Allurion Technologies, Inc 10-Q for FY2024 Q1
Allurion Technologies, Inc. (ALUR)
About this 10-Q
Allurion Technologies, Inc filed this 10-Q on May 14, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $9.39M
- down 33.3% from $14.07M a year earlier
- Net income
- $5.59M
- compared with a net loss of $17.8M a year earlier
- Diluted EPS
- $0.11
- compared with -$0.68 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________________ to _________________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 10, 2024, the registrant had
Table of Contents
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PART I. |
1 |
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Item 1. |
1 |
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1 |
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2 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
3 |
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4 |
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5 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
31 |
Item 3. |
43 |
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Item 4. |
43 |
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PART II. |
45 |
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Item 1. |
45 |
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Item 1A. |
45 |
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Item 2. |
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities |
46 |
Item 3. |
46 |
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Item 4. |
46 |
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Item 5. |
46 |
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Item 6. |
47 |
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49 |
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i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements regarding the plans, strategies and prospects, both business and financial, of Allurion Technologies, Inc. (“Allurion”, the "Company", "we", "our", or "us"). These statements are based on the beliefs and assumptions of the management of Allurion. Although Allurion believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, Allurion cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes”, “estimates”, “expects”, “projects”, “target”, “goal”, “forecasts”, “may”, “will”, “potential”, “should”, “would”, “could”, “future”, “seeks”, “plans”, “predicts”, “propose”, “scheduled”, “anticipates”, “intends”, or similar expressions.
Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about the ability of Allurion to:
ii
We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect Allurion’s business, financial condition, results of operations, prospects, business strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions and other factors described in the section entitled “Risk Factors” within our Annual Report on Form 10-K filed with the SEC on March 26, 2024, as amended. These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q include additional factors that could adversely impact our business and financial performance. Moreover, Allurion operates in very competitive and rapidly changing environments. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.
iii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
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March 31, |
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December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance of doubtful accounts of $ |
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Inventory, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use asset |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Current portion of term loan |
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Current portion of lease liabilities |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Public warrant liabilities |
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Revenue Interest Financing liability |
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Earn-out liabilities |
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Lease liabilities, net of current portion |
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Other liabilities |
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Total liabilities |
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Stockholders’ deficit: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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( |
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Total stockholders’ deficit |
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( |
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Total liabilities and stockholders’ deficit |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
1
ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Sales and marketing |
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Research and development |
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General and administrative |
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Total operating expenses: |
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Loss from operations |
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Other (expense) income: |
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Interest expense |
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Changes in fair value of warrants |
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Changes in fair value of Revenue Interest Financing and PIPE Conversion Option |
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— |
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Changes in fair value of earn-out liabilities |
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— |
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Other income (expense), net |
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( |
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Total other income (expense): |
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( |
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Income (loss) before income taxes |
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( |
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Provision for income taxes |
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( |
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( |
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Net income (loss) |
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( |
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Cumulative undeclared preferred dividends |
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— |
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( |
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Net income (loss) attributable to common shareholders |
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$ |
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$ |
( |
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Net income (loss) per share |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average shares outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
2
ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share amounts)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Net Income (loss) |
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$ |
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$ |
( |
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Other comprehensive loss: |
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Change in fair value of Revenue Interest Financing due to change in credit risk |
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( |
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— |
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Comprehensive Income (loss) |
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$ |
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$ |
( |
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The accompanying notes are an integral part of these consolidated financial statements.
3
ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(dollars in thousands)
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Common Stock |
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Additional Paid- |
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Accumulated Other |
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Accumulated |
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Stockholders’ |
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Shares |
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Amount |
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in Capital |
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Comprehensive Loss |
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Deficit |
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Deficit |
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Balance as of January 1, 2023 |
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— |
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( |
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( |
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Exercise of stock options |
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— |
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— |
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— |
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Issuance of Legacy Allurion convertible preferred stock for the exercise of warrants |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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Balance as of March 31, 2023 |
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— |
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( |
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Balance as of January 1, 2024 |
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( |
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( |
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( |
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Exercise of stock options |
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— |
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— |
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— |
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Issuance of common stock for the exercise of Public Warrants |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock from equity line financing (Note 12) |
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— |
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— |
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— |
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Issuance of common stock in connection with vesting of RSU awards |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
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— |
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( |
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Net income |
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— |
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— |
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— |
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— |
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Balance as of March 31, 2024 |
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( |
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( |
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( |
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The accompanying notes are an integral part of these consolidated financial statements.
4
ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Operating Activities: |
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Net income (loss) |
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$ |
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$ |
( |
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Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Non-cash lease expense |
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Depreciation and amortization |
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Stock-based compensation |
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Provision for uncollectible accounts |
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— |
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Unrealized exchange (gain) or loss |
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( |
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Provision for inventory |
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— |
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Change in fair value of warrant liabilities |
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( |
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Change in fair value of derivative liabilities |
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Change in fair value of Revenue Interest Financing and PIPE Conversion Option |
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( |
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— |
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Change in fair value of earn-out liabilities |
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( |
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— |
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Non-cash interest expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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Inventory |
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( |
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Prepaid expenses, other current and long-term assets |
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Lease liabilities |
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( |
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( |
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Accounts payable |
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Accrued expenses and other current liabilities |
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( |
) |
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( |
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Net cash used in operating activities |
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$ |
( |
) |
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$ |
( |
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Investing Activities: |
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Purchases of property and equipment |
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( |
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( |
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Net cash used in investing activities |
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$ |
( |
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$ |
( |
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Financing Activities: |
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Proceeds from issuance of convertible notes - net |
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— |
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Proceeds from option and warrant exercises |
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Proceeds from equity line financing |
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— |
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Payment of deferred financing costs |
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— |
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( |
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Net cash provided by financing activities |
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$ |
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$ |
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Net increase (decrease) in cash and cash equivalents and restricted cash |
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$ |
( |
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$ |
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Cash and cash equivalents and restricted cash at beginning of period |
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Cash and cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information |
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Cash paid for interest |
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$ |
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$ |
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Supplemental cash flow information on non-cash investing and financing activities |
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Purchase of property and equipment included in accounts payable |
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$ |
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$ |
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Deferred financing costs in accounts payable and accrued expenses |
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— |
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Change in fair value of Revenue Interest Financing through OCI |
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( |
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— |
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The accompanying notes are an integral part of these consolidated financial statements.
5
ALLURION TECHNOLOGIES, INC. AND SUBSIDIARIES
A reconciliation of the amounts of cash and cash equivalents and restricted cash in the consolidated balance sheets to the amount in the consolidated statements of cash flows is as follows (in thousands):
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March 31, |
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December 31, |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash included in |
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Cash and cash equivalents and restricted cash shown in the statement of cash flows |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
6
Organization
Allurion Technologies, Inc. (“Allurion” or the “Company”) is a vertically integrated medical device company that is developing, manufacturing, and commercializing innovative weight loss experiences centered around its Allurion™ Balloon. The Allurion Balloon is the world’s first and only swallowable, procedure-less intragastric balloon for weight loss that does not require surgery, endoscopy, or anesthesia for placement. Allurion sells the Allurion Balloon and connected scale through distributors or directly to health care providers.
The Company also offers tiered access to artificial intelligence ("AI")-powered remote patient monitoring tools, a mobile app for patients and a clinic dashboard for providers, referred to as the Allurion Virtual Care Suite (“VCS”) and, collectively with the Allurion Balloon, referred to as the “Allurion Program”. The base tier of the VCS is free of charge to those purchasing the Allurion Balloon, as well as customers looking for a weight-loss management platform for patients utilizing other weight loss treatments, including anti-obesity medications and bariatric surgery. More full-scale versions of the VCS are available to health care providers on an upgrade basis. Allurion currently markets the Allurion Program in over
Business Combination Agreement
On February 9, 2023, Allurion Technologies Opco, Inc. (formerly Allurion Technologies, Inc., “Legacy Allurion”) and Allurion Technologies, Inc. (formerly Allurion Technologies Holdings, Inc.) entered into the Business Combination Agreement (as subsequently amended on May 2, 2023, the “Business Combination Agreement”) with Compute Health Acquisition Corp. (“CPUH” or "Compute Health"), Compute Health Corp. (“Merger Sub I”) and Compute Health LLC (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”). Pursuant to the Business Combination Agreement, on August 1, 2023 (the “Closing Date”), the Mergers (as defined below) were consummated in three steps: (a) Compute Health merged with and into Allurion (the “CPUH Merger”), with Allurion surviving the CPUH Merger as a publicly listed entity (the time at which the CPUH Merger became effective, the “CPUH Merger Effective Time”) and becoming the sole owner of the Merger Subs; (b) three hours following the consummation of the CPUH Merger, Merger Sub I merged with and into Legacy Allurion (the “Intermediate Merger” and the time at which the Intermediate Merger became effective, the “Intermediate Merger Effective Time”), with Legacy Allurion surviving the Intermediate Merger and becoming a direct, wholly-owned subsidiary of Allurion; and (c) thereafter, Legacy Allurion merged with and into Merger Sub II (the “Final Merger” and, collectively with the CPUH Merger and the Intermediate Merger, the “Mergers”, and together with all other transactions contemplated by the Business Combination Agreement, the “Business Combination”), with Merger Sub II surviving the Final Merger and remaining a direct, wholly-owned subsidiary of Allurion (the time at which the Final Merger became effective, the “Final Merger Effective Time”). Allurion shares began trading on the New York Stock Exchange ("NYSE") under the ticker symbol “ALUR” on August 2, 2023. Upon completion of the Business Combination, Legacy Allurion's business operations continued as our business operations.
The Business Combination was accounted for as a reverse capitalization in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Under this method of accounting, Compute Health was treated as the “acquired” company for financial reporting purposes and Legacy Allurion was the accounting “acquirer”. Accordingly, the Business Combination was treated as the equivalent of Legacy Allurion issuing stock for the net assets of Compute Health, accompanied by a recapitalization. As a result of the reverse recapitalization, the assets and liabilities of the Company are presented at their historical carrying values, and the assets and liabilities of Compute Health are recognized on the acquisition date and measured on the basis of the net proceeds from the capital transaction, with no goodwill or other intangible assets recorded. This determination is primarily based on the fact that, immediately following the Business Combination, Legacy Allurion stockholders had a majority of the voting power of Allurion, Legacy Allurion controlled the majority of the board seats of Allurion, and Legacy Allurion senior management comprised all of the senior management of Allurion. The equity structure has been restated in all comparative periods up to the Closing Date to reflect the number of shares of the Company's common stock, $
Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to the "Company", "our", and "Allurion" refer to the condensed consolidated operations of Allurion Technologies, Inc. and its subsidiaries. References to CPUH and Compute Health refer to Compute Health Acquisition Corp. and its subsidiaries prior to the consummation of the Business Combination and references to "Legacy Allurion" refer to Allurion Technologies, Inc. prior to the consummation of the Business Combination.
7
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and the rules and regulations of the Securities and Exchange Commission (“SEC”). Any reference in these notes to the applicable accounting guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification ("ASC"), and Accounting Standards Update ("ASU"), of the Financial Accounting Standards Board ("FASB"). They should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2023 included in the Company's Annual Report on Form 10-K, as amended ("Annual Report on Form 10-K"). The financial statements as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 presented in this report are unaudited; however, in the opinion of management such financial statements reflect all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the periods presented are not necessarily indicative of the results that might be expected for future interim periods or for the full year.
Our foreign operations are subject to exchange rate fluctuations and foreign currency transaction costs. The functional currency for all of our foreign subsidiaries is the United States dollar except Allurion Australia Pty Ltd., which uses the Australian dollar. When remeasuring from a local currency to the functional currency, assets and liabilities are remeasured into U.S. dollars at exchange rates in effect at the balance sheet dates and results of operations transacted in local currency are remeasured into U.S. dollars using average exchange rates for the period presented. A loss from remeasurement of $
Going Concern
The Company has evaluated whether there are certain events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.
The Company has incurred recurring losses since inception, anticipates net losses and negative operating cash flows for the near future, and may be unable to remain in compliance with certain financial covenants required under its credit facilities. Through March 31, 2024, the Company has funded its operations primarily with proceeds from the sale of its convertible preferred stock, issuance of convertible notes, issuance of term loans, and funds received upon consummation of the Business Combination. The Company has incurred recurring losses and cash outflows from operating activities since its inception, including losses from operations of $
Based on the Company's recurring losses from operations incurred since inception, its expectation of continuing operating losses for the foreseeable future, the potential need to raise additional capital to finance its future operations and debt service payments, and the potential of being unable to remain in compliance with certain financial covenants under its credit facilities, the Company has concluded that there is substantial doubt about its ability to continue as a going concern for a period of one year from the date that these condensed consolidated financial statements are issued. The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
2. Summary of Significant Accounting Policies
There have been no significant changes, except as described below, to the significant accounting policies disclosed in Note 2 of the “Notes to Consolidated Financial Statements” to the consolidated audited financial statements as of and for the year ended December 31, 2023 included in our Annual Report on Form 10-K.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Management considers many factors in selecting appropriate financial accounting policies and controls in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of reasonable estimates of the ultimate future
8
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Adjustment has been made to the condensed consolidated statement of operations for the three months ended March 31, 2023, to present the change in fair value of derivative liabilities as part of Other (expense) income, net. This amount was a separate line item in prior years.
