Allurion Technologies Q4 2023 Earnings Call Transcript

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March 21, 2024

There are 8 speakers on the call.

Operator

Good morning and thank you all for joining us today. Earlier today, Allergan Technologies Incorporated issued a press release announcing financial results for the quarter ended December 31, 2023 and describing the company's recent business highlights. You can access a copy of the announcement on the company's website at www.investors.

Speaker 1

Alerione.com.

Operator

With me on the call today are Shantanu Ghore, Founder and Chief Executive Officer and Chris Geberth, Chief Financial Officer. Shantanu will begin the call by discussing the quarter's business and operational highlights. Chris will then provide a review of our financial results, and we will close the call with a question and answer session. Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the financial outlook for 2024, the market and demand for our products and elective procedures, the impact of cost reduction initiatives on cash burn and runway, and the ability to compete with GLP-one drugs or use the Elerion program in combination with GLP-one drugs. Actual results may differ materially from those expressed or implied as a result of certain These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our most recent 10 Q filed on November 14, 2023.

Operator

Our SEC filings can be found through our company website at investors. Alerion.com or the SEC's website. Investors are cautioned not to place undue reliance on such forward looking statements, and Alerion undertakes no obligation to publicly update or release any revision to these forward looking statements. Please note that this conference call is being recorded and will be available for audio replay on our website at allurion.com under the Events and Presentations section on our Investor Relations page shortly after the conclusion of this call. Today's press release and supplementary financial data tables have been posted to our website.

Operator

And with that, I will turn it over to Shantanu.

Speaker 2

Thank you, Mike, and good morning, everyone. Revenue in the Q4 of 2023 totaled $8,200,000 and revenue for the full year 2023 totaled 50 $3,500,000 in line with our pre announcement in early January. While our 4th quarter results reflected macroeconomic headwinds in certain markets leading to what we believe were temporarily lower reorder rates as distributors and certain accounts adjusted their inventory levels. These markets appear to be stabilizing and we are seeing improving demand. Our global market checks affirm our expectation that we will see continued improvement throughout 2024.

Speaker 2

Given this, we are guiding revenue in the range of $60,000,000 to $65,000,000 representing growth of 13% to 23%. Notably, for the full year 2023, procedural volume, which we estimate through new app user data, increased by 30% compared to 2022. This growth showed strong consumer demand for the Alerion program, which despite significant reductions in overall marketing spend, we expect to continue in 2024. In addition, we recently completed strategic cost reduction initiatives, rightsizing our business ahead of a pivotal 2024. This included a reduction in force, which we expect will reduce our cash burn to approximately $30,000,000 for the full year.

Speaker 2

These actions as well as our recent debt pay down are intended to increase our operational and flexibility, position the company to navigate an evolving economic landscape and extend our financial runway for sustained future growth. Chris will provide additional details on our Q4 performance and our outlook in a moment, but I would like to provide additional details on our most important near term initiatives. The ADASI FDA trial, our post market clinical pipeline, capitalizing on the increased market opportunity we believe GLP-1s provide and the expansion of the Allurion Virtual Care Suite as a B2B SaaS offering. As I reflect on Allurion's 4th quarter, only our Q2 as a publicly traded company, I'm proud of the milestones we have achieved in the past 12 months. In October, we completed enrollment in our Audacity trial, a randomized pivotal controlled trial designed to support a premarket approval application or PMA for the Olureon Balloon to the U.

Speaker 2

S. Food and Drug Administration. We completed enrollment 2 months ahead of schedule after receiving unprecedented interest from U. S. Subjects and the interest we observed for the Audacity study amidst the pervasive interest in GLP-1s and anti obesity medications further underscores just how massive we believe the market opportunity is.

Speaker 2

We will be providing further updates on the Audacity trial and our PMA submission on future calls. In addition, throughout 2023, we presented several scientific studies that demonstrate the transformational nature of the Allergan balloon. For example, in a 5,000 patient study, the largest gastric balloon study of its kind, results showed patients lost 14% of their total body weight 4 months after balloon ingestion. In a separate 5 22 patient study, results showed patients maintained 95 percent of their weight loss 16 months after initial balloon ingestion. Alurian is also approved for a second balloon treatment.

Speaker 2

With a 2 balloon program, the results are even more impressive. In an initial study, our patients were able to achieve 23% weight loss after 12 months. Taken together, these results underscore the significant and sustainable weight loss that can be achieved through the Alleron program without expensive surgery or drugs. Importantly, we have demonstrated the Alleron program can be used effectively in combination with GLP-one drugs. Results from 2 recent studies of more than 100 patients showed an approximately 18% weight loss in just 4 months and approximately 19% weight loss at 8 months.

