This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Good day, and welcome to DesignX Q3 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. Certain statements in this release are forward-looking and as such are subject to numerous risks and uncertainties. Actual results may vary significantly from the results expressed or implied in such statements. Risk factors that could cause actual results to materially differ from forward-looking statements are described in our filings with the Securities and Exchange Commission including the risk factor section of our annual report on Form 10-K for the year ended December 31, 2020, as well as Forms 10-Q and 8-K press releases and the company's website. I would now like to turn the conference over to Thomas Sandgaard, President and CEO. Please go ahead.
spk04: Good afternoon. My name is Thomas Sandgaard, President and CEO of Sinex. Welcome to our 2021 Third Quarter Earnings Call. Today, we'll be covering activities in both of our divisions, Sinex Medical, where we focus on pain management, and Sinex Monitoring Solutions. Before I get into the details of our financial performance and operations, I'd like to mention that this week is the 25-year anniversary of Sinex being accepted and me starting the business in a one-bedroom with just a couple of thousand on a credit card, having just moved to Colorado from Denmark. It has been a long road of bootstrapping, but looking at our results the past four to five years, certainly worth it. I want to express my gratitude to all of our employees for working so hard to make this a success, as well as our public shareholders for being loyal and believing in the company and our business model. In that context, I'm excited to announce yet another quarter of record revenue and net income. Net income increased 118% sequentially compared to the second quarter, which demonstrates the operating leverage we're achieving from the investments we made in our sales organization. Our third quarter revenue of $34.8 million is the highest quarterly revenue in the company's history and increased 74% compared to the same quarter last year. We continue to see good order flow and third quarter orders came in 70% higher than the third quarter of last year. In the second half of 2021, we're seeing the job market continue the trend we saw emerge in the second quarter in that how unemployment has been dealt with politically still keeps a big chunk of the workforce at home, leading to a shortage of workers, including sales reps. This significantly impacts our ability to hire employees for our corporate headquarter, specifically order entry, patient enrollment, and insurance billing. These positions are important to keep up with our overall growth. We are also seeing the same dynamics as most other businesses, especially medical, where there's a lot of movement and significantly inflating pay for sales representative. We are currently competing. in that space and have increased incentives such as sign-on bonuses, et cetera, to keep a decent hiring rate. Rather than slacking on our minimum criteria for hire, we have instead adjusted our growth plans to focus on more productivity growth per sales rep and improving the quality of our entire sales force, which has also led to increased trimming of non-productive reps. During the third quarter, we focused on the productivity of our sales reps and trimmed our less productive reps. The trimming of sales reps and the highly competitive job market resulted in a decrease in active sales reps to approximately 430 reps at the end of the third quarter. The average revenue per rep during the third quarter therefore grew to approximately $325,000, up $50,000 compared to the second quarter and almost $100,000 compared to Q3 of last year. The sales rep number is less than previously anticipated, which has obviously led to a higher near-term profit than expected earlier in this year. As we've discussed previously regarding our inventory, we took a more conservative position in response to COVID and any possible supply chain issues, which resulted in increased inventory levels during this year. In the third quarter, our inventory level moved back towards more normal levels, and we're happy to report that to date we have had no supply chain issues in our business. The opioid epidemic continues to be a serious issue in this country, and we're increasingly working to get patients off opioids and for physicians to use our prescription strength technology as the first line of defense when treating pain. Currently, the devastating impact has reached the level where nearly 100,000 die yearly due to opioid abuse. We continue to develop more tools to make physicians aware of our technology that literally has no side effects. Our products for pain management and rehabilitation still stand out as some of the best products in the industry. The NexWave for pain management and our NeuroMove device for stroke rehabilitation, as well as the InWave for incontinence treatment, puts us in a very strong product position in these rehabilitation markets. We continue to see great potential in both our product divisions, our existing revenue-generating area for pain management, as well as the huge unmet potential for a blood volume monitor. In the past five to six months, we have significantly increased activity in our monitoring solutions division. We are more than triple staffing and consultants while we also have increased our clinical research capabilities and initiating several more studies across the country, looking at different aspects of the clinical value that our technology can provide hospitals and surgical centers. As most of you probably know, we managed to get FDA clients for our CM1500 blood and fluid monitor over a year ago and have the product ready in production. The CM1500 is a non-invasive monitor intended to monitor patients' fluid balance in hospitals and surgical centers. We expect to initially target ORs and surgeries that typically display substantial blood loss, as well as recovery rooms and ICUs where internal bleeding today are common and difficult to detect until serious complications occur. We believe this product will lead to safer surgeries, fewer complications, and less mortality. one of the biggest unmet needs in hospitals today. We continue to see solid preliminary results from a clinical study at Wake Forest, and we're preparing to commence more studies on the device shortly. We're seeing interest in purchasing the device from hospitals that have a device on demo. Our engineering team is well underway with building prototypes of the next generation CM1600 device that will be easier to use in surgical settings. And today we have with us our Vice President of our Cynics Monitoring Division, Donald Greig. That will fill you in with more details as to his background, what we've been doing, and short as well as long-term plans.
