ROCKWELL MEDICAL, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes in “Item 1. Condensed Consolidated Financial Statements”. References in this report to “Rockwell,” the “Company,” “we,” “our” and “us” are references to Rockwell Medical, Inc. and its subsidiaries. Forward-Looking Statements We make forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission, or SEC. We may also make forward-looking statements in our press releases or other public or shareholder communications. Our forward-looking statements are subject to risks and uncertainties and include information about our current expectations and possible or assumed future results of our operations. When we use words such as “may,” “might,” “will,” “should,” “believe,” “expect,” “anticipate,” “estimate,” “continue,” “could,” “plan,” “potential,” “predict,” “forecast,” “project,” “intend,” “is focused on” or similar expressions, or make statements regarding our intent, belief, or current expectations, we are making forward-looking statements. Our forward looking statements also include, without limitation, statements about our liquidity and capital resources; our ability to continue as a going concern; our ability to successfully integrate acquisitions; the size of the hemodialysis concentrates market opportunity; our ability to successfully execute on our business strategy; our ability to raise additional capital; our ability to successfully implement certain cost containment and cost-cutting measures; our ability to achieve profitability and statements regarding our anticipated future financial condition, operating results, cash flows and business plans. While we believe our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which are based on information available to us on the date of this report or, if made elsewhere, as of the date made. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed in this report, “Item 1A — Risk Factors” in our Form 10-K for the year ended December 31, 2023 and from time to time in our other reports filed with the SEC. Other factors not currently anticipated may also materially and adversely affect our results of operations, cash flow and financial position. There can be no assurance future results will meet expectations. Forward-looking statements speak only as of the date of this report and we expressly disclaim any intent to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law. Overview Rockwell Medical is a healthcare company that develops, manufactures, commercializes, and distributes a portfolio of hemodialysis products for dialysis providers worldwide. Rockwell is the largest supplier of liquid bicarbonate concentrates and the second largest supplier of acid and dry bicarbonate concentrates for dialysis patients in the United States. Hemodialysis is the most common form of end-stage kidney disease treatment and is usually performed at freestanding outpatient dialysis centers, at hospital-based outpatient centers, at skilled nursing facilities, or in a patient’s home. This represents a large market opportunity for which we believe Rockwell's products are well-positioned to meet the needs of patients. Rockwell delivers the majority of its hemodialysis concentrates products and mixers to dialysis clinics throughout the United States and internationally utilizing its own delivery trucks and third-party carriers. Rockwell has developed a core expertise in manufacturing and delivering hemodialysis concentrates, and has built a longstanding reputation for reliability, quality, and excellent customer service. Rockwell provides the hemodialysis community with products controlled by a Quality Management System regulated by the U.S. Food and Drug Administration ("FDA"). Rockwell is ISO 13485 Certified and adheres to current Good Manufacturing Practices ("cGMP") and Association for Advancement of Medical Instrumentation ("AAMI") standards. Rockwell manufactures hemodialysis concentrates at its facilities in Michigan, South Carolina, and Texas totaling approximately 175,000 square feet, and manufactures its dry acid concentrate mixers at its facility in Iowa. In addition, the Company manufactures hemodialysis concentrates in Minnesota under a contract manufacturing agreement with a contract manufacturing organization. (See Note 4 of the accompanying condensed consolidated interim financial statements for further detail). On February 12, 2024, the Company entered into an amendment to its contract manufacturing agreement to extend the term to December 31, 2024. The Company plans to transfer the manufacturing of the former Evoqua product line to one of its own manufacturing facilities by the end of 2024, which the Company believes will reduce production costs for these products. Results of Operations for the Three Months Ended March 31, 2024 and 2023 The following table summarizes our operating results for the periods presented below (dollars in thousands): Three Months Ended March 31, 2024 % of Revenue 2023 % of Revenue % Change Net Sales $ 22,676 $ 19,668 15 % Cost of Sales 19,612 86 % 17,069 87 % 15 % Gross Profit 3,064 14 % 2,599 13 % 18 % Research and Product Development 18 — % 278 1 % (94) % Selling and Marketing 594 3 % 498 3 % 19 % General and Administrative 3,776 17 % 3,250 17 % 16 % Operating Loss $ (1,324) (6) % $ (1,427) (7) % (7) % Net Sales During the three months ended March 31, 2024, our net sales were $22.7 million compared to net sales of $19.7 million during the three months ended March 31, 2023. The increase of $3.0 million was primarily due to additional customers added through the Evoqua asset acquisition and price increases, partially offset by $1.5 million of deferred license revenue recognition included in the three months ended March 31, 2023. Overall, product revenue for the three months ended March 31, 2024 was $22.7 million compared to product revenue of $18.1 million for the three months ended March 31, 2023. Net sales of non-product revenue were not material in either period. Gross Profit Cost of sales for the three months ended March 31, 2024 was $19.6 million, resulting in gross profit of $3.1 million for the three months ended March 31, 2024, compared to cost of sales of $17.1 million and a gross profit of $2.6 million for the three months ended March 31, 2023. Gross profit increased by $0.5 million primarily due to additional customers added through the Evoqua asset acquisition and price increases. The three months ended March 31, 2023 included $1.5 million of gross profit associated with deferred license revenue recognition. Research and Product Development Expense Research and product development expenses were $18 thousand and $0.3 million for the three months ended March 31, 2024 and 2023, respectively. The decrease of approximately $0.3 million is due to the decision to pause all research and development related to Triferic. Selling and Marketing Expense Selling and marketing expenses were $0.6 million and $0.5 million for the three months ended March 31, 2024 and 2023, respectively. General and Administrative Expense General and administrative expenses were $3.8 million for the three months ended March 31, 2024, compared with $3.3 million for the three months ended March 31, 2023. The increase of $0.5 million was primarily due to increased wages, administrative costs and amortization of intangible assets. 