Melissa Juried Kriebel
Cutera, Inc. (NASDAQ:CUTR) Q2 2022 Results Conference Call August 4, 2022 4:15 PM ET
Dave Mowry – CEO
Rohan Seth – CFO
Conference Call Participants
Jon Block – Stifel
Chris Cooley – Stephens
Louise Chen – Cantor
Thank you for joining Cutera’s Second Quarter 2022 Earnings Conference Call. [Operator Instructions]
The discussion today includes forward-looking statements. These forward-looking statements reflect management’s current forecasts or expectations of certain aspects of the company’s future business, including, but not limited to, any financial guidance provided for modeling purposes.
Forward-looking statements are based on current information that is, by its nature, dynamic and subject to change. Forward-looking statements include, among others, statements regarding financial guidance, regulatory approvals, productivity improvements and plans to introduce new products and expand into additional geographies.
For words that may identify forward-looking statements, we encourage you to refer to the safe harbor statement in our press release earlier today. All forward-looking statements are subject to risks and uncertainties included in those risk factors described in the section entitled Risk Factors in our Form 10-K as filed with the Securities and Exchange Commission, and updated on our Form 10-Qs subsequently filed. Cutera also cautions you not to place undue reliance on forward-looking statements, which speak only as of the date they are made. Cutera undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances or to reflect the occurrence of unanticipated events. Future results may differ materially from management’s current expectations.
In addition, we will discuss non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into Cutera’s ongoing results of operations, particularly when comparing underlying results from period to period. Please refer to the reconciliation from GAAP to non-GAAP measures in our earnings release. These non-GAAP financial measures should be considered along with, but not as alternatives to the operating performance measures prescribed by GAAP.
With that, I would like to turn the call over to our CEO, Dave Mowry.
Thank you, Ariel. I’d like to welcome each of you to Cutera’s Second Quarter 2022 Earnings Call, and I’m glad that you’re able to join us for this important update. With me on today’s call is Rohan Seth, our Chief Financial Officer.
Before I dive into a recap of the quarter, I’d like to mention that during the period, we successfully raised $240 million in convertible debt financing, allowing us to retire 50% of our prior convertible debt and add to our existing cash position. This activity places Cutera in an exceptionally strong cash position and provides us with the flexibility to bring other innovative first-mover products to market.
Turning now to the second quarter 2022. During the remainder of the call, I will provide an overview of our second quarter performance, along with some operational highlights, including an update on our experience to date with the AviClear during the initial quarter of our limited commercial release. Rohan will then provide a detailed review of our financial results and our updated fiscal 2022 financial guidance, after which he will turn the call back over to me, and I will spend a few minutes discussing our plans for the remainder of the year, along with some specific details on our plans to expand customer access to our AviClear device in the second half of 2022. After these remarks, I will hand the call over to the conference operator so that we may take your questions.
As I have done in previous updates, I will begin by sharing our high-level observations of the energy-based aesthetics market, and how we expect current geopolitical and macroeconomic factors to impact customers and patient patterns. During the prevailing uncertainty around the macroeconomic environment, and elective procedures. I am pleased to say that Cutera continues to thrive as you will hear reflected throughout our business results. Underlying market fundamentals remain robust and our customers continue to maintain approximately 2 months of forward-looking demand in their schedules. Patient traffic remains intact with no signs of weakening beyond expected third quarter seasonality. And as mentioned in previous updates, aesthetic practitioners continue to see demographic shift in their patient base with younger career-oriented individuals with access to greater disposable income seeking routine procedures. This expanded patient group prioritizes aesthetic procedures within their spending plans each month, providing greater resilience in the overall demand and a more stable patient traffic forecast. We anticipate that the capital selling environment will remain robust with this continued level of patient treatment volumes. This is further enforced by some early capital equipment demand we service in third quarter ‘22 as some deals flowed into this period from second quarter 2022.
Moving on now to an update on the global macroeconomic environment and its impact on Cutera. Cutera, unlike many other companies, has limited exposure to the lockdowns and movement restrictions in China associated with COVID. However, we do have a material exposure in Japan as seen in our skincare results within the period. With significant exchange rate movement over the last 7 months, the Japanese yen has fallen to multi-decade lows against the U.S. dollar. As a reminder, our skin care line, a distributed line we provide only in the Japanese market is purchased in U.S. dollars, but sold in Japanese yen. This arrangement arranged when has resulted in a painful currency squeeze that we feel on both our top and bottom line performances.
Global foreign exchange rates had a significant impact, and we expect that this will continue into the second half of the year. With these market conditions and economic pressures as a backdrop, let me share Cutera’s commercial highlights during the second quarter of 2022. In the period, we delivered a total revenue of $64.2 million, representing approximately 10% growth over prior year’s period as reported and a 15% growth on a constant currency basis. Discounting the impact of foreign exchange rates in the period, top line revenue would have eclipsed a previous all-time high revenue of $65.6 million in our seasonal peak in the fourth quarter of 2021. This top line performance was driven by the continued momentum in our capital and considerable businesses, offsetting the aforementioned economic challenges we saw in Japan.
