Q4 2022 Acutus Medical Inc Earnings Call
Speaker 2: Thank you for standing by and welcome to Acutus Medical's fourth quarter and full year 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone.
Speaker 2: I would now like to hand the call over to Caroline Corner, Investor Relations. Please go ahead.
Speaker 3: Thank you, operator. Welcome to Acutus's fourth quarter of 2022 earnings call. Joining me on today's call is David Roman, Chief Executive Officer, and Takio Makai, Chief Financial Officer. This call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker 3: All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. Factors that may cause results to differ from these forward-looking statements are discussed under the Forward-Looking Statement section and the press release attached as an exhibit to ACUTIS' Form 8K filed with the SEC today and are also discussed in more detail under the Risk Factor section. Thank you for your attention.
Speaker 3: in ACUTIS's most recent filings with the SEC, including the risk factors described in ACUTIS's 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. ACUTIS undertakes no obligation to update these statements except as required by applicable law. ACUTIS is press release of fourth quarter 2022 results is available on the ACUTIS website.
Speaker 3: Now, I'd like to turn the call over to David.
Speaker 4: Thank you, Caroline, and good afternoon, everyone. Before jumping into today's call, I wanted to share an exciting milestone in Acuteus' mission to transform patient care.
Speaker 4: Just last month we crossed our 6,000th patient treated with Accumap globally.
Speaker 4: We continue to positively impact the lives of patients in ways that no other EP company can, and there's no greater reward for us as a company than seeing our technology come to life.
Speaker 4: With our focus on treating complex cases, we are seeing Acumab change the course of disease management for a growing number of patients for whom the societal, personal, and care burdens are all significant.
Speaker 4: I am humbled and proud to hear when Accumap guided therapy improves patient quality of life and materially reduces the need for another redo procedure.
Speaker 4: I'd like to take a moment to recognize the extraordinary commitment of my ACUTIS colleagues as well as the support and engagement from our position partners for putting our mission into action each and every day.
Speaker 4: This is also the spirit that will carry us into 2023 and beyond as we return our business to growth through accelerated innovation and ongoing execution.
Speaker 4: Turning to our recent performance and business updates.
Speaker 4: We are making good progress on our two key strategic imperatives that we presented on a November call, driving utilization and operational excellence.
Speaker 4: Starting with our first priority to drive utilization and adoption for Accumap.
Speaker 4: We continue to execute our commercial strategy with intensified focus on procedure volume growth and utilization, over expanding the install base.
Speaker 4: While our install base ended the year down versus 2021, we drove growth in all utilization-related metrics.
Speaker 4: For the full year 2022, commercial Accumap procedure volumes increased 19%, console utilization increased 13%, and revenue for procedure grew 11% constant currency.
Speaker 4: Overall, these performance metrics reflect strength in our core business and give us confidence in our ability to deliver growth in 2023 and beyond.
Speaker 4: Further to achieving our growth objective is our product pipeline that is geared to both strengthening our position and expanding our addressable opportunity.
Speaker 4: As we have discussed previously, Acumaf is most regularly used today in redo procedures.
Speaker 4: Specifically, about 55% of U.S. and 80% of OUS procedures come from redo cases. Acumap has clear differentiation in these procedures, and our clinical results and sustained utilization in these segments underscore the value proposition we offer. At the same time, these procedure categories represent only a portion of the total complex population segment.
Speaker 4: Today, we estimate that our core addressable market is in the $750 million to $1 billion range, which includes all redo AF procedures, transient atrial tachycardia, and atypical flutter. By our estimates, this leaves about $2 to $2.5 billion of opportunity for Acumap to teach us.
Speaker 4: that we expect to approach incrementally in 2023, expand to cover an additional $1.5 billion in 2024, with the balance coming into view in 2025 and 2026.
Speaker 4: In aggregate, this brings the addressable market for Accumap to approximately 475,000 procedures and $3 billion in disposable revenue based on trailing market estimates.
Speaker 4: Assuming sustained market growth of 10%, our opportunity will likely exceed $4 billion by 2026.
