Acutus Medical, Inc. (AFIB) on Q1 2023 Results - Earnings Call Transcript
Operator: Good afternoon and thank you for standing by. Welcome to the Acutus Medical First Quarter 2023 Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Caroline Corner, Investor Relations.
Caroline Corner: Thank you, operator. Welcome to Acutus' first quarter 2023 earnings call. Joining me on today's call is David Roman, Chief Executive Officer; and Takeo Mukai, Chief Financial Officer. This call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements. Factors that may cause results to differ from these forward-looking statements are discussed under the Forward-Looking Statements section in the press release attached as an exhibit to Acutus' Form 8-K filed with the SEC today and are also discussed in more detail under the Risk Factors section in Acutus' most recent filings with the SEC, including the risk factors described in Acutus' Form 10-K. Any forward-looking statements provided during this call, including projections for future performance, are based on management's expectations as of today. Acutus undertakes no obligation to update these statements, except as required by applicable law. Acutus' press release with first quarter 2023 results is available on the Acutus website, www.acutusmedical.com under the Investors section and includes additional details about Acutus' financial results. The Acutus website also has Acutus' SEC filings which you are encouraged to review. A recording of today's call will be available on the Acutus website by 5.00 PM Pacific Time. Now, I would like to turn the call over to David.
David Roman: Thank you, Caroline and good afternoon, everyone. Our prepared remarks today will include updates on our key strategic imperatives, some perspective on how the business is performing in Q2 and our outlook for the rest of the year. Starting with our first priority to drive utilization and adoption for AcQMap. Q1 got off to a slow start but procedure volumes accelerated throughout the quarter with March commercial procedure volumes increasing over 60% on a month-over-month basis. Overall, our commercial procedure volumes increased on a year-over-year basis for the quarter, driven by continued adoption of our full portfolio outside the U.S. and geographic expansion with our partner, Biotronik. U.S. procedure volumes showed steady progress during Q1 and exited the quarter with growth in March. Importantly, we are seeing encouraging trends here in the second quarter and anticipate procedure volumes to ramp sequentially throughout the year and put us back on a strong trajectory for procedures, utilization and correspondingly, AcQMap disposable product revenue. Over the short, medium and long-term, a major driver in achieving our growth objectives is our product development pipeline. Our portfolio investments are geared toward both strengthening our position and expanding our addressable opportunity. All of these new product launches keep us focused on the complex treatment segment of the EP market, ranging from the most difficult multiple redo patients to first-time persistent AF patients. As we have discussed previously, AcQMap is most regularly used today in redo procedures. Specifically, about 55% of U.S. and 80% of OUS procedures come from redo cases. AcQMap has clear differentiation in these procedures and our clinical results and sustained utilization in these segments underscore our value proposition. At the same time, these procedure categories represent only a portion of the total complex ablation segment. Over the next several years, our pipeline is geared towards further strengthening our position in the re-treatment segment as well as bridging into primary use cases. The innovations required to enter new categories largely center around software, including algorithm development and disposables. These include our next-generation software platforms like AcQMap 9 and AcQMap 10 as well as their therapy and ablation systems. We expect to launch a steady cadence of new products over the course of 2023 and 2024 that will contribute to higher utilization, procedure volume growth and increased revenue per case. We received FDA clearance for AcQMap 8.5 software with AcQBlate features last week which paved the way for an integrated software platform to pair their ablation system when approved later this year. In addition to our new product pipeline, critical to the adoption of AcQMap will be additional clinical research. Over the course of this year, we have plans to release several data presentations and publications that builds on the UNCOVER AF study that showed freedom from AF in persistent patients of 73% at 1 year. As a reminder, most landmark studies for the treatment of persistent AF using incumbent systems show 1 year success rates in the 50% to 60% range for de novo cases and 60% to 68% in redo cases. In April, data from the RECOVER AF study were published online in EP Europace. This study evaluated an extremely complex patient population and further demonstrated AcQMap's clinical impact in the retreatment segment of the market. Specifically, results showed patients who had only undergone pulmonary vein isolation or PVI before enrollment, achieved 91% freedom from atrial fibrillation at 1 year, while the entire study population with varying prior procedures reported 76% freedom from AF at 1 year. These results further confirm AcQMap's utility and differentiation in the redo market where we expect to drive further penetration into this $700 million category. In addition to the RECOVER AF study, we look forward to this year's Heart Rhythm Society where investigators will present data on AcQMap at a late-breaking special science session on Sunday, May 21. This study evaluated AcQMap to identify non-pulmonary vein triggers in the persistent AF population. Utilizing AcQMap to identify triggers of AF is an emerging use of the technology that can further support expanded utilization. And we expect this study to demonstrate strong clinical outcomes when using AcQMap to guide therapy in complex patients. Beyond this study presentation, we will have a fulsome program in HRS, featuring user group meetings, physician-led presentations at our booth during the conference and several opportunities for customers and business development partners to engage with AcQMap users from across the world. We will also offer the opportunity to get more insight into some of our recently launched products and future pipeline development. Switching gears to our efforts to strengthen our financial performance. We continue to make significant progress during Q1 2023 with year-over-year declines in both non-GAAP operating expenses and cash burn as well as significant improvement in our non-GAAP gross margin. Takeo will cover these topics in more detail during his prepared remarks but overall, we continue to take the necessary steps to strengthen our financial position and extend the cash runway. Putting this all together, we are pleased with our start to the year and are laying the foundation for stronger performance to the rest of 2023 and thereafter, driven by a steady cadence of new product launches, clinical data and commercial execution. When combined with our operational improvement initiatives, this business trajectory will position us well for the future and allow us to maximize value for all stakeholders. With that, I will now turn the call over to Takeo to walk through our financial results.
