Q3 2022 Apollo Endosurgery Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Apollo Endo Surgery, Inc. Third quarter 2022 results call at this time.
All participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Matt Kreps, Sir the floor is yours.
Thank you John and thanks, everyone for participating in today's call to discuss Apollo's third quarter 2022 financial and operating results.
Joining me on the call a child's Mccollom, Chief Executive Officer, and Jeff Black our Chief Financial Officer.
Today's call will include slides to accompany the audio presentation.
Those of you who are joining us by telephone you can download a copy of the slides in our Investor Relations site, IR Dot Paulo, Endo dot com and choosing the events and presentations tab.
Before we begin I'd like to caution listeners that comments made by management. During this conference call will include forward looking statements within the meaning of federal securities laws, including Apollo's financial outlook.
And our policy plans and timing for product development and sales. In addition, there is uncertainty about the continuing effects of the COVID-19 pandemic the macroeconomic condition and the impact it may have on our operations the demand for our products.
Global supply chain and economic activity in general these forward looking statements involve material risks and uncertainties and apollo's actual results may differ materially.
For a discussion of risk factors I encourage you to review the company's most recent annual report on Form 10-K, and our most recent Form 10-Q.
The content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast November one 2022.
Except as required by law Apollo undertakes no obligation to revise or update any statement to reflect events or circumstances. After the date of this call.
Additionally, todays discussion will include certain non-GAAP financial measures, which we believe provide an additional tool for evaluating the company's core performance management uses these metrics in its own evaluation is continuing operating performance and a baseline for assessing the future earnings potential of the company.
In our press release issued today with our financial results in a corresponding 8-K filing a supplemental tables reconciling non-GAAP figures to their closest GAAP comparable.
Now I'd like to turn the call over to Charles.
Okay.
Thanks, Matt Good afternoon, everyone and thank you very much for joining us.
I am very pleased to report that in Q3, we achieved we achieved another quarterly record with nearly $20 million in sales.
We've increased our revenue guidance for the year and in operational terms, we anticipate achieving approximately 25% growth for the year in constant currency.
Apollo's business is heading in the right direction and importantly, our 2022 growth is occurring in advance of four big growth drivers that we're going to discuss on the call.
Seizing the endo bariatric opportunity with the launch of a Palo ESG and revise continue to scale, our commercial channel, especially in the U S.
The exciting launch of a new product overstitch NXT.
Which we have not disclosed publicly before but I will describe later on the call and then some new large growth opportunities in markets outside the U S.
But before we speak about the let me talk about the quarter.
Slide four includes some highlights from some of the key metrics for the quarter, 24% growth year on year in constant currency.
And 45% growth in SaaS and as a reminder, that is the combination of both overstitch and ex Tac. We have publicly discussed that we really view those two products as our primary growth drivers in the portfolio and I think 45% growth is indicative of that.
We continue to see excellent depth in our top accounts. So our top 10 accounts worldwide have grown 80% year on year as they continue to expand usage of apollo's products.
And <unk> is doing very well.
It has grown essentially doubled year on year and.
As we mentioned in the press release <unk> is now the number two product in our portfolio in the United States.
And this is now our seventh consecutive quarter of revenue growth.
And so these are some of the operational highlights. In addition, we had two very important strategic milestones through the quarter, which we talked about on our prior call those being the FDA marketing authorization for Apollo and Apollo revise as well as the publication of the Merit study in Atlanta.
And so I'm thrilled with the results that we achieved in Q3.
I'm very thankful for the tireless efforts of members of the Apollo team that have allowed us to achieve them and so with that I'll hand over to Jeff to provide an update on our financial results and I'll come back and talk about some of the opportunities we have to build on these successes.
Thank you Jess and thank you everybody for joining us today just to get started on slide six with revenue as Chaz reported another record quarter strong year over year growth, our seventh consecutive quarter of double digit growth.
For the second consecutive quarter, we achieved the highest revenue on record for Apollo on both a GAAP and constant currency basis.
Globally, our Es. This portfolio was up by nearly $5 million grew 45% constant currency. It grew by about $4 million and 41% on a GAAP basis.
And in the U S. We grew revenue by 29% with our USS portfolio up nearly $3 million and 41%.
And this growth in <unk> is reflective of continued impact of our planned investments, particularly around salesforce expansion and our increased productivity of the sales force.
<unk> volume increases were the primary drivers of the growth we did see a moderate impact from price increases.
The growth in <unk> was led primarily by overstitch adoption in our <unk> accounts and we also saw as Chad mentioned, increasing contribution from ex Tac in our defect closure accounts.
Or <unk>, which is our inter gastric balloons was down for the quarter by about 200000, and thats due to summer seasonality and macroeconomic conditions.
In the U S. We grew revenue by 18% on a constant currency basis, 9% on a GAAP basis, with our <unk> portfolio up nearly $2 million and 53% in constant currency.
Oh U S. We saw strong procedural volumes for overstitch with some price to offset due to a higher distributor revenue mix.
