Sanara Medtech Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial statements are unaudited. Sanara develops and commercializes medical technologies for surgical and chronic wound and skin care.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $5.01 million | $3.52 million; up 42% |
| Gross profit / margin | $4.54 million / 90.5% | $3.19 million / 90.6% |
| Operating expenses | $5.62 million | $4.99 million |
| Operating loss | $1.08 million | $1.80 million |
| Net loss attributable to Sanara shareholders | $1.18 million; $0.17 per share | $1.84 million; $0.39 per share |
| Cash from operating activities | Used $1.26 million | Used $2.03 million |
| Cash from investing activities | Used $0.60 million | Used $0.56 million |
| Cash from financing activities | Provided $28.74 million | No financing cash flow |
| Cash | $27.33 million | $0.46 million at Dec. 31, 2020 |
| Total assets / liabilities | $39.02 million / $3.55 million | $9.83 million / $3.99 million at Dec. 31, 2020 |
Current assets were $31.54 million and current liabilities $3.13 million at quarter-end. The company had no balance outstanding on its $2.5 million revolving credit facility at March 31. Lease liabilities totaled $0.45 million; the filing reports no other material funded debt balance.
Material changes and notable items
- Revenue growth was primarily driven by surgical product sales, which rose to $4.71 million from $3.27 million. Management attributed growth to the expanded sales force and independent distribution network. Wound care revenue was $0.25 million; royalties were $0.05 million.
- The net loss narrowed as higher revenue improved results. SG&A increased to $5.41 million from $4.93 million, mainly from sales commissions and costs associated with the broader wound and skin care strategy. R&D increased to $0.12 million from $0.004 million.
- Other expense included a $99,135 noncash share of losses from Precision Healing, in which the company held a 22.4% interest and applied equity-method accounting.
- A February public offering of 1.265 million shares at $25 per share generated approximately $28.9 million in net proceeds. Shares outstanding increased to 7.62 million at March 31 from 6.30 million at year-end. The company also issued shares for acquisitions and a licensing milestone.
- The company acquired Woundyne, renamed WounDerm, for 29,536 shares valued at $1.0 million; its wound-data software platform was treated as an asset acquisition. It also reported $1.0 million of capitalized software development costs during the quarter.
- Investing cash use primarily reflected a $600,000 additional investment in Precision Healing. The company also paid $200,000 to Wound Care Solutions under a net-income support commitment.
Outlook, risks and contingencies
- Management said elective procedures and product sales rebounded in the second half of 2020 and Q1 2021 as restrictions eased in key markets. It expects elective procedures to continue, except in COVID-19 hotspots, but noted the pandemic’s duration and effects remain uncertain.
- No specific revenue or earnings guidance was provided. Management expects SG&A to rise in absolute dollars but decline as a percentage of revenue as the commercial organization grows; it generally expects R&D to increase as products are developed and launched.
- Management believes cash, expected operating cash flows and available credit will fund its growth strategy and anticipated expenses and capital spending for at least 12 months. Offering proceeds are intended for salesforce expansion, product and technology development, clinical studies, working capital and general corporate purposes.
- The Cadence facility is secured by substantially all assets and includes financial covenants, including minimum liquidity and tangible net worth requirements; a 1.5-to-1.0 minimum interest coverage ratio applies beginning with Q2 2021. Default could permit acceleration of amounts due.
- Material commitments include product royalties and contingent milestone payments under licensing agreements. Some license and technical-services arrangements involve Rochal, whose directors or significant shareholders include Sanara directors; the Executive Chairman also has ties to Catalyst and Rochal. Sanara incurred $148,521 in Rochal technical-services costs in Q1.
- The filing reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements. Disclosure controls were concluded effective as of March 31, 2021.
Important facts for investors to verify
- Whether surgical-sales growth and the post-pandemic recovery persist, and how much revenue concentration remains in key products and channels.
- Cash burn and the company’s stated 12-month funding outlook, especially as it expands sales, develops products and undertakes clinical studies.
- Execution, regulatory progress and commercial potential of planned product launches and virtual-consult services; the filing provides no quantified launch revenue outlook.
- Related-party licensing, royalty, technical-services and income-support commitments, including their terms and governance oversight.
- Potential dilution from equity compensation, future share issuance and acquisitions, following the substantial Q1 offering.
- Compliance with credit-facility covenants and the effect of lease obligations and other contractual commitments on liquidity.