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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-14 · 56 added, 25 removed, 87 unchanged (48% of the section changed)

38 unchanged sentences

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

Results of Operations for the Three Months Ended June 30, 2024 and 2023

The following table summarizes our operating results for the periods presented below (dollars in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

2024 % of Revenue 2023 % of Revenue % Change

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General and Administrative 3,449 13 % 3,295 18 % 5 %

Operating Income (Loss) $ 515 2 % $ (2,959) (16) % (117) %

During the three months ended June 30, 2024, net sales were $25.8 million compared to net sales of $18.1 million during the three months ended June 30, 2023.

The increase of $7.8 million was due to $3.7 million from customers added through the Evoqua asset acquisition, as well as increased sales and price increases to existing customers.

Overall, product revenue for the three months ended June 30, 2024 was $25.8 million compared to product revenue of $18.0 million for the three months ended June 30, 2023.

Net sales of non-product revenue were not material in either period.

Cost of sales for the three months ended June 30, 2024 was $21.3 million, resulting in gross profit of $4.6 million for the three months ended June 30, 2024, compared to cost of sales of $17.0 million and a gross profit of $1.0 million for the three months ended June 30, 2023.

Gross profit increased by $3.5 million primarily due to additional customers added through the Evoqua asset acquisition, as well as additional sales and price increases to existing customers.

Research and Product Development Expense

Research and product development expenses were nil and $0.2 million for the three months ended June 30, 2024 and 2023, respectively.

The decrease of approximately $0.2 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 June 30, 2024 and 2023, respectively.

General and Administrative Expense

General and administrative expenses were $3.4 million for the three months ended June 30, 2024, compared with $3.3 million for the three months ended June 30, 2023.

The increase of $0.1 million was primarily due to increased wages and amortization of intangible assets.

Other Expense

Total other expense of $0.2 million and $0.3 million for the three months ended June 30, 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), partially offset by the realized gain on the available-for-sale investments of $0.1 million during the three months ended June 30, 2024.

Results of Operations for the Six Months Ended June 30, 2024 and 2023

The following table summarizes our operating results for the periods presented below (dollars in thousands):

Six Months Ended June 30,

2024 % of Revenue 2023 % of Revenue % Change

Net Sales $ 48,508 $ 37,748 29 %

Cost of Sales 40,894 84 % 34,116 90 % 20 %

Gross Profit 7,614 16 % 3,632 10 % 110 %

Research and Product Development 18 — % 445 1 % (96) %

Selling and Marketing 1,180 2 % 1,028 3 % 15 %

General and Administrative 7,225 15 % 6,545 17 % 10 %

Operating Loss $ (809) (2) % $ (4,386) (12) % (82) %

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.

During the six months ended June 30, 2024, our net sales were $48.5 million compared to net sales of $37.7 million during the six months ended June 30, 2023.

The increase of $10.8 million was primarily due to $7.1 million from customers added through the Evoqua asset acquisition, increased sales and price increases to existing customers, partially offset by $1.5 million of deferred license revenue recognition included in the six months ended June 30, 2023.

Overall, product revenue for the six months ended June 30, 2024 was $48.5 million compared to product revenue of $36.1 million for the six months ended June 30, 2023.

Net sales of non-product revenue were not material in either period.

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.

Cost of sales for the six months ended June 30, 2024 was $40.9 million, resulting in gross profit of $7.6 million for the six months ended June 30, 2024, compared to cost of sales of $34.1 million and a gross profit of $3.6 million for the six months ended June 30, 2023.

Gross profit increased by $4.0 million primarily due to customers added through the Evoqua asset acquisition, as well as increased sales and price increases to existing customers.

The six months ended June 30, 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.

Research and product development expenses were immaterial and $0.4 million for the six months ended June 30, 2024 and 2023, respectively.

The decrease of approximately $0.4 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.

Selling and marketing expenses were $1.2 million and $1.0 million for the six months ended June 30, 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.

General and administrative expenses were $7.2 million for the six months ended June 30, 2024, compared with $6.5 million for the six months ended June 30, 2023.

The increase of $0.7 million was primarily due to increased wages, administrative costs and amortization of intangible assets.

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).

Total other expense of $0.6 million and $0.8 million for the six months ended June 30, 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.

As of June 30, 2024, we had approximately $11.9 million of cash and cash equivalents, and working capital of $14.9 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.

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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.

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 sustained 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.

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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.

As of June 30, 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).

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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.

Net cash used in operating activities was $0.9 million for the six months ended June 30, 2024 compared to net cash used in operating activities of $5.6 million for the six months ended June 30, 2023.

The decrease in cash used from operating activities during the current period was primarily due to (i) a decrease in net loss of approximately $3.7 million, (ii) a decrease in changes in current balance sheet accounts in the ordinary course of business of approximately $2.4 million, primarily due to decreases in accounts payable of $1.2 million and accrued and other liabilities of $1.1 million, and (iii) non-cash adjustments of $1.1 million of depreciation and amortization, including amortization related to the intangible assets acquired as part of the Evoqua Acquisition, $0.9 million of non-cash lease expense and $0.6 million of stock-based compensation expense.

For additional information related to the Evoqua Acquisition, see Note 4 to the accompanying condensed consolidated interim financials statements.

Cash Provided by Investing Activities

Net cash provided by investing activities was $1.6 million during the six months ended June 30, 2024 compared to net cash provided by investing activities of $5.2 million for the six months ended June 30, 2023.

Net cash provided by investing activities during the six months ended June 30, 2024 was driven primarily by sales of our available-for-sale investments of $2.0 million during the period.

Net cash provided by investing activities during the six months ended June 30, 2023 was primarily due to $9.3 million of cash received from the sale of available-for-sale investments, partially offset by $3.8 million of cash used for purchases of available for sale investments during the period.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $2.2 million during the six months ended June 30, 2024 compared to net cash used in financing activities of $0.8 million for the six months ended June 30, 2023.

Net cash provided financing activities during the six months ended June 30, 2024 was primarily due to the gross proceeds from the issuance of common stock in connection with the ATM facility of $2.8 million.

Net cash used in financing activities for the six months ended June 30, 2023 was primarily due to the $0.5 million payment on a short term insurance note payable and $0.3 million of payments on finance leases.

Contractual Obligations and Other Commitments

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See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

ROCKWELL MEDICAL, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Quantitative and Qualitative Disclosures about Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis