Anika Therapeutics(ANIK) - 2022 Q3 - Quarterly Report

Part I Financial Information This section details the unaudited condensed consolidated financial statements and management's analysis of financial condition and operations Item 1. Condensed Consolidated Financial Statements (unaudited) The unaudited condensed consolidated financial statements for the period ended September 30, 2022, show a net loss primarily due to increased operating expenses, despite modest revenue growth, resulting in decreased cash and cash equivalents Condensed Consolidated Balance Sheets As of September 30, 2022, total assets marginally increased to $347.7 million, while cash and cash equivalents decreased, and total liabilities rose due to higher lease liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $87,777 | $94,386 | | Total current assets | $167,761 | $168,528 | | Total assets | $347,746 | $347,535 | | Liabilities & Equity | | | | Total current liabilities | $26,352 | $29,795 | | Total liabilities | $62,809 | $58,050 | | Total stockholders' equity | $284,937 | $287,085 | Consolidated Statements of Operations and Comprehensive Income The company reported a net loss for both the third quarter and nine-month period of 2022, primarily due to increased operating expenses and the absence of a significant gain from contingent consideration recognized in the prior year Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $40,264 | $39,536 | $116,614 | $111,973 | | Gross Profit | $22,779 | $23,023 | $69,445 | $64,809 | | (Loss) income from operations | $(5,798) | $1,300 | $(12,733) | $11,738 | | Net (loss) income | $(4,175) | $558 | $(9,951) | $9,927 | | Diluted (loss) income per share | $(0.29) | $0.04 | $(0.68) | $0.68 | Consolidated Statements of Cash Flows Net cash provided by operating activities remained stable, but increased investing activities and financing outflows led to an overall decrease in cash and cash equivalents for the nine-month period Consolidated Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,928 | $3,925 | | Net cash used in investing activities | $(4,957) | $(1,878) | | Net cash used in financing activities | $(5,519) | $(6,839) | | Decrease in cash and cash equivalents | $(6,609) | $(4,841) | Notes to Consolidated Financial Statements These notes detail the company's business, acquisitions, and revenue recognition, highlighting the final contingent consideration payment, segment revenue contributions, and significant customer concentration - The company is a global joint preservation company that expanded its platform through the 2020 acquisitions of Parcus Medical and Arthrosurface[19][20] - In Q3 2022, the company paid the final contingent consideration of $4.3 million related to the Parcus Medical acquisition. As of September 30, 2022, the contingent consideration liability for all acquisitions is zero[30][48] Revenue by Product Family (in thousands) | Product Family | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | OA Pain Management | $25,665 | $26,153 | $74,139 | $69,790 | | Joint Preservation and Restoration | $11,821 | $11,193 | $36,055 | $35,296 | | Non-Orthopedics | $2,778 | $2,190 | $6,420 | $6,887 | | Total | $40,264 | $39,536 | $116,614 | $111,973 | - A single customer, DePuy Synthes Mitek Sports Medicine (Mitek), accounted for 45% of total revenue for the three months ended September 30, 2022, down from 51% in the prior-year period[63] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transformation, ongoing COVID-19 challenges, and the Q3 2022 net loss driven by increased operating expenses and declining gross margin, alongside a decrease in non-GAAP adjusted EBITDA and net income Results of Operations Q3 2022 revenue increased by 2%, but a decline in gross margin due to inventory reserves and a 22% rise in SG&A expenses, coupled with the absence of a prior-year gain, resulted in a net loss Revenue by Product Family - Q3 YoY Change (in thousands) | Product Family | Q3 2022 | Q3 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | OA Pain Management | $25,665 | $26,153 | $(488) | (2%) | | Joint Preservation and Restoration | $11,821 | $11,193 | $628 | 6% | | Non-Orthopedic | $2,778 | $2,190 | $588 | 27% | | Total | $40,264 | $39,536 | $728 | 2% | - Gross profit decreased slightly in Q3 2022, with gross margin falling to 57% from 58% in Q3 2021. The decline was primarily due to a $2.6 million inventory reserve for certain legacy Non-Orthopedic products[116][117] - SG&A expenses increased by $3.8 million (22%) in Q3 2022 compared to Q3 2021, driven by the expansion of U.S. commercial capabilities, increased marketing activities, and higher stock-based compensation[119] - The company reported a net loss of $4.2 million in Q3 2022, a significant decrease from the $0.6 million net income in Q3 2021. This was primarily due to the absence of a $3.5 million gain from the change in fair value of contingent consideration recorded in Q3 2021 and higher operating expenses[120][123] Non-GAAP Financial Measures Non-GAAP metrics show an increase in Adjusted Gross Margin but a decrease in Adjusted EBITDA and a shift to Adjusted Net Loss in Q3 2022, driven by higher manufacturing costs and increased commercial spending Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(4,175) | $558 | $(9,951) | $9,927 | | Adjustments... | ... | ... | ... | ... | | Adjusted EBITDA | $4,050 | $5,747 | $10,746 | $16,631 | Reconciliation of Net (Loss) Income to Adjusted Net (Loss) Income (in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(4,175) | $558 | $(9,951) | $9,927 | | Adjustments... | ... | ... | ... | ... | | Adjusted net (loss) income | $(725) | $774 | $(4,044) | $2,889 | Liquidity and Capital Resources Cash and cash equivalents decreased to $87.8 million, while working capital remained strong at $141.4 million, with an undrawn $75.0 million revolving line of credit available - Cash, cash equivalents, and investments totaled $87.8 million at September 30, 2022, a decrease from $94.4 million at December 31, 2021[140] - The company has a $75.0 million senior revolving line of credit with no outstanding borrowings as of September 30, 2022[142] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes to its market risks or the management of such risks since its Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes in the first nine months of 2022 to the company's market risks or its management of such risks[153] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures are effective[155] - No material changes were made to the internal control over financial reporting during the quarter ended September 30, 2022[156] Part II Other Information This section presents other information including legal proceedings, risk factors, equity sales, and a list of exhibits Item 1. Legal Proceedings The company reports no material changes to the legal proceedings disclosed in its 2021 Annual Report - There have been no material changes to the information on legal proceedings since the 2021 Form 10-K[158] Item 1A. Risk Factors The company highlights key risk factors including inflation, reliance on limited suppliers, and ongoing supply chain disruptions, which have impacted revenue and are expected to continue - Inflation is identified as a risk that could increase overall costs and potentially curtail elective orthopedic procedures[160] - The company relies on a small number of suppliers for key raw materials, including a single third-party contract manufacturer for bone preserving joint technologies, creating a risk of supply interruption[161][162] - Global supply chain challenges related to COVID-19 have caused disruptions and are expected to continue, potentially impacting the company's ability to generate revenue. These disruptions impacted revenue during the first nine months of 2022[163][164] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a share repurchase program with $20.0 million remaining for open market repurchases - The company has a $50.0 million share repurchase program with $20.0 million remaining available for open market repurchases[167] - No open market repurchases were made during the nine-month period ended September 30, 2022[167] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO and interactive data files (XBRL)