Acutus Medical, Inc. (NASDAQ:AFIB) Q2 2023 Earnings Call Transcript

Acutus Medical, Inc. (NASDAQ:AFIB) Q2 2023 Earnings Call Transcript August 7, 2023

Acutus Medical, Inc. misses on earnings expectations. Reported EPS is $-0.63 EPS, expectations were $0.61.

Operator: Good day, and thank you for standing by, and welcome to the Acutus Medical Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your speaker today, Caroline Corner of Investor Relations. Please go ahead.

Caroline Corner: Thank you, operator. Welcome to Acutus’ second 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 facts should be considered forward-looking statements. Factors that may cause results to differ from these forward-looking statements are discussed under the forward-looking statements section in the press release attached as an exhibit to 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 the second quarter 2023 results is also available on the Acutus website, www.acutusmedical.com under the Investors section and includes additional details about Acutus’ financial results. Acutus’ website also has Acutus’ SEC filings, which you are encouraged to review. A recording of today’s call will be available on Acutus’ website by 5:00 p.m. Pacific Time. Now I would like to turn the call over to David.

David Roman: Thank you, Caroline, and good afternoon, everyone. I’m very pleased with the progress we have achieved this quarter, and I’m thrilled to report several major achievements, including record procedure volumes, our highest number of global AcQMap users, the highest level of console utilization, highest installed base, thanks to our committed physician partners and our team’s disciplined focus on achieving our strategic objectives. Our prepared remarks today will include updates on our key growth imperatives, a review of our second quarter results and an overview of our plans to continue to drive momentum in the business through the balance of 2023 and into 2024. Starting with our first and top priority to drive utilization of AcQMap.

During Q2, we recorded our highest volume of AcQMap procedures on record, totaling 584 procedures globally, representing 21% growth compared to the prior year and up 29% sequentially. The acceleration in procedure volumes continued the trend we discussed on our last earnings call with strong incremental traction following the publication of the RECOVER AF study. Our strategy to expand addressable procedure categories through new product launches and improve physician user experience to drive same account utilization as well as increase the number of users per account are all contributing positively to our growth. Recent software launches such as AcQMap 8.5 that included enhancements to procedural workflow have also helped bolster user experience and increased procedure volumes.

Specifically, in the U.S., we saw our strongest performance in over five quarters. A particular note has been our ability to add new users at existing accounts as well as reengage former users of AcQMap. Both of these cohorts have embraced the product and technology upgrades introduced over the past year. The strong U.S. performance is also in the context of a more targeted installed base and streamline commercial resources following our strategic reorganization last year. Outside the U.S., our business continued to benefit from a full portfolio offering and geographic expansion with our partner, Biotronik as well as successful cases utilizing AcQMap in conjunction with other manufacturers’ pulsed field ablation or PFA systems. AcQMap’s proven ability to support multiple workflow approaches as well as physician preference when it comes to their ablation strategy is driving broader system adoption outside the U.S. And we think this is a good indicator of what to expect as we expand our portfolio in the U.S. and market dynamics evolve to include new ablation modalities.

Essential to achieving our strategy and long-term growth objectives is our product development pipeline. Our organic investments are geared toward both strengthening our position today and expanding our addressable opportunity ahead. Upcoming product launches all strengthen our position in the complex segment of the EP market, ranging from first-time persistent AF patients to the most difficult multiple redo patients. Importantly, in early July, we received 510(k) clearance for AcQMap 9, and we expect to be in full market release entering the fourth quarter of this year. As I mentioned previously, we are very encouraged by the pickup in procedure volumes following the launch of AcQMap 8.5 and expect our two next software launches to have an equal, if not more significant impact on our business.

