Dave Henry: And you saw some results from that capacity increase in terms of our pipeline adds in the first quarter. We had some additional ability to take on more of that volume. And so that resulted in — we had a record number of pipeline adds. Last year, we were kind of, what I would say, capped in terms of our capacity to add pages in the pipeline and those pipeline adds sort of ranged and they were maybe in the range of 380 to 430 for most of 2023. And so we exceeded that in the first quarter. And as Paul mentioned, we’re looking to add — continue to add capacity to increase those ads to the pipeline in coming quarters.
Anthony Vendetti: Okay. And so you’re doing about 40 to 50 units per month now, you’re looking to get to 80 to 100. When — what’s the timeframe? Will you be at that run rate by the end of the year or sooner than that? And then in terms of looking to expand beyond that, are you having negotiations with other contract manufacturers or other ways to get to that number above and beyond 80 to 100 a month, if the demand is there for that?
Paul Gudonis: Well, we’re hiring people now. We’re training them so that by fourth quarter we’re at that 80 to 100 unit run rate. Our contractors have engaged with them with our supply chain managers. They can handle the increased volume. We’ve placed orders for those long lead time components such as motors and so on. So we continue to plan to expand capacity and revenue going forward here as well.
Anthony Vendetti: Okay. And then just lastly on the guidance, still $28 million to $30 million. So as you mentioned, some of the reasons first quarter was a little bit light. But it sounds like that whatever that you would like in the first quarter got pushed into the second quarter, but you believe that revenue will materialize in the second quarter and continue to have confidence in the pipeline for the remainder of the year, correct?
Dave Henry: Yes. I think in some cases, we said much of that will come across. I think I don’t know how easy it will be, for example, to get to — to get additional payments from CMS on some of those underpayments we got in the first quarter that could be a bit of a slog. But other than that, for things that — for payments we expected to come in that didn’t and for deliveries we expected to make, but we held off on them until second quarter and those should come through.
Anthony Vendetti: Understood. Okay, great. That’s helpful. Thanks for the color. I will hop back in the queue.
Operator: Thank you. Our next question comes from Sean Lee with H.C. Wainwright.
Sean Lee: Good afternoon guys and thanks for taking my questions. My first one is on the sales cycle. So as you mentioned in the prepared remarks, quite a few of the orders during the first quarter came in and were filled in the same quarter. So I was wondering with additional Medicare patients coming in, do you expect that proportion to grow?
Paul Gudonis: So we expect, again, more Medicare Part B patients greater — to be a greater proportion of the pipeline. As Dave mentioned, there’s a higher velocity with those patients because there’s no need to go through a preauthorization process like we have to do with commercial and Medicare Advantage plans. So that can add 30 to 180 days of delay before an authorization. So if we can evaluate a Medicare patient today, they’re suitable candidates, they can go to their physician, let’s say, it takes them a month or two to get the medical documentation, they submit it to us. We review it. We can immediately place an order with our operations to develop and build a device for them and fulfill it. So that’s where we’re compressing that revenue cycle by having these Part B patients now as part of our marketing target.
Sean Lee: Great. Thanks for that. My second question is on the proportion of the device types that you’re seeing from these Medicare patients. Are you — I think previously you mentioned there is the mix was something like 90 to 10 for Model-G versus Model-W. I was wondering now that you have quite a few of these orders coming in. Do you still see the same proportion?
Paul Gudonis: Yes. I mean, it really isn’t that distinctive by Medicare or Medicare Advantage coverage. So yes, that’s a pretty good mix of product line.
Dave Henry: Yes. Overall, it’s probably between 90% and 95% Motion-G.
Sean Lee: Okay, great. And my last question is on the gross margin. So you mentioned we expect to see a bit more pressure this year due to expansion — sorry, production expansions. So I was wondering, looking a bit further ahead and with the Medicare payments coming in more steady, where do you see the gross margin to end up being?
Dave Henry: Yes, I mentioned that — to clarify, I mentioned that the second quarter gross margin could see pressure because of the fact that we are accelerating the — there’s a dislocation between — until we develop sufficient collection history with Medicare, there’s a dislocation between when we record cost of goods sold and when we take revenue. We take cost of goods sold to delivery, and we wait till payment to take revenue. And so there could be — what my expectation is, is at the end of the second quarter, there’s going to be units delivered but unpaid for Medicare patients, and that will hold down the gross margin. But that will correct itself later in the year, as I expect that we’ll be able to switch to being able to record revenue at delivery for Medicare patients, and that will fix itself. And so then longer term, I would expect that we should be able to get to gross margins in the 70% range.
Sean Lee: Thank you. That’s all I have.
Dave Henry: All right. Thank you.
Operator: And our next question comes from Ben Haynor with Lake Street Capital Markets. Please?
Ben Haynor: Good afternoon, gentlemen. Thanks for taking my questions. First off for me, on the increased velocity that you’re going to see from pipeline to authorization to delivery, does that automatically kind of improved the pipeline quality in that there’s less time or less opportunity for patients to drop out as well.
Paul Gudonis: Yes, Ben, that’s a very good point because the longer that cycle extends, more chances that a patient will change insurance, some of them suffer another medical issue like another stroke. Also, with the pipeline quality being more Part Bs we’re not that dependent on these pre-authorizations because we said in the past, our success rate on the Medicare Advantage pre-authorization has ranged typically in that 40% to 50% of those pipeline adds. So having Part Bs, which are medically qualified, we’ll have a much higher success rate of turning those into actual deliveries.
