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spk08: fourth quarter investor conference call. Earlier today, Prosomnus Incorporated issued a press release announcing the financial results for the quarter-ended December 31, 2022, and describing the company's recent business highlights. You can access a copy of today's announcement on the company's website at investors.prosomnus.com. With me today, we have our Chief Executive Officer, Len Lipak, and our Chief Financial Officer, Brian Dowell. Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our most recent form S-1 filed on February 10, 2023. Our SEC filings can be found through our company website at investors.prosomnus.com or at the SEC's website. Investors are cautioned not to place undue reliance on such forward-looking statements, and Prosomnus undertakes no obligation to publicly update or release any revisions to these forward-looking statements. Please note that this conference call is being recorded and will be available for audio replay on our website at prosomnus.com on the news and events section under our investor relations page shortly after the conclusion of this call. Today's press release and supplementary financial data tables have been posted to our website. As this is our first investor call, Today's format will consist of providing you with an overview of ProSomus, our products and our business, as well as highlights of our fourth quarter results as described in our press release announced earlier today, followed by a question and answer session. Len will present the quarter's business and follow operational highlights. Brian will provide a review of our financial results and our financial outlook for 2023. And finally, we will host a question and answer session to close the call. And with that, I will turn it over to Len.
spk02: Thank you, Mike. Good afternoon, everyone. It is an honor to represent Prasanna Sleep Technologies today, including our team members at our headquarters and around the world, and the growing number of providers who trust Prasanna's devices for the treatment of patients with obstructive sleep apnea. This being our company's first earnings call, I'd like to take a few minutes to introduce myself and provide a brief overview of Persomnus Sleep Technologies. My name is Len Liptak, CEO and one of the co-founders of Persomnus. I've spent almost 20 years working in leadership roles on mission-oriented medical device programs at 3M Healthcare, Stryker Neurovascular, and microdental laboratories. Yet I've never encountered an opportunity to make a difference like the one before Persomnus. Persommus is the leader in precision intraoral devices for the treatment of obstructive sleep apnea, or OSA. By precision, we mean that every Persommus device is individualized for each patient's anatomy and treatment plan. The mechanism of action for Persommus devices is to precisely advance and stabilize the patient's jaw in a position that prevents the airway from collapsing while sleeping. Based on research, we believe that the precise individualization of our devices is clinically meaningful, highly differentiated, and associated with more consistent, predictable, effective outcomes. Our vision is to be the global leader in OSA solutions by providing safe, economical, non-invasive, and patient-preferred precision medical devices for treating and managing OSA. Bersama's precision medical devices have been prescribed for over 200,000 patients have demonstrated excellent health outcomes, are FDA Class II cleared, and are protected by 15 issued patents. 17 completed studies involving over 1,400 patients published in peer-reviewed journals or scientific programs link PROSOMUS devices with efficacy on par with CPAP for mild to moderate OSA patients, better patient adherence and treatment effectiveness, the mitigation of many common side effects, strong patient preference, and an excellent safety record. Every night, 1 billion people worldwide and 54 million adults in the U.S. struggle to breathe during sleep. Their upper airways collapse repeatedly, limiting the flow of oxygen to their vital organs. Untreated, this disease named obstructive sleep apnea reduces life expectancy, diminishes everyday quality of life, and costs the U.S. economy alone an estimated $150 billion annually. For these reasons, the CDC considers sleep disorders, including OSA, to be a major public health epidemic. However, due to low public awareness and the limitations of current therapies like CPAP, over 80% of the people with OSA remain undiagnosed and a higher number remain untreated. For example, based on clinical studies, we estimate that between 35% and 65% of patients fail to tolerate CPAP. These low patient adherence rates limit the overall effectiveness of CPAP treatment and are motivating physicians to evaluate non-CPAP options like prosomus devices. Studies report that an average patient compliance with prosomus devices is over 90% and that patients use the prosomus devices for an average of over seven hours per night versus approximately four hours per night with CPAP. Effectiveness is where we believe that we have an important competitive advantage over other treatments for obstructive sleep apnea, such as CPAP, upper airway stimulation, or the legacy dental products that came before us, all of which have shortcomings in either adherence or efficacy. Another key differentiator is our proprietary digital manufacturing process with strong IP protections that make our devices more precise and therefore effective. Our manufacturing process also enables Prasamis to scale our proprietary algorithm-driven device design software and proprietary software-driven milling robots, gain efficiencies with volume-enabling leverage while also improving our quality levels and service. Prasamis has an important and substantial opportunity to treat people with mild to moderate OSA and those who cannot tolerate or refuse CPAP. We estimate our immediate actual opportunity to be over $4 billion. Importantly, over 200 million people are already eligible to receive treatment with PROSOMNAS precision devices as a covered reimbursable private medical insurance, Medicare, and government sponsored healthcare benefit. PROSOMNAS is actively developing four key growth initiatives to realize this compelling opportunity. The first is the expansion of our direct sales team in North America. The second is our expansion into Europe and other key countries around the world. The third is clinical studies to further demonstrate and enhance the robustness of our claims and support label expansion into severe OSA. The fourth is our next generation device, which adds remote patient monitoring of physiological health data to objectively, continuously measure compliance and efficacy, enable disease management, and introduce recurring revenue streams into our business model. As you will hear today, PROSOMS is already making significant progress against these initiatives. Thank you for allowing me a few moments to make introductions. Now let's turn to 2022. 