Speaker 2

We also see tangible catalysts that we expect will increase the scope of the patients we are able to assist. Today, broad awareness of the Allergan program remains relatively low. Our data show that approximately 1 third of our patients previously tried GLP-1s 1s before starting on Allergan. Additionally, 45% of our surveyed healthcare providers have stated anti obesity medications boost awareness and interest in the Olerion program. While GLP-one drugs may have contributed to the short term headwinds we faced in the second half of twenty twenty three, we believe that new anti obesity medication can be a powerful driver of patient demand in the long term.

Speaker 2

Since studies show over 2 thirds of patients who have started one of these new drugs discontinued it within the 1st year, leaving them to search for a second line therapy. We believe our weight loss program is further amplified when combining the balloon therapy with Allureon's holistic behavior change program. To deliver this program at scale, we have developed a suite of digital tools, including our proprietary virtual care suite or VCS, which is an AI powered remote monitoring platform that continuously monitors patients and facilitates clinician intervention through secure messaging and telehealth. This allows patients to stay on course with their weight loss objectives. Integrated with the Allureon mobile app and connected scale, the VCS provides real time patient data, with 82% of providers reporting higher patient engagement, 87% reporting increased patient accountability, and 88% reporting improved efficiencies in their practice.

Speaker 2

The program comprises over 100 of modules covering topics such as healthy eating, exercise, sleep, and stress management. These modules are delivered to patients throughout their balloon journey, providing comprehensive support for sustained lifestyle changes. With last year's introduction of Coach Iris, a personalized AI powered 20 fourseven weight loss coach, we are now seeing even better results throughout a patient's weight loss journey and are happy to report that in app sessions for the platform are up over 60% year over year with over 4,100,000 total app sessions in 2023. To support this growth, we have begun to commercialize our digital platform with a B2B SaaS model that calls upon large weight loss clinics in need of a solution to manage high volumes of patients. In January, we announced 3 exciting commercial agreements with Weight Doctors, Germany's largest weight loss clinic chain with 12 locations and more than 2,000 patients already onboarded onto the VCS Transform, the UK's largest aesthetic and weight loss clinic chain with 16 locations and Lazio, France's largest aesthetic and weight loss clinic with 135 locations, all of which signed for 2024.

Speaker 2

Turning to the long term opportunity, obesity is a massive worldwide epidemic. The growing prominence of GLP-one drugs is a strong indicator of just how large the market for weight loss solutions is, with analysts projecting $50,000,000,000 of revenue by 2,030. We continue to be excited about the buzz that GLP-one drugs are bringing to weight loss therapies, creating interest among patients to seek medical weight loss options and driving more patients toward the ILLINOIS program. Bottom line, we believe we are just scratching the surface of this massive obesity market. With that, I'd like to turn the call over to Chris Geber, Allurian's Chief Financial Officer, for a full review of our financials.

Speaker 3

Chris?

Speaker 4

Thank you, Shantanu, and thank you all for joining the call today. 4th quarter revenue totaled $8,200,000 a decrease of 57% from the Q4 of 2022 as we shifted our marketing spend to more efficient channels, saw deeper penetration in key markets and focused on reducing our channel inventory from earlier in the year. Gross margins in the quarter were 78% compared to 79% the same period a year ago. Sales and marketing expenses of $10,700,000 decreased by $4,200,000 or 28% for the quarter, driven largely by reductions in spending as we shifted our focus to reducing cash burn. Research and development expenses increased by $339,000 to $6,100,000 in the quarter as we continue to invest in the FDA Audacity trial.

Speaker 4

General and administrative expenses of $15,400,000 increased by $10,700,000 driven by $7,000,000 in accounts receivable reserves and $3,000,000 in stock based compensation and public company expenses. Wallstorm operations for the Q4 increased by $15,600,000 to $25,700,000 compared to 10,100,000 dollars in the same period in 2022. The increase in loss from operations was driven by $9,000,000 less gross margin due to lower revenue and increased accounts receivable reserves and stock compensation expense, partially offset by a reduction in sales and marketing expenses. As of December 31, 2023, we had cash and cash equivalents of $38,000,000 an increase of $30,400,000 from December 31, 2022 as a result of the completion of the business combination with continued help in August 23 and partial pay down of debt in December 2023. Revenue for the full year ended December 31, 2023 was $53,500,000 compared to $64,200,000 in 2022.

Speaker 4

As previously discussed, Aurion's business combination with compute help flows later than planned and as a result, we delayed sales and marketing initiatives during the year. We began to reinvest in the middle of Q3 and we believe that those investments will lead to procedural volume growth in future quarters. With that, I would like to turn the call back to Shantanu for some final thoughts before we begin the questions and answers portions of the call.

