Q4 2023 Surmodics Inc Earnings Call
Welcome everyone <unk> fourth quarter and fiscal year 2023 earnings call.
Note that these school he's been a webcast.
The webcast is accessible through the Investor Relations section after sort of <unk> website at www Dot thermotics at dotcom or an audio replay will be archived for future reference.
Earnings press release, these closings or Marty quarterly and full year results was issued earlier today and is available on the company website as well.
Before we begin I would like to remind everyone. The 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 19 at 95 and include statements regarding <unk> future financial and operating results.
Other statements that are not historical facts. Please be advised that actual results could differ materially from those stated or implied by <unk> forward looking statements, resulting from certain risks and uncertainties, including those described in the company's SEC filings.
<unk> disclaims any duty to update or revise these forward looking statements as a result of new information future events developments or otherwise.
He's also also includes reference to a non-GAAP measure because pneumatics believes they provide useful information for investors.
<unk> earnings release contains a reconciliation table to GAAP results.
Now I'd like to turn the call over to Gary Maharaj Robotics, President and Chief Executive Officer. Please go ahead Sir.
Thank you operator, welcome everyone to our fourth quarter and fiscal year 2023 earnings call.
First let me provide you with a brief overview of what we plan to cover today I'll start off by discussing our financial performance for the quarter and the full year, followed by an update in our recent operational progress and thoughts on our outlook for fiscal 'twenty 'twenty four.
Tim will then cover our fourth quarter financial performance in greater detail I don't reveal fiscal 'twenty full guidance, which we introduced in our earnings press release today. We'll then open the call for questions with that let's begin with a discussion of our financial performance in the fourth quarter, we generated total revenue of $28 million.
8% yea over year grilling.
Our revenue performance exceeded the high end default Guy just strange, which implied year over year growth of 5% for the fourth quarter due to strong performance in both of our business segments.
Our total revenue performance in the fourth quarter was impacted by a 1 million dollar headwind related to the year over year decline in the severe BCB license fee revenue.
Excluding this movie like BCB license revenue, we achieved total revenue growth of 12% year over year.
Revenue from our medical device segment grew 8% year over year to $21 million. This again, despite the 1 million dollar headwind from the year over year decline into the license fee revenue.
Excluding this licensee revenue our medical device segment delivered 15% revenue growth year over year fueled by increased royalties and license fee revenue from our performance coatings.
Product sales, including major contributions from a pounds arterial thrombectomy platform.
And R&D services revenue.
We're also quite pleased to see robust contributions from our in vitro diagnostics diagnostics or IBD segment as well.
As we had anticipated in our last earnings call. Our IV segment returned to growth in the fourth quarter, increasing 7% year over year to $6 $9 million, but customers returning to more normalized purchasing pattern.
<unk> taken steps in recent quarters to manage Covid era elevated inventory levels. In addition to our revenue performance in the fourth quarter. We achieved notable year over year improvements in our operating results delivering adjusted EBITDA of $1 $7 million, a $4 $2 million improvement compared to the fourth quarter.
Last year.
Importantly, we generated $1 $3 million of cash flow from operations during the quarter as well.
Now it's important to note that our fourth quarter performance was favorably impacted by the delay of certain product development activities and investments in our commercial organization that we had contemplated at all full year guidance.
Did this while we focus on executing against the severe stocking orders, which valeant describe shortly we expect to resume these activities and investments in fiscal 'twenty two.
All of our financial performance in the fourth quarter culminated in a strong year overall.
We delivered total revenue of $133 million in fiscal 2023, representing growth of 33%. Our fiscal 2023 revenue included $29 $6 million of license fee revenue related to us is the ECB, including $25 million recognized in.
Connection with our cheap and up at PMA approval compared to $5 $7 million in fiscal 2022.
Excluding <unk> license fee revenue, we grew total revenue by 9% year over year in fiscal 2023, driven by 14% growth in our medical device business, which more than offset a 3% decrease in our IBD business.
We also closed out the strong from a capital standpoint cash provided by operations in fiscal 2023 totaled $10 $5 million and we ended the year with over $45 million of cash and investments to support our future operations.
Turning now to our operational progress in the fourth quarter.
We are pleased to bring fiscal 2023 to a strong close by delivering on the three strategic objectives that we laid out to the beginning of the year.
Which as a reminder were as follows first to achieve FDA pre market approval or PMA followed suit.
D and support our partner Abbott as they prepare to Camilla Michel is the product.
Second advance the initial commercialization of all pumps arterial thrombectomy and sublime radial platforms and food drive revenue and cash flow growth somewhat medical device performance coatings offerings IBD businesses.
With each objective is all context I'll discuss our progress during the fourth quarter with respect to each one beginning with surveil.
After securing FDA P. M E forces deal, which we announced in June 20th our team has been intently focused on supporting Abbott told commercial partner as they prepare for U S commercialization.
As we shared in our last earnings call.
Our top priority during the fourth quarter was to ensure we have the capacity materials and processes in place to manufacture and efficiently supply Atlas product and address the anticipated demand.
With respect to each of these key areas. We believe we are well positioned to support abbott's future launch and initial commercialization obviously the M. D C b.
With this as a backdrop I'm pleased to report that we received abbott's initial stocking order in mid August consistent with our stated expectations.
Our team began manufacturing products through the remaining weeks of the fourth quarter.
The production process has been running smoothly in October we made the first half hour shipments for the initial stocking order generating all foods commercial revenue related to the <unk> in the first quarter of fiscal 'twenty faithful.
