Q3 2021 Acutus Medical Inc Earnings Call
Good day, and thank you for standing by and welcome to the acute medical incorporated third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to Caroline corner of Investor Relations. Please go ahead.
Thank you operator, welcome to Akitas of third quarter of 2021 earnings call. Joining me on today's call are <unk>, President and Chief Executive Officer and David.
Well my Chief Financial Officer.
This call will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
All statements made on this call that do not relate to matters of historical fact should be considered forward looking statements factors.
Factors that may cause results to differ from these forward looking statements are discussed under the forward looking statements section in the press release attached as an exhibit to our COO to some form 8-K filed with the SEC today and are also discussed in more detail under the risk factors section and I'm curious as the most recent filings with the SEC, including the risk factors described in <unk> Form 10-K and before.
Looking statements provided during this call, including projections for future performance are based on management's expectations as of today I can just undertakes no obligation to update these statements except as required by applicable law.
Okay. This is press release with third quarter 2021 results is also available on <unk> website, Www <unk> got acute medical dot com under the investors section and includes additional details about <unk> financial results. Thank you. This website also as acute as the SEC filings, which you're encouraged to review.
A recording of today's call will be available on <unk> website by five P. M Pacific time.
Now I'd like to turn the call over to Vince for his comments on third quarter 2021 business highlights.
Thank you Carolyn and good afternoon to everyone joining us on the call today.
During today's call I will update you on our key strategic priorities as well as some recent clinical commercial and market developments I will also comment on our third quarter results provide some perspective on market dynamics and provide an update on what we're seeing in our business today.
David will follow up with details on our financial and operational results as well as our outlook for the rest of the year.
Before I dive into your commentary on the external environment in our Q3 operating results I'd like to focus on key accomplishments during the quarter by our team in each of our three core technology areas less part access mapping and therapy guidance.
Let's start as this product line continues to be very well received by Electrophysiologist and structural heart specialists as we continue to rapidly build out the breadth of the product lines.
Over the past year, we have refined and expanded this product line from a narrow offering with just five skus to over 20 Skus today, we are seeing an encouraging adoption curve here with Q3 2021 total subtle crossing revenues threefold higher than the same quarter.
Last year.
And mapping and therapy guidance, our software team delivered a unique in the industry mapping software capability that automatically calls out regions of interest to the benefit of our mappers and theyre positioned customers rapidly, revealing new insights into cardiac signals that will help physicians better tailor their therapy for.
Each patient, while minimizing destruction of healthy tissue.
We believe this feature will be particularly helpful. In the large and growing population of patients with persistent and long standing persistent atrial fibrillation.
Ablation results remained challenging.
In therapy are accurately force sensing ablation catheter and system is gaining commercial traction in Europe. This product line is now annualizing at a rate of around $1 billion and we expect further growth here in Q4.
Our teams in the U S and EU as well as our partner buyer to buy electronic have made excellent progress and installing these new therapy systems by the end of this week, we expect to have 40 therapeutic ablation systems installed worldwide for commercial use and in support of clinical trial activity.
These ablation systems are the workhorse engine behind our <unk> ablation catheter and are a leading indicator of adoption.
In support of our efforts to gain RF ablation approval in the U S. I can also update you that our enrollment in our right atrial flutter ablation trial is going well and we expect to complete enrollment and submission to allow for approval in the U S.
And in 2022 or early 2023.
In addition to pursuing a flutter indication we plan to imminently enroll our first patient in the U S. IEEE for RF ablation of atrial fibrillation.
This trial involves a one year follow up and we will keep you apprised of our progress.
Also in therapy as announced today, we treated our first patient in our coal steel ablation CE Mark study in the Czech Republic.
We had previously discussed first enrollment by the end of this year and given the success of our animal studies confidence of our physician investigators quality of our product and incredible focus from our internal teams. We have achieved this critical milestone.
The <unk> force TFA CE, Mark study will enroll up to 60 patients and also serve as a foundation for our U S. IDE study applications.
We are not yet providing guidance on coal steel deflation approval timelines, but we are very encouraged by program developments.
Diving, a little deeper into our approach to Psa.
Unlike the vast majority of competitor PSA programs under development that are focused on pulmonary vein isolation alone with large format. So called single-shot catheters, we are advocating for a more tailored patient specific application of PSA energy by utilizing our focal.
Like force sensing ablation catheter as the therapeutic delivery device.
Tailor the approach will be further enhanced when combined with our accu map mapping system.
That also facilitates identification of target treatment areas outside of the pulmonary veins, which is thought to be essential to more effectively treat.
Patients with complex tachycardia, and persistent and long standing persistent atrial fibrillation.
This strategy is a deliberate choice on our end to enable a fast therapy platform on a fast imaging platform to guide therapy in line with our mission to treat AF with.
With a personalized approach to improve outcomes.
So in summary, a careful review of our current and future product lines reveals our tenacious focus on innovation is bearing fruit and signals a very bright future for the company.
We are seeing strong performance in our left card access and therapy categories, which will become increasingly important revenue contributors over time.
