Sign in

You're signed outSign in or to get full access.

NT

Nuo Therapeutics, Inc. (AURX)·Q4 2014 Earnings Summary

Executive Summary

  • Q4 2014 revenue was $1.90M, down 45% year over year, with gross margin of −10% driven by Angel centrifuge refurbishment costs and inventory reserve; net income was $2.9M due to an $8.3M unrealized non-cash derivative gain .
  • Aurix commercialization advanced: CMS approved amended CED protocols (Jan 16, 2015) and the “Gold” study began enrolling; management targets 10–12 active sites by the end of H1 2015 .
  • VA channel progressed with three facilities in final clinical evaluation, but management would not speculate on timing of first purchase orders; private insurance verifications have been largely positive with rare denials .
  • Angel transition to Arthrex weighed on reported product sales and gross margin in Q4; management reiterated expected margin improvement as refurbishment costs subside and Aurix sales grow .
  • Wall Street consensus estimates via S&P Global were unavailable; beat/miss vs estimates cannot be determined (values not retrieved from S&P Global).

What Went Well and What Went Wrong

What Went Well

  • CMS approved amendments to three existing CED protocols and the Gold study initiated, enabling simpler enrollment and broader real-world evidence generation; “one of the largest ever in the US wound care market” .
  • Early private payer dynamics are favorable: “vast majority of insurance verifications…resulted in some form of coverage…outright denials had been quite rare” .
  • International expansion: exclusive licensing and distribution agreement with Rohto Pharmaceutical in Japan; upfront payment of $1.5M contributed to cash .

What Went Wrong

  • Q4 gross margin turned negative (−10%) due to increased Angel refurbishment costs and excess/obsolete inventory reserve; product sales to Arthrex were reduced vs prior year .
  • Aurix sales declined year over year despite organizational changes; analysts questioned commercial execution pace and sales force scale relative to competitors .
  • Dependence on capital and scalability questioned; management acknowledged the need to demonstrate a scalable model before expanding sales force materially .

Financial Results

MetricQ2 2014Q3 2014Q4 2014
Revenue ($USD Millions)$2.3 $1.7 $1.9
Gross Margin %18.4% 21.1% −10.0%
Operating Expenses ($USD Millions)$10.3 $4.9 $4.2
Net Income (Loss) ($USD Millions)$(11.3) $(4.8) $2.9
EPS ($USD)$(0.09) $(0.04) N/A (not disclosed in 8-K or call)

Segment revenue breakdown (YoY comparison):

Revenue Component ($USD)Q4 2013Q4 2014
Product Sales$2,956,852 $1,374,360
License Fees$100,594 $100,481
Royalties$334,098 $423,033
Other Revenue$72,476 $0
Total Revenues$3,464,020 $1,897,874

Selected KPIs:

KPIQ3 2014Q4 2014
Sales Territories (total)17 17 (3 VA-focused)
VA Facilities Near AdoptionBegan treating with samples at select sites 3 facilities in final clinical evaluation
CED/Gold Study StatusPre-launch enablement and EHR integrations Amended protocols approved; sites opened and enrolling; 10–12 sites targeted by H1 2015
Cash & Cash Equivalents ($M)~$20 (9/30/2014) ~$15.9 (12/31/2014)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Aurix Gold Study Active SitesH1 2015Not previously quantified10–12 sites by end of H1 2015 New quantitative target
VA Initial Purchase Orders2015N/ANo timeline provided; “advancing towards that objective” Maintained caution
Gross Margin Trajectory2015+N/AMargins expected to return to pre-charge levels and improve with Aurix sales Positive directional commentary
Financial Guidance Detail2015N/AManagement to provide more detailed guidance as experience builds Future disclosure indicated

