Q2 2023 Surmodics Inc. Earnings Call
Welcome everyone and systematic second quarter of fiscal year 2023 earnings call. Please note that this call is being webcast. The webcast is accessible through the Investor Relations section of the somatic <unk> website at Www Dot Cirrhotic, Satcom, where an audio replay will be archived for future reference and earn.
<unk> press release disclosing <unk> quarterly results was issued earlier today and is available on the company's website as well before.
Before we begin I would like to remind everyone that remarks and responses to your questions on today's call may contain forward looking statements. These forward looking statements are covered under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and include statements regarding somatic <unk> future financial and operating herself.
Or other statements that are not historical facts. Please be advised that actual results could differ materially from those stated or implied that's maddox for wood looking statements.
Nothing from certain risks and uncertainties, including those described in the company's SEC filings somatic disclaims any duty to update or revise these forward looking statements as a result of new information future events developments or otherwise. This call will also include reference to non-GAAP measures because somatic believes.
They provide useful information for investors today's earnings release contains a reconciliation table to GAAP results I know like I would now like to turn the call over to Mr. Gary Maharaj, Thermotics, President and Chief Executive Officer. Please go ahead Sir.
Thank you operator.
Everyone to our earnings call for the second quarter of fiscal year 'twenty to 'twenty three.
It's up my remarks today with a brief overview of our second quarter revenue performance.
We generated total revenue of $27 $2 million in the second quarter of fiscal 2023, representing growth of 4% year over year.
Our total revenue growth was driven by our revenue in medical devices, which increased 7% year over year.
Offsetting a 2% decrease in in vitro diagnostics or IBD revenue.
Looking at these two areas of our business is more closely.
Medical device segment, our performance was almost exclusively driven by product sales, which increased 23% year over year with significant contributions from sales of pounds and supplying products as well as from a performance coating reagents, specifically sales at the pound since the blame products.
<unk> contributed more than half of the medical device revenue product sales growth we saw in this quarter.
And I know I V. D segment, we're pleased with our year over year sales performance in the second quarter given the prior year comparison as a reminder, we generated record quarterly revenue in the second quarter of fiscal 2022.
In short we reported solid revenue performance across the key areas of our business in the second quarter.
Tim will walk through our second quarter financial performance and updated fiscal 2023 guidance in further detail, but let me now shift to an update of our recent operational performance beginning with an update on each of our three strategic objectives for fiscal 2023.
As a reminder, our strategic objectives for fiscal 'twenty to 'twenty three that we outlined at the beginning of this fiscal year.
As follows first to achieve FDA pre market approval or PMA fall of surveil drug coated balloon and then support abbott's commercialization efforts.
To advance the initial commercialization of false sublime radial in pounds arterial thrombectomy platforms.
And third to drive revenue and cash flow growth from our medical device coatings offerings in IBD businesses.
Yeah.
With these three objectives in mind I'll now discuss our project progress with respect to each week.
We began the second quarter of having to navigate unexpected challenges along our path to securing the PMA followed surveil drug coated balloon.
<unk> made important progress that exceeded expectations, we shared on our.
Our earnings call in early February as a reminder, on January 19th we announced that we received a letter from the FDA, which indicated that our PMA application was not approvable in its current form and provided guidance on information that must be added to amend our PMA application.
Information the FDA requested was within two general categories labeling, including language revisions related to some of the devices patient labeling and instructions for use and biocompatibility, including additional questions and data requests related to our non clinical testing.
While this was an unfortunate and disappointing development. We were pleased to see that a letter did not class you know engineering large animal studies and most importantly, the human clinical data that we submitted including the safety and efficacy data from all 446 patient transplanted that clinical trial.
During February and March our regulatory and clinical teams focused on engaging with the FDA to informal it says the regulatory strategy and we're able to make meaningful progress during this quarter.
Our team's primary goal over this period was to obtain additional clarity on the pathway and specific requirements to address the agency's questions and data requests in order to position us to prepare and submit an amended PMA application and an approval before.
Working closely with our external regulatory advisors, our team engaged in informal discussions with FDA representatives that prepare the submission issues request intended to obtain formal feedback on our proposed approach for addressing the items in the F. D. A letter from the FDA has reviewed T. This was done by the agencies.
Q submission process.
As we shared on our last earnings call, we anticipated receiving the FTE as formal feedback on our proposed approach.
Via this process in me be some normal timelines with this as the backdrop O T was ultimately able to prepare and submit our submission issue request ahead of our expectations.
