Q2 2023 Acutus Medical Inc Earnings Call
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I'm just not quite.
2023 earnings call.
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Thank you operator welcome to our Q. This is second quarter of 2023 earnings call. Joining me on today's call are David Roman Chief Executive Officer, and Tokyo, Mackay Chief Financial Officer.
This call will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, all statements made on this call that did not relate to matters of historical facts should be considered forward looking statements factors that may cause results to differ from these forward looking statements are discussed under the forward looking statements section in the press release attached as an exhibit to what hit US was four 8-K filed with the.
Each day.
And also discuss in more detail under the risk factors section in the most recent filings with the SEC, including the risk factors described in the kitchen. Okay. Any forward looking statements provided during this call including projections for future performance are based on management's expectations off up today I can just undertakes no obligation to update these statements except as required by applicable law.
It gives us the press release, the second quarter of 'twenty 'twenty. Three results is also available on the website www dot accused medical dot com under the investors section and includes additional details about our Q2 and that's what results they can as well.
Also is it keeps the SEC filings, which you are encouraged to review recording of todays call will be available on the website by five P. M Pacific time, now I would like to turn the call over to David.
Thank you Caroline and good afternoon, everyone.
I'm very pleased with the progress we have achieved this quarter and I'm thrilled to report several major achievements.
Including record procedure volumes, our highest number of global active app users the highest level of capital utilization and the highest installed base. Thanks to our committed physician partners and our team's disciplined focus on achieving our strategic objectives.
Our prepared remarks today will include updates on our key growth imperatives, a review of our second quarter results and an overview of our plans to continue to drive momentum in the business through the balance of 2023 and into 2024.
Starting with our first and top priority to drive utilization of vacuum out.
During Q2, we recorded our highest volume of acrobat procedures on record totaling 584 procedures globally, representing 21% growth compared to the prior year and up 29% sequentially.
The acceleration in procedure volumes continued the trend we discussed on our last earnings call with strong incremental traction following the publication of the recover study.
Our strategy to expand addressable procedure categories through new product launches and improved physician user experience to drive same account utilization as well as increase the number of users per account are all contributing positively to our growth.
Retail software launches such as acting up $8 five that included enhancements to procedural workflow have also helped bolster our user experience and increased procedure volumes specifically.
Specifically in the U S. We saw our strongest performance in over five quarters.
A particular note has been our ability to add new users at existing accounts as well as re engaged former users of vacuum out both of these cohorts have embraced the product and technology upgrades introduced over the past year.
The strong U S performance is also in the context of a more targeted installed base and streamline commercial resources following our strategic reorganization last year.
Outside the U S. Our business continued to benefit from a full portfolio offering and geographic expansion with our partner buyout tronic as well as successful cases, utilizing accu, Matt in conjunction with other manufacturers pulsed field ablation or PFA systems.
Actually they have a proven ability to support multiple workflow approach it as well as physician preference when it comes to their ablation strategy is driving broader system adoption outside the U S. And we think this is a good indicator of what you expect as we expand our portfolio in the U S and market dynamics evolve to include new ablation modality.
Yeah.
Essential to achieving our strategy and long term growth objectives, as our product development pipeline.
Our organic investments are geared toward both strengthening our position today and expanding our addressable opportunity ahead.
Upcoming product launches all strengthen our position in the complex segment that the E&P market ranging from first time persistent AF patients. It's the most difficult multiple redo patient.
Importantly in early July we received five 10-K clearance for <unk> nine and we expect to be in full market release entering the fourth quarter of this year.
As I mentioned previously we are very encouraged by the pickup in procedure volumes. Following the launch of <unk> eight five and expect our two next software launches to have an equal if not more significant impact on our business.
Ask you about nine significantly expands the capabilities of the Yankee map platform, leveraging advanced algorithms and automation to improve clinical utility and procedural efficiency of the system.
Following the acting up nine launch we're on track to gain U S approval for the Acura blade for stenting ablation catheter and system by the end of the year.
We expect to submit our FDA PMA response by the end of the third quarter.
