Invuity, Inc. (NASDAQ:IVTY)

Q1 2017 Earnings Conference Call

April 26, 2017 05:00 PM ET

Executives

Jamar Ismail – Westwicke Partners

Philip Sawyer – CEO

Jim Mackaness – CFO

Analysts

Richard Newitter – Leerink Partners

Rick Wise – Stifel

Charles Haff – Craig-Hallum

Matthew O’Brien – Piper Jaffray

Suraj Kalia – Northland Securities

John Godin – Lake Street Capital

Operator

Good day ladies and gentlemen, and welcome to the Invuity Incorporated Q1 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder this conference call is being recorded.

I would now like to introduce your host for today’s conference Mr. Jamar Ismail, Westwicke Partners. Sir, you may begin.

Jamar Ismail

Thank you. Good afternoon everyone, and thanks for joining us for Invuity’s first quarter results call. On the call this afternoon are President and CEO, Philip Sawyer; and Chief Financial Officer, Jim Mackaness. Earlier today Invuity released financial results for the first quarter ended March 31, 2017. I’d like to remind everyone that comments made by management and responses to questions today will include forward-looking statements. Those include statements related to Invuity’s future financial and operating results and plans for developing and marketing new products.

Forward-looking statements are based on estimates and assumptions as of today and are subject to risk and uncertainties that may cause results to differ materially from those expressed or implied by those statements. Including the risks and uncertainties described in Invuity’s filings with the SEC, the risk factors section in its annual report on Form 10-K, as well as other risk and uncertainties detailed in subsequent SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.

With that, I’d like to turn the call over to CEO, Philip Sawyer. Phil?

Philip Sawyer

Thank you, Jamar and thank you all for joining us today for our first quarter call. I’ll start the call with a brief review of some of our accomplishments, then Jim will review our financial performance and guidance and I will finish up by discussing our strategic initiatives. Finally we’ll open it up for questions.

We’ve had strong start for 2017. In the first quarter, we maintained solid revenue growth, while executing our initial launch of PhotonBlade and integrating our new Head of Sales. We’re seeing continued adoption of our unique devices that provide meaningful clinical and economic value to surgeons in hospitals.

Let me give you a brief summary of what we accomplish in Q1. Revenues in the first quarter of 2017 were 9 million, an increase of 41% over last year’s first quarter. We generated about 85% of revenue from single use product that generates high gross margin, an increase from our historical average of 80%. Total cumulative procedural volume increased to approximately 269,000 up from 162,000 this time last year. We had approximately 770 active accounts in Q1 compared to 555 in Q1 2016 and 745 last quarter.

Revenue per active account in the first quarter was $10,900 comparable to 11,000 in Q1 2016 and as expected down from 12,100 in the seasonally strong fourth quarter. Of note, disposable revenue for active account grew from 8,400 in Q1, 2016 to 9,100 in Q1 ’17. We believe that the strength in disposable sales highlights the progress we are making going deeper into our growing base of active accounts. We ended the quarter with 69 sales reps compared to 67 last quarter.

All of this has been achieved while we welcomed on board our new Head of Global Sales, Andy Sale. Andy brings with him 25 years of selling experience at world class organizations including Intuitive Surgical in Johnson and Johnson. Andy’s impact is already being felt, he’s immediately added to our bench strength by bringing on board two key lieutenants that he’s previously worked, who joined the member of our sales team and have been instrumental in our path to success.

This team up for — since the first quarter, honing our commercial strategy, assessing our strengths and weaknesses, working on our sales training programs and commission plans to deliver on our revenue growth expectations in 2017 and beyond. Our product continues to be utilized broadly and our core specialties of breast, orthopedics and spine with particular strength in breast, as a result of our significant clinical benefit, which are highlighted through our top down marketing programs. In addition we are encouraged by the traction we are seeing in our new specialties gynecology and electrophysiology.

Let me give you a quick update on progress of our expansion into gynecologic procedures through a combination of targeted selling by our reps, top down marketing programs, surgeon training and new products introduction.

