This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: Good day, and thank you for standing by, and welcome to the Inari Medical Inc. Q2 2021 earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. To ask a question during the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Caroline Corner, Please go ahead.
spk11: Thank you, Operator. Welcome to NARI's second quarter 2021 earnings call. Joining me on today's call are Bill Hoffman, President and Chief Executive Officer, and Mitch Hill, 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, including statements regarding the markets in which Inari operates, trends, and expectations for Inari's products and technology, trends and demands for Inari's products, Inari's expected financial performance, expenses, and position in the market, and the impact of COVID-19 on Inari's operations and Inari's customers' operations. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results, performance, or achievements to differ materially from any results, performance, or achievements expressed or implied by the forward-looking statements. Please review INARI's most recent filings of the SEC, particularly the risk factors described in INARI's S-1 filing and INARI's quarterly report on Form 10-Q for the first quarter ended June 30th, 2021, for additional information. Any forward-looking statements provided during this call, including projections for future performance, are based on management's expectations as of today. Inari undertakes no obligation to update these statements, except as required by applicable law. Inari's press release of second quarter 2021 results is available on Inari's website, www.inarimedical.com, under the Investors section, and includes additional details about Inari's financial results. Inari's website also has the latest SEC filings, which you are encouraged to review. A recording of today's call will be available on NRA's website by 5 p.m. Pacific time today. Now I'd like to turn the call over to Bill for his comments and second quarter 2021 business highlights.
spk05: Thank you, Caroline, and thank you, everyone, for joining us today. Our second quarter was productive and successful in terms of financial performance, and we again treated a record number of patients. Our second quarter was also marked by important changes in our business, significant investments in our future, and important milestones in all of our growth drivers. We are excited to share some additional detail about all of this, but we would like to start first, as usual, with a patient story. We appreciate always the opportunity to remind you not only of the profound impact our people and products have on the lives of our patients, but also the sense of responsibility we share to solve some of the most challenging technical and clinical problems facing our physicians, and address some of the most important and devastating conditions in all of medicine. Early in January, One of our top physician customers, an interventional radiologist from Florida, was asked by his colleague, a podiatrist and wound care specialist, to see a patient with a large, deep, weeping ulcer on his leg. The ulcer had failed to heal for three years despite best wound care practices and three arterial revascularization procedures. This man in his early 70s lived with significant pain and was wheelchair-bound due to the ulcer. Our physician recognized immediately that the patient's ulcer was venous in nature, not arterial, and that the cause was likely post-thrombotic syndrome, or PTS, caused by an untreated deep vein thrombosis, or DBT, several years earlier. He used Claude Schriever to remove a significant amount of post-thrombotic scar tissue, establishing a large, patent, high-flow venous channel, and at the patient's three-month follow-up, the ulcer was nearly 100% healed. The patient was walking without assistance, and he was pain-free. If you've ever seen a venous ulcer or even an image of such a wound online, perhaps you can imagine the impact on this patient and those who care about him, not just physically and not just in practical ways, but in much bigger ways, in ways that actually define their lives. This patient was suffering from advanced PTS. It is caused by persistently high pressure in the legs as a result of deep venous scarring. Left untreated, clot gradually transforms to scar tissue over time. About 50% of all patients whose DVT is untreated will develop PTS. It is a progressive disease with early symptoms ranging from swelling and pain and progressing to pigment changes in scaly, dry skin with scabs, and finally, to venous ulcers that often necessitate amputation. There are about 1 million patients just in the United States suffering from venous ulcers right now, many as a result of PTS. While Clottriever was not necessarily designed to treat this disease or to remove this sort of tissue, we are highly encouraged by the many patient success stories emerging in this difficult-to-treat patient population. Beyond Clottriever, we are investing aggressively in purpose-built devices to remove post-thrombotic scar tissue. We'll have a lot more to say about this soon. I'd like to turn now our attention to our Q2 financial performance. Our revenue in Q2 was $63.5 million, up $38.1 million, or 150%, from the same quarter last year, and up about $6.1 million, or 10.6%, from Q1. As in the past, the vast majority of revenue in the quarter came from replenishment of inventory after procedures, while the balance came from stocking orders, which, as always, include initial inventory purchased by new customers, increases in inventory levels at existing customers as they grow, and increasingly important, from stocking orders for new product introductions. Revenue grew more quickly than procedures in Q2 due to the strong demand for and stocking of new products like T24 Flex and the T20 Curve, which we've discussed in the past. During Q2, our physician customers performed approximately 5,900 procedures, including a modest number of cases from Europe. This procedure count is up about 136%, from the same quarter last year, and up about 7.3% from Q1. Procedure growth during Q2 moderated compared to Q1. We believe this was primarily due to the decline in the prevalence of COVID, which, as many of you know, can cause VTE. This was an important source of patients treated with the Inari devices in Q1. In January and February, for example, at the peak of COVID hospitalizations, about 15% of the patients we treated were associated with COVID. By June, that number had fallen to about 4%. In short, COVID created a larger tailwind than perhaps we appreciated in Q1, and