Q1 2022 Acutus Medical Inc Earnings Call
Thank you for standing by and welcome to the Medical Inc. First quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode. After the presentation. We will conduct a question and answer session to ask a question. During the session you will need to press star one on your telephone.
You required any further assistance please press star zero.
I'll now like to hand, the call Prince over to your speaker today Caroline corner.
Thank you operator, welcome to accuse us of first quarter 2022 earnings call. Joining me on today's call are Scott Hennigan Chairman of the board of director and David Roman.
I'm, Chief Executive Officer, and Chief Financial Officer.
This call will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Statements made on this call. It does not relate to matters of historical fact should be considered forward looking statements factors that may cause results to differ from those forward looking statements are discussed under the forward looking statements section in the press release attached as an exhibit to acute form 8-K filed with the SEC today and are also.
So discussing more detail under the risk factors section in <unk>.
This most recent filings with SEC, including the risk factors described in <unk> Form 10-K any forward looking statements provided during this call including projections for future performance are based on management's expectations as of today.
Just undertakes no obligation to update these statements except as required by applicable law.
Thank you just a press release with first quarter of 2022 results is also available on <unk> website, www dot acute medical dot com under the investors section and includes additional details about our Q2 financial results.
<unk> website also of the Ketosis SEC filings, which you are encouraged to review a recording of today's call will be available on <unk> website by five P. M Pacific time, now I'd like to turn the call over to Scott.
Thank you Carolyn and good afternoon to everyone joining us today I'm pleased to be joining the call today to share. Some important updates with you I will discuss the management update announced in conjunction with our earnings release as well as provide some perspective on our ongoing strategic review of the business.
David will cover first quarter, 2022 results and key clinical and pipeline development as well as provide further detail on recent strategic transactions, including the refinancing of our debt and the definitive agreement to sell our left heart business portfolio to Medtronic.
Starting with our CEO transition.
After five years, leading acute as Vince Burgess informed the board of his intention to pursue other opportunities outside of the company.
This has a long history with the cutest, having helped facilitate the company's series D financing back in 2013 and has been responsible for building the portfolio and relationships that define the company at this stage in the <unk> lifecycle, Vince along with the board decided that the company's needs.
We're evolving necessitating a different leadership profile the portfolio and innovation, we offer the market will always be the foundation of the company and Vince played a major role in building. This foundation, we are grateful for and thank Vince for his contributions to the organization and appreciate his continued engagement as a <unk>.
<unk> to a consulting role for a limited time.
The board has initiated an active search for a full time replacement as we execute the search we've asked David Roman to serve in the capacity of interim CEO .
David joined Akitas about a year ago as our CFO and has been instrumental in leading last summer secondary offering and supporting the company through its restructuring earlier this year as well as the planned sale of our left her access portfolio and debt financing JV.
David will continue in his role as CFO with the full support of the board. We appreciate David's commitment to the organization on our confidence that we can execute our priorities during this transition period.
Before turning the call over to David I will briefly update you on the strategic review that the company announced on its earnings call in March over the last several months management has been working with the board to challenge and rethink the company's strategy and establish a strong platform for long term growth.
This includes ensuring we are maximizing the value proposition for our customers with our products and their clinical utility today and in the future.
<unk>, our commercial focus around utilization.
Prioritizing, our R&D and clinical investments and mapping and therapy and.
And improving operational performance, they're managing cash burn, reducing operating expenses and driving positive inflection in gross margins.
And then lastly, capitalizing the business to realize our strategy.
There's a very significant unmet need in the rapidly growing E. P afib market, especially in the underserved complex patient population, where acuity is uniquely positioned versus the competition.
Our focus on this segment of the market will enable us to bring important developments and improvements to the physician and patients we serve through enhancements to our mapping platform and integrating therapy.
The introduction of therapy in the U S and ultimately PFA globally.
We believe this is an exciting opportunity and we are positioning the company for category leadership.
Management and the board remain actively engage all of these strategic initiatives, there's more work to do and management and the board are pleased with the progress we have made so far as demonstrated by our encouraging start to 2022 and our financial results the advancement of major R&D and clinical programs.
Execution on debt financing and the left heart access sale.
We are all passionate about the value, we can bring to our stakeholders, including physician patient business development partners employees and shareholders.
That we will have further updates in the coming months.
And we will provide details accordingly.
I'd be happy to dive into more detail during the Q&A I will now turn the call over to David David.
Thank you Scott and good afternoon, everyone.
I'd like to start by thanking Vince for his mentorship and guidance over the past year his vision for <unk> and its commitment to our customers employees and industry partners has made us an important participant in the E P market.
