Nuwellis, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 7, 2024. Nuwellis develops and commercializes the Aquadex ultrafiltration system for patients with fluid overload.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Net sales | $1.857 million | $1.826 million; up 1.7% |
| Gross profit and margin | $1.191 million; 64.1% | $1.067 million; 58.4% |
| Operating expenses | $5.940 million | $6.918 million; down 14.1% |
| Operating loss | $4.749 million | $5.851 million |
| Net loss | $4.330 million | $6.485 million |
| Net loss attributable to common shareholders | $3.789 million, after a $541,000 preferred-stock deemed dividend | $6.485 million |
| Basic and diluted loss per share | $0.60 | $5.76 |
| Cash used in operating activities | $2.862 million | $6.106 million |
| Cash and cash equivalents at period end | $1.400 million | $3.800 million at December 31, 2023 |
Higher circuit sales and international sales supported revenue; circuit sales increased 11%, partly offset by lower console sales. Gross margin improved as manufacturing volumes increased. SG&A declined primarily with lower headcount, compensation and administrative costs; R&D declined mainly with lower headcount and compensation.
At March 31, 2024, current assets were $5.197 million and current liabilities were $4.323 million. Total liabilities were $5.775 million, including a $964,000 warrant liability and operating lease liabilities; the filing reports no material capital-expenditure commitments. The company had $885,000 of stockholders’ equity and a $292.0 million accumulated deficit. The filing does not show conventional borrowings as a material balance-sheet liability.
Material changes, outlook and risks
- Funding and going concern: Management said existing capital resources were expected to support the operating plan through August 31, 2024, but the filing states substantial doubt about the company’s ability to continue as a going concern through the next 12 months. Nuwellis expects near-term losses and says additional financing will be needed, with no assurance it can be raised successfully.
- Cost actions: Management said cost reductions were intended to reduce monthly cash burn by approximately 40%. Measures included job and compensation reductions, no 2024 merit increases or cash bonuses, lower director fees, a temporary suspension of the 401(k) match, and reduced travel and professional services.
- Subsequent financing: On April 30, 2024, after quarter-end, the company closed an offering of 11.25 million common shares or pre-funded warrants and warrants for up to 16.875 million shares. It reported approximately $2.7 million gross and $2.1 million net proceeds. The warrants have a $0.40 exercise price and include reset and anti-dilution provisions, subject to a $0.06 floor; potential dilution is significant.
- Preferred stock and warrant accounting: The Series J preferred stock is redeemable at the end of its three-year term, subject to legal limitations, and may convert into common stock. The related warrants are remeasured as liabilities; their fair-value change produced $522,000 of income in Q1 2024, versus a $755,000 expense in Q1 2023. The preferred-stock deemed dividend reduced the loss attributable to common shareholders relative to net loss.
- Commercial execution: The DaVita pilot was expected to run through May 31, 2024. DaVita may elect to extend the agreement for up to 10 years; its warrant had not vested at quarter-end. One customer accounted for 22% of Q1 sales and 29% of quarter-end receivables.
- Contingency: SeaStar obtained FDA HDE approval on February 22, triggering a $450,000 milestone payment that remained unpaid at March 31. SeaStar sent a breach notice on April 4; the parties were discussing resolution, and Nuwellis said it was within the cure period.
- Listing and controls: Nasdaq had notified the company of a minimum-bid-price deficiency, with a stated deadline of June 4, 2024 to regain compliance, subject to possible additional time. Management concluded disclosure controls were ineffective at March 31 because of two previously disclosed material weaknesses in internal control over financial reporting.
The filing provides no specific revenue or profitability guidance. Management’s stated priorities and outlook center on expanding Aquadex adoption while controlling costs and securing additional financing.
Important facts for investors to verify
- Cash runway after the April 30 offering, subsequent spending and any additional financing needs; the filing does not quantify post-offering runway.
- Whether Aquadex sales growth, circuit volumes and the DaVita pilot translate into sustained revenue and improved operating performance.
- Nasdaq bid-price compliance status and any reverse-split or other remedial action.
- Resolution and payment status of the SeaStar milestone and alleged breach.
- Potential dilution from the April offering warrants, Series J securities, outstanding warrants and other equity awards; common shares outstanding were 6,801,443 at March 31 and 18,051,055 at May 6.
- Progress remediating the two material weaknesses and the implications of ineffective disclosure controls.