During the second quarter of 2022, we posted $43.7 million in capital equipment revenue, a record result for the company in this segment. Our capital equipment revenue performance was led by our truBody family of products. In addition to strong capital equipment sales, we nearly matched record revenues for consumable products as well within this period. Looking forward, we intend to further expand our body contouring offering as well as increase our marketing and promotional efforts around the truBody product family during the back half of 2022.
Specific to our capital revenue performance, our North American sales team continued to demonstrate momentum in the period, posting $25.2 million of revenue, representing a 27% growth over prior year period. These results come from the investments in sales force expansion during the second half of 2021 in combination with the continued focus from sales leadership on improved productivity through sales process execution. International capital equipment sales were $18.4 million, representing a 17% growth as reported and a 26% growth on a constant currency basis compared to previous year’s quarter.
International capital performance was strong in aggregate as well as across the key regions. As expected, our European capital sales rebounded sharply from the decline reported in first quarter 2022, posting second quarter revenue of $5.3 million or 36% constant currency growth over the prior year period. Following the second quarter results, the European capital equipment revenue now represents an 11% growth year-to-date on a constant currency basis.
We benefited from favorable trends in our distribution markets as well, posting 26% growth during the quarter. And Australia and New Zealand also provided healthy year-over-year growth with $5.2 million in capital equipment revenue, representing 17% growth and 26% constant currency growth over the prior year period. Similar to our 2021 capital purchasing trends we believe that the third quarter capital revenue will be impacted by the timing of our CUCF event conducted during the second quarter. These professional education events typically pull forward a handful of deals that would have normally flowed into 3Q 2022. As such, we anticipate a slight step back in capital sequentially.
Our recurring revenue category defined as the combination of skin care service and consumable products was $20.6 million in the period, a decrease of 11% over prior year period as reported and a decrease of 2% on a constant currency basis. Skin Care, the largest contributor to our recurring revenue delivered only $9.6 million in revenue during the period. Representing an 18% decline from prior year’s quarter on a reported basis and a decline of 6% on a constant currency basis. In comparison to the previous period, [indiscernible] foreign exchange rate was responsible for 2/3 of the decline, while the remaining 1/3 reflects the impact of the regional economic headwinds on buying patterns. Without near-term relief from these issues, we believe that our skin care revenue for the back half of 2022 will reflect a similar run rate to our second quarter results.
Service revenues of $5.6 million in the quarter represented a decline of 17% as reported and a decline of 13% in constant currency. As discussed previously, we expect to recover our service part inventory and book higher volumes of time and material work orders in the second half and expect to return to approximately $6 million per quarter. Consumer revenues of $5.3 million in the quarter represent approximately 20% growth over prior year’s quarter as reported and 23% on a constant currency basis, driven by the growing demand for treatments from the truBody family of products. We anticipate strong patient traffic in the second half, bolstered by the continued expansion of the installed base.
Shifting now to our AviClear limited commercial release. As discussed during our previous earnings call, we crafted a very thoughtful initial entry into the market for AviClear. As a reminder, the introduction of AviClear represents the launch of a new and disruptive technology, a vastly different business model and a device bringing multiple customer disciplines, bridging multiple customer discipline to include medical dermatologists. Due to the disruptive nature of this product and its positioning, we intentionally focused on a very targeted introduction to test our assumptions using a few dozen sites. This limited release was aimed at gaining a fully informed perspective on how to best expand into a full national launch by the end of 2022. As expected, we generated a very small amount of revenue from the patient treatments during the quarter, but gained significant insights into the product performance, product acceptance and practice onboarding processes.
We are pleased with the progress we’ve made with the field placements and energized by the clinical outcomes our physician partners have shared with us. Many physicians who adopted AviClear into their practice have already begun to see results with their patients. And in some cases, early clearance results seem to exceed those results that we witnessed in our own trials. These data serve to boost physician confidence and increase their comfort in selling the procedure to their patients suffering from acne.
During the second quarter of 2022, our AviClear physician partners treated over 100 individual patients. We were especially delighted with the patient survey data we received after the AviClear treatments from 53 different respondents captured via the Cutera smartphone app. As of today, patient respondents have rated the AviClear treatment with an average reported score of 4.9 out of 5 with no patients rating below 4. The survey prompts patients to provide ratings in areas such as general procedure satisfaction, pain levels, procedure tolerability, their value proposition as well as the overall ease and convenience of this procedure. To date, we now have over 500 treatments under our belt, and we continue to learn from each and every treatment provided.
