ALLURION TECHNOLOGIES INC

Previous wording

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 and six months ended June 30, 2024 and June 30, 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,” “Risk Factors” in our Annual Report on Form 10-K and 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.

Current wording

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 and nine months ended September 30, 2024 and September 30, 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,” “Risk Factors” in our Annual Report on Form 10-K and 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.

Previous wording

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.

Current wording

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 and the last patient in the trial was treated in September 2024. The results of the trial are expected to support a premarket approval submission to the FDA.

Previous wording

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 $21.2 million and $27.0 million for the six months ended June 30, 2024 and 2023, respectively, and had net income of $3.4 million and incurred a net loss of $39.8 million for those same periods, respectively. We expect to continue to incur net losses for the foreseeable future as we focus on obtaining regulatory approvals for our products in new markets, reinstating regulatory approvals, refining our sales and marketing strategies, and continuing research and development efforts to further enhance our existing 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 additional funding for expenses related to our operating activities, including selling, marketing, general and administrative expenses and research and development expenses.

Current wording

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 $26.5 million and $45.2 million for the nine months ended September 30, 2024 and 2023, respectively, and incurred a net loss of $5.6 million and $61.4 million for those same periods, respectively. We expect to continue to incur net losses for the foreseeable future as we focus on obtaining regulatory approvals for our products in new markets, reinstating regulatory approvals, refining our sales and marketing strategies, and continuing research and development efforts to further enhance our existing 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 additional funding for expenses related to our operating activities, including selling, marketing, general and administrative expenses and research and development expenses.

Previous wording

Because of the numerous risks and uncertainties associated with obtaining and maintaining 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.

Current wording

Because of the numerous risks and uncertainties associated with obtaining and maintaining regulatory approval, market acceptance of our products, 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.

Previous wording

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.

Current wording

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”). Shares of Allurion's Common Stock (defined below) 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.

Previous wording

On April 14, 2024, we, 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.

Current wording

On April 14, 2024, we, Allurion Opco, Compute Health, Merger Sub II, RTW Master Fund, Ltd., RTW Innovation Master Fund, Ltd. and RTW Biotech Opportunities Operating Ltd. (as transferee from RTW Biotech Opportunities Ltd. (formerly known as RTW Venture Fund Limited)) (in each case, together with their successors and permitted assigns, 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 Amended and Restated RTW 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.

Previous wording

On April 16, 2024, we 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.

Current wording

On April 16, 2024, we 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"

Previous wording

On June 28, 2024, we entered into an underwriting agreement (the "Underwriting Agreement") with Jefferies LLC and TD Securities (USA) LLC, as representative of the several underwriters (the "Underwriters"), pursuant to which we agreed to issue and sell 14,406,508 shares of the Company's Common Stock and warrants ("Public Offering Warrants") to purchase up to 14,406,508 shares of the Company's Common Stock, at an offering price of $1.20 per share and accompanying warrant (the "Public Offering"). Pursuant to the Underwriting Agreement, we also granted the Underwriters an option exercisable for 30 days to purchase up to an additional 2,160,976 shares of Common Stock and/or 2,160,976 Public Offering Warrants at the public offering price. On July 1, 2024, the Underwriters exercised the option with respect to the Public Offering Warrants in full, which resulted in the issuance of an additional 2,160,976 Public Offering Warrants at the closing. The Public Offering closed on July 1, 2024. Gross proceeds from the Public Offering were $17.3 million, before deducting the Underwriters' discounts and commissions and estimated offering expenses payable by the Company. The Underwriters exercised a portion of the option on July 5, 2024 for total gross proceeds of $2.3 million, which resulted in the issuance of 1,927,265 shares of the Company's Common Stock at an offering price of $1.20 per share.