2022 was a transformative year for Persomnus, and I'm proud to report that Persomnus has generated results for the full fiscal year and fourth quarter that demonstrate momentum and indicate support for our value proposition. Some highlights include record revenue levels, top decile revenue growth rates, taking the company public in December under the NASDAQ ticker OSA, opening our new headquarters, which offers triple the square footage and quintuples our manufacturing capacity, approximately doubling the number of direct sales representatives, establishing our brand in Germany, UK, Netherlands, and Belgium, advancing key medical affair programs, including our frontline OSA treatment and severe OSA SOS studies. Continuing to develop our next-generation device, feature remote patient monitoring capabilities, building our team with a number of talented professionals and the important addition of Brian Dow, our new CFO, who you'll meet in a few moments. Brian is a highly experienced public company medical technology executive with extensive background in accounting, finance, and investor relations. We look forward to Brian's contributions as Persomnus grows as a public company. And again, you'll hear a little bit more from later on in this call. And we've also made significant progress strengthening our brand and positioning our precision and twirl devices as the leading solution for the mass public health problem of destructive sleep apnea. Lifting Persomnus on NASDAQ in December 2022 is a major achievement. The team was highly focused for much of the year on executing the business combination, and I'm incredibly proud of the hard work and perseverance the team showed in a difficult IPO and macroeconomic environment. We brought the company public to give Persomnus expanded access to the capital markets for the purpose of accelerating our multi-pronged growth strategy. We exited the deal with a cash runway into 2024, and we can now focus our talented team's efforts on bringing what we believe is a better OSA solution to patients and providers around the world. Bersamas is proud to report record revenue levels and top decile revenue growth of 32% for Q4 and 38% on a full year basis. Brian will provide more granularity in our financial section in a few moments. Despite macroeconomic headwinds, uncertain timing around our public transaction, and a relatively modest investment in sales and marketing, these levels of growth reflect healthcare providers' growing acceptance of our differentiated precision devices, the performance of our team, and the favorable impact of our growth initiatives. For example, prescriptions for Persamus devices outpaced hypoglossal nerve stimulation implants by approximately 4x for the full year 2022, despite spending considerably less in sales and marketing. Key drivers during the period include the ongoing commercialization of our Evo family of devices, Medicare coverage verification for our Evo PH line extensions, expansion of our direct sales team, medical and clinical affairs programs, and establishing operations in Europe. The company earned 98% retention of our top 100 providers for the period. The company received 8,850 case feedback forms from therapy providers throughout the year. 97% said their Persommas devices fit the first time. 99% said their devices were received on time and in full. 97% of patients and providers said that they were satisfied with their Persommas device. Over 99% said they would recommend Persommas devices to a colleague. The U.S. Army remained one of Persommas' largest customers in 2022. Persommas is proud to serve and support the Army and for Persommas to be named in the Army's operational orders for the treatment of sleep apnea. In December, an independent study published in Military Medicine reported an 88% success rate in treating military patients with mild, moderate, and severe OSA with our precision-controlled devices. During the period, we increased the count of direct sales representatives from 10 to 18 globally, 9 to 12 in North America, and 1 to 6 in Europe. Key functions of our direct sales organization are to raise awareness of personas devices and facilitate efficient, trusted referral relationships between sleep physicians and oral appliance therapy providers. We are pleased to report full enrollment of the FLOSAT Frontline OSA Treatment Study, a prospective head-to-head crossover clinical trial evaluating the effectiveness of presomus precision oral devices versus CPAP in patients with moderate and severe OSA. The lead investigators are scheduled to provide a preliminary data readout at the American Thoracic Society meeting this May. Persommus initiated enrollment in the severe OSA or SOS study. The purpose of the SOS study is to expand our FDA labeling to include the treatment of severe OSA. Four of our six investigational centers are actively recruiting and enrolling patients into the study, with another two centers expected to begin enrollment soon. Persommus continues to achieve strong gross margins, with 2022 gross margins surpassing 50%. The key drivers of gross margin were improvements in direct labor and factory overhead costs as a percent of revenue, offsetting inflationary and supply chain headwinds on material costs. Underlying these improvements were our continued investment in our manufacturing technologies, including our proprietary software packages that control our device design process and our milling robots, as well as overall continuous process improvement efforts. Brian will discuss financial results in more detail in just a few moments. During this period, Persomic succeeded 99% on time and in full delivery of our mass individualized precision medical devices. Our average manufacturing times were under seven production days, almost three times faster than legacy dental products. The company also delivered industry-leading quality levels with device fit rates and remaking warranty claims significantly better than competitive benchmarks. One of the characteristics of our digital manufacturing platform is that the proprietary software packages that run our device design and milling robots becomes more efficient with longing. In anticipation of accelerating growth, Prasanna strengthened and expanded our infrastructure with the opening of our new headquarters and manufacturing facility in Pleasanton, California, USA. The new facility provides ample capacity to meet our growth expectations for the next several years while also enhancing efficiencies of our workflows. Looking ahead, Prosomnis continues to make progress developing and commercializing our next-generation device featuring remote patient monitoring capabilities. Our next-generation device incorporates a sensor that tracks the patient's physiologic response to treatment. Data is transferred from our next-generation device to our patient's provider portal via our Prosomnis app on the patient's smartphone. Our next generation device will provide sleep physicians and providers with a safe and effective therapy and also access to medically necessary physiologic data that helps them to monitor and manage patient health by continuously monitoring treatment efficacy and compliance. During the period, the company has made significant progress developing our underlying sensor hardware, our smartphone patient app, our healthcare provider portal, and the backend data system for our next generation device. Versamis conducted several voice-to-customer feedback sessions with leading sleep medicine physicians and therapy providers. Feedback was encouraging, particularly because our next-generation device provides sleep physicians and providers with medically important data that they cannot access anywhere else. The company also investigated the potential for monthly recurring per-patient revenue streams by evaluating the business model of remote patient monitoring devices in adjacent segments. Remote patient monitoring technologies have been associated with reduction in total healthcare costs by reducing appointments, adverse events, and hospitalization and rehospitalization rates. In sum, Persamis is on a mission to be the global leader in OSA solutions. Physician and therapy providers are seeking non-CPAP options for treating OSA. Persamis is well positioned to be that option and is continuing to develop our devices, technologies, processes, and team to realize this important opportunity. We believe our record revenue levels and growth rates reflect our progress and momentum. We will continue to execute against our growth initiatives, building our direct sales team in North America, expanding into Europe and other key markets around the world, investing in clinical studies to improve the robustness of our data and support label expansion, and developing and commercializing our next-generation device with remote patient monitoring capabilities. Thank you. I will now turn the call over to Brian to discuss our financials.
