments are recorded at fair value. The Company has elected the fair value option (FVO) for all of its available-for-sale investments. The FVO election results in all changes in unrealized gains and losses being included in investment income in the Consolidated Statements of Operations.

Derivative Instruments

The Company analyzes all financial instruments with features under Accounting Standards Codification ("ASC") 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. The Company also reviews debt agreements for embedded features. If these features are not clearly and closely related to the debt host, they meet the definition of a derivative and require bifurcation from the host. All derivative instruments are recorded on the balance sheet at their respective fair values. The Company will adjust the carrying value of the derivative liability to fair value at each subsequent reporting date. The changes in the value of the derivatives are recorded in the consolidated statement of operations in the period in which they occur.

Property and Equipment

Property and equipment is stated at cost. Additions and improvements that extend the lives of the assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Leasehold improvements are amortized on a straight-line basis over the shorter of the asset’s estimated useful life or the remaining lease term. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets ranging from three to seven years.

When depreciable assets are retired or sold the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.

Intangible Assets

Intangible assets are recorded at cost and include patents and patent application costs, licenses and trademarks. Intangible assets are amortized on a straight-line basis over their estimated useful lives of seventeen to twenty years. Trademarks are indefinite lived intangible assets.

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Revenue Recognition

The Company enters into contracts to sell and distribute products and services to hospitals and surgical facilities for use in caring for patients with peripheral nerve damage or transection. Revenue is recognized when the Company has met its performance obligations pursuant to its contracts with its customers in an amount that the Company expects to be entitled to in exchange for the transfer of control of the products and services to the Company’s customers.

In the case of products or services sold to a customer under a distribution or purchase agreement, the customers are granted exclusive distribution rights to sell the implants internationally in a territory defined by the contract. These international distributor agreements contain provisions that allow the Company to terminate the distribution agreement with the distributor, and upon termination, the right to repurchase inventory from the distributor at the distributor’s cost. The Company has determined that its contractual rights to repurchase distributor inventory upon termination of the distributor agreement are not substantive and do not impact the timing of when control transfers; and, therefore, the Company has determined it is appropriate to recognize revenue when: i) the product is shipped via common carrier; or ii) the product is delivered to the customer or distributor, depending on the terms of the agreement. Determining the timing of revenue recognition for such contracts is subject to judgment, because an evaluation must be made regarding the distributor’s ability to direct the use of, and obtain substantially all of the remaining benefits from, the implants received from the Company. Changes in these assessments could have an impact on the timing of revenue recognition from sales to distributors.

A portion of the Company's product revenue is generated from consigned inventory maintained at hospitals and independent sales agencies, and also from inventory physically held by field sales representatives. For these types of products sales, the Company retains control until the product has been used or implanted, at which time revenue is recognized.

The Company accounts for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying products is transferred to the customer. The related shipping and freight charges incurred by the Company are included in cost of sales.

The Company operates in a single reportable segment of peripheral nerve repair, offers similar products to its customers, and enters into consistently structured arrangements with similar types of customers. As such, the Company does not disaggregate revenue from contracts with customers as the nature, amount, timing and uncertainty of revenue and cash flows does not materially differ within and among the contracts with customers.

The contract with the customer states the final terms of the sale, including the description, quantity, and price of each implant distributed. The payment terms and conditions in the Company’s contracts vary; however, as a common business practice, payment terms are typically due in full within thirty to sixty days of delivery. Since the customer agrees to a stated price in the contract that does not vary over the contract term, the contracts do not contain any material types of variable consideration, and contractual rights of return are not material. The Company has several contracts with distributors in international markets which include consideration paid to the customer in exchange for distinct marketing and other services. The Company records such consideration paid to the customer as a reduction to revenue from the contracts with those distributor customers.

In connection with the Acroval Neurosensory and Motor Testing System, the Company sold extended warranty and service packages to some of its customers who purchase this evaluation and measurement tool, and the prepayment of these extended warranties represent contract liabilities until the performance obligations are satisfied ratably over the term of the contract. The sale of the aforementioned extended warranty represents the only performance obligation the Company satisfies over time and creates the contract liability disclosed below. The opening and closing balances of the Company’s contract receivables and liabilities are as follows:

Contract Balances

Net Receivables Contract Liabilities, Current Contract Liabilities, Long-Term

Increase (decrease) 674 — (12)

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Allowance for Doubtful Accounts Receivable and Concentration of Credit Risk

The Company evaluates the collectability of accounts receivable to determine the appropriate allowance for doubtful accounts. In determining the amount of the allowance, the Company considers aging of account balances, historical credit losses, customer-specific information, the current economic environment, supportable forecasts and other relevant factors. An increase to the allowance for doubtful accounts results in a corresponding increase in general and administrative expense. The Company reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs has not been significant. The allowance for doubtful accounts balance was approximately $416 and $1,092 at December 31, 2020 and 2019, respectively.

Concentrations of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk. The Company also controls credit risk through credit approvals and monitoring procedures.

Leases

The Company adopted Accounting Standards Update (“ASU”) No. 2016-2—Leases (Topic 842) (“ASU 2016.02”), effective January 1, 2019, using the modified retrospective approach. The Company will continue to report financial information for fiscal years prior to 2019 under the previous lease accounting standards.

The Company determines whether or not a contract contains a lease at the inception date and determines the lease classification, recognition and measurement at commencement date. The Company classifies a lease based on whether the arrangement is effectively a purchase of the underlying asset. Leases that transfer the control of the underlying asset are classified as finance leases and all others are classified as an operating lease. Interest and amortization expense are recognized for operating leases on a straight-lined basis. If a change to the lease term leads to a reassessment of the lease classification and remeasurement, assumptions such as the discount rate and variable rents based on a rate or index will be updated as of the remeasurement date. If an arrangement is modified, the Company will reassess whether the arrangement contains a lease. Any subsequent changes in lease payments are recognized when incurred, unless the change requires a remeasurement of the lease liability.

