ADMA BIOLOGICS, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion of our financial condition and results of operations, which refers to our historical results, should be read in conjunction with the other sections of this Quarterly Report on Form 10-Q, including “Risk Factors” and our unaudited consolidated financial statements and the notes thereto appearing elsewhere herein, and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, filed on February 28, 2024 (the “2023 10-K”). The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout or referenced within this Quarterly Report on Form 10-Q. See “Special Note Regarding Forward-Looking Statements.” Our actual results may differ materially from our current expectations. OVERVIEW Our Business ADMA Biologics, Inc. (the “Company,” “ADMA,” “we,” “us” or “our”) is an end-to-end commercial biopharmaceutical company dedicated to manufacturing, marketing and developing specialty biologics for the treatment of immunodeficient patients at risk for infection and others at risk for certain infectious diseases. Our targeted patient populations include immune-compromised individuals who suffer from an underlying immune deficiency disorder or who may be immune-suppressed for medical reasons. Through our ADMA BioManufacturing business segment, we currently have three products with U.S. Food and Drug Administration (the “FDA”) approval, all of which are currently marketed and commercially available: (i) ASCENIV (Immune Globulin Intravenous, Human – slra 10% Liquid), an Intravenous Immune Globulin (“IVIG”) product indicated for the treatment of Primary Humoral Immunodeficiency (“PI”), also known as Primary Immunodeficiency Disease (“PIDD”) or Inborn Errors of Immunity in adults and adolescents, for which we received FDA approval on April 1, 2019 and commenced first commercial sales in October 2019; (ii) BIVIGAM (Immune Globulin Intravenous, Human), an IVIG product indicated for the treatment of PI, and for which we received FDA approval on May 9, 2019 and commenced commercial sales in August 2019; and (iii) Nabi-HB (Hepatitis B Immune Globulin, Human), which is indicated for the treatment of acute exposure to blood containing HBsAg and other listed exposures to Hepatitis B. We seek to develop a pipeline of plasma-derived therapeutics, including a product based on our most recently approved patent application under U.S. Patent No. 10,259,865 related to methods of treatment and prevention of S. pneumonia infection for an immunoglobulin manufactured to contain standardized antibodies to numerous serotypes of S. pneumoniae . Our products and product candidates are intended to be used by physician specialists focused on caring for immune-compromised patients with or at risk for certain infectious diseases. We manufacture these products at our FDA-licensed, plasma fractionation and purification facility located in Boca Raton, Florida with a peak annual processing capability of up to 600,000 liters (the “Boca Facility”). Based on current production yields, our completed and ongoing supply chain enhancements and capacity expansion initiatives, we believe this facility has the potential to produce sufficient quantities of our immune globulin (“IG”) products representing annual revenues greater than $355 million in 2024 and $410 million in 2025. These revenue targets translate to potential fiscal year 2024 and 2025 net income exceeding $85 million and $135 million, respectively, and adjusted EBITDA exceeding $110 million and $160 million, respectively. Through our ADMA BioCenters subsidiary, we currently operate ten source plasma collection facilities in the United States, all of which hold FDA licenses. This business unit, which we refer to as our Plasma Collection Centers business segment, provides us with the blood plasma required for the manufacture of our products, and also allows us to sell certain quantities of source and hyperimmune plasma to third-party customers for further manufacturing. In addition, three of our FDA-approved plasma collection centers also have approvals from the Korean Ministry of Food and Drug Safety (“MFDS”), as well as FDA approval to operate a Hepatitis B immunization program. A typical plasma collection center, such as those operated by ADMA BioCenters, can collect approximately 30,000 to 50,000 liters of source and hyperimmune plasma annually, which may be sold for different prices depending upon the type of plasma, quantity of purchase and market conditions at the time of sale. Plasma collected from ADMA BioCenters’ facilities that is not used to manufacture our products is sold to third-party customers in the U.S. and in other locations outside the U.S. where we are approved under supply agreements or in the open “spot” market. 19 Index We sell plasma-derived intermediate fractions to certain customers, which are generated as part of our FDA-approved manufacturing process for IG and IVIG products, through a five-year plasma intermediates supply agreement we entered into in October 2019. These intermediate by-products are used as the starting raw material to produce other plasma-derived biologics. In addition, from time to time we provide contract manufacturing services for certain third-party clients. We also provide laboratory contracting services to certain customers and anticipate providing contract filling, labeling and packing services utilizing our FDA-approved in-house fill-finish capabilities. Our Products ASCENIV ASCENIV is a plasma-derived IVIG that contains naturally occurring polyclonal antibodies, which are proteins that are used by the body’s immune system to neutralize microbes, such as bacteria and viruses, and prevent against infection and disease. We manufacture ASCENIV under HHS License No. 2019 using a process known as fractionation. The Centers for Medicare and Medicaid