Acutus Medical Inc (AFIB) 2022 Q1 法說會逐字稿

Thank you for standing by, and welcome to the Acutus Medical, Inc. First Quarter 2022 Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Caroline Corner.

Thank you, operator, welcome to Acutus' First Quarter 2022 Earnings Call. Joining me on today's call are Scott Huennekens, Chairman of Acutus' Board of Directors; and David Roman, Interim Chief Executive Officer and Chief Financial Officer.

This call will include 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. Factors that may cause results to differ from those forward-looking statements are discussed under the forward-looking statements section in the press release attached as an exhibit to Acutus' Form 8-K filed with the SEC today and are also discussed in more detail under the Risk Factors section in Acutus' most recent filings with the SEC, including the risk factors described in Acutus' Form 10-K.

Any forward-looking statements provided during this call, including projections for future performance, are based on management's expectations as of today. Acutus undertakes no obligation to update these statements, except as required by applicable law. Acutus' press release for the first quarter 2022 results is also available on the Acutus website, www.acutusmedical.com under the Investors section and includes additional details about Acutus' financial results. Acutus' website also has Acutus' SEC filings, which you are encouraged to review. A recording of today's call will be available on the Acutus website by 5:00 p.m. Pacific Time.

Now I'd like to turn the call over to Scott.

Thank you, Caroline, and good afternoon to everyone joining us today. I'm pleased to be joining the call today to share some important updates with you. I will discuss the management updates announced in conjunction with our earnings release as well as provide some perspective on our ongoing strategic review of the business.

David will cover first quarter 2022 results and key clinical and pipeline developments as well as provide further details on recent strategic transactions, including the refinancing of our debt and the definitive agreement to sell our left-heart business portfolio to Medtronic.

Starting with our CEO transition. After 5 years leading Acutus, Vince Burgess informed the Board of his intention to pursue other opportunities outside of the company. Vince has a long history with Acutus, having helped facilitate the company's Series B financing back in 2013 and has been responsible for building the portfolio and relationships that define the company today.

At this stage in Acutus' lifecycle, Vince, along with the Board decided that the company's needs were evolving, necessitating a different leadership profile. The portfolio and innovation we offer the market will always be the foundation of the company, and Vince played a major role in building this foundation.

We are grateful for it and thank Vince for his contributions to the organization and appreciate his continued engagement as he transitions to a consulting role for a limited time. The Board has initiated an active search for a full-time replacement. As we execute the search, we have asked David Roman to serve in the capacity of interim CEO. David joined Acutus about a year ago as our CFO and has been instrumental in leading last summer's secondary offering and supporting the company through its restructuring earlier this year as well as the planned sale of our left-heart access portfolio and debt financing. David will continue in his role as CFO with the full support of the Board. We appreciate David's commitment to the organization and are confident that we can execute our priorities during this transition period.

Before turning the call over to David, I will briefly update you on the strategic review that the company announced on its earnings call in March. Over the last several months, management has been working with the Board to challenge and rethink the company's strategy and establish a strong platform for long-term growth. This includes ensuring we are maximizing the value proposition for our customers with our products and their clinical utility today and in the future, sharpening our commercial focus around utilization, prioritizing our R&D and clinical investments in mapping and therapy and improving the operational performance through managing cash burn, reducing operating expenses and driving positive inflection in gross margins. And then lastly, capitalizing the business to realize our strategy.

There is a very significant unmet need in the rapidly growing EP AFib market, especially in the underserved complex patient population, where Acutus is uniquely positioned versus the competition. Our focus on this segment of the market will enable us to bring important developments and improvements to the physicians and patients we serve through enhancements to our mapping platform and integrating therapy, the introduction of therapy in the U.S. and ultimately PFA globally.

We believe this is an exciting opportunity, and we are positioning the company for category leadership. Management and the Board remains actively engaged in all of these strategic initiatives. There's more work to do, and management and the Board are pleased with the progress we have made so far as demonstrated by our encouraging start to 2022 in our financial results, the advancement of major R&D and clinical programs, execution on debt financing and the left-heart access sale.

We are all passionate about the value we can bring to our stakeholders, including physicians, patients, business development partners, employees and shareholders. I expect that we will have further updates in the coming months and we'll provide details accordingly. I'd be happy to dive into more details during the Q&A.

And will now turn the call over to David. David?

