INARI MEDICAL, INC.

(NARI)
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Delayed Nasdaq  -  04:00 2022-07-01 pm EDT
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INARI MEDICAL, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

05/04/2022 | 04:34pm EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes appearing elsewhere in this
Quarterly Report on Form 10-Q and our audited financial statements and related
notes thereto for the year ended December 31, 2021, included in our Annual
Report on Form 10-K. In addition to historical financial information, the
following discussion contains forward-looking statements that are based upon
current plans, expectations and beliefs that involve risks and uncertainties.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set
forth under Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form
10-Q.

Overview

We are a medical device company with a mission to treat and transform the lives
of patients suffering from venous and other diseases. Our current product
offerings consist of two minimally-invasive, novel catheter-based mechanical
thrombectomy systems, which are purpose-built for the specific characteristic of
the venous system and the treatment of the two distinct manifestations of venous
thromboembolism, or VTE - deep vein thrombosis, or DVT, and pulmonary embolism,
or PE. Our ClotTriever product is FDA-cleared for the treatment of DVT. Our
FlowTriever product is the first thrombectomy system FDA-cleared for the
treatment of PE and is also FDA-cleared for clot in transit in the right atrium.

We believe the best way to treat VTE and improve the quality of life of patients
suffering from this disease is to safely and effectively remove the blood clot.
With that in mind, we designed and purpose-built our ClotTriever and FlowTriever
systems. The ClotTriever is a mechanical thrombectomy system designed to core,
capture and remove large clots from large vessels and is used to treat DVT. The
FlowTriever is a large bore catheter-based aspiration and mechanical
thrombectomy system designed to remove large clots from large vessels to treat
PE. Both systems are designed to eliminate the need for thrombolytic drugs.

We believe our mission-focused and highly-trained commercial organization
provides a significant competitive advantage. Our most important relationships
are between our sales representatives and our treating physicians, which include
interventional cardiologists, interventional radiologists and vascular surgeons.
We recruit sales representatives who have substantial and applicable medical
device and/or sales experience. Our front-line sales representatives typically
attend procedures, which puts us at the intersection of the patients, products
and physicians. We have developed systems and processes to harness the
information gained from these relationships and we leverage this information to
rapidly iterate products, introduce and execute physician education and training
programs and scale our sales organization. We market and sell our products to
hospitals, which are reimbursed by various third-party payors.

In March 2022, we completed an underwritten public offering, or the Follow-On
Offering, of 2,300,000 shares of common stock, at a price of $81.00 per share.
We received net proceeds of approximately $174.4 million, after deducting
underwriters' discounts and commissions and offering costs.

As of March 31, 2022, we had cash, cash equivalents, and short-term investments
of $338.7 million, no long-term debt outstanding and an accumulated deficit of
$20.7 million.

For the three months ended March 31, 2022, the Company generated $86.8 million in revenues with a gross margin of 88.5% and net loss of $3.1 million, as compared to revenues of $57.4 million with a gross margin of 91.9% and net income of $7.5 million for the three months ended March 31, 2021.

COVID-19


The global healthcare system continues to face an unprecedented challenge as a
result of the COVID-19 situation and its impact. COVID-19 has had and may
continue to have an adverse impact on aspects of our business, including the
demand for our products, operations, and ability to research and develop and
bring new products and services to market.

In response to the impact of COVID-19, we implemented a variety of measures to
help manage through the impact and position us to keep operations running
efficiently. However, with hospitals facing staff or other resource constraints,
to the extent individuals and hospital systems de-prioritize, delay or cancel
deferrable medical procedures, our business, cash flows, financial condition and
results of operations may continue to be negatively affected.

The actual and perceived impact of COVID-19 is still evolving and cannot be
predicted. As a result, we cannot assure you that our recent procedure volumes
are indicative of future results or that we will not experience additional
negative impacts associated with COVID-19 or staffing shortages, which could be
significant. We continue to focus our efforts on the health and safety of
patients, healthcare providers and employees, while executing our mission of
transforming lives of patients. While we expect the COVID-19 pandemic may
continue to negatively impact 2022 performance, we believe the long-term
fundamentals remain strong and we will continue to effectively manage through
these challenges.

