Earnings call transcript: Nuwellis Q4 2024 sees improved margins, stock dips

Nuwellis Inc. (NUWE) reported its fourth-quarter 2024 earnings with notable improvements in gross margin and a reduced operating loss. Despite these positive operational strides, the company’s stock fell by 5.56% to $1.26, reflecting market concerns about a 9% year-over-year revenue decline and ongoing net losses. According to InvestingPro analysis, the company currently appears undervalued, though its overall Financial Health Score stands at 2.06 out of 5, indicating fair financial condition.

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Key Takeaways

• Gross margin increased to 58.4% from 54.4% in the previous year.
• Operating loss was reduced to $2.4 million from $3.6 million.
• The stock price dropped by 5.56% following the earnings release.
• Strategic focus on clinical trials and market expansion into outpatient services.
• Revenue declined by 9% year-over-year.

Company Performance

Nuwellis showcased a mixed performance in Q4 2024, with improvements in operational efficiency and product focus. While the company reduced its net loss significantly, the revenue decline posed a challenge. The strategic emphasis on expanding into outpatient services and enhancing clinical evidence is expected to support future growth.

Financial Highlights

• Revenue: $2.3 million, a 9% decrease from the previous year.
• Gross Margin: 58.4%, up from 54.4% last year.
• Operating Loss: $2.4 million, improved from $3.6 million.
• Net Loss: $1.5 million or $0.44 per share, significantly better than $7.9 million or $54.48 per share in 2023.
• Cash and Cash Equivalents: $5.1 million with no debt.

Outlook & Guidance

Nuwellis remains focused on penetrating the outpatient market with its Aquadex Ultrafiltration system, supported by improved reimbursement rates. The company is preparing for upcoming clinical trials, REVERSE HF and VIVIAN, to bolster its clinical evidence. The EPS and revenue forecasts for future quarters and fiscal years suggest a gradual improvement, though challenges remain.

Executive Commentary

Interim CEO John Erb emphasized the clinical value of the Aquadex system, stating, "We are pleased to see the increase in the number of patients treated, a testimony of the clinical value of using the Aquadex ultrafiltration system." He also highlighted the system’s efficacy, noting, "The published data was a reappraisal of two twenty-four patients from the ABOID HF trial and demonstrated that Aquadex outperformed IV diuretics in reducing heart failure events by sixty percent at thirty days."

Risks and Challenges

• Revenue Decline: The 9% decrease in revenue poses a challenge for growth.
• Market Volatility: The stock’s significant price fluctuation reflects investor uncertainty.
• Product Recalls: The voluntary recall of blood circuit units could affect brand reputation.
• Competitive Market: The company faces competition in the heart failure treatment market.
• Clinical Trial Success: Future growth depends on successful clinical trial outcomes.

Q&A

During the earnings call, analysts questioned the initial traction in the outpatient setting and the company’s enrollment progress in clinical trials. The placement of three Aquadex units in Q4 compared to eleven in Q3 was a point of concern, but management remains optimistic about expanding its critical care market presence.

Full transcript - Nuwellis Inc (NUWE) Q4 2024:

Conference Operator: Good morning, and welcome to the Nuelles Earnings Conference Call for the Fourth Quarter and Full Year Ended 12/31/2024. All participants will be in a listen only mode. After today’s presentation, there will be an opportunity to ask questions. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A replay of the call will be available approximately one hour after the end of the call.

I would now like to turn the conference over to Vivian Cervantes, Investor Relations, Gilmarting Group. Please go ahead.

Vivian Cervantes, Investor Relations, Gilmarting Group, Novelis: Thank you, operator. Good morning, everyone. Thank you for joining us on today’s conference call to discuss Nuellis’ corporate developments and financial results for the fourth quarter and full year 12/31/2024. In addition to myself, with us today are John Erb, Nuellis’ Chairman of the Board and Interim CEO as well as Rob Scott, CFO. At 08:00 Eastern Time today, Noellis released financial results for the fourth quarter and full year 2024.