Our mapping and therapy guidance business has progressed somewhat slower than expected and we are actively addressing the factors contributing to the adoption rate, including upgraded software to improve physician experience and enhanced training for our teams.
With that I will turn to an update on the external environment as well as our recent performance.
During our last earnings call in August we described the operating landscape is very fluid and this is exactly how things played out.
In the U S. We saw COVID-19 related shutdowns in several parts of the country, including Arizona, Florida, and Nevada, where we happen to have a high concentration of mapping and less card access customers.
In Europe, we saw extended Cath lab shutdowns, partly due to managing COVID-19 risk as well as longer than usual vacations in many instances, we found that labs, where we have business in Europe were closed for as long as six to eight weeks versus the normal seasonal pattern where labs.
Our largely shuttered for three to five weeks.
The combination of Covid impacts, including peak resurgence extended seasonality broader hospital restrictions and staffing shortages created greater than expected headwinds in the quarter.
While we saw momentum in procedure volumes in late September the magnitude of the rebound was insufficient to offset a lower than planned installed base.
Lower capital sales and conversions and procedure disruptions.
We have been actively monitoring market trends and we are seeing general stability here in Q4.
Turning to Q3 results, we generated revenue of $4 $6 million.
Representing good growth versus the prior year third quarter, and essentially flat compared to the second quarter of 2021.
Year over year growth was driven by higher procedure volumes globally, and an increased capital equipment revenue.
On a sequential basis higher capital sales offset a decline in disposable sales tied to COVID-19 related procedure procedure deferrals and extended seasonality.
We ended the quarter with an installed base of 71 <unk> systems during the quarter, we made the strategic decision to remove and reposition certain systems with below target utilization or were key physician users had relocated to a new geography.
As we focus our commercial strategy. We are also looking to optimize console placement targeting.
Targeting the right accounts, where we can drive higher adoption will allow us to optimize utilization of our cash and human resources.
This does not mean that we won't continue to grow our installed base, but it simply means that we will be extraordinarily disciplined where we make the considerable investment to install a new system.
In the U S. The pace of new system installations in Q3 trailed our internal expectations. We also are still seeing lab access restrictions in certain hospital policies to limit new technology evaluations as well as lengthy administrative processes.
This is regardless of strong physician support and a number of centers.
Further as procedure volumes have rebounded post COVID-19 surges the market generally seems to be favoring technology familiarity and predictable pace of throughput to clear patient backlog, resulting from Covid disruptions.
In Europe, we saw seasonality play a major role in installed base trends.
Moving to global procedures, we saw over 50% growth versus last year's third quarter, but a decline sequentially versus Q2 of this year related to factors previously discussed.
In the U S. We saw improvement in volumes month by month during the quarter.
Procedure volumes in Europe were stable throughout the quarter at a lower level than Q2.
All told we are encouraged by what we are seeing across the board with respect to procedure volumes here in Q4.
Overall, while our business trajectory has improved I am not satisfied with our performance or commercial execution.
Sternal environment has proven a major headwind and the impact that pandemic has had on procedure volumes hospital access recruiting and new technology adoption has been more severe than expected.
At the same time, we have not fully executed on our own internal initiatives.
We recognize this as a management team and are responding accordingly, and the U S. We have centered our business around what we call power pods, which are regions, where we have a high concentration of accounts utilization and correspondingly <unk> representation.
This has led to our strong performance in the southeastern and southwestern United States.
The U K and parts of Central Europe take on a similar profile with the strength in concentrated areas.
Going forward the key is to replicate and expand this model. This strategy will drive long term success and deeper account penetration, but will also likely take longer to scale than we had initially anticipated.
In no way does the pace of our ramp shake our conviction in the value, we can provide our physician customers and patients.
As we build this company for the long term, we remain steadfast in our mission to bring differentiated and highly valuable technology to this large and growing market.
I will be happy to cover this in more detail in the Q&A and I'll now turn it over to David for our financial results David.
Thank you Vince and good afternoon, everyone. During my remarks today I will provide details on third quarter 2021 operating results as well as our outlook for the rest of the year.
As Vince previously mentioned our revenues for the third quarter of 2021 or $4 6 million up from $3 2 million in Q3 2020.
Sales in our direct businesses of approximately $2 $9 million increase.
The increase from $2 7 million in the third quarter of 2020.
On a sequential basis, our direct businesses declined approximately $620000 due to procedure volume headwinds related to COVID-19, lower capital conversion.
Pending cath lab closures in Europe, and lower new installations.
Offsetting some of the pressure on our direct business will strengthen our <unk> partnership.
Revenue through distribution agreements of approximately $1 $7 million compared with 499000 in the prior year's third quarter, driven by both disposable and capital sales.
As a reminder, this business was relatively flat sequentially in the second quarter as we did not register any capital sales in Q2.
In Q3, we saw biotron it convert much of their installed base of full capital purchases, reflecting their long term commitment to growing the business in key markets.
