Nuwellis, Inc. (NUWE) Q1 2024 Earnings Report, Transcript and Summary

Good day, and welcome to the Nuwellis First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vivian Cervantes, Investor Relations with Gilmartin Group.

Thank you, Cindy. Good morning, everyone. Thank you for joining us in today's conference call to discuss Nuwellis' corporate development. and financial results for the first quarter ended March 31, 2024. In addition to myself, with us today are Nestor Jaramillo, Nuwellis' President and CEO; as well as Rob Scott, CFO. At 8:00 a.m. Eastern today, Nuwellis released financial results for the first quarter ended March 31, 2024. If you have not received Nuwellis' earnings release, please visit the company's investor page on its website. During this conference call, the company will be making forward-looking statements. All forward-looking statements made during today's call will be protected under the Private Securities Litigation Reform Act of 1995. Any statements that relate to expectations or predictions of future events and market trends as well as our estimated results or performance are forward-looking statements. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. All forward-looking statements are based upon current available information, and the company assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. Please refer to the cautionary statements and discussion of risks in the company's filings with the SEC, including the latest 10-K. With that, I'd like to now turn the call over to Nestor.

Thank you, Vivian, and good morning, everyone. Welcome to Nuwellis First Quarter 2024 Earnings Conference Call. On today's call, I will provide an overview of our first quarter performance and give an update on our strategic initiatives. Our Chief Financial Officer, Rob Scott will then provide detailed commentary on the financial results before opening up the call for questions, followed by my closing remarks. Nuwellis generated $1.9 million in revenue for the first quarter of 2024, a 2% increase year-over-year. driven by our 11% increase in consumable utilization. Our pediatric customer category once again led the way with 40% revenue growth, which was driven by a 54% increase in consumable utilization. We continue to grow our pediatric customer category, acquiring 5 new accounts over the past 12 months for a total of 40 accounts compared to 10 accounts in 2019 prior to FDA clearance. Revenue in our critical care customer category was flat. However, consumable utilization grew by 9%, and heart failure revenue decreased by 38%, which was driven by lower utilization and console sales. We are pleased to continue to see a healthy consumable utilization trends signaling strong therapy adoption. Consumable sales in Q1 represented 82% of the total revenue, which grew 11% compared to last year. We continue to balance the strong sales of consumables with the unpredictable capital sales cycle in our hospitals accounts. Our capital rental program provides an alternative to our customers experiencing capital budget constraints with a solution to treat patients with Aquadex. Similar to last year, first quarter capital sales were lower than expected. However, as in the second half of 2023, we expect capital sales to increase throughout the year as our pipeline of new target accounts is robust. We are confident of our growth momentum in 2024 because of the increased awareness of the efficacy of Aquadex including recent clinical data reported at the Technology and Heart Failure Therapeutics Conference, also known as the THT Conference in early March. A delayed breaking clinical trial session. The use of the Aquadex demonstrated a clinically and statistical significant reduction in heart failure hospitalizations and heart failure events at 30 days. This new clinical data is the result of our key priority to continue developing strong clinical and economic evidence for using the Aquadex system to treat patients with fluid overload and who are unresponsive to diuretics. In addition to the steady organic growth in our base business, we look forward to new product sales in our fast-growing pediatric category. In addition to expanding the utilization of Aquadex as we progress our DaVita pilot program, which I will provide more details next. Now turning to our recent commercial development and expected new product introduction. In February, SeaStar Medical received humanitarian device extension, or HDE, from the FDA for its selective cytopheretic device or SCD, branded QUELimmune for use in pediatric patients with acute kidney injury due to sepsis or aseptic condition. Nuwellis has exclusive U.S. license and distribution rights, and we have begun commercializing QUELimmune in targeted medical centers by pursuing IRB approvals in 5 accounts while simultaneously engaging in preliminary dialogue with other key pediatric institutions. The unique technology behind QUELimmune has demonstrated a 77% ICU survival rate in children with potentially deadly hyperinflammation. We believe this product will have a positive impact on the patient population for which it serves and we look forward to providing continued updates as this collaboration progresses. We also continue the development of our pediatric continuous kidney replacement therapy device, branded Vivian. We, along with many pediatric nephrologists, believe this product will have a positive impact on survival and improve the quality of life of neonates and small children with kidney malfunction. Kidney issues or those born without kidneys. This device is complementary to SeaStar Medical's QUELimmune device, and we believe these 2 products together will add meaningful value to our growing portfolio of products for pediatric patients with fluid overload and renal disease. We continue to advance the pilot phase of our supply and collaboration agreement with DaVita. As a reminder, this collaboration allows DaVita and Nuwellis to pilot Aquadex therapy for adults, heart failure patients in selected U.S. markets. Pairing Aquadex with DaVita's clinical infrastructure could potentially help accelerate the clinical adoption of ultrafiltration when diuretics therapy -- therapies are ineffective. We have made introduction in 9 hospitals with very positive results. We look forward to providing more specific information during the quarter. In early April, we announced the launch of ultrafiltration therapy for heart failure patients using the Aquadex at Henry Ford Health as part of our pivotal reverse heart failure clinical study. Based in Michigan, Henry Ford Health is one of the nation's leading academic heart failure centers recognized for clinical excellence in heart failure, heart transplant and left ventricular assist devices. We are honored to be working with them as their heart failure program is one of the largest in Michigan. Dr. Jennifer Cowger, Head of the heart failure program will lead the efforts, and I look forward to hearing her findings as the study progresses. We currently have 123 patients involved in the randomized multicenter trial and Henry Ford is the only site in Michigan offering this study intervention. I'd like to now turn it to Rob to discuss our first quarter financial results.

