CHF Solutions, Inc. (now Nuwellis, Inc.) — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. The filing entity is CHF Solutions, Inc.; it commercializes the Aquadex System, an ultrafiltration medical device for patients with fluid overload. Unless stated otherwise, financial figures are in millions of dollars.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net sales | $1.904 | $1.252 | $5.397 | $4.144 |
| Gross profit / gross margin | $0.878 / 46.1% | $0.712 / 56.9% | $2.911 / 53.9% | $2.157 / 52.1% |
| Operating loss | $(4.257) | $(4.507) | $(12.743) | $(13.660) |
| Net loss | $(4.260) | $(4.509) | $(12.750) | $(13.666) |
| Basic and diluted loss per share | $(2.08) | $(51.12) | $(11.27) | $(284.70) |
Per-share amounts and share counts were retroactively adjusted for the subsequent 1-for-30 reverse split. Loss per share also reflects preferred-stock deemed dividends for the nine-month periods: $1.8 million in 2020 and $4.5 million in 2019.
- Q3 sales grew 52.1%; nine-month sales grew 30.2%. Management attributed growth to commercial expansion, including additional sales and clinical personnel and new geographies.
- Q3 gross margin declined year over year, which management attributed to a higher mix of capital-equipment and international distributor sales and sales incentives. Nine-month gross margin improved modestly, reflecting volume and manufacturing efficiencies, partly offset by incentives.
- Q3 SG&A was $4.264 million, up 3.8%; R&D was $0.871 million, down 21.7%. Nine-month SG&A increased 7.7% to $13.034 million; R&D decreased 29.6% to $2.620 million.
- Nine-month operating cash use was $13.163 million, versus $12.337 million in 2019. Investing cash use was $0.207 million; financing provided $30.050 million, principally from equity offerings and warrant exercises.
Financial position and liquidity
- At September 30, cash and cash equivalents were $17.947 million, compared with $1.279 million at December 31, 2019. Current assets were $22.151 million and current liabilities $3.223 million.
- Total liabilities were $3.391 million, including operating- and finance-lease liabilities. The filing reports no material capital-expenditure commitments or off-balance-sheet arrangements.
- Equity financing materially strengthened the balance sheet: the August offering generated approximately $13.0 million net, and 2020 warrant exercises generated $4.1 million. Common shares outstanding rose to 2,736,060 by September 30, from 155,802 at year-end 2019, before the reverse split adjustment.
- Accumulated deficit was $230.3 million. Management said expected future losses and operating cash outflows raise substantial doubt about the company’s ability to continue as a going concern through the next 12 months; additional funding may be needed and may not be available on favorable terms, or at all.
Outlook, developments, and risks
- No quantified revenue, earnings, or cash-flow guidance was provided. Management expected modestly higher selling expense as recent hiring annualizes, generally consistent G&A, and modestly higher R&D for pediatric registry and product-development work. It expected yearly gross margins to improve over time with higher volumes and scale, while noting quarterly variability.
- COVID-19 disrupted hospital access, sales activity, staffing, and operations, and could constrain supply or demand and access to capital. Management estimated COVID-19-related treatment drove approximately 8.0% of U.S. revenue in Q3 and 19.5% for the first nine months; restrictions may have reduced revenue elsewhere.
- The Aquadex SmartFlow received FDA 510(k) clearance in February 2020 for pediatric patients weighing at least 20 kg. The filing describes potential applications across several pediatric care settings.
- A 1-for-30 reverse stock split became effective after trading on October 16, 2020; Nasdaq confirmed regained minimum-bid-price compliance on November 2. These were subsequent events.
- The company returned the $1.66 million PPP loan after updated eligibility guidance. It reported no material legal proceedings and no material changes to internal control over financial reporting.
Investor verification points
- Assess whether sales growth and pediatric adoption can continue despite hospital-access limits, COVID-19 uncertainty, and potential changes in COVID-related demand.
- Track gross-margin recovery, especially the effects of product mix, distributor incentives, and manufacturing scale.
- Evaluate cash runway against operating cash burn and the filing’s explicit going-concern warning, including the company’s ability to raise further capital.
- Review dilution and potential share overhang: the filing lists approximately 1.63 million shares issuable under warrants at September 30, before considering the reverse split and subsequent activity.
- Confirm that comparative share and per-share figures are interpreted on the filing’s retroactively split-adjusted basis.