16 Other Expense Total other expense of $0.4 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively, was primarily driven by interest expense related to our debt facility (See Note 15 to the condensed consolidated financial statements included elsewhere in this Form 10-Q). Liquidity and Capital Resources As of March 31, 2024, we had approximately $8.6 million of cash, cash equivalents and investments available-for-sale, and working capital of $11.7 million. Based on the currently available working capital along with the expectation of management of its ability to execute on its operational plans as discussed below, management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months from the date of the filing of this report. Additionally, the Company's operational plans include raising capital, if needed, by using the $10.4 million remaining availability under its at-the-market ("ATM") facility or other methods or forms of financings, subject to existing limitations. Under the ATM, we have the ability to control the timing and price at which capital is raised. The actual amount of cash that we will need to execute our business strategy is subject to many factors, including, but not limited to the costs associated with our manufacturing and transportation operations related to our concentrate business. We may elect to raise capital in the future through one or more of the following: (i) equity and debt raises through the equity and capital markets, though there can be no assurance we will be able to secure additional capital or funding on acceptable terms, or if at all; and (ii) strategic transactions, including potential alliances and collaborations focused on markets outside the United States, as well as potential combinations (including by merger or acquisition) or other corporate transactions. We believe our ability to fund our activities in the long term will be highly dependent upon (i) our ability to execute on the growth strategy of our hemodialysis concentrates business, (ii) our ability to achieve profitability, and (iii) our ability to identify, develop, in-license, or acquire new products in developing our renal care product portfolio. All of these strategies are subject to significant risks and uncertainties such that there can be no assurance we will be successful in achieving them. If we are unsuccessful in executing our business plan and we are unable to raise the required capital, we may be forced to curtail all of our activities and, ultimately, cease operations. Even if we are able to raise sufficient capital, such financings may only be available on unattractive terms, or result in significant dilution of stockholders’ interests and, in such event, the market price of our common stock may decline. If the Company attempts to obtain additional debt or equity financing, the Company cannot assume such financing will be available on favorable terms, if at all. In addition, any debt financing is limited by the terms of our Securities Purchase Agreement with DaVita. Specifically, until DaVita owns less than 50% of its investment, the Company may only incur additional debt in the form of a purchase money loan, a working capital line of up to $5 million or to refinance existing debt, unless DaVita consents. The Company is subject to certain covenants and cure provisions under its Loan Agreement with Innovatus. As of March 31, 2024, the Company is in compliance with all covenants. On January 2, 2024, the Company's Loan Agreement was amended to include, among other things, an interest-only period for 30 months, or up to 36 months if certain conditions are met, and extend the maturity date to January 1, 2029 (See Note 15 to the accompanying condensed consolidated interim financial statements). The global macroeconomic environment is uncertain, and could be negatively affected by, among other things, increased U.S. trade tariffs and trade disputes with other countries, instability in the global capital and credit markets, recent bank failures in the United States, supply chain weaknesses, and instability in the geopolitical environment, including as a result of the Russian invasion of Ukraine, the Israel-Hamas conflict and other political tensions, and the occurrence of natural disasters and public health crises. Such challenges have caused, and may continue to cause, recession fears, rising interest rates, foreign exchange volatility and inflationary pressures. At this time, the Company is unable to quantify the potential effects of this economic instability on our future operations. Due to the rapidly evolving nature of the global situation, it is not possible to predict the extent to which these conditions could adversely affect the Company's liquidity and capital resources in the future. Cash Used in Operating Activities Net cash used in operating activities was $2.4 million for the three months ended March 31, 2024 compared to net cash used in operating activities of $3.9 million for the three months ended March 31, 2023. The decrease in cash used from operating activities during the current period was primarily due to a decrease in changes in current balance sheet accounts in the ordinary course of business of approximately $2.2 million, primarily due to a decrease in accrued and other liabilities of $1.9 million. Cash Used In Investing Activities Net cash used in investing activities was $0.1 million during the three months ended March 31, 2024 compared to net cash provided by investing activities of $5.3 million for the three months ended March 31, 2023. Net cash used in investing activities during the three months ended March 31, 2024 was driven entirely by cash paid for the purchase of equipment. Net cash provided by investing activities during the three months ended March 31, 2023 was primarily due to sales and purchase of available-for-sale investments during the period. Cash Provided by Financing Activities Net cash provided by financing activities was $0.2 million during the three months ended March 31, 2024 compared to net cash used in financing activities of $0.6 million for the three months ended March 31, 2023. Net cash provided financing activities during the three months ended March 31, 2024 was primarily due to the gross proceeds from the issuance of common stock in connection with the ATM facility of $0.6 million, partially offset by $0.2 million of payments under the insurance financing note payable and $0.1 million of payments on finance lease liabilities. Net cash used in financing activities for the three months ended March 31, 2023 was primarily due to payment on short term insurance note payable and finance leases. Contractual Obligations and Other Commitments See Note 13 to the condensed consolidated financial statements included elsewhere in this Form 10-Q for additional disclosures. There have been no other material changes from the contractual obligations and other commitments disclosed in Note 14 and 15 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. Critical Accounting Policies and Significant Judgments and Estimates Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2023. Recently issued and adopted accounting pronouncements : We have evaluated all recently issued accounting pronouncements and believe such pronouncements do not have a material effect our financial statements. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Item 3 . Quantitative and Qualitative Disclosures about Market Risk Per §229.305 of Regulation S-K, the Company, designated a Smaller Reporting Company as defined in §229.10(f)(1) of Regulation S-K, is not required to provide the disclosure required by this Item.