Surmodics Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 1, 2024

Key Takeaways

  • Positive Sentiment: Revenue grew 23% year-over-year to $30.6 M (25% ex-license fees), led by a 24% increase in medical devices and 18% growth in IVD.
  • Positive Sentiment: Successfully completed initial commercial shipments of the SurVeil DCB to Abbott and presented 3-year TRANSCEND trial data showing non-inferior safety and efficacy versus a higher-dose competitor.
  • Positive Sentiment: Raised fiscal 2024 guidance to $113–117 M ex-SurVeil license fees (10–14% growth) and now expects over $14 M in combined product revenue from SurVeil, Pounce and Sublime.
  • Negative Sentiment: Product gross margin fell to 53.2% from 63%, as early-stage device volumes and lower-margin IVD antigen sales weighed on mix and fixed cost absorption.
  • Neutral Sentiment: Advanced innovation pipeline with FDA clearance and launch of Prezyde hydrophilic coatings plus ongoing limited market evaluations for Pounce Venous and Arterial LP.
AI Generated. May Contain Errors.
Earnings Conference Call
Surmodics Q1 2024
00:00 / 00:00

There are 6 speakers on the call.

Operator

Welcome everyone to the Surmodics First Quarter of Fiscal Year 20 24 Earnings Call. Please note that this call is being webcast. The webcast is accessible through the Investor Relations section of the Surmodics website at www.surmodics.com, An earnings press release disclosing Surmodics' quarterly and full year results was issued earlier today and is available on the company website as well. Before we begin, I'd like to remind everyone that remarks and responses to your questions on the Private Securities Litigation Reform Act of 1995 and include statements regarding Surmodics' 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 Surmodics' forward looking statements resulting from certain risks and uncertainties, including those described in the company's SEC filings.

Operator

Surmodics disclaims any duty to update or revise these forward looking statements as a result of new information, future events, developments or otherwise. This call will also include references to non GAAP measures because Surmonix believes they provide useful information for investors. Today's earnings release contains reconciliation tables to GAAP results. I would now like to turn the conference over to Mr. Gary Maharaj, Surmonics' President and Chief Executive Officer.

Operator

Please go ahead, sir.

Speaker 1

Thank you, operator. Welcome everyone to our Q1 fiscal year 2024 earnings call. Here's what we plan to cover today. I'll begin with a high level overview of our quarterly financial performance, followed by a discussion of our recent progress guidance for fiscal 2024, which we updated in today's earnings press release. Then we'll open the call for questions.

Speaker 1

Let's start with the discussion of our financial performance. In the Q1, we were pleased to achieve total revenue 23% year over year to $30,600,000 Excluding the SurVeil DCD license fee revenue in both periods, which represented an approximately $300,000 headwind in the quarter, we achieved total revenue growth of 25% year over year. Our total revenue performance came in just above our stated range of expectations for the quarter of $29,500,000 to $30,500,000 which we shared on our last earnings call. Importantly, our performance was driven by impressive contributions from both of our business segments. The Medical Device segment grew 24% year over year to $23,500,000 and increased 27% including the year over year headwind related to the SurVeil DCB license fee revenue that I just mentioned.

Speaker 1

Revenue from our Invitro Diagnostics or IVD segment grew 18% year over year to $7,000,000 In our Medical Device segment, growth is primarily driven by record product sales, which increased 43% year over year fueled by our vascular interventions device portfolio, Specifically, our SurVeil drug coated balloon and contributions from royalties and license fees from our Performance Coatings as well as R and D Services revenue. Growth in our IVD segment, which was exceptionally strong in the quarter, benefited from a combination factors including strong demand for select products heading into peak influenza season, the timing of orders and the continued return of more normalized purchasing patterns from some of our customers that had taken steps last to manage COVID era elevated inventory levels. Lastly, we were pleased to complement our impressive revenue performance with year over year improvements in our operating results delivering adjusted EBITDA of $3,900,000 a 7 point compared to the Q1 of last year. Overall, we were quite pleased to deliver a strong start to fiscal 2024. Turning now to our operational progress in the Q1.