Current wording

On June 28, 2024, the Company entered into an underwriting agreement (the "Underwriting Agreement") with Jefferies LLC and TD Securities (USA) LLC, as representative of the several underwriters (the "Underwriters"), pursuant to which the Company agreed to issue and sell 14,406,508 shares of the Company's Common Stock and warrants ("Public Offering Warrants") to purchase up to 14,406,508 shares of the Company's Common Stock at an offering price of $1.20 per share and accompanying warrant (the "Public Offering"). Pursuant to the Underwriting Agreement, the Company also granted the Underwriters an option exercisable for 30 days to purchase up to an additional 2,160,976 shares of Common Stock (the "Share Overallotment") and/or 2,160,976 Public Offering Warrants at the public offering price. The Public Offering closed on July 1, 2024 with net proceeds received of $15.2 million after deducting underwriting discounts of $1.0 million and offering costs of $1.0 million. Additionally, on July 1, 2024, the Underwriters exercised the option with respect to the Public Offering Warrants in full, which resulted in the issuance of an additional 2,160,976 Public Offering Warrants at the closing. Further, the Underwriters exercised a portion of the option with respect to the Common Stock on July 5, 2024 for net proceeds of $2.2 million, which resulted in the issuance of 1,927,265 shares of the Company's Common Stock at an offering price of $1.20 per share.

Previous wording

On June 28, 2024, we entered into a subscription agreement (the "Subscription Agreement") with funds affiliated with RTW, pursuant to which the Company agreed to sell to RTW 2,260,159 shares of a newly created series of preferred stock, Series A non-voting convertible preferred stock, par value $0.0001 per share ("Series A Preferred Stock"), and 2,260,159 private placement warrants ("Private Placement Warrants") to purchase Common Stock, for an aggregate purchase price of approximately $2.7 million at a purchase price per share of Series A Preferred Stock and accompanying Private Placement Warrant equal to the per share Public Offering price for the shares of Common Stock and Public Offering Warrants in the Public Offering (the "Private Placement"). The Private Placement closed on July 1, 2024 with total gross proceeds received from RTW of $2.7 million.

Current wording

On June 28, 2024, the Company entered into a subscription agreement (the "Subscription Agreement") with RTW, pursuant to which the Company agreed to sell to RTW 2,260,159 shares of a newly created series of preferred stock, the Series A non-voting convertible preferred stock, par value $0.0001 per share ("Series A Preferred Stock"), and 2,260,159 private placement warrants ("Private Placement Warrants") to purchase Common Stock, equal to the per share Public Offering price for the shares of Common Stock and Public Offering Warrants in the Public Offering (the "Private Placement"). The Private Placement closed on July 1, 2024 with net proceeds received of $2.5 million after deducting offering costs of $0.2 million.

Previous wording

On August 6, 2024, it was announced that the Agence Nationale de Sécurité du Médicament (“ANSM”), the French regulatory authority, has suspended sales of the Allurion Balloon in France, and the Company is withdrawing the device from the French market, pending implementation of a remediation plan to reduce certain risks associated with the advertising, follow-up program, and adverse events for the Allurion Balloon.

Current wording

On August 6, 2024, it was announced that the Agence Nationale de Sécurité du Médicament (“ANSM”), the French regulatory authority, has suspended sales of the Allurion Balloon in France, and the Company withdrew the device from the French market., The Company submitted and has implemented a remediation plan to reduce certain risks associated with the advertising, follow-up program, and adverse events for the Allurion Balloon.

Previous wording

Although the Company disagrees with ANSM’s decision, it is fully cooperating and in active dialogue with the agency in developing a remediation program prioritizing changes related to its advertising strategy, follow-up program and training programs to address ANSM’s concerns. The Company is committed to continuing its engagement with ANSM to identify a path that will enable the Company to resume the commercialization of the Allurion Balloon in France.

Current wording

Although the Company disagrees with ANSM’s decision, it is fully cooperating and in active dialogue with the agency regarding the Company's remediation program prioritizing changes related to its advertising strategy, follow-up program and training programs to address ANSM’s concerns. The Company is committed to continuing its engagement with ANSM to identify a path that will enable the Company to resume the commercialization of the Allurion Balloon in France.

Previous wording

The loss on extinguishment of debt consists of the loss recognized upon the termination of our Fortress Term Loan.

Current wording

The loss on extinguishment of debt consists of the loss recognized upon the termination of our 2021 Term Loan and Fortress Term Loan.

Previous wording

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.

Current wording

Other income, 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.

