Q1 2022 Cutera Inc Earnings Call
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Greetings and thank you for standing by your conference will begin momentarily. We thank you for your patience I ask that you. Please remain on the line as a reminder, today's conference is being recorded Tuesday may 10th 2022.
And once again, we ask you. Please remain on the line your conference will begin momentarily.
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Thank you for joining <unk> first quarter 2022 earnings conference call.
After the prepared remarks, there will be a question and answer session.
The discussion today includes forward looking statements those forward looking statements reflect management's current forecast and expectation of certain aspects of the company's future business, including but not limited to any financial guidance provided for modeling purposes.
We're looking statements are based on current information that is by its nature dynamic and subject to change.
Forward looking statements include among others statements regarding financial guidance competitive landscape patient and customer demand and productivity improvements.
For words that May identify forward looking statements. We encourage you to refer to the safe Harbor statement in our press release earlier today.
Forward looking statements are subject to risks and uncertainties, including those risk factors described in the section entitled risk factors in our Form 10-K as filed with the Securities and Exchange Commission and updated in our Form 10-Qs.
Subsequently filed.
<unk> also cautions you.
Not to place undue reliance on forward looking statements, which speak only as of the date they are made.
The Terra undertakes no obligation to update publicly any forward looking statements to reflect new information events or circumstances or to reflect the occurrence of unanticipated events.
Future results may different differ materially from management's current expectations.
In addition.
We will discuss non G. A a P financial measures, including results on an adjusted basis.
We believe these financial measures can facilitate a more complete analysis and greater transparency into <unk> tariffs.
Results of operations.
Particularly when comparing underlying results from period to period. Please refer.
Two the reconciliation from GE AAP or non G. A a P measures in our earnings release. These non-GAAP's financial measures should be considered along with but not as alternatives to the operating performance measures prescribed by G. A a P.
That I would like to turn the call over to our CEO Dave Malory.
Thank you grant we'd like to welcome everyone to <unk> first quarter 2022 earnings call.
Glad that you could dial in for this update.
Joining me on today's call is Ron Seth our Chief Financial Officer.
Over the course of the call I will be providing an overview of our record first quarter revenue performance, along with some operational highlights and commercial insights.
Ron will then provide a detailed review of our first quarter 2022 results as well as an update to our fiscal 2022 financial guidance.
After which I'll provide some detail on I'll be clear our recently FDA cleared laser based platform for the treatment of acne.
I'll, then hand, the call back over to grant so that we can take your questions.
Before getting into the results. Let me begin our prepared remarks with some general observations of the aesthetic market and particular focus on our core customers and the patient patterns within their practices.
Global macroeconomic developments continue to make headlines and cash shadows or certain segments of consumer driven health care. We're also aware that some that recently some companies associated with elective medical procedures have reported softness in their current and near term demand in light of these economic trends.
To be clear, we have not observed these trends or conditions in our key markets equity Terra in fact, the fundamental strength that we observed in patient treatment volumes translated into strong first quarter 2022 results for the company and.
Additionally, these underlying market fundamentals have continued providing robust traffic treatment and serve as a positive leading indicator of future demand for capital equipment.
We believe that the shifting demographics of the aesthetic patient over the past two and a half years has served to insulate many of our providers and their practices from economic pressures as they draw an increasing volume of new and fundamentally different patients into their practices.
This growing patient segment is best defined as actively employed younger professionals with access to disposable income as a group. The new segment is more resilient to external factors than the typical presume era aesthetic patients. Additionally, this young professional segment youth energy based aesthetic treatments.
As the investment in themselves and in their careers as the use of video conferencing continues to grow in their professional pursuits as well in their personal engagements.
In addition to the patient demographic shifts we are gaining deeper insights into practice patterns. Our ongoing investments in the key account management have enabled <unk> to build deeper relationships with practitioners and their staff. These relationships have in turn provided <unk> with greater visibility into practice schedules treatment volumes and patient.
Profiles.
Actually management has been able to engage with the aesthetic practitioners over the course of three recent industry conferences gathering direct feedback on practice patterns and treatment volumes.
These data have reaffirmed to us a very robust pipeline of patient treatments that generally extend out for two to three months for our customers we.