Risk of Concentration of Credit, Significant Customers and Significant Suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash equivalents and accounts receivable, net. The Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company maintains its cash, cash equivalents and restricted cash with financial institutions that management believes to be of high credit quality. The Company has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Significant customers are those which represent more than
|
|
Revenue |
|
Accounts Receivable |
|
|||||||
|
|
Three Months Ended March 31, |
|
March 31, |
|
|
December 31, |
|
||||
|
|
2024 |
|
2023 |
|
2024 |
|
|
2023 |
|
||
Customer A |
|
N/A |
|
N/A |
|
|
% |
|
|
% |
||
The Company relies on third parties for the supply of parts and components for its products as well as third-party logistics providers. In instances where these parties fail to perform their obligations, the Company may be unable to find alternative suppliers of parts and components to satisfactorily deliver its products to its customers on time, if at all, which could have a material adverse effect on the Company’s operating results, financial condition and cash flows and damage its customer relationships.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity, which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. The Company
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal periods beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company's consolidated financial statements and related disclosures.
As discussed in Note 1, Organization and Basis of Presentation, on August 1, 2023 the Company consummated the Business Combination with Compute Health pursuant to the Business Combination Agreement. The Business Combination was accounted for as a reverse capitalization in accordance with U.S. GAAP. Under this method of accounting, Compute Health, which was the legal acquirer, was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Allurion issuing stock for the net assets of Compute Health, accompanied by a recapitalization.
Upon the closing of the Business Combination, (a) holders of Legacy Allurion common stock received shares of Allurion Common Stock in an amount determined by application of the Exchange Ratio of approximately
9
share of Legacy Allurion preferred stock was converted into the right to receive shares of Allurion Common Stock equal to the number of shares of Allurion Common Stock that would be issued upon conversion of such outstanding share of Legacy Allurion preferred stock based on the applicable conversion ratio multiplied by the Exchange Ratio, (c) each then-outstanding and unexercised Legacy Allurion option was converted into a new Allurion option on the same terms and conditions as were applicable to such Legacy Allurion option based on the Exchange Ratio ("Rollover Option"), (d) each then-outstanding Legacy Allurion warrant was converted into a new Allurion warrant based on the Exchange Ratio ("Rollover Warrant"), (e) each then-outstanding Legacy Allurion restricted stock unit was converted into a rollover restricted stock unit based on the Exchange Ratio, and (f) certain amounts of loans made by Compute Health Sponsor LLC (the "Sponsor") to CPUH, which balance was $
Further, upon the closing of the Business Combination, each then-outstanding share of Compute Health Class A common stock was canceled and extinguished and was converted into the right to receive
In connection with the Business Combination, the Company incurred approximately $
The following table reconciles the elements of the Business Combination to the condensed consolidated statement of cash flows and the condensed consolidated statement of changes in equity:
|
|
December 31, 2023 |
|
|
Cash – CPUH trust (net of redemptions) |
|
$ |
|
|
Cash – PIPE Investors |
|
|
|
|
Gross Proceeds |
|
|
|
|
Less: transaction costs paid |
|
|
( |
) |
Net proceeds from the Business Combination |
|
|
|
|
Less: warrant liabilities assumed |
|
|
( |
) |
Less: repayment of note assumed in the Business Combination |
|
|
( |
) |
Less: accrued transaction costs at December 31, 2023 |
|
|
( |
) |
Business Combination, net of transaction costs |
|
$ |
|
|
The number of shares of Allurion Common Stock outstanding immediately following the consummation of the Business Combination was as follows:
|
|
Common Stock |
|
|
Legacy Allurion Equityholders (1) |
|
|
|
|
CPUH Stockholders (2) |
|
|
|
|
Shares Issued to PIPE Investors (2) |
|
|
|
|
Shares issued to RTW and Fortress (3) |
|
|
|
|
Shares issued to convertible note holders |
|
|
|
|
CPUH Sponsor Shares (2) |
|
|
|
|
Side Letter Termination Shares (3) |
|
|
|
|
Total shares of Common Stock immediately after |
|
|
|
|
(1) Consists of Legacy Allurion common stock and Legacy Allurion preferred stock, plus the issuance of common stock in connection with the vesting of RSUs at closing, less the Gaur Contributed Shares (as defined below).
(2) The CPUH Stockholders shares, PIPE shares, and CPUH Sponsor shares are presented combined within the condensed consolidated statements of stockholders deficit on the "Reverse recapitalization, net of transaction costs" line, which is less the Gaur Contributed Shares (as defined below).
10
(3) The shares issued to RTW and Fortress and the Side Letter Termination shares are presented combined within the condensed consolidated statements of stockholders deficit on the "Derecognition of liabilities associated with the Backstop Shares, Hunter shares, and additional RTW and Fortress shares and issuance of related shares" line.
PIPE Investment
In connection with the execution of the Business Combination Agreement, Allurion and Compute Health entered into subscription agreements, each dated February 9, 2023 (the “PIPE Subscription Agreements”), with certain accredited investors and qualified institutional buyers (the “PIPE Investors”), pursuant to which, upon the terms and subject to the conditions set forth therein, the PIPE Investors, among other things, purchased an aggregate of
Revenue Interest Financing Agreement, Side Letter and PIPE Conversion Option
On February 9, 2023, concurrently with the execution of the Business Combination Agreement, the Company entered into the Revenue Interest Financing Agreement (the "Revenue Interest Financing Agreement") with certain entities that engaged RTW Investment, LP ("RTW") as investment manager. Pursuant to the Revenue Interest Financing Agreement, at the closing of the Business Combination, RTW paid Allurion an aggregate of $
Additionally, in connection with the Company entering in the Revenue Interest Financing, the Company, Compute Health, Legacy Allurion, Merger Sub II and RTW entered into a side letter (the "RTW Side Letter") on February 9, 2023 under which RTW may elect to convert up to $
On May 2, 2023, the parties amended and restated the RTW Side Letter (as amended, the "Amended and Restated RTW Side Letter"), in connection with the Backstop Agreement (defined below), pursuant to which, among other things, Allurion issued
Fortress Credit Agreement
In connection with the closing of the Business Combination, the Company entered into a term loan facility (the “Fortress Term Loan”) pursuant to a Credit Agreement and Guaranty, dated as of August 1, 2023 (the “Fortress Credit Agreement”), with Fortress Credit Corp. (“Fortress”), as administrative agent for the lenders party thereto from time to time (the “Lenders”). Under the terms of the Fortress Term Loan, we borrowed $
Backstop Agreement
On May 2, 2023, CFIP2 ALLE LLC, an affiliate of Fortress Credit Corp., and RTW (collectively, the “Backstop Purchasers”), Legacy Allurion, Allurion and Hunter Ventures Limited (“HVL”) entered into the backstop agreement (the “Backstop Agreement”). Pursuant to the Backstop Agreement, immediately prior to the Intermediate Merger Closing (a) each Backstop Purchaser purchased $
HVL Termination Agreement
On May 2, 2023, HVL and Legacy Allurion entered into a letter agreement (the “HVL Termination Agreement”), terminating the side letter agreement entered into between Legacy Allurion and HVL in connection with the issuance of HVL’s Legacy Allurion convertible note on February 15, 2023. Pursuant to the HVL Termination Agreement, among other things, at the closing of the
11
Business Combination, upon the terms and subject to the conditions set forth therein, Allurion issued to HVL
Gaur Contribution Agreement
On May 2, 2023, Shantanu K. Gaur and Neha Gaur, trustees of The Shantanu K. Gaur Revocable Trust of 2021 (the “Gaur Trust”) and Allurion entered into a contribution agreement (the “Gaur Contribution Agreement”), pursuant to which, among other things, upon the terms and subject to the conditions set forth therein, the Gaur Trust contributed to Allurion, as a contribution of capital,
RSU Forfeiture Agreement
On May 2, 2023, Krishna Gupta, a member of our Board of Directors, entered into a letter agreement with Legacy Allurion (the “RSU Forfeiture Agreement”), pursuant to which, among other things, upon the terms and subject to the conditions set forth therein, Mr. Gupta agreed to forfeit
Sponsor Contribution Agreement
On May 2, 2023, the Sponsor and Compute Health entered into a letter agreement (the "Sponsor Contribution Agreement") pursuant to which, among other things, upon the terms and subject to the conditions set forth therein, the Sponsor agreed to contribute to Compute Health, as a contribution of capital,
Sponsor Support Agreement
On February 9, 2023, Allurion entered into a support agreement (the "Sponsor Support Agreement"), pursuant to which immediately prior to the CPUH Merger Effective time, (a) the Sponsor recapitalized each of the Sponsor’s
Conversion of Convertible Notes
In connection with the closing of the Business Combination, outstanding Legacy Allurion Convertible Notes with an aggregate principal amount together with accrued but unpaid interest of approximately $
Public Warrants and Warrant Amendment
In connection with the closing of the Business Combination, the Company assumed
Earn-Out Liabilities
In connection with the closing of the Business Combination, Legacy Allurion equity holders are entitled to receive additional shares of Allurion Common Stock if the share price achieves certain targets (the "Earn-Out Shares"). The Company accounts for the potential issuance of the Earn-Out Shares as a contingent consideration arrangement, which was initially valued and recorded at $
12
Revenue by geographic region is based on the country in which our customer is domiciled and is summarized by geographic area as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
France |
|
$ |
|
|
$ |
|
||
United Kingdom |
|
|
|
|
|
|
||
Spain |
|
|
|
|
|
|
||
All Other Countries |
|
|
|
|
|
|
||
Total Revenues |
|
$ |
|
|
$ |
|
||
For the three months ended March 31, 2024, $
Inventory consists of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Finished goods |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Raw materials |
|
|
|
|
|
|
||
Total Inventory |
|
$ |
|
|
$ |
|
||
Inventory is stated net of $
Property and equipment consist of the following (in thousands):
|
|
Estimated Useful Life |
|
March 31, |
|
|
December 31, |
|
||
Computers and purchased software |
|
|
$ |
|
|
$ |
|
|||
Leasehold improvements |
|
Shorter of useful life |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
|
|||
Machinery and equipment |
|
|
|
|
|
|
|
|||
Property and equipment—at cost |
|
|
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
|
|
( |
) |
|
|
( |
) |
Construction in progress |
|
|
|
|
|
|
|
|
||
Property and equipment—net |
|
|
|
$ |
|
|
$ |
|
||
13
Depreciation expense was $
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cost of revenue |
|
$ |
|
|
$ |
|
||
Research and development |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Sales and marketing |
|
|
|
|
|
|
||
Total depreciation and amortization expense |
|
$ |
|
|
$ |
|
||
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Marketing reimbursement |
|
$ |
|
|
$ |
|
||
Accrued compensation |
|
|
|
|
|
|
||
Accrued clinical trials and R&D |
|
|
|
|
|
|
||
Accrued selling and marketing |
|
|
|
|
|
|
||
Accrued professional fees |
|
|
|
|
|
|
||
Accrued warranty |
|
|
|
|
|
|
||
Accrued restructuring |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
In connection with strategic initiatives implemented during the period ended December 31, 2023, the Company's management approved and initiated plans to reduce its cost structure. During the three months ended March 31, 2024, the Company recorded less than $
The components of the Company’s third-party debt consists of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Fortress Term Loan |
|
$ |
|
|
$ |
|
||
Total principal amount of debt |
|
|
|
|
|
|
||
Plus: Accretion |
|
|
|
|
|
|
||
Less: current portion of long-term debt, net of discounts |
|
|
( |
) |
|
|
( |
) |
Less: unamortized deferred financing costs and debt discounts |
|
|
( |
) |
|
|
( |
) |
Long-term debt, net of current portion and discounts |
|
$ |
— |
|
|
$ |
— |
|
As of March 31, 2024 and December 31, 2023, the fair value for the Company’s Fortress Term Loan approximated the respective carrying amounts.