Speaker 1

In addition to our financial performance, our team has been hard at work executing with respect to the 3 strategic objectives for fiscal 2024 that we outlined in our last earnings call. As a reminder, these objectives are: 1st, to capitalize on the key near term growth catalysts in our vascular interventions portfolio, our SurVeil DCB, POND's thrombectomy and the Sublime radial access products. 2nd, to drive durable revenue growth and cash flow generation across our core medical device performance coatings offerings and IVD business. And third, to facilitate our long term growth by developing and introducing new products and line extensions that will enhance our existing Pounds, Sublime and Medical Device Performance Coatings portfolio. Let me walk you through our recent progress with respect each of these objectives beginning with our vascular interventions portfolio.

Speaker 1

As I mentioned, sales of our SurVeil DCB and Pounds thrombectomy products. Most notably, we generated the first commercial revenue from our SurVeil DCB as we began shipping units in October to our commercial partner Abbott in preparation for a January launch. I'm pleased to report that the commercial manufacturing process proceeded reasonably smoothly during the Q1 and we ultimately completed all shipments required to satisfy Abbott's initial commercial stocking order on time as planned. Drug coated balloons like our SurVeil BCB are some of the most difficult to manufacture with consistent quality in the Interventional Device segment. Our efficient and successful transition from factoring clinical units to commercial quantities, a process which I've previously equated to starting a diesel engine in the middle of winter, speaks to Simodex's unique technology capabilities and expertise as an organization as well as the talent and dedication of our employees.

Speaker 1

Our SurVeil's operation team did an excellent job of ensuring the success of initial commercial production, and I'd like to give them a shout out in today's call to thank them for their efforts. In addition to our manufacturing efforts, we continue to support Abbott's commercial readiness activities such as the development of technical marketing and sales team training materials. We were also pleased to share the 3 year results of our 446 patient TRANSCEND trial, which are presented at the 50th Annual VIT Symposium on November 15th. As a reminder, the 65 site randomized controlled trial founded our SurVeil DCB to be non inferior in both safety and efficacy to the market leading impact Admiral DCB, which uses a 75% higher drug load of paclitaxel. 90 safety and efficacy outcomes for the low dose SurVeil BCB that are comparable to the controlled device.

Speaker 1

I'm pleased we were able to provide this compelling clinical evidence to the medical community, which supports the long term outcomes that can be with our technology. I will also add, this is the only randomized controlled worldwide trial of a low dose DCB compared to a high dose DCB like the impact. With this recent progress as a backdrop, I'm excited to share that the SurVeil DCB is now a commercial product available in the United States through Abbott. Last week at the International Symposium on Endovascular Therapy, Abbott hosted a lunch symposium featuring the SurVeil DCB entitled Drug Coded Balloons: Time to unveil what you're not seeing. Doctor.

Speaker 1

Bill Gray, a key opinion leader in the field of interventional cardiology and one of the principal investigators of the TRANSCEND pivotal trial, Discuss the differentiating features of the SurVeil DCD, which he highlighted in the 3 year clinical data from the TRANSCEND trial. We're excited to see the SurVeil DCD positioned as the next generation of drug coated balloons. We look forward to Abbott's progress and remain committed to addressing their future demand as they move through the initial months of commercialization. In addition to the commercial revenue we recognized from the initial stocking order for our SurVeil DCD, sales of our pound thrombectomy products also represented an important contribution to the 43% growth we achieved in the Medical Device segment. Sales of these products continue to track with our expectations as our direct sales team remain focused on supporting both existing and potential customers, raising awareness in the marketplace and educating the medical community.

Speaker 1

We ended the Q1 with a direct sales team consisting of 23 territory managers, which is unchanged from the end of fiscal 2023 and compares to 28 territory managers as of December 31, 2022. Building on the progress made in fiscal 2023, our team continued to establish a foundation for future growth by developing existing accounts and expanding our active customer base. In the Q1, we continue to be pleased that our customer we had great customer reorder rates and saw healthy year over year growth in average revenue per existing customer. As part of our efforts to raise market awareness and educate prospective new users during the quarter, We sponsored 2 digital and print supplements in Endovascular Today, a leading industry publication with an editorial advisory board composed of the top endovascular specialists. The publication's focus is the latest technological advancements in the endovascular field.