the decline in COVID-related BTE procedures tempered our procedure growth in Q2. In addition, as we head into Q3, we are seeing a significant number of vacations by employees, physicians, and staff. The commercial impact of this is uncertain. We believe a note of caution through the remainder of Q3 is warranted. Despite these short-term uncertainties, we remain bullish on the intermediate and longer-term prospects for robust procedure and revenue growth in a post-pandemic environment. The gradual lifting of restrictions to access has begun to enable our field team to once again communicate our story consistently to non-interventional physicians who make decisions about and refer patients for the treatment of VTE. This is important as about 70% of all VTE patients are still treated with conservative medical management. We have also been able to resume in-person physician training, VIP visits to our home office, technology roadshows, and executive field travel, all of which we believe make an important impact on our goal to penetrate these markets and treat more patients. Strategically, our markets remain large, and all five of our growth drivers, which we'll discuss now, are intact while execution continues to be crisp. Our first growth driver is the expansion of our sales organization to target new hospitals and physicians. Given the size of our total addressable market, as we just detailed, our performance in Q2 suggests we treated just over 5% of all the patients who we believe can benefit from treatment with our devices. We are very early in our effort to treat this patient population, and we believe the effort will require a lot more sales professionals. As a reminder, we began Q2 with 150 territories and shared in our last earnings call that our intent is to finish the calendar year with 180 to 200 territories. Consistent with our usual cadence, we recently completed another round of hiring of field sales professionals and we are comfortably on pace to land in the high end of this range by the end of the year. The increasing density of our sales organization and the resulting smaller territories provide opportunity to more effectively address our second growth driver, which is building awareness and driving deeper adoption at existing hospital customers. As we described earlier, A high percentage of our target PE and DVT patient populations are currently treated with anticoagulation alone. Education and training of non-interventional physicians, such as emergency department physicians, pulmonologists, intensivists, and hospitalists, who are often responsible for treatment decisions for these patients, is important. We convene both in-person and Zoom-based training of these physicians in groups and individually. And in addition, our sales professionals routinely visit with these non-interventional physicians in the current less restrictive environment, often inviting them to observe NRE procedures. Smaller territories have been especially useful for these efforts. We are also working with our hospital administrators to establish VTE programs in which systematic processes are installed to identify and triage our target patients to physicians who are experts in these disease states. These efforts continue to show tangible progress. Several of our hospital customers, for example, recently committed resources to hire dedicated VTE coordinators. We believe that this type of coordinator role has been vital to the growth and treatment of other disease states, such as STEMI and stroke, and will be similarly important to the development of VTE programs. We look forward to sharing progress here over time. Our third growth driver is to build upon our base of clinical evidence. We have a lot to share on this topic. First, we presented early in June At the new Cardiovascular Horizons meeting in New Orleans, an interim analysis of results of the first 250 patients enrolled into our prospective clout DVT registry. The safety profile clout treatment remains pristine. No patients with valve damage. No patients with vein damage. No patients with renal injury. And a device-related adverse event rate of just 0.4%. Blood loss was just 50 cc, which is similar to a standard blood draw, making clot-triever thrombectomy virtually bloodless. Effectiveness was equally compelling, and independent core lab analysis showed near-complete clot removal in more than 85% of the patients, which led to excellent clinical outcomes. At six months, every single patient reported a reduction in pain, and 92% were free from moderate and severe post-thrombotic syndrome. All of these results are best in class by a pretty wide margin. These results are even more compelling given that two-thirds of the patients treated in CLOT would not have qualified for trials in which competitive devices have been used because the age of the CLOT was older than two weeks. As you know, as CLOTs age, they become much more firm, more wall-adherent, more resistant to thrombolytic drugs, and impossible to remove via aspiration. Shifting gears to PE, we continue to make excellent progress in our FLAME and FLASH registries. In addition, we have assembled a steering committee of key opinion leaders to design a series of randomized controlled trials, or RCTs, that we believe will establish FlowTriever as standard of care for treatment of PE. Today, we are excited to announce the first of these trials. This trial will compare FlowTriever to catheter-directed thrombolytic therapy, or CDT, which we believe still represents the majority of PE interventions today. The composite primary endpoint will comprise death, intracranial hemorrhage, major bleeding, clinical deterioration, and duration of ICU stay. We are targeting first patient enrollments by Q1 of 2022. We plan to follow this with a separate RCT to compare FlowTriever to standard anticoagulation therapy, and we will have more to say about this trial in future calls. We believe our devices change lives in the most extraordinary ways, and we remain 100% committed to validating this with the highest level of evidence possible. We believe also that each cut of registry data, each new and more clinically relevant endpoint we measure, each RCT we initiate and successfully execute, not only increases awareness, helps drive adoption, and moves us closer to establishing these devices as standard of care, but also raises the bar by which new devices and competitors will be evaluated. Our fourth growth driver is to expand our product portfolio. We have some good news here as well. FlowSaver was cleared by FDA on July 22nd. FlowSaver, as many of you might recall, is an intuitive disposable