Term Loans
2021 Term Loan
In March 2021, the Company entered into a loan and security agreement (as amended, the “2021 Term Loan” and the “2021 Term Loan Agreement”) with Runway Growth Credit Fund, Inc. (“Runway”) that provided for borrowings up to $
In December 2021, the 2021 Term Loan Agreement was amended (the “Amendment”) to extend the maturity date of the 2021 Term Loan to
14
Note 10, Fair Value Measurements). Upon the closing of the Business Combination, these warrants were converted into warrants exercisable for
In June 2022, the 2021 Term Loan Agreement was amended to revise definitional terms for certain milestone events, the final payment amount and certain financial covenants. In September 2022, the 2021 Term Loan Agreement was further amended to, among other things, increase additional borrowing up to $
During June through December of 2022, the Company drew an additional $
On August 1, 2023, the 2021 Term Loan was paid off using the proceeds from the Fortress Term Loan (see below). The total payoff amount was $
Interest expense for the three months ended March 31, 2023 related to the 2021 Term Loan was $
Fortress Term Loan
On August 1, 2023, the Company entered into the Fortress Term Loan pursuant to the Fortress Credit Agreement with Fortress that provided gross proceeds of $
On December 29, 2023, the Company entered into an amendment to the Fortress Credit Agreement (the "Fortress Amendment"). The Fortress Amendment waived the December 31, 2023 minimum revenue covenant under the Fortress Credit Agreement and modified the minimum liquidity covenant by increasing the minimum liquidity amount from $
The Fortress Credit Agreement contains certain financial reporting and other covenants, including the maintenance of minimum liquidity amounts and maintenance of minimum product revenues over trailing twelve-month periods. Upon the occurrence of an event of default, the Lenders may declare all outstanding obligations immediately due and payable as well as increase the interest rate
The Company has classified the Fortress Term Loan as a current liability in the March 31, 2024 and December 31, 2023 condensed consolidated balance sheets. On April 16, 2024, the Company repaid all outstanding obligations under the Fortress Term Loan with proceeds from the Note Purchase Agreement (as defined below) with RTW (see Note 19, Subsequent Events).
The Company assessed the terms and features of the Fortress Credit Agreement in order to identify any potential embedded features that would require bifurcation or any beneficial conversion features. The terms and features assessed include, under certain circumstances, a default interest rate of
15
value on a quarterly basis. At the inception of the Fortress Term Loan, the fair value of the embedded derivative was determined to be immaterial. The fair value of the Term Loan Derivative Liability was $
Interest expense for the three months ended March 31, 2024 related to the Fortress Term Loan was $
Scheduled future maturities of the Fortress Term Loan for years subsequent to March 31, 2024 are as follows (in thousands):
December 31, 2024 |
|
$ |
— |
|
December 31, 2025 |
|
|
— |
|
December 31, 2026 |
|
|
|
|
December 31, 2027 |
|
|
|
|
|
|
$ |
|
Convertible Notes
2021 Convertible Notes
In December 2021, the Company entered into a convertible note agreement with investors for gross proceeds of $
The 2021 Convertible Notes provided that, effective upon either a Special Purpose Acquisition Company (i.e. “deSPAC”) transaction, closing of a qualified financing, or closing of a non-qualified financing, all of the outstanding principal and interest would automatically convert into common shares or shares of the same class or series of capital stock issued in the qualified financing in an amount equal to the balance of the 2021 Convertible Notes on the date of conversion divided by the capped conversion price, which is calculated by dividing $
Interest expense for the three months ended March 31, 2023 related to the 2021 Convertible Notes was less than $
2022 Convertible Notes
In January 2022, the Company entered into a convertible note purchase agreement with investors for gross proceeds of $
Interest expense for the three months ended March 31, 2023 related to the 2022 Convertible Notes was less than $
2023 Convertible Notes
Between February and August 2023, the Company entered into a convertible note purchase agreement, and related side letters, for the sale of convertible notes (the "2023 Convertible Notes") to certain investors for gross proceeds of $
Additionally, the 2023 Convertible Notes provided that, effective upon the closing of a qualified financing, holders of the 2023 Convertible Notes could optionally accelerate repayment of the principal and interest of the 2023 Convertible Notes or convert all of the outstanding principal and interest into common shares or shares of the same class or series of capital stock issued in the qualified
16
financing equal to the balance of the 2023 Convertible Notes on the date of conversion divided by the greater of the capped price or the discounted price. The capped price is calculated by dividing $
Interest expense for the three months ended March 31, 2023 related to the 2023 Convertible Notes was $
On May 2, 2023 the Company entered into termination agreements (the “Termination Agreements”) with respect to side letters entered into with certain holders of the 2023 Convertible Notes. With respect to the Termination Agreement with one of the side letter holders (the “Side Letter Holder”), the Company had the right to prepay, in one or more transactions, all or a portion of the outstanding principal amount, plus accrued interest, under such holder's 2023 Convertible Note (the “Side Letter Holder Bridge Note”), including by way of (a) a $
In addition, under the Termination Agreement executed with the Side Letter Holder, the Company agreed to issue to the Side Letter Holder a number of shares of Allurion Common Stock (“PubCo Additional Shares”) equal to (a) the outstanding principal and accrued interest under the Side Letter Holder Bridge Note immediately prior to the consummation of the transactions contemplated by the Business Combination Agreement (after giving effect to the payment of the repayments) divided by $
Further on May 2, 2023, RTW and Fortress (the “Backstop Purchasers”) entered into the Backstop Agreement with the Company, Legacy Allurion and the Side Letter Holder. Pursuant to the Backstop Agreement, each Backstop Purchaser agreed that to the extent any Side Letter Holder Bridge Notes remained outstanding prior to the consummation of the Business Combination, such Backstop Purchaser would, at the closing of the Business Combination, purchase up to $
On August 1, 2023, immediately prior to the closing of the Business Combination, the Company repaid $
17
On February 9, 2023, Legacy Allurion entered into the Revenue Interest Financing Agreement. Pursuant to the Revenue Interest Financing, at the closing of the Business Combination, RTW paid Allurion an aggregate of $
If RTW has not received aggregate revenue interest payments equal to at least
The Revenue Interest Financing is accounted for under the FVO election of ASC 825 as the Revenue Interest Financing contains embedded derivatives, including the requirements to settle the Revenue Interest Financing prior to maturity upon the occurrence of certain contingent events and our ability to prepay the Revenue Interest Financing, which would require bifurcation and separate accounting. The Revenue Interest Financing is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. Changes in fair value are recorded as a component of Other (expense) income in the condensed consolidated statements of operations. A portion of the estimated change in fair value must be reported in other comprehensive loss to the extent that it is attributable to instrument-specific credit risk. For the three months ended March 31, 2024, the Company recorded a $
Concurrently and in connection with the Revenue Interest Financing and PIPE Subscription Agreement (as discussed in Note 3, Business Combination), on February 9, 2023, Legacy Allurion entered into the RTW Side Letter with RTW, subsequently amended on May 2, 2023. The Amended and Restated RTW Side Letter amended and restated the existing RTW Side Letter in its entirety, in order to reflect that any conditional additional shares issuable to RTW would be calculated net of any Backstop Shares issuable to RTW under the Backstop Agreement. Refer to Note 8, Debt for discussion regarding the additional shares issued to RTW in connection with the Amended and Restated RTW Side Letter and Backstop Agreement.
In connection with the Company entering into the Revenue Interest Financing, if, at any time beginning 12 months and ending 24 months following the closing of the Mergers, the VWAP per share of Allurion Common Stock is less than $
18
The following tables present the fair value hierarchy for the Company's assets and liabilities that are measured at fair value at issuance date and on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value (in thousands):
Fair Value Measurement as of March 31, 2024 |
|
|||||||||||||||
|
|
Total Carrying |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Legacy Allurion Common Stock Warrant Liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Public Warrants |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Revenue Interest Financing |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
PIPE Conversion Option |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Earn-out Liability |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Term Loan Derivative Liability |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Success Fee Derivative Liability |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Fair Value Measurement as of December 31, 2023 |
|
|||||||||||||||
|
|
Total Carrying |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Legacy Allurion Common Stock Warrant Liabilities |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Public Warrants |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Revenue Interest Financing |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
PIPE Conversion Option |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Earn-out Liability |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Term Loan Derivative Liability |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Success Fee Derivative Liability |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Public Warrants
As a result of the Business Combination on August 1, 2023, the Company recorded a liability for Public Warrants to purchase the Company's Common Stock. The Public Warrants are traded on the NYSE and are recorded at fair value using the closing price as March 31, 2024 of $
Legacy Allurion Warrants
The Company has classified the Legacy Allurion Common Stock Warrants within Level 3 of the hierarchy as the fair value is derived using the Black-Scholes option pricing model, which uses a combination of observable (Level 2) and unobservable (Level 3) inputs. See table below for the assumptions used in the pricing model of the Legacy Allurion Common Stock Warrants:
19
|
|
Measurement |
|
Interest |
|
|
Exercise |
|
|
Estimated Fair Value of Underlying Share Price |
|
|
Expected |
|
|
Expected |
|
|||||
Legacy Allurion Series C Preferred Stock |
|
March 31, 2024 |
|
|
% |
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|||||
Other Common Stock |
|
March 31, 2024 |
|
|
% |
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
Legacy Allurion Series D-1 Preferred Stock |
|
March 31, 2024 |
|
|
% |
|
|
|
|
|
|
|
|
% |
|
|
||||||
|
|
Measurement |
|
Interest |
|
Exercise |
|
|
Estimated Fair Value of Underlying Share Price |
|
|
Expected |
|
|
Expected |
|
||||
Legacy Allurion Series C Preferred Stock warrants (as converted to Common) |
|
December 31, 2023 |
|
|
|
|
|
$ |
|
|
|
% |
|
|
|
|||||
Other Common Stock |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
Legacy Allurion Series D-1 Preferred Stock warrants (as converted to Common) |
|
December 31, 2023 |
|
|
|
|
|
|
|
|
|
% |
|
|
||||||
Expected dividend yield for all calculations is
The following table reconciles the changes in fair value for the three months ended March 31, 2024 and 2023 of the warrant liabilities valued using Level 3 inputs:
|
|
Preferred Stock Warrants (as converted to Common) |
|
|
Common Stock Warrants |
|
|
Total |
|
|||
Balance – January 1, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
||||
Exercise of warrants |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance – March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Balance – January 1, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance – March 31, 2024 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2019 Term Loan Success Fee Derivative Liability
The derivative liability for the success fee associated with Legacy Allurion's November 2019 loan and security agreement with Western Alliance Bank (the "2019 Term Loan" and such fee, the "Success Fee") was recorded at fair value as of March 31, 2024 using the following assumptions: weighted-average probability for the likelihood of a change in control or liquidity event within
2023 Convertible Notes
The 2023 Convertible Notes were accounted for using the FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently re-measured at estimated fair value on a recurring basis at each reporting period date. The fair value was measured as of August 1, 2023, just prior to the conversion of the notes, using the share price at conversion ($
Revenue Interest Financing and PIPE Conversion Option
The Revenue Interest Financing is accounted for using the FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The fair value of the Revenue Interest Financing was remeasured as of March 31, 2024 using a discounted cash flow ("DCF") method under the income approach utilizing future revenue projections and a discount rate of
20
The fair value of the PIPE Conversion Option was accounted for as a derivative under ASC 815. The instrument is measured using a Monte Carlo Simulation Method using the number of shares convertible of
|
|
March 31, |
|
|
Stock Price |
|
|
|
|
Risk-free interest rate |
|
|
% |
|
Expected term (in years) |
|
|
|
|
Expected volatility |
|
|
% |
|
Earn-Out Liability
Upon the closing of the Business Combination, the Earn-Out Shares were accounted for as a liability because the triggering events that determine the number of shares to be earned included events that were not indexed to Allurion Common Stock, with the change in fair value recognized in Change in the fair value of earn-out liabilities in the consolidated statement of operations.
|
|
March 31, |
|
|
Stock Price |
|
|
|
|
Risk-free interest rate |
|
|
% |
|
Expected term (in years) |
|
|
|
|
Expected volatility |
|
|
% |
|
Term Loan Derivative Liability
The Term Loan derivative liability associated with the Fortress Term Loan was recorded at fair value as of March 31, 2024 using a DCF model that includes default interest payments expected to be made based on future revenue projections and cash flow assumptions and a discount rate of
The changes in the fair values of the Success Fee derivative liability, 2023 Convertible Notes, Revenue Interest Financing, PIPE Conversion Option and Earn-out liability categorized with Level 3 inputs for the three months ended March 31, 2024 and 2023 were as follows:
|
|
Success Fee Derivative Liability |
|
|
2023 |
|
|
Revenue Interest |
|
|
PIPE Conversion Derivative |
|
|
Earn-Out |
|
|
Term Loan Derivative Liability |
|
|
Total |
|
|||||||
Balance – January 1, 2023 |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Fair value upon issuance |
|
|
— |
|
|
|
|
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Change in fair value |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance – March 31, 2023 |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Balance – January 1, 2024 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Fair value upon issuance |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Change in fair value |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Change in fair value - OCI |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Repayments of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance – March 31, 2024 |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The change in fair value of the Success Fee derivative liability, 2023 Convertible Notes, Revenue Interest Financing, PIPE Conversion Option, and Earn-Out liability at each period is recorded as a component of Other (expense) income in the condensed consolidated statements of operations, with the exception of the change in fair value associated with the change in credit risk related to the Revenue Interest Financing, which is recorded as a component of other comprehensive loss.
Assets and Liabilities Not Carried at Fair Value
The Company's Fortress Term Loan is carried at amortized cost. The fair value of the Fortress Term Loan was estimated to be $
21
The Company recorded income tax expense for the three months ended March 31, 2024 and 2023 of $
As of March 31, 2024 and 2023, the Company maintained a full valuation allowance against its net deferred tax assets as the Company has incurred significant operating losses since inception and has concluded that its net deferred tax asset is not more-likely-than-not realizable.