During the quarter we completed Hidden Scar hysterectomy sales training and developed sales material that has been launched in the field. We also expanded on our Hidden Scar marketing program with the launch of the Hidden Scar hysterectomy patients’ education Web site. This Web site has been formally endorsed by the American Beuro of Gynecology Society. We are also continuing with surgeon training and plan to host another training session at the upcoming American College of [indiscernible] and Gynecology meeting in May. We have 90 [ph] specific products expected to launch this year, but in the meantime, we’ve made steady progress with our existing products.

I would now like to update you on the initial launch of PhotonBlade, which as a reminder is a [indiscernible] delivering directed, thoroughly cool illumination at the precise points of surgical treatment in conjunction with the Noble Energy [ph] platform that delivers tissue cutting and coagulation with minimal tissue damage.

I am pleased to report the launch of PhotonBlade is progressing according to plan. We have initially introduced PhotonBlade a key surgeon customers in breasts and electrophysiology that already routine to use our illuminated retractors in their procedures. Both specialties have been enthusiastic about the benefits of the PhotonBlade’s precision illumination.

A key point to know that they see the use of precision illumination to be complimentary to rector based stadium [ph] illumination. We have also heard positive feedback on the performance of the advanced energy for cutting with surgeons comments that is more effective than computing devices. Lastly hospitals have been positive about the ability to utilize existing generators which minimizes their capital outlay.

Overall, this strong response from surgeons and hospitals bolsters our confidence that this has the potential to be a highly disruptive device. We will be introducing the PhotonBlade at the Upcoming American Society of Breast Surgeon’s Annual Specific Conference this week. This is one of our key conferences this year and we’re excited to highlight the unique benefits of this product to these important customers. we continue to expect full launch of PhotonBlade in mid-year 2017 with material revenue impact anticipated in 2018.

Now I will turn the call over to Jim.

Jim Mackaness

Thank you, Bill. First quarter 2017 revenue $9.0 million, a 41% increase over the last year’s first quarter driven primarily but still detailed by an increase in active accounts. Active accounts grew from 555 in Q1, 2016 to 770 this first quarter, while average revenue growth of accounts remained relatively consistent at 10,900 this first quarter versus the 11,000 last year.

Turning to gross margin, gross margin was 76.7% in the first quarter up from 67.1% in the first quarter 2016. The increase was driven by a higher mix of disposable products in the quarter as well as the manufacturing efficiency tailwinds we announced with our existing products. Total [technical difficulty] spent within the first quarter was $17.3 million up from $15.9 million in Q1, 2016 and up from $16.0 million reported last quarter. The increase in OpEx was primarily driven by $1.3 million in litigation cost including the period [ph] associated with various legal actions. Excluding litigation costs, operating expenses in the first quarter were $16.1 million and in line with our prior commentary that we expect only modest increases in operating expenses in 2017.

Net loss for the quarter was $13.2 million or a loss of $0.78 per share. This includes the charge of $2.3 million related to the prepayment of our long-term loan. During the quarter we used $10.6 million in cash excluding the impact from our debt refinancing and this is down from the $12.4 million in cash usage in the first quarter of 2016.

During the quarter we signed a new debt agreement that provides us with access of up to $50 million in debt to replace our previous $15 million term loan of which we’re about to start making principle payments as well as the $7.5 million revolver which we have yet to utilize. The new facility consists of $30 million term loan divided into a $20 million tranche available today and an additional $10 million tranche available upon achievements to certain operating milestones. The term loan carries a significant lower interest rate and is interest only for the first 24 months. In addition we currently have excess to $10 million revolving credit facility to maybe increase to $20 million overtime.

At closing we drove down the initial 20 million term loan tranche and $3 million of the $10 million available under the revolver. We believe that this new facility will improves our near-term cash flow and increases our financial flexibility as we seek to progress the company towards profitability.

Turning to our forward outlook, we are maintaining our revenue guidance for 2017 of 42 million to 44 million, which represents growth of approximately 30% to 35% over 2016. As we have explained before, we expect to see repeated of the seasonality we saw in our business in 2016 with the first quarter being the slowest and the fourth quarter being the most active.

