Q2 2022 Acutus Medical Inc Earnings Call

August 11, 2022

Okay.

Good day and welcome to the Q just medical second quarter 2022 earnings Conference call. At this time, all participants on a listen only mode.

After the Speakers' presentation, there'll be a question and answer session.

Reminder, this call maybe recorded.

Like to turn the call over to Caroline corner IR you may begin.

Thank you operator welcome to ask you just a second quarter of 2022 I call. Joining me on today's call is David Roman 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, all statements made on this call.

That did not relate to matters of historical facts should be considered forward looking statements factors that may cause results to differ from these forward looking statements are discussed under the forward looking statements section in our press release to talk with Mike that he does this form 8-K filed with the SEC today and also discuss in more detail under the risk factors section.

And I'm curious what must be some filings with ethical including the risk factors described in the 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 I just wanted to take no obligation to update these statements except as required by applicable law.

I can just press released our second quarter 2022 was all software available on their website www dot acute medical dot com.

Investors section and includes additional details about our Q2 financial results.

This website also as acute as in SEC filings, which you're encouraged to review.

A recording of today's call will be available on the website by five P. M Pacific time, now I'd like to turn the call over to David.

Thank you Caroline and good afternoon, everyone I'm very excited to share a number of updates with you today on the output of our strategic review in addition to our normal quarterly business and financial update.

We have a tremendous opportunity in front of us that are queued us with a best in class team, a strong capital position and multiple pathways to drive growth and achieve our vision of transforming electrophysiology.

Long term shareholder value.

It truly is a dynamic time here and I'd like to thank our board of directors for their support and for their confidence in me.

<unk> is the next phase of our evolution.

We're on a mission to build a patient and physician centric company.

<unk> is the current treatment paradigm and brings novel solutions to a large and growing unmet need.

This is an ambitious journey and strengthening our culture and putting our teams at the core of everything we do is critical to our success.

I have been humbled and impressed with the reinvigorated energy and enthusiasm the acuity team is bringing to the company every day and I know this group has the spirit and commitment to drive this company forward.

As discussed on our last call our senior leadership team initiated an extensive strategic review of our end markets, our business direction and product development roadmap and cost structure. This.

This involves significant market research physician engagement and validation with independent consultant.

As I've moved into the CEO role I sent an extensive amount of time with our customers garner their direct feedback fine tuned our value proposition and assess the required investment to win in this category.

I'll spend a few minutes highlighting the takeaways that gathered and then turn to the implications and our forward outlook.

Overarching themes that arose from our review where that treatment paradigms for complex arrhythmia patients are early in their development there.

There is little consensus on how to treat this patient cohort.

Both the diagnostics and therapeutic tools available today offer suboptimal outcomes.

At the same time physician to acknowledged that barriers to adopting advanced mapping diagnostics and therapy tools for not just due to the availability and maturity of the technology, but also the extent to which these technologies fit within existing workflows.

To date, we have established a strong base of utilization, having treated approximately 5000 patients with accu mapped by providing physicians with a differentiated set of tools to treat complex arrhythmias.

At the same time it has become clear through our strategic review that the adoption rate of vacuum and associated products has been hindered by workflow and procedural inefficiencies versus peers.

Improving the overall physician experience represents one of the primary barriers to unlocking faster adoption of our mapping and therapy system.

Coming out of the strategic review, we identified two foundational objectives that will guide our business and capital allocation in the future.

The first is to drive adoption and utilization of the <unk> diagnostic system and to augment this technology with ablation therapy or.

Our success will be measured in procedure volumes capital utilization and penetration and target therapeutic categories.

We will achieve this through focused product development and continued execution on our sharpen commercial strategy with a priority on procedure volume over installed base growth.

In addition, we will look to complement our internal R&D initiatives through licensing partnership and other business development activities.

We also remain engaged with third party advisors to continue to review strategic options to enhance our business profile and to fund our long term growth.

The second is the strengthening at our operating and underlying financial performance.

As we drive revenue growth it is equally important that we improve our gross margins.

Without this.

We will remain overly dependent on cutting operating expenses, which is simply not sustainable.

Restructuring program announced earlier this year helped to right size, our operating expenses and we will remain highly disciplined in every dollar we deploy to operating expenses Capex and working capital.

I will discuss.

Some more specifics around the gross margin and operating priorities and the financial review later in the call.

Yeah.

And supportive of our strategy to drive utilization, we have two near term launches that we expect to have a material impact on user experience and workflow.

First our next generation software platform asking about $8 five.

The U S launch of the activated <unk> ablation catheter and system.

We received FDA clearance and CE Mark approval for <unk> in that $8 five in July of this year.

We're selecting sites for product evaluation in a limited market release to test the real world application.

From there, we'll gather physician feedback and make the necessary refinements before moving to a full commercial launch in the fourth quarter of 2022 or early in 2023.

This software release will add features that improve it that would be built and catheter localization, which are two major features that should improve workflow and physician experience.

With respect to our U S. <unk> launch we completed enrollment in our IV study in early may including a 110 patients at 21 sites globally.

All 30 day patient follow up visits are now complete and the study endpoint data had been 100% adjudicated.

We are very pleased with both the clinical and safety outcome from this study, which we believe will help support adoption and drive increased revenue per procedure higher overall utilization for <unk> systems and drive a return to growth in our U S installed base starting next year.

Our modular PMA submission commenced earlier this year and should be completed next month, which paves the way for U S approval and launch in the first half of 2023.

Beyond 2023, there are several products and technology categories in our pipeline, including our next generation console mapping catheter ablation catheter significant upgrades to our software platform that will enable contact and non contact mapping in one session and pulsed field ablation for Psa.

We will provide updates on timelines for these programs as they progress.

Putting this altogether, we continue to see 2022 as a transition year, where we reset our strategic priorities focused our R&D programs on those products that enable higher utilization of vacuum map and address some of the key adoption barriers and establish a strong operational foundation.

Beyond 2022, we expect our business to see progressive improvement in 2023, and even stronger performance in 2024.

When combined with our operational improvement initiatives this business trajectory will position us well for the future and allow us to maximize value for all stakeholders.

Turning now to our second quarter results.

Net revenue of $4 $1 million increased 11% sequentially compared to the first quarter of 2022.

But declined 13% compared to the $4 7 million in the year ago second quarter.

Consistent with our expectations the sales decline versus the prior year was largely driven by lower capital equipment sales and lower stocking orders a new console installations.

These factors were partially offset by strong year over year growth in procedure volumes.

And higher procedure penetration as revenue per case increased double digits globally on an FX neutral basis.

Sales in the U S of $2 million compared to $2 5 million in the second quarter of 2021, driven by lower capital equipment and new install related orders.

We are pleased to see consistent procedure volumes in <unk> mass adoption as well as increased revenue per procedure, despite a lower installed base and a tightening of commercial resources.

Sales outside the United States, which include revenue through our distribution partner buyout tronic were $2 million compared to $2 2 million in Q2, 2021, largely driven by FX headwinds and lower capital equipment sales.