spk05: Great. Thanks, Len, and good afternoon, everyone. Before jumping into the financial results, I'd like to take a moment to express my excitement to be joining the Prosomnus team at this pivotal time in the company's evolution. I look forward to working with you, Len, and the broader Prosomnus team as we build a highly valuable company for our patients, clinicians, and investors alike. Now, turning to the financial results released earlier today for the quarter and year-end of December 31st, 2022. With recent developments in the broader economic environment and our close proximity to Silicon Valley, I'm compelled to start my remarks by noting that Prosomnus' longstanding relationship with Wells Fargo has allowed us to avoid exposure to recent banking events. Let's now discuss our results. The fourth quarter of 2022 was another record-breaking quarter, with revenues totaling $5.8 million, an increase of 32% from $4.4 million realized during the fourth quarter of 2021. and sequential growth of 16% from $5 million for the third quarter of 2022. For the fiscal year 2022, revenues increased 38% year over year, coming in at $19.4 million. We exited the fourth quarter with gross margins improving to 53.6% of revenue, landing gross margin for the full year 2022 at 52.9%, a modest increase from 51.9% for 2021. Turning to operating expenses. Operating expenses for the fourth quarter, including several charges stemming from the completion of our business combination on December 6th, totaled $9.2 million. while operating expenses for the full year 2022 totaled $21.7 million. Sales and marketing expense for the fourth quarter totaled $2.4 million, an increase of 45% from $1.7 million for the same period last year. For the full year, sales and marketing expenses totaled $8.9 million, an increase of 53% from 2021. The increase in sales and marketing expenses reflect increased compensation expense stemming from the addition of sales headcount in the United States and Europe during 2022, along with increased commissions stemming from the increased sales. As Len mentioned earlier, a key use of proceeds raised during the fourth quarter is additional investment in the direct sales team. We anticipate sales and marketing expense to increase as we are making the necessary investments to drive top-line growth. we do remain acutely cognizant of the importance of deriving scale from the investments we make and striking the appropriate balance between investment and results. Research and development expenses for the fourth quarter totaled $1.1 million, up from half a million dollars for the same period last year. For the full year, R&D expenses totaled $3 million, an increase of 58% from 2021. The increase in research and development expenses during 2022 both on an annual and quarterly basis, reflect modest increases in compensation stemming from increased headcount, development activities relating to the Evo Select and Evo PH precision devices introduced during the fourth quarter, clinical expenses relating to the enrollment in our FLOSAT study, and development of our digital-enabled remote patient monitoring device scheduled for introduction in late 2023. G&A expenses, including several transaction-related charges, totaled $5.7 million and $9.9 million for the fourth quarter and full year 2022, respectively. Included in G&A during the fourth quarter is $3.6 million of stock compensation and incentive compensation payments relating to grants and payments in connection with the December business combinations. Although expense elements such as stock compensation will be incurred going forward, the magnitude of single point-in-time charges similar to those surrounding the transaction are not expected to occur. We will incur the added expense burden of being a public company and expect normalized G&A expense to increase during 2023 as we reflect the full expense burden of a public company. Obviously, going public was a seminal moment for prosomnus during the fourth quarter. This process was an interrelated series of transactions simultaneously involving the merger of Prosomnus and the Lakeshore Acquisitions One Corporation Special Purpose Acquisition Company, a pipe, and a convertible debt offering. As a result of the series of transactions, and after paying off previously existing debt and transaction fees for both Prosomnus and the sponsor, cash on the balance sheet as of December 31st totaled $15.9 million. It is this added liquidity that we have already commenced deploying to drive adoption of our devices and grow top line revenue and provides cash runway into 2024. To that end, as we look forward to 2023 and in consideration of the planned investments we have and will be making in our commercial organization, we expect strong top line year over year growth for full year 2023. We have started 2023 strong and expect the first quarter revenue to be closer in line with the fourth quarter rather than what is normally expected to be a seasonally softer start to the year. As we set our expectations for 2023, we expect year-over-year top-line revenue growth of 35%, landing 2023 revenue just over $26 million. Again, I'm excited to be joining the Prosomnus team at this important inflection point. To our shareholders, I look forward to engaging with you over the coming months and years. I will now turn it back to Len for closing remarks.
spk02: Thank you, Brian. Persanmus has made tremendous progress in 2022, generating record-breaking revenues, building strong momentum behind our precision internal medical devices as a leading OSA treatment, and strengthening our foundation for long-term success. We are looking forward to reporting on key milestones of success throughout 2023 as we continue to drive strong top-line growth. We are grateful for your support of Persanmus, and thank you all for joining us today. Operator, we will now open the call for Q&A.
spk07: Thank you. Participants, to ask a question, please press star 1 1 on your phone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Stand by as we compile the Q&A roster. One moment, please, for our first question. Our first question will come from Scott Henry of Roth Capital. Your line is open.
spk06: Thank you. Good afternoon and congratulations on all of the progress. I've got a couple questions. I'll start specific and then I'll get more general towards the end. For starters, in Q4, how was the ASP per unit? What are you generally getting for revenue per unit out there?
spk05: Yeah, this is Brian. Thanks for the question, Scott, and thanks for joining the call. Our ASP is coming in very steady. Actually, it's strengthened a little bit over the course of 22, but think about it. Be thinking about it in the range of about $600 per unit net to us on a revenue basis.
spk06: Okay, great. Thank you. And then when we look at G&A, obviously there will be some stock comp going forward, but you won't have the transactional stock comp. Should we expect Q1, and I know you're a growing company, but should that be around the $2.5 million range? Is that an apples-to-apples number if we pull out transactional costs?
spk05: No, I think we're not going to be giving guidance on the specific elements of operating expense today, Scott, but you're not that far off. In general, the normalized runway is going to to take basically the better part of this year because some of the costs are going to be a little bit point in time depending on what we're doing on a compliance basis. But in broad strokes, you're not that far off.
spk06: Okay, and then final specific modeling question. What were the shares outstanding for the fourth quarter? I didn't see that in there.
spk05: Yeah, the shares outstanding as we come out of the year were coming out with just over 16 million shares. So it's 16,041,000 shares outstanding as of the end of the year.
spk06: Okay, great. And then I'll just ask a couple general questions as I've looked at a lot of these appliances and dental OSA treatments, trying to compare them. First, from usability with regard, is this a device, if I put it, in my mouth at night and I'm watching TV, can I have a conversation with it? My understanding is it's much sleeker than a lot of the other things that I would see. Any color there?
spk02: Absolutely, Scott. Thanks for the question and good to talk with you. Absolutely. It's one of the reasons why our devices rate very well when we do preference studies, patient preference studies. It's that they can have a normal bedtime routine. They can get up and go to the bathroom. They can take a drink of water. They can have a conversation with their bed partner. They can watch TV or read a book. So it does not disrupt their normal bedtime routine and bedtime hygiene. It makes it very easy to fit into their lifestyle.
spk06: Okay, great. Thank you for that color. And I guess just a final question. One thing that kind of jumps out to me is this next generation sensor. I guess there's two things I'm curious with regards to its attributes. One, could this sensor be a good feedback mechanism for the patient so that maybe they're getting this sensor, they're looking at that smartphone, and they know that wearing this device is resulting in positive outcomes. I think that could be really helpful if that's the case. And two, with the generation of that data, can the provider perhaps make a little more money on the procedure?
spk02: Yeah, great question, Scott. And yes, on both fronts. So the device will come with Prasanna's smartphone app, which will give the patient immediate feedback on their sleep quality. So they'll be able to use that feedback to adjust their sleeping habits and the quality of their sleep and reinforce that their sleeping has in fact improved while using their Prasanna's device. And then the second part of your question, Absolutely. Remote patient monitoring, these are codes that are already being paid by most major insurances and CMS, and they are billed by physicians. So similar to our devices, where our devices right now are billed by the provider, and then we charge the provider a fee for our devices. Similar model here with the remote patient monitoring, where the physicians and the providers will build remote patient monitoring codes, and then we will charge a fee for providing the data to those physicians. So it should, you know, the intention here is for it to create recurring monthly revenues on a per patient basis for the provider, the physician, and for personas.
