Cytosorbents Corporation (CTSO) Earnings Call Transcript & Summary

Thanks, John, and good afternoon to all of you. With me on today's call is Dr. Phillip Chan, our Chief Executive Officer. As we kick things off this evening, I'd like to remind everybody that our press release has been filed and is available with the SEC, but given the multiple delays that many of us have run into today, there apparently is a delay with the wire service, so hopefully we'll see it cross the wire very soon. On today's call, we'll go over our third quarter 2026 operating and financial results, including the key milestone highlighted in today's earnings release, the achievement of our first value driver, operating cash flow breakeven. Following that, we will provide an update on the value drivers we have left, covering among other things where things stand on the regulatory side for DrugSorb-ATR, and afterward we will open things up for a question-and-answer session. Before we start, I want to remind everyone that anything said on this call which is not a historical fact counts as a forward-looking statement, and the company claims protection under the Safe Harbor provisions for forward-looking statements found in the Private Securities Litigation Reform Act of 1995. This excerpt contains, among other things, claims regarding our plans, goals, upcoming targets and outlook, our capacity to keep operating cash flow at breakeven, what comes of our regulatory submissions, our capacity to stay in compliance with NASDAQ's continued listing requirements, and our capacity to finance the company, including extending, refinancing, or repaying our existing debt. Results that actually occur could differ materially from what these statements express or imply. To review the risks and uncertainties that might lead to such differences, we ask that you see the risk factors contained in our annual report on Form 10-K, which was filed with the SEC on March 30, 2026, as updated through our quarterly reports on Form 10-Q, including the 10-Q that we anticipate filing by Monday, November 16th. We assume no duty to revise any forward-looking statements unless the law requires it. On this call, we will also discuss several non-GAAP financial measures, among them EBITDA, adjusted EBITDA, adjusted net loss, and adjusted net loss per share. You can find tables bridging each of those metrics to the closest GAAP equivalent in the earnings press release posted under investor relations on our site. One more thing: all share figures and per-share figures account for the 1-for-20 reverse split that took effect on September 8th, 2026. With that said, Phil, over to you.

Thank you so much, Pete. One second, please. Well, I appreciate it, Pete, and good afternoon to all of you. Thanks for being with us. This quarter mattered a great deal for CytoSorbents, not only on account of the financial results but also for what those results reveal about the business we are constructing; we established a clear goal of hitting operating cash flow breakeven during the second half of 2026. I'm happy to say that we met that goal in the third quarter, when restructuring-related payments are excluded. On that basis, we produced roughly $43,000 in positive operating cash flow. Revenue came in at $9.7 million. Product gross margins hit 75%, which is 200 basis points higher than the prior quarter. Operating expenses fell 11% year-over-year, and our adjusted EBITDA loss shrank 86% to about $300,000. These results show disciplined execution across the past year, better manufacturing and sourcing, tighter cost controls, a leaner organization, and improved working capital management. What this means goes beyond this quarter. Each dollar of operating cash we eliminate lowers our future financing needs and lets more of the value created by future growth accrue to shareholders. Our strategy focuses on four distinct drivers of value creation. The first is achieving sustainable operating cash flow breakeven, and we have now reached that initial milestone. The second is restoring sustainable profitable growth in our core CytoSorb business. The third is opening the U.S. market through DrugSorb-ATR, and the fourth is unlocking the strategic value of HemoDefend-BGA. Each one offers a different opportunity to create value, so our future does not depend on any single commercial, regulatory, or strategic outcome. Now I will ask Pete to take you through the financial results, the drivers of our cash flow improvement, and then I'll come back to discuss the other three opportunities. Pete?