We have an incredibly talented organization and I am excited to continue to work with our teams to drive our mission forward and ensure the future success of the company.
During my remarks today, I will discuss an update on our strategic objectives, a review of our first quarter financial performance and provide some further details on the announced debt refinancing and sale of our left heart access portfolio.
On our fourth quarter earnings call, we presented three key priorities for our business and I will walk through an update on each pillar.
First is to refine our R&D product development programs to those that will drive our business over the next three to five years and to defer more exploratory work.
To that end virtually all of our energies are now focused on enhancing the user experience with their mapping system by a workflow improvements improved localization and on integrating therapy, including RF ablation, and Paul field ablation or P. F E.
Earlier this week, we completed enrollment in our U S. IDE study for Accu blade and right atrial flutter.
We continue to expect to file our PMA by the middle of this year with approval expected in early 2023.
Based on the clinical and commercial trends in Europe , as well as independent market research. We are very confident that bringing <unk> to the U S will improve the physician experience and accelerate our growth.
In addition, we continue to make solid progress in our PSA program and have enrolled 24 patients in our CE Mark trial investigators that did their first in human experience at the heart Rhythm Society in April just a few weeks ago.
Results showed strong safety outcomes with no adverse events and efficacy comparable to peer first in human studies.
Enrollment in our CE Mark study is ongoing and we will provide further details unexpected approval and launch timelines in the months ahead.
Our second strategic pillar is to drive our commercial teams to focus on market development and increased utilization of the vacuum at mapping system and associated therapy solutions.
In the near term, we've elected to increase our resources toward driving procedure volumes and utilization.
This approach is intended to facilitate and improve physician experience and increased advocacy in the clinical community with the goal of building broad based accu map adoption in the complex arrhythmia population.
At the same time, we are making a conscious decision to reposition console and supported this strategy, which could result in limited growth in our installed base here in 2022.
We ended the first quarter of 2022 with an installed base of 77 systems globally.
I don't know sequential basis and up from 62 in the year ago first quarter.
Throughout the first quarter of 2022, we removed 11 systems from accounts in the U S. Repositioning eight of those into new U S accounts during the quarter. We also added three new systems to the installed base outside the United States.
We continue to expect movement of counsel throughout the year, which could cause fluctuations in our installed base on a quarter to quarter basis.
To date, we've been very satisfied with the pace at which we have identified higher value target accounts and installed systems.
As he move consoles within our fleet there could be intermittent disruptions in procedure volumes, but we are pleased with the trajectory. Thus far as Q1, 2022 mapping procedure volume growth accelerated on a year over year basis, and our copper utilization rate was the highest level since the fourth quarter of 2020.
Our third pillar is to strengthen the financial position of the company and improve operational performance.
During the first quarter, we completed a restructuring that included both a reduction in force as well as tightening of discretionary expenses and working capital management.
The impact of these actions should be reflected in our financial results in the second quarter of 2022, and we expect operating cash.
The operating expense and cash burn to moderate throughout the year.
Beyond our baseline efforts to rightsize operating expenses, we have initiated several programs at improving our gross margin. This includes automation evaluating our manufacturing processes and identifying opportunities to improve yield.
Lastly to augment our organic initiatives, we have been working with third party advisors to review a range of options to fund our long term growth.
The announcement of our debt refinancing and the left heart access portfolio sale, our major milestones and I will discuss these transactions in more detail in a few moments.
Strategically the left heart access product line, although performing very well and growing at a healthy rate was not being fully optimized under our ownership given capital and human resource constraints.
Our sales organization has tremendous clinical depth and experience in E. P N mapping, which will remain a key focus in the future.
As we undertook a strategic assessment earlier this year, we believe that partnering with an industry leader it would be the best pathway to maximize the value of our left her to access technology in terms of both clinical and patient impact as well as commercial adoption.
With the larger distribution infrastructure, we think medtronic will be able to bring the full benefit of this product line to physicians patients and health care systems on a global scale.
Overall, we see this transaction as transforming our financial outlook and enabling us to even more intensely focused on our differentiated mapping and therapy solution.
Turning now to our first quarter results.
Net revenue of $3 $7 million increased 3% compared to the $3 $6 million registered in the first quarter of 2021, consistent with their expectations growth in disposables and service and other was offset by declines in capital equipment revenue.
Sales in the U S of $2 million grew 28% compared to the prior year's first quarter.
Increased accu math disposable and let's start access product sales drove U S performance, even with a lack of capital revenue that contributed a little over $230000 in the first quarter of 2021.
Sales outside the United States, which include revenue through our partner distribution partner bio tronic were $1.7 million compared to $2 million in Q1, 2021.