Speaker 1

And the November issue featured a supplement on our Sublime radial access platform and its impact on patients and practices. And the December issue featured a supplement on our Pounds arterial thrombectomy system. The Pounds supplement featured case studies and interviews with 10 physicians including a diverse set of vascular surgeons, interventional radiologists and interventional cardiologists. It provides clinicians with insights into how their peers are integrating Pounds into the approach to treating patients with acute limb ischemia. With case studies featuring pre and post procedure angiograms, it also succinctly and powerfully demonstrated Pouncer's ability to quickly remove multiple mixed morphology clots in a single treatment session, eliminating the need for capital equipment or aspiration and reducing reliance on lytic drugs.

Speaker 1

I encourage you to read these supplements and draw your own conclusions and develop your own view as to whether our VI products are not far and away the best in any class including products marketed by current large incumbents. You've heard me say in the past, The future has already been created. It's just not evenly distributed yet. The latter is our job to be done with the Surmodics VI portfolio. These supplements serve as an important resource to do just that, to increase awareness for potential customers and for a relatively small but talented sales team to increase their leverage.

Speaker 1

Turning to our second strategic objective. We continue to make progress in our efforts to drive durable growth and cash flow generation across our core medical device, Performance Coatings and IVD businesses. Our team delivered a strong start to fiscal 2024 with revenue from these two areas growing 10% year over year on a combined basis driven by growth in each business. The performance Coatings was driven by growth in royalty and license fee revenue as well as revenue from R and D services. Our IVD sales growth was fueled by sales of our antigen and slide products and benefited from a combination of factors as I mentioned earlier, including flu season demand, the timing of orders and the return of more normalized customer purchasing patterns.

Speaker 1

These core businesses are tracking towards our expectations of low to mid single digit growth for the full year of fiscal 2024. Note however that the performance of these core businesses was an important contributor to the adjusted EBITDA profitability that we achieved in the Q1. And lastly, with respect to our 3rd strategic objective, We continue to lay the foundation for our future long term growth by advancing our pipeline of new products and line extensions with notable progress on multiple fronts. In our Medical Device Performance Coatings business, we secured the first 510 clearance and initiated commercial launch of our Prezide line of hydrophilic coatings, the most advanced Hydrofluid coating our team has ever developed and I believe that the world has ever seen. As I discussed in detail in our last earnings call, PREZYDE is Specifically formulated with the next generation neurovascular coronary and peripheral vascular devices in mind.

Speaker 1

It is designed to provide both enhanced coating durability and industry leading lubricity, enabling coated devices to reach distal treatment sites across challenging coronary lesions and chronic total occlusions, all with minimal particulate generation. By addressing these specific needs, Preside complements and enhances our existing portfolio, including our Serene hydrophilic coating and facilitates improved treatment outcomes and furthermore, reinforces our position as the market leader and provider of performance technologies for years to come. In the months following the commercial launch of Preziite, we've been pleased with the level of interest seeing from both new customers and existing customers, most notably in the neurovascular segment of the market. We look forward to supporting their efforts as they integrate PreziDE into the next generation devices and pursue regulatory clearance. In our vascular interventions portfolio, we continue to make strides in the limited market evaluation of our Pounce venous thrombectomy system.

Speaker 1

Physician feedback from the LME continues to highlight the product's flexibility when it comes to treating different clot morphologies and its atraumatic design, which enables clinicians to make multiple passes with a single device while minimizing stress or damage to the vein. In our most recent LME, we had completed just under C cases at the end of the quarter and compared to just under 40 as of September 30. Looking ahead, our remains focused on gathering additional physician feedback as we complete the remaining cases in this LME and prepare commercialization on a limited basis before initiating our full commercial launch in the second half of fiscal twenty twenty four. This past week, we were also pleased to announce the successful early clinical use of our low profile pounce arterial thrombectomy system, otherwise known as pounce arterial LP, in tandem with initiating our limited market evaluation of the product. As a reminder, our pound's arterial thrombectomy system is designed to remove acute to chronic thrombotic emboli in peripheral arteries throughout the body in vessels ranging from 3.5 to 6 millimeters in diameter.

