Anika Therapeutics(ANIK) - 2024 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION This section details Anika Therapeutics' unaudited condensed financial statements and management's analysis for the first quarter of 2024 ITEM 1. FINANCIAL INFORMATION: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) This section presents Anika Therapeutics' unaudited condensed consolidated financial statements for Q1 2024, covering financial position, performance, and cash flows Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $68,629 | $72,867 | | Accounts receivable, net | $32,077 | $35,961 | | Inventories, net | $49,408 | $46,386 | | Total current assets | $158,962 | $163,309 | | Total assets | $263,744 | $270,632 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $28,460 | $31,059 | | Total stockholders' equity | $208,536 | $212,265 | | Total liabilities and stockholders' equity | $263,744 | $270,632 | Condensed Consolidated Statement of Operations and Comprehensive Income This section outlines the company's financial performance, detailing revenue, expenses, and net loss for the reporting period Condensed Consolidated Statement of Operations and Comprehensive Income (in thousands, except per share data) | (in thousands, except per share data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $40,523 | $37,924 | | Gross Profit | $24,628 | $22,843 | | Total operating expenses | $29,691 | $35,396 | | Loss from operations | $(5,063) | $(12,553) | | Net loss | $(4,514) | $(10,350) | | Net loss per share: Basic | $(0.31) | $(0.71) | | Net loss per share: Diluted | $(0.31) | $(0.71) | | Comprehensive loss | $(4,886) | $(10,078) | Condensed Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity, reflecting net loss, stock-based compensation, and other comprehensive loss Condensed Consolidated Statements of Stockholders' Equity (in thousands, except per share data) | (in thousands, except per share data) | Balance, Jan 1, 2024 | Balance, Mar 31, 2024 | | :------------------------------------ | :------------------- | :-------------------- | | Common Stock, $.01 Par Value | $147 | $148 | | Additional Paid in Capital | $90,009 | $91,165 | | Retained Earnings | $128,052 | $123,538 | | Accumulated Other Comprehensive Loss | $(5,943) | $(6,315) | | Total Stockholders' Equity | $212,265 | $208,536 | | Key Changes (Q1 2024): | | | | Stock-based compensation expense | | $3,430 | | Net loss | | $(4,514) | | Other comprehensive loss | | $(372) | - Total stockholders' equity decreased from $212,265 thousand at January 1, 2024, to $208,536 thousand at March 31, 2024, primarily due to a net loss of $4,514 thousand and other comprehensive loss of $372 thousand, partially offset by stock-based compensation expense of $3,430 thousand[14] Condensed Consolidated Statements of Cash Flows This section reports cash inflows and outflows from operating, investing, and financing activities for the reporting period Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(126) | $(3,618) | | Net cash used in investing activities | $(1,808) | $(1,389) | | Net cash used in financing activities | $(2,273) | $(1,613) | | Decrease in cash and cash equivalents | $(4,238) | $(6,590) | | Cash and cash equivalents at end of period | $68,629 | $79,737 | - Net cash used in operating activities significantly decreased from $3,618 thousand in Q1 2023 to $126 thousand in Q1 2024, primarily due to a lower net loss[17][110] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Nature of Business This section describes Anika Therapeutics' core business as a global joint preservation company and its strategic acquisitions - Anika Therapeutics, Inc. is a global joint preservation company focused on early intervention orthopedic care, including OA pain management, regenerative solutions, sports medicine, and Arthrosurface joint solutions[20] - The company expanded its technology platform and product portfolio in early 2020 through strategic acquisitions of Parcus Medical, LLC (sports medicine) and Arthrosurface, Inc. (joint replacement solutions), diversifying revenue and enhancing commercial capabilities[21] 2. Basis of Presentation This section outlines the accounting principles, consolidation scope, and segment reporting for the financial statements - The financial statements are unaudited, prepared in accordance with U.S. GAAP and SEC rules for interim statements, and include Anika Therapeutics, Inc. and its subsidiaries[23] - The company operates as a single operating and reportable segment[25] - New accounting pronouncements (ASU 2023-07 on Segment Reporting and ASU 2023-09 on Income Taxes) are effective for fiscal years beginning after December 15, 2024, and the Company is evaluating their impact[27][28] 3. Accounts Receivable This section details the composition of accounts receivable and the allowance for credit losses Accounts Receivable (in thousands) | Accounts Receivable (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Accounts Receivable | $33,735 | $37,580 | | Less: Allowance for credit losses | $1,658 | $1,619 | | Net balance, end of period | $32,077 | $35,961 | Allowance for Credit Losses Activity (in thousands) | Allowance for Credit Losses Activity (in thousands) | March 31, 2024 | March 31, 2023 | | :-------------------------------------------------- | :------------- | :------------- | | Balance, beginning of the period | $1,619 | $1,608 |\ | Amounts provided | $185 | $102 | | Amounts recovered | $(92) | $(78) | | Amounts written off | $(45) | $(106) | | Translation adjustments | $(9) | $11 | | Balance, end of period | $1,658 | $1,537 | 4. Fair Value Measurements This section describes the valuation methods and hierarchy for financial instruments, particularly cash equivalents - Cash equivalents in money market funds are classified as Level 1 in the fair value hierarchy, valued based on quoted prices in active markets[33] Cash Equivalents (in thousands) | Cash Equivalents (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------ | :------------- | :---------------- | | Money Market Funds | $52,177 | $55,485 | 5. Inventories This section provides a breakdown of inventory components and associated reserves Inventories (in thousands) | Inventories (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------- | :------------- | :---------------- | | Raw materials | $16,264 | $15,507 | | Work-in-process | $17,264 | $17,002 | | Finished goods | $33,048 | $32,084 | | Total | $66,576 | $64,593 | | Inventories (net) | $49,408 | $46,386 | | Inventory reserves | $13,600 | $11,700 | 6. Intangible Assets This section details the company's intangible assets, their net book value, and amortization schedule Intangible Assets (in thousands) | Intangible Assets (in thousands) | March 31, 2024 Net Book Value | December 31, 2023 Net Book Value | | :------------------------------- | :---------------------------- | :------------------------------- | | Developed technology | $1,800 | $1,973 | | IPR&D | $1,650 | $1,650 | | Customer relationships | $345 | $360 | | Patents | $71 | $83 | | Tradenames | $431 | $560 | | Total | $4,297 | $4,626 | - Aggregate amortization expense for intangible assets decreased significantly from $1.9 million in Q1 2023 to $0.3 million in Q1 2024[38] Scheduled Amortization of Intangible Assets (in thousands) | Scheduled Amortization of Intangible Assets (in thousands) | | :------------------------------------------------------- | | Remainder of 2024 | $1,008 | | 2025 | $274 | | 2026 | $160 | | 2027 | $160 | | 2028 | $160 | | Thereafter | $886 | | Total | $2,648 | 7. Goodwill This section discusses the carrying value of goodwill and the company's impairment assessment policy - Goodwill is assessed for impairment annually or more frequently if circumstances indicate. The carrying value of goodwill was $7,403 thousand at March 31, 2024, down from $7,571 thousand at December 31, 2023, primarily due to foreign currency adjustments[5][41][42] 8. Accrued Expenses and Other Current Liabilities This section itemizes the company's accrued expenses and other current liabilities at period-end Accrued Expenses and Other Current Liabilities (in thousands) | Accrued Expenses and Other Current Liabilities (in thousands) | March 31, 2024 | December 31, 2023 | | :------------------------------------------------------------ | :------------- | :---------------- | | Compensation and related expenses | $8,595 | $11,828 | | Professional fees | $3,434 | $3,240 | | Operating lease liability – current | $2,129 | $2,133 | | Discontinuation of software development project | $1,904 | $1,904 | | Income taxes payable | $1,490 | $1,240 | | Clinical trial costs | $249 | $460 | | Share based compensation | $160 | $- | | Other | $477 | $394 | | Total | $18,438 | $21,199 | 9. Commitments and Contingencies This section outlines the company's product warranties, indemnification obligations, and legal proceedings - The Company provides product warranties and indemnifies customers against intellectual property claims, but believes the fair value of these agreements is immaterial due to historical activity and liability insurance coverage[46] - The Company is involved in various legal proceedings in the normal course of business but does not expect their resolution to have a material adverse effect on its financial position, results of operations, or cash flow[48] 10. Revenue and Geographic Information This section breaks down revenue by product family and geographic location, highlighting key customer contributions Revenue by Product Family (in thousands) | Revenue by Product Family (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | OA Pain Management | $24,318 | $22,633 | | Joint Preservation and Restoration | $13,841 | $13,453 | | Non-Orthopedic | $2,364 | $1,838 | | Total | $40,523 | $37,924 | - Revenue from DePuy Synthes Mitek Sports Medicine, a significant customer, accounted for 42% of total revenue in Q1 2024 (43% in Q1 2023)[50] Revenue by Geographic Location (in thousands) | Revenue by Geographic Location (in thousands) | Three Months Ended March 31, 2024 | Percentage of Revenue | Three Months Ended March 31, 2023 | Percentage of Revenue | | :-------------------------------------------- | :-------------------------------- | :-------------------- | :-------------------------------- | :-------------------- | | United States | $29,236 | 72% | $27,288 | 72% | | Europe | $5,969 | 15% | $5,662 | 15% | | Other | $5,318 | 13% | $4,974 | 13% | | Total | $40,523 | 100% | $37,924 | 100% | 11. Equity Incentive Plan This section