MINERVA SURGICAL, INC. You should read the following management's discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q (Quarterly Report) and with our audited financial statements and notes thereto for the year endedDecember 31, 2021 , included in our Annual Report on From 10-K filed with theU.S. Securities and Exchange Commission onMarch 23, 2022 .
Forward-Looking Statements
In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled "Risk Factors" under Part II, Item 1A below. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "should," "will" or the negative of these terms or other similar expressions. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Overview
We are a commercial-stage medical technology Company focused on developing, manufacturing, and commercializing minimally invasive solutions to meet the distinct uterine healthcare needs of women. We have established a broad product line of commercially available, minimally invasive alternatives to hysterectomy, which are designed to address the most common causes of abnormal uterine bleeding (AUB) in most uterine anatomies. Our solutions can be used in a variety of medical treatment settings and aim to address the drawbacks associated with alternative treatment methods and to preserve the uterus by avoiding unnecessary hysterectomies. We offer a broad suite of products for the treatment of structural and non-structural causes of AUB in most uterine anatomies. Our devices are utilized by obstetrician-gynecologists (OB/GYNs) across a variety of medical treatment settings, including hospitals, ambulatory surgical centers (ASCs), and physician offices. Prior toMay 2020 , we sold only one product, the Minerva ES Endometrial Ablation System (Minerva ES) for women with AUB attributed to a non-structural cause. InMay 2020 , we acquired certain assets from Boston Scientific Corporation (BSC), including all rights to the Genesys HTA Endometrial Ablation System (Genesys HTA), Symphion Operative Hysteroscopy System (Symphion), and Resectr Tissue Resection (Resectr) product lines. The assets acquired included all future value associated with the developed products and rights of ownership for the products. We did not assume any liabilities associated with BSC's product activities, except for an immaterial warranty liability for installed Genesys HTA controllers. We expect to be liable for future variable milestone obligations to BSC, in the maximum amount of$10.0 million in total as described in our financial statements and notes based on sales of the BSC products in 2022. We utilize contract manufacturers for a significant portion of our products. This includes all of our controllers and significant subcomponents of our disposable devices. BSC manufactured the Genesys HTA and its ProCerva procedure set at its facility. In connection with the BSC product acquisition, we entered into a supply agreement with BSC relating to the Genesys HTA system and certain of its components. Pursuant to the supply agreement, BSC supplied us with systems and procedure sets until we had successfully transferred manufacturing to a third-party manufacturer, which occurred in 2022. The Symphion and Resectr products were previously manufactured for BSC by various third-party manufacturers. We intend to rely on the same manufacturers to supply us with these products and we have assumed those relationships directly. We market and sell our products through a direct sales force inthe United States . Our target customer base includes approximately 19,000 OB/GYNs practicing in hospitals, ASCs, and physician offices. As ofJune 30, 2022 , our commercial team consisted of approximately 84 field-based personnel that call on OB/GYNs in all majorU.S. markets. Our sales and marketing programs focus on educating physicians regarding the use of our products and on 22 -------------------------------------------------------------------------------- providing materials to help them educate their patients about our procedures. We also provide online patient-oriented educational materials about AUB and our products and procedures, which patients may use to consider and then discuss treatment options with their physicians.
For the six-month period ended
As ofJune 30, 2022 , we had an accumulated deficit of$266.1 million , cash and cash equivalents of$22.4 million and$40.0 million outstanding debt under the CIBC Agreement before debt discount, and accrued interest.