Thanks, Phil. I’ll focus my comments on the four factors that brought us to breakeven: gross margin, operating expenses, operating income, and adjusted EBITDA. First, third-quarter revenue was $9.7 million, up 3% from a year ago and 1% from the prior quarter, with an 18% increase in sales to distributors and strategic partners driving that result. Gross margin. The largest improvement in our P&L this quarter came from gross margin. Product gross margin was 75%, about 2 points better than the 73% we posted in the second quarter and 5 points better than 70% a year ago. It has improved sequentially in every quarter this year, beginning at 69% in the first quarter. On revenue growth of roughly $243,000, gross profit rose by about $662,000, or 10%, to $7.3 million, while cost of goods sold fell 15% to $2.4 million. These gains are structural. Over the past year, our manufacturing and operations teams streamlined production, improved sourcing for key materials, and created efficiencies throughout production, while aligning output with demand so inventory remains lean. We see these gains as sustainable, and we are targeting product gross margins consistently in the mid-70% range. Operating expenses were $8.5 million, down 11%, or roughly $1 million, from a year ago, and 12% lower, or about $1.2 million, than in the second quarter. Excluding $250,000 of restructuring charges, they fell 13% year-over-year. SG&A declined 18%- 7.1%, reflecting a full quarter of benefit from actions taken over the past year, including a headcount reduction of approximately 24%, a restructuring of our commercial organization, and tighter cost controls in every function. R&D was $1.1 million, up from $900,000 a year earlier, due to lower grant income this year and regulatory work on DrugSorb-ATR, though it was 21% below the second quarter. Operating loss and adjusted EBITDA. Higher gross profit combined with a lower cost base drove meaningful improvement in operating performance. Operating loss narrowed 59%, or about $1.7 million, to $1.2 million, compared with $2.9 million a year ago, and improved by roughly $1.5 million from $2.6 million in the second quarter. Adjusted EBITDA loss, which excludes non-cash foreign currency changes, non-cash stock compensation, and restructuring charges, improved 86% to approximately $284,000, versus $2 million a year ago and $1.6 million in the second quarter, and it has improved in every quarter this year. Adjusted EBITDA is the closest proxy for our underlying operating cash generation, and bringing it to near breakeven was essential to achieving operating cash flow breakeven this quarter. Net loss narrowed 42% to $1.8 million, or $0.58 per share, from $3.2 million, or $1.01 per share. Adjusted net loss, which excludes those same items, was $1.5 million, or $0.48 per share, compared with $2.6 million, or $0.83 per share last year. For the nine months ended September, revenue reached $28.2 million, up 1%. Gross margin rose to 73% from 71%. This progress was supported by $12.7 million in cash generation. Operating expenses came down 9% to $27.4 million, and our adjusted EBITDA loss improved 45% to $4 million. The operating loss improved 34%, going from the prior level to $6.9 million, which works out to a $3.5 million gain. What drove that was $800,000 more in gross profit along with cost cuts: $1.1 million in selling, travel, and marketing, $1 million in compensation, $800,000 in financial, legal, and consulting, and $200,000 in R&D. Partly offsetting those gains were $600,000 of restructuring charges. Our net loss was $11.4 million, or $3.62 per share, versus $2.7 million, which reflects an $11 million swing in non-cash foreign currency — a $1.9 million loss this year against a $9.1 million gain last year. As Phil mentioned, third-quarter operating cash flow was positive at about $43,000, excluding $251,000 of restructuring payments, compared with a burn of $200,000 in the second quarter and $2.7 million a year earlier. Total cash burn for the quarter, restructuring included, was $200,000, and we ended the quarter with $5.7 million in cash equivalents and restricted cash. Inventory fell to $3.2 million from $5.3 million at year-end, and cash used in operations year-to-date was $2 million versus $7.6 million last year — a 73% reduction. Having now reached operating cash flow break-even, we're focused on holding at or near that level while putting targeted growth investments to work, including rebuilding our German sales team and moving DrugSorb-ATR forward. That break-even path won't run in a straight line, and we don't expect positive results every quarter. Outcomes can move with the timing of orders, collections, and other working capital. Some quarters may show a modest burn, others a modest positive cash flow, and we'll update you on our progress each quarter. On top of that, we're working actively toward the remaining Nasdaq listing requirement and toward completing debt restructuring before this year ends; along the way, we're also watching a $12.7 million item closely. With that, I'll turn the call back to Phil. Phil?