By product segment disposal of product revenue of $3 $3 million declined 5% year over year. Despite growth in procedure volumes with 481 procedures performed globally in Q2 2022.

Up 20% from the second quarter of 2021.

The second quarter of 2022 registered a another record for acuity and procedure volumes and we are on track to see strong growth in Akitas mapping and therapy procedure volume for the full year 2022.

We ended the second quarter of 2022 with an installed base of 75 systems globally down on a sequential basis and up from 70 in the year ago second quarter continuing.

Our strategy in the second quarter of 2022, we removed six systems from accounts repositioning three of those into new accounts during Q2.

Capital revenue of approximately $300000 showed a slight improvement compared to the first quarter of 2022, but was down versus the $800000. We recognized in the second quarter of 2021.

Service and other revenue of $400000 was flat on a year over year basis.

non-GAAP gross margin was negative 129% compared with negative 54% in the second quarter of 2021.

The year over year change in our non-GAAP gross margin was primarily driven by two factors, including exit inventory charges for raw material component and manufacturing variances exclude.

Excluding inventory charges largely relate to supply chain continuity initiatives non-GAAP gross margin improved two five points sequentially.

As discussed earlier in the call improving operational performance is a critical part of our strategic roadmap.

The foundation of improved operating results is our gross margin.

To that end, we have initiated several work streams aimed at restructuring and after our manufacturing operation that include.

First reducing our overhead burden.

Historical structure was set up to enable rapid prototyping and product development activities as well as scaling of the business.

Our current volumes and given our more focused product development roadmap, we have taken actions to minimize overhead and infrastructure, while preserving critical resources to prioritize product quality engineering support and reliability.

It's streamlining manufacturing processes.

See several opportunities to drive efficiencies in labor and materials.

Well as automate certain steps in product manufacturing.

This will require some upfront investment, but the payback is significant in the short to medium term and we will have an overall positive impact on our financial position.

Third is product design historically, we have not emphasized cost requirements in our R&D program, and we have prioritized speed to market.

With our next generation mapping and ablation technologies, we're making design for reliability and manufacturing a critical requirement for our R&D and engineering teams.

Among our existing portfolio. We are also identifying cost reduction opportunities such as bringing certain manufacturing in house.

non-GAAP operating expenses were approximately $19 7 million in the second quarter of 2022 down 9% from the same period last year.

Higher SG&A related to investments in G&A and marketing was offset by lower sales expenses due to reduction in force and lower R&D expenses tied to the re prioritization of development programs.

Our non-GAAP operating expenses are down 16% on a sequential basis compared to the prior quarter as we realize the benefits of our restructuring program.

We expect non-GAAP operating expenses to continue to moderate through the rest of 2022 due to due to the restructuring and cost management efforts.

Excluding specified items, our non-GAAP net loss for the second quarter of 2022 was $26 2 million compared to a non-GAAP net loss of $25 million for the second quarter of 2021.

Total cash and cash equivalents, including restricted cash at the end of Q2 2022 was $93 1 million.

On June 32022, we completed the first closing of the sale of our left heart access portfolio to Medtronic for $50 million in upfront cash consideration.

We are also eligible for contingent consideration payments up to $37 million associated with certain manufacturing and regulatory milestones, which we expect to complete in the first half of next year.

Further we will receive four years of uncapped revenue based earn out payments starting in late 2023 or early 2024, depending on the timing of commercial transfer to Medtronic.

Lastly, in addition to the first closing of our electric access portfolio sale, we closed a new debt facility with Deerfield management for $35 million with a maturity date of June 32027.

This was done in conjunction with the settlement of outstanding debt obligations under the 2019 credit agreement.

Finally for the full year 2022, we are seeing good progress in our strategy to drive procedure volume utilization in case revenue share growth.

This has resulted in year to date procedure volume growth of 23% and global revenue per procedure of around $5700.

Up strong double digits on an FX neutral basis, driven by accu blade outside the U S.

Higher mix of non contact vacuum that procedures in the U S and accessory products.

We expect typical typical med tech seasonality in Q3, but overall should see continued growth in mapping procedures utilization and revenue share for the full year 2022.

Earlier this year, we set expectations for 2022 revenue to be flat to slightly up compared to the $17 $3 million generated in 2021.

As a reminder, this initial outlook did not contemplate the sale of our let's start access portfolio, nor a significantly weakened euro.

The significant change in FX now approximate $500000 headwinds in comparison to our expectations set out earlier this year.

In addition.

Given our strategic focus and somewhat more challenging hospital capex market conditions contribution from capital sales is coming in below our initial plan.

The timing of commercial distribution transferred to Medtronic is also a variable in our outlook.

Considering these factors we project sales to decline modestly on a reported basis compared to 2021 with half of that impact coming from FX and half coming from lower capital equipment sales.

As previously discussed we expect 2022 to represent a floor in our organic revenue performance. As this is a year that required a reset in our strategy and several key actions to strengthen our financial position.

Overall I'm proud of the progress, we're making as a company and want to recognize and thank Mike heaters colleagues and business partners around the world for their incredible commitment and dedication to our mission as we feel the physician and patient centric company, bringing disruptive solutions to market.

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.

As a reminder to ask a question. Please press star one.

Yes.

Our first question comes from William <unk> with Canaccord. Your line is open.

Alright, great. Thanks can you hear me okay.

Hey, Bill yes, good afternoon.

Hey, Thanks, David.

<unk> two.

Two questions here, just real simple one.

Kind of if you can answer where are you tracking relative to your original expectations for.

Kind of.

A decrease or <unk>.

Reducing your cash needs per quarter, I think you thought you could get down to maybe $18 million to $20 million a quarter, if I did the math right.

And do you still expect to get there and then two just can you help us understand like I think now we're looking at the Medtronic kind of next piece is a little more detail.

What's the trigger for the next payment and how much and then the one after to picking that up that $37 million. Just so we can understand it.

Seems like you've got a pretty good cash runway, but just wanted to get a little more clarity around that thanks.

Sure Bill So on your first question. The answer is yes, we are still tracking in that direction to see a significant reduction in our in our cash burn throughout the year. If you a lot of moving parts here in the second quarter, but effectively our cash burn in Q1 was about $29 million cash burn in Q2, excluding a lot of those factors.

<unk>.

Transaction related expenses debt reduction et cetera was in the.

In the $26 million range Q3 will include a renewal of our directors and offers officers insurance, which will.

Continuing to keep cash burn in the low <unk> and then Q4 on a normalized basis should then result in that teens high teens number that you that you had referenced just to put a little bit more support behind that most of our it's about over 50% of the company's expense really fits in indirect labor and head count expense head.

Count for the company has been reduced from about 335 people at the end of last year to 235 people today and that represents the vast majority of the reduction in cash burn.

Other factors contributing to that reduction include a much more disciplined process for managing inventory for the first time and I think over a year. We're now seeing sequential monthly declines in our inventory balance in what we're bringing into the company from a raw material and and.

