Q2 2022 Surmodics Inc Earnings Call
Good day and welcome to <unk> second quarter fiscal 2022 conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Tim Arens Senior Vice President of Finance and Chief Financial Officer. Please go ahead Sir.
Thank you Jack good morning, and welcome to Thermotics fiscal 2022 second quarter earnings call before we begin I would like to remind you that during this call. We will make forward looking statements. These forward looking statements are covered under the safe Harbor provisions of the private Securities Litigation Reform Act of 19.
95 and include statements regarding <unk> future financial and operating results or other statements that are not historical facts.
Please be advised that actual results could differ materially from those stated or implied by airport forward looking statements, resulting from certain risks and uncertainties, including those described in our SEC filings.
<unk> disclaims any duty to update or revise our forward looking statements as a result of new information future events developments or otherwise.
Also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's news release contains reconciliation tables to GAAP results.
This conference call is being webcast and is accessible through the Investor Relations section of this aromatics website, where the audio recording of the webcast will also be archived for future reference.
Press release disclosing our quarterly results was issued this morning and is available on our website at <unk> Com I will now turn the call over to Gary Maharaj, Gary. Thank you Tim Good morning, and thanks for joining us on our second quarter guidance.
Well, we are pleased with both our financial performance and the progress we've made in executing our strategic priorities.
Starting with our second quarter financial performance, we delivered above expectations, we achieved revenue of $26 1 million in the second quarter.
$35 million in the prior year quarter, which included $10 8 million in fabric nice on the $15 million milestone payment associated to the successful completion of the transcend clinical report.
Normalizing for this milestone payment, we grew revenue by $1 5 million or 6% year over year, driven by solid performance from both our medical device and IBD businesses.
We reported GAAP diluted loss per share of <unk>, 29 cents and non-GAAP diluted loss per share of <unk> 22 sets.
We are updating our financial guidance for the full year to reflect the strength of our year to date financial performance, Tim will provide additional detail on our quarterly results as well as our updated guidance later in today's call.
During our second quarter, we continued to make progress on our strategic objectives for the fiscal year. As a reminder, these are first to achieve the PMA persevere support abbott's commercialization efforts.
To build the commercial pipeline forward sublime radial and pounds arterial and venous thrombotic can be platforms.
To drive topline revenue growth and optimize cash flow from our IBD medical device coatings offerings.
During which the Vale, we have made important progress to support <unk> pre market approval. Since we last spoke in February we have completed and have shared with the agency. Our responses does address their main questions related to preclinical data, including the impact of different civilization doses.
Our materials are used in the final product. In addition, the FDA has confirmed a date for a request for the submission issue review meeting on May the force to drive towards alignment in our responses.
While we asked for earlier meeting deeds made fourth was released data the agency was able to provide.
Following this may 4th meeting, we'll have a clearer view of the path and timing to the PMA, including any further preclinical studies as needed.
We are confident that we have compelling data does occur that secure the PMA approval.
We now have substantial two and three year clinical data that demonstrate the continued excellent safety and efficacy profile for the fleet.
Drug coated balloon.
While our goal remains to secure the PMA in fiscal 2022.
Agency will still have 90 days to respond after we have completed our final submission.
With that in mind, we continue to exercise a conservative view of the approval timing and believe FDA approval will likely occur before the end of the current calendar year.
Our recent discussions with our partner Abbott had been encouraging we anticipating the 24 month transcend clinical data will be presented at an upcoming conference later this fall.
Expectation continues to be the U S launches for available follow the receipt of the pre market approval.
Moving to Sundance below the knee sirolimus drug coated balloon.
During last quarters call I shared that the physicians sharing committee flow swing first in human clinical trial had advisors to conduct additional analyses of the clinical data.
We have completed these analyses and the physicians and the steering committee are pleased with both the analysis and the clinical results. We're looking forward to submitting these data to a late breaking clinical trial presentation at a conference in the coming months.
In addition, we have just recently shared the swing clinical study report with Apple.
Which has the option associated commercialization agreement for Sundance.
Our second strategic objective is to demonstrate the commercial viability of our sublime radial platform.
Pounds arterial and venous thrombectomy platform.
As I mentioned in our last call fiscal 'twenty two is in large part what building. This commercial pipeline that is the activities that lead to customer purchase and essential catalyst to driving all value, creating gold and delivering consistent double digit revenue growth.
We are seeing the early fruits of our efforts is our team has established an initial and growing base of customers.
Potently. The team is currently engaged with nearly 100 prospective customers that are at various stages of evaluation purchase of reordering of our sublime and or pounds products.
Much of the credit for our progress lies with our commercial team, which has grown to a total of 19 sales professionals at the end of second quarter.
First I'll comment and I'll have a sublime radial access which consists of the sublime radial access guide sheets or one four.
<unk> PTA balloon catheters I.
I am pleased to report that we have several dozen accounts, so that places initiatives for one or more of these devices.
Next is our pounds arterial thrombectomy platform.
