ProSomnus, Inc. Common Stock (NASDAQ:OSA) Q4 2023 Earnings Call Transcript March 27, 2024
ProSomnus, Inc. Common Stock misses on earnings expectations. Reported EPS is $-0.42 EPS, expectations were $-0.31. OSA isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the ProSomnus Q4 2023 Earnings Investors Update. At this time, all participants are in listen-only mode. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Cavanaugh ProSomnus [ph] Investor Relations. Please go ahead.
Michael Cavanaugh: Thank you, and good afternoon. I’d like to thank everyone for joining us today. Earlier today, ProSomnus, Inc. issued a press release announcing our financial results for the quarter ended December 31, 2023 and describing the company’s recent business highlights. You can access a copy of the announcement on the company’s website at www.investors.prosomnus.com. With me on the call today are Len Liptak, Chief Executive Officer; and Brian Dow, Chief Financial Officer. As with our last call, Len will begin the call by discussing the fourth quarter and full-year 2023 business and operational highlights. Brian will then provide a review of our financial results and our financial outlook for 2024. We will not be hosting a question-and-answer session at the end of this call today.
Before we begin, I would like to inform you that comments mentioned on today’s call may be deemed to contain forward-looking statements. Statements that are not historical facts, including statements about the expected future financial performance, timing, outcome, and impact of the FDA’s review of the company’s 510(k) submissions for the severe OSA indication and planned 510(k) submission of the company’s RPMO2 remote patient monitoring device, financing, and strategic alternatives and other forward-looking comments are forward-looking statements. The words expect, believe, estimate, intend, plan and similar expressions indicate forward-looking statements, although not all forward-looking statements contain these or similar identifying words.
Forward-looking statements are not guarantees of future performance and are subject to various risks and uncertainties, assumptions, including assumptions about general economic market, industry, and operational factors, known or unknown, which could cause the actual results to vary materially from those indicated or anticipated. Such risks and uncertainties include, but are not limited to, changes in the time lines and potential outcomes of regulatory clearance and/or approval processes, development progress on future products, the availability of financing and strategic alternatives on economically reasonable terms, competition within the industries in which the company operates and variations in operating performance across competitors, changes in laws and regulations affecting ProSomnus’ business, the risk of downturns in the market and ProSomnus’ industry.
These risks and uncertainties are described in greater detail in our most recent Securities and Exchange Commission filings, including our most recent Form 10-Q for the quarter ended September 30, 2023, and our post-effective amendment on Form S3. Our SEC filings can be found through our company website at investors.prosomnus.com or at the SEC’s website at www.sec.gov. Investors are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements relate only to the date on which they were made, and the company undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, except as required by law or applicable regulation. Please note that this conference call is being recorded and will be available for audio replay on our investor website at prosomnus.com on the News and Events section under our Investor Relations page shortly after the conclusion of this call.
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Q&A Session
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Today’s press release and supplementary financial data tables have also been posted to our website. And with that, I will now turn the call over to Len Liptak.
Len Liptak: Thank you, Mike. Good afternoon to everyone on today’s call. Before we begin, I would like to thank shareholders for supporting ProSomnus, and I would like to acknowledge team ProSomnus employees around the world, who continue to conduct themselves with the professionalism, acumen, dedication and resiliency that is necessary to educate health care providers on the merits of emerging therapies like ProSomnus. With our strong focus on profitable growth and differentiated devices that continue to demonstrate and scientific studies and clinical practice, efficacious, compliant, non-invasive, economical, patient-preferred and safe OSA therapy for patients, payers and providers, ProSomnus is making meaningful progress towards our mission of being the leading treatment and disease management device for the massive public health crisis that is obstructive sleep apnea or OSA.
Physicians, dental sleep medicine providers, patients and payers alike are increasingly turning to ProSomnus for the treatment of obstructive sleep apnea. Indeed, we believe, based on scientific data, technical merits, scalability, access to care and device demand in the period, ProSomnus is the leading non-CPAP OSA therapy. Highlights for the period that support our positioning as the leading non-CPAP OSA therapy include record revenue results, record revenue levels of $7.8 million for Q4 2023 and $27.7 million for the full-year 2023, eight consecutive quarters of sequential revenue growth, revenue growth that exceeds 35% and 43% for Q4 2023 and the full-year 2023, respectively. These results make ProSomnus what we believe to be one of the fastest-growing publicly listed medical device companies and one of the fastest growing, if not the fastest-growing publicly listed obstructive sleep apnea medical device company based on publicly available information, all while spending hundreds of millions of dollars less than many of our competitors in sales, marketing, business development, and market access.