Speaker 4: The key innovations required to enter new categories largely center around software, including algorithm development, and disposables.
Speaker 4: Earlier this year, our leadership team undertook a strategic assessment of our R&D roadmap and decided to redirect resources to prioritize software and catheter development.
Speaker 4: These are two areas where we are growing headcount and expect a steady cadence to product launches over the next several years.
Speaker 4: In 2023 and 2024, we expect to have two significant launches in each year for both software and dis Hakon
Speaker 4: The sequence of launches starts with our Accumap 9 software platform, which is designed to make significant improvements to catheter localization, procedural efficiency, and workflow flexibility.
Speaker 4: Accubat 9 will be followed by US introduction of our Accubate Force Sensing Ablation Catheter and System.
Speaker 4: Data we presented at the 2023 AF Symposium as part of the late-breaking clinical trial session demonstrated strong efficacy with 94% success in the primary efficacy endpoint with an excellent safety profile of zero adverse events.
Speaker 4: Introducing Accumap 9 and AccuBlade are among the primary drivers for our expectation of improved revenue performance. Moving to 2024, our advanced roadmap pulls forward our next major software platform, Accumap 10, by about one year.
Speaker 4: Acumap 10 will position us to be a standalone system across a broader spectrum of target procedures.
Speaker 4: Specifically, Accumap 10 will enable physicians to perform contact and non-contact mapping in a single session.
Speaker 4: This is a major step forward in aligning our workflow with standard practice and eliminating one of the key barriers to broader adoption of our differentiated mapping solution. Later in 2024, we expect to launch our next generation AccuBlade 2.0 ablation catheter with bi-directional steering capabilities, improved handling, and improved handling of
Speaker 4: and a lower cost of goods profile.
Speaker 4: In addition to our new product pipeline, critical to the adoption of Accumap will be additional clinical research.
Speaker 4: Over the course of this year, we have plans to release several data presentations and publications that build on the Uncover AF study that showed freedom from AF in persistent patients of 72.5% at one year.
Speaker 4: As a reminder, most landmark study data for the treatment of persistent AF with conventional systems show one year success rates in the 50 to 60 percent range.
Speaker 4: Data we have gathered in additional Accumaf studies show improved outcomes relative to the 72.5% uncover AF benchmark, and we look forward to sharing meaningful clinical research throughout the year.
Speaker 4: Switching gears to our efforts to strengthen our financial performance.
Speaker 4: We continued to make significant progress during Q4 2022 and recorded our lowest level of operating expenses and cash burn since IPO with year-over-year declines of 35% and 41% respectively.
Speaker 4: We expect our cash-burn and operating expenses to continue to decline on a year-over-year basis, at least through the first nine months of 2023.
Speaker 4: This reflects the ongoing benefits of our restructuring program, disciplined operating expense management and gross margin improvement.
Speaker 4: Takiya will discuss these dynamics in more detail later in the call.
Speaker 4: In addition to the internal restructuring to strengthen our financial position, the transition of our Left Heart Access portfolio to Medtronic is progressing well.
Speaker 4: We have achieved all earn-out milestones under the agreement and are now eligible to receive four years of uncapped revenue-based earn-out starting from February of this year.
Speaker 4: As a reminder, the Earnouts are for 100% of net sales in the first year, 75% of sales in the second year, and 50% of sales in the third and fourth years.
Speaker 4: Putting this all together, 2022 is a transition year where we reset our strategic priorities, focus our R&D programs, and establish a strong operating foundation.
Speaker 4: We expect our business to see progressive improvements in 2023 and even stronger performance in 2024.
Speaker 4: 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.
Speaker 4: I would 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 Takiya.
Speaker 4: Thank you, David, and good afternoon, everyone.
Speaker 4: During my remarks today, I will review our fourth quarter and full year 2022 results, as well as provide our outlook for 2023.
Speaker 4: For the fourth quarter, net revenue of $5 million compared to $4.4 million in the year going fourth quarter as we close 2022 with our highest level of quarterly sales on record.