The power of arterial devices and intuitive easy to use device that enables physicians to treat a wide variety of luxury real crop extraction without the need for aspirational additional capital equipment.
We now have a dozen accounts that have placed initial orders of the pound's arterial thrombectomy device.
In addition, our team is managing a commercialization pipeline consisting of more than 50 prospective customers, primarily hospitals, which are in various stages of the process.
Yesterday, Dr. Gary Angelo presented the first in human data on the pounds thrombectomy system at the Charring Cross International Symposium in London.
These data included outcomes from the first 20 thrombectomy procedures that were performed at six U S medical centers doing all market evaluation.
These were not easy layup cases, rather the pounds was challenged by a broad spectrum of cloud complexity occlusion lengths vessel tortuosity and calcification.
Typically within these 20 patients 55% of the treatments for both for chronic or acute on chronic clot, 15% had moderate to severe vessel tortuosity.
57% of them had underlying Arthur Roma in addition to clock and the average lesion length treated was approximately 11 centimeters with a max of past due 30 centimeters.
All cases with acute clock represented 25% of procedures. It is fair to say that these physician took all comers approach in terms of case complexity and clearly did not saved it easiest cases devalued pounds.
The pulse thrombectomy system achieved 100% technical process.
And this was demand series, meaning that in a single treatment session. The device successfully remove clot from the target lesion and restore blood flow to the patient's limb and each of the 20 cases. Additionally, the data showed that no adjunctive thrombectomy devices will require to remove clot.
And 95% of these procedures.
To avoid the use of thrombolytic within the target lesion.
We are extremely excited by these results, which provide validation to our mission of providing interventional is with an efficient and effective thrombectomy device that is capable of treating a wide range of clot, including embolite without aspiration, nor capital equipment.
Like to take a quick moment to share with you two physician stories that demonstrate the powerful impact of our products on patients' lives and.
In a recent case of physician in Baton Rouge, Louisiana use our pumps thrombectomy system to treat a 46 year old patient.
Offering from acute limb ischemia this patient experienced a rapid onset of call. The numbness in her right leg that causes it fall to the ground and.
In diagnostic imaging showed significant ambalaj occlusion of three of our major leg arteries.
At the time, the physician was not familiar with the Pons device. So your first attempt to treatment with two cycles of ultrasonic catheter directed thrombolysis for 48 hours, which showed minimal and geographic improvement you Didnt used an aspiration thrombectomy device to cloud as much of the acute thrombus, but it was.
Unable to clear the more challenging plot.
<unk> X territory manager happened to be in the Cath lab. During this procedure and the physician decided to try to pounce thrombectomy system for the first time.
Following on spot service the physician was able to quickly clear the three vessels with three separate deployments of the Pons device.
After exhausting other non surgical options.
Pounce help the physician successfully treat the patients unlikely saved a lake without having to resort to further TT administration or refer her to open surgical Embolectomy me.
Physician as you can imagine was quite impressed even as a first time user.
In another case this time involving all the sublime radial products. The patient was recently brought to the Cath lab with non healing wounds and contractures into right lower extremity and <unk>.
The occlusion of the right deal yet clarity.
Diagnostic and geographies showed substantial occlusion and the arteries of both the right and left legs.
Now because of these multiple conditions, neither femoral arteries were accessible so the only viable site for the physician to treat the patients left leg was the right radial artery, which is also included by significant disease.
Using a low profile five French sublime radial guide sheet. The physician is able to navigate through those included radial artery.
Gain access to treatment and then using the sublime radial PTA catheter, which is two five meters long he was able to successfully cross a treat both above and below the knee arteries.
Geography showed significantly easier to reduction and excellent flow to the foot.
Now I know all of this sounds very technical but what is not captured was automotive motion that was exhibited by the Cath lab staff. Following this case because of multiple Comorbidities. This was a patient who without excellent skills of the physician and specifically the long working lengths of our sublime radial.
Devices could have likely lost their leg.
If you can't tell I'll just say it.
A better future for patients and their healthcare providers has already been created by these devices. It's just now our job to evenly distribute the success.
Moving on to pounds venous thrombectomy.
Which enables physicians to safely separate lodge and mixed morphology clot from the vein wall and rapidly extracted without removing the device from the patient.
Our process and manufacturing validation efforts are on track and nearing completion and we are in the process of building product for use in clinical product evaluations in the fourth quarter.
Our team has already initiated early commercialization activities for <unk> venous thrombotic can be device.
Which is already in front of the value analysis committee process and several hospital.
This is a very encouraging sign that physicians believe in the potential merits of the device, even before using it and eager to use it.
While not material to our second quarter revenue I'm excited to see our customers and the patients benefit from our product.
While still early in our commercialization efforts. These first few months support our expectation that we will generate modest but meaningful and growing revenue.
Associated with the adoption utilization and sales of sublime in pounds products through the remainder remainder of this fiscal year.
Coming quarters, I look forward to sharing more about our learnings and expectations on these devices.
