Nuwellis, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Nuwellis develops and commercializes the Aquadex ultrafiltration system for patients with fluid overload. Financial amounts below are in U.S. dollars; “million” is abbreviated as “m.”
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $2.065m | $1.853m | $6.204m | $6.279m |
| Gross profit | $1.259m | $1.120m | $3.424m | $3.597m |
| Gross margin | 61.0% | 60.4% | 55.2% | 57.3% |
| Operating expenses | $5.179m | $6.371m | $16.061m | $18.792m |
| Operating loss | $(3.920)m | $(5.251)m | $(12.637)m | $(15.195)m |
| Net loss | $(3.870)m | $(5.272)m | $(12.629)m | $(15.224)m |
| Loss per share, basic and diluted | $(0.37) | $(0.75) | $(1.20) | $(2.72) |
- Q3 sales rose 11.4%, primarily from increased console shipments, partly offset by lower U.S. circuit sales. Nine-month sales fell 1.2%, as lower circuit sales more than offset console growth.
- Q3 selling, general and administrative expense declined 8.5%, and research and development expense declined 46.2%. The company attributed reductions to cost controls, unfilled positions, timing of product investment, and a prior-year technology license fee.
- Nine-month cost of goods sold increased 3.7%; the company cited lower fixed-overhead absorption and a $97,000 inventory write-off related to discontinuing a distribution agreement.
- Cash and cash equivalents were $12.053m at September 30, down from $24.205m at December 31, 2021. Nine-month operating cash use was $12.022m; investing cash use was $0.103m, and financing cash use was $0.028m.
- Current assets were $16.440m and current liabilities $3.611m at quarter-end. Total liabilities were $4.421m, including operating and finance lease obligations; the filing reports no material capital-expenditure commitments. No material interest-bearing borrowings are shown on the balance sheet.
Changes, outlook and risks
- Management said existing capital resources were expected to support its operating plan through December 31, 2023, but also stated that it expects continued losses, will require additional funding to grow, and cannot assure that financing will be available or that it will achieve profitability. The company had an accumulated deficit of $265.5m.
- After quarter-end, on October 18, 2022, Nuwellis completed an offering with approximately $11.0m gross and $9.8m net proceeds. It issued 20,994,044 common shares and 23,157,124 Series I preferred shares, along with warrants. Warrant exercise depends on a reverse split and stockholder and Nasdaq approvals; the securities create substantial potential dilution.
- The filing reports 10,537,606 common shares outstanding on the September 30 balance sheet, while 31,531,650 were outstanding on November 4 following the October offering. The company also sought approval for a 1-for-50 to 1-for-100 reverse split and authorization to issue up to 66,226,752 shares upon exercise of offering warrants.
- Nasdaq had notified the company that its share price failed the $1.00 minimum-bid requirement. The initial cure period was set to expire November 28, 2022; the company intended to seek an additional compliance period if eligible. Delisting could impair trading liquidity and access to capital.
- Management described continuing COVID-19-related uncertainty affecting hospital access, sales practices, demand, operations, supply chain and capital-market access. It also noted that customer concentration exists: one customer represented 19% of accounts receivable at quarter-end.
- The filing states that disclosure controls were effective as of September 30, 2022, with no material quarterly change in internal control over financial reporting. It reports no current legal proceedings.
Key facts for investors to verify
- Cash runway and future financing needs, including whether management’s stated runway through year-end 2023 remains achievable.
- Actual post-offering share count, preferred-stock conversion and warrant terms, dilution exposure, and required stockholder approvals.
- Nasdaq bid-price compliance, any extension, and the status and terms of the proposed reverse split.
- Whether sales growth can be sustained and whether console sales can offset weakness in recurring circuit sales; monitor gross margin and inventory write-offs.
- Effects of hospital access, customer concentration, supply-chain conditions and other COVID-19-related disruptions on demand and operations.