spk06: Okay, great. Thank you for that caller, and thank you for taking the questions.
spk07: You're welcome, Scott.
spk06: Thank you, Scott.
spk07: Thank you. Again, as a reminder, to ask a question, please press star 11 on your phone and wait for your name to be announced. To withdraw your question, please press star 11 again. And one moment for our next question. Our next question will come from Alex Norwick of Craig Hallam. Your line is open.
spk09: Okay, great. Good afternoon, everyone. I was hoping to continue off where Scott left, which was on this NextGen appliance. Maybe provide a little bit of specifics of submission to the FDA, timing around that. I assume it will be a 510 device. Maybe just kind of walk through the regulatory timeline there.
spk02: Yeah, great questions. And Alex, good to talk to you. So we currently have an FDA clearance for our next-generation product with remote patient monitoring capabilities for the purpose of monitoring patient compliance. We will also submit to the FDA for expanded labeling for oxygen monitoring, and we expect to submit that request to the FDA sometime in the next couple of months. We expect to be a 90-day FDA 510K review cycle, utilizing predicates that are already on the market.
spk09: And once that's launched, how would that look from a physician standpoint? Would this become the de facto standard for persomnus, or is it going to be still the Evo line today is going to be still the main device that a physician is going to want to prescribe, and this is more for their more special patients, we'll say?
spk02: Yeah, great question. We believe this is going to eventually become the frontline device for all treatment of obstructive sleep apnea. That's our intent, and that's been the feedback from the various physicians and therapy providers who we've spoken with in various focus groups and market research programs.
spk09: Okay, makes sense. So around the data, you've generated quite a bit of data and a lot of data actually recently, a number of abstracts coming out of the World Sleep Congress and whatnot. You know, when the reps are out there talking with sleep physicians or talking with dentists, what are like the main studies that you would say are really starting to resonate? And then a side question is the timing to get the FLOSAT and the SOS studies released and published.
spk03: Yeah, great questions there, Alex.
spk02: The study that seems to resonate a lot is the study published in the Journal of Clinical Sleep Medicine in March of 2022, which demonstrated where prismas devices demonstrate 94% success treating mild and moderate OSA. That study really seemed to be holding a lot of weight. Also, the military medicine study showing 88% success treating mild, moderate, and severe OSA patients also seemed to carry a lot of weight. In addition to that, physicians are also appreciative that we have studies that objectively record compliance because up to this point, a lot of dental products or other types of therapies use kind of subjective patient journal data to report compliance. We've got three studies that utilize objective recording chips that report those results and show that for patients wearing Persamis devices, they wear them over seven hours a night on average, and compliance rates above 90%. So those are the things that really seem to be resonating. And Alex, as you probably know, if you multiply the efficacy rate times the compliance rate, you get what's called the effectiveness for the device. And that's really what physicians are using to drive treatment decisions. And so the studies that show that we provide an effective, predictable, non-invasive option are really playing well with physicians.
spk09: And then just around the timing of the FLOSAT and then SOS studies?
spk02: Yeah, absolutely. So FLOSAT, we expect a preliminary data readout at the American Thoracic Society here in May with full data by the end of the year. And then with the SOS study, we are actively enrolling now in four of our six centers We expect to have a preliminary data readout sometime in Q3 and then wrapping up enrollment by the end of the year.
spk09: Okay. And then just last couple questions. You know, with the investment into the sales force, how are you making decisions about allocating the new reps and new territories? Is it much more about splitting off existing territories where a rep just might be overburdened today, or is it going after new areas?
spk02: Yeah, so Alex, we've had a philosophy of 100% coverage even when we had zero sales reps, right? We cover all of our customers wherever they are, whether it's by phone or making visits. So we always had 100% coverage philosophy, but we do make the distinction between what we call direct coverage and indirect coverage. Direct coverage is when there is a provider who lives within the same metropolitan area as the sales rep. And then if the provider's outside of that metropolitan area, they get indirect coverage by our sales reps. So in that regard, everything that we do is additive because the ratio of providers to sales reps has been upside down for quite some time. So we're eager to put some of this investment to work, expand our sales team, and provide more direct coverage in the key metropolitan areas throughout the country.
spk09: And then about European expansion. I mean, this seems to be, I think this resonates very well for really both U.S. and Europe populations. But in Europe, does an easier-to-use device, a lower-cost device, maybe help you go a little bit faster in Europe than maybe the U.S.? Just where in the U.S. you have these, you know, the complex sleep physician relationships over here, whereas Europe you might not have that. And how are you thinking about European expansions?
spk02: Yeah, good question. So in Europe, the issue of penetration pricing, let's say, is very country specific. In some countries like Germany or France, the device reimbursement fee is fixed and paid directly, passed on directly to the appliance manufacturer. So lowering price really doesn't accelerate. It's really all about convincing the provider that the therapy is what's in fact best for the patient. and educating the provider on the merits, and then they make a prescription decision. But yeah, in other markets that are less developed in Europe, it's a different story. So even there are consistency across Europe and there's regulations that every country is a little bit different still in terms of reimbursement mechanisms, and that changes our value proposition, our go-to-market strategy. But we're actually seeing higher ASPs in Germany, Belgium, UK and Netherlands where we're currently operating our business because those are markets where the reimbursement for the device is a little bit better defined and somewhat separated from what the therapy provider is doing.
spk09: Okay, got it. And then actually just one more. This one's for Brian, just around the manufacturing facility. Okay. Where should we think about gross margins going with this? Does it stay stable because you are increasing gross margins, but now you have the impact of the facility that you have to add to the cost? Or how should we think about it?
spk05: No, actually, I think there's some efficiencies that get driven out of the new facility and our ability to leverage the technology that we've already had established. So I feel we're more at a launch pad so that we'll be able to, over time, step gross margins up. over a period of time. So it will be a stair-step function over time, but I expect that any additional overhead burden from it is being picked up by the efficiencies that we're able to derive from it. So where we stand today on the gross margin, I would expect it to remain at or above those levels going forward.
spk09: Okay, got it. Appreciate the update. Thank you. Great. Thanks, Alex.
spk07: Thank you. And I'm seeing no further questions in the queue. I would now like to turn the conference back to Len Liptak for closing remarks.
spk02: Thank you. Thank you again to everyone for joining us today. We look forward to providing updates on our progress on future calls. And with that, we'll conclude the call for today. Thank you very much.
spk07: This will conclude today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day. Music. Thank you. Thank you. Thank you.