We continue to expect approximately 45% of our revenue to occur in the first half of the year with the balance in the second half. We continue to expect gross margin for the full year to be in the mid-70s. We forced against extrapolating the margin expansion we achieved in the first quarter to subsequent quarters, while there are certain cost reduction programs and volume efficiencies that will provide us with tailwinds, we’re also mindful of the nature of the impact of the introduction the PhotonBlade as it scales to higher volumes.

We remain comfortable with the size of our sales force and only anticipate modest increase in quarterly operating expenses excluding the impact to non-standard expenses. As we seek to prudently manage our capital resources and therefore we continue to expect a meaningful reduction in our cash burn compared to 2016.

At this point, I would like to turn the call back to Phil for his closing comments.

Philip Sawyer

Thanks Jim. As we progress further into 2017, our strategic focus is to take a leadership position in minimal asset surgeries unchanged. We will build in our leadership position in Intelligent Photonics as we continue on expansion into additional high value [indiscernible]. Our main focus this year is on the new product front as the successful launch of the PhotonBlade. As I mentioned, we are very optimistic about this product, it’s an innovative and potentially highly disruptive medical device that opens up a large market opportunity and addresses complimentary call points for our reps. Following a full in mid-2017, we expect significant revenues in 2018.

One of the key advantages of our technology is that we can quickly adapt our products overall to address unmet needs in the operating room. An example of this is our move to expand our presence in GYN through the end reduction of customized products to facilitate these procedures. We are continuing with the development of PhotonGuide depth [ph], a flexible customized integrated solution with a non-conductive polymer retractor and expect to launch this product in the second half of 2017. We are also preparing to launch a new conductive polymer version of the Invuity [ph] retractor, which is a current retractor for vaginal surgery. This retractor will be use with the PhotonGuide depth and also is we expected to launch in the second half of this year.

Those of you who have been following our story know that we have discussed adding tissue differentiation capabilities to our product armamentarium. I am excited to announce that we recently entered into a partnership that gives us access to an advanced florescence imaging technology for tissue differentiation. Together with our partner, we are developing an unique product offerings which will be introduce to the market as PhotonView. Our plan is to spend a net six to nine months doing market research and developing our initial commercialization plans.

Overall I am very pleased with our performance in the first quarter. Our core illumination business is performing according to plan and we are seeing encouraging trends in disposable utilization. The initial feedback on PhotonBlade has been excellent and we remain quite enthusiastic about this product.

Furthermore, our pipeline of new products continues to develop with our recent florescence imaging technology partnership. I look forward to updating you on our progress as we continue executing on our vision of improving the ability of surgeons to perform minimal access surgery through smaller and hidden insercition.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. And our first question comes from Richard Newitter from Leerink Partners. Your line is open.

Richard Newitter

I wanted to, Phil, maybe just start with the last comment you made there on the partnership with the florescence imaging capability. Can you describe exactly what you bring to the table technology wise to that partnership and what the partner brings, and how the capability will be differentiated from other visualization and kind of any kind of co-identification [ph] systems on the market?

Philip Sawyer

So I’ll give you a brief overview pertaining to your question. We have partnered with a technologically sophisticated partner and a friend called SuOptics [ph] which is the smaller company and they have developed quite elegant technology around florescence imaging and we partnered with them to customize a specific solution that we think has a lot of promise in the market. It’s come to our attention that there is a lot of clinical demand for florescence imaging technology and products that are available today. But a lot of that demand is not met by the product and the business models that have been forward and there is a real need in the market for something novel that provides the unique solutions and business model.

So we are working with our technologic partner to tweak the commercial product and offering, and anticipating market research as limited commercialization over the next few quarters as we hone our commercial plans. As we get further in that, we’ll give more guidance with respect to further timeline.

Richard Newitter

Okay and maybe just a follow-up on that. I mean, I just want to make sure I’m understanding the — you bring some sort of enhancement to their solution your unique kind of light bending capability, is that right way to think of it? Or are you kind of getting into kind of the fluorene market with them as your exclusive fluorene kind of provider?

Philip Sawyer

So we have an exclusive distribution arrangement with them, but we’re also working with them to tweak the overall solution and technology to provide an overall solution to the market, that we think will be quite novel.

Richard Newitter

Okay. Looking forward to hearing more about that. And then just on the –.

