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SEGMENT REPORTING
 6 Months Ended
Jun. 30, 2024
Segment Reporting [Abstract]  
SEGMENT REPORTING

NOTE 11 – SEGMENT REPORTING

 

As discussed in Note 1, the Company historically managed its business on the basis of one operating and reportable segment. During the second quarter of 2024, the Company changed its reportable segments to better align its organization based upon the Company’s management structure, products and services offered and markets served. Based on the growing importance of the value-based wound care program to the Company’s future outlook and how the Company’s chief operating decision maker (“CODM”), the Chief Executive Officer, reviews operating results and makes decisions about resource allocation, the Company now has two reportable segments: Sanara Surgical and THP.

 

Segment EBITDA is the primary profitability measure used by the CODM for purposes of assessing financial performance and resource allocation. The Company defines Segment EBITDA for the reportable segments as net income (loss) excluding interest expense/income, provision/benefit for income taxes, depreciation and amortization, non-cash share-based compensation expense, change in fair value of earnout liabilities, executive separation costs, legal and diligence expenses related to acquisitions, and gains/losses on the disposal of property and equipment, as each are applicable to the periods presented. Segment EBITDA, as it relates to the Company’s reportable segments, is presented in conformity with ASC 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission’s Regulation G and Item 10(e) of Regulation S-K. Segment EBITDA may not be comparable to similarly titled measures reported by other companies.

 

Sanara Surgical

 

The Sanara Surgical segment primarily markets and sells soft tissue repair and bone fusion products for use in the operating room or other sterile environments. Sanara Surgical’s soft tissue repair products include, among other products, the Company’s lead product, CellerateRX Surgical, and BIASURGE Advanced Surgical Solution, which is a no-rinse, advanced surgical solution used for wound irrigation. Sanara Surgical’s bone fusion products include, among other products, BiFORM, which is an osteoconductive, bioactive, porous implant that allows for bony ingrowth across the graft site, and ALLOCYTE Plus, which is a human allograft cellular bone matrix containing bone-derived progenitor cells and conformable bone fibers.

 

Sanara Surgical also includes an in-house research and development team (Rochal Technologies) with an extensive pipeline of innovative products under development.

 

Tissue Health Plus

 

The THP segment is focused on value-based wound care services. Through THP, the Company plans to offer a first of its kind value-based wound care program to payers and risk-bearing entities such as accountable care organizations and VBC primary care companies, with Medicare Advantage payers as the initial target market for this program.

 

THP’s programs are expected to enable payers to divest wound care spend risk, reduce wound related hospitalizations and improve patient quality of life. THP plans to coordinate delivery of community and home-based wound care for its managed patients. Community based care spans a variety of settings including physician offices, skilled nursing facilities, assisted living facilities and senior living facilities. THP programs are intended to integrate science and evidence-based medicine protocols to standardize wound prevention and treatment.

 

Currently, there are no allocated costs included in the THP segment.  All corporate and overhead expenses are included in the Sanara Surgical segment, as substantially all of those costs relate to supporting the operations and activities of the Sanara Surgical segment.

 

As a result of the change in reportable segments, certain prior period amounts have been recast to conform to the current period presentation. Throughout this Quarterly Report on Form 10-Q, unless otherwise indicated, amounts and activity reflect reclassifications related to the Company’s change in reportable segments. The change in reportable segments had no impact on the Company’s Consolidated Balance Sheets, Statements of Operations, Cash Flows and Shareholders’ Equity previously reported.

