Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue grew 11% year-over-year to $16.1 million, driven by increased unit sales and growing international sales.
- Positive feedback from surgeons on newly launched products, LIQUIFIX and OviTex IHR, which are expected to capture market share.
- Significant momentum in Europe with a 60% increase in sales and a new long-term agreement with Germany's largest GPO.
- Strong educational efforts, training over 300 surgeons globally and participating in key industry conferences.
- Appointment of Greg Firestone as Chief Commercial Officer to enhance sales rep training and operational efficiency.
Negative Points
- Ransomware attacks at key customer hospitals negatively impacted revenue by an estimated $1.5 to $2 million.
- Lightness in procedure volumes due to the retirement or death of several surgeons who were reliable users of PRS products.
- Gross margin decreased slightly to 69% from 70% due to higher charges for excess and obsolete inventory.
- Sales and marketing expenses increased to $16.7 million, driven by higher compensation costs and increased travel expenses.
- Net loss increased to $12.6 million from $10.8 million in the same period in 2023.
Q & A Highlights
Q: Can you help us understand what occurred at the account level during the cyberattacks? Were procedures backlogged, or did physicians use different meshes?
A: The cyberattacks primarily affected patient records, making hospitals operate manually, which led to a reduction in surgeries. Some patients were redirected to other facilities. We believe hernia surgeries were mostly delayed rather than canceled, and we expect a return to normal operations soon. July's performance indicates recovery, and we are confident in our second-half projections. (Antony Koblish, CEO; Roberto Cuca, CFO)
Q: How should we think about the revenue split between Q3 and Q4 to meet the guidance range?
A: We expect more revenue in Q4 due to the ramping effects of new initiatives. ASPs may average down as we gain volume in the IHR space, but this is part of our strategy to penetrate various market segments. (Roberto Cuca, CFO; Antony Koblish, CEO)
Q: Cash burn was high this quarter. Was this due to not getting leverage on revenue growth?
A: Yes, the high cash burn was due to lower-than-expected revenue. We expect to get back on track with our guidance and will start receiving revenue share payments from the NIVIS divestiture in Q3, which will help our cash position. (Roberto Cuca, CFO)
Q: What are your expectations for gross margins going forward given the IHR launch?
A: We expect gross margins to remain around 70%, despite lower ASPs for IHR products, due to our revenue share agreement with manufacturers. (Roberto Cuca, CFO)
Q: What was the split between OviTex and PRS this quarter?
A: PRS accounted for 30% of total revenue this quarter. (Roberto Cuca, CFO; Antony Koblish, CEO)
Q: What was the split between US and OUS revenue?
A: OUS revenue was $2.4 million in the quarter, up about 60%. (Roberto Cuca, CFO)
Q: Why is the low end of the guidance range still achievable despite disruptions?
A: July was the highest first month of a quarter in our history, indicating recovery. Initiatives led by Greg Firestone are boosting sales force morale and productivity, giving us confidence in meeting our guidance. (Roberto Cuca, CFO; Antony Koblish, CEO)
Q: Can you elaborate on the changes Greg Firestone is implementing to drive productivity?
A: Greg is focusing on customized training, talk track, and messaging for both supply chain and surgeons. He is also leveraging our surgeon staff for peer-to-peer education and demanding accountability within the sales force. (Antony Koblish, CEO)
Q: What kind of profitability are you targeting and what is the timeline?
A: We aim to keep OpEx flat or declining, with revenue growth driving profitability. The NIVIS revenue share will also contribute, and we expect to reach cash flow breakeven next year. (Roberto Cuca, CFO)
Q: How significant could the NIVIS revenue share be in the back half of the year?
A: Depending on the new owner's sales, we could see up to $1 million per quarter in revenue share payments, starting in Q3. (Roberto Cuca, CFO; Antony Koblish, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
