Nuwellis, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unless otherwise noted, amounts are in U.S. dollars; financial statement amounts below are in millions. Nuwellis develops and commercializes Aquadex ultrafiltration systems for patients with fluid overload.
Financial performance
- Q3 revenue: $1.853 million, down 2.7% from $1.904 million. Management attributed the decline to COVID-related restrictions on hospital access and procedures, and lower pediatric patient volumes.
- Nine-month revenue: $6.279 million, up 16.3% from $5.397 million. Management cited expansion of its commercial footprint, including sales, clinical education, and marketing personnel.
- Gross profit and margin: Q3 gross profit was $1.120 million, with a 60.4% margin, versus $0.878 million and 46.1% a year earlier. Nine-month gross profit was $3.597 million, with a 57.3% margin, versus $2.911 million and 53.9%. Management cited favorable geographic/product mix in Q3 and favorable mix and production-cost timing for the nine-month improvement.
- Operating expenses: Q3 expenses were $6.371 million, up 24.1%; nine-month expenses were $18.792 million, up 20.0%. Q3 R&D nearly doubled to $1.726 million, including a $428,160 nonrefundable technology license fee. SG&A increased 8.9% in Q3 and 14.7% year to date, reflecting commercial investment; nine-month SG&A also included leadership-transition costs.
- Losses: Q3 operating loss was $5.251 million and net loss was $5.272 million, compared with $4.257 million and $4.260 million, respectively, in Q3 2020. Nine-month operating loss was $15.195 million and net loss was $15.224 million, compared with $12.743 million and $12.750 million. Basic and diluted loss per share was $0.75 for Q3 and $2.72 for the nine months; per-share comparisons are affected by the substantial change in weighted-average shares.
- Cash flow: Nine-month operating cash outflow was $13.688 million, versus $13.163 million. Investing cash outflow was $0.191 million, versus $0.207 million. Financing provided $27.876 million, primarily from stock offerings. Cash increased by $13.994 million to $28.431 million.
- Liquidity and obligations: Current assets were $32.725 million and current liabilities $3.795 million at September 30, 2021. Total liabilities were $4.114 million, including lease liabilities and a $0.428 million technology-license-fee liability; the filing shows no material conventional borrowings. Stockholders’ equity was $29.981 million.
Material changes and financing
- Two common-stock offerings in 2021 raised approximately $27.9 million net: $18.9 million in March and $9.0 million in September. The September offering issued 4,005,588 shares; shares outstanding rose from 2,736,060 at December 31, 2020 to 10,537,606 at September 30, 2021.
- The offerings reduced the conversion price of outstanding Series F preferred stock and repriced certain January 2020 warrants to $2.50 per share. The 2021 loss-per-share calculation included a $75,000 deemed dividend from warrant repricing.
- Q3 revenue was slightly lower year over year despite higher nine-month revenue. Losses widened year over year in both comparison periods as operating expenses rose faster than gross profit.
Outlook, risks, and other items
- Management expects continued near-term losses and stated that existing capital resources should support its operating plan through March 31, 2023. It may seek additional debt or equity financing; availability and terms are not assured. The company has an accumulated deficit of $248.6 million and says it may never achieve profitability.
- COVID-19 continues to create uncertainty around hospital access, customer demand, sales activity, operations, vendors, and capital-market access. Management reported little COVID-treatment-related revenue in the first nine months of 2021, while restrictions may have adversely affected sales elsewhere.
- Management is investing in new products, including a pediatric system, and entered a collaboration to develop an integrated continuous renal replacement therapy device. The related $428,160 license fee was expensed in Q3 and is payable in installments beginning June 2022.
- Two customers accounted for 14% and 12% of Q3 sales; one customer represented 15% of accounts receivable at period end. The filing reports no current legal proceedings and no material change to previously disclosed risk factors. Disclosure controls were considered effective at a reasonable assurance level.
Important facts for investors to verify
- Whether revenue growth can resume and persist given COVID-related hospital restrictions and customer concentration.
- Whether gross-margin improvement is sustainable and how operating expenses, including product-development spending, affect losses and cash burn.
- Whether the stated cash runway through March 2023 remains achievable, and what additional financing may be required.
- The potential dilution from outstanding warrants, preferred stock, options, and future equity offerings, including the effects of warrant repricing.
- Progress, costs, and commercial prospects for the pediatric system and the renal replacement therapy collaboration.