Cutera Inc. Q1 2023 Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Q Tara, Inc. First quarter 2023 results conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
Gosh in today includes forward looking statements. These forward looking statements reflect management's current forecast or expectation of current aspects of the company's future business, including but not limited to any financial guidance provided for modeling purposes.
Forward looking statements are based on current information that is by nature dynamic and subject to change.
Forward looking statements include among others statements regarding financial guidance regulatory approvals productivity improvements and plans to introduce new products and expand into additional geographies.
For words that identify forward looking statements. We encourage you to refer to the safe Harbor statement in our press release earlier today.
All forward looking statements are subject to risks and uncertainties, including those risk factors described in the section entitled risk factors in our Form 10-K as filed with the Securities and Exchange Commission and updated in our Form 10-Qs subsequently filed.
<unk> also cautions you not to place undue reliance on forward looking statements, which speak only as of the date they're made.
<unk> undertakes no obligation to update publicly any forward looking statements to reflect new information events or circumstances or to reflect the occurrence of unanticipated events.
Future results may differ materially from management's current expectations.
In addition, we will discuss non-GAAP financial measures, including results on an adjusted basis.
We believe these financial measures can facilitate a more complete analysis and greater transparency into terrorists ongoing results of operations, particularly when comparing underlying results from period to period.
Please refer to the reconciliation of GAAP to non-GAAP measures in our earnings release.
These non-GAAP financial measures should be considered along with but not as alternatives to the operating performance measures prescribed by GAAP.
With that I would like to turn the conference over to Sheila Hopkins interim CEO of Kitamura. Please.
Please go ahead.
Thank you Shari.
Good afternoon and welcome to.
Terrorists first quarter 2023 earnings call.
I'm glad you're able to join us for this update it as most of you on the call know I was appointed interim CEO by the board in April .
As announced in our earnings press release today, well hand stuff is leaving the company.
Stuart Drummond, formerly our vice President and corporate controller has been appointed interim CFO .
Stewart is joining me on today's call along with Greg Parker, Our Vice President of S. P N E and Investor Relations.
On today's call I will walk you through our first quarter 2023 performance and discuss recent events related to our financial results.
I will then pass the call over to Stuart to provide greater detail on the financials.
Then I will wrap up the call and open it up for questions.
First a bit of background on me.
Before joining the two Tera board in 2021.
Held executive leadership roles at Bausch, and Lomb, Colgate, Palmolive, Procter and Gamble and Tam brands.
And those rules I led business turned around and acceleration.
I have faith situations with challenges that are similar to those that to terrorists facing.
And while I am new in the interim role I am confident that we can overcome our challenges to drive long term value.
In that regard since taking the interim role I've had the opportunity to meet extensively with our senior leadership team and many others across the company.
I'm away from these conversations with two key observations.
First we have technology and products that are innovative differentiated and deliver excellent results. As a result, we have strong customer and patient satisfaction.
Second we have a world class organization made up of highly talented people, who believe in our strategy and are committed to our mission, which.
Which is engineering technology for clinicians and practice owners, who are creating the future of its stomach.
So we have a very strong foundation in place.
However, we have not executed, particularly well.
Evidenced by our results in recent quarters, including the disappointing first quarter 2020 three results being reported today.
As the special Committee of the Board has said publicly the board realized in the fourth quarter of last year that to tear it needed a new CEO to help improve execution.
The significant execution challenges and our results in the first quarter actually reinforce that fact.
But let me be clear.
Our challenges in the quarter were mostly self inflicted and can be attributed to sub optimal leadership direction that led to execution issues that can and will be solved.
No. The special Committee is committed to finding the right permanent leader for the business.
Can execute effectively against our opportunities.
And to that end the board is underway in its search process to identify the next permanent CEO of two tera.
New CEO will not be me or any other director currently on the board.
We have engaged a leading executive search firm and we are in the process of sourcing external candidates.
The board is committed to bringing in a world class operating exactly two <unk>.
Someone who will best serve the long term interest up to shareholders via a culture carrier for the company execute our strategy effectively and operate with the highest level of integrity.
