Acutus Medical, Inc.

Thank you for standing by, and welcome to ACUTUS Medical's fourth quarter and full year 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. I would now like to hand the call over to Caroline Corner, Investor Relations. Please go ahead.

Thank you, Operator. Welcome to ACUTUS's fourth quarter 2022 earnings call. Joining me on today's call is David Roman, Chief Executive Officer, and Takeo Makai, 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 statement section in the press release attached as an exhibit to ACUTUS's Form 8-K filed with the SEC today, and are also discussed in more detail under the risk factor section in ACUTUS's most recent filings with the SEC, including the risk factors described in ACUTUS's 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. ACUDIS undertakes no obligation to update these statements except as required by applicable law. ACUDIS's press release of fourth quarter 2022 results is available on the ACUDIS website, www.acudismedical.com, under the investor section, and includes additional details about ACUDIS's financial results. The ACUDIS website also has ACUDIS's SEC filings, which you are encouraged to review. A recording of today's call will be available on the ACUDIS website by 5 p.m. Pacific time. Now, I'd like to turn the call over to David.

Thank you, Caroline, and good afternoon, everyone. Before jumping into today's call, I wanted to share an exciting milestone in Acutis' mission to transform patient care. Just last month, we crossed our 6,000th patient treated with Acumap globally. We continue to positively impact the lives of patients in ways that no other EP company can, and there's no greater reward for us as a company than seeing our technology come to life. With our focus on treating complex cases, we are seeing Acumap change the course of disease management for a growing number of patients for whom the societal, personal, and care burdens are all significant. I am humbled and proud to hear when Acumap-guided therapy improves patient quality of life and materially reduces the need for another redo procedure. I'd like to take a moment to recognize the extraordinary commitment of my ACUTUS colleagues, as well as the support and engagement from our physician partners for putting our mission into action each and every day. This is also the spirit that will carry us into 2023 and beyond as we return our business to growth through accelerated innovation and ongoing execution. Turning to our recent performance and business updates, we are making good progress on our two key strategic imperatives that we presented on our November call, driving utilization and operational excellence. starting with our first priority to drive utilization and adoption for AccuMap. We continued to execute our commercial strategy with intensified focus on procedure volume growth and utilization over expanding the installed base. While our installed base ended the year down versus 2021, we drove growth in all utilization-related metrics. For the full year 2022, commercial AccuMap procedure volumes increased 19%, Console utilization increased 13%, and revenue per procedure grew 11% constant currency. Overall, these performance metrics reflect strength in our core business and give us confidence in our ability to deliver growth in 2023 and beyond. Further to achieving our growth objectives is our product pipeline that is geared to both strengthening our position and expanding our addressable opportunities. As we have discussed previously, AccuMap is most regularly used today in redo procedures. Specifically, about 55% of US and 80% of OUS procedures come from redo cases. AccuMap has clear differentiation in these procedures, and our clinical results and sustained utilization in these segments underscore the value proposition we offer. At the same time, These procedure categories represent only a portion of the total complex ablation segment. Today, we estimate that our core addressable market is in the $750 million to $1 billion range, which includes all redo AF procedures, transient atrial tachycardias, and atypical flutter. By our estimates, this leaves about $2 to $2.5 billion of opportunity for Acumap that we expect to approach incrementally in 2023 expand to cover an additional $1.5 billion in 2024, with the balance coming into view in 2025 and 2026. In aggregate, this brings the addressable market for ACUMAP to approximately $475,000 procedures and $3 billion in disposable revenue based on trailing market estimates. Assuming sustained market growth of 10%, our opportunity will likely exceed $4 billion by 2026. The key innovations required to enter new categories largely center around software, including algorithm development, and disposables. Earlier this year, our leadership team undertook a strategic assessment of our R&D roadmap and decided to redirect resources to prioritize software and catheter development. These are two areas where we are growing headcount and expect a steady cadence of product launches over the next several years. In 2023 and 2024, we expect to have two significant launches in each year for both software and disposables. The sequence of launches starts with our AccuMap 9 software platform, which is designed to make significant improvements to catheter localization, procedural efficiency, and workflow flexibility. AccuVap 9 will be followed by U.S. introduction of our AccuBlade force-sensing ablation catheter and system. Data we