Nuwellis, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022. Financial statement amounts are in thousands of dollars, except per-share data and where otherwise noted.
Business context
Nuwellis develops and commercializes the Aquadex ultrafiltration system and related products for patients with fluid overload. Revenue primarily comes from disposable filters and catheters used with the system. The company sells mainly to U.S. hospitals and clinics through a direct salesforce, and internationally through distributors.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Net sales | $1.826 million | $1.926 million; down 5.2% |
| Gross profit / margin | $1.067 million / 58.4% | $1.102 million / 57.2% |
| Operating expenses | $6.918 million | $5.518 million |
| Operating loss | $5.851 million | $4.416 million |
| Net loss | $6.485 million | $4.473 million |
| Basic and diluted loss per share | $5.76 | $42.45 |
| Net cash used in operating activities | $6.106 million | $4.827 million |
Cash and cash equivalents were $11.515 million at March 31, down from $17.737 million at year-end. Marketable securities were $575,000. Current assets were $16.610 million and current liabilities were $4.107 million. Total liabilities were $4.815 million, including operating and finance lease liabilities; the filing reports no material capital-expenditure commitments. The company reported an accumulated deficit of $273.9 million.
Material changes and unusual items
- Sales declined by $100,000. Management attributed the decrease to lower utilization in top accounts and lower order volume from pediatric customers.
- Gross margin improved, which management attributed primarily to higher selling prices and, to a lesser extent, favorable product and geographic mix.
- SG&A rose 24.4% to $5.490 million, primarily due to staffing and professional fees, including consulting, marketing, audit and ATM-offering costs. R&D rose 29.1% to $1.428 million, mainly for development of a pediatric-specific device.
- The October 2022 offering warrants were approved for exercise in January 2023, reclassified from liability to equity, and 660,046 were exercised for common shares through March 31 with no cash proceeds. The quarter included a $755,000 expense from the change in warrant fair value before reclassification. Common shares outstanding rose from 536,394 at December 31 to 1,206,932 at March 31.
- Investing cash outflows were $98,000, including $85,000 of additions to intangible assets and $13,000 of property and equipment purchases. Financing cash outflows were $11,000.
Outlook, risks and contingencies
- Management expects continued losses and states that substantial doubt exists about the company’s ability to continue as a going concern through the next 12 months. It believes existing capital resources will support its operating plan through December 31, 2023, but says additional funding may be needed and cannot be assured.
- A March 2023 at-the-market program permits sales of up to $10.0 million of shares; the sales agent is entitled to a 3% commission. The filing text does not provide a clear value for shares sold under the program during the quarter.
- Key execution risks include raising capital, growing adoption and market acceptance, hospital staff training, sales and distribution, product development, and regulatory approval. Management said the direct operational and financial effects of COVID-19 had diminished, while potential downstream effects remained uncertain.
- The company recorded $71,360 payable under its technology collaboration with Koronis Biomedical; the $428,160 license fee had been expensed in 2021. The company reported no current legal proceedings and no material changes to previously disclosed risk factors.
- No formal revenue or earnings guidance is provided. Management expects near-term losses while investing in sales and marketing, inventory, manufacturing, clinical research and product development.
Important facts for investors to verify
- Cash burn, available financing and the company’s stated runway, including any subsequent use of the ATM program.
- Sales trends in top accounts and pediatric customers, and whether increased selling prices and product mix can sustain gross-margin improvement.
- Share-count changes and potential dilution from outstanding warrants, preferred stock and stock-based awards; verify the terms and status of the warrant exercises.
- Progress, costs and regulatory status of the pediatric device development and the Koronis collaboration.
- Customer concentration: two customers accounted for 14% and 13% of Q1 sales; three customers represented 17%, 11% and 10% of receivables at quarter-end.