Turning to our food strategic objectives to drive topline revenue growth and optimize cash flow from our IBD and medical device coatings offerings.
Both our IBD businesses in our medical device coatings offerings delivered 8% year over year growth.
It should signal to you our discipline and continued commitment to delivering strong operating results from our core businesses.
I remain confident in the ability to continue to generate meaningful cash flow contributing to our growth initiatives.
Our team has delivered solid first half results and we have similar expectations for the remainder of this year.
Delivering on our long term goal of consistent and robust revenue growth starts with executing our fiscal 'twenty two strategic objectives. We're pleased with the progress we've made during the second quarter.
Look forward to sharing more during the second half of our fiscal year.
I'll now turn the call over to Tim to provide the details on our second quarter fiscal 'twenty results and full year guidance Tim.
Gary during today's call I will provide an overview of our second quarter operating performance as well as an update on our fiscal 2020 to financial guidance and liquidity position revenue for the second quarter of fiscal 2022 declined 25% to $26 1 million, which was favorable to our expectations.
As Gary mentioned, the prior year period benefited from $10 $8 million of revenue.
From the $15 million I call report milestone payment achieved under our surveil distribution and development agreement with Abbott.
Excluding the impact of this milestone payment revenue grew 6% year over year.
Medical device revenue declined 34% to $18 5 million and exceeded our expectations due to the strength of our product and royalty revenue performance.
As I noted the prior year period included $10 8 million and clinical report milestone revenue and excluding revenue related to this milestone our medical device business revenue grew 6% year over year.
Our in vitro diagnostics business grew 8% to a record $7 7 million IBD performance was driven by broad based year over year growth across the entire portfolio of product offerings.
Our second quarter royalty and license fee revenue totaled $9 8 million down $10 2 million from the same prior year period, primarily as a result of that prior year $10 $8 million impact on license fee revenues from the clinical report milestone.
License fee revenue under the Abbott agreement totaled $1 4 million in the second quarter of fiscal 2022 compared to $12 5 million in the prior year quarter.
Royalty revenue increased 12% to $8 4 million in the second quarter compared to $7 5 million in the prior year quarter driving the second quarter royalty revenue performance was stronger than expected customer reported royalties relative to our last quarter estimate.
Benefiting our performance was strong growth from our serene coating, which again grew in the double digits from the prior year period.
Looking forward to the full year, we expect royalty revenue growth in the low to mid single digits.
Product revenue increased 19% to a record $14 million in the second quarter compared to $11 8 million in the prior year quarter, and our medical device business product revenue grew 19% or $1 million to $6 4 million on broad based growth across our medical device products and coating reagents.
While early and not material to our results. We were pleased to see increase in product revenue from our balance in supply and commercialization efforts in fact, our product sales in medical devices grew 47% from the year ago period, which includes contract manufacturing catheters specialty catheters that we partner with Coca Medtronic.
<unk> and our parts arterial thrombectomy and sublime radial device products.
We continue to expect to deliver double digit medical device product revenue growth through the remainder of the year driven by our parts and supply and commercialization efforts.
And R&D to our diagnostics business product revenue grew 18% or $1 2 million to $7 5 million in the second quarter. We saw another quarter of broad based year over year growth in the second quarter, including 85% growth in our distributed antigen products used in autoimmune disease testing in part due to order.
Timing.
We continue to expect the IBD revenue growth in the low to mid single digits for the full year.
R&D services revenue of $2 3 million in the second quarter was down 27% or 860000 compared to the same prior year period as we face the headwind associated with the completion of our customer development program and our IBD business and.
In addition, R&D revenue was impacted by lower customer demand for our medical device coating services due in part to continued supply chain challenges related to certain customer supplied product.
Product gross margin in the second quarter of fiscal 2022 was 63% compared to 65% in the prior year quarter.
Favorable impacts from leverage on volume were offset by unfavorable impacts as our product mix weighed more towards lower margin product lines.
R&D expense, including cost of clinical and regulatory activities was $13 7 million in the second quarter or <unk>, 53% of revenue compared to $12 9 million in the year ago period, we continue to invest in our pumps and supplying platforms, including commercial readiness activities for parts venous thrombectomy device are there.
Remainder of the year quarterly R&D spend is expected to be slightly above Q2 levels.
SG&A expense in the second quarter of fiscal 2022 was $11 1 million or 43% of revenue compared to $7 $9 million in the year ago period, the increase in SG&A expenses related to sales and marketing activities, including new hires to support the commercialization of our sublime and pumps products.
For the full year, we anticipate SG&A expense to range in the mid <unk> as a percentage of revenue.
Our medical device business reported an operating loss of $5 6 million in the second quarter compared to operating income of $8 6 million in the year ago period, which includes the impact of the clinical report milestone payment and.
In addition to sales and marketing investments our second quarter performance included the addition of $1 million and expenses of which 540000 as it related to intangible asset amortization related to our fiscal 2021 fourth quarter <unk> acquisition.
