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Item 2. Management’s Discussion and Analysis

2025-05-12 compared with 2024-11-12 · 61 added, 78 removed, 71 unchanged (66% of the section changed)

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Our forward looking statements also include, without limitation, statements about our liquidity and capital resources;

our ability to successfully integrate acquisitions;

our ability to continue as a going concern;

our ability to successfully negotiate a contract extension and/or future volume commitments by DaVita, our ability to successfully integrate acquisitions;

the size of the hemodialysis concentrates market opportunity;

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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.

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.

Rockwell is a healthcare company that develops, manufactures, commercializes, and distributes a portfolio of hemodialysis products for dialysis providers worldwide.

Rockwell's mission is to provide dialysis clinics and the patients they serve with the highest quality products supported by the best customer service in the industry.

The Company is a leading 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 in freestanding outpatient dialysis centers, hospital-based outpatient centers, skilled nursing facilities, or 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's products are vital to vulnerable patients with end-stage kidney disease.

We are an established leader in manufacturing and delivering high-quality hemodialysis concentrates and dialysates, along with certain ancillary products, to dialysis providers and distributors in the United States and abroad.

Rockwell provides the hemodialysis community with products controlled by a Quality Management System regulated by the U.S.

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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.

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 September 30,

2024 % of Revenue 2023 % of Revenue % Change

Net Sales $ 28,316 $ 23,771 19 %

Cost of Sales 22,077 78 % 21,569 91 % 2 %

Gross Profit 6,239 22 % 2,202 9 %

Research and Product Development — — % 494 2 % (100) %

Selling and Marketing 726 3 % 556 2 % 31 %

General and Administrative 3,577 13 % 2,889 12 % 24 %

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

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 $0.5 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 $0.7 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 $3.6 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 $0.3 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

Rockwell manufactures hemodialysis concentrates at its three facilities in Michigan, South Carolina, and Texas, and manufactures its dry acid concentrate mixers at its facility in Iowa.

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's commercial organization supports the Company's vision to focus its efforts on enhancing its revenue-generating business and driving the Company towards sustainable profitability.

The Company concentrates its efforts on increasing the Company's market share, broadening its product portfolio, right-sizing the Company's product pricing, improving gross margins, and growing the business through organic and inorganic growth and other business development opportunities.

We currently operate in one market segment, the hemodialysis market, which involves the manufacturing, sale and distribution of hemodialysis products to hemodialysis clinics, including dialysis concentrates, dialysis kits and other ancillary products used in the dialysis process.

On September 18, 2023, Rockwell and DaVita, Inc.

("DaVita") entered into the Amended Agreement, which amended and restated the Product Purchase Agreement, dated July 1, 2019, as amended, under which the Company supplies DaVita with certain dialysis concentrates.

Under the Amended Agreement, the Company and DaVita agreed to an increase in product pricing, effective September 1, 2023.

The term of the Amended Agreement was scheduled to expire on December 31, 2024.

Prior to the expiration, the Company received written notice from DaVita that DaVita intended to extend the term of the Amended Agreement through December 31, 2025 (the "Extension Term").

However, DaVita subsequently indicated that it will completely transition to another supplier by mid-2025, subject to further discussions between Rockwell and DaVita.

DaVita has agreed to a one-time, non-refundable payment of $0.9 million to ensure supply continuity for products purchased during the three months ended March 31, 2025.

Discussions between Rockwell and DaVita are ongoing and include a potential contract extension and/or future volume commitments by DaVita to Rockwell.

There can be no assurance that these discussions will yield a successful outcome for Rockwell.

In the first quarter of 2025, the Company entered into a distribution services agreement with a leading manufacturer of medical equipment including hemodialysis machines, disposable products, and automated fluid balance systems.

Leveraging Rockwell's existing distribution network and transportation subsidiary, Rockwell Transportation, the Company is now able to distribute a single-use bicarbonate cartridge in two sizes, 720 grams and 900 grams, to its customers at dialysis centers, hospital-based outpatient centers, and skilled nursing facilities.

The bicarbonate cartridges are 510(k) approved by the U.S.

Food and Drug Administration and the manufacturing partner is responsible for maintaining all regulatory approvals required to market and sell the bicarbonate cartridges throughout the United States.

Results of Operations for the Three Months Ended March 31, 2025 and 2024

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

Nine Months Ended September 30,

Three Months Ended March 31,

2025 % of Revenue 2024 % of Revenue % Change

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Operating Loss $ (1,360) (8) % $ (1,324) (6) %

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.

During the three months ended March 31, 2025, our net sales were $18.9 million compared to net sales of $22.7 million during the three months ended March 31, 2024.