And we're already seeing some terrific candidates and look forward to announcing a permanent CEO as soon as we are through with our process.
I wanted to thank many of our largest shareholders for providing input on the specifications for this critical will we believe we are aligned in the framework of the skills needed to bring Q Tara forward.
Now there are as you are undoubtedly aware some controversy between the former leadership of the company and a group of independent directors that comprise the special Committee.
We are working through those issues and should have clarity for shareholders in the next few months.
In the meantime, we are continuing to do the important work of improving our execution of the company's strategy and searching for a new CEO .
For the purposes of this call we are not going to address these governance matters, which are the subject of litigation.
So with that I'd like to shift and provide an overview of the first quarter.
Total revenue for the quarter was $55 million down slightly from the year ago period.
The softness traces primarily to a decline in north American capital equipment and skincare in Japan.
This was offset by strength in the international capital equipment business.
Adjusted EBITDA of negative $14 5 million was also below our expectations and a year ago.
The result of lower gross margin higher operating expenses and FX headwinds.
Now while revenue came in below our expectations, we're quite encouraged by I'll be clear its performance.
We placed 350 I'll be clear devices in the quarter, which exceeded our expectations and demonstrate healthy early market acceptance of this breakthrough technology.
Since the November launch the capital team has been directed to focus on driving placements on I'll be clear to take advantage of our first mover advantage.
While we've been very successful in placing devices.
We have not done as well in driving treatments and utilization.
So our primary focus going forward will be exactly that.
It is now clear that the significant pace of placements in the last two quarters has outpaced our ability to quickly install units and partner with practices to effectively drive utilization.
Going forward, we will expand our installation team to shorten the time from placement to utilization.
We will also fine tune training for our key account managers or cans.
To help them work, even more effectively with clinician to drive treatment volume and utilization.
Increasingly utilization of each of the systems is key to unlocking all be clear potential to transform our business and also that of the practitioner.
Know that we will continue to place new units, but we will do so with discipline and at a more measured pace, we need to be sure. We are deploying our capital and equipment and practices that can achieve the treatment volume and utilization rates that will drive high ROI for two tera.
Turning to capital equipment revenue was down down over 2022, primarily a result of underperformance within North America.
The North American performance was slightly offset by positive performance in the rest of the world.
Lower than expected capital equipment revenues in North America were the result of two operational factors first our capital sales teams continued focus on driving placements for all be clear and second the company faced challenges completing its audit related inventory count.
Which resulted in a four week plant shutdown and a loss of production output.
The increases in our average selling prices or Asps also place downward pressure on revenue in the quarter.
So let me go into a bit more detail on our first two points.
As discussed on our last quarterly call the volume of Avi clear deals in the fourth quarter diverted sales attention away from core capital deals.
This trend actually continued in the first quarter as the capital team was directed to maintain focus on I'll be clear placements as our number one priority.
As a result fewer cat core capital deals will close.
As mentioned, we are now shifting our avi clear commercial emphasis towards device utilization, which is driven by our key account manager or Cam organization.
Moving forward this should allow our capital reps to return their primary focus to the sale of our core capital products, while simultaneously securing new attractive I'll be clear placement at a more measured pace.
With these recent changes and the successful implementation of retention incentives with re energized our sales force based on the extensive conversations I've had over the last couple of weeks. They are highly enthusiastic about their opportunities and they remain fully committed to driving growth in our business.
The second operational challenge, we faced during the quarter traces to an extended plant shutdown that impacted our ability to build inventory and ship product for a period of time.
So there's typically a one week shutdown of our production facilities. During the first week of January to enable a physical count of inventory.
This year to comply with audit requirements the year end physical inventory count took longer than expected.
In our production facilities were shut down by an additional three weeks.
This extended shutdown negatively impacted our ability to build and ship the product required to fully meet demand in our core business during the quarter.
Turning to international capital, which includes Europe , Japan Intercontinental, our business was up approximately 18% in constant currency.
Driven by solid sales execution from our team and external partners.
During the quarter, we saw strong growth in our Europe , and Intercontinental and reagents this points to a healthy underlying demand for our capital products.