Speaker 2

Thank you, Chris. I expect 2024, the 15 year anniversary of Allureon's founding, to be a pivotal year for the company. Earlier this month, in a study published in Lancet, researchers concluded that over 1,000,000,000 people or 1 eighth of the global population now suffer from obesity.

Speaker 3

This is

Speaker 2

a stark reminder of how much opportunity lies ahead of us. We have launched several exciting initiatives to expand distribution of the Allergan program globally, advance our artificial intelligence platform, and most importantly, improve patient outcomes. More recently, we have taken the steps we believe are necessary to set our business up for long term success and sustainability. We are entering 2024 with a solid foundation in pursuit of our mission to end obesity around the world. With that, I would like to begin the questions and answers portion of the call.

Speaker 2

Operator, please open the call for questions.

Speaker 5

Your first question comes from the line of Matt Taylor from Jefferies. Please go ahead.

Speaker 3

Hi, good morning. Thanks for taking the question. I wanted to, I guess, start with a question on Q1 and phasing given the Q1 is almost over. Could you talk a little bit about the trends that you're seeing in Q1 and relative to your $60,000,000 to $65,000,000 guidance for the year, how do you expect that to land through the year?

Speaker 1

Yes. Thanks for the question, Matt. So far in Q1, we're seeing sustained growth in new app users, which is our estimate of procedural volume, despite a significant reduction in several expenses related to marketing spend. And we're actually starting to see now some of the patients who may have churned off GLP-1s in the second half of last year reenter the funnel, similar to what's being observed in other weight loss therapies like bariatric surgery. So we expect some of the destocking that we had discussed previously to continue into Q1 and Q2 with some distributors who did not reorder at the end of last year or in Q1 beginning to reorder in Q2.

Speaker 1

So from a revenue perspective, we obviously expect Q1 because of the destocking and Q2 to be on the lighter side with increasing revenue as we move throughout the year.

Speaker 3

And can we expect that gross margins basically follow the top line, so you'd also expect gross margin improvement through the year?

Speaker 4

Sure. Hey, Matt, it's Chris Gevirt. So we expect gross margin to be between 77% and 79% for the year, but we will be able to manage that throughout each quarter and it will be a little less in Q1 and a little more in Q4, but we have scaled our operations accordingly that we can maintain a decent margin throughout the year.

Speaker 3

Got you. Maybe I'll just do one follow-up. I would like to ask more about the spending reductions and the focus on cash burn. It sounds like you're having some success there, but obviously there's a trade off as you alluded to with less marketing spending. I guess, can you talk about how you're able to try to balance those two things in terms of being able to continue to drive the top line, but also with an eye to costs and lowering the cash burn?

Speaker 1

Yes. When it comes to lowering cash burn, a lot of the initiatives that we took were around reducing the variable expenses that we have in sales support and marketing, which will ebb and flow with revenue growth or decline. We also were able to right size other departments inside the business, including our digital team, and you'll see reductions in our G and A spend as well. And so part of our commercial model, which is a mixture of DTC marketing, but also stimulating B2B organic growth at our accounts gives us a fair amount of flexibility in terms of variable expenses that we have at our disposal to turn on and off as we react to different trends in different markets around the world.

Speaker 3

Great. Thank you very much.

Speaker 5

Your next question comes from the line of Ryan Zimmerman from BTIG. Please go ahead.

Speaker 6

Good morning. Can you hear me okay?

Speaker 1

Yes, we can hear you just fine, Ryan. Good morning.

Speaker 6

Good. Thanks for taking the questions. Just follow-up, a couple of quick ones from me. As you guys think about and pursue this B2B model with some of the software programs you develop, how much of that is contemplated in the $60,000,000 to $65,000,000 this year in guidance?

Speaker 1

Right now, none of that is contemplated in the guidance. It's a relatively new form of business for us even though we have been leveraging that software to drive better and better results for our balloon patients over the past several years. On a go forward basis, we expect that the B2B SaaS business that we are building be able to serve not just balloon patients, but also patients going through bariatric surgery and GLP-one drugs. As we mentioned in the call earlier, we've just begun to sign commercial agreements related to the virtual care suite in a B2B SaaS model. And so at this time, we're really looking to experiment with that in a commercial setting, see how the data actually helps us drive better and better patient outcomes across a breadth of different weight loss options and then consider how it could actually drive top line in years to come.

Speaker 6

Okay. So reading between the lines in those comments, Shantanu, it's fair to assume it sounds like that you're not going to ramp spending would be very modest for these efforts in 2024. I just I asked that in the context of the reduction in cash burn and also kind of moderating some of the growth initiatives that you're pursuing.