Services (“CMS”) has issued a permanent, product-specific-J-code for ASCENIV. Under the Healthcare Common Procedure Coding System (“HCPCS”), the J-code (J1554) became effective April 1, 2021. As part of our proprietary manufacturing process for ASCENIV, we leverage our unique, patented plasma donor screening methodology and tailored plasma pooling design, which blends normal source plasma and plasma from donors tested to have high levels of neutralizing antibody titers to Respiratory Syncytial Virus (“RSV”) using our proprietary microneutralization testing assay. With our patented testing methods and assay, we are able to identify the high-titer or “hyperimmune” plasma that meets our internal and required specifications for ASCENIV. This type of high-titer plasma is typically found in less than 10% of the total donor collection samples we test. ASCENIV is approved for the treatment of PIDD or PI, a class of inherited genetic disorders that causes a deficient or absent immune system in adults and adolescents (12 to 17 years of age). Our pivotal Phase III clinical trial in 59 PIDD patients met the primary endpoint of no Serious Bacterial Infections (“SBI”) reported during 12 months of treatment. Secondary efficacy endpoints further demonstrated the benefits of ASCENIV in the low incidence of infection, therapeutic antibiotic use, days missed from work, school and daycare and unscheduled medical visits and hospitalizations. We believe this clinical data together with the FDA approval for the treatment of PIDD better positions ADMA to potentially further evaluate ASCENIV in immune-compromised patients infected with or at-risk for RSV infection or potentially other respiratory viral pathogens at an appropriate time. In the future, we may elect to work with the FDA and the immunology and infectious disease community to design an appropriate clinical trial to evaluate the use of ASCENIV in this patient population. Following FDA approval in April 2019, commercial sales of ASCENIV commenced in October of 2019 and in 2023 ADMA commenced manufacturing ASCENIV at the 4,400 Liter production scale for the first time in the Company’s history. We believe that this expansion will meaningfully improve the product’s margin profile and increase plant production capacity as fewer batches will be needed to support our revenue goals . ASCENIV’s prescriber and patient base continued to expand during 2023, which drove record utilization and pull-through for this product. These elevated demand trends have sustained into 2024, and ADMA currently expects that this product’s rapid growth will continue throughout 2024 and beyond. BIVIGAM BIVIGAM is a plasma-derived IVIG that contains a broad range of antibodies similar to those found in normal human plasma. These antibodies are directed against bacteria and viruses and help to protect PI patients against serious infections. BIVIGAM is a purified, sterile, ready-to-use preparation of concentrated human Immunoglobulin G antibodies indicated for the treatment of PI, a group of genetic disorders. This includes, but is not limited to, the humoral immune defect in common variable immunodeficiency, X-linked agammaglobulinemia, congenital agammaglobulinemia, Wiskott-Aldrich syndrome and severe combined immunodeficiency. These PIs are a group of genetic disorders. Based on recent estimates, these disorders are no longer considered to be very rare, with as many as one in every 1,200 people in the United States having some form of PI. 20 Index On May 9, 2019, the FDA approved the Prior Approval Supplement (the “PAS”) for the use of our IVIG manufacturing process, thereby enabling us to re-launch and commercialize this product in the United States. We resumed production of BIVIGAM during the fourth quarter of 2017 and commercial production is ongoing, using our FDA-approved IVIG manufacturing process under U.S. Department of Health and Human Services (“HHS”) License No. 2019. The commercial re-launch and first commercial sales for this product commenced in August of 2019. On April 28, 2021, we announced that the FDA granted approval for our expanded plasma pool production scale process, allowing for a 4,400-liter plasma pool for the manufacture of our BIVIGAM IVIG product. This increased IVIG plasma pool scale, which allows us to produce BIVIGAM at an expanded capacity utilizing the same equipment, release testing assays and labor force, has had a favorable impact on our gross margins, manufacturing efficiencies and operating results. On December 12, 2023, we announced that the FDA approved the expansion of BIVIGAM’s label in the United States to now include the pediatric setting for those two years of age and older. Nabi-HB Nabi-HB is a hyperimmune globulin that is rich in antibodies to the Hepatitis B virus. Nabi-HB is a purified human polyclonal antibody product collected from plasma donors who have been previously vaccinated with a Hepatitis B vaccine. Nabi-HB is indicated for the treatment of acute exposure to blood containing HBsAg, prenatal exposure of infants born to HBsAg-positive mothers, sexual exposure to HBsAg-positive persons and household exposure to persons with acute Hepatitis B virus infection in specific, listed settings. Hepatitis B is a potentially life-threatening liver infection caused by the Hepatitis B virus, which is a major global health problem. The Hepatitis B virus can cause chronic infection and places people at high risk of death from cirrhosis and liver cancer. Nabi-HB has a well-documented record of long-term safety and effectiveness since its initial market introduction. The FDA approved Nabi-HB on March 24, 1999. Production of Nabi-HB at the Boca Facility has continued under our leadership since the third quarter of 2017. In early 2018, we received authorization from the FDA for the release of our first commercial