Q3 2022 Minerva Surgical Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Yeah.
Good day and welcome to my nervous third quarter 2022 earnings call. At this time, all participants are in listen only mode.
After the Speakers' presentation there'll be a question answer session.
You will be given at that time.
As a reminder, this call maybe recorded.
Like to turn the call over to Caroline corner Investor Relations you may begin.
Okay.
Thank you operator, welcome to Minerva third quarter of 2022 earnings call. Joining me on today's call are Dave <unk>, President and Chief Executive Officer, Jill York, Chief Financial Officer. This call. We'll provide forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, all statements made on this call that do not relate to matters.
Circle facts should be considered forward looking statements, including statements regarding the markets in which Minerva surgical operate trends and expectations from a nervous products and technology trends and demand for my nervous product whenever as expected financial performance expenses and position in the market and outlook for fiscal year 2022, and the impact of COVID-19 and experience on Minerva.
Operation and Minerva customer's operations. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results performance or achievements to differ materially from any results performance or achievements expressed or implied by the forward looking statements. Please review of America's most recent filings with the SEC, particularly the risk factors.
Described in <unk> quarterly report on Form 10-Q for the quarter ended September 32022, which was filed on November 14, 2022 for additional information.
Any forward looking statements provided during this call, including projections for future performance are based on management's expectations as of today.
Undertakes no obligation to update these statements to reflect events that occur or circumstances that exist. After today, except as required by applicable law whenever its press release with third quarter 2022 results is available on <unk> website, Www dot Minerva surgical dot com under the investors section and includes additional details about Minerva financial result.
Whenever the Westside all sorts of latest SEC filings, which you are encouraged to review a recording of today's call will be available on <unk> website by five P. M Pacific time today with that I will hand, the call over to Dave.
Thank you Caroline and thanks.
Thanks to all of you for joining us on our third quarter earnings call.
This quarter, we reported revenues of $12 6 million.
Versus $12 5 million in the same period of 2021.
And $13 million in the second quarter of 2022.
While the sequential quarter revenue declined slightly.
We are very encouraged by recent positive trend with sales momentum building throughout the end of the quarter and continuing through the early stages of the fourth quarter.
The ablation markets have experienced challenges that we believe are due to the lingering impacts of COVID-19 limb.
Limited hospital access.
Nursing staff shortages and patient reticence to see.
<unk> electric treatments.
However, indications are that the uterine tissue resection procedures are starting to return to more normal levels from their reduced levels earlier this year.
Or simply on tissue resection system saw a 10% growth over last year's third quarter.
We continue to make progress with new account evaluations in trials.
We believe that as the macro environment improves we are very well positioned to continue this growth.
In fact overall.
We have added or reactivated 295, new accounts.
Over the last 12 months.
In spite of this continued progress with new accounts, we are still seeing some lingering effects of COVID-19 on patient demand for treatments.
As well as on hospital staffing challenges and Salesforce access.
But with the improving sales towards the end of the third quarter, we are continuing.
Into this quarter.
And we believe we are seeing light at the end of the tunnel.
We continue to believe in the FDA approved clinical data underscores that the Minerva es treatment is the fastest and most efficacious endometrial ablation technology on the market.
Despite a significant temporary decline in ablation procedures.
Minerva Es sales continue at a steady rate.
Which to us indicates that we continue to gain market share.
Genesis HCA is also showing volume trends consistent with market trends and thus holding existing market share.
Sales of our simply on tissue resection product were a bright spot this past quarter, having increased 10% over Q3 2021.
We believe this rate well exceeds the overall market growth for tissue resection products, indicating that we are successfully taking market share in this important and growing market too.
The exclusive product efficiency and safety features unique to our Cynthia and product.
And our ability to complete to compete with a full suite of products for <unk> are beginning to show results.
We are actively hiring and training our dedicated women's health sales force.
Our field sales force is now comprised of 80 sales territories.
Almost every major metropolitan area.
It takes three to six months for a rep to get fully up to speed.
We are very encouraged by our progress and the enthusiasm of our sales team.
Additionally.
We have recently expanded from eight regional sales managers to 10 regional sales managers. So we feel that we are well positioned to grow revenue with both our endometrial ablation and tissue resection products in the coming year.
With our full slate of four products, we continue to gain access to group purchasing organizations and independent delivery networks.
