Q3 2024 Allurion Technologies Inc Earnings Call
John: Thank you for standing by. My name is John and I'll be your conference operator today. At this time, I would like to welcome everyone to the Alurian Third Quarter Earnings Call. All lines have been placed in mute to prevent any background noise.
John: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.
John: If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Mike Cavanaugh, Investor Relations. Please, go ahead.
Mike Cavanaugh: Good morning and thank you all for joining us today. Earlier today, Lorient Technologies Incorporated issued a press release announcing financial results for the quarter ended September 30, 2024, as well as a review of the company's recent business highlights.
Mike Cavanaugh: With me on the call today are Shantanu Ghor, Founder and Chief Executive Officer.
Brian Conyer, Vice President of Digital Health.
Mike Cavanaugh: Adrienne Wild, Senior Vice President, International Commercial, and Chris Gebber, Chief Financial Officer.
Mike Cavanaugh: Before we begin, I'd like to inform you that comments mentioned on today's call contain forward-looking statements within the meaning of federal securities laws, including, but not limited to the financial outlook for 2024 and our expectations regarding profitability in the future, the market and demand for our products and elective procedures,
Mike Cavanaugh: The impact of cost reduction initiatives on cash burn and runway, the ability to compete with GLP-1 drugs, or use of the Elerion program in combination with GLP-1 drugs.
Mike Cavanaugh: timing expectations regarding our ongoing clinical trials and expectations regarding our ability to launch our products in new markets and growth and procedure volumes.
Mike Cavanaugh: Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties.
Mike Cavanaugh: These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our most recent 10-K filed on March 26, 2024.
Mike Cavanaugh: Our SEC filings can be found through our company website at investors.alerion.com or on the SEC's website.
Speaker Change: Investors are cautioned not to place undue reliance on such forward-looking statements and DeLorean undertakes no obligation to publicly update or release any revisions to these forward-looking statements.
Speaker Change: Please note that this conference call is being recorded and will be available for audio replay on our website at alerion.com under the events and presentations section on our investor relations page shortly after the conclusion of this call.
Speaker Change: Today's press release and supplementary financial data tables have been published to our website.
And with that, I'll turn the call over to Shantanu.
Shantanu Ghor: Good morning, and as always, thank you for joining us today.
Shantanu Ghor: While we've had a challenging year financially, I have clarity and excitement about the path forward we are announcing today, composed of five tangible levers for Allureon to maximize shareholder value, given our products, our team, and the massive opportunity in weight loss, which we have not truly capitalized on to date.
Shantanu Ghor: We will also discuss the success of our AI product, which I've only touched on in the past, but believe can have a significant impact for shareholders in 2025.
Shantanu Ghor: You will also hear us talk about a more efficient commercial strategy for our balloon business.
Shantanu Ghor: both globally and in preparation for the U.S. market, given our Audacity trial readout slated for the end of this year.
Shantanu Ghor: I have deep conviction that our balloon platform works very well as we have ever-increasing data that demonstrates its effectiveness and we have a plan now to realize its full potential.
Shantanu Ghor: First, let's discuss financials. Third quarter revenue was $5.4 million, which includes a reduction to revenue of $1.2 million for product recalled during the third quarter that was sold in France in prior quarters.
Shantanu Ghor: Our performance this quarter was adversely affected by the suspension of the Illyrian Balloon in France, macro headwinds in certain markets, and the launch of compounded and in some cases counterfeit GLP-1 drugs in the UK.
Shantanu Ghor: In addition, while no similar action has been taken by any other regulatory authority outside of France, we believe we did incur some temporary disruption in other markets as patients and providers became aware of the actions taken in France.
Shantanu Ghor: In the third quarter, we worked with ANSM on a remediation plan, which we completed in October. We remain optimistic about resuming commercialization in France as soon as possible.
Shantanu Ghor: We had certain areas of strength in the third quarter, particularly in the Middle East where procedure volumes grew by 20% compared to last year, and growth in parts of Latin America that appear to be recovering from a macroeconomic standpoint.
Shantanu Ghor: We believe that what is occurring now in the Middle East, approximately one year after the introduction of GLP-1 drugs, is driven in part by patients who have tried GLP-1s, churned off, and returned to their doctors for a second-line therapy like the Illurion program.
Shantanu Ghor: We believe that we may see a similar phenomenon play out in other markets in the future, lending more credence to our belief that GLP-1s may be a short-term headwind, but a long-term tailwind for Illyria.