Obtained Sds formal written feedback and response and then complete the submission issue meeting with the agency to discuss the details of both the request and S. T as written feedback.
All occurring before the end of our second fiscal quarter.
In addition to this impressive level of interaction and we're pleased with both the level and content of the feedback obtained from agency and respond. So submission issue request with this additional feedback we have now have the additional clarity of the process and content required to successfully amend our PMA application.
Moreover, in the F. D is written and verbal feedback on all of a submission or a shoe request. We're pleased to see that the additional clarification requested by the FDA to amend our PMA application was focused on existing biocompatibility studies that we have previously completed as well as revisions to our proposed.
Labeling.
Based on this feedback we do not currently anticipate the need for additional biocompatibility studies.
With this additional clarity O team has been focused on preparing our amended PMA application, which we expect to submit during our fiscal third quarter.
Looking ahead, the SBA guides to 180 D period to review and render a decision on an amended PMA, while the process and timing of the Fda's review is ultimately under their prove you. We are currently anticipating receipt of pre mall premarket approval in the fourth quarter of fiscal 'twenty three.
And we will look forward to providing future updates on our progress.
Turning to our second strategic objective advancing the initial commercialization of our pounds radial pallets arterial thrombectomy platforms.
From a market education standpoint during the second quarter. Our team continued to leverage two dedicated supplements that were recently published in the Endovascular today to raise awareness and educate prospective customers. As a reminder, these publications articulated the capabilities and advantages of our pound soft.
She really thrombectomy and sublime radial in terms of their simplicity efficiency and potentially lifesaving benefits they bring to endovascular procedures.
Relative to the existing devices and procedures on the market and regardless of whether these procedures are performed at hospitals <unk> or.
Our office based labs.
Throughout the second quarter, we continue to see evidence that these recent publications along with product awareness initiatives, all resonating with prospective customers.
From a commercial standpoint, as I mentioned earlier, we saw impressive contributions from direct sales of these products during the second quarter fueling more than half of all medical device product sales growth year over year in this period.
Our direct sales team continues to make impressive headway driving adoption of these technologies and expanding our base of clinical users in part by helping prospective customers navigate the value analysis committee process with their respective institution.
We succeeded in expanding our customer base to over 170 total customers for pound since the blind platforms compared to more than 135 at the end of the first quarter and just over 100 at the end of fiscal 2022.
Given the strong sequential growth in new accounts, we've seen a fiscal 'twenty three to date. It is important to note that our pipeline of prospective customers has continues to has continued to increase sequentially as well in the second quarter. The number value analysis committees are evaluating our products saw modest sequential quarterly growth. Despite.
Right. The recent reduction in the number of territory managers in the field.
And we remain pleased with our customer reorder rate, which continues to track in line with our expectations for fiscal 'twenty three.
While we are still in the early innings of our commercial efforts for pounds and supply them with an average tenure now of 12 months across our team of 21 territory managers.
We're excited by the recent progress made and the resulting contribution so our revenue growth in the second quarter.
Based on our recent progress we continue to see significant growth and contribution potential from our ponds arterial and sublime radial platforms and we remain on track to grave growth and combined sales from these platforms for approximately 300% year over year for the full fiscal year 'twenty three.
As we begin to move from initial market entry into the early stage of market development and ultimate commercialization efforts.
Sequent to quarter end, we were also pleased to announce that beginning of patient enrollment in pro a new U S Registry study.
The Prowl registry designed to enroll up to 500 patients across 30 sites collecting real world efficacy and safety outcomes, followed pounds arterial thrombectomy system when used in a variety of endovascular interventions for non surgical removal of clot in the peripheral arterial vasculature.
When a patient's peripheral artery becomes block the clock needs to be addressed as quickly and as effectively as possible to prevent limb loss and patient mortality due to acute limb ischemia.
With this in mind, Oh pounce, our thrombectomy system was designed to consistently remove clots in a single treatment session. While also reducing the need for thrombolytic jobs and subsequent ICU stays.
We believe the Prowl registry will continue to highlight these compelling therapeutic benefits along with a strong safety profile off of our Pons technology and as this registry progresses, we'll look forward to sharing the interim data with clinicians to support our mass market education and awareness initiatives.
Okay.
Now with respect to our food strategic objectives to drive revenue and cash flow growth from our medical device performance coatings offerings and IBD businesses.