Takeo Mukai: Thank you, David and good afternoon, everyone. During my remarks today, I will review our first quarter 2023 results as well as provide an update to our full year outlook for 2023. For the first quarter, net revenue of $4.2 million compared to $3.7 million in the year ago first quarter. The 13% year-over-year increase was primarily driven by disposable sales and increases in service, rent and other revenue. We ended the first quarter with an installed base of 77 systems globally, up sequentially from 76% last quarter. Through the balance of the year, we continue to expect growth in our global installed base, while remaining targeted to ensure new consoles are placed into service where we can drive strong procedure adoption. Our priority remains growth in procedure volumes, utilization and revenue per procedure rather than just growing the installed base. Disposables revenue in the first quarter of $3.4 million grew 7% compared to the year ago first quarter, driven by AcQMap disposables growth outside of the United States and growth in left-heart access through our distribution agreement with Medtronic. Similar to the year ago comparable period, we did not record any capital revenue in the first quarter of 2023. Service, rents and other revenue of $0.7 million was up from $0.5 million in Q1 2022. Q1 2023 revenue was impacted with back orders by an estimated $250,000 as we continue to remediate the supply chain disruptions that emerged earlier in the year. We are working diligently to resolve the price constraints and continue to expect full resolution by the end of this year. Non-GAAP gross margin of negative 60% in Q1 2023 improved sequentially from negative 64% in the fourth quarter of 2022 and was favorable compared to the negative 119% registered in the first quarter of 2022. This performance represents our strongest quarter since the second quarter of 2021. The year-over-year and sequential improvement in our non-GAAP gross margins was primarily driven by improvements in manufacturing efficiencies and improved leverage on higher production volumes. We will continue to dedicate significant attention to improving our gross margins and expect to show further improvement for the full year of 2023 and continue to forecast the path to positive gross margin in Q1 2024. In addition to volumes driving this improved trajectory in gross margins, we remain focused on several ongoing work streams to drive efficiency, reduce product costs through improved yield and bringing select processes in-house. Non-GAAP operating expenses were approximately $13.9 million in the first quarter of 2023, down 39% from the same period last year and down slightly on a sequential basis. We continue to realize the benefits of our discipline around expense management and expect our full year 2023 non-GAAP expenses to decline on a year-over-year basis as compared to 2022. Excluding specified items, our non-GAAP net loss for the first quarter of 2023 was $16.8 million or $0.59 per share compared to a non-GAAP net loss of $28.5 million for the first quarter of 2022 or $1 per share. Our total cash and cash equivalents balance, including restricted cash at the end of the first quarter of 2023 was $76.7 million. Our cash burn, excluding milestone payments and the employee retention credit was $18 million in the first quarter, down 39% versus the prior year. The first quarter tends to see higher cash burn as accrued annual bonuses were paid out to employees. Our first quarter also saw higher inventory purchases as we replenished supply to support higher current and future projected demand. Overall, we are pleased with the improvements we have made in reducing our quarterly cash burn and we'll continue to drive intense focus on optimizing our financial position. For the full year 2023, we now expect revenue to be in the range of $19 million to $21 million, driven by growth in AcQMap procedure volumes and associated disposable sales globally, targeted expansion in our installed base and a second half 2023 approval of AcQBlate in the United States. We appreciate your continued interest and support and I will now turn the call back to the operator to facilitate our Q&A session.
Operator: [Operator Instructions] Our first question comes from the line of Marie Thibault at BTIG. Our next question comes from William Plovanic at Canaccord Genuity.
