SEGMENT REPORTING

9 Months Ended

Sep. 30, 2024

Segment Reporting [Abstract]

SEGMENT REPORTING

NOTE 12 – SEGMENT REPORTING

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

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

Sanara Surgical

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

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

Tissue Health Plus

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

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

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

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

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

	Three Months Ended
	September 30,
	2024									2023
	Sanara Surgical			THP			Total			Sanara Surgical		THP			Total
Net revenue	$	21,671,599		$	-		$	21,671,599		$	16,024,948	$	-		$	16,024,948
Gross profit		19,679,612			-			19,679,612			14,273,599		-			14,273,599
Selling, general and administrative expenses		17,420,346			1,572,909			18,993,255			13,460,404		417,475			13,877,879
Research and development		783,840			575,690			1,359,530			225,886		760,568			986,454
Depreciation and amortization		696,888			406,966			1,103,854			590,563		407,111			997,674
Interest expense		927,577			-			927,577			188,294		-			188,294
Net income (loss)		(180,488	)		(2,702,564	)		(2,883,052	)		567,235		(1,662,184	)		(1,094,949	)
Segment EBITDA		2,563,521			(1,721,560	)		841,961			1,400,916		(1,134,124	)		266,792
Segment assets (at period end) (1)	$	67,037,973		$	21,507,503		$	88,545,476		$	45,715,495	$	28,155,654		$	73,871,149
Expenditures for long-lived assets	$	9,096		$	-		$	9,096		$	170,320	$	-		$	170,320

	Nine Months Ended
	September 30,
	2024									2023
	Sanara Surgical			THP			Total			Sanara Surgical		THP			Total
Net revenue	$	60,367,060		$	-		$	60,367,060		$	47,297,299	$	2,730		$	47,300,029
Gross profit (loss)		54,476,341			-			54,476,341			41,241,740		(6,235	)		41,235,505
Selling, general and administrative expenses		51,453,311			2,689,811			54,143,122			39,229,030		1,429,394			40,658,424
Research and development		1,945,263			1,346,216			3,291,479			669,849		2,811,057			3,480,906
Depreciation and amortization		2,093,797			1,220,984			3,314,781			1,359,180		1,221,063			2,580,243
Interest expense		1,839,259			-			1,839,259			188,300		-			188,300
Net income (loss)		(2,872,286	)		(5,339,011	)		(8,211,297	)		1,181,296		(5,358,754	)		(4,177,458	)
Segment EBITDA		5,095,670			(3,350,104	)		1,745,566			3,766,196		(4,087,858	)		(321,662	)
Segment assets (at period end) (1)	$	67,037,973		$	21,507,503		$	88,545,476		$	45,715,495	$	28,155,654		$	73,871,149
Expenditures for long-lived assets	$	133,676		$	-		$	133,676		$	210,970	$	-		$	210,970

(1) - Segment assets for 2023 represent assets as of December 31, 2023.

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

	Three Months Ended
	September 30,
	2024									2023
	Sanara Surgical			THP			Total			Sanara Surgical			THP			Total
Net Income (Loss)	$	(180,488	)	$	(2,702,564	)	$	(2,883,052	)	$	567,235		$	(1,662,184	)	$	(1,094,949	)
Adjustments:
Interest expense		927,577			-			927,577			188,294			-			188,294
Depreciation and amortization		696,888			406,966			1,103,854			590,563			407,111			997,674
Noncash share-based compensation		1,003,599			21,831			1,025,430			813,606			43,920			857,526
Change in fair value of earnout liabilities		-			147,000			147,000			(758,783	)		77,030			(681,753	)
Share of losses from equity method investment		31,448			-			31,448			-			-			-
Executive separation costs		59,685			-			59,685			-			-			-
Acquisition costs		24,812			405,207			430,019			-			-			-
Segment EBITDA	$	2,563,521		$	(1,721,560	)	$	841,961		$	1,400,916		$	(1,134,124	)	$	266,792

	Nine Months Ended
	September 30,
	2024									2023
	Sanara Surgical			THP			Total			Sanara Surgical			THP			Total
Net Income (Loss)	$	(2,872,286	)	$	(5,339,011	)	$	(8,211,297	)	$	1,181,296		$	(5,358,754	)	$	(4,177,458	)
Adjustments:
Interest expense		1,839,259			-			1,839,259			188,300			-			188,300
Depreciation and amortization		2,093,797			1,220,984			3,314,781			1,359,180			1,221,063			2,580,243
Noncash share-based compensation		2,803,536			108,031			2,911,567			2,423,335			158,828			2,582,163
Change in fair value of earnout liabilities		(14,451	)		82,000			67,549			(1,385,914	)		(108,996	)		(1,494,910	)
Share of losses from equity method investment		31,448			-			31,448			-			-			-
Executive separation costs (1)		964,466			-			964,466			-			-			-
Acquisition costs		249,901			577,892			827,793			-			-			-
Segment EBITDA	$	5,095,670		$	(3,350,104	)	$	1,745,566		$	3,766,196		$	(4,087,858	)	$	(321,662	)

(1) - Includes $328,795 of share-based compensation related to executive separation costs for the nine months ended September 30, 2024.