As of March 31, 2024 and 2023, the Company has
The Allurion Certificate of Incorporation authorizes the issuance of up to
Common Equity
The Allurion Certificate of Incorporation authorizes the issuance of up to
The number of shares of Common Stock that have been reserved for issuance upon the potential conversion or exercise, as applicable, of the Company’s securities as of March 31, 2024, is as follows:
Outstanding options to purchase common stock |
|
|
|
|
Restricted Stock Units |
|
|
|
|
Warrants to purchase preferred stock (as converted to warrants |
|
|
|
|
Warrants to purchase common stock |
|
|
|
|
Public warrants to purchase common stock |
|
|
|
|
Earn-Out Shares |
|
|
|
|
Total |
|
|
|
Warrants to Purchase Common Stock
In connection with the closing of the Business Combination, all outstanding warrants to purchase Legacy Allurion preferred stock and Legacy Allurion common stock were converted into Rollover Warrants to purchase Allurion Common Stock using the Exchange Ratio.
March 31, 2024 |
|
|||||||||||||||
Issuance Date |
|
Remaining |
|
|
Underlying Equity Instrument |
|
Balance Sheet |
|
Shares Issuable |
|
|
Weighted |
|
|||
12/1/2014 |
|
|
|
|
Common stock |
|
Equity |
|
|
|
|
$ |
|
|||
3/30/2021 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
9/15/2022 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
6/4/2022 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
1/17/2017 |
|
|
|
|
Common stock |
|
Equity |
|
|
|
|
|
|
|||
8/3/2017 |
|
|
|
|
Common stock |
|
Equity |
|
|
|
|
|
|
|||
9/8/2017 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
6/19/2018 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
6/25/2019 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
22
December 31, 2023 |
|
|||||||||||||||
Issuance Date |
|
Remaining |
|
|
Underlying Equity Instrument |
|
Balance Sheet |
|
Shares Issuable |
|
|
Weighted |
|
|||
12/1/2014 |
|
|
|
|
Common stock |
|
Equity |
|
|
|
|
$ |
|
|||
3/30/2021 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
9/15/2022 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
6/4/2022 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
1/17/2017 |
|
|
|
|
Common stock |
|
Equity |
|
|
|
|
|
|
|||
8/3/2017 |
|
|
|
|
Common stock |
|
Equity |
|
|
|
|
|
|
|||
9/8/2017 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
6/19/2018 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
6/25/2019 |
|
|
|
|
Common stock |
|
Liability |
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
In Compute Health's initial public offering, it sold units at a price of $
The Company may redeem the outstanding Public Warrants for cash at a price of $
The Company may redeem the outstanding Public Warrants for shares of our Common Stock at a price of $
Chardan Equity Facility
On December 18, 2023, we entered into a ChEF Purchase Agreement (the "Purchase Agreement") and a Registration Rights Agreement (the "Registration Rights Agreement"), each with Chardan Capital Markets ("Chardan") related to a "ChEF," Chardan's committed equity facility (the "Chardan Equity Facility"). Pursuant to the Purchase Agreement, the Company has the right from time to time at its option to sell to Chardan up to the lesser of (i) $
23
non-refundable structuring fee (the "Structuring Fee") immediately following commencement. As of March 31, 2024, the Company had sold
Basic and diluted net income (loss) per share was calculated as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Cumulative undeclared preferred dividends to participating securities (Legacy Series D convertible preferred stock) |
|
|
— |
|
|
|
( |
) |
Net income (loss) attributable to common shareholders - Basic |
|
$ |
|
|
$ |
( |
) |
|
Adjustment for change in fair value of liability classified warrants |
|
|
( |
) |
|
|
— |
|
Net income (loss) attributable to common shareholders - Diluted |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
||
Basic weighted-average common shares outstanding |
|
|
|
|
|
|
||
Effect of potentially dilutive securities: |
|
|
|
|
|
|
||
Stock options |
|
|
|
|
|
— |
|
|
Restricted stock units |
|
|
|
|
|
— |
|
|
Warrants |
|
|
|
|
|
— |
|
|
Diluted weighted-average common shares outstanding |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Basic net income (loss) per common share |
|
$ |
|
|
$ |
( |
) |
|
Diluted net income (loss) per common share |
|
$ |
|
|
$ |
( |
) |
|
The Company excluded the following potential shares of Common Stock, presented based on amounts outstanding at each period end, from the computation of diluted net income (loss) per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect. As the triggering event under which the Earn-Out shares become issuable has not been met as of March 31, 2024, the Earn-Out shares have been excluded from the computation of diluted net income (loss) per share.
|
|
As of March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Outstanding options to purchase Common Stock |
|
|
|
|
|
|
||
Restricted Stock Units |
|
|
|
|
|
|
||
Warrants to purchase preferred stock (as converted to |
|
|
|
|
|
|
||
Warrants to purchase Common Stock |
|
|
— |
|
|
|
|
|
Shares of Common Stock issued upon the exercise of Public Warrants |
|
|
|
|
|
— |
|
|
Earn-Out Shares |
|
|
|
|
|
— |
|
|
Convertible Notes |
|
|
— |
|
|
|
|
|
Total |
|
|
|
|
|
|
||
Stock Incentive Plans
The Company’s 2010 Stock Option Plan (the “2010 Plan”) provided for the grant of qualified incentive stock options, nonqualified stock options, and other awards to the Company’s employees, officers, directors, advisors, and outside consultants to purchase the Company’s Common Stock. On December 11, 2020, the Company’s Board of Directors adopted the 2020 Stock Option Plan (the “2020 Plan”), which provided for the grant of qualified incentive stock options, nonqualified stock options, and other awards to the Company’s employees, officers, directors, advisors, and outside consultants to purchase the Company’s Common Stock. Each stock option from the 2010 Plan and the 2020 Plan that was outstanding immediately prior to the Business Combination, whether
24
vested or unvested, was cancelled and exchanged for a stock option to purchase Allurion Common Stock based on the Exchange Ratio. The per share exercise price for each stock option was divided by the Exchange Ratio.
In connection with the closing of the Business Combination, the Company adopted the 2023 Stock Option and Incentive Plan (the "2023 Plan"), which provides for the award of stock options (both incentive and non-qualified), stock appreciation rights, restricted stock units, restricted stock awards, cash-based awards, and dividend equivalent rights. As of March 31, 2024, a total of
As of March 31, 2024,
Stock-based compensation expense included in the condensed consolidated statement of operations was as follows:
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Three Months Ended March 31, |
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2024 |
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2023 |
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Cost of revenue |
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$ |
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$ |
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Selling, general and administrative |
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Research and development |
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( |
) |
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Total stock-based compensation expense |
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$ |
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$ |
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Stock Options
The following table summarizes the option activity under the 2010 Plan, 2020 Plan, and the 2023 Plan during the three months ended March 31, 2024:
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Number of |
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Weighted |
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Weighted |
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Aggregate |
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(per option) |
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(in years) |
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(in thousands) |
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Outstanding—January 1, 2024 |
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$ |
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$ |
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Granted |
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Cancellations and forfeitures |
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( |
) |
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Exercised |
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( |
) |
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Outstanding—March 31, 2024 |
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Exercisable at March 31, 2024 |
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$ |
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$ |
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Total stock compensation expense related to stock option awards during the three months ended March 31, 2024 was $
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model and the assumptions noted in the table below. Expected volatility for the Company’s Common Stock was determined based on an average of the historical volatility of a peer group of public companies that are similar to the Company. The expected term of options granted to employees was calculated using the simplified method, which represents the average of the contractual term of the option and the weighted-average vesting period of the option. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate expected term. The expected term of options granted to non-employees is the remaining contractual term of the award. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. The risk-free rate for periods within the expected life of the option is based upon the U.S. Treasury yield curve in effect at the time of grant.
25
There were
Expected volatility |
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% |
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Risk-free interest rate |
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% |
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Expected dividend yield |
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% |
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Expected term (in years) |
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Restricted Stock Units
In December 2022, the Company issued RSUs to a member of the Board of Directors with vesting subject to both a performance-based closing condition dependent on the successful Business Combination with Compute Health and time-based vesting conditions. See Note 3, Business Combination for information about the closing of the Business Combination with Compute Health. Upon the satisfaction of the closing condition,
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Number of RSUs |
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Weighted |
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(per share) |
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Outstanding—January 1, 2024 |
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$ |
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Granted |
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Cancellations and forfeitures |
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— |
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Vested |
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( |
) |
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Outstanding—March 31, 2024 |
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$ |
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Total stock compensation expense related to RSUs for the three months ended March 31, 2024 was $
Employee Stock Purchase Plan
In connection with the closing of the Business Combination, the Company adopted the 2023 Employee Stock Purchase Plan (the "2023 ESPP"). Under the 2023 ESPP plan, substantially all employees may voluntarily enroll to purchase the Company's Common Stock through payroll deductions at a price equal to
A total of
The Company has a 401(k) retirement plan that covers eligible U.S. employees. Eligible employees may elect to contribute up to the maximum limits, as set by the Internal Revenue Service, of their eligible compensation. The Company may elect to make a discretionary contribution or match a discretionary percentage of employee contributions. During the three months ended March 31, 2024 and 2023, the Company's matching contributions to the plan were less than $
Leases
With respect to contracts involving the use of assets, if the Company has the right to direct the use of the asset and obtain substantially all economic benefits from the use of an asset, it accounts for the service contract as a lease.
26
As of March 31, 2024, the Company was a party to six different leases for office, manufacturing, and laboratory space under non-cancelable office leases in three cities. These leases total approximately
The components of right-of-use ("ROU") assets and lease liabilities are included in the condensed consolidated balance sheets. The short-term portion of the Company's operating lease liability is recorded as part of Accrued expenses and other current liabilities on the condensed consolidated balance sheets.
Aggregate Lease Information
Other pertinent lease information for the three months ended March 31, 2024 and 2023 is as follows (in thousands):
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Three Months Ended |
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March 31, |
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March 31, |
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Operating lease costs |
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$ |
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$ |
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Short-term lease costs |
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Variable lease costs |
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Operating cash flows paid for amounts in the |
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Operating lease assets obtained in exchange |
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— |
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Future commitments under non-cancelable operating lease agreements as of March 31, 2024 are as follows (in thousands):
2024 |
$ |
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2025 |
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2026 |
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2027 |
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Thereafter |
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Total lease payments |
$ |
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Less: present value adjustment |
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( |
) |
Total lease liabilities |
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Less: current lease liability |
|
( |
) |
Long-term operating lease liabilities |
$ |
|
The weighted-average remaining lease terms and discount rates related to our leases were as follows:
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March 31, |
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March 31, |
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Weighted -average remaining lease term (in years) |
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Weighted-average discount rate |
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% |
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% |
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Product Liability
The Company has not received any material product liability claims. While product defects and adverse patient reactions associated with the Allurion Balloon have occurred, and are expected to continue to occur, the Company does not have a history of product defects or adverse patient reactions that the Company’s management believes would give rise to a material product liability claim. Furthermore, the Company has obtained insurance related to potential product liability claims.
Litigation and Claims
In the normal course of operations, the Company may become involved in various claims and legal proceedings related to, for example, the validity or scope of its intellectual property rights, employee-related matters, or adverse patient reactions. Additionally,
27
during the normal course of business, the Company may be a party to legal claims that may not be covered by insurance. As of March 31, 2024 and December 31, 2023, the Company has
Long-lived assets, consisting of property and equipment, net and ROU assets by geography were as follows (in thousands):
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March 31, |
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December 31, |
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United States |
|
$ |
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$ |
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France |
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$ |
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All other countries |
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— |
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— |
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Long-lived assets |
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$ |
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$ |
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||
Refer to Note 4, Revenue for information on revenue by geography.
Lease Agreement with Related Party
In August 2022, the Company entered into an operating lease agreement for additional office space in Paris, France with LNMP JPBC Invest. The Company’s Trade Marketing Director was the signor of this lease for LNMP JPBS Invest. Additionally, the Company’s Chief Commercial Officer is also a partner of LNMP JPBC Invest. The lease agreement included lease payments of approximately $
Consulting Agreements with KKG Enterprises, LLC and Remus Group Management, LLC
In the first quarter of 2023, Allurion entered into consulting agreements with KKG Enterprises, LLC (“KKG Enterprises”) and Remus Group Management, LLC (“Remus Group Management”) to assist Allurion in building out its AI platform, augment its AI advisory board, and provide advisory services related to the Business Combination. These agreements were tied to Allurion Board-related work by Krishna Gupta, who is a director of Allurion, CEO of Remus Group Management, principal at KKG Enterprises, and affiliated with Romulus Capital, a stockholder of Allurion. The agreements included payments of $
Convertible Note with Hunter Ventures Limited
On February 15, 2023, Allurion sold $
Consulting Agreement with Related Party
In September 2023, Allurion France, a French société par actions simplifiée and wholly-owned subsidiary of Allurion ("Allurion France"), entered into a new corporate officer agreement with the Company's Chief Commercial Officer and Benoit Chardon Consulting, a French société à responsabilité limitée which is solely owned by Mr. Chardon ("BCC"), pursuant to which BCC agreed to serve as Managing Director of Allurion France. The new corporate officer agreement provided that BCC would receive base consulting fees of €
Termination Agreement with Related Party
On December 12, 2023, Allurion France entered into a termination agreement with the Company's Chief Commercial Officer, Benoit Chardon, and BCC. Pursuant to the termination agreement, the parties agreed to terminate the corporate officer agreement as of December 31, 2023 and BCC resigned from its duties as managing director of Allurion France effective December 31, 2023; Allurion
28
Note Purchase Agreement
On April 14, 2024, Allurion, RTW as agent for the purchasers (the “Purchasers”) party thereto from time to time (RTW in such capacity, the “Principal Purchaser”), and Acquiom Agency Services LLC (“Acquiom”), as collateral agent for the Purchasers and the Principal Purchaser, entered into a Note Purchase Agreement (the “Original Note Purchase Agreement”). Subsequently, on April 16, 2024, the Company, the Principal Purchaser, the Purchasers and Acquiom entered into the First Amendment to the Original Note Purchase Agreement (the “Amendment”; the Original Note Purchase Agreement, as amended by the Amendment, the “Amended Note Purchase Agreement”).