Previous wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)

Current wording

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)

Previous wording

The following table summarizes our results of operations for the three and six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table summarizes our results of operations for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

Revenue decreased $1.2 million, or 9%, to $11.8 million and decreased $5.8 million, or 22%, to $21.2 million for the three and six months ended June 30, 2024, respectively, 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.

Current wording

Revenue decreased $12.8 million, or 71%, to $5.4 million and decreased $18.7 million, or 41%, to $26.5 million for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The decrease in revenue was primarily the result of decreased gastric balloon units sold due to macroeconomic headwinds in certain markets leading to lower re-order rates as distributors and certain accounts adjusted their inventory levels. Additionally, in August 2024, ANSM suspended sales of the Allurion balloon in France, resulting in a $1.2 million reduction to revenue for customer returns of the Allurion Balloon. The decrease in revenue was also attributable to selling less or no product to certain distributors and accounts to manage our credit risk.

Previous wording

Cost of revenue decreased $0.2 million, or 7%, to $2.8 million for the three months ended June 30, 2024, and decreased $0.6 million, or 11%, to $5.3 million for the six months ended June 30, 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.

Current wording

Cost of revenue decreased $2.0 million, or 47%, to $2.3 million for the three months ended September 30, 2024, and decreased $2.6 million, or 26%, to $7.5 million for the nine months ended September 30, 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.

Previous wording

Gross profit decreased $1.0 million, or 10%, to $9.0 for the three months ended June 30, 2024, and decreased $5.2 million, or 25%, to $15.9 million for the six months ended June 30, 2024 compared to the same periods 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.

Current wording

Gross profit decreased $10.9 million, or 78%, to $3.1 million for the three months ended September 30, 2024, and decreased $16.1 million, or 46%, to $19.0 million for the nine months ended September 30, 2024 compared to the same periods 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. Additionally, in August 2024, ANSM suspended sales of the Allurion balloon in France, resulting in a $1.2 million reduction to revenue for customer returns of the Allurion Balloon.

Previous wording

Sales and marketing expenses decreased $3.6 million, or 35%, to $6.7 million for the three months ended June 30, 2024, compared to the same period in 2023. The decrease in sales and marketing expenses was the result of a $2.2 million decrease in marketing spend driven by a reorganization of our selling and marketing spend focusing on more efficient channels and geographies, a $1.1 million decrease in salaries, related benefits, and consulting costs, a $0.1 million decrease in travel expenses, and a $0.1 million decrease in shipping and logistics expenses.

Current wording

Sales and marketing expenses decreased $8.8 million, or 63%, to $5.2 million for the three months ended September 30, 2024, compared to the same period in 2023. The decrease in sales and marketing expenses was the result of a $5.3 million decrease in marketing expenditures driven by a reorganization of our selling and marketing spend focusing on more efficient channels and geographies, a $1.9 million decrease in shipping and logistics expenses, a $1.3 million decrease in salaries and related benefits, a $0.2 million decrease in meeting expenses, and a $0.1 million decrease in travel expenses.

Previous wording

Sales and marketing expenses decreased $9.3 million, or 42%, to $12.8 million for the six months ended June 30, 2024, as compared to the same period in 2023. The decrease in sales and marketing expenses was the result of a $4.6 million decrease in marketing spend, a $1.6 million decrease in salaries, related benefits, and consulting costs, a $1.5 million decrease in shipping and logistics expenses, a $0.8 million decrease in meeting expenses, and a $0.5 million decrease in travel expenses.

Current wording

Sales and marketing expenses decreased $18.1 million, or 50%, to $18.0 million for the nine months ended September 30, 2024, as compared to the same period in 2023. The decrease in sales and marketing expenses was the result of a $9.8 million decrease in marketing spend, a $3.4 million decrease in shipping and logistics expenses, a $2.8 million decrease in salaries, related benefits, and consulting costs, a $1.1 million decrease in meeting expenses, and a $0.6 million decrease in travel expenses.

Previous wording

Research and development expenses decreased $2.3 million, or 35%, to $4.3 million for the three months ended June 30, 2024, compared to the same period in 2023. The decrease in research and development expenses was primarily the result of a $1.1 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 $0.3 million decrease in outside consulting costs.