filtration system that enables physicians to reintroduce extracted blood back into the patient. This delivers two important advantages. Number one, we believe that removing all of the clot carries great clinical value to the patient, and FlowSaver allows pursuit of this goal by enabling the physician to whoosh as many times as they deem necessary without concern for blood loss. And number two, by virtually eliminating blood loss in flow trigger procedures, FlowSaver establishes bloodless thrombectomy across the entire spectrum of Inari procedures, again setting the bar higher both for existing and future competitors. FlowSaver has been highly anticipated by our physicians and has already been received with great enthusiasm. Our 100-patient limited market release, or LMR, was completed in just one week, and we have already begun full market release. Beyond FlowSaver, our new product pipeline remains robust. We expect FDA clearance on several new products late this year and into the early part of next year, and we'll look forward to sharing more at that time. Our fifth and final growth driver is expansion into adjacent and international markets. We continue to make progress early in our European launch. Despite what remains a very challenging operating environment, we have now completed clot-triever and flow-triever cases across most major Western European markets. Enthusiasm and feedback from physicians remains highly positive, and we are seeing steady increases in our monthly case volumes. Most importantly, we are gaining clarity on our longer-term commercial, clinical, and reimbursement strategies. There's much work ahead of us, but we remain optimistic about our European opportunity. Finally, I appreciate always the opportunity to close by reminding you that Inari is more than just business for us. We have committed to a mission. We have committed to changing the lives of our patients in important and beautiful ways, and we increasingly sense responsibility more than merely opportunity in tackling some of the most challenging unmet needs in all of medicine. We love every second of the work, and we remain thankful for your support of our effort and for believing along with us in extraordinary possibilities. We're just getting started. We believe we can and will grow sustainably for many years to come. With that, I'd like to turn things over to Mitch.
spk08: Thank you, Bill, and good afternoon, everyone. In our revenues for the second quarter of 2021, we're $63.5 million compared to $57.4 million for the prior quarter and up $38 million, or 150%, from $25.4 million for the same period of prior year. The year-on-year increase was made possible through a bit more normalcy in the business environment versus the COVID shutdown of last year. Comparing to either Q2 of 2020 or Q1 of 2021, we have expanded our sales force, opened new accounts, and achieved deeper penetration of our products into existing accounts. Revenue was split between our two products as follows. 33% of our revenue was derived from the sale of Klotz Reaver products during the second quarter of 2021. compared with 40% in the second quarter of 2020, and 67% was derived from the sale of Float Reaver during the second quarter of 2021, compared to 60% in the same period of the prior year. Gross margin was 92.4% for the second quarter of 2021, compared with 86.3% in the second quarter of 2020, As a reminder, gross margin in Q2 of 2020 was negatively impacted by a 1.1 million idle capacity charge due to COVID. In the current quarter, we avoided any such impact, and we also experienced positive contributions due to product mix and efficiencies in our manufacturing operations. Operating expenses were $54.5 million in the second quarter of 2021 compared with $22.5 million in the same period of the prior year. R&D expense was $11.6 million in the second quarter compared with $3.6 million for the same period of 2020. The $8 million increase in R&D expense was primarily driven by an increase in headcount as well as product development and clinical evidence development costs. SG&A expense was $42.9 million in the second quarter of 2021 compared with $18.9 million for the same period of the prior year. The $24 million increase was primarily due to personnel-related expenses as a result of increased headcount across our organization and public company compliance costs. Net income for the second quarter of 2021 was $4.1 million compared with a net loss of $3.8 million in the same period of the prior year The basic and fully diluted net income per share for the second quarter of 2021 were $0.08 and $0.07, respectively, and the weighted average basic and diluted share counts were $49.7 million and $55.6 million, respectively. Compared with a basic and fully diluted net loss per share of $0.16 and a weighted average basic and diluted share count of $24.3 million for the same period of the prior year, The number of shares last year is significantly lower because of the conversion of the preferred stock and additional common shares issued as a result of the IPO. I'd like to move on to a few balance sheet updates. Our cash of $91.3 million and short-term investment balance of $84.7 million at the end of Q2 2021 totaled $176 million compared to $164.2 million at the end of the fourth quarter of 2020. We have not yet utilized our 30 million revolving credit facility, although we ended the second quarter with borrowing capacity under the credit line of approximately 23 million. Our cash flows from operating activities were 7.3 million in Q2 of 2021, compared to cash used in operating activities of 1.1 million in Q2 of 2020. As detailed by Bill, We are continuing to invest aggressively in our growth drivers in an effort to help Inari increase its ability to impact patient lives in a positive manner. We are working to build a business that can grow at an attractive rate and in a sustainable fashion. We are fortunate that thus far we have been able to fund our growth and investments internally. Having said that, we are not operating the business to deliver any particular quarterly cash flow outcome. I'll close my comments by addressing NORA's financial guidance. While we continue to deal with the various uncertainties discussed during this call, we are comfortable increasing our full-year revenue guidance to $250 to $255 million, up from our previous guidance of $240 to $250 million. With that, I would like to thank you for your attention, and I'll now turn the call back over to the operator for your questions. For the Q&A session, Bill and I will be joined by Drew Hikes, Chief Operating Officer, and by Dr. Tom Tu, Chief Medical Officer.