batch of Nabi-HB for commercial distribution in the United States and we continue to manufacture Nabi-HB under HHS License No. 2019. RESULTS OF OPERATIONS Critical Accounting Policies and Estimates This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our condensed consolidated financial statements, which have been prepared in accordance with Accounting Principles Generally Accepted in the United States of America (“U.S. GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate these estimates and assumptions, including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates. Significant estimates include rebates and certain other deductions from gross revenues, valuation of inventory, impairment of long-lived assets, assumptions used in projecting future liquidity and capital requirements, assumptions used in the fair value of awards granted under our equity incentive plans and warrants issued in connection with the issuance of notes payable and estimates related to the valuation allowance for our deferred tax assets our effective tax rate for the current fiscal year. Some of the estimates and assumptions we have to make under U.S. GAAP require difficult, subjective and/or complex judgments about matters that are inherently uncertain and, as a result, actual results could differ from those estimates. Due to the estimation processes involved, the following summary of accounting estimates and their application are considered to be critical to understanding our business operations, financial condition and results of operations. For a description of our significant accounting policies, see Note 2 to the Consolidated Financial Statements included in the 2023 10-K. Estimates and assumptions used in projecting future liquidity and capital requirements are described in Note 1 to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. 21 Index Revenues Our gross product revenues are subject to a variety of deductions, which are estimated and recorded in the same period that the revenues are recognized. These deductions primarily consist of rebates, distribution fees, chargebacks and sales allowances. These deductions represent estimates of the related obligations, some of which are contractual in nature and do not require extensive judgment to be exercised by management, while other estimates require complex or subjective matters of knowledge and judgment when estimating the impact of these revenue deductions on net revenues for a reporting period. Historically, adjustments to these estimates to reflect actual results or updated expectations have not been material to our overall business. While we have some historical sales and rebate experience from our two primary immunoglobulin products, ASCENIV and BIVIGAM, since their FDA approvals in 2019, it is not extensive. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected. Estimates that are most at risk for material adjustment are those associated with U.S. Medicaid rebates because of the extensive time delay between the recording of the accrual and its ultimate settlement, an interval that can generally take up to several years or more. These estimates may change from time to time based on changes in utilization, payer and channel mixes. While our results of operations to date have not required any material adjustment due to this risk, the delay between when this obligation is initially recorded and ultimately settled could potentially materially impact our revenues and our results of operations in the future. Valuation of Inventory Estimates related to the valuation of inventory include net realizable value of inventory in determining whether the cost of inventory exceeds its net realizable value which, if this were the case, would require a charge against earnings to write down the value of the inventory to its net realizable value. Net realizable value of inventory is based on our management’s estimate of the future net selling price of the inventory, which is subject to market conditions and the estimation processes we use for revenues as discussed above. With respect to raw materials inventory, we are required to estimate the level and timing of usage of these materials prior to their expiration dates in determining whether it is appropriate to carry these materials on our balance sheet as a valid asset of the Company. Changes in either of these estimates could materially impact our cost of product revenue and results of operations. Stock-Based Compensation and Valuation of Warrants All equity-based payments, including grants of stock options and Restricted Stock Units (“RSUs”) are recognized at their estimated fair value at the date of grant, and compensation expense is recognized on a straight-line basis over the grantee’s requisite vesting period. For the purpose of valuing stock options granted to our employees, directors and officers, we use the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of publicly traded options, which have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different from those of traded options, and changes in the underlying Black-Scholes assumptions can materially affect the fair value estimate. To determine the risk-free interest rate, we utilize the U.S. Treasury yield curve in effect at the time of the grant with a term consistent with the term of our awards. The expected term of the options granted is in accordance with U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletins 107 and 110 and is based on the average between vesting terms and contractual terms. The expected dividend yield reflects our current and expected future policy for dividends on our Common Stock. The expected stock price volatility for our stock options was calculated by examining the historical volatility of our Common Stock since our Common Stock became publicly traded. We will continue to analyze the expected stock price volatility and expected term assumptions and will adjust our Black-Scholes option pricing assumptions as appropriate. Any changes in the foregoing Black-Scholes assumptions, or our election to utilize an alternative method for valuing stock options granted to employees, directors and officers, could potentially impact our stock-based compensation expense and our results of operations. 