One of our critical learnings was that normal practice patterns, coupled with patient queues of roughly 2 months directly impacts the speed of account conversion. However, once AviClear is adopted and incorporated into these practices, patient conversions and device utilization ramps up very quickly as physicians build confidence in the procedure and recognize their own patient satisfaction.
With that, I’d like to turn the call over to Rohan to provide you some additional color on our financial performance.
Thank you, Dave. As I review my prepared remarks, I want to note that I will be discussing some non-GAAP results. The complete reconciliation of GAAP to non-GAAP is included in our earnings release. We encourage listeners and readers to review our non-GAAP metrics in conjunction with the GAAP results as contained in this earnings release.
Total revenue for the second quarter was $64.2 million compared to $58.6 million for the same period in 2021, representing an increase of approximately 10% and 15% in constant currency. During the quarter, we continue to face meaningful foreign currency headwinds, particularly in Japan with the Japanese yen accounting for approximately 70% of the impact. Based on current exchange rates, we expect that we will continue to face ongoing headwinds from foreign currency throughout the remainder of 2022.
Second quarter North American capital equipment revenue of $25.2 million increased 27% over the prior year. International capital equipment revenue for the second quarter was $18.4 million, up 17% as reported and 26% in constant currency from the second quarter of 2021.
Recurring revenue, defined to include our consumables, global service and skincare product lines was $20.6 million in the second quarter, down 11% as reported and down 2% in constant currency. The decrease over the prior year was driven by skin care revenue of $9.6 million, down 18% as reported and down 6% in constant currency as well as a decline in services revenue of $5.6 million, down 17% as reported and down 13% in constant currency.
Services revenue continued to be impacted by parts availability. These declines were partially offset by growth in our consumable products, up 20% as reported and 23% in constant currency. Non-GAAP gross profit for the second quarter of fiscal 2022 was $35.7 million, with a gross margin of 55.6%, representing a decrease of approximately 250 basis points compared to the same period last year. Excluding acne program impacts of approximately 180 basis points and an additional 180 basis points in foreign exchange headwinds. The non-GAAP gross margin in the second quarter would have been 59.2%, an approximately 110 basis point increase as compared to the same quarter last year. While we did experience supply chain and macroeconomic inflationary pressures as well as FX headwinds at the gross margin level during the quarter, we were able to offset them with ongoing cost improvement initiatives as well as leverage on our fixed cost base.
Total non-GAAP operating expenses for the second quarter of 2022 were $37.3 million compared to $27.2 million for the same period last year. Included within this number are $6.4 million in expenses related to our acne device. Non-GAAP sales and marketing expense for the second quarter of 2022 was $24.6 million compared to $16.7 million for the same period last year, driven by continued expansion in our sales force, higher commissions, increased travel as well as $4.4 million in expenses associated with the launch of AviClear.
Non-GAAP R&D expense for the second quarter of 2022 was $5.7 million compared to $4.5 million for the same period last year, driven by increased investments in AviClear and additional clinical studies. Finally, non-GAAP G&A expense for the second quarter of 2022 was $7 million compared to $6.1 million in the same period last year, driven by inflation and expansion in our head count. For the second quarter of 2022, our non-GAAP operating income, which we refer to as adjusted EBITDA was a loss of $1.6 million compared to a profit of $6.8 million in the prior year period. As anticipated, our investment in AviClear was the most significant driver of EBITDA decline on a year-over-year basis. Excluding acne program impacts of $7.5 million for the second quarter of 2022 and foreign exchange headwinds over the prior year of $2.4 million, adjusted EBITDA would have been $8.3 million.
As I mentioned earlier, embedded within our non-GAAP OpEx is $6.4 million spent on our acne spend — on our acne program, 70% of which is in sales and marketing, and the majority of the remainder is in R&D. Finally, there were no material or significant changes to our tax position.
Turning now to our balance sheet. As Dave mentioned earlier, during the quarter, we raised $240 million from a convertible debt offering announced in May that will net $154.6 million of incremental cash, after accounting for the extinguishment of 50% of our 2026 notes at $45.8 million, capped calls of $31.7 million, which were done to limit dilution and $8 million in issuance costs. With this addition, we ended the quarter with $278.2 million of cash and marketable securities compared to $131.8 million at the end of the first quarter. The sequential increase of approximately $146.4 million was primarily driven by the cash raised in our convertible debt offering.
We continue to expect cash burn to be approximately $20 million for the remainder of the year. We do not expect cash consumption to be linear as we build and place initial inventories to launch AviClear. With a strong balance sheet in place, we are well positioned to continue supporting the growth of our business while ensuring a successful launch of AviClear.