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Procedure Volume


We regularly review various operating and financial metrics to evaluate our
business, measure our performance, identify trends affecting our business,
formulate our business plan and make strategic decisions. We believe the number
of procedures performed to treat DVT and PE using our products has been an
important historical indicator of our ability to drive adoption and grow our
revenue. However, as we continue to introduce new products and our business
expands into new markets, we anticipate that this metric will become less
representative of how our business is performing. As a result, we will no longer
include the following table, which lists the number of procedures performed in
each of the three month periods as indicated, in future quarters:


                                            Three Months Ended
Procedures(1)    March 31, 2022      Dec 31, 2021       Sept 30, 2021       June 30, 2021
DVT                        4,100             3,600               3,400               3,100
PE                         4,700             4,100               3,300               2,800
                           8,800             7,700               6,700               5,900




1.
We define a procedure as any instance in which a physician treats DVT or PE
using our products. We estimate the number of procedures performed based on
records created by our sales representatives. This metric has limitations as we
only have records for the procedures where our sales representatives have notice
that a procedure has been performed. Revenue is recognized based on hospital
purchase orders, not based on the procedure records created by our sales
representatives. Numbers are rounded to the nearest hundred.

Revenue


We currently derive substantially all our revenue from the sale of our
ClotTriever and FlowTriever systems directly to hospitals primarily in the
United States. Our customers typically purchase an initial stocking order of our
products and then reorder replenishment as procedures are performed. We expect
our revenue to increase in absolute dollars as we expand our sales organization
and sales territories, add customers, expand the base of physicians that are
trained to use our products, expand awareness of our products with new and
existing customers and as physicians perform more procedures using our products.
Revenue for ClotTriever and FlowTriever systems as a percentage of total revenue
is as follows:


                 Three Months Ended March 31,
                  2022                   2021

ClotTriever             32 %                   35 %
FlowTriever             68 %                   65 %

Critical Accounting Policies and Estimates


Other than the accounting policy changes discussed in "Note 2 - Summary of
Significant Accounting Policies" to our condensed consolidated financial
statements, which is included in "Part I, Item 1. Condensed Consolidated
Financial Statements (Unaudited)", there have been no significant changes in our
critical accounting policies during the three months ended March 31, 2022, as
compared to the critical accounting policies disclosed in Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended December 31, 2021,
filed with the SEC on February 23, 2022.

Results of Operations

Comparison of the three months ended March 31, 2022 and 2021

The following table sets forth the components of our unaudited condensed consolidated statements of operations in dollars and as percentage of revenue for the periods presented (dollars in thousands):

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                                                 Three Months Ended March 31,
                                        2022           %            2021           %          Change $
Revenue                               $  86,752        100.0 %    $  57,397        100.0 %    $  29,355
Cost of goods sold                        9,967         11.5 %        4,623          8.1 %        5,344
Gross profit                             76,785         88.5 %       52,774         91.9 %       24,011
Operating expenses:
Research and development                 16,135         18.6 %        8,163         14.2 %        7,972
Selling, general and administrative      63,732         73.5 %       36,898         64.3 %       26,834
Total operating expenses                 79,867         92.1 %       45,061         78.5 %       34,806
Income (loss) from operations            (3,082 )       (3.6 %)       7,713         13.4 %      (10,795 )
Other income (expense)
Interest income                              50          0.1 %           68          0.1 %          (18 )
Interest expense                            (73 )       (0.1 %)         (73 )       (0.1 %)           -
Other expenses                              (24 )        0.0 %          (41 )       (0.1 %)          17
Total other expenses, net                   (47 )        0.0 %          (46 )       (0.1 %)          (1 )
Income (loss) before income taxes     $  (3,129 )       (3.6 %)   $   7,667 

13.3 % $ (10,796 )



Revenue. Revenue increased $29.4 million, or 51.1%, to $86.8 million during the
three months ended March 31, 2022, compared to $57.4 million during the three
months ended March 31, 2021. The increase in revenue was due primarily to an
increase in the number of product offerings and the number of units sold as we
expanded our sales territories, opened new accounts and achieved deeper
penetration of our products into existing accounts.