spk00: Donald Greig Thanks, Thomas. Good afternoon, everyone. Let me start with some background on myself. I've spent about 15 years in the high-tech and consumer industries and a bit over a decade in medical device leading infusion pumps. respiratory and health informatics products and businesses for startup to multinational global corporations and various executive leadership roles. As most of you probably already know, as Thomas mentioned, the FDA cleared the CM-1500 fluid volume monitor a year ago. Our focus in 2021 has been on submitting the wireless version, our CM-1600, to the FDA by the end of the calendar year. The current CM1500 is a non-invasive monitor intended to monitor patients' fluid balance in hospitals and surgical centers. We expect to initially target operating rooms, surgeries, and clinical care, critical care settings where fluid responsiveness is a known challenge. In this space, there are two primary areas that need to be addressed. Number one is overall fluid volume. The question is, is the patient losing too much blood or fluid or being overloaded with fluid? The second one, and perhaps is probably the most important, is understanding fluid status and being able to know if the patient should receive more fluid or not. Incorrect fluid therapy can lead to severe negative outcomes, including increased morbidity and mortality. Patients die postoperatively and more frequently than intraoperatively largely due to hemodynamic instability. Therefore, we are very focused on hemodynamic stability perioperatively and postoperatively. We believe this product will lead to safer surgeries, fewer complications, and, of course, less mortality, as Thomas had mentioned. This is one of the biggest unmet needs in hospitals today. We continue to see promising preliminary results, as Thomas mentioned, from a clinical study at Wake Forest. We've commenced additional studies on that device as well. WakeFlorist is planning to publish the results of the study in Q1, and we've started a very specific apheresis blood donation study with Vidalent that continues to refine our patented relative index algorithm for fluid prediction in blood components, fluid loss, and reinfusion of blood into the body. Additionally, we are starting a dialysis observational study this calendar year that continues to characterize the relative index for change with specific values of fluid loss. We plan to expand our clinical footprint and are heavily investing in a robust cadence of clinical evidence to enable us to expand into other care areas where fluid monitoring is a priority for patients. successful trade show at Anesthesiology 2021 in San Diego. You also might know this as the ASA conference. There was significant excitement from our key opinion leaders or our KOLs in both the US and internationally. They are very interested in validating the need to focus on hemodynamic stability during and post-surgery. We have several leading anesthesiologists in their field that approached us to work closely on the predictive algorithm to solve the question of should I give my patient fluid or not? We are seeing significant interest in placing and purchasing the device from hospitals, and we continue to develop our pipeline focused on commercializing the wireless CM1600 version of the monitor post-FDA clearance in the first half of 2022.
spk04: Thank you, Don. I'll now turn the call over to Dan Moorhead, our CFO.