As a reminder, when shipping Seville orders still a commercial part, though we recognized two revenue streams under the tubes are followed agreement and agreed upon transfer price per unit and an estimate of the profit sharing both of which will be reported as product revenue upon shipment within our medical device segment.
As we have shared previously we expect to fulfill abbott's initial stocking order through multiple shipments following that initial shipments made in October with additional shipments in the remaining months of our first fiscal quarter.
In tandem with this effort will continue to engage with abbott's vascular team as they plan to commercialize the product.
We are limited in terms of what we are able to communicate publicly about abbott's commercialization plans I'm pleased to share that we expect commercial launch offices El DCP will commence in the first half of calendar 2024.
We're energized by our recent pace of progress and the prospect of bringing <unk> to physicians and patients and we're equally excited of whats potential is a key growth catalysts for the following reasons.
From a product standpoint, Seville reflects our industry, leading expertise in developing drug delivery of drug coating technologies.
It's patented coating technology provides unmatched uniformity and consistency of drug distribution, along with little particulate generation and downstream ambalaj.
Let's see design and features enable it to achieve therapeutic outcomes consistent with the most prominent drug coated balloon to the market a device that uses 75% more tactical capsule and has a two year results of a full 446 patient head to head transcend trial demonstrates it.
As we look forward to sharing a three year results of this trial, which will be presented at the symposium on November the 15th.
From a market standpoint, we believe that <unk> addresses a 1 billion dollar market opportunity in peripheral artery disease based on the estimated 500000 above the knee procedures performed in the U S. Each year.
Of these 500000 procedures approximately a quarter of them are currently being addressed using drug coated balloons, which provides a significant opportunity for <unk>.
We're also pleased to see the resolution in the marketplace about potential risks posed by Paclitaxel coated devices.
And it's led to health care providers in July 11, the FDA communicated that the risk of mortality associated with these devices.
No longer supported based on the totality of the available data and analyses.
We believe that this may be favorable to increasing paclitaxel drug coated balloon market adoption importantly, the product labeling forward. So the OECD is consistent with the updated view.
Lastly from a partnership standpoint, we believe Abbott is well positioned to take advantage of these attractive market dynamics in 2024, and es to come with a significant sales and marketing presence in the vascular space and a complementary suite of existing products, including stents and author activate devices.
Also the <unk> fills an important gap in their portfolio for peripheral artery disease, providing them with a complete and comprehensive offering for the existing and potential customers look.
We look forward to future progress in this market and remain committed to supporting that.
A common arterial thrombectomy and sublime radial platforms.
We ended the fourth quarter with 23 territory managers at quarter end compared to 22 at the beginning of the quarter.
With an average rep tenure of 16 months at quarter end, our team continued to make progress through what we have referred to as the early market development stage of our commercialization effort.
Specifically, we continue to lay a foundation for growth by raising awareness of our pumps and supplying products working through the value analysis committees at new accounts and driving repeat orders from existing customers.
From a new account perspective, we expanded our base tool with 235 customers at the end of fiscal 2023 compared to more than 215 at the end of the third quarter and just over 100 end of fiscal 2022.
From a utilization standpoint, we continue to see attractive reorder rates from our existing customers.
Along with a notable uptick year over year and average revenue per customer.
And we signed our first integrated delivery halfway or IBM contract with a major health system operating across more than a dozen states for all three products. We're excited about the expanded access to this contract will provide as our reps continue to expand our pipeline of prospective customers.
Yes.
The feedback we received from new and existing physician customers. This past quarter clearly demonstrates the advantages of our pilots in supplying products and they are resonating in the market. Many of our new users have adopted the <unk> thrombectomy platform after using it during a key sweat intervention products.
And approaches that they traditionally employ fields.
This unique ability at the policy by quickly it easily redeploy in situations like this even with first time physicians and without the need for capital equipment and minimal minimal need for lytic drugs.
Combined with that we sell so are physicians actually experiencing on the table instantly X helps them recognize the value it brings.
Likewise.
Ill sublime radial access platforms ability to treat patients from the risks to the foot reducing length of stay blood loss complications of theme.
Continues to build awareness among dedicated radio lists across the industry and we look forward to further penetrating this market.
And lastly from a revenue contribution standpoint, I'm pleased to report that we continued our recent momentum with core deposits and supplying sales exceeding $1 billion in revenue for the food food consecutive quarter now.
Core performance of the fourth quarter ultimately enabled us to generate growth in sales of these products in excess of 250% for the full year fiscal 2023.
Fueling the 22% growth in the medical device segment product sales that we achieved this year.
In a relatively short amount of time of small sales forces to establish a solid foundation for future growth positioning us to drive performance in the years ahead.
We look forward to building on the achievements in fiscal 2024.
Third turning to our third strategic objective, which is driving revenue and cash flow from our medical device performance coatings offerings in IBD business.
For full year 2023.
Combined revenue from these two areas of our business increased 5% near the end of our long term girl of generating low to mid single digit growth on an annualized basis.
Medical device performance coatings team delivered an exceptional year with growth of 9% in fiscal 'twenty, three driven primarily by strong sales of our performance coating reagents, coupled with higher royalty revenue from broad based growth across applications as procedure volumes in the medical device industry.
Returned to more normalized levels as compared to fiscal 'twenty two.
Revenue from our IBD business decreased 3% in fiscal 2023 as customers focus on reducing safety stock levels due to lower demand across the industry for COVID-19 testing products and the normalization of the supply chain.