Through new contracts.
We have increased our national accounts department to three managers and they are making progress with our national accounts contract strategy today.
Today approximately 50%.
Of our current business is already under contract.
I'd now like to turn to our direct to consumer digital marketing initiative, which as I previously mentioned is underway in select markets.
With our DTC pilot, we are seeking to educate women on their <unk> treatment options and the clinically proven advantages of Minerva treatments.
Initial website traffic is very encouraging with over 34000, new visitors to our <unk> Dot com website in Q3 alone.
We are encouraged by the early signs of success.
Increasing overall awareness of treatment options for <unk> as well as connecting patients with physicians.
Who are utilizing Minerva products.
With that.
I'd like to remind you of our sales growth drivers.
Number one completing.
Completing the expansion of our sales and marketing team.
By year end, we expect to be fully staffed and our commercial sales organization.
Number two.
Finding complete product line contract with the GPO and Ics.
Approximately 50% of our business is now under contract.
Number three.
Increasing our installed base of controllers in both new and existing accounts.
During the past 12 months, we have increased our installed base of Cynthia on Minerva controllers by total of 172 new controllers.
Number four.
Cross selling our products to drive new simply on business and establish Minerva com.
And knew the nerve ablation business and established Cynthia on accounts.
And number five.
Leveraging our DTC marketing efforts to increase consumer awareness of our superior treatments.
Finally, I'd like to report that we received news last Thursday that the U S Court of Appeals for the Federal District denied our request for a full on banc hearing of our case that was remanded to the court of appeals by the U S Supreme Court.
As a reminder, the whole logic patents at issue in this case expired four years ago in 2018.
And the damages previously awarded were fully reserved as restricted cash on our balance sheet and we will now be released to hologic.
We're obviously disappointed by the ruling but thankful that this long and costly defense litigation is finally behind us.
We have a lot of work ahead of us and as we focus on our business growth.
We are excited to deliver on our mission to treat women with ABB and eliminate unnecessary hysterectomies.
With that I'll hand things over to Joel for our financial results.
Joel.
Thanks, Dave and good afternoon, everyone.
Revenue for the third quarter of 2022 was $12 6 million a slight increase from the third quarter of 2021, but a small decrease of <unk> 4 million compared to the second quarter of 2022, which is in line with the seasonality we've seen in past years, whereby Q3 sales are slightly lower than Q2 sales.
The product level for the quarter Minerva Es was $5 9 million or 47% of total revenue up slightly from $5 8 million or 46% of total revenue in the third quarter of 2021.
Genesis HCA was $3 6 million or 28% of total revenue in the third quarter of 2022 down from $3 9 million or 31% of total revenue in the third quarter of 2021.
And simply on was $3 million or 24% of total revenue in the third quarter of 2022.
Up from $2 8 million or 22% of total revenue in the third quarter of 2021.
In general, we're seeing positive trends in Minerva Es and simply an offset by the much more mature Genesis HVA products, which we believe is holding flat market share as a niche product for treatments in atypical UDR anatomies.
As Dave mentioned, we're very encouraged with the sales momentum we experienced towards the end of the third quarter and believe this sets us up for a stronger finish in 2022.
Gross margin for the third quarter of 2022 was $54, 1% below the 57% reported in the third quarter of 2021, and 59% reported last quarter.
Gross margin in the third quarter of 2022 was negatively impacted by increasing costs in the current macro economic environment as well as the small decrease in the overall volume of products shipped and by the changing product mix away from our Genesis HDA ablation product to simply on which today.
Has an overall lower gross gross margin profile.
We've also been increasing the placements of <unk> and Minerva Es controllers over the last four quarters, which we believe is a positive sign of future consumable sales growth.
We recognized depreciation expense on controller placements over a three year period, which is offset by the future sales of single use handsets over the life of the instrument.
We've historically seen customer utilization on our recently placed controller increase over time, which then has a favorable impact on gross margin with the additional sale of single use handsets.
Some we predict gross margins in the coming quarters will be positively influenced by the increased utilization of controllers placed with customers fixed.
Fixed overhead costs being spread over projected increasing volume of single use handsets sold future end user pricing adjustments and cost reduction initiatives being pursued with our contract manufacturers.