After their response letter required cross functional collaboration with our partner bio tronic to ensure compliance with new legislation regarding cyber security for electromechanical devices that went into effect earlier this year.
We are confident the extensive assessment remediation work and corresponding validation address the key gating items to approval.
As we enter 2024, we expect our U S portfolio to expand and offer a complete mapping and ablation solution, which will be further complemented by additional software features when we launched <unk> Ken mid year.
The upcoming <unk> launch is critical because it adds a capability to integrate contact and non contact mapping in a single session, allowing us to bring all of the clinical benefits of vacuum that's differentiated mapping while also conforming to physician traditional workflow.
Software launches, therefore, a foundational component to expanding our addressable opportunity.
As we look to the second half of 2024, we also expect to gain approval across multiple geographies of our next generation <unk> catheter, which will feature bidirectional steering capabilities.
By the end of 2024, we expect our product portfolio to have substantially expanded enabling us to participate in nearly $3 billion of addressable market, which is approximately three times the market, we target with today's portfolio.
The combination of our strengthened commercial performance and market expanding new product launches gives us confidence to drive continued growth in 2023 with the accelerated performance in 2024 and is consistent with the outlook, we have been discussing over the past year.
Switching gears to our efforts to strengthen our financial performance.
We continue to make significant progress during Q2 2023 with year over year declines in both non-GAAP operating expenses and cash burn as well as significant improvement in our non-GAAP gross margin.
During the quarter, we did make the decision to pull forward some inventory purchases and long lead time items to ensure adequate supply to support increasing demand.
<unk> will cover these financial topics in more detail during his prepared remarks, but overall, we continue to take the necessary steps to strengthen our financial position and optimize our capital resources.
Putting this all together we are pleased with our first half of the year performance and the momentum in our business is palpable.
We're laying the foundation to build long term leadership in the diagnosis and treatment of complex arrhythmias, driven by a steady cadence of new product launches clinical data releases and commercial execution.
When combined with our operational improvement initiatives.
Business trajectory is positioning us exceptionally well for the future and will allow us to maximize value for all stakeholders.
With that I will now turn the call over to Tokyo to walk through our financial results.
Thank you David and good afternoon, everyone.
During my remarks today I will review, our second quarter 2023 results as well as provide an update to our full year outlook for 2023.
For the second quarter net revenue of $5 3 million compared to $4 1 million in the second quarter of 2022.
The 30% year over year increase was primarily driven by disposable sales higher capital conversions and increases in service and other revenue.
The second quarter performance represents our largest quarter of net revenue to date and reflects the entire company's focus and execution on the strategy, we set forward a year ago.
We ended the second quarter with an installed base of 78 systems globally up sequentially from 77 last quarter.
Through the balance of the year, we continue to expect growth in our global installed base, while remaining targeted to ensure new consoles are placed into service, where we can drive strong procedure adoption.
Our priority remains growth in procedure volume utilization and revenue per procedure, rather than just growing the installed base and this strategy is driving positive returns as evidenced by our Q1 and Q2 2023 results.
Disposables revenue in the second quarter of $3 9 million or 17% compared to the second quarter of 2022, driven by a record period of procedure volumes and growth in that start access through our distribution agreement with Medtronic.
We also made solid progress towards improving back orders on key product lines and we continue to expect our supplier dynamics to normalize by the end of the year.
Capital revenue in the second quarter of <unk> 7 million compared.
Compared to <unk> $3 million in the second quarter of 2022, driven by higher capital conversions in all regions.
Service and other revenue of <unk> 7 million.
It was up from <unk> $4 million in Q2 2022.
non-GAAP gross margin of negative 49% in Q2 improved sequentially from negative 60% in the first quarter and what's favorable compares to the negative 129% registered in the second quarter of the prior year.
The improvement in our non-GAAP gross margins continues to be primarily driven by improvements in manufacturing efficiencies and improved leverage on higher production volumes.
Improving our gross margin continues to be a point of emphasis for us and we are on pace to show marked year over year improvements in 2023 with a forecasted path to positive gross margin in Q1 2024.
As we have already started to experience production volumes will continue to ramp up faster than future labor and overhead costs, leading to improvement in gross margin.