details the company's equity incentive plans, available shares, and stock-based compensation expense - The 2017 Omnibus Incentive Plan was amended to increase available shares by 435,000 to 5,285,000, with 0.7 million shares available for future grant at March 31, 2024[54] - The 2021 Inducement Plan was amended to increase shares by 125,000 to 250,000, with 0.1 million shares available for future grant at March 31, 2024[55] Stock-based Compensation Expense (in thousands) | Stock-based Compensation Expense (in thousands) | March 31, 2024 | March 31, 2023 | | :---------------------------------------------- | :------------- | :------------- | | Cost of revenue | $127 | $184 | | Research and development | $531 | $517 | | Selling, general and administrative | $2,932 | $3,016 | | Total stock-based compensation expense | $3,590 | $3,717 | 12. Income Taxes This section explains the effective tax rate and its drivers, including the impact of valuation allowances - The effective tax rate for Q1 2024 was (1.0%) (immaterial expense), compared to 13.9% benefit in Q1 2023. This change is primarily due to a full valuation allowance recorded against domestic deferred tax assets at March 31, 2024, reflecting prior year operating losses[68][69] 13. Earnings Per Share ("EPS") This section presents basic and diluted earnings per share, noting the anti-dilutive effect of potential common shares - Basic and diluted EPS were $(0.31) for Q1 2024 and $(0.71) for Q1 2023. Due to net losses, all potential common shares (stock options and RSUs) were anti-dilutive and excluded from diluted EPS calculations[11][72] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's analysis of Anika's financial condition, operational results, and liquidity for Q1 2024 compared to the prior year Management Overview This section provides an overview of Anika Therapeutics' business strategy, focus on joint preservation, and future growth drivers - Anika Therapeutics is a global joint preservation company focused on early intervention orthopedic care, leveraging over 30 years of expertise in hyaluronic acid (HA) technology[76] - Future success is expected to be driven by HA-based regenerative solutions, introduction of key HA-based products (Cingal, Hyalofast, Integrity) into the US market upon FDA approval, global commercial expansion, and strategic inorganic growth opportunities[78] Products This section categorizes Anika Therapeutics' product portfolio, including OA Pain Management, Joint Preservation, and Non-Orthopedic solutions - OA Pain Management includes Monovisc, Orthovisc, and Cingal (a novel single-injection product sold outside the US, awaiting FDA approval after a successful Phase III trial)[79] - Joint Preservation and Restoration encompasses HA-based regenerative solutions (Integrity, Tactoset, Hyalofast), sports medicine solutions, and Arthrosurface bone-preserving joint technologies[81] - Non-Orthopedic products are legacy HA-based items for anti-adhesion, wound care, ENT, ophthalmic applications, and Hyvisc for equine OA[82] Results of Operations This section analyzes the company's financial performance, including revenue, gross profit, operating expenses, and net loss Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023 This section provides a detailed comparative analysis of financial results for the first quarter of 2024 versus 2023 Results of Operations (in thousands, except percentages) | (in thousands, except percentages) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change ($) | % Change | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :------- | | Revenue | $40,523 | $37,924 | $2,599 | 7% | | Cost of revenue | $15,895 | $15,081 | $814 | 5% | | Gross profit | $24,628 | $22,843 | $1,785 | 8% | | Gross margin | 61% | 60% | | | | Research and development | $8,164 | $8,400 | $(236) | (3%) | | Selling, general and administrative | $21,527 | $26,996 | $(5,469) | (20%) | | Total operating expenses | $29,691 | $35,396 | $(5,705) | (16%) | | Loss from operations | $(5,063) | $(12,553) | $7,490 | (60%) | | Net loss | $(4,514) | $(10,350) | $5,836 | (56%) | - Revenue increased 7% year-over-year to $40.5 million, driven by growth across all product families: OA Pain Management (+7%), Joint Preservation and Restoration (+3%), and Non-Orthopedic (+29%)[84][85][86] - Net loss decreased by 56% to $4.5 million, primarily due to higher revenues and a significant reduction in selling, general and administrative expenses (down 20%) due to non-recurring costs in the prior year[84][90][92] Non-GAAP Financial Measures This section presents and reconciles non-GAAP financial measures used by management to assess operational performance - Management uses non-GAAP measures like adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted net income, and adjusted EPS to evaluate operating performance and identify underlying business trends, excluding items such as amortization of acquired intangibles, inventory fair-value step-up, stock-based compensation, and acquisition-related expenses[93][95][96][98][102] Non-GAAP Metrics (in thousands, except EPS) | Non-GAAP Metrics (in thousands, except EPS) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Adjusted gross profit | $25,257 | $24,405 | | Adjusted gross margin | 62% | 