Q2 2021 Shockwave Medical Inc Earnings Call

Good morning, and welcome to Shockwave Medical's second quarter earnings Conference call.

At this time all participants are in listen only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes I would now like to turn the call over to Debbie Kaster, Vice President of Investor Relations at Shockwave.

For a few introductory comments.

Thank you all for participating on today's call joining me today from Shockwave medical or Doug Godshall, President and Chief Executive Officer, Dan Puckett, Chief Financial Officer, and Asics Zacharias Chief Commercial officer.

Earlier today Shockwave released.

Financial results for the quarter ended June 30th 2021 copy of the press release is available on Shockwave website before we begin I would like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

Any statements contained in this call that relate to expectations or predictions of future events results or performance are forward looking statements. All forward looking statements, including without limitation statements relating to our sales and operating trends business and hiring prospects.

Financial on revenue expectations, and future product development and approvals are based upon our current estimates and various assumptions.

These statements involve material risks and uncertainties, including the impact of COVID-19, pandemic that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our annual report on form 10-K on file with the SEC and available on Edgar and in other reports.

Filed periodically with the SEC.

Shockwave disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

This conference call contains time sensitive information and is accurate only as of the live broadcast today August 9.2021, and with that I'll turn the call over to Doug.

Thanks Debbie.

Good morning, everyone and thank you for taking the time to join US to review shockwaves results for the second quarter of 2021.

We reported $55.9 million on revenue for the second quarter of 2021, representing an increase of 444% from the second quarter of 2020.

And a 75% increase from the first quarter of this year.

The performance in the quarter was again led by the growing adoption of coronary IV on the U S, which continues to outpace our expectations.

Our U S. Commercial team continued their stellar execution. This past quarter, we saw excellent performance across the board, but obviously seek to carry the day.

1 more sites are proving that they are fully prepared to UCT independently. After our launch process is complete and we were encouraged to witness an increased percentage of our <unk> sales, resulting from reorders as.

As 1 would hope to see as the launch progresses.

Sales from launched products comprised 74% on total <unk> revenue for the quarter.

We achieved this increase in reorder rates, while we were simultaneously, adding new accounts throughout the quarter, averaging $1.5 new accounts per territory per month.

The steady cadence enables us to continue to provide thorough training and case support at each launched account before moving on to the next site.

The initial order quantity for new site starts remained at 5 units on average per account.

During the quarter, 44% of our accounts purchased both coronary and peripheral products, 9% purchased 1 coronary.

And 47% purchased only peripheral.

These numbers reflect both the synergy of our 2 businesses and also how many more accounts, we still have in front of us with the <unk> launch since nearly every hospital that performance pad pad procedures also performed coronary procedures.

We continue to compensate our team in a fashion that was designed to create a balanced sales approach between coronary and peripheral which appears to be working given the peripheral growth we witnessed this past quarter.

We are in the process of adding additional field personnel and expect to end this quarter with close to 70 U S territories.

Also expect to add several clinical specialist positions, which together should be the last meaningful U S. Steel's expansion for this year.

Since we first started selling commercially in the U S. In 2017, we are focused primarily on providing our customers with the safest most consistent solution to treat patients with complex calcification.

In parallel we have spent the past several years endeavoring to improve reimbursement to complement the clinical imperative of Ivy Hill use.

These efforts are now paying off as evidenced by the recent granting by CMS on both a transitional pass through payment for outpatient coronary IV L, which went into effect on July 1.

As well as the new technology add on payment or <unk> for inpatient coronary procedures that will go into effect on October 1st of this year.

We've recently added to both our U S International reimbursement teams and we view reimbursement is an area that still offers meaningful upside for the company and our customers.

Turning to international we are now commercial in 58 countries and our team came through once again with great execution drove growth in virtually all our markets on both on annual and quarterly basis.

While historically, our international sales have been very coronary centric our peripheral franchise contributed nicely this past quarter, which suggests our market development efforts in the international pad space are starting to bear fruit.

So all in all great progress internationally, particularly considering the ebbs and flows on Covid.

Yeah.

As usage of IBM has expanded across the globe, we have learned more about our markets and in the process. It has become increasingly evident that the opportunity for ABL is even larger than we had previously estimated.

Therefore, we felt it was time to do a refresh on our estimate of the total addressable market or Tam for IBM.

Since going public we have consistently estimated are tend to be approximately $6 billion.

At that time, however, <unk> was not approved or launched in those geographies, where we operate today. So we lack visibility.

<unk> procedure volumes in many countries.

Additionally, submarkets have experienced significant procedure growth in the last few years.

Based on these new inputs, we have increased our estimate of the Tam for Ivy Hill to roughly $8.5 billion based on projections for procedures in 2022.

I'm going to quickly run through some of the components of that number that have seen the biggest changes.

It's worth noting that our estimate for percentage of calcifications has remained consistent across all of the all vessel beds.

Distant with our prior estimates.

Starting with peripheral and SFA procedures, where we now have improved visibility to international procedure volumes.

Our updated estimate of total global SFA procedures is approximately 950000 up from 700000 at the time of our IPO.

A market that our customers created with Shockwave as treatment of iliac artery to facilitate passing of large bore catheters, such as Teva or E bar.

As Tamara cases have grown globally, we now estimate the total large bore catheter market has grown from 275000 to 475000 procedures.

We're also increasing our estimate of below the knee procedures by 30% moving from 300000 to 400000.

And Thats still underestimates, the PTK potential since it feels to capture the significant population that does not get treated those who undergo bypass surgery or those who undergo an amputation.

And lastly coronary.

A revised estimate on the addressable market for coronary procedures has increased from $3.5 million to $6 million procedures globally.

The sizable chain stems from our visibility into more geographies as well as procedure volume growth, particularly in China.

We now believe total PCI procedures will reach $1.5 million in 2022.

Putting this altogether.

Our big opportunity is actually even bigger than we initially estimated and we now believe IV all can address a market of over $8 billion.

Yes.

Shifting now to clinical we had the distinction of having 3 menu scripts published simultaneously in Jack interventions. This last quarter, creating something of an IV El Journal.

We also were recently informed that our abstract describing 750 patients from our pad III observational registry was accepted for presentation in a late breaking session at Veeva 21 conference. This fall.

Making it the second year in a row for us to have a late breaker at Veeva.

And finally.

Our JV in China has just started a trial of <unk> <unk> and we will soon be commencing a peripheral study.

These studies are designed to ensure that we're prepared in the event that country specific data is required for approval by FDA.

If the FDA does not require these data for approval, having local data should still be beneficial for our marketing efforts.

During the quarter.

Our teams attended non conferences.

Where there were 10 life cases, 8 symposia and 13 webinars to support our <unk> launch.

On to complement our leadership in technology and demonstrate our commitment to education.

Partnered with the Optima team led by Dr. James spread in the U K and created shockwaves calcium master class for <unk>.

Bioterror educational tool that we that we believe is the most ambitious and comprehensive resource on coronary calcification.

Okay.

Our R&D team has been hard at work advancing our pipeline with a blend of enhancements to our current products, which we believe will make performance even better in the hands of our customers.

As well as some new approaches to the use of IV L that we expect will further expand our treatable population.

We've received many inquiries about our pipeline over the past few months and our approach will be to share details about specific products when it launches on the near term horizon.

If we are preparing to commence a clinical study for devices that require a trial for approval.

We are increasingly bullish about our portfolio, but we don't think it benefits us or our shareholders or customers to share details about products that are still years away from entering the clinic.

That said.

The first product and what we expect will be a steady cadence of new introductions as <unk>, plus which recently received FDA clearance for peripheral indication.

<unk> plus is a longer catheter shafts that are implied catheter. So physicians will be able to treat <unk> income and femoral disease by a radial access.

They will also be able to treat below the knee disease more readily using on 5 plus which is appealing for those larger more proximal PTK vessels.

The 2 features that our customers are even more excited about per the addition of an 8 millimeter diameter balloon and a faster pulse cadence going from 1 hertz to to Hertz.

The 8 millimeter diameter, something are symptomatic iliac and large book of customers have been asking for and now they will have it.

The faster pulses will cut the treatment time in half from 30 seconds per cycle to 15 seconds.

Which may not sound like much but the physicians have loved it and the case we've done so far.

We conducted a small controlled study on are now starting a limited launch which will steadily expand leading to a full launch in the first quarter of 2022.

Operationally, we continue to make great progress on both the facilities and people side of the business. We had 528 employees at the end of the second quarter as we continued to build Argos build out our sales team Inc.

Increased production capacity and to invest in R&D.

R&D team will grow significantly over the next 2 years as we continue to identify projects that we expect will expand the potential of Ivy Hill.

We recently finalized an agreement with a contract manufacturer and by the end of this year they will be producing a majority of our M..5 catheters.

This will give us extra capacity in Santa Clara for sea to volume and should also improve our margins.

We continue to be very pleased with the performance of IV all across the globe.

And given the outperformance of our coronary product in the U S. This quarter, we are increasing our guidance for the year.

Our updated expectation is that we will generate between 218 in $223 million on revenue for the full year of 2021.