Speaker 4: The 14% year-over-year increase was primarily driven by disposable sales associated with higher Acumet procedure volumes, growth in left-hand access, both organically and through a distribution agreement with Metronic, and modest increases in capital and service other revenue. The 14% year-over-year increase was primarily driven by disposable sales associated with higher Acumet procedure volumes, growth in left-hand access, both organically and through a distribution agreement with Metronic, and modest increases in capital and service other
Speaker 4: For the full year of 2022, net revenue of $16.4 million compared to $17.3 million in the prior year, with declines attributable to a $2.3 million year-by-year reduction in capital equipment sales and $0.4 million in foreign exchange headwinds.
Speaker 4: Balancing these factors with strong execution on our strategy to drive utilization and procedure volume growth, which drove strong underlying growth in disposables, service, and other revenue.
Speaker 4: and down from 77 in the year ago fourth quarter.
Speaker 4: We have mostly finished our strategy of moving consoles into higher value accounts throughout 2022.
Speaker 4: We will continuously evaluate our console utilization to ensure that we are optimizing the install base and we expect to grow our install base globally in 2023.
Speaker 4: Disposables revenue in the fourth quarter of $3.5 million through 8% compared to the year ago fourth quarter, driven by 15% growth in global commercial Acumet procedures and that's our access product.
Speaker 5: for the full year.
Speaker 4: Disposables revenue of $12.9 million advanced 8% year-over-year on a reported basis, and 11% excluding negative impact of foreign exchange, supported by 19% growth in commercial Acumap procedure volumes. The averageScore Horseman of}{ rain per hour, hat a cost Nope
Speaker 4: We saw stabilization of capital revenue in the fourth quarter, with revenue of $0.9 million compared to $0.8 million in the year ago fourth quarter. For the full year, capital revenue of $1.8 million declined 57% from $4.1 million in 2021.
Speaker 4: consistent with our expectations and strategic prioritization of procedure volume and same-store utilization growth.
Service and other revenue of $0.5 million was up slightly from $0.4 million in Q4 2021. Supply chain disruptions that emerged during the third quarter of 2022 continued through the fourth quarter, and we estimate that these disruptions negatively impacted Q4 2022 and full year 2022 sales.
by $200,000 and $300,000 to respect it.
More specifically, we had discussed shortages on our third quarter call related to the AccuGuide MAX 2.0 introducer sheet.
This product is used on all acuteist mapping cases, as well as other electrophysiology procedures involving large force sheets.
To expedite remediation and ensure long-term supply, we have qualified a secondary vendor for key components and now have sufficient inventory of this particular component for at least the next 18 months.
While we resolved AccuGuide max shortages in Q1, we did experience disruption with our sole supplier for components in our flagship AccuMap product.
This resulted in several weeks of lost production that has created a backorder situation.
The Accumap production shortfall will negatively impact Q1 results, but we now have the requisite supply in-house and our teams are working six days a week to bring production and inventory levels in line with current and expected demand.
non-GAAP growth margin of negative 64% in Q4 2022 improved from negative 110% in the third quarter of 2022 and were favorable compared to the negative 119% registered in the fourth quarter of 2021.
The year-over-year and sequential improvement in our non-gaf gross margins was driven by higher volumes, lower manufacturing variances, the positive impact from our restructuring actions taken earlier in the year, and favorable mix, all helping offset increases in raw material costs. We will continue to dedicate significant attention to improving our gross margins.
and expect to show marked improvement for the full year of 2023.
As demonstrated by the fourth quarter, our gross margin will ebb and flow with revenue and overall volume. As said by that point, it is not an immediate deficit. harmony of 0.5% is weighted 8.5% and is not
This will drive a downtick in Q1 2023 sequentially with improvement through the rest of the year, with a path to positive growth margin in the first quarter of 2024.
In addition to volumes driving a positive year-over-year trajectory and gross margin, several workstreams are underway to drive efficiency in our overhead pool, reduce product costs through improved yield, and bringing select processes in-house.
non-GAAP operating expenses were approximately $13.9 million in the fourth quarter of 2022.
down 35% 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 8% as we realized the benefits of our continued discipline around expense management.