The Company made an accounting policy election to not recognize right-to-use assets and lease liabilities that arise from short term leases, which are defined as leases with a lease term of 12 months or less at the lease commencement date.

Net Loss Per Share

Basic net loss per share is computed by dividing reported net loss by the weighted average number of common shares outstanding for the reported period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during the reporting period. Diluted net loss per share is computed by dividing net loss by the sum of the weighted average number of common shares and the number of potential dilutive common share equivalents outstanding during the period. Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share options and the incremental shares issuable upon conversion of the convertible notes. Potential dilutive common share equivalents consist of stock options, restricted stock units (“RSUs”), and performance stock units (“PSUs”).

Due to net losses for the years ended December 31, 2020, 2019, and 2018, basic and diluted net loss per share were the same as the effect of potentially dilutive securities would have been anti-dilutive.

Research and Development Costs

Research and development costs are expensed as incurred and were $17,846, $17,514 and $11,773 for the years ended December 31, 2020, 2019 and 2018, respectively.

Stock-Based Compensation

The Company measures all employee stock-based compensation awards using the fair value, including stock options, restricted stock, performance stock and stock purchases related to an employee stock purchase plan. The share-based compensation recognized under ASC 718 for years ended December 31, 2020, 2019 and 2018 was $8,470, $10,304, and $7,606, respectively.

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ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. The expense has been reduced for forfeitures as they occur.

The Company estimates the fair value of time-based options on the date of grant using the Black-Scholes option-pricing model (Black-Scholes model). The Company’s determination of fair value is affected by the Company’s stock price, as well as assumptions regarding several subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards.

The Company estimates the fair value of restricted stock based upon the grant date closing market price of the Company’s common stock.

The Company also has an employee stock purchase plan (ESPP) which is available to all eligible employees as defined by the plan document. Under the ESPP, shares of the Company’s common stock may be purchased at a discount. The Company estimates the number of shares to be purchased under the ESPP at the beginning of each purchase period based upon the fair value of the stock at the beginning of the purchase period using the Black-Scholes model and records estimated compensation expense during the period. Expense is adjusted at the time of stock purchase.

With respect to performance stock units (“PSUs”), the number of shares that vest and are issued to the recipient is based upon the Company’s performance as measured against specified targets over the measurement period. The fair value of the PSUs is based on the Company’s closing stock price on the grant date and its estimate of achieving such performance targets. For further discussion and disclosures, see Note 12 - Equity Compensation Plans.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management believes the critical accounting policies regarding revenue recognition, inventory and share-based employee compensation affect the Company's more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. Actual results could differ materially from those estimates.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”), Simplifying the Accounting for Income Taxes. This amendment simplifies the accounting for income taxes by removing certain exceptions to the general principles and improve consistent application or and simplify accordance with accounting principles generally accepted in the United States for other areas of Topic 740 by clarifying and amending existing guidance. This update is effective for annual and interim reporting periods beginning after December 15, 2020. Early adoption is permitted but requires simultaneous adoption of all provisions of ASU 2019-12. The Company does not expect this standard will have a material impact on the Company’s consolidated financial statements.

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs. The guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is not permitted. The Company is currently evaluating the impact the standard may have on the Company's consolidated financial statements and related disclosures.

Recently Adopted Accounting Pronouncements

On January 1, 2020, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for loans and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models previously used under U.S. generally accepted accounting principles, which generally require that a loss be incurred before it is recognized. The new standard also applies to financial assets arising from revenue transactions such as contract assets and accounts receivables. The adoption did not have a material impact on the Company's condensed consolidated financial statements.

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Credit losses for trade receivables is determined based on historical information, current information and reasonable and supportable forecasts. The Company has concluded that the adoption of the standard was not material as the composition of the trade receivables at the reporting date is consistent with that used in developing the historical credit-loss percentages. Further, the risk characteristics of the Company’s customer and composition of the portfolio have not changed significantly over time.

On January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurements (Topic 820) Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 changes the fair value measurement disclosure requirements of ASC 820, “Fair Value Measurement” by adding, eliminating, and modifying certain disclosure requirements. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.

On January 1, 2020, the Company adopted ASU No. 2018-15, Guidance on Cloud Computing Arrangements. ASU 2018-15 provides guidance on implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract and aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. More specifically, the ASU 2018-15 provides guidance on accounting for implementation, set-up and other upfront costs incurred in a CCA hosted by a vendor. As of January 1, 2020, this standard did not have a material impact on the Company’s consolidated financial statements.

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848). The ASU also establishes (1) a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and (2) certain elective hedge accounting expedients. The elective contract modification guidance in the ASU applies to “contracts or other transactions that reference [LIBOR] or a reference rate that is expected to be discontinued as a result of reference rate reform” (an “affected rate”). The optional amendments are effective for all entities as of March 12, 2020 through December 31, 2022. The Company adopted the guidance upon issuance on March 12, 2020. There was no impact on the Company's consolidated financial statements.

The Company’s management has reviewed and considered all other recent accounting pronouncements and believe there are none that could potentially have a material impact on the Company’s consolidated financial condition, results of operations, or disclosures.

Reclassifications

"Contract liabilities, current" of $14 were reported in the Company's consolidated balance sheets as of December 31, 2019 have been combined into "Accounts payable and accrued expenses" in the Company's consolidated balance sheets to conform with the presentation as of December 31, 2020.