22 Index We also use the Black-Scholes option valuation model for the purpose of estimating the fair value of warrants we issue from time to time in connection with the issuance of notes payable. Changes in our Black-Scholes assumptions, or our election to utilize an alternative method for valuing warrants issued to our lenders, could impact our interest expense and results of operations. Impairment of Long-Lived Assets We assess the recoverability of our long-lived assets, which include property and equipment and definite-lived intangible assets, whenever significant events or changes in circumstances indicate impairment may have occurred. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset are compared to its carrying amount to determine whether the asset’s carrying value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results. For the three months ended March 31, 2024 and 2023, we did not identify any impairment indicators for our long-lived assets, and as a result no impairment charges were recorded. Examples of events or circumstances that may be indicative of impairment that would require the use of significant judgment by management include: • A significant adverse change in legal factors or in the business climate that could affect the value of the asset. • Significant and continued cash flow losses. • A significant adverse change in the extent or manner in which an asset is used, such as a restriction imposed by the FDA or other regulatory authorities that could affect our ability to manufacture our products using a particular asset. • An expectation of losses or reduced profits associated with an asset. This could result, for example, from the introduction of a competitor’s product that impacts projected revenue growth, or a change in the acceptance of a product by patients, physicians and payers that results in an inability to sustain projected product revenues. Goodwill is not amortized but is assessed for impairment on an annual basis or more frequently if impairment indicators exist. The testing of goodwill for impairment requires us to determine whether or not the fair value of the reporting unit associated with the goodwill is less than its carrying amount, including goodwill and other intangible assets. An impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value, with the impairment loss recognized not to exceed the total amount of goodwill allocated to that reporting unit. In order to determine the fair value of the reporting unit, we utilize the fair value of the Company as a whole, as determined by its market capitalization. Determination of the fair value and carrying value of each reporting unit, relative to the fair value of the Company, requires management to employ certain estimates, assumptions and judgment, which we believe are reasonable. However, any changes to these estimates and assumptions could impact our determination of whether or not our goodwill is impaired. We did not recognize any impairment charges related to goodwill for the three months ended March 31, 2024 and 2023. Deferred Tax Assets and Effective Tax Rate We currently maintain a full valuation allowance against all of our net deferred tax assets, and as a result we have historically not recorded an income tax benefit in the accompanying consolidated financial statements despite continued losses through December 31, 2023. This valuation allowance reflects our assessment of whether it is more likely than not that we will generate sufficient taxable income in the future to be able to utilize our deferred tax assets. In determining whether a valuation allowance is warranted, we evaluate factors such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies. We consider all positive and negative evidence to estimate if sufficient future taxable income will be generated to realize our deferred tax assets. We consider cumulative losses in recent years to be a significant type of negative evidence. Based on our history of losses through December 31, 2023, at this time we have not included future projected taxable income as a source of income to recognize our deferred tax assets, despite our achievement of positive net income for the three months ended March 31, 2024. 23 Index After consideration of all available positive and negative evidence regarding our estimates of future taxable income, we have elected to maintain a full valuation allowance for our deferred tax assets as of March 31, 2024. We will continue to monitor this evidence through the balance of 2024 to determine if a reduction to the valuation allowance is required, which could potentially result in our recognition of an income tax benefit sometime during fiscal 2024. Our income tax expense for the three months ended March 31, 2024 is based on our estimated effective tax rate for the full year 2024, which is a function of our projected net income under U.S. GAAP, our estimates and assumptions regarding certain permanent and temporary differences between U.S. GAAP income and taxable income, and the limitations to our net operating loss carryforwards and their limitations under Section 382 of the Internal Revenue Code of 1986, as amended (see “Risk Factors” appearing elsewhere in this report and Note 13 to the Consolidated Financial Statements). Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023 The following table presents a summary of the changes in our results of operations for the three months ended March 31, 2024, our first fiscal quarter, compared to the three months ended March 31, 2023: (in thousands) Three Months Ended March 31, 2024 2023 Increase (Decrease) Revenues $ 81,875 $ 56,914 $ 24,961 Cost of product revenue 42,767 40,401 2,366 Gross profit 39,108 16,513 22,595 Research and development expenses 450 855 (405 ) Plasma center operating expenses 1,005 1,780 (775 ) Amortization of intangibles 193 179 14 Selling, general and administrative expenses 15,639 14,512 1,127 Income (loss) from operations 21,821 (813 ) 22,634 Interest expense (3,769 ) (6,115 ) 2,346 Other income, net 349 139 210 Income (loss) from before taxes 18,401 (6,789 ) 25,190 Provision for income taxes 595 - 595 Net income (loss) $ 17,806 $ (6,789 ) $ 24,595 Adjusted EBITDA * $ 26,425 $ 2,469 $ 23,956 * - See Non-GAAP Financial Measures appearing at the end of this discussion Revenues We recorded total revenues of $81.9 million for the three months ended March 31, 2024, as compared to $56.9 million for the three months ended March 31, 2023, an increase of $25.0 million, or approximately 44%. The increase is primarily related to increased sales of our IG products, ASCENIV, BIVIGAM and Nabi-HB, of $30.5 million in 2024, as we continue to experience increased physician, payer and patient acceptance and utilization of ASCENIV and expand our customer base for BIVIGAM. The foregoing increase in IG revenues in the first quarter of 2024 was partially offset by a $5.6 million decrease in third-party plasma sales by our Plasma Collection Centers business segment. During the first quarter of 2023, we fulfilled our entire commitment to supply normal source plasma (“NSP”) to our primary third-party customer for fiscal 2023, while that same commitment for fiscal 2024 will be met over the course of the full year. Cost of Product Revenue and Gross Profit Cost of product revenue was $42.8 million for the three months ended March 31, 2024, as compared to $40.4 million for the three months ended March 31, 2023. This increase is primarily attributable to volume-driven increases in product revenue costs related to the increased sales of our IG products of $7.9 million, partially offset by $4.9 million of lower product revenue costs related to plasma sales. 24 Index For the three months ended March 31, 2024, we had gross profit of $39.1 million, as compared to $16.5 million for the same period of a year ago, which represents a gross margin in the first quarter of 2024 of 47.8%, as compared to 29.0% in the first quarter of 2023. This improvement in gross margin is mainly driven by a significantly more favorable mix of higher margin IG sales in 2024 as compared to 2023, along with the 44% revenue increase which allows for additional coverage of our non-variable manufacturing costs in 2024. Research and Development Expenses Research and development (“R&D”) expenses totaled $0.5 million for the first quarter of 2024, as compared to $0.9 million for the first quarter of 2023. The decrease is primarily due to the absence of expenditures in 2024 related to the BIVIGAM post-marketing commitments, which were completed in June of 2023. Plasma Center Operating Expenses Plasma Center Operating Expenses decreased from $1.8 million for the three months ended March 31, 2023 to $1.0 million for the three months ended March 31, 2024. The decrease is due to a 38% increase in the amount of plasma collected in the first quarter of 2024 as compared to the first quarter of 2023, which resulted in a $3.7 million increase in the amount of plasma center costs we capitalized into inventory in 2024. This amount was partially offset by increases in donor fees of $1.3 million, softgoods and supplies of $0.7 million, donor testing expenses of $0.7 million, compensation, benefits and temporary labor of $0.1 million, depreciation of $0.1 million and software maintenance expense of $0.1 million. Amortization of Intangibles Amortization expense mainly pertains to the amortization of intangible assets acquired in a 2017 acquisition transaction and was $0.2 million for the three months ended March 31, 2024 and 2023. Selling, General and Administrative Expenses Selling, general and administrative (“SG&A”) expenses were $15.6 million for the three months ended March 31, 2024, an increase of $1.1 million from the three months ended March 31, 2023. The increase reflects increases in employee-related costs, including salaries, benefits, stock-based compensation, travel, relocation and recruiting, in the amount of $1.4 million, state and local taxes of $0.1 million and insurance expense of $0.1 million, partially offset by lower severance expense of $0.3 million and professional service fees of $0.2 million. SG&A expenses as a percentage of net revenues decreased from 25.5% in the first quarter of 2023 to 19.1% in the first quarter of 2024. Income/Loss from Operations Our operating income was $21.8 million for the first quarter of 2024, as compared to an operating loss of $0.8 million for the first quarter of 2023. The $22.6 million increase in operating income was due to the improved gross profit, as total operating expenses of $17.3 million in 2024 was essentially unchanged from 2023. Interest Expense Interest expense for the three months ended March 31, 2024 was $3.8 million, as compared to $6.1 million for the three months ended March 31, 2023. The decrease is due to the refinancing of our senior debt in December of 2023 (see “Liquidity and Capital Resources”). This transaction reduced our stated rate of interest from approximately 14.10% in the first quarter of 2023 to approximately 10.38% in the first quarter of 2024, and also resulted in a reduction to our outstanding debt principal in the first quarter of 2024 compared with the first quarter of 2023 of approximately $20.4 million. In addition, we had lower amortization of debt discount in 2024 of approximately $0.2 million. Other Income, Net Other income, net, for the three months ended March 31, 2024 was $0.3 million, as compared to $0.1 million for the three months ended March 31, 2023. The increase is mainly due to an increase in interest income of $0.2 million in 2024. 