Thank you, Scott, and good afternoon, everyone. I'd like to start by thanking Vince for his mentorship and guidance over the past year. His vision for Acutus and his commitment to our customers, employees and industry partners has made us an important participant in the EP market. We have an incredibly talented organization, and I'm excited to continue to work with our teams to drive our mission forward and ensure the future success of the company.

During my remarks today, I will discuss an update on our strategic objectives, a review of our first quarter financial performance and provide some further details on the announced debt refinancing and sale of our left-heart access portfolio. On our fourth quarter earnings call, we presented 3 key priorities for our business, and I will walk through an update on each pillar.

First is to refine our R&D product development programs to those that will drive our business over the next 3 to 5 years and to defer more exploratory work. To that end, virtually all of our energies are now focused on enhancing the user experience with our mapping system via workflow improvements, improved localization and an integrating therapy, including RF ablation and pulsed-field ablation or PFA.

Earlier this week, we completed enrollment in our U.S. IDE study for AcQBlate in right atrial flutter. We continue to expect to file our PMA by the middle of this year with approval expected in early 2023. Based on the clinical and commercial trends in Europe as well as independent market research, we are very confident that bringing AcQBlate to the U.S. will improve the physician experience and accelerate our growth.

In addition, we continue to make solid progress on our PFA program and have enrolled 24 patients in our CE Mark trial. Investigators presented their first-in-human experience at the Heart Rhythm Society in April just a few weeks ago. Results showed strong safety outcomes with no adverse events and efficacy comparable to peer first-in-human studies. Enrollment in our CE Mark study is ongoing, and we will provide further details on expected approval and launch timelines in the months ahead.

Our second strategic pillar is to drive our commercial team's focus on market development and increased utilization of the AcQMap mapping system and associated therapy solutions. In the near term, we have elected to increase our resources toward driving procedure volumes and utilization. This approach is intended to facilitate and improve physician experience and increased advocacy in the clinical community with the goal of building broad-based AcQMap adoption in the complex arrhythmia population.

At the same time, we are making a conscious decision to reposition consoles in support of this strategy, which could result in limited growth in our installed base here in 2022. We ended the first quarter of 2022 with an installed base of 77 systems globally, flat on a sequential basis and up from 62 in the year ago first quarter. Throughout the first quarter of 2022, we removed 11 systems from accounts in the U.S., repositioning 8 of those into new U.S. accounts during the quarter. We also added 3 new systems to the installed base outside the United States. We continue to expect movement of consoles throughout the year, which could cause fluctuations in our installed base on a quarter-to-quarter basis. To date we've been very satisfied with the pace at which we have identified higher-value target accounts and installed systems.

As we move consoles within our fleet, there could be intermittent disruptions in procedure volumes, but we are pleased with the trajectory thus far as Q1 2022 mapping procedure volume growth accelerated on a year-over-year basis, and our comp utilization rate was the highest level since the fourth quarter of 2020. Our third pillar is to strengthen the financial position of the company and improve operational performance.

During the first quarter, we completed a restructuring that included both a reduction in force as well as tightening of discretionary expenses and working capital management. The impact of these actions should be reflected in our financial results in the second quarter of 2022, and we expect operating cash, excuse me, operating expense and cash burn to moderate throughout the year. Beyond our baseline efforts to right-size operating expenses, we have initiated several programs at improving our gross margin. This includes automation, evaluating our manufacturing processes and identifying opportunities to improve yield.

Lastly, to augment our organic initiatives, we have been working with third-party advisers to review a range of options to fund our long-term growth. The announcement of our debt refinancing and the left-heart access portfolio sale are major milestones, and I will discuss these transactions in more detail in a few moments.

Strategically, the left-heart access product line, although performing very well and growing at a healthy rate, was not being fully optimized under our ownership, given capital and human resource constraints. Our sales organization has tremendous clinical depth and experience in EP and mapping, which will remain the key focus in the future.

As we undertook our strategic assessment earlier this year, we believe that partnering with an industry leader will be the best pathway to maximize the value of our left-heart access technology in terms of both clinical and patient impact as well as commercial adoption.

With the larger distribution infrastructure, we think Medtronic will be able to bring the full benefit of this product line to physicians, patients and healthcare systems on a global scale. Overall, we see this transaction as transforming our financial outlook and enabling us to even more intensely focus on our differentiated mapping and therapy solutions.

