Q3 2022 Acutus Medical Inc Earnings Call
Good day and thank you for standing by welcome to the Akitas Medical third quarter 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one.
Your telephone you will then hear a message that your hand is raised please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker Caroline corner with Investor Relations.
Thank you operator, welcome to our third quarter 2022 earnings call. Joining me on today's call is David Rodman, Chief Executive Officer at the Kao Mackay interim 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 do not relate to matters at the store.
That should be considered forward looking statements.
That may cause results to differ from these forward looking statements are discussed under the forward looking statements section in the press release attached as an exhibit to the form 8-K filed with it.
Earlier today and are also discussed in more detail under the risk factors section in a curious is most recent filings with the SEC, 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 <unk> undertakes no obligation to update these statements except as required.
By applicable law.
This press release with third quarter of 2022 results is also available on the <unk> web site Www dot acute medical dot com under the investors section and includes additional details about our Q2 financial results.
Website also as excuses SEC filings, which you are encouraged to review a recording of today's call will be available on the <unk> 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.
During today's call I will update you on the progress, we're making on key strategic goals as well as the status of our electronic access portfolio sale to Medtronic.
We'll provide an overview of our third quarter results as well as our outlook for the rest of the year.
On our last call in August when I move into the CEO role, we presented two strategic imperatives.
Our business and set the foundation for <unk> future.
Driving utilization and operational excellence with people and culture at the foundation of everything we do.
I am happy with the steps we are taking to advance these objectives I want to take a moment to recognize the extraordinary commitment of my <unk> colleagues as well as the support and engagement from our key physician partners.
Starting with our first priority to drive utilization and adoption for <unk> globally with a commercial strategy. We introduced earlier this year is unfolding well.
Our shift to focus on utilization volume on procedure volume growth in utilization over expanding the installed base has enabled us to grow year over year procedure volumes increased utilization per console and drive higher revenue per case, as we launch new products.
Year to date procedure volumes advanced 21% versus the prior year with console utilization up 17% and revenue per procedure up 16% constant currency.
This increased productivity has been accomplished with a near 40% reduction in our commercial organization as we have streamlined resources.
Overall these performance metrics reflect strength in our core business and give us confidence in our ability to drive future growth.
While we continue to proactively relocate underperforming consoles. We also expect our installed base to return to growth in 2023.
In addition, we are seeing good traction in adding multiple users within existing accounts, helping to strengthen utilization and increased disposable revenue per console.
As we Reinitiate our expansion efforts, we will remain disciplined in where we deploy our assets with the goal to exit 2023, with a higher installed base higher utilization per console and higher revenue per procedure.
Further to achieving our growth objectives is our new product pipeline, which includes software disposables and hardware platforms.
<unk> in Q4 and into early 2023, we will move into full market release of our active about $8 five software, which is designed to improve anatomy build and enabled better visualization during <unk> procedures.
We have taken a deliberate and focused approach in launching <unk> eight five to ensure a positive physician experience.
This software release will be followed by <unk> nine in mid 2023, <unk> is expected to make significant improvements to catheter localization procedural efficiency and workflow flexibility.
In addition to new software platforms are <unk> ablation catheter and system launch in the U S is an important addition to the portfolio expected next year.
In early October we submitted our PMA for <unk>, which initiated the standard 180 day review clock.
During this time period, we expect to receive questions from the FDA as well as engaged with the agency during site inspections and evaluation of our submission.
From where we sit today, we continue to expect approval in the first half of 2023 consistent with our prior disclosures.
The data from our U S. <unk> study will be submitted for presentation at the 2023, AF Symposium and we were therefore unable to share specifics about the study results.
Said based on the efficacy and safety results in this study as well as the strong commercial uptake outside the U S. We are confident that <unk> will help support our growth objectives.
Beyond 2023, our magnetic navigation system is moving through development magnetic based navigation has become industry standard and we will be integrating this important feature into our <unk> console mapping catheter and ablation catheter we.
We will provide additional updates on the timeline for our magnetics program as it progresses.
With respect to pulse field ablation or PFA, we continue to evaluate the next steps in our program.
Recent data from other industry participants such as those presented at the European Society of Cardiology in September have provided insight into the performance of PSA in real world settings.