Revenue from our medical device performance coating offering increased 3% year over year more than offsetting the 2% decrease that we saw in our life business and the performance of our core businesses overall exceeded our expectations.
As I mentioned earlier, we are pleased with the year over year sales performance in the IBD business against a challenging year over year comparison.
Our <unk> business generated all time record quarterly revenue in the second quarter of fiscal 2022.
In addition to the revenue performance in the quarter. These businesses continues to generate significant cash flow to support our other strategic growth initiatives.
In addition to our continued progress with respect to the three strategic objectives early during the second quarter, we implemented the spending reduction plan to preserve capital in response to the delay you know anticipated Seville PMA timing.
As I discussed in detail on our last earnings call. The spending reduction plan was implemented after careful evaluation and it was designed to reduce our planned cash use by approximately $10 million to $11 million for the remainder of fiscal 2023 prior to the restructuring charges.
Spending reduction plan included a workforce restructuring to streamline and refocus the teams in several areas of our business.
It also features of several additional cash saving measures, namely the reduction in our planned capital expenditures.
The reduction of our hiring plan for fiscal 2023.
And the refocusing of our investments in product development to prioritize progress primarily in our near term commercialization opportunities, including our pumps arterial and pounds fitness thrombectomy systems as well as our sublime radial product platform.
As a result of the spending reduction plan on keeping in mind, our guidance expectations for the full year. We continue to expect our quarterly cash used in the food and fourth quarters of fiscal 2023 to be approximately three $5 million to $4 million each quarter.
I want to emphasize cash flow remains an important priority for our organization.
We remain committed to reducing our use of cash over time through a combination of disciplined expense management as evidenced by the implementation of our spending reduction plan.
Along with a continued focus on execution with respect to our stated strategic priorities, which we believe represents the best path to driving enhanced sustainable long term value and growth.
Before I turn the call over to Tim I'd also like to provide a quick update on some of our recent progress related to our new product pipeline.
From a new product perspective, our team continues to advance all of our existing pipeline of products within the pound since the blind platforms with the goal of expanding and enhancing the portfolio managed by our direct sales force.
In the second quarter, we began limited market evaluations for pounds venous thrombectomy system.
We are excited to continue this effort to obtain in the valued real world feedback from numerous physicians across a wide variety of therapeutic cases.
With respect to our sublime radial platform last week, we were pleased to announce that we have also commenced limited market evaluations for sublime radial access micro catheter.
This device is part of what will be the industry's first suite of Talkable high performance peripheral micro catheters available in both radio and the trends femoral links.
Talk about micro catheters have been an important innovation in complex coronary artery disease, enabling clinicians to cross difficult lesions and overcome some of the most challenging cases, we're excited by the potential to bring this level of innovation and performance to the peripheral intervention community with it.
Sweet of Microcap the products designed to provide clinicians with torque control push transmission and deliverability to distill target lesions in the periphery from any access site.
So by micro catheter portfolio will also include all one four or one eight in all three five micro catheters, which can be telus cooked through the all three five micro catheter to provide additional backup support when navigating extreme tortuosity are heavily used in those lesions, we look forward to and getting it getting in.
Potent physician feedback on these devices are progressing towards the limited market introduction of these remaining products in the portfolio over the coming months.
And lastly.
With respect to pounce arterial thrombectomy system. It is important to bear in mind that we estimate the U S market for peripheral arterial occlusions, two representing approximately $800 million market opportunity for somebody.
We believe our pons arterial come back to me system is uniquely positioned to penetrate this market given multiple factors, including its advantages for the treatment of acute limb ischemia.
The procedural results continues to demonstrate as well as its limited commercial competition at present.
In addition to our commercial and market development efforts from a pipeline perspective, we are focused on further enhancing this pounds arterial system by expanding our existing clinical indications and new development of new products to add to this portfolio, including pounds L. P pumps low profile.
Pounds, XL and towards establishing pounds arterial as the preferred solution for cases across the entire lower limb vasculature.
So stepping back I'm incredibly proud of our team's performance focus and execution during the second quarter together, we navigated a challenging environment, which saw us quickly respond to the Fda's letter related to our PMA application for surveil and implement difficult, but important actions to reduce.
Our planned use of cash through the remainder of fiscal 2023.
We did so while delivering solid commercial performance and with respect to our vascular intervention performance coatings and IBD products.
And we continue to advance our pipeline of new products towards commercial introductions, including our surveil drug coated balloon pumps venous thrombectomy device and new products within our pounds arterial and supply platform.
