Nuwellis, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Nuwellis develops, manufactures and sells the Aquadex ultrafiltration system and related disposables for patients with fluid overload. This filing covers the quarter and six months ended June 30, 2022; financial amounts below are in U.S. dollars, with statement amounts in thousands unless noted.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $2.213 million | $2.508 million | $4.139 million | $4.426 million |
| Gross profit / margin | $1.063 million / 48.0% | $1.511 million / 60.2% | $2.165 million / 52.3% | $2.477 million / 56.0% |
| Operating expenses | $5.364 million | $6.237 million | $10.882 million | $12.421 million |
| Operating loss | $(4.301) million | $(4.726) million | $(8.717) million | $(9.944) million |
| Net loss | $(4.286) million | $(4.731) million | $(8.759) million | $(9.952) million |
| Basic and diluted loss per share | $(0.41) | $(0.72) | $(0.83) | $(2.04) |
- Cash flow: Six-month operating cash use was $8.765 million, versus $9.202 million in 2021. Investing used $81,000; financing used $13,000. Cash declined by $8.860 million from year-end 2021.
- Liquidity: June 30 cash and cash equivalents were $15.345 million, accounts receivable $1.313 million, and current assets $19.920 million against current liabilities of $3.459 million. Management said existing capital resources were expected to support its operating plan through June 30, 2023, while also warning that financing may be needed.
- Debt and obligations: The balance sheet reports lease liabilities, not material conventional borrowings: operating and finance lease liabilities totaled approximately $1.088 million, including current portions. The company reported no material capital expenditure commitments and no off-balance-sheet arrangements.
- Other balance-sheet measures: Inventory was $3.010 million and accumulated deficit was $261.675 million at June 30, 2022. Stockholders’ equity was $17.664 million.
Material changes versus prior comparable periods
- Q2 sales declined 11.8%; first-half sales declined 6.5%. Management attributed the Q2 decline mainly to lower U.S. circuit sales, partly offset by increased console shipments. For the first half, lower U.S. console and blood-circuit sales were cited.
- Gross margin fell to 48.0% in Q2 from 60.2%. Management cited lower fixed-overhead absorption from reduced sales and finished-goods inventory, a $112,000 inventory write-off following discontinuation of a distribution agreement, and partly offsetting favorable pricing.
- SG&A decreased 15.9% in Q2 and 15.8% for the first half, reflecting cost optimization and lower nonrecurring prior-period costs. R&D decreased 5.7% in Q2 but increased 4.3% year to date, with first-half spending reflecting pediatric continuous renal replacement therapy development and regulatory activity.
- Net loss improved year over year, but the loss-per-share comparison is affected by a higher weighted-average share count in 2022 and a $33,000 deemed dividend included in the 2021 first-half loss-per-share calculation.
- Cash fell from $24.205 million at December 31, 2021 to $15.345 million at June 30, 2022. The six-month period had no equity-offering proceeds, unlike the comparable 2021 period.
Outlook, risks and notable items
- Going concern: The filing states that recurring operating losses and operating cash outflows raise substantial doubt about the company’s ability to continue as a going concern through the next twelve months. It expects further losses and says additional funding may be required; access to capital is not assured.
- Nasdaq listing: On May 31, 2022, Nasdaq notified the company that its share price had been below the $1.00 minimum bid requirement for 30 consecutive trading days. The company had until November 28, 2022 to regain compliance, with a possible additional 180-day period subject to conditions. Delisting could impair liquidity and fundraising capacity; a reverse split was identified as a possible cure if needed.
- COVID-19: Management cited hospital-access restrictions, sales-process and customer-support disruption, potential supply and staffing constraints, and uncertainty about future demand and capital-market access. The future financial effect could not be reasonably estimated.
- Commercial and customer concentration: Adoption and market acceptance of Aquadex, hospital and outpatient training, and effective manufacturing and distribution are central to growth. Three customers represented 14%, 13% and 10% of Q2 sales; two customers represented 19% and 16% of receivables at quarter-end.
- Development commitment: The company’s collaboration with Koronis Biomedical concerns an integrated continuous renal replacement therapy device. A $428,160 non-refundable license fee was expensed in 2021; $392,480 remained recorded in current accounts payable at June 30, 2022.
- The filing provides no quantified revenue or earnings guidance. Management expects near-term losses and describes growth investment needs. No legal proceedings were reported; management concluded disclosure controls were effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether operating cash burn and sales performance support the stated runway through June 30, 2023, and whether additional financing is required.
- Whether the company regained Nasdaq’s minimum bid-price compliance by the stated deadline, and any subsequent listing or reverse-split developments.
- Whether sales trends, gross margin and inventory levels improve after the distribution-agreement discontinuation and inventory write-off.
- How concentrated sales and receivables remain among major customers, and whether hospital access or COVID-related disruptions persist.
- Progress, funding and regulatory milestones for the pediatric and continuous renal replacement therapy programs.