System with our approach to make disciplined strategic and resource allocation decisions. We are carefully watching the evolution of this category and are assessing the best path forward for <unk>, whether with our internal program or by a partnership we will update you as we finalize our plans.
Switching gears to our efforts to strengthen our operating and underlying financial performance.
We undertook a major leadership restructuring and organizational realignment in July and our teams are executing well in this new structure, we have reduced the layers of management in the organization and are driving efficient decision, making at the functional level.
We are seeing these efforts played through in our results as we recorded our lowest level of operating expenses and cash burn since IPO with declines of 30% and 23% respectively on a year over year basis.
We expect further moderation in cash burn during the fourth quarter.
At this point, we see our operating expenses at a more sustainable level and we will look to selectively open head count in certain areas, while keeping very type parameters are non head count expenses.
We know that we need to maintain discipline in our operating expenses, while we will ultimately need to invest in the business long term.
As a result, this will require intense focus on our gross margin improvement work streams that Takeda will discuss in his remarks.
While it is early in the process and we will take time to see results I am pleased that we saw an approximate $1 $3 million improvement on a sequential basis. Despite the expected heavy seasonality in revenue.
In addition to internal restructuring to strengthen our financial position, we are making good progress in the transition of our left heart access portfolio to Medtronic.
In early November we achieved the first major milestone post transaction closing, which came several months ahead of our previously communicated expectations.
<unk> is now approved as an original equipment manufacturer or OEM for Medtronic.
Achieving this milestone also triggers a $20 million earn out payment that we expect to receive by year end.
<unk> will continue selling the left heart access portfolio until commercial distribution is fully transitioned to medtronic.
Accomplishing this earn out required tremendous cross functional engagement from our operations quality clinical regulatory and R&D teams. In addition to strong partnership with Medtronic.
As a reminder, in addition to OEM qualification, we are eligible to receive a milestone payment of up to $17 million. Once we file for EU MTR as well as four years of revenue based earn out payments we.
We expect to achieve the milestone for <unk> during the first half of 2023, which is consistent with timelines we shared on our prior earnings call.
Beyond the financial impact of these initiatives, we are reestablishing the company's culture and building a patient and physician centric organization importantly, we're retaining our key talent with meaningful declines in voluntary attrition and September and October recording the lowest levels of attrition in years I.
I am very confident in our team and believe we have the right people in the right roles to execute our strategy.
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 app and address some of the key adoption barriers and establish a strong operating foundation.
Parsing through some of the external challenges, including FX headwinds supply chain disruption and a challenging capital equipment market. Our business fundamentals are strong setting us up well for the long term.
Beyond 2022, we expect our business to see progressive improvements 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.
Ill be happy to cover any of these topics in more detail during our Q&A session and I will now turn the call over to Takeda.
Thank you David and good afternoon, everyone.
Im incredibly excited for this opportunity of dedicated and I look forward to bringing my nearly 20 years of corporate finance experience to support our goals and drive operational excellence at the company.
During my remarks today, I will review, our third quarter results as well as our outlook for the rest of the year.
For the third quarter net revenue of $3 6 million compared to $4 6 million in a year ago third quarter.
Consistent with our expectations the sales decline versus the prior year was entirely driven by a $1 $1 million decline in capital equipment sales.
Underlying performance in the business remains strong in the quarter with 17% year over year growth in procedure volume and higher procedure penetration as revenue per case increased double digits globally on an FX neutral basis.
Sales in the U S of $1 9 million declined 12% year over year, driven by lower capital equipment sales.
U S disposable revenue was flat compared to the prior year third quarter and was impacted by lower stocking revenue from new installed and supply chain disruptions.
We estimate that the supply chain disruptions reduced U S sales by approximately $100000 in the last couple of weeks of the third quarter and the supply chain disruptions, so far persisting through the fourth quarter as well.
Up until now we have been able to manage industry wide supply challenges through long dated purchase orders.
However demand for one of our key accessory product has exceeded our expectations, which we used some of our component of our excess inventory.
We are working diligently to remedy this matter and appreciate our suppliers intense effort to resolve shortages.
U S procedure volume showed continued improvement with fourth with a fourth consecutive quarter of sequential increase.
We are pleased to see improved performance or procedure volume <unk> adoption and revenue per procedure, despite a lower installed base and a tightening of commercial resources.