We believe these trends will carry forward and enable us to continue to build momentum over the remainder of 2022 based on the underlying patient traffic and the known demand for capital equipment.
Turning now to <unk> first quarter 2022 results.
We demonstrated continued momentum in both the capital equipment and consumable product segments carrying forward from previous periods. Our results were once again defined by solid execution by our commercial teams around the world leveraging great technology robust underlying market fundamentals and the increasing momentum from our key account manager strategy.
Overall revenue for the first quarter was $58.0 million representing.
Representing approximately 17% growth over prior year as reported and 21% on a constant currency basis.
Capital equipment sales was the most significant contributor to our year over year growth as we continued to see progress prospecting, a greater volume of deals and effectively processing them through our sales pipeline.
This was particularly evident in North America.
The overall strength of our North American capital equipment sales continued to build over the period as we made additional investments in the expansion and ongoing training and development of this team.
During the period, the North American team posted strong results growing 35% over prior year, driven by our body contouring products true sculpt and.
And true sculpt flex.
We also saw strong demand in North America for skin and face rejuvenation solutions reflected in increased sales for both <unk> and <unk> platforms.
International capital equipment sales were led by impressive recoveries in both Australia, and New Zealand as well as Japan during the first quarter with those geographies growing 41%, 49%, respectively as reported versus prior year.
We believe our Australian market benefited from some pent up demand in the second half of 2021, Lockdowns, while our Japanese results reflect an incremental increase of patients returning to their pre COVID-19 routines offset slightly by FX rates.
In Europe capital equipment sales of $3 6 million declined 700000 from prior year levels as the business worked through the short term disruptions caused by events in the Ukraine looking.
Looking ahead, we have line of sight to a near term return to growth based upon the cadence of second quarter 2022 orders in hand, as we anticipate double digit growth year over year for that region.
Recurring revenue defined as the combination of skincare consumable products and service was $21 $5 million in the period, an increase of 1% over prior year as reported but representing a 7% growth on a constant currency basis.
Strength in our consumable products offset sales declines within our skin care business directly impacted by the weakness of the yen.
Regarding consumables, our first quarter results provided a strong start to 2022 and we anticipate that these results will set the tone for consumable revenues for the rest of the year.
Our consumable volumes are being driven higher by the success. We are seeing in North America in particular from the revenue generating activities that we planned scheduled and run at our customer accounts through our key account managers.
We were pleased with the service contract attach rates during the quarter as well.
The service team began working also to resolve prior period open orders previously discussed.
While we made meaningful strides in building up sub assembly inventory for service components, we have not yet significantly reduced this backlog and expect to clear all service part backlogs by the end of three Q2 thousand 22.
Finally on skincare, our revenue for the quarter was $11 $6 million a decline of 5% from the prior year on an as reported basis, but also representing growth of 4% versus prior year on a constant currency basis.
We have seen our skincare levels normalized following the disruptions from the price increase we implemented in the second half of 2021, we believe that the quarterly run rate for our skin care business in Japan is approximately $12 million and anticipate finishing fiscal 2022 with the constant currency growth rate for skincare in the mid to upper single.
Digits.
Looking now at the bottom line I want to first reaffirm this organization's commitment to the long term sustained profitability as well as remaining disciplined to expense management. This has been evidenced since the onset of COVID-19 as we cut spending resize the business and built a much leaner operation.
However, <unk> is currently poised for transformation as we enter into a new market segment for two Tera acting.
We have created an opportunity for ourselves to take takes a unique first mover device into a market very much in need of innovation.
We are choosing to be bold and temporarily break from our string of profitable quarters going back to the mid <unk> back to mid 2020 during the height of Covid we.
We intend to make timely investments into our commercial and R&D functions over the next two to three quarters to grow faster and shorten the timeframe to accretive growth from our active programs.
I will speak more around the obviously a product following raw Hans comments with that let me turn the call over to Ron to provide some additional color on our financial performances as well as our outlook for full year 2022, Brian . Thank.
Thank you Dave.
I review my prepared remarks, I want to note that I will be discussing some non-GAAP results for complete reconciliation of GAAP to non-GAAP is included in our earnings release.