spk04: And thank you. As a reminder to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from Bob Hopkins from Bank of America. Your line is now open.
spk01: Thank you, and good afternoon. Hey, Bob. Hey. Yeah, I appreciate the chance to ask some questions here. I guess one is just short-term. I was wondering if you could just provide a little more color on your comments around Q3 and what you're seeing with, you know, vacations and COVID. I'm just wondering the degree to which this is stuff that you're already seeing, it isn't actually happening and manifesting in the last week or two, or it's just stuff that you're, you know, kind of pointing out as something that we need to watch. So I just wanted to get a little more clarity on what you're seeing.
spk05: Yeah, thanks, Bob. So we saw, you know, kind of some significant momentum coming out of Q2, and we did see a little bit of an impact on vacations the first, you So, you know, it's just a little bit uncertain. We certainly see it with our own employees, and we're seeing this, I think, with some of our peer group. But the fact is, I think it's going to abate here at some point, right? There's kids going back to school, already gathering up for sports teams, that sort of thing. So I think it's a short-term sort of phenomenon. The duration to which it persists is the cause for the uncertainty. But I think we really like our execution. We like what we've seen in terms of program building, addressing the TAM, the real TAM, not the COVID-type TAM. The big part of our market development opportunity really seems to be picking up some momentum. So I like our chances here, and I think we're going to get to some sort of normalcy in the operating environment in the next few weeks. That's how we're seeing it.
spk01: Okay. All right. That's helpful. And then two other quick things just as a follow on that is you providing any thoughts on kind of your, you know, how your full year guidance breaks down between Q3 and Q4. Sorry if I missed that. And then just one other quick longer term comment I'd love to hear from you on, you know, on, on some of the other, um, market opportunities in the United States, uh, for you, you know, in terms of like, for example, that arterial market, when do you think we'll get more color on your plans to enter some of those, uh, um, you know, markets that clearly your technology could be well suited to address. Thank you.
spk05: Why don't we start on the product stuff and then let Mitch address the guidance. So we've been a little bit – so I think you see where we're going here. The opportunity in markets immediately adjacent to VTE and immediately adjacent to thrombectomy, both of those are two different things. We have invested heavily – I think we're a little reticent just to talk about specifics yet. There's a lot of work to do in terms of quantification of the market, understanding any uncertainty around FDA clearance. But I think you'll see a stream of new product releases between, let's call it the end of this year and the first half of next year, right into Q3, actually. So I think our product pipeline is very, very robust. We're really excited about a number of different things. not just within the VTE space, not just within the thrombectomy space, but a little bit beyond that. Again, these adjacent markets. I wish I could get a little bit more specific, but I don't want to over-promise. And certainly when we start talking about timelines, the potential for over-promise exists, especially in a regulated environment like ours.
spk08: Hey, Bob. Thanks for your question about the guidance. When we look at the numbers year-to-date, I think we're at about 120.9% And if we look at the midpoint of the guidance, which would be the 252.5, that would leave us about 131.6 for the second half of the year. And I think when we would kind of break that number down versus the current consensus that's out there, we'd probably see Q3 being a little lighter in terms of where that would land and Q4 being a little heavier. I think that's largely due to this uncertainty sort of vacation seasonality thing you heard about from Bill.
spk04: Great, thank you. Yep. And thank you. And our next question comes from Cecilia Berlaw from Morgan Stanley. Your line is now open.
spk02: Great. Good afternoon, and thanks for taking the questions. Bill, I wanted to start off just flowtroopers, the percentage of revenue is a little higher in the quarter than we've seen historically, but could you just tie that in with your commentary around COVID and elevating cases in 1Q and really how you're thinking about of the trends between Quattrover and Flowtrover going forward as you back out COVID's impact?
spk05: I think, yeah, so thanks, Cecilia, and thanks for the opportunity to answer. So a couple of things. We saw a lot of stability between the mix of PE cases and DVT cases, and, of course, that led to some stability between the revenue mix. as well, although we do see some flow trigger usage in certain types of DVT procedures. During COVID, you know, kind of the height, the peak of COVID, in Q1, we saw probably a little bit more of a trend toward PE, just because those patients were deemed a bit more urgent, that's who was being treated, procedured, if I can use that word as a term, as a verb, I think we're going to see in a normal environment of stabilization similar to what we saw right through, right up to kind of the first quarter. So I don't think there's too much that we would read into this. We are not seeing adoption of one technology or faster, more interest in one disease state versus the other. We don't communicate or compensate our sales professionals to deliver one message to favor one technology or disease state over the other. So I don't know. I think we'll see some stability over time, maybe one or two percentage points on occasion. Some of that's just random noise, I think, rather than some significant trend.