25 Index Provision for Income Taxes As result of our generating pre-tax U.S. GAAP income of $18.4 million for the three months ended March 31, 2024, we recorded income tax expense of $0.6 million for the three months ending March 31, 2024, with no comparable amount for the three months ending March 31, 2023. The provision for income taxes for the first quarter of 2024 represents an effective tax rate of 3.2% and reflects federal and state income tax liabilities that are not fully sheltered by net operating losses or research and development tax credit carryforwards due to limitations from prior ownership changes and other limitations on net operating loss carryforwards under the Internal Revenue Code of 1986, as amended (see “Risk Factors” appearing elsewhere in this report and Note 13 to the Consolidated Financial Statements). Our effective tax rate for the three months ended March 31, 2024 differs from the federal statutory tax rate of 21%, mainly due to the reversal of the valuation allowance on certain federal and state net operating loss carryforwards expected to be realized in the current year. Net Income/Loss Our net income was $17.8 million for the first quarter of 2024, as compared to a net loss of $6.8 million for the first quarter of 2023. This $24.6 million improvement in our results of operations was primarily due to the increase in operating income of $22.6 million discussed above, combined with the reduction in interest expense for the period. Non-GAAP Financial Measures Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), Adjusted EBITDA EBITDA and Adjusted EBITDA are important non-GAAP financial measures used by our management and Board of Directors to assess our operating performance. We use EBITDA and Adjusted EBITDA as key performance measures because we believe that they facilitate operating performance comparisons from period to period that exclude potential differences driven by the impact of variations of non-cash items such as depreciation and amortization, as well as, in the case of Adjusted EBITDA, stock-based compensation or certain one-time and non-recurring items. In addition, we believe that EBITDA, Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other parties in evaluating companies in our industry as a measure of financial performance and debt-service capabilities. See below for a reconciliation of our EBITDA and Adjusted EBITDA to net income/loss, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. Because EBITDA and Adjusted EBITDA are measures not deemed to be in accordance with U.S. GAAP and are susceptible to varying calculations, our EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in our industry, because other companies may calculate EBITDA and Adjusted EBITDA in a different manner than we calculate these measurements. Although the Company uses Adjusted EBITDA as one of several financial measures to assess its operating performance, its use is limited as it excludes certain significant operating expenses. EBITDA and Adjusted EBITDA are not intended to represent cash flows for the periods presented, nor have they been presented as an alternative to operating income/loss, net income/loss or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP. The following table presents the reconciliation of net income/loss to EBITDA and Adjusted EBITDA for the three months ended March 31, 2024 and 2023: 26 Index Three Months Ended March 31, 2024 2023 (in thousands) Net income (loss) $ 17,806 $ (6,789 ) Depreciation 1,921 1,854 Amortization 193 179 Income taxes 595 - Interest expense 3,769 6,115 EBITDA 24,284 1,359 Stock-based compensation 2,141 1,110 Adjusted EBITDA $ 26,425 $ 2,469 Adjusted EBITDA increased by $24.0 million for the three months ended March 31, 2024 as compared to the same period of a year ago. The improvement is driven primarily by the increased sales and gross profit in 2024, as well as continued operational oversight and cost containment efforts at both of our business segments. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2024, we had working capital of $223.3 million, primarily consisting of $177.7 million of inventory, cash and cash equivalents of $45.3 million and $49.6 million of accounts receivable, partially offset by current liabilities of $53.1 million, as compared to working capital at December 31, 2023 of $207.2 million, primarily consisting of $172.9 million of inventory, cash and cash equivalents of $51.4 million and accounts receivable of $27.4 million, partially offset by current liabilities of $49.8 million. We have incurred an accumulated deficit of $488.5 million since inception, and although we had negative cash flows from operations of $2.2 million and $14.7 million for the three months ended March 31, 2024 and 2023, respectively, we had positive cash flows from operations for the year ended December 31, 2023 of $8.8 million and we expect to generate significant cash flows from operations and net income for the year ended December 31, 2024. Prior to fiscal 2023, we have funded our operations primarily from the sale of our equity and debt securities. Our material cash requirements are primarily comprised of: • The collection and procurement of raw material source plasma, which includes plasma donor fees and plasma center supplies, and other raw materials necessary to maintain and scale up our manufacturing operations; • Employee compensation and benefits; • Capital expenditures for equipment upgrades and capacity expansion at the Boca Facility and to