presented at the 2023 AF Symposium as part of the late-breaking clinical trial session demonstrated strong efficacy with 94% success in the primary efficacy endpoint with an excellent safety profile of zero adverse events. Introducing AccuVap 9 and AccuBlade are among the primary drivers for our expectation of improved revenue performance. Moving to 2024, our revamped roadmap pulls forward our next major software platform, AccuMap 10, by about one year. AccuMap 10 will position us to be a standalone system across a broader spectrum of target procedures. Specifically, AccuMap 10 will enable physicians to perform contact and non-contact mapping in a single session. This is a major step forward in aligning our workflow with standard practice and eliminating one of the key barriers to broader adoption of our differentiated mapping solution. Later in 2024, we expect to launch our next generation AccuBlade 2.0 ablation catheter with bidirectional steering capabilities, improved handling, and a lower cost of goods profile. In addition to our new product pipeline, critical to the adoption of AccuMap will be additional clinical research. Over the course of this year, we have plans to release several data presentations and publications that build on the UNCOVER-AF study that showed freedom from AF in persistent patients of 72.5% at one year. As a reminder, most landmark study data for the treatment of persistent AF with conventional systems show one-year success rates in the 50 to 60% range. Data we have gathered in additional ACCUMAF studies show improved outcomes relative to the 72.5% Uncover AF benchmark, and we look forward to sharing meaningful clinical research throughout the year. Switching gears to our efforts to strengthen our financial performance, we continue to make significant progress during Q4 2022 and recorded our lowest level of operating expenses and cash burn since IPO, with year-over-year declines of 35% and 41%, respectively. We expect our cash flow and operating expenses to continue to decline on a year-over-year basis at least for the first nine months of 2023. This reflects the ongoing benefits of our restructuring program, disciplined operating expense management, and gross margin improvement. Takeo will discuss these dynamics in more detail later in the call. In addition to the internal restructuring to strengthen our financial position, the transition of our left chart access portfolio to Medtronic is progressing well. We have achieved all earn out milestones under the agreement and are now eligible to receive four years of uncapped revenue-based earn outs starting from February of this year. As a reminder, the earn outs are for 100% of net sales in the first year, 75% of sales in the second year, and 50% of sales in the third and fourth years. Putting this all together, 2022 is a transition year where we reset our strategic priorities, focus our R&D programs, and establish a strong operating foundation. We expect our business to see progressive improvements in 2023 and even stronger performance in 2024. 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. I'd be happy to cover any of these topics in more detail during our Q&A session, and I will now turn the call over to Takio. Thank you, David, and good afternoon, everyone. During my remarks today, I will review our fourth quarter and full year 2022 results, as well as provide our outlook for 2023. For the fourth quarter, net revenue of $5 million compared to $4.4 million in the year-ago fourth quarter. as we close 2022 with our highest level of quarterly sales on record. The 14% year-over-year increase was primarily driven by disposable sales associated with higher Acumet procedure volumes, growth in left heart access, both organically and through our distribution agreement with Medtronic, and modest increases in capital and service other revenue. For the full year of 2022, net revenue of $16.4 million compared to $17.3 million in the prior year, with declines attributable to a $2.3 million year-over-year reduction in capital equipment sales and $0.4 million in foreign exchange headwinds. Balancing these factors with strong execution on our strategy to drive utilization and procedure volume growth, which drove strong underlying growth in disposables, service, and other revenue. We ended 2022 with an install base of 76 systems globally. off sequentially from 74 last quarter and down from 77 in the year ago fourth quarter. We have mostly finished our strategy of moving consoles into higher value accounts throughout 2022. We will continuously evaluate our console utilization to ensure that we are optimizing the install base and we expect to grow our install base globally in 2023. Disposables revenue in the fourth quarter of $3.5 million grew 8% compared to the year-ago fourth quarter, driven by 15% growth in global commercial Acumat procedures and Left Heart Access products. For the full year, disposables revenue of $12.9 million advanced 8% year-over-year on a reported basis, and 11% excluding negative impact of foreign exchange, supported by 19% growth in commercial Acumat procedure volumes. We saw stabilization of capital revenue in the fourth quarter, with revenue of $0.9 million compared to $0.8 million in the year-go-forth quarter. For the full year, capital revenue of $1.8 million declined 57% from $4.1 million in 2021, consistent with our expectations and strategic prioritization of procedure volume and same-store utilization growth. Service