Our IBD business reported operating income of $3 7 million in the second quarter of fiscal 2022 and was consistent with the prior year quarter.
Operating income for Q2 was 49% of revenue compared to 54% in the prior year, which is a reflection of the unfavorable product mix impact on the product gross margin during the quarter.
Now turning to income taxes.
We recorded an income tax benefit of 920000 in the second quarter of fiscal 2022 compared to income tax expense of $1 4 million in the year ago period.
The current quarter's tax benefit as a result of the pretax loss for the second quarter.
The prior quarters tax expense reflects pre tax income with the receipt of the Abbott milestone payment.
On a GAAP basis, we reported a loss per share of <unk> 29 in the second quarter of fiscal 2022.
Income per share of 58 in the prior year quarter.
On a non-GAAP basis, we reported a loss per share of <unk> 22 in the second quarter versus earnings per share of <unk> 62 in the prior year quarter.
Moving to the balance sheet in the second quarter, we began with $32 million of cash and investments during the second quarter cash used by operations was $4 2 million and capital expenditures totaled $1 2 million.
As of March 31, 2022, we had cash and investments totaling $27 million and the balance on our line of credit remained unchanged at $10 million.
We continue to anticipate that we will finish the year with approximately $20 million of cash which does not include the potential receipt of the $30 million surveil PMA milestone payment.
Turning now to our outlook for 2022, we expect fiscal year 2022 revenue to range from $98 million to $101 million. This outlook includes between $4 5 million and $5 million of license fee revenue associated with the Abbott Surveil agreement.
With respect to income taxes, we expect the full year impact of income taxes to range from a tax benefit of $6 million at the low end of the guidance range.
$4 5 million benefit at the high end of the guidance range.
As a result of our first half financial performance. We now expect fiscal 2022 diluted GAAP EPS in the range of a loss per share of $1 70 to a loss of $1 35.
We now expect our non-GAAP diluted earnings per share in the range of a loss per share of $1 42 to a loss of $1 seven.
Operator. This concludes our prepared remarks, we would now like to open the call to questions.
Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you are using a speaker phone. Please make sure mute function is turned off until like your signal to reach our equipment again star one to ask a question.
We will take our first question from David Saxon with Needham David Your line is open. Please go ahead.
Yes, Thanks, and good morning, Gary and Tim.
Maybe just to start.
Probably for Tim just on guidance.
I mean, you beat by about $2 million, but only raised the debt.
Lower end of the revenue guide by $1 million.
I mean from your comments this morning, it sounds like some of these early launches are going really well. So just would love to hear what youre seeing in the marketplace.
You are.
Any things coming up that makes you any more or less concerned or if the updated guidance just reflects.
Some conservatism.
David Thanks for the question I really do think it reflects a fair level of conservatism.
There are still uncertainties that exists in the marketplace I think another 13 weeks, Gary and I will have a better view or a more complete view of how the year will shape up but we feel highly confident with the guidance range that we provided them with regard to revenue as well as EPS.
Okay. That's helpful.
And then just a couple on survey surveil sort of following the May 4th meeting I think I heard you say you would get a little more clarity on whether or not you'd need a potential additional trial did I hear that right and if so maybe talk about your expectations there.
How much time would that potentially add onto the approval timeline and then kind of related to that there were some comments in the press release about if the approval falls into I guess after 2022 calendar year.
The milestone would be reduced to $25 million is that a one to one on what you'd recognized for revenue.
From 'twenty to 'twenty, two or is.
Is that different okay.
I'll take the first part and then Tim will take the second part so yes. So no we do not anticipate any clinical data be needed all clinical.
We believe is quite impeccable and if.
My personal opinion is probably the best trial, that's been run in this space.
The real issue with the agency and let me just step back a bit so we get a process right. So the agency.
Came up with let's say a number of questions often related to preclinical and clinical data.
They had a couple of questions on the clinical data, which we successfully responded to theres a subset of their questions that they recommended and set up us just responding the highly recommended that we set up something call. It submission issue review meeting which is.
Give us.
Let us tell them, how we're going to respond then we meet about it and then we get alignment, while we seek to get alignment versus just sending it in and hoping for the best in these particular responses. So that's the meeting and Unfortunately, I think I said in the last call. It's a 10 week statutory thing.
We were trying to see if we could collapse that in multiple discussions with agency and communications.
They weren't able to get us much better than the 10 week response. So I think we're right at about nine nine week time with this may 4th meeting so at that meeting.
We hope to iron out any differences on these responses that.
In question.
So based on that we'll be able to tell a case if the agency wants us to do additional preclinical testing.
They want us to actually generate more preclinical data, we will have an idea of how much and what that is after this meeting but no. We don't anticipate anything with our clinical data set as I said we have.
Substantial.
I want to guess here, but.
Almost 90% have the two year primary endpoint data and I can just tell you. We're terribly excited to have that presented.
And that would be of course with Medtronic as the control device impact Admiral device. So.
We also have.
