Financial

Baxano Surgical, Inc. Reports Operating Results for the First Quarter of 2014, Issues Second Quarter 2014 Guidance

Baxano Surgical, Inc. Reports Operating Results for the First Quarter of 2014, Issues Second Quarter 2014 Guidance

— First quarter revenue was $4.4 million —

— Net loss per share was $0.19 for the quarter —

— Avance(TM) MIS Pedicle Screw System receives FDA clearance —

— $10 million financing completed —

RALEIGH, N.C., May 8, 2014 (GLOBE NEWSWIRE) — Baxano Surgical, Inc. (Nasdaq:BAXS), a medical device company focused on designing, developing and marketing minimally invasive products to treat degenerative conditions of the spine affecting the lumbar region, today announced its financial results for the first quarter ended March 31, 2014. On May 31, 2013, we consummated our acquisition of Baxano, Inc. Our consolidated statements of operations reflect the Baxano, Inc. results, including the iO-Flex(R) and iO-Tome(R) products, from May 31, 2013.

Revenue was $4.4 million in the first quarter of 2014, representing a 42.4% increase from revenue of $3.1 million in the first quarter of 2013. Domestic revenue was $4.3 million in the first quarter of 2014, compared to $2.6 million in the first quarter of 2013 and international revenue was $0.1 million in the first quarter of 2014, compared to $0.5 million in the first quarter of 2013. Revenue contributed in the first quarter of 2014 by the Baxano, Inc. products, which were acquired on May 31, 2013, was $2.5 million.

“We have evaluated our sales force effectiveness over the past two quarters and, based on our analysis, are implementing a revised sales force strategy. While our revenue this quarter came in slightly below our expectations, we are confident that this revised strategy will drive us towards sequential revenue growth and reduce operating expenses,” commented Ken Reali, President and CEO of Baxano Surgical. “We believe the recently cleared Avance MIS Pedicle Screw System is another strong addition to our differentiated portfolio of products focused on MIS degenerative lumbar spine.”

Gross margin was 71.4% in the first quarter of 2014 as compared to 66.7% in the first quarter of 2013. The increase in gross margin reflects lower overall product costs in the first quarter of 2014 due to increased volumes and product mix. Net loss was $9.1 million in the first quarter of 2014, compared to a net loss of $7.1 million in the first quarter of 2013. Net loss per common share was $0.19 in the first quarter of 2014 compared to a net loss per share of $0.26 in the first quarter of 2013.

Excluding special items, net loss in the first quarter of 2014 was $9.1 million, or $0.19 per common share, compared to net loss, excluding special items, of $5.7 million, or $0.21 per common share in the first quarter of 2013. Special items of $1.4 million in the first quarter of 2013 consisted of merger and integration expenses of $1.3 million and expenses for the settlement with the U.S. government related to the 2011 Office of Inspector General subpoena. For additional information, see the “Reconciliation of GAAP Financial Information to Non-GAAP Financial Information” below.

Subsequent Events

On April 10, 2014, Baxano Surgical, Inc. announced that it has received U.S. Food and Drug Administration 510(k) clearance (k133743) of its Avance(TM) MIS Pedicle Screw System, which may be used as an adjunct to fusion in numerous degenerative and complex spinal pathologies. The innovative design of Avance provides a quick and easy-to-use, percutaneous pedicle screw system that addresses single, complex and multi-level spinal pathologies with minimal tissue disruption and trauma. The Avance system will be in limited market release in the second and third quarter of 2014 and is planned for full launch in the fourth quarter of 2014.

On April 22, 2014 Baxano Surgical announced the closing of a private placement of approximately $10 million aggregate principal amount of subordinated convertible debentures and warrants to purchase 9,428,000 shares of common stock to entities affiliated with two institutional investors.

Baxano Surgical Outlook

For the second quarter ending June 30, 2014, the Company expects total revenue in the range of $4.4 – $4.8 million.

Conference Call

Baxano Surgical will host a conference call today at 4:30 pm Eastern time to discuss its first quarter financial results. To listen to the conference call on your telephone, please dial (877) 312-8823 for domestic callers and (253) 237-1182 for international callers approximately ten minutes prior to the start time. The call will be concurrently webcast. To access the live audio broadcast or the archived recording, use the following link at http://ir.Baxanosurgical.com/events.cfm.