spk01: Thanks, Thomas. First, I'll review our 2021 third quarter results. Orders grew 70% year-over-year and net revenue grew 74% to $34.8 million from $20 million in 2020. It's also worth noting that Q3 revenue increased 12% sequentially compared to Q2. Device revenue increased 71% to 9.1 million compared to 5.3 million last year. Supplies revenue increased 75% year-over-year to 25.7 million from 14.7 million. Gross margins were 80% in the third quarter of 2021 compared to 77% in Q2. As we mentioned previously, we transitioned our production and warehouse to a new facility during Q1 which put some pressure on gross margins during the first half of the year. But as we continue to increase volume and get better pricing, we've been able to increase margins throughout the year. We still expect margins to range between 75% and 80% going forward. Sales and marketing expenses increased 39% year-over-year due to our Salesforce growth. G&A expense grew 39% year-over-year Much of that increase was related to facilities and increased headcount in our reimbursement and patient support functions related to our order growth. Third quarter net income was $6.1 million, a 358% increase year over year, and 17 cents per diluted share. Both net income and earnings per share were company records. Adjusted EBITDA, which is a standard EBITDA calculation plus an exclusion of non-cash, stock-based comp, severance, non-cash lease expense and other income expense and is reconciled in our press release was 9.3 million in the third quarter and was also the highest in company history. I'll now review our 2021 nine month results. Orders grew 134% year over year, which increased net revenue 65% to $89.9 million from 54.5 million in 2020. Device revenue increased 79% to $23.3 million compared to $13 million last year. Supplies revenue increased 61% year-over-year to $66.7 million from $41.5 million. Gross margins were 78% during the first nine months of 2021. Sales and marketing expenses increased 86% year-over-year, and G&A expense grew 42% year-over-year. 2021 nine months net income was $8.2 million or 23 cents per diluted share compared to net income of 7.3 or 21 cents per diluted share in 2020. Adjusted EBITDA was 13.7 million for the first nine months of 2021. On the balance sheet as of September 30th, 2021, Our cash balance was $35.4 million and grew just under 10% during the quarter due to our record profitability, and that also includes spending a half a million dollars on our stock buyback, which expired during the quarter. Our working capital was $59.6 million at September 30th, up 13% compared to Q2. With that, I'll turn the call back over to Thomas.
spk04: Thank you, Dan. I'm pleased with the third quarter order growth of 70%. and our record revenue and profitability. It clearly justifies the investments in our sales personnel, sales management, and inside support functions. Our focus for the remainder of the year is continuing to increase sales productivity as our sales force gets more experience, continuing to leverage the investments we made within sales and G&A to further improve plausibility, and most importantly, helping our patients in pain. We will continue our Salesforce growth in Q4 and into 2022, but due to the current tight labor market, it'll be at a slower but more profitable pace than prior years. We estimate our fourth quarter revenue to come in between 40 and 43 million, with an adjusted EBITDA between 9 and 10 million. The fourth quarter revenue range is 54 to 65%, then 2020 is fourth quarter revenue. In full year 2021, revenue is estimated between 130 and 133 million, with adjusted EBITDA between 22.7 and 23.7 million. We are also expecting significant positive cash flow in Q4. due to the seasonality of deductibles and continued profitability. The full year revenue estimate is approximately 62% to 66% above 2020's full year revenue of $80.1 million. My long-term goal for our electrotherapy and rehab division is to continue to grow our share of a huge market for prescription pain management and to take advantage of the huge void in the market after the disappearance of our main competitors. This includes growing our domestic sales force, as well as potential acquisitions of complementary technologies. Our long-term goal is still to fill all 800 territories, which we have filled well over half in the US, and get sales reps fully productive. We see that it takes up to two years to make a sales rep fully productive. We're extremely encouraged by the progress we made in our monitoring solutions division and the positive feedback from the market. We're pleased with what that distribution has accomplished so far during this year and the more recent increase in staffing and activity. In summary, we announced strong growth in orders and revenue and profitability. And we expect the strong growth in orders to drive continued growth in revenue and profit in the remainder of the year and during the next year or two. We will now answer questions from our listeners.
spk02: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.
spk10: At this time, we will pause momentarily to assemble our roster. Our first question comes from Jeffrey Cohen with Ladinburg Salmon.
spk02: Please go ahead.
spk05: Hi, Thomas, Donald, and Dan. How are you?
spk04: We are doing well. How are you doing, Jeff?
