Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements reflecting our current expectations, estimates, plans and assumptions concerning events and financial trends that involve risks and may affect our future operating results and financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Forward-Looking Statements,” “Risk Factors Summary” and in Part I, Item 1A. “Risk Factors” of this Annual Report.
Overview
At Elutia, our mission is to humanize medicine so that patients can thrive without compromise. As a commercial-stage company, we seek to leverage our unique understanding of biologics to improve the interaction between implanted medical devices and patients by reducing complications associated with these surgeries. These complications include device migration, erosion, non-union of implants as well as implant rejection. In addition, our products are designed to mitigate the formation of scar and fibrotic capsule formation that commonly occurs with device implants and is linked with additional risk factors including infection and capsular contracture.
We estimate that, over the past two years, more than 600,000 surgical procedures were performed per year in the United States in which the patient was implanted with medical devices such as pacemakers, defibrillators, neuro-stimulators or tissue expanders for breast reconstruction. This number has been driven by advances in medical device technologies, reimbursement models focused on patient outcomes, and an aging population with a growing incidence of comorbidities, including diabetes, obesity and cardiovascular and peripheral vascular diseases. These comorbidities can exacerbate various immune responses and contribute to other complications upon device implant.
Our products are targeted to address unmet clinical needs with the goal of promoting healthy tissue formation and avoiding complications associated with medical device implants, such as scar tissue formation, capsular contraction, erosion, migration and implant rejection. These products currently focus on our priority markets – Device Protection and Women’s Health. In Device Protection, we sell CanGaroo, a “first-to-market” biological envelope, protected by a global patent portfolio, that is indicated for use with implantable electronic devices including cardiac and neurostimulator devices. CanGaroo is designed to create a secure pocket to hold the device and mitigate complications such as device migration and erosion. The CanGaroo product is a biomatrix comprised of extracellular matrix (“ECM”), which has been shown to support healthy wound healing. Because of this inherent ECM trait, CanGaroo may facilitate re-operative procedures by mitigating scar formation and fibrosis. In addition, the CanGaroo envelope is the only envelope designed for subcutaneous implantable cardiac defibrillators, a growing market.
In Women’s Health, we have developed both patented and proprietary technologies, culminating in the creation of SimpliDerm—a novel biological matrix meticulously designed to leverage the inherent science of natural healing processes. SimpliDerm’s design uses human acellular dermal matrices with heightened structural integrity and superior handling capabilities, which may mitigate inflammation and tissue incorporation, leading to a better healing experience. We believe that these acellular dermal matrices represent an optimal choice for tissue repair and reconstruction, finding
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applications in fields such as sports medicine, hernia repair, and trauma reconstruction. These matrices are also useable in breast reconstruction surgeries, particularly for women undergoing mastectomy as part of cancer treatment.
With respect to pipeline products, we are pioneering drug-eluting biomatrices (“DEB”), to help solve problems unaddressed by available options. One such product is a version of CanGaroo currently known as CanGarooRM, a first-in-class biomatrix that combines the CanGaroo envelope with antibiotics. These antibiotics, rifampin and minocycline, have been shown to reduce the risk of infection following surgical implantation of an electronic device. CanGarooRM will require clearance of a U.S. Food and Drug Administration 510(k) submission to be marketed in the United States. If approved, we anticipate CanGarooRM will be the only drug-eluting biomatrix approved for use with implantable electronic devices. This unique combination will be the first and only envelope that helps protect against infection, erosion, migration and complications associated with fibrotic tissue formation providing both acute and long-term benefits to the patient. We also intend to leverage our DEB platform technology by developing and commercializing products for markets with similar unmet needs, including neurostimulation, wound care and breast reconstruction.
CanGaroo is sold through both our internal sales force and independent sales agents and our marketing partner, Boston Scientific. SimpliDerm is sold through both independent sales agents and our distributor, Sientra.
We also sell legacy products into the Cardiovascular market. In Cardiovascular, we sell our specialized porcine small intestine submucosa, which is also the tissue used to make CanGaroo, for use as an intracardiac and vascular patch as well as for pericardial reconstruction. In addition, our TYKE product is designed for use in the neonatal patient population. These cardiovascular products are sold in the United States through an exclusive agreement with LeMaitre Vascular and internationally through distributors.
We process all of our CanGaroo and cardiovascular products at our manufacturing facility in Roswell, Georgia and stock inventory of raw materials, supplies and finished goods at this location. We rely on a single or limited number of suppliers for certain raw materials and supplies. We have a long-term supply agreement with Cook Biotech, the porcine tissue supplier of our raw materials for our CanGaroo and cardiovascular products. SimpliDerm has historically been processed by us at our Richmond, California facility; however, that facility was included with the divestiture of the Orthobiologics Business, and SimpliDerm will be provided to us on a go-forward basis through a long-term supply agreement with the purchaser of the Orthobiologics Business, Berkeley Biologics, LLC.
Discontinued Operations – Sale of Orthobiologics Business
On November 8, 2023, we sold substantially all of the assets related to our Orthobiologics segment (the “Orthobiologics Business”) to Berkeley Biologics, LLC (“Berkeley”). The Orthobiologics Business was comprised of researching, developing, administering, insuring, operating, commercializing, manufacturing, selling and marketing our Orthobiologics products, and contract manufacturing of particulate bone, precision milled bone, cellular bone matrix, acellular dermis, soft tissue and other products. As part of the divestiture, we also assigned the lease to our 36,173 square feet of manufacturing, laboratory and office space in Richmond, California to Berkeley.
In the sale, we received approximately $14.6 million, and we may earn up to an additional $20 million, in the aggregate, in the form of earn-out payments. The earn-out payments are equal to 10% of the actual revenue earned by Berkeley in each of the five years after the closing of the sale from sales of specified Orthobiologics products under the purchase agreement (including improvements, modifications, derivatives and enhancements related to those products). Additionally, the purchase agreement provides for a customary indemnity holdback in the amount of $1.5 million to be retained by Berkeley for 24 months after close.
The purchase agreement contains customary representations, warranties and covenants of the parties, and we, on the one hand, and Berkeley, on the other hand, agreed to customary indemnification provisions for breaches of representations, warranties and covenants, as well as assumed and excluded liabilities and pre-closing items.