Current wording

Research and development expenses decreased $4.0 million, or 55%, to $3.2 million for the three months ended September 30, 2024, compared to the same period in 2023. The decrease in research and development expenses was primarily the result of a $2.4 million decrease in costs related to the AUDACITY clinical trial as it nears completion, a $1.0 million decrease attributable to salaries and related benefit costs due to lower headcount, and a $0.4 million decrease in outside consulting costs.

Previous wording

Research and development expenses decreased $4.4 million, or 30%, to $10.0 million for the six months ended June 30, 2024, compared to the same period in 2023. The decrease in research and development expenses was primarily the result of a $2.4 million decrease in costs related to the AUDACITY clinical trial as it nears completion, a $1.4 million decrease attributable to salaries and related benefit costs due to lower headcount, and a $0.5 million decrease in outside consulting costs. We expect research and development expenses to continue to decrease in 2024 as our AUDACITY trial progresses toward completion.

Current wording

Research and development expenses decreased $8.4 million, or 39%, to $13.2 million for the nine months ended September 30, 2024, compared to the same period in 2023. The decrease in research and development expenses was primarily the result of a $4.8 million decrease in costs related to the AUDACITY clinical trial as it nears completion, a $2.4 million decrease attributable to salaries and related benefit costs due to lower headcount, and a $0.9 million decrease in outside consulting costs. We expect research and development expenses to continue to decrease in 2024 as our AUDACITY trial progresses toward completion.

Previous wording

General and administrative expenses increased $0.9 million, or 14%, to $7.3 million for the three months ended June 30, 2024, compared to the same period in 2023. The increase in general and administrative expenses was primarily the result of a $1.8 million increase in legal and professional fees, inclusive of $1.4 million in one-time legal fees in connection with the Amended Note Purchase Agreement with RTW, a $0.4 million increase in stock based compensation, a $0.3 million increase attributable to salaries, benefits and related costs, and a $0.2 million increase in insurance expense related to director and officer insurance. These increases were partially offset by a $1.9 million decrease in bad debt expense.

Current wording

General and administrative expenses decreased $11.9 million, or 63%, to $7.0 million for the three months ended September 30, 2024, compared to the same period in 2023. The decrease in general and administrative expenses was primarily the result of a $4.6 million decrease in stock based compensation as the prior period consisted of a $4.9 million one-time charge as a result of the Business Combination, a $3.4 million decrease in insurance expense as the prior period consisted of a $3.6 million one-time insurance charge related to the Business Combination, a $1.8 million decrease attributable to salaries, benefits, and related costs, a $1.0 million decrease in bad debt expense, and a $0.8 million decrease in legal and professional fees, primarily driven by $1.2 million in one-time charges in the prior period related to the Business Combination.

Previous wording

General and administrative expenses increased $2.0 million, or 17%, to $13.7 million for the six months ended June 30, 2024, compared to the same period in 2024. The increase in general and administrative expenses was primarily the result of a $2.6 million increase in legal and professional fees, inclusive of $1.4 million in one-time legal fees in connection with the Amended Note Purchase Agreement with RTW, a $1.2 million increase attributable to salaries, benefits, and related costs, a $0.6 million increase in stock based compensation expense, and a $0.5 million increase in insurance expense related to director and officer insurance. These increases were partially offset by a $2.9 million decrease in bad debt expense.

Current wording

General and administrative expenses decreased $9.9 million, or 32%, to $20.7 million for the nine months ended September 30, 2024, compared to the same period in 2023. The decrease in general and administrative expenses was primarily the result of a $4.1 million decrease in stock based compensation as the prior period consisted of a $4.9 million one-time charge as a result of the Business Combination, a $3.9 million decrease in bad debt expense, a $2.9 million decrease in insurance expense as the prior period consisted of a $3.6 million one-time insurance charge related to the Business Combination, partially offset by an increase in director and officer insurance in the current year, and a $0.6 million decrease attributable to salaries, benefits, and related costs. These decreases were partially offset by $1.7 million of legal and professional fees, driven by $1.4 million of one-time legal fees in connection with the Amended Note Purchase Agreement with RTW and $0.9 million of offering costs expensed as part of the Public Offering and Private Placement in July 2024.