This would represent growth of up to 232% from our revenue for the full year of 2020.

With that I will now turn the call today on.

Thank you Doug Good morning, everyone Shockwave Medical's revenue for the second quarter ended June 32021 was $55.9 million, 144% increase from $10.3 million in the second quarter of 2020.

U S revenues $42.9 million in the second quarter of 2021 growing 675% from $5.5 million in the second quarter of 2020.

The increase included $26.3 million in the coronary product Shockwave <unk>, which was launched in the U S. In February this year.

The growth in the U S was also driven by recovery from the trough of the pandemic impact in 2020.

Sales force expansion and increased adoption of our products.

International revenue was $13 million in the second quarter of 2021, representing a 174% increase from $4.8 million in the second quarter of 2020.

The growth in international revenue over the prior year reflects the impact from pandemic recovery as well as increased adoption in existing geographies.

A brief comment on Covid and our expectations as we have stated in the past we are not in the business of forecasting the impact of the pandemic that said level of Delta variance is having an impact across the globe is Florida.

In pockets in the U S. We believe that the impact on interventional procedures should be transient as it was in the beginning of the year.

Looking at product line, as our peripheral products Shockwave and volume and Shockwave as 4 accounted for $18.8 million of total revenue in the second quarter of 2021 compared to $6.5 million in the second quarter of 2020, 189% increase our coronary product Shockwave <unk> accounted for $36.7 million.

Total revenue in the second quarter of 2021.

Compared to $3.7 million on the second quarter of 2020, representing a 9.5% increase in.

In addition, the sales of generators contributed $4 million in revenue in the second quarter of 2021 compared to $1 million in the second quarter of 2020.

Gross profit for the second quarter of 2021 was $46 million.

Compared to $6.7 million for the same quarter of 2020.

Gross margin for the second quarter of 2021 was 82% as compared to 65% in the second quarter of 2020.

Improvement in gross margin was partly driven by the launch of Shockwave <unk> in the U S, which has a higher selling price of our products.

In addition, we're seeing continued improvement in manufacturing productivity and process efficiencies, which has also contributed to the gross margin expansion.

Total operating expenses for the second quarter of 2021 were $46.2 million and 87% increase from $24.7 million in the second quarter of 2020.

Sales and marketing expenses for the second quarter of 2020 were $25.7 million.

Compared to $11.2 million in the second quarter of 2020 the.

The increase was primarily driven by sales force expansion in the U S. R&D expenses for the second quarter of 2021 were $11.8 million compared to $8.1 million in the second quarter of 2020 day.

The increase was primarily driven by headcount growth.

On an administrative expenses for the second quarter of 2021% to $8.6 million.

Compared to $5.4 million on the second quarter of 2020 being.

The increase was primarily driven by higher head count to support the growth of the business.

Net loss for the second quarter of $2021.4 million.

Compared to a net loss of $18.1 million in the second quarter of 2020 net.

Net loss per share for the purchase volume.

While we are very encouraged that we were close to profitability. This quarter, we do anticipate some variability in our operating margin in the near term as we continue to invest in our R&D programs and commercial activities.

We ended the second quarter of 2021, $174.7 million on cash cash equivalents and short term investments at.

At this point I'd like to turn the call back to Doug for closing comments.

Thanks, Dan and thank you all for joining us for the call. This morning.

I continue to be impressed with our team on their extraordinary execution and by the support of our investigators and customers across the globe.

The ability to make a difference in so many lives is what motivates us all and we look forward to continue to do so well into the future.

Take care be well and we welcome your questions.

Thank you.

Reminder, to ask a question. Please press star 1 on your telephone keypad can enjoy a question press the pound key.

Please standby on while we compile the Q&A roster.

Your first question comes from Bob Hopkins from Bank of America. Your line is open.

Oh, great. Thank.

Thank you and congrats on phenomenal performance.

Doug I wanted to ask about your.

Your new Tam assumption can you just wanted to make sure I understood exactly what's.

It's changing the numbers because obviously it was a big increase so just just to be clear.

It sounds like it's not the percentage of cases out there that you see with calcium it sounds like it's not your ability to penetrate the market, but rather just the sheer number of interventional cases going on around the globe. That's driving the increase in Tam is do I have that correct or am I missing something.

Yes, no that obviously the biggest uplift and thanks, Bob the biggest uplift was from China, which is.

Has grown substantially but but as we have come.

Commercialized into 58 different countries, we have much better line of sight into procedure volumes, whether that's India, China, Eastern Europe et cetera, and.

Those many of those markets are less well studied so when we when we first calculated our our addressable market and it feels on 18, leading into our IPO on 19.

We did our we did our best to estimate how many SFA procedures in coronary procedures et cetera, there are.

So some of those markets have grown substantially some we just have better visibility and realize there are more procedures going on.

And just for those who are who are less close to how we calculate tam than perhaps you or Bob.

We don't we.

We don't look at.

How many people have coronary artery disease target disease, or how many people have peripheral artery disease, we would have a on.

Obviously, a substantially larger Tam if you if you calculated the true potential addressable market.

We chose a more.

Sort of realizable market, but it's taking the existing procedure volumes and then what percentage of those patients are classified.

And so we don't calculate based on.

Market development of Internet intervention on procedures per se, but rather.

Our ability to penetrate or the population that we could that would benefit that is already being treated.

Yeah.

Perhaps sub optimally in our view because theyre not using shockwave all the time, but.

But we're encouraged obviously by the <unk>.

Our ability to penetrate markets around the globe.

We are barely scratching, the surface and particularly relative to our our Tam estimate.

Okay.

Thank you for that and then just 1 quick update.

On the U S coronary launch.

<unk> been controlling the amount of a constant Youre, Inc. Can you just give a sense as to where you are with the number of accounts that you're in in terms of the number of total accounts that you see that are possible versus the number of accounts, which are in today, just give us a little update on the pacing of the opening of accounts in coronary in the U S. Thank you.

Sure.

And.

On the call too as well so we can tag team on as it can be.

To add color.

So if you recall last quarter. So we got approved in February.

<unk> had 6 or so weeks in the first quarter.

For full quarter. This this this on.

And in both quarters.

Average about 1 and a half accounts per territory, we started with about 60 territories give or take.

We're building that number out in terms of the number of territories, but the even as we have sort of slowly added territories that the pace of.

New site additions has remained at about 1 and a half.

Per rep per territory per.

Per month or for the entire time since we got approved but per month.

And and we're nowhere near halfway through the penetration of that constitute PCI is theres about 1400 or so the <unk> obviously.

Diminishing returns once you cross through the 1100.1200 range was much smaller smaller accounts and I think I don't know if you're on that.

On additional color.

No I think I think you captured it and we're still doing a.

Good job.

Bringing on peripheral accounts that have historically been peripheral accounts in that they adopt coronary now they're kind of on using all 3 product lines and that's our goal obviously is to get as many accounts as possible using coronary.

And the peripheral products.

Great. Thank you.

Okay.

Your next question comes from add on meter friends Piper Sandler Your line is open.

Hey, guys congrats on the quarter on thanks for taking the questions.

Wanted to start with the guidance outlook.

I was hoping to just hear a little bit more about what's embedded in the guidance assumptions as we look to the back half of the year, particularly as it relates to COVID-19 trends with Delta.

Q3 seasonality and then just.

On tap and pass through payment, which.

Are you seeing any coming to fruition. So wanted to start there and then I had a follow up thanks so much.

Net that was a good summary of the puts and takes that we've been working through.

As we have been modeling.

[laughter].

Will there be.

Seasonality in Europe, and the U S, particularly on the peripheral side certainly there always is people are taking vacations on hopefully many of you on this call are going to get to take vacation.

And last year, when a lot of folks didn't gets take 1 they've.

They've been waiting so so doctors will take some time off.

Administrators will take some time off et cetera.

<unk>.

That has us.

Viewing the next.

2 quarters as.

1 that this quarter will be affected by that sort of vacation stuff in.

And so it'll be more of a back backend loaded because you also have the benefit of now inpatient and outpatient add on payments so that is.

As a tailwind.

Uh huh.

So thats 1 minor headwind through the through the summer and then a tailwind after the summer.

And so COVID-19 is the 1 as Dan articulated awfully hard for us to predict.

Obviously theres lots of of.

News out of Florida.

I'm, hoping folks theyre getting vaccinated so they can blunt it's.

And and if you and yet if you combine.

Folks who people have been vaccinated in the U S people, who have now.

<unk> developed a natural immunity by Covid by having had COVID-19.

And the pace at which Delta is coursing through the system, our our best guess on obviously the guests, but our best guess is debt.

We may not be at the at the peak, yet, but we but it will probably fall off rather rapidly.

And and certainly up for everyone's sake, we hope it does.

The other.

The practical reality is that hospitals have learned.

How to manage patients better fewer going on Vince there staying.

And I see used for less time, so they're coming in but they are both younger than they used to be so.

They don't get stuck as long in the ICU and hospitals are able to manage the better. So there. Unfortunately, the hospitals now have a decent amount of practice and and certainly there will be some that will suspend in interventional procedures and so there'll be pockets of slowdowns, but.