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Product Recalls
FiberCel Recall
On June 2, 2021, we issued a voluntary recall pertaining to a single donor lot of our FiberCel Fiber Viable Bone Matrix, a bone repair product formerly distributed by Medtronic PLC, after we learned of post-surgical Mycobacterium tuberculosis (“MTB”) infections in several patients treated with the product. Since the voluntary recall, we have settled and paid 29 lawsuits and claims relating to FiberCel for a total cash outlay of approximately $9.1 million. For the remaining 80 cases for which settlements have not been reached, we estimated a probable loss related to each case and have recorded a liability at an estimated amount of $15.0 million at December 31, 2023 recorded as Contingent Liability for FiberCel Litigation in the accompanying consolidated balance sheets included in this Annual Report. As of December 31, 2023, we have recorded insurance receivables of $2.7 million on our balance sheet in respect of our insurance coverage for the FiberCel Litigation product liability losses.
Viable Bone Matrix Recall
In July 2023, we announced a voluntary recall of a single lot of one of our viable bone matrix (“VBM”) products and the market withdrawal of all of our VBM products produced after a specified date. (the “VBM Recall”). Notice of the voluntary recall was issued to centers after we learned of post-surgical MTB infections in two patients treated with product from a single donor lot of our VBM product. Prior to release, samples from this specific lot had tested negative for MTB by an independent laboratory using a nucleic acid test that is designed to specifically detect the MTB organism. A total of 36 patients were treated with product from the single donor lot. At present, two lawsuits have been filed, and 15 claims have been asserted as a result of the VBM Recall. While unknown at this time, possible losses in connection with the VBM Recall could have a material effect on our financial position and results of operations. We have purchased insurance coverage that, subject to common contract exclusions, is expected to provide full coverage for the VBM Recall as well as legal defense costs. As of December 31, 2023, the Company has recorded a legal fee liability and related insurance receivable totaling $0.1 million for legal services rendered in defending the Company in the VBM Recall.
All VBM products, which includes FiberCel, were divested by us in connection with the sale of our Orthobiologics Business to Berkeley in November 2023. Berkeley did not assume any liabilities related to the FiberCel Recall or VBM Recall, our market withdrawal of all of our viable bone matrix products, or any claims or lawsuits related thereto.
The FiberCel Recall and VBM Recall are described in further detail in Part I, Item 3, “Legal Proceedings” and Note 17 to the consolidated financial statements, included elsewhere in this Annual Report.
Defending any current or future claims, proceedings or lawsuits, regardless of merit, could be costly, divert management attention and result in adverse publicity, which could result in the withdrawal of, or reduced acceptance of, our products in the market. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. Additionally, following the public announcement of our voluntary recall, there has been various media coverage surrounding the recall and patients impacted. Such negative publicity related to the perceived quality and safety of our products could affect our brand image, decrease confidence in our products or have an adverse effect on our ability to retain existing and attract new customers, suppliers and distribution partners, any one of which could result in decreased revenue, having an adverse effect on our business, financial condition and operating results.
Impact of Inflation
Inflationary factors, such as increases in our cost of goods sold or other operating expenses, may adversely affect our operating results. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we do not believe inflation had a material effect on our financial condition or results of operations during the years ended December 31, 2023 and 2022. We cannot assure you, however, that we will be able to increase the selling prices of our products or reduce our operating expenses in an amount sufficient to offset the effects future
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inflationary pressures may have on our gross margin. Accordingly, we cannot assure you that our financial condition and results of operations will not be materially impacted by inflation in the future.
Components of Our Results of Operations
Net Sales
We recognize revenue on the sale of our products. During the year ended December 31, 2023, our device protection and cardiovascular products were sold to hospitals and other healthcare facilities primarily through our direct sales force, commercial partners or independent sales agents; however, beginning in April 2023, our cardiovascular products have been sold domestically through our distribution agreement with LeMaitre Vascular and internationally through commercial partners. Our women’s health product, SimpliDerm, is sold directly to hospitals and other healthcare facilities through independent sales agents or through our distribution agreement with Sientra.
Expenses
In recent years, we have incurred significant costs in the operation of our business. We expect that our recurring operating costs will largely stabilize, or increase at modest rates, in the near future through the identification of efficiencies as we grow. We may, however, still experience more significant expense increases as we expand our product development and clinical and research activities. As a result, we will need to generate significant net sales in order to achieve profitability. Below is a breakdown of our main expense categories and the related expenses incurred in each category:
Costs of Goods Sold
Our cost of goods sold relate to purchased raw materials and the processing and conversion costs of such raw materials consisting primarily of salaries and benefits, supplies, quality control testing and the manufacturing overhead incurred at our processing facilities in Roswell, Georgia and our former facility in Richmond, California. The Roswell facility has additional capacity, which if utilized, would further leverage our fixed overhead. Cost of goods sold also includes the amortization of intangibles generated from the CorMatrix Acquisition in 2017.
Sales and Marketing Expenses
Sales and marketing expenses are primarily related to our direct sales force, consisting of salaries, commission compensation, fringe benefits, meals and other expenses. Auto and travel costs also contribute to sales and marketing expenses. Outside of our direct sales force, we incur significant expenses relating to commissions to our CanGaroo commercial partners and independent sales agents. Additionally, this expense category includes distribution costs as well as market research, trade show attendance, advertising and public relations related to our products, and customer service expenses.
General and Administrative Expenses
General and administrative (“G&A”) expenses consist primarily of compensation, consulting, legal, human resources, information technology, accounting, insurance and general business expenses. Our G&A expenses have increased as a result of operating as a public company, especially as a result of hiring additional personnel and incurring greater director and officer insurance premiums, greater investor relations costs, and additional costs associated with accounting, legal, tax-related and other services associated with maintaining compliance with exchange listing and SEC requirements.
Research and Development Expenses
Research and development (“R&D”) expenses consist primarily of salaries and fringe benefits, laboratory supplies, clinical studies and outside service costs. Our product development efforts primarily relate to activities associated with the development of CanGarooRM, our CanGaroo Envelope with antibiotics. We also conduct clinical studies to
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validate the performance characteristics of our products and to capture patient data necessary to support our commercial efforts.