Non-GAAP gross margin was negative 77% for the third quarter of 2021, compared with negative 58% in the third quarter of 2020.
The year over year decline in our non-GAAP gross margin largely relates to mix with a higher proportion of our sales in this year's third quarter coming from capital and sales through distribution partners.
Going forward, improving our gross margin will depend on several factors. The most important of which is scale. We have invested in are built to support long term meaningful growth, which results in a heavy overhead burden today.
As we grow the business that fixed cost will get absorbed across higher volumes.
Secondary to scale is product mix between disposables and capital as well as mix among our operating segments.
Lastly, we are intensely focused on variables, we can control such as manufacturing yield labor costs and components spend.
Non-GAAP operating expenses were $21 8 million in the third quarter of 2021, compared with $17 8 million for the same period last year.
The year over year increase in non-GAAP operating expenses was primarily related to investments in the activate for sensing ablation catheter, our PSA program software development investments in our commercial organization and public company related costs.
Our non-GAAP operating expenses have been roughly flat on a sequential basis. The past four quarters as we reallocate resources to fund growth programs, we remain very focused on expense management and optimizing our investments.
Excluding specified items, our non-GAAP net loss for the third quarter of 2021 was $26 7 million or <unk> 87 per share compared to a non-GAAP net loss of $21 million for the third quarter of 2020, or <unk> 90 per share after giving effect to the pro forma conversion of our convertible preferred.
Stock.
Total cash balance at the end of the third quarter of 2021 was $134 7 million.
Looking to the remainder of 2021 I'd like to provide some further detail regarding our outlook.
Over the course of this year, we have consistently talked about five key sales growth drivers and I will provide a further update today.
The first is capital sales total revenue excluding service in rent in the first half of the year was approximately $1 8 million.
Q3 revenue totaled $1 5 billion and based on what we have already generated here in Q4, we expect the second half to at least match the first half of the year.
Second is manufacturing yields we have resolved the majority of back orders in key product lines and are aligning our production volumes to meet demand.
Third is new product launches across our portfolio. We have launched several new products. This year, most notably accumulate in Europe, and Trans septal crossing devices in the U S and Europe.
These product categories generated around $400000 of revenue in Q1 about $800000 in each Q2, and Q3 and we expect further strength in Q4.
Fourth is the normalization of market conditions, we had assumed in our initial guidance that COVID-19 related headwinds would dissipate throughout the year.
This is not materialized as expected and we have seen ongoing waves of COVID-19 disruptions and recoveries in.
In addition, we are observing an overall more challenging environment for new market entry due to hospital restrictions on new technology and ongoing macro disruptions.
The last key drivers improved commercial execution with a revamped strategy earlier. This year, we had planned for a more rapid improvement in execution.
Vince discussed the status here in detail earlier in the call and this is one of the major drivers included in our updated guidance.
Putting this altogether, we now expect revenue to be in a range of 17% to $17 $5 million, reflecting our year to date result, the flow through effect of a smaller than expected installed base and the commercial execution dynamics that we've discussed.
We have taken a balanced stance on the evolution of the external environment and the pace at which we can drive improved sales execution.
I'll now turn the call back to Vince for closing remarks and to facilitate the Q&A.
Thank you David.
As I reflect on where the business stands today I'm most encouraged by the proof points reinforcing our view that this market is hungry for innovation and improved procedural efficiency and results and that our team is absolutely able to deliberate.
In particular in Europe, where top tier hospitals are using our complete product line.
Card access products are mapping system, and our ablation system and catheter to complete their entire procedure start to finish with great results.
This is happening in hotly contested bellwether accounts with entrenched competition.
The priority now is to replicate that success.
Our business at a more rapid pace.
As we have said in the past disruption will not be linear and we are building. This company to be a long term industry leader.
As you have seen in the press lately there is a tremendous amount of interest in EP, most notably in the left card access and advanced therapy.
We are very very pleased with our progress in developing novel technologies in these categories further bolstered by our differentiated mapping system.
We are sharpening our pencils in some key areas and look forward to updating you.
On our trajectory on future calls.
We appreciate your continued interest and support and we'll now.
Now open the call to your questions.
Greater.
Thank you.
A reminder to ask a question you will need to press star I'm wondering if your telephone to withdraw.
Your question. Please press the pound key please standby, while we compile the Q&A roster.
Yeah.
Our first question comes from Robbie Marcus with Jpmorgan. Your line is now open.
Oh, great. Thanks for taking the question.
So two from me.
Then maybe to start.
What do you think it is.
That's preventing greater adoption is it that doctors aren't buying into the technology.
Are people not getting the results you know.
There's good data it's been over a year since you know.
The IPO and the launch has pretty much been flattish since then.
So what is it that's preventing <unk>.
More utilization, especially having you know I guess, some placements and and then.
Removal of some units you have flat unit growth.
I would've expected a lot more so would just love your color.
Yes.
Thanks Robby.
This is a this is a complicated business and you've got a you've got to get everything right in order to convert a physician and gain their regular utilization and start start to ramp.