Leave the full cohort of two year mortality data and over 100 patients in the three year cohort, which is more than sufficient from what I understand from the FDA for mortality analysis, given the paclitaxel ongoing debate so quite confident that the clinical data. These are all preclinical issues at this.
Quint.
And David I'll take the second part of your question.
But first let me just echo a few things that Gary remarked on.
We are highly confident with regard to the data both the safety and the efficacy data and the May 4th meeting with the agency is really intended to get alignment in terms of any outstanding questions that needed to be addressed with our submission.
As Gary mentioned in the prepared remarks, we are highly confident that we will be seen in somewhat conservative that we will be seeing the FDA PMA approval sometime before the end of the calendar year.
Now that relates back to how we recognize revenue on the surveil milestone payment as you noted in the press release, we did call out the empty miles.
Milestone is achieved mean the PMA is achieved after December 31 2022.
<unk> dropped to $27 million.
And so if you think about the payment, whether it's $30 million or $27 million, both will be recognized as a percentage of completion, meaning the expenses to complete the transcend clinical study, which we estimate to be about 82% to 84% complete by the end of the fiscal year.
In either case, you would be looking at.
Recognizing revenue somewhere either in the low <unk> to mid eighties, whether it's a $30 million or the $27 million. So hopefully that answers your question.
If there is another questions. Please let us know.
Yes, that's all Super helpful. I'll leave it there and thanks for taking the questions and congrats on the quarter.
Thank you David.
We'll move next to Brooks O'neil with Lake Street Capital markets. Your line is open. Please go ahead.
Thank you very much good morning, I have a few questions I guess I'd like to start off on surveil.
Given the discussion you guys just had about the quality of the clinical data.
I have some recollection that there was some.
Hope that rather than being just non inferior.
The surveil clinical data might show superiority.
And the question I think was whether you had enough.
Data enough patient follow up data.
Make those claims and I'm just curious if theres been any change in that.
No.
Thanks for the question Brooks.
There is a secondary test for superiority in OE statistics Wilkes you have to test the non inferiority first the trial was clearly not powered for superiority given the differences.
And the performance of these devices, so both safety and efficacy I would I would say no I haven't seen.
The full two year cohort superiority or non inferiority tests, we want to wait till all the patients have been followed up.
I would say, though and I highly doubt that the power for superiority tests would be there in these datasets.
The other hand.
Keep in mind, we are the only drug coated balloon that has a worldwide pivotal study head to head with the market leader no. One else has that youll hear a lot of marketing claims.
About this but it's the only level one RCT.
Pivotal trial.
With the FDA on a head to head trial and to US superiority means again, if you have a lower dose of a known cytotoxic drug like Paclitaxel. It gives you not.
Non inferior clinical results.
That in itself I believe is a superior device because you can treat a patient with a low dose of Paclitaxel cytotoxic.
Cytotoxic drug and achieved the same.
Results in the real World that to me is a superior device any day of the week, but from a statistical superiority test. The short answer is no, but I'll I'll leave I'll leave that open until we see the stats plan rent run for two years.
Sure that's very helpful. Secondly.
You made the comment you made a couple of condensate.
Provocative first was.
You said that you think Abbott is.
Caring for U S launch and I was just wanted to check and see if I recall correctly you have approval for surveil.
And in the EU and I'm curious if they have any plans to launch there anytime soon.
Brooks. Thank you for the question I think we've talked about this in the past.
Youre absolutely correct there is a C.
Mark in Europe .
Abbott has over the last year, plus communicated and I think we've reflected this in previous prepared remarks that their launch they will they will initially focus on launching commercially.
In any geography.
Based upon the PMA approval, so I wouldn't read anything into it our focus has been speaking more recently about the U S.
In fact that I would suspect that Abbott will launch.
In the U S followed by European launch, but.
Let's get the PMA first and let's get the correct kit.
Moving here right.
Joining their commercialization efforts both in the U S and globally.
Absolutely that's great and then Gary mentioned I think I heard him say first surveil device in his prepared remarks, and I was curious I guess that implies to me that there might be a second.
Availed device and I don't think I've heard you guys comment anything about the possibility of <unk>.
Additional.
Our products in that line. So what are you thinking.
I think this is Tim Brooks and I picked up on that as well and really I think it's just a.
Relates back to the DCD platform. So it's not the first surveil, it's the first of our drug coated balloon platform. So.
I saw that in the script as well so we're.
We're all set we have one and only one surveil.
Right.
Thank you.
I'm curious.
You guys know I'm, not a medical device expert and I totally confused about the regulatory pathway floor, so blind and pounds.
And it seems pretty clear you're moving down the path of commercialization you're selling products.
Live users in hospitals around the United States is there any further regulatory approval pathway that you need to.
Traverse to have full commercialization of those products or just help me, yes, we have whats youre going to have the U S.
We have for sublime and pounce arterial we have U S. FDA clearance. So there is nothing and in fact in fact on pounds.
Pounds, we have received two.