Speaker 1

By comparison, Pounce LP is cleared for use in vessels ranging from 2 to 4 millimeters in diameter, which extends the treatment range of our Pounds arterial portfolio to include smaller diameter vessels such as those found below the knee and potentially all the way to the ankle. Pounds Arterial LP represents a promising enhancement to our product offering as it is extremely difficult for clinicians to remove thrombi and emboli from vessels below the knee with the currently available technologies on the market. Many interventions will tell you the prospect of losing a piece of embolus, A plaque downstream into the tibials during an endovascular procedure is a major concern. Surgery would be likely the most course of action to address issues in this region and it's not always a viable option. With this in mind, in an area that I believe is not well served because of the limitations of the current technology marketed by incumbents.

Speaker 1

Clinical outcomes and feedback from the initial 10 plus cases has been overwhelmingly positive and I stress that. And we look forward to gaining additional insight as we continue to progress through the limited market evaluations in Q2. In summary, we're pleased to kick off the new fiscal year with considerable progress across each of the 3 strategic objectives that we committed to for Twisco 2024. Our team's performance with respect to these objectives enable us deliver impressive revenue growth in both of our segments coupled with considerable year over year improvements in our profitability profile, while also enhancing our strategic position in the markets we serve. Our guidance which we are raising today reflects financial and operating performance we achieved in the Q1 as well as our continued confidence in the ability to accelerate our revenue growth profile in fiscal 2024 with growth of 10% or higher excluding license fee revenue related to our SurVeil DCB.

Speaker 1

We look forward to building on these accomplishments as we progress through the fiscal year, while continuing to focus on cash preserving and allocating capital strategically in order to achieve strong sustainable growth and value creation on a long term basis. I'd like to thank our entire team for their contributions this past quarter and their commitment to advancing the leadership in the markets we serve as well as our customers and stakeholders for their ongoing support of ThermoDx and our mission. Tim will now review our Q1 financial results fiscal 'twenty four guidance in greater detail. Tim?

Speaker 2

Thank you, Gary. Unless noted, all references The first quarter results are on a GAAP and year on year basis. Total revenue for the Q1 of fiscal 20 $6,000,000 or 23 percent to $30,600,000 Excluding SurVeil DCV license fee revenue, Total revenue increased $5,900,000 or 25 percent to $29,600,000 Our earnings press release includes detailed reconciliations of total revenue excluding SurVeil DCD license fee revenue. Product revenue increased $4,600,000 or 32 percent to $18,800,000 Medical Device product revenue increased $3,600,000 or 43 percent to 12,000,000 a record for our Medical Device business. Product revenue growth was primarily driven by our fulfillment of the initial SurVeil DCB stocking order from Abbott as well as increased sales of our Pounce Thrombectomy device platform.

Speaker 2

As a reminder, The 2 revenue streams under our development and distribution agreement with Abbott. IVD product revenue increased $1,000,000 or 17 percent to $6,900,000 Our Diagnostics business benefited from strength in our antigen and microarray slide offerings and benefited from a combination of factors Carrie mentioned earlier, including flu season demand, timing of orders the return of more normalized customer purchasing patterns from some of our customers that had taken steps last year to manage COVID era related elevated inventory levels. Royalty and license fee revenue increased $410,000 or 5 percent to 9,200,000 Performance Coating royalty and license fee revenue increased $740,000 or 10 percent to $8,200,000 driven by customer utilization of our Serene coating and benefiting from a relatively easy comparison in the prior year period. SurVeil drug coated loan license fee revenue decreased $330,000 or 25 percent to $1,000,000 corresponding to the decrease in TRANSCEND clinical trial R and D Services revenue increased $610,000 or 32 percent to 2,500,000 The increase was primarily due to increased customer demand for Performance Coatings Services in our Medical Device business, which was impacted in the prior year period by our customer supply chain challenges. Moving down the P and L.

Speaker 2

Product gross margin was 53.2% compared to 63% in the prior year period. Several factors contributed to the adverse mix impact to product gross margin relative to the prior year quarter. Importantly, Sales of our near term growth catalysts, our SurVeil drug coated balloon, Pounce and Sublime products are increasing as a portion of total company product sales. These device products are not yet at scale and product gross margins are impacted by the associated under absorption and production inefficiencies. IVD product sales also contributed to the adverse mix impact this quarter with increased sales of our distributed antigen products that carry a lower margin profile.