Pursuant to the Amended Note Purchase Agreement, the Company issued and sold $
The Notes will bear interest at the annual rate of
The Notes are convertible into shares of the Company's Common Stock at a Purchaser’s election at any time after the earliest of (i) the date on which Stockholder Approval (as defined below) is obtained, (ii) December 31, 2025, (iii) the date of a Fundamental Change Company Notice (as defined in the Amended Note Purchase Agreement), and (iv) the Make-Whole Fundamental Change Effective Date (as defined in the Amended Note Purchase Agreement), subject to certain terms and limitations in the Amended Note Purchase Agreement, based on the higher of (x) an initial conversion rate of
The Amended Note Purchase Agreement contains certain financial reporting and other covenants, including the requirement to raise at least $
Amendment to Revenue Interest Financing Agreement
On April 14, 2024, the Revenue Interest Financing Agreement (the "Original RIFA") was amended pursuant to the Omnibus Amendment (the “RIFA Amendment”) by and among the Company, Allurion Opco, Allurion Australia Pty Ltd, a proprietary limited company organized under the laws of Australia and a wholly-owned subsidiary of the Company, the Original RIFA Investors (as defined therein) and RTW, to reflect certain modifications agreed between the parties thereto in connection with the Purchasers’ purchase of the Notes and the refinancing of the Fortress Credit Agreement. Among other things, the RIFA Amendment waived the existing event of default under the Original RIFA, increased the rate of revenue interest payments to be paid to RTW on all current and future products and digital solutions developed and to be developed by the Company (the “Royalty Rate”) for net sales under $
29
Amendment to RTW Side Letter
On April 14, 2024, the Company, Allurion Opco and the Additional RIFA Investors entered into the First Amendment to Amended and Restated Letter Agreement (the “Side Letter Amendment”) to reflect certain modifications to the Existing Side Letter in connection with the Purchasers’ purchase of the Notes. The Side Letter Amendment provides, among other things, that the Additional RIFA Investors may make a single election in certain circumstances to convert up to $
Termination of Fortress Term Loan
On
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis includes information that our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion and analysis should be read together with the consolidated financial statements as of and for the three months ended March 31, 2024 and March 31, 2023, and for the years ended December 31, 2023 and December 31, 2022 that are included in our Annual Report on Form 10-K filed with the SEC on March 26, 2024, as subsequently amended (as amended, the "Annual Report on Form 10-K"). This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the sections titled “Cautionary Statement Regarding Forward-Looking Statements" and “Risk Factors” in our Annual Report on Form 10-K or this Quarterly Report on Form 10-Q. For purposes of this section, all references in this discussion and analysis to “Allurion,” the “Company”, “we,” “us,” or “our” refers to the business and operations of Allurion and its consolidated subsidiaries following the consummation of the Business Combination and to Legacy Allurion and its consolidated subsidiaries prior to the consummation of the Business Combination. “Legacy Allurion” refers to Allurion Technologies, LLC, which was previously known as Allurion Technologies Opco, Inc. (formerly Allurion Technologies, Inc.) prior to the consummation of the Business Combination.
Overview
Allurion is a leading medical device company that is focused on creating a best-in-class weight loss platform to treat obese and overweight patients. Our platform, the Allurion Program, features the world’s first and only swallowable, procedure-less intragastric balloon for weight loss and offers AI-powered remote patient monitoring tools, a proprietary behavior change program, secure messaging and video telehealth that are delivered by the Allurion Virtual Care Suite ("VCS").
Our proprietary intragastric balloon, the Allurion Balloon, is swallowed as a capsule under the guidance of a health care provider without surgery, endoscopy, or anesthesia.
The Allurion VCS is comprised of tools to support patients’ weight loss experience, which we believe benefit both patients and health care providers:
In addition to its use by Allurion Balloon patients, we believe the Allurion VCS can potentially be a platform for optimal long-term follow up after other medical and surgical weight loss interventions in the future. For example, in June 2022, we incorporated a Treatment Tracking and Clinic-Led Onboarding feature into the Allurion VCS, which enables seamless onboarding and management of patients undergoing one or multiple weight loss treatments, including gastric balloons such as the Allurion Balloon, surgery, or medications. In addition, in connection with our collaboration with Medtronic plc (“Medtronic”), we may incorporate the Allurion VCS in onboarding and managing Medtronic’s patients.
Our products are currently sold in Europe, the Middle East, Africa, Latin America, Canada and the Asia-Pacific region. The U.S. Food and Drug Administration ("FDA") has approved the investigational device exemption ("IDE"), for Allurion’s AUDACITY clinical trial, a 48-week, prospective, randomized, open-label trial. We received approval of the IDE from the FDA in November 2021 to initiate the AUDACITY clinical trial in the United States. The first patient in the trial was treated in July 2022. During the third quarter of 2023, we completed the enrollment of 550 patients in the trial across 17 sites in the United States. The results of the trial are expected to support a premarket approval submission to the FDA.
Since our inception, we have incurred significant operating losses. Our ability to generate revenue and achieve cost improvements sufficient to achieve profitability will depend on the successful further development and commercialization of our products and receipt and maintenance of regulatory approvals. We generated revenue of $9.4 million and $14.1 million for the three months ended March 31, 2024 and 2023, respectively, and had net income of $5.6 million and incurred a net loss of $17.8 million for those same periods. We expect to continue to incur net losses as we focus on obtaining regulatory approvals for our products in new markets, refining our sales and marketing strategies, and continuing research and development efforts to further enhance our existing
31
products. Further, following the closing of the Business Combination described below in “Recent Developments,” we have incurred, and expect to continue to incur, additional costs associated with operating as a public company. As a result, we will need substantial additional funding for expenses related to our operating activities, including selling, marketing, general and administrative expenses and research and development expenses.
Because of the numerous risks and uncertainties associated with regulatory approval, market acceptance of our product, product development and enhancement, and commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Until such time, if ever, as we can generate substantial revenue sufficient to achieve profitability, we expect to finance our operations through a combination of equity offerings and debt financings. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we are unable to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations. See the subsections titled — “Liquidity and Capital Resources” and “Recent Developments” below.
Recent Developments
Business Combination Agreement
On February 9, 2023, Allurion Technologies Opco, Inc. (formerly Allurion Technologies, Inc., “Legacy Allurion”) and Allurion Technologies, Inc. (formerly Allurion Technologies Holdings, Inc.) entered into the Business Combination Agreement (as subsequently amended on May 2, 2023, the “Business Combination Agreement”) with Compute Health Acquisition Corp. (“CPUH” or "Compute Health"), Compute Health Corp. (“Merger Sub I”) and Compute Health LLC (“Merger Sub II” and, together with Merger Sub I, the “Merger Subs”). Pursuant to the Business Combination Agreement, on August 1, 2023 (the “Closing Date”), the Mergers (as defined below) were consummated in three steps: (a) Compute Health merged with and into Allurion (the “CPUH Merger”), with Allurion surviving the CPUH Merger as a publicly listed entity (the time at which the CPUH Merger became effective, the “CPUH Merger Effective Time”) and becoming the sole owner of the Merger Subs; (b) three hours following the consummation of the CPUH Merger, Merger Sub I merged with and into Legacy Allurion (the “Intermediate Merger” and the time at which the Intermediate Merger became effective, the “Intermediate Merger Effective Time”), with Legacy Allurion surviving the Intermediate Merger and becoming a direct, wholly-owned subsidiary of Allurion; and (c) thereafter, Legacy Allurion merged with and into Merger Sub II (the “Final Merger” and, collectively with the CPUH Merger and the Intermediate Merger, the “Mergers”, and together with all other transactions contemplated by the Business Combination Agreement, the “Business Combination”), with Merger Sub II surviving the Final Merger and remaining a direct, wholly-owned subsidiary of Allurion (the time at which the Final Merger became effective, the “Final Merger Effective Time”). Allurion shares began trading on the New York Stock Exchange ("NYSE") under the ticker symbol “ALUR” on August 2, 2023. Upon completion of the Business Combination, Legacy Allurion's business operations continued as our business operations.
The Business Combination was accounted for as a reverse capitalization in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Under this method of accounting, Compute Health, which was the legal acquirer, was treated as the “acquired” company for financial reporting purposes and Legacy Allurion was the accounting “acquirer”. Accordingly, the Business Combination was treated as the equivalent of our company issuing stock for the net assets of Compute Health, accompanied by a recapitalization. Our net assets and the net assets of Compute Health are stated at historical costs, with no goodwill or other intangible assets recorded. This determination is primarily based on the fact that, immediately following the Business Combination, Legacy Allurion stockholders had a majority of the voting power of Allurion, Legacy Allurion controlled the majority of the board seats of Allurion, and Legacy Allurion senior management comprised all of the senior management of Allurion. The equity structure has been restated in all comparative periods up to the Closing Date to reflect the number of shares of the Company's common stock, $0.0001 par value per share (“Allurion Common Stock” or the “Company’s Common Stock”), issued to Legacy Allurion stockholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and earnings per share related to Legacy Allurion's convertible preferred stock and Legacy Allurion common stock prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio of approximately 0.9780 (the "Exchange Ratio") established in the Business Combination. As a result of this retrospective application, certain prior period balances within the condensed consolidated financial statements have changed. Refer to Note 3, Business Combination in the notes to our unaudited interim condensed consolidated financial statements for further discussion regarding the closing of the Business Combination with Compute Health.
Note Purchase Agreement
On April 14, 2024, Allurion, RTW Investments, LP (“RTW”), as agent for the purchasers (the “Purchasers”) party thereto from time to time (RTW in such capacity, the “Principal Purchaser”), and Acquiom Agency Services LLC (“Acquiom”), as collateral agent for the Purchasers and the Principal Purchaser, entered into a Note Purchase Agreement (the “Original Note Purchase Agreement”). Subsequently, on April 16, 2024, the Company, the Principal Purchaser, the Purchasers and Acquiom entered into the First
32
Amendment to the Original Note Purchase Agreement (the “Amendment”; the Original Note Purchase Agreement, as amended by the Amendment, the “Amended Note Purchase Agreement”).
Pursuant to the Amended Note Purchase Agreement, the Company issued and sold $48 million aggregate principal amount of convertible senior secured notes (the “Notes”) to the Purchasers in a private placement transaction. The Company used the proceeds from the issuance of the Notes to refinance its outstanding obligations under the Fortress Credit Agreement in full and to pay fees and expenses in connection therewith and in connection with the transactions contemplated by the Amended Note Purchase Agreement. The Company has terminated and repaid in full the outstanding borrowings and other obligations under the Fortress Credit Agreement.
The Notes will bear interest at the annual rate of 6.0%, which interest is payable quarterly in cash or, at the Company’s option, in kind for the first three years. The maturity date for the Notes is April 16, 2031. The Notes are guaranteed by Allurion Technologies, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Allurion Opco”), and certain other current and future subsidiaries of the Company, and are secured by substantially all the assets of the Company and the guarantors.
The Notes are convertible into shares of the Company's Common Stock, at a Purchaser’s election at any time after the earliest of (i) the date on which Stockholder Approval (as defined below) is obtained, (ii) December 31, 2025, (iii) the date of a Fundamental Change Company Notice (as defined in the Amended Note Purchase Agreement), and (iv) the Make-Whole Fundamental Change Effective Date (as defined in the Amended Note Purchase Agreement), subject to certain terms and limitations in the Amended Note Purchase Agreement, based on the higher of (x) an initial conversion rate of 307.0797 shares of common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $3.26 per share, which represents a 35% premium to the trailing 30 day volume weighted average price (“VWAP”) of the Company's common stock on the New York Stock Exchange (the “NYSE”) as of the close of business on April 12, 2024) and (y) a 35% conversion premium to the lowest price per share in an equity financing for capital raising purposes ending on the date on which the Company has raised aggregate gross offering proceeds of at least $15,000,000 (the “Next Equity Financing”). Although the initial conversion price based on clause (x) above for the Notes is above the NYSE’s “Minimum Price” (as such term is defined in Section 312.03 of the NYSE Listed Company Manual), it is subject to a reset provision at the time of the Next Equity Financing that could result in the conversion price falling below such Minimum Price. Therefore, the Amended Note Purchase Agreement provides that unless and until requisite approval of the Company’s stockholders is obtained (“Stockholder Approval”), the Company will not deliver common stock upon conversion of the Notes in excess of 1% of the number of shares of the Company’s common stock outstanding as of April 14, 2024. The Company is required to include a proposal in its definitive proxy statement on Schedule 14A seeking Stockholder Approval no later than December 31, 2025. If the Company does not obtain Stockholder Approval at such meeting, it shall call a special meeting of stockholders each 90-day period thereafter at least two times, and thereafter at each subsequent annual meeting until Stockholder Approval is obtained or the Notes are no longer outstanding; provided, that shares of common stock issued upon conversion of the Notes prior to obtaining Stockholder Approval shall not be entitled to vote in favor of Stockholder Approval.