FiberCel Litigation Costs
FiberCel litigation costs consist primarily of legal fees and the estimated and actual costs to resolve the outstanding FiberCel litigation cases offset by the estimated and actual amounts recoverable or recovered under insurance, indemnity and contribution agreements for such costs.
Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
Year Ended December 31,
2023
2022
Change 2022 / 2023
% of Net
% of Net
(in thousands, except percentages)
Amount
Sales
Amount
Sales
$
%
Net sales
$
24,745
100.0
%
$
23,849
100.0
%
$
896
3.8
%
Cost of goods sold
13,692
55.3
%
12,210
51.2
%
1,482
12.1
%
Gross profit
11,053
44.7
%
11,639
48.8
%
(586)
(5.0)
%
Sales and marketing
13,087
52.9
%
17,850
74.8
%
(4,763)
(26.7)
%
General and administrative
14,104
57.0
%
16,051
67.3
%
(1,947)
(12.1)
%
Research and development
4,399
17.8
%
7,727
32.4
%
(3,328)
(43.1)
%
FiberCel litigation costs
9,989
40.4
%
5,200
21.8
%
4,789
92.1
%
Total operating expenses
41,579
168.0
%
46,828
196.4
%
(5,249)
(11.2)
%
Loss from continuing operations
(30,526)
(123.4)
%
(35,189)
(147.5)
%
4,663
13.3
%
Interest expense
5,796
23.4
%
5,118
21.5
%
678
13.2
%
Other expense (income), net
4,899
19.8
%
(4,159)
(17.4)
%
9,058
NM
Loss before provision of income taxes
(41,221)
(166.6)
%
(36,148)
(151.6)
%
(5,073)
(14.0)
%
Income tax expense
28
0.1
%
34
0.1
%
(6)
(17.6)
%
Net loss from continuing operations
(41,249)
(166.7)
%
(36,182)
(151.7)
%
(5,067)
(14.0)
%
Net income from discontinued operations
3,593
14.5
%
3,285
13.8
%
308
9.4
%
Net loss
$
(37,656)
(152.2)
%
$
(32,897)
(137.9)
%
$
(4,759)
(14.5)
%
NM = not meaningful
Net Sales
Net sales information for our products is summarized as follows:
Years Ended December 31,
2023
2022
% of Net
% of Net
Change
(in thousands, except percentages)
Amount
Sales
Amount
Sales
$
%
Products:
Device protection
$
9,401
38.0
%
$
9,093
38.1
%
$
308
3.4
%
Women's health
10,304
41.6
%
7,474
31.3
%
2,830
37.9
%
Cardiovascular
5,040
20.4
%
7,282
30.5
%
(2,242)
(30.8)
%
Total Net Sales
$
24,745
100.0
%
$
23,849
100.0
%
$
896
3.8
%
Total net sales increased $0.9 million, or 3.8%, to $24.7 million in the year ended December 31, 2023 compared to $23.8 million in the year ended December 31, 2022. Revenues from Device Protection and Women’s Health increased compared to the corresponding period of the prior year due to volume growth and revenues from Cardiovascular decreased
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due to the commencement of our distribution agreement with LeMaitre Vascular which provides for sales at a contracted price to the distributor versus sales prior to such agreement being made at end-user pricing.
Cost of Goods Sold
Cost of goods sold and gross margin percentage information for our products is summarized as follows:
Year Ended December 31,
2023
2022
Gross
Gross
Change 2022 / 2023
(in thousands, except percentages)
Amount
Margin %
Amount
Margin %
$
%
Products:
Device protection
$
2,836
69.8
%
$
2,979
67.2
%
$
(143)
2.6
%
Women's health
5,902
42.7
%
4,337
42.0
%
1,565
0.7
%
Cardiovascular
1,556
69.1
%
1,497
79.4
%
59
(10.3)
%
Cost of goods sold, excluding intangible asset amortization
10,294
58.4
%
8,813
63.0
%
1,481
(4.6)
%
Intangible asset amortization expense
3,398
(13.7)
%
3,397
(14.2)
%
1
0.5
%
Total Cost of Goods Sold
$
13,692
44.7
%
$
12,210
48.8
%
$
1,482
(4.1)
%
Total cost of goods sold increased $1.5 million to $13.7 million in the year ended December 31, 2023 compared to $12.2 million in the year ended December 31, 2022. Gross margin was 44.7% in the year ended December 31, 2023 compared to 48.8% in the year ended December 31, 2022. Gross margin, excluding intangible asset amortization, was 58.4% in the year ended December 31, 2023 compared to 63.0% in the year ended December 31, 2022. The slight decline in gross margin was due to the commencement of the LeMaitre Vascular distribution agreement described above.
Operating Expenses
Sales and Marketing
Sales and marketing expenses decreased $4.8 million, or 26.7%, to $13.1 million in the year ended December 31, 2023 compared to $17.9 million in the year ended December 31, 2022. As a percentage of sales, sales and marketing expenses decreased to 52.9% in the year ended December 31, 2023 from 74.8% in the year ended December 31, 2022. The decrease in expense was largely attributable to a reduction in force which occurred in the first quarter of 2023 and primarily impacted certain members of sales and marketing management.
General and Administrative
G&A expenses decreased $1.9 million, or 12.1%, to $14.1 million in the year ended December 31, 2023 compared to $16.1 million in the year ended December 31, 2022. As a percentage of net sales, G&A expenses decreased to 57.0% in the year ended December 31, 2023 from 67.3% in the year ended December 31, 2022. The decrease in expense was primarily due to declines in the cost of insurance and certain non-recurring legal and severance costs incurred in the 2022 period.
Research and Development
R&D expenses decreased to $4.4 million in the year ended December 31, 2023 compared to $7.7 million in the year ended December 31, 2022. We continue to focus our R&D efforts primarily on the development of our CanGarooRM Antibacterial Envelope. Such related costs were less in 2023 versus the prior year due to the reduction of efforts needed and expenses incurred as the development progresses toward anticipated completion.