spk05: Just fine, staying well. So thanks for the commentary, and thanks for your commentary, Donald, as well. I wondered if, Thomas, maybe you could talk a little bit about the CMS business and your comment about complementary acquisitions for the 1600 and the fluid monitor, and how should we think about that? as far as the business growing, and also as far as the commercial channels, as far as your plans for dealing with the various channels out there as they approach.
spk04: That's right. So I'm thinking about it in regards to both divisions. We are looking at opportunities that could fit into the pain management and rehab division, as well as opportunities that could fit in into the monitoring solutions product range and the type of products we see could be complementary there. It's a little different as to how we're looking at those opportunities that are out there. We're looking at products that are fully developed and typically already have reimbursement codes and long, long history of being reimbursed well by insurance companies and something that would also fit well into the core point that our huge sales force have across the country. So we're looking at that kind of opportunities. And while we're looking at that, we obviously distribute products from other manufacturers, such as cervical traction, low back support devices. We will soon be introducing knee braces and also cold and hot therapy used post-operatively. Those are products we already distribute from other manufacturers. We keep looking at potential opportunities to strengthen that product line. In terms of monitoring solutions, there are so many great technologies that have been invented out there and could potentially fit well with our a blood and fluid monitor, and a sepsis monitoring that we're also looking at fit into that space. So we keep looking at those opportunities, but as you know, I'm pretty stubborn about those things, and nothing has materialized yet.
spk05: Okay, so more multifunctional with your current sales organization with pain and a little bit beyond, and then Would you be going kind of a B2B model in-house direct when you're talking about the hospital environment or ASC environment or clinic environment?
spk04: Well, we obviously, our sales force in pain management is that they all have a fairly small radius. There's a total of 800 territories across the country. They sell direct. They go to primarily physicians, especially in orthopedic surgery, and they get a prescription. That is then sent in to us here, and with that and with the patient demographics, we're able to bill the patient's health insurance, and that's how we get paid. So it's a direct sales force where pretty much all of them have a base salary and commission on top of that. In our monitoring solutions division, we expect to see a very separate but direct sales force, as well as working with larger companies, either as distributors or private labeling as an OEM arrangement. There could potentially be some licensing that could come. As I mentioned before, we expect in that division to apply a multifaceted strategy to hit the market of hospitals and surgical centers.
spk05: Okay, got it. And then lastly, a quick one for you, Dan, on the margin side. Very strong for the quarter, but should we be thinking of the next year or two similarly to how we were thinking of it yesterday, or Is Q3 representing some trend or it's a bit of an outlier?
spk01: No, I think we still expect that 75% to 80%. You know, sometimes we're on the higher end, sometimes it's on the lower end, but we're always pretty close to that range. So I don't know that the basis has changed at all. I still think that's kind of the modeling formula going forward is that 75% to 80%.
spk05: Perfect. Okay. Thanks for taking our questions.
spk10: Thank you.
spk02: Our next question comes from Matthew O'Brien with Piper Jaffray. Please go ahead.
spk06: Afternoon. Thanks for taking the questions. So, I guess just for starters, maybe Dan, can you give us the numbers as far as sales reps at the end of Q3 and then how many you expect to exit Q4 with?
spk01: We had, I think we had in one of the, it was about 430 is what we were showing at the end of the quarter. I think end of the year is going to be around there. I don't think you're going to see anything materially up or down. Like Thomas said, we are trimming some of the less productive, and we'll add some new people as well, but the net change should be pretty minimal.
spk04: There's simply a limit to how much we can add to the sales force now compared to a year ago where it was a lot easier. So therefore, that limitation on what we are adding will barely just keep up with or maybe exceed a little bit how many people that are not making it in our current sales force.
spk06: Okay, thank you. And then, you know, as I look at the sequential bump from Q3 to Q4 in terms of the guidance, it's about $7 million at the midpoints, roughly. That's a little bit higher than what you guys did last year. I know it was a COVID year, but even the year before that and the year before that. So, I'm just wondering if there is the expectation of some ramp in productivity or there's a bolus of people that haven't been able to get access that you're expecting in Q4 that give you comfort in getting up to kind of the midpoint of the range here in Q4.