Impact of the COVID-19 pandemic
The global COVID-19 pandemic presents significant volatility, uncertainty and risks to us and has had, and continues to have, far reaching impacts on our business, operations, and financial results and condition, directly and indirectly. The access to many hospitals and other customer sites may be or may periodically be, depending on the current COVID-19 infection rates in the applicable location, restricted to essential personnel, which negatively impacts our ability to promote the use of our products with physicians. Additionally, many hospitals and other surgery centers have in the past suspended, and may suspend or continue to suspend in the future, many elective procedures, resulting in a reduced volume of procedures using our products. Our customer behavior is impacted by the prevalence of COVID-19 and changes in the infection rates in the locations where our customers are located. Quarantines, shelter-in-place and similar government orders have also impacted and may continue to impact, our third-party manufacturers and suppliers, and could in turn adversely impact the availability or cost of materials, which could disrupt our supply chain. We have taken a variety of steps to address the impact of the COVID-19 pandemic, while attempting to minimize business disruption. Essential staff in manufacturing and limited support functions continued to work from our Santa Clara headquarters following appropriate hygiene and social distancing protocols. To reduce the risk to our other employees and their families from potential exposure to COVID-19, until recently all other staff in our Santa Clara headquarters were requested to work from home. Certain of these other employees had begun to return to our headquarters full or part-time during the third quarter of 2021, although we are reviewing the impact of COVID-19 on employee safety. We are continuing to monitor the impact of the COVID-19 pandemic on our employees and customers and on the markets in which we operate and will take further actions that we consider prudent to address the COVID-19 pandemic, while ensuring that we can support our customers and continue to develop our products. The Company continued to experience a slower than expected revenue growth in the six months endedJune 30, 2022 , a trend that continued from the second half of 2021. While reinstated hospital and ASC closures for elective procedures due to COVID-19 have been lifted in the first half of 2022, a nationwide staffing shortage in the hospital work environment resulted in a negative impact on the numbers of ablation procedures scheduled in 2022. The ultimate extent of the impact of the COVID-19 pandemic on us is highly uncertain and subject to change. This impact may result in a material, adverse impact on liquidity, capital resources, supply chain, operations, revenue and may affect third parties on which the Company relies, and could worsen over time. The extent of the continuing resurgence of COVID-19, the efficacy and extent of distribution of vaccines, and the impact of mutations of COVID-19 is unpredictable. Most of these developments and factors are outside of our control and could exist for an extended period of time even after the pandemic might end. Key financial data
We measure out business using both financial and operating data and use the following metrics and measures to assess the performance of our overall business, including identifying trends affecting our business, formulating business plans, making strategic decisions and assessing operational efficiencies.
Components of our results of operations
Revenue
We currently derive substantially all our revenue from the sale of our products to hospitals, ASCs, and physician offices inthe United States . We market and sell our products through a direct sales force. For the three months endedJune 30, 2022 , nearly 99.4% of our revenue is point-in-time recognition for single-use (disposable) products and capital equipment. Sale of extended warranties on capital equipment represents less than 1.0% of revenue. 23 --------------------------------------------------------------------------------
Further, 98.8% of our total revenue is derived from the sale of single-use (disposable) products and therefore revenue from the sale of capital equipment, associated warranties and miscellaneous revenue is not disaggregated in our financial statements.
Cost of goods sold
Cost of goods sold consists primarily of costs related to materials, components and subassemblies, payroll, and personnel-related expenses for our manufacturing and quality assurance employees, including expenses related to stock-based compensation, manufacturing overhead, charges for excess, obsolete and non-sellable inventories, and royalties. Overhead costs include the cost of quality assurance, testing, material procurement, inventory control, operations supervision, and management personnel, an allocation of facilities and information technology expenses, including rent and utilities, and equipment depreciation. We record adjustments to our inventory valuation for estimated excess, obsolete, and non-sellable inventories based on assumptions about future demand, past usage, changes to manufacturing processes, and overall market conditions. We expect cost of goods sold to increase in absolute dollars as more of our products are sold.
Gross margin
We calculate gross margin as gross profit divided by revenue. Our gross margin has been, and will continue to be, affected by a variety of factors, including production volumes, the cost of direct materials, product mix, manufacturing costs, product yields, headcount, and cost-reduction strategies. We expect our gross margin percentage to increase over the long term to the extent we are successful in increasing our sales volume and are therefore able to leverage our fixed costs. However, we expect our gross margin to fluctuate from period to period based upon the factors described above and seasonality.
Operating expenses
Our operating expenses consisted of sales and marketing costs, general and administrative costs, and research and development costs. We expect to continue to invest in these activities.