We are focused on the continued execution of our commercial strategy and remain confident that we are taking the right steps to grow our U S business long term.
Okay.
Sales outside the United States, which include revenue through our distribution partner Biogen Idec for $1 7 million.
And decreased compared to $2 4 million in the year prior.
The year over year decrease outside the United States was driven by a decrease in capital build where we sold or converted eight hospitals in the prior year.
While revenue was impacted by seasonality as expected. We are very pleased with the growth in procedure volumes outside of the United States up strong double digits as we drive adoption in our direct businesses and expansion with Biogen idec.
Byproduct segment disposable product revenue of $2 $9 million increased about 1% year over year.
Procedure volumes of 441 increased 17% in the third quarter of 2022.
Reflecting continued growth in <unk> adoption.
The primary factor contributing to the difference between procedure volume and disposable revenue growth was lower stocking orders associated with new installed compared to the prior year third quarter.
We ended the third quarter of 2022 with an installed base of 74 systems globally down sequentially from 75 last quarter and up from 71 in the year ago third quarter.
Continuing our strategy of moving <unk> into higher value accounts and.
In the third quarter of 2022, we removed six systems from accounts in the U S. A repositioning one of those into a new account during the quarter.
Outside of the United States, We added two new consoles and are Europe , and UK direct businesses and two with bio trial.
In the third quarter capital revenue was <unk> 5 million decrease from $1 5 million in the year ago third quarter.
Driven by the prior year bolus of capital sales previously discussed.
Service and other revenue of <unk> 3 million was up slightly from <unk> 2 million in.
In Q3 2021.
non-GAAP gross margin was negative 109% compared with negative 77% in the third quarter of 2021 and negative 129% in the prior quarter.
The factors negatively impacting our Q3 gross margin were similar to what we have discussed in prior periods, including Unabsorbed overhead and carryforward manufacturing variances offsetting underlying direct product profitability.
Improving operational performance is a critical part of our strategic roadmap and the foundation of improved operating results as our gross margins.
Critical work streams to drive gross margin improvement include one.
Reducing our operating overhead burden.
Which we have initiated through our cost improvement programs and we expect to have an approximate 20 point positive impact on our gross margin starting 2023.
To streamlining our manufacturing process, including automation and improving yields and.
And three product design to include cost reduction is a critical input.
non-GAAP operating expenses were approximately $16 $2 million in the third quarter of 2022 down.
Down 30% from the same period last year and is the lowest level of quarterly non-GAAP operating expenses since IPO.
On a sequential basis non-GAAP operating expenses were down 23% as we realize the benefits of our restructuring program.
We have made significant progress in reducing our operating expenses by improving our discipline around cost management and we expect our non-GAAP operating expenses to continue to decline year over year through the rest of 2022.
As a reference point our September non-GAAP operating expenses were annualizing at $55 million down 37% from 2021.
Excluding specified items, our non-GAAP net loss for the second quarter of 2022 with $20 million or <unk> 70 per share.
Third to our non-GAAP net loss of $26 7 million for the third quarter of 2021 or <unk> 87 per share.
Our total cash and cash equivalents balance, including restricted cash at the end of Q3 2022 was $75 million.
Our cash burn in the third quarter was $22 7 million.
Down 23% versus the prior year and down 13% on a sequential basis.
We are pleased with the improvements we have made in reducing our quarterly cash burn and will continue to drive an intense focus on extending our cash runway, while making the necessary investments to grow the business.
Closing with our outlook for the rest of the year.
We are seeing good progress in our strategy to drive procedure volume utilization and case revenue share growth.
At the same time, we have experienced headwinds related to foreign exchange supply chain disruption and lower capital equipment sales.
There are also some unknown variables on the timing of the commercial transition of our lepton access portfolio.
Relative to our prior expectation FX and supply chain headwinds have intensified while the underlying trends in our business are largely tracking in line with expectations.
Taking these factors into consideration with our year to date performance as well as timing of the commercial transfer of our less part access portfolio to Medtronic.
We expect full year 2022 revenue to be in the range of 15, 5% to $60 million.
This includes about $2 5 million decline versus 2021 and capital equipment revenue.
FX headwinds of just over $500000 on a year over year basis, which was slightly worse than where rates.
At our last earnings calls and.
