Business Context and Reporting Period
Company: Amedica Corporation (Nasdaq: AMDA)
Filing Type: Form 8-K (Current Report)
Reporting Period: Second Quarter ended June 30, 2015
Date of Report: August 13, 2015
Business Overview: Amedica develops and manufactures silicon nitride as a platform for biomedical applications, primarily marketing spinal fusion products and developing components for hip and knee arthroplasty.
Key Financial Metrics
| Metric | Q2 2015 | Q2 2014 | YTD 2015 | YTD 2014 |
|---|---|---|---|---|
| Product Revenue | $4.78 million | $5.84 million | $9.52 million | $11.62 million |
| Gross Profit | $3.42 million | $4.23 million | $6.64 million | $8.36 million |
| Gross Margin (GAAP) | 71% | 73% | 69.7% | 72% |
| Gross Margin (Excl. Inventory Provision) | 78% | 80% | N/A | N/A |
| Operating Expenses | $6.01 million | $14.86 million | $13.24 million | $23.05 million |
| Net Loss | ($5.93 million) | ($13.24 million) | ($11.31 million) | ($17.95 million) |
| Adjusted EBITDA | ($2.01 million) | ($3.22 million) | ($4.85 million) | ($5.37 million) |
| Cash and Equivalents | $12.39 million (as of June 30, 2015) | |||
| Total Debt Obligations | $24.3 million (as of June 30, 2015) |
Material Changes vs. Prior Period
- Revenue Decline: Total product revenue decreased 18% ($1.1 million) year-over-year. Non-silicon nitride sales dropped 23% due to lower metal sales and reduced surgeon activity. Silicon nitride sales declined 13% ($0.3 million) due to the loss of key surgeons, partially offset by new recruitments.
- Expense Reduction: Operating expenses fell 60% ($8.8 million) to $6.0 million. This was driven by organizational restructuring, lower commissions, and a $6.6 million reduction in stock-based compensation.
- Improved Loss Profile: Net loss narrowed significantly from $13.2 million to $5.9 million, primarily due to reduced operating expenses and stock-based compensation.
- Cash Burn: Year-to-date operational cash burn decreased by 37% compared to the prior year. Net cash used in operating activities for the first half of 2015 decreased by $3.1 million.
- Balance Sheet: Cash reserves decreased from $18.2 million (Dec 31, 2014) to $12.4 million (June 30, 2015). Derivative liabilities decreased significantly from $13.97 million to $4.59 million.
Guidance, Outlook, and Risks
- Revenue Guidance: Maintains 2015 total annual revenue estimate of $19-$20 million, including 15-20% growth in silicon nitride sales.
- Cost Synergies: Expects $5-$7 million in annualized operating profit benefits from recent financial and operational alignment actions.
- Cash Flow Outlook: Anticipates becoming operating cash flow breakeven in the second half of 2016. Expects to maintain compliance with debt covenants through Q4 2015.
- Partnerships: Maintains guidance of announcing four OEM or private label partners in 2015. Recently signed an OEM letter of intent with a leading orthopedic device company.
- Clinical & Regulatory: Two-year performance data from the CASCADE clinical trial is expected in Q4 2015, with an anticipated FDA final device clearance response in late Q4 2015 or early Q1 2016.
- Risks: Forward-looking statements are subject to risks including physician acceptance, regulatory delays, reimbursement rate changes, and global economic conditions.
Investor Verification Checklist
- Cash Runway: Verify the sustainability of the $12.4 million cash balance against the $24.3 million debt obligation and current burn rate.
- Revenue Recovery: Confirm if new surgeon recruitment is offsetting the loss of key surgeons to meet the 15-20% silicon nitride growth target.
- Debt Covenants: Monitor compliance with debt covenants as the company approaches Q4 2015.
- Regulatory Milestones: Track the release of CASCADE trial data and the FDA clearance response timeline.
- Non-GAAP Reconciliation: Review the reconciliation of Adjusted EBITDA to Net Loss, noting the significant impact of stock-based compensation and derivative liability changes.