Purchasing perspective.

With respect to the Medtronic.

Contingent consideration payment. So the next step is is the $37 million will be broken out into two two piece is most likely the first relates to us becoming qualified as an OEM supplier to Medtronic.

Will trigger the first $20 million that should happen later this year or early next year.

Second $17 million relates to the filing for EU MBR for their products that Medtronic is acquiring and that that we believe will take place.

Early next year as well if for some reason that that filing goes beyond June 30 of next year, it would be a $15 million not a $17 million payment, but we fully expect to get the $37 million.

By the within the first half of next year and more likely in the first calendar quarter.

And if I could just ask one more managing through these situations is never easy and can I turn it over it tends to be a big challenge in just kind of any color you'd like to provide an.

Post the restructuring in the first quarter kind of what has been attrition or.

Turnover looked like in the in the.

Employee base and thanks for taking my questions.

Thanks, Bill so.

One of the things that I think we experienced after the after the restructuring earlier in the year was continued attrition.

In in a number of areas it wasn't terribly surprising to us given a dynamic market environment, especially here in southern California, and especially in this in some of our key areas like software and algorithm.

Engineering I have noticed however in the past.

In the past couple of months that we have seen a really significant churn in the more al at the company in the way of measuring that is.

We have no return to work policy. The building is much more full than it's been in a year. We did go through some additional.

Leadership restructuring here in July , which I think was important to leaning out the organization and creating the right structure and also presenting for a lot of people in the organization and a clear path forward. We are we are significantly increasing our internal promotions when we're looking to fill key roles and that overall has had.

I think a very positive impact on the overall energy and <unk>.

Morale at the company so.

It was one of my biggest concerns actually over the past several months and I think we're starting to see a nice turn there.

Thanks for taking my questions.

Our next question comes from Robbie Marcus with Jpmorgan. Your line is open.

Hi, This is actually Allen on for Robbie.

I had one quick question to start on the cadence of growth that you highlighted.

Sales were down modestly versus 2021 with normal seasonality third quarter. So I guess, what kind of trends have you seen so far in July and into August to really drive that now should we think about.

Potential upside or downside to that guidance range.

Sure Alan.

Thanks for the question. So let me start with the guidance. So we said on the call was down modestly half of that related to FX half related to capital. We said on the call that FX was about 500000. So the exact the exact impact from FX on our latest forecast is about $540000 and then I would put it in <unk>.

Evelyn amount of that on the capital impacts so down about $1 million year over year, putting revenue closer to that.

Low sixteens range.

On the seasonality.

Most of that really.

It's something we're seeing in central Europe .

In our direct business and through our partner.

<unk> are seeing a little bit less seasonality in the U S.

Then we have seen in previous years, and obviously last year was impacted by a heavy impact from the <unk>.

Delta variant, but overall I would say if I look at weekly procedure volumes.

In Q3 compared to Q2 across different areas.

We're seeing some growth in some areas on a sequential basis.

Some decline and others, which to us release is not terribly surprising.

We don't have we have some visibility looking into September , which we which we think will have will show better trends.

And some of those areas procedures in Europe tend to get scheduled pretty far in advance. So we have some feel for what the September .

Received your schedule is going to look like so we would expect to see progressive improvements throughout the quarter.

But I think from where we sit today.

We would expect to see revenue to be down sequentially Q2 to Q3, and then up more significantly in Q4 and a lot of that variability Q3 to Q4 will come from capital. We do have very good visibility into capital shipments, especially in some of the markets outside the U S.

Where we have had purchase orders, but can't ship until we gained regulatory approval. So our line of sight to that Q4 capital.

Contribution is is pretty good so, but I would expect it off the $4 million $4 $1 million or excuse me that we did in Q2 to see some sequential decline.

<unk> in Q3 and sort of the mid the mid the mid to high threes.

Then.

Being in the high the high fours in Q4, something like that for for the cadence of numbers throughout the rest of the year.

Got it and then when you talk about operating spend moderating going forward is that across both SG&A and R&D should we think about a similar stepped down from from <unk> to <unk> as we saw from <unk> to <unk>, and then maybe a bit more stable in fourth quarter.

Thank you.

Yes, it'll be it'll be in both areas, we did $19 $7 million.

Operating expenses in Q2, we are tracking to a number of closer to $18 million in Q3, we.

We did have we did it we will incur some further expenses related to restructuring in July .

The third quarter, but that still puts us in that in that $18 million range for the third quarter. So I would expect further moderation into.

Into Q4, and then that being pretty close to what the run rate would be going forward associated with the year over year decline in operating expenses in the first half of 2023 and then.

More modest.

Modest growth in the second half of 'twenty, three going forward I'd say modest I mean, the low to mid single digits.

Operator, I think Alan Alan did we answer all your questions.

Our next question comes from Marie Thibault with <unk>. Your line is open.

Hi, David Thanks for taking the questions and congrats on a strong quarter sure.

First quarter here as the permanent CEO .

I did want to ask a little bit about the system placements.

Could we get a little more detail on what geographies some of those.

System movements happened and how far along do you think you are in this evaluation process of determining where some systems are being underutilized and could possibly be moved.

Moved.

Sure. Thanks for the question, Brian Thanks for the kind words.

So geographically in the U S.

Our installed base declined from 39 in Q1 to 37% in Q2.

In our direct European business, our installed base went from 'twenty two to 'twenty, one and in our <unk> territories installed base went up from buy one from 16 to 17, so total install base.

97% to 75, we commented on the call removing six that was in our direct business and then putting three back into into service. We did remove some additional consoles in July but I would say we are Q3 should mark the completion of that effort. We have really identified the consoles that were underutilized or.

In areas, where we had a physician move or a number of other moving part dynamics. So I think Q3 will mark the end of sort of the console repositioning strategy and I'm not sure we'll grow the installed base.

Q3 to Q4, but as we look to 2020 and I'm not sure we'll grow the installed base Q3 to Q4, but as we look to 2023, especially on the heels of our <unk> launch in the U S, which probably comes late in the first quarter early second quarter, we would expect to see a resumption in growth in our <unk>.

Installed base base.

Especially in the U S.

Outside the U S.

There are where we are seeing continued very strong momentum, especially with our partner <unk>.

<unk>.

I think there probably is more likelihood of growth in our installed base as we grow the business with our full portfolio and Thats what gives us such a high degree of confidence that once we have that accumulate in the U S that we should start to see a turn in the <unk>.

Trajectory of our installed base and also our utilization.

Okay, that's very encouraging thanks, David and then maybe I'll ask a follow up here on the Aki Cross Culex launch certainly got a lot of buzz during the quarter at least when you press released some of that in the compatibility with watchman wed love to hear an update on how that launch is going well.

Youre hearing I guess from your partner as well on that launch.

Thank you, yes, so that launch is being fully executed within a QTS.

That is one of the product that will transfer to medtronic when they take over commercial distribution.

And the early launch has been very encouraging I think we did 11 or 15 procedures on Monday of this week alone.