Turning now to our first quarter results, net revenue of $3.7 million, increased 3% compared to the $3.6 million registered in the first quarter of 2021. Consistent with our expectations, growth in disposables and service and other was offset by declines in capital equipment revenue. Sales in the U.S. of $2 million grew 28% compared to the prior year's first quarter. Increased AcQMap disposable and left-heart access product sales drove U.S. performance, even with the lack of capital revenue that contributed a little over $230,000 in the first quarter of 2021.

Sales outside the United States, which include revenue through our -- distribution partner, Biotronik, were $1.7 million compared to $2 million in Q1 2021. The year-over-year decline in our OUS business was driven solely by a decrease in capital revenue as disposal sales outside the U.S. were up nearly 30%, driven by continued adoption of our mapping and ablation technologies.

AcQBlate penetration of our mapping procedures remains at 70%, and we continue to see strong performance in this product line were currently available. As is typically the case in our industry, we believe that the strong adoption outside the U.S. is a good leading indicator of what to expect when we launch AcQBlate in the U.S. next year. By product segment, disposable revenue of $3.2 million increased 37% on a year-over-year basis.

The strong performance in disposable revenue was primarily led by an increase in procedure volumes, both in the U.S. and internationally, orders associated with new installs as well as continued adoption of the AcQBlate therapy catheter and growth in left-heart access. During the quarter, mapping procedures increased 27% on a year-over-year basis, and we generated record global procedure volumes in the first quarter of 2022.

We had no capital sales during Q1 of 2022 compared to capital revenue of $1 million in the same quarter last year. Service and other revenue of $470,000 was up from $280,000 in Q1, 2021, driven by higher revenue from service contracts and console rentals. For the first quarter of 2022, non-GAAP gross margin was negative 119% compared with negative 89% in the first quarter of 2021.

The year-over-year change in our non-GAAP gross margin primarily relates to prior period recognized manufacturing variances, higher field service and freight expenses, higher depreciation associated with placed equipment and warranty and other expenses. As a reminder, for 2022, we expect to see continued pressure on our gross margin.

While increased disposal mix should help on a year-over-year basis, we will recognize manufacturing variances related to lower-than-planned volumes in prior periods, higher component and labor costs and lower yields on certain products. On a reported basis, the impact of capitalized variances will be more significant in the first half of the year. Over time, strengthening our gross margin is a top priority for us.

And as I previously mentioned, we are undertaking several work streams to address this critical driver and have included certain gross margin goals in our 2022 management incentive program. Non-GAAP operating expenses were approximately $22.7 million in the first quarter of 2022, flat compared to the same period last year. Higher SG&A related to investments in sales and marketing was offset by lower R&D expenses tied to the reprioritization of development programs.

Our non-GAAP operating expenses have been roughly flat on a sequential basis the past 7 quarters, and we expect our non-GAAP operating expenses to decline starting in Q2 of this year as we realize the benefits of our restructuring program. Excluding specified items, our non-GAAP net loss for the first quarter of 2022 was $28.5 million or $1 per share compared to a non-GAAP net loss of $27.2 million for the first quarter of 2021 or $0.97 per share. Our total cash and cash equivalents balance, including restricted stock -- cash at the end of Q1 2022 was $78.8 million.

Transitioning from Q1 results and to close out the call, I'd like to provide some further details on our announced debt refinancing, the definitive agreement to sell left-heart access portfolio as well as our outlook for the rest of the year.

Starting with our debt refinancing, in April, we received a commitment letter from Deerfield Management to refinance our existing debt with a new 5-year $35 million facility. This refinancing is expected to close in tandem with the left-heart access sale. This new facility will carry an interest rate of 11.5% and amortized starting at month 36. We also issued Deerfield Management warrant coverage of 12% with an 8-year maturity.

In addition to our planned debt refinancing, as disclosed in our 8-K filed on April 27, we entered into a definitive agreement to sell our left-heart access portfolio to Medtronic. This transaction includes 4 components that were detailed in the 8-K, and I will summarize those further today. First is a $50 million payment upon closing of the transaction, subject to customary closing conditions and the refinancing of our outstanding debt.

Second is a $20 million contingent consideration earn-out once we become qualified as a preferred OEM supplier for Medtronic. Once we achieve OEM qualification, we will start supplying Medtronic with finished goods product as governed by a distribution agreement. Under this agreement, we will manufacture products for Medtronic for a period of up to 4 years out of our Carlsbad facility.

Third is a $17 million contingent consideration earn-out when we file for EU MDR, assuming this occurs within 15 months of the first closing. This earn-out will be reduced to $13 million if the filing takes place after the 15-month period. We expect to achieve both the OEM qualification and submission for EU MDR milestones within the first year following closing of the deal.