Additional fighting keys in terms of being able to claim expansion to treat smaller vessels, which would include tibial artery vessels of the required size.
And just recently we got.
Another five <unk> clearance for a variant of the Pons device that uses.
Very ergonomic tool.
<unk> hand.
Handle design for physicians in the mass market. So on pumps venous we have both.
U S FDA clearance and the European CE, Mark So we had no for the clearly as we advance these devices they might be follow one.
Additions to the line, but yeah, we have a straight shot at this right now.
Great and then my last question and I appreciate all your color.
Is can you just give us your current feeling it sounds like you're advancing pretty successfully and aggressively with regard to direct commercialization of these these two lines sublime in pounds and I just would love to get your perspective on whether you think youre going.
Go it alone if you will.
Those products or whether you're going to seek a partner as you have with some of the other pipeline products and thanks for taking my questions.
I will tell you all the sales and intuit and the marketing team and the commercial operations infrastructure, we have built.
Sure.
<unk> mean, we may not be the biggest but these are we're building the best commercialization team in the industry right now so I'm very satisfied with.
Size versus the current size versus the scale.
Bruce as anybody else and we're still in learning mode with these devices the whale.
Line up fiscal 'twenty two is.
BB call us call, the cough and I'm not looking for milk production as the measure the key performance indicator from the cough I want to make sure. The cough is growing developing and someday being able to produce a heck of a lot of milk and so we have scaled appropriately with our commercial team to do that.
Yeah.
I am confident just just.
I probably didn't share. This is a huge sense of excitement internally there doesn't come across in the earnings call. When we see these devices and we don't want to be competitive in an earnings call and call out competitors, but when we see our lineup versus the competitors.
There's a huge sense of excitement of what we have here.
And that's what we're focused on at the moment and building that what I call. The right sized commercial team. There's been a lot of interest I would say from potential partners, but we have the we have the blinders on right now.
Doing what we're doing to build our team.
Great. Thank you very much.
Once again it was star one if you had a question we will move next to Jim Sidoti with Sidoti <unk> Company. Your line is open Sir. Please go ahead.
Hi, good morning, Thanks for taking the questions.
First one for me was there any one time contributors to revenue in the second quarter.
There were not Jim.
So is there any reason to think that Q3, and Q4 would be down sequentially from Q2.
Yeah.
It was a really strong quarter and I think in my remarks, you heard me talk about the performance from the royalty line and.
There was a benefit.
We have to estimate I think as we've covered previously with you all that.
We have to come we have to make an estimate on the royalty revenue each quarter.
And we were off and it was favorable to us so I wouldn't consider that to be a one timer, we're never precisely right.
And in some quarters, we can be up in this case, I think where we were able to book a true up of about 600000 sensors. The royalty reports and payments that came in were significantly higher than what we had estimated.
Suspect that will probably be a little bit more in line.
Maybe a couple of hundred thousand off so I would say given that as a headwind it will probably be a bit more challenging.
We also saw some really nice growth here in the product revenue for the quarter as well and I'll just remind you that if you go back and take a look at last year Q4, and Q3, we had they had some really nice.
Product revenue in Q4, and Q3 of last year compared to probably the last six quarters prior to that so we got a little bit tougher comp that we're going to be facing but you've heard me say in my remarks that I expect that the product revenue should be growing double digits for the remainder of Q3 and Q4.
But hopefully that gives you a little bit of context and color.
Gary and I tried to be a bit more on the conservative side and the teams do the work and execute in and sometimes we're able to deliver good news like we were able to do that this quarter. So.
We feel again confident in our guidance range that we're providing at <unk> 98 to 101.
Okay, and then right.
A lot of companies continue to report supply chain issues issues with turnover.
Has that been a factor for you at all.
Well, there's it's interesting take a look at the product revenue, it's a great place to start right.
So you can probably infer that we really haven't had to deal with supply chain issues in terms of our ability to generate revenue that being said, we're not immune and and if you take a look at the balance sheet, you'll have seen that the balance sheet continues to grow on inventories. There is a reason for that obviously, we're trying to make sure that we're prepared for commercialization of <unk>.
<unk>, but at the same time, Jim we recognized early that there could be some supply chain challenges and we've done a pretty good job of trying to maintain safety stock.
And so im hopeful that we won't incur or encountered any supply chain challenges that could impact revenue but.
You just don't know about the uncertainty it is a global economy and some of the suppliers that were engaged with are located in geographies, where there could be challenges.
That being said our guidance reflects our view.
That there really is muted or a minimal impact on our supply chain.
And I wouldn't take what Tim said, there to say that we don't have supply chain issues, we swarm on it and it's one of the top three <unk>.
Risk factors, we deal with every day, but so far our team has been managing that quite successfully.
So that was my next question was going to be.
The increase in inventory is that primarily raw material or finished goods.
We've added to inventory.
Yes this quarter.
Okay, Great it's actually both Jim.
Obviously raw materials do end up at some point and turn it into finished goods inventory in.