The year over year decline in our O U S business was driven solely by a decrease in capital revenue as disposal sales outside the U S were up nearly 30% driven by continued adoption of our mapping and ablation technologies.
<unk> penetration of our mapping procedures remains at 70% and we continue to see strong performance in this product line. We're currently available.
As is typically the case in our industry, we believe that the strong adoption outside the U S is a good leading indicator of what to expect when we launched <unk> in the U S next year.
By product segment disposable revenue of $3 $2 million increased 37% on a year over year basis.
The strong performance in disposable revenue was primarily led by an increase in procedure volumes, both in the U S and internationally or does it associated with new installs as well as continued adoption of the accuray therapy catheter and growth and left heart access.
During the quarter mapping procedures increased 27% on a year over year basis, and we generated record global procedure volumes in the first quarter of 2022.
We had no capital sales during Q1 of 2022 compared to capital revenue of $1 million in the same quarter last year.
Service and other revenue of 470000 was up from 280000 in Q1, 2021 driven by higher revenue from service contracts and console rentals.
For the first quarter of 2022, non-GAAP gross margin was negative 119% compared with negative 89% in the first quarter of 2021.
The year over year change in our non-GAAP gross margin primarily relates to prior period recognized manufacturing variances higher field service and freight expenses higher depreciation associated with placed equipment in warranty and other expenses.
As a reminder for 2022 we expect to see continued pressure on our gross margin.
While increased disposable mix should help on a year over year basis, we will recognize manufacturing variances related to lower than planned volumes in prior periods higher component in labor costs and lower yields on certain products.
On a reported basis the impact of capitalized variances will be more significant in the first half of the year.
Over time strengthening our gross margin is a top priority for us and as I. Previously mentioned, we are undertaking several work streams to address this critical driver and have included certain gross margin goals in our 2022 management incentive program.
non-GAAP operating expenses were approximately $22 $7 million in the first quarter of 2022 flat compared to the same period last year.
SG&A related to investments in sales and marketing was offset by lower R&D expenses tied to the re prioritization of development programs.
non-GAAP operating expenses have been roughly flat on a sequential basis, the past seven quarters, and we expect our non-GAAP operating expenses to decline starting in Q2 of this year as we realize the benefits of our restructuring program.
Excluding specified items, our non-GAAP net loss for the first quarter of 2022 with $28 $5 million or $1 per share compared to a non-GAAP net loss of $27 $2 million for the first quarter of 2021 or <unk> 97 per share.
Our total cash and cash equivalents balance, including restricted stock or restricted cash at the end of Q1, 2022 with $78 $8 million.
Transitioning from Q1 results and to close out the call I'd like to provide some further details on our announced debt refinancing the definitive agreement to sell a left heart access portfolio as well as our outlook for the rest of the year.
Starting with our debt refinancing in April we received a commitment letter from Deerfield management.
To refinance our existing debt with a new five year 35 million billion dollar facility.
Refinancing is expected to close in tandem with the left heart access sale.
This new facility will carry an interest rate of 11, 5% and amortize starting at month 36.
We also issued Deerfield management warrant coverage of 12% with an eight year maturity.
In addition to our planned debt refinancing as disclosed in our 8-K filed on April 27th we entered into a definitive agreement to sell our left heart access portfolio to Medtronic.
This transaction includes four components that were detailed in the 8-K and I always summarize those further today.
First is it $50 million payment upon closing of the transaction subject to customary closing conditions and the refinancing of our outstanding debt.
Second is it $20 million contingent consideration earn out once you become qualified as a preferred OEM supplier for Medtronic.
Once we achieve OEM qualification, we will start supplying medtronic with finished goods product as governed by a distribution agreement.
Under this agreement, we will manufacture products for Medtronic for a period of up to four years out of our Carlsbad facility.
Third is a $17 billion of contingent consideration earn out when we file for E. M. D are assuming this occurs within 15 months of the first closing.
This earn out will be reduced to $13 billion. If the filing takes place after the 15 month period.
We expect to achieve both the OEM qualification and submission for E. R. U E M D. Our milestones within the first year following closing of the deal.
The last component of the transaction and covenants encompasses revenue based earn out payments that commenced after OEM qualification is achieved and the product line has transitioned over to Medtronic global commercial organization.
These earn outs continue for four years post that commercialization handoffs and are calculated at 100% of sales in year, 175% of sales in year, two and 50% of sales in both years three and four.
To give you some parameters to update your models, we estimate that procedures utilizing left heart access products approximate 800000 annually growing at a low double digit rate.
Including both depot crossing devices and access sheath. The market is estimated at $1 billion globally.