With that said as we shared on our Q3 earnings call would lead this macro related industry headwind is largely behind us and we were pleased to see return to growth that we anticipated in the fourth quarter with IBD revenue, increasing 7% on a year over year basis.
In addition to delivering sub 5% revenue growth on a combined basis in fiscal 2023.
Medical device performance coatings offerings in IBD businesses businesses generated significant cash to support the commercialization and enhancement of our vascular interventions portfolio.
Before discussing our priorities in fiscal 2024, let me take a minute to highlight some of the recent progress with respect to our new product pipeline.
Notably our regulatory team engaged ft to secured five stinky clearance for the preside solutions, our latest and most advanced hydrophilic coating technology ever created.
Preside is designed to be easily applied in Kobe loosely bonded to medical devices, and the neurovascular coronary and peripheral vascular spaces, using our patented photo link curing processes.
It is specifically formulated to provide industry, leading lubricity, reducing friction for these devices to access and navigate the most tortuous vascular pathways.
These benefits will enable physicians to ultimately to reached distilled treatment sites and deliver improved therapeutic outcomes.
Preside as also formulated to deliver enhanced coding durability, resulting in the reduction of particularly <unk>, which will promote compliance with today's increasingly more rigorous regulatory requirements. This is a critical requirement for our customers, especially in the neuro market segment, but there's other mark.
Can segments as well.
This development and regulatory clearance of preside I'll quote new coating technology.
<unk> continued commitment to innovation and industry leadership in the medical device coatings industry.
Which has been a defining area of differentiation and a core competency for <unk> throughout much of our history.
I'm pleased to announce the commercial launch of preside in October and believe it will raise the standard of performance for hydrophilic coatings.
<unk> be useful functionality of catheters across many complex applications and secure our leadership and competitive position.
And lastly, with respect to pumps venous thrombotic to MS system. After working through the limited product availability, we experienced in the third quarter, which piece. The initial months of follow a limited market evaluation. We were pleased to have completed 45 cases through the end of October.
The feedback we have gotten some physician users in this limited market early with <unk>.
Evaluation has highlighted the device's ability to effectively address at variety of different clubs morphology extracting.
Extracting these clubs and utilizing utilizing its architecture of a screw to macerate acute and sub acute clots and.
And our physicians also appreciate the unique ability to adjust the diamond the basket.
Allowing them to reduce the stress on the interiors Devine and avoid damage to the valves and Devine wall itself and it also allows them to make multiple passes with a single device.
This and other park feedback we've gotten to date has been invaluable enhancing our appreciation for the devices Prime we clinical advantage when used in a real world setting and informing our approach for training new clinicians on the device to maximize its effectiveness.
Multiple scenarios that they will encounter with patients we look forward to gaining insight to some additional <unk> as we prepare for commercialization in the first half of fiscal 'twenty four on a limited basis before commencing a full launch in the second half of the year.
Sure.
Stepping back fiscal 'twenty three it was a year of <unk> success in the face of major challenges.
Sponsor with significant regulatory setback with the receipt of a non approvable letter in the second quarter for the <unk>, we quickly engage it proactively engaged with the FTE to amend our PMA application.
Ultimately resubmitting in securing the PMA from this FTE ahead of our expectations intend.
In tandem we took important steps to control the use of capital is beginning in the second quarter executing superbly against this plan to reduce our average quarterly cash in the second half of the fiscal year.
And then despite the spending reductions we continue to advance initial commercialization of pumps arterial and sublime radial products fueling the medical device segment growth in product sales of 22% for the fiscal year.
And we drove strong revenue and cash flow from our medical device coatings offerings and IBD businesses on a combined basis and lastly, we significantly enhanced our cash balance by achieving the $27 million milestone payment related to <unk>, PMA approval and raising $19 3 million.
Net proceeds under our new five year credit agreement.
With durable and profitable core businesses, a portfolio a pipeline as key catalysts and more than $45 million of cash and investments to support our operations and access to approximately $61 million in them.
Favorable debt capital to provide additional financial flexibility.
We believe we are strategically positioned for future success.
As we look ahead to fiscal 2020 for our team is focused on executing the following strategic objectives.
To drive our near term growth catalysts in our vascular interventions portfolio, namely surveil pounds, and sublime, including to launch a followup pounds venous products platform too.
Two to drive durable growth of cash flow generation across our core medical device performance coatings in IBD businesses and.
And three to enhance our pounds some volume in medical device performance coatings portfolios by developing new products and line extensions to facilitate our long term growth.
As our guidance range implies we expect to accelerate our total revenue growth profile in fiscal 2020 for driving growth of 9%, Ohio, including excluding sorry license fee revenue related to <unk>.
I also want to stress that cash efficiency remains a top priority for our organization. Despite our influx of capital and even in light of the large number of projects. We have Tim will provide more detail in his commentary.
As we pursue these three strategic objectives, we are focused on executing efficiently as possible to maintain a healthy balance sheet and positioned symbiotic with strong sustainable long term growth and value creation going forward.
I'd like to thank my colleagues across the entire organization for their contributions so a success this past year.
And their commitment to our mission of helping humanity by improving the detection and treatment of disease.
As well to our customers and shareholders for their ongoing support with that I will turn the call over to Tim Arens, Our Chief financial officer to discuss our fourth quarter results and fiscal 2024 guidance, Tim. Thank you Gary.
As noted all references to fourth quarter results are on a GAAP and year over year basis total revenue for the fourth quarter of fiscal 2023 increased $2 million or 8% to $28 million.
Excluding surveil GCB license fee revenue total revenue increased $3 million or 12% to $26 9 million. Our earnings press release includes detailed reconciliations of total revenue excluding <unk> license fee revenue.