And although we don't break it out it's fair to say that the increase is driven both by having more components and raw materials, but also producing finished goods and Gary I think referenced that we're starting to produce product for <unk>.
<unk>, so youll see some of that reflected in our inventory as well.
And even things like Paclitaxel, we're making sure we're buying from the right suppliers.
Just to be sure and Paclitaxel is $800 a gram.
So we can't we have to protect.
Raw materials with that inventory buildup.
And then the last one for me is on.
Cash and cash burn.
We ended the quarter with about $27 million in cash you burned through.
Thank you said $4 million to $5 million of operating cash in the second quarter, where do you think you'll end up for the year in terms of cash on hand, and cash burn for the year.
Yes, Great question, we did highlight here that we expect that will finish here year with approximately $20 million in cash.
Jim I'll, just say if we finished on the high end of the guidance range.
And with some of the tax receivables that are out there we could be as high as $27 million. So we could finish the year flat.
But I think we all know that there are challenges with the tax receivables being paid in a timely fashion by the IRS. So that's not necessarily reflected in the $20 million.
Yes, we'll be talking about it and I'm sure next quarter, but Gary and I are highly confident that the cash that we have on the balance sheet. The access to our credit line give us ample capital to support our growth initiatives.
Going forward.
And obviously that number would go up pretty significantly if you do receive the milestone payment in fiscal 2022.
Yeah, certainly would.
Alright, alright, thank you.
Thank you Jim.
We'll go next to Mike <unk> Barrington Research. Your line is open Sir Please go ahead.
Hey, good morning, guys. So I was hoping to drill down a little bit on.
The early success you guys have had on sublime in pounds.
I can combine my two favorite thing stocks and baseball.
So obviously you know on pounds. So it doesn't accounts have placed an order on radial access several dozen accounts or place an order.
Paul You know, Doug Doug a battery gets it does a bit.
You know 20 or 30 times, that's fantastic feedback 200 times, not so great and I'm, just curious sort of about the.
Right.
And when when accounts do say not interested.
Curious about the feedback and when they.
When they say yeah.
We're interested.
Feedback like I was wondering if you guys could give any color in terms of what the sales force is actually encountering out there as you are.
Try to try and help these accounts understand the value of these products.
It's a great question and something we think exactly the same way right do you want to make sure that it is a consistent as the law as the scale goes up the hit rate goes up now keep in mind.
Very very early on it can be and we're cognizant of this it can look like an amazing hit right because you're going to accounts that you know.
Are hungry for adoption, so I would say that as part of that so they understand how we discount our hit rate the very first ones.
Nice batting average there however, as we are getting more and more members of our field sales team and they are getting into the field. We look at the number of Rep weeks that we have available of Salesforce the hit rate continues.
To surpassed my expectations I will just say it like that.
I've been through enough of these to not be seduced by early hit rates, but as we go to now the.
Not just early adopters, but what we call.
The mainstream accounts love visa hospitals for <unk> and <unk> for sublime.
Hit rate is impressive to me I don't want to competitively give out.
And actual stat.
We have not hit so the back end of the market is usually the laggards as you know right and your hit rate goes down with a lag because they've used this thing for 20 years and they're not going to change now what we are finding.
Counts.
That are not necessarily only big institutions, but accounts that are in smaller cities that love the simplicity of our products to use for things like parts of <unk>.
Thrombectomy and so a hit rate that is surprising to me that we're getting better uptake in.
And even smaller accounts, everyone cheeses, a very big academic institutions, and we will get our fair share of those as well, but the real legs of these products is that you don't have to be.
At the Mayo clinic.
For someone to or Cleveland clinic to use these devices you could be in Sioux Falls, South Dakota, and the device has equal playability. So.
I know, it's not an actual direct mathematical answer the questions, but the hit rate is above my expectations and I discount a lot and Mike I'll, just add a little color here.
Is very early and I like Gary's analogy of the Caf II. This this caf is only starting to stand on its own and we did highlight that there is about 100 prospective accounts that are in various phases of our pipeline of becoming an account.
We haven't disclosed the exact number of customers that we have who have ordered and have are reordering.
We're only a few months into this but it's a sizable number relative to that overall 100 numbers. So things are coming through the pipeline.
<unk> had the discussion around the leakage those that are falling out that aren't converting it's pretty modest at this point, but the reality is you need more time, it can take months to a quarter or longer to get through value analysis committees and we've all had to deal with kind of the December and January issues with the Vac Committee has really been on hiatus or being on hold.
And those are back, but theyre working through backlogs.
We really like what we're seeing I will just give you one other stat, it's pretty modest but.
The number of customers that we finished with.
At March.
We're 90% are ordering product or a reordering product out of the total so we like that and we expect that is going to be an important measure going forward, but as we go through the next 13 weeks and visit with you again here later in summer, we will have more to say on this and clearly when we get into the November call, we'll even have more.
But we are learning and we're liking what we're learning so far.
Mike I'll just add one other piece of color for that so that you know we're not.