Sales and marketing
We have made significant investments in building our commercial field organization and intend to make significant investments in sales and marketing activities in the future. Sales and marketing expense consist primarily of payroll and personnel-related costs for our sales and marketing personnel, including sales variable compensation, stock-based compensation expense, travel expenses, consulting, direct marketing, customer education, trade shows, and promotional expenses. Sales and marketing expenses also includes expenses related to the amortization of the value of customer relationships acquired from BSC. We anticipate that our sales and marketing expenses will increase as we strategically invest to expand our business. We expect to hire additional sales personnel and related account management and sales support personnel to capture an increasing amount of our market opportunity. We also expect to continue our brand awareness and targeted marketing campaigns. As we scale our sales and marketing activities, we expect these expenses to increase.
General and administrative expenses
General and administrative expenses consist primarily of payroll and personnel-related expenses, including salaries, employee benefit costs and stock-based compensation expense, professional fees for legal, patent, consulting, accounting and tax services, allocated overhead, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses. We also recognize the change in value of the contingent consideration liability due to BSC for the potential future milestone payment in general and administrative expenses.
Research and development expenses
Research and development expenses have included clinical studies to demonstrate
the safety and efficacy of our products, as well as obtain and retain FDA
approval. Current research and development expenses consist primarily of costs
incurred for the development of our products. These costs consist of engineering
and research programs associated with our products under development and
improvements to our existing products. These costs include prototype materials,
laboratory supplies, regulatory expenses, and an allocation of facility overhead
costs. Research and development expenses also include payroll and
personnel-related costs and stock-based compensation expense for our research
and development employees and consultants and acquisition of technology with no
alternative
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future uses. We also recognize the amortization cost of intangible assets
acquired from BSC for developed technology and patents and trademarks in
research and development expenses beginning in May 2020 . We expense research and
development costs as incurred. We intend to continue making significant
investments in research and development, clinical studies, and regulatory
affairs to support future regulatory submissions for retaining and expanding
indications of our products, support continuous improvements to our products,
and develop future products that address abnormal uterine bleeding in a
minimally invasive manner.
Interest expense and income
Interest expense consists primarily of interest expense related to our term loan facilities and convertible notes, including amortization of debt discount and issuance costs. Interest income is predominately derived from investing surplus cash in money market funds. Other income and expenses Other income and expenses primarily consist of changes in the fair value of derivative liabilities and redeemable convertible preferred stock warrant liability. Upon exercise or expiration of the warrants, the final fair value of the warrant liability is reclassified to stockholders' (equity)/deficit, and we will no longer record any related periodic fair value adjustment. The derivative liabilities are adjusted for changes in fair value at each balance sheet date until the convertible notes are converted or repaid, with any changes in fair value recognized in the statements of operations.
Results of operations
Comparison of the three months ended
The following table summarizes our unaudited results of operations for the
periods indicated:
Three Months Ended
June 30,
2022 2021 Change % Change
Revenue $ 12,967 $ 14,114 $ (1,147 ) (8.1 %)
Cost of goods sold 5,322 5,382 (60 ) (1.1 %)
Gross profit 7,645 8,732 (1,087 ) (12.4 %)
Operating expenses
Sales and marketing 9,691 8,497 1,194 14.1 %
General and administrative 1,579 10,125 (8,546 ) (84.4 )%
Research and development 1,274 1,673 (399 ) (23.8 )%
Total operating expenses 12,544 20,295 (7,751 ) (38.2 %)
Loss from operations (4,899 ) (11,563 ) 6,664 (57.6 %)
Interest income 19 - 19 100.0 %
Interest expense (703 ) (3,601 ) 2,898 (80.5 %)
Change in fair value of derivative
liabilities - (2,019 ) 2,019 (100.0 %)
Gain on extinguishment of PPP loan - 3,036 (3,036 ) (100.0 %)
Other income (expense), net (30 ) 48 (78 ) (162.5 %)
Net loss before income taxes (5,613 ) (14,099 ) 8,486 (60.2 %)
Net loss $ (5,613 ) $ (14,099 ) $ 8,486 (60.2 %)
Revenue
Revenue decreased by $1.1 million , or 8.1%, to $13.0 million during the
three-month period ended June 30, 2022 , compared to $14.1 million during the
three-month period ended June 30, 2021 . The decrease in revenue compared to the
second quarter of 2021, was driven by a decrease in revenue for the Minerva ES
and Genesys HTA products, partially offset by an increase in Symphion product
revenue.
