Good day and thank you for standing by. Welcome to the Minerva Surgical Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Caroline Corner, with Investor Relations. Please go ahead..

Thank you, operator. Welcome to Minerva's second quarter 2022 earnings call. Joining me on today's call are Dave Clapper, President and Chief Executive Officer; and Joel Jung, Chief Financial Officer. This call will provide forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding the markets in which Minerva Surgical operates, trends and expectations for Minerva's products and technology, trends and demands for Minerva's products, Minerva's expected financial performance, expenses and position in the market and outlook for fiscal year 2022, and the impact of COVID-19 and its variants on Minerva's operations and Minerva's customers' operations.

These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by the forward-looking statements.

Please review Minerva's most recent filings with the SEC, particularly the risk factors described in Minerva's quarterly report on Form 10-Q for the quarter ended June 30, 2022, which was filed on August 9, 2022, for additional information.

Any forward-looking statements provided during this call, including projections for future performance, are based on management's expectations as of today. Minerva undertakes no obligation to update these statements to reflect events that occur or circumstances that exist for today, except as required by applicable law.

Minerva's press release, the second quarter 2022 results, is available on Minerva's website, www.minervasurgical.com under the Investors section and includes additional details about Minerva's financial results. Minerva's website also has the latest SEC filings, which you are encouraged to review.

A recording of today's call will be available on Minerva's website by 5:00 p.m. Pacific Time today. With that, I will hand the call over to Dave..

one, completing the expansion of our sales and marketing team; two, signing complete product line contracts with GPOs and IDNs.

Again, almost 50% of our business is now under contract; three, increasing our installed base of controllers in both new and existing accounts; four, cross-selling our products to drive new Symphion business in established Minerva accounts and new Minerva ablation business in established Symphion accounts; and five, leveraging our DTC marketing efforts to increase consumer awareness of our products.

We have a lot of work ahead of us, but we are very excited to deliver on our mission to treat women with AUB and eliminate unnecessary hysterectomies. With that, I'll hand things over to Joel for our financial results.

Joel?.

Thanks, Dave, and good afternoon, everyone. Total revenue for the second quarter of 2022 was $13 million, an increase of $2 million over the first quarter of 2022, but a decline of 8.1% from the second quarter of 2021.

At the product level, for the quarter, Minerva ES was $5.8 million or 44% of total revenue versus $6.7 million or 48% of total revenue in the second quarter of 2021. Genesys HTA was $3.9 million or 30% of total revenue in the second quarter of 2022 versus $4.5 million or 32% of total revenue in the second quarter of 2021.

And Symphion was $3.3 million or 25% of total revenue in the second quarter of 2022 versus $2.7 million or 19% of total revenue in the second quarter of 2021. We're encouraged to see the growth of Symphion sales in the second quarter.

However, sales of our Minerva ES and Genesys HTA ablation products were both following more of the challenging market trends recently reported by our competitor. Gross margin for the second quarter of 2022 was 59.0%, up substantially from the first quarter of 2022, but below the 61.9% reported in the second quarter of 2021.

Gross margin in the second quarter of 2022 was positively impacted by the increased volume of product shipped, but negatively impacted by the product mix shift from our ablation products, Minerva ES and Genesys HTA to Symphion, which today has an overall lower gross margin.

Gross margin was also reduced by an increase in Symphion and Minerva ES controllers that were placed with customers during 2021 and the first half of 2022. We recognized depreciation expense on controllers over a three-year period, which is offset by future sales of single-use handsets over the life of the instrument.

We've historically seen customer utilization on a recently placed controller increase over time, which then has a favorable impact on gross margin with the additional sale of single-use handsets.

In sum, we predict a general gross margin improvement in the coming quarters and years through increased utilization of controllers placed with customers, fixed overhead costs being spread over a projected increase in volume of single-use handsets sold as well as future end-user pricing adjustments and cost-reduction initiatives being pursued with contract manufacturers.

Total operating expenses in the second quarter of 2022 were $12.5 million versus $20.3 million in the second quarter of 2021.

Our sales and marketing expenses increased due to the expansion of the sales force and increased spending in physician and patient outreach, and were offset by a nonrecurring $3.9 million reduction in the fair value of the estimated liability for the final acquisition-related revenue milestone payment due to Boston Scientific in early 2023.