spk02: Okay, that's helpful. And I guess the second question for me, but just curious what you're seeing from a the procedures you're performing, the percentage that are really TAM expansion versus share capture from legacy devices using Lytics, really how that shifted over the past few quarters, and then just any updates you could provide, too, about adoption in Quadrant Transit. And thank you.
spk06: Drew, you want to take that one? Sure. So relative to the question around TAM expansion, where the growth is coming from, I think we continue to see evidence that our cases are coming from both taking share from the existing minority of patients who are already being treated interventionally. And increasingly, we're seeing evidence that FlowTriever and ClockTriever are succeeding in putting new patients on the table, on patients that would have heretofore been treated with conservative medical management, but because of our purpose-built solutions, are being treated interventionally with mechanical thrombectomy as a first-line therapy. Hard to put numbers to those trends. But I think the base case number that we provided in the past of about a third of our patients to date coming from TAM expansion, I think that number still feels like it's in the ballpark to us. And I think month after month, quarter after quarter, those trends are in the direction of TAM expansion, which gives us some confidence that the work we're doing to drive deeper penetration, the work we're doing on program development is all beginning to bear fruit Relative to your second question on clot and transit, we have now, like we announced on a previous call, a specific indication for clot and transit. Our T20 curve launch has proven to be a really effective tool for that patient population. We continue to see cases being done. I can't tell you it's a major contributor to the overall case mix, but it's a very effective product. Those patients are in dire need of a solution with a very morbid and mortal disease. So we are seeing some number of those cases being done, and it's growing month after month, but probably not at a material level to the overall commercial franchise.
spk02: Okay, got it. Thank you for taking the questions.
spk04: And thank you. And our next question comes from Larry Beagleson from Wells Fargo. Your line is now open.
spk10: Good afternoon, guys. Thanks for taking the question. And Tom, congratulations on those RCTs. I'll definitely have some questions on those in the future, but I wanted to focus on a couple other topics tonight. Just starting with the new products, Bill, Flow Saver sounds like a pretty exciting product. I wanted to ask about what impact, you know, the pricing strategy there, what impact you think that, you know, help us understand the impact that could have to your business and any update on flow stasis and how you're thinking about that would be helpful and add one follow-up.
spk05: Sure. Thanks, Larry, and good to talk with you. So FlowSaver is being received extremely well. We completed the limited market release, as I said, in the prepared remarks in less than a week, and we're in full market release as of 1 a.m. tomorrow. So that's fantastic. I think I said in the prepared remarks also that there's two really important components to this and the reason that people are excited about it is because I think there's an increasing awareness and interest to remove all the clot or as much of the clot as you possibly can. This is not just about making an acute impact on the hemodynamics of the patient. That's critically important. It's always been important. But we're swinging for the fences now. We have a device that's safe. And there isn't any reason to leave clot behind, and we just eliminated probably the last of the reasons that someone might leave clot behind, and that was blood loss, right? So we're seeing people whoosh more often. The statistics over the LMR here suggest we're seeing more passes, suggesting that people are being a bit more aggressive at tracking down more clot because they can. And, of course, the whole concept of bloodless thrombectomy really, really resonates. So we have seen the enthusiasm is as strong as a 100-patient LMR in one week might suggest. We could not be more thrilled with the performance of the device, nor with the reception that we've seen from our field team and from our customers.
spk10: And flow stages, Bill, any update there?
spk05: Flow stages, look, so we... It's a relatively minor product. I mean, you can imagine the average selling price here is quite low. So we want to make sure that we are not distracting our sales team. Any one minute spent on a device that's for relatively low average selling price is a minute that we're not communicating our story about growing the VTE market more broadly. So we have a few specialists. We continue to collect information about where this product might fit. There's any number of procedures, not just our existing venous thrombectomy procedures, any number of procedures that require access, venous access. And so I think we're still in the data accumulation phase, but it's going really well, especially when we target the right physicians for the right applications. So beyond that, I don't think, Larry, you should expect a material impact on our revenue stream from Flow Spaces. certainly not between now and the end of the year, and we'll see how we think about this as we, you know, continue to accumulate information and data during the, you know, kind of this early phase.
spk06: And, hey, Larry, just to follow up on one more part of your flow saver question, which I think was relative to the pricing strategy, just to be clear, that product will be part of our per procedure price strategy on FlowTriever, so it will not generate incremental revenue. We certainly are confident it's going to generate additional cases and patients being treated, so we'll generate revenue from that regard. We will have an opportunity to get some upfront stocking revenue from that product, like we do with all of our new product introductions. But to be clear, it will be part of our per-procedure price under Float Reverb.
spk10: That's helpful. And Bill, it sounds like things are going well in Europe. So I'd love to just understand kind of the revenue ramp there, if anything's changed. I think in the past, you know, you've talked about maybe a million or so this year. Could you do better? And, you know, I think when we've looked at competitors, you know, they have maybe 10% to 15% of sales in this area outside the U.S. How quickly can you get there? Do you feel like you can get there? You know, well, maybe just how quickly can you get there? Thanks for taking the questions.