We saw a similar dynamic O U S for a bearer as we experienced in the U S where volumes were down due to seasonality and macroeconomic conditions, which we do believe is likely impacting some patient decisions about whether or not to get a balloon procedure.
But we have communicated in prior quarters that are embarrassed as a strategic asset for us in our <unk> growth strategy. We continue to believe that our <unk> will be a stable to low to mid single digit grow or both in the U S and internationally.
We did see significant foreign currency headwinds, which had a nearly $700000 impact or 900 basis points on year over year growth.
And as a reminder were disproportionately impacted by foreign currency pressures compared to similarly sized med tech companies because of our large oes footprint relative to our peers.
Moving to slide seven.
Guidance.
As we as we look at the outlook for the rest of the year. We increased today as you saw in the press release, our full year 2022 guidance to 75% to $76 million and that's really on the strength of our Q3 performance. This implies full year growth of 19% to 21%.
Second half year over year growth of 20% to 23% on a GAAP basis compared to first half growth of 18%.
On a constant currency basis, this implies growth of up to 25%, which.
Is above our medium term, 20% growth outlook that we have communicated previously.
We have a number of positive growth drivers in Q4 and heading into 2023, but with that said as we set guidance for the remainder of the year. We do remain cognizant of the continued potential global macroeconomic impacts, especially from inflation.
Continued foreign currency pressures, particularly for the Euro, which currently represents nearly half of our U R. O U S.
Direct revenue.
And again potential seasonality later in the fourth quarter in our <unk> accounts, which represent a growing mix of our total revenue.
Moving to margin on slide eight we remain on track with our margin expansion targets. Although we did see impacts of both foreign currency and product mix in the third quarter gross margin was flat in the third quarter on a constant currency basis versus the prior year and down.
About 150 basis points on a GAAP basis.
We did can see continue to see overall Cogs reduction in our <unk> product line from the impact of 2021, overstates Cogs improvement projects as well as improve though improved overhead efficiencies.
But offsetting these improvements were lower revenue mix from Rivera, which has a higher gross margin profile. We also saw higher revenue mix across the portfolio from our O U S distributor channel and that typically has a lower gross margin profile from our direct channel.
As we look to Q4 of this year and beyond 'twenty. Two there are a number of factors that we believe will drive gross margin expansion.
First of all we recently made a decision to increase prices in both U S and U S markets. The gross margin benefits of these recent price increases should begin to show up in the next one to two quarters and we also expect future price increases to contribute to incremental gross margin expansion over time.
And beyond the price increases there are still a number of major driver drivers of overall margin expansion, including improved overhead absorption and direct Cogs improvement programs, which are focused primarily on overstitch.
Several of these are already underway.
We continue to navigate supply chain manufacturing scale up complexities and we remain confident in our ability to drive margin in the mid 60% range in the medium term.
Moving to our operating expense profile.
On a non-GAAP basis, we do think it's important to take a look at our expense run rate on a non-GAAP basis, excluding noncash stock based compensation.
And as we've stated before 2022 is a planned investment year for Apollo with a targeted focus on building capabilities to drive both near and long term growth for our existing portfolio.
Significant area of that investment continues to be sales and marketing in the U S, which ran at about 42% of revenue in the second quarter. It reflects our expanding U S sales channel and marketing programs as we prepare for the anticipated launch of Apollo ESG and revise.
In total our non-GAAP expenses were up 75% of total revenue and our most recent quarter that's down from 80% in the second quarter and this is reflective of improved sales force productivity and the timing of some.
Our marketing spend.
Given the current environment, we continue to be careful stewards of our resources through the first three quarters of 'twenty two were well below our opex and Capex spend plans well on target with our revenue plans.
Perhaps most importantly, we are well positioned from a balance sheet perspective to support these growth initiatives.
And with that addressing our balance sheet on slide 10 at the end of Q3, we had over $130 million in cash and committed cash and that includes about $68 million in cash and cash equivalents and access to another $40 million over 2023, and 'twenty four based upon our revenue milestones.
Which are well below our base case expectations.
We've seen operating cash use continued to improve throughout 2022 the increases in cash use have been primarily working capital for inventory builds and capex to support revenue growth.
Really thanks to the diligence of our entire operations team, we've been able to successfully manage a.
Number of supply chain complexities mitigate risk secure raw material supply and begin to build inventories to more appropriate levels given our mid term forecast.
We expect to end the year with $125 million in cash and committed cash, including about $60 million in cash and equivalents and this implies cash use for the year of around $30 million, which we still continue to anticipate is our high watermark for annual cash burn based upon our base case model.
And again, we've got a multiyear cash runway to execute the plan as we stand here today, a clear line of sight to a cash flow breakeven business and our balance sheet with committed capital to get us there.
And with that I'll turn the call back over to Jeff.
Thank you Jeff.
So on my first call with investors last spring I laid out.
A plan that had three phases to it.
And we really were focusing at that time on our first phase of energizing. The business, then moving into and accelerate phase and then leading in the markets that we serve.
So slide 13 provides a little bit of a scorecard as it were of how we've done during that first energized space a little over a year.