We encourage listeners and readers to review our non-GAAP metrics in conjunction with the GAAP results as contained in this earnings release.
Starting with revenue our.
Our sales for the first quarter were $58 1 million compared to $49 7 million for the same period in 2021, representing an increase of approximately 17% on an as reported basis, excluding the FX headwinds we faced during the quarter our constant currency revenue growth was approximately.
21% over prior year.
First quarter, North American capital equipment revenue of $22 7 million increased 35% over the prior year International capital equipment revenue for the first quarter was $13 8 million up 20% as reported and 27% in constant currency from the first quarter of 2021.
Recurring revenue there.
Fine to include our consumables global service and skincare product lines was $21 5 million in the first quarter up 1% as reported and up 7% in constant currency.
The increase over the prior year was driven by growth in our consumables products up 33% as reported and 36% in constant currency.
Our skin care segment was particularly impacted by negative foreign currency fluctuation in the yen down 5% as reported but up 4% in constant currency.
Services revenues continued to be impacted by inconsistent component supplies down, 3% as reported and flat in constant currency.
non-GAAP gross profit for the first quarter of fiscal 2022 with $32 3 million with a gross margin of 55, 7% representing a decline of approximately 70 basis points compared to the same period last year.
Excluding Acme costs 0.9 million non-GAAP gross margin in the first quarter was 57, 3% and approximately 90 basis points improvement as compared to the same period last year.
Within the quarter.
Our gross margins were impacted by supply chain and macroeconomic inflationary pressures as well as FX headwinds.
Nevertheless, we offset these factors with ongoing cost improvement initiatives as well as the increased leverage of our fixed cost base.
We note that FX rates represented a headwind of a little over 300 basis points to gross margins in the quarter.
Total non-GAAP operating expenses for the first quarter of 2022 were $36 1 million compared to $23 4 million for the same period last year.
This increase was largely driven by a conscious acceleration and Avi clear spend totaling $7 2 million as the regulatory approval became more likely to occur within the quarter.
The increased Acme expenses versus <unk> 21 were largely due to accelerating spend in areas such as training as well as sales and marketing.
non-GAAP sales and marketing expense for the first quarter of 2022 was $23 5 million compared to $13 5 million for the same period last year driven by continued expansion in our sales force higher commissions increased travel as well as expenses associated with the launch of Avi clear.
non-GAAP R&D expense for the first quarter of 2022 was $5 5 million compared to $3 8 million for the same period last year, driven by increased investments in <unk> and additional clinical studies.
Rounding out our operating expense commentary non-GAAP G&A expense for the first quarter of 2022 was $7 1 million compared to $6 2 million in the same period last year, driven by inflation and an expansion in our head count.
For the first quarter of 2022, our non-GAAP operating income commonly referred to as adjusted EBITDA was a loss of $3 8 million compared to a profit of $4 6 million in the prior year period.
As anticipated our investment in <unk> was the most.
It was the most significant driver of this decline on a year over year basis.
Excluding acme investments of $8 1 million for the first quarter of 2022, adjusted EBITDA was $4 3 million.
As I mentioned earlier.
Bedded within our non-GAAP opex as a $7 2 million dollar spend on our acne program approximately 75% of which is in sales and marketing investments with most of the rest in R&D.
Additionally, you will see a reconciliation of GAAP to non-GAAP statement of operations that we spent about $4 million in taking our new ERP system live in the quarter, while implementation spending will continue throughout 2022, we're already seeing expenses taper down as we move past the heavy lift of going live in Q1.
Finally, there were no material or significant changes to our tax position.
Turning now to our balance sheet.
We ended the quarter with $131 $8 million of unrestricted cash and marketable securities compared to $164 9 million at the same time last year and $164 2 million at the end of the fourth quarter of 2021.
This sequential decline of approximately $32 million was driven primarily by the following factors firstly investments of $12 5 million in inventory and $5 6 million and prepaid than deposits.
To support the launch of RV cure as well as to secure our overall supply chain secondly, the cash net loss of $8 6 million, which was mainly driven by Acme spend in ERP related investments the rest of our cash usage was.
