Minerva Surgical, Inc.

Good day and thank you for standing by. Welcome to the Minerva Surgical First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Caroline Corner, Investor Relations.

Please go ahead. Thank you, Operator. Welcome to Minerva's first quarter 2023 earnings call.

Joining me on today's call are Todd Euston, President and Chief Executive Officer, and Joel Young, Chief Financial Officer. This call will provide 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 Minerva Surgical operates, trends and expectations for Minerva's products and technology, trends and demand for Minerva's products, Minerva's expected financial performance expenses and position in the market, and outlook for fiscal year 2023. 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 Minerva's most recent filings with the SEC for additional information, particularly the risk factors described in Minerva's annual report on Form 10-K for the year ended December 31, 2022, which was filed on March 22, 2023, and which will be updated in the company's quarterly report on Form 10-Q for the quarter ended March 31, 2023, which is expected to be filed with SEC on May 3rd, 2023. Any forward-looking statements provided during this call, including projections for future performance, are based on management's expectations as of today. Minerva undertakes no obligation to update these statements to reflect events that occur or circumstances that exist after today, except as required by applicable law. Minerva's press release with first quarter 2023 results is available on Minerva's website, www.minervasurgical.com, under the investor section and includes additional details about Minerva's financial results. Minerva's website also has the latest SEC filings, which you are encouraged to review. Our recording of today's call will be available on Minerva's website by 5 p.m. Pacific time today. With that, I'll hand the call over to Todd.

Thank you, Caroline, and thanks to all of you for joining us on our first quarter earnings call. I've enjoyed my first four months with Minerva Surgical. And while there is much work that lies ahead to build the company that we all believe we can be, I'm extremely impressed with the talent we have on board and the team's willingness to change the playbook and implement new thoughts and ideas. Last quarter, I said that we were in the process of undertaking a strategic review of the entire organization, including both an internal review of operational efficiency across the organization and external opportunities to increase commercial success. I spent the majority of my first quarter as CEO out with the team, with our customers and society partners, as well as our key suppliers and contract manufacturers, while digging into our overall operations to identify areas and opportunities for efficiency and improvements. We've been working hard to align our internal resources with our external customer needs. While it's early days, I'm pleased with how the company is progressing. I've always valued time in the field with commercial teams, and I made it a point to spend time with every member of the sales leadership team face-to-face over the last few months, as well as a number of our territory managers. Over the last half of 2022, Minerva hired 14 new territory managers. With their training now complete and with another three months of experience under their belt, our sales team delivered a solid quarter leveraging that experience and the proper tools and motivation. poked along by a hospital environment that is approaching a new normal. What I'm hearing from our customers, echoing my other conversations, is that our Minerva technology provides desired solutions and is solving real problems in uterine health. As I mentioned, I also spend time meeting with key leaders of the largest women's health societies, and we are working with them to establish clear goals to impact patient outcomes every day. Minerva is partnering with these leaders to provide the clinical and educational offerings they need. Turning quickly to some financial highlights. This past quarter, we reported revenues of $12.5 million, up from $10.9 million in the same period of 2022. We were very pleased with the 15% year-over-year revenue growth, with revenue for all three of our major product lines increasing from the first quarter of last year. Our Symfion system continues to outpace growth in the tissue resection market with a 20% increase in revenue from the first quarter of 2022, indicating we are successfully increasing our market share in this important segment. The exclusive product efficiency and safety features unique to our Symfion products and our ability to compete with a full suite of products for abnormal uterine bleeding are really beginning to show results. Additionally, we were pleased to report that revenue for endometrial ablation product lines, our Minerva ES and Genesis HTA, increased 13% from the first quarter of 2022, with growth of 18% and 5% for Minerva ES and Genesis HTA, respectively. I remain optimistic about the future and I'm confident in our ability to continue delivering value to our customers, shareholders, and other stakeholders. We are focused on driving sustainable long-term growth and I look forward to updating you on our progress over future quarters. With that, I'll hand things over to Joel for a deeper dive into our financial results.