The last component of the transaction encompasses revenue-based earn-out payments that commence after OEM qualification is achieved and the product line is transitioned over to Medtronic's global commercial organization. These earn-outs continue for 4 years post that commercialization handoff and are calculated at 100% of sales in year 1, 75% of sales in year 2 and 50% of sales in both years 3 and 4.

To give you some parameters to update your models, we estimate that procedures utilizing left-heart access products approximate 800,000 annually, growing at a low double-digit rate. Including both septal crossing devices and access sheaths, the market is estimated at $1 billion globally. One way to assess the impact of revenue-based earn-out on our future cash flows is to start with our current market share of less than 1% and make a series of assumptions around the share that Medtronic could possibly achieve in each year of the earn-out period.

Overall, when assessing both the strategic and financial factors of this transaction, we see this as a tremendously positive win-win outcome for both companies for our customers and the patients they serve as well as healthcare systems globally. We look forward to working with and supporting Medtronic in the future.

Finally, for the full year of 2022, our business has been tracking in line with our plan that we shared with you on our last call for revenue to be flat to slightly up compared to the $17.3 million in revenue generated last year. As a reminder, this outlook did not contemplate the sale of our left-heart access business or any other potential strategic activity. On a comparable basis, we see nothing that changes our outlook at this time and continue to expect growth in procedure volumes and disposable revenue to be offset by declines in capital.

Taking into consideration the announced sale of our left-heart access portfolio, a key variable will be when Medtronic takes over commercial distribution. This will depend on the OEM qualification process that I discussed earlier. In addition to the planned sale of our left-heart access portfolio, a significant move in FX, already a $400,000 headwind to the rest of the year represents another variable to our revenue outlook.

When putting these factors together and assuming that we transition distribution to Medtronic in Q4 of this calendar year as well as ongoing trends in our business, we do not expect a material change in our outlook. Once we close the transaction with Medtronic and have greater visibility into the timing of distribution transfer, we will provide further updates. We appreciate your continued interest and support.

And I will now turn the call back to the operator to facilitate our Q&A session. Operator?

(Operator Instructions) Your first question comes from Robbie Marcus with JPMorgan.

This is actually Lilia for Robbie today. Maybe first, if you could just talk a little bit about the cadence for the rest of the year? I know there's a lot of moving pieces here, pulling out of unproductive accounts selling the transseptal portfolio. So how should we be thinking about revenues progressing across both capital and disposable over the next few quarters?

Sure, so just to start with Q1, as I mentioned on the call, we did not generate any capital revenue in Q1. We would expect capital sales to build throughout the year with the largest contribution in Q4. Remember, the way we put capital into service is we play systems into new accounts under an evaluation. That evaluation normally takes anywhere from 3 to 12 months depending on the account, the number of physicians they have, et cetera.

At the end of that evaluation period is when we look to convert that into a permanent placement. And that could come in the form of a cash sale, some sort of catheter utilization commitments for multiyear disposable purchases or rental. So if you look at Q1, we pulled -- out 11 consoles in the U.S. and put 8 new ones back into service. It's very unlikely that any of those 8 consoles would convert to a permanent place in a capital sale before the third quarter of this year.

If you look outside the U.S. -- where there are fewer movements in our installed base, we would expect to see some contribution from capital in Q2 and Q3 and Q4 as well as some capital to our partner, Biotronik. So on the capital side, you should expect Q4 to be disproportionately larger than the rest of the year, which, as you know, is pretty typically from a seasonal pattern here in the U.S.

On the disposable side, we had a really nice start to the year, the $3.7 million that we generated in Q1 was ahead of the expectations that we had shared with you in late March as we installed some -- a few new consoles at the end of the quarter that had its stocking orders. But we are mostly watching procedure volumes. And then as I said, we had -- we've generated the highest number of procedure volumes ever for the company.

You'll obviously see seasonal fluctuations in procedure volumes, but we would expect disposal revenue to be -- to follow kind of your normal seasonal pattern in medtech with, again, a good amount of our base business weighted into the fourth quarter. So if I kind of look at and, you put another way where consensus number, sit I don't want to get into the habit of commenting on consensus.

But given the number of variables at play here with our base business as well as this announced transaction, we're generally comfortable with the range of consensus that sits out there today and the cadence that's reflected currently.