It was mostly driven by typical first quarter seasonal factors, including annual incentive compensation payouts.
Over the remainder of the year, we expect additional cash burn to be approximately $10 million per quarter, we do not expect cash consumption to be linear as we build in place initial inventory launch I'll be clear.
With RV clear, we have a strong first mover advantage and broadening customer acceptance based on exceptional clinical data.
Our strong balance sheet, we are well positioned to continue supporting the growth of our core business, while ensuring the successful launch of Avi clear.
Before I turn the call back over to Dave I would like to provide you with an update on our outlook for the full year of 2022.
While we are encouraged by our first quarter results and the demand trends that we've seen thus far through April and into early May we were also faced with foreign exchange headwinds.
Just on how we see 2022 evolving.
We are reiterating our original revenue guidance of $255 million to $260 million, but at the updated FX rates implying.
Underlying constant currency growth of approximately 13% to 15% an increase from our prior constant currency growth rates of 10% to 12%.
As a reminder, this guidance does not include any revenue from our recently approved Avi clear product.
Moving onto adjusted EBITDA guidance.
The earlier than expected approval and bolstered by the physician response to our data. We now expect an acceleration in our Acme spend taking a range to $25 million to $30 million versus the previous range of $15 million to $20 million affect me spend.
Excluding investments associated with our acne program, we continue to expect our adjusted EBITDA on a constant currency basis to be in the range of 33% to $35 million.
Therefore for 2022, we now expect our full year adjusted EBITDA to be in the range of $5 million to $10 million as compared to our prior guidance of at or near $20 million.
In line with this update we anticipate that there will be a period of incremental investment as we ramp placements of our system with lower margins as the suckers. However, we anticipate that our <unk> product line and its associated infrastructure to.
To be accretive to consolidated results going into full year 2023 with that I will now pass the call back over to Dave to provide further detail on the launch of Avi care.
Thank you Ron.
As we have shared <unk> received U S.
FDA five 10-K clearance on March 24th of 2022.
For acne treatment, we believe that the RV clear offering is well positioned to play a meaningful role in the clinicians armamentarium of acne treatment options as it achieved gold standard results with a vastly improved safety profile for patients suffering from mild moderate and severe acne.
As compared to ICD treadmill.
Obviously to deliver similar clinical outcomes at three months and six months follow up without the challenging safety profile daily patient compliance requirement or the inconvenience of the monthly trips to complete lab work retrieved medications performed checkups with the dermatologist over the seven to nine month course of treatment.
In contrast, the obviously a patient journey is completed in just 330 minute office visits over a two month period.
We are already hearing feedback from the Avi clear practitioners as well as patients and their parents that they've been looking for an alternative treatment option to Isa treadmill for several reasons and they are eager to try this new device.
Starting with the first commercial treatment conducted on April three 2022, we initiated our limited commercial release for this breakthrough product. Since this introduction of Avi clear <unk> has spent time meeting and discussing the technology was selected key opinion leaders.
Stalling devices into their practices training physicians and their staff as well as coaching back office support personnel on patient identification and conversion processes.
We are committed to executing a very deliberate rollout of this product to a pre defined set of dermatology and aesthetic practitioners.
These key opinion leaders have agreed to provide the company with insight gained while using our product during the limited commercial release.
We will utilize their feedback to refine our plans and optimize the execution of a comprehensive full north American commercial launch for obviously or later in the year.
The long term success of Avi clear like other first mover medical devices will come from executing an effective launch plan built on the knowledge gained through the limited commercial release to ensure that we deliver both provider and patient satisfaction. This new treatment paradigm.
Beginning with our limited commercial release, we are exclusively offering the obviously our device through our Avi clear partnership agreement.
In addition to the radical technological innovations that the obviously a product represents our partnership agreement defines a new and innovative business arrangement structured the relationship between the company and the Avi clear practice. This new agreement will serve to perfectly aligned the goals and objectives of the company.
With those of the practice over the long term.
At a high level the partnership model works as follows.
In consideration of the company's placement of Avi cleared device into the practice the provider will pay the company an annual license fee as well as a fee for each patient treated with the device.