And over $300000 from incremental supply chain headwinds that began late in Q3 and are continuing into Q4.
Overall, the core fundamental in our business are very consistent with what we have communicated in August setting us up for a stabilization in the business exiting this year and improved performance in 2023 and thereafter.
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 you will need to press star one on your telephone please standby, while we compile the Q&A roster.
One moment for your first question.
Comes from Murray T bolt with BP. Please proceed.
Hi, good evening, David and to Kayo, and thanks for taking the questions. My first here I want to hear a little bit more about that supply chain constraint I think it's a good problem to have when you have so much demand for one of your products. So maybe you could tell us a little bit more on details.
Where you are in terms of resolving some of that.
Sure Mary Thanks for the question and good evening.
The product that is impacted by the supply chain disruption as our Accu guide Max introduce your sees this as a product that is used not only in <unk> procedures, but also in other EP procedures as many of our customers have found this durability and usability of the device significantly improved versus other products on the market.
Through the first nine months of the year really actually through August we were averaging about two accu guide Max products per every mapping procedures. So actually 50% of our sales are coming outside of vacuum map procedures that ratio plummeted to one to one in September because we had to restrict.
Access to customers, who werent using it for acute is mapping procedures and the decision. We've made is to focus on supporting mapping procedures and have put customers on back order out we're not mapping.
Customers. So through the first nine months of the year, we had generated about $1 $1 million in revenue in this product, but we do think that we'll probably see something in the range of.
$100000 that impacted us in Q3, keeping in mind that a lot of our orders come towards the end of a quarter and probably something in the $300000 plus range here in Q4.
We do have a committed delivery date from the supplier that committed to the delivery date. However has shifted around a little bit. So we are working very aggressively to resolve this in our supplier is also working as a fantastic partner to help us get through this but it will probably be something that.
We can't resolve until early 2000.
'twenty three.
Well understood. Thank you for all the detail there David.
Then maybe my follow up here on sort of the stickiness of systems that you do you have an installed base now it sounds like.
You continue to shift from systems do you think you are nearing the end of that process and in general among your users.
Is there one factor that's sort of driving the utilization increases congrats on that metric as well and thanks for taking the questions.
Sure so on the.
<unk> console relocation effort I would say the bulk of it is.
Is behind US I think we will probably continue to move consoles around both in the fourth quarter and in the future, but not nearly at the rate that we have.
We have to date I mean, some of the things that I would say affected.
The removal of strategy was really.
Our targeting upfront and we've talked about this I think a little bit on prior calls, but it really as we start to dig into the effort to identify which conflicts, we're gaining utilization which were likely to gain utilization.
Really segmenting and targeting the right physician at the right account.
It has been really critical to us.
Driving utilization and some of it is a little bit hard to say is that all academic centers are all community centers. It really is a doctor by doctor exercise, but where we found the most success is where we have a lead physician champion who then brings additional users into the fold. So we right now I think we'd probably somewhere close I think two in the U S.
<unk>.
Our 30 30, some odd installed base, probably a third of those are have multiple users now and we're seeing increased adoption from secondary users as well and that is still continues to be more important to us than growing the installed base because effectively in some way is adding a second or third users just the same as.
Adding a second or third console at another site so.
We.
Long way to answer the question, but I think we're coming toward a stabilization in the installed base and as I look at Q2 to Q3, 75% to 74 is effectively stable, but as we look to next year.
We are planting the seeds now to drive growth in our installed base both in our direct business as we as we rebuild our funnel across the U S as well as in the U K and Central Europe , and along with significant expansion plans from from from <unk>. We did ship three conflicts to bio tronic here in the fourth quarter to seed there.
Pension efforts in Japan, I don't know if those will all be installed and utilized here in the fourth quarter.
But they are they are entering a fairly significant geographic expansion phase in 2023 that will.
Likely drive an increase in our installed base next year. In addition to the U S where we do think our ablation catheter launch will be a catalyst to grow the installed base as well.
Very interesting I'll hop back in queue. Thank you.
One moment for our next question please.
And it comes from the line of Bill <unk> with Canaccord. Please proceed.
Hi, Sean on for Bill Tonight, Thanks for taking our question Dave.
David I'm, just wondering how should we think about the rollout of <unk> on approval next year.
