Surmodics, Inc.

Good day and welcome to the Sermotics Third Quarter Fiscal 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tim Ahrens, Senior Vice President of Finance and Chief Financial Officer. Please go ahead, sir.

Thank you, Cecilia. Good morning and welcome to Sermotics Fiscal 2022 Third Quarter Earnings Call. Before we begin, I would like to remind you that during this call, we will make forward-looking statements. These forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include statements regarding Sermotic's future financial and operating results or other statements that are not historical facts. Please be advised that actual results could differ materially from those stated or implied by our forward-looking statements, resulting from certain risks and uncertainties, including those described in our SEC filings. Sermotics disclaims any duty to update or revise our forward-looking statements as a result of new information, future events, developments, or otherwise. We'll also refer to non-GAAP measures because we believe they provide useful information for our investors. Today's news release contains reconciliation tables to our GAAP results. This conference call is being webcast and is accessible through the investor relations section of the Sermotics website. The audio recording of the webcast will also be archived for future reference. A press release disclosing our quarterly results was issued this morning and is available on our website at termotics.com. I will now turn the call over to Gary Maharaj. Gary? Thank you, Tim.

Good morning and thank you for joining us on our third quarter earnings call. We are pleased with both our financial performance and the progress we've made in executing our strategic priorities during this quarter. starting with our third quarter financial performance, which was in line with our expectations. We grew revenue 4% to $24.9 million in the third quarter, compared to $23.9 million in the prior year quarter, driven by solid performance from both our medical device and IVD businesses. We reported gap diluted loss per share of 41 cents and non-gap diluted loss per share of 34 cents. Now, while we're lowering our revenue guidance for the full year based on some predicted softness in our business, we are, however, raising our EPS guidance to reflect our Q3 performance and our continued focus on efficient capital allocation. Tim will provide additional detail on our quarterly results as well as our revised guidance later in today's call. During our third quarter, we continue to make progress on our strategic objectives for the fiscal year. As a reminder, these are, first, to achieve the PMA for Surveil and support Abbott's commercialization efforts. Second, to build a commercial pipeline for our sublime radial and pounce arterial and venous thrombectomy platforms. And third, to drive top-line revenue growth and optimize cash flow from our IVD and medical device coatings offering. Starting with Surveil, I'm quite happy to report that we have made substantial progress in addressing the FDA's questions regarding our PMA submission for surveil. Since our April earnings call, we've had multiple discussions with the FDA regarding the submission. Importantly, we have clarified the additional data and tests that are required to complete the final submission for the PMA. These tests are currently underway. Now they are longer lead times than normal due to supply chain constraints at independent test laboratories. We are working all angles to minimize the impact on our timelines. The majority of the data, and by that I mean the vast majority of the data, will be completed in our fiscal Q4. However, some data may not be received back from these labs until October. While we're not changing our target of receiving the PMA by December, It is tight, and it will depend on our ability to overcome some critical supply constraints at these independent labs. In addition, we are preparing for Abbott's commercialization of Surveil. In fact, we have recently met with our partner Abbott to discuss their perspectives on the drug-coated balloon market, which we found quite encouraging. Over the coming months, we expect to continue our discussion with Abbott about its commercialization plans and forecasts. the expectation continues to be that the U.S. launch of Surveil will follow the receipt of the PMA approval. Moving to Sundance, our below-the-knee surveillance coded balloon. As we have discussed previously, our Surveil distribution agreement with Abbott included an exclusive option period for Abbott to negotiate an agreement for our Sundance BTK-DCB. Abbott has informed us that it has elected to allow this option period to expire. Abbott communicated that its decision was based on current strategic priorities at this time and does not reflect the technology's potential clinical benefits. In the meantime, we are assessing the next steps for the clinical development and future commercialization of the Sundance DCB, for which another multinational strategic partner has already expressed interest. The current investment in the Sundance program consists of completing the swing trial follow-up period and some baseline R&D work. We are intentionally not actively gearing up for an ID submission nor pivotal trial at this point, especially since a potential partner would want substantial input into these important trial design considerations and decisions. We believe in the possibility of our Sundance DCB to improve the treatment of arterial blockage below the knee. Our optimism reflects the promising early efficacy and safety results which we intend