So we do we think it'll be it'll be similar to the sort of January February where it got a little dicey in certain geographies and then.

And then things bounce back fairly.

Fairly robustly.

That's really helpful. Doug Thanks for the color there and then 1 for Dan on the P&L. Our strong performance. This quarter I think I heard the comment some variability going forward on on Opex margin, but maybe.

Maybe just help us think through gross margin cadence given that we saw a sizable step up you know how sustainable is that.

Profile and then just help us think about opex spend going forward as well just trying to.

Get a better sense per when we could ultimately hit profitability. Thanks, so much for taking the questions.

Sure Yeah, we're very pleased with the progress we've made on gross margin for the rest of the year, we expect gross margin to be consistent with this quarter.

We have just expanded our lab in Santa Clara and so we're going to be hiring some some people that will need to be trained so we're not going to see a lot of uplift.

Until we get everybody kind of trained and inefficient and that'll be the next quarter or 2.

Next year on on gross margin, we do expect.

Some upside from the manufacturing in Costa Rica.

Maybe a percent or 2.

Into next year. So this year consistent next year, we should see some some uplift.

On the Opex, we do expect a little bump up in Q3, we're starting we've got some R&D activities, including clinical cooking.

We continue to invest in sales and marketing <unk>.

Q4, we should be in the black and not look back.

That's very helpful. Thank you.

Your next question comes from Bill <unk> from Canaccord. Your line is open.

Great. Thanks.

On a couple of questions here, but first just on.

Was wondering if you could give us some color on what your Vac timelines are looking I'm trying to get a.

Trying to get some granularity on the pace of new accounts per month, I think is clicking at 1.5 it's maintained at that level and I know you always the stretch goal I believe was too for the sales force NIM I'm just curious.

You always have the aspiration to go higher what what's kind of holding the reps back from getting to that too is it is it back is it something else and then just secondly, you look at the utilization on your existing accounts I would I would assume.

Debt the kind of outperformance, which was really high on coronary was a function of just the existing accounts doing much more cases than expected.

Wonder if you had commentary on that.

Yes, and I'll tag team with Us to go on this 1 too.

So we what.

What we.

Our thesis going into this.

The thesis that Isaac and the commercial team generated was debt.

We know our product is intuitive.

And fairly easy to train on straightforward does use etcetera, but but we did not we felt that if we trained each site thoroughly meaning as many physicians as possible touch the device and get into cases during the launch period.

And.

On this everyone on the staff becomes familiar with.

How and when to use shockwave that we would.

Be able to.

Leave that account.

And know that they would they would use.

To appropriately and <unk>.

Not need us there badgering them to use it.

On.

And and debt.

The site will then be largely independent.

And yes, we would still serve that account, but we wouldn't have to have.

We have a clinical specialist in our lab every day to remind people to use coronary.

I think so far debt that debt that thesis the theory that debt Isaac and team that has proven.

To be to be a very wise approach.

The accounts.

A very receptive to have us there.

Being there for a couple of weeks also enables us to to cross sell into the peripheral space. So that has had a halo effect that.

It is encouraging to see.

And then we move on to the next site and what we didn't want to do is as is.

Have have our sales team with all the enthusiasm enthusiasm for sea to run from account to account doing cases.

Because then they were just going to have to go back in and resell.

And and so we will not let them sell to more than 2 per month.

And it's less than 2.

On average for a variety of reasons some of it is youre waiting for back proceeds to get through.

You're off selling peripheral et cetera, So we're not.

Where I should say probably on on balance incur.

Encouraged that its a little bit less than 2 versus hitting 2 every month because.

The numbers certainly suggest that.

That this the strategies.

The working day.

So I'll pause is like any other color.

I'll just reinforce that.

I know, there's no limit with 2 per month, that's on limit not not a goal.

My expectation was that if you put a limit at 2 per month for all the reasons Doug.

Doug outlined that would be it would naturally be less than 2 per month, because not everyone is going to hit on that every month. So I think we're encouraged by the 1 and a half number.

As Doug said debt at par.

On goes on that will continue to get smaller.

And you're specifically on facts on what the timing is I don't think we see any.

Any sort of culprit.

So it's something we think is problematic.

It's holding back certain accounts or other accounts as they're moving through the process the sales team and their management housing a funnel of accounts.

They're generally clicking through them pretty well so.

I'd say right now we don't see anything from a constraints that point net feels like it's holding us back are we need to unlock some other similar tactic.

And I would say the transitional transition.

Transitional pass through was helpful.

In the past.

Knowing that it was coming in June was helpful on having in July enabled sites too.

Spool up there back processes, where they had been.

On.

In a small small subset of the accounts, where they just couldn't figure out how to get through vac without reimbursement so GPT.

And a couple of months and tap will.

Enable us to continue to add accounts.

And some that are more economically focused.

Hospitals.

Great and then if I could I wanted to ask 1 on operating expenses. The revenues were up $24 million sequentially, but your sales and marketing was up only $1.7 million I mean, that's like 7% to that increase.

And I think Dan gave us some kind of ideas on leverage, but that's a big number in and just is that something that would continue for a while or did you spend forward back in the first quarter and we're just kind of seeing the kind of or maybe it was a guarantee or something kick in I'm just trying to get.

That's a lot of leverage.

And I'm trying to kind of figure out how to think about that going forward.

This is a topic Isaac mentioned, often so I'm going to let him take this 1.

Yeah.

Because last year the.

The team sales team in the U S, particularly spend it's been a lot of time hiring we more than doubled the U S sales force last year and that was as you know a forward spend in anticipation of the coronary launch.

And in Q1.

We did not have quota for the sales team on corner, because we didn't know when we would get approval. So there was some.

Some compensation associated with the coronary.

Launch in February and March.

That was kind of typically more than we would pay on a quota based system. So this is our first quarter with what I would say a day.

Uh huh.

The majority the vast majority of our territories have been hired and are under the quota now for the coronary and peripheral products.

And as they continue.

Gaining new accounts and then further penetrating those accounts, we expect to see continued.

SG&A leverage from from that as the territories and the goal is to have.

As fewer territories as we need to service our customers and then have those territories be as deep as possible.

Within each account and that makes them.

Relative we are very profitable territory.

Territories.

The second piece on the leverage if you bring in the international piece.

Our German team has been stable for a while but we've we brought on our direct sales teams in the UK and France.

So that right now it looks like on expense for us.

As we start turning the crank on on.

On.

Actually doing the direct sales in most countries in Q3, and particularly Q4. This year, we should start seeing some leverage some more leverage on the international business as well.

Great. Thanks for taking my questions.

Yeah.

Your next question comes from Larry Mendelson from Wells Fargo. Your line is open.

Hey, good morning, guys. Thanks for taking the question.

That's on all the success you guys.

Doug I wanted to follow up on Adam's question earlier on the end cap and the pass through payment.

Do you think some centers have been holding back their usage of IV L.

For these.

Enhanced reimbursement.

To go into effect.

Too early to say for sure.

It would appear to us that the debt.

Yeah.

Debt utilization in the printed in the early adopter true.

February March April sites.

We're using it.

In every instance day felt appropriate and.

And the more they used it seems the more you like it.

But that did not appear.

To be to have any economic constraints, they were sort of economically aware, but unconstrained.

Uh huh.

As you as you got into 2 as I mentioned earlier as you got into June I think there were sites that were well I know there were sites that were struggling with with convincing their vac committee to bring to bring <unk> on board.

And so as the as we add.

Sites now it will be a blend of sites that that might not have been able to come on board were it not for the true.

On the show pass through or ultimately on tap as well.

And sites that were just in our Q and we haven't gotten to yet so they weren't waiting for and tap they were more waiting for us.

And and.

And so obviously there is.

I would not have been able to order shockwave.

Were it not for reimbursement then by definition, that's going to be an increase.

Well, we'll obviously be monitoring to see if there is an uplift debt.

On sort of same store sales wherever they are analog is sort of higher reorders at at earlier sites, because now they feel even less constrained than us.

At this juncture, it's too it's too early to say.

Okay.

Doug I'm going to try to sneak 2 in here..1 is just on the long term opportunity moderate to severe calcification you have said in the U S is 20% to 30% of PCR cases, and what's your latest view on the.

Peak penetration.

For IV L would you be disappointed if it werent a third of.

The moderate to severe cases, and I'll stop there I just wanted to ask 1 quick 1 on the pipeline after that.

Yeah. So.

Almost everybody every physician we speak to.

Feel first of all there is.

Animas a unanimous view that calcium is becoming an increasing percentage of the patients they treat.

So while we say.

30% calcified moderate and severe combined.

It is.

I think the next time, we adjust our Tam it could very well be because we have data that shows us that the percentage is actually higher than it used to be because certainly the physicians anecdotally feel that it is.

Yeah.

And it makes sense aging diabetes or the 2 predictors and those are both happening.

In terms of the severe calcium the published data suggest that thats, 15% so half of the 30.

And that's also the number that most physicians land on as a that's the population that absolutely positively should get.

On some sort of calcium modification.

And the panel on the 5% pre pre Shockwave only 5% is in the U S. A couple of percentage in eastern Europe.