64% | | Adjusted EBITDA | $2,502 | $(1,204) | | Adjusted net income (loss) | $1,240 | $(2,163) | | Adjusted diluted earnings (loss) per share | $0.09 | $(0.14) | - Adjusted EBITDA increased by $3.7 million, and Adjusted net income and Adjusted diluted EPS improved significantly, primarily due to higher revenues and lower spending following product launches and addressing regulatory requirements[101][106] Liquidity and Capital Resources This section discusses the company's cash position, working capital, credit facilities, and cash flow activities - Cash and cash equivalents were $68.6 million at March 31, 2024, down from $72.9 million at December 31, 2023. Working capital totaled $130.5 million[107] - The Company has a $75.0 million senior revolving line of credit, with no outstanding borrowings as of March 31, 2024, and is in compliance with its terms[108] - Cash used in operating activities decreased significantly to $0.1 million in Q1 2024 from $3.6 million in Q1 2023, primarily due to a lower net loss[110] - Cash used in investing activities increased to $1.8 million in Q1 2024 (from $1.4 million in Q1 2023) due to increased capital expenditures for manufacturing operations[112] - Cash used in financing activities increased to $2.3 million in Q1 2024 (from $1.6 million in Q1 2023), mainly due to cash paid for employee tax withholding on vested restricted stock awards[113] Critical Accounting Policies and Estimates This section confirms no material changes to critical accounting policies and estimates from the prior annual report - No significant changes were made to critical accounting policies or underlying assumptions and estimates from those disclosed in the 2023 Form 10-K[114] Recent Accounting Pronouncements This section provides updates on recent accounting pronouncements and their potential impact on the company - A discussion of recent accounting pronouncements is updated in the Notes to the condensed consolidated financial statements[115] Contractual Obligations and Other Commercial Commitments This section confirms no material changes to contractual obligations and commercial commitments from the prior annual report - There were no material changes to contractual obligations reported in the 2023 Form 10-K during the three months ended March 31, 2024[116] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section confirms no material changes to the company's market risks or their management during Q1 2024 - No material changes to market risks or their management occurred in Q1 2024 compared to the disclosures in the 2023 Form 10-K[118] ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of the company's disclosure controls and procedures and internal controls over financial reporting (a) Evaluation of disclosure controls and procedures. This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2024 - As of March 31, 2024, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective[120] (b) Changes in internal controls over financial reporting. This section reports no material changes in internal control over financial reporting during the first quarter of 2024 - There were no material changes in internal control over financial reporting during the quarter ended March 31, 2024[121] PART II: OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and exhibits ITEM 1. LEGAL PROCEEDINGS This section confirms no material changes to legal proceedings from the prior annual report, with no expected material adverse effects - No material changes to legal proceedings were reported in Q1 2024; the company does not expect current proceedings to materially affect its financial position[122] ITEM 1A. RISK FACTORS This section confirms no material changes to the risk factors previously disclosed in the company's annual report - No material changes to risk factors were reported in Q1 2024 compared to the 2023 Form 10-K[123] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section updates on the share repurchase program and confirms no recent unregistered sales of equity securities - The company established a $20.0 million share repurchase program in April 2023, repurchasing 188,029 shares at an average price of $26.59 per share during 2023[125] - There were no recent unregistered sales of equity securities[126] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[126] ITEM 4. MINE SAFETY DISCLOSURES. This section states that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the company[126] ITEM 5. OTHER INFORMATION. This section provides other relevant information, specifically regarding Rule 10b5-1 trading plans - No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the fiscal quarter ended March 31, 2024[126] ITEM 6. EXHIBITS This section lists all exhibits filed as part of the Form 10-Q, including certifications and XBRL data - The report includes certifications (Rule 13a-14(a)/15d-14(a) and Section 1350) from Dr. Cheryl R. Blanchard and Michael Levitz, as well as XBRL formatted financial statements[128] SIGNATURES This section contains the official signatures certifying the accuracy and completeness of the Form 10-Q filing - The report was signed on behalf of Anika Therapeutics, Inc. by Michael Levitz, Executive Vice President, Chief Financial Officer and Treasurer, on May 8, 2024[130]