One way to assess the impact of revenue base earn out on our future cash flows is to start with their current market share of less than 1% and make a series of assumptions around the share that medtronic could possibly achieve in each year of the earn out period.
Overall, when assessing both the strategic and financial factors of this transaction, we see this as a tremendously positive win win outcome for both companies for our customers and the patients they serve as well as health care systems globally, we look forward to working with and supporting Medtronic in the future.
Finally for the full year of 2022, our business has been tracking in line with our plan that we shared with you on our last call for revenue to be flat to slightly up compared to the $17 $3 million in revenue generated last year.
As a reminder, this outlook did not contemplate the sale of our left heart access business worth or any other potential strategic activity.
On a comparable basis, we see nothing that changes your outlook at this time and continue to expect growth in procedure volumes and disposable revenue to be offset by declines in capital.
Taking into consideration the announced sale of our left heart access portfolio, a key variable will be when medtronic takes over commercial distribution.
It will depend on the OEM qualification process that I discussed earlier.
In addition to the planned sale of our left heart access portfolio a significant move in FX already a 400000 dollar headwind through the rest of the year represents another variable to our revenue outlook.
When putting these factors together and assuming that we transition distribution to Medtronic in Q4 of this calendar year as well as ongoing trends in our business. We do not expect a material change in our outlook. Once we close the transaction with Medtronic and have greater visibility into the timing of distribution transfer we will provide further updates.
We appreciate your continued interest and support and I will now turn the call back to the operator to facilitate our Q&A session operator.
Thank you and as a reminder to ask a question simply press star one on your telephone to withdraw that question press. The pound key we ask that you. Please limit your questions to one and one follow up.
Your first question comes from Robbie Marcus with Jpmorgan. Your line is open.
Hi, This is actually Lili on for Robbie today, Thanks for taking the question.
Maybe first if you could just.
Talk a little bit about the cadence for the rest of the year.
I know theres a lot of moving pieces here, you know pulling out of unproductive accounts selling the couple of portfolio. So how should we be thinking about revenues progressing them across both capital and disposable them over the next few quarters.
Sure. Thank you for the question. So just to start with Q1 as I mentioned on the call. We do not generate any capital revenue in Q1, we would expect capital sales to build throughout the year with the largest contribution in Q4 remember the way we put capital into service is we play systems into new accounts.
Under an evaluation that evaluation normally takes anywhere from <unk>.
Three to 12 months, depending on the account the number of physicians they have et cetera at the end of that evaluation period is when we look to convert that into a permanent placement and that could come in the form of a cash sale, some sort of catheter utilization commitment for multiyear disposal purchases or rental.
So if you look at Q1, we pulled out 811 console in the U S, but eight new ones back into service, it's very unlikely that any of those eight console would convert to a permanent placement in a capital sale before the third quarter of this year.
If you look outside the U S. We were there fewer movements in our installed base, we would expect to see some contribution from capital in Q2, and Q3 and Q4 as well as some capital to our partner bio tronic.
On the capital side, you should expect Q4 to be disproportionately larger than the rest of the year, which as you know is pretty typically from a seasonal pattern here.
Here in the U S.
On the disposable side, we had a really nice start to the year the $3 $7 million that we generated in Q1 was ahead of the expectations that we had shared.
With with you in late March as we installed some a few new consoles at the end of the quarter that had it stocking orders, but that but we are mostly watching procedure volumes and then as I said, we had we've generated the highest number of procedure volumes ever for the company, you'll obviously see seasonal fluctuations in procedure volumes, but we would expect.
Disposal revenue to be to follow up kind of your normal seasonal pattern.
In Med Tech with again, a good amount of our base business weighted into the fourth quarter. So as I kind of look at and put.
Put another way where consensus numbers sit and I don't I don't want to get into the habit of commenting on consensus, but given the number of variables at play here with our base business as well as this announced transaction. We're generally comfortable with the range of consensus that sits out there today and the cadence that's reflected.
Currently.
Great that's really helpful.
Maybe just a follow up on that if you could talk about what the COVID-19 environment looks like right now and whether that's been a headwind to driving adoption, particularly in on the systems side, just given the comments you've heard from some of your peers about the challenges of driving capital equipment sales right now thanks, so much.
Yeah, It's a great question and it feels like a topic that we're not going to stop talking about yes.
As we've talked about in the past Covid.
Had a pretty significant impact on our business at the time of launch when we when we when we entered the U S. In February of 2020 and Covid.
There obviously were two impacts that Covid had on the company one was the direct impact of canceled electric procedure volumes as well as the lab access and other hospital based restrictions. There's also been a kind of derivative impact which is as physicians have returned to do such a normal case volumes.