spk05: I'll turn that one over to Drew as well.
spk06: Yeah, so we continue to like what we see on the ground in Europe. It's still a really difficult operating environment with COVID, but we're seeing increases month on month in our case volumes. We're seeing cases now having been completed in most of the major Western European markets. The docs are very enthusiastic. Certainly, the unmet need is as prevalent in Europe as it is here. So we like what we're seeing despite a pretty challenging environment, and looking ahead to this fall when we have the summer holiday behind us and hopefully a more stable operating environment post-pandemic, those trends will accelerate. We're also getting more clarity on the reimbursement work we're going to need to do in Europe, the clinical work we're going to need to do in Europe, the commercial strategies that we'll deploy in Europe. I think all that will inform how quickly we're going to be able to get to – a level that is indeed a material contributor to the overall business. Certainly the opportunity is there, but I think those efforts are going to be measured in quarters, if not years, as we put the pieces in place over time and start building in that direction. So we like what we're seeing, but I think you know, that kind of adjectives we've used before, that it's measurable but not material yet, I think that's still a fair way to think about the European franchise year, probably for the rest of this year and, candidly, into next year as well.
spk04: Thanks, Drew.
spk08: Thank you, Larry.
spk04: Thank you. And our next question comes from Bill Polvinick from Canaccord. Your line is now open.
spk07: Great. Thanks for taking my questions. Just first on the, you know, to ask kind of the guidance question one more time, is just on the slowdown in July, is there a particular segment of the business that's impacting more than others? Is it more on the DVT or the PE side? Mitch, if you could just help us understand, and I think Bill was in your opening comments, just regarding the stocking and the replenishment and the stocking component. Like, how big was stocking in the quarter? And then are there any metrics on kind of same-store sales that you'd be willing to share with us at this point?
spk05: I'm trying to – it's my ADD, Bill. I'm trying to make sure I've got them all straight down here. So let's start with – Let's start with Q2. So I don't think we have seen any material difference in mix. I think that was a phenomenon that was related specifically to COVID, only because there's an urgency, you know, if all the hospital beds are full and, you know, people are running around hair on fire sort of trying to take care of COVID patients, patients with, quote, unquote, just a swollen leg, may get sent home from the ER, may not be procedured. So I don't think we're seeing any one disease state being favored here in the early part of July. I want to go back just a half step also and talk a little bit about what we saw in Q2. I mean, you know, we saw what we thought was very, very crisp adoption, crisp execution on program development, this whole concept of same-store sales. If you think of, you know, kind of a bucket that was leaking, COVID patients, right, that was kind of a sugar high. There was, these COVID patients were 15%, then down to 4% and down even a little bit further in July. There's just not many of those patients left to leak out of the bucket. And we continue to fill that bucket from the top, not only replacing the, you know, kind of the COVID patients that went away, but also, you know, the real opportunity here is that you know, kind of the real TAM. And we were putting patients on the table, or we continue to put patients on the table at a pretty nice clip. So I think, you know, when there's no, very few COVID patients left to leak, and we have some reasonable operating environment not hindered by the craziness of COVID and lack of access, not challenged by some of the some of the vacations that we've seen. And again, that's what we kind of saw coming out of late Q2. We really, really like the execution we're seeing in terms of same-store sales. So again, there's a little bit of a – there's some puts and takes here, but if you think about the COVID patients as being kind of a temporary high and a temporary governor on growth, the real opportunity here where we've – executed our plan to build these programs has been very, very effective.
spk08: And Bill, on your stocking revenue question, I took a quick glance at the stocking revenue over the past few quarters. I think you're familiar with this. Typically, our stocking revenue has kind of been in the low double digits in terms of the percent of total revenue. In this quarter, it was a bit higher than that. And I think that's largely due to the new product introductions. Drew made mention of this a minute ago when he was talking about the flow saver. We also have in Q2 the T20 curve, T24, some products like that. And so when those first go out into the field with our active customer accounts, there's some stocking revenue related to that. And I think that's just something that varies quarter to quarter depending on the cadence of our new product introductions.
spk07: And I was wondering, Bill, if you could just help us out and level set us. you know, if you started the quarter at about 15% of COVID and ended it for, you know, should about 10% of the quarter have been contributed to COVID just so we can kind of level set on what's the base you're growing off of going forward with that kind of pulled out of the mix?
spk05: You know, if we, so we've thought a little bit about this, Bill, and if you think about COVID going forward, I don't know what it looks like, right? I mean, we're down to 4% of patients that we're treating. There's a little bit of noise in there, but it looks like about 4% of the patients we're treating coming out of Q2 are COVID-related. Should we expect some percentage to remain COVID? I don't know how many more patients. I don't know how long COVID can rage on. It seems at some point here we've just run out of patients to infect. But right now that looks, you know, stable-ish. for the next quarter or two, and your guess is as good as mine as to whether that might increase or decrease here as we get into Q4. So I think what we're seeing right now is a fairly low level of COVID patients being treated, and hopefully it remains that way.