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4.Inventory

Inventory is comprised of unprocessed tissue, work-in-process, Avance® Nerve Graft, Axoguard® Nerve Connector, Axoguard® Nerve Protector, Axoguard® Nerve Cap, Avive® Soft Tissue Membrane, Acroval® Neurosensory and Motor Testing System, Axotouch® Two-Point Discriminator and supplies and is valued at the lower of cost (first-in, first-out) or net realizable value and consist of the following:

The Company monitors the shelf life of its products and historical expiration and spoilage trends and writes-down inventory based on the estimated amount of inventory that may not be distributed before expiration or spoilage. For the years ended December 31, 2020, 2019 and 2018, the Company had recorded a provision for inventory write-downs of $2,242, $1,887 and $1,343, respectively, primarily relating to product expiration.

5.Fair Value Measurement

The Company has elected the FVO for all investments in debt securities. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for classification and disclosure of fair value measurements as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company classifies cash and investments in U.S. government securities as Level 1 within the fair value hierarchy. Accounts receivable, short-term other assets, accounts payable and accrued liabilities are also classified as Level 1. The carrying amounts of these assets and liabilities approximate their fair values due to their relatively short-term nature. Investments in corporate bonds and commercial paper are classified as Level 2 within the fair value hierarchy. The fair value of long-term debt is estimated by calculating the net present value of future debt payments at current market interest rates and is classified as Level 2.

On June 30, 2020, the Company entered into the Oberland Facility (see Note 10 - Long-Term Debt), concluding that the term debt instrument included certain embedded features that required separate accounting (the “Debt Derivative Liability”) and that the equity contract entered into concurrently was required to be classified as a liability and recorded at its fair value (the “Common Stock Derivative Option Liability”). These instruments were determined to be financial liabilities requiring Level 3 fair value measurements. The Common Stock Derivative Option Liability was physically settled on December 10, 2020 (see Note 10 - Long-Term Debt).

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The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2020:

(Level 1) (Level 2) (Level 3) Total

Assets:

Liabilities:

Debt derivative liability — — 2,497 2,497

(Level 1) (Level 2) (Level 3) Total

Assets:

U.S. government securities 4,544 — — 4,544

Oberland Facility

The Company estimates the fair value of long-term debt under the Oberland Facility using a discounted cash flow analysis and rates being offered for similar loans to borrowers with similar credit ratings. The discounted cash flow model uses unobservable inputs, including estimates of discount rates and loan prepayments. The Oberland Facility is classified as Level 3. The estimated fair value of the Company’s long-term debt under the Oberland facility was $36,855 at December 31, 2020 (see Note 10 - Long-Term Debt).

Debt Derivative Liability

The debt derivative liability was measured using a ‘with and without’ valuation model to compare the fair value of the Oberland Facility including the identified embedded derivative features and the fair value of a plain vanilla note with the same terms. The fair value of the Oberland Facility including the embedded derivative features was determined using a probability-weighted expected return model (“PWERM”) based on four potential settlement scenarios for the Oberland Facility due to a mandatory prepayment event between January 1, 2024 and June 30, 2027; (a) the prepayment of the Oberland Facility at the Company’s option; and (b) the repayment of the Oberland Facility at its maturity in accordance with the terms of the debt agreement. The estimated settlement value of each scenario, which would include any required make-whole payment (see Note 10 - Long-Term Debt) is then discounted to present value using a discount rate that is derived based on the initial terms of the Oberland Facility at issuance and corroborated utilizing a synthetic credit rating analysis. The significant inputs that are included in the valuation of the debt derivative liability include:

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Input

Remaining term (years) 6.5

Coupon rate 9.50%

Revenue participation payments Maximum each year

Discount rate 8.70 % 1

Probability of mandatory prepayment before 2024 5.0% 1

Estimated timing of mandatory prepayment event before 2024 December 31, 2023 1

Probability of mandatory prepayment 2024 or after 15.0% 1

Estimated timing of mandatory prepayment event 2024 or after March 31, 2026 1

Probability of optional prepayment event 5.0% 1

Estimated timing of optional prepayment event December 31, 2025 1

1 Represents a significant unobservable input

The following represents the rollforward of the fair value of instruments classified as Level 3 measurements for the year ended December 31, 2020:

Beginning Balance $ —

Fair Value of Oberland Facility 36,855

Fair Value of Derivative Feature 2,387

Fair Value of Oberland Option 176

Gains (losses) included in earnings 117

Settlement of Oberland Option (182)

There were no changes in the levels or methodology of the measurement of financial assets or liabilities during the year ended December 31, 2020 and December 31, 2019. The maturity date of all of the Company’s investments is less than one year.

6.Prepaid Expense and Other

Prepaid expense and other consist of the following:

Prepaid insurance $ 2,596 $ —

Stock option receivable 2 244

Litigation receivable 23 98

Prepaid software license 220 207

Prepaid professional fees 251 433

Prepaid Expense and Other $ 4,296 $ 1,706

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Our policy year for the Company's insurance runs on a calendar year and as such a significant portion of the policy payment is made at the beginning of the new year and amortized to expense throughout the remaining year. For the year ended December 31, 2020, the insurance premium was paid prior to year end, resulting in a prepaid balance of $2,596.

7.Property and Equipment

Property and equipment consist of the following:

Less: accumulated depreciation and amortization (4,825) (3,764)

Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $1,507, $933 and $774, respectively. The significant increase in projects in process is related to the Company's Axogen Processing Center (“APC”) facility (See Note 15 - Commitments and Contingencies).