If you have not received Noellis’ earnings release, please visit the Investor page on the company’s website. During today’s conference call, the company will be making forward looking statements. All forward looking statements made during today’s call will be protected under the Private Securities Litigation Reform Act of 1995. Any statements that relate to expectations or predictions of future events and market trends as well as our estimated results or performance are forward looking statements. All forward looking statements are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements. All forward looking statements are based upon current available information and the company assumes no obligation to update these statements. Accordingly, you should not place undue reliance on these statements. Please refer to the cautionary statements and discussion of risks in the company’s filings with the SEC, including the latest 10 K. With that, I now would like to turn the call over to John.

John Erb, Chairman of the Board and Interim CEO, Novelis: Thank you, Vivian, and good morning, everyone. Welcome to Novelis’ fourth quarter and full year twenty twenty four earnings conference call. I will provide an overview of our fourth quarter performance and give an update on our strategic initiatives as we welcome 2025. Next, our Chief Financial Officer, Rob Scott, will provide a detailed commentary on our financial results before opening the call up for questions and then concluding our call with my closing remarks. Before I begin my review of our fourth quarter results, I would like to take a moment to acknowledge and thank Nestor Jaramillo for his many important strategic contributions to NOELIS and wish him the best in his retirement.

I am honored to take the helm and work closely with the team to execute on near term priorities as we search for a permanent CEO. Turning to 2025, I’d like to convey how positive our team is for what lies ahead of us. Our focused execution and continued growth in our body of clinical data has resulted in nine new account wins throughout 2024, combined with a new and favorable reimbursement change effective January 1, allowing us to actively enter a new market for outpatient services for our Aquadex technology, we expect to see continued momentum as we penetrate accounts now both in the inpatient and outpatient settings. Turning to the quarter, NUELIS generated $2,300,000 in revenue for the fourth quarter of twenty twenty four, a 9% decrease year over year due to a decline in U. S.

Console sales and international sales and offset by a 21% increase in consumables utilization as clinicians are using increase using and adoption of our Aquadex system. We are pleased to see the increase in the number of patients treated, a testimony of the clinical value of using the Aquadex ultrafiltration system to treat a portion of the one million patients hospitalized annually for heart failure and symptoms of fluid overload. By customer category, we are pleased to report 35% year over year quarterly revenue growth in our critical care business, our largest customer category, which benefited from both the higher console sales and consumable utilization. We also saw two recent account wins in pediatrics with the University of Iowa Healthcare Steve Family Children’s Hospitals joining our network and the pediatric division of a nationally ranked Utah hospital earlier this year. For the remainder of our customer categories, heart failure and pediatrics were down 3620% respectively on lower console sales.

In 2025, we are excited about several strategic initiatives that will position us to continue to drive growth in our business. As mentioned in the past, a key initiative for us is to build our body of clinical evidence in order to make our Aquadex Ultrafiltration Therapy a standard of care and get into medical society guidelines. Therefore, we’re very excited by a recent peer reviewed publication in JACC heart failure as this data demonstrated patients who received Aquadex therapy had a sixty percent reduction in heart failure events at thirty days when compared to those receiving traditional IV diuretics. We believe this data helps advance current medical management of heart failure, paving the way for broader adoption of our technology. Further, following active discussions with clinicians and financial healthcare consultants, we are pleased to announce last November that Nuellis received notice from the Centers of Medicare and Medicaid Services, also known as CMS, that the Aquadex Ultrafiltration code will be reassigned to the outpatient reimbursement level most consistent with administration of Ultrafiltration therapy and cost of treatment.

Effective 01/01/2025, the facility reimbursement fee increased nearly four times from $413 to $16.39 dollars per day. With this increased reimbursement, we are opening a new chapter for NUELIS as we enter the outpatient market for Aquadex Ultrafiltration therapy. We anticipate seeing top line growth from this rate increase as we penetrate new accounts and markets. This early in the process, we are in active conversations with existing account customers who are evaluating adding an outpatient arrangement building on their already existing inpatient programs. We look forward to providing you with updates on this initiative.

We remain focused on driving market penetration of our Aquadex Ultrafiltration Therapy as we leverage our body of clinical evidence and the fourfold increase in daily facility reimbursement in the outpatient setting. Before turning the call over to Rob for our financial discussion, let me spend a few moments more with additional color on the new data published in JACC Heart Failure. The published data was a reappraisal of two twenty four patients from the ABOID HF trial and demonstrated that Aquadex outperformed IV diuretics in reducing heart failure events by sixty percent at thirty days. The reevaluated data offers compelling evidence supporting the use of ultra ultrafiltration over conventional diuretics. We want to thank Doctor.