Headwinds include anticipated general inflationary pressures in transportation labor and raw material costs.
Total operating expenses in the third quarter of 2022 were $17 3 million versus $13 3 million in the third quarter of 2021.
Our sales and marketing expenses increased due to the expansion of the sales force and increased spending in physician and patient outreach.
Additionally, general and administrative expenses have increased as a result of the increased cost of now operating as a public company versus the prior year third quarter. When we were still a private company.
Noncash depreciation and amortization expenses included in operating expenses were approximately $2 1 million in the third quarter of 2022.
Unchanged from the third quarter of 2021.
Noncash stock based compensation costs.
Included in total operating expenses were $1 9 million in the third quarter of 2022 versus $1 million in the third quarter of 2021.
The reported net loss for the third quarter of 2022 was $11 3 million versus a net loss of $3 2 million in the third quarter of 2021.
On a non-GAAP adjusted EBITDA basis, we reported negative $5 8 million and the adjusted EBITDA for the third quarter of 2022 versus negative $2 6 million in adjusted EBITDA in the third quarter of 2021.
As a reminder, we have significant noncash expenses related to the amortization of intangibles from the May 2020 acquisition of the Genesis HCA.
<unk> and re sector assets as well as significant noncash stock based compensation costs.
From a balance sheet perspective, we finished the quarter with $15 1 million in unrestricted cash in total our cash outflow for the third quarter of 2022 was $7 3 million or.
Our long term liabilities were substantially unchanged from the fourth quarter of 2021, following our IPO and refinancing of our previous long term debt facility.
As a reminder, our $40 million long term debt facility is interest only through the third quarter of 2023, after which it rolls into a three year amortization schedule.
Our revenue guidance for the year is unchanged from our previous annual guidance given last quarter as we anticipate full year total revenue of $50 million to $53 million.
With our fully staffed sales force increased emphasis on signing contracts for our full line of products and growing installed base. We believe that we're well positioned to drive revenue growth as macro challenges from Covid continue to ease.
We look forward to updating you of our continued progress on future calls.
With that I'll say, thank you for your attention and I'll turn the call back to the operator for Q&A.
Thank you.
You'd like to ask a question. Please press star one one.
Our first question comes from Robbie Marcus with Jpmorgan. Your line is open.
Hi, everyone. This is rohit on for Robbie.
I just wanted to dive into some of the macro trends.
Real estate to hospital staffing in procedure volumes. It sounds like things are improving so far closing out the year and I was just hoping you could elaborate more on this especially given guidance did come down last quarter off with these headwinds so things improved sequentially from last quarter and what's your expectation closer to half of the year and into 2020.
Particularly for ablation procedures.
Good question this is Dave.
Yes, we are seeing improvement, particularly in the number of.
Patients that are.
Willing to.
Get scheduled and get back in and see their doctors.
Biggest headwind we're experiencing right now however, though is staffing shortages in hospitals.
Yeah.
A couple of weeks ago.
Talk to one of our reps, who within a hospital waste.
Per year.
Finally found out that she had to cancel and their next booking time that was available for that patient was almost three months out.
So many of the nurses during COVID-19 became traveling nurses with significant pay increases now.
Very difficult for hospitals.
Versus to come back to.
The hospital they were originally working in.
And many of these traveling nurses. We're told are not traveling cross country Theyre literally traveling from one side of town to the other.
So that's our biggest headwind right now.
Got it thank you.
Our next question comes from Matt O'brien with Piper Sandler Your line is open.
Afternoon, Thanks for taking my questions.
Maybe Joe just some clarification question did you give the actual number in the quarter or I guess said another day another way what with respect to revenue in the quarter.
Yes, we did Matt let me just go back and pull those up so.
The.
Minerva Es was $5 9 million, which was 40% 47% of total revenue.
Genesis was $3 6 million, which was 28%.
And <unk> was $3 8 million, which was 24%.
Okay got it so.
Maybe we can just focus on that a little bit I mean, the EPS number is up off of a little bit of a growth comp last year, which is great to see so I think Dave you mentioned throughout the quarter things got better can you just give a little more color on what you saw.
July through September and then I think you also mentioned things are carrying through here into October what what are you seeing there, yes, So July and October .
Traditionally our slower so easily have a slowdown in July and August .
And mainly attributable to physicians.