As a reference point, the annualized fourth quarter non-GAAP operating expenses of $55.8 million is down 36% compared to 2021.
Excluding specified items, are non-GAF net loss for the fourth quarter of 2022 with $17.9 million, or 63 cents per share, compared to a non-GAF net loss of $28 million for the fourth quarter of 2021, or $1 per share.
Our total cash and cash equivalence balance, including restricted cash at the end of 2022, was $76.2 million.
Our cash burn, excluding milestone payments and the employee retention credit, was $15.6 million in the fourth quarter, down 41% versus the prior year and down 29% on a sequential basis. We are pleased with the improvements we have made in reducing our quarterly cash burn and will continue to drive intense focus on optimizing our financial position.
Closing with our outlook for 2023.
we expect to see continued execution of our strategy to drive procedure volume, utilization, and case revenue share growth.
At the same time, we continue to navigate intermittent supply chain disruption, seasonality, and variability in hospital capital expenditure spending.
which was strong in Q4 of 2022, were relatively weak the rest of last year.
For the full year 2023, we expect revenue to be in the range of $18 to $21 million, reflecting the continued shift in our trajectory from stabilization to growth.
Key drivers underpinning our outlook for 2023 include growth in Accumap procedure volumes and associated disposable sales globally.
Selected expansion in our install base within our direct businesses.
further geographic expansion with our partner Biotronic, and a second half 2023 launch of AccuBlade in the U.S. Accordingly, we expect approximately 45% of full year sales to come in the first half of the year, and 55% in the second half, relatively consistent with 2022 phasing and normal industry seasonality.
aforementioned Accumap backorders that will reduce sales by $300,000 to $400,000.
These issues are actively being resolved and we expect to recoup these sales in the balance of the year.
As a result, we expect stronger year-over-year growth in the latter nine months of the year. Overall, we are pleased with our performance exiting 2022.
We are executing our strategic imperatives and staying laser focused on the variables we can control in our business. Strong underlying fundamentals set us up to return the business to growth in 2023 with accelerating performance into the outer years.
We appreciate your continued interest and support, and I will now turn the call back to the operator to facilitate our Q&A session.
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 one on your telephone. Again, that's star one one on your telephone to ask a question.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Marie Tybald of BTIG. Your question please, Marie.
Hi, yes, David and Takeo, thanks so much for taking the questions and congrats on the progress in 2022. In particular, the reduced off-acts and cash burn, really like to see that. Wanted to ask a first question here on your 2023 guidance and see if we could try to understand what's assumed from the Medtronic Left Heart Access portfolio.
everyone's on the same page. We sell to them very similar to the way we do it with Biotronic. Metronic owns their Left Heart Access portfolio. We continue to manufacture. We sell to them under distribution agreement and then they sell it to their end users.
In that agreement, as you might imagine, the transfer pricing is considerably lower than where we had been selling the product previously as the primary manufacturer. We can't disclose specifically what sales are expected to be for 2023, but I would say at a high level.
The lower distribution mark price at which we are selling is offset by higher volume. So our expected sales for less hard access products under the distribution agreement is not too different from what we thought it was going to be under Acutus as the primary manufacturer. Okay, that's helpful. Thank you for that. And then maybe...
going to impact Q2 in your mind? And we are almost in Q2, I guess, at this point, and so would love to just sort of get ahead of some of that. Do you think this will all be resolved in Q1? And really from Q2 and Q3, we should be making up some of that difference. Thanks for taking the questions.
Sure. So on the AccuGuide Max, that product is required in every AccuMap procedure because it's a large bore incision. We, in the fourth quarter and the third quarter when we were on backorder and did have shortages, we did have some customers who were willing to go back to the prior version of their product.
But I still think we probably lost procedure volumes in the fourth quarter and likely early in the first quarter due to those shortages. It also put our sales team in a position where couldn't necessarily hit the accelerator on new account openings. And we actually restricted the sale of AccuGuide Max to mapping customers only. And just to put it into perspective, prior to this backorder, we were selling about two days back.
on a little bit to some degree on procedure volumes last year and early this year, mostly associated with their ability to open and support new accounts. We do not expect there to be a direct impact from AccuGuide Max in the second quarter or through the balance of the year based on where we sit today.