Yeah.
And people within Apollo no that I place, a very high premium on delivering on our commitments. So let's talk about how we've done in terms of strategic milestones. We said that ex Tac was going to be an important new product that delivers exceptional clinical value. It is now the number two product in the U S. In our portfolio and can and adoption continues to grow we said that we would.
Pursuing FDA authorization for the ESG procedure and broaden the scope of revisions those were granted in July we said that we believe that the merit study represented a fundamental step forward in the field of vendor bariatrics and that the study was worthy of publication in a top tier Journal Merit was published in Atlanta also in July .
And then all the while we've been undergoing a financial transformation.
If you compare our growth in the quarter that we just announced.
And compare it to Q4 of 2020 and the reason that was the quarter right before before I took over as CEO our growth in that period is 52%. So Apollo is rapidly becoming a growth company and all the while we strengthen the balance sheet.
And as Jeff mentioned have a very clear pathway towards cash flow breakeven.
In addition, we've been revitalizing the organization at all levels, but on the leadership and the board. We've made some significant additions I, particularly want to highlight again the recent additions of Jeanette banks Who's a senior executive at Alcon and Sharon on keep the former president of the University of Chicago Medical Center to our board of directors.
And Sharon has added tremendous value already in the short period of time, just fresh new perspectives on our board and adding to an already very strong team and we are thrilled to have them.
We've also been building key functional capabilities in critical mass in the organization. We've highlighted a few on the slide in R&D and reimbursement and health economics and in marketing and we continue to expand our sales team and we're hiring some of the best in the industry as we do so.
And so Apollo is entirely a different company than we were just a little over a year ago and.
And so now we turn our attention to the next phase the accelerate phase and I'm very pleased to talk about today for opportunities that are either in the very early stages are brand new.
Will help drive that accelerate phase when you see them on the slide I referenced earlier, the <unk> opportunity growing our commercial channel.
Expanding access to suturing with Overstitch, NXT and then pursuing significant.
<unk> opportunities outside the U S. So, let's walk through them and starting with the Endo bariatric side.
Slide 15 is a repeat of a slide we showed.
On the August call and I'm, including it again, because I think it makes a really important points.
And that is that ESG is entirely due to that and anything else that has gone before in the field of endoscopic bariatric procedures. No. Other procedure has the combination of an FDA authorization level, one clinical evidence and then delivers a combination of effectiveness safety and very good durability.
And the market is already starting to respond to that.
Slide 16 shows.
<unk> 20 of our top accounts in the U S. Our top 10 private practices and our top 10 academic medical centers that primarily due endo bariatric procedures.
And that combined group of 20 accounts year to date are up 50% year on year in terms of their performance and then importantly, among the private practices that group will average over 500 procedures with Apollo products between Esg's bariatric revisions and our variable in procedures and average.
With more than 500, each this year. So clearly we are gaining adoption in these initial initial pioneering accounts.
And one of the true pioneers in this space is a physician named Dr. Chris Mcgowan, who is based in North Carolina. He is the founder and leader of true you weight loss. They recently opened a new location in Atlanta.
And two weeks ago doctrine Mcgowan did a live case presentation of his 2000 and ESG procedure, that's not a typo in a few short years Doctor Mcgowan personally has done 2000, ESG and so we did a live case that was presented on Youtube and other social media challenges.
Social media platforms pardon me.
The case videos available online and its excellent in less than an hour while conducting a flawless ESG procedure Doctor Magellan answered questions about ESG is that.
Those are clear they are balanced and they are intended for a lay audience interested in learning more about the procedure.
Some of the topics we covered our include on the right hand of the slide I won't go through all of them except to highlight a few the average total body weight loss and Doctor Magellan practice is 20% to 21%.
Their safety profile is excellent with an average adverse event rate of 0.1% and the procedures are typically done in an outpatient setting in a same day procedure in patients return can return to work within three to five business days.
And so if you have an interest in learning more about ESG or as you've got family members or colleagues or friends, who would like to know more about the procedure I do encourage you to look online and there is a link on page 17.
And so Dr. Mcgowan is a gastroenterologist, who really know specializes in endo bariatric procedures.
In addition, and importantly, very accurate surgeons are also starting to embrace ESG and slide 18 describes the experience of Dr. Brandon Vander well that was presented.
In August at the if so meeting which is the Big International Conference and it was in Miami This year.
Dr. <unk> was a very active surgeon who practices outside of Seattle.
And he presented these data at the conference that in again only about two years.
Starting to offer in ESG and he had 469, new patient consoles, specifically because people heard about ESG and out of those he really found two things first of all that ESG could absolutely help them treat more patients and expand his practice almost two.
200 of those others interested people who came in the door got an ESG procedure and about 100 of them received a laparoscopic sleeve. The biggest reason why people would get a laparoscopic sleeve were twofold, those with higher <unk> as well as insurance all of Dr. Render wells Esg's are cash pay procedures and so.
Despite that from a two to one ratio of people, we're getting esg's over laparoscopic procedures.
