Sanara MedTech Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited consolidated results, compared with Q1 2021. Sanara develops and commercializes products and services for surgical and chronic wound and skin care. Most product revenue comes from CellerateRX surgical powder; all reported revenue was generated in the United States.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $7.81 million | $5.01 million; up 56% |
| Gross profit / margin | $7.01 million / approximately 90% | $4.54 million / approximately 91% |
| Operating expenses | $9.78 million | $5.62 million |
| Operating loss | $2.78 million | $1.08 million |
| Net loss | $3.16 million; $0.41 per share | $1.18 million; $0.17 per share |
| Cash used in operating activities | $2.11 million | $1.26 million |
| Cash and cash equivalents | $16.14 million at March 31 | $18.65 million at December 31, 2021 |
Investing activities used $0.29 million, chiefly reflecting a $0.25 million investment in equity securities. Financing activities used $0.10 million, primarily for net settlement of equity awards. The company reported no outstanding borrowings; it terminated its $2.5 million revolving credit facility on March 25, 2022. Total liabilities were $5.42 million, including $0.37 million of operating lease liabilities. Current assets were $22.49 million and current liabilities were $5.23 million.
Changes versus prior period
- Revenue growth was driven primarily by higher surgical wound-care product sales, supported by sales-force expansion and broader independent distribution.
- SG&A rose to $9.38 million from $5.41 million, reflecting sales-force and operational costs, commissions, higher compensation and promotional activity, and $450,000 of Precision Healing transaction costs.
- Research and development expense increased to $0.20 million from $0.12 million. Depreciation and amortization increased to $0.20 million from approximately $0.09 million.
- Other expense included a $379,633 noncash equity-method loss from Precision Healing, compared with $99,135 in Q1 2021. Higher expenses and this investment loss contributed to the increased net loss.
Outlook, developments and risks
- Management stated that cash on hand, together with expected operating cash flows, should fund its growth strategy, anticipated operating expenses and capital expenditures for at least the next 12 months. No specific revenue or earnings guidance was provided.
- Management said Q1 2022 was not materially affected by COVID-19 restrictions on elective procedures, while noting pandemic uncertainty and prior-period sales impacts from the Delta and Omicron surges.
- On April 4, 2022, after quarter-end, Sanara acquired Precision Healing and made it a wholly owned subsidiary. Closing consideration was approximately $5.2 million, including cash, shares and transaction expenses. Additional earnout consideration of up to $10 million may be payable if performance thresholds are achieved. Purchase accounting was incomplete when the filing was prepared.
- Related-party and licensing arrangements are notable: royalties under the CellerateRX sublicense were $369,233 for the quarter, and the agreement has minimum royalties of $400,000 annually for its first five years. Certain Rochal licenses and consulting arrangements also involve company directors or executive leadership.
- Other exposures include product adoption and competition, reliance on third-party licensed products and distribution, execution of acquisitions and product development, and ability to retain personnel and manage inventory. Management reported no material change to previously disclosed risk factors, no material pending legal proceedings, and effective disclosure controls as of March 31, 2022.
Key facts for investors to verify
- Whether revenue growth can continue while gross margin remains near 90%, particularly given reliance on a leading product and expansion of the sales organization.
- Cash use and expense growth, including the impact of noncash compensation, acquisition costs and future operating needs.
- Precision Healing’s post-acquisition results, final purchase accounting, and whether performance thresholds trigger some or all of the potential $10 million earnout.
- Terms and economics of related-party licenses, royalties and consulting arrangements, including minimum payments and any future product milestones.
- Management’s stated minimum 12-month liquidity outlook, especially following the Precision Healing acquisition and termination of the revolving credit facility.