Shantanu Ghor: One of the most exciting things I have to announce today for the first time is that we have seen significant growth in recurring revenue from our AI-native platform, the Elerian Virtual Care Suite, or VCS, for a third quarter in a row.
Shantanu Ghor: This business line is led by Brian Conyer and I will pass it over to him to provide further details.
Brian Conyer: Thanks, Shantanu. I've been with Illurian for almost a year now and have a track record as a digital health entrepreneur.
Brian Conyer: I've always looked at Elerion's rich dataset and global footprint as ripe for digital product lines.
Brian Conyer: We've been very quiet about our AI products until we had traction, but it's clear to me now that our digital business could be a driver of value for shareholders.
Brian Conyer: Our AI product revenues have grown more than 80% year over year despite having invested minimal resources into the team thus far.
Brian Conyer: We're on track to double revenues from our AI products by year-end.
Brian Conyer: This growth was driven by expansion in the United States, where we onboarded our first patients who were taking GOP1s, and in Europe, where we're seeing growth in GOP1 prescribing and a growing need for remote patient monitoring and 24-7 coaching.
Brian Conyer: With revenues increasing at this pace, we believe we can expand this business further in 2025 and plan on testing Coach Iris, our verticalized conversational AI agent for weight loss, in different use cases in the coming months, including for patients seeking GLP-1s as a first-line option.
Speaker Change: I look forward to exploring these exciting use cases in the near future, and I'll now turn the call back over to Shantanu.
Shantanu Ghor: Thanks, Brian. Our performance in the third quarter calls for a decisive and clear strategy for 2025 to maximize value for shareholders.
Shantanu Ghor: Our new plan is built around five pillars. Number one, a new commercial plan focused on deeper penetration in a smaller footprint, direct markets, and business to business to consumer or B2B2C marketing versus direct to consumer or D2C marketing.
Shantanu Ghor: Number two, scaling our now proven AI product platform through a variety of business models. Number three, gaining FDA approval for the Elerion balloon and preparing for US launch.
Shantanu Ghor: Number four, achieving profitability for the ex-U.S. business by the end of 2025. And number five, resuming commercialization in France.
Shantanu Ghor: While macro headwinds and other pressures outside of our control remain a reality, what we can control is the execution of our new plan.
Shantanu Ghor: Before I expand on certain aspects of the new plan, I think it's helpful to reflect on the commercial strategy that we have employed historically and how I see it changing.
Shantanu Ghor: In 2021, we shifted our marketing strategy to be more heavily reliant on DTC advertising, primarily through online channels.
Shantanu Ghor: While this strategy stimulated strong top-line growth initially, with the rise of telehealth companies offering GLP-1, these DTC channels became more crowded and less efficient.
Shantanu Ghor: This year, we dialed back our spending in DTC. In the third quarter, our DTC marketing spend reduced by 77% compared to the prior year, but procedure volumes still increased by 2%, indicating that the demand lost through the drop in DTC was being replaced, at least in part, by organic growth.
Shantanu Ghor: Our performance in the third quarter underscores that in order to return to growth in 2025, we need to deploy a strategy even less reliant on DTC with a team well-versed in more sustainable and profitable B2B2C strategies.
Speaker Change: Our new commercial strategy will be led by Adrian Wild, Senior Vice President of International Commercial. I'll now hand the call over to him to provide further details on the strategy.
Adrian Wild: Thanks, Shantanu. I'm excited to be leading Allure's commercial efforts at this pivotal moment.
Adrian Wild: Our new strategy is inspired by the successful approaches taken by other cash pay medical devices.
Adrian Wild: especially Invisalign, where I oversaw expansion in overseas markets for over a decade, that achieved significant growth in a profitable manner. This new strategy involves three major shifts in our commercial approach.
Adrian Wild: First, we are retooling our sales team from top to bottom with individuals who are experienced in deploying sustainable and profitable B2B2C strategies.
Adrian Wild: We have already mapped the profiles and skill sets we need in our commercial team and implemented a plan to ensure we have the right talent in each role.
Adrian Wild: This will entail a number of changes, including that we exit less profitable markets and double down in markets with high potential, deploy a consultative sales approach that is focused on growing account productivity, and increase our focus on core channels, including bariatrics, where we have built strong relationships in the past decade.