And we are seeing pretty strong uptake.

Of that product, thus far and it actually had a pretty decent contribution.

In the second quarter and that obviously helps expand our reach a little bit into the infrastructure that is still EP, but you have a broader diversity of implant or is.

Doing Washington than you're doing.

Ablation. So we've been very pleased with with with that contribution and are very confident that when that transfers to to Medtronic. They will continue to drive very strong performance.

With that with that product as part of that broader tuttle crossing portfolio.

Okay very good David Thanks for taking the questions.

Yeah.

Thanks Marie.

Our next question comes from Amit <unk> with Goldman Sachs. Your line is open.

Thanks, It's Phil on for Amit, Thanks for taking the questions David.

Wanted to circle back to the first strategic review comment that you made about driving adoption and utilization.

Prioritization of kind of head count I imagine this is within that but other initiatives that are going to help drive that to supplement the product development side that you highlighted.

Sure. So thanks. Thanks.

Thanks for the question Phil in the commercial strategy that we have been executing to focus on procedure volumes utilization and revenue per procedure.

That's something that we've been executing since really the beginning of this year really the end at the end of the first quarter.

And in support of that we have realigned the incentives of the commercial organization around procedure volumes and utilization in cases, where we are installing new capital, we're not paying out incentives upon the installation of new equipment. We are only doing only doing so after the completion of a certain number of <unk>.

Seizures to align our objective of identifying the right the high value target accounts, and then ensuring that our incentives match, our strategic objectives I would say the bigger.

Dynamic or element coming out of our strategic review was really about where we are going to focus our R&D programs and if you look back at the company's history.

Over the past year or two.

Right around the time of the IPO.

There was a extraordinary number of programs that this company had under development with an effort to build.

A broad portfolio, but the reality is.

As we looked at our resources and tried to execute a litany of programs a lot of the efforts of our R&D and engineering team was getting diluted across too many projects and not and not enough of those projects were really really aligned to what the market need was that we're trying to solve and one of the things that we've really spent a lot of time doing and the strategic review was under.

Standing why has the accu math ramp not achieved the original expectations that had been set forward and encouragingly on the one hand, everyone. We spoke to.

<unk> our view that there is a significant unmet need here and complex ablation that isn't being solved by our by our competitors and one of the conversation that I had that now has repeated itself several times and I've spoken to some very high volume physicians, who will say my experience with <unk> over the past several years has been kind of up and down.

And kind of mixed and I like what Youre doing but I haven't really adopted this product in earnest and the reason for that is all related to physician experience and workflow and while we've been very focused and done I think a.

Tremendously good job on driving clinical differentiation and filling a market unmet need we haven't crossed the gap from from technology and clinical value to day to day physician experience and workflow and what we're trying to accomplish with our next several launches is to bring all the value that <unk> brings from a dire.

Gnostic perspective to treating a large segment of the population that isn't well served and then make the physician experience as similar to what they are used to on a day to day basis too.

Eliminate what's been a very significant barrier to adoption and quite frankly, one that is probably bigger than we had initially.

Contemplated and what I have these conversations with doctors, but they still say to me is while my experience has been up and down at times I am very interested in continuing to work with you. Because you are the only company doing what you are trying to do and I I understand that companies go through different lifecycle then.

And I am here to work with you and support you as you execute this going forward and now I have had that conversation half a dozen times and I'm very encouraged that we're going after the right target I think what has been missing is that user experience and user.

And workflow perspective, which we will start to address here.

Here in the second half of this year and into next year.

Very comprehensive thank you the second one I wanted to touch on was the more challenging hospital Capex environment I was hoping you could elaborate on that comment.

Yeah.

The capital environment is always has some challenges, especially for newer entrants who are trying to both get through capital Committee and also prove valley.

<unk> proposition and the biggest thing that we are seeing is just the time lag of administrative reviews is extending in the number of layers of approvals is.

Is getting.

More cumbersome, so traditionally when selling our capital we would need we rely on an EP physician champion a lab manager and a CFO what we're seeing now is.

Our lab manager and EP, a cardiovascular service line administrator, sometimes a purchasing manager and his CFO .

Just seeing more and more levels of approval.

Required to get through those capital committees, which is which means the time from initiating a conversation or capital conversion process to one we're executing it is taking longer than we've seen in the past and my sense is that those those increased layers of review.

Relate to.

Tighter budgets, we havent heard that explicitly but it's more that the time to conversion is is extending.

Okay. Thanks again for all the color I appreciate it.

Thanks, Phil.

Our next question comes from Javier Fonseca with Spartan capital Your line is open.

Hello, Thanks for taking my question and congrats on the solid quarter, and maybe sort of CEO .

My question is along the lines of procedure volume and particularly in international markets. So.

Has there been any sort of update on the <unk> penetration on many procedures in the EU because I know previously the number was around 70%.

Wanted to know if theres any update and what expectations for that metric going forward.

Yeah.

So we continue to see good adoption of <unk>.

<unk>, we did see that number dip a little bit in the second quarter from 77%, 70% down into the.

50 years, we have seen it here in July tick back up to 73% there obviously.

Given the number of.

You systems, we have installed in the field, where obviously you're going to see some fluctuations depending on user patterns.

But we are seeing that trend very nicely back above above 70% here in the third quarter and I think thats a pretty good number to use on a go forward basis in the U S.

At least for our internal purposes, we are assuming a much lower penetration next year, just because it's going to take some time to get through.

Vac committees at hospitals, we're going to have to build inventory.

And ramp that once we gain approval next year, but I think 70% to 75% and Europe is a good number to use on a go forward basis, and obviously in the U S. We envision getting there.

Over time, but probably not in year one.

Okay.

Okay, and a quick follow ups and again this is Pat.

This year and.

So assuming that 23 was market entry in United States any sort of specific.

Initiatives taken too.

Okay.

Lower number but really.

Putting up.

Somewhere closer to 70%.

As more time in the U S market goes by.

Yes, I mean, I think thats, a very fair assessment so.

If you look at how things went in Europe , we launched this product in the end of the first quarter of 2021.

We actually got to 70% penetration pretty quickly by the end of last year, which is sort of an anomaly for how a product launch in.

In Europe .

And again, that's off a small number of centers in the U S. We're going to use this launch really to accomplish three things one is to increase our revenue per case, but right now, we're giving up 2500 to $3000 per procedure for not having an ablation catheter.

Is we do see higher utilization in accounts that have vacuum accu blade and who are using us as a closed system and then the third is because of those two factors, we think that can drive a.

The increase in our in our installed base. So I would look at we are going to we are going to put a lot of resources behind this launch and hit the accelerator as best we can but I would I would characterize it today as what will be a progressive and thoughtful launch through 2023 and thereafter.

Thanks for the comprehensive very tough comp.

Comprehensive answer thanks, Dave.

<unk>.

Hi, sorry to ask a question please press star one.

Our next question comes from John Young with Canaccord. Your line is open.