Cost of Goods Sold. Cost of goods sold increased $5.4 million, or 115.6%, to
$10.0 million during the three months ended March 31, 2022, compared to $4.6
million during the three months ended March 31, 2021. This increase was
primarily due to the increase in the number of products sold and additional
manufacturing overhead costs incurred as we invested significantly in our new
facility and operational infrastructure to support our growth.

Gross Margin. Gross margin for the three months ended March 31, 2022 decreased
to 88.5%, compared to 91.9% for the three months ended March 31, 2021, primarily
due to a decrease in operating leverage due to the expanded footprint of our
manufacturing capacity and the addition of new products to our FlowTriever per
procedure pricing model.

Research and Development Expenses. R&D expenses increased $7.9 million, or
97.7%, to $16.1 million during the three months ended March 31, 2022, compared
to $8.2 million during the three months ended March 31, 2021. The increase in
R&D expenses was primarily due to increases of $5.1 million of personnel-related
expenses, $1.8 million in materials and supplies, $0.3 million in professional
fees, and $0.2 million of regulatory expenses, in support of our growth drivers
to develop new products and build the clinical evidence base.

Selling, General and Administrative Expenses. SG&A expenses increased $26.8
million, or 72.7%, to $63.7 million during the three months ended March 31,
2022, compared to $36.9 million during the three months ended March 31, 2021.
The increase in SG&A costs was primarily due to increases of $19.0 million in
personnel-related expenses as a result of increased headcount across our
organization and increased commissions due to higher revenue, $2.0 million in
travel and related expenses, $1.8 million in professional fees, $1.6 million in
marketing expenses, and $1.2 million in facility related expenses, particularly
related to our new facility.

Interest Income. Interest income decreased by $18,000 or 26.5% to $50,000 during
the three months ended March 31, 2022, compared to $68,000 during the three
months ended March 31, 2021. The decrease in interest income was primarily due
to lower interest rates during the three months ended March 31, 2022, compared
to the three months ended March 31, 2021.

Interest Expense. Interest expense was relatively consistent of $73,000 during the three months ended March 31, 2022, compared to $73,000 during the three months ended March 31, 2021.

Other Expenses. Other expenses of $24,000 for the three months ended March 31, 2022 consisted primarily of foreign currency losses.

Liquidity and Capital Resources


To date, our primary sources of capital have been the net proceeds we received
through private placements of preferred stock, debt financing agreements, the
sale of common stock in our IPO and Follow-On Offering, and revenue from the
sale of our products. On May 27, 2020, we completed our IPO, including the
underwriters full exercise of their over-allotment option, selling 9,432,949
shares of our common stock at $19.00 per share. Upon completion of our IPO, we
received net proceeds of approximately $163.0 million, after deducting
underwriting discounts and commissions and offering expenses. In March 2022, we
completed a Follow-On Offering by issuing 2,300,000 shares of common stock, at
an offering price of $81.00 per share, for net proceeds to us of approximately
$174.4 million after deducting underwriting discounts and commissions and
offering expenses. As of March 31, 2022,

                                       18
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we had cash and cash equivalents of $186.6 million, short-term investments of
$152.2 million and an accumulated deficit of $20.7 million. In September 2020,
we entered into a new revolving Credit Agreement with Bank of America which
provides for loans up to a maximum of $30 million. As of March 31, 2022, we had
no principal outstanding under the Credit Agreement and the amount available to
borrow was approximately $28.2 million.

Based on our current planned operations, we expect that our cash and cash equivalents, short-term investments and available borrowings will enable us to fund our operating expenses for at least 12 months from the date hereof.


If our available cash balances and anticipated cash flow from operations are
insufficient to satisfy our liquidity requirements including because of lower
demand for our products as a result of the risks described in this Quarterly
Report, we may seek to sell additional common or preferred equity or convertible
debt securities, enter into an additional credit facility or another form of
third-party funding or seek other debt financing. The sale of equity and
convertible debt securities may result in dilution to our stockholders and, in
the case of preferred equity securities or convertible debt, those securities
could provide for rights, preferences or privileges senior to those of our
common stock. The terms of debt securities issued or borrowings pursuant to a
credit agreement could impose significant restrictions on our operations. If we
raise funds through collaborations and licensing arrangements, we might be
required to relinquish significant rights to our platform technologies or
products or grant licenses on terms that are not favorable to us. Additional
capital may not be available on reasonable terms, or at all.