Product revenue increased $1 million or 7% to $15 4 million medical device product revenue increased 570000, or 7% to $8 5 million driven primarily by increased sales of our pumps thrombectomy device platform as well as our performance coating reagents. This.
Growth was offset in part by a decrease in proprietary specialty catheter product sales due to the completion of our customer development program.
Product revenue increased 400000, or 6% to $6 8 million, our diagnostics business benefited from strength in our microarray slides and Amgen offerings.
Royalty and license fee revenue.
<unk> 540000, or 6% to $10 1 million.
Royalty and license fee revenue from our performance coatings increased $1 5 million or 21% to $9 million compared to the prior year period.
The quarter benefited from improved U S procedure volumes.
In addition, we continue to see growth from customer devices, using our serene coating as well as growth from recent customer product launches.
Surveil drug coated balloon license fee revenue declined $1 million or <unk>, 48% to $1 1 million corresponding with the decrease and transcend clinical trial costs.
R&D services revenue increased 470000 for.
23% to $2 6 million.
The increase was primarily due to higher customer demand for our performance coatings services in our medical device business, which was impacted in the prior year period by our customer supply chain challenges.
Moving down the P&L product gross margin was 54, 2% compared to 61, 1% in the prior year period as we discussed on last quarter's call. The decrease was expected and was driven by the adverse mix impact from increased device product sales, which have lowered product.
Gross margins from under absorption and production inefficiencies, including exploration of inventory associated with low production volumes during the scale up days following our initial commercialization.
R&D expense, including costs related to clinical and regulatory activities decreased $2 6 million or 21% to $9 7 million, reflecting the benefits of the spending reduction plan, we implemented during the second quarter of fiscal 2023.
R&D expenditures were favorable to our expectations as a result of timing for certain projects in our pipeline.
SG&A expense decreased $1 million or 7% due to lower direct sales head count compared to the prior year period related to the aforementioned spending reduction plan.
SG&A expenditures were favorable to our expectations as a result of the timing of investments in our commercial organization.
Our medical device business reported an operating loss of $2 4 million compared to $6 2 million in the prior year period, reflecting our disciplined expense management favorability and timing of operating expenditures and broad based revenue growth.
Our IBD business reported operating income of $3 2 million or 46% of <unk> revenue compared to $2 8 million or 43% of revenue in the prior year period, reflecting a return to revenue growth this quarter.
Turning to income taxes, we reported an income tax benefit of $9 5 million compared to an income tax expense of $7 9 million in the prior year period.
As we discussed on last quarter's call the substantial tax benefit was expected and offset the substantial tax expense recorded in the third quarter of fiscal 'twenty three as a result of the $27 million Surveil PMA milestone.
As a result, the $7 $9 million tax expense in the fourth quarter of fiscal 2022 included a noncash charge of $10 2 million to establish a full valuation allowance against U S deferred tax assets.
GAAP net income was $6 7 million or <unk> 47 per diluted share compared to a net loss of $14 7 million or a loss of $1 six per diluted share in the prior year period.
non-GAAP net income was $7 5 million or <unk> 53 per diluted share compared to non-GAAP net loss of $3 7 million or a loss of <unk> 26 per diluted share in the prior year period.
non-GAAP adjusted EBITDA was $1 7 million compared to adjusted EBITDA loss of $2 5 million in the prior year period adjusted.
Adjusted EBITDA includes 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 fourth quarter of fiscal 2023 with $44 6 million in cash.
$9 $4 million in long term debt cash.
Cash provided by operations during the fourth quarter was $1 3 million and capital expenditures totaled 750000.
As of September 32023, we had 40 554 million in cash and investments $29 4 million in long term debt and approximately $61 million in additional additional borrowing capacity under our existing credit agreement.
Sure.
Turning now to fiscal 2024 guidance, we expect fiscal 2020 for total revenue to range from 116 to 121 million, representing a decrease of 13% to 9%.
Excluding survey our DCD license fee revenue, we expect revenue to range from $112 million to $117 million, representing an increase of 9% to 14%.
Surveil GCB license fee revenue is expected to be approximately $4 million in fiscal 2024. This compares to $29 6 million received or earned in fiscal 2023.
We expect fiscal 2024, GAAP loss per diluted share to range from a loss of $1 55 to a loss of $1 20 to $1 20 non.
non-GAAP loss per diluted share is expected to range from a loss of $1 32 to a loss of <unk> 97 per share.
I'll now share a few additional considerations for modeling purposes.
With respect to our fiscal 2024 total revenue guidance product revenue is expected to be approximately 60% of total revenue.
Driven largely by contributions from our product growth catalysts, specifically, we expect combined product revenue from our surveil parts and supply products of at least $13 5 million.
Our guidance includes surveil DCD product sales to add it for the initial stocking order in the first quarter of fiscal 2024 and subsequent orders throughout the remainder of the year.
Surveil DCD product revenue consists of revenue from both the transfer price and estimated profit sharing the two revenue streams.
There are development and distribution agreement with Abbott.
Revenue associated with our medical device performance coatings offerings and IBD business is expected to grow in the low to mid single digits from the $88 3 million of combined revenue generated in fiscal 2023.
Our fiscal 2024 diluted loss per share guidance reflects the following full year assumptions.
Product gross margin is expected to be in the mid fifties.
We expect operating expenses, excluding product costs to be flat to slightly down.
We expect R&D expense to range from $43 million to $44 million represented representing a decrease of 8% to 6% we.