They are working through a pretty significant backlog in the preference has been to sort of favor more familiar technologies that allows them to treat patients and move through that backlog at the same time, we have experienced hospitals that have put moratoriums on new technology assessments.
I would say most of those factors both the direct and indirect factors of Covid are fading.
I think we'd all like to say and be able to predict when exactly will return to a quote normal pre COVID-19 environment and we're not there yet, but as we kind of look at where we are today compared to navy entering the year with omicron or the second half of last year with the Delta variant, we would say on the margin the COVID-19 related headwinds are.
Our our moderating from from what we had seen.
Got it that's helpful. Thank you.
Your next question comes from Amit <unk> with Goldman Sachs. Your line is open.
Thanks. This is Phil on for me.
A lot of moving parts on kind of a capital structure standpoint, I was just hoping you can give us maybe an update on where your cash position post the closing of the Medtronic agreement is going to put you in terms of kind of.
How how long that cash on hand is going to kind of be able to launch.
Yes, so a big variable there Phil will be the magnitude and size of the tail of the transaction, meaning the revenue based earn outs.
As we look at our model today and reflect the restructuring that we've undertaken at fair minimum we are our current cash outlook puts us at the end of 2024, we are actively working on a number of initiatives too.
Extend that cash runway with an objective to have this cash last.
Three years from the closing of the transaction, which we would expect to happen.
Nick late June early July depending on an HSR review, so I would say in a base case at the end of 2024 with a number of opportunities to extend that.
Yes.
For three years, which would put us towards kind of the middle of 2025.
Okay. That's very helpful. Thanks for the color.
I Recollect I think the right flutter approval in the U S was going to kind of be the key catalyst to reaccelerate in the commercial business in the U S. Can you remind us of kind of the strategic plan for when you're going to hit the accelerator.
In the U S and if you can affirm that the mid year.
Submission PMA submission for Wright flood or what would kind of imply in early 'twenty three approval. Thanks.
That's exactly right Bill so we completed enrollment actually yesterday.
For the 110th patient in the study is the 30 day follow up so we'll follow up that last patient in in mid June and we are we are ready to file very shortly thereafter once we file that does kick off a 180 day PMA review clock. So so there's depending on any questions back and forth of the FCA. We are planning on a early two.
23 <unk>.
Entrance to the U S and as we think about the accelerating of growth.
That is a major catalyst in if we just use the European experience as a reflection of that 70% of our procedures today in Europe are using accu Blake and actually.
In 14 of our 20 accounts in our direct business.
So 70% of them are using <unk> in more than 80% of their procedures. So we we think the opportunity here is quite significant and as we reflect on the feedback we've gotten from.
Third party market research as well as our field team.
The ablation catheter.
It is critical to a number of factors that should help adoption in the U S. One of which is being workflow and the other is adding an additional opportunity.
Anywhere from 2000 or $3000 per case.
From a financial standpoint.
Yeah.
That's really helpful. David Thanks, Thanks for the question and any other key products that you are looking to for kind of approval to supplement the <unk> catheter that are going to be kind of critical to U S adoption.
Yes.
The in terms of.
That is the number one disposable product we have several software releases.
Underway right now we launched a product that we call asking about eight last summer that had the automated region of interest binder that help physicians better identify where do with blade, particularly in these complex patients in regions outside the pulmonary vein, we have a number of software launches planned over the next 18 months that will further improve.
The anatomy build of Av.
On the system, which is important to catheter localization as well as just overall enhancement of the workflow and if we had just that is one of the key areas of feedback. We continue to hear US is is the need to advance the workflow to look more like something that is familiar to physicians and those software enhancements will get us there and lastly, we have initiated.
Our program to upgrade our console too with magnetic based localization.
That is a project that is ongoing here and we would expect to have approval for that towards the end of 'twenty three or early 'twenty four so the way we think about our growth is he thinking about 2022 is a bit of a transition year, where we rightsize our installed base, we will refine our value proposition and sure we're making the right investments in the business in 2020.
Three we launched <unk> in the U S, which is a source of accelerated growth, we complement that with with with with software enhancements and then as we roll into 2024, you have magnetics, we'll have likely a PFA already launched in Europe and be in the midst of the PFA.
Trial in the U S. So that's so that's our conceptual thinking about the next several years.
That was incredibly helpful. Thanks, David.
Your next question comes from Brandon Vazquez with William Blair. Please go ahead.
Hi, everyone. Thanks for taking the question David just one starting on a high level Youre sitting in CEOC now the company has gone through probably I would say kind of commercial tweaks or commercial strategy changes over the past year or so.