And so we our ease of use.

Predictability reliability safety profile, all the things that resonate with our physicians also.

Yeah.

As is happening now and we expect will have on into the future is increasing the.

The.

Percentage of the patients that are getting.

Calcium modification versus just the plain stent durable and understand.

And so if 15% is at least the number.

That ought to get get modified.

Your number would suggest that we would have 10 per cent of the of the total PCI volume.

Or a third of the total calcium.

If thats the number youre, asking certainly where we are.

Where we are.

We are we don't we don't sort of go into an account and say Okay. You do you do 500, <unk>. Therefore, you.

15% of those.

So.

75, a year ought to have some sort of a calcium modification.

We don't we don't do that math.

It is it is certainly evident to us debt.

The percentage of cases that are now getting treated in the U S.

<unk> is increasing.

At all any site that is on <unk> is now on modifying patients more thoughtfully.

To treat them.

More clinically appropriately with Shockwave, so would I be disappointed with.

Less than 10%.

We're on.

We're ambitious so.

That would.

Certainly hope we get it at least to that number and I think Chuck with because of its ease of use and safety.

Has the ability to penetrate into the until the less severe population as well because there is essentially no downside to using our device.

That's super helpful. Doug just quickly on the pipeline based on your comments upfront does that mean, we're not going to get kind of this.

Fulsome pipeline update late this year early next year that debt I think you'd been talking about and just.

On that theme just thoughts on.

Additional products, adding to the bag organic vs.

Inorganic what are your latest thoughts thanks for taking the questions.

Yeah, we're we're still.

We're still mulling weather.

Whether in what form we would do a a pipeline update.

<unk>.

We're still we've talked about the first half of next year.

It's still on our radar.

What we don't want to do.

We don't plan to do is to is to <unk>.

Put up a slide of a design that will hit the clinic.

2020 for 2025 or whatever that debt is is like just a prototype.

I think that debt debt.

It's too much selling futures companies get in trouble.

When they go there I think our.

Our current products and near term products, which.

We will likely early next year would be more comfortable saying here's here. The next thing is coming.

Not everything but here are the things coming in the near term.

They are pretty exciting and so more likely than not we will we'll share at least the.

The next.

The next installments of of the application of Shockwave and I'm thinking the early part of next year still.

What I was trying to clarify is that true.

Longer term multi year.

Product portfolio cadence that some companies put out there.

We don't think that's wise for us to do.

Nor nor necessarily helpful too.

To investors.

Maybe inorganic I mean.

The non Ivy L question, sorry, Doug.

So we're.

No.

Isaac and I, both did M&A for a living for for I think both both of those data for 5 or 6 years.

So we're not.

We're not averse to finding things externally that are highly complementary.

The a challenge 1 would have it in a business like ours right now as is.

What would be stimulative to growth given the growth that we see in front of us.

Hard to find many things that would that would.

Makes sense as a sort of opportunity cost because if we spend time.

On something what you acquire than that that's time youre not spent spending on your own on.

On building your own business and building out your technology.

So so we're we're we pay attention and.

Is there something that is that is just so obvious that it makes sense to US then, we'll we'll think about doing something but that's not our own.

That's obviously not our main focus.

Thanks, Doug.

Your next question comes from Cecilia furlong from Morgan Stanley. Your line is open.

Hey.

Good morning, and thank you for taking the questions Doug I wanted to start and just if you could provide a bit more detail in terms of peripheral the trends youre seeing in accounts. Following initial coronary uptake and adoption and really where you're able to gain traction where you hadn't previously anything you'd call out specifically relative to either ATK or B T. K just.

Anything along those lines would be helpful.

Sure So our hour.

Compensation structure for our for our field team.

Yes.

Is as I said in my.

Prepared remarks.

Endeavors to create a balanced selling approach where.

You can't we don't get as a territory manager you don't get totally absorbed selling C..2 and then start paying attention to peripheral.

If you do that your you will not.

You won't make as much money, so they've got to sell both peripheral and coronary and they've got to sell both the S..4 and 5 on the peripheral side too.

Max up the conversation.

And not that.

Not that our team would.

Ignore peripheral or the debt they don't like selling peripheral it's just when you have a shiny new.

Toy like like see too that everybody wants to talk about there's a natural inclination to.

To be distracted in and.

Spend less time on your peripheral business so.

The way, we structured that has ensured that.

Debt when Youre in the hospital selling C..2 and everyone's high Fiving you because the case went so well.

You will remember that there's a vascular surgeon down the hall, who might have a case.

A tough iliac case, and you ought to go check that out and see if you can help improve outcomes for decades.

Uh huh.

So where we are.

We're quite.

Quite encouraged that.

Across the below the knee and above the knee segments that we have.

We sort of saw growth.

Generally across the various ways that shockwave gets used.

Throughout the quarter. So it was not.

It's not as if.

Wow.

Our public <unk> business, just went through the roof and that drove it. It was it was a it was a widespread.

Utilization increase across the hundreds of accounts, where we sell.

We're cautiously optimistic that the debt the goal of.

Okay.

Leveraging the sort of.

Or the or the.

Our belief not goal our belief that having a sales team selling both peripheral and coronary.

And and the obvious synergies of treating <unk> per with large bore access where the same Dr does coronary or treating coronary for the same doctor who does below the knee disease.

That are our system is is somewhat unique.

In med device in that we think we're stronger having 1 sales team sell both whereas most companies have had to split we don't we don't see that.

Anytime in the future.

We do think there is.

There is a net positive to our peripheral business by virtue of.

On being in the corners.

Thank you and then if I could ask just on Japan could you just provide an update around your team build out in the region ahead of approval on reimbursement.

Any additional near term plans you have them related to building out that team per day. Thank you.

Yes.

Do you want to take this 1.

Youre on <unk>.

Sure.

Yes, we have.

Handful of people now on our team in Japan as we as we you know.

Kind of bulk work more as.

We work with the <unk> 2.

To facilitate the CTO approval as we work with the NHL value too.

Set the path forward for reimbursement and then starting to get some senior leadership in for sales and marketing.

Yeah.

And so that's I think it's going per plan and and again you know thinking.

Should have hope hopefully have PMA approval in the first half of next year that day.

6 to 9 months.

Cycle to get the to get the reimbursement in place.

And we want to be.

Prepared we want as much education as we can on.

And awareness to be out there for the product and then we will go ahead and execute on our coronary launch next year.

Thank you for taking the questions.

Thank you.

Your next question comes from Rebecca Wang from SBB Leerink. Your line is open.

Hi, guys congrats on a very strong on air.

And then just have a follow up question on your margin profile is that gross margin in the second half will be from an accurate picture then.

And gross margin expansion in 'twenty.

And you can go to learn.

On 1 thing about your longer term margin profile as coronary I lay out relative to become a larger portion of our business.

At this time, Inc.

Inc. Right Youre my gross margin income approach.

And if I present that high.

Range longer term and then I'll.

Operating margin.

We expect to be profitable in Q4.

As a <unk> operating margin, we should think about any 1 a day long term. Thank you.

So Dan on that I'll tag team on this.

Yeah.

Yes, so we're investing this year.

Not not necessarily at the rate that we are growing our revenue line line, but enough.

That investment on the.

Lab expansion training equipment all the stuff then Dan described that that will keep us at a we believe a stable gross margin through through 2021.

We given we're at 82, and we think we'll get a point or 2 step up out of.

Out of our.

Contract manufacturer.

As we as we move on 5 there your your sort of 84 to 85 number is not.

Out of the realm of possibility.

Ken.

Yes.

Doug.

On the on operating margin long term.

We are.

I'd like to say, we're going to be above.

In the low <unk> high <unk> is kind of where we are.

Where we are.

Confident in.

I'm, hoping we'll we'll even get more leverage but that's down the road.

Okay.

On the manufacturing efficiencies and really cooking and going direct in a lot of countries. So.

We expect big things and we're working towards that.

Thank you and a quick follow up on China do you have I know, it's still early but do you have a rough price.

On line when do you expect kind of true contribute in revenue.

So when we signed the agreement in the first quarter of this year, we suggested that the first product.

Imported product growth, so we manufacture the JV imports and they sell it direct to customers.

We anticipated that that would be a 2 to 3 years out.

And in that the locally manufactured product was more like 4 to 5.

We have not we've not revised that timeframe, so you'd be looking at.

She is in 'twenty 3.2024 for the imported product.

The team our JV partner is.

Certainly very aggressive very knowledgeable.

And.

Are doing everything they can to to.

Pull those timelines in but to some extent you're subject to.

The CFT it.

Alright, perfect. Thank you.

Yeah.

There is no further question on this time you may continue.

Alright. Thanks. Thank you everyone look forward to speaking with many of you over coming weeks and I do hope you get a chance to take some time.

And be ready for the for the back end of the year. Thanks for your support speak soon.

Yes.

This concludes today's conference call. Thank you all for joining you may now disconnect.

Yeah.

[music].

Yes.

[music].

[music].

[music].

Good morning, and welcome to Shockwave Medical's second quarter earnings Conference call.