Thank you, Pete. This marks the logical next stage in what we're doing strategically. The hard effort of tightening up our cost structure is behind us. What lies ahead is a chance to put money back selectively into growth, especially where our commercial footprint has been stretched thin on resources. Encouraging indicators are showing up through the majority of our operations. Sales via distributors and strategic partners rose 18% versus a year earlier, while direct international revenue excluding Germany was up 4%. Together those two channels made up 76% of third quarter sales. Germany, which supplies the other 24%, fell roughly 20%-21% compared with the prior year, mainly due to our cuts to the sales force and territory coverage made during restructuring rather than any view on our part that the market opportunity is gone; we are tackling that head-on. Two German sales representatives have already been brought on, another is expected next month, and two additional hires are planned by early 2027. We were also pleased recently to bring in Alex Tiefenbacher as Senior Vice President of Direct Sales. Alex comes with deep leadership experience in acute and critical care medical devices gained at C.R. Bard, Becton Dickinson, GE Healthcare, and Baxter. He will focus first on rebuilding commercial momentum in Germany while also tightening execution throughout our international direct sales organization. Meanwhile, our right patient at the right time with the right dose approach keeps gaining traction. Our PuriFi pump platform and HotSwap technology are built to simplify treatment delivery and encourage earlier, more consistent use of CytoSorb. The clinical evidence base keeps growing too, with presentations at the European Association for Cardio-Thoracic Surgery Conference covering blood thinner removal, postoperative shock, VA ECMO, and heart transplantation, plus findings from our COSMOS critical care registry presented at the European Society of Intensive Care Medicine LIVES 2026 Conference on sepsis, liver support, and VV ECMO. We believe renewed growth in Germany, sustained international momentum, and stronger clinical backing can combine with our leaner cost structure to generate profitable growth. Crucially, since our product gross margins remain healthy, we believe well-targeted sales investments can deliver meaningful operating leverage as revenue scales. DrugSorb-ATR, our investigational technology for removing blood thinners during urgent cardiac surgery, is our third value driver. The aim is to lower serious bleeding complications among patients who cannot safely wait for these drugs to clear. Pending regulatory authorization, we estimate an initial U.S. and Canadian addressable market of roughly $300 million at the outset, with potential expansion to $1 billion- $2 billion as additional blood thinner and surgical indications come in. Two separate potential pathways toward U.S. commercialization are being pursued. The first is built around BRILINTA, or generically ticagrelor. At the European Society of Cardiology Conference in August, an independent patient-matched analysis of 587 urgent bypass cardiac surgery patients reported a statistically significant 37% relative reduction in severe BARC- 4 bleeding with intraoperative CytoSorb use, and that was 21.8% compared to 34.5% serious bleeding in controls, with a P-value of 0.002. That works out to a number needed to treat of approximately eight patients to prevent one serious bleeding event. That analysis also showed less drainage from chest tubes and fewer red blood cell transfusions, with no serious adverse events tied to the device. This real-world analysis matters a great deal, since FDA had proposed exactly this analysis earlier during the appeal of our original De Novo submission, and it should serve as a central element for reinforcing the clinical efficacy of DrugSorb-ATR in a new De Novo submission. We anticipate that the new submission will raise by fivefold the count of patients treated with our technology, to roughly 250 in total, giving us a basis for strengthening the probable benefit to probable risk analysis, which underpins FDA De Novo marketing approvals. FDA had earlier observed no major safety concerns regarding our therapy for this indication, underscoring the low probable risk; these data, together with STAR-T results, safety data submitted previously, and further mechanistic and technical evidence, will serve as the foundation for our new De Novo submission. After a constructive FDA pre-submission meeting in August, we are collaborating with the agency to finalize an animal study protocol. At present we plan a new BRILINTA De Novo submission in early 2027, contingent on completing the necessary work and regulatory interactions. By statute, a decision from FDA is expected 150 days afterward, and it could come sooner given our Breakthrough Device Designation and priority review status. On a separate track, we are advancing a potential De Novo pathway for the direct oral anticoagulants Eliquis and Xarelto, for instance. We have talked through the evidence requirements with FDA and anticipate a separate submission in 2027; these represent two distinct regulatory opportunities, each supported by its own evidence and development strategy. DrugSorb-ATR is not yet cleared or approved in the United States or Canada, and regulatory outcomes remain uncertain, though we believe the expanded evidence package reflects meaningful progress. Our fourth value driver is HemoDefend-BGA, an asset of potentially significant strategic value that we believe our current commercial business economics do not fully capture. HemoDefend-BGA, as we noted last time, is a simple gravity-driven filtration technology built to remove anti-A and anti-B antibodies from plasma and platelet products, potentially enabling universal products that could be transfused to any patient no matter the recipient's blood type. It needs no electricity, capital equipment, or complex processing, which could ultimately simplify hospital blood bank inventories and cut waste and logistical complexity. Over the longer term, the technology could help make freeze-dried universal plasma available to first responders and military personnel without refrigeration or blood typing, an important potential advance in emergency hemorrhage care, and frequently described as the holy grail of plasma. The program has benefited from approximately $16 million of prior non-dilutive U.S. government funding, and we received constructive FDA feedback in July on our anticipated clinical development pathway; we are now exploring non-dilutive funding, commercial partnerships, licensing, and other strategic alternatives, aiming to unlock value without requiring substantial investment from our core operations. As we close, I want to come back to the broader significance of this quarter. We've made the business more efficient, cut cash consumption substantially, and hit a significant financial milestone. That leaves us with a sturdier operational base for pursuing growth and moving our pipeline forward. What's interesting about where we stand is how these four opportunities come together: a financial model that's more sustainable, a core franchise with space to regain momentum, a potential U.S. growth platform in DrugSorb-ATR, and a differentiated strategic asset in HemoDefend-BGA. These represent separate paths to value creation, not one all-or-nothing bet. To sum up our priorities: first, we reached operating cash flow breakeven in the third quarter, excluding restructuring payments, and we'll work to hold performance at or near that level. Second, we're selectively rebuilding commercial capacity to speed up growth, starting in Germany. Third, we're getting our expanded ticagrelor BRILINTA evidence package ready for a planned De Novo submission in early 2027 while moving a separate DOAC pathway ahead. Fourth, we're exploring strategic options for HemoDefend-BGA that could unlock value while placing limited demands on our operating resources. While we know there's more work to do and none of these steps are guaranteed, our improved fundamentals, disciplined capital allocation, and multiple potential catalysts all give us reasons for confidence. Our aim is to turn that progress into a stronger, more profitable, and more diversified medical technology company and into lasting value for shareholders. Thank you to our employees, clinicians, partners, and investors for your support, and we hope you have a very happy holiday season. With that, operator, we'd now like to take questions.