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FiberCel Litigation Costs
FiberCel litigation costs increased to $10.0 million in the year ended December 31, 2023 compared to $5.2 million in the year ended December 31, 2022. The increase in expense was primarily due to the continued evaluation of the contingent FiberCel liability and higher legal defense costs incurred as the FiberCel cases progress. See further discussion in Note 17 to consolidated financial statements included elsewhere in this Annual Report.
Interest Expense
Interest expense was approximately $5.8 million in the year ended December 31, 2023 compared to $5.1 million in the year ended December 31, 2022. The increase was due to the higher principal outstanding and interest rates incurred by us on our existing debt, the SWK Loan Facility, as compared to the debt outstanding in the year ended December 31, 2022, which consisted primarily of the MidCap Loan Facility and MidCap Credit Facility. See “ - Liquidity and Capital Resources - Credit Facilities” below for a further discussion of these debt agreements and Note 10 to the consolidated financial statements included elsewhere in this Annual Report.
Discontinued Operations
Net income from discontinued operations was $3.6 million for the year ended December 31, 2023 compared to $3.3 million for the year ended December 31, 2022. The increase was due to the gain on sale of the Orthobiologics Business of approximately $6.0 million recorded upon closing of the transaction in November 2023 partially offset by losses incurred by the Orthobiologics Business during 2023 due to the financial impact of the VBM Recall and market withdrawal in July 2023 causing revenue reversals and inventory write-downs of approximately $3.0 million and $2.0 million, respectively.
Other Expense (Income), net
Other expense (income), net was an expense of approximately $4.9 million in the year ended December 31, 2023 and was primarily attributable to the revaluation of Common Warrants (defined below) and Prefunded Warrants (defined below) between issuance on September 21, 2023 and December 31, 2023. See Note 14 to the consolidated financial statements included elsewhere in this Annual Report for additional information.
Other expense (income), net was income of approximately $4.2 million in the year ended December 31, 2022 and was primarily attributable to the $5.0 million gain on the revaluation of our Revenue Interest Obligation to Ligand. See Note 11 to the consolidated financial statements included elsewhere in this Annual Report for additional information. Such gain was offset by o ther expense related to our debt refinancing in August 2022 and the associated prepayment fees, payment of unaccrued exit fees and the write-off of unamortized deferred financing costs, which collectively resulted in a loss of $1.2 million. Such loss was offset by other income of $0.4 million related to the forgiveness of interest accrued on the promissory note to a tissue supplier upon repayment of such note in August 2022. See Note 10 to the accompanying consolidated financial statements included elsewhere in this Annual Report for further discussion of these transactions.
Non-GAAP Financial Measures
In this Part II. Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Annual Report, we present our gross margin, excluding intangible asset amortization. We calculate gross margin, excluding intangible asset amortization, as gross profit, excluding amortization expense relating to intangible assets we acquired in the CorMatrix Acquisition, divided by net sales. Gross margin, excluding intangible asset amortization, is a supplemental measure of our performance, is not defined by or presented in accordance with U.S. generally accepted accounting principles (“GAAP”), has limitations as an analytical tool and should not be considered in isolation or as an alternative to our GAAP gross margin, gross profit or any other financial performance measure presented in accordance with GAAP. We present gross margin, excluding intangible asset amortization, because we believe that it provides meaningful supplemental information regarding our operating performance by removing the impact of amortization expense, which is not indicative of our overall operating performance. We believe this provides our management and investors with useful information to facilitate period-to-period comparisons of our operating results. Our management uses
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this metric and the results of the segments in assessing the health of our business and our operating performance, and we believe investors’ understanding of our operating performance is similarly enhanced by our presentation of this metric.
Although we use gross margin, excluding intangible asset amortization, as described above, this metric has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may use other measures to evaluate their performance, which could reduce the usefulness of this non-GAAP financial measure as a tool for comparison.
The following table presents a reconciliation of our gross margin, excluding intangible asset amortization, for the years ended December 31, 2023 and 2022 to the most directly comparable GAAP financial measure, which is our GAAP gross margin (in thousands).
Year Ended
December 31,
2023
2022
Net sales
$
24,745
$
23,849
Cost of goods sold
13,692
12,210
Gross profit
11,053
11,639
Intangible asset amortization expense
3,398
3,397
Gross profit, excluding intangible asset amortization
$
14,451
$
15,036
Gross margin
44.7
%
48.8
%
Gross margin, excluding intangible asset amortization
58.4
%
63.0
%
Seasonality
Historically, we have experienced seasonality in our first and fourth quarters, and we expect this trend to continue. We have experienced and may in the future experience higher sales in the fourth quarter as a result of hospitals in the United States increasing their purchases of our products to coincide with the end of their budget cycles. Satisfaction of patient deductibles throughout the course of the year also results in increased sales later in the year, once patients have paid their annual insurance deductibles in full, which reduces their out-of-pocket costs. Conversely, our first quarter generally has lower sales than the preceding fourth quarter as patient deductibles are re-established with the new year, which increases their out-of-pocket costs.
Liquidity and Capital Resources
As of December 31, 2023, we had cash of approximately $19.3 million. Since inception, we have financed our operations primarily through amounts borrowed under our credit facilities, proceeds from our initial public offering (“IPO”), sales of our products and more recently, the sale of our Orthobiologics Business and proceeds from a follow-on offering and private placements of our common stock and warrants. Our historical cash outflows have primarily been associated with acquisitions and integration, manufacturing and administrative costs, general and marketing, research and development, clinical activity, purchase of property and equipment used in our production activities, litigation costs and investing in our commercial infrastructure through our direct sales force and our commercial partners in order to expand our presence and to promote awareness and adoption of our products. As of December 31, 2023, our accumulated deficit was $175.6 million.
On October 13, 2020, in connection with our IPO, we issued and sold 2,941,176 shares of common stock, consisting of 2,205,882 shares of Class A common stock and 735,294 shares of Class B common stock, at a price to the public of $17.00 per share, resulting in net proceeds to us of approximately $43.0 million, after deducting the underwriting discount of approximately $3.5 million and offering expenses of approximately $3.5 million.