Great, that's really helpful. Maybe just a follow-up on that if you could talk about what the COVID environment looks like right now and whether that's been a headwind to driving adoption, particularly in -- on the system side, just given the comments we've heard from some of your peers about the challenges of driving capital equipment sales right now?

Yes, it's a great question, and it feels like a topic that we're not going to stop talking about. As we've talked about in the past, COVID had a pretty significant impact on our business at the time of launch when we entered the U.S. in February of 2020. There obviously were 2 impacts that COVID had on the company. One was the direct impact of canceled elective procedure volumes as well as the lab access and other hospital-based restrictions.

There's also been a kind of derivative impact, which is, as physicians have returned to do -- to normal case volumes. They are working through a pretty significant backlog and the preference has been to sort of favor more familiar technologies that allows them to treat patients and move through that backlog. At the same time, we have experienced hospitals that have put moratoriums on new technology assessments.

I would say most of those factors, both the direct and indirect factors with COVID are fading. I think we'd all like to say and be able to predict when exactly will return to a normal pre-COVID environment, and we're not there yet. But as we kind of look at where we are today compared to maybe entering the year with Omicron or the second half of last year with the Delta variant, we would say on the margin, the COVID-related headwinds are moderating from what we had seen.

Your next question comes from Amit Hazan with Goldman Sachs.

This is Phil on for Amit. A lot of moving parts on kind of the capital structure standpoint. I was just hoping you can give us maybe an update on where your cash position post the closing of the Medtronic agreement is going to put you in terms of kind of how long that cash on hand is going to be able to last?

Yes so a big variable there, Phil, will be the magnitude and size of the tail of the transaction, meaning the revenue-based earn-outs. As we look at our model today and reflect the restructuring that we've undertaken, at fair minimum, our current cash outlook puts us at the end of 2024.

We are actively working on a number of initiatives to extend that cash runway with an objective to have this cash last at least 3 years from the closing of the transaction, which we would expect to happen kind of mid -- late June, early July, depending on HSR review. So I would say in a base case at the end of 2024 with a number of opportunities to extend that for 3 years, it would put us towards kind of the middle of 2025.

Okay, that's very helpful. And I recollect, I think the right flutter approval in the U.S. was going to kind of be the key catalyst to reaccelerating the commercial business in the U.S. Can you remind us of kind of the strategic plan for when you're going to hit the accelerator in the U.S.? And if you can affirm that the midyear submission -- PMA submission for right flutter would kind of imply an early '23 approval?

That's exactly right, Phil. So we completed enrollment actually yesterday for the 110 patients in the study. It's a 30-day follow-up. So we'll follow up that last patient in mid-June, and we are ready to file very shortly thereafter. Once we file, it does kick off a 180-day PMA review clock. So depending on any questions back and forth at the FDA, we are planning on a early 2023 entrants to the U.S.

And as we think about the accelerating of growth, that is a major catalyst. And if we just use the European experience as a reflection of that, 70% of our procedures today in Europe are using AcQBlate. And actually, in 14 of our 20 accounts in our direct business -- so 70% of them are using AcQBlate in more than 80% of their procedures. So we think the opportunity here is quite significant.

And as we reflect on the feedback we've gotten from third-party market research as well as our field team, the ablation catheter is critical to a number of factors that should help adoption in the U.S., one of which is being workflow and the other is adding an additional opportunity of anywhere from $2,000 to $3,000 per case from a financial standpoint.

That's really helpful, David. And any other key products that you're looking to for kind of approval to supplement the FORCE catheter that are going to be kind of critical to U.S. adoption?

Yes so there are -- in terms of -- that is the #1 disposal product. We have several software releases underway right now. We launched a product that we call AcQMap 8 last summer that had the automated region of interest binder that help physicians better identify where to ablate particularly in these complex patients and regions outside the pulmonary vein.

We have a number of software launches planned over the next 18 months that will further improve the anatomy build of -- on the system, which is important to catheter localization as well as just overall enhancements of the workflow. And if -- that is one of the key areas of feedback we continue to hear is the need to advance the workflow to look more like something that is familiar to physicians and those software enhancements will get us there.

And lastly, we have initiated a program to upgrade our console to with magnetic-based localization. That is a project that is ongoing here, and we would expect to have approval for that toward the end of '23 or early '24. So the way we think about our growth is you think about 2022 as a bit of a transition year where we right-sized our installed base. We refine our value proposition, ensure making the right investments in the business.