Additionally, the company agreed to provide ongoing service and maintenance upfront in future clinical training is required for qualified users and ongoing account management support for the office staff assisting with the integration of Avi clear into the practice and optimizing patient conversions.
While we are very early in the limited commercial release, we are pleased with the feedback received thus far coming.
Coming out of the recent American Society for laser Medicine and surgery conference.
Partnership model resonated, well with key opinion leaders and practitioners.
See the many benefits of it since.
Since the start of our limited commercial release, we have already executed dozens of obviously a partnership agreements and subsequently shipped installed devices into practices.
This via replacement has enabled us to concurrently test and validate the various logistical back office and functional processes built into our novel Avi clear partnership program.
Most importantly practices have begun treating patients in their offices early results have confirmed our views on ease of use patient tolerance of the procedure and the ability for providers to integrate obviously easily into their practices.
Over the course of the limited commercial release, we will continue to gather insights we can already see how these learnings will enable <unk> to refine account selection accelerate account onboarding and staff training as well as increased conversion rates of potential patients. We look forward to providing you with more updates regarding obviously a rollout in subsequent brief.
With that I'd like to turn the call over to the operator to open the call to your questions Grant.
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One moment please for the first question.
First question comes from the line of Jon Block with Stifel. Please proceed with your question.
Great. Thanks, guys and good afternoon.
I'll start on the core business, maybe just two questions in total.
Do you think about the increased revenue expectations on the core business in other words, when we look at the.
Constant currency I think you can make it up in and around $7 million from the FX headwind where are you seeing it mostly capital that seems to have a lot of traction is it north American capital and maybe sort of as a pipe radically about mall question, you've gotten a really good return from the increased sales reps here in North America are there any pockets internationally, where you can see.
Sort of augmenting.
Some of the countries with additional reps.
Find a similar ROI and then I'll ask a follow up on that.
Well, it's a great question Jonathan.
I think the strength definitely is being seen and felt from North America.
We were a little slower in ramping that a year or so ago, but we've built a lot of momentum over the last three or four quarters and you can see that continuing to carry forward.
I think theres a little bit here.
Will air in the sales of wind in the sales.
With the Avi clear launch and the fact that they've got something new novel and interesting to go talk to physicians about so I think thats, certainly bolstering that potentially could it could have a halo effect on our call points here.
I would not underestimate the value in our consumable growth as well in North America. The investments we've made in the key account managers have continued to pay off and I think we will be benefited not only.
We will benefit us not only with the core business, but also with the Avi clear as we continue to drive utilization once devices get placed.
In regards to your the second part of your question internationally.
Australia continues to be an opportunity for us to invest and grow they deliver great numbers I think unfortunately, they were quite restricted in the back half of 'twenty one.
But we can see what they can do when they start to come clear that in the first quarter and I predict that we will see a strong second quarter from them as well as they've kind of come out of hibernation post restrictions.
And in terms of other areas I think Japan is still a little bit of a.
A question Mark due to the nature of the the economics going on there in particular, but I mean, we're bullish and we think we have the right people and the right team, but it's not something that we would be aggressive investing in right now and I think in Europe . I think there may be some sub markets within Europe that we would be interested and doubling down on like the U K.
Where we've had great success, but I wouldn't want to say Europe in general right now.
Due to the nature of the somewhat stabilized eastern Europe .
So a lot of great detail there, let me see if I can can you sort of just say with my second question and get into cross border Acme, Dave maybe just talk about the early learnings from sort of this partnership model, it's very different it's a very different model than traditional capital what are the reactions what are the actions of the med <unk>.
You said it dozens of balances are out there.
When the utilization trends and then just as a follow up on the on.
On the numbers side I think you guys said it will be accretive going into 2023. So just help us with that for a second despite sort of $7 million to $8 million per quarter. So do we say accretive I think revenue, 60% to 70% gross margin maybe I'm low there and then all in with expenses were accretive down the EBITDA in pulp that made some sense.
There and let me know if you need me to clarify thank you.
First of all taking those in reverse order I think from a kind of.