Reconciliation of GAAP Financial Information to Non-GAAP Financial Information

To supplement the Company’s consolidated financial statements presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company uses non-GAAP measures of certain components of financial performance, including net loss, net loss per common share and a pro forma consolidated statement of operations, which are adjusted from results based on GAAP. Although “as adjusted” financial measures are non-GAAP financial measures, the Company believes that the presentation of “as adjusted” financial measures calculated to reflect the Baxano, Inc. acquisition as if it had occurred at the beginning of 2013 and to exclude “special items” are useful adjuncts to the GAAP “as reported” financial measures. Pro forma adjustments include amortization of intangibles, interest costs associated with Baxano, Inc. preferred stock and convertible debt, and elimination of intercompany general and administrative expenses. “Special items” consist of merger and integration expenses related to the merger with Baxano, Inc. and charges related to the settlement with the U.S. Department of Justice, including related legal fees. These non-GAAP measures are provided to enhance investors’ overall understanding of the Company’s current financial performance and the Company’s prospects for the future. We believe that providing non-GAAP measures that adjust for the combined historical results of the Company and Baxano, Inc. and for significant non-recurring expenses allows comparison of our core operations from period to period. These non-GAAP measures may be considered in addition to results prepared in accordance with generally accepted accounting principles, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP measures included in this press release have been reconciled to the most directly comparable GAAP measures.

About Baxano Surgical, Inc.

Baxano Surgical, Inc. is a medical device company focused on designing, developing, and marketing minimally invasive products to treat degenerative conditions of the spine affecting the lumbar region. Baxano Surgical currently markets the AxiaLIF(R) family of products for single and two level lower lumbar fusion, the VEO(R) lateral access and interbody fusion system, iO-Flex(R) , a proprietary set of flexible instruments used by surgeons during spinal decompression procedures, iO-Tome(R) instrument, which rapidly and precisely removes bone, specifically the facet joints, which is commonly performed in spinal fusion procedures and Avance(TM) , a MIS pedicle screw system used in lumbar spinal fusion procedures. Baxano Surgical was founded in May 2000 and is headquartered in Raleigh, North Carolina. For more information, visit www.baxanosurgical.com.

AxiaLIF, VEO, iO-Flex and iO-Tome are registered trademarks of Baxano Surgical.

Forward Looking Statements

This press release includes statements that are based on our current beliefs and assumptions. These statements constitute “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that are often difficult to predict, are beyond our control, and which may cause results to differ materially from expectations. Factors that could cause our results to differ materially from those described include, but are not limited to, the pace of adoption of our product technology by spine surgeons, the outcome of coverage and reimbursement decisions by the government and third party payors, the success of our continuing product development efforts, the effect on our business of existing and new regulatory requirements, our ability to raise additional capital, our ability to comply with our settlement agreement and Corporate Integrity Agreement with certain entities of the U.S. government, the risks inherent in operating in foreign jurisdictions, stockholder class action lawsuits, the Company’s ability to achieve revenue targets set forth it its credit facility and other economic and competitive factors. For a discussion of the most significant risks and uncertainties associated with Baxano Surgical’s business, please review the Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2013 and subsequent reports. You are cautioned not to place undue reliance on these forward looking statements, which are based on Baxano Surgical’s expectations as of the date of this press release and speak only as of the date of this press release. We undertake no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise.

 
                            Baxano Surgical, Inc. 
           Consolidated Statements of Operations and Comprehensive 
                                     Loss 
                   (in thousands, except per share amounts) 
                                 (Unaudited) 
 
                                                 Three Months Ended March 31, 
                                                ------------------------------
                                                     2014            2013 
                                                ---------------  ------------- 
 
Revenue                                                 $ 4,412        $ 3,099 
Cost of revenue                                           1,263          1,031 
                                                ---------------  ------------- 
Gross profit                                              3,149          2,068 
                                                ---------------  ------------- 
Operating expenses: 
   Research and development                               1,987          1,285 
   Sales and marketing                                    7,274          4,927 
   General and administrative                             2,548          1,550 
   Merger and integration expenses                           19          1,313 
   Charges related to U.S. Government 
    settlement                                               --             91 
                                                ---------------  ------------- 
Total operating expenses                                 11,828          9,166 
                                                ---------------  ------------- 
Operating loss                                          (8,679)        (7,098) 
 
Non-operating items: 
   Interest expense                                       (376)             -- 
   Loss on fair value of common stock warrants             (52)             -- 
   Other expense, net                                       (2)            (2) 
                                                ---------------  ------------- 
Net loss                                              $ (9,109)      $ (7,100) 
                                                ===============  ============= 
 
Other comprehensive loss: 
Foreign currency translation adjustments                    (1)            (1) 
                                                ---------------  ------------- 
Comprehensive loss                                    $ (9,110)      $ (7,101) 
                                                ===============  ============= 
 
Net loss per common share - basic and diluted          $ (0.19)       $ (0.26) 
                                                ===============  ============= 
 
Weighted average common shares outstanding - 
 basic and diluted                                       47,058         27,317 
                                                ===============  ============= 
 
 
 