The second thing that was really meaningful about Dr. <unk> presentation is just the outcomes. These achieving 24% total body weight loss at 12 months.
He and his team do an excellent job with the procedure and our very rigorous and thereafter care of patient follow up and you can see the results in their outcomes.
And so we are just in the very.
Excuse me in the very early days of patient understanding and awareness about ESG and patient stories are just starting to emerge and you see some examples on page 19.
I'll highlight just the one on the left because it's a pretty remarkable story. This is a woman in South Carolina, who underwent an ESG procedure and lost a lot of way and in doing so actually discovered a lumpier thrown that was diagnosed and turned out to be cancerous. They caught it early we're able to intervene and my understanding is he is doing very well and so it's just the impact.
So gratifying to see I am the son of a physician I come from a medical family patient care is in my familial DNA and these kind of patient impact stories really are what drive me and I think drive our team and how we move forward.
And so we will actually be adding additional patient marketing and patient awareness activities, you're starting this quarter and so more to follow as those get launched here in the coming weeks.
I mentioned some of the early adopters.
The practices that are absolutely.
Having success with Endo Bariatrics and so our next stage obviously is training training. The next wave of people, both surgeons and <unk> I am pleased to report.
Report that we've already completed one course in October and have another one scheduled in December with a total of about 50 positions. We've got plans for similar courses for at least 100 physicians next year and importantly. This group. These are experienced positions most of them already have suturing skills with overstitch and have now have a strong interest.
And developing an endo bariatric program.
We also have an outstanding group of faculty some of the faculty members across the already scheduled programs are shown.
On the page on page 20 that includes <unk> with Dr. <unk> <unk>, our Chief Medical Officer, Dr. <unk> and Dr. <unk> as well as two surgeons, Dr. <unk> and Dr. Snow, we've got a mix of private practice and academic.
And so a whole range of perspectives not only on the technical aspects of having the best possible patient outcomes with the procedure, but also in terms of how to incorporate endoscopic sleeve gastroplasty and revision procedures and the integral <unk> balloon into clinical practice.
And last but not least on this part of the growth driver is of course reimbursement and so with the recent announcements and the FDA clearance, we were able to continue to drive critics.
Critical activities related to reimbursement we are in the process of exploring new coding and new approaches for Medicare.
In.
People undergo payment in the facility setting we are in advanced discussions with the societies, both Gi and surgical societies around CPT codes and a new application there we're developing.
New patient access.
Function to really support case by case prior authorizations and I were putting together the health economic materials and value proposition and clinical evidence to really engage payers on reimbursement discussions and coverage discussions.
Our second.
Big growth driver has to do with our commercial team, which we continue to grow and develop we mentioned previously our target at the end of the year to be at about 40%.
Frontline sales reps by the end of the year that is inclusive of both our market development managers, who are sales reps, who carry all three product lines as well as the new regional Endo Bariatric manager role that's focused on helping to grow and develop the endo bariatric accounts.
In addition, we're enhancing sales training our sales analytics growing our marketing capabilities building out our physician medical education and training capabilities all to build a stronger commercial organization.
And importantly, we still have a relatively new team right about half of our team and the sales organization in the U S still have less than one year experience at Apollo and so a lot of credit to Kirk Ellis, our VP of sales here in the U S and his leadership team for delivering 25% plus growth over the past year.
Year, while essentially overhauling the entire commercial team.
And that's not an easy task and they've been able to balance it well.
But we have been able to hire some excellent people on our team.
Where it has gotten out the good things are happening at Apollo and people are actually coming to us and we become a net importer of very good talent and you see some of the examples of companies. We've hired from places like Stryker, and Medtronic and Boston scientific within the last year.
Okay. So our next growth driver, we're talking about new product development and I love talking about new product development as I mentioned, we really have been adding into our resources on the R&D team and Apollo has had an outstanding R&D team, including the folks who developed ex Tac originally.
And so our first new product coming out of this renewed focus on R&D is called Overstitch NXT and so NXT is a new product a new version of overstates. Its focus on single channels single channel scopes, but actually offers capabilities that are not don't exist on either of our existing over.
<unk> products.
It has increased retroflexion its got stronger catheters, it's got new tools that allow physicians to have more control over how they engage with tissue and do their suturing.
It's much easier to use and install than the existing FX product.
And much faster to use as well.
And so.
The feedback that we've received from our <unk>.
Clinicians who've gone through usability testing as well as some of the Allied health professionals.
Who often are involved in setting up the device has been excellent.
And we are in the final stages now of the R&D process, we're going through the final product development testing and the final process validation and the things you do is you are getting ready towards the launch and we're targeting if all of that goes to plan to be in a position to launch no letter no later than the middle of next year.
Importantly, NXT has the potential to create multiple opportunities for expanded access to suturing recall that single channel scopes are by far the most commonly used <unk> on the market and so the NXT product has big opportune.
<unk> now to help us expand the.