Revenue has been significantly impacted in 2021 by government and hospital
restrictions on elective surgeries as a result of the COVID-19 pandemic, and
this trend continued negatively impacting revenue during the first half of 2022.
Additionally, recent inflation and negative economic outlook together with a
nationwide staffing shortage in the hospital work environment had a negative
impact on the numbers of procedures scheduled and contributed to a negative
result on the Company's revenue for the three-month period ended June 30, 2022 .
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For the three-month periods ended June 30, 2022 and 2021, sales of Minerva ES
contributed 44.5% and 47.7% of revenue, respectively; sales of the Genesys HTA
contributed 29.7% and 32.1% of revenue, respectively; sales of Symphion
contributed 25.2% and 19.4% of revenue, respectively; and sales of other
products and warranties contributed 0.6% and 0.7% of revenue, respectively.
Cost of goods sold
Cost of goods sold of$5.3 million was essentially flat during the three-month period endedJune 30, 2022 compared to$5.4 million during the three-month period endedJune 30, 2021 . This result is due to growth in the sales volume of our Symphion products, which material costs have increased compared to the three months endedJune 30, 2021 , offset by a reduction in sales volume and resulting material costs in Minerva ES and Genesys HTA products during the comparable periods.
Gross margin
Our gross margin decreased from 61.9% for the three-month period endedJune 30, 2021 to 59.0% for the three-month period endedJune 30, 2022 . The decrease in gross margin was primarily due to the sales mix of our product portfolio, as described above and the fact that Symphion products contribute less to the Company's overall gross margin compared to Minerva ES and Genesys HTA products.
Sales and marketing expenses
Sales and marketing expenses increased by
General and administrative expenses
General and administrative expenses decreased by$8.5 million , or 84.4%, to$1.6 million during the three-month period endedJune 30, 2022 , compared to$10.1 million during the three-month period endedJune 30, 2021 . The decrease was primarily due to a$5.1 million decrease in the fair value related to the contingent consideration liability associated with the BSC product revenue milestone based on actual sales data and current forecast, decrease in stock-based compensation expenses slightly offset by increased compensation and personnel related expenses, and a$2.4 million decrease in legal expenses in connection with our patent infringement lawsuit with Hologic and corporate matters, partially offset by an increase in business and D&O insurance, merchant fees, other tax expenses and dues and subscriptions.
Research and development expenses
Research and development expenses decreased by$0.4 million , or 23.8%, to$1.3 million in the three-month period endedJune 30, 2022 , compared to$1.7 million in the three-month period endedJune 30, 2021 . The decrease was primarily due to lower costs for controller and prototype development.
Interest expense and income
Interest expense decreased by$2.9 million , or 80.5%, to$0.7 million during the three-month period endedJune 30, 2022 , compared to$3.6 million during the three-month period endedJune 30, 2021 , primarily due to conversion of the promissory notes in conjunction with the IPO and the lower interest rate of the CIBC loan compared to the prior loan that was repaid in 2021.
Other income and expenses
Three Months Ended
June 30,
(in thousands, except percentage
figures) 2022 2021 Change % Change
Change in fair value of derivative
liabilities $ - $ (2,019) $ 2,019 (100.0%)
Change in fair value of redeemable
convertible preferred stock warrant
liability - (50) 50 (100.0%)
Gain on extinguishment of PPP loan - 3,036 (3,036) (100.0%)
Other income (expense), net (30) 98 (128) (130.6%)
Total $ (30) $ 1,065 $ -1,095 (102.8%)
26-------------------------------------------------------------------------------- Changes in fair value of derivative liabilities decreased by$2.0 million , or 100%, to $nil millions of other income during the three months endedJune 30, 2022 , compared to$2.0 million of other expenses during the three months endedJune 30, 2021 . Upon the conversion of the convertible notes in the fourth quarter 2021, the fair value of the single derivative liability was determined to be zero. The decrease is primarily due to management's view on the key assumptions that changed the probabilities of a qualified financing, change of control and non-qualified financing which resulted in a change in fair value of derivative liabilities of$2.0 million during the three months endedJune 30, 2021 . Gain on extinguishment of PPP loan decreased by$3.0 million to $nil million during the three months endedJune 30, 2022 , compared to gain of$3.0 million recognized during the three months endedJune 30, 2021 , due to the PPP loan's principal and interest being forgiven inJune 2021 .
