Nuwellis, Inc. — Q2 2021 Form 10-Q
Business context and period: Nuwellis develops and commercializes Aquadex systems for ultrafiltration therapy for patients with fluid overload. This unaudited report covers the quarter and six months ended June 30, 2021; comparisons are to the corresponding 2020 periods. The company changed its name from CHF Solutions, Inc. in April 2021.
Financial performance
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Net sales | $2.508 million; +34.6% year over year | $4.426 million; +26.7% year over year |
| Gross profit / margin | $1.511 million / 60.3% (2020: 64.4%) | $2.477 million / 56.0% (2020: 58.2%) |
| Operating expenses | $6.237 million | $12.421 million |
| Net loss | $4.731 million | $9.952 million |
| Basic and diluted loss per share | $0.72 | $2.04 |
| Operating cash flow | Not separately presented for the quarter | $(9.202) million |
At June 30, cash and cash equivalents were $23.978 million, versus $14.437 million at December 31, 2020. Current assets were $28.224 million and current liabilities $3.603 million. Total liabilities were $3.644 million, principally accounts payable, accrued compensation, and lease obligations; the filing reports no material conventional borrowing balance. Six-month investing cash outflow was $0.137 million and financing cash inflow was $18.883 million, primarily net proceeds from the March 2021 stock offering. Outstanding common shares increased from 2.736 million at year-end to 6.532 million at June 30.
Changes and management commentary
- Sales growth was attributed to expansion of the commercial footprint, including hiring sales representatives, clinical education specialists, and marketing personnel.
- Gross margin declined year over year. Management attributed the decline to the prior-year production ramp for the Aquadex SmartFlow launch and anticipated demand.
- SG&A rose 19.6% in Q2, reflecting sales and marketing investment and nonrecurring leadership-transition costs. R&D rose 32.7%, primarily due to new-product investment and pediatric registry support.
- Management expects operating losses in the near term and states existing capital resources are expected to support its operating plan through December 31, 2022. It may seek additional debt or equity funding; there is no assurance financing will be available on favorable terms or at all.
Outlook, risks, and unusual items
- No numerical revenue or earnings guidance is provided. Management says profitability depends on broader adoption of Aquadex and effective hospital training, manufacturing, marketing, and distribution.
- COVID-19 continued to restrict hospital access and affect sales practices. Management reported little COVID-treatment revenue in the first half of 2021 after estimating COVID-related hospitals contributed about 14% of U.S. revenue in full-year 2020. Future demand, supply, and capital-market impacts remain uncertain.
- The company had a $243.3 million accumulated deficit and continuing operating losses and operating cash outflows. It expects further losses and states it may require additional funding, notwithstanding its stated cash runway estimate.
- A March 2021 equity offering generated approximately $18.9 million net proceeds and increased the share count substantially. Warrant exercise-price adjustments also resulted in a $33,000 deemed dividend for the six-month period.
- A research and development collaboration with Koronis Biomedical became effective August 5, 2021, after the reporting date, following a $1.7 million NIH grant approval. Nuwellis agreed to a nonrefundable $428,160 license fee, payable in 12 monthly installments beginning June 2022.
- The CFO transition concluded with George Montague’s appointment effective June 28. Management reported disclosure controls effective at a reasonable assurance level and no material change in internal control over financial reporting. No material legal proceedings were reported.
Important facts for investors to verify
- Revenue inconsistency: The financial statements report Q2 2021 net sales of $2.508 million, while the MD&A comparison table appears to state $1.918 million. The MD&A’s $645,000 increase and 34.6% growth match the $2.508 million financial-statement figure; verify the correct value against the filed statements and XBRL.
- Assess whether sales-force expansion can sustain growth and offset lower gross margins and rising operating expenses.
- Evaluate the assumptions behind management’s cash runway through December 2022 and the potential need for further financing and dilution.
- Monitor COVID-related hospital access and demand, customer concentration, and progress in pediatric registry and product-development initiatives.
- Review the potential costs and milestones of the Koronis collaboration and the terms and dilution exposure of outstanding warrants and preferred stock.