On September 20, 2018, the Company entered into an agreement (the “Heights Agreement”) with Heights Union, LLC, a Florida limited liability company (“Heights Union”), for the lease of seventy-five thousand square feet of office and lab space (the “Heights Union Premises”) in Tampa, Florida (See Note 15 - Commitments and Contingencies). In May 2020, the Company entered into a construction escrow agreement (the “Escrow Agreement”) with Heights Union and Commonwealth Land Title Insurance Company (“Escrow Agent”) which provided for the establishment of a federally insured escrow bank account (the “Escrow Account”) to hold Company funds to be used for tenant improvements in excess of the tenant allowance as provided in the Heights Agreement. The Company deposited $6,289 into the Escrow Account for use in completing construction of the tenant improvements. The Escrow Agent will disburse the funds upon joint written instructions from Heights Union and the Company. During the year ended December 31, 2020, $5,447 was disbursed from the Escrow Account and recorded in property and equipment account of the balance sheet. The Company anticipates depleting the Escrow Account by the end of the first quarter of fiscal 2021. As of December 31, 2020, $842 remained in the Escrow Account and is recorded as restricted cash in the condensed consolidated balance sheet.

8.Intangible Assets

The Company’s intangible assets consist of the following:

Amortized intangible assets

Unamortized intangible assets

License agreements are being amortized over periods ranging from seventeen to twenty years. Patents are being amortized over periods up to twenty years. Amortization expense for 2020, 2019 and 2018 was approximately $153, $123 and $77,

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respectively. In January 2019, the Company rebranded its logo and product name designs, as a result the Company recorded a $104 impairment charge related to the previous logo and product design names. This charge is recorded in the “General and Administrative” in the Statement of Operations. As of December 31, 2020, future amortization of patents and license agreements are as follows:

Year Ending December 31,

License Agreements

The Company has entered into multiple license agreements with the University of Florida Research Foundation and the University of Texas at Austin (together, the “License Agreements”). Under the terms of the License Agreements, the Company acquired exclusive worldwide licenses for underlying technology used in repairing and regenerating nerves. The licensed technologies include the rights to issued patents and patents pending in the United States and international markets. The effective term of the License Agreements extends through the term of the related patents and the agreements may be terminated by the Company with 60 days prior written notice. Additionally, in the event of default, licensors may terminate an agreement if the Company fails to cure a breach after written notice. The License Agreements contain the key terms listed below:

•Axogen pays royalty fees ranging from 1% to 3% under the License Agreements based on net sales of licensed products. One of the agreements also contains a minimum royalty of $13 per quarter, which may include a credit in future quarters in the same calendar year for the amount the minimum royalty exceeds the royalty fees. Also, when Axogen pays royalties to more than one licensor for sales of the same product, a royalty stack cap applies, capping total royalties at 3.75%;

•If Axogen sublicenses technologies covered by the License Agreements to third parties, Axogen would pay a percentage of sublicense fees received from the third party to the licensor. Currently, Axogen does not sublicense any technologies covered by License Agreements. The Company is not considered a sub-licensee under the License Agreements and does not owe any sub-licensee fees for its own use of the technologies;

•Axogen reimburses the licensors for certain legal expenses incurred for patent prosecution and defense of the technologies covered by the License Agreements; and

•Currently, under the University of Texas at Austin’s agreement, Axogen would owe a $15 milestone fee upon receiving a Phase II Small Business Innovation Research or Phase II Small Business Technology Transfer grant involving the licensed technology. The Company has not received either grant and does not owe such a milestone fee. A milestone fee to the University of Florida Research Foundation of $2 is due if Axogen receives FDA approval of its Avance Nerve Graft, a milestone fee of $25 is due upon the first commercial use of certain licensed technology to provide services to manufacture products for third parties and a milestone fee of $10 is due upon the first use to manufacture products that utilize certain technology that is not currently incorporated into Axogen products.

Royalty fees were $2,289, $2,119 and $1,661 for the years ended December 31, 2020, 2019 and 2018, respectively, and are included in sales and marketing expense on the accompanying consolidated statements of operations.

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9.Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consists of the following:

Accounts Payable and Accrued Expenses $ 21,968 $ 19,144

10.Long-Term Debt

The carrying value of the Company's outstanding debt consists of the following:

Oberland Facility $ 35,000 $ —

Less - unamortized debt discount and deferred financing fees (2,973) —

Total long-term debt $ 32,027 $ —

Oberland Facility

On June 30, 2020, the Company entered into a seven year financing agreement with Oberland Capital (the “Oberland Facility”) and obtained the first tranche of $35,000 at closing. The Oberland Facility provides for a total of $75,000 through two additional tranches that can be drawn by December 31, 2021 and requires interest-only payments for the duration of the term. A second tranche of $15,000 may be drawn at the Company’s option upon achieving two consecutive quarters with revenue of at least $20,000. Such second tranche may also be put to the Company at any time by Oberland Capital. A third tranche of $25,000 may be drawn at the Company’s option upon achieving two consecutive quarters with revenue of $28,000. The financing costs for this facility are approximately $642 and will be recorded as a contra liability to the debt facility. As of December 31, 2020, the Company has paid all of the financing costs.

The Oberland Facility requires quarterly interest payments for seven years. Interest is calculated as 7.5% plus the greater of LIBOR or 2.0% (9.5% as of December 31, 2020). Each tranche of the Oberland Facility, if and when issued, will have a term of seven years from the date of issuance (with the first tranche issued on June 30, 2020 maturing on June 30, 2027). In connection with the Oberland Facility, the Company entered into a revenue participation agreement with Oberland Capital, which provides that, among other things, an additional quarterly royalty payment as a percentage of the Company’s net revenue, up to $70,000 in any given fiscal year, subject to certain limitations set forth therein, during the period commencing on the later of (i) April 1, 2021 and (ii) the date of funding of a tranche of the loan, and ending on the date upon which all amounts owed under the Oberland Facility have been paid in full (the “Revenue Participation Agreement”). Payments will commence on September 30, 2021. This royalty structure results in approximately 1.0% per year of additional interest payments on the outstanding loan amount. For the year ended December 31, 2020, the Company paid $1,941 of interest to Oberland for this debt facility. The Company capitalized approximately $997 of the interest towards the costs to construct and retrofit its Axogen Processing Center in Vandalia, OH (See Note 15 - Commitments and Contingencies). The capitalized interest is recorded as part of property and equipment in the consolidated balance sheet.