Philip Sawyer

And Rick, one more thing about that, one of the reasons we’re so excited about it is that, while it’s early in our commercialization cycle, it really completes how we’re trying to own further the breast market from pre-op into the surgery to post-op from the breast surgeon to the plastic surgeon and we started with our current illumination, we’re testing that with what we feel is quite a groundbreaking product in PhotonBlade and now this will be the third layer.

Richard Newitter

Okay, great. And just I’m not sure, if you gave the color on kind of any quarterly commentary I was on another call, but can you give us a sense as to any dynamic, especially with this seems like a very big new product kind of about to move into full launch in 2Q and PhotonBlade. Can you give us a sense as how we should be modeling the quarters? Is there anything we should be thinking of specifically, particularly on the sales line, relative to historical seasonality? Thanks.

Jim Mackaness

Rich, it’s Jim. Yeah I think at this stage, we’re obviously [indiscernible] with what’s going to happen with the PhotonBlade coming through, which is going to start showing up on the single use line item, we don’t call out specific products. I think we’re going to see at this stage because we’ve limited launch moving into more of a large scales as we said mid-year. We still anticipate seeing the seasonality which is what we referenced to so that the cadence on our revenues being 45% into the first half and the rest of the revenue falling into the second half, with fourth quarter being strongest, first quarter being weakest.

Richard Newitter

Okay. Got it. And then maybe I’ll sneak one last one in, sorry to be greedy. You had a really good first quarter, you reiterated your guidance range and I appreciate — it’s early in the year, maybe you want to stay conservative, but I don’t want to put words in your mouth, is that you trying to stay conservative, or is there anything else that we should be thinking about the suggestions when that at least come toward the middle or maybe the upper end, especially with all these new products out in front and kind a some upside in hand as if the first quarter, thanks.

Philip Sawyer

I would just say we’re quite confident in our guidance, and at this point we want to cautious and not get too far ahead of ourselves. There are a lot of very positive dynamics that we’ve been telling you about, but we just don’t want to get — we want to remain cautious.

Operator

Thank you. And our next question comes from Rick Wise from Stifel. Your line is open.

Rick Wise

Turning to gross margin, maybe you can talk about that a little more, obviously very good gross margin, it sounds like — and Jim maybe you want to help us understand was that entirely due to the higher disposal of mix. And maybe help us understand the dynamics of what drove the higher disposal mix this quarter why wouldn’t it be the same in following quarters. And I appreciate PhotonBlade launch is a drag at some point, but at least in the second quarter, why wouldn’t that be more at the higher end. But again help us understand the dynamics a little more in our final level.

Jim Mackaness

Yeah So as we mentioned and you’re touching on it here. The good news is that the foundation that we have are very good positive trend. The single use device have very good gross margin and as we’ve promised before moving to the polymer on the Icon LT series is also significantly improved the margins there and volumes will continue to drive the margins through volume efficiencies. So there are all the good things moving us forward.

Two things, obviously bringing PhotonBlade and we know when you bringing in a new device you’re going to bring it in with a little bit of a heavier of course [ph] and ultimately get to. So we just want to make sure that we’re factoring that in. And then the other thing on a pragmatic note, I think we just have to recognize the absent we’re talking about. When you look at the company of our size which is still relatively young in its development cycle, things like changing standards and manufacturing variances can actually show up and move your margins by a point or two.

So I think we’re just trying to make sure we seeing measured and saying that mid-70s is a very good place for us to be and it’s very healthy.

Rick Wise

Good, talk a little bit more about the sales management changes and evolution. We talked a little bit last quarter, Phil you said the impact has already being felt, the two new senior team leader hires, their initial thoughts and planning completed, help us understand what again maybe in more concrete terms, what would you expect, what are you looking from these initiatives and how does it color or effect let’s say revenue performance for the rest of the year or ’18, however you want to frame it.

Philip Sawyer

Well I would say that Andy Sale and the two lieutenants he’s brought on board and the fourth fellow in sales who has been critical to our past success, who’s on the team with them. Andy and the new team have really been instrumental in assessing and strength and weaknesses of the organization to instilling additional mindset and work patterns and behavioral ways they go about their business in a strategic way.