This potential payment is tied to the net revenue earned in 2022 from the products acquired from Boston Scientific in May 2020. Additionally, general and administrative expenses as a result of the increased cost of now operating as a public company versus the prior year second quarter, where we were still a private company.

Noncash depreciation and amortization expenses included in operating expenses were approximately $2.1 million in the second quarter of 2022, unchanged from the second quarter of 2021.

Noncash stock-based compensation costs, included in total operating expenses, were $1.6 million in the second quarter of 2022, versus $4.3 million in the second quarter of 2021. Our reported net loss for the second quarter of 2022 was $5.6 million versus a net loss of $14.1 million in the second quarter of 2021.

On a non-GAAP adjusted EBITDA basis, we reported negative $4.5 million in adjusted EBITDA for the second quarter of 2022 versus a negative $3.3 million in adjusted EBITDA in the second quarter of 2021.

As a reminder, we have significant noncash expenses related to the amortization of intangibles from the May 2020 acquisition of the Genesys HTA, Symphion and Resectr assets, as well as significant noncash stock-based compensation costs in the second quarter of 2022, the positive adjustment for a reduction in fair value of the final revenue milestone payment due to Boston Scientific.

From a balance sheet perspective, we finished the quarter with $22.4 million in unrestricted cash. In total, our cash outflow for the second quarter of 2022 was $5.5 million. Our long-term liabilities were substantially unchanged from the fourth quarter of 2021, following our IPO and refinancing of our previous long-term debt facility.

And as a reminder, our $40 million long-term debt facility is interest-only through the third quarter of 2023, after which it rolls into a three-year amortization schedule. We believe our current cash position will last us well into 2023, depending on when customers return to more normalized operations and on how quickly we grow our revenues.

Moving to guidance. We continue to experience a fair amount of disruption from COVID during the first half of 2022, especially in the endometrial ablation markets, which represent a significant portion of our total revenue.

While we saw total Q2 revenue increase from the first quarter, we are experiencing a similar impact in the ablation market revenue that was reported by our primary competitor earlier this month.

While Symphion sales are showing good growth, and we believe our market share continues to expand, these product sales are not enough to offset what we perceive as a temporary decline in ablation sales on a year-over-year basis. We are thus modifying our previous full year 2022 revenue guidance to between $50 million and $53 million.

With that, I'll say thank you for your attention, and I'll turn the call back to the operator for questions and answers..

[Operator Instructions] We have a question from the line of Robert J. Marcus with JPMorgan. Please go ahead..

This is actually Rohin on for Robbie. I want to dive into the demand dynamics for Symphion versus ablation procedures a little bit more.

Specifically, why are ablation procedures still significantly more challenged than resection? I understand the logic that as patients work from home during COVID, they can better manage the symptoms and wouldn't necessarily go in for an endometrial ablation procedure given it's more elective.

And with tissue resection, there tend to be more severe cases and painful. So I understand that dynamic, but is this still the case even though COVID is largely not keeping people at home now? Or is there another dynamic at place that's more structural in nature? And then I have a follow-up..

Rohin, this is Dave Clapper. Yes, you get it. You sound just like me when I answer that question while this is down. But yes, the percentage of women, working women that are still working from home, is still very, very high.

And as you mentioned, those symptoms of abnormal uterine bleeding, if they're bleeding alone and not in pain are much easier managed when you're home than they are when you're in an office or working at whatever job that you're in. So that's the feedback that we're getting from doctors and the nurses that work with them on this topic.

So that's all we know..

And then kind of, I guess, going off of that, it seems like staffing was also kind of called out in the quarter as well as kind of a headwind to procedure volumes.

So what are you seeing in terms of the mix between staffing and then just the general COVID dynamics that you saw with Omicron kind of just hospitals being pressured? Now that, that's subsided, has staffing become more significant? Or do you see things improving sequentially?.

I think it's about even. I think -- this is David again. I think it's about even. And as difficult as it is to admit, and the feedback we get from our accounts, the staffing situation is not improving that much.

What has happened is a year or two ago, large hospitals laid off hundreds -- individual hospitals laid off hundreds of their nursing staff, OR technicians and so on. And for these people to keep bringing in a way, many of them became traveling health care providers, traveling nurses, they're called.

And these traveling nurses financially, as long as they don't mind traveling, do very, very much better financially than they do when they were working at the hospital and driving into work every day.