In 2023, we launched AcQBlate in the U.S., which is a source of accelerated growth. We complement that with software enhancements. And then as we roll into 2024, you have magnetics will have likely a PSA already launched in Europe and be in the midst of a PSA IDE trial in the U.S. So that's our conceptual thinking about the next several years.

Your next question comes from Brandon Vazquez with William Blair.

David, just one starting on a high level, you're sitting in the CEO seat now the company has gone through, probably, I'd say, kind of commercial tweaks or commercial strategy changes over the past year or so. How do you see as you're kind of sitting in the seat for a little bit now? Do you need any other tweaks to the commercial strategy or is this just a matter now of going out there and executing?

It's a great question, Brandon. I would say, under 24 hours into the assignment. But I would say our commercial strategy is moving in the right direction. The decision that we made to really hone in on utilization and procedure volume growth is starting to show up in our results. And as importantly and perhaps more importantly, it is helping us drive depth of adoption and increased advocacy and familiarity with AcQMap among our customers.

We know that we're not going to build a huge and successful foundation for this company over multiple hundreds of accounts doing 1 procedure a month. We need to ultimately build a strong foundation that has a selected group of key users. And as we enhance our technology and bring key new products to market, we can expand our user base as we kind of knock off some of the key barriers to adoption that we've experienced.

So I think the commercial organization and their strategy is very much headed in the right direction. I am going to take the next kind of 30 to 45 days and work with the Board to kind of round out our overall strategic assessment of the business. I think we need to continue to look at our cost structure and whether we need to further right-size any of our investments to reflect our current opportunity set.

And to make sure that we're positioned to be able to extend our cash runway and make the necessary investments to make this partnership with Medtronic successful as well as continuing to make our partnership with Biotronik and other successful. So I'll be spending in the next month, 1.5 months on the road, meeting customers, spending time with our teams as well as continuing to work with some of our outside advisers to put those plans together, and we'll have more to share in August.

I appreciate you opining on it with only 24 hours in, that's helpful color. Maybe -- and as a second question, can you talk a little bit about -- you're looking at your accounts now and there were -- I think if I had the number correctly, 11 of accounts within the U.S. that you removed systems from you place them into 8 accounts outside of just the accounts were not getting utilization?

Can you compare and contrast where those systems are going to? What are the physicians like why are you choosing these new accounts? And what makes you confident that those can be accounts to drive volume going forward?

Yes, it's a great question. So let me walk you through, Brandon, kind of how we thought about which consoles to reposition and where to put them. So as you may remember, on the last call, we talked about the reorganization of our commercial team into geographic pods where we were trying to cluster our consoles, our field team members and so that we could drive depth of adoption as well as limit some of the geographic challenges we face with case coverage.

One example is that we used to have our New York Map covering cases in Kansas City, which is not a great setup. So we hired a rockstar mapper to go relocate to Kansas City to cover a major account there as well as be a kind of nucleus for building out in that region. So as we look at kind of the map of the U.S., we look at where our consoles where we're placed.

We looked at the average utilization and we identify where there was mismatches in certain areas of the country where we didn't have Acutus personnel or the accounts didn't have sufficient volume and sufficient focus on complex patients. And we did make the tough decision to pull out the console. And in some cases, the physician champion had left.

As we put the 8 consoles back into service this quarter, every single one of them fell into one of our dedicated geographic regions with a large number of them going into the Southern California area, which is one of our strongest territories from a commercial execution standpoint and the rest being placed both in the central region and then continuing to optimize our installed base on the East Coast.

So putting consoles in the right place with the right coverage to set us up for success was a key identifying factor in where these new consoles went. And the other is we are taking a much harder look at the volume of complex ablations in those accounts and the commitment of the physicians to treating those patients. As you -- if you look back at some of the accounts where you had previously put consoles, there was sort of a focus at kind of building a workhorse system.

But as we've had the console in service, it's become very clear that our true value proposition and where no one else is as uniquely focused is in that complex patient population, with just for reference, we estimate is about 35% to 40% of the treated population. So it's a huge opportunity, and we're focusing our physician identification and account targeting around those procedure volumes.

Your next question comes from Marie Thibault with BTIG.

David, I wanted to ask a question here on the left-heart access portfolio. And sort of what's going on right now in the few weeks before the Medtronic deal closes. Has there been disruption in that sales force? What is morale like given there's been kind of restructuring at the company?