spk01: Thank you. Thank you. Thank you.
spk08: fourth quarter investor conference call. Earlier today, Prosomnus Incorporated issued a press release announcing the financial results for the quarter-ended December 31, 2022, and describing the company's recent business highlights. You can access a copy of today's announcement on the company's website at investors.prosomnus.com. With me today, we have our Chief Executive Officer, Len Lipak, and our Chief Financial Officer, Brian Dowell. Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our most recent form S-1 filed on February 10, 2023. Our SEC filings can be found through our company website at investors.prosomnus.com or at the SEC's website. Investors are cautioned not to place undue reliance on such forward-looking statements, and Prosomnus undertakes no obligation to publicly update or release any revisions to these forward-looking statements. Please note that this conference call is being recorded and will be available for audio replay on our website at prosomnus.com on the news and events section under our investor relations page shortly after the conclusion of this call. Today's press release and supplementary financial data tables have been posted to our website. As this is our first investor call, Today's format will consist of providing you with an overview of PROSOMUS, our products and our business, as well as highlights of our fourth quarter results as described in our press release announced earlier today, followed by a question and answer session. When we'll present the quarter's business and follow operational highlights, Brian will provide a review of our financial results and our financial outlook for 2023. And finally, we will host a question and answer session to close the call. And with that, I will turn it over to Len.
spk02: Thank you, Mike. Good afternoon, everyone. It is an honor to represent Prasanna Sleep Technologies today, including our team members at our headquarters and around the world, and the growing number of providers who trust Prasanna's devices for the treatment of patients with obstructive sleep apnea. This being our company's first earnings call, I'd like to take a few minutes to introduce myself and provide a brief overview of Persomnus Sleep Technologies. My name is Len Liptak, CEO and one of the co-founders of Persomnus. I've spent almost 20 years working in leadership roles on mission-oriented medical device programs at 3M Healthcare, Stryker Neurovascular, and microdental laboratories. Yet I've never encountered an opportunity to make a difference like the one before Persomnus. Persommus is the leader in precision intraoral devices for the treatment of obstructive sleep apnea, or OSA. By precision, we mean that every Persommus device is individualized for each patient's anatomy and treatment plan. The mechanism of action for Persommus devices is to precisely advance and stabilize the patient's jaw in a position that prevents the airway from collapsing while sleeping. Based on research, we believe that the precise individualization of our devices is clinically meaningful, highly differentiated, and associated with more consistent, predictable, effective outcomes. Our vision is to be the global leader in OSA solutions by providing safe, economical, non-invasive, and patient-preferred precision medical devices for treating and managing OSA. Bersama's precision medical devices have been prescribed for over 200,000 patients have demonstrated excellent health outcomes, are FDA Class II cleared, and are protected by 15 issued patents. 17 completed studies involving over 1,400 patients published in peer-reviewed journals or scientific programs linked PROSOMUS devices with efficacy on par with CPAP for mild to moderate OSA patients, better patient adherence and treatment effectiveness, the mitigation of many common side effects, strong patient preference, and an excellent safety record. Every night, 1 billion people worldwide and 54 million adults in the U.S. struggle to breathe during sleep. Their upper airways collapse repeatedly, limiting the flow of oxygen to their vital organs. Untreated, this disease named obstructive sleep apnea reduces life expectancy, diminishes everyday quality of life, and costs the U.S. economy alone an estimated $150 billion annually. For these reasons, the CDC considers sleep disorders, including OSA, to be a major public health epidemic. However, due to low public awareness and the limitations of current therapies like CPAP, over 80% of the people with OSA remain undiagnosed and a higher number remain untreated. For example, based on clinical studies, we estimate that between 35% and 65% of patients fail to tolerate CPAP. These low patient adherence rates limit the overall effectiveness of CPAP treatment and are motivating physicians to evaluate non-CPAP options like prosomus devices. Studies report that an average patient compliance with prosomus devices is over 90% and that patients use the prosomus devices for an average of over seven hours per night versus approximately four hours per night with CPAP. Effectiveness is where we believe that we have an important competitive advantage over other treatments for obstructive sleep apnea such as CPAP, upper airway stimulation, or the legacy dental products that came before us, all of which have shortcomings in either adherence or efficacy. Another key differentiator is our proprietary digital manufacturing process with strong IP protections that make our devices more precise and therefore effective. Our manufacturing process also enables Prasamis to scale. Our proprietary algorithm-driven device design software and proprietary software-driven milling robots gain efficiencies with volume, enabling leverage while also improving our quality levels and service. Prasamis has an important and substantial opportunity to treat people with mild to moderate OSA and those who cannot tolerate or refuse CPAP. We estimate our immediate actual opportunity to be over $4 billion. Importantly, over 200 million people are already eligible to receive treatment with Persomnus precision devices as a covered, reimbursable private medical insurance, Medicare, and government-sponsored healthcare benefit. Persomnus is actively developing four key growth initiatives to realize this compelling opportunity. The first is the expansion of our direct sales team in North America. The second is our expansion into Europe and other key countries around the world. The third is clinical studies to further demonstrate and enhance the robustness of our claims and support label expansion into severe OSA. The fourth is our next generation device, which adds remote patient monitoring of physiological health data to objectively, continuously measure compliance and efficacy, enable disease management, and introduce recurring revenue streams into our business model. As you will hear today, PROSOMS is already making significant progress against these initiatives. Thank you for allowing me a few moments to make introductions. Now let's turn to 2022. 