Previous wording

Interest expense decreased $2.2 million, or 86%, to $0.3 million for the three months ended June 30, 2024 and $2.5 million, or 52%, to $2.3 million for the six months ended June 30, 2024, compared to the same periods in 2023. The decrease in interest expense was due the termination of our Fortress Term Loan in April 2024, as well as a reduction in principal of our Fortress Term Loan as compared to our 2021 Term Loan during the comparable six month period.

Current wording

Interest expense decreased $2.6 million, or 100%, to zero for the three months ended September 30, 2024 and $5.1 million, or 69%, to $2.3 million for the nine months ended September 30, 2024, compared to the same periods in 2023. The decrease in interest expense was due the termination of our Fortress Term Loan in April 2024, as well as a reduction in principal of our Fortress Term Loan as compared to our 2021 Term Loan during the comparable nine month period.

Previous wording

The $1.6 million gain and $6.2 million gain attributable to the change in fair value of warrants for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023, were due to mark to market fluctuations in our warrant liabilities due to the decline in value of our Common Stock during the periods.

Current wording

The $9.7 million gain and $14.2 million gain attributable to the change in fair value of warrants for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, were due to mark to market fluctuations in our warrant liabilities due to the decline in value of our Common Stock during the periods, as well as the issuance of the Public Offering Warrants and Private Placement Warrants on July 1, 2024, for which there were no comparable mark to market fluctuations in the prior period.

Previous wording

The $6.0 million gain attributable to the change in fair value of debt for each of the three and six months ended June 30, 2024, compared to the same periods in 2023, was due to mark to market fluctuations in our convertible debt.

Current wording

The $1.8 million and $10.0 million gain attributable to the change in fair value of debt for each of the three and nine months ended September 30, 2024, compared to the same periods in 2023, was due to mark to market fluctuations in our convertible debt.

Previous wording

The less than $0.1 million gain attributable to the change in fair value of the Revenue Interest Financing and PIPE Conversion Option for the three months ended June 30, 2024, compared to the same period in 2023, was primarily due to a $2.1 million gain related to the change in fair value in the PIPE Conversion Option due to a decrease in the Company's stock price from March 31, 2024 to June 30, 2024, offset by a $2.1 million loss in the change in fair value of the Revenue Interest Financing. The $1.5 million gain attributable to the change in fair value of Revenue Interest Financing and PIPE Conversion Option for the six months ended June 30, 2024, compared to the same period in 2023 was primarily due to a $1.3 million gain related to the change in fair value in the Revenue Interest Financing from December 31, 2023 to June 30, 2024 and a $0.2 million gain in the change in fair value of the PIPE Conversion Option from December 31, 2023 to June 30, 2024.

Current wording

The $11.1 million loss attributable to the change in fair value of the Revenue Interest Financing and PIPE Conversion Option for the three months ended September 30, 2024, compared to the same period in 2023, was primarily due to a $6.7 million loss related to the change in fair value of the Revenue Interest Financing and a $4.4 million loss on PIPE Conversion Option primarily driven by a decrease in the discount rate. The $9.6 million loss attributable to the change in fair value of the Revenue Interest Financing and PIPE Conversion Option for the nine months ended September 30, 2024, compared to the same period in 2023, was primarily due to a $5.4 million loss related to the change in fair value in the Revenue Interest Financing from December 31, 2023 to September 30, 2024 and a $4.3 million loss in the change in fair value of the PIPE Conversion Option from December 31, 2023 to September 30, 2024.

Previous wording

The $5.7 million gain attributable to the change in the fair value of earn-out liabilities for the three months ended June 30, 2024 and the $19.9 million gain attributable to the change in the fair value of the earn-out liabilities for the six months ended June 30, 2024 were due to the decrease in the Company's stock price from December 31, 2023 to June 30, 2024.

Current wording

The $2.3 million gain attributable to the change in the fair value of earn-out liabilities for the three months ended September 30, 2024 and the $22.1 million gain attributable to the change in the fair value of the earn-out liabilities for the nine months ended September 30, 2024 were due to the decrease in the Company's stock price from December 31, 2023 to September 30, 2024.