Adrian Wild: Third, we are deploying rigorous sales management processes throughout the commercial organization related to account planning, execution, and forecasting.
Adrian Wild: We believe this will enable us to make more informed decisions, ensure that our commercial efforts are yielding the desired outcomes, and more reliable forecasts to the business.
Adrian Wild: We have already begun to pilot several of these approaches this quarter and are seeing positive traction.
Adrian Wild: I look forward to expanding this strategy globally in the near future.
Adrian Wild: With that, I will turn the call back over to Santana.
Speaker Change: Thanks, Adrian. As we implement these changes, our goal is to create a resized and more focused sales team that can return us to growth. Given the depth and breadth of the changes we are making, we expect it to take several quarters to fully realize the many benefits that will come from it, with some short-term disruption as the changes are implemented.
Speaker Change: As a result, we expect 2024 revenue to be in the range of $30 to $35 million and procedure volume to be flat compared to 2023.
Speaker Change: In addition to the changes we are making in the commercial team, we have also strategically streamlined our operational structure, which we believe will result in a significantly lower cost base and allow us to focus on a narrow list of high-impact initiatives, bolster profitability, and decrease cash burn.
Speaker Change: Through this restructuring, we have reduced our global headcount by approximately half and consolidated functions under centralized leadership.
Speaker Change: Taken together, we expect these changes to result in reduction in operating expenses of approximately 50% in 2025. We have strong conviction that the combination of the change in commercial strategy and more streamlined operating structure is the right move for our business over the long term.
Speaker Change: Turning to our FDA pathway, we are very pleased to share that the last patient has exited the AUDACITY trial, putting us on track for data readout at the end of the year.
Speaker Change: I'm also very proud of our team for achieving another critical milestone in October when we submitted the first three modules for our premarket approval application, or PMA, to the FDA.
Speaker Change: In a modular PMA application, the FDA allows applicants to submit discrete sections of the application for review to improve the efficiency of the process. We expect to submit the fourth and final module of the PMA containing the clinical data for the AUDACITY trial early next year.
Speaker Change: We believe that if approved by FDA, the Illyrian Balloon can capitalize on the massive opportunity in the United States that has been created by the availability of GLP-1 drugs.
Speaker Change: In addition to the data we have published on the benefits of combining the illurion balloon with GLP-1s, we believe there is an even bigger opportunity for the illurion balloon as a second-line treatment after GLP-1 discontinuation.
Speaker Change: In a recent study by Prime Therapeutics, a PBM, only 25% of patients who started either Wigovi or Ozempic remained on it two years later. And healthcare costs for patients taking GLP-1s actually increased over this two-year period.
Speaker Change: We believe that the Illyrian balloon can be a highly attractive therapeutic alternative for the millions of people in the United States who are trying GLP-1s, churning off, and then regaining their weight.
Speaker Change: Before I turn the call over to Chris, I want to touch on the impressive data that has been published or presented recently on the Elerian balloon.
Speaker Change: In August, we announced the publication of a study in 486 patients showing that with ongoing virtual guidance and support through the VCS, patients can actually continue to lose weight even after the Eulerian balloon passes.
Speaker Change: In September, we announced the publication of three studies that underscored the advantages of the Illurion program over other therapies and areas in which we could potentially expand our indication, including first, a study in 91 adolescents who achieved a 13% weight reduction without any serious adverse events.
Speaker Change: Second, a meta-analysis of 11 studies in 2107 patients reporting an average weight reduction of 12.5% and significant improvements in comorbidities.
Speaker Change: And third, a study in 167 patients showing a 15.7% weight reduction after just four months, 94% weight maintenance at one year, and no significant change in muscle mass.
Speaker Change: Recently, at the Obesity Society's annual conference, we presented the largest ever real-world experience of 19,428 patients treated with the Illurion program across 72 countries.
Speaker Change: In this real-world experience, patients lost an average of 12.2% of their total body weight in just four months with remarkable consistency across geographies.
Speaker Change: We now have 26 peer-reviewed journal publications that collectively validate the safety and efficacy of the Illarion program.
Speaker Change: Very simply, our program works, and I am more bullish than ever on the role the Eulerian program can play in a dynamic and rapidly growing obesity market.
Speaker Change: I will now turn the call over to Chris Geberth, our Chief Financial Officer. Chris?
Chris Geberth: Thank you. Our revenue for the 3rd quarter of 2024 was 5.4M compared to 18.2M for the same period in 2023.