So now the challenge is for these hospitals to get these -- get the nursing staff to come back to the hospital at which they work before they became traveling. And many of these traveling nurses, we hear are literally driving across town. They're not getting on an airplane and traveling from New York City to St. Louis, sort of L.A.

or to Phoenix, they're literally working in a very drivable distance of their area. And none of them, if that's the case, wants to go back to their previous employer because they're making a pretty amazing increase in pay, plus many of them are getting a housing stipend along with that..

[Operator Instructions] Our next question comes from Matthew O'Brien with Piper Sandler. Please go ahead..

Just maybe to follow up on the last question, especially on Minerva, Dave. It seems like a majority of the reduction to the outlook for the year is in that category. I'm sure there's a little on HTA as well, but you had a lot of commentary upfront about the competitive dynamic right now.

So just given the competitive dynamics, given the economic environment that we're in, is the majority of the reduction for the year on the Minerva side? And then how do we think about that technology going forward because it seems like it's the best in class, but is it enough? Is it differentiated enough to take significant share going forward?.

So we believe that we are still taking share, but not at the same rate that we would be taking it if our customers weren't being fed misleading information by our largest competitor.

You can do a search for -- a simple Internet search for "NovaSure, 90%," and you'll get thousands of results, thousands of results from websites that are health care providers, GYN physician groups, ambulatory surgery centers, hospitals that are advertising for 90% of the patients that received the NovaSure treatment, their bleeding has dramatically reduced or totally eliminated.

So they're not just saying that the success rate is 90%, they're saying that if you're a patient, you read this and you say, "Wow, I could have up to a 90% chance of having my menstrual bleeding totally eliminated." It's just wrong, and that's why we're up until now have been patiently working with the FDA to get this situation fixed.

So if you're talking to a physician, and I have on many occasions, and they say, "So I've heard about this Minerva endometrial ablation device, why should I use it?" And we'll say, "Well, it's the fastest procedure.

And in addition to being new technology, not 20 years old, the amenorrhea rate, the zero bleeding rate at one year is twice as high as the older NovaSure product. 72% for Minerva, 36% according to the FDA-approved amenorrhea rate, zero bleeding rate.

And as far as success rate, the success rate with the Minerva product is FDA approved at 93% versus 77.7% for NovaSure.

And then lastly, the FDA approved hysterectomy rate for three years following follow-up with Minerva is less than 1%, and it's 6.3% for NovaSure." So for all those reasons, we think you should try or at least use or at least try Minerva.

And they say, "Well, no, I do much better than that." And we say, "Well, how do you know that?" And they say, "Well, I've been advertising it on my website for 10 years." And because there is no post-treatment diagnostic test that evaluates women's bleeding following endometrial ablation, it's vitally important that companies honestly give the facts on the efficacy results to patients and to doctors.

And that's where -- why we are really pressing the FDA to take action here. Sorry about the long answer..

No, I appreciate that. And I do have a follow-up for Joel, but just quickly on that point, Dave.

Is there a set meeting or anything else like that where they're going to review what's going on from an advertising perspective in terms of this space?.

Out of respect for our friends at the FDA, I'm not going to give out any details on meetings or schedules or anything like that. I think we should keep that confidential. But we are actively in discussions with the FDA trying to get this resolved.

I think it's appalling to me that a company would continue to represent to patients and health care providers. So Hologic actually distributed to thousands of health care providers, the website modules with this misleading information.

So it's one thing for Hologic to change their company website for the United States, although as we mentioned in the preceding that they still haven't changed their international websites. And -- so if they provided memory cards and information to all of these websites, and they have not yet changed all those.

And like I said, do a search for NovaSure 90%, you'll get thousands of results..

Okay. And then a quick question for Joel. Just you mentioned it, Joel, the cash position of the Company exiting Q2 and the burn rate here in Q2, I know that's likely going to come down, hopefully, the sales grew up in the back half.

But can you talk about that burn rate in the back half of this year? And then just how we think about the capitalization of the Company going forward?.

Sure, sure. So our burn rate does come down in the -- particularly in the fourth quarter when we have historically seen a rise in sales. And we've talked about in the past, largely a function of patients consuming all of their deductibles and copays in the first part of the year and seeking treatments more often in the second half of the year.

So the burn does come down. We are looking at our cash position pretty closely right now and considering how and when to raise some additional capital. So we're in discussions at this point with some potential funders and thinking about how to build that cash reserve a little bit more..

And I'm not seeing any further questions at this time, this does conclude today's conference call. Thank you for participating, and you may now disconnect..