A perspective of being accretive accretive, leaving the year, we're not certainly suggesting that fourth quarter would be accretive itself, but we do believe that this is like a flywheel as you place the device you build momentum with patient traffic.
As that continues to build within the practice, they get more and more comfortable with it you get greater and greater returns from that place box. So we're very excited about how that model, we think can take shape.
Just for us, but actually for the practitioner and the patient and it will get utilized.
And I think thats the beauty of the model frankly is it puts us in a position to be directly and fully aligned to the practice.
And Thats really a unique situation, where we're not fighting in wrestling over thing.
We both want great things and I think we've got a great product to utilize this on.
And I think the physicians and the practitioners recognize that in fact to be quite Frank many of them have been the ones that suggested to us early on in the process as we thought about breaking into.
A segment that has a significant portion of physicians without a lot of capital in their practices. So while we know that we're working through our new model.
We also recognize it's one that fully aligned practice to company.
And we're both aligned to having great patient outcomes. So I.
There is a win win win here from this model and I'm pretty excited about it.
Sounds good thanks for your time guys.
Thank you.
And the next question comes from the line of Chris Cooley with Stephens. Please proceed with your question.
Good afternoon, and thanks for taking the questions and congrats on the record quarter.
If I could just follow up on where John left off there maybe starting with my first question on acne.
I would really appreciate if we could get some additional detail there just in terms of these initial early learnings.
When you think about the sales conversion cycle here, obviously, the Oslo them. So there was tremendous enthusiasm for hover clearer but.
Just kind of curious if we can kind of contrast, talbot clearer versus let's say a true sculpt I D. Just help us kind of walk through the sales process.
This is a new model.
And then how we should think about comp I, just phase two and phase III.
In 'twenty, three and beyond as you start to really commercialize this in terms of in terms of the ramp, but then I've got a quick follow up.
Well, Chris I think that's a really insightful question.
Frankly, we're being very very thoughtful in the rollout here. So if you think about the sales process, it's one where we have joint.
If you will join US arrival at the practice between the consumable and the capital Rep. Right. This is really a full company sale process.
Not only will be showing up to get the deal closed around the license agreement, but we're showing them. The full package of what we can do to support them as a practice and the Avi clear 360 <unk>.
<unk> talked about previously is a complete set of marketing materials and promotional as well as things like patient financing that allow this practice to easily and quickly integrate avi clear into their into their normal operations and hopefully affect significantly affect the pathway for so many pay.
<unk> suffered from acne.
No.
The sales process.
Got it we've aligned it we're working through it we've trained to it but I think it's still a little bit of evolving as we worked through a limited commercial release and thats the value of doing a limited commercial release, we're learning.
And as our reps are as are physicians are through this process and I think there's always questions of something thats, new and novel.
The level of commitment and the amount of embracing.
Embracing of this new process that we're seeing from the physician is quite rewarding frankly.
Understood.
In regards to <unk>.
The rest of your question.
Around like.
More or less like how patients or how how practices are going to integrate this if I understood. Your question correctly.
I think theyre trying to figure out specifically.
How they want to utilize this product because it is a little bit different than anything they've had so we're going to really spend some time doing the training and the development of or the training and the development of their staff to make sure that this really has the desired effect at the end of the day, Chris This product is not only.
A great product in terms of the outcome for patients we believe it to be a very very effective delegable procedure within the practice and we now take our pursuit.
Ah patients that.
Maybe I see 78, nine times, a year and I get a co pay from write a script for and I'm now able to monetize them and give them a much better outcome. So we think it's a win win win across all three company.
Practice, and especially with the patient.
I appreciate all that color. Thank you and maybe if I could just squeeze one other quick follow up and then I'll get back in queue.
Maybe just kind of similarly, along these same lines I realize this is a controlled launch right now at this juncture, but as you start to scale to more of a national level or more of a.
Normal rollout.
Help us think about the incremental spend there from a missionary sale obviously.
Average patient today doesn't know that all but a clear exists and so just trying to get a better understanding on kind of your go to market strategy. There as it starts to make more sense with a broader offering in terms of getting the word out and helping drive growth to these practices in relation to officer. Thank you so much.