So to go increase the EIS over the waterfall here.
The other thing that has an impact on hit rate as competitive response right now I'd like to think were somewhat below the radar, but I think we are on the fringe of getting on the reader and so competitive response, then becomes another headwind on our hit rate and we're well prepared for that in our modeling.
Okay can I ask a question along the lines of just the sales cycle from the first contact with the potential of town.
Can you give some sense of what the conversion is for those who have said, yes, both on the radio and on the power side.
So in the office based labs.
I would say it's dramatically faster these are physician owned facilities.
If they like it does not really vac committees to go through probably a couple of partners in that OBL and so those those can be easily less than 30 days.
I don't want to guess at what the weighted averages, but they can be less than 30 days when the hospital where the pounds.
Cereal thrombectomy system has much more playability for arterial thrombectomy procedures in hospitals.
And often you have to go through the Vac committees and as you know with Covid and such Vac committees have not been meeting frequently I think everybody.
See these vac committees is trying to make sure they appropriately delayed new products, especially high ESD products coming into institution. So those.
There's two things there.
Timing of when the next Vac Committee meeting.
Physician internal advocate, which is quite important but these can be three months and up to in some cases six months cycles, what I thought was quite interesting on pounds Venus.
You don't even have the product release for clinical use yet, but on the pre press on the devices our commercial team.
Have seen physician interest I think physicians are hungry for what I'll call, an alternative divina thrombectomy and so in some of these cases.
I've been surprised that we've gotten into the Vac Committee process earlier typically you would have to say you got to say this person has to have the product in hand, then January the physician and then get them behind the Vac Committee Youll get two or three of them. So just give you an idea.
I would see.
It's a lease it's about a full X and Y as soon as I finish this call. Our commercial team is going to tell me the right number and I was wrong, but.
It's about a forex difference in time scales are less.
Less than 30 days front OBL.
Can happen and.
Up to four to six months, even on a hospital it can happen.
Okay and you actually led me into my last question on this subject I promise.
I was under the impression that you were only out there.
Getting orders on arterial have you actually gotten orders on Lumpiness or no no no. So its not released yet but at least if the Vac committee is going to take three months to get in Q I think our commercial team was like well, let's I mean with the products not clinically available yet it's clearly FDA cleared.
Let's see what the interest level is out there and some of those Vac committee processes have started so trying to skate where the puck is by the time, we have clinical availability.
We can have evaluations in hospitals with.
<unk> Vac committee ability to use a product gap so another way of saying, we're very opportunistic and.
People at the hospital levels have been rejected and remember our sense of when we have these things the first 30% to 40, sometimes 50 or more cases were not interested in.
The sale, we also interested in seeing how this product performs in a wide range of clinical conditions with different operators much less much like what Gary absolute presented yesterday in parts.
Arterial.
They run that device out.
The first physician I wanted to be a chip shot.
And you pull a 30 centimeter clapped-out, which was great it works well.
Yeah.
The devices are going to get pressure tested in the clinic before we feel ready for the hard commercial drive foot pounds, Venus sublime and arterial through that window already.
Okay, Alright, and then just sort of related question and this will be the last one for me.
Just in terms of sort of the strategy that you guys have have taken.
Getting our sales force out there yourselves I mean based on the early learnings is there any change in thought of Hey, maybe we are we're seeing some real early success, maybe we ought to muscle up and invest a little bit more on the sales side get out there faster.
Any change in sort of the initial thought based on what you've learned so far.
Tim and I have been very disciplined in our approach to this and we're in.
When you look at it.
Our sales team really got out there the first fewer trade in November so as our head of sales as they were released into the wild really January so we have 12.
16 weeks of link 16 weeks of learning right now.
And so we were looking at that carefully LC, we are happy with the way this is going.
Mike I'll, just add a little bit of context and color for you. Gary described appropriately that we are learning and you can see that I think it was at the end of December .
Or.
Was it the February call I think we highlighted that we had about 14 to 16 sales professionals.
Now that was up from about eight and here. We are at 19. So you can see that we continue to add a few.
We're not as Gary likes to say, we're being measured in our approach here and capturing the learnings, but we haven't moved off of what we committed to when we communicated the strategy and the transformation to a commercialization approach here in November that we'd be looking to invest $10 million and we're on track for that so.
Really no changes at this point.
We will look forward to sharing more about the success as we go through the next couple of quarters.
But it's pretty exciting here, we've got a lot of excitement not only within our team, but also with physicians and you heard a few of the stories today, it's making a difference our products are making a difference.
Alright, very good thanks, guys congratulations on the progress.
Thank you Mike.
And with no additional questions holding I'll turn the conference back to Mr. Maharaj for any additional or closing comments.
Well listen thank you everyone and thanks for your time on the call today and look forward to catching up in our third quarter Conference call next time.
Ladies and gentlemen that will conclude today's call. We thank you for your participation you may disconnect at this time.
Okay.
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Yeah.
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Okay.