So that’s the business has more and more leverage in terms of scaling and that also includes a more strategic approach to the business with respect to IBM selling and complementing the success of the reps on the ground with top down reps who help sell into IBM into the top hospitals. This to your question, speaks specifically to making sure we’re quite confident that we can meet the guidance for this year, but equally as important making sure we’re really putting in place the foundation that can scale appropriately in the future, which is something we’ve been quite focused on.

Rick Wise

I know that — turning to your revenue per count, Jim, you and Philip both very clear that this is going to be a — this is more rounded and is seasonal, but how do we think about this number going forward? It’s going to stay in a relatively narrow or plus or minus [technical difficulty] until the PhotonBlade launches or until we get past the math that drove the change in growth outlook guidance. And again, help us think about how do you want us to frame our expectations about that particular number? Thank you.

Jim Mackaness

So as you mentioned again and perhaps to reset the things a little bit, our revenue growth is driven through three primary contributors. So obviously the number of active accounts which continues to move up in the first quarter, we’re very pleased to see that. The average revenue per active accounts is what you’re touching on there, I think the [indiscernible] managed to point as Phil mentioned in the prepared remarks, was we were very pleased to see the continued growth in the single use components. Because obviously that to us is a leading indicator of continued penetration in procedure volumes. So that’s [technical difficulty] and then to your point, one other way to a drive that combination of new accounts and going deeper will be adding on the new approach on PhotonBlade. So we see it as an ability to get to where we need to go, the 42 to 44 with a combination of three drivers. So we think it’s going to basically continue to nudge up, to better drive that revenue profile.

Rick Wise

And may be just last for me, with the breast surgeon meeting coming up, I guess it starts tomorrow the next day, and just may be if you’ll talk to your expectations there. I mean you’re launching the PhotonBlade, talk about the launch, talk about the — what will have defined success for you coming out of that meeting in terms of, is it to generate orders, is it training, just help us understand that.

Philip Sawyer

So we are actually here now preparing for what will be — we feel quite active, but hopefully successful conference. We have a series of events here from clinical advisory board meeting tonight to events tomorrow and then we have a series of speakers that at our booth and actually a symposium Friday night, where we are expecting to get well over a 100 breast surgeons there to be trained by some of our faculty in Hidden Scar surgery.

It’s quite an interesting conference for us because we are very sensual to it and I think this year we will be — we are expecting more than ever central to it, because not only are we starting with the a leadership position, we were really the leaders to bring advanced elimination products to breath cancer surgery, but also Hidden Scar training program, our numbers of institutions and surgeons have continued to grow in terms of the interest in Hidden Scar.

So with the introduction of PhotonBlade we are already seeing a lot of interest. Its early in the product cycle and commercialization, but we have seen in many occasions very quick conversations of very prestigious accounts, again it early but it’s been very heartening for us and it makes us feel that at this show we are going to continue to get a very, very high level of enthusiasm and demand for this product rolling into full commercialization midyear. And so we feel that conference overall will just continue on the steady focus and demands we have had at prior conferences all be at a higher pitch due to the introduction of PhotonBlade and then PhotonView will further enhance how we are really remaining the innovator in this space.

Operator

Thank you. Our next question comes from Charles Haff from Craig-Hallum. Your line is open.

Charles Haff

Couple of questions here, in terms of Zimmer revenues this quarter what were those, Jim?

Jim Mackaness

549,000 for the quarter.

Charles Haff

And then how many hospitals are currently using PhotonBlade right now in the soft commercial launch phase?

Philip Sawyer

About 20 surgeons are currently using it but we have a very limited control of release at this point which is focused much more frankly about learning and optimization and then it has been about signing up additional surgeons and also we have been somewhat constrain right now. We have been setting up broad global supply chain to ultimately be able to accommodate considerable volume on this product and that takes the series of months to set up. And so that is just about set up in at which point we’ll be relative to launch, but we have been constrain today. So we have been much more — and any way in terms of discipline we have been much more interested in optimizing our commercial approach.

Charles Haff

And then in terms of Hidden Scar certified surgeons I think you had 146 last quarter, do you have an update for us on that for this quarter?