The adoption of overstitch in both existing and new accounts and our existing overstitch Sx accounts. It is a fundamentally better product and we expect people to make that shift in our existing accounts are primarily used dual channel. The dual channel overstitch. Many of them don't have enough dual channel scopes or they may not have the dual channel scopes in all of them.
Hospital settings for example satellite hospitals, so they'll have reasons to want to NXT as well.
New accounts, it'll make a lot of sense to just start straight up with NXT and then we have a lot of previous customers, who tried overstitch sx and had some struggles with the prior product and so those are that's an obvious group to also tackle as well so more to follow on NXT as we get closer to the actual launch, but we're very excited by the progress we're making there in terms of bringing it to market and the <unk>.
<unk> can play and growth starting in essentially the second half of next year.
And then the fourth.
Key driver here is around U S opportunities in so first I wanted to provide an update on the <unk>.
<unk> process. So the medical device regulations in Europe does or you can follow the industry I'm sure Ive heard about MTR the transition for a lot of companies has been quite challenging and so I am very pleased to report that for Apollo. We are on track and anticipate having new <unk> certifications for all of our legacy.
<unk>.
<unk> by the end of this quarter.
And so that's a big accomplishment and a lot of credit to David Hooper, our VP of regulatory and his team for the success in navigating that and in addition, we actually have.
Excuse me a positive outcome in.
In fact, I think maybe one of the only medical device companies that does has had a positive outcome as a result of the MTR process and that is some new labeling for overstitch. These are all still being finalized, but we do expect it to look very similar to what you see on the page of new indications for defect closure stent fixation and Endo bariatric procedure.
And so that we expect to be a big help for us in terms of being more specific in our marketing around those three indications and potentially helping in areas like reimbursement in places like the UK and France and Germany.
And then once we are complete with the legacy products. Then we will turn our attention to the review process with the reviewers on ex Tac, we have made that submission.
But clearly there just the way the process works, we wanted to get through the existing products first and it will move deck stack, which we hope to complete during the first half of next year.
And in addition outside the U S. We've got some very substantial growth opportunities.
As I mentioned ex Tac, we are now cleared in nine markets outside the U S, mostly smaller markets, but most recently earlier this year in Australia, and we are ahead of plan and our execution, there and adoption and very recently in Brazil.
And we've gotten some big orders out of Brazil, and very good initial feedback which continues to reinforce for us.
The view that <unk> can have both very important both clinical and economic value in markets outside the U S and so as I just mentioned, we're targeting a 2023 launch of ex Tac in the CE Mark countries in Europe , and other countries that follows a year mark some other opportunities, Canada, Ironically, given that more than 40% of our business is out.
Side the U S. We have a small presence in Canada, and so we're working to change that starting with new clearances for overstitch and ex Tac.
That we're looking for in the first half of next year.
Japan is another really exciting opportunity.
We have already announced previously the clearance in Japan earlier this year in 2022, and then Mike <unk>, our VP of international sales and marketing was just in Japan over the last two weeks and it came back incredibly excited about the opportunities for both overstitch and ex Tac.
As we continue to develop that market and then China and Taiwan, we already have an initial clearance in China.
Hainan Province, they've got a medical free trade port, which essentially gives you a foothold into China to start collecting.
Data and collecting experience.
In the Chinese market and we've already completed cases, including our first ESG is there. We also have an emerging presence in Taiwan with some excellent clinicians and investigators who are already publishing data with 21% total body weight loss with ESG.
And in an Asian population. So the combination of those two things additional data in a foothold into mainland China.
<unk> is going to be very important and can help clear the way for clearances over the coming years.
So in summary.
I'm on page 31, we've got a really exciting cadence of new catalysts over the next call it year year and a half as shown on this page.
And look forward to continue driving each of these each of these forward one area to highlight that I haven't talked about yet is about the ESG and revised systems.
We're on track to complete a limited launch here in the U S of those here this quarter that.
That involves basically finalizing the manufacturing and doing a targeted launch in some select accounts and then we will be in a position to expand that to a full launch in the first half of next year.
And then you see other elements of the cadence throughout.
And then finally just to summarize we're very pleased with the results of Q3, and we have increased our guidance to 75% to $76 million, which apply operational growth nearly 25%.
And Furthermore, all of the growth opportunities that I've talked about on the call. It gives us further confidence in reiterating what we communicated previously our belief that we can be a consistent 20% plus grower in the years ahead, especially as we move into this accelerated phase of our strategy and so with that John Let's open up the call to questions.
Thank you ladies and gentlemen, the floor is open for questions. If you have any questions or comments. Please indicate so by pressing star one on your Touchtone phone pressing star two will remove you from the queue should your question to be answered.
We ask that all participants with the questions limit themselves to one question and one follow up only lastly, while posing your question. Please pickup your handset listening on speaker phone to provide optimal sound quality. Please hold while we poll for questions.
The first question is coming from Mathew Blackman with Stifel. Matthew Your line is live.
Good afternoon, everybody. Thank you for taking my questions I've got one question and one follow up.