Joel? Thanks, Todd, and good afternoon, everyone. As Todd mentioned, we're very pleased with the revenue growth we experienced this past quarter compared to the same period of 2022. All of our product lines, Minerva ES, Genesis HTA, Symphion, and Resector experienced growth over the first quarter of 2022, with Minerva and Symphion leading the charge. Total revenue for the first quarter of 2023 was $12.5 million, a 15% increase from the first quarter of 2022. And at the product level for the quarter, Minerva ES revenue was 5.7 million, or 45% of total revenue, increasing 18% from $4.8 million in the first quarter of last year. Genesis HTA revenue was $3.5 million, or 28% of total revenue in the first quarter of 2023, increasing 5% from $3.3 million in the first quarter of last year. And Symphion revenue was $3.3 million, or 26% of total revenue in the first quarter of 2023, increasing 20% from $2.7 million in the first quarter of last year. Our gross margin for the quarter, for the first quarter of 2023 was 56%, an increase from gross margin of 49.5% reported in the first quarter of last year. Our gross margin in the first quarter of 2023 was positively impacted by a decrease in overhead spending compared to the same period of 2022, as well as an increased volume of product sales, which resulted in overhead costs being spread over a larger base of revenue. Additionally, certain overhead expenses incurred are capitalized into inventory and expensed as units are sold, and varying levels of inventory manufactured on hand from period to period can result in gross margin swings. Accordingly, during the first quarter of 2023, there was an overall increase in total overhead that was capitalized in the inventory, contributing to the increase in the gross margin. Lastly, in the first quarter of 2023, there was a minor change in the accounting estimate for amortizing controllers placed at customer sites. The useful life of this capital equipment was increased from three to five years, resulting in a slight decrease in amortization charges that are captured in the cost of goods sold. Total operating expenses in the first quarter of 2023 were $17.3 million, compared to $15.7 million in the same period of 2022. The $1.6 million increase in operating expenses was mainly attributable to increased sales and marketing expenses due to the expansion of the sales force since the first quarter of 2022, as well as an increase in research and development related expenses. Non-cash depreciation and amortization expense included in operating expenses was approximately $2.1 million in the first quarter of 2023, unchanged from the first quarter of last year. Non-cash stock-based compensation expense included in total operating expense was $1.2 million in the first quarter of 2023 versus $1.5 million in the first quarter of 2022. Our reported net loss for the first quarter of 2023 was $11.3 million compared to a net loss of $10.9 million in the first quarter of 2022. On a non-GAAP basis, we reported negative $6.5 million in adjusted EBITDA for the first quarter of 2023 compared to a negative $6.3 million in adjusted EBITDA in the first quarter of 2022. As a reminder, we have significant non-cash expenses related to the amortization of intangibles from the May 2020 acquisition of the Genesis HTA, Symphion, and resector assets, as well as significant non-cash stock-based compensation expenses. Turning the balance sheet, we finished the quarter with $25.3 million in unrestricted cash, a significant increase from the end of 2022 due to our recent equity financing. In total, our net cash inflow for the first quarter of 2023 was $18.3 million. Our long-term liabilities were substantially unchanged from the fourth quarter of 2021, following our IPO and the refinancing of our previous long-term debt. As a reminder, our $40 million long-term debt facility is interest only through the third quarter of this year, after which it rolls into a three-year amortization schedule. I also wanted to highlight the equity financing we successfully completed in this quarter. On February 9th, 2023, we closed a $30 million private placement of common stock led by AccelMed partners, and which included support from our existing investor, New Enterprise Associates. We're delighted to have AccelMed as an investor in furthering our mission, and with this financing, we have extended our cash runway, allowing the company to enter a new chapter of growth. We intend to use the net proceeds from the financing together with our existing cash to support operations and working capital investments, further advance our research and development activities, and for general corporate purposes. Turning now to guidance, we expect full year 2023 revenue to be in the range of $51 million to $55 million. Like many of our peers, we're continuing to see hospital staffing as a challenge, that we're addressing in real time and we believe we're well positioned to deliver on our goals for future revenue growth. With that, I'll say thank you and turn the call back to the operator for your questions.

Thank you. As a reminder, if you have a question at this time, please press star 1 1 on your telephone and wait for your name to be announced.

One moment while we compile our Q&A roster. Our first question comes from the line of Philip Dayton with Piper Sandler.

Your line is open. Please go ahead.

Hey, this is Phil on for Matt. Congrats on the quarter, and thanks for taking our questions. And, Todd, congrats on the first four months here at Minerva. Just on guidance to start, you know, in line with what we were modeling, but can you give us your expectations for cadence? Should each quarter grow sequentially, or – know are you going to see your typical seasonality come into play and you know further what was the impact of changing the useful lives on capital from three to five years on the gross margin line well first of all um phil thank you for this aside i appreciate the uh the kind words as far as the um joel can answer specifics on some of the numbers on

Seasonality, we absolutely still expect the traditional seasonality in the medical market. Obviously, with the way the quarters flow, Q4 obviously being that biggest and the summer months slowing down a traditional rate with normal elective procedures. But other than that, we feel really good. And again, thank you for the kind words. I'll turn it to Joel to answer some of the latter questions that you answered.

Yeah. Hi, Phil. The change in the accounting from three to five years probably has about a point to a point and a half percent adjustment to the gross margin, so not significant. The biggest driver this quarter was really around the increase in volume and to a secondary effect, kind of some of the changes in decreased overhead and kind of overhead that we capitalize into inventory as inventory values go, go up and down each quarter.

