Theratechnologies(THTX) - 2023 Q2 - Quarterly Report

Interim Consolidated Financial Statements This section presents the company's financial position, comprehensive loss, changes in equity, cash flows, and detailed notes for the interim period Interim Consolidated Statements of Financial Position The company's financial position as of May 31, 2023, shows a decline in total assets and a worsening negative equity, with current liabilities exceeding current assets Consolidated Balance Sheet Summary (in thousands of USD) | Account | May 31, 2023 | November 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $51,129 | $73,370 | ▼ $22,241 | | Total Assets | $68,733 | $93,260 | ▼ $24,527 | | Total Current Liabilities | $71,316 | $114,279 | ▼ $42,963 | | Total Liabilities | $110,264 | $115,831 | ▼ $5,567 | | Total Equity | ($41,531) | ($22,571) | ▼ $18,960 | - The company's total current liabilities of $71.3 million exceeded its total current assets of $51.1 million as of May 31, 2023, indicating a potential liquidity challenge[3] Interim Consolidated Statements of Comprehensive Loss For the six months ended May 31, 2023, the company reported a reduced net loss despite flat revenue, driven by lower operating expenses Six-Month Performance Summary (in thousands of USD, except per share amounts) | Metric | Six Months Ended May 31, 2023 | Six Months Ended May 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $37,457 | $37,825 | ▼ 1.0% | | Cost of goods sold | $9,602 | $12,637 | ▼ 24.0% | | Selling expenses | $13,293 | $23,178 | ▼ 42.7% | | Loss from operating activities | ($13,351) | ($28,681) | ▲ 53.4% | | Net loss for the period | ($20,456) | ($31,759) | ▲ 35.6% | | Basic and diluted loss per share | ($0.21) | ($0.33) | ▲ 36.4% | Three-Month Performance Summary (in thousands of USD) | Metric | Three Months Ended May 31, 2023 | Three Months Ended May 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $17,549 | $19,268 | ▼ 8.9% | | Net loss for the period | ($10,013) | ($22,727) | ▲ 56.0% | Interim Consolidated Statements of Changes in Equity The company's total equity deficit worsened significantly during the six-month period, primarily due to the net loss incurred Changes in Equity for the Six-Month Period Ended May 31, 2023 (in thousands of USD) | Description | Amount | | :--- | :--- | | Balance as at November 30, 2022 | ($22,571) | | Net loss for the period | ($20,456) | | Other comprehensive income | $158 | | Share-based compensation | $1,338 | | Balance as at May 31, 2023 | ($41,531) | Interim Consolidated Statements of Cash Flows The company experienced a net decrease in cash for the six months ended May 31, 2023, primarily due to cash used in operating activities Six-Month Cash Flow Summary (in thousands of USD) | Cash Flow Category | Six Months Ended May 31, 2023 | Six Months Ended May 31, 2022 | | :--- | :--- | :--- | | Cash flows used in operating activities | ($6,901) | ($6,734) | | Cash flows used in financing activities | ($404) | ($510) | | Cash flows from investing activities | $408 | $51 | | Net change in cash | ($6,897) | ($7,193) | | Cash, beginning of period | $23,856 | $20,399 | | Cash, end of period | $16,957 | $13,200 | - The company voluntarily changed its accounting policy to classify interest paid and received as part of operating activities, recasting the comparative 2022 figures[9][29] Notes to Interim Consolidated Financial Statements These notes detail critical accounting policies, financial performance, and significant risks, including going concern uncertainty, loan covenants, and subsequent events Note 1: Basis of Preparation and Going Concern Uncertainty Substantial doubt exists regarding the company's ability to continue as a going concern due to recurring losses, negative cash flows, and a subsequent loan covenant breach - The company incurred a net loss of $20.5 million and had negative operating cash flows of $6.9 million for the six months ended May 31, 2023[18] - On July 3, 2023, the company defaulted on its minimum liquidity covenant, giving the lender the ability to demand immediate repayment of the debt, though a temporary reduction was obtained until July 28, 2023, without a waiver of rights related to the default[19] - These conditions create a material uncertainty that casts substantial doubt about the Company's ability to continue as a going concern, and the financial statements do not include any adjustments that might result from this uncertainty[22][24] Note 3: Revenue Revenue for the six months ended May 31, 2023, saw a slight decrease, with product sales showing mixed performance and significant concentration in the United States Net Sales by Product (Six Months Ended May 31, in thousands of USD) | Product | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | EGRIFTA SV® | $23,564 | $23,120 | ▲ 1.9% | | Trogarzo® | $13,893 | $14,705 | ▼ 5.5% | | Total | $37,457 | $37,825 | ▼ 1.0% | - Sales in the United States accounted for $37.1 million, or 99% of total revenue for the six-month period ended May 31, 2023[35] Note 7: Term Loan The company's $100 million credit facility includes strict covenants, a breach of which can lead to immediate repayment demands and increased interest rates - The company entered into a credit agreement for up to $100 million, available in four tranches, with the first tranche of $40 million funded in July 2022[41] - The loan facility requires the company to maintain minimum liquidity of $20 million in cash, cash equivalents, and eligible short-term investments in specified accounts[43] - A breach of the loan terms can result in an event of default, leading to an interest rate increase of 300 basis points and giving the lender the ability to demand immediate repayment[43] Note 10: Share Capital and Warrants The company issued 5 million common share purchase warrants to its lender as consideration for loan facility amendments, accounting for them as derivative financial liabilities - On February 27, 2023, the company issued 5,000,000 common share purchase warrants (Marathon Warrants) to affiliates of Marathon Asset Management[50] - The warrants were issued as consideration for amending the Loan Facility, including removing a condition for the Tranche 2 loan and allowing a going concern paragraph in the FY2022 annual report[51] - The Marathon Warrants are accounted for as derivative financial liabilities measured at fair value through profit or loss, with an initial fair value of $2.65 million recorded as a loss on debt modification[50][52] Note 14: Operating Segments The company operates as a single segment, facing significant customer concentration risk with over 99% of revenue from one customer - The company has a single operating segment[71] - For the six-month period ended May 31, 2023, over 99% of the company's revenues ($37.1 million out of $37.5 million) were generated from a single customer, RxCrossroads[71][72] Note 15: Subsequent Events Post-period events include drawing down a loan tranche, redeeming convertible notes, a significant loan covenant default, and an R&D reorganization - On June 21, 2023, the company drew down on the $20,000 Tranche 2 Loan[73] - On July 3, 2023, the company defaulted under the minimum liquidity covenant of its loan facility, giving the lender the ability to demand immediate repayment[74] - Due to weak revenues in the first half of fiscal 2023, the company initiated a reorganization of its R&D activities and expects to record a charge of approximately $1.5 million for severance and other costs[75]