Additionally, Oberland Capital has the right to purchase up to $3,500 worth of Axogen common stock from Axogen in one transaction at any time after closing of the Oberland Facility until the later of (i) the date all amounts due under the Oberland Facility are repaid and (ii) June 30, 2027 (the “Oberland Option”). The purchase price of the common stock will be calculated based on the 45-day moving average of the closing stock price on the day prior to the purchase. On December 10, 2020, Oberland Capital exercised in full its option under the Oberland Option. The exercise price was determined to be $14.13, resulting in gross proceeds to the Company of approximately $3.5 million for the issuance of 247,699 shares to TPC Investments II LP, a wholly owned subsidiary of Oberland Capital. In conjunction with the issuance, Oberland Capital received certain protective rights (including protection from down-round stock issuances) for a period of one year subsequent to the issuance.

The amounts outstanding under the Oberland Facility may be accelerated upon certain events, including: (a) required mandatory prepayments upon an asset sale; (b) in the event Axogen is subject to (i) any litigation brought by a Governmental Authority (as defined in the Oberland Facility) including intervention after litigation is commenced by a Person (as defined in the Oberland Facility ), or (ii) any final administrative action by a Governmental Authority, in each case arising out of or in

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connection with any of the Company’s registry studies, payments made to doctors or training activities with respect to healthcare professionals (excluding certain final administrative action that have been fully and finally resolved by the parties pursuant to a settlement agreement) or (c) upon the occurrence of an event of default (either automatically or at the option of Oberland Capital depending on the nature of the event). In addition, the Company has the right to prepay any amounts outstanding under the Oberland Facility. Upon maturity or upon such earlier repayment of the Oberland Facility, the Company will repay the principal balance and provide a make-whole payment calculated to generate an internal rate of return (“IRR”) to Oberland Capital of at least 11.5%, less the total of all quarterly interest and royalty payments previously paid to Oberland Capital.

Upon the occurrence of an event of default, the interest rate incurred on amounts outstanding under the Oberland Facility will be increased by 4%. The Oberland Facility includes a financial covenant requiring the Company to achieve revenue targets of $8,750 for the third and four quarters of 2020, $17,500 for the first and second quarter of 2021 and $20,000 for each quarter thereafter. In the event of a failure to meet such covenant the Company may avoid a default by electing to be subject to a liquidity covenant and meeting all of the obligations required by such covenant. Specifically, the liquidity covenant provides that the Company must maintain on deposit in a cash collateral account an amount not less than 1.1 times the aggregate outstanding principal balance of all outstanding loan amounts. The borrowings under the Oberland Facility are secured by substantially all of the assets of the Company. As of December 31, 2020, the Company was in compliance with the all covenants.

Accounting Considerations

The Company assessed the accounting impact of the Oberland Facility and the related agreements entered into with Oberland Capital. The Company concluded that the Oberland Facility and the Revenue Participation Agreement should be assessed on a combined unit of account basis (with the Revenue Participation Agreement being considered as an embedded feature with the Oberland Facility), and that the Oberland Option should be considered as a separate freestanding instrument for analysis purposes.

In relation to the Oberland Facility and Revenue Participation Agreement, the Company assessed the identified embedded features to determine if they would require separate accounting. In performing this assessment, the Company concluded the following embedded features met the definition of a derivative and would not be considered clearly and closely related to the debt instrument, requiring separate accounting as bifurcated derivatives:

•Mandatory prepayments upon an asset sale or litigation involving the government, including the make-whole payment (put rights)

•Optional or automatic prepayment upon an event of default (put rights)

•Payments under the Revenue Participation Agreement (contingent interest feature)

•Additional interest upon events of default (contingent interest feature)

The Company considered these separable embedded features on a combined basis as a single derivative feature. The Company estimated the fair value of these features as $2,387 as of the date of issuance of the Oberland Facility (see Note 5 - Fair Value Measurement) and recorded this value as a deduction to the carrying value of the Oberland Facility.

In relation to the Oberland Option, the Company concluded that the equity contract met the definition of a derivative and did not qualify for an exception from derivative accounting. As such, the Company concluded that the Oberland Option should be classified as a liability. The Company estimated the fair value of the Oberland Option as $176 as of the date of issuance of the Oberland Facility and recorded this value as a deduction to the carrying value of the Oberland Facility. As previously discussed, the Oberland Option was physically settled on December 10, 2020.

Other Long-Term Debt

On April 23, 2020, the Company received a Small Business Administration (“SBA”) loan under the Paycheck Protection Program (“PPP”) in the amount of $7,820. The loan was obtained pursuant to the original guidance of the SBA to preserve positions in the Company by providing necessary economic relief during this period of reduced surgical procedures because of the negative business effects of COVID-19. The Company believed it correctly applied for the loan, met the initial intent of the PPP program to preserve jobs and believed it complied with the representations provided in the loan documents. However, subsequent to obtaining the loan, the United States Treasury Department issued guidance, which the Company believes contradicts the original intent and language of the PPP, providing that public companies are unlikely to be able to meet the standards for receiving the PPP loan. As a result of this change, the Company believed it was in its best business interests to repay the loan and did so on May 5, 2020.

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11.Public Offering of Common Stock

Axogen, Inc. Classes of Stock

Axogen, Inc.’s authorized capital stock consists of 100,000,000 shares of common stock, par value $0.01 per share. The authorized capital stock is divisible into the classes and series, has the designation, voting rights, and other rights and preferences and is subject to the restrictions that the Axogen Board of Directors may establish from time to time. Unless otherwise designated by the Axogen Board of Directors, all shares are common stock. Axogen has not designated any shares other than common stock.