ProSomnus’ revenue performance can be distilled down to four key drivers. First, product differentiation; second, our EVO line of precision devices establishing an enhanced level of patient care; third, our commercial referral initiative; and fourth, our scientific data. Starting with differentiation of our devices in the market, our devices exhibit differentiation on the technical designs, clinical utility and satisfaction, scientific data supporting efficacy and treatment outcomes, regulatory approvals and coding and reimbursement levels for commercial and government payers. Technical differentiation, our devices are engineered to perform the mechanisms of action of repositioning and stabilizing the mandible to minimize airway collapse more precisely, accurately and consistently than our competition.
Our technical differentiation translates into more consistent efficacy, which is critical for referring physicians. Clinical differentiation, post-market surveillance of over 10,000 cases shows that patients and providers are highly satisfied with their ProSomnus experience and would recommend ProSomnus. Physicians and dental providers who try ProSomnus routinely acknowledged treatment with ProSomnus as good clinical medicine, certainly they did not or could not say about legacy real devices or other sleep medicine therapies. Scientific differentiation. ProSomnus devices have demonstrated consistent median efficacy of 87% across over a dozen papers published in journals or presented at medical conferences. Regulatory differentiation. ProSomnus devices are co-verified as E0486 or K1027, unlike non-custom oral devices, which are coded as E0485 which are not recommended by various medical guidelines.
Reimbursement, unlike non-custom E0485 coated devices, which are not covered by insurance in Medicare, ProSomnus devices are coded E0486 and K1027 and enjoy broad coverage with commercial payers and Medicare. ProSomnus devices have earned a higher reimbursement rate in certain European countries as an acknowledgment of ProSomnus’ technical, clinical and scientific differentiation. Next, our ProSomnus EVO devices continue to be a growth driver. EVO devices comprised 85% of revenue in Q4, representing 111% growth from January to December. Our EVO devices are smaller, more durable, more comfortable, easy to use and to keep clean and are associated with excellent outcomes in clinical studies. ProSomnus EVO is the first sleep device for 100% made from a validated medical-grade Class VI material.
Class VI is the highest standard of material biocompatibility according to U.S. Pharmacopeia. Finally, our third growth driver in the period is our referral initiative. Our referral initiative represents our sales team’s efforts to create referral relationships between qualified dental sleep medicine providers and sleep physicians. Providers linked with sleep physicians for referrals exhibit a 43% increase pre versus post in utilization rates, underscoring the massive opportunity for non-CPAP therapy, which we estimate to encompass 3.6 million people and a $2.2 billion opportunity at average selling prices. Team ProSomnus accomplished these truly remarkable revenue results, while driving an 18% improvement in operating expenses on a percent of revenue basis in Q4 versus Q2.
We view this improvement in operating expenses on a percent revenue basis as a reflection of our focus on profitable growth and the direct managerial interventions to focus on resources — to focus our resources on our most profitable growth initiatives. Turning now to scientific results. The company made tremendous progress with respect to scientific data published and communicated in the period that directly feature ProSomnus devices. Preliminary data readout from the frontline OSA therapy study, a head-to-head study comparing ProSomnus devices with CPAP, presented at the World Sleep Congress in Brazil, reported that frontline treatment with ProSomnus EVO devices demonstrated at least non-inferior effectiveness to CPAP and 2x the mean disease alleviation of CPAP in an intent-to-treat format.
Data from another study involving 58 patients with moderate and severe OSA treated across six hospitals presented at the Interdisciplinary Belgian Dental and Surgical Sleep Meeting Association reported AHI events improved from a mean baseline of 20.5 events per hour to a mean residual AHI of 3.9 events per hour with ProSomnus EVO. 90% of patients were treated to an AHI of less than 15 events per hour, 79% of patients were treated to an AHI of less than 10 events per hour. Another clinical study conducted by the University of the Algarve in Portugal, central hospital involving 22 patients treated with the ProSomnus EVO device, which was also presented at the World Sleep Congress reporting mean AHI improvement from 21 events per hour to four events per hour with the ProSomnus EVO device, mean ODI improvement from 19 events per hour to four events per hour with the ProSomnus EVO.