Thanks, Chris I think first and foremost I think for those people on the call I think one of the things that's really quite compelling about this opportunity is that the vast majority of patients are already in the waiting room.
The amount of outreach you have to do fundamentally is really quite modest moderate at best or worst I should say.
It's really how do we convince them to try something different.
Additionally, we know that each of the practices has prescribed accutane or Isa tret known for for a lot of their patients with less than desired results.
They already have names and people within their practice that we can do outreach to and with the practice in order to recruit them back in.
There is quite a large patient population already available to us without going outside of those parameters that said, we do envision doing very very localized promotion of the product in and around the physician, we intend to obviously create some brand awareness.
Nationally and use things like physician locators and information available on our website to make sure physicians get patients get directed to the right places.
But as we roll this out.
The real beauty here is that the patients are already in Q, and we know that there's 8 million patients roughly that seek some sort of solution from the dermatologist or their or their care provider around the moderate or severe acne. So.
I think we feel very confident that this is not a huge market spend but rather an awareness issue and then our promotion of the physician and the practice within their own patient pool.
Thanks and congratulations.
Yeah.
The next question comes from the line of Louise Chen with Cantor. Please proceed with your question.
Hi, Thanks for taking my questions and congratulations on all the progress this quarter.
I had a few questions for you we've been getting a lot of people asking us about how to think about revenues from Avi clear this year and how that breaks down into the different segments of your business and then how you think about the peak sales potential of the device maybe I'll start there.
Wow.
A very loaded question.
But I appreciate them, because I think youre thinking about it the way we are and we're quite bold about what this could mean for the company and we do believe it to be transformative in the in the long run, but I think that's exactly why we're being very cautious in the short term is we want to learn and grow and understand how to best position this product how to.
Make sure that we're supporting our physician practice partners.
As we roll this thing out effectively and we want to make sure that patients are getting the outcomes that they deserve from this for this treatment.
So we're taking the time to train and develop and place and manage and monitor and all these things will be critically important in the short term so.
Im trying not to raise anybody's.
Appetite for near term revenue because I think it's really important that we learn so that we can execute a very effective full north American launch later this year.
And I think as a flywheel turns later in the year and into next year I think the potential is quite quite large.
So just a small amount of penetration into an $8 million.
Patient population could drive a pretty significant change to our financials and I think there's been a few models put out there and I am certainly not excited are willing to put guidance out at this point, but I think we're all very much excited about what the potential could be and like I said it would be truly transformative for this company.
<unk>.
Okay.
Okay. Thank you and my next question is on RV clear for wrinkles and is there any evidence that it could work there.
That's obviously, another big opportunity as well.
Well, we have presented some information at the LMS.
<unk> study our conference in San Diego, where physicians retrospectively went back and looked at acne scarring.
And much similar to acne scarring resolution.
What we have seen.
Anecdotally through the data.
Is that we're hitting peak temperatures at a point, where we're indicating or creating.
Demand for colleges and I think as a result.
We're seeing some benefit and we've seen some physicians who have looked at the histology and immediately jumped to the conclusion that this would work as a regenerative device as well now we are not claiming that and we have not done any studies to confirm that so I wanted to be very careful in not jumping the gun, but we will likely be testing in.
Evaluating other benefits from this device in the future.
But we think it will start with acne and extend to Truckle acne, and then scarring or reduction of scoring and.
And then we'll see where the opportunity takes us, but we're pretty excited about what we've seen in the data and I would tell you. The physicians are overjoyed with what they're seeing how they think that this could implement significant change the paradigm of acne treatment.
Okay. Thank you and then just one last question if I may.
You had mentioned something about a tamp down in SG&A spend over the course of the year. So just curious if you could walk us through the cadence of Opex for the remainder of the year.
I want to make sure that we're really clear what we said was that we thought that the ERP spend was waning and tapering down over the course of the year after going live in first quarter.
We're actually expecting that we will likely be making investments and avi clear both in the commercial front as well as in the R&D and clinical environments.
That's great.
Want to make sure that that was the message. So I wanted to make sure. We're very clear about that we haven't give given a whole lot of sizing to the tapering on the ERP, but we have indicated that we expect our spend on anatomy to increase over the course of the year in.