Moving on recurring revenue was up 8% versus a year ago in constant currency driven by results on I'll be clear.
And now I'd like to take a minute and sprinkle in a bit of on the ground market perspective.
In April the company attended the American Society for laser medicine, and surgery or a S. L. M. S conference in Phoenix, It's one of the big meetings for customers that use energy based technologies like ours.
We had a great conference, where we celebrated two terrorists 25th anniversary. Our retro are highly engaged in very productive conversations with potential customers and the interest in Avi clear was significant from a technology perspective, 17, 26 nanometer lasers, which we use in our I'll be clear device continue to lead.
The conversation for the treatment of acne.
So connecting all of the dots, while our first quarter performance did not meet our expectations. We remain optimistic about the underlying demand for our core products and the growth opportunity that Avi clear provides.
I am convinced that as we improve our execution and the business will return to sustainable growth.
Despite our long term confidence in the business, we are not providing financial guidance at this time.
Given the issues that we've discussed today. The current team has a lot of work to go through to validate our financial projections and the assumptions that underlie them.
We want to take the time to be diligent in this process and ensure that the entire team is comfortable with the financial expectations for the business going forward.
We do recognize the importance of guidance to the street and we're working towards reintroducing guidance as soon as possible.
Finally, I would be remiss.
Not to thank everyone throughout the organization for their continued hard work flexibility and focus.
As we work through some of the recent changes in our leadership.
Our people are.
Are our biggest asset and we consider ourselves fortunate to have the best people in the industry on our team.
I would now like to turn the call over to Stuart.
Net financial update Stuart.
Thank you Sheila.
And there are a few of my prepared remarks.
I will be discussing some non-GAAP results.
A conciliation of GAAP to non-GAAP gross margin and the operating loss is included in our earnings release.
We encourage listeners and readers to review our non-GAAP results in conjunction with the GAAP results is contained in the Spanish Suisse.
First just a little bit about me.
Taking my chart, the counting certification and you've gone through KPMG, and then work with large multinationals in Europe before coming to the United States.
In the Bay area for a total of around 14 years.
Recently in Cooper control rules, and the life Sciences industry.
Joined <unk> in July 2021, Vice President corporate controller.
Turning to our Q1 results total revenue for the first quarter was $55 million compared to $58 million.
Same period in 2022, representing a decrease of approximately 5% on an as reported basis.
During the quarter, we continued to face foreign currency headwinds and our constant currency revenue decline was approximately 1%.
Before I begin with providing you the details regarding our performance across the globe.
It gives you some insights on the financial impact of the production shutdowns driven by the audit related to procedures as Sheila mentioned earlier on the cool.
We estimate $2 8 million was less than revenue for products, which we've had orders on hand, and we weren't able to fulfill due to the lack of finished goods inventory with an estimated split of $1 8 million in North America.
Internationally.
In addition to other deals which orders we never received as our customers were aware that we didn't have the relevant inventory.
First quarter consolidated capital equipment revenue of $33 3 million decreased by $3 2 million from the prior year period.
This decrease reflects lower asps, resulting from a geographic shift from North America to our international customers and distributors.
Well it is the previously mentioned impact of the extended plant shutdowns on sales volume.
North American capital equipment revenue of $18 million decreased by 21% over the prior year.
As I mentioned, we estimate that approximately $1.8 million of the shortfall was due to orders that could not be shipped due to the lack of finished goods.
In addition.
<unk> 5 million of orders with package available to ship, but don't meet the revenue cut off.
Had we managed to get this $2 $3 million in the quarter. The revenue decline would have been 11%.
While we are disappointed with these results. We also note that we had more than 350, obviously of placements in the quarter.
International capital equipment revenue for the first quarter was $15 4 million up 11% from the first quarter of 2022, driven by consistent execution and focus, particularly in our distributor markets and European direct markets.
Recurring revenue defined as consumables global service skincare and I'd be clear product line was $21 7 million in the first quarter.
1% as reported and up 8% on a constant currency basis versus the comparative period.