Comparison of the six months ended
The following table summarizes our unaudited results of operations for the
periods indicated:
Six Months Ended
June 30,
2022 2021 Change % Change
Revenue $ 23,902 $ 25,952 $ (2,050 ) (7.9 %)
Cost of goods sold 10,844 10,387 457 4.4 %
Gross profit 13,058 15,565 (2,507 ) (16.1 %)
Operating expenses
Sales and marketing 19,164 14,964 4,200 28.1 %
General and administrative 6,564 14,128 (7,564 ) (53.5 )%
Research and development 2,529 2,824 (295 ) (10.4 )%
Total operating expenses 28,257 31,916 (3,659 ) (11.5 %)
Loss from operations (15,199 ) (16,351 ) 1,152 (7.0 %)
Interest income 28 - 28 100.0 %
Interest expense (1,335 ) (7,052 ) 5,717 (81.1 %)
Change in fair value of derivative
liabilities - (8,140 ) 8,140 (100.0 %)
Gain on extinguishment of PPP loan - 3,036 (3,036 ) (100.0 )%
Other income (expense), net (32 ) (540 ) 508 (94.1 %)
Net loss before income taxes (16,538 ) (29,047 ) 12,509 (43.1 %)
Net loss $ (16,538 ) $ (29,047 ) $ 12,509 (43.1 %)
Revenue
Revenue decreased by $2.1 million , or 7.9%, to $23.9 million during the
six-month period ended June 30, 2022 , compared to $26.0 million during the
six-month period ended June 30, 2021 . The decrease in revenue compared to the
first half of 2021, was driven by a decrease in revenue for the Minerva ES and
Genesys HTA products, partially offset by an increase Symphion product revenue.
Revenue has been significantly impacted in 2021 by government and hospital
restrictions on elective surgeries as a result of the COVID-19 pandemic, and
this trend continued negatively impacting revenue during the first half of 2022.
Additionally, recent inflation and negative economic outlook together with a
nationwide staffing shortage in the hospital work environment had a negative
impact on the numbers of procedures scheduled and contributed to a negative
result on the Company's revenue for the six-month period ended June 30, 2022
compared to the six-month period ended June 30, 2021 .
For the six-month periods ended
Cost of goods sold
Cost of goods sold increased by$0.5 million , or 4.4%, to$10.8 million during the six-month period endedJune 30, 2022 compared to$10.4 million during the six-month period endedJune 30, 2021 . This result is due to growth in the sales volume of our Symphion products, which material costs have increased compared to the six months endedJune 30, 2021 , offset by a reduction in sales volume and resulting material costs in Minerva ES and Genesys HTA products during the comparable periods. 27 --------------------------------------------------------------------------------
Gross margin
Our gross margin decreased from 60.0% for the six-month period endedJune 30, 2021 to 54.6% for the six-month period endedJune 30, 2022 . The decrease in gross margin was primarily due to shift in products sold towards Symphion products, which contributes to a lower gross margin compared to Minerva ES and Genesys HTA products. Further, fixed overhead costs spread over a smaller base of product revenue resulting in a negative impact on the gross margin.
Sales and marketing expenses
Sales and marketing expenses increased by
General and administrative expenses
General and administrative expenses decreased by$7.6 million , or 53.5%, to$6.6 million during the six-month period endedJune 30, 2022 , compared to$14.1 million during the six-month period endedJune 30, 2021 . The decrease was primarily due to a$5.0 million decrease in the fair value related to the contingent consideration liability associated with the BSC product revenue milestone based on actual sales data and current forecast, a$4.2 million decrease in legal expenses in connection with our patent infringement lawsuit with Hologic and other corporate matters, and a decrease in consulting and accounting expenses, partially offset by an increase in D&O insurance expenses, tax expenses, dues and subscriptions, and an increase in compensation and personnel related expenses due to higher headcount partially offset by a decrease in stock-based compensation expenses.