Thank you, Nestor, and good morning, everyone. Turning to the Q1 financial results. Revenue for the first quarter was $1.9 million, representing a 2% growth over the prior year period driven by an 11% increase in consumables utilization, partially offset by a decrease in console shipments. Our pediatric customer category had the strongest growth in Q1, with a 40% increase year-over-year. Pediatric results were driven by a 54% increase in consumables utilization. Critical Care revenue was flat but experienced a 9% increase in consumable sales. Total revenue was offset by a decrease in utilization in console sales in heart failure. Gross margin was 64.1% for the first quarter compared to gross margin of 58.4% in the prior year quarter. The margin improvement was primarily driven by higher manufacturing volumes of consumables in the current year period. Selling, general and administrative expenses were $4.6 million in the first quarter, a decrease of 16.1% as compared to $5.5 million in the first quarter of 2023. The decrease of SG&A was primarily due to reduced headcount and compensation-related expense and lower corporate administrative expenses. First quarter research and development expense was $1.3 million compared to $1.4 million in the prior year period. Total operating expenses were $5.9 million in the quarter, a decrease of approximately $1 million as compared to the first quarter of 2023. The period-over-period decrease was due to cost savings measures implemented early in the second half of 2023 and carried forward to the current period as we continue to drive operating efficiencies. We anticipate significant expense reductions approaching 50% through operating efficiency initiatives for the rest of the calendar year. Operating loss in the first quarter was $4.7 million compared to an operating loss of $5.8 million in the prior year period, resulting in a $1.1 million period-over-period improvement. Net loss attributable to common shareholders in the first quarter was $3.8 million or a loss of $0.60 per share compared to a net loss attributable to common shareholders of $6.5 million or $5.76 per share for the same period in 2023. We ended the first quarter with $1.4 million in cash and cash equivalents and with no debt on the balance sheet. On April 30, Nuwellis closed an underwritten public offering with gross proceeds of $2.7 million before deducting underwriting discounts and commissions related to the offering. This concludes our prepared remarks. Operator, we would now like to open the call to questions.

[Operator Instructions] Our first question comes from Anthony Vendetti of Maxim Group.

So Nestor was just curious on the C-Store distribution agreement. You mentioned it on the call. I was just wondering if you could talk about where that's at in terms of are all your salespeople trained on it? Have they started selling it, what's your -- do you have expectations on a quarterly basis or by the end of the year, for that? And also just talk about the cross-selling opportunities.

Okay. Good questions, Anthony, we're starting to train -- we have started already to train our personnel, especially our clinical education specialists. We have target initially 2 phases. The first phase is 5 centers, and we are pursuing IRB in each one of them per the HDE requirements. We have -- I expect that the clinical personnel from SeaStar will be very involved in these first 5 sites along with our clinical personnel. Once they are educated, then we move into the next 5 centers, which all of these 10 centers have been identified. And we have -- in terms of the cross-selling, this opportunity with QUELimmune would be very good for us to start talking about our technology that is coming up, because the 2 devices together would be a perfect combination. Our device will be a pediatric dedicated CRRT and QUELimmune is a pediatric dedicated cytopheretic device. So the combination of the 2 are going to be fantastic in terms of saving lives and improving the quality of life of children and neonates.