What was the overall look like.
Users in the U S.
Thanks, John So.
The rollout will mostly.
First focus on our existing users and the primary.
Reason for that is as you look at the utilization of vacuum at one thing that we've observed is <unk>.
Physicians, who.
Find value in Accu map one of the biggest pushback, we get is around utilization and workflow efficiency, adding an ablation catheter to the workflow will make a significant difference in their overall experience as well as be economically more efficient for the hospitals.
For the hospital system.
We have we don't have any official demands we haven't we don't have approval for the product, but we have a fair amount of incoming interest from all of our existing users around <unk> to when we when we gain approval for the product and.
And are able to begin the contracting process, we will initially focus.
On those accounts, where we have mapping systems installed in where we have acted.
Users so we can see.
Significant uptake and increase in revenue per case at those sites. It will take some time to get on contract and go through those sort of normal administrative processes, which we can't begin until we gain approval. So we would expect the <unk> impact to kind of ramp throughout the year with a more significant contribution.
Obviously in Q4 than at the time of launch.
Great. Thanks, and then.
Just for a follow up just related to that where are you in the process of expanding that Cam I know on the last call you kind of talk about where today you really.
Mostly in the two plus AF review cases, where does that stand today and how do you think that progresses next year upon launch in <unk>.
For taking my questions again.
Yes so.
Great Great question so.
Right now of our total procedures in the third quarter about 80% of the procedures in Europe , or some sort of redo procedures, whether that was for atrial tachycardia or whatever.
In the U S. It was a little over 50%.
We're redo cases, so you can see the trend in Europe that is where our physician partners are finding the most value.
In the system ultimately.
We need to expand our addressable market from redo cases, and very challenging cases to move into de Novo persistent cases and that is that is the entire logic underpinning our roadmap right now which is launching <unk> $8 five in <unk> nine we will continue to make the procedure experience better for the physician allow.
For greater procedural efficiency.
Introducing accu Blake will take away a major adoption barrier, where physicians can really use vacuum app on a standalone basis and that is <unk>.
Very important and.
Tack onto your prior question about prioritizing existing users. We will also use vacuum blade as a vehicle to expand.
Our installed base because it allows us to pick off one of the key pieces are pushed back to using.
Curious right now, which is not being able to do it on a stand alone.
Basis, then as we move into 2000.
24, with our Magnetics program that will really.
Further open up the market and make using accu, Matt even easier and allow us to get after the total addressable market that I would describe as persistent for your de Novo persistent AF first time reduce atrial tachycardia and atrial flutter.
<unk>.
Second and beyond reduce we're not in that market, probably totals up to something in like the two 5% to $3 billion range of addressable opportunity that we think will have access to it in the next call. It 16 to 18 months.
Great. Thanks.
Thank you and one moment for our next question.
And it comes from the line of Margaret Kaczor with William Blair. Please go ahead.
Hey, good afternoon, everyone and thanks for taking the question.
I was hoping to start with 2023 and just some of the commentary around the installed base increase.
Is there a number that I guess, you guys would feel comfortable with versus not comfortable with given the team in place today and maybe some aspects of the macro environment.
Can you add 10 systems can add 15 systems or is that just not the way you guys are thinking about it.
Yes, it's a great question Margaret and we have been as you kind of go through our 2023 planning we're asking ourselves.
A similar a similar set of questions about growing the installed base.
And Youre right that there obviously, there are some lingering and potential macro considerations that we have to.
Included in our thought process. So let me.
I can't I'm, not ready to give a number on kind of installed base growth for next year I will say that.
We are building a funnel today that we already have visibility into certain of those prospects.
Converting to new installs in early 2023 related to their own hospital budget cycles, and even even if they are placing the system under evaluation. Many hospitals allocate budget for new product evaluation disposal purchasing so we are starting to build a funnel of call. It a handful of sites here in the U S that we already have good.
Good line of sight to for early 2023, and then there is the expansion initiated in our ex U S business, particularly through <unk>.
The debate that we have to go through on this though is if we could add a second third or fourth user at an existing account and drive incremental same store procedure volume growth that is much more economically attractive to us as a company and allows us to achieve.
Good chunk of our overall financial objectives. So I think 2023 will be a balance of increasing the installed base.