John Young: It's John on for Bill tonight. Congrats on the quarter. If I could just start just on the update for timing for AcQBlate. Just any -- I know you called out second half but any specific timing for the approval? How should we think about the launch? And then the plans for limited market release? How long could that be?
David Roman: So as we said on our last call, our guidance for the full year contemplated AcQBlate approval in the second half of the year. So that expectation is unchanged from what we had shared in March. As a reminder, obviously, because AcQBlate is already approved and used outside the United States and has been on the market in Europe since March of 2021, the way we would approach a limited market release is probably a little bit different benefits for a completely new-to-market product. So we will start with obviously our highest utilization accounts as it relates to primary targets for AcQBlate. And those accounts that have given us feedback where the integration of an ablation catheter is critical to growing their AcQMap procedures from where we sit today or toward adoption in additional categories. But we would -- obviously, as you know, there will be a process by which we have to go through that committee approval, very consistent with when you launch any other new product. So our current outlook contemplates a fairly modest contribution from AcQBlate in 2023. The one thing I would also just remind you of, as we had -- we had submitted AcQBlate in October of last year. The average PMA review time at the FDA is running right now between 330 and 350 calendar days. So if you use that as sort of a benchmark, that's also probably a good place to kind of land an expected approval. Obviously, we have worked diligently through the FDA deficiency responses that you receive at the 90-day mark and are working through remediation and remain very confident in an approval and launch in the second half of the year.
John Young: And then just on Q2, the Street is currently at $4.8 million. Can you just talk about the comfort level around that number?
David Roman: Yes. So we talked a little bit on the call about the extent to which supply chain challenges had negatively impacted our first quarter results in the range of $250,000. We are actively resolving some of those supply chain challenges. And just to reground everybody, those supply chain dynamics related to our AcQMap basket catheter. There was a period of time earlier this year when we were receiving no raw materials. Those raw materials have since resumed here probably right around the time of our call in late March and we are continuing to rebuild inventory to support future demand. We will not fully resolve supply chain shortages here in the second quarter but are very confident that they will be resolved through the balance of the year. So the only other thing I would point out as you think about Q2 is, Q1 we did a little bit better than expected. We are raising our outlook a little bit here for the year. Given some of those supply chain dynamics, you may see more of a weighting of revenue in the second half of the year. We had commented on our call -- on the first quarter -- on the fourth quarter that we thought we'd be at about a 45%, 55% weighting first half, second half. That number may look more like the first half being in a range of 40% to 45% in the first half and the balance in the back half. The last thing I just want to mention on supply chain dynamics is, the back orders or inability to supply certain customers at the end of the first quarter has not impacted at all demand for the product. We have not seen lost procedure volumes. Where we do see that as transient, we are not losing the business because AcQMap is used in a very specific subset of cases where there really are no other options for many of the patients being treated. So we are seeing those orders get filled. We are not seeing purchase orders be canceled. So we are -- that's what gives us confidence in the build in revenue throughout the year.
Operator: Our next question comes from Margaret Kaczor from William Blair.
Unidentified Analyst: This is [indiscernible] on for Margaret. So in terms of the trajectory of the installed base with it at sitting 433 after the quarter, I think you've talked about pushing the accelerator and kind of making the installed base more of a focus now. So could you just walk us through your approach with some of those high volume centers or users? And then your expectation with the ramp throughout the rest of the year with the first quarter number coming in a bit lower than expected?
David Roman: Sure. So maybe just to clarify something, the installed base in the first quarter was 77 and we did 451 procedures in the first quarter. We did in the first quarter continue to look to rationalize our installed base and focus on accounts where we can drive procedure volume growth, growth in utilization for console and higher revenue per procedure. One of the things that we did not talk about on the call that was a really big standout for us this quarter was significant growth in our revenue per case in the first quarter. That is really the metric that we -- one of the key metrics that we believe is ultimately an indicator of the health of the business. I recognize the attention to installed base and it's something we've been reporting since the company went public. In our minds, it is really not an indicator of the performance or the health of the business. We do envision to grow the installed base here in 2023. We expect that we will exit 2023 and each quarter through 2023 with progressive growth in the installed base. Our focus, however, has to be on driving procedure volume growth, driving greater penetration into the categories where AcQMap has clear differentiation and driving increased revenue for a procedure. And if you kind of look at how things are going here in the second quarter, we talked about on the call that we got off to kind of a slow start to the year. We had some very high volume accounts that had lower utilization early in the year. We have seen a significant pick-up in procedure volumes over the course of Q2. And if you dig into that a little bit further, our primary levers to drive growth within high volume users is driving increased utilization of AcQMap across more procedure types. So second redo, first redo, de novo persistent. The second is bringing on new users per account. So now we have a number of accounts where we have multiple users. And then the third is growing -- the third actually is re-engaging former AcQMap users. This is something that has been a really positive contributor here in the second quarter as people who had once used AcQMap and had slowed down utilization for a variety of reasons, we're now seeing pick their utilization back up. And the fourth is going into new accounts and expanding our installed base.