spk04: Thank you.
spk07: Thank you.
spk04: Thank you. And our next question is, comes from Danielle from SV Lyrinx. Your line is now open.
spk00: Hey, good afternoon, everyone. Thanks so much for taking the question, and congrats on a good quarter despite all the ongoing uncertainty. I guess just, I'm sorry about this, but one more guidance question. You know, if I take out from the procedures the COVID sort of impact, it looks like procedure volumes Um, from Q2, I'm sorry, from Q1 to Q2 grew over 20%. Would love to like sanity check that if that sounds right to you, X COVID. Um, and I guess as far as confidence in your guidance, if I grow procedures, 20% second half versus first half, I can get to the high end of the range. Is that sort of the right way to think about it? You know, kind of, um, I guess, Bill, to what you were just saying, kind of like more of the, more of the same. And COVID's kind of a wild card?
spk05: Yeah, let me start with that. The simple math that you're doing there is, I can't argue with it. We haven't thought about it exactly like that, but certainly there was a lot of patients that went away based on COVID. So again, we not only replaced those patients, but we managed to grow 7% on patients. So it was a solid execution, and it really, again, in terms of our second growth driver, just driving deeper adoption, putting patients into the queue and on the table, so to speak. As far as going into back half of the year and guidance, I think we are continuing to communicate here in various different ways. It's probably flat-ish in Q3. And we feel pretty good about Q4. We never want to put ourselves in a position to overpromise, but we feel very confident in the guidance that we've just delivered. And you can impute or kind of back into what Q4 looks like if we're suggesting right now that Q3 is flattish. So, you know, again, we like our chances in Q4 as hopefully there's some sort of normalcy associated with COVID and hopefully some normalcy in terms of vacations and, you know, kind of normal Q4 activity.
spk00: Got it. Yeah, thank you. Thank you for that. And then I guess my next question, Mitch, is going to be a P&L question for you, and that's on gross margins. I mean, it seems like some uplift from ASP and new product introductions. Curious how sustainable this level of gross margin is because it feels like oh, it should be coming down every quarter, but every quarter you keep going up. So just curious on how to think about that.
spk08: Yeah, so we are obviously pleased with the gross margin performance of the company. Part of that relates, as you point out, Danielle, to the somewhat greater percentage of revenue that's being driven by the flow treever business in Q2. And the flow treever carries a higher margin than the clot treever, so that's contributing to that in part. I think we're still seeing a pretty stable gross margin outlook for the business. Sort of the gross pricing of the two products with our hospital customers is stable. And we are doing more business as time goes on with the larger hospital systems and IDNs. And so that carries some admin fees and some rebates and things like that, some GPOs. So I think that could potentially have an impact longer term as well. As Drew mentioned a few minutes ago, the internationalization of the business is something that could impact our gross margin as time goes on. We don't necessarily see that having a shorter term impact, but it's something that will kind of fold in over the next few years. So all in all, we're seeing a pretty good trend. outlook for margin. I think as we continue to add products to the flow saver price per procedure, sorry, for the flow saver price per procedure, such as we did this quarter very recently with the flow saver, that's something as well that could drag down the margin on the flow saver sort of kit, if you want to think about it that way.
spk00: Yep, got it. Okay, thanks for that.
spk04: Thanks, Danielle. Thank you. And our next question comes from Marita Bolt from VTIG. Your line is now open.
spk03: Hi, good evening. Thank you for taking the questions. Really appreciate all the color here on the COVID tailwinds and some of the growth drivers that are behind the increase in sales here. I would love to hear a little bit more about how your newer sales reps are progressing. And maybe, Drew, if I could ask you for some metrics on how many new accounts were added in the quarter and what percent of Your total accounts are using both clot Traver and flow Traver, just some metrics that we like to track here.
spk06: Sure. So on the first area relative to the new hires, we did, as you heard Bill mention, bring on board kind of our next class, our usual cadence of quarterly hires. We feel good about being on track to that 180, 200, and in fact probably on the higher end of that range that we provided for how large a group will have as we exit this year. So no big changes there. We continue to like the depth and the quality of the candidate pools that we're attracting for those open positions. We were able to train this last class in person, which was a nice change relative to the series of classes before that in the height of the pandemic when we were doing Zoom-based classes. So this class is off to a good start. The vast majority of them are stepping into some type of split territory, so they've got a group of accounts where they're going to be trying to drive deeper and deeper penetration. So no big changes from that standpoint. Relative to your second group of questions on new account ads, last quarter on our call we shared we were kind of closing in on the 1,000 account mark. During Q2 we increased that, and now we're closing in on call at 1,100 accounts So we had kind of a similar level of new account ads during the quarter. I can't tell you that's a specific focus for us necessarily. The vast majority of our focus commercially is on driving penetration, but we did add about 100 new accounts. And still today, about 60% of those accounts are using both technologies, and the remaining 40% of those active accounts are only using FlowTriever or ClockTriever. So an opportunity for folks to go over time.
