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Operator
Greetings. Welcome to the Avenger Third Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Matt Kreps, Investor Relations at Avenger. You may begin.
Matt Kreps
Thank you, and thank you all for participating in today's call. I'd like to welcome you to Avenger's third quarter 2023 conference call. Joining us today are Avenger's CEO, Jeff Zawinski, and Principal Financial Officer, Nabil Saini. Earlier today, Avenger released financial results for the quarter ended September 30, 2023. A copy of the release is posted on the Avenger website under Investor Relations. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which remain pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including without limitation our future financial expectations, are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our Form 10-K and 10-Q filings with the Securities and Exchange Commission. Avidger disciplines any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. Today's presentation will also include reference to non-GAAP financial measures, such as adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on Avidger's website. And with that, I'd like to now turn the call over to Jeff.
Avenger
Thank you, Matt. Good afternoon, and thank you all for joining us. The third quarter was another exciting period for Avenger as we started commercial activities on two innovative new devices, Tiger Eye ST and Pantheris LV, after receiving FDA 510 clearance in the second quarter. These two products not only bring new capabilities to their respective markets, they also represent the first time we've had the opportunity to launch two new major catheter products in the same year. While revenue declined as a result of lower sales headcount during the quarter, we maintained good momentum in our business on a sales productivity basis. We announced today an exciting growth initiative for our sales team, and we're confident that the commercial introduction of Tiger IST and Pantheris LV combined with an expanded field presence will provide meaningful growth opportunities for our PAD business in 2024. With the launch of these two new catheter products, the build-out of our image-guided peripheral portfolio is largely complete. allowing us to focus our primary R&D efforts on the development of our first coronary product application. We believe we can redefine the market for coronary CTO crossing with a superior, simplified, and more predictable image-guided solution for a complex and challenging condition. And we're excited to extend our proprietary image-guided technology to this large and underserved market with established reimbursement already in place. We made significant progress on this initiative during the third quarter, including successfully completing a second round of animal studies and a first round of human cadaver heart studies at a leading clinical institution. Based on our progress to date, we believe we remain on track to file an Investigational Device Exemption, or IDE, application with the FDA in the middle of next year to allow for initiation of a clinical study following approval. While we're excited about the potential for our new products to provide new growth opportunities for the company, we are also focused on improving operating metrics for our current PAD portfolio. While we saw a decline in total revenue related to a reduction in sales head count, sales productivity, or revenue per sales head, remained strong for our existing team members in the third quarter, with revenue per sales rep increasing and revenue for total sales heads remaining consistent with the prior quarter. In our press release today, we announced plans to expand our direct sales team by more than 25% in the fourth quarter. By investing in the growth of our sales team over the next 12 months, we expect to strengthen our selling capabilities in existing territories and enable our organization to provide more focused and consistent clinical support in high-volume hospital centers. We also provide the opportunity to expand our sales footprint to new territories that are contiguous with our highest performing regions, as well as expand into new geographic areas over the next 12 months. Combined with our two new catheter product launches and our highly portable Lightbox 3 imaging console launched last year, we are confident that these investments will drive meaningful revenue growth for our PAD business in 2024. In our press release, we also announced that Phil Bruce will lead these efforts in his new role as chief commercial officer with executive management responsibility for all sales and marketing activities. Phil is one of Avengers longest serving employees and he brings over 15 years of direct industry experience to this expanded role. He understands the clinical setting and our customer needs at a deep level and has led the commercial launch and development of our advanced product portfolio in his prior position as Chief Marketing Officer. Bill has the full support of our sales leadership team, and I'm confident he will make a positive impact in this new role. Let me take a few minutes to provide updates on our two newest peripheral products. We received 510 clearance for our new Tiger Eye ST high-speed CTO crossing catheter in April and initiated limited launch in May. Based on the positive physician feedback, clinical outcomes, and product reliability demonstrated during the limited launch period, we made the decision in September to advance Tiger Eye ST to full commercial launch. 