Chris Geberth: The year-over-year decrease in revenue reflected de-stocking, macroeconomic headwinds in certain markets leading to lower reorder rates during the period, the temporary suspension of sales in France.
Chris Geberth: and the resulting reduction to revenue in the period for product recalled in a third quarter of 2024 and reductions in sales to certain accounts to manage credit risk.
Chris Geberth: Gross profit for the third quarter was 58% compared to 77% for the same period in 2023, negatively impacted by the reduction to revenue in the period related to the product recalled in France and lower production volumes.
Chris Geberth: which resulted in less manufacturing labor and overhead being absorbed into inventory costs.
Chris Geberth: We expect gross profit to expand in the fourth quarter with the product recall in France now complete.
Chris Geberth: Sales and marketing expenses of $5.2 million decreased by $8.8 million or 63% for the quarter, driven largely by increased operating efficiency, reduced DTC marketing, and our cost reduction initiatives implemented in the fourth quarter of 2023.
Chris Geberth: Research and development expenses decreased by $4 million to $3.2 million in the quarter, driven by reduced costs related to our FDA Audacity trial.
Chris Geberth: General and administrative expenses of $7 million decreased by $11.9 million.
Chris Geberth: driven by $10 million of transaction-related expenses and stock-based compensation expense related to the business combination with ComputeHelp recognized in the third quarter of 2023 and less by debt expense recognized in the third quarter of 2024 compared to the third quarter of 2023.
Chris Geberth: Loss from operations for the third quarter decreased by $13.8 million to $12.3 million compared to $26.2 million in the same period in 2023.
Chris Geberth: The decrease in loss from operations was driven by $10 million of transaction-related expenses and stock-based compensation expense related to the business combination with Compute Health recognized in the third quarter of 2023 and our efforts to reduce operating costs.
Partially offset by lower gross profit from less sales.
Chris Geberth: As of September 30, 2024, we had cash and cash equivalents of $28.7 million.
I will now turn the call back over to Shantanu.
Shantanu Ghor: Thanks, Chris. We are making significant and difficult changes in our people, our processes, and our commercial strategy to create a profitable and sustainable business around the Elerion balloon. We are also firmly convinced that these are the right steps to return Elerion to meaningful, sustainable, top-line growth.
Shantanu Ghor: The obesity market continues to grow, and as demonstrated by the growing library of clinical data in support of the safety and efficacy of the Elurian balloon, the opportunity ahead of us remains firmly intact.
Shantanu Ghor: We also believe that the growth we are experiencing in our VCS fast business driven by a nimble and entrepreneurial team inside of Elerian and the rise of GLP-1s could accelerate our return to top-line growth.
Shantanu Ghor: Our AI-native platform has become vital to our customers, managing patients on a number of different weight loss therapies. And I look forward to the different use cases we will be testing in the months to come.
Shantanu Ghor: Finally, I'd like to thank Chris Gebreth for his service and dedication to Illurion. I could not have asked for a better partner to navigate the past four years with.
Shantanu Ghor: During his transition period, Chris will remain on as a consultant and will assist Tara Brady, who will be serving as our interim CFO, as we conduct our search for a permanent replacement.
Shantanu Ghor: With that, I will now turn the call over to the questions and answer portion of the call. Operator, please open up the call for questions.
Speaker Change: Thank you. We will now begin our question and answer session. If you are dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We'll pause for a moment to compile the Q&A roster. Thank you.
Speaker Change: Our first question comes from the line of Josh Jennings with TD Cabin. Please go ahead.
Speaker Change: Hi. Good morning, gentlemen. Chris, sorry to hear about your departure, but I'm sure your next chapter will be exciting.
Speaker Change: Thanks for the thorough download as well and wanted to just start on the on the PMA filing, you know, three out of four modules.
Submitted.
Speaker Change: Shantanu, can you just talk, just remind us, I mean, have those three modules been signed off on, just waiting for the clinical data module to be submitted once that data is in hand and packaged up, and any interactions with the FDA, any details you can share would be appreciated. Thank you.
Shantanu Ghor: Absolutely. Thanks for the question, Josh. The first three modules of the PMA cover a variety of topics, including bench-top verification, validation testing related to the product, an assessment of our quality system, and certain regulatory controls, and also an assessment of our manufacturing processes and SOPs. It's all three of those modules have now been filed. They are being reviewed by the FDA. So far, the
Shantanu Ghor: Conversations with the FDA have been very positive around those three modules and we've addressed some minor questions that have been posed to us.
