Q3 2024 Earnings Summary
- Significant growth in new system placements, with 20 new placements year-to-date compared to historical rates of 6-8, and being in advanced conversations with at least 50 additional hospitals and in some form of conversation with more than 100 hospitals. This indicates strong potential for continued expansion and revenue growth.
- Expansion into operating room (OR) navigation has opened up previously inaccessible markets. The introduction of the SmartFrame OR enables the company to work with hospitals using CT scanners, significantly increasing the addressable market and potential same-store sales at existing customers. For example, a surgeon increased usage from 10-12 to 4-5 procedures per month, capturing up to 80% more volume.
- Anticipated increase in gross margins to comfortably in the 70s% on the disposable side as the company scales production at their Carlsbad facility, which should positively impact profitability.
- Slow adoption of the SmartFrame OR product: Out of 19 new activations this year, only 2 or 3 were attributed to the SmartFrame OR, indicating that adoption of the new product is limited. Additionally, only 6 or 7 of their 90 accounts currently have SmartFrame OR, suggesting slow market penetration.
- Lack of definitive guidance for 2025: When asked about expectations for 2025, the CEO stated they are "not quite prepared to get too far into 2025", which may indicate uncertainty in future performance.
- Dependence on unapproved therapies for future growth: The company's expectations for significant revenue are tied to partners' therapies that are "not commercially approved yet", and they "hope" for progression, suggesting that future growth is reliant on uncertain regulatory approvals.
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2025 Growth Prospects
Q: What are the general headwinds and tailwinds for 2025?
A: Management expects significant growth in 2025 with several tailwinds. They anticipate more surgeries due to continued use of deep brain stimulation (DBS) and Medtronic's clearance to promote asleep DBS, which should encourage more patients to undergo procedures. New indications for DBS, such as epilepsy, OCD, and severe depression, could expand the market. There's growing demand for laser therapy, as hospitals prefer procedures that allow patient discharge in under 24 hours versus 2-3 days with open resection, improving bed turnover. Progress with cell and gene therapy partners may drive meaningful revenue, with clinical trials for Parkinson's disease involving 180-220 patients each; 4-5 such studies could match the total procedures done in 2023. Additionally, they expect to be included in the Russell 2000 Index in 2025, which could act as a tailwind for the stock. -
Gross Margin Outlook
Q: How will gross margins trend with new products?
A: Management anticipates gross margins on disposables reaching 70% at scale, including cannulas for drug delivery trials. While capital equipment margins are lower at 35%-45%, as disposables revenue grows, overall margins should improve and be comfortably in the 70% range. -
New System Activations
Q: Is higher placement of new systems the new normal?
A: They expect the new normal to be in the double digits, not returning to 6-8 placements per year. They are in advanced conversations with at least 50 additional hospitals and engaged with over 100 hospitals. Expansion is aided by the ability to launch technology in operating rooms with CT scanners, overcoming previous MRI access limitations. -
Disposables Revenue Potential
Q: How is SmartFrame OR contributing to activations and disposables revenue?
A: Of the 19 activations this year, only 2 or 3 are new from SmartFrame OR. However, SmartFrame OR enables existing customers to increase usage, boosting disposables revenue. For example, at the University of Oklahoma, procedures increased from about one per month to four or five per month after adopting SmartFrame OR, significantly enhancing disposables utilization. -
SmartFrame OR Adoption
Q: How many accounts have SmartFrame OR today?
A: Currently, 6 or 7 accounts have SmartFrame OR. There are another 10 accounts in advanced discussions with hospital value analysis committees to adopt the technology.
Research analysts covering ClearPoint Neuro.