17 physicians at 13 sites have now completed approximately 60 cases with the new system. Our sales team is focused on expanding the penetration of Tiger IST into new sites and new users in existing sites, and we're excited about the potential for this advanced technology platform to drive growth of our CTO business in the fourth quarter. For those new to the call, Tiger IST is a low-profile, five-french system designed across chronic total occlusions, or CTOs, which are completely blocked arteries. in the peripheral vasculature both above and below the knee. Tiger IST spins at speeds up to 1,000 RPM and generates high definition OCT imaging during the procedure, providing real-time information to guide treatment and help physicians stay in the true lumen during crossing, a critical advantage for the patient. Tiger IST has an innovative and unique user-controlled deflectible tip to precisely direct the catheter during treatment and incorporates multiple design upgrades in the tip configuration and catheter shaft to increase crossing power and procedural success. In June, we received 510K clearance for our new Pantheris LV image-guided atherectomy system, marking the first time Avenger has received 510K clearance for two new catheter products in the same year and making a tremendous leap forward for our high-speed peripheral portfolio. We developed Pantheris LV with the objective of streamlining the atherectomy procedure, opening additional user and case opportunities for our platform, and in combination with our Lightbox 3 imaging console, expanding the mainstream appeal of our image-guided platform. Pantheris LV represents a new device category for us, not a replacement or upgrade of an existing device. The Pantheris LV device is designed to treat vessels 3 to 7 millimeters in diameter and is ideally suited to treat lesions in the larger SFA and popliteal arteries above and behind the knee where the majority of PAD procedures are performed. Pantheris LV incorporates several design features from our highly successful Pantheris SV small vessel device and, like Pantheris SV, does not require a balloon for plaque opposition. Pantheris LV operates at significantly higher rotational speeds than our current atherectomy offerings, with variable speeds up to 3000 RPM during treatment. It also introduces enhanced guidewire management and plaque management systems to the platform. We initiated limited launch for Pantheris LV in August, and consistent with our process, we're using the limited launch period to fully understand the clinical capabilities of the new device, gauge product performance and reliability in a real-world clinical setting, and prepare our clinical sales team for full national launch. We have now completed 25 cases at 10 clinical sites and expect to gain additional case experience in approximately 12 current and new sites by year end. Pending additional learning from our limited launch process, we anticipate expanding to full commercial launch early next year. While we're excited about the introduction of these new devices, our highly differentiated Pantheris SV small vessel atherectomy device continues to deliver exceptional patient outcomes in daily clinical use and in our groundbreaking ImageBTK clinical study. Pantheris SV is primarily used to treat patients with below the knee lesions, many of whom suffer from critical limb ischemia or CLI, the most severe form of PAD. The unique and compelling benefits of using Pantheris SV to treat these challenging patients was highlighted in three podium presentations at the AMP Amputation Prevention Symposium in August. During his presentation at AMP, Dr. Tom Davis, a key opinion-leading interventional cardiologist, shared updated interim data from the IMAGE-BTK post-market study, designed to evaluate the safety and efficacy of Pantheris SV in treating below the knee lesions. The majority of the 46 patients enrolled in the study suffered from an advanced stage of peripheral disease with an average stenosis or blockage of 94% prior to the procedure. Treatment with Pantheris SV is proving to be highly effective. Average stenosis was reduced to 26% following treatment with Pantheris SV alone, and to 9% following the use of adjunctive therapy, representing a 90% reduction in the blockage following the procedure. Safety data are equally compelling with 100% freedom from major adverse events reported in the study. Perhaps most exciting are the longer-term results demonstrated in the study. Patients who have completed their 12-month follow-up exhibited 96% freedom from target lesion revascularization, and 93% patency in limbs treated. This is unprecedented data for the treatment of advanced disease below the knee. We look forward to providing further updates on ImageBTK as the final cohort of patients reach the 12-month endpoint of the study. As we look to the future, we're excited to bring the benefits of our image-guided platform to a large and growing coronary artery disease market. We've discussed our first product application extensively, targeting development of a superior image guided solution to the complex, expensive, and uncertain procedures currently used to cross chronic total occlusions in the coronary arteries. We believe Avenger can redefine the standard of care in this market by leveraging our proprietary technology platform to create the first and only fully integrated image guided system for crossing coronary CTOs. Our development program focuses on low-profile catheter designs that combine real-time OCT guidance with precise control and steerability to facilitate an integrated approach intended to allow a larger number of