spk03: Okay. Very helpful. Thanks for those. Yep, exactly what I was looking for. Thank you for that. I guess I'll ask my follow-up here, maybe just try to sneak two in, very short ones. The discussion of new adjacencies, I understand that we need to be patient and wait for more detail there, but is that something where you'll be able to use the same sales force to target those people? clinicians, whoever they are in those adjacencies. And secondly, on VTE coordinators, give us a sense of just how meaningful that could be to adoption and awareness of mechanical thrombectomy and VTE. And thanks so much for the questions.
spk05: Do you want to take the first one, Drew? I'll take it.
spk06: So I think the short answer is, in terms of the go-to-market strategy for some of these new products entering what will be new TAMs, I think we're still assessing the options there. And we're looking at everything on a spectrum from a single sales organization that would have all those products. The other spectrum, of course, would be multiple sales organizations with a tighter focus and a more specialized approach. And there are pros and cons of all of those. I'm not sure we're quite far enough along yet in our planning to really have determined our approach, and it may well look different across the multiple projects that we'll be bringing to market. So stay tuned on all of that, and I think as we get closer to actually commercializing those products, we'll be making some decisions about the optimal channel strategy for each of them.
spk05: And the second question is, Marie, I think we'll let Tom answer. He kind of grew up in cardiology as the STEMI market was undergoing a transformation that we think is a reasonable model for the way we're thinking about VTE. So maybe Tom can handle the VTE coordinator discussion.
spk09: Great. Thanks for the question, Marie. If you look at some of the major cardiovascular diseases, such as heart attack and stroke, you can see that they're complex diseases requiring really a programmatic approach for the identification and systematic kind of triage of these patients, treatment, and follow-up. Other disease states like aortic stenosis with TAVR all have really benefited from a coordinator who is oftentimes described as the glue that really keeps the program together. They're involved in the systematic review to identify patients, to get follow-up, to be the bridge between various types of physicians who have challenges, working together and communicating. And so we think this is one of the critical elements required to get us from where we are now to really a state of centers of excellence for VTE care.
spk03: Great color. Thank you so much.
spk04: Thank you. And ladies and gentlemen, that is star one if you have a question. And we have a follow-up question from Bill Hovenick from Canaccord. Your line is now open.
spk07: Great, thanks. I'm going to run through a couple model questions if I can. I think you guys have a new facility coming online soon. You know, what should we expect in terms of an impact and the gross margin on that? And then I think in the queue I said that I read, and maybe it's in the past, but is there a one-time charge for some stock comp that's coming in in Q3, kind of a change in accounting? And then lastly, there's a really big jump in the R&D spend I mean, well above what we're looking for. And just trying to find out, I got the personnel and all the different things, but is there any one thing that's really driving that that we should be thinking about? Thanks.
spk05: Let me take the R&D spend first, and then Mitch can handle the other detailed financial questions. So two of our five growth drivers, Bill, are R&D related. That's development of clinical evidence and, of course, development of products. And yes, we are aggressively, I mean, as aggressive as we can possibly be, we are working on those growth drivers. And again, we've hinted that there's a number of products. We love the pipeline that we have coming down the pike here. And I think you've seen already almost every conference call, almost every earnings call, we have a new cut of data from two different registries, now three different registries, if you include the flame high-risk submassive, high-risk, and massive patient population. We expanded the FLASH registry to include anticoagulation-only patients and another arm for wearables, so we can track these patients' activity level, pulse oximetry, and RO2 sats, and heart rate, so forth, six-minute walk tests over time. So all of these things, I think, really do contribute to not only growth in our revenue numbers, but an understanding of the disease state that I think is really, really important to our mission more broadly. So, yes, we are very, very aggressively investing in those two growth drivers.
spk08: Hey, Bill, with respect to the question about facility, we are going live with the new NARI facility here during Q3. So a few folks are occupied actually at the new facility today. And the balance of the company will probably be moving over during sort of the September timeframe. As you would expect for the clean room and things, we're working on certification with the state of California for that. So we expect either in the late Q3 timeframe or early Q4 timeframe that we'll be fully operational over there. The margin impact of the new facility I think is going to be less noticeable, frankly, if noticeable at all, during Q3 as opposed to some impact in Q4. Even so, I think you'll see a fairly small impact, so it might not be something that will be very noticeable, although we're happy to try to call that out for you when we do the update in November. The other question you asked was about the non-cash stock-based comp charge. which will be – it's reported as a subsequent event in the queue, and that will hit the income statement for the company in Q3. We had actually one of our earliest employees who retired as of August 1st, and so we recognized some RSEO acceleration that related to his retirement, and that's just basically the impact of that that you'll see flow through the income statement during the third quarter.
spk07: Do we see that in the SG&A line, the R&D, or the COGS line?
spk08: SG&A line.
spk07: Okay, great. Thanks so much.
spk08: No problem. Thank you.
spk04: And thank you for your question. I am showing no further questions. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Disclaimer