And increasing the number of users within existing accounts, which is something we haven't really talked about before we've really talked before about increased usage usage with current users in existing accounts, but if you add that additional layer to it youre going to have to balance those two and I kind of view, adding users as very similar to adding consoles and that that should be paired with higher revenue per case.
And overall higher revenue.
Okay that that brings me to my second question was changed.
Systems, I guess I have two or three core positions, maybe easing the one system should we think about it as a linear change.
With relatively minimal additional costs that you guys have to put in.
And then if we look at that one third of installed base. It does have more than one user Ken what was that I guess, thank you heard Kevin what could it be in a year.
Yes, so the incremental cost of adding that new user is very low.
And the reason the reason for that is.
Much of many of the houses we serve I have multiple EPS as it is they all also many of them have teaching our fellowship programs or our observational programs. So I'll give you. An example that just occurred yesterday, where we have been working with a user in San Antonio for the past year, or so who has been gradually gradually increase.
<unk> is utilization of accu map in a specific subset of his patients. There was one of his pay is his physician colleagues observing a case yesterday in this particular category and was so impressed with the use of vacuum app in the case that he added a new case is a first time user today and that is the experience that we're seeing.
Sort of the.
Grass roots type adoption when you get a physician on board with using accu map for a specific subset of his or her cases, it ends up that becoming sort of a mushrooming effect to others in.
In the practice so the incremental cost of that for US is is is it's fairly limited. There. Obviously is some training and marketing expense associated with what's driving those cases, but otherwise thats, a very efficient way for us to grow the business in terms of how many sites have multiple users a year ago I'm not sure of the AD.
Or that except that it was.
It was certainly lower.
Because some of those sites that identified as having multiple users have really been very very recent phenomenon.
And the go forward rate.
I'm sorry.
Okay.
Where would you like to see that percentage of its a third today.
Yes.
Yes, all year from now or are you.
The sales rep.
It's hard to put an exact number on it and we're not specifically incentivizing reps to go after that our therapy managers or our mappers are evaluated on procedure volumes that is that is a primary input into their into their quarterly.
Incentive and compensation structure.
I don't know if I could put a target metric on it today, except that.
What we're ultimately solving for is going to be growth in procedure volumes.
Globally.
And within each region.
Next year and then how we get there we're going to have to.
<unk> bear down on whether that's going to be users per account or new consoles and that will probably differ by geographic region.
Great. Thank you very much.
Thank you one moment for our next question. Please.
Comes from the line of Robbie Marcus with Jpmorgan. Please proceed.
Hi, Thanks for taking the question. This is Roy in for Rob Lee.
Had a quick one on operating spend you talked about how opex is that a more sustainable level. Now is this across both SG&A and R&D and how are you thinking about this trending into next year.
Especially given you mentioned you were looking to add some additional head count.
And then I had one clarification follow up.
Sure. Thanks for the question Ron So on the operating expense side.
I kind of look at it in totality, because we one of the things that we've become much more agile at over the past several months is reallocating resources across different parts of the company. So when I talked about adding head count that was at the end of an exhaustive process. We went through as a senior leadership team to look at all the all the head count.
Requests across the organization and then prioritize what we thought we could fund.
Within the existing confines of our budget.
No.
From your.
You are probably.
The additional head count will be sort of incremental in either area, but there are other savings that we expect to incur that will effectively make a lot of this head count self.
Self funding so as we look at the $15 2 million of operating expense that we registered in Q3 of this year, we've talked about September annualized at $55 million, so call that $13 $8 million on a quarterly basis I think there is sort of.
Mid mid teens type number.
Is reasonable kind of call it $15 million to $17 million in Q4 and then.
Something similar to that throughout 2023.
Great that's super helpful.
Just had one more clarification.
Quite a clarification on the headwind from supply chain or supply chain headwind next quarter.
Was it a $100000 impact in third quarter, and then an additional 300 in fourth quarter or 300 for the whole year.
It'll be in a range yet.
It will be in a range for the full year, we said over 300000 of the full year.
The $300000 to 100000.
And then 100000 in Q3, and then over 300000 for the full year I can't really put a ceiling on it though I would say.
The number could be closer to actually 400000 for the full year. So 100000 in Q3 and 300000.
Got it.
Yes.
Go ahead, sorry, sorry was that expected to continue into next year.
