Axogen, Inc. — Q1 2022 Form 10-Q
Business and period: Axogen develops and commercializes products for peripheral nerve repair. This unaudited report covers the three months ended March 31, 2022, compared with Q1 2021, and the balance sheet as of March 31, 2022. Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless noted.
Financial performance and position
| Metric | Q1 2022 / March 31, 2022 | Comparable period / December 31, 2021 |
|---|---|---|
| Revenue | $31.0 million | $31.0 million in Q1 2021 |
| Gross profit / gross margin | $25.5 million / 82.1% | $25.9 million / 83.3% in Q1 2021 |
| Operating loss | $11.3 million; 36.5% of revenue | $6.2 million; 20.1% of revenue in Q1 2021 |
| Net loss / loss per share | $11.5 million / $0.27 | $6.7 million / $0.16 in Q1 2021 |
| Net cash used in operating activities | $11.1 million | $10.8 million in Q1 2021 |
| Cash, cash equivalents and investments | $73.7 million | $90.3 million at December 31, 2021 |
| Working capital / current ratio | $89.5 million / 4.9x | $102.8 million / 5.2x at December 31, 2021 |
| Long-term debt, net of discounts and fees | $45.0 million | $44.8 million at December 31, 2021 |
Cash, cash equivalents and restricted cash declined by $18.2 million during the quarter to $20.8 million. Investing activities used $7.2 million, including $5.0 million of property and equipment purchases; financing activities provided $0.1 million. Total assets were $198.0 million and total liabilities were $94.2 million. Current liabilities were $22.9 million. The company also reported $20.9 million of long-term lease obligations and $5.3 million of debt derivative liabilities.
Material changes and operating drivers
- Revenue was essentially flat year over year. Management attributed the result to procedure-volume declines of approximately 4%, offset by approximately 4% from net pricing and product mix. COVID-19 variants and hospital staffing constraints weighed on volumes, particularly earlier in the quarter. Excluding $1.7 million of Avive revenue in Q1 2021, revenue increased approximately 6%.
- Gross margin fell 1.2 percentage points, primarily due to higher production costs. Operating expenses rose 15% to $36.8 million, reflecting higher compensation, marketing programs, travel and professional services. Sales and marketing increased 16%, R&D 9%, and general and administrative expense 15%.
- Net loss widened to $11.5 million from $6.7 million. The operating loss increased by $5.1 million, while total other expense declined to $0.2 million from $0.4 million.
- Management reported 926 active accounts, up from 915 a year earlier; these accounts generated about 85% of revenue. The filing states that core accounts numbered 288, up from 277, and contributed about 60% of quarterly revenue, but gives the measurement date as March 31, 2021. The date and comparison should be verified.
Outlook, risks and unusual items
- Liquidity outlook: Management stated that available cash, cash equivalents and investments, together with expected product sales, should fund operations for at least the next 12 months. The filing gives no specific revenue or earnings guidance and cautions that future capital needs could increase; additional financing may dilute shareholders or be unavailable on acceptable terms.
- APC Facility: The Vandalia, Ohio processing facility was described as substantially complete, with validation and certification anticipated by early 2023 and tissue processing to follow. The company anticipated spending a further $15.3 million on the project, including projected capitalized interest; $1.7 million was expected in 2023.
- Debt and make-whole uncertainty: The $50 million Oberland Facility principal carries a 9.5% rate as of quarter-end, plus revenue participation payments that management estimates add approximately 1.0% annually. The company reported covenant compliance. Axogen and Oberland may interpret the make-whole calculation differently: under Oberland’s alternative interpretation, estimated payments at scheduled maturity could reach approximately $13 million for the first tranche and $5 million for the second, and could be higher if repaid early. The filing says there had been no update since the 2021 Form 10-K.
- Product and operating risks: Avive market availability remained suspended while the company discussed regulatory classification and requirements with the FDA; no Q1 2022 Avive revenue was recorded. Management said the suspension was not due to product safety concerns, but provided no timetable or assurance of return. Avance Nerve Graft represented approximately half of revenue, and the company relies on a limited product portfolio and processing capacity at its CTS facility.
- Other risks and contingencies: The filing identifies ongoing exposure to COVID-related procedure and staffing disruption, supply-chain and cost pressures, and broader geopolitical effects related to Russia’s invasion of Ukraine. A securities class-action appeal was pending after oral argument on March 8, 2022; the possible loss could not be reasonably estimated. Management stated that disclosure controls and procedures were effective and that there were no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether procedure volumes and hospital staffing recover, and whether pricing and product mix can offset volume pressure without further margin erosion.
- The core-account metric’s reporting date: the filing says March 31, 2021 despite describing a year-over-year increase and Q1 2022 revenue contribution.
- APC Facility remaining costs, validation and certification timing, and when the facility may begin processing tissue.
- Any resolution or change in the Oberland make-whole interpretation, including potential payment exposure and the revenue participation burden.
- FDA discussions and potential return-to-market timing for Avive, and the outcome of the securities-litigation appeal.
- Cash burn and investment levels relative to management’s stated 12-month liquidity expectation, including any need for additional capital.