Cash Flows


The following table summarizes our cash flows for each of the periods indicated
(in thousands):

                                                       Three Months Ended March 31,
                                                         2022                 2021
Net cash provided by (used in):
Operating activities                                $       (9,100 )     $        8,766
Investing activities                                       (73,511 )            (22,511 )
Financing activities                                       176,542                2,214
Effect of foreign exchange rate on cash and cash
equivalents                                                   (127 )               (183 )
Net increase (decrease) in cash and cash
equivalents                                         $       93,804       $  

(11,714 )

Net Cash (Used in) Provided by Operating Activities


Net cash used in operating activities for the three months ended March 31, 2022
was $9.1 million, consisting primarily of net loss of $3.1 million and a
decrease in net operating assets of $14.3 million, offset by non-cash charges of
$8.3 million. The decrease in net operating assets was primarily due to
decreases in accounts payable and accrued liabilities of $6.7 million due to
timing of payments and growth of our operations, lease prepayments for lessor's
owned leasehold improvements of $2.1 million and a decrease in operating lease
liabilities of $0.3 million, coupled with increases in inventories of $2.8
million and accounts receivable of $2.7 million, offset by a decrease in prepaid
and other assets of $0.3 million. The non-cash charges primarily consisted of
$6.6 million in stock-based compensation expense, $1.1 million in depreciation,
and $0.6 million in amortization of the right-of-use assets.

Net cash provided by operating activities for the three months ended March 31,
2021 was $8.8 million, consisting primarily of net income of $7.5 million and
non-cash charges of $4.8 million, offset by an increase in net operating assets
of $3.5 million. The increase in net operating assets was primarily due to
increases in accounts receivable of $3.4 million and inventories of $3.1 million
to support the growth of our operations, an increase in prepaid and other assets
of $2.9 million primarily from prepaid insurance, which were partially offset by
increases in accounts payable of $2.5 million and accrued liabilities of $3.6
million due to timing of payments and growth of our operations. The non-cash
charges primarily consisted of $3.8 million in stock-based compensation, $0.6
million in depreciation, $0.2 million in amortization of the right-of-use assets
and $0.1 million provision for doubtful accounts.

Net Cash Used in Investing Activities

Net cash used in investing activities for the three months ended March 31, 2022 was $73.5 million, consisting of $112.1 million purchases of short-term investments, $5.7 million purchases of other investments, and $2.7 million purchases of property and equipment, offset by maturities of short-term investments of $47.0 million.


Net cash used in investing activities in the three months ended March 31, 2021
was $22.5 million, consisting of purchases of short-term investments of $21.2
million and purchases of property and equipment of $1.3 million.

Net Cash Provided by Financing Activities


Net cash provided by financing activities in the three months ended March 31,
2022 was $176.5 million, consisting of $174.4 million net proceeds from the
issuance of common stock in the public offering, net of issuance costs of $11.9
million, $3.4 million proceeds from the issuance of common stock under our
employee stock purchase plan and $0.3 million of proceeds from exercise of stock
options, offset by $1.6 million of tax payments related to vested RSUs.

                                       19
--------------------------------------------------------------------------------


Net cash provided by financing activities in the three months ended March 31,
2021 was $2.2 million consisting primarily of proceeds of $1.9 million in
proceeds from the issuance of common stock under our employee stock purchase
plan

Off-Balance Sheet Arrangements


We do not have any off-balance sheet arrangements, as defined by applicable
regulations of the U.S. Securities and Exchange Commission, that are reasonably
likely to have a current or future material effect on our financial condition,
results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations and Commitments


There have been no material changes outside the ordinary course of business to
the Company's contractual obligations from those disclosed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in our Annual Report on Form 10-K for the year ended December 31, 2021,
filed with the SEC on February 23, 2022.

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