We expect SG&A expense to range from 54% to $55 million, representing an increase of 4% to 6% as we invest in our commercial organization.
Interest expense is expected to be approximately $3 5 million consistent with prior year. Finally, our EPS guidance reflects a full year tax expense of one five to $2 5 million.
With respect to our revenue growth in the first quarter of fiscal 2024, we expect first quarter total revenue to range from approximately 29 $5 million to $35 million, representing an increase of approximately 18% to 22%.
Lastly, with respect to cash utilization at the end of fiscal 2023, we had $45 4 million of cash and investments, which included $3 9 million of available for securities.
In fiscal 2024, we expect to finish the fiscal year with approximately 27% to $31 million of cash and investments.
Let me take a minute to walk through what this means for our anticipated cash use in fiscal 2024 compared to 2023.
In fiscal 2023, our cash and investments increased by $26 million year over year.
Importantly, this $26 million increase included an influx of cash from both a milestone payment for obtaining surveil PMA approval as well as a net proceeds drawn from our term loan and revolving credit facility.
Setting aside the $27 million from the surveil PMA milestone payment and the $19 3 million in net proceeds from our mid cap credit agreement.
Cash and investments decreased approximately $20 million in fiscal 2023.
By comparison in fiscal 2024, we expect a year over year decrease in cash and investments to range from approximately 18% to $14 million.
<unk> seen an improvement in the use of cash and investments of approximately $2 6 million compared to the $20 million in fiscal 'twenty three that I just mentioned.
Our expectations for cash used in fiscal 2024 reflect the following assumptions the receipt of a $3 $6 million cash tax refund from the IRS associated with the cares Act employee retention credit cap.
Capital expenditures of up to $5 million compared to $2 9 million in fiscal 2023, which includes certain investments postponed last year as part of our spending reduction plan.
And payments totaling approximately $2 7 million to satisfy obligations related to previous acquisitions.
Lastly, it is important to note that our first quarter historically requires a higher use of cash to fund our working capital needs such as our annual employee bonus payments and our annual prepaid insurance premiums.
As Gary mentioned, despite a recent influx of capital cash efficiency remains a top priority for the organization.
We remain focused on disciplined expense management and optimizing optimization of working capital and importantly, our guidance assumes no further borrowings during fiscal 2024 under our credit agreement.
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 are 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 would like to ask additional questions. We invite you to add yourself into the queue again.
Darwin.
And our first question comes from Brooks O'neil with Lake Street Capital markets. Please go ahead.
Good morning.
A lot to unpack in various problem that you guys just made and to limit myself.
Two questions I'm going to just try to hit.
Hit the high points I guess as they see them I'm curious.
When we contemplate that Abbott has paid you approximately a $100 million development.
Related to surveil.
And you've just given us year one.
Tour Guide.
For Surveil that includes the revenue you anticipate from pound since the blind and surveil of $13 5 million, how should we think about whether this product is.
The potential to meet the expectations that you have for it.
And that your partner Abbott might have contemplated when they paid you about $100 million. Thank you.
Thanks Brooks first of all.
It absolutely is within the confidence limits that we set for ourselves when we started this journey a long time ago.
Especially as I would add.
Our meetings with Abbott.
It reminds me of why we all we saw them as a good partner and that continues to be demonstrated and meeting with the commercial team. The other thing is I would just offer this and this is not an Abbott statement, but you had.
Our recent acquisition of CSI gives them a really nice sales footprint.
And they do have the trifecta in this vessel in the superficial femoral artery or the FET Bob segment. They have incredible stent and superhero now. They also have the author Ectopy devices came at CSI in the food the missing component to really compete as a drug coated balloon with an anti risk synodic drug. So we are in.
Cited my directions of them have been exciting as well.
And now with the REIT.
Sort of removal of this field of Paclitaxel, causing elite mortality signal it's gone.
Just had a recent TCT and veeva meetings that continue to present that.
Signal has literally died and these devices are better for patients. So all the momentum we believed as tact positively.
Now when we look at guidance I'll turn it over to Tim the estimates we have to make and they have actuals and so we have to be cautious in how we can make those estimates going forward I'll turn that over to Tim.
Thank you Gary. Thank you for the question I think the important thing for you and everyone to realize is the most important three words that I mentioned in guidance was at least of at least $13 5 million.
The other thing I think people need to keep in mind too as we commented about abbott's expected commercial commercialization timing, which is the first half of calendar year 2024.
Please bear in mind. This is three to nine months.
Potential product revenue first or minus from Abbott to commercialization.
We'll have a lot more to say on this as we go through.
Fiscal year, but keep in mind. This does not reflect a full 12 months of revenue from Abbott.
And the last thing I'll add books.
Professor Schneider's presenting all three year data at the Veith meeting next week in New York and I think it is.
Yeah.
Paying attention to that Tim I imagine, we'll send a press release summarizing that data afterwards.
The thing you want to look for in these devices as continued durability of the signal, especially as compared to the market leading device and so once again, we have assets.
The only company.
That has a pivotal head to head randomized controlled trial against this device.
What else has with it so I think I look forward to that data be presented there.
Sure.
That's great I appreciate all that color, let me ask one more.
As we think about the world that you've developed here guys.
You have.
The beginning of significant experience with the partner.
But with sublime.
You will also have the beginning of that.
Essentially a go it alone.
Strategy with regard with.
I Miss spoke with regard to surveil and Abbott, but you go it alone with <unk>.
Sublime.
I have but since you have a deep and robust pipeline of new products.