On December 8, 2021, we closed on a private investment in public equity (“PIPE”) financing, thereby receiving net proceeds of approximately $13.8 million, after deducting offering costs. The PIPE investors purchased an aggregate of 2,122,637 shares of the Company’s Class A common stock and an aggregate of 1,179,244 shares of the Company’s
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Class B common stock (which are convertible on a one-for-one basis into shares of Class A common stock), in each case, at a price of $4.24 per share.
On December 1, 2022, we issued and sold 2,350,000 shares our Class A common stock at a price to the public of $4.75 per share in a registered underwritten offering, resulting in net proceeds to us of approximately $10.2 million, after deducting underwriting discounts and offering expenses.
On September 21, 2023, we sold, in a private offering an aggregate of (i) 6,852,811 units (“Common Units”), each comprised of (a) one share of our Class A common stock and (b) a warrant (“Common Warrant”) to purchase one and one half shares of Class A Common Stock, and (ii) 503,058 units (the “Prefunded Units”), each comprised of (a) a prefunded warrant (“Prefunded Warrant”) to purchase one share of Class A Common Stock, and (b) a Common Warrant. The Common Units were sold at a purchase price of $1.4275 per unit, and the Prefunded Units were sold at a purchase price of $1.4265 per unit, for aggregate gross proceeds of approximately $10.5 million, before deducting offering expenses. Each Common Warrant is exercisable at any time until the earlier of (a) 30 trading days after the clearance by the FDA of our CanGarooRM antibiotic-eluting biologic envelope or (b) five years from the date of the offering, at an exercise price per share of $1.4275. Each Prefunded Warrant is exercisable at any time at a nominal exercise price per share of $0.001 (with the remainder of the exercise price per share of Class A Common Stock having been prefunded to us).
We expect our losses to continue for the foreseeable future and these losses will continue to have an adverse effect on our financial position. Because of the numerous risks and uncertainties associated with our commercialization and development efforts, including our ability to obtain FDA clearance for the next generation of our flagship CanGaroo product, CanGarooRM and successfully commercialize this product, we are unable to predict when we will become profitable, and we may never become profitable. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations and cash flows.
In order to mitigate the current and potential future liquidity issues caused by the matters noted above, we may seek to raise capital through the issuance of common stock, such as the private placement which we closed in September 2023 described above, pursue asset sale or other transactions, such as the sale of the Orthobiologics Business described above. However, such transactions may not be successful, and we may not be able to raise additional equity, refinance our debt instruments, or sell assets on acceptable terms, or at all. As such, based on our current operating plans, we believe there is uncertainty as to whether our future cash flows along with our existing cash, issuances of additional equity and cash generated from expected future sales will be sufficient to meet our anticipated operating needs through twelve months from the financial statement issuance date. Due to these factors, there is substantial doubt about our ability to continue as a going concern within one year after the issuance of the financial statements.
Cash Flows for the Years Ended December 31, 2023 and 2022
Year Ended
December 31,
2023
2022
(in thousands)
Net cash used in:
Operating activities
$
(21,761)
$
(21,434)
Investing activities
14,208
(540)
Financing activities
9,840
8,535
Net increase (decrease) in cash
$
2,287
$
(13,439)
Net Cash Used in Operating Activities
Net cash used in operating activities for the year ended December 31 2023 was $21.8 million compared to $21.4 million for the year ended December 31, 2022. The slight year-over-year increase was primarily due to the higher net loss in the 2023 period.
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Net Cash Used in Investing Activities
Net cash provided by investing activities for the year ended December 31, 2023 was $14.2 million and net cash used in investing activities was approximately $0.5 million for the year ended December 31, 2022. The significant increase was due to the proceeds received from the sale of our Orthobiologics Business.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2023 was $9.8 million compared to $8.5 million for the year ended December 31, 2022. Both years included the proceeds of $10.1 million from the issuance of common stock (and warrants in 2023). The year-over-year net increase of $1.3 million was primarily due to proceeds received from the financing of certain insurance premiums during the year ended December 31, 2023.
Credit Facilities
General
O n August 10, 2022, we entered into a senior secured term loan facility with SWK Funding LLC (“SWK”), as agent, and other lenders party thereto for an aggregate principal amount of $25 million, and we amended the facility on May 12, 2023 (as amended, the “SWK Loan Facility”). An initial draw of $21 million was made in August 2022, with the additional $4 million drawn on December 14, 2022 upon satisfaction of the amended terms enabling such receipt. The SWK Loan Facility also allows for the establishment of a separate, new asset-based revolving loan facility of up to $8 million, which has not been entered into to date. A total of $16 million of the proceeds from the SWK Loan Facility were used to pay all outstanding obligations on the formerly outstanding loan facility with MidCap Financial Trust (the “MidCap Loan Facility”), and credit facility with MidCap Financial Trust (the “MidCap Credit Facility”), which included (i) $12.8 million to repay all outstanding principal and accrued interest on the MidCap Loan Facility, (ii) $1.7 million to pay the prepayment and exit fees on the MidCap Loan Facility and (iii) $1.5 million to repay the outstanding balance, accrued interest and exit fees on the MidCap Credit Facility. As of December 31, 2023, we had $23.7 million of indebtedness outstanding under our SWK Loan Facility, with such balance being net of $0.8 million of unamortized discount and deferred financing costs.
Interest Rates
All of the SWK Loan Facility borrowings take the form of Secured Overnight Financing Rate (“SOFR”) loans and bear interest at a rate per annum equal to the sum of an applicable margin of (i) 7.75% and the “Term SOFR Rate” (based upon an interest period of 3 months), or (ii) if the Company has elected the PIK Interest option (as defined below), 3.75% and the “Term SOFR Rate.” The Company may elect a portion of the interest due, to be paid in-kind at a rate per annum of 4.5% (“PIK Interest”), and such election may be made (x) until November 15, 2024 if the conditions to draw the Additional Term Loan have not been met, or (y) if such conditions to draw the Additional Term Loan have been satisfied, until November 17, 2025. The “Term SOFR Rate” is subject to a floor of 2.75%.