The only carryover effect that there may be is earlier this year as I mentioned we were restricting the distribution of that product to certain customers. So we might have lost some early in the year momentum around this product but I don't think that will be sold significantly through the rest of the year.
With respect to Accumap, that will have an impact here in the first quarter. Tachio referenced the $300,000 to $400,000 impact in Q1. The encouraging thing to us is that we now have the requisite raw materials in-house to start manufacturing the Accumaps.
We have our manufacturing teams are actually working six days a week to catch up on necessary supply. The issue is that by the time they're manufactured and sent through sterilization, we won't be able to distribute them and fill existing open purchase orders by the end of the first quarter. We do expect to fill those open purchase orders.
largely in the second quarter and would expect most of that to be resolved in Q2 and Q3. I would say again similar to AccuGuide Max, the derivative impact here would be as we open new accounts
We have been doing that with smaller than typical stocking orders to ensure that we are keeping necessary inventory on hand to serve our customers who are on quarterly commitment contracts as well as biotronics demand.
Got it. And if I could ask a follow up there, thanks for clarifying the map and the MACs for me. Just sort of the long and short of some of these supply issues. Have you detected any reputation damage? Have you found that users are hesitant to come back in any way? Just trying to understand whether there could be lingering, I guess, effects on a key supply
a sense that this was going to be an issue. We were very quick in communicating with our customers. We did actively approach accounts who had what we deemed to be excess inventory on the shelves and actually were buying back inventory from some of our accounts who had inventory levels that were above their normal utilization rates and looking to redistribute those into accounts who had short-term requirements. So we were
very proactive and nimble in managing both the inventory that we had in hand as well as working with our customers in a very collaborative way to maximize the inventory they either had on the shelves or do everything in our ability to find inventory for them to be able to perform Accumap procedures.
proactive and nimble in managing both the inventory that we had in hand as well as working with our customers in a very collaborative way to maximize the inventory they either had on the shelves or do everything in our ability to find inventory for them to be able to perform Accumap Accumap procedures. Okay that's helpful thanks so much David I'll jump back in queue.
Thanks, Marie. Thank you. Our next question comes from the line of Margaret Kazur of William Blair. Your question, please, Margaret.
Hey, good afternoon, guys. Thanks for taking the question. I wanted to start with the active light force sensing catheter. Just how should we think about that launch? Is it going to be, I guess, a limited release, not a full release? How quickly is that going to happen? And as best as you can, whether it's looking at it through general commentary, I guess it's going to be limited.
How many of your current accounts or cases do you think are going to want to use that unidirectional device versus wired this way for the bi-direction?
Yeah, it's a great question, Margaret. So the way I would think about our first launch of AccuBlade is it falls very much into the category of significantly improving AccuMats ease of use and physician experience.
We have actually made a ton of progress over the past 12 to 18 months in better integrating AccuMap with other ablation catheters, with a TachCast, SmartTouch, or Medtronic's Diamond Temp products. So the integration is significantly better than what it was.
However, what you'll often hear from a lot of accounts is we are really interested in using Accumap more, but we want to be able to use it on a quote standalone basis, meaning with an integrated ablation catheter, and ablation catheters are very much physician preference products, but the way we will position this product and position the launch
from some potential users around the need to be able to use this on a more integrated basis. Because this is a product that's already on the market in Europe , we do have a good sense of the sort of segmentation utilization. As you know, not 100% of our procedures in Europe are using AMI-
AccuBlade is probably hovering now in the 50 to 60 percent range and has been very stable at that level. It was a little bit higher at launch when we had a smaller installed base in the region, but we do see pretty stable use at that level. In terms of the launch, we would be...
Typically, when we launch new products, we would be in some sort of LMR, a limited market release for an extended period of time. The reality is that because this is not a totally new to market product for us, because if we market it commercially outside the United States, we would probably have a somewhat accelerated LMR process with...