Amendment to Revenue Interest Financing Agreement
On April 14, 2024, the Revenue Interest Financing Agreement (the "Original RIFA") was amended pursuant to the Omnibus Amendment (the “RIFA Amendment”) by and among the Company, Allurion Opco, Allurion Australia Pty Ltd, a proprietary limited company organized under the laws of Australia and a wholly-owned subsidiary of the Company, the Original RIFA Investors (as defined therein) and RTW, to reflect certain modifications agreed between the parties thereto in connection with the Purchasers’ purchase of the Notes and the refinancing of the Fortress Credit Agreement. Among other things, the RIFA Amendment waived the existing event of default under the Original RIFA, increased the rate of revenue interest payments to be paid to RTW on all current and future products and digital solutions developed and to be developed by the Company (the “Royalty Rate”) for net sales under $100 million prior to December 31, 2026 from 6% to 12%, and increased the Royalty Rate on net sales less than $100 million on or after January 1, 2027 from 10% to 12%, subject to the terms and conditions of the RIFA Amendment.
Amendment to RTW Side Letter
On April 14, 2024, the Company, Allurion Opco and the Additional RIFA Investors entered into the First Amendment to Amended and Restated Letter Agreement (the “Side Letter Amendment”) to reflect certain modifications to the Existing Side Letter in connection with the Purchasers’ purchase of the Notes. The Side Letter Amendment provides, among other things, that the Additional RIFA Investors may make a single election in certain circumstances to convert up to $7,500,000 of the purchase price that the Additional RIFA Investors paid for certain equity interests in the Company into an amount of financing provided by the Additional RIFA Investors to Allurion Opco pursuant to an additional revenue interest financing agreement with Allurion Opco.
Termination of Fortress Term Loan
On April 16, 2024, the Company terminated and repaid in full, all outstanding borrowings and fees under the Fortress Credit Agreement, dated as of August 1, 2023 (as amended by the Fortress Amendment, dated as of December 29, 2023), by and among the Company, Allurion Opco, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto (the "Lenders" and each, a "Lender") and Fortress Credit Corp., as administrative agent for the Lenders, including the release of all guarantees and liens related thereto.
33
Key Factors Affecting Our Operating Results
We believe that our performance and future success depend on many factors that present significant opportunities but also pose risks and challenges, including those discussed below and in the “Risk Factors” section of our Annual Report on Form 10-K.
Operating Segments
We operate our business in a single segment and as one reporting unit, which is how our chief operating decision maker ("CODM"), our chief executive officer, reviews financial performance and allocates resources. The CODM reviews financial information presented on a regular basis at the consolidated level for purposes of allocating resources and evaluating financial performance. Since we operate as one operating segment, all required financial segment information can be found in the consolidated financial statements.
Components of Our Results of Operations
Revenue
We derive revenue from the sale of the Allurion Balloon to customers, which are either distributors or health care providers. The Allurion Balloon is the foundation of the Allurion Program, a holistic weight loss program that offers patients the opportunity to receive, and clinic and other health care providers the ability to deliver, behavior change assistance through their use of our remote patient support and monitoring tools.
Cost of Revenue
Cost of revenue consists primarily of costs that are closely correlated or directly related to the delivery of our products, including material costs, labor costs, and depreciation expense for fixed assets.
Operating Expenses
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of salaries and related expenses (including commissions) for our sales and marketing personnel. Marketing programs consist of advertising, training events, brand building, product marketing activities and shipping costs.
Research and Development Expenses
Our research and development expenses consist of costs associated with performing research and development activities such as registering our products in various jurisdictions and performing clinical trials. These costs include salaries and benefits, stock-based compensation, non-capitalizable software development costs, product development costs, materials and supplies, clinical trial activities, registration expenses, depreciation of equipment and other outside services.
34
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, information technology, finance and accounting, human resources and other administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional fees paid for accounting, auditing, consulting and tax services; insurance costs; travel expenses; office and information technology costs; and facilities, depreciation and other expenses related to general and administrative activities, which include direct or allocated expenses for rent and maintenance of facilities and utilities.
Other Income (Expense), Net
Interest Expense
Interest expense consists of interest expense associated with outstanding borrowings under our debt obligations as well as the amortization of debt issuance costs and discounts associated with such borrowings.
Change in Fair Value of Warrants
The change in fair value of warrants consists of the expense recognized upon the mark to market of our warrant liabilities.
Change in Fair Value of Revenue Interest Financing and PIPE Conversion Option
The change in fair value of Revenue Interest Financing and PIPE Conversion Option consists of the expense recognized upon the mark to market of the Revenue Interest Financing with RTW and the issuance and mark to market of the PIPE Conversion Option. See Note 10, Fair Value Measurements for further information.
Change in Fair Value of Earn-out Liabilities
The change in fair value of earn-out liabilities consists of the gain or loss recognized upon mark to market of the contingent earn-out consideration. See Note 10, Fair Value Measurements for further information.
Other Income (Expense), net
Other income (expense), net consists of interest earned on our invested cash balances, which primarily consist of deposit accounts and money market funds, foreign currency transaction gains and losses and expense associated with our Success Fee derivative liability and Fortress Term Loan derivative liability. See Note 10, Fair Value Measurements for further information.
Results of Operations
Comparison of the Three Months Ended March 31, 2024 and 2023 (unaudited)
The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
Revenue |
|
$ |
9,386 |
|
|
$ |
14,071 |
|
|
$ |
(4,685 |
) |
Cost of revenue |
|
|
2,520 |
|
|
|
2,940 |
|
|
|
(420 |
) |
Gross profit |
|
|
6,866 |
|
|
|
11,131 |
|
|
|
(4,265 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Sales and marketing |
|
|
6,145 |
|
|
|
11,864 |
|
|
|
(5,719 |
) |
Research and development |
|
|
5,725 |
|
|
|
7,852 |
|
|
|
(2,127 |
) |
General and administrative |
|
|
6,386 |
|
|
|
5,306 |
|
|
|
1,080 |
|
Total operating expenses: |
|
|
18,256 |
|
|
|
25,022 |
|
|
|
(6,766 |
) |
Loss from operations |
|
|
(11,390 |
) |
|
|
(13,891 |
) |
|
|
2,501 |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|||
Interest expense |
|
|
(1,931 |
) |
|
|
(2,237 |
) |
|
|
306 |
|
Changes in fair value of warrants |
|
|
3,131 |
|
|
|
(1,475 |
) |
|
|
4,606 |
|
Changes in fair value of Revenue Interest Financing and PIPE conversion option |
|
|
1,490 |
|
|
|
- |
|
|
|
1,490 |
|
Changes in fair value of earn-out liabilities |
|
|
14,190 |
|
|
|
- |
|
|
|
14,190 |
|
Other (expense) income, net |
|
|
172 |
|
|
|
(164 |
) |
|
|
336 |
|
Total other (expense) income: |
|
|
17,052 |
|
|
|
(3,876 |
) |
|
|
20,928 |
|
Income (loss) before income taxes: |
|
|
5,662 |
|
|
|
(17,767 |
) |
|
|
23,429 |
|
Provision for income taxes: |
|
|
(76 |
) |
|
|
(34 |
) |
|
|
(42 |
) |
Net income (loss) |
|
$ |
5,586 |
|
|
$ |
(17,801 |
) |
|
$ |
23,387 |
|
35
Revenue
Revenue decreased $4.7 million, or 33%, to $9.4 million for the three months ended March 31, 2024, compared to the same period in 2023. The decrease in revenue was primarily the result of decreased gastric balloon units sold due to lower re-order rates as distributors and certain accounts adjusted their inventory levels. The decrease in revenue was also attributable to selling less or no product to certain distributors and accounts to manage our credit risk.
Cost of Revenue
Cost of revenue decreased $0.4 million, or 14%, to $2.5 million for the three months ended March 31, 2024, compared to the same periods in 2023. The decrease in cost of revenue was a direct result of decreased gastric balloon units sold, partially offset by an increase in manufacturing expense, as less labor and overhead was absorbed due to lower production volumes.
Gross Profit
Gross profit decreased $4.3 million, or 38%, to $6.9 million for the three months ended March 31, 2024, compared to the same period in 2023. The decrease in gross profit was primarily the result of an increase in our manufacturing expense, as less labor and overhead was absorbed due to lower production volumes, as well as a decrease in revenue and sales volume of our gastric balloon system.
Operating Expenses
Sales and Marketing Expenses
Sales and marketing expenses decreased $5.7 million, or 48%, to $6.2 million for the three months ended March 31, 2024, compared to the same period in 2023. The decrease in sales and marketing expenses was the result of a $2.7 million decrease in marketing spend driven by a reorganization of our selling and marketing spend on more efficient channels and geographies, a $1.4 million decrease in shipping and logistics expenses driven by a decrease in sales during the comparable periods, a $0.5 million decrease in sales meetings, and a $0.5 million decrease in salaries, related benefits, and consulting costs.
Research and Development Expenses
Research and development expenses decreased $2.1 million, or 27%, to $5.7 million for the three months ended March 31, 2024, compared to the same period in 2023. The decrease in research and development expenses was primarily the result of a $1.3 million decrease in costs related to the AUDACITY clinical trial as it nears completion, a $0.7 million decrease attributable to salaries and related benefit costs due to lower headcount, and a $0.2 million decrease in outside consulting costs. We expect research and development expenses to decrease in 2024 as our AUDACITY trial nears completion.
General and Administrative Expenses
General and administrative expenses increased $1.1 million, or 20%, to $6.4 million for the three months ended March 31, 2024, compared to the same period in 2023. The increase in general and administrative expenses was primarily the result of a $0.9 million increase attributable to salaries, benefits, and related costs, a $0.7 million increase in legal and professional fees, a $0.3 million increase in insurance expense related to director and officer insurance, and a $0.2 million increase in stock-based compensation expense. These increases were partially offset by a $1.0 million decrease in bad debt expense.
Other expense (income)
Interest Expense
Interest expense decreased $0.3 million, or 14%, to $1.9 million for the three months ended March 31, 2024, compared to the same period in 2023. The decrease in interest expense was due to a reduction in principal of our Fortress Term Loan as compared to our 2021 Term Loan during the comparable period.
Change in Fair Value of Warrants
The $4.6 million gain attributable to the change in fair value of warrants for the three months ended March 31, 2024, compared to the same period in 2023, was due to mark to market fluctuations in our warrant liabilities due to the decline in value of our common stock during the period.
Change in Fair Value of Revenue Interest Financing and PIPE Conversion Option
The $1.5 million gain attributable to the change in fair value of Revenue Interest Financing and PIPE Conversion Option for the three months ended March 31, 2024 was primarily due to a $3.4 million gain related to the change in fair value in the Revenue Interest Financing from December 31, 2023 to March 31, 2024. This gain was partially offset by a $1.9 million loss in the change in fair value of the PIPE Conversion Option from December 31, 2023 to March 31, 2024 due to a decrease in the Company's stock price during the period.
36
Change in Fair Value of Earn-Out Liabilities
The $14.2 million gain attributable to the change in the fair value of earn-out liabilities for the three months ended March 31, 2024 was due to the decrease in the Company's stock price from December 31, 2023 to March 31, 2024.
Other (Expense) Income, Net
The change in Other (expense) income, net for the three months ended March 31, 2024 compared to the same period in 2023, was $0.3 million of income primarily driven by interest income of $0.5 million, partially offset by a $0.3 million loss related to fluctuations in exchange rates of foreign currencies.
Provision for Income Taxes
We recorded a provision for income taxes of $0.1 million and less than $0.1 million for the three months ended March 31, 2024 and 2023, respectively. These provisions for income taxes are due to net income in certain foreign jurisdictions.
Liquidity and Capital Resources
Since our inception, we have primarily obtained cash to fund our operations through the sale of Allurion preferred stock, issuance of term loans and issuance of convertible debt instruments. As of March 31, 2024, we had $29.7 million in cash and cash equivalents. We had net income of $5.6 million and incurred a net loss of $17.8 million for the three months ended March 31, 2024 and 2023, respectively. We incurred cash outflows from operating activities of $8.6 million and $10.3 million during the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $207.2 million. We expect to continue to generate significant operating losses for the foreseeable future.