Hey, David Scharf at Bell, Thanks for taking a follow up just a quick.

Question is on the PSA, where do you stand today with the clinical progress if.

Just any timelines or any update there. Thank you.

Yes, Thanks, John for the follow up so on PFA, we have completed the first 24 patients in our first in human experience. We did 15 patients in November of last year and then.

Following the re mapping of those those patients made some changes to our dosing strategy, we treated another nine patients.

In March of this year and have completed re mapping on seven of those we will not complete the re mapping on the last two just because of time, but all patients all 24 patients remain.

With me are free.

Given that we've now completed our first in human experience, we are taking a look at the data.

Working with our physician investigators to decide what exactly our path forward is is going to be.

Our program. So we're pretty pleased with how the results trended in the.

The second cohort of patients versus the first cohort of patients and now that we have the totality of that.

That data, where we're taking a look at that.

At the program and deciding our strategy on a go forward basis. The reason were not providing a lot of specifics on timing for PMA or Magnetics program is I think we've had a bit of a history of getting ahead of ourselves with respect to committing to product development timeline. So we will give more specific updates as we firm up the exact plan.

With with each of those programs and how we anticipate.

Marshaling them them forward and I would like to say, we'll have more on this in.

In November , but we're trying to take a prudent approach with respect to <unk>.

Commitments around product development timelines.

Great. Thanks, and are there any safety results from those first initial first in human patients yet.

So we're not ready to disclose those because we'll probably look for an opportunity actually to publish the results from.

From from this first in human experience, so, we're not releasing any of the efficacy or or or or safety data at this time.

Great. Thank you.

There are no further questions. This does conclude the program and you may now disconnect everyone have a great day.

Johan during Q&A, you can dial star one one.

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Good day and welcome to the Q just medical second quarter 2022 earnings Conference call. At this time, all participants are listen only mode.

After the Speakers' presentation there'll be a question and answer session. As a reminder, this call maybe recorded.

Like to turn the call over to Caroline corner IR you may begin.

Thank you operator welcome to ask you just a second quarter of 2022 earnings call. Joining me on today's call is David Waldman, 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, all statements made on this call.

It does not relate to matters of historical facts should be considered forward looking statements factors that may cause results to differ from these forward looking statements are discussed under the forward looking statement section in our press release, the past doesn't make that much that kid of a form 8-K filed with the SEC today I'll also discuss in more detail under the risk factors section.

And I'm curious what most recent filings with the ethical including the risk factors described in the kit Kat.

Any forward looking statements provided during this call, including projections for future performance are based on management's expectations as of today.

It takes no obligation to update these statements except as required by applicable law.

Thank you just the press release the second quarter 2022 result, also available on <unk> website, www dot acute medical dot com under the investors section and includes additional details about our Q2 financial results.

This website also as acute as in SEC filings, which you're encouraged to review.

A recording of today's call will be available on the website by five P. M Pacific time, now I'd like to turn the call over to David.

We have a tremendous opportunity in front of us that are queued us with the best in class team, a strong capital position and multiple pathways to drive growth and achieve our vision of transforming electrophysiology.

Long term shareholder value. It truly is a dynamic time here and I'd like to thank our board of directors for their support and for their confidence in me to lead <unk> through the next phase of our evolution.

We're on a mission to build a patient and physician centric company. The challenge is the current treatment paradigm and bringing novel solutions to a large and growing unmet need this.

This is an ambitious journey and strengthening our culture and putting our teams at the core of everything we do is critical to our success.

As discussed in our last call our senior leadership team initiated an extensive strategic review of our end market, our business direction and product development roadmap and cost structure. This.

This involves significant market research physician engagement and validation with independent consultants.

As I moved into the CEO role I spent an extensive amount of time with our customers to garner their direct feedback fine tuned our value proposition and assess the required investments to win in this category.

I'll spend a few minutes highlighting the takeaways I have gathered and then turn to the implications and our forward outlook.

Overarching themes that arose from our review where that treatment paradigms for complex arrhythmia patients are early in their development there.

There is little consensus on how to treat this patient cohort.

Both the diagnostics and therapeutic tools available today offer suboptimal outcomes.

At the same time physicians acknowledged that barriers to adopting advanced mapping diagnostics and therapy tools are not just due to the availability and maturity of the technology, but also the extent to which these technologies fit within existing workflows.

At the same time it has become clear through our strategic review that the adoption rate of vacuum app and associated products has been hindered by workflow and procedural inefficiencies versus peers.

Improving the overall physician experience represents one of the primary barriers to locking faster adoption of our mapping and therapy system.

Coming out of the strategic review, we identified two foundational objectives that will guide our business and capital allocation in the future.

The first is to drive adoption and utilization of the <unk> diagnostic system and to augment this technology with ablation therapy or.

Our success will be measured in procedure volumes counsel utilization and penetration and target therapeutic categories.

We will achieve this through focused product development and continued execution on our sharpen commercial strategy with a priority on procedure volume over installed base growth.

In addition, we will look to complement our internal R&D initiatives through licensing partnership and other business development activities.

We also remain engaged with third party advisors to continue to review strategic options to enhance our business profile and to fund our long term growth.

The second is the strengthening at our operating and underlying financial performance as.

As we drive revenue growth. It is equally important that we improve our gross margins without this we will remain overly dependent on cutting operating expenses, which is simply not sustainable.

Our restructuring program announced earlier this year helped to right size, our operating expenses and we will remain highly disciplined in every dollar we deploy the operating expense capex and working capital.

I will discuss.

Some more specifics around the gross margin and operating priorities and the financial review later in the call.

In support of our strategy to drive utilization, we have two near term launches that we expect to have a material impact on user experience and workflow.

First our next generation software platform <unk> up eight 5% and second the U S launch of the activated <unk> ablation catheter and system.

We received FDA clearance and CE Mark approval for <unk> in that $8 five in July of this year.

We're selecting sites for product evaluation in a limited market release to test the real world application.

From there, we'll gather physician feedback and make the necessary refinements.

Moving to a full commercial launch in the fourth quarter of 2022 or early in 2023.

This software release will add features that improve anatomy built and catheter localization, which are two major features that should improve workflow and physician experience.

With respect to our U S. <unk> launch we completed enrollment in our IV study in early may including a 110 patients at 21 sites globally.

All 30 day patient follow up visits are now complete and the study endpoint data had been 100% adjudicate.

We are very pleased with both the clinical and safety outcomes from this study, which we believe will help support adoption and drive increased revenue per procedure higher overall utilization for <unk> systems and drive a return to growth in our U S installed base starting next year.

Our modular PMA submission commenced earlier this year and should be completed next month, which paves the way for U S approval and launch in the first half of 2023.

I'll provide updates on timelines for these programs as they progress.

Putting this altogether, we continue to see 2022, as a transition year, where we reset our strategic priorities.

Our R&D programs on those products that enable higher utilization of vacuum map and address some of the key adoption barriers and establish a strong operational foundation.

Beyond 2022, we expect our business to see progressive improvement in 2023, and even stronger performance in 2024.