Yeah, well, that's just a little bit about how you think about going to market with some of the high potential products that are still in your pipeline today.
Absolutely.
We to compete.
Buckets.
Certainly the thrombectomy market you can't.
Due to just the minimum to get the food product iteration out you have to have the follow on products and as I said we.
We got FDA clearance on the pounds low profile, which will allow us to go down close to the ankles and so we have other parts of these product expansion.
What we're seeing is in.
You've heard me say the future is already been created it's not evenly distributed what I mean by that is.
We're not losing.
We have 20, something salespeople versus in some cases 350, almost 400 or just sort of say a weighted average of 10 times our sales force.
On the piecewise basis.
<unk> and I would I would suggest without high pro believe we're winning every time and thats.
It's an important thing as we build out this market now clearly we have to be cash efficient.
And I recognize that this company had size.
The size of the sales forces. The strategics for example, we'll be talking about greater than $100 million of revenue.
Just on these product lines, but we intend to go.
<unk> group contracts and such and that's something we don't have to compete in an already existing markets like drug coated balloons I will see.
Just getting the first group contract under our belt, which is more than 100 hospitals. It's remarkable to me that we were able to get a contract for all three product lines.
Sartorial sublime and we haven't even launched pumps venous yet, but that's a very significant thing when you think about it I am not.
Have not kept up with it but I don't know any products in my 30, something year history gets a group contract for a product thats coming in so that tells you to.
Appetite and signal and the strength of our competitive position. So feel good of where we are yeah and I'll just I'll add one quick comment here Brooks to Gary's remarks here I think it's important to recognize what Gary described in terms of the 24 strategic objectives capitalizing on our near term growth catalysts.
And the vascular interventions portfolio, you've heard Gary mentioned parts being is there is a few other products that we've described here that are gone through limited market evaluations, we anticipate that they will be in a position for commercialization. Some point later in the fiscal year.
And we our guidance does reflect.
Minimal.
Modest revenue contributions.
From the commercialization of those products. So again this year it will not be seen a full 12 months of revenue generation from some of the catalytic products that will be coming to market from <unk>, yeah and.
And books.
Last thing about the pylon as if there was any sentiment.
Tim and I are not.
In our legacy business, our core coatings offerings of diagnostics.
Preside as the preside coding is a remarkable achievement, it's something we've worked somewhat behind the scenes for the last two years.
New intellectual property and for many customers in that business.
Especially in the Neurovascular segment.
Its unmatchable. So we're not seeding leadership, because we're focused on products. Our technology leadership is something we have drawn a line in said, we will maintain technology leadership and all the things that we do so.
Additional thing on preside thats happening and even more things were working on in the future.
Great. Thank you for all that color and I can tell you I am excited budget future.
Thank you Brooks we are too.
And our next question comes from Mike.
Witowski with Barrington Research. Please go ahead.
Hey, good morning so.
Tim just in terms of the assumption around second half.
I'm, sorry, first half calendar commercial launch for surveil obviously.
There's a 180 days range in there.
And your assumption you you have to be assuming something there I mean is it fair.
Fair to say, you're assuming somewhere in the middle of that that timeframe in terms of the 13th five.
Part of that the 13th five that's the contribution from Surveil are you assuming.
Sort of just that that that's commercialized for essentially the last three months of your of your fifth skull can can you just talk about what you're actually specifically assuming to get to the contribution you're assuming for this within the 13 pointed out.
I will say one thing and then turn it over to Tim for the detail and so one of the things into partnership with Abbott, we recognize the competitive dynamics of launch and the things that they are trying to set up and so if theres any implied weakness is because we want to respect the confidentiality SD really gear up for a major.
Launch so that explains the wide window, even though we may know what what the window really is.
We want to give them every opportunity to compete effectively with their launch planning, yes, and thank you Mike.
It's a very appropriate question is Gary kind of got in front of my answer here unlimited in terms of what I can specifically say with regard to add it but I can provide some color and thing for folks to probably appreciate is that the first half of the year will reflect the stocking order.
That we are we have been manufacturing and sending to Abbott.
And so clearly the second half of the year is going to be more influenced by.
Abbott Reorders.
Sir in the market and have commercialize the technology and the products. So I think thats, probably the extent of context that I can provide today.
Can I just ask are you are you assuming any any profit share dollars in within whatever contribution you're assuming in the 13.5.
We will and they are very modest.
We'll need some time, obviously it is an estimation that judgment and just to probably provide a little clarity for folks we will need to.
Make assumptions with regard to the units that we shipped to Abbott how many will actually be sold how many will be used for promotional activities. How much will be expired, we will have to make assumptions with regard to their selling price. So there is there is a bit of a number of variables that we need to estimate and as you can imagine we'll learn more.
More about how to think about these variables once Abbott estimates.
But know that it's a modest portion of that $13 $5 million that Ed described.
Refining the first year, we will refine that model, but you can imagine the foods C. A predictability without those assumptions in the history of those assumptions being validated can be challenging for us but.
Yes.
Alright, but there is some estimate of that I'm, assuming that's like on a 90 day trial is that right.
So we'll make the estimate at the time, we ship product to Abbott, but there will be a true up to think of house or mikes actually goes about estimated in our royalty revenue then we collect the actual royalty payments and there is a true up for an adjustment based upon our estimate versus what we received.
That will happen overtime with Abbott as well.
90 days are far farther out than that.
It will be quarterly Okay, Alright, and then last question Ive stretched the boundary of two questions, but let me let me just ask the last question I guess in terms of the <unk>.