Our future capital requirements will depend on many factors, including:
Our revenue for the three months ended March 31, 2024 was $9.4 million, which represented a quarter-over-quarter decrease of 33%. The decrease in revenue was primarily the result of lower re-order rates as distributors and certain accounts adjusted their inventory levels. The decrease in revenue was also attributable to selling less or no product to certain distributors and accounts to manage our credit risk. If our current cash and anticipated revenue and resulting cash flows from operations are insufficient to satisfy our liquidity requirements, due to increased expenditures, lower demand for our gastric balloon system, the occurrence of other events or the realization of the risks described in our Annual Report on Form 10-K, we may be required to raise additional capital through the issuances of public or private equity or debt financing or other capital sources earlier than expected.
Until such time as we can generate significant revenue to fund operations, we expect to use proceeds from the issuance of equity, debt financings, or other capital transactions to fund our operations and satisfy our liquidity requirements. We may be unable to increase our revenue, raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue our operations or the development and commercialization of one or more of our product candidates and other strategic initiatives. Based on our recurring losses from operations incurred since inception, the expectation of continuing operating losses for the foreseeable future, and the potential need to raise additional capital to finance its future operations and debt service payments, we have concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year from the date that the consolidated financial statements included in this Quarterly Report on Form 10-Q are issued.
Financing Arrangements
Note Purchase Agreement
On April 16, 2024, we received $48 million in gross proceeds from the Amended Note Purchase Agreement with RTW, which proceeds were used to repay all outstanding principal, accrued and unpaid interest and other obligations with respect to the Fortress Term Loan.
Chardan Purchase Agreement
On December 18, 2023, we entered into the Purchase Agreement with Chardan. Pursuant to the Purchase Agreement, we have the right from time to time at our option to sell to Chardan up to the lesser of (i) $100,000,000 in aggregate gross purchase price of newly issued shares of our Common Stock, and (ii) the Exchange Cap.
As of March 31, 2024, we have received $0.4 million in net proceeds from sales of shares of our Common Stock pursuant to the Purchase Agreement with Chardan.
37
Fortress Credit Agreement
On August 1, 2023, we received $57.6 million in net proceeds from the Fortress Credit Agreement that was to mature in June 2027. We entered into the Fortress Term Loan pursuant to the Fortress Credit Agreement on August 1, 2023 in connection with the closing of the Business Combination. In December 2023, we repaid $20.0 million of outstanding principal under the Fortress Term Loan. On April 16, 2024, we received $48 million in gross proceeds from the Amended Note Purchase Agreement with RTW, which proceeds were used to repay all outstanding principal, accrued and unpaid interest and other obligations with respect to the Fortress Term Loan. The Fortress Term Loan is included in current portion of term loan on our consolidated balance sheet as of March 31, 2024. See Note 8, Debt in the notes to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 included within this Quarterly Report on Form 10-Q for additional details regarding the Fortress Term Loan.
Revenue Interest Financing Agreement
On August 1, 2023, we received $40.0 million in proceeds from the Revenue Interest Financing Agreement with RTW, which matures in December 2030. We entered into the Revenue Interest Financing Agreement on February 9, 2023 and received the proceeds at the closing of the Business Combination. The Revenue Interest Financing Agreement is included in Revenue Interest Financing liability on our consolidated balance sheet as of March 31, 2024. On April 14, 2024, the Revenue Interest Financing Agreement was amended to, among other things, increase the rate of revenue interest payments to be paid to RTW. See Note 9, Revenue Interest Financing, Side Letter, and PIPE Conversion Option and Note 19, Subsequent Events in the notes to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 included within this Quarterly Report on Form 10-Q for additional details regarding the Revenue Interest Financing Agreement.
PIPE Investment
On August 1, 2023, we received $37.9 million proceeds from the PIPE Subscription Agreement for which the PIPE Investors received 5,386,695 shares of Allurion Common Stock at a price of $7.04 per share.
2021 Term Loan
On August 1, 2023, in connection with the closing of the Business Combination, we repaid all outstanding principal, accrued and unpaid interest and other obligations with respect to the 2021 Term Loan, which has been terminated. See Note 8, Debt in the notes to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 for additional details regarding the 2021 Term Loan.
Convertible Notes
On August 1, 2023, all outstanding Allurion Convertible Notes and related interest expense were converted into shares of Allurion Common Stock in connection with the closing of the Business Combination. As of March 31, 2024, there were no outstanding convertible notes. See Note 8, Debt in the notes to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 for additional details related to our convertible notes.
Material Cash Requirements for Known Contractual and Other Obligations
Leases
We have entered into various non-cancellable operating leases for our corporate office, manufacturing facilities, research and development labs, management office space and certain equipment. The leases have varying terms expiring between 2024 and 2028. See Note 16, Commitments and Contingencies of the notes to our unaudited interim condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 for additional details related to our noncancelable operating leases.
Term Loan and Financing Strategy
We had $43.1 million of outstanding debt under the Fortress Term Loan as of March 31, 2024. On April 16, 2024, we received $48 million in gross proceeds from the Amended Note Purchase Agreement with RTW, which proceeds were used to repay all outstanding principal, accrued and unpaid interest and other obligations with respect to the Fortress Term Loan.
Revenue Interest Financing
We received $40.0 million in proceeds from the Revenue Interest Financing Agreement with RTW on August 1, 2023. In exchange, we are obligated to remit to RTW certain revenue interest payments on all current and future products, digital solutions and services developed, imported, manufactured, marketed, offered for sale, promoted, sold, tested or otherwise distributed by Allurion and its subsidiaries at certain specified rates. On April 14, 2024, the Revenue Interest Financing Agreement was amended to, among other things, increase the rate of revenue interest payments to be paid to RTW for net sales under $100 million prior to December 31, 2026 from 6% to 12%, and increase the royalty rate on net sales less than $100 million on or after January 1, 2027 from 10% to 12%.
38
If RTW has not received aggregate revenue interest payments equal to at least 100% of the Investment Amount by December 31, 2027, we must make a cash payment in an amount sufficient to catch RTW up to 100% of the Investment Amount. If RTW has not received revenue interest payments equal to at least 240% of the Investment Amount by December 31, 2030, we must make a cash payment in an amount sufficient to catch RTW up to 240% of the Investment Amount.
Research and Development Costs
We are continuing to invest in our U.S. FDA AUDACITY clinical trial and have entered into contractual obligations with each clinical trial site. Each contract shall continue until the completion of the trial at that site, which is approximately 48 weeks from the start of each contract. Our clinical trial costs are dependent on, among other things, the size, number, and length of our clinical trial. We also incur research and development costs related to the enhancement of our existing products.
Other Capital Requirements
We enter into agreements in the normal course of business with various vendors, which are generally cancelable upon notice. Payments due upon cancellation typically consist only of payments for services provided or expenses incurred, including non-cancelable obligations of service providers, up to the date of cancellation.
Cash Flows
The following table sets forth a summary of cash flows for the periods presented:
|
|
Three Months Ended March 31, |
|
|||||
(In thousands) |
|
2024 |
|
|
2023 |
|
||
Net cash used in operating activities |
|
$ |
(8,636 |
) |
|
$ |
(10,318 |
) |
Net cash used in investing activities |
|
|
(104 |
) |
|
|
(277 |
) |
Net cash provided by financing activities |
|
|
387 |
|
|
|
12,866 |
|
Net increase (decrease) in cash and cash equivalents, and |
|
$ |
(8,353 |
) |
|
$ |
2,271 |
|
Net Cash Used in Operating Activities
Three Months Ended March 31, 2024 and 2023
During the three months ended March 31, 2024, net income of $5.6 million and net cash provided by changes in our operating assets and liabilities of $2.6 million was more than offset by non-cash income of $16.8 million, resulting in cash used from operating activities of $8.6 million.
Non-cash income consisted of $14.2 million of income related to the change in fair value of our earn-out liabilities, $3.1 million of mark to market adjustments related to our warrant liabilities, and $1.5 million of income related to the change in fair value of the Revenue Interest Financing and PIPE Conversion Option. This non-cash income was partially offset by $0.6 million of stock-based compensation expenses, $0.4 million of depreciation and amortization expense, $0.3 million of non-cash interest expense primarily related to the accretion of debt discount associated with our Fortress Term Loan, $0.3 million of unrealized loss on foreign exchange, a $0.2 million provision for inventory, and $0.2 million of non-cash lease expense.
Net cash provided by changes in our operating assets and liabilities consisted of a $1.7 million decrease in accounts receivable, a $0.3 million decrease in inventory, a $0.2 million decrease in prepaid expenses, other current and long-term assets, and a net $0.6 million increase in accounts payable, accrued expenses and other current liabilities.
The decrease in accounts receivable was the result of an increase in cash collections. The decrease in inventory was primarily related to a decrease in raw materials and work in progress. The decrease in prepaid expenses, other current and long-term assets was primarily related to a decrease in payroll deposits. The net increase in accounts payable, accrued expenses and other current liabilities was primarily related to timing of payments.
During the three months ended March 31, 2023, operating activities used $10.3 million of cash, resulting from a net loss of $17.8 million, partially offset by net cash provided by changes in our operating assets and liabilities of $3.9 million and non-cash charges of $3.6 million.
Non-cash charges consisted of $1.5 million of mark to market adjustments related to our warrant and derivative liabilities, a $1 million provision for uncollectible accounts, $0.5 million of depreciation and amortization expense, $0.4 million of stock-based compensation expense, and $0.3 million of non-cash interest expense primarily related to the accretion of debt discount associated with our outstanding debt arrangements.
39
Net cash provided by changes in our operating assets and liabilities consisted of a net $4.9 million increase in accounts payable, accrued expenses and other current liabilities, partially offset by a $0.4 million increase in inventory, and a $0.4 million increase in accounts receivable.
The net increase in accounts payable, accrued expenses and other current liabilities was primarily related to increased expenses as well as timing of payments. The increase in inventory was primarily related to an increase in finished goods and raw materials. The increase in accounts receivable was primarily related to growth in sales.
Net Cash Used in Investing Activities
Three Months Ended March 31, 2024 and 2023
During the three months ended March 31, 2024 and March 31, 2023, cash used in investing activities was $0.1 million and $0.3 million, respectively, consisting of purchases of property and equipment.
Net Cash Provided by Financing Activities
Three Months Ended March 31, 2024 and 2023
During the three months ended March 31, 2024, cash provided by financing activities was $0.4 million, consisting of $0.4 million of proceeds from our equity line financing.
During the three months ended March 31, 2023, cash provided by financing activities was $12.9 million, consisting of $13.6 million from the issuance of our 2023 Convertible Notes, net of issuance costs, partially offset by $0.8 million of payments of deferred financing costs.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements included in our Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
We account for revenue in accordance with Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606” or “ASC 606”). In accordance with ASC 606, we recognize revenue when control of our products is transferred to our customers in an amount that reflects the consideration we expect to receive in exchange for those products. Our revenue recognition process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the transaction price, allocating the transaction price to the distinct performance obligations in the contract, and recognizing revenue as performance obligations are satisfied.
Revenue is generated primarily from the sale of our gastric balloon system, which includes the Allurion Balloon and related accessories. We have provided customers purchasing the Allurion Balloon with an implied license for access to our Allurion VCS software. This implied software license was given to customers for no additional consideration and was not negotiated as part of the customer’s contracts. As such, it has been deemed an immaterial promise in the context of the contract, and we do not consider the license as a separate performance obligation. In the future, if and when Allurion VCS services are determined to be a performance obligation, we expect the associated consideration will be deferred and recognized over the license period.
We sell our products directly to customers through our direct sales personnel and indirectly through independent distributors. For distributor sales, we sell our products to our distributors, who subsequently resell the products to health care providers, among others. For direct sales, our products are sold directly to our customers, which are typically health care providers. Generally, customer contracts contain Free on Board or Ex-Works shipping point incoterms. We recognize revenue when the customer obtains control of our product, which typically occurs upon shipment, in return for agreed-upon, fixed-price consideration.
Additionally, from time to time, we offer certain incentives to our customers, which are recorded as a reduction of revenue in the period the related product revenue is recognized. Any discounts we offer are outlined in our customer agreements. Payments to the customer for a distinct good or service that reasonably estimates the fair value of the distinct benefit received, such as marketing programs and shipping and logistics services, are recorded as a selling and marketing expense.
40
Our payment terms are consistent with prevailing practice in the respective markets in which we do business, which are not affected by contingent events that could impact the transaction price. Our contracts with customers do not provide general rights of return unless certain product quality standards are not met.
Valuation of Earn-Out Liabilities
In connection with the Business Combination, holders of Legacy Allurion common stock and Legacy Allurion preferred stock and holders of vested options, warrants and restricted stock units exercisable or convertible into Legacy Allurion capital stock received the contingent right to receive additional shares of our Common Stock (the “Earn-Out Shares”) upon the achievement of certain earn-out targets. As the contingent earn-out consideration contains a settlement provision that precludes it from being indexed to our stock, it is classified as a liability under ASC 480, as defined in Note 2, Summary of Significant Accounting Policies. The fair value of contingent earn-out consideration is estimated as of the acquisition date at the present value of the expected contingent payments using a Monte Carlo Simulation Method ("MCSM"). The MCSM utilizes a combination of observable (Level 2) and unobservable (Level 3) inputs, which include the trading price and volatility of the underlying common stock, expected term, risk-free interest rates, and expected date of a qualifying event. The determination of the fair value of these financial instruments is complex and highly judgmental due to the significant estimation required. In particular, the fair value estimate is sensitive to certain assumptions, such as the volatility of underlying shares.