2022 was a transformative year for Persomnus, and I'm proud to report that Persomnus has generated results for the full fiscal year and fourth quarter that demonstrate momentum and indicate support for our value proposition. Some highlights include record revenue levels, top decile revenue growth rates, taking the company public in December under the NASDAQ ticker OSA, opening our new headquarters, which offers tripled square footage and quintuples our manufacturing capacity, approximately doubling the number of direct sales representatives, establishing our brand in Germany, UK, Netherlands, and Belgium, advancing key medical affair programs, including our frontline OSA treatment and severe OSA SOS studies. Continuing to develop our next generation device, feature remote patient monitoring capabilities, building our team with a number of talented professionals and the important addition of Brian Dow, our new CFO, who you'll meet in a few moments. Brian is a highly experienced public company medical technology executive with extensive background in accounting, finance, and investor relations. We look forward to Brian's contributions as Persomnus grows as a public company. And again, you'll hear a little bit more from later on in this call. And we've also made significant progress strengthening our brand and positioning our precision and twirl devices as the leading solution for the mass public health problem of destructive sleep apnea. Lifting Persomnus on NASDAQ in December 2022 is a major achievement. The team was highly focused for much of the year on executing the business combination, and I'm incredibly proud of the hard work and perseverance the team showed in a difficult IPO and macroeconomic environment. We brought the company public to give Persomnus expanded access to the capital markets for the purpose of accelerating our multi-pronged growth strategy. We exited the deal with a cash runway into 2024, and we can now focus our talented team's efforts on bringing what we believe is a better OSA solution to patients and providers around the world. Personomous is proud to report record revenue levels and top decile revenue growth of 32% for Q4 and 38% on a full year basis. Brian will provide more granularity in our financial section in a few moments. Despite macroeconomic headwinds, uncertain timing around our public transaction, and a relatively modest investment in sales and marketing, these levels of growth reflect healthcare providers' growing acceptance of our differentiated precision devices, the performance of our team, and the favorable impact of our growth initiatives. For example, prescriptions for Persamis devices outpaced hypoglossal nerve stimulation implants by approximately 4x for the full year 2022, despite spending considerably less in sales and marketing. Key drivers during the period include the ongoing commercialization of our Evo family of devices, Medicare coverage verification for our Evo PH line extensions, expansion of our direct sales team, medical and clinical affairs programs, and establishing operations in Europe. The company earned 98% retention of our top 100 providers for the period. The company received 8,850 case feedback forms from therapy providers throughout the year. 97% said their Persommas devices fit the first time. 99% said their devices were received on time and in full. 97% of patients and providers said that they were satisfied with their Persommas device. Over 99% said they would recommend Persommas devices to a colleague. The U.S. Army remained one of Persommas' largest customers in 2022. Persommas is proud to serve and support the Army and for Persommas to be named in the Army's operational orders for the treatment of sleep apnea. In December, an independent study published in Military Medicine reported an 88% success rate in treating military patients with mild, moderate, and severe OSA with our precision-controlled devices. During the period, we increased the count of direct sales representatives from 10 to 18 globally, 9 to 12 in North America, and 1 to 6 in Europe. Key functions of our direct sales organization are to raise awareness of personas devices and facilitate efficient, trusted referral relationships between sleep physicians and oral appliance therapy providers. We are pleased to report full enrollment of the FLOSAT, Frontline OSA Treatment Study, a prospective head-to-head crossover clinical trial evaluating the effectiveness of prosomus precision oral devices versus CPAP in patients with moderate and severe OSA. The lead investigators are scheduled to provide a preliminary data readout at the American Thoracic Society meeting this May. BRSOMIS initiated enrollment in the severe OSA or SOS study. The purpose of the SOS study is to expand our FDA labeling to include the treatment of severe OSA. Four of our six investigational centers are actively recruiting and enrolling patients into the study, with another two centers expected to begin enrollment soon. BRSOMIS continues to achieve strong gross margins, with 2022 gross margins surpassing 50%. The key drivers of gross margin were improvements in direct labor and factory overhead costs as a percent of revenue, offsetting inflationary and supply chain headwinds on material costs. Underlying these improvements were our continued investment in our manufacturing technologies, including our proprietary software packages that control our device design process and our milling robots, as well as overall continuous process improvement efforts. Brian will discuss financial results in more detail in just a few moments. During this period, Bersama succeeded 99% on-time and in full delivery of our mass individualized precision medical devices. Our average manufacturing times were under seven production days, almost three times faster than legacy dental products. The company also delivered industry-leading quality levels with device fit rates and remaking warranty claims significantly better than competitive benchmarks. One of the characteristics of our digital manufacturing platform is that the proprietary software packages that run our device design and milling robots becomes more efficient with line. In anticipation of accelerating growth, Prasanna strengthened and expanded our infrastructure with the opening of our new headquarters and manufacturing facility in Pleasanton, California, USA. The new facility provides ample capacity to meet our growth expectations for the next several years while also enhancing efficiencies of our workflows. Looking ahead, Prosomnis continues to make progress developing and commercializing our next generation device featuring remote patient monitoring capabilities. Our next generation device incorporates a sensor that tracks the patient's physiologic response to treatment. Data is transferred from our next generation device to our patient's provider portal via our Prosomnis app on the patient's smartphone. Our next generation device will provide sleep physicians and providers with a safe and effective therapy and also access to medically necessary physiologic data that helps them to monitor and manage patient health by continuously monitoring treatment efficacy and compliance. During the period, the company has made significant progress developing our underlying sensor hardware, our smartphone patient app, our healthcare provider portal, and the backend data system for our next-generation device. Prasam has conducted several voice-to-customer feedback sessions with leading sleep medicine physicians and therapy providers Feedback was encouraging, particularly because our next-generation device provides sleep physicians and providers with medically important data that they cannot access anywhere else. The company also investigated the potential for monthly recurring per-patient revenue streams by evaluating the business model of remote patient monitoring devices in adjacent segments. Remote patient monitoring technologies have been associated with reduction in total healthcare costs by reducing appointments, adverse events, and hospitalization and re-hospitalization rates. In sum, Persamis is on a mission to be the global leader in OSA solutions. Physician and therapy providers are seeking non-CPAP options for treating OSA. Persamis is well positioned to be that option and is continuing to develop our devices, technologies, processes, and team to realize this important opportunity. We believe our record revenue levels and growth rates reflect our progress and momentum. We will continue to execute against our growth initiatives, building our direct sales team in North America expanding into Europe and other key markets around the world, investing in clinical studies to improve the robustness of our data and support label expansion, and developing and commercializing our next-generation device with remote patient monitoring capabilities. Thank you. I will now turn the call over to Brian to discuss our financials.