In addition to volume is driving this improved trajectory, we remain focused on driving efficiency, improving yields and bringing select processes in house.
non-GAAP operating expenses were approximately $14 $5 million in the second quarter of 2023 down 26% from the same period last year.
We continue to realize the benefits of our discipline around expense management and expect our full year 2023, non-GAAP expenses to decline meaningfully on a year over year basis as compared to 2022.
Yes.
Excluding specified items, our non-GAAP net loss for the second quarter of 2023 was $17 6 million or <unk> 60 per share compared to a non-GAAP net loss of $26 2 million for the second quarter of 2022 or <unk> 93 per share.
Our total cash and cash equivalents balance, including restricted cash at the end of the second quarter of 2023 was $61 5 million.
Our cash burn was $15 $2 million in the second quarter down 41% from the prior year second quarter.
For the full year of 2023, we now expect revenue to be in the range of $20 million to $22 million driven by growth in vacuum out procedure volumes positive momentum for new software launches distribution revenue from card access products and a Q4 approval of vacuum play in the United States.
We appreciate your continued interest and support and I will now turn the call back to the operator to facilitate our Q&A session operator.
Okay.
You will now conduct our question and answer session. As a reminder, ask a question. Please press star one on your telephone Lake Mary Thank you Danielle.
So John a question. Please press star one again, please standby, while we compile the Q&A roster.
Our first question comes from the line of Dan Murray, Hy Bon and <unk> go ahead.
Hi, David Hi, <unk>, congrats on a nice quarter here.
I wanted to ask first here to understand a little bit more about your guidance you had a lot of nice wins this quarter that led to that record procedure volume you mentioned re engaging former users.
From Houston, PSA cases, and.
I'm, assuming that you were able to recapture some revenue from the back orders.
Earlier this year. So can you tell us a little bit about what's being assumed in that guidance anything you can on sort of the cadence and how much of this these windsor sustainable here.
Sure.
Thanks, Larry Let me walk through each of the factors that contributed to results in the quarter first really was in procedure volumes right now given the supply dynamics we face.
Our revenue and procedure volumes are tracking pretty closely with one another.
Managing through the supply chain dynamics that we have talked about throughout the course of this year and while we were able to resolve.
Some of those in the second quarter, we will still face some headwinds from supply disruption here in Q3.
Accordingly, we have.
We are seeing shipments pickup for key raw materials for <unk> and that is that's what gives us confidence that the supply chain dynamics will.
By the end of the year.
As it relates to the assumptions and guidance for the rest of the year, we will expect to see some seasonality in procedure volumes in Europe here in the third quarter Europe represents of it outside the U S represents about 50% of our procedure volumes, maybe I think it's actually a little bit higher than 50% and we.
We will resolve some back orders here in Q3, but likely carry.
Into Q4 with full resolution.
By the body.
By the end of the year. So we would expect fairly similar trends to characterize our performance here in the back half of the year as we saw in the first half of the year. If you go back to 2022.
Hi.
First half second half basis, we had about 40.
3% to 45% of revenue in the first half of last year with the balance in the back half of the year. If you look specifically at the second half two is about 57% of the revenue came in Q4.
And then the balance coming in Q3, so we would expect fairly similar quarter to quarter progression here in the back half of the year that you saw.
Last year the.
Only additional thing I would point out here is capital as you know.
It has its ebbs and flows to it we did have a decent quarter here in Q2 on capital we recorded no capital revenue in the first quarter of.
Of the year. So that is obviously a variable given the size of capital revenue relative to our total total base that could impact the phasing of revenue here in the back half of the everywhere, making no heroic assumptions around the capex environment.
Okay. That's really helpful. Nothing her out there okay.
And then maybe I can ask a little bit of a accu blade tiny bit of a shift in the timing for that that sounds like a Q4 approval is expected what should we think about as we.
Ramp.
Our expectations what are you thinking about in terms of timing for the catheter to go through Vac committees and how quickly we might start to see some improvements in utilization with that plus the nine point out launch thanks for taking the questions.