Jim Mackaness

198 certified surgeons. And as you want a take on excellence, actually there is a lot of good activity going on with sales market because that number jumped up to 61.

Charles Haff

And then I think you mentioned before your hoping to get in 2017, 200 to 270 new accounts, is that still on track as you go for this year?

Jim Mackaness

I think as I mentioned when Rick asked a question, obviously we look at the multiplication if you like, of 11 switches going into new accounts, and going in deeper in your accounts. So to your point, we saw the initial penetration and extra and extra account of growth, if you want to be good. So we think that’s reasonable where you are go, but ultimately it can be a combination of the both. Two long as it depends on where PhotonBlade takes us, does it take us deeper into existing accounts or does it allow us to accelerate new account adds.

Charles Haff

Okay. And Phil on PhotonGuide adapt, I heard you say, hoping to get a soft launch in the second half of ’17. How do you think about that product, I don’t really know much about flexible retractors, I mean is this — where is the novelty here, I mean what kind of expectations would you have for full time guide adapt, could it be as big as PhotonBlade or maybe not as big, just help us frame our expectations a little bit there?

Philip Sawyer

So what’s interesting about the Adapt and the associated retractors is that, we’re making a flexible, bendable wave guide that adapts to the curved retractors that the gynecologist currently use and so we’re going to launch Adapt as I referenced in the call with the Breisky retractor, which is common for gynecology surgeons. And it’s a very good integrated sleek solution, very advanced looking product. And so to date we’ve had quite strong — we’ve been very hard with the momentum, we’ve had in gynecology and the embrace we’ve gotten from the various societies frankly with our current products. But we know that making this Adapt, which fits so hand in glove with the current retractor shapes and sizes, they’re use to, is only going to help us in terms of momentum.

When you ask about the relevant commercial volume in contract to PhotonBlade. I’ve been getting a lot of positive responses from our marketing and sales group with respect to Adapt, so I’ve been asking those questions. So we expect ultimately PhotonBlade to be — I think it’s fair to say a much larger product in scale, but that doesn’t mean that the Adapt doesn’t have a very large market size in and of itself, and we expect to see once we introduce it a lot of fairly commercial success.

Charles Haff

Okay. And then quick one for you Jim. You had your national sales meeting I believe in the first quarter. Would you happen with the costs were for that national sales meeting, if you don’t have it that your fingertips I can get it from you later?

Jim Mackaness

I’ll maybe give it to you later.

Charles Haff

Okay. Sounds good. And then just lastly on the sales force. Did you have much turnover with Andy Sale joining, have you had much turn over on the sales for instance so far?

Philip Sawyer

We had no more turnover than you’d expect with the new parts and joining our force for combined with requisite amount of turnover you would generally get. So I think when Andy came on Board, he was gratified with the skill level and quality of the reps, but as always when a new person joins there is always some tweaking and so we had your normal amount of that and your normal amount of moderate turnover out I would say in addition to that. So I would say nothing surprising all in our eyes very healthy.

Charles Haff

Okay, great. Thanks for taking my questions.

Operator

Thank you. Our next question comes from Matthew O’Brien from Piper Jaffray. Your line is open.

Matthew O’Brien

I guess just to start with on the Q1 performance, the 29,000 cases that were performed in Q1, that’s up 1,000 sequentially. Typically, we don’t see that from you on a sequential basis before the Q1. So obviously, the go in deeper strategies working. But love to hear if that’s a broad-based success or if it’s more focused or concentrated into a couple of specialty be it breast or spine, et cetera.

Philip Sawyer

I think it is a broad-based effect and sometimes it’s — you know it’s going on, but it’s hard to pinpoint exactly where. And we heard repeatedly from our sales force that they’re seeing it it’s broader, and a lot of it apply to the approach and what I talked about earlier with respect to Andy and his lieutenant putting in place new behavioral patterns which just helps the rest to be able to plan how they go about the business and think about the business.

Matthew O’Brien

Okay. So I mean it feels like a lot of that momentum should persist your and it seeming stronger quarter Q2 and then likely in Q4 as well, that’s there?

Philip Sawyer

We are feeling quite positive about helping to progressing this year, and about his joining and helping to really create a very sound base as we scale.