Mandatory Prepayments
The SWK Loan Facility Agreement requires certain mandatory prepayments, subject to certain exceptions, with: (1) 100% of any net casualty proceeds in excess of $250,000 and (2) for non-ordinary course asset sales, an amount equal to the difference between (x) the proportion of divested gross profit (as defined in the SWK Loan Facility) to the Company’s total gross profit (as defined in the SWK Loan Facility) multiplied by the outstanding loans under the SWK Loan Facility, and (y) the difference between $1,000,000 and the aggregate sale proceeds of any assets previously sold during the fiscal year. No such mandatory prepayments were required during the three or twelve months ended December 31, 2022; however, the closing of the divestiture of the Orthobiologics Business in November 2023 triggered the mandatory prepayment of $4.0 million. Of such amount, $2.0 million wa s paid shortly after closing of the divestiture of the Orthobiologics Business and the remainder was paid on February 15, 2024 based on mutual agreement between the parties.
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Optional Prepayment
The agreement, as amended, governing the SWK Loan Facility also includes an exit fee equal to 6.5% of the aggregate principal amount funded prior to termination plus $62,500 and prepayment penalties equal to: (i) if such prepayment occurs prior to the first anniversary of the Closing Date, 2% of the aggregate principal amount funded prior to the termination plus remaining unpaid interest payments scheduled to be paid during the first year of the loan or (ii) if such prepayment occurs after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date, 2% of the aggregate principal amount funded prior to the termination.
Amortization and Final Maturity
The SWK Loan Facility matures on August 10, 2027 and accrues interest, payable quarterly in arrears. Principal amortization of the SWK Loan Facility starts on November 15, 2024, which amortization may be extended to November 17, 2025 if the Extension Conditions (as defined in the SWK Loan Facility Agreement) have been satisfied. Principal payments during the amortization period will be limited based on revenue-based caps. As of December 31, 2023, quarterly principal payments are scheduled to begin on November 15, 2024, in an amount equal to 5% of the Initial Term Loan with the balance paid at maturity.
Security
All obligations under the SWK Loan Facility are, and any future guarantees of those obligations will be, secured by, among other things, and in each case subject to certain exceptions, a first priority lien on and security interest in, upon, and to all of our assets, whether now owned or hereafter acquired, wherever located.
Covenants and Other Matters
The SWK Loan Facility Agreement that governs the SWK Loan Facility contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability to:
● incur additional indebtedness;
● incur certain liens;
● pay dividends or make other distributions on equity interests;
● redeem, repurchase or refinance subordinated indebtedness;
● consolidate, merge or sell or otherwise dispose of their assets;
● make investments, loans, advances, guarantees and acquisitions;
● enter into transactions with affiliates;
● amend or modify their governing documents;
● amend or modify certain material agreements; and
● alter the business conducted by them and their subsidiaries.
In addition, the SWK Loan Facility Agreement contains two financial covenants. The first covenant, which is measured quarterly, requires us to achieve a specified Minimum Aggregate Revenue (as defined in the SWK Loan Facility) for the preceding 12-month period or, alternatively, to maintain Consolidated Unencumbered Liquid Assets (as defined in the SWK Loan Facility) greater than either (i) the outstanding principal balance of the loan, or (ii) the aggregate operating
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cash burn (as defined in the SWK Loan Facility) for the preceding 12-month period. The second covenant requires us to maintain a minimum liquidity (as defined in the SWK Loan Facility) of the greater of (a) $5.0 million and (b) the sum of the operating cash burn for the two prior consecutive fiscal quarters then ended (the “Liquidity Covenant”).
The SWK Loan Facility Agreement contains events of default, including, most significantly, a failure to timely pay interest or principal, insolvency, or an action by the FDA or such other material adverse event impacting the operations of Elutia. As of December 31, 2023, we were in compliance with the financial covenants and all other covenants.
Supplier Promissory Note
During 2017, we restructured certain of our liabilities with a tissue supplier and entered into an unsecured promissory note bearing interest at 5%. In 2022, no payments were made on the promissory note because the Company’s senior lender restricted payment of the amounts due. The Company used $1.4 million of the proceeds from the SWK Loan Facility to repay the remaining balance on the promissory note; however the accrued interest on the promissory note was forgiven by the lender. Such forgiveness resulted in a gain to the Company of approximately $0.4 million which has been recorded as other expense (income), net in the accompanying consolidated statements of operations for the year ended December 31, 2022 included elsewhere in this Annual Report.
Funding Requirements
We expect to continue to incur significant expenses and operating losses for the foreseeable future as we expand our product development and clinical and research activities. In addition, we expect to continue to incur significant costs and expenses associated with operating as a public company.
As of December 31, 2023, we had $23.7 million of indebtedness outstanding, consisting of $24.5 million outstanding under our SWK Loan Facility, net of $0.8 million of unamortized discount and deferred financing costs. In addition, we are party to a royalty agreement with Ligand Pharmaceuticals Incorporated (“Ligand”) pursuant to a long-term obligation to Ligand (the “Revenue Interest Obligation”). The Revenue Interest Obligation requires us to pay Ligand 5.0% of future sales of our CanGaroo, ProxiCor, Tyke and VasCure products, and substantially similar products, through May 31, 2027, subject to annual minimum payments of $4.4 million.
If our available cash balances and cash flow from operations are insufficient to satisfy our liquidity requirements, we may seek to raise additional capital through equity offerings, debt financings, or asset sale or other transactions. However, such transactions may not be successful and we may not be able to raise additional equity or debt, or sell or license assets on acceptable terms, or at all. We may also consider raising additional capital in the future to expand our business, pursue strategic investments or take advantage of financing opportunities. Our present and future funding requirements will depend on many factors, including, among other things:
● the costs of defending against or the damages payable in connection with the FiberCel Recall and VBM Recall and any future litigation that we may be subject to (to the extent above the applicable insurance coverage);
● continued patient, physician and market acceptance of our products;
● the scope, rate of progress and cost of our current and future pre-clinical and clinical studies;
● the cost of our research and development activities and the cost and timing of commercializing new products or technologies;
● the cost and timing of expanding our sales and marketing capabilities;
● the cost of filing and prosecuting patent applications and maintaining, defending and enforcing our patent or other intellectual property rights;
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● the cost of defending, in litigation or otherwise, any claims that we infringe, misappropriate or otherwise violate third-party patents or other intellectual property rights;
● the cost and timing of additional regulatory approvals;
● costs associated with any product recall that may occur;
● the effect of competing technological and market developments;
● the expenses we incur in manufacturing and selling our products;
● the extent to which we acquire or invest in products, technologies and businesses, although we currently have no commitments or agreements relating to any of these types of transactions;
● the costs of operating as a public company; and
● unanticipated general, legal and administrative expenses.