When combined with our operational improvement initiatives this business trajectory will position us well for the future and allow us to maximize value for all stakeholders.

Turning now to our second quarter results.

Net revenue of $4 $1 million increased 11% sequentially compared to the first quarter of 2022, but declined 13% compared to the $4 7 million in the year ago second quarter.

Consistent with our expectations the sales decline versus the prior year was largely driven by lower capital equipment sales and lower stocking orders a new console installations.

These factors were partially offset by strong year over year growth in procedure volumes.

And higher procedure penetration as revenue per case increased double digits globally on an FX neutral basis.

Sales in the U S of $2 million.

Compared to $2 5 million in the second quarter of 2021, driven by lower capital equipment, and new install related orders.

We are pleased to see consistent procedure volumes and accu mass adoption as well as increased revenue per procedure, despite a lower installed base and a tightening of commercial resources.

Sales outside the United States, which include revenue through our distribution partner <unk> were $2 million compared to $2 2 million in Q2, 2021, largely driven by FX headwinds and lower capital equipment sales.

Byproduct segment disposal of product revenue of $3 $3 million declined 5% year over year. Despite growth in procedure volumes with 481 procedures performed globally in Q2, 2022 up 20% from the second quarter of 2021.

The second quarter of 2022 registered a another record for acuity and procedure volumes and we are on track to see strong growth in Akitas mapping and therapy procedure volume for the full year 2022.

We ended the second quarter of 2022 with an installed base of 75 systems globally down on a sequential basis and up from 70 in the year ago second quarter.

Continuing our strategy in the second quarter of 2022, we removed six systems from accounts repositioning three of those into new accounts during Q2.

Capital revenue of approximately $300000 showed a slight improvement compared to the first quarter of 2022, but was down versus the $800000. We recognized in the second quarter of 2021.

Service and other revenue of $400000 was flat on a year over year basis.

non-GAAP gross margin was negative 129% compared with negative 54% in the second quarter of 2021.

The year over year change in our non-GAAP gross margin was primarily driven by two factors, including exit inventory charges for raw material component and manufacturing variances.

Excluding inventory charges largely relate to supply chain continuity initiatives non-GAAP gross margin improved two five points sequentially.

As discussed earlier in the call improving operational performance is a critical part of our strategic roadmap and the foundation of improved operating results is our gross margin.

To that end, we have initiated several work streams aimed at restructuring and after our manufacturing operation that include.

First reducing our overhead burden our historical structure was set up to enable rapid prototyping and product development activities as well as scaling of the business.

It's streamlining manufacturing processes.

See several opportunities to drive efficiencies in labor and materials as well as automate certain steps and product manufacturing.

This will require some upfront investment, but the payback is significant in the short to medium term and we will have an overall positive impact on our financial position.

Third is product design historically, we have not emphasized cost requirements in our R&D program, and we have prioritized speed to market.

With our next generation mapping and ablation technologies, we're making design for reliability and manufacturing a critical requirement for our R&D and engineering teams.

Among our existing portfolio. We are also identifying cost reduction opportunities such as bringing certain manufacturing in house.

non-GAAP operating expenses were approximately $19 7 million in the second quarter of 2022 down 9% from the same period last year.

Higher SG&A related to investments in G&A and marketing was offset by lower sales expenses due to reduction in force and lower R&D expenses tied to the re prioritization of development programs.

Our non-GAAP operating expenses are down 16% on a sequential basis compared to the prior quarter as we realize the benefits of our restructuring program.

We expect non-GAAP operating expenses to continue to moderate through the rest of 2022 due to the due to restructuring and cost management efforts.

Excluding specified items, our non-GAAP net loss for the second quarter of 2022 was $26 2 million compared to a non-GAAP net loss of $25 million for the second quarter of 2021, our total cash and cash equivalents, including restricted cash at the end of Q2 2022.

With $93 1 million.

On June 32022, we completed the first closing of the sale of our left heart access portfolio to Medtronic for $50 million in upfront cash consideration.

Further we will receive four years of uncapped revenue based earn out payments starting in late 2023 were early 2024, depending on the timing of commercial transfer to Medtronic.

Lastly, in addition to the first closing of our lepton access portfolio sale, we closed a new debt facility with Deerfield management for $35 million with a maturity date of June 32027.

This was done in conjunction with the settlement of outstanding debt obligations under the 2019 credit agreement.

Finally for the full year 2022, we are seeing good progress in our strategy to drive procedure volume utilization in case revenue share growth.

This has resulted in year to date procedure volume growth of 23% and global revenue per procedure of around $5700.

Up strong double digits on an FX neutral basis, driven by accu blade outside the U S.

Higher mix of non contact asking that procedures in the U S and accessory products.

We expect typical typical med tech seasonality in Q3, but overall should see continued growth in mapping procedures utilization and revenue share for the full year 2022.

Earlier this year, we set expectations for 2022 revenue to be flat to slightly up compared to the $17 3 million generated in 2021.

As a reminder, this initial outlook did not contemplate the sale of our let's start access portfolio, nor a significantly weakened euro.

The significant change in FX now approximate $500000 headwinds in comparison to our expectations set out earlier this year.

In addition.

Given our strategic focus and somewhat more challenging hospital capex market conditions.

Contribution from capital sales is coming in below our initial plan.

The timing of commercial distribution transferred to Medtronic is also a variable in our outlook.

Considering these factors we project sales to decline modestly on a reported basis compared to 2021 with half of that impact coming from FX and half coming from lower capital equipment sales.

As previously discussed we expect 2022 to represent a floor in our organic revenue performance.

This is a year that required a reset in our strategy and several key actions to strengthen our financial position.

Overall I'm proud of the progress, we're making as a company and want to recognize and thank my <unk> colleagues and business partners around the world for their incredible commitment and dedication to our mission as we build a physician and patient centric company, bringing disruptive solutions to market.

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.

As a reminder to ask a question. Please press star one.

Yes.

Our first question comes from William <unk> with Canaccord. Your line is open.

Great. Thanks can you hear me okay.

Hey, Bill yes, good afternoon.

Hey, Thanks, David.

Two questions here, just real simple one.

Kind of if you can answer where are you tracking relative to your original expectations for kind of.

A decrease or <unk>.

Reducing your cash needs per quarter, I think you thought you could get down to maybe $18 million to $20 million a quarter, if I did the math right.

And do you still expect to get there and then two just can you help us understand like I think now we're looking at the Medtronic kind of next piece is a little more detail on whats the trigger for the next payment and how much and the one after to pick up that $37 million. Just so we can understand it.

Seems like you've got a pretty good cash runway, but just wanted to get a little more clarity around that thanks.

Yeah.

Transaction related expenses debt reduction et cetera was in the.

In the $26 million range Q3 will include a renewal of our directors and offers officers insurance, which will.

Continuing to keep cash burn in the low Twenty's and then Q4 on a normalized basis should then result in that teens high teens number that you that you had referenced just to put a little bit more support behind that most of it Eric.