Matthew O’Brien

Okay. Have you disclosed Phil or Jim the ASP you’re going to charge for PhotonBlade?

Philip Sawyer

We have not disclosed it yet and we’re still optimizing that.

Matthew O’Brien

And so did you got on this call?

Philip Sawyer

No.

Matthew O’Brien

I guess the question I’m really driving at is, you have 800-ish hospitals that will be up and running as we get closer to full launch. You don’t need a massive ASP, you don’t need a significant number of devices per month to be able to get to around maybe a 1% penetration rate of that $300 million opportunity that you talked about for — kind of where you’re going after with PhotonBlade initially. So when you talked about meaningful revenue contributions, is that level next year something that you feel comfortable with maybe 1% of that $300 million or could it be higher?

Philip Sawyer

Well let me say overall, that we really don’t comment on particular products and guidance. But just as a general thought, I think it would be reasonable in terms of certain aspects for it to be considerably higher than that.

Matthew O’Brien

Got it, okay. And then lastly from me, just on the fluoresce side, and I know you’re really strong in breast. There is a pretty dominant provider that’s already in that space, they are very good, technology that they used pretty frequently in a lot of procedures. So I’m curious what is it that you think you can do with I think it’s [indiscernible] to differentiate yourselves collectively from that dominant provider or even others that are kind of peripherally in this space. I mean what technically or technologically can you do that’s different to really stand out?

Philip Sawyer

Because we’re early in our commercialization process, I would really rather to give you some general comments. So let me just say overall that, I accept your initial perspectives and there is a dominant provider and a few other sound providers in this space. However, at the same time, if you go around the country speaking with different classic surgeons and other clinicians there is a lot more interest on the clinical basis than there is commercial reality in these systems. And that’s because the business model is not seen as so favorable from people wanted to purchase these products the capital piece is much too high in many people’s eyes. And the systems themselves are not as sleek and not as user friendly as they could be. and those are just general comments, but I think that’s a sound perspective on at all.

At the same time I think we’re being quite realistic because we are quite interested in this area because it complements our going deep and deeper and a dominant position we already have in breasts. But I think we’re quite cognitive that’s it’s early and so things on the commercialization front that we want to test in terms of our assumptions and in terms of the design and business model that we’re going to start going forward with.

Matthew O’Brien

So just to push a little bit there, Phil. Are you going to introduce a product that doesn’t need that day capital component?

Philip Sawyer

I’d rather not comment any further than where we have already.

Operator

Thank you. Our next question comes from Suraj Kalia from Northland Securities. Your line is open.

Suraj Kalia

So Philip it’s a nice tease and I can’t help but really hone on this FlowOptics [ph] partnership. So forgive me if I belever the point or ask questions in a different from. Philip, if remember correctly, FlowOptics their product of clearance in 2014 in the U.S., was it a reason for the delay and how long have you all “being evaluating” this product. I guess what I’m trying to understand is one. Are you all making collaboratively any changes to the product which will require a supplement and then you all going to get on the market?

Philip Sawyer

So thank you for the question Suraj. And of course I can’t say too much here or Matt or Brian will accuse me of favoritism, that’s my appendix humor here.

Suraj Kalia

That’s okay, you can give me something.

Philip Sawyer

So indeed the product has been approved for some time and we actually have been working with them to make some changes around the commercial offering that we think makes it quite pertinent to the business model and overall solution that we think will be interesting to the market. And without going into many more particulars and currently that’s been the gating item and we expect to see, I think really quite soon, to start our commercialization. But this is limited early stage commercialization, where we’re going learn and test our premises and test our plans.

Suraj Kalia

So I’m going to ask another question on the same vein, please forgive me again if I belever this point. So you already have NovaDack [ph], you have Striker, you have [indiscernible], and you have [indiscernible] labs that are in active strategic discussions as we speak. I guess my curiosity is, you all so a gap in the market and you’re attempting to fill that gap with something.

I guess you have a situation, can you give us some color? You all — this new product will it co-register white light and NIR light, would it try to improve on Blush are you all going to quantify the arterial and venus flows. You all have obviously seen a gap, I understand it’s another tool in the argumentum, but at the same time, you guys — there is a method to the madness, and help us — give us a little sneak peek of what you all saw and why now, especially in this sector?