So maybe I'll repeat it back to you just to make sure that we're aligned on it. But it sounds like you're saying three benefits. So one, you can get more system sales or placements and contracts. Two, you get the ASP increase, obviously, from getting more profit share. And then three, you see greater utilization, I guess, for certain cases that you can't really get into today. WhatevIRED- bushes
I would say all three of those things materialize extraordinarily, you know, very well. That would put us at or above the high end of the range that we're communicating here. Given that we are still awaiting approval and need to go through VAC committee, etc., we are taking a measured view on the contribution to AccuBlade in the guidance we're offering here today.
noticeable difference.
Okay. Now, that's helpful. Thanks. And then just kind of a big picture question I get. And you've spent a lot of the front and talking about this, is this change to the other ND road map. So, I want to, I guess, where did you take the spend away from and I assume it's systems that? But then, more importantly, as you think about the software component, where do you see the biggest gap or capability that you guys can, not only do you have a lot of things,
the only company that offers ultrasound-based non-contact mapping. We're also the only company that really can offer the mapping of AFib as well as other complex rhythms outside of the pulmonary veins. What we lack today, however, is the ability to do basic contact mapping within what we describe as the same session.
So basically, we offer contact mapping, but to go from contact mapping to non-contact mapping, you have to shut down one mapping session and open another one. And that can add about 15 minutes to a case, which given the procedure times here, 15 minutes is a pretty significant percentage addition.
When we launch ACIMAB 10 in the first half of next year, that will enable physicians to do non-contact mapping in the same session. And that will allow us to really be rolled in to a lab and have an acute day in the lab. And this is where we see some of our most productive accounts.
utilize us right now, and it's not the overwhelming majority, is one day of the week is an acutest day. Right now, that's a tough ask for us until we can really offer competitive contact mapping. And if we can pair contact mapping and contact mapping into one session, which is the design of AcuMap 10.
That goes a long way to knocking down probably one of the biggest barriers to the use of Accumap because in a lot of cases today physicians will use do a contact map on
Avid or BioSense, and then they will bring in Acutis to do a non-contact map to evaluate regions outside the pulmonary veins. That adds time and cost to the cases, and it's one of the biggest reasons why we see Acutis most regularly used in redo cases.
Being able to move up the curve into de novo persistence is a huge driver of incremental growth that we expect in 2024. And that's largely tied to software and algorithm development that will make the system able to really work on a stand-alone basis, especially when you combine that with an ablation catheter.
Thank you very much. Appreciate it, guys. Thank you. Again, to ask a question, please press star 11 on your telephone. Our next question comes from the line.
of William Plavonic of Canacord. Please go ahead, William. Thanks, can you hear me? Yes, sir, please proceed. Hey, Bill. Oh, great. Hey, good evening. And my name cut out. I didn't hear it.
So, a couple of things. One, yeah, unfortunate on the supply challenges. Sorry to hear about that. What is, you know, is you obviously, I'm sure you've done an extensive review, any other raw material issues that you've identified, other products, what's your ability to prepare for the launch?
We do not see any other risk to raw material supply challenges as it relates to the AccuBlade launch or any of our Arlu products. And as we've recovered on the AccuGuide 2.0 product line and we navigate through the supply challenges, which we have a line of past.
to recovering here in the second quarter here, we don't see any risk related to supply challenges.
Okay, and then how do you plan on accounting for the Medtronic and I know this may be nuanced, but is it the transfer price is up top and then the royalty is down below or does it all hit revenues or.
Is one thing above the line, one below the line? How is that, have you worked through the accounting for that yet? We have. So the sales under the distribution agreement calculated at the transfer price will show up as revenue. The accrual for the earn out associated with.
the revenue-based milestone payments will show will be reported in the other line as gain on asset sale.
The same way that the earnouts under the, excuse me, the milestones for OEM qualification EUMDR filing were reported in 2022.
Okay, so there'll be a below-the-operating-line thing. And then just a clarification question on OpEx. I think the comment was OpEx will be down every quarter year over year through the first half or first nine months. Will it also be down sequentially, or is it kind of flatlining from the fourth quarter?