At this time all participants are in a listen only mode.

We will be facilitating a question and answer session they'll watch at the end of today's call.

This call is being recorded for replay purposes, I would now like to turn the call over to Debbie Kaster, Vice President of Investor Relations that Shockwave for a few introductory comments.

Thank you all for participating on today's call joining me today from Shockwave medical on Doug Godshall, President and Chief Executive Officer, Dan Puckett, Chief Financial Officer, and ASIC Zacharias, Chief Commercial officer.

Earlier today Shockwave released.

Actual results for the quarter ended June 30th 2021 copy of the press release is available on chocolate website before we begin I would like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act on 1995.

Any statements contained in this call that relate to expectations or predictions of future events.

Or performance are forward looking statements.

All forward looking statements, including without limitation statements relating to our sales and operating trends business and hiring prospects.

Finance on revenue expectations and future product development and approvals are based upon our current estimates on various assumptions.

These statements involve material risks and uncertainties, including the impact of COVID-19, pandemic that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements.

For a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our annual report.

On form 10-K on file with the SEC and available on Edgar and on other reports.

File periodic way with the SEC.

Shockwave disclaims any intention or obligation, except as required by law, a bit or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

This conference call contains time sensitive information and is accurate only as of the live broadcast today August 9.2021.

That I will turn the call over index.

Thanks Debbie.

Good morning, everyone and thank you for taking the time to join US to review shockwaves results for the second quarter of 2021.

We reported $55.9 million on revenue for the second quarter of 2021, representing an increase of 444% from the second quarter of 2020.

And a 75% increase from the first quarter of this year.

The performance in the quarter was again led by the growing adoption of coronary IV on the U S, which continues to outpace our expectations.

Our U S. Commercial team continued their stellar execution. This past quarter, we saw excellent performance across the board, but obviously you see to carry the day.

More and more sites are proving that they are fully prepared to UCT independently. After our launch process is complete and we are we were encouraged to witness an increased percentage of our C..2 sales resulting from reorders.

1 would hope to see as the launch progresses.

Sales from launched products comprised 74% on total <unk> revenue for the quarter.

We achieved this increase in reorder rates, while we were simultaneously, adding new accounts throughout the quarter, averaging $1.5 new accounts per territory per month.

The steady cadence enables us to continue to provide thorough training and case support at each launched account before moving on to the next site.

The initial order quantity per new site starts remained at 5 units on average per account.

During the quarter, 44% of our accounts purchased both coronary and peripheral products, 9% purchased only coronary.

And 47% purchased only peripheral.

These numbers reflect both the synergy of our 2 businesses and also how many more accounts, we still have in front of us with a C to launch since nearly every hospital that performance pad pad procedures also performed coronary procedures.

We continue to compensate our team in a fashion that was designed to create a balanced sales approach between coronary and peripheral which appears to be working given the peripheral growth we witnessed this past quarter.

We are in the process of adding additional field personnel and expect to end this quarter with close to 70 U S territories.

We also expect to add several clinical specialist positions, which together should be the last meaningful U S. Steel's expansion for this year.

Yeah.

Since we first started selling commercially in the U S. In 2017, we are focused primarily on providing our customers with the safest most consistent solution to treat patients with complex calcification.

In parallel we have.

On the past several years endeavoring to improve reimbursement to complement the clinical imperative of IV I'll use.

These efforts are now paying off.

This is evidenced by the recent granting by CMS on both a transitional pass through payment for outpatient coronary ABL, which went into effect on July 1st as well as the new technology add on payment or <unk> for inpatient coronary procedures that will go into effect on October 1st day this year.

We've recently added to both our U S and international reimbursement teams and we view reimbursement is an area that still offers meaningful upside for the company and our customers.

Turning to international we are now commercial in 58 countries and our team came through once again with great execution.

Job growth in virtually all our markets on both on annual and quarterly basis.

While historically, our international sales have been very coronary centric or per.

Referral franchise contributed nicely this past quarter, which suggests our market development efforts in the international patent space are starting to bear fruit.

So all in all great progress internationally, particularly considering the ebbs and flows on Covid.

As usage of IBM has expanded across the globe, we have learned more about our markets and in the process. It has become increasingly evident that the opportunity for IV <unk> is even larger than we had previously estimated.

Therefore, we felt it was time to do a refresh on our estimate of the total addressable market or Tam for Ivy Hill.

Since going public we have consistently estimated are tend to be approximately $6 billion.

At that time, however, <unk> was not approved or launched in those geographies, where we operate today. So we lacked visibility to procedure volumes in many countries.

Additionally, some markets have experienced significant procedure growth in the last few years.

Based on these new inputs, we have increased our estimate of the Tam for ABL to roughly $8.5 billion based on projections for procedures in 2022.

Glenn going to quickly run through some of the components of that number that I have seen the biggest changes.

It's worth noting that our estimate for percentage of calcifications has remained consistent across all of the all vessel beds.

Consistent with our prior estimates.

Starting with peripheral and SFA procedures, where we now have improved visibility to international procedure volumes.

Our updated estimate of total global SFA procedures is approximately 950000 up from 700000 at the time of our IPO.

On markets that our customers created with Shockwave as treatment of iliac artery to facilitate passing of large bore catheters, such as Teva or E. R.

As Tamara cases have grown globally, we now estimate the total large bore catheter market has grown from 275200.75000 procedures.

We're also increasing our estimate of below the knee procedures by 30% moving from 300000 to 400000, Inc.

That's still underestimates the beat Teekay potential since it feels to capture the significant population that does not get treated those who undergo bypass surgery or those who undergo an amputation.

And lastly coronary.

A revised estimate of the addressable market for coronary procedures has increased from $3.5 million 2.6 million procedures globally.

The sizable change stems from our visibility into more geographies as well as procedure volume growth, particularly in China, where we now believe total PCI procedures will reach $1.5 million to 2022.

Putting this all together.

Our big opportunity is actually even bigger than we initially estimated and we now believe IV all can address a market of over 8.5 billion.

Yeah.

Shifting now to clinical we ended distinction of having 3 manuscripts published simultaneously in Jack interventions. This last quarter, creating something of an IV L Journal.

We also were recently informed that our abstract describing 750 patients from our pad III observational registry was accepted for presentation at a late breaking session at Veeva 21 conference this fall, making it.

Second year on the road for Us to have a late breaker at Veeva.

And finally.

Our JV in China is just starting to trial in situ and we will soon be commencing a peripheral study.

These studies are designed to ensure that we're prepared in the event debt country specific data is required for approval by FDA.

If the FDA does not require these data for approval, having local data should still be beneficial for our marketing efforts.

Yeah.

During the quarter.

Our teams attended non conferences.

Where there were 10 life cases, 8 symposia and 13 webinars to support our <unk> launch.

And to complement our leadership in technology and demonstrate our commitment to education.

With the Optima team led by Dr. James Brett in the U K and created shockwaves calcium Master class.

The proprietary educational tool that we that we believe is the most ambitious and comprehensive resource on coronary calcification.

Our R&D team has been hard at work advancing our pipeline with a blend of enhancements to our current products, which we believe will make performance even better in the hands of our customers as.

As well as some new approaches to the use of IV L that we expect will further expand our treatable population.

We've received many inquiries about our pipeline over the past few months and our approach will be to share details about specific products when it launches on the near term horizon.

Or if we are preparing to commence a clinical study for devices that require a trial for approval.

We are increasingly bullish about our portfolio, but we don't think it benefits us or our shareholders or customers to share details about products that are still years away from entering the clinic.

That said.

The first product and what we expect will be a steady cadence of new introductions as <unk>, plus which recently received FDA clearance for peripheral indication.

And 5 plus is a longer catheter shafts on our Empire catheter, so physicians will be able to treat iliac common femoral disease by a radial access.

They will also be able to treat below the knee disease more readily using on 5 plus which is appealing for those larger more approximate PTK vessels.

The 2 features that our customers are even more excited about per the addition of an 8 millimeter diameter balloon and a faster pulse cadence going from 1 hertz to Hertz.

The 8 millimeter diameter, something are symptomatic iliac and large book customers have been asking for and now they will have it.

The faster pulses will cut the treatment time in half from 30 seconds per cycle to 15 seconds.

Which may not sound like much but the physicians have loaded in that case, we've done so far.

We conducted a small controlled study on are now starting a limited launch which will steadily expand leading to a full launch in the first quarter of 2022.

Operationally, we continue to make great progress on both the facilities and people side of the business. We had 528 closed at the end of the second quarter as we continued to build Argos built out our sales team Inc.

Increased production capacity and to invest in R&D.

Our R&D team will grow significantly over the next 2 years as we continue to identify projects that we expect will expand the potential of Ivy Hill.

We recently finalized an agreement with a contract manufacturer and by the end of this year they will be producing the majority of our empire of catheters.

This will give us extra capacity in Santa Clara for sea to volume and should also improve our margins.

We continue to be very pleased with the performance of IV all across the globe.

And given the outperformance of our coronary product in the U S. This quarter, we are increasing our guidance for the year.

Our updated expectation is that we will generate between 218 in $223 million on revenue for the full year of 2021.