AcQMap 9 significantly expands the capabilities of the AcQMap platform, leveraging advanced algorithms and automation to improve clinical utility and procedural efficiency of the system. Following the AcQMap 9 launch, we are on track to gain U.S. approval for the AcQBlate FORCE sensing ablation catheter and system by the end of the year. We expect to submit our FDA PMA response by the end of the third quarter. Our FDA response letter required cross-functional collaboration with our partner, Biotronik, to ensure compliance with new legislation regarding cybersecurity for electromechanical devices that went into effect earlier this year. We are confident the extensive assessment, remediation work and corresponding validation address the key gating items to approval.

As we enter 2024, we expect our U.S. portfolio to expand and offer a complete mapping and ablation solution, which will be further complemented by additional software features when we launch AcQMap 10 midyear. The upcoming AcQMap 10 launch is critical because it adds a capability to integrate contact and noncontact mapping in a single session, allowing us to bring all of the clinical benefits of AcQMap’s differentiated mapping while also conforming to physicians’ traditional workflow. This software launch is, therefore, a foundational component to expanding our addressable opportunity. As we look to the second half of 2024, we also expect to gain approval across multiple geographies of our next-generation AcQBlate catheter, which will feature bidirectional steering capabilities.

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By the end of 2024, we expect our product portfolio to have substantially expanded, enabling us to participate in nearly $3 billion of addressable market, which is approximately 3x the market we target with today’s portfolio. The combination of our strengthened commercial performance and market expanding new product launches gives us confidence to drive continued growth in 2023 with the accelerated performance in 2024 and is consistent with the outlook we’ve been discussing over the past year. Switching gears to our efforts to strengthen our financial performance. We continue to make significant progress during Q2 2023 with year-over-year declines in both non-GAAP operating expenses and cash burn as well as significant improvement in our non-GAAP gross margin.

During the quarter, we did make the decision to pull forward some inventory purchases on long lead time items to ensure adequate supply to support increasing demand. Takeo will cover these financial topics in more detail during his prepared remarks. But overall, we continue to take the necessary steps to strengthen our financial position and optimize our capital resources. Putting this all together, we are pleased with our first half of the year performance and the momentum in our business is palpable. We are laying the foundation to build long-term leadership in the diagnosis and treatment of complex arrhythmias driven by a steady cadence of new product launches, clinical data releases and commercial execution. When combined with our operational improvement initiatives, this business trajectory is positioning us exceptionally well for the future and will allow us to maximize value for all stakeholders.

With that, I will now turn the call over to Takeo to walk through our financial results.

Takeo Mukai: Thank you, David, and good afternoon, everyone. During my remarks today, I will review our second quarter 2023 results as well as provide an update to our full year outlook for 2023. For the second quarter, net revenue of $5.3 million compared to $4.1 million in the second quarter of 2022. The 30% year-over-year increase was primarily driven by disposable sales, higher capital conversions and increases in service, rent and other revenue. The second quarter performance represents our largest quarter of net revenue to date and reflects the entire company’s focus and execution on the strategy we set forward a year ago. We ended the second quarter with an installed base of 78 systems globally, up sequentially from 77 last quarter.

Through the balance of the year, we continue to expect growth in our global installed base while remaining targeted to ensure new consoles are placed into service where we can drive strong procedure adoption. Our priority remains growth in procedure volume, utilization and revenue per procedure rather than just growing the installed base. And this strategy is driving positive returns as evidenced by our Q1 and Q2 2023 results. Disposables revenue in the second quarter of $3.9 million or 17% compared to the second quarter of 2022, driven by a record period of procedure volumes and growth in left heart access through our distribution agreement with Medtronic. We also made solid progress towards improving back orders on key product lines, and we continue to expect our supply dynamics to normalize by the end of the year.

Capital revenue in the second quarter of $0.7 million compared to $0.3 million in the second quarter of 2022, driven by higher capital conversions in all regions. Service, rent and other revenue of $0.7 million was up from $0.4 million in Q2 2022. Non-GAAP gross margin of negative 49% in Q2 improved sequentially from negative 60% in the first quarter and was favorable compared to the negative 129% registered in the second quarter of the prior year. The improvement in our non-GAAP gross margins continues to be primarily driven by improvements in manufacturing efficiencies and improved leverage on higher production volumes. Improving our gross margin continues to be a point of emphasis for us, and we are on pace to show marked year-over-year improvements in 2023 with a forecasted path positive gross margin in Q1 2024.