The increase over the prior year was driven by clear revenue of $4 4 million. This growth was partially offset by a decline in skincare revenue, which came in at $8 1 million down, 30% as reported and 19% on a constant currency basis.
Service revenue declined by 9% as it continues to be impacted by the availability of spare parts.
Yeah.
non-GAAP gross profit for the first quarter of fiscal 2023 was $27 million.
With a gross margin of 49.1% representing a decrease of 660 basis points compared to the same period last year foreign exchange headwinds adversely impacted gross margin by 190 basis points and the delays in completing an inventory audit procedures affected us on multiple fronts, the resulting delays in production and picked it up manufacturing.
Okay.
<unk> 110 basis points and the resulting lack of finished goods availability resulted in lower fixed cost leverage which had an impact of approximately 100 basis points.
Also adversely impacting our gross margin with customer and region mix impacts of approximately 250 basis points.
We view these effects as largely transitory in nature and expect that as production volumes ramp up North America returns to growth these margin impacts will dissipate.
non-GAAP sales and marketing expenses for the first quarter of 2023 with $25 8 million compared to $23 5 million for the same period last year, driven by a continued expansion and I'll be clear salesforce.
non-GAAP R&D expenses for the first quarter of 2023 with $5 7 million compared to $5 5 million for the same period last year.
non-GAAP G&A expenses for the first quarter of 2023.
There were $10 1 million compared to $7 1 million in the same period last year.
The increase was driven by fees associated with the extended audit.
And the risks primarily relates to increased legal expenses and costs to support our recently implemented ERP system for.
For the first quarter of 2023, non-GAAP operating income, which we refer to as adjusted EBITDA was a loss of $14 5 million compared to a loss of $3 8 million in the prior year period.
This increase in loss was largely driven by unfavorable gross margin, increasing operating expenses and FX headwinds.
There were no material or significant changes to our tax position.
Turning now to our balance sheet, we ended the quarter with $267 7 million of cash and marketable securities compared to $317 3 million at the end of 2022.
Driving this $49 7 million sequential decrease of $23 9 billion of cash utilization to be clear.
$12 4 million from core losses, primarily driven by sales and gross margin shortfalls, which.
Which we expect some cover from quickly.
$2 million increase in core inventory and $5 6 million from slower core collections.
Expectation is that this is the high watermark for cash spin and this will trend downwards throughout 2023 with that I will now pass the call back to Sheila.
Thanks, Stuart So in conclusion, our strategy is sound and we believe we'll be able to drive results as we double down our focus on execution.
In particular, we remain enthusiastic about I'll be clear the first FDA approved device for the treatment of mild moderate and severe acne across all skin types.
Critically the clinical outcomes and patient safety profile from the signature procedure are unmatched we.
We believe that all the clear will change the way that dermatologists treat acne.
By approaching the acne market with a minimal upfront financial commitment and a meaningful recurring treatment revenue stream for our customers and to Tara.
<unk> established a true collaboration the tightly aligns our interest with our customers the clinicians and practice owners.
Know that we will also be responsible stewards of our capital as we move forward to realize the full potential of Avi clear.
We are enthusiastic about our business prospects and believe the future is bright for two tera, we have extremely talented people throughout the organization, who are highly committed to capitalizing on the significant opportunities that exist both.
Within our core business and with that I'll be clear.
The foundation of the business is strong and the leadership team and our board of directors remain as enthusiastic about the business as ever.
So at this time, we're happy to answer any questions.
Okay.
We will now begin the question answer session.
Joining the question queue you May Press Star then one on your telephone keypad.
We'll hear a tone acknowledging your request.
You are using a speakerphone please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two.
The first question comes from George Sellers with Stephens, Inc.
Please go ahead.
Hey, good afternoon, and thanks for taking the question.
Could you provide.
Provide some additional details on the factory shut down and some of the timing there when that occurred.
Lee.
If theres any additional headwinds from that expected in the second quarter.
Or if those operations are sort of back to normal.
Yeah. Thanks, George for the question, it's Stuart here.
So we typically shut down production for about one week at the beginning of January .
To do the inventory count for the purposes.
