Sanara MedTech Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the supplied filing text does not provide separate fourth-quarter results.
Business context
Sanara develops and commercializes medical technologies for surgical, chronic wound-care and skincare markets. Revenue is primarily from product sales, with CellerateRX Surgical the principal product. In August 2023, the Company acquired intellectual property and manufacturing and sales rights for CellerateRX Surgical and HYCOL. Other notable developments included a November launch of BIASURGE, FDA 510(k) clearance for Precision Healing’s diagnostic imager, and a Tufts University collagen-peptide license. Tissue Health Plus (THP), the planned value-based wound-care service, remained under development; Sanara was seeking a partner to support commercialization and development costs.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net revenue | $65.0 million | $45.8 million |
| Gross profit / gross margin | $57.1 million / approximately 88% | $39.5 million / approximately 86% |
| Operating expenses | $61.4 million | $52.0 million |
| Operating loss | $4.2 million | $12.5 million |
| Net loss | $4.4 million | $8.1 million |
| Net loss per share, basic and diluted | $0.52 | $1.00 |
| Net cash used in operating activities | $3.2 million | $5.6 million |
| Cash at year-end | $5.1 million | $9.0 million |
Revenue rose 42%, driven by higher sales of soft-tissue repair and bone-fusion products. Soft-tissue revenue was $54.8 million versus $41.7 million; bone-fusion revenue was $10.0 million versus $4.0 million. The gross-margin increase reflected, in part, elimination in consolidation of CellerateRX royalty expense after the Applied acquisition; management also cited lower margins on some bone-fusion products.
SG&A increased to $57.0 million from $46.0 million, mainly from sales commissions tied to higher sales and expanded sales and operating support. R&D rose to $4.1 million from $3.4 million, primarily for the Precision Healing imager and lateral-flow assay. A $3.45 million benefit from remeasurement of acquisition earnout liabilities reduced reported operating loss. The 2022 comparison included a $5.8 million income-tax benefit; FY2023 recorded no income-tax benefit.
Investing activities used $10.2 million, primarily due to the Applied transaction. Financing activities provided $9.6 million, mainly from $9.7 million of net loan proceeds, partly offset by earnout and other payments. At December 31, 2023, current assets were $19.0 million and current liabilities were $13.8 million. Debt was $9.75 million principal, reported net of issuance costs and current portion as $9.69 million. The loan bears interest at one-month Term SOFR plus 3.0% (8.3% at year-end), with monthly amortization beginning August 2024 and maturity in August 2028.
Material changes and transactions
- The Applied asset purchase had an initial stated price of $15.25 million: $9.75 million cash, $3.0 million agreed value in shares, and $2.5 million in four annual cash installments. The accounting allocation, including certain other transaction-related amounts, totaled $16.8 million. Up to $10.0 million of additional cash earnout may be payable against performance thresholds for a collagen product under development.
- ALLOCYTE supply constraints impaired sales from late 2022 through September 2023. Sanara introduced ALLOCYTE Plus, processed by an alternative supplier, and reported supply sufficient for currently expected demand.
- The Company paid approximately $693,000 for the first Scendia earnout in August 2023 and expected a final payment in Q3 2024. The Precision Healing earnout may reach $10.0 million; Sanara said it did not anticipate a payment before January 2025.
- Net cash used in operations improved year over year, but cash declined by $3.8 million. Shares outstanding increased to 8.54 million at year-end from 8.30 million a year earlier; 2023 included stock issued for the Applied purchase and an at-the-market offering.
Outlook, risks and other disclosures
Management stated that cash on hand and expected operating cash flows should fund the current plan, anticipated expenses and capital expenditures for at least 12 months. It expects SG&A to decline as a percentage of revenue if sales growth outpaces expansion and overhead costs. No specific revenue, earnings or margin guidance was provided. THP’s 2023 operating expenses were approximately $5.2 million excluding noncash items; its launch and economics depend on commercialization, payer partnerships and service development.
- Profitability and liquidity: Sanara has a history of losses, expects continued investment and may need additional capital. Cash was $5.1 million at year-end, while operating activities used cash.
- Debt and covenants: The loan is secured by substantially all SMAT assets, guaranteed by Sanara, and restricts certain transactions and cash transfers. SMAT had a 1.3x debt-service coverage ratio and 4.0x cash-flow leverage ratio at year-end after an immaterial Sanara cash contribution. Leverage limits tighten over time; covenant failure may require further contributions or trigger default and acceleration.
- Product and supplier concentration: CellerateRX represents the substantial majority of sales and has no unexpired patent or pending patent application, according to the filing. Sanara relies on contract manufacturers; one manufacturer supplies its principal revenue-producing products. Supply disruption, competition, or loss of market acceptance could materially affect results.
- Execution and regulatory risks: Acquisitions, product development, clinical acceptance, reimbursement, FDA compliance, and THP’s entry into telehealth and value-based care may require significant investment and may not succeed. The filing also highlights cybersecurity, privacy, product-quality, litigation and healthcare fraud-and-abuse risks.
- Related parties and contingencies: The filing describes related-party arrangements involving Catalyst and Rochal, including CellerateRX royalties before the Applied purchase, Rochal license royalties, consulting fees, and $174,486 of 2023 Catalyst advisory costs. No material pending legal proceedings were reported.
The financial statements received an unqualified audit opinion. The auditor identified valuation of acquired intangible assets in the Applied transaction as a critical audit matter. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether revenue growth and gross margins can be sustained, particularly given dependence on CellerateRX and the change in royalty accounting after the Applied purchase.
- Current cash usage, working-capital needs, and the Company’s ability to meet debt amortization and progressively tighter financial covenants without further cash contributions or financing.
- Actual performance and payment terms for the Scendia, Precision Healing and Applied earnouts, including potential cash requirements or share dilution.
- Whether ALLOCYTE Plus supply remains reliable and whether other key suppliers can meet demand.
- Commercial progress, partner availability, regulatory pathway and funding requirements for THP, the Precision Healing LFA and other pipeline products.
- Related-party transaction terms, acquired-intangible assumptions and the sensitivity of reported results to earnout fair-value estimates.