As we have already started to experience production volumes will continue to ramp up faster than future labor and overhead costs, leading to improvement in gross margin. In addition to volumes driving this improved trajectory, we remain focused on driving efficiency, improving yields and bringing select processes in-house. Non-GAAP operating expenses were approximately $14.5 million in the second quarter of 2023, down 26% from the same period last year. We continue to realize the benefits of our discipline around expense management and expect our full year 2023 non-GAAP expenses to decline meaningfully on a year-over-year basis as compared to 2022. Excluding specified items, our non-GAAP net loss for the second quarter of 2023 was $17.6 million or $0.60 per share compared to a non-GAAP net loss of $26.2 million for the second quarter of 2022 or $0.93 per share.

Our total cash and cash equivalents balance including restricted cash at the end of the second quarter of 2023 was $61.5 million. Our cash burn was $15.2 million in the second quarter, down 41% from the prior year second quarter. For the full year 2023, we now expect revenue to be in a range of $20 million to $22 million, driven by growth in AcQMap procedure volumes, positive momentum from new software launches, distribution revenue from left heart access products and a Q4 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?

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Marie Thibault from BTIG.

Marie Thibault: Hi David. Hi Takeo. Congrats on the nice quarter here. Wanted to ask first here to understand a little bit more about your guidance. You had a lot of nice wins this quarter that led to that record procedure volume. You mentioned reengaging former users, some use in PFA cases. And I’m assuming that you were able to recapture some revenue from the back orders earlier this year. So can you tell us a little bit about what’s being assumed in that guidance? Anything you can on sort of the cadence and how much of these wins are sustainable here?

David Roman: Sure. Thanks, Marie. Let me walk through each of the factors that contributed to results in the quarter. First really was in procedure volumes. Right now, given the supply dynamics we face, we – our revenue and procedure volumes are tracking pretty closely with one another. We are managing through the supply chain dynamics that we have talked about throughout the course of this year. And while we were able to resolve, some of those in the second quarter, we will still face some headwinds from supply disruption in Q3. Importantly, we have – we are seeing shipments pick up for key raw materials for AcQMap and that’s what gives us confidence that those supply chain dynamics will resolve by the end of the year. As it relates to the assumptions and guidance for the rest of the year, we will expect to see some seasonality in procedure volumes in Europe here in the third quarter.

Europe represents – outside the U.S. represents about 50% of our procedure volumes. Maybe I think it’s actually a little bit higher than 50%, and we will resolve some back orders here in Q3, but likely carry some into Q4 with full resolution by the end of the year. So we would expect fairly similar trends to characterize our performance here in the back half of the year as we saw in the first half of the year. If you go back to 2022, on a kind of first half, second half basis, we had about 43% to 45% of revenue in the first half of last year with the balance in the back half of the year. If you look specifically at the second half, it was about 57% of the revenue came in Q4, and then the balance coming in Q3. So we would expect fairly similar quarter-to-quarter progression here in the back half of the year that you saw last year.

The only additional thing I would point out here is capital, as you know, has its ebbs and flows, too. We did have a decent quarter here in Q2 on capital. We recorded no capital revenue in the first quarter of the year. So that is obviously a variable given the size of capital revenue relative to our total base that could impact the phasing of revenue here in the back half of the year, but we’re making no heroic assumptions around the CapEx environment.

Marie Thibault: Okay. That’s really helpful. Nothing heroic there. Okay. And then maybe I can ask a little bit about AcQBlate, kind of a bit of a shift in the timing for that, but it sounds like Q4 approval is expected. What should we think about as we ramp our expectations? What are you thinking about in terms of timing for the catheter to go through VAC committees and how quickly we might start to see some improvements in utilization with that plus the 9.0 launch? Thanks for taking the questions.