During this time there are no inventory movements, so we kind of move anything from material into production.
This is kind of was more challenging than in the past.
We implemented a new ERP in 2022, plus we had increased levels of inventory.
Due to some identified count in accuracies, we'd performed numerous rig counts and ultimately hit the rig count third party warehouse.
The count procedures extended an additional three weeks or four weeks in total and able to produce.
You'll see my gross margin comments in my prepared remarks that we were impacted by this.
We had lower inventory produced and so it kind of.
Able to absorb all the usual fixed costs. So that gross margin was hit by about two one points, but we believe these effects are transitory and we will resume normal production in the second quarter.
Yes.
Okay. That's that's helpful and.
Then maybe if I can.
Step back from the factory shutdown issues, what would have been some of the drivers to North American capital sales coming up a little shorter than expected I think even.
After adding back the the numbers that you specifically called out that revenue would have been a little bit lower than we were expecting and I guess I'm also asking within that question how would you characterize the.
Underlying aesthetic market in the quarter and how that progressed.
Thanks, George for that question. In addition to the plant shutdown I'd say I'd say the other key driver of the softness that we saw in the capital business is that as I mentioned and the.
Comments the capital organization had been directed to continue to focus on Avi clear as the number one priority.
And.
That actually did continue to be a bit of a distraction.
So we are working to correct for that going forward.
As mentioned.
Going forward the capital organization will return to our number one focus on the capital business.
We'll continue to place some avi devices, but in a much more strategic way, making sure that devices are place only in offices that have the patient traffic to drive.
Significant treatment volume and also two.
Two we will be.
Yeah.
Pacing be placements.
More deliberate manner going forward generally speaking.
All that I have heard would suggest that these state of the aesthetics market is remains healthy.
Okay, great. Thank you for the time I'll leave it at just to thank you all.
Thank you.
The next question comes from Jon Block with Stifel.
Please go ahead.
Okay.
Good afternoon, Joe maybe I'll start on that last point Im still little confused on.
Our sales reps marching orders, so if I recall correctly in the fourth quarter call.
The prior management, you talked about a new incentive program, which was supposed to help refocus the reps intention.
To properly allocate their time between the RV clearing capital and again that was all in the fourth quarter call and that was conveyed as if it had already taken place. So are using that didn't take place or didn't resonate maybe you can clarify.
Then most.
Most importantly, this has all been squared away and as we sit here today.
How to allocate their time, they're doing so properly.
Thanks, John I appreciate that question. The short answer is would be the revisions in the comp plan were executed.
What appears to have happened is that.
There was a direction to the capital sales organization too.
Place Avi cleared devices as a number one priority.
And these capital selling organization delivered against that direction.
But that direction did.
The reality is that it.
It distracted them a bit from capital placements.
The good news is I think that we now have crystal clarity in the market regarding not only direction.
But also there is a clear shift in the commercial focus of the organization. So what we've done is a great job of placing devices, which enables us to take.
Take advantage of.
A first mover position in the marketplace.
Now the next task is to relentlessly drive utilization off of those devices and that's the job of the Cam team and which enables the capital organization to focus.
And a priority way against capital again, they will.
In a world, where we are being more strategic about our.
<unk> device placements and being more deliberate and the speed in which we place those devices that really enables the capital organization to to focus relentlessly against driving capital.
So we think we've got very clear on what needs to get done now.
Okay got it.
I'll go back to that in a second but maybe just to pivot.
Your thoughts on other potential executive defections, if I recall roughly a dozen key employees.
Signed a letter saying they didn't want to see a change in leadership. They thought the current team had things moving ahead and going in the right direction.
Alright.
Under your leadership you guys went ahead and made some tough decisions and changes any way, we just saw roll on.
<unk> ahead and leave the company, Utah Gilles on the call about the people being the company's biggest asset.
So I would love just some commentary on the morale within the company and where that sits and if thats improving and then maybe your thoughts of the risk of other defections again, when we think about that letter that was written and still the board's decision to go ahead and make the changes that they made.
Yeah. Thanks again, another great question I think frankly, the good news.
And this area is I'm here on the ground and what I see.