And I guess, most importantly, maybe, are customers who like the left-heart access products, are they still able to get access to that? Is that still being sold or do they need to wait until they meet with the Medtronic rep?

Yes, great question Marie. So let me talk through each of those. So our left-heart access business in the first quarter did incredibly well. And obviously, we had not announced the deal at that point in time. We have seen continued momentum in that business here through the second quarter with the approval to the FDA clearance of our WATCHMAN compatible sheath, and as well as some other product launches and continued just strong commercial execution in the field.

On our sales force, one of the challenges that we face, we don't really have a dedicated sales force selling this product. Our account reps carry left-heart access portfolio as part of their overall responsibilities. So as we thought about the strategic orientation of the business really honing in on mapping and therapy, we really, over time, want to be able to shift those individuals focus more toward mapping and therapy and enable -- and partner with Medtronic on distributing the left-heart access portfolio.

So the constructs of the deal really allows for completely uninterrupted supply of this product to customers. That was one of the reasons we went down the path that we did in this transaction is we will continue to sell the left-heart access product now just as we did before April 27 until the first closing of the deal occurs when the first closing occurs, which will likely be late June or early July, depending on HSR.

We will continue to actually sell the products and manufacture the product until we become a preferred OEM supplier to Medtronic, which will take place at some point later this year. And at that point in time, Medtronic will take over distribution, and -- we will manufacture under the terms that govern our distribution agreement.

So over this entire year and through this transition, there should be absolutely no disruption in product supply to our customers, and we will continue to generate revenue on the product until the distribution transfer occurs later this year.

Okay that's really good to hear. And I guess I would ask kind of a follow-up to Brandon's question. I heard you loud and clear on kind of the pod -- strategy in the U.S. and making sure that you have the proper coverage on some of these new systems. But what about the 3 new systems you placed outside the U.S., is there any difference?

It sounds like certainly getting more utilization with the AcQBlate. Would you say that those placements maybe turn into sales a shorter evaluation period or perhaps a more high-quality placement any way to characterize any difference there?

Yes so it's a great question. So the evaluation periods in Europe tend to be pretty similar to what we see in the U.S. A number of those consoles that went in outside the U.S., 3 of them -- actually, all of them went in as rentals to Biotronik. So as they pay rent on consoles when they first install them. And sometimes we do work with them to convert those rentals to capital sales, but that's not contemplated in our thinking right now.

As I kind of look at Europe, we've been very successful at growing the business there while having a more modest growth in the installed base. If you look in Europe, our installed base, including Biotronik was 21 at the end of 2020 and then 35 at the end of last year and then 36 here in the first quarter of 2022. But our utilization rates have continued to increase fairly significantly.

Then obviously, we have the revenue contribution from AcQBlate as well that's further bolstered those accounts. And we would expect a very similar trend going forward where we have targeted ads in Europe that drives growth in our installed base, and that really comes with growth in the installed base, coupled with growth in - both same-store and new user utilization. Now the last thing I'd point out on Europe is to, remember, it's a very different market construct in the U.S.

Whereas the U.S. is populated with a tremendous number of community hospitals and you have EP ablation and cath labs that are sometimes multiples across a ton of different hospitals. In Europe, it's a much more concentrated user base. So you should not expect to see our installed base grow outside the U.S. at the same rate that we have here in the U.S., partly because of just market dynamics.

Your next question comes from Bill Plovanic with Canaccord.

Great first is just on -- you announced the restructuring back in January, executed on that. At this point, have you completed that restructuring? Should we expect to see any more changes to the commercial organization? And then do we expect any charges in the next couple of quarters that are kind of tails off of what -- the changes that were made? That's the first part of my question?

Sure, Bill. So that restructuring is behind us. We announced that in January, middle of January, the WARN Act notification period was complete in March. We did take about a $949,000 charge in Q1 for restructuring expenses. Based on the geographic location of some of those individuals, there will be kind of a trickle-through of some additional charges here in Q2 for as well as just the timing of some different matters with respect to employment contracts.

We're watching our budget and every dollar very, very carefully. And we are continuously reviewing our cash burn internally and with our Board of Directors. And as we kind of complete the strategic review that we announced in March, we may look to further reallocate resources across the company to ensure that we're putting our dollars in the most productive places possible. In terms of large charges, you can imagine that there will be expenses associated with CEO transition, but I think the bulk of that was with respect to restructuring was recognized in Q1.

