Nuwellis, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The company, formerly CHF Solutions, develops and sells the Aquadex System for ultrafiltration therapy. Financial amounts below are in U.S. dollars; financial statement figures are in thousands unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $1.918m | $1.630m | +17.7% |
| Gross profit | $966k | $834k | +15.8% |
| Gross margin | 50.4% | 51.2% | Down 0.8 percentage points |
| Operating expenses | $6.184m | $5.401m | +14.5% |
| Operating loss | $(5.218)m | $(4.567)m | Loss widened |
| Net loss | $(5.221)m | $(4.568)m | Loss widened |
| Operating cash flow | $(5.382)m | $(5.495)m | Cash use decreased |
- SG&A was $5.237m, up 15.4%, primarily reflecting investment in sales, clinical specialists and marketing. R&D was $947k, up 9.6%, mainly due to pediatric registry costs.
- Cash and cash equivalents were $27.893m, versus $14.437m at year-end 2020. Current assets were $32.138m and current liabilities $3.163m.
- Net financing cash inflow was $18.897m, primarily from the March 2021 stock offering; investing cash use was $56k. The company reported no material capital expenditure commitments.
- Total liabilities were $3.211m, including $72k of finance lease liabilities and $212k of current operating lease liabilities. The filing reports no material conventional borrowings.
- Accumulated deficit was $238.6m. The company says existing resources are expected to support its operating plan through December 31, 2022, but it expects continuing losses and may need additional financing.
Material changes and notable items
- Net sales increased by $288k. Management attributed growth to commercialization efforts, including expansion of its sales force, clinical education and marketing support.
- The March 19, 2021 public offering issued 3,795,816 shares and raised approximately $18.9m net. Common shares outstanding rose from 2,736,060 at year-end to 6,531,942 at March 31.
- Basic and diluted loss per share was $(1.25), versus $(11.54) a year earlier. The comparison is affected by the substantial increase in weighted-average shares and a $1.757m deemed dividend in Q1 2020, compared with $33k in Q1 2021; it does not indicate improved operating profitability.
- Three customers represented 41% of Q1 2021 sales (16%, 13% and 12%); one customer represented 12% of receivables at quarter-end.
Outlook, risks and other developments
- No numerical revenue or earnings guidance is provided. Management expects commercial investment to increase modestly in 2021, general and administrative expense to remain consistent with 2020 levels, and R&D spending to rise slightly from Q1 2021.
- COVID-19-related hospital access restrictions continued to affect sales activity. Management reported little Q1 2021 revenue from COVID-19 treatment use, while noting that access restrictions may have also hindered sales in other areas. Future effects on demand, operations, suppliers and capital-market access remain uncertain.
- The company depends on adoption and market acceptance of Aquadex and says it expects near-term losses. Management cautions that additional funding may be needed and may not be available on favorable terms, or at all.
- On April 1, 2021, CFO Claudia Drayton resigned; the CEO became interim CFO and the corporate controller became interim principal accounting officer. The company changed its name to Nuwellis, Inc. on April 27, 2021.
- No material legal proceedings were reported. Management concluded disclosure controls were effective at a reasonable assurance level as of March 31, 2021.
Important facts for investors to verify
- Whether revenue growth can continue and improve gross margins, given the company’s ongoing operating losses.
- The cash runway assumptions underlying management’s estimate of funding through December 2022, including the pace of cash burn and potential financing needs.
- The dilution and potential share supply from the offering and outstanding warrants; the filing reports 1,631,882 warrants to purchase common stock at March 31, 2021.
- Customer concentration and the effect of hospital access restrictions and changing COVID-19-related demand on sales.
- The transition in finance and accounting leadership and the company’s progress in expanding Aquadex adoption and pediatric studies.