This would represent growth.

232% from our revenue for the full year of 2020 with.

With that I will now turn the call today on.

Thank you Doug Good morning, everyone Shockwave Medical's revenue for the second quarter ended June 32021 was $55.9 million, 144% increase from $10.3 million on the second quarter of 2020.

U S revenue was $42.9 million in the second quarter of 2021 growing 675 per cent from $5.5 million in the second quarter of 2020.

The increase included $26.3 million in the coronary product Shockwave seek to which was launched in the U S. In February this year.

The growth in the U S is also driven by recovery from the trough of the pandemic impact in 2020 as well as sales force expansion and increased adoption of our products.

International revenue was $13 million in the second quarter of 2021, representing a 174 per cent increase from $4.8 million in the second quarter of 2020.

The growth in international revenue over the prior year reflects the impact from pandemic recovery as well as increased adoption in existing geographies.

Brief comment on Covid and our expectations.

We have stated in the past we are not in the business of forecasting the impact of the pandemic that said, while the delta variance is having an impact across the globe is Florida.

Pockets in the U S. We believe that the impact on interventional procedures should be transient as it was in the beginning of the year.

Looking at product line, as our peripheral products, Shockwave and buying and Shockwave as 4 accounted for $18.8 million on total revenue in the second quarter of 2021 compared to $6.5 million in the second quarter of 2020, 189% increase.

Our coronary product Shockwave situ accounted for $36.7 million on total revenue in the second quarter of 2021.

Baird to $3.7 million in the second quarter of 2020, representing a 19, 5% increase.

In addition, the sales of generators contributed $4 million in revenue in the second quarter of 2021 compared to about $1 million in the second quarter of 2020.

Gross profit for the second quarter of 2021 was $46 million.

Compared to $6.7 million this quarter of 2020.

Gross margin for the second quarter of 2021 was 82% as compared to <unk> 65 per cent in the second quarter of 2020.

Improvement in gross margin was partly driven by the launch of Shockwave <unk> in the U S, which has a higher selling price of our products.

In addition, we're seeing continued improvement in manufacturing productivity and process efficiencies, which has also contributed to the gross margin expansion.

Total operating expenses for the second quarter of 2021 were $46.2 million and 87% increase from $24.7 million in the second quarter of 2020.

Sales and marketing expenses for the second quarter of 2020 were $25.7 million.

Compared to $11.2 million in the second quarter of 2020.

The increase was primarily driven by sales force expansion in the U S. R&D expenses for the second quarter of 2021 were $11.8 million compared to $8.1 million in the second quarter of 2020.

The increase was primarily driven by headcount growth.

Administrative expenses for the second quarter of 2021 or $8.6 million.

Compared to $5.4 million in the second quarter of 2020 day.

The increase was primarily driven by higher head count to support the growth of the business.

Net loss for the second quarter of $2021.4 million.

Compared to a net loss of $18.1 million in the second quarter 2020.

Net loss per share for the period is 1.

While we are very encouraged that we were close to profitability. This quarter, we do anticipate some variability in our operating margin in the near term as we continue to invest in their R&D programs and commercial activities.

We ended the second quarter of 2021, $174.7 million on cash cash equivalents and short term investments.

At this point I'd like to turn the call back to Doug for closing comments.

Thanks, Dan and thank you all for joining us for the call. This morning.

I continue to be impressed with our team on their extraordinary execution and by the support of our investigators and customers across the globe.

The ability to make a difference in so many lives is what motivates us all and we look forward to continuing to do so well into the future.

Take care be well and we welcome your questions.

Thank you.

A reminder to ask a question. Please press star 1 on your telephone keypad can they try a question press the pound key.

Please standby on while we compile sticky on their Oscar.

Your first question comes from Bob Hopkins from Bank of America. Your line is open.

Oh, great. Thank.

Thank you and congrats on the phenomenal performance.

Doug I wanted to ask about your.

Your new Tam assumption I, just wanted to make sure I understood exactly what's what's changing the numbers because obviously it was a big increase so just just to be clear.

It sounds like it's not the percentage of cases out there that you see with calcium it sounds like it's not your ability to penetrate the market, but rather just the sheer number of interventional cases going on around the globe. That's.

Driving the increase in Tam is do I have that correct or am I missing something.

No that on.

Obviously, the biggest uplift and thanks, Bob the biggest uplift was from China, which is.

It has grown substantially but but as we have.

Commercialized into 58 different countries, we have much better line of sight into procedure volumes, whether that's India, China, Eastern Europe et cetera, and.

Those many of those markets are less well studied so when we when we first calculated our our addressable market and it feels on 18, leading into our IPO on 19, we.

We did our we did our best to estimate how many SFA procedures in coronary procedures et cetera, there are.

So some of those markets have grown substantially some we just have better visibility and realize there are more procedures going on.

And just for those who are who are less close to how we calculate tam than perhaps you or Bob we don't.

We don't look at sort of how many people have coronary arteries target disease or how many people have peripheral artery disease, we would have a obviously a substantially larger Tam. If you if you calculated the true potential addressable market.

We chose a more sort of realizable market, but it's taking the existing procedure volumes then what percentage of those patients are classified.

And so we don't calculate based on.

Market development of Internet intervention procedures per se, but rather.

Our ability to penetrate or the population that we could that would benefit that is already being treated.

Yeah.

Perhaps sub optimally and argue because theyre not using shockwave all the time, but.

But we're encouraged obviously by the.

Our ability to penetrate markets around the globe.

But we are barely scratching the surface and particularly relative to our our Tam estimate.

Okay got it got it. Thank you for that and then just 1 quick update.

On the U S coronary launch.

It sounds like you've been controlling the amount of accounts that you're in can you just give a sense as to where you are with the number of accounts that you're in in terms of the number of total accounts that you see that are possible versus the number of concrete you're in today, just give us a little update on the pacing of the opening of accounts in coronary in the U S. Thank you.

Sure.

And.

On the call too as well so we can tag team on as it can be.

Good color.

So if you recall last quarter. So we got approved in February.

<unk> had 6 or so weeks in the first quarter.

For full quarter. This this this time and in both quarters.

We averaged about 1.5 accounts per territory, we started with about 60 territories give or take.

We're building that number out in terms of the number of territories, but the even as we have sort of slowly added territories that the pace of new.

The new site additions has remained at about 1.5.

Per.

Our rep per territory per.

Per month or for the entire time since we got approved the per month.

Yeah.

And and we're nowhere near halfway through the penetration of of that constitute PCI is there's about 1400 or so that <unk> obviously.

Diminishing returns when she crossed through the 1100.1200 range was much smaller smaller accounts and I think I don't know if you're on.

Net additional color.

No I think I think you captured it and we're still doing a.

Good job.

Bringing on peripheral accounts that have historically been peripheral accounts in that they adopt coronary now they're you know kind of on using all 3 product lines and that's our goal obviously is to get as many accounts as possible using coronary.

And the peripheral products.

Great. Thank you.

Your next question comes from add on meter friends Piper Sandler Your line is open.

Hey, guys congrats on the quarter on thanks for taking the questions.

Wanted to start with the guidance outlook.

I was hoping to just hear a little bit more about what's embedded in the guidance assumptions as we look to the back half of the year on particularly as it relates to COVID-19 trends with Delta.

Q3 seasonality and then just.

And tap and pass through payment, which.

Are you seeing anything coming to fruition. So why don't you start there and then I had a follow up thanks so much.

Yeah that was a good summary of the puts and takes that we've been working through as well.

As we had been modeling.

Yeah.

Will there be.

Seasonality in Europe, and the U S, particularly on the peripheral side certainly there always is people are taking vacations on hopefully many of you on this call we're going to get to take vacation.

And last year, when a lot of folks didn't get to take 1.

They've been waiting so so doctors will take some time off.

Ministration will take some time off et cetera. So that's.

That has us.

Viewing.

The next.

On 2 quarters.

As a as 1 that this quarter will be affected by that sort of vacation stuff in.

And so it'll be more of a back backend loaded because you also have the benefit of now inpatient.

And outpatient net on payments so that is.

As a tailwind.

Uh huh.

So that's 1 minor headwind through the through the summer and then a tailwind after the summer.

And so COVID-19 is the 1 is Dan.

<unk> articulated awfully hard for us to predict.

Obviously, there's lots of news out of Florida.

Hope I'm, hoping folks theyre getting vaccinated, so they can blend it.

And and if you and yet if you combine.

Folks who people have been vaccinated in the U S people, who have now developed.

Developed in natural immunity by Agco by having had COVID-19.

And the pace at which Delta is coursing through the system, our our best guess and obviously, it's a guess, but our best guess is debt.

We may not be at the at the peak, yet, but we but it will probably fall off rather rapidly.

And certainly for everyone's sake, we hope it does.

The other.

Practical reality is that hospitals have learned.

How to manage patients better fewer going on Vince Theyre staying.

She used for less time, so they're coming in but they are both younger than they used to be so they don't get stuck as long in the ICU and hospitals are able to manage the better. So there. Unfortunately, the hospitals now have a decent amount of practice in and certainly there will be some that will suspend in interventional procedures and so there'll be pockets.