As a result of these efforts we believe we are well positioned to drive strong commercial and operational progress as we enter the second half of fiscal 'twenty, three our core businesses, including our medical device performance coatings offerings, and our IBD businesses generating significant cash flow.
The initial commercialization of phones arterial and sublime radial platforms is healing significant contributions to our revenue growth as we drive progress in these large and underpenetrated markets.
Product pipeline of innovative vascular intervention devices, including our surveil BCB and pound venous thrombectomy device represent important future catalysts with the potential to further accelerate our future growth and financial performance.
We remain committing committed to demonstrating prudent expense management and disciplined capital allocation as we pursue long term revenue growth and value creation.
And lastly, we remain well capitalized with $19 billion of cash in our balance sheet at quarter end and access to approximately $61 million in incremental debt financing under our existing credit facility with.
With that I'll now turn the call over to Tim Arens, those chief financial officer to discuss our second quarter of fiscal 'twenty three results and updated guidance for fiscal 'twenty three Tim. Thank.
Thank you Gary.
Unless noted all references to second quarter results are on a GAAP and year over year basis total revenue for the second quarter of fiscal 2023 increased $1 1 million or 4% to $27 2 million compared to $26 1 million in the prior year period.
Product revenue increased $1 4 million or 10% to $15 4 million in the second quarter of fiscal 'twenty three.
The increase in product revenue was driven by a medical device product revenue, which increased $1 5 million or 23% due to the increased sales of our device products, including significant contributions from our pumps arterial thrombectomy and sublime radial platforms as well as increased sales of our performance coating reagents.
IBD product revenue decreased 1% driven in part by active management of inventory levels by certain customers.
Our IBD business saw a decrease in sales of protein stabilization products, which was partly offset by growth in sales of micro arrays slide products and favorable order timing for distributed antigen products.
Royalty and license fee revenue decreased 420000, or 4% to $9 4 million royalty revenue from our performance coatings decreased 290000 or 3%. The prior year quarter provides a challenging comparable as the period benefited from stronger than expected customer reported royalties.
Relative to our estimate.
License fee revenue decreased 130000, or 9% due to the timing of revenue recognition from our surveil agreement without it.
R&D revenue increased 120000, or 5% to $2 4 million.
The increase in R&D services revenue was primarily due to higher customer demand for performance coating services and our medical device business, which was impacted in the prior year by our customer supply chain challenges.
Product gross margin in the second quarter of fiscal 2023 was 62, 6% compared to 63, 4% in the prior year period product gross margin was adversely impacted relative to the prior year by certain manufacturing inefficiencies.
Sociedad with ramp up of production of new products, which was partially offset by the favorable impact of product mix.
R&D expense, including cost of clinical and regulatory activities decreased 790000, or 6% to $12 9 million in the second quarter of fiscal 2023.
The decrease in R&D expense reflects the initial benefits from the spending reduction plan implemented during the second quarter of 2023.
SG&A expense increased $1 9 million or 17% to $13 million in the second quarter of fiscal 2023, primarily driven by year over year increase in head count related to the expansion of our direct sales force in fiscal 2022 and related investments to support the commercialization of our Pons.
And supplying products.
We reported $1 3 million in restructuring expense in the second quarter of fiscal 2023 for severance related costs related to the workforce restructuring implemented during the quarter as part of our spending reduction plan.
The majority of these costs were paid during the quarter.
Our medical device business reported an operating loss of $7 1 million in the second quarter of fiscal 2023 compared to a loss of $5 6 million in the prior year period.
The change in operating loss was driven primarily by the aforementioned investment in our direct sales force as well as by the $1 3 million in restructuring expense recorded in the second quarter.
Our IBD business reported operating income of $3 6 million in the second quarter of fiscal 2023 compared to $3 7 million in the prior year period <unk> operating income was 49% of IBD revenue in both periods.
Turning to income taxes in the second quarter of fiscal 2023, we reported income tax expense of 370000 compared to income tax benefit of 920000 in the prior year period. As a reminder, we are no longer recording tax benefits on U S. Net operating losses as a result of having established.
A full valuation allowance against U S deferred tax assets at the end of fiscal 2022.