Okay. Great. And before I have a couple cost reduction questions. I want to talk also about -- you said that during the year, you expect capital equipment sales to pick up. When you place a capital equipment or have a capital equipment sale, what is the expected consumable generation for that capital equipment per year what are the factors that determine that? Maybe just give us a little color into how that sales process works.

Okay. Well, first of all, I just want to acknowledge that our capital equipment sales have been lumpy just as we saw in the first part of last year. And we're not the only ones with that situation, I saw the earnings release of 2 companies, GE being one of them, and they reported a very low capital sales due to all the capital constraints that the hospitals are having as post-pandemic. So the use of consumables per console in a hospital, depends a lot on how much utilization in the different specialty units that the hospital is using the Aquadex. We have centers like Mount Sinai in New York City or Washington MedStar in Washington, D.C. that they use -- they treat 20, 30 patients a month, and this high utilization of the consoles, they have anywhere from 6 to 12 consoles in this institution. We also have institutions that only have 1 or 2 consoles and they probably treat 5, 10 patients per quarter, as low as per quarter or as high as per month. So the only driving factor here is how much the doctors are prescribing the therapy to the different patients in the hospital.

Okay. That's helpful. And switching gears to the cost reduction. I think there was a comment about 50% reduction in costs for this year, in addition to salary reductions and so forth. Were there any programs that you have either scaled back or just continue to hit those targets? And if not, how did you get to a 50% number?

Well, the 3 initiatives, strategic initiatives that we have been mentioning over the years are 3, sales and marketing, reverse heart failure and Vivian, the pediatric dedicated device. The first 2 initiatives were not affected -- have not been affected. And the third one, Vivian, we are in the final phases of the development and the software development is the tall pole in the tent, and for that, we are using a lot of consultants on software development, and that was the part that was affected the most.

Okay. And then just lastly on the cash. So $1.4 million at the end of the quarter, $2.7 million was the gross proceeds, I believe, for the offering on April 30. So what were the net proceeds of that offering that was added to your balance sheet?

Was approximately $2.4 million.

Okay. Great. If -- obviously, we can try to estimate what the burn rate is per quarter. Internally, with the cost reductions that you're trying to put that all together, as we are in the second quarter here, do you have an anticipated cash burn rate for this quarter?

Well, we believe that the -- with the net proceeds that we received from this last financing will be -- will have enough cash until early fall, which would allow us time to execute on 3 key milestones that we have communicated. Those 3 milestones are commercialization of QUELimmune, the SeaStar device, the continuing execution on the DaVita pilot, which we expect to have patients starting to be treated soon and also a potential for a reimbursement change in the APC code. So once we execute on those 3 milestones, then we can go back to market and do another financing if we need to.

This concludes our question-and-answer session. I'd like to turn the conference back over to Nestor for some concluding remarks.

We are confident that our growth momentum in 2024, led by increased awareness of the efficacy of Aquadex and increased therapy adoption will result in a strong year helped further as hospital capital expenditure headwinds diminished. In addition, we look forward to the new product sales in our fast-growing pediatric category as we commercialize QUELimmune SCD from our exclusive and distribution agreement with SeaStar Medical in addition to expanding the utilization of Aquadex as we progress our DaVita pilot program. I would like to conclude by highlighting the Nuwellis mission, which is to transform the lives of patients suffering from fluid overload. Our Aquadex ultrafiltration therapy is the superior method for removing excess fluid from patients suffering from fluid overload as demonstrated by THT conference, and it is our goal to reach as many patients as possible to enhance their quality of life. I want to thank all our stakeholders, Nuwellis employees, stockholders, physicians, nurses, patients and health care workers in the field. Without your support, we would not be able to achieve key advances in transforming the lives of patients suffering from fluid overload. Thank you for your participation and support and we look forward to a productive 2024.

The conference has now concluded. Thank you for today's presentation. You may now disconnect.