Every single day, our kuchera employees, who remain.
Passionate and committed to the company I have people coming into my office on a regular basis to just say I want you to know I'm here.
I'm with you.
And.
Pressed level, so youre, telling us that the business is strong, but you're not quantifying it and I guess, we certainly don't see that as the takeaway from today's call. So any additional clarity you can provide there would be very helpful. Thanks for your time guys.
So.
I think the weakness that we have seen in the first quarter.
Largely reflects execution challenges.
Not underlying fundamental weakness in the business and that's why we continue to say that the business is fundamentally healthy.
The challenges that we face our challenges that are largely self inflicted and the good news is that.
We are now in charge of.
Correcting in addressing those issues.
And so.
It's under our control and we are working aggressively.
To do just that.
And I do understand the importance of guidance and I want you to know that Stewart and I, who are both new and position.
Our working fast and furiously to really understand and evaluate that.
Existing financial projections on the business and the key assumptions that underlie them.
And.
We've got to make sure that we are comfortable with them obviously, the miss in the first quarter.
It makes it even more imperative to reassess, but once again once we have a set of numbers that the team is fully confident and we'll be in a position to brought to provide guidance again.
Okay.
Okay.
The next question comes from Matthew O'brien with Piper Sandler.
Please go ahead.
Great. Thanks for taking my question.
Maybe just to follow up a little bit on Jon's question, there, but previous management had talked about <unk> being $30 million product this year approaching that level.
Should we think about it.
Maybe as a run rate from what we saw in Q1, maybe closer to $20 million for the full year and then the business even grow on the top line. This year. When you exclude clear should we just expect it to be down given everything that's going on.
Right so.
The answer to answer that question I would actually have to provide guidance, which we're just not prepared to do right now what I can tell you is that a.
We would expect the business to grow this year.
Inclusive of <unk>.
Once again that that's.
It's guiding a bit.
Okay.
Okay.
Understood I'm not sure. If this question for you or for sure.
The.
I would love to hear a little bit more about the sales retention plans that you mentioned earlier it gives the opex numbers in the quarter were quite high.
What have you had to commit to their how long is the duration there.
Then how can we feel comfortable that when the.
The amendments expire that theres not another.
Sometime next year or 'twenty five.
Yeah, Hi, it's Stuart speaking sales retention numbers exceeding our Q1 results, we will be announcing it in our 10-K as a subsequent event footnote.
Our board is committed up to $13 million.
$10 million of which was for sales folks that's.
It's an 18 months period.
The amounts will be paid along the way.
The full term.
And I would want to point out that.
The evidence is over abundant that those retention incentives have been.
Powerfully effective we have not lost.
A single salesperson.
Okay, and maybe just to follow up on that Stuart.
The increase in Opex again in the quarter was.
Pretty sizable anymore anymore guidance, you can give as far as where there's some one time costs in there what what drove those those numbers up so high because we don't have guidance and we're looking at some of these numbers are starting to see some pretty high.
And I know that's supposed to come down, but I mean, how do we think about that because it looks like it could be elevated for a while here.
Yes.
Primary reasons Roomba.
Remember the comparisons against Q1 last year, so we've ramped up here.
<unk> sales force by up to 40 head count. So those numbers are obviously rolling into the Q1 2023.
One other item in the G&A as we had an increase in <unk> expense and audit related expense.
Due to the extended audit of around $1 5 million.
Got it thank you.
Okay.
The next question comes from Margaret Kaczor with William Blair. Please go ahead.
Hey, good afternoon, everyone. Thanks for taking my question.
I wanted to follow up on guidance.
But at this time, maybe not specifically.
And what guidance could be but rather what specific metrics. I guess are you looking for to provide comfort to provide that guidance.
What don't you have I guess awareness up today that is prohibiting you from doing that doesn't sound like with Salesforce turnover. So what else are you guys missing.
Specifically I did so to John's point, it's at least that you might provide us some sense around the potential to achieve the prior guidance. When we last spoke Sheila So I guess what happened in the last few weeks or months since you joined.
Was there something new I guess, but that made you not comfortable with doing that.