GAAP net loss in the second quarter of fiscal 2023 was $7 7 million or a loss of <unk> 55 per diluted share compared to a loss of $4 1 million or a loss of 29 cents per diluted share in the prior year period.
non-GAAP net loss in the second quarter of fiscal 2023 was $5 6 million or a loss of 40 cents per diluted share compared to a loss of $3 1 million or a loss of 22 cents per diluted share in the prior year period.
non-GAAP adjusted EBITDA loss in the second quarter of fiscal 2023 was $1 5 million compared to adjusted EBITDA loss of 860000 in the prior year period. Adjusted EBITDA included an adjustment for restructuring expense in the second quarter of fiscal 2023 and adjustments for stock based.
Compensation expense in both periods.
Our earnings press release includes detailed reconciliations of GAAP to non-GAAP measures.
Moving to the balance sheet, we began the second quarter of fiscal 2023 with $26 4 million in cash and $29 5 million in long term debt cash used by operations. During the second quarter was $5 8 million and capital expenditures totaled 720000.
As of March 31, 2023, we ended the quarter with $19 2 million in cash and $29 3 million in long term debt.
Long term debt includes $5 million in borrowings under our $25 million revolving credit facility and $25 million in borrowings on our $100 million term loan facility.
As of March 31, 2023, we have approximately $61 million in debt capital available consisting of $50 million on our term loan availability and $11 million of incremental availability on our revolving credit facility, which is subject to borrowing base requirements.
Finally, a housekeeping note, we have a $200 million shelf registration statement in place, which is set to expire in may.
Is it part of good corporate governance, we plan to file a replacement form S. Three with the SEC to keep this shelf registration active.
Turning now to fiscal 2023 guidance.
We have updated our fiscal 2023 revenue guidance to reflect our performance in the second quarter as well as our revised expectations for the remainder of fiscal 2023, we now expect fiscal 2023 total revenue to range from $103 million to $106 million, representing an increase of 3% to six person.
Compared to the prior year.
Paired to our prior range of $102 million to $106 million or an increase of 2% to 6% compared to the prior year.
We now expect fiscal 2023, GAAP loss per diluted share to range from a loss of $2 32.
To a loss of $2 compared to our prior range of a loss of $2.40 to a loss of $2.
non-GAAP loss per diluted share in fiscal 2023 is expected to range from a loss of $1 98 to $1 68 per share compared to our prior range of a loss of $2.09 to a loss of $1 69 per share.
As a reminder, our guidance excludes revenue associated with the potential future Abbott milestone payment upon receipt of the PMA from the FDA, which has been our practice with previous regulatory milestones.
I'll now share a few additional considerations for modeling purposes, our fiscal 2023 total revenue guidance assumes revenue for two businesses medical device in IBD.
Two is expected to be approximately 73% and 27% of revenue respectively.
Revenue is expected to be approximately 58% of total revenue.
Revenue associated with our legacy medical device coding offerings and IBD business is expected to grow modestly.
Added surveil license fee revenue is expected to range from 4 million to $4 5 million. This compares to $5 7 million in fiscal 2022.
Turning to the rest of the P&L our updated fiscal 2023 guidance reflects the following expectations product gross margins are expected to be in the mid <unk> for the remainder of fiscal 2023 in the second half of fiscal 2023, we expect higher absorption of fixed overhead costs and cost of sales as <unk>.
Commercialized products are allocated an increased share of overhead expenses due to reductions to drug coated balloon production with.
With regard to operating expenses, we expect rest of year quarterly expense of 12 million to $12 5 million in R&D expense and $13 million at $13 5 million in SG&A expense.
Interest expense is expected to be $3 4 million for the full year.
And we expect a nominal amount of tax expense for the full year.
Lastly, with respect to our fiscal 2023 cash utilization, we anticipate that we will finish it here with approximately 11 million to $13 million of cash we expect our cash use for full fiscal year.
Year 2023 to be approximately $26 million, which consists of the total change in cash excluding the net proceeds from long term debt in the first quarter of $19 3 million.
Further we expect our Q3 and Q4 cash used to be approximately three $5 million to $4 million each quarter. This reflects our recently implemented spending reduction plan and active management of working capital.
We expect to continually evaluate and assess capital allocation decisions throughout the year to ensure effective and efficient use of our cash and resources to support our business needs.
With that operator, we would now like to open the call to questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow up.
If you'd like to ask additional questions, we invite yourself to add yourself again to the queue by pressing star one.
And our first question will be from Mike Matson with Needham <unk> Company. Please go ahead Sir.
Hello, How's it going this is Joseph on for Mike.
I guess the first one.