spk04: Yeah, that's a good question, Matt. I would say because the numbers keep getting bigger. So the relative increase is not as big as the absolute increase you see there. So this is more a reflection of the orders that have already been shipped maybe in prior periods and just keep accumulating in terms of the revenue we generate from them in supplies and monthly rentals, et cetera. So it's just more of a compounding effect, and the numbers are getting bigger. So therefore, you're right. You're looking at something like a $7 million increase. But it's more an effect of more and more of refining on more cylinders than any significant boost.
spk01: I think, Matt, if you look at it as a percentage, too, it's similar to what we've done in the past. Like you said, the raw numbers are a little bigger, but last year actually sequentially we were up more as a percentage, and in 19 we were up a little bit more as well. So this year, obviously the range is a little wider, but we're generally in the same spot, and I would say it's even down a little bit compared to last year.
spk04: Yeah, but we have the seasonality of Q1 always being by far the weakest quarter, and Q4 always being it.
spk06: strongest definitely boosted by patients insurance deductibles being met okay okay thanks for that last one for me is just on the blood monitoring side you know your there's a lot of commentary and on the on that product and in the script today and just overall it so I'm just curious as far as what kind of you know impact you anticipate that category will have on the business as we head into 22, and then as I look at numbers for next year, it's still a pretty healthy increase, even though it seems like the Salesforce number is going to be a little bit flatter coming out of this year. Are you comfortable with where the street's at as far as 22 revenues go? Thank you.
spk04: Well, maybe I should answer that one. Obviously, we are internally very bullish on what we can squeeze out of of the sales force and the internal infrastructure of the organization. We have to support that in terms of how much cash we can collect. And obviously, we're beginning to get well into at least the $100 million to $200 million in annual revenue. So relatively speaking, our growth might be big in in dollars, but percentage-wise, it'll naturally start slowing down. At this point, we haven't really finalized our planning for next year in terms of where we'll be in terms of orders and revenue and expenses. We have some rough ideas, and just here early on, we might be very optimistic as to the the amount of growth we'll be able to achieve next year, even at these revenue levels. But I think we'll be, we'll have to wait until our next earnings call before we can really comment on where we're at compared to the analysts. Okay, and blood monitoring side? Yeah, maybe you can. Don can speak to the potential revenue on that.
spk00: Yeah, so we've been really focused currently on our FDA submission for our wireless CM1600. We've been thinking through what the strategy looks like of the design of the Salesforce. As I mentioned earlier in the commentary that our submission to the FDA will be this year. We're expecting that it'll be a very traditional 90, maybe 90 plus days, and we'll see revenue in the back half of 2022. We will be preparing our commercialization plans in Q1 and Q2. We will start executing with a small direct and some indirect sales force in probably late Q2, early Q3 of the 2022, specifically for that. I'm not so sure I have exact numbers for you, but this will be certainly a very important execution phase in the first half of 2022. Great, thank you.
spk10: You're welcome.
spk02: My next question comes from Yi Chen with HC Wainwright. Please go ahead.
spk08: Thank you for taking the question. The first question is, could you comment on the the number of sales reps you aim to achieve by the end of 2022. And also, you mentioned that the average revenue generated per rep has been improving. Can you tell us what is your target average revenue per rep and how soon do you expect to achieve that?
spk04: Yeah. Hello. This is Thomas. In terms of... In terms of revenue per rep, if I take your questions in sort of in backwards order, we know from our more seasoned and better producing sales reps that they can produce up towards $2 million a year in revenue within their territory. And therefore, we are still planning on long term, but We might be half a decade out, hopefully a little sooner than that, but long-term that the average sales reps, and there will be some brand-new ones in that mix, so that the average will be right around $1 million per sales rep. So that target hasn't changed. In terms of how many reps we expect to have by the end of next year, There's obviously, as we can see right now, the shortage of potential employees, whether it's sales reps or people that want to come work here at our corporate headquarters, is playing a very, very significant role right now. If we assume that things start normalizing and get back to the supply-demand levels we we saw a couple of years ago here in Colorado and across United States in supply-demand in terms of the workforce, then I would expect us to get very close to 600 by the end of next year. But if the first and the second quarter demonstrate the same type of challenges we're seeing right now, that would obviously put a damper on it. I'm sure no matter how bad that goes, we'll be well over 500 again by the end of next year.