Sure. So on the utilization side, we've been very encouraged and quite frankly, thats trended a little bit better than we had expected on the.
Pick up we are seeing in utilization in procedure volumes, especially in the U S. On the heels of some of the software releases that we have executed over the past six months I think as we go back and reflect a little bit on the performance of the business one of the things that we had.
<unk> and commented on was the extent to which we needed to make software improvements that would be critical to better aligning user experience with more conventional workflow simplifying the procedure and ensuring that the benefits of vacuum that or not.
Difficult to access for our customers and the impact of simplifying procedure workflow as well as bringing some very targeted software releases and technology upgrades to market has had a more significant impact on our business.
Then we might have expected and one of the things that I mentioned in my prepared remarks that that is is is showing through here as many physicians who had an interest in what <unk> is doing several years ago, whether that was because they were looking for solutions for persistent afib patients are more complex patients who subsequently found that the <unk>.
Technology did not meet their expectations are coming back to utilizing the system more regularly and more consistent at a more consistent pace. So that is helping drive higher for some higher than planned procedure volumes.
In the especially in the U S. So as we think about how accurately fits into that this becomes something that we will ultimately help us accelerate our growth performance in and capture anywhere from 30% to 50% more revenue per procedure and also continue to help from a cost perspective with our.
<unk>, allowing physicians to truly use <unk> on a standalone basis. So as we think about the approval timeline here in Q4.
We would expect to see fairly modest contribution for Machiavelli is reflected in our guidance and that largely coming from existing accounts and then we will utilize this as a as it as a catalyst to drive new account adoption because if you look at our installed base, we have largely come to the end of the <unk>.
Calvin removal and sort of repositioning process there'll still be some of that on a regular basis, but as we think about really growing the installed base in a more meaningful way actively will be important to that especially in 2024, but given the adoption that we're seeing and mapping and mapping procedures. Both in the U S and in markets outside the U.
That is helping drive the overall business when you accumulate.
As we await the <unk> approval and launch here.
Later this year.
That's very helpful. Thank you David.
Thank you.
Our next question comes from the line.
John Young from Canaccord Genuity go ahead John .
Hey, Jamie it's John on for Bill Thanks for taking our question.
If you could start a cash burn in Q2, the $15 million can you talk about the current cash runway and just expectations for cash burn throughout the rest of 2023.
Sure John So youll see in our in our 10-Q that will be filed shortly we continue to expect to have at least a year of cash here.
So we have made significant progress here, reducing our cash burn as we've talked about.
On our past several calls a few things to talk about with respect to the cash burn here, we had about $1 billion.
Incremental inventory purchases, both on disposals and capital related supply chain items and Thats really.
To reflect the higher demand that we're seeing and also to ensure that we have appropriate supply us in the longer lead time items as you kind of if you go back and look at the financial statements from last year.
Did bring down the inventory very significantly and move to a much more hand to mouth purchasing strategies with respect to our own inventory as we went through a restructuring initiatives now as we're starting to see demand pick back up again at US play a lot more offense with respect to our commercial business.
<unk>.
<unk>.
Bringing forward some of those purchases of long lead time items I just wanted to key factors here that will impact our cash burn.
Both in the back half of the year and into 2024 is the continued improvement in gross margin that we are seeing and expect to continue to see because as you start to see that number move toward a positive trajectory. It has a meet and material impact on.
Our cash position and that is one of the key that is why we're so focused on not just driving more volume through higher demand, but also.
We significantly reduced our manufacturing overhead footprint, we are looking at more processes that we can bring in house or to reduce costs. We are rigorously focused on driving yields higher on key products and ensuring that we're maximizing the efficiency of that investment because that is the primary title to seeing the cash burn go.
From this from something like in the mid teens, what Youre seeing right now too.
Down toward the low double digits.
Great I appreciate all that color and then just on the traction youre seeing if I'm hearing your comments correctly. It seems like a lot of the procedure volume is in the United States are seeing nice growth. There, maybe just any incremental color on accounts, where you're seeing the sand in terms of both.
More procedures from your mapping update <unk>, adding more physicians using the same comp what's already in place are you seeing it in academic centers or anything that you see that's identifiable continue a pattern that's going forward. Thanks for taking our questions.