maintain our plasma collection facilities; • Interest on our debt; • Marketing programs, medical education and continued commercialization efforts; • Boca Facility maintenance, repairs and supplies; • Conducting required post-marketing clinical trials for our FDA-approved products; and • Continuous improvements and updates to our IT infrastructure, laboratory equipment and assays, and facilities and engineering equipment. In addition, our end-to-end production cycle time from procurement of raw materials to commercial release of finished product can take between seven and 12 months or potentially longer, requiring substantial inventories of raw material plasma and other manufacturing and laboratory testing materials and single use disposables. We currently anticipate, based upon our projected revenue and expenditures, that our current cash, cash equivalents and accounts receivable, along with our projected future operating cash flow, will be sufficient to fund our operations, as currently conducted, through the end of the second quarter of fiscal 2025 and beyond. Based on current operations and assuming continued market acceptance and utilization of our finished drug products, we do not anticipate the need to raise additional capital at this time. However, should the market for our products or political, economic or inflationary conditions change, we may need to seek additional capital which may not be available due to a variety of potential factors beyond our control (see “Risk Factors” appearing elsewhere in this report). 27 Index ADMA continues to evaluate a variety of strategic alternatives, and the exploration of value-creating opportunities remains a top corporate priority. On December 18, 2023 (the “Ares Closing Date”), we and all of our subsidiaries entered into a credit agreement (the “Ares Credit Agreement”) with Ares Capital Corporation and certain credit funds affiliated with Ares Capital Corporation (collectively, “Ares”). The Ares Credit Agreement provides for a total of $135.0 million in senior secured credit facilities (the “Ares Credit Facility”) consisting of (i) a term loan in the aggregate principal amount of $62.5 million and (ii) a revolving credit facility in the aggregate principal amount of $72.5 million (collectively, the “Ares Loans”), both of which were fully drawn on the Ares Closing Date. The Ares Credit Facility has a maturity date of December 20, 2027 (the “Ares Maturity Date”). On the Ares Closing Date, we used the proceeds from the Ares Loans, along with a portion of our existing cash on hand, to terminate and pay in full all of the outstanding obligations under our previous senior credit facility (the “Hayfin Credit Facility”) with Hayfin Services LLP (“Hayfin”) including the outstanding principal in the amount of $158.6 million, a prepayment penalty in the amount $11.1 million, an exit fee of $1.6 million, all accrued and unpaid interest outstanding on the Hayfin Credit Facility as of the Ares Closing date, as well as certain fees and expenses related thereto. Borrowings under the term loan bear interest at the adjusted Term SOFR for a three‑month tenor in effect on the day that is two business days prior to the first day of the applicable calendar quarter plus 6.50% (the “Initial SOFR Term Loan Applicable Margin”). Borrowings under the revolving facility initially bear interest at the adjusted Term SOFR for a three‑month tenor in effect on the day that is two business days prior to the first day of the applicable calendar quarter plus 3.75% (the “SOFR Revolving Facility Applicable Margin”). As of March 31, 2024 and December 31, 2023, the interest rate on the term loan was approximately 11.83% and 11.88%, respectively, and the interest rate on the revolving facility was approximately 9.08% and 9.13%, respectively. On the Ares Maturity Date, we are required to pay Ares the entire outstanding principal amount underlying the Ares Loans and any accrued and unpaid interest thereon. Prior to the Ares Maturity Date, there are no scheduled principal payments on the Ares Credit Facility, and we are required to make quarterly interest payments during the term of Ares Credit Facility of approximately $3.6 million. We may prepay the outstanding principal under the revolving facility, together with any accrued but unpaid interest on the prepaid principal amount, at any time and from time to time upon three business days’ prior written notice with no prepayment premium. However, in the event that we prepay an amount under the revolving facility that is greater than 50% of the current $72.5 million outstanding balance, we will still be required to pay interest on 50% of this balance, or $36.3 million, through the term of Ares Credit Facility. We may prepay the outstanding principal on the term loan, together with any accrued but unpaid interest on the prepaid principal amount, at any time and from time to time upon three business days’ prior written notice, subject to the payment to Ares of a prepayment premium equal to (i) the present value as of such date of all remaining required interest payments on the principal amount being repaid plus 1.5% of the prepaid principal amount, if prepaid on or prior to the first anniversary of the Ares Closing Date, (ii) 1.5% of the prepaid principal amount, if prepaid after the first anniversary of the Ares Closing Date and on or prior to the second anniversary of the Ares Closing Date, or (iii) 1.0% of the prepaid principal amount, if prepaid on or prior to the third anniversary of the Ares Closing Date. In connection with the closing of the Ares Credit Facility, we incurred fees and expenses related to the transaction of approximately $2.7 million, including a $1.7 million original issue discount payable to Ares, all of which was deducted from the Ares loan proceeds. In addition, we are also required to pay Ares an exit fee of $1.7 million upon the earlier of any prepayment date or the Ares Maturity Date, and this amount has been accrued as a separate liability in our consolidated balance sheet as of December 31, 2023. As a result, we recognized an aggregate debt discount of $4.4 million as of the Ares Closing Date, and the weighted-average effective interest rate on the Ares Loans as of March 31, 2024 and December 31, 2023 was 11.36% and 11.39%, respectively. 