In the first quarter of next year or throughout the balance of the year.
Expense.
That is a very tough question for us to answer right now.
The supply component in question, we are expected to get delivery of that by the end of this year.
Yeah.
Yes.
However, as you've heard probably from others supply chain commitments on deliveries have not all been met as expected. So if everything unfolds as we see it today, then we would be able to get the supply chain dynamics resolved exiting this year and you might see some lingering impact in January just depending on how long it takes us.
The manufacturer product go through sterilization, and then ship out.
To fill existing orders, but based on what we know today, we would expect it to resolve.
Heading into next year, but I would also just cautious that by saying that supply chain environment has been relatively.
Relatively unpredictable so.
We're watching it closely and but thats, but thats the latest information that we have.
Perfect. Thanks, so much.
Thank you one moment for our next question.
And it comes from the line of Phil Coover with Goldman Sachs. Please proceed.
Thanks. Good afternoon. Thanks for taking my questions I think just one compound question from us.
The sequential step up in <unk>, that's implied in the updated guidance today.
Just hoping you can kind of give us the components of what you see there I heard an element of under stocking or a lack of stocking that occurred in <unk> on the utilization side and then didn't hear a specific comment about the capital environment, which you guys called out last quarter and so just wondering if you can comment on the funnel and <unk>.
Sort of qualitatively, what's going on from a capital standpoint. Please thanks.
Thanks, Phil So a couple of things on the sequential step up so firstly.
There probably was around two to $300000 of revenue that we shipped very late in the quarter that did not get delivered until the fourth quarter and the way. We recognize revenue we don't recognize revenue until products are delivered to a customer.
That was I would say timing of orders.
And given the size of our revenue base that has a significant impact on a quarter over quarter basis. So that revenue we have.
Recognize here in Q4, we also have.
We also have executed.
Three.
New installs here in the U S with associated stocking orders.
<unk>.
Not in all three of those we would pretty high volume users and we would expect to see reorders.
Exiting.
The year, we are counting on some capital here in Q4, one of which we are.
A small number of capital conversions here in the U S. One of which we executed one of which we got approval on today.
Then.
We are also.
Expecting.
Incremental orders out of our business in Europe on a quarter over quarter basis as some of the typical Q3 seasonality.
Worked through the system here.
So does that does that help on the Opex for Q3 <unk> ramp.
Yeah, that's great. Thanks, Thanks for taking the question and then on the capital the capital the capital environment.
It is still very challenging.
I would say it is no more challenging than we had articulated on our last call but.
The time and administrative burden and back and forth around capital contracts is very very lengthy right now and that could be a reflection of the fact that we are in early stage and we are in early stage companies selling a product for a very specific category, but.
At least if I compare the capital environment that we face today versus a year ago. It is it is definitely more challenging.
Okay, Alright thats helpful. Thanks.
Thank you and as a reminder to ask a question simply press Star one one on your telephone.
One moment for our next question.
And it comes from the line of Javier Defonseca with Spartan capital. Please go ahead.
Sure.
Good evening below dividend and <unk>, thanks for taking the call.
A quick question on the.
The gross margins so on top of the unfavorable manufacturing variances mentioned in the press release expectations.
Expectations can you shared for gross margin going into 2023.
So again these variances and continue continued restructuring and streamlining of the business.
Yes.
Thank you Javier I can take this one so.
In regards to the gross margin initiatives, we're really focused on three critical work streams.
As discussed reducing our overhead improving our yields and our.
Streamlining our manufacturing processes and also design for manufacture ability. So in 2022. This year, we have reduced our manufacturing overhead by over 35%.
We expect to roll into our standards next year.
We're incurring a significant amount of less amount of manufacturing and unfavorable manufacturing variances this year than what we carried into this year as well.
And also we're really making strong progress in improving our yields and reducing our manufacturing processes and so with those going into 2020 'twenty three we previously stated around a $3 million.
Steady revenue on a monthly basis to get to positive gross margin with the improvements that we've been making we're projecting a steady $2 million of revenue on a month to get to a positive gross margin.
Thanks for that great insight, thanks for taking my call.
My questions.
Thanks, Jeremy.
Ladies and gentlemen, we conclude our Q&A and program for today. Thank you for your participation and you may now disconnect. Good day.
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