 
                            Baxano Surgical, Inc. 
                         Consolidated Balance Sheets 
                                (in thousands) 
                                 (Unaudited) 
 
                                                       March 31,  December 31, 
                                                         2014         2013 
                                                       ---------  ------------ 
Assets 
Current assets: 
   Cash and cash equivalents                             $ 1,456       $ 8,540 
   Restricted cash                                           569           610 
   Accounts receivable, net                                3,787         4,699 
   Inventory                                               7,457         7,037 
   Prepaid expenses and other assets                         503           475 
                                                       ---------  ------------ 
     Total current assets                                 13,772        21,361 
Property and equipment, net                                2,713         3,047 
Goodwill                                                   8,463         8,463 
Intangible assets, net                                    15,215        15,530 
Other long-term assets                                       748           577 
                                                       ---------  ------------ 
     Total assets                                       $ 40,911      $ 48,978 
                                                       =========  ============ 
 
Liabilities and Stockholders' Equity 
Current liabilities: 
   Current portion of long-term debt, net                $ 1,242         $ 563 
   Accounts payable                                        3,493         3,693 
   Accrued expenses related to U.S. Government 
    settlement                                             2,750         2,736 
   Accrued expenses                                        3,233         3,593 
                                                       ---------  ------------ 
     Total current liabilities                            10,718        10,585 
                                                       ---------  ------------ 
Long-term debt, net                                        5,665         6,268 
Common stock warrant liability                               580           528 
Other noncurrent liabilities                               1,453         2,150 
 
Stockholders' equity 
   Common stock                                                5             5 
   Additional paid-in capital                            202,418       200,260 
   Accumulated other comprehensive income                     14            15 
   Accumulated deficit                                 (179,942)     (170,833) 
                                                       ---------  ------------ 
     Total stockholders' equity                           22,495        29,447 
                                                       ---------  ------------ 
     Total liabilities and stockholders' equity         $ 40,911      $ 48,978 
                                                       =========  ============ 
 
 
 
 
                            Baxano Surgical, Inc. 
                    Consolidated Statements of Cash Flows 
                                (in thousands) 
                                 (Unaudited) 
 
                                                 Three Months Ended March 31, 
                                                ------------------------------ 
                                                     2014            2013 
                                                --------------  -------------- 
 
Cash flows from operating activities: 
Net loss                                             $ (9,109)       $ (7,100) 
Adjustments to reconcile net loss to net cash 
used in operating activities 
   Depreciation and amortization                           818             359 
   Stock-based compensation                                385             317 
   Provision (reversal of provision) for bad 
    debts                                                  (5)              11 
   Loss on fair value of common stock warrants              52              -- 
   Amortization of debt discount and deferred 
   financing fees                                          115              -- 
   Loss on sale of fixed assets                              4              -- 
   Changes in operating assets and 
   liabilities: 
      Decrease in accounts receivable                      917             259 
      Increase in inventory                              (420)            (36) 
      Increase in prepaid expenses                        (28)           (263) 
      Increase (decrease) in accounts payable 
       and accrued expenses                              (811)             481 
      Decrease in accrued expenses related to 
       U.S. Government settlement                        (683)           (433) 
                                                --------------  -------------- 
Net cash used in operating activities                  (8,765)         (6,405) 
                                                --------------  -------------- 
 
Cash flows from investing activities: 
   Purchases of property and equipment                   (173)           (396) 
   Restricted cash classification                           41            (62) 
                                                --------------  -------------- 
Net cash used in investing activities                    (132)           (458) 
                                                --------------  -------------- 
 
Cash flows from financing activities: 
   Net proceeds from issuance of common stock            1,814              -- 
   Proceeds from employee stock plans                       --               9 
                                                --------------  -------------- 
Net cash provided by financing activities                1,814               9 
                                                --------------  -------------- 
 
Effect of exchange rate changes on cash and 
 cash equivalents                                          (1)             (1) 
                                                --------------  -------------- 
Net decrease in cash and cash equivalents              (7,084)         (6,855) 
Cash and cash equivalents, beginning of period           8,540          21,541 
                                                --------------  -------------- 
 
Cash and cash equivalents, end of period               $ 1,456        $ 14,686 
                                                ==============  ============== 
 
 
 
 
                            Baxano Surgical, Inc. 
           Pro Forma Condensed Consolidated Statement of Operations 
                   (in thousands, except per share amounts) 
                                 (Unaudited) 
 
                                     Baxano, Inc. 
                      Three Months  Results for the               Three Months 
                      Ended March    Three Months     Pro Forma   Ended March 
                      31, 2013 As     Ended March    Adjustments  31, 2013 Pro 
                          Reported     31, 2013 (1)          (2)         Forma 
                      ------------  ---------------  -----------  ------------ 
 