to present and submit for publication later this year. Our second strategic objective is to demonstrate the commercial viability of our sublime radial platform and our PONS arterial and venous thrombectomy platforms. Let me start by saying we like what we see. As we have previously described, Fiscal 22 is about building our customer base, which is an essential catalyst to driving future value creation. We have attracted high-quality sales talent, which has led to a sizable increase in the number of customers purchasing pounds of Sublime products during the third quarter. We are well on our way to finishing the fiscal year with over 100 customers for both our pounds and Sublime products. Much of this credit goes to our commercial team, which has grown to a total of 30 field professionals at the end of Q3. Importantly, our account pipeline of prospective customers has expanded significantly. During the third quarter, we experienced a greater than 100% increase in the number of hospital value analysis committees that are considering our Sublime and Pounce products. We're still early in our commercialization efforts. Our average rep tenure is less than five months, and our average customer tenure is approximately four months. To date, our sales organization is primarily focused on building our customer base. However, they are also driving repeat orders in our existing accounts. In my view, early indicators of success include adoption and stickiness, which we are seeing to date. Over 85% of our customers ordered one or more times during the third quarter, and since we launched our commercialization efforts last fall, two-thirds of our customers have ordered several times, two or more, despite nearly half of those customers ordering for the first time during the third quarter. Furthermore, we're seeing an increasing quarterly product utilization amongst these early customers. So, again, we're seeing some early evidence of the adoption and stickiness, which we believe are a foundation for growth. Now, our products continue to demonstrate a profound clinical impact on patients. In a recent case, Dr. Nachiket Patel of Mercy Gilbert Medical Center in Gilbert, Arizona, used our Pounce thrombectomy system to treat a 65-year-old patient admitted to the ER with extreme limb pain and coldness of the leg and foot. The patient presented with clots that extended from the femoral artery at the top of the thigh to the tibial arteries below the knee, approximately 50 centimeters in length. Because of the significant thrombus burden and complexity of this case, which consisted of both acute and chronic clots, the physician used the Pounce device. Due to the high volume of clots removed by the Pounce thrombectomy device, along with the mechanical disruption of the clots, The ICU team was able to shorten the infusion to only a few hours of half the dosage of thrombolytic therapy that would have been prescribed in an alternative case. Following this therapy, the patient was discharged from the hospital 24 hours after a follow-up balloon angioplasty procedure. The physician and staff were astounded at the success of the intervention because of the overwhelming amount of thrombus burden removed with the need, again, for only half of the dose of thrombolytics. This case is one example of Pounce offering physicians and care teams a new standard for treatment of peripheral arterial thrombus. Moving on to our Pounce venous thrombectomy platform, which enables physicians to safely separate large and mixed morphology clots from the vein wall and rapidly extract it without removing the device from the patient. We have experienced some delays in our initial manufacturing efforts and the resulting product availability to start our clinical evaluations on any consistent basis. Our team is working diligently through these issues. Because of this, we don't anticipate starting a cadence of product evaluations until the issues are resolved, and we'll have more to share on this matter during the next quarter's call. Turning to our third strategic objective to drive top-line revenue and optimize cash flow from our diagnostics and medical device coatings offerings. Our medical device coating offerings and diagnostic businesses reported 1% and 3% year-over-year growth, respectively. With both delivering strong operating results in line with our expectations, we remain confident in the ability to generate meaningful cash flow contributing to our growth initiatives. We continue to believe that the long-term growth will be what rewards our shareholders. While early, our recent performance provides initial evidence supporting this value creation thesis. The strength of our balance sheet has been and is essential to unlocking our long-term growth potential. Given this and the current macroeconomic uncertainties, I believe it is prudent to assess financing options, such as increasing the size of our credit facility. This will allow us to strengthen our balance sheet so that we may be financially resilient in this current macroeconomic environment. I expect we'll have more to report on this topic in the coming months. Our team has delivered solid results during the first nine months of our fiscal year. Delivering on a long-term goal of consistent and robust revenue growth starts with executing our fiscal 2022 strategic objectives. And we are pleased with this progress during the third quarter and look forward to sharing with you significant progress throughout the remainder of our fiscal year. I'll turn this call over to Tim to provide more details on the third quarter fiscal 2022 results and full year guidance. Tim?