Speaker 2

In addition, absorption of fixed overhead costs had an unfavorable impact this quarter relative to prior year due to a timing related decrease in production volumes. R and D expense, including costs related to and regulatory activities decreased $4,100,000 or 32 percent to $8,700,000 reflecting lower SurVeil DCB clinical costs, the timing of certain projects in our pipeline and the benefits from the spending reduction plan we implemented during the second of fiscal 2023. SG and A expense decreased $700,000 or 5 percent to $12,500,000 due to lower headcount in our commercial organization compared to the prior year period related to the spending reduction plan as well as the timing of investments in our commercial organization. Our Medical Device business reported an operating loss of $220,000 compared to $7,200,000 in the prior year period, which reflects the operating expense savings from the restructuring and workforce reduction implemented in the Q2 of fiscal 2023 and lower SurVeil DCB clinical expenses, favorability and timing of operating expenditures in the Q1 and broad based revenue growth. Our IVD business reported operating income of $3,100,000 or 45 percent of IVD revenue compared to $2,900,000 or 50 percent of IVD revenue in the prior year period.

Speaker 2

This reflects leverage on product sales growth, partially offset by the adverse mix impact to product gross profit of increased distributed antigen sales. Turning to income taxes. We reported income tax expense of $60,000 compared to an income tax of $170,000 in the prior year period. GAAP net loss was $790,000 or a loss of $0.06 per diluted share compared to a net loss of $7,800,000 or a loss of $0.56 per diluted share in the prior year period. Non GAAP net income was essentially breakeven and consequently non GAAP EPS was 0 compared to non GAAP net loss of 7,000,000 or a loss of $0.50 per diluted share in the prior year period.

Speaker 2

Non GAAP adjusted EBITDA was $3,900,000 compared to adjusted EBITDA loss of $3,300,000 in the prior year period. Adjusted EBITDA includes adjustments for stock based compensation expense in both periods. Our earnings press release includes detailed reconciliations of GAAP to non GAAP measures. Moving to the balance sheet. We began the Q1 with $45,400,000 in total cash cash equivalents and investments in available for sale securities and ended the quarter with $35,200,000 in cash and investments.

Speaker 2

Total cash used in the Q1 or the decrease in cash and investments was $10,200,000 As we shared on our last earnings call, Our Q1 historically requires a higher use of cash to fund our working capital needs, such as annual employee bonus payments annual prepaid insurance premiums. During the Q1, we reported cash used in operating activities of 8,800,000 and capital expenditures of $720,000 Long term debt was unchanged during the Q1 at $29,400,000

Speaker 1

As of the end of

Speaker 2

the Q1, we had access to approximately $64,000,000 in additional borrowing capacity under our existing credit agreement. Turning now to fiscal 2024 guidance. We updated our fiscal 2024 revenue today to reflect our performance in the Q1 as well as our revised expectations for the remainder of fiscal 2024. We now expect fiscal 2024 total revenue to range from $117,000,000 to $121,000,000 representing a decrease of 12% to 9%. Excluding SurVeil DCD license fee revenue, we expect revenue to range $113,000,000 to $117,000,000 representing an increase of 10% to 14%.

Speaker 2

This compares to our prior range of $112,000,000 to $117,000,000 or an increase of 9% to 14% over the prior year. SurVeil DCB license fee revenue is expected to be approximately $4,000,000 in fiscal 2024 compared to $29,600,000 in fiscal 2023. We now expect fiscal 2024 GAAP loss per diluted share to range from a loss of $1.40 to a loss of $1.10 compared to our prior range of a loss of $1.55 to a loss $1.20 per share. Non GAAP loss per diluted share is expected to range from a loss of $1.17 to a loss of $0.87 compared to our prior range of a loss of $1.32 to a loss of $0.97 per share. I'll now share a few additional considerations for modeling purposes.