Let me just start and I'm sure you guys are anxious to guide for 2023, but just looking at how 2022 has played out so far the implied fourth quarter is there any reason why you couldn't or shouldn't hit that mid term, 20% plus growth excluding currency next year, because I think about all the incremental drivers coming on board like ESG continue to extract.
Ex Tac traction, perhaps the CPT code for IGD, just any thoughts on how the business is shaping up as you head into 'twenty three and then one quick follow up.
Yes, no Matt I appreciate the question.
We're not prepared to give formal guidance for the year clearly but.
And answer to your question I think we feel good about the prospects as we laid out right. We've got good momentum.
Across the business, especially on the <unk> side of the business and.
The growth drivers many of them are already kind of initiating and then some will kick in and say in the second half of the year for example, with the NXT launch.
And so we do feel good about that and the overall guidance, having operationally in the range of 25% this year.
We are excited about the prospects for the year ahead now there are some general macroeconomic factors I think we're all paying attention to and we're not the only ones, but overall feel good about the prospects ahead.
I appreciate that.
And just on Es. So just curious if you have any thoughts on sizing the the cash pay opportunity and what it could be for ESG I know, it's challenging, but we've talked to docs, who say something like 10% of their patients might be candidates to pay out of pocket.
Equates to something like a 60 or 70 million dollar opportunity. Just curious how you guys are thinking about it yet put any thought into how big the cash pay opportunity could be thanks I appreciate it.
Yes, no Matt we have done some more work on that recently and it's really interesting right because you've got some some corollaries in other markets that actually turn out to be very big and significant opportunities right. The obvious one is fedex.
And the.
And various aesthetic markets are well over $700 million for tummy tuck procedures, and $1 3 billion for breast augmentation procedures. Another corollary is in.
Men's health and urology.
Jeanette banks actually alerted us to this one because he previously ran that business at Boston scientific a lot of that is cash pay and it's a multi hundred million dollar business. So.
We've been doing some work in terms of the modeling of both the cash pay in the reimbursed side and think with pretty modest assumptions on overall utilization in total that the business can be.
Crestwood cash pay and reimbursed in the $450 million range within a call. It eight year to 10 year timeframe from now with the cash pay part of it being maybe.
Maybe not fully half, but 40% to 45% of that so.
We think there's real opportunity there and Thats just also extrapolating all we're already seeing in some of our existing customers.
Great really appreciate it. Thank you so much congrats on a great quarter.
Thanks, Matt Okay.
Next we have Matt Hewitt with Craig Hallum Capital Your line is live.
Good afternoon, and thank you for the detailed update very appreciated.
I guess first question. So this past week.
Two key societies S MBS and if so put out some new guidelines.
For the first time in 30 years lowered the threshold for who qualifies or who should be recommended for.
Bariatric surgeries.
Just curious and I realize that just hit but what what does that mean for your business how does that expand the market opportunity for you.
Even on the cash pay side it just.
My gut tells me that it's a pretty significant jump when you go from 35 or 40, BMI down to 30, BMI and in some cases, even lower than that.
Yes, no. Thanks for the question you are right.
Surgical society has been working on this for a while in terms of updating what had been very dated guidelines.
And it's based on a lot of data that when you lose weight substantial amounts of weight.
There are significant advantages and benefits and comorbidities in areas like diabetes and hypertension and.
And and metabolic syndrome for example, as we saw on the road right and so.
We're pleased with that they've updated their guidelines.
Unclear how insurance companies may follow as it relates to.
Starting with the surgical procedures that are covered now.
But at a minimum its further validation that procedure based approach approaches for people with a BMI over 30, and then inclusive in some populations even going down to the high Twenty's.
Because often we see presents differently, especially in Asian populations that they really should consider procedures.
The health benefits, there and you're right that is a significant and it is a bell curve right and so it is a big growth in the number of patients who should be considered for procedures.
Got it and then maybe a follow up.
On one of the slides and I don't recall, which one it was and I apologize, but you've got to plan of trading 50 physicians here obviously.
Back half of this year another 50.
I think it was in the first half of next year. Another 50 in the second half of next year.
If I read the slide correctly, what would prompt you to accelerate that training.
Or are you just trying to be very methodical.
And how youre approaching ramping up your surgeon and physician practices with with overstitch. Thank you.
Yes, Matt we communicated previously and I think this is built off of a lot of experience in all of our prior lives that at this stage. It's so much more about quality over quantity of new users right. We absolutely want high quality training and you saw the types of faculty members that we have.
The right people coming to trading who are absolutely committed to doing this procedure is the right way and put the right programs in place and then the <unk>.
A follow up so that means procter in cases.
Here to peer coaching those kinds of things. So our initial approach here is very targeted and focused in terms of delivering that.
As we get more experience, especially with these first two courses this quarter.
The numbers I showed her what we already had planned in our kind of minimum so I would say, but we'll ramp it based off of knowing we've got the right kind of recipe in place to scale effectively and to protect patient outcomes.
Got it alright, thank you very much.
Okay next we have Frank <unk> with Lake Street Capital Your line is live.
Hey, Thanks for taking my questions and congrats on the results.