How do you see as your kind of.
Sitting in the seat for a little bit now do you need any other tweaks to the commercial strategy or is this just a matter now of going out there and executing.
It's a great question, Brandon I would say.
Under 24 hours into the into the assignment, but I would say our commercial strategy.
Is moving in the right direction. The decision that we made to really hone in on utilization and procedure volume growth is starting to show up in our results and as importantly, and perhaps more importantly, it is helping us drive depth of adoption and increased advocacy and familiarity with accu map among our customers we know.
So that we're not going to build a huge and successful foundation for this company over multiple hundreds of accounts doing one procedure a month, we need to ultimately build a strong foundation that has a selected group of key users and as we enhanced our technology and bring key new products to market, we can expand our user base as we as we kind of.
Of knock off some of the key barriers to adoption.
That we've experienced so I think the commercial organization and our strategy is very much headed.
In the right direction I am going to take the next kind of 30 to 45 days and work with work with the board to get to kind of round out our overall strategic assessment of the business I think we need to continue to look at our cost structure and whether we need to further right size any of that.
Any of our investments to reflect our current opportunity set and to make sure that we're positioned to be able to extend our cash runway and make the necessary investments to.
Nato's partnership with Medtronic successful as well as continuing to make our partnership with <unk> and others and in other successful so I'll be spending the next month month and a half on the road meeting customers spending time with their teams as well as continuing to work with some of our outside advisers to out to put those those plans together and we'll have more to share.
There in August .
Okay.
I appreciate you opining on it with only 24 hours and.
That's helpful color.
And then the second question.
Can you talk a little bit about <unk>.
Youre looking at your accounts now and there were I think if I heard the number correctly 11 of accounts within the U S. Could you removed systems from you placed them into eight accounts outside of just the accounts were not getting utilization can you compare and contrast, where those systems are going to what are the physicians like why are you choosing these new accounts and what makes you.
We're confident that those can be accounts to drive volume going forward. Thanks.
Yes, it's a great question. So let me walk you through brand and kind of how we've thought about.
Which consoles to reposition and where.
Where to put them. So so as you as you may remember on our last call. We talked about the reorganization of our commercial team into geographic pods, where we're trying to cluster our consoles our field team members and our end so that we could drive depth of adoption as well as limit some of the geographic challenges.
A case coverage and one example is that we used to have our New York macro recovery in cases in Kansas City, which is just not a great setup. So we hired a rockstar mapper to go relocate to Kansas City to cover.
A major account there as well as a.
A kind of nucleus for building out in that in that region. So as we looked at kind of the map of the U S. We look at where our counsels were well placed if you looked at the average utilization and we identify where there was mismatches in certain areas of the country, where we didn't have a kudos personnel or where the accounts they don't have sufficient.
Volume and sufficient focus on complex patient and we didn't make the tough decision to to pull out the console and in some cases the physician champion had left as we put the eight consoles back into service. This quarter every single one of them fell into one of our dedicated geographic regions with a large number of them going into the southern California area, which is one of our strongest territories.
From a commercial execution.
Standpoint, and the rest being being place both in in certain in the in.
In the Central region, and then continuing to optimize our installed base on the east coast, So putting console in the right place with the right coverage to set us up for success was a key.
Identifying factor in where these new consoles wet and the other is we are taking a much harder look at.
The volume of complex populations in those accounts and the commitment of the physicians treating those patients as you. If you look back at some of the accounts, where we had previously put consoles. There was sort of a focus in kind of building a workhorse system, but as we've had the console in service, it's become very clear that our true value proposition and we're no.
What else is as uniquely focus is in is in that complex patient population, which just for reference we estimate is about 35% to 40% of the treated population. So it's a huge opportunity and we're focusing our.
Physician identification and account targeting around those procedure volumes.
Super helpful. Thanks, a lot.
Thanks, Brett.
Your next question comes from Maui, Tee ball with BT and EE. Please go ahead.
Hi, good afternoon, thanks for taking the questions David I wanted to ask.
Question here on the left hand access portfolio and sort of what's going on right now in the in the few weeks before the Medtronic deal closes you know.
Has there been disruption in that sales force what is morale like given theres been kind of restructuring at the company and I guess, most importantly, maybe our customers who like the left heart access products are they still able to get access to that is that still being sold or do they need to wait until they they meet with them trying to prep.
Yeah, great questions Mary So let me, let me talk through each of those.
So let's start access business in the first quarter did incredibly well and obviously, we have not announced the deal with that.
At that point in time, we have seen continued momentum in that business here through.
The second quarter with the approval excuse me FDA clearance of our watchman compatible sheath.
