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 ended
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 to
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 continued 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 in
For the three-month period ended
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As of
Impact of the COVID-19 pandemic
The global COVID-19 pandemic presents significant volatility, uncertainty and risks to us and has had far reaching impacts on our business, operations, and financial results and condition, directly and indirectly. Our access to many hospitals and other customer sites was periodically 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 had in the past suspended 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 historically impacted our third-party manufacturers and suppliers, and could in turn adversely impact the availability or cost of materials, which disrupted 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 are now working in a hybrid model working mostly from home and occasionally in the office.
While we believe that the worst of COVID-19 is behind us, 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.
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 in
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 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 and products supplied by our contract manufacturers, 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 as well as seasonality.
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Operating expenses
Our operating expenses consisted of sales and marketing costs, general and administrative costs, and research and development costs.
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 expenses 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.
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. During 2022, we recognized the change in value of the contingent
consideration liability due to BSC for the potential future milestone payment in
general and administrative expenses. The contingent liability was resolved as of
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 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
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 warrants liability. The derivative liabilities represent a contingent consideration liability from our BSC product acquisition and were adjusted for changes in fair value at each balance sheet date until the convertible notes are converted or repaid, with any changes
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in fair value recognized in the statements of operations. The contingent
consideration liability was fully resolved as of
Results of operations
Comparison of the three months ended
The following table summarizes our unaudited results of operations for the periods indicated: For the Three Months Ended March 31, 2023 2022 Change % Change Revenue$ 12,533 $ 10,935 $ 1,598 14.6 % Cost of goods sold 5,518 5,522 (4 ) (0.1 %) Gross profit 7,015 5,413 1,602 29.6 % Operating expenses Sales and marketing 10,202 9,473 729 7.7 % General and administrative 5,358 4,985 373 7.5 % Research and development 1,765 1,255 510 40.6 % Total operating expenses 17,325 15,713 1,612 10.3 % Loss from operations (10,310 ) (10,300 ) (10 ) (0.1 %) Interest income 38 9 29 (322.2 %) Interest expense (1,068 ) (632 ) (436 ) (69.0 %) Other expense, net (3 ) (2 ) (1 ) (50.0 %) Net loss before income taxes (11,343 ) (10,925 ) (418 ) (3.8 %) Income tax expense - - - - Net loss$ (11,343 ) $ (10,925 ) $ (418 ) (3.8 %) Revenue
Revenue increased by
Revenue had been significantly impacted in the three-months ended
For the three-month periods ended
Cost of goods sold
Cost of goods sold were essentially flat at
Gross margin
Our gross margin increased from 49.5% for the three-month period ended
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Sales and marketing expenses
Sales and marketing expenses increased by
General and administrative expenses
General and administrative expenses increased by
Research and development expenses
Research and development expenses increased by
Interest expense and income
Interest expense increased by
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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 other
Quarter Ended March 31, (in thousands, except percentage figures) 2023 2022 Net loss$ (11,343 ) $ (10,925 ) Depreciation and amortization 2,514 2,668 Interest expense, net 1,030 623 EBITDA (7,799 ) (7,634 ) EBITDA margin (62.2 %) (69.8 %) Adjustments: Stock-based compensation expense 1,274 1,523 Change in fair value of contingent consideration liability - (151 ) Adjusted EBITDA$ (6,525 ) $ (6,262 ) Adjusted EBITDA margin (52.1 %) (57.3 %)
Liquidity and capital resources
Prior to our IPO in
On
We prepared an internal forecast that includes alternatives to refinance our
outstanding term loan and to potentially raise additional capital as needed over
the next twelve months. As discussed above, on
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additional capital, we expect that the forecasted cash and cash equivalents will not be sufficient to fund the Company's operations for the next twelve months.
As of
Management is considering raising additional capital through debt, equity or a combination financing in the future. 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 our products, delay sales and marketing efforts or other activities necessary to commercialize our products or modify our operations to operate within available resources. Failure to manage discretionary spending or raise additional financing as needed, may adversely impact our ability to achieve our 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
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
Future funding requirements
We expect to incur continued expenditures in the future in support of our
commercialization efforts in
As of
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;
•
the degree of success we experience in commercializing future products;
•
the cost, timing and results of our clinical trials and regulatory reviews;
•
the emergence of competing or complementary technologies; and
•
restructuring, refinancing, or repayment of debt.
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