28 Index All of our obligations under the Ares Credit Agreement are secured by a first-priority lien and security interest in substantially all of our tangible and intangible assets, including intellectual property and all of the equity interests in our subsidiaries. The Ares Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customarily required for similar financings. The negative covenants include certain financial covenants, including maximum total leverage ratios and a $15.0 million liquidity covenant, and also restrict or limit our ability and the ability of our subsidiaries to, among other things and subject to certain exceptions contained in the Ares Credit Agreement, incur new indebtedness; create liens on assets; engage in certain fundamental corporate changes, such as mergers or acquisitions, or changes to our or our subsidiaries’ business activities; make certain Investments or Restricted Payments (each as defined in the Ares Credit Agreement); engage in certain affiliate transactions; or enter into, amend or terminate any other agreements that have the impact of restricting our ability to make loan repayments under the Ares Credit Agreement. As of March 31, 2024, we were in compliance with all of the covenants contained in the Ares Credit Agreement. Events of default on the Ares Loans include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material contracts and events constituting a change of control. If there is an event of default, we will incur an increase in the rate of interest on the Ares Loans of 2% per annum. Cash Flows The following table sets forth a summary of our cash flows for the periods indicated: (in thousands) Three Months Ended March 31, 2024 2023 Net cash used in operating activities $ (2,218 ) $ (14,723 ) Net cash used in investing activities (2,362 ) (1,945 ) Net cash used in financing activities (1,447 ) (650 ) Net change in cash and cash equivalents (6,027 ) (17,318 ) Cash and cash equivalents - beginning of period 51,352 86,522 Cash and cash equivalents - end of period $ 45,325 $ 69,204 Net Cash Used in Operating Activities Cash used in operations for the three months ended March 31, 2024 was $2.2 million, a decrease of $12.5 million from the same period of a year ago, mainly due to the increase in net income in 2024, partially offset by unfavorable changes in accounts receivable and inventories. The following table illustrates the primary components of and changes to our cash flows from operations: (in thousands) Three Months Ended March 31, 2024 2023 Net income (loss) $ 17,806 $ (6,789 ) Non-cash expenses, gains and losses 4,495 4,593 Changes in accounts receivable (22,200 ) (11,013 ) Changes in inventories (4,826 ) (705 ) Changes in prepaid expenses and other current assets 1,593 716 Changes in accounts payable and accrued expenses 1,219 (1,627 ) Other (305 ) 102 Cash used in operations $ (2,218 ) $ (14,723 ) Net Cash Used in Investing Activities Net cash used in investing activities for the three months ended March 31, 2024 and 2023 was $2.4 million and $1.9 million, respectively, and is mainly comprised of capital expenditures at the Boca Facility. The decrease in capital expenditures in 2024 is due to the completion of the construction and buildout of our 10 plasma collection facilities, with the tenth facility opening in the first quarter of 2023. While we currently have no firm commitments for capital expenditures, we expect our total capital expenditures will be between $7.0 million and $12.0 million for the remainder of fiscal 2024, mainly for additional upgrades to the Boca Facility manufacturing operations and related operational systems. 29 Index Net Cash Used in Financing Activities Net cash used in financing activities was $1.4 million and $0.7 million for the three months ended March 31, 2024 and 2023, respectively. The increase is due to additional taxes paid in connection with shares that were withheld from RSUs that vested during the period, partially offset by $1.0 million in proceeds from the exercise of stock options in 2024. Effect of Inflation Inflation impacted a number of facets of our business during the three months ended March 31, 2024 and for the years ended December 31, 2023 and 2022 at each of our business segments. We experienced price increases for, among other items, certain raw materials, consumable supplies, services for repairs and maintenance of our facilities, utilities, shipping and freight charges, fuel surcharges and labor costs, among other expenses. Based upon the macroeconomic environment, publicly available information and reports from the U.S. government, we expect this trend to continue in 2024 and potentially longer, which could potentially have a significant impact on our future results of operations. In addition, some of our third-party inventory purchase agreements provide for annual price increases that are tied to various consumer price indices, which have resulted in higher than historical percentage price increases and has resulted in and could continue to result in higher source plasma and other raw material and supplies costs in 2024 and beyond. Also, in a higher inflationary environment, we may not be able to raise the prices of our products to keep up with the rate of inflation. We are unable to predict when these external drivers of inflation will subside. Off-Balance Sheet Arrangements None.