And as well as some other product launches and continued just strong commercial execution in the field on our <unk>.
Sales for us and one of the challenges that we face we don't really have a dedicated sales force selling this product our account reps carry let's start access portfolio as part of their overall responsibilities. So as we thought about the strategic orientation of the business really honing in on mapping and therapy.
We really want over time want to be able to shift those individuals' focus more toward mapping and therapy and enable and and and.
Partner with Medtronic on distributed distributing the left heart access portfolio. So the construct of the deal really allows for completely uninterrupted supply of this product to customers that was one of the reasons. We went down the path that we did in this transaction is we will continue to sell the less hard access product now now.
Just as we did before April 27th until the first closing of the deal occurs when the first closing approaches will likely be late June or early July depending on an HSR we.
We'll continue to actually manage.
Sell the products and manufacture the product until we become a preferred OEM supplier to Medtronic, which will which will take place at some point later this year and at that point in time, Medtronic will takeover distribution and we will continue and we will manufacturer under under the terms.
That govern our distribution agreement so over this entire year and through this transition there should be absolutely no disruption in product supply.
To our customers and we will continue to generate revenue on the product until the distribution transfer.
Occurs later this year.
Okay, that's really good to hear thanks for all that clarity.
And I guess I would ask kind of a follow up to Brandon's question I heard you loud and clear on kind of a pod.
Our strategy in the U S and making sure that the do you have the proper coverage on some of these new systems, but what about the screening systems you placed outside the U S is there any difference it sounds like certainly getting more utilization with the accu Blake.
Did you say that those placements, maybe turn into a sale of sugar.
Your evaluation period, or perhaps a more high quality place in any way to characterize any difference there.
Yeah. So so.
It's a great question. So the evaluation periods in Europe tend to be pretty similar to what we see in the U S.
A number of those console that went in.
Outside the U S. Three of them actually all of that went in as rentals.
<unk>, so as they pay rent on consoles when they when they first install them and sometimes we do work with them to convert those rentals to capital sales, but that's not contemplated in our in our in our thinking right now as I kind of look at Europe , we've been very successful at growing the business there while <unk>.
Having a more modest growth in the installed base. If you look at Europe , our installed base.
<unk> was 21 at the end of 2020, and then 35 at the end of last year, and then and then.
Yes.
36 here in the in the first quarter of 2022, but our utilization rates have has continued to increase fairly significantly then obviously you have the revenue contribution.
From <unk> as well that's further bolstered those accounts and we would expect a very similar trend going forward, where we have targeted ads in Europe that drives growth in our installed base and that really comes with frozen the installed base coupled with growth in utilization both same store and.
New user utilization the last thing I'd point out on Europe is that remember, it's a very different market construct in the U S. Whereas the U S is populated with a tremendous number of community hospitals, and you have EP ablation and Cath labs that are sometimes multiples across a ton of different hospitals in Europe , it's a much more concentrated.
User base. So you should not expect to see our install base grow outside the U S. At the same rate that we have here in the U S. Partly.
Because of just the market dynamics.
Alright fair useful thanks for taking the question.
Your next question comes from Bill <unk> with Canaccord. Please go ahead.
Great. Thanks, Good evening, thanks for taking my questions.
First is just on you announced the restructuring back in January executed on that.
At this point has have you completed that restructuring should we expect to see any more changes to the.
Struck.
<unk> organization and then do we expect any charges in the next couple of quarters that are kind of tails off of what.
The changes that were made that's the first part of my question.
Sure Bill so that restructuring is behind US we announced that in January middle of January the warn Act notification period was complete in.
In March we did take about $949000 charge in Q1 for restructuring expenses.
Based on the geographic location of some of those individuals' there'll be kind of a trickle through of some additional charges here in Q2.
As well as just the timing of some different some different matters with respect to <unk>.
Employment employment contracts.
We are look we're watching our budget and every dollar very very carefully and we are continuously reviewing.
Our cash burn internally and with our and with our board of directors.
And as we kind of complete the strategic review that we announced in March we may look to further reallocate resources across the company to ensure that we're putting all putting our dollars in the most productive places possible in terms of large charges you can imagine that there'll be expenses associated with the CEO transition, but I think.
The bulk of that was with respect to restructuring was recognized in Q1.
Okay. Thanks, and then.
One of the comments you made was just you increased resources to drive U S. I was wondering if you could give us a little color on that I think you gave the example of maybe having a map or in Kansas City, but were there other kind of changes to the field force. It sounds like you are increasing as you continue to cause.
Gentry.
We're not we're not increasing we're I'll give you two examples so we had to individuals.
Who were previously solely dedicated to national accounts and really capital sales.