Yeah, I mean I I.
I did have conversations around sharing some color if not.
Guidance and.
So let me see if I can be a little more helpful. On the color front, perhaps and also.
Pulp folks better understand why we're not providing guidance so with Avi clear we have a.
Our new.
Compelling technology.
And.
One of the one of the things, we're really digging into with gusto in the underlying assumptions regarding.
Utilization timing from placement to the.
The device being active in the market place.
Placement of devices.
And we.
We need to.
Fine tune verify all of those assumptions, particularly on Aussie clear to make sure that we're getting that number is right as we can because it is so essential to the.
The outlook and I would say that is that is.
Where there is a lot of energy focused right now and I think it's in our best interest and hopefully you would see it in your best interest for us to get that number is right as we can.
Okay.
That's helpful and so you know I guess to follow up on that can you give us a sense around what I'll be clear utilization was in that first quarter relative to maybe what you guys thought it might be.
And then I know your you talk maybe about hiring some new cam or support reps or at least kind of re.
Reeducating and re tenant strategizing that they're focused.
But I look at the over 1000 sites you guys now have and you can't help but think you know it's going to take a while for your Cam base to be able to individually go into each account identify how they could help implement those procedures and see the outcome.
The backend with utilization, but you tell me I mean is this potentially a.
You know one quarter two quarter phenomenon or is this a longer term effort.
We will both require new expenses.
As well as China. Thank you.
Okay.
Thank you.
That's a great question.
So here's the situation were early in the launch utilization varies significantly across the installed base. It varies by type of office, how long the device has been in place, but importantly.
One thing that is has meaningfully changed is that the big increase in placements that occurred between November and March.
<unk> that we have a fair number of boxes as you pointed out that are still in the startup phase with low utilization rates because they've just started treating patients.
So looking at average utilization today is not really very helpful.
The good news is that if we look at utilization levels and offices that have been up and running for a while the numbers that we see are quite encouraging.
What we have to do.
With a tremendous sense of urgency is.
Take all of the steps that we can organizationally to drive utilization on the existing installed base as fast as we can as high as we can and we have plans in place to do that.
We're going to increase the size of our installation team. So that we can install faster we're refining the training for our Cam organization, which is responsible for driving utilization. So that they can partner, even more effectively with offices to increase treatment volume and utilization and as we.
Place, new devices, and a more strategic and measured way.
We are making absolutely certain that we don't place more devices than the Cam team can effectively manage.
So with those steps in place we are actually quite confident that as we move through the corridors.
We will get those boxes that currently have low low utilization rates up to raise debt.
We need to to get a good return on the investment.
So this is all about.
Okay. So if I can just one last question.
As we think about pairing those comments with the.
The cash burn that we see and so on I don't know if you guys can provide it but you know it's over 100 million public decrease I think in cash and marketable securities can you ballpark it for us or rethinking $40 million a quarter years, 60 million 80 million, especially or maybe even a highlight from a cam perspective, how much that might chew.
Your cash burn.
Yes.
Sorry can you repeat that question and the number that you announced.
Okay.
Yeah, well when I was doing a quick math and I apologize if I'm wrong, but.
If I looked at the end of year 2022, cash plus marketable securities added that and then compared it to the cash and marketable securities at the end of this quarter. It seemed to me that that was a $100 million were confirmed.
One I guess tell me if that's correct.
How should we look at that on a quarterly basis going forward.
So let me let me just provide some macro perspective, and then Stuart or Greg can can answer them more specific calculation question.
The cash burn that we saw in this quarter would be a low point for the year, we expect that our.
Cash burn will.
Well, our cash position will improve.
Sequentially through the quarters.
Yeah.
Yes, Margaret it's Stuart.
Our actual cash burn was 49 point between December 31 to March 31.
So $11 million of that increase.
The increase in I'd be clear devices, plus we had some balance sheet increases on the inventory with raw materials.
Collections were lower as well.
Okay.
It could be something on my end of the math I'm sorry, I was just looking on the press releases.
I came up with but we can catch up on that later, thank you guys.
Thank you.