The.
Yeah.
I think the.
The first issue I focused on is.
Some of the hospitals, we targeted earlier profiled expertly and we had we knew it we know very well, who we're working with.
And what their procedural approach was going to be and how well, we could and did fit in with.
Their workflow and their philosophy around the blade and around diagnosis.
And we've had we've had great results there we have <unk>.
Tens of physicians and hospitals, where we're seeing really nice uptake and regular utilization.
Some of the other places we targeted I think we just number one we might have missed the boat in terms of physician profiling and understanding the match of where we were in our journey in terms of refinement of.
All the different procedural nuances and approaches and also where they were kind of where are we meeting them where they were.
We were we installing in centers.
That wanted to stay with a standard kind of anatomical approached the ablation.
Or are we going into centers that didn't really accept that that was necessarily good enough.
And where are those were those doctors and centers really committed to.
Hmm.
Bernie and getting up the learning curve of a new technology in order to hopefully provide better outcomes and faster procedure. It does take we do fundamentally change certain aspects of these procedures and it does take a commitment to learn what those steps are.
Work them into your daily routine.
I think we're getting we're getting better at that we're getting.
We have a much much better clarity on.
How to ask those questions the right questions respectfully physicians, so that we set that out early on in the process before we invest a lot of time effort energy to install a system.
<unk> put people on the ground.
The other thing I have to say is we need to get better onboard I'm sorry onboarding.
Our own people.
When we when we bring them on as members of therapy managers.
And in particular salespeople and account managers.
We're still learning how to hire and attract the right people for the job we have at hand.
This is not a.
Maintenance milk run account manager kind of a sales role.
This is a business and market development role and we need savages people that have come in and brought new technologies into position.
Groups and hospitals.
And.
Work with those physicians to make the changes necessary.
To take it.
To the next level.
The new approach at these procedures and I think we're pretty self aware about that and we're getting after it with our team, but these things take time.
It has been a learning process for us.
I think it's coming into much clearer focus what we need to do where we need to be and how we need to do it.
Thanks that maybe second question.
David.
Streets sitting around 50 ish million in sales for next year.
My guess is that's probably high given the the placements in the quarter and the run rate for fourth quarter. So should we be thinking something more like 2000 $25 million for next year.
Is that a good sort of trajectory I know you haven't given official guidance yet.
Yes, Ravi so thank you for the question so.
So in the process of finalizing our 2022 operating plan as you referenced but let me give you some perspective on the key drivers that.
We will help answer your question, so first and foremost as Vince mentioned, we are steadfastly focused on our mission to continue to invest and transform EP as well as dramatically improve patient outcomes and the physician experience that is very much top of mind as we look to 2022, and we think about our own operating plan as you look at 2000.
'twenty, one our updated guidance contemplates roughly more than a doubling of sales when compared to 2020, a little bit more than a doubling as you know 2021 included several headwinds such as COVID-19 enhanced seasonality and of course as we've discussed the uneven sales performance.
As you think about 2022 from where we sit today, it's very likely we will face. Some continued headwinds from COVID-19, whether those are direct in nature, such as elective procedure volume disruptions or indirect such as lab access and hospital restrictions.
We and many have tried to predict kind of the end of COVID-19 at a full normalization of market conditions, but from where we sit today expecting that 2020 to look something like 2019 and at the Covid cloud fully lift is probably premature. So I think as you referenced for our busy.
Specifically, we will end 2021 with a lower than originally planned installed base, which will have a carryforward effect on per on.
Our business next year, because the installed base.
Expand the user base expands procedure volumes expanded disposable revenue.
That will be partially offset.
By some of the new product launches that we've discussed which are now annualizing at a very nice level CFO crossing and accumulate we're annualizing about $3 2 million as of the third quarter.
But all told given all the moving parts of our business given kind of the external and internal factors, we're probably about a year behind where we thought we would be in terms of sales execution when compared to all of you in March of this year and we will give full guidance.
And formal guidance excuse me in in our fourth quarter call, which will be late February early March.
If I could just follow on with that.
David I think wherever you also talked about the installed base and one of the things we definitely.
Had.
Yeah.
Planned and projected to have a larger increase in our installed base in Q3.
We did make a very conscious decision you know these are kind of difficult painful decisions too.
To remove and replace or reposition some of the cause of that.
Less than 10, but still a meaningful number of consoles are already in place because the doctor our champion maybe had moved.
Geography, or we just we just weren't seeing the kind of traction.
We wanted to or maybe we have their own commercial team on the ground or insufficient commercial team on the ground.
We will ramp that growth back up in this quarter.
Loan in Q4, I believe we have installed into five new centers.
Already this quarter. The other thing I, just want to reinforce the importance of and it's hard to imports.
The importance enough.
The fact that over the last 12 months, we have installed.
In the U S Europe, India bio tronic partner.
About 40.
Oblations system. So this is the cubic course unit.
RF generator, the pump and the stimulator.
This this is a very important potential.