and other revenue of $0.5 million was up slightly from $0.4 million in Q4 2021. Supply chain disruptions that emerged during the third quarter of 2020-22 continue through the fourth quarter, and we estimate that these disruptions negatively impacted Q4 2022 and full year 2022 sales by $200,000 and $300,000 respectively. More specifically, we had discussed shortages on our third quarter call related to the AccuGuide Max 2.0 introducer sheath. This product is used on all Acutus mapping cases as well as other electrophysiology procedures involving large-bore sheaths. To expedite remediation and ensure long-term supply, we have qualified a secondary vendor for key components and now have sufficient inventory of this particular component for at least the next 18 months. While we resolved AccuGuide MAX shortages in Q1, we did experience disruption with our sole supplier for components in our flagship AccuMAX product. This resulted in several weeks of lost production that has created a backorder situation. The Acumat production shortfall would negatively impact Q1 results, but we now have the requisite supply in-house, and our teams are working six days a week to bring production and inventory levels in line with current and expected demand. Non-GAAP growth margin of negative 64% in Q4 2022 improved from negative 110% in the third quarter of 2022. and were favorable compared to the negative 119% registered in the fourth quarter of 2021. The year-over-year and sequential improvement in our non-GAAP gross margins was driven by higher volumes, lower manufacturing variances, the positive impact from our restructuring actions taken earlier in the year, and favorable mix, all helping offset increases in raw material costs. We will continue to dedicate significant attention to improving our gross margins and expect to show marked improvement for the full year of 2023. As demonstrated by the fourth quarter, our gross margin will ebb and flow with revenue and overall volume. This will drive a downtick in Q1 2023, sequentially with improvement through the rest of the year, with a path to positive gross margin in the first quarter of 2024. In addition to volumes driving a positive year-over-year trajectory in gross margins, Several work streams are underway to drive efficiency in our overhead pool, reduce product costs through improved yield, and bringing select processes in-house. Non-GAAP operating expenses were approximately $13.9 million in the fourth quarter of 2022, down 35% from the same period last year, and is the lowest level of quarterly non-GAAP operating expenses since IPO. On a sequential basis, non-GAAP operating expenses were down 8% as we realize the benefits of our continued discipline around expense management. As a reference point, the annualized fourth quarter non-GAAP operating expenses of $55.8 million is down 36% compared to 2021. Excluding specified items, our non-GAAP net loss for the fourth quarter of 2022 was $17.9 million, or 63 cents per share, compared to a non-GAAP net loss of $28 million for the fourth quarter of 2021, or $1 per share. Our total cash and cash equivalence balance, including restricted cash at the end of 2022, was $76.2 million. Our cash burn excluding milestone payments and the employee retention credit was $15.6 million in the fourth quarter, down 41% versus the prior year, and down 29% on a sequential basis. We are pleased with the improvements we have made in reducing our quarterly cash burn and will continue to drive intense focus on optimizing our financial position. Closing with our outlook for 2023, we expect to see continued execution of our strategy to drive procedure volume, utilization, and case revenue share growth. At the same time, we continue to navigate intermittent supply chain disruption, seasonality, and variability in hospital capital expenditure spending, which was strong in Q4 of 2022, were relatively weak the rest of last year. For the full year 2023, we expect revenue to be in the range of $18 to $21 million, reflecting the continued shift in our trajectory from stabilization to growth. Key drivers underpinning our outlook for 2023 include growth in Acumat procedure volumes and associated disposable sales globally, selected expansion in our install base within our direct businesses, further geographic expansion with our partner Biotronic, and a second half 2023 launch of AccuBlade in the US. Accordingly, we expect approximately 45% of full year sales to come in the first half of the year and 55% in the second half, relatively consistent with 2022 phasing and normal industry seasonality. In regards to the first quarter of 2023, we expect sales to show modest year-over-year growth compared to the $3.7 million registered in the prior year period. The primary factor weighing on growth in the first quarter of 2023 are the aforementioned ACUMAP backorders that will reduce sales by $300,000 to $400,000. These issues are actively being resolved, and we expect to recoup these sales in the balance of the year. As a result, we expect stronger year-over-year growth in the latter nine months of the year. Overall, we are pleased with our performance exiting 2022. We are executing our strategic imperatives and staying laser focused on the variables we can control in our business. Strong underlying fundamentals set us up to return the business to growth in 2023 with accelerating performance into the outer years. 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?