In addition, our operating plans may change as a result of any number of factors, including those set forth above and other factors currently unknown to us, and we may need additional funds sooner than anticipated. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming shares of our common stock and/or declaring dividends. If we raise funds through collaborations, licensing agreements or other strategic alliances, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay the development or commercialization of our products, license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize and reduce marketing, customer support or other resources devoted to our products or cease operations. See “Risk Factors — Risks Related to Our Business — Our future capital needs are uncertain and we may need to raise funds in the future, and such funds may not be available on acceptable terms or at all .” elsewhere in this Annual Report.
Based on our current operating plans, we believe there is uncertainty as to whether our future cash flows along with our existing cash, issuances of additional equity and cash generated from expected future sales will be sufficient to meet our anticipated operating needs through twelve months from the financial statement issuance date. Due to these factors, there is substantial doubt about our ability to continue as a going concern within one year after the issuance of the financial statements.
Off-Balance Sheet Arrangements
As of December 31, 2023, we did not have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii).
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses reported during the period. On an ongoing basis, management evaluates these estimates and judgments, including those related to inventories, receivables, long-lived assets, stock-based awards, revenue interest obligation, the warrant liability, the contingent liability for the FiberCel
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Litigation and deferred income taxes. Actual results may differ from those estimates. We have identified the following critical accounting policies:
Revenue Recognition
We enter into contracts to sell and distribute products to healthcare providers or commercial partners which are billed under ship and bill contract terms. Revenue is recognized when we have met our performance obligations pursuant to our contracts with our customers in an amount that we expect to be entitled to in exchange for the transfer of control of the products and services to our customers. For all net sales, we have no further performance obligations and revenue is recognized when control transfers which occurs either when: i) the product is shipped via common carrier; or ii) the product is delivered to the customer or distributor, in accordance with the terms of the agreement.
A portion of our product revenue is generated from consigned inventory maintained at hospitals, distributors and by our direct sales representatives. For these types of products sales, we retain control until the product has been shipped, used or implanted, at which time revenue is recognized.
We have elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying products is transferred to the customer. The related shipping and freight charges incurred by us are included in sales and marketing costs.
Contracts with customers state the final terms of the sale, including the description, quantity, and price of each implant distributed. The payment terms and conditions in our contracts vary; however, as a common business practice, payment terms are typically due in full within 30 to 60 days of delivery. We, at times, extend volume discounts to customers. We permit returns of our products in accordance with the terms of contractual agreements with customers.
Inventory Valuation
Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined using the average cost method. Inventory write-downs for unprocessed and certain processed donor tissue are recorded based on the estimated amount of inventory that will not pass the quality control process based on historical data. At each balance sheet date, we also evaluate inventories for excess quantities, obsolescence or shelf life expiration. This evaluation includes analysis of our current and future strategic plans, historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions and a review of the shelf life expiration dates for products. To the extent that management determines there is excess or obsolete inventory or quantities with a shelf life that is too near its expiration for us to reasonably expect that we can sell those products prior to their expiration, we adjust the carrying value of the inventory to its estimated net realizable value.
Due to the judgmental nature of inventory valuation, we may from time to time be required to adjust our assumptions as processes change and as we gain better information. Although we continue to refine the assumptions, described above, on which we base our estimates, we cannot be sure that our estimates are accurate indicators of future events. Accordingly, future adjustments may result from refining these estimates. Such adjustments may be significant.
Valuation of Purchased Intangible Assets
Purchased intangible assets with finite lives are carried at acquired fair value, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets. We periodically evaluate the period of amortization for purchased intangible assets to determine whether current circumstances warrant revised estimates of useful lives. We review our purchased intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to the net undiscounted cash flows expected to be generated by the asset. Impairment exists when the carrying value of our asset exceeds the related estimated undiscounted future cash flows expected to be derived from the asset. If impairment exists, the carrying value of that asset is adjusted to its fair value. A discounted cash flow analysis is used to
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estimate an asset’s fair value, using assumptions that market participants would apply. An impairment loss would be recorded for the excess of net carrying value over the fair value of the asset impaired. The results of impairment tests are subject to management’s estimates and assumptions of projected cash flows and operating results. Changes in assumptions or market conditions could result in a change in estimated future cash flows and could result in a lower fair value and therefore an impairment, which could impact reported results.
Revenue Interest Obligation
In 2017, we completed an asset purchase agreement with CorMatrix and acquired all of the CorMatrix commercial assets and related intellectual property. As part of this acquisition, we entered into a royalty agreement with Ligand pursuant to which we assumed the Revenue Interest Obligation, with an estimated present value on the acquisition date of $27.7 million. The terms of the Revenue Interest Obligation require us to pay Ligand 5.0% of future sales of our CanGaroo, ProxiCor, Tyke and VasCure products, and substantially similar products, through May 31, 2027, subject to annual minimum payments of $2.75 million. Furthermore, a $5.0 million payment will be due to Ligand if cumulative sales of the acquired products exceed $100 million and a second $5.0 million will be due if cumulative sales exceed $300 million during the ten-year term of the agreement which expires on May 31, 2027.
We have estimated the fair value of the Revenue Interest Obligation, including contingent milestone payments and estimated sales-based payments, based on assumptions related to future sales of the acquired products. At each reporting period, the value of the Revenue Interest Obligation is re-measured based on current estimates of the net present value of future payments, with changes to be recorded in the consolidated statements of operations. There was no change to estimated future payments during the year ended December 31, 2023, and thus, no re-measurement gain or loss was recognized. In connection with our estimation at December 31, 2022, it was determined that the estimated future payments, discounted at the original discount rate, had decreased since the prior estimates. Such decrease was primarily the result of anticipated changes to our strategic partnerships relative to sales of both our CanGaroo and cardiovascular product lines that will impact the timing and extent of such sales and, thereby, will reduce expected future payments to Ligand. The change to estimated future payments yielded a reduction to the total Revenue Interest Obligation of approximately $5.0 million for the year ended December 31, 2022 with such amount recognized as a gain in other expense (income), net in our consolidated statement of operations. The estimation of future sales and the possible attainment of sales milestones is subject to significant judgment. Different judgments would yield different valuations of the Revenue Interest Obligation and these differences could be significant.