Changes in the estimated fair value of the contingent earn-out consideration are recorded in Other income (expense) in the condensed consolidated statements of operations and are reflected in the period in which they are identified. Changes in the estimated fair value of the continent earn-out consideration may materially impact or cause volatility in our operating results.
Valuation of Revenue Interest Financing and PIPE Conversion Option
In connection with the Business Combination, we entered into the Revenue Interest Financing Agreement with RTW, under which the Company received $40.0 million upfront. In exchange, we are obligated to remit to RTW certain revenue interest payments on all current and future products, digital solutions and services developed, imported, manufactured, marketed, offered for sale, promoted, sold, tested or otherwise distributed by Allurion and its subsidiaries until December 31, 2030. We account for the Revenue Interest Financing Agreement under the fair value option election of ASC 825. The Revenue Interest Financing Agreement accounted for under the fair value option (" FVO") election is a debt host financial instrument containing embedded features wherein the entire financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The fair value of the Revenue Interest Financing is calculated using a discounted cash flow method under the income approach utilizing future revenue projections and a discount rate. Changes in the estimated fair value of the Revenue Interest Financing Agreement are recorded as a component of Other income (expense) in the condensed consolidated statements of operations. A portion of the estimated change in fair value must be reported in other comprehensive loss to the extent that it is attributable to instrument-specific credit risk. As a result of electing the FVO, direct costs and fees related to the Revenue Interest Financing are expensed as incurred.
In connection with the Company entering in the Revenue Interest Financing, we and RTW entered into the RTW Side Letter under which RTW may elect to convert up to $7.5 million of its initial PIPE subscription into an additional revenue interest financing by forfeiting a number of shares of our common stock acquired by the RTW in its PIPE Investment (the "PIPE Conversion Option"). We account for the PIPE Conversion Option as a freestanding financial instrument that qualifies for derivative liability accounting in accordance with ASC 815, Derivatives and Hedging. The fair value of the PIPE Conversion Option is measured using a MCSM using a combination of observable (Level 2) and unobservable (Level 3) inputs, which include the number of shares convertible, the stock price of the underlying common stock, volatility, risk-free rates, and expected term. The PIPE Conversion Option is initially measured at its fair value within Other liabilities on the condensed consolidated balance sheets with corresponding recognition of expense at inception as there is no right received by the Company that meets the definition of an asset and the transaction did not involve a distribution or a dividend. Subsequent changes in fair value of the derivative liability are recognized as a gain or loss as a component of Other income (expense) in the condensed consolidated statements of operations.
Determination of Fair Value of Legacy Allurion Preferred Stock, Common Stock and Warrants
The estimated fair value of our Legacy Allurion shares has been determined by the Legacy Allurion board of directors, with input from management, considering the most recently available third-party valuations then available and the Legacy Allurion board of directors' assessment of additional objective and subjective factors that it believed were relevant. These factors included, but were not limited to:
41
The fair value of the underlying Legacy Allurion Preferred Stock, Common Stock, and warrants was determined by the Legacy Allurion board of directors until we were listed on the NYSE on August 2, 2023. The fair value of the Legacy Allurion shares is utilized in the determination of stock-based compensation expense, Common Stock warrant liability expense, preferred stock recorded at fair value and the convertible notes conversion price. The assumptions underlying these valuations represented management’s best estimates, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of the Legacy Allurion preferred stock issued in 2021 and Legacy Allurion Convertible Notes converted in 2021 could be materially different. Significantly different assumptions or estimates could also impact the fair value of the Legacy Allurion Stock Options and stock-based compensation and fair value of the Legacy Allurion warrants, but these have not been material to date.
Recent Accounting Pronouncements
See Note 2, Summary of Significant of Accounting Policies in the accompanying notes to the consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows.
Emerging Growth Company and Smaller Reporting Company
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K, which allows us to take advantage of certain exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of the shares of our Common Stock held by non-affiliates exceeds $250 million as of the prior June 30, and (ii) our annual revenue exceeded $100 million during such completed fiscal year or the market value of the shares of our Common Stock held by non-affiliates exceeds $700 million as of the prior June 30. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
42
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We had cash and cash equivalents totaling $29.7 million at March 31, 2024. Cash equivalents were invested primarily in money market funds. Our investment policy is focused on the preservation of capital and supporting our liquidity needs. Under our investment policy, we invest in highly rated securities, issued by the U.S. government or liquid money market funds. We do not invest in financial instruments for trading or speculative purposes, nor do we use leveraged financial instruments. We utilize external investment managers who adhere to the guidelines of our investment policy. A hypothetical 10% change in interest rates would not have a material impact on the value of our cash, cash equivalents, net loss or cash flows.
We have exposure to interest rate risk from our variable rate debt. We do not hedge our exposure to changes in interest rates. As of March 31, 2024, we had $43.1 million in variable rate debt outstanding with Fortress. Interest on our debt is payable monthly during the term of the loan and is calculated as 6.44% plus the greater of (i) the Wall Street Journal Prime Rate and (ii) 3.0% (14.94% as of March 31, 2024 in the aggregate). Changes in the Wall Street Journal Prime Rate may therefore affect our interest expense associated with the loan. A 10% change in interest rates would increase expense by approximately $0.4 million annually based on the amounts outstanding at March 31, 2024 and would not materially affect our results of operations.
Foreign Currency Exchange Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include transaction gains and losses associated with transactions denominated in currencies other than a location’s functional currency and the remeasurement of foreign currencies to our U.S. dollar reporting currency. As such, we have exposure to adverse changes in exchange rates associated with operating expenses of our foreign operations. Transaction gains or losses are included in other income (expense), net in the consolidated statements of operations, as incurred.
We believe that a 10% increase or decrease in current exchange rates between the U.S. dollar and our foreign currencies could have a material impact on our business, financial condition or results of operations. Our primary exposures related to foreign currency denominated sales and expenses are in Europe and we also have exposure in the Middle East and the Asia-Pacific region, and are monitoring potential developing exposure in the Latin American, Canadian and African markets.
To date, we have not engaged in any foreign currency hedging activities. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in foreign currency exchange rates. During the three months ended March 31, 2024, the effect of an immediate 10% adverse change in foreign exchange rates on foreign-denominated accounts would have had an impact of approximately 7% on revenues and 7% on expenses and would have impacted our net income by approximately 6%. During the three months ended March 31, 2023, the effect of an immediate 10% adverse change in foreign exchange rates on foreign-denominated accounts would have had an impact of approximately 6% on revenues and 2% on expenses and would have impacted our net loss by approximately 1%.
Item 4. Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2024 as a result of the material weaknesses in our internal control over financial reporting discussed below.
In connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2023 and 2022, we identified material weaknesses in our internal control over financial reporting that we are currently working to remediate, which relate to: (a) insufficient segregation of duties in the financial statement close process; (b) a lack of sufficient levels of staff with public company and technical accounting experience to maintain proper control activities and perform risk assessment and monitoring activities; and (c) insufficient information systems controls, including access and change management controls. We have concluded that these material weaknesses in our internal control over financial reporting occurred because we did not have the necessary business processes, personnel and related internal controls to operate in a manner to satisfy the accounting and financial reporting timeline requirements of a public company.
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We are focused on designing and implementing effective internal controls measures to improve our evaluation of disclosure controls and procedures, including internal control over financial reporting, and remediating the material weaknesses. In order to remediate these material weaknesses, we have taken and plan to take the following actions:
While significant progress has been made to enhance our internal control over financial reporting, we are still in the process of building and enhancing our processes, procedures, and controls. Additional time is required to complete the remediation of these material weaknesses and the assessment to ensure the sustainability of these remediation actions. We believe the above actions, when complete, will be effective in the remediation of the material weakness described above.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not currently a party to any material legal proceedings. Regardless of outcome, such proceedings or claims can have an adverse impact on the Company because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
Item 1A. Risk Factors.
Information regarding risk factors appears in Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 26, 2024 and subsequently amended on April 29, 2024 (the “Form 10-K”). There have been no material changes from the risk factors previously disclosed in such Form 10-K. In addition to the matters set forth herein, investors should review the risks factors and other information provided in the Form 10-K prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial conditions and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
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Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Unregistered Sales of Equity Securities, Use of Proceeds
On April 16, 2024, pursuant to the Amended Note Purchase Agreement, we issued and sold $48.0 million aggregate principal amount of convertible senior secured notes to the Purchasers, which proceeds were used to repay all outstanding principal, accrued and unpaid interest and other obligations with respect to the Fortress Term Loan (as defined above). The Notes are convertible into shares of our common stock based on the higher of (x) an initial conversion rate of 307.0797 shares of common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $3.26 per share, which represents a 35% premium to the trailing 30 day VWAP of the Company's common stock on the NYSE as of the close of business on April 12, 2024) and (y) a 35% conversion premium to the lowest price per share in an equity financing for capital raising purposes ending on the date of the Next Equity Financing. The maturity date for the Notes will be April 16, 2031. The Notes are guaranteed by Allurion Opco and certain other current and future subsidiaries of the Company, and are secured by substantially all the assets of Allurion and the guarantors. We used the proceeds from the issuance of the Notes to refinance its outstanding obligations under the Fortress Credit Agreement in full and to pay fees and expenses in connection therewith and in connection with the transactions contemplated by the Amended Note Purchase Agreement.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. The issuances of the Notes and shares described above were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed on the share certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.
Issuer Purchases of Equity Securities
Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None of our directors or “officers,” as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, adopted or terminated a Rule 10b5-1 trading plan or arrangement or a non-Rule 10b5-1 trading plan or arrangement, as defined in Item 408(c) of Regulation S-K, during the fiscal quarter covered by this report.
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Item 6. Exhibits.
The following list of exhibits includes exhibits submitted with this Quarterly Report of Form 10-Q as filed with the SEC and those incorporated by reference to other filings.
Exhibit Number |
|
Description |
Incorporated by Reference herein from - Form or Schedule |
File Number |
Exhibit |
Filed Date |
3.1 |
|
8-K |
001-41767 |
3.1 |
August 7, 2023 |
|
3.2 |
|
Bylaws of Allurion Technologies, Inc. (f/k/a Allurion Technologies Holdings, Inc.) |
8-K |
001-41767 |
3.2 |
August 7, 2023 |
4.1 |
|
8-K |
001-40001 |
4.1 |
February 9, 2021 |
|
4.2 |
|
8-K |
001-41767 |
4.2 |
August 7, 2023 |
|
4.3 |
|
8-K |
001-41767 |
4.3 |
August 7, 2023 |
|
10.1#+ |
|
8-K |
001-41767 |
10.1 |
April 17, 2024 |
|
10.2# |
|
8-K |
001-41767 |
10.2 |
April 17, 2024 |
|
10.3# |
|
8-K |
001-41767 |
10.3 |
April 17, 2024 |
|
10.4# |
|
8-K |
001-41767 |
10.4 |
April 17, 2024 |
|
31.1* |
|
|
|
|
|
|
31.2* |
|
|
|
|
|
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32.1** |
|
|
|
|
|
|
32.2** |
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
|
* Filed herewith.
** Furnished herewith
# Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish supplementally a copy of all omitted exhibits and schedules to the SEC upon its request.
+ Certain provisions or terms of this exhibit (including any exhibits or schedules thereto) have been omitted in accordance with Regulation S-K Item 601(b)(2). The Registrant agrees to furnish supplementally an unredacted copy of any such exhibit or schedule to the SEC upon its request.
48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Allurion Technologies, Inc. |
|
|
|
|
|
Date: May 14, 2024 |
|
By: |
/s/ Shantanu Gaur |
|
|
|
Shantanu Gaur |
|
|
|
Chief Executive Officer and President |
|
|
|
|
Date: May 14, 2024 |
|
By: |
/s/ Chris Geberth |
|
|
|
Chris Geberth |
|
|
|
Chief Financial Officer |
49
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Shantanu Gaur, certify that:
Date: May 14, 2024 |
|
By: |
/s/ Shantanu Gaur |
|
|
|
Shantanu Gaur |
|
|
|
Chief Executive Officer and President |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Christopher Geberth, certify that:
Date: May 14, 2024 |
|
By: |
/s/ Chris Geberth |
|
|
|
Chris Geberth |
|
|
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Allurion Technologies, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 14, 2024 |
|
By: |
/s/ Shantanu Gaur |
|
|
|
Shantanu Gaur |
|
|
|
Chief Executive Officer and President
|
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Allurion Technologies, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 14, 2024 |
|
By: |
/s/ Chris Geberth |
|
|
|
Chris Geberth |
|
|
|
Chief Financial Officer |