A slowdowns, but.

But we do we think it'll be it'll be similar to the sort of January February where it got a little dicey in certain geographies and then.

And then things bounce back fairly.

Fairly robustly.

That's really helpful. Doug Thanks for the color there and then 1 for Dan on the P&L. Our strong performance. This quarter I think I heard the comment some variability going forward on on Opex margin, but maybe.

Maybe just help us think through gross margin cadence given that we saw a sizable step up you know how sustainable is that.

Profile and then you know just help us think about opex spend going forward as well just trying to.

Get a better sense per when we could ultimately hit profitability. Thanks, so much for taking the questions.

Sure, Yes, we're very pleased with the progress we've made on gross margin for the rest of the year, we expect gross margin to be consistent with this quarter.

We have just expanded our lab in Santa Clara and so we're gonna be hiring some some people that will need to be trained so you know, we're not going to see a lot of uplift.

Until we get everybody kind of trained and inefficient and that'll be the next quarter or 2.

Next year on on gross margin, we do expect.

Some upside from the manufacturing in Costa Rica.

Maybe a percentage to.

Into next year. So this year consistent next year, we should see some some uplift.

On the Opex, we do expect a little bump up in Q3, we're starting we've got some R&D activities, including clinical cooking.

On a continuing to invest in sales and marketing <unk>.

Q4, we should be in the black and not look back.

That's very helpful. Thank you.

Your next question comes from Bill <unk> from Canaccord. Your line is open.

Great. Thanks.

On a couple of questions here, but first just on.

Was wondering if you could give us some color on what your Vac timelines are looking I'm trying to get a.

Trying to get some granularity on the pace of new accounts per month. They think is clicking at 1.5 it's maintained at that level and I know you always the stretch goal I believe was too for the sales force now I'm just curious.

You always have the aspiration to go higher what what's kind of holding the reps back from getting to that 2 is it is it back is it something else and then just secondly, you look at the utilization on your existing accounts I would I would assume.

That the kind of outperformance, which was really high on coronary was a function of just the existing accounts doing much more cases than expected.

Wonder if you had commentary on that.

Yeah, and I'll tag team with Us to go on this 1 too.

So we what we.

<unk>.

Our thesis going into this.

The thesis that Isaac and the commercial team generated was debt.

We know our product is intuitive.

And fairly easy to train on straightforward these use etcetera, but but we did not we felt that if we trained each site thoroughly meaning as many physicians as possible touch the device and get into cases during the launch period.

And.

On this everyone on the staff becomes familiar with.

On how and when to use shockwave that we would be.

Be able to.

On leave that account.

And know that they would they would use.

To appropriately and <unk>.

Not need us there badgering them to use it.

On.

And and debt.

The state will then be largely independent.

And yes, we would still serve that account, but we wouldn't have to have.

We have a clinical specialist in our lab every day to remind people to use coronary.

Okay.

So far debt that debt debt thesis the theory that debt Isaac and team had has proven.

To be to be a very wise approach.

The accounts.

A very receptive to have us there.

Being there for a couple of weeks also enables us to to cross sell into the peripheral space. So that has had a halo effect that.

It is encouraging to see.

And then we move on to the next site and what we didn't want to do is as is.

You have to have our sales team with all the enthusiasm enthusiasm for <unk> to run from account to account doing cases.

Because then they were just going to have to go back in and resell.

And and so we will not let them sell to more than 2 per month.

And it's less than 2.

On average for a variety of reasons some of it is youre waiting for back proceeds to get through.

You're off selling peripheral et cetera, So we're not.

Where I should say probably on on balance income.

Encouraged that its a little bit less than 2 versus hitting 2 every month because of the.

The numbers certainly suggest that.

Debt this the strategies.

The working group.

So I'll pause is like any other color.

Yeah, I'd just reinforce that.

Hi, Bill and limit with 2 per month, that's on limit not not a goal.

My expectation was that if you put a limit at 2 per month for all the reasons Doug.

Doug outlined that would be it would naturally be less than 2 per month, because not everyone is going to hit every month. So I think we're encouraged by the 1 on a half number.

Debt at par.

On goes on that will continue to get smaller.

And you're specifically on facts on what the timing is I don't think we see any.

Any sort of culprit.

So it's something we think is problematic.

It's holding back certain accounts or other accounts that are moving through the process. The sales team and their management housing a final on accounts.

And they are generally clicking through them pretty well so.

I'd say right now we don't see anything from a constraints standpoint, it feels like it's holding us back are we need to unlock some other similar tactic.

Yeah, and I would say the transitional transitional pass through was helpful.

In the past.

Knowing that it was coming in June was helpful on having in July enabled sites too.

Spool up there back processes, where they had been.

In a small small subset of the accounts, where they just couldn't figure out how to get through back without reimbursement. So GPT.

And a couple of months and tap will.

<unk> enable us to continue to add accounts.

And some that are more economically focused.

Hospitals.

Great and then if I could I wanted to ask 1 on operating expenses. The revenues were up $24 million sequentially, but your sales and marketing was up only $1.7 million I mean, that's like 7% to that increase.

And I think Dan gave us some kind of ideas on leverage but that's a big number and then just is that something that would continue for a while or did you spend forward back in the first quarter and we're just kind of seeing the kind of or maybe it was a guarantee or something kick in I'm just trying to get.

That's a lot of leverage.

And I'm trying to kind of figure out how to think about that going forward.

This is a topic I just mentioned as often so I'm going to let him take this 1.

Yes.

So last year the.

Sure.

The team.

Even in the U S income we spent it's been a lot of time hiring we more than doubled the U S sales force last year and that was as you know a forward spend.

Dissipation of the coronary launch.

And in Q1.

We did not have quota for the sales team on corner, because we didn't know when we would get approval. So there was some.

Some compensation associated with the coronary.

Launch in February and March.

That was kind of typically more than we would pay on a quota based system. So this is our first quarter with what I would say a day.

You know the majority the vast majority of our territories have been hired and are under the quota now for the coronary and peripheral products.

And as they continue.

Gaining new accounts and then further penetrating those accounts, we expect to see continued.

SG&A leverage from from that.

Territories and the goal is to have.

As fewer territories as we need to service our customers and then have those territories be as.

As possible.

Within each account and that makes them.

Relative we very profitable Terra.

Territories.

The second piece on the leverage if you bring in the international piece.

Our German team has been stable for a while but we've we brought on our direct sales teams in the UK and France.

So that right now it looks like expense for us.

As we start turning the crank on on.

On.

Actually doing the direct sales in those countries in Q3, and particularly Q4. This year, we should start seeing some leverage some more leverage on the international business as well.

Great. Thanks for taking my questions.

Okay.

Your next question comes from Larry Mendelson from Wells Fargo. Your line is open.

Hey, good morning, guys. Thanks for taking the question.

That's on all the success here guys.

Doug I wanted to follow up on Adam's question earlier on the end cap and the pass through payment.

Do you think some centers have been holding back their usage of IV L.

For these.

Enhanced reimbursement.

Go into effect.

Too early to say for sure.

It would appear to us that the.

Debt.

Debt the utilization and the predicted in the early adopter.

February March April sites.

They were using it.

In every instance day felt appropriate on.

And the more they used it seems the more you like it.

But that did not appear.

To be to have any economic constraints, they were sort of economically aware, but unconstrained.

As you as you got into 2 as I mentioned earlier as you got into June I think there were sites that were well I know there were sites that were struggling with with convincing their vac committee to bring to bring <unk> on board.

And so as the as we add.

Sites now it will be a blend of sites that that might not have been able to come on board were it not for the true.

On the show pass through or ultimately on tap as well.

And sites that were just in our Q and we haven't gotten to yet so they weren't waiting for and tap they were more waiting for us.

And.

And so obviously there.

I would not have been able to order shockwave.

Were it not for reimbursement then by definition, that's going to be an increase.

We'll we'll we'll obviously be monitoring to see if there is an uplift debt.

Sort of same store sales wherever they are and August sort of higher reorders at net earlier sites, because now they feel even less constrained than us.

At this juncture, it's too it's too early to say.

Okay.

Doug I'm going to try to sneak 2.2 weighted here 1 is just on the long term opportunity.

Or to severe calcification, you've said the U S is 20% to 30% of PCR cases, but what's your latest view on that.

Peak penetration.

For IV L would you be disappointed if it werent a third.

Third.

On the moderate to severe cases, and I'll stop there I just wanted to ask 1 quick 1 on the pipeline after that.

Yeah.

So almost.

Almost everybody every physician we speak to.

Feel first of all there is.

Unanimous.

On his view that calcium is becoming an increasing percentage of the patients they treat.

So while we say.

30% calcified moderate and severe combined.

Hit it.

I think the next time, we adjust our Tam it could very well be because we have data that shows us that the percentage is actually higher than it used to be because certainly the physicians anecdotally feel that it is.

Yeah.

And it makes sense aging diabetes or the 2 predictors and those are both happening.

In terms of the severe calcium.

On the published data suggest that thats, 15%, so half of the 30.

And that's also the number that most physicians land on as a that's the population that absolutely positively should get.