spk08: Got it. Thank you. And my next question is, do you expect CM1600, when commercialized, will have a similar gross margin to the next wave margin?
spk00: So this is Don. I can take that question. When you look at the CM1600, it's a networked device, and this networked device has a piece of capital equipment, it has software, and it has disposables. Traditionally, in this business, in the monitoring space, you have a strategy that you'll have margins on the hardware, you'll have margins on the disposables, you'll have margins on the software, very high margins on software. high margins on the disposables because it's a razor razor blade type business. And so I'm expecting that margins will be a bit higher on the disposables and the software and we'll be on par if not a little bit better on the capital side. We've focused significantly on cost reduction in our wireless and what I would call design for manufacturing so we can manufacture this in high volume.
spk08: Got it. Thank you.
spk00: You're welcome.
spk02: Our next question comes from Mark Weisenberger with B Reilly Securities. Please go ahead.
spk07: Thank you. Good afternoon. You've talked about it becoming difficult to kind of onboard new reps and maybe that's lowering the potential growth rate for generating new orders. Have you thought of working with any telehealth companies to provide direct access to doctors who can prescribe the next wave to generate orders maybe in a non-traditional route than you've historically done?
spk04: Yes, we have certainly thought about it. We're also looking at how successful we have been in terms of growing revenues and filling up the territories across the country. We know with high certainty how well a good relationship between a physician and a sales representative from our company works in terms of developing orders and subsequent revenue. And we have seen incredibly high growth rates as a result of that. So if we look at that question, Specifically, you could say we could potentially try to add another way of growing the business, and as a result of that, potentially, if not as successful, be distracting our our efforts internally and also externally versus the more traditional knocking on doors and building relationships. The extent to which the building relationships at Direct Salesforce, how successful that is right now, that may stick to that for now. And maybe when we get to the point of having sales reps in all 800 territories, and then being reasonably profitable. That would be 800 sales reps and hopefully approaching the million dollars per the average sales rep. And as we're looking at strategies to develop the market further, unlocking the potential there really is in the pain management area, that would definitely be one of those ways we could we could potentially grow more revenue on top of what 800 sales reps can provide for us. So right now we're looking at it as one of many options we could apply, but I want to make sure we get all 800 territories filled with eventually very productive sales force and then grow further from there.
spk07: Got it. Okay. Sticking on the tight labor conditions theme for a little bit longer, could you, quantify maybe any potential drag on the results either in the current quarter or potentially maybe what you're seeing in the fourth quarter, not necessarily from slower sales rep growth, but maybe kind of more from the back office labor constraints and the billing department that you highlighted?
spk04: Yeah, throughout the corporate office, we have approximately, I would say, between 80 and 100 unfilled open positions. So that obviously means that we're still processing the orders. We are severely understaffed in every department, nearly every department, I would say. However, we do get the work done, but there are many things you do as an organization where you build structures for the future. We may not necessarily build them to the same extent that an organization that doesn't grow as fast and doesn't have a difficult job market against them. You might see there are obviously activities that are not specifically geared towards reaching this month's goal of processing that many orders or whatever the task may be, like that are more social in nature and just part of building a good work environment to get to know your coworkers and all that. There are less of that in a period like that versus let's hopefully... in a year from now be in a better position. We will be eventually focused more on maybe team building and things like that. So those are some of the more intangible things. We get the work done and that's really what matters now while we are staffing up. We have a net addition in contrast to our sales force. Every week we are adding net more than we are losing. So we're not losing. We're not losing ground here covered, but it could definitely be better. There's still quite a few empty seats there.
spk07: Got it. Got it. Thanks. It seems maybe that you have an elevated level of cash right now. I'm wondering if you could talk about the capital allocation priorities, balancing pain management and monitoring and kind of the split there. And then I think Dan noted that the buyback ended in September. based on where the stock is right now. Is there any plans to reinstate that in the near term?