Research and development expenses
Research and development expenses decreased by$0.3 million , or 10.4%, to$2.5 million in the six-month period endedJune 30, 2022 , compared to$2.8 million in the six-month period endedJune 30, 2021 . The decrease was primarily due to a decrease in expense for controller and prototype development and lower compensation and lower personnel and stock-based compensation expenses.
Interest expense and income
Interest expense decreased by$5.7 million , or 81.1%, to$1.3 million during the six-month period endedJune 30, 2022 , compared to$7.1 million during the six-month period endedJune 30, 2021 , primarily due to conversion of the promissory notes in conjunction with the IPO and the lower interest rate of the CIBC loan compared to the prior loan that was repaid in 2021.
Other income and expenses
Six Months Ended
June 30,
(in thousands, except percentage
figures) 2022 2021 Change % Change
Change in fair value of derivative
liabilities $ - $ (8,140) $ 8,140 (100.0%)
Change in fair value of redeemable
convertible preferred stock warrant
liability - (532) 532 (100.0%)
Gain on extinguishment of PPP loan - 3,036 (3,036) (100.0%)
Other income (expense), net (32) (8) (24) 300.0%
Total $ (32) $ (5,644) $ 5,612 (99.4%)
Changes in fair value of derivative liabilities decreased by $8.1 million , or
100%, to $nil million of other income during the six months ended June 30, 2022 ,
compared to $8.1 million of other expenses during the six months ended June 30,
2021 . Upon the conversion of the convertible notes in the fourth quarter of
2021, the fair value of the single derivative liability was determined to be
zero. The decrease is primarily due to management's view on the key assumptions
that changed the probabilities of a qualified financing, change of control and
non-qualified financing which resulted in a change in fair value of derivative
liabilities of $8.1 million during the six months ended June 30, 2021 .
Change in fair value of redeemable convertible preferred stock warrant liability
improved by $0.5 million to $nil million during the six months ended June 30,
2022 , compared to expense of $0.6 million recognized during the six months ended
June 30, 2021 , due to their conversion to common stock warrants in October 2021 .
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Gain on extinguishment of PPP loan decreased by
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA Margin
To provide additional information regarding our financial results, we have disclosed EBITDA and adjusted EBITDA here and elsewhere in this Quarterly Report. EBITDA and Adjusted EBITDA are key performance measures that our management uses to assess our financial performance and are also used for internal planning and forecasting purposes. We believe that these non-GAAP financial measures are useful to investors and other interested parties in analyzing our financial performance because they provide a comparable overview of our operations across historical periods. In addition, we believe that providing EBITDA and Adjusted EBITDA, together with a reconciliation of net loss to each such measure, helps investors make comparisons between our Company and other companies that may have different capital structures, different levels of intangible assets, different tax rates, and/or different forms of employee compensation. EBITDA and Adjusted EBITDA are used by our management team as an additional measure of our performance for purposes of business decision-making, including managing expenditures, and evaluating potential acquisitions. Period-to-period comparisons of EBITDA and Adjusted EBITDA help our management identify additional trends in our financial results that may not be shown solely by period-to-period comparisons of net income or income from continuing operations. Each of EBITDA and Adjusted EBITDA has inherent limitations because of the excluded items, and may not be directly comparable to similarly titled metrics used by other companies. We calculate EBITDA as net income (loss) adjusted to exclude depreciation and amortization, net interest expense and income tax benefit. We calculate Adjusted EBITDA by further excluding the gain on the extinguishment of the PPP loan, stock-based compensation expenses, change in fair value of redeemable convertible preferred stock warrant liability, change in fair value of contingent consideration liability and change in fair value of derivative liabilities. EBITDA margin represents EBITDA as a percentage of revenue. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of revenue. EBITDA and Adjusted EBITDA should be viewed as measures of operating performance that are supplements to, and not substitutes for, operating (income) loss, net (income) loss and otherU.S. GAAP measures of income and loss. Three Months Ended June 30 Six Months Ended June 30 (in thousands, except percentage figures) 2022 2021 2022 2021 Net loss$ (5,613) $ (14,099) $ (16,538) $ (29,047) Depreciation and amortization 2,693 2,691 5,361 5,334 Interest (income) expense, net 684 3,601 1,307 7,052 EBITDA (2,236) (7,807) (9,870) (16,661) EBITDA margin (17.2%) (55.3%) (41.3%) (64.2%) Adjustments: Gain on extinguishment of PPP loan - (3,036) - (3,036) Stock-based compensation expense 1,676 4,478 3,199 4,609 Change in fair value of redeemable convertible preferred stock warrant liability - (50) - 532 Change in fair value of contingent consideration liability (3,943) 1,121 (4,094) 917 Change in fair value of derivative liabilities - 2,019 - 8,140 Adjusted EBITDA$ (4,503) $ (3,275) $ (10,765) $ (5,499) Adjusted EBITDA margin (34.7%) (23.2%) (45.0%) (21.2%)
Liquidity and capital resources
Prior to our IPO inOctober 2021 , we financed our operations primarily through private placements of equity securities, debt financing arrangements, and sales of our products. As ofJune 30, 2022 , we had an accumulated deficit of$266.1 million , cash and cash equivalents of$22.4 million and$40.0 million of outstanding debt under the CIBC Agreement before debt discount and accrued interest. We incurred a net loss of$16.5 million during the six months endedJune 30, 2022 .
