Axogen, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited consolidated results. Axogen develops and sells peripheral nerve repair products, principally in the U.S.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $41.3 | $37.0 | $116.1 | $102.4 |
| Gross profit / margin | $33.2 / 80.5% | $30.8 / 83.3% | $94.1 / 81.1% | $84.4 / 82.4% |
| Operating loss | $(4.0) | $(4.9) | $(18.3) | $(24.1) |
| Net loss | $(4.1) | $(4.3) | $(17.8) | $(23.5) |
| Loss per share, basic and diluted | $(0.10) | $(0.10) | $(0.42) | $(0.56) |
- Q3 revenue increased 11.7%; management attributed growth to 8% higher unit volume and 3.5% higher prices. Nine-month revenue rose 13%, reflecting 8% volume growth, 4% pricing and 2% product mix.
- Q3 gross margin fell 2.8 percentage points year over year; cost of goods sold rose faster than revenue. Operating expenses rose 5% in Q3, while the operating loss narrowed. Nine-month operating expenses rose 4% and the operating loss narrowed.
- Cash used in operations was $5.5 for the first nine months, versus $17.4 in the prior-year period. Capital expenditures were $12.4. Cash, cash equivalents and investments totaled $32.6 at September 30; restricted cash of $6.0 is separate. Working capital was $60.8 and the current ratio was 3.3x.
- Long-term debt was $50.0 principal outstanding ($46.4 carrying value, net of discount and fees); the debt derivative liability was $3.9. Cash and investments declined $16.2 from year-end 2022. Management believes available liquidity and product-sale proceeds will fund operations for at least 12 months.
- Total assets were $194.6 and total shareholders’ equity was $97.8 at quarter-end. No income tax expense or benefit was recorded because net operating losses are fully reserved.
Business developments, outlook and risks
- Active accounts reached 1,016, up 6.7% year over year; 372 core accounts were up 12%. Management estimates Scheduled procedures were about half of nine-month revenue and grew about 20% year over year; Emergent procedures also represented about half and grew in the mid-single digits. These are estimates based on limited customer and representative data.
- Axogen began processing tissue at its new APC facility in August 2023, after validation was completed. The facility is designed for up to three times current capacity. The company continues to use Community Tissue Services (CTS), expects reduced CTS use for Avance during the remainder of 2023, and expects to continue CTS use for Avive+ beyond 2023.
- Management expects to launch Avive+ Soft Tissue Matrix in Q1 2024 and does not intend to pursue regulatory approval or relaunch the previously suspended Avive product. The company expects a Pre-BLA meeting with FDA in Q1 2024, plans to request rolling submission for an Avance Nerve Graft BLA, expects to complete submission in Q2 2024 and anticipates potential approval in the first half of 2025. These milestones are forward-looking and subject to FDA decisions.
- The credit facility bears interest at 7.5% plus the greater of Adjusted SOFR or 2.0% (12.84% at quarter-end), plus revenue participation payments equivalent to approximately 1% annually. A 100-basis-point rate increase would add about $0.5 million to annual interest expense. The company reported compliance with financial covenants.
- Unusual debt contingency: Axogen and its lender may interpret the credit facility’s make-whole calculation differently. Axogen estimates the payment would be approximately zero at scheduled maturity under its interpretation; under the lender’s alternative interpretation, the estimated amounts could be up to approximately $8 million for the first tranche and $4 million for the second, and higher if prepaid early.
- Risk disclosures emphasize economic uncertainty, inflation, supply-chain and labor pressures, cybersecurity and data-protection exposure, dependence on processing facilities, and regulatory uncertainty for products intended to be regulated under Section 361. The company also disclosed ordinary-course legal matters, which management does not expect to have a material adverse effect, while noting outcomes cannot be assured.
Important facts for investors to verify
- Whether revenue growth can continue while gross margins recover from the year-over-year decline.
- Progress, cost and capacity ramp at APC, and the continued availability of CTS processing services.
- FDA feedback and actual timing and requirements for Avive+, the Avance BLA and the anticipated rolling submission.
- The lender’s interpretation and potential financial impact of make-whole payments, and the facility’s variable-rate interest burden.
- Whether liquidity and operating cash use remain consistent with management’s stated 12-month funding expectation.
- Whether estimated Scheduled/Emergent revenue mix and account growth are supported by reported results; these application-level figures are estimates, not separately reported revenue.