Previous wording

The change in Other income (expense), net for the three months ended June 30, 2024 compared to the same period in 2023 was a gain of $1.1 million primarily driven by a $2.0 million gain related to the write-off of the term loan derivative liability to zero in connection with the termination of the Fortress Term Loan, partially offset by a $1.1 million loss related to the Amended Note Purchase Agreement. The change in Other income (expense), net for the six months ended June 30, 2024 compared to the same period in 2023, was a gain of $1.4 million driven by a $2.0 million gain related to the write-off of the term loan derivative liability to zero and $0.8 million of interest income, partially offset by a $1.1 million loss related to the Amended Note Purchase Agreement and a $0.4 loss related to fluctuations in exchange rates of foreign currencies.

Current wording

The change in Other income, net for the three months ended September 30, 2024 compared to the same period in 2023 was a gain of $0.4 million attributable to a $0.4 million gain related to fluctuations in exchange rates of foreign currencies. The change in Other income, net for the nine months ended September 30, 2024 compared to the same period in 2023 was a gain of $1.8 million, primarily driven by the $2.1 million write-off of the term loan derivative liability to zero in connection with the termination of the Fortress Term Loan and a $1.1 million gain in interest income, partially offset by a $1.1 million loss related to the Amended Note Purchase Agreement.

Previous wording

We recorded a provision for income taxes of $0.1 million for the three and six months ended June 30, 2024. These provisions for income taxes are due to net income in certain foreign jurisdictions.

Current wording

We recorded a provision for income taxes of $0.1 million and $0.2 million for the three and nine months ended September 30, 2024, respectively. These provisions for income taxes are due to net income in certain foreign jurisdictions.

Previous wording

Since our inception, we have primarily obtained cash to fund our operations through the sale of Allurion preferred stock and common stock, issuance of term loans, royalty arrangements, and issuance of convertible debt instruments. As of June 30, 2024, we had $19.3 million in cash and cash equivalents. We had net income of $3.4 million and incurred a loss of $39.8 million for the six months ended June 30, 2024 and 2023, respectively. We incurred cash outflows from operating activities of $17.6 million and $20.0 million during the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $209.4 million. We expect to continue to generate significant operating losses for the foreseeable future.

Current wording

Since our inception, we have primarily obtained cash to fund our operations through the sale of Allurion preferred stock and common stock, issuance of term loans, royalty arrangements, and issuance of convertible debt instruments. As of September 30, 2024, we had $28.7 million in cash and cash equivalents. We incurred a net loss of $5.6 million and $61.4 million for the nine months ended September 30, 2024 and 2023, respectively. We incurred cash outflows from operating activities of $29.0 million and $43.1 million during the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $218.4 million. We expect to continue to generate significant operating losses for the foreseeable future.

Previous wording

Our revenue for the six months ended June 30, 2024 was $21.2 million, which represented a quarter-over-quarter decrease of 22%. 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 or sales of our gastric balloon system, the occurrence of other events or the realization of the risks described in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K under the heading "Risk Factors," 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.

Current wording

Our revenue for the nine months ended September 30, 2024 was $26.5 million, which represented a quarter-over-quarter decrease of 41%. 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. Additionally, in August 2024, ANSM suspended sales of the Allurion balloon in France, resulting in a reduction to revenue for customer returns of the Allurion Balloon. 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 or sales of our gastric balloon system, the occurrence of other events or the realization of the risks described in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K under the heading "Risk Factors," 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.

Previous wording

On July 1, 2024, we received $17.3 million in gross proceeds from issuance of 14,406,508 shares of Common Stock and 16,567,484 Public Offering Warrants and $2.7 million in gross proceeds from the sale and issuance of 2,260,159 shares of Series A Preferred Stock, and 2,260,159 Private Placement Warrants in the Private Placement, in each case at an offering price of $1.20 per share and accompanying warrant. On July 5, 2024, the Underwriters partially exercised their option to purchase an additional 1,927,265 shares of Common Stock for additional gross proceeds of $2.3 million.