Yeah, operator, I Yeah, let's Oh, here we go. Mike?

Yeah. Hey, are you able to hear me?

Yes, we can hear you now. Thanks.

Oh, all right. My apologies for that. Thank you, Phil and Pete, for the information. I suppose to begin with, Phil, could you share how you're feeling and how confident you are about crossing the finish line in the U.S.? You mentioned something like a De Novo submission in early 2027, or at least that's what the press release says. I'd really like to hear how confident you are, and do you think, if we do get approval next year, that we could see some meaningful revenue from DrugSorb-ATR in the U.S. in 2027?

Yes, that's a great question. What we're seeing at present is that the De Novo approval standard requires the probable benefit to outweigh the probable risk. As most of our investors are aware, there was a problem with the original STAR-T trial, in which FDA asked for additional patient match data from our European STAR Registry to supplement our STAR-T results so as to demonstrate the clinical probable benefit of our device. At the same time, they have also observed that there are no major safety concerns with our device for this application. So we believe that, with this additional analysis that a third party has just made available, we have a substantial amount of clinical evidence showing that the probable benefit outweighs the probable risk. The one thing holding us up at the moment is this additional animal study to obtain further mechanistic data, which we are actively working on and hope to complete before we submit in early 2027. So let me hand it over to Dr. Makis Deliargyris, our Chief Medical Officer, for his thoughts. Makis?

Of course. Hi, Michael, and thanks for that question. To take your question in reverse order, you raised the opportunity in the U.S. market and whether it would be meaningful. Let me begin by noting that I've just come back from the TCT conference, where we had the chance to present some of our DOAC data. For the past couple of years, we've concentrated heavily on antithrombotic removal and our STAR-T data, but we now have a growing evidence base around DOAC removal in cardiac surgery. There was, once again, a great deal of enthusiasm. These are everyday problems in clinical practice that lack a solution. I'm not sure whether you know this, but under a year ago, the sole antidote available for these DOACs was in fact taken off the market by its manufacturer, because the FDA reached a negative benefit-risk conclusion on that product. The enthusiasm is enormous. As soon as clearance is granted to enter the U.S. market, regardless of which target drug appears on the label, the blood thinner removal opportunity is genuine, and clinicians, cardiac surgeons, and cardiologists truly want to be able to manage these patients they encounter every day. That said, we obviously still have to get past the FDA hurdle. Having two applications now clearly puts us, we believe, in a stronger position than before. Every application has its own particular features, since these agents differ in how they are pharmacologically constructed and in the profiles they show once given in clinical use. We're working through the specifics with a device group at FDA, and I can tell you that for them, too, there's a bit of a learning curve in grasping some of these pharmacological intricacies. It's a collaborative effort. We're making progress, obviously not as fast as we would like, but again, how we move this forward depends to a large degree on our colleagues at FDA; even so, we are gaining clarity. The more we talk, the more we align, the more we have a path forward, and we're making that progress with the aim of moving both applications ahead with submissions in 2027. I hope that helps.