Revenue generator for us not just for ablation, but really all also across the board as we've talked about since day, one as we've gotten to know each other.
Mapping is really important mapping tied.
Intimately integrated with therapy.
As you know kind of the Holy Grail here, especially when you have a mapping system like ours and state of the art ablation system. So to get 40 of these units installed over the last 12 months I think I'm really proud of the team for doing that.
I think that is a very important kind of bellwether number for us to focus on them.
Great. Thanks, a lot.
Thank you. Our next question comes from Margaret Kaczor with William Blair. Your line is open.
Hey, guys. Thanks for taking the question.
I wanted to maybe follow up a little bit more on 'twenty two to start.
And kind of trying to get a good sense of what the visibility is around those capital sales and installed base growth. So.
Following up on your comments around the timelines being studied for new technology sales and so on can those come back.
Yes early part of next year or is it maybe.
Maybe getting pushed out six or nine months.
Power pods in the geographies and so on.
Yes.
Hey, Margaret Thanks for the question so.
Some of those factors that we've talked about with respect to new technology evaluation and administrative processes are potentially byproducts of COVID-19 as well as the staffing shortages that you've heard extensively about in the industry and I think from where we sit today, putting a fine timeline on when that's going to be resolved.
Isn't something we have visibility to do so as we look at our fourth quarter guidance and start to put together the plan for 2022.
We are assuming that many elements of the external environment remain very similar to what we've seen over the recent past clearly not a repeat of the delta Varian impact or the 2020 Covid type dynamics with extended full shutdowns of hospitals, but reverting to.
A fully normalized environment is not something on which we have a lot of visibility right now nor is something that we would count on to your point, specifically about our business.
Are we have identified and have segmented the power parts in our business, where we do have the right staffing and a concentration of accounts. We are seeing very strong utilization not just of our mapping system, but across the entire portfolio.
Products that are available.
And in Europe, where there is a broader set of products available.
The dynamic is is is similar but I would expect the pace of new installations to.
Probably be better than 2021, because this is a year or we are also going through the rationalization effort of repositioning.
Consoles, but if you look at this year, our net installs were four in Q1 eight in Q2.
One in Q4 Q3, excuse me Vince referenced that we've installed five systems to date here in Q4, we may reposition some as we exit exit the year. So as you can see it's pretty uneven this year had some extraordinary dynamics associated with it but.
Getting back getting to a so called normalized cadence in the end market is is something that just hasnt been sustained over the course of this year. So assuming that we're going to have a normal 2022, just doesn't seem prudent right now.
Okay No fair.
Fair enough and then I had kind of two other questions one was around the power pod strategy.
I'm trying to get a little bit of a sense of why those parts, maybe are doing better than others from a profile where service perspective on your part and then as we think about that scale effort for and throughout 'twenty two.
You choose SAP are there to power pods, and those are going to CAD or any kind of color there for us.
Vince you want to take that one.
Yes sure.
<unk>.
Yeah.
A great question.
<unk>.
What I'd say is what we've learned and I think we alerted alluded to this on an earlier call. What we one of the things we've learned of last year or so is when you are bringing not just a mapping system.
But ah mapping system that has a physical catheter and a sheet and nail left heart access product line.
And you have you need really really good communication with a new user between the physician and the Mapper.
When we onboard into account we need to have somebody at the table beside the physician walking them through how to use the catheters.
Remind them what they're looking at on the screen.
Talk about what they have seen other physicians do in certain situations and just kind of sherpa. The procedure through not just have a mapper driving that mapping system and as we as we think about the skill set that is required for that bedside person. It is typically somebody that has more of an interventional background.
The World I come from in the Interventional cardiology side, there are a number of other.
Places, we can go higher from peripheral markets some of the structural heart.
Companies out there that they have that skill set so as we think about the power pod.
If you have that that tableside person, who also has an account management skills and you pair them up with a rockstar map or therapy manager as we call them and we have a cadre of those.
Been able to attract the best of the best therapy managers.
Around the country and in Europe.
To drive our system, but as you pair up.
That team you.
It could be very very effective, but I think we understand that team initially.
The second thing is that the way to scale. This.
As to where I think rather than kind of pockmark the country with pods here and there it's going to be more cost effective.
To the X.
Is that possible that you've kind of radio you'd be radius or radiate out from those.
Initial power pods, and if you look at the history of our brethren in the industry.
The leaders in this business, that's very much how they evolved over time over the last decade, two decades as well as they really they really deployed a pod strategy I think we should have come to the sooner, but we are where we are and we are we are now stopping on the accelerator too to scale that approach.
Okay great.
Last one on Miami.
Growth obviously.
New products at the crossing I keep white has been really strong.
Good trajectory going into next year that 40 units that are ready for that at this point is good as well, but how should we think about that.
Terms.
Other new accounts that could get added to that or better utilization.
Amongst existing accounts for those two products together.
Yes, what I'd say.
What it says central crossing it's really one of the first things you're doing the procedure and if you do it poorly it can kind of muck up the whole procedure, if you do it well.
It can portend, a really efficient procedure.