Sales effort on pounds and supply guarantee do you expect that now now that you guys are in.
In a better.
The situation in terms of sort of the outlook for the future and sort of the vision there and frankly the balance sheet is as there's more investment in in in the sales team there makes sense at this point thanks.
<unk>.
If we didn't have.
The short answer is yes, but it will be good as we go so in other words as we start generating returns from that business, we'll be investing it in that business.
Have drawn a line on what we should be investing on a go forward basis show a cash outflow of <unk>.
<unk> cash forecast usually.
Revenue and earnings but cash is a.
Procreate trough will limit for where the company is right now could we go faster I believe so, but we don't want to become a balance sheet story as the public company in this macroeconomic condition. So we'll grow as we go we're not going to double the size of the sales force I can I can tell you that but we will be selectively adding.
Another key thing is when we do launch of pounds Venus right.
We'll have to be interpreting whether we can go fast again in a very disciplined fashion with some more feet on the street.
The one thing we have to face as you as you get GPO contracts, which is.
I don't know if emphasizes which is remarkable for a company hit the stage right now and GPO contracts and IBM contracts you have to demonstrate penetration of that contract. So that will be covering on the extra 100 hospitals and so we will be doing an analysis of where the heat maps.
To seed our territory managers and field clinical specialist but.
We can't over accelerate there thats the big discipline, we have to put in place this year.
Can I just ask a quick follow up and this is sort of a big picture longer term I mean, if if if we're having this conversation three years from now and and Venus has obviously been.
Commercialized at that point for two plus years I mean, it is possible that there could be a doubling of the sales sales force isn't that at that point I mean, it's typical yes.
To really compete well eventually need a minimum of 50 people right.
You can go up from there, but getting to that 50, and making sure you have the.
We want to be on the.
The conservative side of sales capacity utilization right deal was continue to grow.
Fund that and we also have to look at our sources and uses of cash and our debt levels and our senior debt senior debt repayment level. So a lot of things come into play there, but yes three years from now.
You would be able to support that market growth you'd have to have a critical mass to.
To play that market effectively.
So.
And.
Big thing for US continues to be as we model is what we call the territory managers contribution margin.
We look at gross margin from a territory offsetting selling costs in that territory. So it's other operating margin thing, but its a gross margin, which basically tells us gross margin is painful.
The selling assets and selling expenses and so thats a nice way to look at how we will look at scaling up overtime.
Okay very good well congratulations obviously 'twenty three are huge pivotal year congratulations.
Thank you.
Our next question comes from Jim Sidoti with Sidoti <unk> Company. Please go ahead.
Hi, good morning, Thanks for taking the questions just to follow up on the sales force.
It says where work number.
Many sales folks you had at the end of the fiscal year.
When you're trying to get I think we have it in the remarks I think it's 23 Jim.
If you had to do with 23.
And so it sounds like you might add a few.
The conditions.
Determine now, but you're not expanding it.
Way in fiscal 2024.
Okay.
Not at this point as I said, we will selectively seed we have an incredible sales organization and so when we're adding we're looking for really.
First top tier talent and top tier talent, that's willing to stretch.
Our competitors have.
Salespeople for like five accounts right.
We have salespeople for 50 to 100, so they have to be able to stretch and they have to come from a great pedigree of success. So.
We want to keep getting the top tier talent.
And seeding them.
We'll add as we grow but again.
Not intending to doublet and the Big thing is when we do launch upon its Venus.
Feel the uptake of that product.
We may decide to add some more but thats later in the year and clearly within the constraints of what we're seeing in our cash guidance.
Okay, Alright, now switching over to Abbott.
Can you just lay out what are the milestones that have to happen for Abbott to launch the device or is there a chance it gets.
Pushed out a little longer or maybe is there a chance that it happens a little sooner than.
And you indicated so far.
And again I'll repeat what I just said some of the bandwidth we have the given the launch there with Abbott is respecting the confidentiality of the contract of the launch but as you can imagine.
The professionals at this type of launch and they are doing all the <unk>.
Corporate prep.
Preparation of the ground fertilization and the appropriate seeding because I suspect when they go they really go with a very specific launch plan and trajectory. So really our job is to help them with technical information to be able to use to train their team and to make sure we have high <unk>.
Polity product delivered on time to their docs, that's really that's really our role in it yes, I would say Jim too we're confident in the timeframe that Abbott provided in the first half of calendar year 2024, and you can imagine there could be reasons why they would get out earlier and you can also imagine that there are reasons.
Why maybe they would they would kind of move that more towards the second half of that time horizon. So.
I will just ask you to stay tuned and there will be more on that I'm sure everyone will see it when Abbott launches it and we're here to help support and make sure. They have what they need from us so that they can effectively get out into the market with surveil.
Yes.
We can't talk about it.
Got it.
Alright.
Can you talk about whether it's strictly limited to the U S or if it will be launched worldwide.
Yes, we can we can certainly address that question I think we've described this over the last several quarters.
They are going out U S. So what we've described in our guidance and what we're talking about in terms of the launch all pertain to the U S market, we have nothing to add <unk> at this point Jim.
Okay, and then in terms of semantics.
Income statement.
R&D expense topped out around $50 million in fiscal 2022.
Indeed this year around.
46, $47 million, we expect it to tick down.
Closer to 44 million next year.
Do you think it will continue to remain around these levels, maybe come down a little bit or are there any major projects you expect your investments in the next couple of years.
We do have to R&D is really focused on winning in the market segments, we have identified and data.
That does include the Venus market.
Yeah.