Speaker 2

With respect to our fiscal 2024 total revenue guidance, Product revenue is expected to be approximately 60% of total revenue, driven largely by contributions from our growth catalysts. Specifically, we now expect combined product revenue from our SurVeil, Pounds and Sublime products of at least $14,000,000 an increase from the $13,500,000 we communicated last quarter. Revenue associated with our medical device performance coating offerings in IVD business is expected to grow in the low to mid single digits from the $88,300,000 of combined revenue generated in fiscal 2023. Our fiscal 2024 diluted loss per share guidance reflects the following full year assumptions. Product gross margin to be in the mid-50s.

Speaker 2

We expect operating expenses excluding product costs to decrease in the low to mid single digits. We expect R and D expense to range from $40,000,000 to $41,000,000 representing a decrease of 14% to 12%. We expect SG and A expense to range from $54,000,000 to $55,000,000 representing an increase of 4% to 6% as we invest in our commercial organization. Interest expense is expected to be approximately $3,500,000 consistent with the prior year. Finally, our EPS guidance reflects full year tax expense of $2,000,000 to 3,000,000 With respect to our revenue growth in the 2nd quarter, we expect 2nd quarter total revenue to range from approximately 28.5 to $29,500,000 representing an increase of approximately 5% to 8%.

Speaker 2

Lastly, with respect to cash utilization, at the end of fiscal 2023, we had 40 $5,400,000 of cash and investments, which included $3,900,000 of available for sale securities. In fiscal 2024, We expect to finish the fiscal year with approximately $28,000,000 to $32,000,000 of cash and investments. Let me take a moment to walk through what this means for our anticipated cash use in fiscal 2024 compared to 2023. In fiscal 20 23, our cash and investments increased by $26,000,000 year over year. Importantly, this included an influx of cash from both the milestone payment for obtaining SurVeil PMA approval as well as debt proceeds drawn from our term loan and revolving credit facility.

Speaker 2

As we discussed on last quarter's call, when we set aside the $27,000,000 from the SurVeil PMA milestone payment In the $19,300,000 in net debt proceeds, cash and investments decreased by approximately $20,000,000 for fiscal 2023. By comparison, in fiscal 2024, we expect the year over year decrease in cash and investments to range from approximately 17 to $13,000,000 reflecting an improvement in total cash used of approximately $3,000,000 to $7,000,000 compared to the $20,000,000 in fiscal 2023. As a reminder, our expectations for cash use in fiscal 2024 reflect the following assumptions. The receipt of a $3,400,000 cash tax refund from the IRS associated with the CARES Act employee retention credit Capital expenditures of up to $5,000,000 compared to $2,900,000 in fiscal 2023, which includes certain investments postponed last as a part of our spending reduction plan and payments totaling approximately $2,700,000 to satisfy obligations related to previous acquisitions. As Gary mentioned, cash efficiency continues to be a top priority for our organization in fiscal 2024.

Speaker 2

We remain focused on disciplined expense management and optimization of working capital. And importantly, our fiscal 2024 guidance continues to assume no borrowings under our credit agreement. With that, Operator, we'd now like to open the call to questions.

Operator

Thank Our first question is coming from Brooks O'Neil from Lake Street Capital Markets. Your line is now live.

Speaker 3

Good morning. Thank you for all that detail. I'll try to limit myself as you expect. First, Can you give us any color at all with regard to the market response to SurVeil that has been seen so far?

Speaker 1

It's very early innings and we chatted with The team last week at the ISED meeting, they're excited, but it's really early innings. So we don't have that feedback loop What I will say was exciting to see at least the social media post of the first patients treated. And Brooks, remember, we also our job here is to really respond to Abbott's demand and support them with whatever materials they know. So I'm sure we'll be hearing more in the weeks to come after this early innings period.

Speaker 3

Sure. That makes sense to me. Okay. The second question I have is, obviously, you and Tim provided a lot of detail about The clinical superiority of some of the new products and in particular Pounce, maybe Tim can help us think about what the commercial impact of new products and growth for Pounce Is likely to be in terms of maybe the number of products that you're offering to the marketplace and maybe the price points of some of the newer products and how that might impact performance for you guys this year?

Speaker 1

Yes. And I'll turn it over to Tim. Just to calibrate a little bit, products like Pounds LP and the Sublime microcatheters are in limited market evaluation right now. So the launch window of those is the second half of the year. And like anything that's Pre commercial, we want to be very careful of what when we trigger that full commercial revenue stream.

