AxoGen(AXGN) - 2025 Q1 - Quarterly Report

Part I - Financial Information Financial Statements The company reported total assets of $196.2 million as of March 31, 2025, a decrease from $203.7 million at year-end 2024, with revenues of $48.6 million and a net loss of $3.8 million for the three months ended March 31, 2025 Condensed Consolidated Balance Sheets As of March 31, 2025, total assets were $196.2 million, a decrease from $203.7 million at December 31, 2024, primarily due to reduced cash and cash equivalents, while total liabilities decreased to $90.8 million and shareholders' equity increased to $105.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $18,096 | $27,554 | | Total current assets | $93,070 | $99,217 | | Total assets | $196,165 | $203,728 | | Liabilities & Equity | | | | Total current liabilities | $21,745 | $30,610 | | Total liabilities | $90,800 | $99,821 | | Total shareholders' equity | $105,365 | $103,907 | Condensed Consolidated Statements of Operations For Q1 2025, revenues increased 17.4% to $48.6 million, gross profit rose to $34.9 million despite a gross margin decrease to 71.9%, and the net loss narrowed to $3.8 million or ($0.08) per share Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenues | $48,560 | $41,378 | | Gross Profit | $34,933 | $32,620 | | Loss from operations | $(1,661) | $(4,560) | | Net loss | $(3,834) | $(6,635) | | Net loss per common share | $(0.08) | $(0.15) | Condensed Consolidated Statements of Cash Flows In the first three months of 2025, net cash used in operating activities was $13.2 million, net cash provided by investing activities was $1.3 million, and financing activities provided $2.4 million, resulting in a net decrease in cash of $9.5 million Summary of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(13,179) | $(12,266) | | Net cash provided by (used in) investing activities | $1,339 | $(3,251) | | Net cash provided by financing activities | $2,382 | $204 | | Net decrease in cash | $(9,458) | $(15,313) | Notes to Unaudited Condensed Consolidated Financial Statements Key notes detail the company's focus on peripheral nerve repair, potential clawback of $950,000 for unmet grant milestones, a disagreement with a lender over up to $12 million in make-whole payments, and high dependency on Ohio processing facilities - The company's business is focused on the science, development, and commercialization of technologies for peripheral nerve regeneration and repair, with products including Avance® Nerve Graft and Axoguard® Nerve Protector. Substantially all revenues are derived from the U.S.[24] - The company has not met certain job creation milestones for economic development grants and could be obligated to pay back up to approximately $950,000. Discussions with grant authorities are ongoing[70][71] - A disagreement exists with the lender (Oberland Capital) regarding the calculation of make-whole payments on the credit facility. The company's interpretation results in a zero make-whole payment at maturity, while the lender's alternative interpretation could result in payments of approximately $9 million for the first tranche and $3 million for the second tranche[72][73] - The company is highly dependent on its processing facilities in Vandalia, Ohio (APC Facility) and Dayton, Ohio (leased from Solvita)[69] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a 17.4% revenue increase for Q1 2025, driven by unit volume and price/mix, despite a gross margin decline due to higher product costs and write-offs, while operating expenses decreased, and the company expects sufficient liquidity for the next twelve months, highlighted by the FDA's acceptance of the BLA for Avance® Nerve Graft - The FDA accepted the filing of the company's Biologics License Application (BLA) for Avance® Nerve Graft, with a PDUFA goal date of September 5, 2025. Key regulatory milestones were completed in Q1 2025 to support this timeline[87] - The company's strategy focuses on deepening its presence in high-potential accounts like Level 1 trauma centers and academic hospitals by expanding nerve repair indications and driving adoption of its surgical algorithm[80] - The company believes existing cash, investments, and cash from sales will fund operations for at least the next twelve months[98] Results of Operations Q1 2025 revenue grew 17.4% to $48.6 million, driven by a 12.0% increase in unit volume, while gross margin fell to 71.9% due to higher product costs and inventory write-offs, and total operating expenses decreased 1.6% due to reduced R&D costs Revenue and Gross Profit Comparison (in thousands) | Metric | Q1 2025 | Q1 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $48,560 | $41,378 | +17.4% | | Gross Profit | $34,933 | $32,620 | +7.1% | | Gross Margin | 71.9% | 78.8% | -6.9 p.p. | - The increase in Q1 2025 revenue was driven by a 12.0% increase in unit volume, a 3.2% impact from price changes, and a 2.1% impact from product mix[86] - R&D expenses decreased by 17.8% to $6.1 million, primarily due to lower product development costs, including non-clinical expenses related to the BLA for Avance Nerve Graft[91] - Sales and marketing expenses increased 6.2% to $21.0 million due to higher compensation, travel, and marketing program costs[90] Liquidity and Capital Resources As of March 31, 2025, the company held $22.1 million in cash and investments, a decrease of $11.4 million from year-end 2024, with net cash used in operations at $13.2 million and $50 million in outstanding debt, which management asserts is sufficient for at least the next 12 months - Principal sources of liquidity as of March 31, 2025, were cash, cash equivalents, and investments totaling $22.1 million[97] Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Operating activities | $(13,179) | $(12,266) | | Investing activities | $1,339 | $(3,251) | | Financing activities | $2,382 | $204 | - The company has $50 million in outstanding debt, with $35 million maturing in June 2027 and $15 million in June 2028. The interest rate was 11.91% as of March 31, 2025[103] Contractual Obligations and Commitments The company has total contractual obligations of $101.0 million, primarily comprising a $50.0 million credit facility principal, $32.2 million in lease obligations, and $15.2 million in estimated interest payments Summary of Contractual Obligations (in thousands) | Contractual Obligations | Total | | :--- | :--- | | Credit Facility principal | $50,000 | | Credit Facility interest | $15,185 | | Credit Facility revenue participation payments | $1,975 | | Operating and financing lease obligations | $32,214 | | Insurance financing agreements | $1,432 | | Transition and separation obligations to former CEO | $151 | | Total | $100,957 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure from its $50 million variable-rate credit facility, with a 100 basis point increase in interest rates estimated to increase annual interest expense by approximately $500,000, which is not considered material - The company has interest rate exposure from its $50 million credit facility, with an interest rate of 11.91% as of March 31, 2025[107] - A 100 basis point increase in interest rates would increase annual interest expense by approximately $500,000, which the company does not consider material[107] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[110] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[111] Part II - Other Information Legal Proceedings The company is subject to various claims and lawsuits in the ordinary course of business, which management believes are either covered by insurance or are not expected to have a material adverse effect on the company's financial condition, results of operations, or cash flows - The company is involved in various legal proceedings in the ordinary course of business, which are not expected to have a material adverse effect[75][113] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2024 Annual Report on Form 10-K have occurred[114] Other Information During the first quarter of 2025, two directors adopted Rule 10b5-1 trading plans, with Amy Wendell planning to sell 5,000 shares and William Burke planning to sell 125,983 shares Rule 10b5-1 Trading Plan Adoptions | Name and Title | Action | Date | Securities to be Sold | | :--- | :--- | :--- | :--- | | Amy Wendell, Director | Adopt | 11/20/2024 | 5,000 | | William Burke, Director | Adopt | 3/14/2025 | 125,983 | Exhibits The filing includes key exhibits such as the forms for the 2025 Performance Stock Unit and Restricted Stock Unit Award Agreements, along with certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act - Key exhibits filed include forms of 2025 Performance Stock Unit and Restricted Stock Unit award agreements[121] - Certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act were filed with the report[121]