Keep in mind, we're entering.
Several huge markets. This year I mean, the pumps the Venus market is larger than the arterial market generalized statement.
And so to compete with the big guys, there and their products, we have to maintain some level of R&D to continue to win and launch those products.
We do have some early stage programs that we're looking at to some of them involve more venous venous segment and pulmonary embolism.
And actively the one thing I'll say is you will see next week.
<unk>.
At the Veep meeting again professor Ramon <unk> is presenting our two year data on Sundance Sirolimus PTK now professor barcode presented the like BD key trial data two weeks ago at the TCT meeting in San Francisco, which is.
<unk> spent diluting <unk> drug.
And so when you look at our two year data and I encourage you will send a press release on that.
What I hope is.
Recognize that we do actually have.
Incredible drug delivery technology <unk> issue again is one of the cash constrained.
To get ready for an I E much less to run a pivotal trial, we will be actively looking for partnership opportunities to help us with that we can call it that alone as much as.
As you stay tuned for the data being presented again this is two year data.
Stay tuned for what our two year data looks like with any of the <unk> device that's been done.
So have to be really disciplined wish we had the capital but have to maintain that in the public markets.
Alright, so it sounds like Youre going to continue and invest in R&D.
It doesn't sound like you're going to get back to the fiscal 2022 level.
Yes.
Thank you.
We're providing the guidance here for fiscal 2024, and you know you noted.
The reduction in R&D spend over the last few years.
There is clearly investments in certain platforms and other platforms, we are seeing a deceleration in spend notably surveil.
Which has been less than certainly not fully offset by increased spending on other platforms right, but yes, I think we like the trend and.
And we like the investments that we're making and what we think the long term value creation can be from those investments.
A whole lot to add for 25 or later, but I would say, you're probably right to think about the trend and one thing Jim is no R&D includes clinical right and so we have the prowler registry you have to commit to those registries and registries is going just fine since for the pumps arterial.
And eventually when we do launched upon Venus product line.
Get the claim expansion to DVT versus removing clot.
<unk> will require at a minimum registry or very small single arm study.
So that's more out into 'twenty five timeframe for us.
There's puts and calls Jim.
Thank you and our next question comes from Mike Matson with Needham <unk> Company. Please go ahead.
Yes. Thanks.
I wanted to ask one on your pumps versus supply.
Reading between the lines some of the comments it sounds like kind of a bigger.
However, there supply is.
Is that right I know, you're not going to break out the sales or anything but can you just qualitatively comment on the <unk>.
The two are doing relative to each other it.
It has been Mike in one of the reasons for that.
The PMA not approvable letter the VA commercial team.
<unk> sits in the company we had to.
Unfortunately.
<unk> the size of the sales team is by a lot.
And so what we have to do that point, because we have to make sure we got hit to our revenue plan.
<unk> for the sales team when you look at our $4000 plus product in pounds versus.
Several hundred dollar product and supplying catheters.
We were compelled to redirect the team that we had towards making sure we hit that revenue with the New Commission plan that goes out that went out in October we have now put sub line back in its rightful place. So there was a.
Specific conscious decision at that point.
What I would say is the addressable market for bonds arterial.
Is bigger than it is currently full radio devices I remember radial is also an adoption curve not just competitive wind curve.
Our sales seed, though is we will do we will do well in thrombectomy I have no doubt.
But their grandchildren, where we've had remember them for supply right because that is changing.
Piece of health care.
Two what's the positive I don't know a single other product and again, it's early innings that that has better patient outcomes right much better healthcare economics, and a huge impact on patient satisfaction.
Hitting the trifecta will patient with it but for the moment, yes, the high ESP or things like pumps arterial.
Outpacing supply and that's okay by the way for Us right now.
Yeah, Okay, and then just on the per side coding.
I know you're continually iterating on those.
Operating so I mean is this something that could have any sort of impact on the growth or is it more just kind of incremental.
And you know how that business runs like the cycle time. So we just got the first FDA clearance.
We mentioned that but we did we do have an FDA clearance of the first.
<unk> device.
Preside and so what that sets the stage is I'm generalizing a little bit here. So.
The chemistry is on file with the FDA of having seen it now and it gives our customers an opportunity to leverage that knowledge and working knowledge of that Dusty on file at the FDA. The time cycle is you've got to get customers, who interested helped them through there.
The development and the regulatory offerings right the effort to get clearance for these devices and only then do we see the royalty when these devices hit the market.
Along the offering but it's significant because we're talking about royalty cash flow here. So I wouldn't expect him and all guidance, we put anything for fiscal 'twenty four for any royalty things unless people get approvals for yes, there really isn't.
To be clear precise is something that is highly complementary to our serene coating, which has really been growing well over these last few years and we continue to expect it to grow well.
We've commented previously that there are.
60, plus.
Customer opportunities, where we get to dial in our chemistry with our customers' devices. This just precise gives us an opportunity to.
Really claim.
A certain application spaces, I think going distilling, the neuro crossing really challenging lesions like total kind of conclusions.
It really gives us an advantage with this coding relative to even some of our internal coatings.
But more importantly to competitive coatings and I think that's why the team has really been focusing on this precise coating over the last few years is to meet some of the needs where quite frankly, we felt that we could we could provide some additional performance enhancement. So as Gary mentioned, it will probably be a few years to grow the trees, but we're planting the seeds.
Today.
Okay, Alright got it thank you.
Thanks.
Thank you and that concludes our conference call for today. Thank you for your participation and you may disconnect at any time.
Mhm.
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Okay.
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