12. Equity Compensation Plans

The Company maintains two share-based incentive plans: the Axogen 2017 Stock Incentive Plan, as amended (“2017 Plan”), and the Axogen 2017 Employee Stock Purchase Plan (“2017 ESPP”).

Overview of Equity Incentive Plans

At the 2019 Annual Meeting of Shareholders held on August 14, 2019, the shareholders approved the Axogen 2019 Long-Term Incentive Plan (the “New Axogen Plan”), which allows for issuance of incentive stock options, non-qualified stock options, performance stock units (“PSUs”) and restricted stock units (“RSUs”) to employees, directors and consultants at exercise prices not less than the fair market value at the date of grant. The number of shares of common stock authorized for issuance under the New Axogen Plan is (A) 3,385,482 shares, comprised of (i) 3,000,000 new authorized shares and (ii) 385,482 unallocated shares of common stock available for issuance as of August 14, 2019 pursuant to the Company’s 2010 Stock Incentive Plan, as amended and restated (the “Prior Axogen Plan”), that were not then subject to outstanding awards; plus (B) shares under the Prior Axogen Plan and the New Axogen Plan that are cancelled, forfeited, expired, unearned or settled in cash, in any such case that does not result in the issuance of common stock. Following shareholder approval of the New Axogen Plan, no future awards will be made under the Prior Axogen Plan. As of December 31, 2020, 1,793,090 shares of common stock were available for issuance under the New Axogen Plan.

The Company recognized stock-based compensation expense, which consisted of compensation expense related to employee stock options, PSUs, RSUs and the 2017 ESPP based on the value of share-based payment awards that are ultimately expected to vest during the period, of approximately $8,470, $10,304 and $7,606 for the fiscal year ended December 31, 2020, 2019, and 2018, respectively.

As of December 31, 2020, there was $16,568 of unrecognized compensation costs related to non-vested stock options and restricted stock awards. This cost is expected to be recognized over a weighted-average period of 2.11 years for stock options and 2.23 years for restricted stock awards.

Based on the assumptions noted above, the weighted average estimated grant date fair value per share of the stock options and restricted stock granted for the years ended December 31, 2020, 2019 and 2018, respectively, was as follows:

Stock Options

The options granted to employees prior to July 1, 2017 typically vest 25% one year after the grant date and 12.50% every six months thereafter for the remaining three years period until fully vested after four years. The options granted to employees after July 1, 2017 typically vest 50% two years after the grant date and 12.5% every six months thereafter for the remaining two years period until fully vested after four years. The options granted to directors and certain options granted from time to time to certain executive officers have vested ratably over three years, 25% per quarter over one year or had no vesting period. Options typically have terms ranging from seven to ten years.

The Company estimates the fair value of each option award issued under such plans on the date of grant using a Black-Scholes option-pricing model which uses a weighted average of historical volatility and peer company volatility. The Company determines the expected life of each award giving consideration to the contractual terms, vesting schedules and post-vesting forfeitures. The Company uses the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award.

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Activity under the Prior Axogen Plan and the New Axogen Plan during 2020 and 2019 was as follows:

The exercise price per share of each option is equal to the fair market value of the underlying share on the date of grant. For 2020, 2019 and 2018, $3,300, $4,002 and $3,884, respectively, in cash proceeds were included in the Company’s Consolidated Statements of Cash Flows as a result of the exercise of stock options. The intrinsic value of equity awards exercised during the years ended December 31, 2020, 2019 and 2018 was $5,595, $9,553 and $34,229, respectively.

The following weighted-average assumptions were used for stock options granted during the year ended December 31:

Expected dividends — % — % — %

Restricted and Performance Stock Units

Performance stock units generally have a requisite service period of three years and are subject to graded vesting conditions based on revenue goals of the Company. The Company expenses their fair value over the requisite service period. Restricted stock units have a requisite service period of four years. The Company expenses the fair value of restricted stock awards on a straight-line basis over the requisite service period.

A summary of the Company's RSU and PSU award activity for the fiscal year ended December 31, 2020 is as follows:

100

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Outstanding Stock Units

The total fair value of restricted stock vested during 2020, 2019 and 2018 was $3,811, $1,467 and $196. The Company issues registered shares of common stock to satisfy stock option exercises and restricted stock grants.

Performance Stock Units

The Company estimates the fair value of the PSUs based on its closing stock price at the time of grant and its estimate of achieving such performance target and records compensation expense as the milestones are achieved. Over the performance period, the number of shares of common stock that will ultimately vest and be issued and the related compensation expense will be adjusted based upon the Company’s estimate of achieving such performance target. The number of shares delivered to recipients and the related compensation cost recognized as an expense will be based on the actual performance metrics as set forth in the applicable PSU award agreement. The amount actually awarded will be based upon achievement of the performance measures

On December 27, 2018 and December 17, 2019, the Compensation Committee of the Board of Directors also approved PSU awards to certain employees related to their work on the Company’s Biologics License Application "BLA". The PSU awards consist of a targeted total award of 200,000 shares. The number of shares are allocated to certain milestones related to the BLA submission to and approval by the FDA. The performance measure is based upon achieving each of the specific milestones and will vest 50% upon achieving each of the milestones and 50% one year later. In February 2020, the Company issued PSUs relating to the 2017 grant with performance metrics tied to 2019 revenue. The award was issued at 72.3% of achievement and therefore, 27.7% of the stock compensation, or $536 relating to this grant was forfeited or reversed in the first quarter 2020. In addition, as a result of COVID-19 and the expected decline in revenue for 2020, it was determined that the 2018 PSU grant with performance metrics tied to 2020 revenue would not be awarded and therefore stock compensation related to these grants of $1,161 was reversed.