Current wording

On July 1, 2024, we received $15.2 million in net proceeds from the issuance of 14,406,508 shares of Common Stock and 16,567,484 Public Offering Warrants and $2.5 million in net proceeds from the sale and issuance of 2,260,159 shares of Series A Preferred Stock and 2,260,159 Private Placement Warrants in the Private Placement, in each case at an offering price of $1.20 per share and accompanying warrant. On July 5, 2024, the Underwriters partially exercised their option to purchase an additional 1,927,265 shares of Common Stock for additional net proceeds of $2.2 million.

Previous wording

As of June 30, 2024, $48.0 million of the RTW Convertible Notes remain outstanding and are included in convertible notes payable, net of discounts on our consolidated balance sheets. See Note 8, Debt, in the notes to our unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 included within this Quarterly Report on Form 10-Q for additional details regarding the RTW Convertible Notes.

Current wording

As of September 30, 2024, $48.0 million of the RTW Convertible Notes remains outstanding and is included in convertible notes payable, net of discounts on our consolidated balance sheets. See Note 8, Debt, in the notes to our unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 included within this Quarterly Report on Form 10-Q for additional details regarding the RTW Convertible Notes.

Previous wording

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.

Current wording

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, subject to certain conditions.

Previous wording

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 June 30, 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 Optionin the notes to our unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 included within this Quarterly Report on Form 10-Q for additional details regarding the Revenue Interest Financing Agreement.

Current wording

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. 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. The Revenue Interest Financing Agreement is included in Revenue Interest Financing liability on our consolidated balance sheet as of September 30, 2024. See Note 9, Revenue Interest Financing, Side Letter, and PIPE Conversion Optionin the notes to our unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 included within this Quarterly Report on Form 10-Q for additional details regarding the Revenue Interest Financing Agreement.

Previous wording

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 Contingenciesof the notes to our unaudited interim condensed consolidated financial statements for the three and six months ended June 30, 2024 and 2023 for additional details related to our noncancelable operating leases.

Current wording

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 2025 and 2028. See Note 16, Commitments and Contingenciesof the notes to our unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 for additional details related to our noncancelable operating leases.

Previous wording

During the six months ended June 30, 2024, net income of $3.4 million and net cash provided by changes in our operating assets and liabilities of $1.5 million were more than offset by non-cash income of $22.5 million, resulting in cash used from operating activities of $17.6 million.

Current wording

During the nine months ended September 30, 2024, operating activities used $29.0 million of cash, resulting in a net loss of $5.6 million, non-cash income of $23.0 million, and net cash used from changes in our operating assets and liabilities of $0.4 million.

Previous wording

Non-cash income consisted of $19.9 million of income related to the change in fair value of our earn-out liabilities, $8.2 million of income related to the change in fair value of our convertible debt, $4.5 million of mark to market adjustments related to our warrant liabilities, $1.9 million of income related to the change in fair value of our term loan derivative liability, $1.5 million of income related to the change in fair value of the Revenue Interest Financing and PIPE Conversion Option, $1.4 million of debt issuance costs associated with debt at fair value, and $1.1 million of interest paid on debt recorded at fair value. This non-cash income was partially offset by a $8.7 million loss on the extinguishment of our Fortress Term Loan, $1.5 million of non-cash interest expense, $1.4 million of stock-based compensation expenses, $0.6 million of depreciation and amortization expense, $0.4 million of non-cash lease expense, $0.4 million of unrealized loss on foreign exchange, and a $0.4 million provision for inventory.

Current wording

Non-cash income consisted of $22.1 million of income related to the change in fair value of our earn-out liabilities, $14.2 million of mark to market adjustments related to our warrant liabilities, $10.0 million of income related to the change in fair value of our convertible debt, $2.5 million of interest paid on debt recorded at fair value, and $1.9 million of income related to the change in fair value of our term loan derivative liability. This non-cash income was partially offset by a $9.6 million loss on the change in fair value of our Revenue Interest Financing and PIPE Conversion Option, an $8.7 million loss on the extinguishment of our Fortress Term Loan, $2.2 million of stock-based compensation expense, $1.5 million of non-cash interest expense, $1.4 million of debt issuance costs associated with debt at fair value, a $1.1 million provision for uncollectible accounts, a $1.1 million provision for inventory, $0.9 million of issuance costs associated with warrants recorded at fair value, $0.8 million of depreciation and amortization expense, and $0.6 million of non-cash lease expense.