Shantanu Ghor: Our plan with the Audacity readout at the end of this year is to package that data up early next year as part of Module 4 and then complete the submission. Once we do have acceptance of Modules 1, 2, and 3, we may very well communicate that externally as well.
Thanks for that, and it sounds like.
Speaker Change: your team's in the process of unleashing the virtual care suite was hoping to just
Bye.
Speaker Change: better understand the revenue generation model where it stands today and you called out first GOP1 patients on boarded in the U.S. and I guess it's a just a high-level question about more details on revenue generation.
Speaker Change: And then just, you know, the path in the U.S. prior to the alert-on-balloon approval and with this Medtronic collaboration as well in terms of onboarding their patients. Sorry, it's a general question on virtual care suite, but looking just for a little bit more detail would be great.
Speaker Change: Yeah, our AI product or the virtual care suite or VCS is really a
know, a quite versatile product. It allows
Speaker Change: providers to follow and coach and monitor patients who are going through a variety of different weight loss interventions, whether it's
Speaker Change: the Illyrian Balloon outside the United States, GLP-1s. Now we're seeing patients on our platform, both in the US and outside the US, ramp up with GLP-1 therapy, or even bariatric surgery. And that, if you recall, Josh, was also the subject of part of our partnership with Medtronic, expanding the use of our virtual care suite in the bariatric surgery channel. And so all three of those, device, GLP-1s, and surgery, all three of those patients can be served on our virtual care suite.
Speaker Change: The way we monetize the virtual care suite is really twofold. One, we work directly with the providers who are using the Elerion Balloon today, and we offer a basic VCS version and also a premium VCS version that gives the provider access to more AI features and also more monitoring features.
Speaker Change: So, that revenue generation happens on a per patient per month model where providers are paying us a fee to use the software on a per patient per month basis.
what we're doing in the U.S.
is
Speaker Change: Very interesting, because obviously we don't have any balloon providers in the U.S. using the balloon today. Once the product gets FDA approved, that will change. But for now, what we're focusing on are busy, high-volume weight loss practices that are seeing an increase in patient volume because of the rise of GLP-1s, but really don't have the infrastructure to follow those patients.
Speaker Change: we actually call these GLP-1 patients GLP-1 orphans. They're given a drug, but they're not given any sort of coaching. They're not given any sort of behavior change program. And as a result, the results are nowhere near as efficacious as you would see in a clinical trial. And the adherence rates really suffer. And in the U.S. as well, that's on a per patient per month type of model.
Speaker Change: So we see a lot of potential in the U.S. with our software because there are now millions, you know, in fact, one in eight U.S. adults have now tried a GLP-1, and the vast majority of them are not getting the coaching, the follow-up, and the treatment that they actually need in order to lose weight and keep it off in the future.
Speaker Change: Excellent, maybe just one more you're not giving 2025 guidance, but a multi-layered question is thinking about the recovery in France
It's probably impossible to forecast at this point, but that.
Speaker Change: You know, France Business was a $5.5 million franchise in 2023. And it just helped us think about the recovery trajectory in 2025 as we're updating our models. And also, anything you can just share on the virtual care suite.
Speaker Change: revenue contributions in 2025 and maybe a high level or even detailed color on how we should be thinking about revenue contributions from the AI platform. Thanks a lot.
Speaker Change: Yeah, with regards to 2025, we're not offering any guidance to date. With regards to France, we have had very productive conversations with ANSM. As you heard earlier, we did submit our remediation plan to ANSM in August.
Speaker Change: and completed it in September. We're now awaiting feedback from ANSM, but remain very optimistic about getting the product back on the market in France and resuming commercialization. We're not providing any sort of timeline at this point about when the product would get back on the market in France, and hence it's difficult to really provide any sort of contribution in 2025 from France at this point.
Speaker Change: With regards to VCS, we're not breaking out VCS revenue separate from our balloon revenue just yet, but I will say that the potential for VCS and our AI product in general is massive. When you look at how many people in the U.S. and outside the U.S. are now onboarding onto GLP-1s, when you look at how these busy practices are failing to really keep up with that volume, and you see all of the benefits that an AI product like ours brings to a busy weight loss practice, I think the potential is massive. We're not breaking it out for now, but I believe it's a very high-potential part of our business and could accelerate our return to top-line growth.