Product revenue for the three months ended March 31, 2025 was $18.6 million compared to product revenue of $22.7 million for the three months ended March 31, 2024.

The decrease of $3.8 million was primarily due to a $5.9 million reduction in DaVita volume as a result of transitioning to a new supplier, partially offset by $0.9 million increase due to a price adjustment for DaVita purchases and $0.9 million in price increases to other existing customers.

Net sales of non-product revenue were $0.3 million for the three months ended March 31, 2025 from the recognition of the remaining deferred license revenue associated with Sun Pharmaceutical Industries Ltd.

("Sun Pharma"), Jeil Pharmaceutical Co., Ltd.

("Jeil Pharma") and Drogsan Pharmaceuticals ("Drogsan Pharma").

Non-Product revenue was not material for the period ended March 31, 2024.

Cost of sales for the three months ended March 31, 2025 was $15.9 million, resulting in gross profit of $3.0 million for the three months ended March 31, 2025, compared to cost of sales of $19.6 million and a gross profit of $3.1 million for the three months ended March 31, 2024.

The gross profit decrease of $0.1 million was driven by a decrease of $0.2 million of gross profit on product sales.

Gross profit from product sales includes $0.9 million due to a price adjustment for DaVita purchases for the three months ended March 31, 2025.

Gross profit from non-product sales consists of $0.1 million associated with recognition of the remaining deferred license revenue associated with Sun Pharma, Jeil Pharma and Drogsan Pharma during the three months ended March 31, 2025.

Research and Product Development Expense

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.

Research and product development expenses were immaterial for the each of three months ended March 31, 2025 and 2024 due to the decision to pause all research and development related to Triferic in 2023.

Selling and Marketing Expense

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

Selling and marketing expenses were $0.7 million and $0.6 million for the three months ended March 31, 2025 and 2024, respectively.

The increase of $0.1 million is primarily due to higher employee compensation expenses.

General and Administrative Expense

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.

General and administrative expenses were $3.7 million for the three months ended March 31, 2025, compared with $3.8 million for the three months ended March 31, 2024.

The decrease of $0.1 million was primarily driven by $0.3 million a reduction in professional fees, $0.1 million decrease in administrative costs, partially offset by $0.3 million of increased compensation expense.

Other Expense

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.

Total other expense of $0.2 million and $0.4 million for the three months ended March 31, 2025 and 2024, respectively, was driven primarily by interest expense of $0.3 million and $0.4 million, respectively, 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 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.

As of March 31, 2025, we had approximately $17.3 million of cash, cash equivalents and investments available-for-sale, and working capital of $21.8 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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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 September 30, 2024, the Company is in compliance with all covenants.

The Company is subject to certain covenants and cure provisions under its Loan Agreement with Innovatus Life Sciences Lending Fund I, LP.

As of March 31, 2025, 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 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 Middle East conflict and other political tensions, and the occurrence of natural disasters and public health crises.

The global macroeconomic environment is uncertain, and could be negatively affected by, among other things, changes in U.S.

trade policies, including tariffs and other trade restrictions or the threat of such actions, 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 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 Operating Activities

Net cash used in operating activities was $3.5 million for the three months ended March 31, 2025 compared to net cash used in operating activities of $2.4 million for the three months ended March 31, 2024.

The increase in cash used in operating activities during the current period as compared to cash used in operating activities in the prior period was primarily due to (i) a decrease in net loss of approximately $0.2 million and (ii) an increase in cash used in changes in current balance sheet accounts in the ordinary course of business of approximately $1.6 million.

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.

Net cash used in investing activities was immaterial during the three months ended March 31, 2025 compared to net cash used in investing activities of $0.1 million for the three months ended March 31, 2024.

Net cash used in investing activities during the three months ended March 31, 2025 was driven primarily by purchases of available-for-sale investments of $2.9 million and $0.1 million of cash paid for the purchase of equipment, offset by cash proceeds from sales of our available-for-sale investments of $3.0 million during the period.

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.

Cash (Used In) Provided By Financing Activities

Net cash used in financing activities was $0.8 million during the three months ended March 31, 2025 compared to net cash provided by financing activities of $0.2 million for the three months ended March 31, 2024.

Net cash used in financing activities during the three months ended March 31, 2025 was primarily due to the cash paid in connection with the Evoqua Asset Acquisition deferred consideration obligation of $0.4 million, $0.2 million of payments under the insurance financing note payable and $0.1 million of payments on finance lease liabilities.

Net cash provided by financing activities for 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.

Contractual Obligations and Other Commitments

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Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2024.

There have been no material changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024.

Recently issued and adopted accounting pronouncements :

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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