On February 21, 2020, the Compensation Committee of the Board of Directors approved PSUs that were tied to 2021 revenue. The 2020 PSU award consists of a targeted award of 348,000 shares. In June 2020, the Company concluded that the performance metrics relating to the 2020 PSU grant with performance metrics tied to 2021 revenue were no longer probable and therefore stock compensation related to these grants of $340 was also reversed. On July 17, 2020, the Compensation Committee of the Board of Directors approved PSU awards of 144,300. The July 2020 PSU award consists of a targeted award of 114,300 shares. These awards were granted in mid year with certain revenue targets adjusted for the impact of COVID-19. Based on the fiscal 2020 fourth quarter revenue results, it became probable that the Company would achieve 50% of the revenue target for the 2020 PSUs, granted in March. The 2020 PSUs granted in July reached 110% achievement of revenue targets.

The fair value of the common stock on the grant date was $12.00 on July 17, 2020, $8.61 on March 16, 2020, $16.88 on December 17, 2019, and $19.17 on December 27, 2018. The total unrecognized future compensation expense related to PSUs, assuming achievement of 100% of the target award is $7,521. Assuming the minimum of 0% and the maximum of 150% payout opportunity for the PSU, the range of total future compensation expense related to PSU awards is between $0 and $7,521 as of December 31, 2020.

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Employee Stock Purchase Plan

The 2017 Employee Stock Purchase Plan (the "ESPP"), which was effective as of January 1, 2018, allows for eligible employees to acquire shares of Axogen common stock through payroll deductions at a discount from market value (currently 15%) of the lesser of the closing price of the Company’s common stock on the first day or last day of the offering period. The offering period is currently six months, and the offering prices are subject to change. Participants may not purchase more than $25 of the Company’s common stock in a calendar year. As of December 31, 2020 , there were 600,000 shares of common stock authorized for issuance under the 2017 ESPP and 323,913 were available for future issuance.

13. Income Taxes

The Company has temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and their respective income tax basis, as measured by enacted state and federal rates as follows:

Deferred tax assets:

Amortization — — —

Deferred tax liabilities:

Depreciation (1,145) — —

Contract liabilities (4) (7) (15)

The difference between the financial statement income tax and the income tax benefit using statutory rates is primarily due to the increase in the valuation allowance.

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2020 and 2019:

Year Ended December 31,

State Taxes - Net of Federal Benefit 7.3 4.1

Permanent items and other deductions (0.6) (4.3)

Valuation allowance (27.7) (20.8)

Effective income tax rate — % — %

As of December 31, 2020 and 2019, management assessed the realizability of deferred tax assets. Management evaluated the need for an amount of any valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, Income Taxes, wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company’s deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more likely than not (a probability

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level of more than 50%) that the Company may not realize the benefit of its deferred tax assets. In assessing the realization of the Company’s deferred tax assets, the Company considers all available evidence, both positive and negative.

In concluding on the evaluation, management placed significant emphasis on guidance in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.” Based upon available evidence, it was concluded on a more-likely-than-not basis that all deferred tax assets were not realizable as of December 31, 2020. The valuation allowance increased by $6,585 and $6,056 during 2020 and 2019, respectively, primarily as a result of current year increase in the net operating loss carry forward. During 2018, the valuation allowance decreased by $5,519, primarily due to the remeasurement of the Company’s deferred tax assets and liabilities as a result of the Tax Reform enacted on December 22, 2017.

As of December 31, 2020, the Company had tax-effected net operating loss carry forwards of approximately $42,317 to offset future taxable income which expire in various years through 2040. Federal net operating losses incurred in tax years beginning on or after January 1, 2018 are carried forward indefinitely. A portion of the net operating loss carry forwards may expire due to limitations imposed by section 382 of the Internal Revenue Code.

The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business the Company is subject to examination by taxing authorities throughout the country. These audits could include examining the timing and amount of deductions, the allocation of income among various tax jurisdictions and compliance with federal, state and local laws. The Company’s tax years since 2017 remain subject to examination by federal, state and foreign tax authorities.

The Company adopted Accounting Standards Codification (“ASC”) Topic 842 – Leases, on January 1, 2019. Under Topic 842, the Company is required to recognize the assets and liabilities that arise from most operating leases on the balance sheet. Upon adoption, no change in retained earnings was recorded related to income taxes as the Company maintains a full valuation allowance. As of the implementation date, an adjustment of $951 was recorded as a deferred tax liability and an adjustment of $961 was recorded as a deferred tax asset. See above for more information about the non-income tax impact of the adoption of the new leasing standard.

Legislation enacted in 2018, informally titled the Tax Cuts and Jobs Act of 2017, subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only.The Company has elected to account for GILTI in the year the tax is incurred.

The Company had no income tax expense or income tax benefit for 2018, 2019 and 2020 due to incurrence of net operating losses. The Company does not believe there are any additional tax refund opportunities currently available.

14. Employee Benefit Plan

The Company sponsors the Axogen 401(k) plan (the 401(k) Plan), a defined contribution plan covering substantially all employees of the Company. All full-time employees who have attained the age of 21 are eligible to participate in the 401(k) Plan. Eligibility is immediate upon employment and enrollment is available any time during employment. Participating employees may make annual pretax contributions to their accounts up to a maximum amount as limited by law. The 401(k) Plan requires the Company to make matching contributions of 3% on the first 3% of the employee’s annual salary and 1% of the next 2% of the employee’s annual salary as long as the employee participates in the 401(k) Plan. Both employee contributions and Company contributions vest immediately. The Company contributed $1,141, $988 and $650 in matching funds during the years ended December 31, 2020, 2019 and 2018, respectively.

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15. Commitments and Contingencies

Leases

The Company leases office space, medical lab and research space, a distribution center, a tissue processing center and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Certain of the leases include options for the Company to extend the lease term. None of the options were reasonably certain of exercise and therefore are not included in the measure of lease obligations and right-to-use assets.