Okay. And then one of the comments you made was just you increased resources to drive U.S. I was wondering if you could give us a little color on that. I think you gave the example of maybe in a map or in Kansas City. But were there other kind of changes to the field force, it sounds like you're increasing as you continue to concentrate?

We're not increasing. We are -- I'll give you 2 examples. So we had 2 individuals who are previously solely dedicated to national accounts and really capital sales. Those individuals now have taken on hybrid roles has been the organization. One is serving as a regional business director here in selling California.

In addition to his responsibilities for national accounts as well as capital and another individual based in the Midwest, who's also kind of double hitting with respect to national accounts and capital as well as some field-based initiatives. Now previously, those 2 individuals were solely focused on trying to place and convert capital, but we are very conscious of the need to be efficient with our teams and take advantage of the fact that we have a really strong field force.

And point their focus in the direction that we think will produce the best returns for the company as well as our customers and patients. So in that example, those 2 individuals remain responsible for national accounts as well as capital, but have taken on additional responsibility of individual account coverage. We are also looking at some of our mappers do have the capability to serve in sales capacity in addition to being a clinical support specialist.

So we're asking those individuals to also take on that additional role of driving procedure adoption as well as disposable sales. So my comments tended really to continue to reiterate our view that at least for 2022, that's where we're going to place the majority of our resources versus just growing the installed base for the sake of growing the installed base.

And then my last question is just we've kind of heard about this contrast media shortage in rationing that's starting to happen, and we've seen some examples. But what if -- if you just give us any color if you've seen anything related to this or if this is having an impact on you at all?

So we have taken some time to look into that. We have not seen any impact. The vast majority of EP procedures to use floral I'll remind you that I know the shortage has really been one company in particular, putting out a public notice about shortage. There are 5 other fairly large and well-capitalized companies in that space. So we do see a diversity of suppliers. And there also are a number of well tested and well-proven ways that hospitals can work to extend the use of supply of that contrast media. But to date, we have not heard any feedback on that from our customers or our field team.

(Operator Instructions) Next question is from Javier Fonseca with Spartan Capital.

A quick question. So following through with the cost claim announced earlier in the year, especially within the lines of manufacturing where do you expect gross margins to be less at the beginning of 2023. And do you -- should investors expect to see an improvement beyond 2022?

Yes it's a great question, Javier and an area that does require a significant amount of focus from us. So our gross margin, we expect to improve throughout the course of 2022. We have previously said that to be a gross margin breakeven, we have to generate about $8 million a quarter in revenue.

As we think of -- that assumes no changes in our cost structure, improvements in yields, improvements in manufacturing process or the implementation of automation. So that is our baseline view as we sit here today. As we look at 2023, we would expect to see gross margins firm positive during 2023, not yet ready to give any more color around next year, but we -- you should sort of model a progressive improvement sequentially in gross margins.

And as you think about your revenue for 2023, you can start by trying to match up that $8 million in quarterly run rate to turn positive as you think about your forecast. We are -- as you can imagine, because we are fully vertically integrated, we do have an opportunity to look very closely at our cost structure. It is something that requires much greater attention -- and we will have a comprehensive gross margin improvement initiative complete before the next call, and we'll be ready to share more details at that point in time.

And just a quick follow-up question since you touched on revenue. So earlier, I was mentioning, we expect a 30% to 35% increase in disposal revenue for 2022. Do you see any specific drivers for this increase in disposal revenue going past 2022 since on the topic of, okay, we're already halfway through the year? What investors are expecting and long-term?

Sure. So the 30% to 35% that we had given in March, that was disposal revenue and that did not include the expected sale of our left card access portfolio or any weakening -- excuse me, strengthening of the U.S. dollar, which does represent a pretty decent headwind to our OUS business. On a like-for-like basis, we still very much expect 30% to 35% underlying growth in our disposals this year.

As you turn to next year, that should represent a pretty decent inflection point as we bring AcQBlate to the U.S. I mean one way just to think about it is if we didn't grow procedure volumes at all in the U.S. and you had the same contribution from AcQBlate that we saw outside the U.S. in volumes and apply to U.S. ASP, you would see a several million dollar increase in our revenue base.

What I'd layer on top of that is in accounts where we had AcQBlate launched in Europe, we do see higher levels of utilization. So if I combine high utilization with increased adoption of our ablation catheter driving higher revenue per case, you should see growth in the business pick up in 2023.

And ladies and gentlemen, this concludes our Q&A session and program for today. We thank you for participating, and you may now disconnect. Everyone, have a great day.