For the Venus version of pounds.
We were wondering when do you expect to start the trials for PE and DVT.
Maybe if you have estimations on how much these will cost and one that could do one that could lead to FDA approval.
Yes, Thank you Joseph.
So the first component for the pounds Venus is to get through to <unk>. We've had some limited availability of the product in fiscal Q2, but we're through that constraint right now and so we just have a whole new lots of the product ready to accelerate.
Let me four pounds fine us as you know.
The claims for that there's a difference between a claim of removing clot in a vein versus a claim of being able to treat DVT, which is a disease state and so our plan released to get the product into the market with the with the claim of removing venous clot.
Even as we consider the design of an IDE trial that could support a DVT clean but that is that as Wayne our future I think the first the first thing is get the let me get the learnings understand where the product and the key sake types with a product works best and very importantly, get a lot of clinician feedback before.
I would call early commercialization of that which at this point it will be sometime in fiscal 2024.
At that point as we exercise the product commercially we'll be considering what an E trial could look like and with a focus on efficiency and also understanding those who went before US. This trial sizes are probably 100 to 120 patients and then you have to engage with the FDA to actually.
<unk> get the E on that so we're looking at that at some time in fiscal 'twenty 'twenty four but it's premature to comment on the actual timing until we complete delorme.
And by the way, it's a bounce up.
The pumps venous devices is really four veins not quite for the full amount of recirculation of key at this point.
Okay sure Yeah. Thank you very much.
Very helpful.
Yeah.
And then.
And maybe just assuming surveil is approved by the FDA I don't think you guys said this in your remarks, but you know what.
When do you think you could start to see revenue.
Would it be an immediate thing out there.
Approval or where would there be some type of delay and how long would this be.
Joseph This is Tim Thank you for the question.
With regard to surveil following the PMA approval, there will be a milestone payment could be received from Abbott and that could be 24 27 million depending on the timing I think you might be asking more specifically about commercialization and commercial.
Commercial product revenue and profit sharing revenue.
I think what we've talked about in the past is <unk>.
Previous conversations with Abbott.
Suggest that they would want to launch as soon as they can fall in the PMA approval. However, there still needs to be work to be prepared and implemented executed to be able to manufacture product and then be able to get it to Abbott and I think in the past we would characterize this as being several months so it could be it.
Can be several months following the approval, but I think it's probably important for folks to appreciate that as important as commercialization of surveil is.
Our attention focus energy and effort is 100%.
John .
Securing the PMA application by submitting an amended.
Application as an approvable form so we'll I'm sure we'll have more to say on commercialization in future quarters, but right now we're focused on getting the PMA application submitted.
Absolutely Okay. Thank you very much then.
Got it.
Youre welcome.
Our next question is from Brooks O'neil with Lake Street Capital markets. Please proceed with your question.
Yes, good morning, guys.
I guess Im just curious if you can provide any color on any response, you've gotten from Abbott.
With regard to the delay in getting approval for surveil.
Yeah, as we communicated in the last quarter, we've been updating cabot's on all progress and have had communications with them on the regulatory strategy, but really based on the restrictions of the agreement I can't go into any specific details in there I will say Abbott remains excited about the prospects of <unk>.
Having.
This product commercialized and in their portfolio.
Okay.
And then second.
Second question I'm, just curious as you guys look at and think about your scale up a ramp up of well counts and the blind.
You've been in the market for a while do you see any indication that there could be an inflection in <unk>.
The scale or the amount of revenue you can generate from those products in the next year.
Well you know what it.
The inflection is happening and that's a good question now we didnt.
Directionally. The fact that it's contributed over 50% of our product revenue.
Is a critical component of our product revenue for <unk> as a whole is not in the medical device segment. Its not a small number. So we were excited to see that beginning and notebooks as I said in the past and I'm glad you asked the question. The first year. So sales force very small you know 21 field.
Representatives, but they've just hit their average tenure of a year with us so very early innings in and.
And the first is what I call a messy market entry.
It's lumpy, it's back and forth more force than back obviously.
And now so we're through what I call that <unk> market entry and just make sure. It's not a bright line. Okay. It's a fuzzy line now entering into what I call really as you know really the early market development. So we've gotten through that first messy period in that early market development will beginning to see customer.
Uptake, we're beginning to see very important things like value analysis committees.
And including our group purchasing contracts.
Being stood up which are very good things.
Get to the mainstream market. So that early market development. We are now in which is less messy a little more predictable.