Maria Rosa Costanza for her work to initiate and lead the AVOID HF trial in addition to collaborating with Doctor. Penny and Doctor. Davida as authors of the JACC heart failure publication. The original trial of which Doctor. Maria Rosa Costanza was the principal investigator was initiated by Gamboa in 2012 and was later terminated prematurely by Baxter after its acquisition of Gambrough for reasons unrelated to patient outcomes or device safety.

However, new statistical techniques have allowed a reappraisal of the AVOID HF data that not only showed a significant reduction in heart failure events, but also suggested trends towards fewer hospitalizations for those treated with Aquadex over IV diuretics. These findings underscore the need for further investigation, including our REVERSE HF trial to fully validate the benefits of Aquadex, particularly in reducing hospitalization rates and improving overall quality of life for heart failure patients. I’d like now to turn to Rob to discuss our fourth quarter financial results.

Rob Scott, CFO, Novelis: Thank you, John, and good morning, everyone. Turning to the Q4 financial results. Revenue for the fourth quarter was $2,300,000 a 9% decline over the prior year period due to lower U. S. Console sales and international sales, partially offset by a 21% increase in consumables utilization.

Our critical care customer category posted a 35% increase compared to a year ago, supported by positive growth in both console sales and consumables utilization. Our heart failure and pediatric customer categories were down 3620%, respectively, on lower console sales. Gross margin was 58.4% for the fourth quarter compared to gross margin of 54.4% in the prior year quarter. The margin improvement was primarily driven by higher manufacturing volumes of consumables and lower fixed overhead manufacturing expenses. In December 2024, you will recall the company had a voluntary recall of specific lots of blood circuit units from identified accounts.

Accordingly, the current year period includes a non recurring expense of approximately $150,000 Selling, general and administrative expenses were $2,900,000 in the fourth quarter, an improvement of approximately 19% as compared to $3,600,000 in the fourth quarter of twenty twenty three. The decrease in SG and A was primarily realized through efficiency initiatives enacted in the second half of twenty twenty three and in early twenty twenty four. Fourth quarter research and development expense was $831,000 compared to $1,400,000 in the prior year period. The decrease in R and D expense was primarily due to reduced consulting fees and compensation related expenses. Total operating expenses were $3,700,000 in the quarter, a decrease of approximately $1,300,000 or 25% as compared to the fourth quarter of twenty twenty three as we continue to realize savings from operating efficiency initiatives enacted in the second half of twenty twenty three and in early twenty twenty four.

Operating loss in the fourth quarter was $2,400,000 compared to an operating loss of $3,600,000 in the prior year period, resulting in a 1,200,000 period over period improvement. Net loss attributable to common shareholders in the fourth quarter was $1,500,000 or a loss of $0.44 per share compared to a net loss attributable to common shareholders of $7,900,000 or a loss of $54.48 per share for the same period in 2023. Fourth quarter net loss attributable to common shareholder improvement was primarily the result of reduction in operating expenses realized through operating efficiency initiatives and the recognition of a one time $900,000 gain contingency from the termination of the C Star medical distribution agreement. Additionally, the prior year period included $2,000,000 of other expense and $2,400,000 of a deemed dividend and payment in kind dividend related to the company’s October. At 12/31/2024, we had $5,100,000 in cash and cash equivalents and with no debt on the balance sheet.

This concludes our prepared remarks. Operator, we would now like to open the call to questions.

Conference Operator: Thank We’ll take our first question from Jonathan Anshoff with Roth. Please go ahead. Your line is open.

Jonathan Anshoff, Analyst, Roth: Thank you. Good morning. Welcome, John. And Rob, nice to hear your voice again. Can you guys describe any initial traction in the outpatient setting for Aquadex given that January 1 reimbursement change?

John Erb, Chairman of the Board and Interim CEO, Novelis: Yes. Traction is beginning with several accounts that are existing accounts that have treated patient and outpatient, but actually now need to set up a more permanent facility for outpatient treatment. So it’s probably going to take another month or so to really start seeing these come online, but we’re pretty pleased with the number of initial accounts and activity working towards outpatient.