Understood. Appreciate it. Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Matt Taylor with Jeffries. Please go ahead.
Matt Taylor: Thanks for taking the question. The first one I wanted to ask was...
Matt Taylor: Do you think you may be able to produce any revenue in the U.S. in 2025? And if you could help us with a little bit more specificity on gross margins in Q4 and whether that is a jumping-off point for how to think about them in 2025, that would be very helpful for the model.
Speaker Change: Yeah, in terms of 2025, we're expecting some U.S. revenue to come on the virtual care suite AI product side of our business.
Speaker Change: So, at this point, you know, it's difficult to assess what the FDA timing is going to look like for the balloon. So, for now, that's really all we can offer in terms of 2025. and with regards to your question on margin, I'll hand it over to Chris.
Chris Geberth: So, as far as margin goes, it was negatively impacted by the reduction in revenue for the charge we took related to the recall, and also just lower volume as we could see our numbers were down.
Chris Geberth: Margin would have been in the low 60s without that branch recall and I would expect that in Q4 without those branch adjustments, margin would still be in that
you know, lower to mid-60s area.
Chris Geberth: And then with the restructuring that we implemented in November, that goes across all departments, including operations, and we're looking at our volume forecast. And I would expect that March 2 will creep back up to the mid-70s through the year, mostly towards the end of 2025.
Speaker Change: Okay. Okay. Great. And then I did want to ask one about the restructuring. When you're talking about the 50 percent reduction in expenses, can you help us with a little bit more specificity of where that's coming out of?
Speaker Change: between sales and marketing, R&D, and G&A. And I guess the follow-up to that is that, you know, you have historically relied a lot on DTC to drive demand. I know you grew volumes 2% with a 77% DTC reduction this quarter.
Speaker Change: But as you look at next year, I guess I'd love for you to comment on whether you think you can grow overall from the revised guidance midpoint of $32.5 million.
Speaker Change: Yes, so let me start with the reason why we did the restructuring. I mean, considering the revenue levels that we've achieved to date and then the forecast going forward, we really evaluated the entire structure across all departments.
Speaker Change: And we looked at ways to gain efficiency and work towards profitability at the end of 2025. So, expense reductions are across all departments.
Speaker Change: And that 50% really does kind of equal what you would see from a change in each department, but we were really cautious about what we reduced, especially in the sales side of the departments.
Speaker Change: For instance, we did lower a lot of our marketing expenses like you just pointed out with TTC, but we have increased the number of heads in the sales department in order to work more effectively with our customers.
Speaker Change: So, I think we positioned ourselves to work through the plan that Shantanu laid out in the prepared remarks.
Speaker Change: regarding the commercial strategy going forward in order to get back to growth.
Speaker Change: But, I mean, I would expect that without France in our numbers for the first half of 2025, say,
Speaker Change: Versus last year, I would expect that our revenue growth would be more weighted towards the second half
of the year, especially as we complete.
restructuring efforts.
Speaker Change: And also, as you know, with any change in commercial plans, there's a ramp-up period. I think, as Shantanu said, could take several quarters to really get the full benefit.
of those changes.
Speaker Change: So I think for next year, what we're looking at is, you know, a base sort of business in Q4 in the first half and then growth in the second half.
Okay, great. Thank you. Thanks for taking the question.
Bye.
Speaker Change: Again, if you are dialed in and would like to ask a question, please press star 1.
Again, that is part one to ask a question.
Speaker Change: Our next question comes from the line of Jason Witts with Schrott Capital. Please go ahead.
Speaker Change: Hi, thanks for taking the questions. Just if you could, maybe you said this in the beginning, can you quantitate the impact from France and destocking in the quarter?
Speaker Change: So for France, we haven't acknowledged before that France used to be about 15% of our revenue. I would say it's, you know, just to give it some numbers over a million dollars that we would have had in France.
Speaker Change: Plus, we had a recall adjustment of $1.2 million that went against revenue, so that was not related to sales in this quarter, but for sales related to prior periods where we had to take back the inventory, and for accounting purposes, that requires an adjustment against revenue in the current period.
Okay, great.
got it and then in terms of
Speaker Change: The cost reduction plan, did I hear that correctly that that will be implemented over the next few quarters or is that something that kind of completes by the end of the year? What is it staging on that reduction?
Speaker Change: So, we actually already started the implementation of this with a reduction in force.