50% of the company's expense really fits in indirect labor and head count expense head count for the company has been reduced from about 335 people at the end of last year to 235 people today and that represents the vast majority of the reduction in cash burn other factors contributing to that reduction include.

A much more disciplined process for managing inventory for the first time.

Over a year, we're now seeing sequential monthly declines in our inventory balance in what we're bringing into the company from a raw material and.

Purchasing perspective.

With respect to the Medtronic.

Contingent consideration payments. So the next step is is the $37 million will be broken out into two two piece is most likely the first relates to us becoming qualified as an OEM supplier to Medtronic that will trigger the first $20 million that should happen later this year or early next year.

$17 million relates to the filing for EU MBR for their products that Medtronic is acquiring and that that we believe will take place.

Early next year as well if for some reason that that filing goes beyond June 30 of next year, it would be a $15 million down $17 million payment, but we fully expect to get the $37 million.

By the within the first half of next year and more likely in the first calendar quarter.

And if I could just ask one more.

Managing through these situations is never easy and collect turnover tends to be a big challenge in just kind of any color you would like to provide.

Post the restructuring in the first quarter kind of what has been attrition.

Turnover looked like in the in the.

Employee base and thanks for taking my questions.

Thanks, Bill so.

One of the things that I think we experienced after the after the restructuring earlier in the year was continued attrition.

Engineers I have noticed however in the past.

In the past couple of months that we have seen a really significant churn in the more al at the company in the way of measuring that is we have no return to work policy. The building is much more full than it's been in a year.

Did go through some additional.

We are we are significantly increasing our internal promotions when we're looking to fill key roles and that overall has had I think a very positive impact on the overall energy and <unk>.

More out the company so.

It was one of my biggest concerns actually over the past several months and I think we're starting to see a nice turn there.

Thanks for taking my questions.

Our next question comes from Robbie Marcus with Jpmorgan. Your line is open.

Hi, This is actually Allen on for Robbie.

Had one quick question to start on the cadence of growth that you highlighted with <unk>.

Potential upside or downside to that guidance range.

Sure Alan.

Evelyn amount of that on the capital impacts so down about $1 million year over year, putting revenue closer to that.

Low sixteens range.

On the seasonality.

Most of that really.

It's something we're seeing in central Europe .

In our direct business and through our partner.

<unk> are seeing a little bit less seasonality in the U S.

Then we have seen in previous years, and obviously last year was impacted by a heavy impact from from the <unk>.

Delta variant, but overall I would say if I look at weekly procedure volumes.

In Q3 compared to Q2 across different areas.

We're seeing some growth in some areas on a sequential basis, some decline and others, which <unk> does not terribly surprising.

We don't have we have some visibility looking into September , which we which we think will have will show better trends in.

And some of those areas procedures in Europe tend to get scheduled pretty far in advance. So we have some feel for what the September procedure schedule is going to look like so we would expect to see progressive improvements throughout the quarter.

But I think from where we sit today.

The U S, where we have had purchase orders, but can't ship until we gained regulatory approval. So our line of sight to that Q4 capital.

Contribution is pretty good so, but I would expect it off the $4 million $4 1 million excuse me that we did in Q2 to see some sequential decline.

In Q in Q3 and sort of the mid <unk>.

The mid the mid to high Threes and then.

Being in the high the high fours in Q4, something like that for for the cadence of numbers throughout the rest of the year.

Got it and then when you talk about operating spend moderating going forward does that across both SG&A and R&D should we think about a similar step down from from <unk> to <unk> as we saw from <unk> to <unk>, and then maybe a bit more stable in fourth quarter.

Thank you.

Yes, it'll be it'll be in both areas, we did $19 $7 million.

Operating expenses in Q2, we are tracking to a number of closer to $18 million.

In Q3.

We did have we did it we will incur some further expenses related to restructuring in July of the third quarter, but that still puts us in that in that $18 million range for the third quarter. So I would expect further moderation into.

Into Q4, and then that being pretty close to what the run rate would be going forward associated with the year over year declines in operating expenses in the first half of 2023 and then.

More modest modest growth in the second half of 'twenty three going forward I'd say modest I mean, the low to mid single digits.

Operator, I think Alan Alan did we answer all your questions.

Our next question comes from Marie Thibault with <unk>. Your line is open.

Hi, David Thanks for taking the questions.

Congrats on a strong quarter sure.

First quarter here as the permanent CEO .

I did want to ask a little bit about the system placements could.

Could we get a little more detail on what geographies some of those.

System movements happened and how far along do you think you are in this evaluation process of determining where some systems are being underutilized and could possibly be.

Luke.

Sure. Thanks for the question, Brian Thanks for the kind words.

So geographically in the U S and our.

Our installed base declined from 39 in Q1 to 37% in Q2.

In our direct European business, our installed base went from 'twenty two to 'twenty, one and in our <unk> territories installed base went up by one from 16 to 17, so total installed base.

7% to 75, we commented on the call removing six that was in our direct business and then putting three back into into service. We did remove some additional consoles in July but I would say we are Q3 should mark the completion of that effort. We have really identified the consoles that were underutilized or.

In areas, where we had a physician move or a number of other moving part dynamics. So I think Q3 will mark the end of the sort of the console repositioning strategy and I'm not sure we'll grow the install base.

Installed base.

Base.

Especially in the U S outside.

Outside the U S.

There are where we are seeing continued very strong momentum, especially with our partner.

<unk>.

I think there probably is more likelihood of growth in our installed base as we grow the business with our full portfolio and Thats what gives us such a high degree of confidence that once we have vacuum blade in the U S that we should start to see a turn in the <unk>.

The trajectory of our installed base and also our utilization.

Okay, that's very encouraging thanks, David and then maybe I'll ask a follow up here on the Aki Cross <unk> launch certainly got a lot of buzz during the quarter at least one when you press release some of that in the compatibility with watchman would love to hear an update on how that launch is going what you are hearing I guess from your partner as well on that launch.

Thank you, yes, so that launch is being fully executed within a QTS.

That is one of the product that will transfer to Medtronic when they takeover commercial distribution.

And the early launch has been very encouraging I think we did 11 or 15 procedures on Monday of this week alone.

And we are seeing pretty strong uptake.

Of that product, thus far and it actually had a pretty decent contribution.

In the second quarter and that obviously it helps expand our reach a little bit into the infrastructure that is still EP, but you have a broader diversity of <unk>.

Doing Washington than you're doing.

<unk>. So we've been very pleased with with with that contribution and are very confident that when that transfers to medtronic. They will continue to drive very strong performance.

With that that with that product as part of that broader double crossing portfolio.

Okay, David Thanks for taking the questions.

Thanks, Larry.

Our next question comes from Amit <unk> with Goldman Sachs. Your line is open.

Thanks. This is Phil on for Amit Thanks for taking the questions David.

I wanted to circle back to the first strategic review comment that you made about driving adoption and utilization.