On some sort of calcium modification.

And only 5% pre pre shockwave only 5% debt in the U S. A couple of percentage in eastern Europe.

And so we our ease of use.

Predictability reliability safety profile, all the things that resonate with our physicians also.

On.

As is happening now and we expect will have on into the future is increasing the.

The low.

Percentage of the patients that are getting.

Calcium modification versus just a plain stent durable and understand.

And so if 15% is at least the number.

That ought to get get modified.

Your number would suggest that we would have 10 percentage of the of the total PCI volume.

Or a third of the total calcium.

If thats the number youre, asking certainly where we are.

Where we are.

We are we don't we don't sort of go into an account and say Okay. You do you do 500 PCI is there for you.

15% of those so.

<unk>.

75, a year ought to have some sort of a calcium modification.

We don't we sort of don't do that math.

It is it is certainly evident to us debt.

The percentage of cases that are now getting treated in the U S.

Is increasing.

And you cited that as on <unk> is now on modifying patients more thoughtfully.

Unable to treat them.

Clinically appropriately with Shockwave, so would I be disappointed with less than 10%.

We are.

We're ambitious so.

I would I.

I certainly hope we get it at least to that number and I think Chuck wave because of its ease of use and safety.

Has the ability to penetrate into the until the less severe population as well because there is essentially no downside to using our device.

That's super helpful. Doug.

On the pipeline based on your comments upfront does that mean, we're not going to get kind of this.

Pull some.

Pipeline update late this year early next year that debt I think you'd been talking about and just.

On that theme just thoughts on you.

Additional products, adding to the bag organic vs.

Inorganic what are your latest thoughts thanks for taking the questions.

Yeah, we're we're still.

We're still mulling weather.

Whether in what form we would do a a pipeline update.

We're still we've talked about the first half of next year.

It's still on our radar.

What we don't want to do.

Don't plan to do is to.

Put up a slide of a design that will hit the clinic.

2020 for 2025 or whatever that debt is is like just a prototype.

I think that debt debt.

It's too much selling futures companies get in trouble.

When they go there I think our.

Our current products and near term products, which.

We will likely early next year would be more comfortable saying here's here. The next thing is coming.

Not everything but here are the things coming in the near term.

They are pretty exciting and so more likely than not we will we'll share at least the.

The next.

Uh huh.

The next installments of the application of Shockwave and I'm thinking the early part of next year still.

What I was trying to clarify is that sort of.

Longer term multi year.

Product portfolio cadence that some companies put out there.

We don't think that's wise for us to do.

Nor necessarily helpful to 2 to investors.

Maybe inorganic I mean, the non Ivy L question, sorry, Doug.

So we are.

<unk>.

Isaac and I, both did M&A for a living for for I think both both of those data for 5 or 6 years.

So we're not.

We're not averse to finding things externally that debt.

Our highly complementary.

The a challenge 1 would have it in a business like ours right now as is.

What would be stimulative to growth given the growth that we see in front of us.

Hard to find many things that would that would make sense as a sort of opportunity cost because if we spend time.

On something what you acquire than that that's time youre not spent spending on your own.

On on building your own business.

And building out your technology.

So so we're we're we pay attention and.

Is there something that is that is just so obvious that it makes sense to us.

And then we will think about doing something but that's not our own.

That's obviously not our main focus.

Thanks, Doug.

Okay.

Your next question comes from Cecilia furlong from Morgan Stanley. Your line is open.

Hey.

Good morning, and thank you for taking the questions Doug I wanted to start and just if you could provide a bit more detail in terms of peripheral the trends youre seeing in accounts. Following initial coronary uptake and adoption and really where you're able to gain traction where you hadn't previously anything you'd call out.

Typically relative to either ATK or B T. K, just anything along those lines would be helpful.

Sure So our hour.

Compensation structure for our for our field team.

Yes.

Is as I said in my.

Prepared remarks isn't.

Endeavors to create a balanced selling approach where.

You can't we don't get it.

As a territory manager you don't get totally absorbed selling C..2 and then start paying attention to peripheral.

If you do that your you will not.

Youre not you won't make as much money, so they've got to sell both peripheral and coronary and they've got to sell both the S..4 and 5 on the peripheral side too.

To Max out the conversation.

Not that not.

Not that our team would.

Ignore peripheral or the debt they don't like selling peripheral just when you have a shiny new.

On toy like like see too that everybody wants to talk about there's a natural inclination to.

To be distracted in and.

Spend less time on your peripheral business so.

I think the way we have structured debt has ensured that.

Debt.

Debt when Youre in the hospital selling C..2 and everyone's high Fiving you because the case went so well.

You will remember that there's a vascular surgeon down the hall, who might have a case.

A tough iliac case, and you ought to go check that out and see if you can help improve.

Improve outcomes for decades.

So where we are.

We're quite.

Quite encouraged that.

Across the below the knee and above the knee segments that debt we have.

We sort of saw growth.

Generally across the various ways that shockwave gets used.

Throughout the quarter. So it was not.

It's not as if.

Wow.

Our public <unk> business, just went through the roof and that drove it. It was it was a it was a widespread.

Utilization increase across the hundreds of accounts, where we sell.

We're cautiously optimistic that the debt the goal of.

Okay.

Leveraging the sort of.

Or the or the.

Our belief not goal our belief that having a sales team selling both peripheral and coronary.

And and the obvious synergies of treating iliac per with true large bore access where the same Dr does coronary or treating coronary for the same doctor who does below the knee disease.

That are our system is is somewhat unique.

In med device in that we think we're stronger having 1 sales team sell both whereas most companies have had to split we don't we don't see that.

Anytime in the future.

We do think there is.

There is a net positive to our peripheral business by virtue of.

On being in the corners.

Sure.

Thank you and if I could ask as well just on Japan could you just provide an update.

Around your team build out in the region ahead of approval and reimbursement just any additional near term plans you have them related to building out that team per day. Thank you.

Yes as you on.

This 1 tier you wouldn't view.

<unk>.

Sure.

Yes, we have.

A handful of people now on our team in Japan as we as we.

Kind of bulk work more as.

We work with the <unk> 2.

To facilitate the CTO approval as we work with the NHL W..2.

On the path forward for reimbursement and then starting to get some senior leadership for sales and marketing.

Yeah.

And so that's I think it's going per plan.

And again thinking.

Should have hope hopefully have PMA approval in the first half of next year that day.

6 to 9 months.

Cycle to get the to get the reimbursement in place.

And we want to be.

Prepared we want as much education as we can.

And awareness to be out there for the product and then we will go ahead and execute on our coronary launch next year.

Okay. Thank you for taking the questions.

Thank you.

Your next question comes from Rebecca Wang from SBB Leerink. Your line is open.

Hi, guys Congrats on all day.

On her.

And then just have a follow up question on gross margin profile is that gross margin in the second half will be similar to 2.

And there's some margin.

Thank you intend to 10 day, 2 don't really think about your longer term margin profile as coronary I lay out relative to become a larger portion.

Hey, good Bye Bye, Okay, Inc.

Gross margin income approach.

85% range that high.

Range non broker and then.

Operating margin.

We expect to be profitable in Q4.

Hey.

Our operating margin, we should think about.

Sure. Thank you.

So Dan and I will tag team on this.

Yes, so we're investing this year.

Not not necessarily at the rate that we are growing our revenue line in line, but enough.

A lot of investment on the.

Lab expansion training equipment all the stuff then Dan described that that will keep us at a we believe a stable gross margin through through 2021.

We given we're at 82, and we think we'll get a point or 2 step up out of.

Out of our.

Contract manufacturer.

As we as we move on 5 there your your sort of 84 to 85 number is not.

Out of the realm of possibility.

Dan.

Yes, no I agree with Doug.

No on the on the operating margin long term.

We are.

I'd like to say, we're going to be above.

In the low <unk> high <unk> is kind of where we are.

We're we're pretty confident in and I'm.

I'm, hoping we will even get more leverage but that's down the road.

On the manufacturing efficiencies and really cooking and going direct in a lot of countries. So.

We expect big things and we're working towards that.

Thank you.

On a quick follow up on China do you have I know, it's still early but do you have a rough timeline when do you expect kind of true contributing right now.

So when we signed the agreement in the first quarter of this year, we suggested that the first product.

Imported product growth, so we manufacture the JV imports and they sell it direct to customers.

We anticipated that that would be a 2 to 3 years out.

And in that.

The locally manufactured product was more like 4 to 5.

We have not we've not revised that timeframe, so you'd be looking at.

She is in 'twenty 3 'twenty 4 for the imported product.

The team our JV partner is.

Certainly very aggressive very knowledgeable.

And.

Are doing everything they can to to.

Pull those timelines in but to some extent you're subject to.

The CFT.

Alright, perfect. Thank you.

Yeah.

There is no further question on this time, Inc.

Alright. Thanks, Thank you everybody and look forward to speaking with many of you over coming weeks and I do hope you get a chance to take some time.

And be ready for the for the back end of the year. Thanks for your support speak soon.

Yes.

This concludes today's conference call. Thank you all for joining you may now disconnect.