Earnings Call Themes & Trends

TopicQ2 2014 (Previous Mentions)Q3 2014 (Previous Mentions)Q4 2014 (Current Period)Trend
CMS CED Protocols & Data CollectionFirst-of-kind CED; building EHR partnerships; initial ramp slowed by protocol/admin steps Continued focus; Aurix launch; SAWC reception; CED impact acknowledged Amended protocols approved Jan 16; Gold study initiated; sites enrolling; integration with Net Health EHR Improving execution
VA AdoptionTargeting VA; national, targeted rollout; spinal cord injury units opportunity Product evaluation at several facilities; sample kits used 3 facilities in final clinical evaluation; progressing through procurement; no PO timeline Advancing, slow cycle
Sales Force ScalePlan to reach ~20 reps by YE14 Team of 17 deployed 17 territories; 3 dedicated to VA; plan to add VA reps Stable, incremental
Angel → Arthrex TransitionPass-through sales at near-zero margin; royalty stream expected to reflect economics over time Royalty growth best indicator; inventory timing effects; launch of bone marrow aspirate kit Q4 product sales to Arthrex down; royalties up; refurbishment/regulatory cost hit; expect improvement Transition friction, normalization expected
Private Payer CoverageBuilding reimbursement team; engaging private payers Anticipated pass-through status loss for competitors (EpiFix, Grafix) Insurance verifications: mostly coverage, rare denials Improving access
Regulatory/ComplianceCED as evolving reimbursement paradigm CMS final 2015 payment rules favorable to value RoHS and IEC 60601-1 changes drove Angel device modifications and one-time costs One-time impact, resolved
R&D StrategyDiscontinued ALD-401; Durham facility closed; $4M annual savings Rebranding to Nuo; focus on wound care Pure-play wound care; Japan licensing with Rohto Strategic focus sustained

Management Commentary

  • “We have successfully repositioned Nuo as a pure-play chronic wound care company…Our business…is built around the Aurix system, our FDA cleared treatment for chronic wounds” .
  • “CMS approved those amendments in late January and…we announced the initiation of the Gold study…When complete, the Gold study will be one of the largest ever in the US wound care market” .
  • “We now have hospital outpatient sites identifying and treating patients with Aurix…expect we will have 10 to 12 sites up and actively treating patients before the end of the first half of 2015” .
  • “We have cleared…processes and committees necessary for Aurix to be adopted at three VA facilities and are in final clinical evaluation” .
  • “Our negative gross margin in the fourth quarter was attributable primarily to increased costs related to…Angel centrifuge refurbishment…and an inventory reserve” .
  • “These changes…RoHS…IEC 60601-1 3rd edition…turned out to be a costly endeavor…that’s the source of that $600,000 charge…We don’t anticipate this happening again anytime soon” .

Q&A Highlights

  • Commercial traction concern: Analysts noted Aurix sales down YoY; management emphasized VA and hospital outpatient focus, protocol simplification, and expectation of 10+ sites near-term .
  • Sales force scale vs competitors: With 17 territories, management prioritized cash discipline and proving a scalable model before expanding headcount materially .
  • Capital and strategic options: Management aims to demonstrate scalable commercialization; partnership/licensing considered after proving the model .
  • Angel economics: Royalty growth is the key indicator; refurbishment/regulatory changes delayed meeting Arthrex demand but fixes are in place and deliveries increased .

Estimates Context

  • S&P Global Wall Street consensus (EPS and revenue) for Q4 2014 was unavailable; beat/miss vs estimates cannot be assessed at this time (values not retrieved from S&P Global).
  • Given the quarter’s non-cash derivative gain ($8.3M) that drove reported net income, analysts should adjust any EPS-quality assessments to reflect non-operating impacts .

Key Takeaways for Investors

  • Q4 revenue contraction and negative gross margin reflect Angel-related refurbishment costs and inventory reserve; watch for margin normalization as these one-time factors roll off and Aurix mix rises .
  • The Aurix commercialization framework improved materially with CMS-amended protocols and the Gold study launch; near-term KPI is active site count (management target 10–12 by H1’15) .
  • VA adoption is progressing but inherently slow; conversion of final clinical evaluations to purchase orders will be a key catalyst .
  • Angel royalties are rising even as reported product sales to Arthrex decline; royalty trajectory should better reflect end-market demand than pass-through sales .
  • Cash of ~$15.9M at year-end provides runway, but expansion pace remains tethered to demonstrating a scalable model; dilution risk depends on commercialization traction .
  • Without consensus estimates, trading reactions hinge on operational milestones (site activations, VA orders, private payer coverage breadth) rather than numeric beats/misses .
  • Medium-term thesis centers on value-based wound care: Aurix’s clinical/economic positioning under CED and favorable private payer responses can support adoption as data accumulates .