So if you if you get in there you get it right. It's a great calling card an entry point.
For introducing customers to our entire company, our product line and our philosophy and the passion that we bring to this business.
In the U S over half of our so our simple crossing customers currently.
Over half of our good high volume customers don't have a mapping system, yet and believe me when they get to know our people and they see how we think about innovation here.
They very often are.
Those customers are very high on our funnel list for systems that we hope to get installed in Q4 and next year.
So that's.
That's just a terrific.
The business model for us.
In terms of the ablation side of things, obviously, we are not the commercial with ablation in the U S. Yet.
As we rollout our our clinical trial sites for the ablation trials, we're doing.
You might imagine that the large majority of those sites, where we choose to do ablation trials are going to be sites that already have or about to take our mapping system.
And that has its own set of some effects in Europe.
We are I think we're getting close to one to one in terms of sites, where we have mapping consoles and sites, where we have our therapy stack or system as we call. It which again includes the force generated RF generators at the pump.
And.
As I said in my closing.
Remarks.
The.
Nothing helps my helps me sleep better at night, then when I look at some of the absolute Blue chip accounts in Europe, but do not suffer fools. They don't suffer products that arent state of the art have adopted our complete line of products and they'll do.
Virtually the entire procedure stem to stern using our technology crossing mapping ablation.
And.
As we scale that I mean, that's got to be the model for us Thats key.
Clearly going to be the highest ROI for us.
And the most efficient use of our cash and other resources.
Great. Thanks, guys.
Thank you. Our next question comes from Bill <unk> with Canaccord. Your line is open.
Great. Thanks, Good evening and thanks for taking my questions.
First to start with just the.
You have 71 systems in the market right now just how many of those are under evaluation versus actually owned purchased with the either purchase or a use agreement.
David you want to take that sure Bill so.
The let me just give you bad backup for a second for you. So.
The 71 units out there that are in the field that are converted either permanent sale catheter commitment or rent is.
In the mid twenties.
And then okay. So about mid twenties of those 71 and then so that means you have 45 ish 40 call. It evaluation systems, how should we <unk> been moving some of those around I think some of those have been out there a while as well.
Some of those accounts, how do we kind of think about either a continuation of the rationalization program that you have ongoing versus.
You know kind of new sales at least in the near term it sounds like.
My gut is we're going to have a little more of this rationalization.
And then as we kind of start to meet with the goal of finishing that out at the end of this year and I just wanted to check on that.
I think that's a fair characterization mill, we would expect probably a couple of more to come out and be in here.
In the fourth quarter for the balance of them. We will continue obviously to work to convert those to either some sort of permanent placement and our goal is to drive utilization capital sales, obviously helped the top line, but if we have a we have an account that is engaged and wants to utilize the system at a.
<unk> clip, we will figure out a placement program that makes sense for us and for them such that we can continue to drive disposable utilization as well as drive.
Ongoing proof points and build a consistent and strong user base. So you look at the pool of capital that's out there.
That's sort of convertible.
45, or so that you reference.
We will convert some of those are permanent placement, whether that's through a capital sale or some other model, where we wouldn't recognize the upfront revenue that that's to be determined but ultimately our goal is to create an ecosystem that facilitates utilization for our for our physician customers and work with administration to ensure we haven't.
A compliant.
And permanent way to get these systems.
Placed.
Let me give you another.
Perspective on this as well.
Let's say for us because each account is different right. These these are at the end of the day. These gpus are heavily focused on procedures and.
And working through their backlog of patients. So they wanted to do procedures. They wanted to do procedures with us if we look let's let's pick an example account where maybe we installed a couple 345 months ago.
Dr number one the champion number one uses it uses that maybe a couple of times a month.
We're okay with that but it's not really the kind of ROI, we want Dr number to his colleague kind of likes what he sees.
But unlike doctor number one he wants to use a different ablation catheter with our system than the one Dr. <unk>. Once he is but we don't have the right connect college and it's we're not validated with that catheter yet.
There's a.
Pretty good subset there is a very common catheter were delivering I think in the next.
A few weeks a new cable that will allow doctor and number two do you use the ablation catheter through likes so that's how we start to bring up that.
That account or another account the Doc Dr number two.
Or even the initial doctor the champion does finds that he just has a hard time interpreting the images and figuring out the therapy plan based on our maps because our maps can be challenging to interpret the guide of therapy because a.
A lot of times, we're mapping complex arrhythmias like Afib.
It's chaos and it's hard to interpret so we just launched accu map.
New mapping software, which I think we now have in all of.
Our centers that has automated region of interest finders that helps the physicians actually understand what theyre looking at and develop a therapy strategy much more quickly than they could before.
So every hospital that isn't it.
The procedure volumes that we want isn't necessarily going to be reposition sometimes they are just waiting for those incremental improvements that we need to deliver in order to get people to bear hug us and start adopting.
And thanks for the actually I have two more bigger picture questions.
Vince the first one is you just talked about the automatic region finder software, which I think we saw back at HRS, if I remember correctly.