Speaker 1

But right now, we're excited with how the limited

Speaker 2

Right. Thank you, Gary. Brooks, as I mentioned on the call, we have at least $14,000,000 of total product revenue coming from the likes of Paltz, SurVeil and Sublime in fiscal 2024. So we just raised that from $13,500,000 as you can imagine. It's a combination of factors including pounds but as well as SurVeil.

Speaker 2

The guidance we provided does reflect a modest amount of revenue coming from the introduction of new products once they follow limited market evaluations, I would say more towards the second half of fiscal twenty twenty four. You'd asked about The selling prices, we'll remain somewhat silent here on Pounds Venus. We'll talk more about that as we get that into the market. But As you can imagine, these products run have ASPs from a market perspective competitive offerings anywhere from about $2,500 per unit to about $4,000 $4,000 plus per unit. You can imagine Our Pounce technology given our value proposition is on the upper end of that range.

Speaker 3

Great. That's very helpful. Thank you very much.

Speaker 2

You're welcome.

Operator

Thank you. Our next question is coming from Mike Matson from Needham and Company. Your line is now live.

Speaker 4

Yes, thanks. So just wanted to ask one on pound cell piece. So can you maybe just talk about The size of the market opportunity, I mean, how common are costs in the below the knee area? And then the degree of Competition here, I think you've said that the competitors' products don't work very well there, but maybe just talk about What options are out there other than LP?

Speaker 1

Sure. The bane of the competitors products are capital And Mike, as you go below the knee, the vessels taper towards the ankle. We are trying to ascertain the market right now. The initial feeling is it's not a huge market. But the reason for that is sometimes they just can't get there with a mechanical device, suction or otherwise.

Speaker 1

And so they revert to surgical embollectomy or lytics, right? So now if you take that potential market, I suspect it's many times larger, but I don't want to speculate as to what it is as we get our bearings on it. So what's unique about our device, It's the same techniques that they're using above the knee, right? This device is downsized and it's downsized specifically because we respect the integrity of the arterial wall. So first thing.

Speaker 1

So the reason we designed LP is you can't you don't want to shove A big honking device into very small friable tibial artery. So we specifically designed LP to get down to 2 millimeters, maintain the health of the vessel wall and pull the crud out. Other devices that and that not disparaging according to devices, but there's limitations the technology, as you're trying to suck, for example, and you're trying to suck through a much longer straw that's narrowing and tapering, It's very difficult to generate the power to remove all types of clot down there. The soft stuff will come out early, The hard stuff, not so much. And so what we're seeing is the lessons learned in the techniques above the knee are allowing that experience to just go below the knee and use the same techniques to pull out clot.

Speaker 1

And the physicians I personally talk to with this feel that it's just given them an extra arm with similar techniques. And so that's exciting. Now again, We're just into double figures on it. And as you know with my prudence, I like to see quite a few more cases before we start fist pumping. And that will be the work on tap for Q2.

Speaker 1

And then it will also allow us to understand more of

Speaker 5

Thank you.

Operator

Our next question is coming from Jim Sidoti Sidoti and Company, your line is now live.

Speaker 5

Hi, good morning. Thanks for taking the questions. First question on SurVeil. Do you expect additional orders in the 2nd fiscal quarter? And do you expect Q2 to exceed Q1 or be down from Q1 in terms of SurVeil orders?

Speaker 2

Yes, great question. Jim, I'm sure this is a question that's on a lot of folks' mind. Yes, we continue to expect SurVeil orders from Abbott throughout the fiscal year. I will say that typically, Not always, but typically, one can expect that the stocking orders will outpace the initial follow on orders. Our guidance would reflect that, meaning you would expect that Q2 would see lower orders and shipments to Abbott of SurVeil, you'll notice that our guidance reflects a sequential decline and you would be right to think that might have

Speaker 5

Okay. So and then is part of that decline also lower sales on the coatings business because of seasonality or is it primarily because of the stocking order?

Speaker 2

Yes, not really getting into a lot of specificity, but you would imagine that it's probably going to be more related to the SurVeil stocking order.

Speaker 5

Okay. And then question, your guidance for interest expense, believe it's around $3,000,000 You only reported about $400,000 in the quarter. Is that guidance, is that Minus the interest income you expect on the cash you have on hand or do you expect interest expense to pick up going forward?