Okay.
Once again, if you have a question. Please press Star then one.
The next question comes from Anthony Vendetti with Maxim Group.
Please go ahead.
Thank you.
Just wanted to follow up on the I'll be clear.
Placement.
I guess, you pointed out that maybe the capital equipment sales force.
It was focused on.
I'll be clear potentially at the exclusion of the the.
The rest of the portfolio or maybe through school.
Yes.
Can you can you talk about what and I'll be clear placement looks like in terms of.
The cost for the practitioner.
If the commission for the sales Rep.
Related to the average selling price or is it.
Since the placement, it's a lower selling price than let's say a true scope.
They get a piece of the utilization how does that work.
And was there any change in the.
Incentive structure of the compensation structure for the sales force that will allow them to refocus on the whole portfolio going forward.
Got it so.
The commissions on Avi placement.
The capital organization does get a commission.
And it is.
Somewhat a flat fee that is tied to.
The placement of a box.
The PM organization, which drives utilization.
I believe.
As a compensation structure that is tied to revenue.
Because each of those organizations.
Different things the compensation structure for our.
Organization.
Does.
It's all inclusive they're it covers both.
Avi and the capital organization and capital sales and.
The comp program that was released.
The first quarter.
I think it was well intended it wasn't designed to Incent performance against both sides of the business I view.
The balance issue to be less a function of the design of the comp plan and probably more a function of the fact that the selling organization was ultimately directed to.
View Avi placements as their number one priority.
If that helps okay.
Yes, that's helpful. And then just lastly on the Big picture.
You mentioned that the underlying business fundamentals.
Fundamentals remain healthy.
We've seen from other companies in these settings.
They've been impacted by.
Higher interest rates, whether that's related to leases or also.
We've been hearing that certain practices are hesitant to buy capital equipment.
When.
Some of their patients may be pulling back on getting some of these treatments are you hearing that we're not hearing that at this point.
Thank you for that question Anthony.
So generally speaking we are not seeing that.
That kind of.
Tightening.
Yeah.
Availability of funds is affecting our business.
There are some.
In Canada, we have seen a little bit of evidence that.
That this may be.
And emerging.
Smallish problem.
But in the U S are the the derm derm market seems to be stable strong no issues is what I'm hearing from.
Our field selling organization, we are monitoring this very closely.
Okay.
Okay and then.
Question here.
Yeah, no that's good.
On the expense side.
You mentioned you added 40 employees I'll be clear.
Is that.
What period of time and how many were added specifically in the first quarter.
Okay.
Yeah, Hi, it's Stuart again.
That 40 was since Q1 of last year.
So as you recall, we had the initial launch in April and a full commercial launch in November So most of the head count was towards the end of 2022.
Okay, great. Thank you very much I'll hop back in the queue I appreciate it.
Thank you Anthony.
The next question comes from George Sellers with Stephens, Inc. Please go ahead.
Hey, thanks, so much for taking the follow up.
Just wanted to ask about the release that hit just a few minutes ago about an agreement between two tear ups and some of the shareholders. Just curious what the implications are for them.
The special meeting and how about is expected to progress given this agreement and then the release also mentions.
Active discussions with the prior CEO towards the resolution. So just curious if we could get any additional color on some of those discussions as well. Thank you again for taking the follow up.
Right I wish I could provide additional perspective on that but that that falls a bit under the umbrella of the external governance issues that we are working our way through so I would I would defer to.
What's in the release.
Two.
To gather insight on what's happening there.
Okay understood. Thank you again.
Thanks George.
This concludes the question answer session.
I would like to turn the conference back over to Sheila Hopkins for any closing remarks.
Yes.
Yeah. So I would just want to thank you very much for taking the time to join US on this call. Thank you for the question.
Hopefully you found the answers to be helpful and we look forward to updating you on our next call we look forward to.
Follow up conversations with you one on one so on that note I would like to thank our operator sheree. Thank the team here and wish you all a great afternoon and rest of your day. Thank you much. Thank you.
This concludes today's conference call you may disconnect your lines. Thank.
Thank you for participating and have a pleasant day.
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