What.
What else in the products that you're bringing a cable out for an ablation catheter.
As you continue to develop that.
The mapping software you've brought out a bunch of new products and access what is there any one or two or three things that need to be brought in a change that kind of opens the floodgates.
Yeah.
Well, what I would say is the image interpretation region of interest there is a big deal in that same software suite, we made some procedural refinements are.
Workflow refinements that made the procedures just go faster.
We had a couple of steps that we ask our members to do which took a couple of minutes.
Some of the physicians just didn't want to wait they're standing table side, while we do some things and we are in some cases eliminated those steps in some cases shorten them by a factor of 10 or 100. So these are they seem like little things, it's really technical but this is just kind of a <unk>.
Granted our belt suspenders.
Figure out listen to your customers figure out what is keeping them from using us more often.
And pushed that out our team has just done an amazing job job, bringing these things out.
I think that's going to help.
Incrementally and significantly in some centers and significantly and others.
Uh huh.
Having a <unk>.
Alicia and available in the U S is certainly going to help our flutter trial is enrolling very well now we have Steve Mcmillan running that program.
And we've got a number of solid number of centers up in our enrollment is going well, we do expect to have approval b through the approval process for that.
That rate's headed flutter trial by the end of 2022 early 2023 and that will certainly help.
Okay and that actually was kind of answered my final question, which was.
Is there any one thing or anything you feel that would really provide inflection for growth.
So I think as we all sit here.
We've all watched medical device companies develop over time, and usually they kind of hit that point and if you really just it gets going right to the top line just really start moving.
I ask myself what is that is that the ablation technology is it something else that can.
Step function increase.
I think <unk> eight with the automated region of interest finders and the other improvements has the potential it has not proven out yet has the potential as we roll that out and get people comfortable with it to inflect that growth rate.
Great. Thanks for taking my questions.
Thank you. Our next question comes from Murray CFO with <unk>. Your line is open.
Hi, Thank you for taking the questions. This evening.
We're going to use my first question here to try to understand the Q Q4 implied that it was better.
As I'm sitting here it seems like procedure volumes should likely improve versus Q3.
Of our more normal perfect environment.
It sounds like then you're expecting lower capital sales in Q4 than in Q3, I'm curious why that would be given that feels like the environment for hospital access and some of these conversion Congress Wilson's slightly more positive than it was in Q3 I don't know.
Burton.
Haven't seen quite that.
Yet in Q4, but maybe you could help us understand some of that.
Sure. Thanks, Maria I'll use this as an opportunity also to correct. My answer to Bill's question. We have 31 converted units in the field seven as of now as of September 32017 in our direct business in 2014 with.
<unk>.
To your point that Youre correct, our fourth quarter guidance does imply a <unk>.
Flat to flat to down sequential revenue from Q3, we did see significant capital purchases in the third quarter largely through by bio tronic and if you recall the second quarter. We had we had like have a good amount of capital purchased from <unk> in Q1.
Effectively no capital revenue from them in Q2, a big step up in Q3, and we are assuming that that does not recur here in Q4, so the magnitude of the third.
Third quarter was our biggest single accu map console revenue over the past two years. So we would expect capital you are correct to be down sequentially, there could be an opportunity with respect to year end budget flushes at hospitals as you know the second and fourth quarter tend to be the largest periods of hospital capex spending we are not couch.
<unk> on that.
In our numbers, but the pool of convertible units is actually is quite significant and our teams are very active in looking to looking to convert these with.
With significant interest while we found some of the administration administrative processes.
Our very lengthy and then that has to do with a variety of variety of factors. So as we sit here today for planning purposes and for purposes of the guidance. We are we are assuming a step down in <unk>.
In capital sales and that is the primary driver you are correct in that.
In the fourth quarter guidance.
Okay understood. Thank you for that can you tell us how many.
This is where actually converted during the quarter I recall, the $1 5 million revenue, how many systems would that translate to.
In the quarter about 11 systems were.
<unk> converted.
Okay.
Helpful.
My follow up here.
That's the kind of away from some of the commercial strategy during the quarter we saw.
Our competitors get acquired by large Med Tech company wanted to play here if that has an impact at all on sort of the trends that are crossing product portfolio are you having conversations there do you see any disruption or anything like that just curious about any underlying dynamics to that part of the portfolio and thank you again.
Yeah.
Obviously over the last couple of quarters, there have been a number of acquisitions there.
Boston scientific required fair pulse on the pulse field ablation side of things for a very large number.
Boston Scientific acquired Balas for a very large number and I think just recently entered your acquired <unk>, which is our disposables manufacturer.
But the really nice number on it.
Let me, let me touch on all three of those real quickly.
Hum.
Well I'll touch on the first two.
Wholesale ablation as an area, we have invested an extraordinary amount of time and energy and we announced today that we we commenced our CE Mark trial.
We're the first site and proud of Czech Republic.
That.
Trial is.
Gordon are really important for the future of this company.
This is a.