Jonathan Anshoff, Analyst, Roth: Okay, thanks. By the way, how many Aquadex units, consoles were placed in 4Q ’twenty five 4Q ’twenty ’4? And could you remind us what that number is also for 3Q ’twenty four?

Rob Scott, CFO, Novelis: Q4, specifically 2024? Yes. Yes. We sold three units in Q4. And how about third quarter?

Third quarter ’20 ’20 ’4 was 11 units. Okay.

Jonathan Anshoff, Analyst, Roth: May I ask, is it possible to guide us on when REVERSE HF trial will complete enrollment and then it’s a pretty simple calculation when you could come up with initial top line data thereafter or is that still difficult to gauge?

John Erb, Chairman of the Board and Interim CEO, Novelis: I would say it’s difficult to gauge. We continue to enroll and are pleased with the investigators’ involvement and engagement, but to predict it at this point would be premature.

Jonathan Anshoff, Analyst, Roth: Okay. And would you have the same answer for timing on the start of the VIVIAN clinical trial or is that a little easier to engage?

John Erb, Chairman of the Board and Interim CEO, Novelis: Basically the same answer.

Jonathan Anshoff, Analyst, Roth: Okay. That does it for me. Thank you very much guys.

Anthony Vendetti, Analyst, Maxim Group: Thank you.

Conference Operator: Our next question comes from Anthony Vendetti with Maxim Group. Please go ahead. Your line is open.

Anthony Vendetti, Analyst, Maxim Group: Okay. Thanks. Hi, John. How are you?

John Erb, Chairman of the Board and Interim CEO, Novelis: I’m great. Thanks.

Anthony Vendetti, Analyst, Maxim Group: Yes. So you were the CEO before Nestor. As you take the reins back over in the interim basis, is there one or two different one or two things you would do differently or at the top of your list right now? And then in terms of the search, is that has that actively begun? Have any candidates been identified?

And have you hired an executive search firm? Or right now, are you doing that internally? Thanks so much.

John Erb, Chairman of the Board and Interim CEO, Novelis: Sure. Well, let me start off and say that I’ve stepped in to be part of a team that I think is very, very effective and is doing a very good job. So there’s not an immediate need to make big changes or shift direction or focus. I think what’s really valuable for the team and for the company here is the recent publication in JAK that really showed the value of ultrafiltration over diuretics. That’s going to be a very valuable tool for our sales team in the field.

The second is the reimbursement for outpatient. The fact that we really now can open up that opportunity. And that is not just in heart failure. We also believe there will be value in critical care where patients that are undergoing a cardiac procedure often have to come in and be tuned up to have fluid removed before procedure, particularly if they’re going to be put on a heart lung machine where a tremendous amount of fluid is added, then they can use Ocwenex to help get the fluid afterwards. So we think the outpatient will benefit or the outpatient reimbursement benefit both heart failure and critical care unit.

So, those are really key. As far as replacement, we have hired a search firm that is in the process. I do have a couple of names that reached out to me basically that I’ve talked to and we’re passing along to the surge firm. So, we’re active on it. Hopefully, have somebody much more exciting than me here in the near future.

Anthony Vendetti, Analyst, Maxim Group: That’s it for me right now. I’ll hop back in the queue. Appreciate it.

Conference Operator: Thank you. And looks like we have another Actually, we show no further questions at this time. I will now turn the call back to John for some concluding remarks.

John Erb, Chairman of the Board and Interim CEO, Novelis: Thank you, operator. Noella centers twenty twenty five void by progress made on key growth initiatives. We continue to build upon our body of clinical evidence with the most recent publication at JAK Heart Failure confirming the significant clinical benefits of the Aquadex SmartFlow System. Coupled with the recent fourfold improvement in CMS reimbursement for ultrafiltration in the outpatient setting, assessing a new market for NOELIS, we further developed Aquadex’s position as a preferred solution, offering clinical and economic value to healthcare systems and patients in both inpatient and outpatient settings. I want to thank all of our stakeholders, Newellus employees, stockholders, physicians, nurses, patients and healthcare workers in the field.

Without your support, we would not be able to achieve key advances in transforming the lives of patients suffering from fluid overload. Thank you all for your participation and support.

Conference Operator: And this does conclude today’s program. Thank you for your participation. You may disconnect at any time.

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