Something where you can see growth acceleration.
Couple of things to think through every we're very disciplined every dollar of revenue is not created equal in this period the dollars of revenue we want.
Really to go beyond early market adopters, we wanted to get to mainstream users. The more pragmatic there are less prone to move in to switch, but getting them as what secures the that's where the profit in the market our lives and so the challenge in this market entry period now is really to make sure we're crossing.
That chasm.
Mainstream user adoption and while we don't want to do is try to overdrive revenue by collecting what I call. The early adopter marbles and looking good and not paying attention to the mainstream users. So we can continue to see as we said in the last quarter, maybe at one of the recent conferences.
Up to a 300% growth in fiscal 'twenty, three and so that should tell you.
It may seem like small numbers, but the revenue growth percentages are large I'll turn it over Tim for some further color Gary well done I think just Brooks for everybody on the line I think Theres, just a few things that I might add.
Really we're seeing that expanding customer base and thats going to be important into that revenue inflection point that you were asking about before the next 12 months, but keep in my hand, the call here, Gary did a nice job of explaining in describing what's going on with limited Mark Devaluations, we have a lot of things that we have been in product development that are coming through the pipeline or getting into market.
And we expect that there'll be commercialized here over the coming quarters, and certainly in 'twenty, four including parts BNS parts arterial.
Al on the LP and of course, the supply micro catheter. So we will have more filling the bank will have more and more products in the bag had more customers to sell them too I think these things bode well to that inflection point that you're asking about.
Books, I am incredibly proud of our marketing and sales commercial team remember, we we are we have much less direct field sales.
Territories than we did three months ago, and even that notwithstanding they drove incredible revenue performance. This quarter, So Tim and I are appropriately bootstrap with all financial Prudence and how we can accelerate that but I will tell you with a small team who have had they have drew driven.
Substantial performance beyond my expectations, given the recent cutback in the sales team so very proud of what they have accomplished.
Right. That's very helpful. Thank you very much.
Our next question comes from Mike Ski with Barrington Research. Please proceed with your question.
Hey, good morning.
So Gary I'm wondering obviously the great update at the end of March on D. C. B.
Has there been I guess any.
E learning since then.
Made you more confident or just sort of confirm your confidence in terms of the timing of the.
Potential regulatory clearance in Q4, and your ability to sort of get a PMA submission amended submission in Q3, I mean have you I guess have you learned anything in the last four weeks that might be of interest.
Sure in this public forum.
You know first of all the F D a.
I have to say they have responded quickly and.
I mean this is a complement more quickly that Tim and I anticipated.
First quarter earnings call.
Subsequent to the not approvable letter so we want to make sure we can match their speed and readiness at the same time, we have a lot of work to do in terms of.
Repurposing the narrative and the amended application and so getting that in front of them I don't want to trivialize that its like you hit the send button and you there and also <unk>.
Discussing and negotiating the appropriate legal cleans off the product both for the FD and without commercial partner Abbott. So that continues to be a work in progress which is why we gave ourselves through the third quarter to complete all of that and so.
I think as we said.
We usually guide to 180 day turnaround on an amended PMA, but we're confident with our discussions with them that they do.
The reason we can set this as an expectation in our fiscal fourth quarter is that.
Two things they can move quickly on this and secondly, secondarily the waterfront of things. The review is not everything it's a specific things together and then approval format. So.
Really.
The job right now is.
Work with Abbott with agency and get this file submitted in a whole third quarter and so we're really nose to the grindstone and getting it done.
Okay, Alright, great a quick quick one for Tim I, just I just want to absolutely make sure I understand the three and a half to 4 million of cash utilization is is that sort of cash flow from ops or is that like free cat like in other words does that include capex of where or is that before capex. That's right. Its free cash flow, it's all in Mike.
Alright perfect helpful. And then just the last one you know obviously I think the general view is you know the pounds platform over time.
It is maybe much hopefully much much bigger opportunity than than sublime and I'm just wondering what what is it at some point it makes sense to sort of talk about.
Those separately and just sort of talk about pounds customers in pounds reorder rate and.
And so forth even just at the art with arterial and then obviously as you move into Venus.
To me it just seems like that's where the.
The massive opportunity as a home run opportunity potentially in.
I'm just wondering at some point you guys start to transition and talk about pounds.
Separately thanks.
No Mike It's a fair question and a good one at the appropriate time, we will start to.