Our brand new generator PFA generator that we have designed from the wheels up a purpose built TFA generator.
We've designed we are pairing that with our mapping system.
Which is then paired with our delivery catheter, which in our case is going to be the single shot.
Point ablation catheter with <unk> sensing on it.
We give you a sense of the level of interest excitement and the efficiency of these procedures. When you combine our mapping together with our catheter in our PSA generator.
In the first day at Prague today.
We completed we've already completed eight cases.
With a ninth ongoing I believe all eight are all eat so far in the night that's ongoing as we sit here today also is utilizing our non contact mapping catheter and system.
I mean that those kinds of numbers are extraordinary, particularly with the with the new approach new procedures.
Physicians, who are just getting up the learning curve.
Today to be able to complete nine cases I think.
As is.
Hello.
From left how to access perspective.
I believe in my bones that we have a better product line today.
Then baseless.
Boston acquired for $1 75 billion.
We go head to head with talus all the time.
We do very well I don't expect that that will change.
Under new ownership I think we continue to do extremely well head to head there.
Having said that <unk>.
Crossing the symptom is important as it is.
A large number of physicians still do it the old fashioned way with a very long unprotected needle called the B R. K needle and I've found in my career.
When the when you get a sort of a behemoth coming into our space.
And bringing a focus on the new technology that it tends to expand the market and help kind of the rising tide.
Rise all boats, and we think we'll be able to slipstream into that and parlay.
Our new and renewed focus on the importance of subtle crossing safely and fast quickly.
As a result of this so I don't I don't see any negatives coming out of it if anything I see positives.
Great. Thank you for those docs.
Thank you.
To ask a question Thats Star one.
Our next question comes from Hassan with Goldman Sachs. Your line is open.
Thanks, Good afternoon folks.
I thought maybe just to come back to a few things just a clarification on if you think that had been covered.
First on the 'twenty two numbers I think to your comment David on March I think.
At a time you had guided to about 22% to 30 million in sales that I just wanted to make sure that thats. The number you were roughly referencing in terms of saying you are one year behind.
Sure Mitch. So you are correct that that is the guidance that we had provided in <unk>.
March we're not specifically, providing any guidance here for 2022, but you are correct and that is that is the guidance. We had initially issued.
Okay and just on systems as we think about the installed base next year.
Maybe a little bit help.
Especially with the Greenfield units.
And just kind of trends that youre seeing and what you would expect that installed base to grow. So we know that theres devaluation piece that will happen.
But how should we think about the growth in the installed base next year for you.
Yes, it's a great question and.
He just.
Firstly, just an important point of clarification those units that are under evaluation also are counted in our installed base because they are while they are not generating capital revenue they are generating.
Disposable revenue and those evaluations range. The gamut of time some of those are as short as three months and as long as 12. So so those are reflected in our in our install base, even though not all of the units are capital revenue.
Generation so from <unk>.
To put it in perspective, we would most of the repositioning effort that is netting against the gross increase in our installed base should be complete by the end of this year or into the first quarter of 2022. So you would probably expect.
More.
More significant growth in our net installed base.
As we pace through 2022, if you look at the kind of evolution of our installed base. We ended last year with 58, I think we had significant installations in 2000.
<unk>, we are at 76 as we sit here today, we will probably have some removal. So some removal. So you look at the net increase that you might expect in 2021, we would expect.
A higher level of net install growth.
Next year, but arent prepared to give a specific number. So if you assume this year and somewhere in the 20% to 25 net increase range. We would expect next year to be in excess of that that $20 to 25 will probably include a net removal of.
Five to 10 units or so and we would expect the net removals to pace down next year.
Okay, Yeah, that's it.
It's really helpful.
Just maybe sticking with you David on the last one from me is just on <unk>.
Just given some of the changes in guidance.
Cash burn considerations here, whether your expectations changed at all in.
How if at all you think about you know kind of reallocating resources, just given the dislocation than you might have expected earlier in the year. Thank you so much.
Sure so.
What's interesting at this point in our in our ramp in the evolution of the commercial business.
Our operating expenses actually have a much more material impact on cash burn than anything else. So as I referenced in my prepared remarks, we are very actively looking across our investments whether that sales and marketing R&D critical corporate infrastructure manufacturing et cetera, and looking at where where do you where is the highest priority.
And most.
<unk> use of those investments so we talked about operating expenses theyre bouncing around this kind of 25% to 22 ish million dollars range over the past several quarters and while we're not giving operating expense guidance right. Now we have kept that pretty flat the past several quarters, while expanding the size of our commercial organization and investing in.
<unk> research and development program. So we are looking for ways to sort of self fund investments within the portfolio of other opex today.
No.
As we think about the total cash burn profile we are.
I think on our last call we had.
We had said we have cash through the middle of 2023 with the most recent raise we would say the updated guidance updated outlook with respect to sales still takes us through the first quarter of 2023.
Great. Thank you.
Thank you.
This concludes today's conference call. Thank you for your interest.
You may now disconnect everyone have a wonderful day.
Yeah.
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