So I can take that as well. It will be relatively flat. We've reached the exit point as we noted on the fourth quarter exiting at 14 million. So from that point I think that's the only reason why we say the first nine months. We stabilized the objects but we are adding...
As we manage our expenses, we are adding headcount selectively, especially to support some of these software improvements and our engineering efforts. And so we have a modest increase in our operating expenses. And the reason why we have the year-over-year decline for the first nine months is, as you recall, we had the restructuring.
that was announced in the first quarter and most of the reductions in the savings materialized in the second and third quarters. And for that reason I would expect operating expenses to be relatively flat for the remainder of 2023 with a modest uptick from Q4 as we exited 2022. Hopefully that answers your question.
Yeah, and going back to the earlier question on Medtronic, given the fact you're now going to transfer pricing, which is a much lower gross margin. I think your commentary was that the gross margins are definitely, they'll get hit in the front end of the year, but as the Medtronic revenues ramp through the year. Then we kind of get back on pace. Is that a fair way to think about it?
Yeah, so on the gross margins that's correct. And really the biggest driver for our gross margin improvements in 2023 will come from volumes which the production ramp of our left hard access products will contribute to. So as we continue to reduce our overhead costs.
and we are seeing the effects and improvements from that. We do have high fixed costs to operate or manufacture our products. And so volume plays an important part in driving leverage. And that will be a key driver for 2023. And maybe perhaps on two other contributors or drivers for the growth margin improvements.
Well, we continue our cost reduction efforts across every single product line that we sell, which is looking at improving our labor costs for the production, improving efficiencies and the yields. And so that will be another primary factor. And finally, as we continue to increase our revenue contribution from the US, the US has failed African American Final Classic distribution to $50,000.
a phenomenal job of kind of right-sizing the ship and getting it going again and doing that in a very non-dilutive way thus far. And you've got about five quarters of cash. You're burning... Assuming the 15 million burned, these are my numbers, not yours, but with the cash you have in that 15 million burned, that'll be five, six quarters.
How do you think about funding the company as you get forward? Because as you're exiting the year and into next year, even with the positive gross margin, you still need capital to execute. How are you thinking about that? I don't know if you're ready to address that at this point in time, but to me that's the 800.
That's the elephant in the room that we're looking at. Thanks. Thanks for taking my questions. Yeah, it's a great question, Bill, and I may leave you a little unsatisfied in my response at this point in time, but let me give you a few thoughts that will help kind of contextualize how we're approaching this.
Firstly, our number one priority is to make the cash we have last as long as possible while not starving the business. We see ample opportunities if needed to evaluate our spend rates and spend time.
and cash burn and we will make necessary adjustments and if we do need to respond to any unforeseen challenges in market dynamics. Second, we will receive the first earn out from the distribution agreement with Medtronic. Obviously, in the first half of next year, the measurement period is February .
to January , then would expect to receive that royalty payment shortly after that.
that obviously that number is highly variable and depends on obviously the end-user adoption of the Accu-Cross product line and Medtronic's commercialization which is thus far going very well. So we will look at that.
or any opportunity to maximize that earn out to provide us further cushion with respect to
cash balance. Third is, as you know, we have a very, very, very strong partnership with Medtronic and
biotronic and as those companies continue to drive growth with our portfolio in key markets that represent a source of both revenue and cash flow upside for us that may extend the cash beyond what you are modeling. And then we will look to selectively...
consider different capital vehicles as we go through this year. Right now our top top priority is on driving the business.
And as we think about what the company will look like in early 2024, when we start to get closer to a point in time when a capital raise may be required, what we believe will have a very different profile than what you see today, a level of revenue scale and positive gross margin.
that becomes a much more attractive asset than what the company may look like on a trailing basis and will put us in as strong a position as possible to ensure we have the capital needed to run the business long term.
Great, thanks for taking my questions. Thank you. That does conclude Acuteus Fourth Quarter in full year earnings conference call. Thank you for participating. You may now disconnect. Acuteus Connect.
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