Total of 25 to 30, yes.
Okay. Thank you very much.
Okay. Thank you.
Yes.
And the next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.
Thanks, just to follow on the question. The Acme spending is now going to be $25 million to $30 million adjusted EBITDA guidance.
$5 million to $10 million.
Does that include.
The Acme standards, the Acme spend on top of.
Of that.
That's included.
Let's be really explicit here.
The RV clear spend that we anticipate in Opex that we've now re forecasted to be 25% to 30 is reflected in that new adjusted EBIT number.
But we still have not put any revenue into our guidance that's right that's right.
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And to me the other thing I'd add to that as you will note that we called out our constant currency core adjusted EBITDA separately.
Which continues to be in the low to mid teens. So that's where we exited in 'twenty, one and Thats where were.
We maintain that that portion of our business to be at.
I'd say that you know.
Our margin our EBITDA margins are taking a bit of a pause endpoint in claims.
To make investments within the space of Acme, which has the potential to radically transform the profile and size of our company, so a little bit of a detour.
I fully expect that we will earn a very attractive return on these investments for our shareholders and beyond the short term you should expect to see us return to that that very solid underlying progression that we had seen in 2021 from an adjusted EBITDA standpoint.
Okay.
The revenue guidance, which you reiterated excluded 22 excludes any I'll be.
Clear.
Revenues and if I can read through the.
The tea leaves there.
Commercially could launch.
In the fourth quarter or is that is that correct.
Yeah, I think I've, even tip my hand to say, we will do a full launch within the year.
You can go back to the script I actually said within the year.
Okay, and then and then the.
The gross margin.
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I'll be clear.
Is that is that expected to be in the 60% plus range.
I would expect it to be very accretive to our overall gross margin profile I don't want to put.
A number on it just yet.
Because we need the business to scale one.
But I do fully expect it to be accretive to our overall gross margin profile.
Right.
Over time, so that's probably more of a.
Mid to mid to late 'twenty, three kind of situation as you build or is that is that the best way to look at it.
But again, there's a lot of factors in there a lot of the spend around Acme has more of a.
Fixed profile as opposed to an incremental.
Cogs profile, so I don't want to put a time or a number out there we're still in our limited commercial release, we're still figuring out things around our go to market strategy, our commercial model et cetera.
Over the long term I'd say still plan for it to be very accretive to our margin profile.
Okay.
Reiterating exactly what we said Anthony I just wanted to repair phrase. This back to you one more time, we said that we.
Anticipated entering 2023, with acne or Avi clear being accretive to the company in total.
So.
Okay.
Last question on the on the revenue shares.
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If it's a place I mean can you give a little more color on what that would look like.
Would be the upfront payment for the.
For the customer and then.
Revenue share and then a small.
More of a minimal utilization fee.
Based on the consumable piece of disposable piece.
A little more color on kind of how that or the range of how that may look.
Well, we're trying to work through that very very thoughtfully with our physician partners.
As we go through this limited commercial release and I think we struck a very strong and effective balance that allows there to be skin in the game from both parties.
While we think about the right way too.
Charge on a per procedure basis as well so.
I'd, rather not get into the details until we get a little bit further into the commercial release.
But I think the way I'm thinking about it is the practice has to have some skin in the game, which we get with their licensing and because we don't charge in the upfront capital in because we don't have a consumable product they have to pay us for in the procedure.
We've set this thing up where we can participate is it probably a more aggressive rate than a normal consumables.
Yeah.
Okay. That's helpful. All right I'll hop back in the queue. Thanks I appreciate it.
Okay.
And there are no further questions at this time I will now turn the presentation back to the host.
Thank you grant I just want to thank everyone for their time and attention today on the call. This is an exciting time for the company and we are exceptionally bullish on this new opportunity.
So we're going to keep our heads down and really work hard over the next few.
Quarters getting this limited commercial release through learning, what we can and then applying it to a full release of the RV clear later this year. So please stay tuned for further updates in future periods.
Thank you.
Okay.
That does conclude today's conference. We thank you for your participation and ask you. Please disconnect your lines.
Sure.
Okay.
Uh huh.
Yeah.