In January 2024, we amended the royalty agreement with Ligand and restructured the Revenue Interest Obligation by (i) revising the minimum annual royalty for 2024 and each subsequent fiscal year during the term of the agreement from $2.75 million to $4.4 million, (ii) revising the minimum quarterly payments for each fiscal quarter beginning October 1, 2023, and continuing through the term of the agreement from approximately $0.7 million to $1.1 million, (iii) agreeing to a payment of $3.0 million in satisfaction of all royalty obligations for the first three fiscal quarters of 2023, with half of such amount paid on January 20, 2024, and the remainder to be paid not later than April 10, 2024, and (iv) waiving the obligation to make the $5.0 million milestone payment that became due to Ligand in the second quarter of 2023. The accounting impact of this amendment will be recognized in our consolidated financial statements for the quarter ended March 31, 2024.
Contingent Liability for FiberCel Litigation
We review every lawsuit and claim and are in contact with outside counsel on an ongoing basis in determining our Contingent Liability for FiberCel Litigation. Where the available information is only sufficient to establish a range of probable liability, and no point within the range is more likely than any other, the lower end of the range has been used. When a material loss contingency is reasonably possible, but not probable, we do not record a liability, but instead disclose the nature of the matter and an estimate of the loss or range of loss, to the extent such estimate can be made.
An accrual is established for each lawsuit and claim, when appropriate, based on the nature of each such lawsuit or claim. The provision for FiberCel Litigation claims are based upon many factors, which vary for each case. These factors include (i) the extent of the injuries incurred, (ii) recent experience on settled claims, (iii) settlement offers made to the other parties to the litigation and (iv) any other factors that may have a material effect on the estimated liability.
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While we believe our estimated liability to be reasonable, the actual loss amounts are highly variable and turn on a case-by-case analysis of the relevant facts. As such, actual settlement amounts may differ from our estimates and such differences may be material.
Warrant Liability
We account for warrants in accordance with ASC 815, Derivatives and Hedging – Contracts in Entity's Own Equity , as either liabilities or as equity instruments depending on the specific terms of the warrant agreement. The Prefunded and Common Warrants issued in connection with the September 2023 private placement (see Note 14 to the consolidated financial statements included elsewhere in this Annual Report) are classified as liabilities and are recorded at fair value. The warrants are subject to re-measurement at each settlement date and at each balance sheet date and any change in fair value is recognized in other expense (income), net in the statements of operations. The Company estimates the fair value of the warrant liability using a Black-Scholes pricing model. We are required to make assumptions and estimates in determining an appropriate term, risk-free interest rate, volatility factor, dividend yield, and the fair value of common stock. Any significant adjustments to the unobservable inputs would have a direct impact on the fair value of the warrant liability. Different assumptions relative to the fair valuation of our Prefunded and Common Warrants would result in an adjustment to other expense (income), net in the consolidated statements of operations and such differences may be material.
Stock-Based Compensation
Compensation costs associated with stock option awards, restricted stock units and other forms of equity compensation are measured at the grant-date fair value of the awards and recognized over the requisite vesting period of the awards on a straight-line basis.
Our policy is to grant stock options at an exercise price equal to 100% of the market value of a share of common stock at closing on the date of the grant. Our stock options generally have seven to ten year contractual terms and vest over a four-year period from the date of grant. We use the Black-Scholes model to value our time-vested stock option grants. The fair value of stock options is determined on the grant date using assumptions for the estimated fair value of the underlying common stock, expected term, expected volatility, dividend yield and the risk-free interest rate. Before the completion of our IPO, our board of directors determined the fair value of common stock considering the state of the business, input from management, third party valuations and other considerations. We use the simplified method for estimating the expected term used to determine the fair value of options. Until our IPO in October 2020, there had been no public market for our common stock and thus, we lacked company-specific historical and implied volatility information. As a result, we estimate the expected volatility primarily based on the historical volatility of comparable companies in the industry whose share prices are publicly available and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded share price. We use a zero-dividend yield assumption as we have not paid dividends since inception nor do we anticipate paying dividends in the future. The risk-free interest rate approximates recent U.S. Treasury note auction results with a similar life to that of the option.
For our performance-based stock option and restricted stock unit grants which vest upon the achievement of specified market conditions, we used the Monte Carlo simulation model to calculate the grant-date fair value. This model simulates the probabilities of the potential outcomes of our future stock prices over the performance period to determine a fair value. Under this simulation model, our key assumptions relate to the risk-free interest rate and equity volatility based on consideration of our historical trading volatility as well as the observed equity volatility of other publicly-traded life sciences companies .
The period expense for all of our stock options and restricted stock units is recognized on a straight-line basis over the requisite service period for the entire award. Different assumptions relative to the fair valuation of our stock options and restricted stock units would result in a different period expense and such differences may be material.
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JOBS Act
Section 107 of the JOBS Act permits us, as an “emerging growth company,” to take advantage of an extended transition period for adopting new or revised accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, as a result, for so long as we remain an emerging growth company, unless we subsequently choose to affirmatively and irrevocably opt out of the extended transition period, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. Section 107 of the JOBS Act provides that we can elect to opt out of the extended transition period at any time, which election is irrevocable.
We will remain an emerging growth company, and will be able to take advantage of the foregoing exemptions, until the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.235 billion or more; (ii) the last day of 2025; (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common equity held by non-affiliates is $700 million or more as of the last business day of our most recently completed second fiscal quarter; or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.
Recently Issued Accounting Pronouncements
See Note 3, “Recently Issued Accounting Standards,” to our audited consolidated financial statements included elsewhere in this Annual Report for information regarding recently issued accounting pronouncements.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.