To start with one on ex Tac.
Appreciate the additional color was hoping you could bring us into account penetration a little bit more.
More specifically asking how penetrated is ex Tac into the overarching overstitch installed base and then when youre thinking about penetration into the overlapping accounts is there a synergistic benefit between the two if you have a rep selling multiple products into the same facility.
Yeah, So Frank.
It depends on the accounts on the synergistic.
So for example.
Sure.
In our more comprehensive accounts that do a lot of defect closure work as well as maybe some into bariatrics as well there absolutely is a synergy right in and we started initially as I think you know it with ex Tac with people, we know quite well those are tend to be people who are using overstitch.
Especially in more in the upper Gi and in our early days of <unk>, we had more.
A higher proportion of ex Tac.
In the upper GI then I think honestly, we anticipated initially, but as we've spent more time with the product and in those accounts and broadened out to a bigger group of people even within the accounts.
We're starting to see and have been a pretty steady trend of more of the procedures be in the lower Gi and the majority are now in the lower Gi, which is what we would anticipate based on how the product was originally designed and intended to be used.
So as we think about penetration there's both penetration into the number of the overstitch accounts and I don't have that number right in front me, but Jeff maybe we will provide it.
But then also the number of users per account and so as we continue to drive depth of utilization of ex Tac part of it is also getting more people within those accounts.
People often many of the institutions you see maybe one or two people, who will use overstitch, but more of that will use ex Tac.
Yes, Frank I think.
Without giving information that's nonpublic when we typically see.
Some of it is closer to divest, but generally what we've talked about is our overstitch account basis.
Somewhere in the Florida 450 range in terms of quarterly ordering accounts.
Ex Tac is not there yet, but continuing to grow year over year, it's grown pretty substantially even sequentially. So there is there is a fair amount of overlap, but we've also been able to bring on a number of new ex tech accounts as well. So it's a mix of existing accounts and new accounts and that's what's really driving.
Ex Tac growth.
Got it Okay and then maybe on my follow up just sales rep productivity.
Your comment around only about half the force being there for less than 12 months, maybe talk to timeline to full productivity and what that can look like from a revenue basis per rep.
Yes.
<unk>.
We've got a good mix of products, but they do take a while to come up to speed and so we do think that somewhere in that six to 12 months is when people really start to hit their stride.
Which is not atypical in the industry and then our target on average.
As we do planning is on average territory sizes in the range of $1 $5 million per rep.
And so that's kind of those rules of thumb that we operate against and are trying to build towards that as the team.
Develops in place and as we put the right things around them from as I mentioned marketing and training and data analytic standpoint. So that we can consistently already had plenty of reps who are at that level and have that be consistent across the whole group.
What we're shooting for.
Got it that's helpful. I'll stop there thanks for taking my questions.
That's right.
Once again, if there are any remaining questions or comments. Please indicate so by pressing star one on your Touchtone phone.
Next we have Josh Jennings with Cowen Josh Your line is live.
Hi, good afternoon, congratulations on the strong print.
And thanks for taking the questions I wanted to just ask a follow up on the on the training playbook.
I mean, it sounds like.
The physicians that are funneling in print on them.
Patrick training.
Camps.
Our experience with Overstitch and I think Jeff you just talked about 450.
Centers with Overstitch experience.
As we think about.
Building the funnel of overstitch experienced physicians before they move forward with.
<unk> training is that the right way to think about it maybe you can talk about that pre funnel.
How you guys are approaching this.
And then how that yeah.
It's a good way to think about it Josh.
Especially in these initial courses. This year, we really are focusing on primarily not exclusively people who have already been traded on overstitch.
But we are getting a lot of brand new interest as well and that's from both <unk> and surgeons.
Interesting on the surgeon side, there I think has been a bit of a sea change in the last two to three months with the announcements right.
The validation that comes with FDA plus Lancer it is.
Starting to hear and see some of these models like the one I mentioned with Doctor vendor well is prompting.
Some.
High volume <unk> very influential surgeons to really take note and now want to get involved and so we absolutely are kind of developing the list is kind of the new way beyond the ones I mentioned and I think increasingly we are going through that process to get them through initial training on overstitch.
They can say participate and of course in February or the one after that so we absolutely are will view this as a nice pipeline that will continue.
And continue to grow the base.
One just in terms of that mix change that you just spoke to between gas.
Gastroenterologists.
Patrick Surgeons is that.
That mix is evolving but we.
Where are you I guess prior to the data and we are assuming something along the lines of.
820 Castro, the bariatric surgeons that moving closer to that.
Two thirds, one thirds or anything you can share there from that mix perspective in terms of.
Some specials that are wanting to get trained on these yes, no I mean historically in the U S. Because it does vary a little bit by markets outside of the years, but historically in the U S.
We really have been predominantly Gi based users of overstitch.
They use it across the whole range of applications for Overstitch, and then inclusive on the weight loss side, they've been the ones most interested in adopting it for weight loss procedures.
And so.
I mean, even it may even be a little historically, even higher than the 80 20 I mentioned.