spk01: I'll start with the buyback. You know, everything's on the table. We've got to look and see, you know, current business activities, where we need capital allocated and those types of things. But I don't know that we have any intention to reinstate it immediately, but I think it's definitely on the table. Sorry, can you repeat your other question, Mark?
spk07: Yeah, in terms of capital allocation, kind of the split between monitoring and pain management going forward?
spk01: You know, if you're just talking normal operating activities, I would say, you know, pain management's running, you know, we're running between, what, $25 and $30 million in expense per quarter. monitoring, even though we're making a significant investment in it, is still probably 10 to 15 percent of that. So it's still by far a small piece of the pie, but it's definitely grown this year. Last year we were probably close to a million. This year we're probably between two and two and a half, if you look at the full year. And next year is probably another million, million and a half on top of that. There's definitely, with all the activities that Thomas and Don talked about, there's definitely some P&L expenses hitting there. But that's all within the plan.
spk07: Got it. Very helpful. Don, can you provide more detail on the difference between overall fluid volume versus understanding the fluid status?
spk00: Yeah. So overall fluid volume and fluid status is slightly different but very related. What's important is fluid responsiveness. And fluid responsiveness is about asking yourself, if you're an anesthesiologist, if you should give your patient fluid. And the reason that is is because you can put your patient into some challenges around cardiac conditions. Today, there are many organizations that are kind of focused on are they losing fluid or are they somewhat getting overloaded? We have to address that question as well, but one of the things that's most important is predictably figuring out if you need to give your patient fluid or not because clinically, that's the most important for in a surgical setting because of you want to ensure stability from a hemodynamic standpoint.
spk07: Got it. Very helpful. And then just the final one for me. As we think of the business and kind of the long tail of the consumable revenue that's generated off the initial order, if you were to stop all device sales, let's say at the end of the fourth quarter, What kind of runway do you see for consumables revenue? I mean, how long would you be able to still generate consumables revenue? Thank you.
spk04: Well, for the next decade, obviously, it would be on a declining scale. But it's obviously, as you see on our reporting, a very significant part of our revenue and an even more significant part of our profitability. So the first quarter, as an example, you wouldn't barely see much of a dip, and then it'll just slide down so that it'll be somewhat insignificant compared to today's numbers when you're more than five years out. So if a patient has a device and even if we got absolutely no prescriptions in, we would still get revenue from the monthly rentals and the supplies they're consuming. As insurances approve and disapprove it and forget to pay or forget to tell us about it and all the stuff that goes on in between.
spk07: Great. Very helpful. Thank you very much.
spk10: Thank you.
spk02: Our next question comes from James Terwilliger with Northland Securities. Please go ahead.
spk09: Hey, Thomas, can you hear me?
spk04: Yep, I can hear you. How are you doing?
spk09: I'm doing well. I hope you guys are all doing well. A couple quick questions. First of all, congrats on a nice quarter. This is good revenue growth numbers. It's a great EPS number. My first question is, how many reps have you guys had to trim? You know, I think it's terrible when anyone loses a job, but clearly I understand that. And then maybe a turnover percentage, a percentage of reps gone versus what you've been able to keep. And then how much time do you give a rep before you kind of make that call that, hey, they're just not getting it done? You know, we know it's six months to 12 months for a sales rep, depending on the territory in medical devices if it's brand new or an existing territory for them to become productive. Those are my days at Johnson & Johnson. But again, how much turnover do you have? How many reps have you lost or have you trimmed? Maybe a turnover percentage. And then how much time do you give them before you make that decision?