We have prepared an internal forecast that was reviewed with our Board of Directors that includes plans to raise additional capital within the next six to nine months. Should the plan to raise capital within this timeline not be consummated, this forecast presents the possibility of a financial covenant violation related to our minimum cash
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position within the twelve-month period from the issuance of these financial
statements. A potential financial covenant violation, should it occur, would put
us in technical default per the terms of the CIBC Agreement and provide for
remedies to the bank per that agreement. This potential future covenant
violation could impact our ability to fund our current business plan within the
twelve months from the date of issuance of these financial statements. The
presence of this condition raises substantial doubt about our ability to
continue as a going concern within one year after the date that the financial
statements are issued.
We are currently in discussions with a number of potential lenders to raise
additional capital through debt, equity or a combination financing. However,
such additional financings may not be available to us on acceptable terms, or at
all. If we are unable obtain adequate financing on acceptable terms, we may
terminate or delay the development of one or more of its products, delay sales
and marketing efforts or other activities necessary to commercialize its
products or modify its operations to operate within available resources. Failure
to manage discretionary spending or raise additional financing as needed, may
adversely impact our ability to achieve its intended business objectives. While
we believe our plans will alleviate the conditions that raise substantial doubt,
these plans are not entirely within our control and cannot be assessed as being
probable of occurring.
CIBC
On October 8, 2021 , we entered into the CIBC Agreement with Canadian Imperial
Bank of Commerce (CIBC), which provides for a senior secured term loan in an
aggregate principal amount of $40.0 million (the CIBC Loan), the full amount of
which was funded at the closing of the CIBC Agreement.
The CIBC Loan provides for 24 months of interest-only payments followed by 36
equal monthly payments of principal, plus accrued and unpaid interest, with the
final obligations due and payable in full on October 8, 2026 . The CIBC Loan
accrues interest at a floating rate equal to 2.50% above the prime rate, and the
interest is payable monthly in arrears.
Future funding requirements
We expect to incur continued expenditures in the future in support of our commercialization efforts inthe United States . In addition, we intend to continue to make investments in clinical studies, development of new products, and other ongoing research and development programs. We expect to incur additional ongoing costs associated with operating as a public company. We may incur additional expenses to expand our commercial organization and efforts, further enhance our research and development efforts, and pursue commercial opportunities outside ofthe United States . As ofJune 30, 2022 , we had cash and cash equivalents of$22.4 million . Based on our current planned operations, we expect to incur significant operating expenses as we continue to expand product sales and develop and commercialize new products. Our management believes that our operating losses and negative cash flows will continue into the foreseeable future. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with product sales, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
•
the timing, receipt and amount of sales from our current and future products;
•
the cost and timing of establishing and growing sales, marketing and distribution capabilities;
•
the cost of preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights;
•
the terms and timing of any other collaborative, licensing and other arrangements that we may establish, including milestone payments which may become due to BSC for past product acquisitions;
•
the degree of success we experience in commercializing future products;
•
the cost, timing and results of our clinical trials and regulatory reviews; and
•
the emergence of competing or complementary technologies.
30
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restructuring, refinancing, or repayment of debt
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