Tease out more about the vascular intervention product portfolio by itself separately and also at that time consider then breaking these apart. So we can give more specific.
Information about the growth opportunities there I think it's a fair question and in the future. We absolutely are considering that one thing I will say about the pumps platform at its.
It's not a sleeper to us, but a reset I don't know another mechanical thrombectomy system. That's on the market. Currently I mean, there are other devices that the suction based or break it up base, but.
<unk> really is.
Clearly something that has this.
Capability no as I said, we're bootstrap by a limited field presence, but even within that that you can do the multiplication of.
If we had a major field presence and I'm not saying, we're going to have that but it gives you an indication of the power of the product with such a limited field presence compared to that and so very very happy for that are supposed to blame.
So sleep off a different magnitude, meaning pounds very high ASP and as he said thrombectomy is a very hot market and the hot opportunity right now.
<unk> is really changing the face of health care and.
Now that we have we'll talk about when we intend to commercialize the micro catheter platform at this point it will be sometime in fiscal 2024. After the <unk>, but that was one of the remaining things such as how do you get through a tough lesion all the way from the wrist.
And taking taking a cue from the coronary will face this maybe a decade and a half ago and were successfully able to get micro catheter products to go through the coronary vessels.
That could really open up the supply market because now a physician doesn't have to worry about gosh I started regionally.
Some crowd under weighed down I, just can't give the guidewire across and remember if you can't cross you can't treat now I have to go open up a femoral access point of FIFA pedal access point now I can cross and so I would stay tuned for sublime. It is.
While the Asp's, maybe law that product is going to be used in a cath lab. Many times a day parts has a very high ASP and a lot of opportunity, but that will depend on the cases up from back to meet coming in so eventually sublime is.
<unk>, which I have faith, and but it will take some patients to get the market development. There. So hope that answers your question and we're looking forward to sharing and as you said uncovering more in future earnings calls.
It sounds good thanks, guys.
Thanks, Mike.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Jim Sidoti with Sidoti <unk> Company. Please proceed with your question.
Hi, good morning, Thanks for taking the questions.
The first one on the revenue guidance.
If your revenue stays flat.
Q3, and Q4 with what you did in Q2 Europes.
You're already at the high end of that guidance. So.
Does that mean, there was something in Q2 that might have been unusually high that you think might come down.
In the third and fourth quarters.
Yes.
So great question, Jim Let me, let me help you understand what's going on with the second half of the year.
You heard me in my prepared remarks highlight that our surveil revenue is going to be about four to $4 5 million and that compares to about $5 $2 million that we generated last year I think that headwinds about one 5 million around the midpoint.
That pretty much all is occurring in the second half of the year and maybe have 100000 of it that kind of occurred in Q2, but the vast majority is going to be occurring in the second half of the year, so take that into the calculus.
Okay. So.
Royalty and license fee is likely to come down at all.
In the back half of the year.
Okay.
When you combine the license fees and milestone that is probably a good way to think about it.
Right, Okay and then.
How does the inventory levels are up about $1 million.
From the previous quarter is that finished goods and is that related to sublime in pounds or is that more weighted barrel or something.
Another great question. It is up about $1 million, it's predominantly raw materials, you'll find you'll see that in the 10-Q, so take a look there.
Notably Q2 product revenue was significantly higher than it was the prior year and significantly higher than what you saw in Q1 I think we had.
111, $2 million of sequential product revenue growth in the quarter. So yes of course, we're doing some replenishment in terms of some of the raw materials to support those products that we've been selling.
I think theres, a little bit of the growth in inventory this quarter as it relates to some products that were in wet and finished goods that have yet to be shipped to customers at the end of the quarter, but those I think are going out the door if they haven't already.
But you should be thinking about inventory somewhere around the levels that we're currently having them at a lot of thats going to be dependent upon how we continue to progress with the product sales, but all in all it's a good sign of what's going on in the revenue line.
And have you started to build up inventory for Seville.
We have raw materials inventory, but Jim we arent, we really don't have any finished goods inventory on the balance sheet here for surveil.
I think as a reminder.
We will build inventory when we start to get payoffs from Abbott, but there are specific requirements that we have with Abbott in terms of the amount of shelf life that remains on the product so not looking to get in front of the curve here and take that risk, but we do have the raw materials to fire up the engine when it's ready.
Okay alright, thank you.
Sure.
That does conclude our conference for today. Thank you for your participation.
Thanks, everyone Bye.
Yeah.