 
Revenue                    $ 3,099          $ 2,953         $ --       $ 6,052
Cost of revenue              1,031            1,028           15         2,074 
                      ------------  ---------------  -----------  ------------ 
Gross profit                 2,068            1,925         (15)         3,978 
                      ------------  ---------------  -----------  ------------ 
 
Operating expenses: 
    Research and 
     development             1,285              907            3         2,195 
    Sales and 
     marketing               4,927            3,660            3         8,590 
    General and 
     administrative          1,550              625          252         2,427 
    Merger and 
     integration 
     expenses                1,313              893        (893)         1,313 
    Charges related 
     to U.S. 
     Government 
     settlement                 91               --           --            91 
                      ------------  ---------------  -----------  ------------ 
Total operating 
 expenses                    9,166            6,085        (635)        14,616 
                      ------------  ---------------  -----------  ------------ 
 
Operating loss             (7,098)          (4,160)          620      (10,638) 
Non-operating items, 
 net                           (2)            (412)          412           (2) 
                      ------------  ---------------  -----------  ------------ 
Net loss                 $ (7,100)        $ (4,572)      $ 1,032    $ (10,640) 
                      ============  ===============  ===========  ============ 
 
Net loss per common 
 share - basic and 
 diluted                  $ (0.26)                                    $ (0.24) 
                      ============                                ============ 
 
Weighted average 
 common shares 
 outstanding - basic 
 and diluted (3)            27,317                                      45,168 
                      ============                                ============ 
 
(1) includes the results of operations for Baxano, 
 Inc. for January through March 2013. The Merger was 
 effective on May 31, 2013. 
(2) pro forma adjustments reflect the amortization 
 of intangible assets and depreciation on the fair 
 value of the fixed assets acquired in the merger less 
 the elimination of interest on Baxano, Inc. debt assumed 
 by Baxano Surgical, Inc., as if the merger occurred 
 at the beginning of the period presented 
(3) weighted average common shares outstanding have 
 been adjusted for merger related shares as if issued 
 at the beginning of the period presented. 
 
 
 
 
           Reconciliation of GAAP Financial Information to Non-GAAP 
                             Financial Information 
                   (in thousands, except per share amounts) 
                                 (Unaudited) 
 
                                                         Three Months Ended 
                                                              March 31, 
                                                       ----------------------- 
                                                          2014        2013 
                                                       ----------  ----------- 
GAAP net loss                                           $ (9,109)    $ (7,100) 
Special items: 
    Merger and integration expenses                            19        1,313 
    Charges related to U.S. Government settlement              --           91 
                                                       ----------  ----------- 
Net loss excluding special items                        $ (9,090)    $ (5,696) 
                                                       ==========  =========== 
 
GAAP net loss per share                                  $ (0.19)     $ (0.26) 
Special items: 
    Merger and integration expenses                            --         0.05 
    Charges related to U.S. Government settlement              --           -- 
                                                       ----------  ----------- 
Net loss excluding special items                         $ (0.19)     $ (0.21) 
                                                       ==========  =========== 
 
Shares used in computing GAAP and non-GAAP loss per 
 share                                                     47,058       27,317 
                                                       ==========  =========== 
 
 
              Reconciliation of Pro Forma Financial Information 
                       to Non-GAAP Financial Information 
                   (in thousands, except per share amounts) 
                                 (Unaudited) 
 
                                                         Three Months Ended 
                                                              March 31, 
                                                       ----------------------- 
                                                             2014         2013 
                                                       ----------  ----------- 
Pro forma net loss                                      $ (9,109)   $ (10,640) 
Special items: 
    Merger and integration expenses                            19        1,313 
    Charges related to U.S. Government settlement              --           91 
                                                       ----------  ----------- 
Pro forma net loss excluding special items              $ (9,090)    $ (9,236) 
                                                       ==========  =========== 
 
Pro forma net loss per share                             $ (0.19)     $ (0.24) 
Special items: 
    Merger and integration expenses                            --         0.03 
    Charges related to U.S. Government settlement              --           -- 
                                                       ----------  ----------- 
Pro forma net loss excluding special items               $ (0.19)     $ (0.21) 
                                                       ==========  =========== 
 
Shares used in computing pro forma and pro forma 
 non-GAAP loss per share                                   47,058       45,168 
                                                       ==========  =========== 
 
 
CONTACT: Baxano Surgical Inc. 
         Tim Shannon, Chief Financial Officer 
         919-926-8762 
 
         or 
 
         Westwicke Partners 
         Mark Klausner 
         443-213-0501 
         baxanosurgical@westwicke.com
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Josh Sandberg

Josh Sandberg is the President of Ortho Sales Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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