Speaker 2

Interest expense will is going to remain you can almost take the 3.5% and just kind of normally distributed across the 4 quarters. So any variability that you'll see is really kind of going to be the interest income that will be generated.

Speaker 5

Okay. All right. Thank you.

Speaker 2

Yes. Thank you, Jim.

Operator

Thank you. Our next question is Mike Matson from Needham. Your line is now live.

Speaker 4

Yes, thanks. Sorry, I had a couple more questions. I had muted myself. I forgot to unmute.

Speaker 1

Wondering where you went.

Speaker 4

So on just on Sublime, you didn't call it out as a growth driver in the product category. So you give us an update there? And I'm just wondering, is this an issue of just the market for radial access I guess adoption of radial access and peripheral still not really taking off or is this some kind of competitive issue where No. Competitors now, the bigger guys are starting to offer some of those radial access products?

Speaker 1

No, that's a good point. There actually is nothing to see there. It actually I want to give the absolute detail here, but it actually met our plan in Q1. So it's just we have to get the microcatheters complete that LME and that's when you'll be hearing a lot more about it because the microcatheters will break open the market in terms of being able to get through difficult lesions from the risk. But Sublime is on track for us.

Speaker 1

Tim?

Speaker 2

Yes. Mike, I'll just add it did contribute growth in the period, but we call out the products that are driving the greatest majority of the growth and that would be of course, pounds as well as SurVeil. And keep in mind, as I mentioned, I think the earlier call from Brooks asked about ASPs, there's certainly a difference in ASPs between the offerings, which obviously has an influence this quarter in terms of the overall growth profile.

Speaker 4

Yes. Okay. That makes sense. And then I haven't dug into our model yet, but just looking at the kind of profitability results for the quarter, It seems like there's a bit of a disconnect between the strong results you had this quarter and kind of the guidance. I know you've raised the guidance some, Were there some one offs or something this quarter that I know you called out the timing of expenses a few times, but Is that just the main issue that you just had some things that just didn't hit this quarter that will kind of catch up later in the year and that's why you're expecting possibility that's sort of worsened over the next couple of quarters?

Speaker 2

Thank you for paying attention and catching that, yes. What you noticed was a decline year on year and even sequentially both in R and D and SG and A expense. As we've described in terms of the strategic objectives, you'll see that we're focused heavily this year on Driving revenue growth from the catalytic products that we've mentioned, including Pounce and Sublime. Gary and I have discussed probably over the last several quarters that we've got a pretty rich and robust pipeline of opportunities that are going through limited marketing valuations currently and we expect commercialized during the second half of the year. So as we get closer to those commercialization periods, you can expect that there would be incremental to support that.

Speaker 2

Our 3rd strategic objective is to continue to enhance and develop and introduce new products and extensions to our existing platform technologies. And that's what we're doing. So you're going to see That's mostly the timing related matters along with introduction of new products. But that's really what's driving that. I would Gary, one of the things that we probably did in Q1 was as we were focused on launching SurVeiro or helping Abbott to launch SurVeil and satisfy their demand, we put a lot of our energy and effort and focus and time on SurVeil.

Speaker 2

Now that we've successfully done that, we feel that we've got that pretty well dialed in, but we'll know more about that as we go through the next couple of quarters, we feel more confident and comfortable moving forward and accelerating some of these things that we were probably moving a little bit slower pacing a little bit slower in

Speaker 1

the 1st 13 weeks of the year. Yes, Mike. Tim hit it on the head. The year isn't divided into 4 equal quarters. And We drive the car at full speed when it's a nice freeway and then we have other things if it's a small country road, we slow it down.

Speaker 1

But as Tim said, we have 3 major product launches coming up, the Microcasta, PONCE LP and PONCE Venus. And so expect to see us Throttle up on the SG and A appropriately, not blowing up to P and L, but throttle up appropriately in the back half. And then as our R and D is really focused on these launches, so as we get back into the R and D for the things that are just slightly over the horizon that should pick up as well. So that's really what it is.

Speaker 4

Okay. Got it. Thank you.

Operator

Thank you. We've reached the end of our question and answer session. And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at

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