Pedro <unk>, taking vacations.
At the end of the summer right before school is starting again, so we usually see a downturn.
But in the last month or so we've seen our sales.
Most daily increasing.
So right now we're at the highest.
Average daily sales.
<unk>.
We're anticipating that we'll just keep going up and going up.
Patients come back to get these procedures that they deferred.
Since the first quarter of 2020.
<unk>.
Hospitals figure out how to resolve.
Nurse shortages.
So yes.
We're really pleased with the way things are looking.
Now and we track.
Sales in 'twenty.
25 different sales reports every day.
With breakdown by product by sales rep by reach.
By week by month by day in our average daily sales are at their peak now for the year. So we're looking forward to finishing the year strongly and heading into 2023.
Got it that's really helpful.
On the Minerva side.
The Es growth I mean, you actually grew it looks like sequentially, you've got 170, new controllers out there over the last 12 months plus these extra.
Reactivated accounts can you give us a sense for.
With a full salesforce stepping into next year with all these new account, even if COVID-19 is still somewhat of a headwind what that may look like from a from a revenue perspective, I mean can you grow the business in the teens, even if COVID-19 is still a still a headwind next year.
Well, we hope so.
I mean, the biggest unknown any medical device business, particularly those that.
<unk>.
Is what's going to happen from Covid.
And I keep track of our peer group.
With 20 other medical device companies, and then branch out of our peer group into other.
Companies that represent other specialties like orthopedics and.
And when you look at some of these.
Is it worth of down 30%, 40% from last year.
So we're not we're certainly not in that category.
As Joel mentioned earlier, if you look at our our procedures up 60% of our procedures involve uterine tissue resection and the symptom.
That lead to a uterine tissue resection or not just excessive menstrual bleeding, but it's also really almost unbearable pain every month when a woman hazard periods. These fibroids closet incredibly incredible pain.
So that procedure is less elective if you will.
When complete.
Two endometrial ablation, which is performed for abnormal uterine bleeding.
So we're seeing that tissue resection procedures come back which is good because that's the bigger part of our business and the part that.
Still growing.
On the endometrial ablation side, we think that that.
Procedure volumes, there are relatively flat and have been for the last several years. So any gains that we're making in that area are strictly market share gains.
That helps.
So.
I would also say that we will.
We will provide an update on on kind of next year's guidance with the full year results that we report.
In the coming up next quarter.
Sure, Okay, I understand now I.
Im just typical Joe last one is probably for you just.
Opex was higher than I was modeling.
No that theres, some investments going on between Salesforce, and then and then.
Physician outreach. So is this the right opex level to think about in Q4 and going forward.
How do you think about the capital needs of the business and the pace of that yes, yes, so on the opex side of things.
Once you once you.
Kind of accommodate for a lot of the noncash expenses.
I think on a cash basis expense basis, our opex is pretty consistent with last quarter and probably what we would expect going forward.
We obviously have the costs of being a public company in there on the G&A side of things, but on the sales and marketing side I think we should be.
We're essentially.
Fully staffed going into the end of the year and I would think that those costs should be pretty indicative going forward as well.
Okay any last thoughts I'm, sorry idea of them are on the gross margin side I know you've seen pressure you guys have guided to that or suggested that just as we think about that metric here in Q4 and into next year as well.
Yes, again I think the biggest impact is the first impact is volume.
And as volume goes up those margins should go up as well.
Obviously, we have some of the headwinds from the macroeconomic environment.
We're hopeful that inflation some of the inflation expectations arent arent going to continue with us for too long. We're all hoping for inflation comes comes back down to Earth.
And then we do have a little bit of a headwind again as I've mentioned with the product mix, that's shifting to simply on.
Which is a little bit lower margin today, and we're working with our contract manufacturers on on how to how to improve some of those costs on that side.
Got it thanks, so much youre welcome Matt.
We're most excited about procedure volumes picking up I can't tell you what a difference that makes and the.
The attitude of our sales force and their enthusiasm so right now I'd say, we're pretty pumped.
As a reminder to ask a question. Please press star one month.
There are no further questions. This is the Q&A session. Thank you for your participation you may all disconnect everyone have a great day. Thank you Michelle Thank you Youre welcome.
The conference will begin shortly to raise Johan during Q&A, you can dial star one one.
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