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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-08 · 62 added, 56 removed, 87 unchanged (58% of the section changed)

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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 make forward-looking statements in this report and may make such statements in future filings with the U.S.

Securities and Exchange Commission ("SEC").

We may also make forward-looking statements in our press releases or other public or shareholder communications.

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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;

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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.

our ability to maintain 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.

Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed in this report, “Item 1A — Risk Factors” in our Annual Report on 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.

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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.

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.

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 June 30, 2024 and 2023

During the three months ended September 30, 2024, Rockwell Medical received the Notice of Extension of Term (the "Extension") of the Amended and Restated Products Purchase Agreement (the "Amended Agreement"), dated September 21, 2023, which amended and restated the Products Purchase Agreement, dated July 1, 2019, with DaVita.

The Extension extends the term of the Amended Agreement through December 31, 2025 (the "Extension Term"), during which Extension Term product pricing will be increased.

DaVita has indicated to Rockwell that DaVita expects volumes to decline during the Extension Term as DaVita works to diversify its supplier base.

Rockwell believes that net sales to DaVita in 2025 will decline between approximately $31 million and $37 million.

DaVita is required to provide Rockwell with a twelve-month binding forecast on or before December 15, 2024, at which time the Company will be able to determine the actual impact on net sales in 2025.

Under the terms of the Amended Agreement, DaVita is committed to purchasing at least the amount provided in the binding forecast.

DaVita's product purchases have historically ranged between a gross loss to single digit gross margin, excluding the special large order of premium-priced product described below.

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

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

Three Months Ended June 30,

Three Months Ended September 30,

2024 % of Revenue 2023 % of Revenue % Change

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Operating Income (Loss) $ 1,936 6 % $ (1,737) (7) %

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.

During the three months ended September 30, 2024, net sales were $28.3 million compared to net sales of $23.8 million during the three months ended September 30, 2023.

The increase of $4.5 million was due to $6.7 million from product revenue, partially offset by a decrease of $2.2 million from non-product revenue.

Overall, product revenue for the three months ended September 30, 2024 was $28.3 million compared to product revenue of $21.6 million for the three months ended September 30, 2023.

The increase of $6.7 million was driven by $4.5 million from a special large order of premium-priced product, as well as $2.5 million of increased sales and price increases to existing customers.

Net sales of non-product revenue were not material during the three months ended September 30, 2024 compared to non-product revenue of $2.2 million during the three months ended September 30, 2023, which was the result of deferred license revenue recognition related to the termination of the Wanbang Agreement.

Cost of sales for the three months ended September 30, 2024 was $22.1 million, resulting in gross profit of $6.2 million for the three months ended September 30, 2024, compared to cost of sales of $21.6 million and a gross profit of $2.2 million for the three months ended September 30, 2023.

Gross profit increased by $4.0 million driven by $1.5 million from a special large order of premium-priced product, as well as $2.5 million from increased sales and price increases to existing customers and $1.1 million of lower costs, partially offset by a decrease of $1.1 million associated with the termination of the Wanbang agreement for the three months ended September 30, 2023.

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.

Research and product development expenses were nil and $0.5 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease of approximately $0.5 million was driven by severance cost in the three months ended September 30, 2023.

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.

Selling and marketing expenses were $0.7 million and $0.6 million for the three months ended September 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.

General and administrative expenses were $3.6 million for the three months ended September 30, 2024, compared with $2.9 million for the three months ended September 30, 2023.

The increase of $0.6 million was primarily due to increased compensation expense related to bonuses.

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

Total other expense of $0.3 million and $0.1 million for the three months ended September 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).

For the three months ended September 30, 2023, the interest expense is partially offset by $0.2 million of realized gains on available-for-sale investments.

Results of Operations for the Nine Months Ended September 30, 2024 and 2023

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

Six Months Ended June 30,

Nine Months Ended September 30,

2024 % of Revenue 2023 % of Revenue % Change

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Operating Loss $ 1,127 2 % $ (6,123) (11) %

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 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.

During the nine months ended September 30, 2024, our net sales were $76.8 million compared to net sales of $61.5 million during the nine months ended September 30, 2023.

Product revenue for the nine months ended September 30, 2024 was $76.8 million compared to product revenue of $57.7 million for the nine months ended September 30, 2023.

The increase of $19.1 million was primarily due to $6.4 million from customers added through the Evoqua asset acquisition, $5.4 million from a special large order of premium-priced product, as well as $7.2 million of increased sales and price increases to existing customers.