Unidentified Analyst: And sorry for that, net procedures not installed base on the first one. And then just a quick follow-up. And I know it's only been a few weeks since the RECOVER results but I guess, what did you hear following the release? Was there any excitement amongst users in the U.S. specifically or is that something you're trying to spread more awareness during your conversations at HRS next weekend?
David Roman: I think that -- thank you for that question, because RECOVER AF is one of the studies that we've been waiting to get published for a while. And the publication of that data was important for us for a couple of reasons. First, it's the only significant clinical publication we've had in a couple of years which as you know, in this space, having a continuous flow of clinical data is critical to adoption and sustaining physician engagement. The second is, it really aligned well with kind of our refocused strategy that we've been bringing to market over the past year or so which has been to uniquely focus our target on complex patients, namely redo cases. So the data from RECOVER does dovetail very well with how we've been going to market and how we've been engaging the physician community over the past year. In the U.S. specifically, we will have quite a bit of attention on RECOVER at HRS at our booth. But even in the interim, since we did have the results get published in April, we have hosted a number of physician meetings. It is definitely driving a significant amount of engagement and a significant amount of attention from the physician community. And where it really helps is in accounts where I would say there are medium-level users to newer users and actually even former users. It's been a great tool to re-engage some of those types of accounts. And I would expect to see some physicians here in the U.S. potentially look to replicate the RECOVER results in the U.S. setting. And that's something that we're exploring as a company as well. So thus far, I've been very happy with the response. I think HRS will be a great opportunity for us to go into the data in a little bit more detail with some of our key users and prospective users. And then I think this is going to drive some additional interest in evaluating AcQMap in this very specific use case in '23 and beyond.
Operator: Our next question comes from the line of Marie Thibault from BTIG.
Marie Thibault: I'm back. I hope you can hear me.
David Roman: We can. Yes, Marie.
Marie Thibault: Okay. I'm so sorry. I have tons of technical issues. I probably missed some of your commentary but sorry about that. So I wanted to ask here about the early qualitative kind of feedback that you hear on the Medtronic sales of the left-heart access products. And is it fair to assume that some of this is showing up in any of the service revenue or anything at this point? How should we think about kind of the very early days of the Medtronic launch?
David Roman: So Medtronic took over commercial distribution very, very late in Q4. And over the past several months, we have been very pleased with how our partnership with Medtronic is progressing. From a commercial perspective, we have been very impressed with the pace at which Medtronic has picked up this product. And unsurprisingly, given their breadth and depth of distribution, has done a fantastic job getting this product into many more hands of prospective users than we ever would have been able to on a standalone basis. From our side, our top focus is making sure that we can continuously deliver them high quality and dependable supply and meet their ever-growing demand. So we are investing additional resources here to ensure that we can continue to support Medtronic's growth. But overall, as I reflect on the growth and development of the agreement and partnership over the past year, we are very pleased with how things are going. Just from a reporting perspective, the impact shows up in a couple of different places. One is on -- is in disposable revenue. And the other is a little bit in the other line and then also on the asset -- on the other line in the income statement on the asset sale gain. And that's where we start to accrue the net sales earn-out that gets paid out on an annual basis in March.
Marie Thibault: As my follow-up here, maybe one for Takeo. You mentioned gross margins, they came in a bit better than we expected this quarter and you still are holding to that goal of positive gross margin first quarter of next year. How should we think about the ebbs and flows of that metric throughout this year? Is it linear? Is it something a bit more especially as you're making some investments here? How should we think about that gross margin line?
Takeo Mukai: No, we're very pleased with the progress that we're making with our gross margins. And there's 2 primary factors. We saw the positive gross margin here on a sequential basis for the last 2 quarters here. And it really comes from the higher production volumes that we have across all of our products in our portfolio. And then the second is, we are seeing the efficiencies and optimizing our manufacturing support and our footprint. So definitely, we're getting to the production volumes that more closely aligns with our manufacturing footprint. So we do expect to see progressive improvement here throughout the quarters. And as we've stated, on path to positive gross margins in the first quarter, that hasn't changed.
Operator: Thank you for your participation in today's conference. At this time, we conclude the program. You may now disconnect.