Yes.
Thanks for the question, John and maybe just one.
One last follow up on your last question as you as we've talked about for probably over a year now when we had entered into the agreement with Medtronic on let's start access in April of 2020.
Two we talked about having cash kind of through the middle of 2024 that is certainly extended today and well into the third through the third quarter of 2024, and we continue to make very good progress pushing that out.
Through our own internal initiatives around underlying strength in the business, we continue to make.
A very disciplined decisions with respect to operating expenses I believe our head count now is almost at the lowest level.
In several several several years. So we are making every effort to optimize resources, which is allowing us to continue to push out.
Our cash cash runway and while I can't comment I will say, obviously in November yet where we are.
We are undertaking every.
Feasible effort to both drive growth in the business as well as a pushout.
That cash runway and we've done I think a very consistent incredible job and that will can and will continue to do so.
With respect to procedure volumes and what we're seeing on usage.
The pattern has really been more about where physicians are using accu map and if you rewind kind of like 12 to 18 months ago. One of the things that I think it was a real aha moment for me when I moved into this role was how much Jackie map had really been relegated to a adjunct system.
<unk> being used in the Super Super complex cases.
Second reduce third redo that means like your third or fourth procedure and that just isn't.
There aren't enough of those procedures or they take place at so many different centers you can't really build a big enough business on that so the investments that we've been making in product development have all been about making that it came out more relevant for everyday routine cases still focused in this complex segment of the market, whether that's first redo or de novo persistent.
Of which of which there are hundreds of thousands of both of those procedures combined.
That has been one of the primary differences.
That is resulting in the uptick in procedure volumes as physicians are finding that not only can they use vacuum. After these extraordinarily complex cases, but they can use vacuum app and still albeit complex cases, but ones that are more that are more routine that for lack of a better way to put us get us on the playing field and.
What we've really been trying to do with the majority of the product launches just continue to clear the way for physicians to use vacuum out more regularly and that's been the primary.
Factor that we've seen driving.
This uptick in utilization.
Great. Thank you.
Thank you. Our next question comes from the line.
Murray Kessler.
Go ahead Margaret.
Hey, good afternoon, thanks for taking the question.
I wanted to start a little bit on PSA first and then any detail to the extent you guys have it of how that's impacting your business if I heard earlier.
Comment that vacuum App is being used and PFA are you, saying that maybe at new accounts any pullback in usage I guess the vacuum late in those accounts or really any details over whether this is an acceleration of vacuum actress that.
Pull back in general Thanks.
Yes.
It's a great question Margaret and it's one that we.
We kind of continue to ask ourselves here internally.
The way.
I don't want the way we get asked the question a lot.
Both of them are our customers and I think the way you're asking it to is is it accurate map versus PSA or is it accu map enhancing PFA and I think it's fair to kind of have a conversation a year or so ago I might have said, it's probably more like accu, Matt versus TSA, but what we're finding is that in sites that are.
As in PSA that doesn't abandon the need for mapping. So we did our first commercial cases, a couple of weeks ago.
With the center utilizing fair pulse.
Thank you Matt to do a persistent.
Persistent afib case, both doing pulmonary vein isolation and also using <unk> guided therapy to treat outside the pulmonary veins.
Done cases in <unk> and in.
The U K using utilizing accu map with galaxy.
Done.
We see a ferro was just launched so fair it has its own mapping system, but we we would expect to continue we are running a study now at Brussel Brussels.
Brussels looking at the use of vacuum app with.
Yes.
With PSA So we would expect to see continued utilization of vacuum app and actually that potentially being a source.
Incremental cases.
Case volumes now and scenarios, where you are seeing PFA displace.
Other therapies, you might see something we might see some pullback in inoculate utilization, but that's not what we've seen.
So far.
<unk>.
The only additional observation I'd make is it depends where you think PSA fits in this market, but we do have a reasonable cohort of our users are actually using accu map with cryo as well.
So the need for a diagnostic tool, particularly in any persistent patient.
Very much is still there.
With PFS and we are seeing our customers.
Finding incremental need for that diagnostics, all using PFA and then finding vacuum out to be a pretty good.
A solution for them.
Okay.
That's helpful. I know, it's early so I appreciate those comments.
And then I wanted to follow up a little bit on the U S.
Heard your comment, saying, hey, you're saying, maybe some earlier cases being done or the use of vacuum out, but yes, moving a little bit earlier and that kind of treatment paradigm, but.
You also mentioned kind of thing more routine usage and you mentioned kind of new users wanting to come online so.
Is this something that's kind of a couple of months old or are you getting a little bit more I guess color and clarity, where you're nine months or 12 months Youre, saying hey.
Starting to see these folks.
That's really the core drivers and then.
Slight tweak on that question, but any sense around procedures for a question or versus per account that you guys could give us.
Sure.
Sure. So let me go through.
Each of those in terms of being used in more routine procedures. The way we've thought about the market. If you think there is rough.
Like $1 1 million.
Celebration procedures, and maybe 500000 of those would fall into this category of.
More complex the vast majority of those are de novo persistent and first time.
Sure.
Redo cases.
We had previously found and what we had previously kind of.
Or was that actually map was really getting used in second and beyond reduced or only about.
'twenty one.
120000 of those a year sometimes.
Sometimes getting used in transient.
<unk> sustained rhythm like transient neutral type of cardio is again, a fairly small percentage, but that was I think largely a reflection of the fact of the knee.
Key.
User interface and user experience gaps that needed to be solved with <unk>.
Software and Thats already kind of embarked first as we as we recalibrated our product development roadmap. So we've seen as we've brought much 80 significantly improved user experience.
As well as some improved.
Procedural efficiency capabilities to the system, that's getting us into these real de Novo persistent cases, and Thats, where ultimately we we need to be and we've now seen that pretty consistently.
Sure.
Especially in the U S and in Europe , we continue to be used a lot for redo cases about 80% of the procedures. We do in Europe are reduced in the U S, which is obviously the largest single market and it will be the key growth driver for the business going forward. We are seeing good adoption across an increasingly broad.
Spectrum of procedures.
Hi.
Do you still have decent concentration around around reduced but definitely moving much more into that first time redo and de novo persistent and we've seen that pretty consistently.
Past four five months.
The recover study definitely helped we have seen a pickup in procedure volumes subsequent to the publication of that study in late April in that and Thats kind of a first time redo cohort which was the.
Sort of a target population there and the population that saw the greatest benefit.
In that study so it's been a inc.
Increasingly consistent trend and one that we expect to continue when we launched <unk> nine and Accu blade and then ultimately acumen 10, which allows us to do contact and non contact mapping and just switched between the two in a very seamless way.
Once you add that with an ablation solution, we have a very very strong case to be made that you can do that.
<unk> should be used in certainly those de novo persistent cases on a very regular basis to do both pulmonary vein isolation as well as to treat areas outside the outside the pulmonary veins, which which is pretty well established as the source of most.
Complex disease.
Yes.
Okay, and any kind of details you can give in terms of kind of procedures per question, whether it's kind of a new clinician or kind of an established position just to kind of support that.
Thesis would be great, yes, so right now in the U S.
We are.
Pretty much tracks.
Tracking at about three ish procedures.
For console per months and Thats up.
Thats close to probably.
Double what we were doing.
A little over a year ago. So do we reoriented our U S installed base has gone from 42 to <unk> 27.
And then the last time, we did about 250 procedures.
This quarter in the U S and the last time, we had that level of procedure volumes in the U S was when we had that installed base.
42, so so we are seeing a pretty nice uptick in procedures per console per month, which is.
Which is what I think is probably the best metric I can give you to help corroborate that the other thing I mentioned is that we we did cross over 100 Accu map users globally. We are seeing we are U S user base in terms of number of physicians that have to grab the number.
It was up also even with the smaller.
<unk> installed base. So those are hopefully those metrics give you some some clarity.
That's great really appreciate it.
Yes.
Thank you I'm showing no further questions at this so this will conclude today's conference call. Thank you for participating you may now disconnect.
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