Net sales of non-product revenue were not material during the nine months ended September 30, 2024 compared to $3.8 million during the nine months ended September 30, 2023, which was the result of $2.3 million and $1.5 million of deferred license revenue recognition related to the terminations of the Wanbang Agreement and Baxter Distribution Agreement, respectively.

Cost of sales for the nine months ended September 30, 2024 was $63.0 million, resulting in gross profit of $13.9 million for the nine months ended September 30, 2024, compared to cost of sales of $55.7 million and a gross profit of $5.8 million for the nine months ended September 30, 2023.

Gross profit increased by $8.0 million driven by $7.1 million of price increases to existing customers, $1.6 million from a special large order of premium-priced product and $1.4 million of lower costs, partially offset by $1.5 million and $1.1 million of gross profit for the nine months ended September 30, 2023 associated with deferred license revenue recognition related to the terminations of the Baxter Distribution Agreement and the Wanbang agreement, respectively.

Research and Product Development Expense

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.

Research and product development expenses were immaterial and $0.9 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease of approximately $0.9 million is due to the decision to pause all research and development related to Triferic in 2023.

Selling and Marketing Expense

Selling and marketing expenses were $1.2 million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively.

Selling and marketing expenses were $1.9 million and $1.6 million for the nine months ended September 30, 2024 and 2023, respectively.

The increase of $0.3 million is primarily due to higher employee compensation expenses.

General and Administrative Expense

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.

General and administrative expenses were $10.8 million for the nine months ended September 30, 2024, compared with $9.4 million for the nine months ended September 30, 2023.

The increase of $1.4 million was primarily due to increased compensation expense related to bonuses, additional administrative costs and amortization of intangible assets.

Other Expense

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).

Total other expense of $0.9 million and $0.8 million for the nine months ended September 30, 2024 and 2023, respectively, was driven by interest expense of $1.0 million and $1.2 million, respectively, related to our debt facility (See Note 15 to the condensed consolidated financial statements included elsewhere in this Form 10-Q), partially offset by $0.1 million and $0.2 million of interest income, respectively, as well as realized gains on available-for-sale of investments of $0.1 million and $0.2 million, respectively.

Liquidity and Capital Resources

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

As of September 30, 2024, we had approximately $18.3 million of cash, cash equivalents and investments available-for-sale, and working capital of $20.0 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 sustained 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 and maintain sales with existing customers, (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 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).

As of September 30, 2024, the Company is in compliance with all covenants.

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.

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 Middle East 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.

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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 $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.

Cash Provided By (Used In) Operating Activities

Net cash provided by operating activities was $3.3 million for the nine months ended September 30, 2024 compared to net cash used in operating activities of $9.4 million for the nine months ended September 30, 2023.

The change in cash provided by operating activities during the current period as compared to cash used in operating activities in the prior period was primarily due to (i) an increase in net income of approximately $7.2 million, (ii) an increase in cash provided by changes in current balance sheet accounts in the ordinary course of business of approximately $5.9 million, primarily due to increases of $5.1 million of accounts receivable, net and $3.8 million of deferred license revenue, partially offset by decreases of $1.8 million of accounts payable and $1.2 million of inventory, partially offset by (iii) a decrease in cash provided from non-cash adjustments primarily related to a decrease of $0.8 million in inventory reserves.

Cash Used In Investing Activities

Net cash used in investing activities was $4.5 million during the nine months ended September 30, 2024 compared to net cash used in investing activities of $5.1 million for the nine months ended September 30, 2023.

Net cash used in investing activities during the nine months ended September 30, 2024 was driven primarily by (i) net cash payments from purchases and sales of our available-for-sale investments of $3.9 million during the period.

Net cash used in investing activities during the nine months ended September 30, 2023 was primarily due to the cash paid in connection with the Evoqua Asset Acquisition of $12.4 million, partially offset by the net cash proceeds from sales and purchase of available-for-sale investments during the period of $7.5 million.

Cash Provided By Financing Activities

Net cash provided by financing activities was $4.6 million during the nine months ended September 30, 2024 compared to net cash provided by financing activities of $12.1 million for the nine months ended September 30, 2023.

Net cash provided by financing activities during the nine months ended September 30, 2024 was primarily due to the gross proceeds from the issuance of common stock in connection with the ATM facility of $6.4 million, partially offset by the cash paid in

connection with the Evoqua Asset Acquisition of $1.0 million.

Net cash provided by financing activities for the nine months ended September 30, 2023 was primarily due to the gross proceeds from the issuance of common stock in connection with the exercise of the Prior Warrant and Pre-Funded Warrants of $13.8 million.

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