Those individuals' now I've taken on hybrid roles within the organization one is serving as a regional business director here in Southern California. In addition to his responsibilities for national accounts as well as capital and another individual based in the Midwest, who is also kind of double having with respect to national accounts.
And in capital as well as some field based.
And initiatives now previously those two individuals were solely focused on trying to place and convert capital, but we are very.
Conscious of the need to be efficient with with our teams and take advantage of the fact that we have a really strong field force and point there point their focus in the direction that we think will produce the best returns for the company as well as our customers.
And patients so in that example.
To individuals' remain responsible for national accounts as well as capital, but have taken on additional responsibilities of individual account coverage. We are also looking at some of our mappers.
Do you have the capability to serve and sales capacity. In addition to being a clinical support specialists. So we're asking those individuals' to also take on that additional role of driving.
Driving procedure adoption as well as disposable sales so by Congress.
Really to continue to reiterate our view that for at least for 2022, that's where we're going to place the majority of our resources versus.
Just growing the installed base for the sake of growing the installed base.
Got you and then my last question is just.
We've kind of heard about this contrast media shortage in rationing, that's starting to happen and we've seen some examples but.
What if you could just give us any color if you've seen anything related to this or.
If this is having an impact on you at all thanks, so much for taking my questions.
Yes.
Thanks, Bill for that question. So so so we have taken some time to look into that we have not seen any impact.
The vast majority of EP procedures do use Florida.
I'll remind you that I know the shortage has really been one company in particular, putting out a public notice about shortage. There are five other fairly large and well capitalized companies in that space. So we do see a diversity of suppliers and there also are a number of well.
<unk> tested and well proven ways that hospitals can work to extend the use of supply.
Of the contrast media but to date.
We have not heard any any feedback on that from our customers or our field team.
Thank you.
And as a reminder to ask a question simply press star one on your telephone.
Next question is from having excellent circa with Spartan capital. Please go ahead.
Hi, David Thanks for taking my call.
Quick question, so following through with the cost cutting announced earlier in the year and especially with him.
Lines of manufacturing.
Where do you expect gross margins would be let's say at the beginning between 23%.
Investors expect to.
To see an improvement.
Beyond 2022.
Yes.
It's a great question Javier and an area that does require a.
A significant amount of focus from us so our gross margin, we expect to improve throughout the course of 2022.
We have previously said that to be a gross margin breakeven we have to generate about $8 million a quarter in revenue as we think that assumes no changes in our cost structure improvements in yields improvements in manufacturing process.
The implementation of automation so.
That is that as our baseline view as we sit here today as we look to 2023, we would expect to see gross margins turn positive.
During 2023, I'm not yet ready to give any more color around around next year, but you should sort of model a progressive improvement sequentially in gross margins as you think about your revenue for 2023, you can start by trying to match up that $8 million in quarterly run rate to turn positive.
As you think about your your forecast we are.
As you can imagine.
We are fully vertically integrated we do have an opportunity to look very closely at our cost structure. It is something that requires much greater attention.
And we will have a comprehensive gross margin improvement initiative complete before the next call I will be ready to share more details at that point in time.
Excellent and just a quick follow up question since you touched on revenue so really.
Earlier, it was mentioned the expected 30% to 35% increase in disposable revenue ports wants me to do.
Do you see these specific jive.
Drivers for this increase in disposal revenue going past 2022 since wrong on the topic of <unk>.
We're already halfway through the year.
What investors expect.
Long term.
Sure.
So.
The 30% to 35% that we had given in March that was disposal revenue and that did not include the expected sale of our left heart access.
Portfolio or any weakening of excuse me strengthening of the U S dollar, which is which does represent a pretty decent headwind to our O U S business.
On a like for like basis, we still very much expect 30% to 35% underlying growth in our disposals. This year as you turn to next year.
That should represent a pretty decent inflection point as we bring accumulate to the U S. I mean, one way to think about it is if we didn't grow procedure volumes at all in the U S. And you had the same contribution from Accu blade that we saw outside the U S and volumes and apply to U S. Asps.
You would see a several million dollar increase in our revenue base, what I would layer on top of that is in accounts, where we have accumulate launched in Europe , we do see higher levels of utilization. So if I combine high utilization with increased adoption of our ablation catheter driving higher revenue per case, you should see growth in the <unk>.
Business pick up in 2023.
Okay.
Actually that was very helpful. Thanks for taking my questions.
Thanks Javier.
And ladies and gentlemen, this concludes our Q&A session and program for today. We thank you for participating and you may now disconnect everyone have a great day.
<unk>.
Okay.
[music].
Okay.
Okay.
Uh huh.
[music].