Speaker 1

Yes, absolutely. One of the beauties of our digital platform and our SaaS business is that we can be highly focused and leverage all of the software that we've already built over the past several years to support our balloon patients. So a lot of that infrastructure, a lot of the technology and software and frankly, a lot of the customers that we would target, we already know very well because they're using a balloon every single day. So this is a type of business inside Allureon that can leverage a lot of what we've already built, which again will bode well for us from an expense standpoint, but also in terms of recurring revenue and gross margin, it could be a big driver in the future.

Speaker 6

Yes, certainly. And then just last one for me. If you could talk a little bit about the user base, particularly physician customers in some of the markets where you've had a lot of success. And the reason I want to ask about that is because given the dynamics we saw in the Q4 with the distributors, How did some of those high end users, some of your top users navigate the Q4? Did you see kind of binary outcomes with say the top users and the broader customer base?

Speaker 6

I'm just wondering kind of how distributors aside, what you're seeing in the end markets, particularly with some of your key customers in certain markets in the Middle East or India and so forth? And just kind of reflect on how they navigated some of the GLP headwinds?

Speaker 1

Yes, it's a great question and it really is context specific. Many of our customers today are bariatric surgeons and they certainly saw a drop in their bariatric surgery volume as GLP-1s grew in prominence in the second half of twenty twenty three. Some of our bariatric surgeons were able to pivot to more Allurion balloons over that period. Others just saw a drop of demand across the board. So their surgical volumes and their balloon volumes dropped.

Speaker 1

In other countries, it was mostly driven by macroeconomic headwinds where patients across the board were just pursuing cash procedures on a much lower basis. And so it's really context specific. It's difficult to identify any trends that would be applicable globally. But what we can say is that coming out of Q4 and the trends that we've seen so far in Q1, particularly in January February, it's clear that some of those patients who were trying GLP-1s have churned off and are now looking for other options, whether it's our balloon or bariatric surgery. And that is consistent with the growth in procedural volume that we're continuing to see as we turned into 2024.

Speaker 6

Very helpful. Thanks for taking the question.

Speaker 2

Thank you.

Speaker 5

Your next question comes from the line of Keay Nakae from Chardan Capital Markets. Please go ahead.

Speaker 7

Yes, thanks. A couple of questions. Chris, when we think about the G and A line going forward, what sort of a nominal level there you're expecting in 2024?

Speaker 4

Sure. Thanks for the question. As we look at G and A, you'll see in our press release, we estimate to get amount of bad debt we took this quarter as well as some stock comp related to the deal that will not recur in the future. So just at a high level, if you look at what I said about G and A, I would remove those items and stick to more of a trend of that $5,500,000 to $6,000,000 a quarter.

Speaker 7

Okay, great. And then in terms of VCS and the initial use of that with the clinics you announced earlier this year, Talk about maybe 2 things. 1, with those first set of clinics, what's the economics associated with that? And then what are the opportunities on some of the other territories where you're currently at to enter into similar agreements?

Speaker 1

Yes. In terms of the initial commercial agreements we've signed, those are sort of classic SaaS business agreements where clinics are paying us on a per patient per month type of model. We won't go into the pricing now because these are early stage commercial agreements. But what we are seeing is that as these clinics expand their own weight loss practices, they are expanding into bariatric surgery. They're expanding into GLP bonds.

Speaker 1

They're expanding their underlying Allergan Balloon business. And more and more patients ramp on to our software, we have an opportunity to generate potentially a significant amount of recurring revenue.

Speaker 7

And the second part of that question, the opportunities on the geographies and maybe even looking out a little further, what are the opportunities once you enter the U. S. For integrating that?

Speaker 1

Yes. We believe the opportunities abound when it comes to our B2B SaaS business. If you think about it, we have an existing base of business. We have accounts all over the globe using our balloon. Many of those accounts are going to end up using GLP-1s or introduce other weight loss therapies.

Speaker 1

So as I was mentioning earlier, we have an opportunity right in front of us with the customers that are currently using our balloon and are well known to us, Not to mention new markets like the United States where if anything compared to any of our existing markets, GLP-one usage is much higher. And therefore, there's a greater need for software like ours to help manage these patients that are coming at high volumes to seek care in these clinics. So I do believe that in the future, the digital platform, much like our balloon was several years ago, could allow us to land and expand in many of these accounts, and that may end up driving our balloon business down the road versus the other way around.

Speaker 7

Okay, great.

Speaker 5

And we have no further questions in our queue at this time. And with that, that does conclude today's conference call. Thank you for your participation and you may now disconnect.

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