spk05: Great. Thanks, Len, and good afternoon, everyone. Before jumping into the financial results, I'd like to take a moment and express my excitement to be joining the Prosomnus team at this pivotal time in the company's evolution. I look forward to working with you, Len, and the broader Prosomnus team as we build a highly valuable company for our patients, clinicians, and investors alike. Now, turning to the financial results released earlier today for the quarter and year end of December 31st, 2022. With recent developments in the broader economic environment and our close proximity to Silicon Valley, I'm compelled to start my remarks by noting that Prosomnus' longstanding relationship with Wells Fargo has allowed us to avoid exposure to recent banking events. Let's now discuss our results. The fourth quarter of 2022 was another record-breaking quarter, with revenues totaling $5.8 million, an increase of 32% from $4.4 million realized during the fourth quarter of 2021, and sequential growth of 16% from $5 million for the third quarter of 2022. For the fiscal year 2022, Revenues increased 38% year over year, coming in at $19.4 million. We exited the fourth quarter with gross margins improving to 53.6% of revenue, landing gross margin for the full year 2022 at 52.9%, a modest increase from 51.9% for 2021. Turning to operating expenses. Operating expenses for the fourth quarter including several charges stemming from the completion of our business combination on December 6th, totaled $9.2 million, while operating expenses for the full year 2022 totaled $21.7 million. Sales and marketing expense for the fourth quarter totaled $2.4 million, an increase of 45% from $1.7 million for the same period last year. For the full year, sales and marketing expenses totaled $8.9 million, an increase of 53% from 2021. The increase in sales and marketing expenses reflect increased compensation expense stemming from the addition of sales headcount in the United States and Europe during 2022, along with increased commissions stemming from the increased sales. As Len mentioned earlier, a key use of proceeds raised during the fourth quarter is additional investment in the direct sales team, We anticipate sales and marketing expense to increase as we are making the necessary investments to drive top-line growth. We do remain acutely cognizant of the importance of deriving scale from the investments we make and striking the appropriate balance between investment and results. Research and development expenses for the fourth quarter totaled $1.1 million, up from half a million dollars for the same period last year. For the full year, R&D expenses totaled $3 million, an increase of 58% from 2021. The increase in research and development expenses during 2022, both on an annual and quarterly basis, reflect modest increases in compensation stemming from increased headcount, development activities relating to the Evo Select and Evo PH precision devices introduced during the fourth quarter, clinical expenses relating to the enrollment in our FLOSAT study, and development of our digital-enabled remote patient monitoring device scheduled for introduction in late 2023. G&A expenses, including several transaction-related charges, totaled $5.7 million and $9.9 million for the fourth quarter and full year 2022, respectively. Included in G&A during the fourth quarter is $3.6 million of stock compensation and incentive compensation payments relating to grants and payments in connection with the December business combination. Although expense elements such as stock compensation will be incurred going forward, the magnitude of single point-in-time charges similar to those surrounding the transaction are not expected to occur. We will incur the added expense burden of being a public company and expect normalized G&A expense to increase during 2023 as we reflect the full expense burden of a public company. Obviously, going public was a seminal moment for Prosominus during the fourth quarter. This process was an interrelated series of transactions simultaneously involving the merger of Prosominus and the Lakeshore Acquisitions One Corporation Special Purpose Acquisition Company, a pipe, and a convertible debt offering. As a result of the series of transactions and after paying off previously existing debt and transaction fees for both Prosominus and the sponsor, Cash on the balance sheet as of December 31st totaled $15.9 million. It is this added liquidity that we have already commenced deploying to drive adoption of our devices and grow top-line revenue and provides cash runway into 2024. To that end, as we look forward to 2023 and in consideration of the planned investments we have and will be making in our commercial organization, we expect strong top-line year-over-year growth for full year 2023. We have started 2023 strong and expect the first quarter revenue to be closer in line with the fourth quarter rather than what is normally expected to be a seasonally softer start to the year. As we set our expectations for 2023, we expect year-over-year top-line revenue growth of 35%, landing 2023 revenue just over $26 million. Again, I'm excited to be joining the Prosominus team at this important inflection point. To our shareholders, I look forward to engaging with you over the coming months and years. I will now turn it back to Len for closing remarks.
spk02: Thank you, Brian. Prosominus has made tremendous progress in 2022, generating record-breaking revenues, building strong momentum behind our precision internal medical devices as a leading OSA treatment, and strengthening our foundation for long-term success. We are looking forward to reporting on key milestones of success throughout 2023 as we continue to drive strong top-line growth. We are grateful for your support of Persanimus, and thank you all for joining us today. Operator, we will now open the call for Q&A.
spk07: Thank you. Participants, to ask a question, please press star 1 1 on your phone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Stand by as we compile the Q&A roster. One moment, please, for our first question. Our first question will come from Scott Henry of Roth Capital. Your line is open.
spk06: Thank you. Good afternoon and congratulations on all of the progress. I've got a couple questions. I'll start specific and then I'll get more general towards the end. For starters, in Q4, How is the ASP per unit? What are you generally getting for revenue per unit out there?
spk05: Yeah, this is Brian. Thanks for the question, Scott, and thanks for joining the call. Our ASP is coming in very steady. Actually, it's strengthened a little bit over the course of 22, but think about it. Be thinking about it in the range of about $600 per unit net to us on a revenue basis.
spk06: Okay. Great, thank you. And then when we look at G&A, obviously there'll be some stock comp going forward, but you won't have the transactional stock comp. Should we expect Q1, and I know you're a growing company, but should that be around the $2.5 million range? Is that an apples to apples number if we pull out transactional costs?
spk05: No, I think we're not going to be giving guidance on the specific elements of operating expense today, Scott, but you're not that far off. In general, the normalized runway is going to take basically the better part of this year because some of the costs are going to be a little bit point in time depending on what we're doing on a compliance basis. But in broad strokes, you're not that far off.
spk06: Okay. And then final specific modeling question. What were the shares outstanding for the fourth quarter? I didn't see that in there.
spk05: Yeah, the shares outstanding as we come out of the year, we're coming out with just over 16 million shares. So it's 16,041,000 shares outstanding as of the end of the year.
spk06: Okay, great. And then I'll just ask a couple general questions as I've looked at a lot of these appliances and dental OSA treatments, trying to compare them. First, from usability with regard, is this a device, if I put it in my mouth at night and I'm watching TV, can I have a conversation with it? My understanding is it's much sleeker than a lot of the other things that I would see. Any color there?
spk02: Absolutely, Scott. Thanks for the question and good to talk with you. Absolutely. It's one of the reasons why our devices rate very well when we do preference studies, patient preference studies. It's that they can have a normal bedtime routine. They can get up and go to the bathroom. They can take a drink of water. They can have a conversation with their bed partner. They can watch TV or read a book. So it does not disrupt their normal bedtime routine and bedtime hygiene. It makes it very easy to fit into their lifestyle.
spk06: Okay, great. Thank you for that color. And I guess just a final question. One thing that kind of jumps out to me is this next generation sensor. I guess there's two things I'm curious with regards to its attributes. One, could this sensor be a good feedback mechanism for the patient so that You know, maybe they're getting the sensor, they're looking at that smartphone, and they know that wearing this device is resulting in positive outcomes. I think that could be really helpful if that's the case. And two, with the generation of that data, can the provider perhaps make a little more money on the procedure?
spk02: Yeah, great question, Scott. And yes, on both fronts. So the device will come with a persona smartphone app, which will give the patient immediate feedback on their sleep quality. So they'll be able to use that feedback to adjust their sleeping habits and the quality of their sleep and reinforce that their sleeping has, in fact, improved while using their Persans device. And then the second part of your question, absolutely. Remote patient monitoring, these are codes that are already being paid by most major insurances and CMS. they are billed by physicians. So similar to our devices, where our devices right now are billed by the provider, and then we charge the provider a fee for our devices. Similar model here with the remote patient monitoring, where the physicians and the providers will bill the remote patient monitoring codes, and then we will charge a fee for providing the data to those physicians. So it should, you know, the intention here is for it to create recurring monthly revenues on a per patient basis for the provider, the physician, and for personas.