physicians to safely and efficiently cross coronary CTOs. Like our peripheral catheters, our coronary devices will incorporate a precise measurement capability to help physicians properly size balloons or stents prior to placement. which is critical for optimal outcomes. Our CTO crossing device would access existing reimbursement codes for both the therapeutic procedure as well as for coronary OCT diagnostic imaging immediately upon FDA clearance. We believe that an OCT-guided catheter designed for crossing efficiency combined with an immediately available attractive reimbursement scenario provides the opportunity for a highly compelling economic value proposition. We are making excellent progress on the development of this exciting new device. Early in the third quarter, we completed a second round of animal studies with advanced product prototypes. Later in the quarter, we completed a first round of product evaluation in an innovative cadaver heart model at a top KOL center and expect to complete additional testing in this model in the fourth quarter. We continue to advance our product design based on learning from these studies and feedback from our clinical advisory board and believe we remain on track to finalize design selection this year. As we advance this program, we anticipate being in a position to file an IDE application with the FDA by mid-2024 to allow for initiation of a clinical trial following approval. We continue to make progress across our portfolio to provide a strong foundation for growth. advancing two strategically important new peripheral products into commercialization, investing in our commercial organization to extend our reach and case coverage capability, and developing a game-changing first coronary product application that targets a large and underserved market with an attractive economic value proposition. We look forward to reporting our progress and needs in other areas on our year-end call. At this point, I'd like to turn the call over to Nabeel Spinetti, our principal financial officer and accounting officer, to take us through the financial results, and then I'll return for Q&A. Nabeel? Thank you, Jeff.
Matt
Total revenue is $1.8 million for the third quarter of 2023, compared with $2.0 million in the second quarter of 2023 and $2.3 million in the third quarter of last year. Productivity for our field sales team members remains strong during the quarter. and the decline in revenue is primarily due to attrition in our sales team. As Jeff mentioned, we expect to expand our sales team by more than 25% in the fourth quarter, with further expansion anticipated over the next 12 months. Gross margin for the third quarter of 2023 was 21%, compared with 30% in the second quarter of 2023 and 35% in the third quarter of 2022. The change in gross margin primarily reflects lower manufacturing volume over fixed cost in the third quarter. Operating expenses for the third quarter of 2023 were $4.4 million, compared to $4.3 million in the second quarter and $4.5 million in the third quarter of last year. Net loss and comprehensive loss for the third quarter of 2023 was $4.5 million, compared to $4.2 million in the second quarter and $4.1 million in the third quarter of last year. Adjusted EBITDA, as defined under our non-GAAP financial measures in this press release, was a loss of $3.7 million. up slightly from a loss of $3.4 million in the second quarter and a loss of $3.6 million in the third quarter of last year. For more information regarding non-GAAP financial measures discussed in this press release, please see non-GAAP financial measures below, as well as the reconciliation of non-GAAP measures to the nearest GAAP measure provided in the tables below. Cash and cash equivalents totaled $8.7 million as of September 30th. We strengthened our balance sheet through the conversion of $1.9 million, or 12%, of the then outstanding debt to a new series of convertible preferred stock and raised net proceeds of approximately $5.1 million through the sale of common stock in the company's ATM facility during the quarter. At this point, I'd like to turn the call back to Jeff for Q&A.
Avenger
Thanks, Nabil. We're excited about the progress we're making on several fronts. gaining valuable case experience in advancing our commercial programs for Tiger IST and Panthera SLV, continuing to build the clinical body of evidence in support of our proprietary image-guided approach, and rapidly advancing the development of our first coronary product application, which we believe represents a transformational value opportunity for Avenger. We're investing in our sales organization under new executive leadership to extend our reach and drive the growth of our business, And through it all, we remain committed to making a difference in the lives of patients and the physicians who treat them with the most advanced image-guided tools available on the market. At this point, we'd be happy to take your questions.
Operator
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is star one to ask a question. One moment please while we poll for questions.
spk01
As a reminder, if there are any questions, please press star 1. There are no questions in queue.
Operator
I will now turn the call over to Jeff Zawinski for any closing remarks.
Avenger
Well, thank you very much for joining our call this afternoon. We very much appreciate your interest in our company and look forward to reporting our further progress in the coming year. Thank you.
Operator
This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
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