Philip Sawyer

Yeah so I hope you can appreciate that given how early we are in the commercialization, it doesn’t behoove us to say too much here. But let me just say to you that, notwithstanding the fact that there is some very fine companies selling products into this space. As I said to Matt, there is still much more interest in the capabilities of the technology than there is in clinicians to actually push their hospitals enough to actually purchase it and to spend a considerable amount on the capital and what’s seen as something very high in the [indiscernible] use and to use technologies that are definitely seen as more complicated than they need to be. And I would like to just leave it at that for now, but I think anyone who’s got around the country sort of spending a lot of time with the different plastic surgeon could sort of gleam that there is some — the trends that I outlined.

And what we’re making sure we do right now is, just like we’re doing in general with our company, we have a very dominant position in breast, for a small company we have 40% to 50% partner share in nipple fairing necessities, we estimate, we know we’re quite a good set to commercialize a technology like this, but we’re being very cautious, because notwithstanding what I said about, there are certainly are gaps we perceived in the market. Before we get too far ahead of ourselves, we want to test those premises and go further with test marketing and commercialization before we get to far ahead of ourselves. Because one of the things we know is that, we’re blessed with a very strong business model.

With first of all, what we’ve been selling with our illumination technology and we’re about to launch a technology in pull force with PhotonBlade that we think we’ll be — has the promise to be highly disruptive in the electro-surgical and advanced electro-surgical space. In the area of fluorescence imaging, which I just talked to you, it’s much earlier for us. What we’re attempting to do there is take a similar disruptive approach, because — to the intent of your question, we see a significant white space and an ability to do that. However, at this point it’s quite early, we’re starting with quite a good technology and we think quite a good solution, but we’re being cautious at this time.

Suraj Kalia

Fair enough. And one last question for Jim. Jim forgive me, I did not connect the dots here. So I incurred disposable revenues per account in Q1 were 9,100. The revenues per quarter were 10,900 and if I just do the total revenues divided by — or never mind I need to remove Zimmer also, okay. The disposable revenues per account. Can you help us understand how that is calculated, forgive me I’m drawing the blank here.

Jim Mackaness

Sure. What you had to do is if you take the actually account numbers that we’ve reported and if you were to look at the single use revenues that you’d find and we disclosed those in the Q, you can get a very close approximation. This slight [indiscernible] is when we define an active account, we’re defining an account that’s purchased a thousand dollars or more. So there is always a little bit around in the background. But fundamental it’s our single use revenues divided by the active accounts.

Suraj Kalia

Fair enough. Gentlemen congrats again. Thank you for taking my questions.

Operator

Thank you. Our next question comes from Bruce Jackson from Lake Street Capital. Your line is open.

John Godin

Hi guys. This is John Godin on for Bruce. Thanks for taking questions. Just briefly on the PhotonBlade. Are those surgeons who are demoing it primarily focusing on breast applications or is it kind of spread across all specialties?

Philip Sawyer

I’d say it’s been about 40% breast, about the same in EP and probably 20% in ortho and some other disparate application.

John Godin

Okay, great. and then just how to coming out of that, do you guys have any high level of idea as far as the call pattern when you’re going to be introducing this to the sales force, is it going to initial or is it going to be after you’ve already penetrated, just a little bit of color on that will be nice, thank you.

Philip Sawyer

I would say on the breast side, it’s going to be accounts we’ve already penetrated, because we have our balance quite close relationships with those accounts and it’s very natural for them to be initial target for us and to get, excuses the pun, quite turned on about this, in our already existing call patterns as we commercialize the illumination product. On the EP side, we will certainly start with the existing accounts that we have around our current illuminations, but we’ve only been at EP for now approaching nine months and so I would say that would probably likely to be a balance of new accounts and already preexisting ones.

John Godin

Awesome thank you very much guys.

Operator

Thank you. And I’m showing no further questions from our phone line. I would now like to turn the conference over to Phil Sawyer for any closing remarks.

Philip Sawyer

Thank you all very much. We appreciate your interest and look forward to continuing to report to you next quarter.

Operator

Ladies and gentlemen thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.

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