That's helpful. Thank you. And I, you know, what are you seeing in terms of the volume recovery, you know, to start the year, your puts and takes for the first few months, um, and then your expectations for, for what guidance bakes in for the rest of 2023, you know, um, Staff insurges is something that's been called out by a number of companies, and is that the expectation going forward in 2023, or are we still working more toward the normalcy here?

Well, I think one of the things that we're seeing is hospitals are returning to some normalcy, and maybe it's the, in quotes, the new normal. I'm not sure that the hospitals are going to continue to be adding more staff. I think they're learning to work with the staff that they have as well. So with us, I think the puts and takes are we've had a chance, the team prior to me did a super job of bringing on some talented individuals in the latter half of last year. And now with four or five to six months of training under their belt and time out into the field, and then you can see the results of that in the first quarter with territories being full, people being out there calling on their doctors and spending time. It was evident in this past quarter that the physicians are seeing the value in the technology now that they're getting their reps to be there and have hands-on. So I think we've had some nice success with our great selling organization with a lot of talent. But as far as the hospital goes, I'm not looking to see changes in hospitals. I am going to take each day as it comes and look at the hospital staff, and that's the staff that I'm planning on working with the whole year. If they add more, that's just a benefit. But if not, we'll be prepared for it.

Is return to work having a positive impact on the market for AUB?

I think, you know, you could use, it's very difficult to determine specifically what does, because obviously only women know the way they're feeling just because they were home. I'm not solely sold that that's a reason maybe they weren't getting treatment, but the fact that they are back in work is a positive sign. And I think it's one reason why procedures may be up because women are seeking their positions, but I also think the position time itself. I mean, physicians are having the opportunity to schedule procedures again. Many procedures were on hold for a little while, obviously, with this, and I think hospitals have caught up with those physicians. So, Return to work, I think it can be, it's a nice hypothesis, but I couldn't give you a specific to say that's the reason, unless I did some market research with the women themselves.

That makes sense. And just to drill into some of these specific business segments, what would it take for EF to inflect, you know, as Cynthia keeps leading the way here?

What would it take for, can you repeat that one more time?

yeah what what might it take for es to truly inflect here as you know cynthia keeps keeps leading the way yeah i i i'm i'm losing something on the ef oh god the minerva yeah i'm minerva yes i thought you said how i i i apologize no apologies it's it's very difficult so

I think ablations are, you know, I think as we've seen the market growth or flattening of ablations as a procedure, it's pretty stable. And I think, Cynthia, the opportunity with tissue resection is picking up because I do think that is a growth segment. I think we acquired this technology later. We've had the Minerva ES technology for a period of time. And I think it took a little while for the organization to indoctrinate the Symphion procedure, the Symphion technology. And now with our reps fully trained, I believe that the differences in Symphion versus other technologies on the market are starting to show itself. And we saw that with that 20% growth over first quarter of last year. But I continue to believe that this will continue to grow, Symphion, because the resection market as a whole is growing faster than the ablation market.

That's helpful. And just a few more from me. But can you give us your thinking around spend as the result of your internal and external strategic review? Is that complete at this point? And what are your thoughts on spend generally as we move through 2023?

Well, like anything else with the capital markets now, we're always going to pay attention to our spend and make sure that we're spending appropriately. I think one of the things that we're doing is ongoing. We're not complete with everything in the organization. Looking at the structure of the organization from a commercial team to the inside staff, to our operations, to our contract manufacturers, our global contract manufacturers, supply chain. Obviously, there's a lot going on in making sure that we spend appropriately, but what we need to do is make sure we're spending efficiently. We're not going to lower spend just to save our way to prosperity. We're going to spend accordingly to when we can make sure that we're making a difference to the women that we serve, and we're going to put our spend focus on those things that put our reps with the proper tools and the proper equipment in front of surgeons every day to treat patients, and some of the other things we're really going to evaluate, some long-term missions and some things that may not be necessarily affecting top-line revenue and gross margin. Immediately, we may put some of that spend off for a little while.

Great. Just the last one here. Exiting $25 million in cash, what are your expectations for cash levels going forward?

I'll give that one to our CFO.

We haven't really provided any guidance on cash. To Todd's earlier point, we're evaluating our our current spend. We have to take a look at our long-term debt later in the year and think about potentially refinancing that debt. So there are a number of items in play with cash levels. So we're not going to guide to cash for the year. We do believe that we have, you know, a pretty good amount of cash to operate with in the short term. And I think longer term we'll evaluate kind of where our cash is and what the additional needs are based on how the year unfolds and how things like revenues and expenses are managed going forward. Great. Thanks so much.

Thanks, Phil.

Thank you. This does conclude today's Q&A portion of today's conference. Ladies and gentlemen, this also does conclude today's conference. Thank you for participating, and you may now disconnect.