Speaker Change: expenses so most of that will come in the fourth quarter we will have a charge in the fourth quarter approximately three and a half million dollars as above the normal trend and operating expenses but most that should be done there will be some in Q1 just some cost not people related
Speaker Change: What contracts I need to complete in the first quarter, but most of it will be done in the short term.
Speaker Change: Okay, got it. And then, again, another sort of follow-up question here. Did I hear correctly that you're still kind of committed to reaching break-even sort of by the end of 2025, especially with this new cost structure? Is that the right way to think about it?
Speaker Change: Yeah, what we're looking at measuring is a late 2025 adjusted EBITDA target of profitability.
Speaker Change: Okay great and then I don't know if you can give any kind of regional
Speaker Change: a discussion in terms of how revenues look, where there are certain regions that were stronger than others, and maybe some commentary around what the drivers might be.
Speaker Change: Yeah, one thing we did note this quarter, and we've actually seen it in previous quarters as well, is that in the Middle East, we're starting to see a recovery of both the balloon business, but also overall bariatric surgery volumes.
Speaker Change: So, what we have witnessed in that part of the world where GLP-1s launched approximately one year ago is that they launched with a lot of excitement and, frankly, a lot of hype. And over the past 12 months, what we've seen is patients
Speaker Change: start a GLP-1, churn off, regain their weight, and then come back to their doctor looking for a second line therapy. So that's, I believe, one phenomenon we may see in other territories as the GLP-1 markets mature. In Latin America, we saw some abatement of some of those macroeconomic headwinds that we have talked about previously, which led to more favorable growth in parts of Latin America.
Speaker Change: in almost every territory in the world, is that we're starting to see tangibly how GLP-1s can really help our business. More of our providers are using the Lurion balloon in combination with GLP-1s. 33% of our patients now have previously tried an anti-obesity medication. That's up from 25% last year.
Speaker Change: And what we're seeing now is that Elerion is increasingly being positioned as a fantastic second-line therapy for someone who has tried a GLP-1, churned off, and regained the weight.
Speaker Change: So, from a macro perspective, we're seeing some really positive trends which, related to a question that was asked earlier, could actually help us fuel procedural volumes in the future without a significant investment in DTC marketing.
Speaker Change: Okay, thank you. That's very helpful. Then maybe just one last one. In terms of those patients that are going on GLP-1s plus your product, what kind of profile is that patient?
Speaker Change: Typically, these are patients that have a body mass index between BMI 27 and 40. They are trying GLP-1s as a first-line therapy. They may very well have heard about GLP-1s either through their doctor or online. Many of them are right in our target demographic, mostly female in their mid-40s who are looking to lose weight quickly, safely, and effectively. What we have found with the combination therapy is that when they start a GLP-1, either they experience a plateau in their weight loss, or they're just not losing as much weight as they had expected. That's a performance factor.
Speaker Change: opportunity to bring the balloon online. We're also seeing the reverse in certain practices where the provider likes to start with the Illurion balloon. They may tack on a GLP-1 in combination with the balloon near the end of our balloon residency so that the patient can continue to lose weight or at least maintain their weight loss over a longer period of time.
Speaker Change: And when I think about the United States, for instance, where our balloon is not present, one of the things I'm very excited about with the launch of our BCS platform in the U.S.
Speaker Change: is that if a patient is onboarded on our VCS and is taking a GLP-1, it's very likely that they may very well churn off of that GLP-1 and then potentially be ready for the Illurion balloon if and when it's FDA approved and we launch in the U.S. So that's another interesting thing that we'll be watching in the U.S. as we expand the footprint of our software here in the United States.
United States.
Okay.
Speaker Change: Got it. Thanks. I'll jump back in queue. Thank you very much.
Thank you.
Speaker Change: As there are no further questions at this time, I would like to turn the conference back over to Shantanu Gaur for any closing remarks.
Speaker Change: Thank you very much. As we close our call here, I'd just like to extend my thanks to everyone who joined us today. We really appreciate your time and interest in Elerian. I appreciate the continued support and loyalty of our shareholders, all of our clients and customers around the world, and certainly our employees.
Speaker Change: Your belief in our mission, commitment to our company is really inspiring and is going to be instrumental to our future success. And we look forward to updating all of you on our progress in the next quarter. Thank you again, everyone. Have a great day.
Speaker Change: That concludes today's meeting. Thank you for your participation. You may now disconnect.
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