spk04: Well, I don't have all those. I don't have enough numbers with me to give you specific answers to all of it, but I can You can obviously imagine when our net number of sales reps went from 500 down to 430 at the end of the last quarter that we got rid of more than that, quite a few more. We added about 300 reps, nearly all of those in the second half of last year, and we obviously, especially those that had been here six to nine months. There was quite a few among those that just never really made it. And I would say because we added so many, we gave them more time, or I should say we gave our regional sales managers more time than usual to eventually get them up and running because they had a lot to work with. We only have 15 regional sales managers. So we gave them a lot to work with. And a lot of that is not only dealing with the existing sales reps, but also holding the hands of brand new reps to get them up and running. And so we normally see right after the 90 days that a sales rep either will make it or not. But I would say in the last couple of quarters we have given them longer than normal simply because our managers had more to work with than normal and therefore gave the reps a chance beyond what we normally would do so here recently we have cleaned up a lot because it's not worth it carrying people that are not going to make it now we definitely know let's put it that way who couldn't make it. And we just keep building the sales force at a slower than before cadence. I don't have the calculations about specific turn rates, but it's obviously a lot of people we've talked about when the net has gone down by 70. Thank you.
spk09: My second question is really on the gross margins. I wonder if there's anything you guys could add. I thought I heard you say earlier in the call maybe a price increase. A lot of the companies I'm talking to are having pressure on the gross margins with the supply chain issues that are everywhere, and then you guys actually came in, I think, at about 80%, and it was actually – Real nice gross margin number. Is there anything else that you can add there in terms of did you get a price increase during the quarter or is it a trend? I know the range is at 75, 76 to 80, but is there anything else you can add on how the gross margins did so well here in Q3?
spk01: It's really just normal operating. Like I said, you know, we have gotten better on the pricing side from the suppliers. You know, our volumes have increased significantly over the last couple years, and so obviously that helps from a pricing perspective. On our cost prices, not on our... Our retail, our MSRP, or whatever you want, the revenue pricing hasn't changed So it's really just improvements there, and then it's absorbing, like I said, the investments we made in the production facility and those things. As revenues get higher and higher, that absorption percentage gets lower and lower. So it's really those two factors that have continued to drive margins. And again, I think 75 to 80 going forward is reasonable. It may not always be 80. It may be 77 or 78, but that's all within the expected range.
spk09: No, it's a very, very good number. I think I'm at 76 going forward trying to be conservative. So the 80 is a great number, especially with the conditions everyone's operating under. My next question is how big is the current patient monitoring division? I know you're looking for strategic partnerships and maybe some independent distributors. How big is the patient monitoring division as it sets today?
spk00: So this is Don. I'll take that question. Today we have a mix of engineering focused on both the CM1500 and the wireless version, the CM1600. In addition to that, I have people focused on running clinical trials, and there's a we've kind of quadrupled the size of the team to be very strategic and focused. You'll see additional commercial team that will be built in the Q1, Q2 timeframe of 2022. And so we're staffed somewhere around 20 to 25 with contractors and things like that.
spk09: Okay, fantastic. Thank you. And that's a very important product as we move into next year. My last question is, I had a lot of concern coming in, and like I said, I think your numbers are very good. Concern with maybe what happened down in Florida with COVID, with Delta, you know, procedures are being delayed. Sometimes it's hard to catch the patient coming out of the hospital. The same thing with Texas. Do you think that had any impact on your numbers? I know they're going to impact other medical device companies. Do you think that had any impact on your numbers, or you guys kind of sailed right through that?
spk04: Yes, we haven't really seen COVID, except for the second quarter last year, where there was a lot of uncertainty in clinics as to how to deal with us and sales reps in general. Since then, we haven't really seen any impact. It's still lurking a little bit, but overall, it's more the individual performance by those 430 sales reps. that dictates and how they eventually get their relationships built. And I think I noticed this morning you mentioned Florida, which is a big state. That's also the state that has the second biggest decline in incidents of COVID or infections of COVID right now. So I think... very quickly they'll probably be back to another level of being able to do medical procedures, et cetera.
spk09: Okay, great. Well, I'll jump back in queue, but thanks, guys, for taking my questions, and nice job on the quarter. Thanks, guys.
spk03: Thank you.
spk10: This concludes our question and answer session.
spk02: I would like to turn the conference back over to Thomas Sandgard for any closing remarks.
spk04: Thank you. I hope today's earnings call has been informative for everyone and I appreciate the interest in Sinex and listening in to this call. Thank you and a great day to all.
spk02: The conference is now concluded. Thank you for attending today's presentation. You may now
Disclaimer