spk06: Okay, great. Thank you for that caller, and thank you for taking the questions. You're welcome, Scott. Thank you, Scott.
spk07: Thank you. Again, as a reminder, to ask a question, please press star 1-1 on your phone and wait for your name to be announced. To withdraw your question, please press star 11 again. And one moment for our next question. Our next question will come from Alex Norwick of Craig Hallam. Your line is open.
spk09: Okay, great. Good afternoon, everyone. I was hoping to continue off where Scott left, which was on this NextGen appliance. Maybe provide a little bit of specifics of submission to the FDA, timing around that, I assume it will be a 510 device. Maybe just kind of walk through the regulatory timeline there.
spk02: Yeah, great questions. And Alex, good to talk to you. So we currently have an FDA clearance for our product, our next-generation product with remote patient monitoring capabilities for the purpose of monitoring patient compliance. We will also submit to the FDA for expanded labeling for oxygen monitoring, and we expect to submit that request to the FDA sometime in the next couple of months. We expect to be a 90-day FDA 510 review cycle, utilizing predicates that are already on the market.
spk09: And once that's launched, How would that look from a physician's standpoint? Would this become the de facto standard for persomnus, or is it going to be still the Evo line today is going to be still the main device that a physician is going to want to prescribe, and this is more for their more special patients, we'll say?
spk02: Yeah, great question. We believe this is going to eventually become the frontline device for all treatment of obstructive sleep apnea. That's our intent And that's been the feedback from the various physicians and therapy providers who we've spoken with in various focus groups and market research programs.
spk09: Okay. Makes sense. Around the data, you've generated quite a bit of data and a lot of data actually recently, a number of abstracts coming out of the World Sleep Congress and whatnot. you know, when the reps are out there talking with sleep physicians or talking with dentists, what are like the main studies that you would say are really starting to resonate? And then a side question is the timing to get the flows that in the SOS studies released and published.
spk03: Yeah, great, great questions there, Alex.
spk02: Um, the study that seems to resonate a lot is the study published in the journal of clinical sleep medicine in March of 2022. where presonomous devices demonstrate 94% success treating mild and moderate OSA. That study really seemed to be holding a lot of weight. Also, the military medicine studies showing 88% success treating mild, moderate, and severe OSA patients also seemed to carry a lot of weight. In addition to that, physicians are also appreciative that we have studies that objectively record compliance, because up to this point, a lot of dental products or other types of therapies use kind of subjective patient journal data to report compliance. We've got three studies that utilize objective recording chips that report those results and show that for patients wearing persommus devices, they wear them over seven hours a night on average. and compliance rates above 90%. So those are the things that really seem to be resonating. And Alex, as you probably know, if you multiply the efficacy rate times the compliance rate, you get what's called the effectiveness for the device. And that's really what physicians are using to drive treatment decisions. And so the studies that show that we provide an effective, predictable, non-invasive option are really playing well with physicians.
spk09: And then just around the timing of the FLOSAT and then SOS studies?
spk02: Yeah, absolutely. So FLOSAT, we expect a preliminary data readout at the American Thoracic Society here in May with full data by the end of the year. And then with the SOS study, we are actively enrolling now in four of our six centers. We expect to have a preliminary data readout sometime in Q3 and then wrapping up enrollment by the end of the year.
spk09: Okay, and there's this last couple questions. With the investment into the sales force, how are you making decisions about allocating the new reps and new territories? Is it much more about splitting off existing territories where a rep just might be overburdened today, or is it going after new areas?
spk02: Yeah, so Alex, we've had a philosophy of 100% coverage even when we had zero sales reps, right? We cover all of our customers wherever they are, whether it's by phone or making visits. So we always had 100% coverage philosophy, but we do make the distinction between what we call direct coverage and indirect coverage. Direct coverage is when there is a provider who lives within the same metropolitan area as the sales rep. And then if the provider's outside of that metropolitan area, they get indirect coverage by our sales reps. So in that regard, everything that we do is additive because the ratio of providers to sales reps has been upside down for quite some time. So we're eager to put some of this investment to work, expand our sales team, and provide more direct coverage in the key metropolitan areas throughout the country.
spk09: And then about European expansion. I mean, this seems to be, I think this resonates very well for really both U.S. and Europe populations. But in Europe, does an easier-to-use device, a lower-cost device, maybe help you go a little bit faster in Europe than maybe the U.S.? Just where in the U.S. you have these, you know, the complex sleep physician relationships over here, whereas Europe you might not have that. And how are you thinking about European expansions?
spk02: Yeah, good question. So in Europe, the issue of penetration pricing, let's say, is very country specific. In some countries like Germany or France, the device reimbursement fee is fixed and paid directly, passed on directly to the appliance manufacturer. So lowering price really doesn't accelerate. It's really all about convincing the provider that the therapy is what's in fact best for the patient. and educating the provider on the merits, and then they make a prescription decision. But yeah, in other markets that are less developed in Europe, it's a different story. So even, you know, there are consistency across Europe and there's regulations that every country is a little bit different still in terms of reimbursement mechanisms, and that changes our value proposition, our go-to-market strategy. But we're actually seeing higher ASPs in Germany, Belgium, UK and Netherlands where we're currently operating our business because those are markets where the reimbursement for the device is a little bit better defined and somewhat separated from what the therapy provider is doing.
spk09: Okay, got it. And then actually just one more, this one's for Brian, just around the manufacturing facility. Where should we think about gross margins going with this? Does it stay stable because you are increasing gross margins, but now you have the impact of the facility that you have to add to the cost? Or how should we think about it?
spk05: No, actually, I think there's some efficiencies that get driven out of the new facility and our ability to leverage the technology that we've already had established. So I feel we're more at a launch pad so that we'll be able to, over time, step gross margins up. over a period of time. So it will be a stair-step function over time, but I expect that any additional overhead burden from it is being picked up by the efficiencies that we're able to derive from it. So where we stand today on the gross margin, I would expect it to remain at or above those levels going forward.
spk09: Okay, got it. Appreciate the update. Thank you. Great. Thanks, Alex.
spk07: Thank you. And I am seeing no further questions in the queue. I would now like to turn the conference back to Len Liptak for closing remarks.
spk02: Thank you. Thank you again to everyone for joining us today. We look forward to providing updates on our progress on future calls. And with that, we'll conclude the call for today. Thank you very much.
spk07: This will conclude today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.
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