Certain of the Company's lease agreements include provisions for the Company to reimburse the lessor for common area maintenance, real estate taxes, and insurance, which the Company accounts for as variable lease costs. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company and Heights Union are parties to the Heights Agreement for the lease of seventy-five thousand square feet of office space in Tampa, Florida. Pursuant to the Heights Agreement, the Company will use the leased premises for general office, medical laboratory, training and meeting purposes. In September 2020, the Company began occupying the space. The lease includes a $5,250 lessor allowance to be used towards the hard and soft costs of the tenant improvements. The Company will bear the cost of any tenant improvement in excess of this allowance. Total costs of the tenant improvements were approximately $11,450. The Company concluded that it is the accounting owner of the tenant improvements. The lessor’s allowance of $5,250 for the construction of tenant improvements will be treated as an incentive. As the Company is the accounting owner of the improvements, the lease incentive is accounted for as a reduction of the right-of-use asset and the total cost of the improvements of $11,539 is recognized on the balance sheet separate from the right-of-use asset as leasehold improvements. The improvements will be amortized over the life of the lease, which was determined to be the shorter of the useful life of the improvements or the lease term. The Company determined the commencement date of the lease was August 28, 2020 and valued the lease using a 10.6% incremental borrowing rate. The Company recorded a right-of-use asset of $13,323 and lease liability of $18,573 for the new office lease as of the commencement date.

The components of total lease expense for the year ended December 31, 2020 were as follows:

For the Fiscal Year Ended For the fiscal years ended December 31,

Finance lease costs

Amortization of right-to-use assets $ 22 $ 22

Interest on lease liabilities 3 4

Short term lease costs 116 41

Variable lease costs 18 17

The short-term lease cost shown above reasonably reflects the Company’s ongoing short-term lease commitment.

Supplemental balance sheet information related to leases as of December 31, 2020 was as follows:

Operating Leases

Operating lease right-of-use assets $ 15,614 $ 3,133

Current maturities of long-term obligations $ 846 $ 1,719

Finance Leases

Finance lease right-of-use assets $ 64 $ 87

Current maturities of long-term obligations $ 17 $ 17

Long term obligations $ 13 $ 30

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Other information related to leases was as follows:

Weighted-average remaining lease term - finance leases 2 3

Weighted-average remaining lease term - operating leases 12 2

Weighted-average discount rate - finance leases 7.28 % 7.28 %

Weighted-average discount rate - operating leases 9.44 % 6.28 %

The weighted-average discount rate for the majority of the Company’s leases is based on the Company’s estimated incremental borrowing rate since the rates implicit in the leases were not determinable. The Company’s incremental borrowing rate is based on Management’s estimate of the rate of interest the Company would have to pay to borrow on a fully collateralized basis over a similar term an amount equal to the lease payments.

Future minimum lease payments under non-cancellable leases as of December 31, 2020 were as follows:

Year Ending December 31, OperatingLeases FinanceLeases

Total Future Minimum Lease Payments $ 41,279 $ 32

Less future payments for leases that have not yet commenced — —

Less imputed interest on commenced leases (19,573) (2)

Service Agreements

On August 6, 2015, the Company entered into a License and Services Agreement (the “CTS Agreement”) with Community Blood Center (d/b/a Community Tissue Services) (“CTS”), Dayton, Ohio, an FDA registered tissue establishment. Processing of the Avance Nerve Graft pursuant to the CTS Agreement began in February 2016. The CTS Agreement initially had a five-year term ending August 31, 2020. On February 22, 2019, the agreement was amended to extend the term through December 31, 2021 and then on April 22, 2020 was further amended to extend the term through December 31, 2022 and provides the Company the right to terminate the agreement after February 28, 2022, with six-months advance written notice. Under the CTS Agreement, the Company pays CTS a facility fee for use of clean room/manufacturing, storage and office space, which the Company accounts for as an embedded lease in accordance with ASC 842, “Leases”. The Company also pays CTS for services in support of its manufacturing process such as for routine sterilization of daily supplies, providing disposable supplies, microbial services and office support. Pursuant to the CTS Agreement, Axogen pays license fees and the operating lease amounts, on a monthly basis to CTS which total an annual amount of approximately $1,739, $2,148 and $1,931 for the years ended December 31, 2020, 2019 and 2018, respectively. The CTS Agreement was amended on February 22, 2021 (see further discussion in Note 17 - Subsequent Events.)

In December 2011, the Company entered into a Master Services Agreement for Clinical Research and Related Services. The Company was required to pay $151 upon execution of this agreement and the remainder monthly based on activities associated with the execution of Axogen’s phase 3 pivotal clinical trial to support BLA for Avance Nerve Graft. In September 2019, the Company entered into an amendment to this agreement. The amendment extends the end of the study timeline from December 2019 to December 2021. It also increases the total number of subjects enrolled and the number of sites used in the studies. Payments made under this agreement were $1,136 and $1,056 for the years ended December 31, 2020 and 2019, respectively.

In August 2008, the Company entered into an agreement with Cook Biotech to distribute the Axoguard products worldwide in the field of peripheral nerve repair, and the parties subsequently amended the agreement on February 26, 2018. Pursuant to

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the February 2018 amendment, the agreement expires on June 30, 2027. The Cook Biotech agreement requires certain minimum purchases, although, through mutual agreement, the parties have not established such minimums; and, to date, have not enforced such provision, and establishes a formula for the transfer cost of the Axoguard products. Under the agreement, Axogen provides purchase orders to Cook Biotech, and Cook Biotech fulfills the purchase orders.

AXGN US Equity

AXGN · 10-K · period ended 2020-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AXGN US Equity☆

AXGN · 10-K · period ended 2020-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

AXGN US Equity