 

 

The following tables reflect results of operations, Segment EBITDA, segmented assets, and expenditures for long-lived assets for our reportable segments for the periods indicated below:

 

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Three Months Ended 
   June 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
                         
Net revenue  $20,158,823   $-   $20,158,823   $15,753,164   $-   $15,753,164 
Gross profit   18,150,137    -    18,150,137    13,565,648    -    13,565,648 
Selling, general and administrative expenses   18,349,924    607,684    18,957,608    13,301,230    510,246    13,811,476 
Research and development   582,443    403,208    985,651    208,727    968,401    1,177,128 
Depreciation and amortization   698,407    407,100    1,105,507    396,597    407,097    803,694 
Interest expense   644,346    -    644,346    -    -    - 
Net income (loss)   (2,214,313)   (1,314,889)   (3,529,202)   95,098    (1,961,278)   (1,866,180)
Segment EBITDA   1,393,959    (801,778)   592,181    1,120,207    (1,415,831)   (295,624)
                               
Segment assets (at period end) (1)  $51,469,137   $21,914,468   $73,383,605   $51,147,589   $22,723,560   $73,871,149 
Expenditures for long-lived assets  $58,762   $-   $58,762   $12,945   $-   $12,945 

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Six Months Ended 
   June 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
                         
Net revenue  $38,695,461   $-   $38,695,461   $31,272,351   $2,730   $31,275,081 
Gross profit   34,796,729    -    34,796,729    26,968,141    (6,235)   26,961,906 
Selling, general and administrative expenses   34,032,964    1,116,903    35,149,867    25,768,626    1,011,919    26,780,545 
Research and development   1,161,424    770,525    1,931,949    443,963    2,050,489    2,494,452 
Depreciation and amortization   1,396,908    814,019    2,210,927    768,616    813,953    1,582,569 
Interest expense   911,682    -    911,682    6    -    6 
Net income (loss)   (2,691,798)   (2,636,447)   (5,328,245)   614,061    (3,696,570)   (3,082,509)
Segment EBITDA   2,532,145    (1,628,543)   903,602    2,365,280    (2,953,734)   (588,454)
                               
Segment assets (at period end) (1)  $51,469,137   $21,914,468   $73,383,605   $51,147,589   $22,723,560   $73,871,149 
Expenditures for long-lived assets  $124,580   $-   $124,580   $40,650   $-   $40,650 

 

(1)- Segment assets for 2023 represent assets as of 12.31.23.

 

The following tables provide a reconciliation of net income (loss) to Segment EBITDA for our reportable segments for the periods indicated below:

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Three Months Ended 
   June 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
Net Income (Loss)  $(2,214,313)  $(1,314,889)  $(3,529,202)  $95,098   $(1,961,278)  $(1,866,180)
Adjustments:                              
Interest expense   644,346    -    644,346    -    -    - 
Depreciation and amortization   698,407    407,100    1,105,507    396,597    407,097    803,694 
Noncash share-based compensation   1,046,321    36,429    1,082,750    1,064,516    62,816    1,127,332 
Change in fair value of earnout liabilities   89,330    (103,103)   (13,773)   (436,004)   75,534    (360,470)
Executive separation costs(1)   904,780    -    904,780    -    -    - 
Acquisition costs   225,088    172,685    397,773    -    -    - 
Segment EBITDA  $1,393,959   $(801,778)  $592,181   $1,120,207   $(1,415,831)  $(295,624)

 

   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
   Six Months Ended 
   June 30, 
   2024   2023 
   Sanara Surgical   THP   Total   Sanara Surgical   THP   Total 
Net Income (Loss)  $(2,691,798)  $(2,636,447)  $(5,328,245)  $614,061   $(3,696,570)  $(3,082,509)
Adjustments:                              
Interest expense   911,682    -    911,682    6    -    6 
Depreciation and amortization   1,396,908    814,019    2,210,927    768,616    813,953    1,582,569 
Noncash share-based compensation   1,799,936    86,200    1,886,136    1,609,729    114,908    1,724,637 
Change in fair value of earnout liabilities   (14,451)   (65,000)   (79,451)   (627,132)   (186,025)   (813,157)
Executive separation costs(1)   904,780    -    904,780    -    -    - 
Acquisition costs   225,088    172,685    397,773    -    -    - 
Segment EBITDA  $2,532,145   $(1,628,543)  $903,602   $2,365,280   $(2,953,734)  $(588,454)

 

(1)- Includes $328,795 of share-based compensation related to executive separation costs.