But like I said now we are now seeing an interest on the surgeons surgeon side and I do think that as that progresses.
It'll be an evolution over time, it's not going to be a sea change, but an evolution where more surgeons get involved in viewing the important I think piece as I mentioned in my comments is the surgeons, who understand and view this as complementary to what they do.
To treat more patients.
And there are many who are now kind of figuring that part out and are excited about now incorporate into their practice.
Thanks, just one quick follow up for Jeff just on the price increases any way to think about that quantify that in terms of the impact to.
Yes.
Yes, Jonathan I think again, we made a decision earlier in the year to roll out some price increases we have also.
Just recently done at Ed in terms of growth as you start to think about.
Third quarter growth.
Most of the growth came from volume a moderate percentage called very low single digit percentage was price.
That mix will increase because we'll start to see the the.
Impact of the recent price increases over the next couple of quarters, but think about it in terms of somewhere in the call. It mid single digit range price increase across the board.
And as NXT Overstitch NXP gives you another opportunity to take price up next year, sorry for the extra question Seth.
Yeah, we're excited about actually we haven't finalized the pricing strategy for it but yes. It is a new product with new features and benefits and so we are working through that.
And we would anticipate the opportunity to have.
Some additional price as well as as we launch and finalize the systems.
We look at that opportunity to have an increase in price there as well and so we'll provide more information on both of those as we progress here in the next year.
Thank you.
Okay next we have Adam meter with Piper Sandler Your line is live.
Hi, This is Ryan on for Adam. Thank you guys for taking the question and congrats on the quarter.
And maybe if I can start off.
With Overstitch NFC can you talk a bit more about how this will fit into the broader portfolio.
Is this expected to kind of be the work horse overstitch device.
The current offerings.
John .
I know you spoke about pricing a little bit in the previous question, but.
<unk>.
Is this going to be another area that will help to kind of.
Improved margin.
Going forward because of your ability to take price there.
So let me start with a positioning around NXT. So NXT is.
Okay.
We use on single channel scopes, So we certainly see it in envision it.
Becoming the workhorse for any any existing single channel scope.
Customers, but I think that's sort of a bare minimum and then over time.
Absolutely if it delivers the way we expect it to base off of the usability testing, we see it as an opportunity to especially with any new users and then as I mentioned with a number of our existing dual channel users.
Become a big part of what they do it replace versus become a complement for example in different settings of care still to be determined in terms of how that plays out but over time, absolutely, replacing sx and probably becoming a pretty significant part of our mix overall.
And that will by the way very internationally by market in some cases.
We're just regulatory processes take longer and whatnot. So we may have a period, where we've got all three products on the market internationally for a period of time.
And then as I mentioned, we're still working through the pricing strategy and what the margin implications will be.
Around an ex vivo, we're excited about the additional features and benefits and how we'll roll it out will drive more update at that point.
Okay, perfect and then.
If I could ask one more on just opex spend how should we think about that going forward I know youre driving investments in a lot of key areas, though.
Maybe just.
Speak from a higher level in 2023, how should we should be thinking about opex plan.
Driving potentially driving leverage down.
The bottom line.
Yes, it's a great question and then.
Just just to give you a sense of the Opex profile right. We did see some leverage sequentially in the third quarter, but realize that for every $100000 in spend it's 50 basis points.
Operating leverage though.
The the.
The ability to modulate spend will definitely have an impact or just the timing of spend will have an impact, but I think more broadly speaking.
We'll continue to invest we're going to build the sales channel buildup marketing programs build out reimbursement and we will continue to make investment in R&D, but we will start to see leverage and I think the way to think about it is that.
Our expectation is we'll see a our revenue growth and 23 will outpace our opex growth. So we will start to see some leverage.
And it paints a nice picture for us toward that that cash flow breakeven model.
Okay, perfect if I can.
Could squeeze one last one.
Overstitch, Japan, what still needs to be squared up prior to launch and how do we think about potential impact in 'twenty three.
Thank you guys.
Yes, so we already have overstitch cleared and they're already gets used in some cases.
In Japan, and with very good feedback from clinicians.
Or ones that are able to kind of fit it into their hospitals and so the next stages still working through reimbursement processes.
And we are in the process of working through that.
And so we anticipate kind of a build of some additional modest impact here in the near term, but then over time as we work through those over the next few years potentially quite substantial so I'm not really ready to put a number on it for you except to say that Japan is a very important market in the interventional therapeutic <unk>.
Some of the real thought leaders in the World are based in Japan, and as I mentioned from.
Our visit from Mike our VP in the area.
The interest level and excitement in Japan around both overstitch and <unk> is very high. So we think it can be meaningful, but it'll be sort of progressing here over the next one to three years.
Okay, I'd like to turn the floor back to management for any closing remarks.
Well listen thank you all for joining us today in summary, we are very pleased with the performance in the quarter. We look forward to delivering on the multiple growth opportunities I discussed and we recommit to becoming a consistent 20% plus growing company going forward and so.
We look forward to that and thank you all for your time today and good afternoon.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.