I think the statement must sharpen commercial strategy prioritize procedure volume over installed base growth I'm, just hoping you can elaborate a little bit more on how that <unk> going to pragmatically implemented a re prioritization of kind of head count I imagine this is within that but other initiatives that are going to help drive that to supplement the product develop.

Sorry that you highlighted.

Sure. So thanks, Thanks for the question Phil in the commercial strategy that we have been executing to focus on procedure volumes utilization and revenue per procedure that that's something that we've been executing since really the beginning of this year really the end the end of the first quarter.

Our objective of identifying the right high value target accounts, and then ensuring that our incentives match, our strategic objectives I would say the bigger.

Dynamic or element coming out of our strategic review was really about where we're going to focus our R&D programs and if you look back at the company's history.

Over the past year or two.

Around the time of the IPO.

There was a extraordinary number of programs that this company had under development with an effort to build.

A broad portfolio, but the reality is.

Standing why has the accu map ramp not achieved the original expectations that had been set forward and encouragingly on the one hand, everyone. We spoke to.

<unk> our view that there is a significant unmet need here and complex ablation that isn't being solved by by our by our competitors and one of the conversation that I had that now has repeated itself several times and I've spoken to some very high volume physicians, who will say my experience with <unk> over the past several years has been kind of up and down.

And kind of mix and I like what Youre doing but I haven't really adopted this product in earnest and the reason for that is all related to physician experience and workflow and while we've been very focused and done I think a.

Tremendously good job on driving clinical differentiation and filling a market unmet need we haven't cross the gap from from technology and clinical value to day to day physician experience and workflow and what we're trying to accomplish with our next several launches is to bring all the value that <unk> brings from a dive.

Gnostic perspective to treating a large segment of the population that isn't well served and then make the physician experience as similar to what they are used to on a day to day basis to eliminate what's been a very significant barrier to adoption and quite frankly, one that is probably bigger than we had initially.

Contemplated in what I have these conversations with doctors, but they still say to me is while my experience has been up and down at times I am very interested in continuing to work with you. Because you are the only company doing what you are trying to do and I I understand that companies go through different lifecycle.

And I am here to work with you and support you as you execute this going forward and now I've had that conversation half a dozen times and I'm very encouraged that we're going after the right target I think what has been missing is that user experience and user.

And workflow perspective, which we will start to address here.

Here in the second half of this year and into next year.

Very comprehensive thank you the second one I wanted to touch on was the more challenging.

The hospital Capex environment I was hoping you could elaborate on that comment.

Yeah.

The capital environment is always has some challenges, especially for newer entrants who are trying to both get through capital Committee and also prove.

Value proposition and the biggest thing that we are seeing is just the time lag of administrative reviews is extending and the number of layers of approvals is is getting.

More cumbersome, so traditionally when selling our capital we would need we rely on an EP physician champion a lab manager and a CFO . What we're seeing now is a lab manager and EP.

Cardiovascular service line administrator, sometimes a purchasing manager and his CFO . So we're just seeing more and more levels of approval.

It required to get through those capital committees, which is which means the time from initiating a conversation or capital conversion process to one we're executing it is taking longer than we've seen in the past and my sense is that those those increased layers of review.

Relate to.

Tighter budgets, we havent heard that explicitly but it's more that the time to conversion is.

Is extending.

Okay. Thanks again for all the color I appreciate it.

Thanks, Phil.

Our next question comes from Javier Fonseca with Spartan capital Your line is open.

Hello, Thanks for taking my question and congrats on those on a solid quarter and maybe what sort of CEO Mike.

My question is along the lines of procedure volume and particularly in international markets.

Has there been any sort of update on the accu blade penetration on many procedures in the EU because I know previously the number was around 70%.

If theres any update and when.

Expectations for that metric going forward.

Okay.

Yeah.

So we continue to see good adoption of our vacuum <unk>, we did see that number dip a little bit in the second quarter from 77%, 70% down into the.

50 years, we have seen it here in July tick back up to 73% there obviously.

Given the number of.

You systems, we have installed in the field, where obviously you're going to see some fluctuations depending on user patterns.

We are seeing that trend very nicely back above above 70% here in the third quarter and I think thats, a pretty good number to use.

On a go forward basis in the U S.

At least for our internal purposes, we are assuming a much lower penetration next year, just because it's going to take some time to get through.

Vac committees at hospitals, we're going to have to build inventory.

And ramp that once we gain approval next year, but I think 70% to 75% and Europe is a good number to use on a go forward basis, and obviously in the U S. We envision getting there.

Over time, but probably not in year one.

Okay.

Okay, and a quick follow ups and then again this is borne out pass this year end.

And then in 2023.

Market entry of United States.

Any sort of specific.

Initiatives taken too.

Okay.

Lower number but really.

Putting up.

Somewhere closer to 70%.

As more time in the U S market goes by.

Yes, I mean, I think thats, a very fair assessment so.

If you look at how things went in Europe , we launched this product in the end of the first quarter of 2021.

We actually got to 70% penetration pretty quickly by the end of last year, which is sort of an anomaly for how product launch in.

In Europe .

Is we do see higher utilization in accounts that have vacuum accu blades and who are using us as a closed system and then the third is because of those two factors, we think that can drive a.

The increase in our in our installed base. So I would look at we're going to we're going to put a lot of resources behind this launch and hit the accelerator as best we can but I would I would characterize it today as what will be a progressive and thoughtful launch through 2023 and thereafter.

Thanks for the comprehensive very tough.

Comprehensive answer thanks.

Hi, sorry to ask a question. Please press star one one.

Our next question comes from John Young with Canaccord. Your line is open.

Hey, David Shaw on for Bill Thanks for taking a follow up just a quick.

Question is on the PSA, where do you stand today with the clinical progress.

Any timelines or any update there. Thank you.

Yes, Thanks, John for the follow up so on <unk>, we have completed the first 24 patients in our first in human experience. We did 15 patients in November of last year and then we.

Following the re mapping of those those patients made some changes to our dosing strategy, we treat or another nine patients in.

In March of this year and.

Have completed re mapping on seven of those we will not complete the re mapping on the last two just because of time, but all patients all 24 patients remain arrhythmia free.

Given that we've now completed our first in human experience, we are taking a look at the data.

Working with our physician investigators to decide what exactly our path forward is is going to be.

Our program showed we're pretty pleased with how the results trended in the FERC the second cohort of patients versus the first.

Cohort of patients and now that we have the totality of that.

That data, where we're taking a look at.

With with each of those programs and how we anticipate.

Marshaling them them forward and I would like to say we'll have more.

This in it.

In November , but we're trying to take a prudent approach with respect to <unk>.

Commitments around product development highlights.

Great. Thanks, and are there any states the results from those first initial first in human patients yet.

So we're not ready to disclose those because we'll probably look for an opportunity to actually have published the results from.

From from this first in human experience. So, we're not releasing any of the efficacy or or or safety data at this time.

Great. Thank you.

There are no further questions. This does conclude the program and you may now disconnect everyone have a great day.

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