Before I turn the call back over to Dave, I would like to provide you with an update on our outlook for the full year of 2022. Starting with revenue. We are reiterating 2022 guidance of $255 million to $260 million, entirely absorbing the impact of the unprecedented foreign exchange headwinds of $15 million annually, implying constant currency growth of 17% to 19%. This guidance does not include revenue from our AviClear device as we continue with its limited commercial release.
Moving on to adjusted EBITDA. FX pressures have continued to worsen and we now expect a further impact from FX of around $3 million on the full year adjusted EBITDA, bringing the full year impact to approximately $11 million. As a business, we are continuing to respond to these pressures, and we expect to offset most of these headwinds. Therefore, we are reaffirming our full year adjusted EBITDA guidance to be in the range of $5 million to $10 million.
I would like to now spend a few minutes discussing the acne business model and the related accounting in greater detail. As Dave mentioned in his remarks, we are launching this innovative product under an equally innovative business model to maximize its reach with patients and clinicians alike. Instead of selling the capital, we will instead be licensing the device over a period of 3-plus years. The licensing fees we collect will be ratably recognized as revenue over the term of the lease and treatment revenue will be recognized as earned. As the units will remain on Cutera’s balance sheet on the PP&E line, we will depreciate these units over their useful lives. Finally, the treatment and licensing fees will be considered recurring revenue.
During the second quarter, our acne-related revenue was recognized within the consumables category and was approximately $0.1 million. As the business grows, we intend to create a separate line for acne.
With that, I will now pass the call back over to Dave.
Thank you, Rohan. Cutera continues to prepare for the full launch of the AviClear device in North America by the end of 2022. We believe that this product and its novel business model will drive unprecedented growth at Cutera, accelerating the transformation of our business.
AviClear’s recent Health Canada approval in combination with the previously secured FDA 510(k) clearance eliminates any additional regulatory risk and secures our ability to launch across the entire North American footprint. As we continue our rollout, we expect to significantly accelerate placements each quarter with over 100 placements planned for the third quarter of 2022. We expect to further increase upon those placements in the fourth quarter and scale our device footprint throughout 2023.
Additionally, we intend to work closely with our customers to accelerate their patient conversion processes. We are delighted to be in such a strong position at the midpoint of 2022, fortified by the strength of our core business performance backed by a strong balance sheet and energized by the building momentum of the AviClear opportunity.
With that, I’d like to turn the call back over to the conference operator to open the call to your questions. Ariel?
[Operator Instructions] Our first question comes from Jon Block from Stifel.
Dave, maybe I’ll just start on the base business. You mentioned a pipeline of 2 months. I think that’s largely unchanged from your talk track in 1Q. You talked about a step down sequentially for 3Q capital, which is normal. But just to push you, you’re not seeing any weakening of the capital environment.
Maybe just talk to us about the pipeline, what you’re hearing from sales reps? Does it remain robust, the pipeline? Are you witnessing any more trepidation from the docs? I’m just trying to push you a little bit there because obviously, there’s been a lot of questions or incoming from investors just due to the overall environment. And then I’ll ask a follow-up.
And I totally understand that the backdrop — the economic backdrop certainly would kind of cause that question to be — to come to the forefront. No, we check regularly and routinely with our physician customers on what’s going on in their practice, how are things going? And what’s the bookings for them. And the other thing we asked them about occasionally is cancellations because sometimes they’ll see cancellations indicative of maybe some nervousness on the patients we have. And we’re not hearing anything that would be even remotely concerning to us at this point.
I think that certainly makes us feel very, very good about patient traffic, about the underlying business and the volumes of patients seeking treatment. In fact, we believe it continues to grow. I think the only concern I would hold out there is what does the capital environment look like? What do leasing look like? What does financing look like for some of these physicians. But I just want to remind folks that generally speaking, we’re a little bit more of a higher-end provider and we provide more to the higher-end customers. And generally, they don’t have credit concerns. But that being said, we’re always watching, we’re always looking and we are — we are a little bit paranoid, Jon, and that’s why we check so often.
All good. I’m paranoid as well. And maybe the second question, I’ll shift over to AviClear. So just talking about the next steps, maybe for more AviClear data. We’ve come across some sites that I believe are seemingly enrolling for post-market studies. Is that specific to acne? Is it for longer-term data? Or is it on the acne scarring side of things? And maybe just to tack on, if you can take a step back, Dave, what are you seeing from the practices that are running at the call it, the high end of the utilization scale versus those that are running at the lower end? What are they doing differently to separate one versus the other?
Yes. Sorry, I just was taking notes, so I didn’t forget your questions, Jon. So let’s take them in order. Let’s talk first around the ongoing studies. We are really quite bullish. The feedback that we continue to get, and mentioned in the prepared remarks suggest that our physicians are seeing even better results than we did during our trials. And I think that comes from just getting it out there in the hands of experts and having them think about it beyond just the monotherapy that we did in our treatments. So they’re seeing great results.
In fact, I was on a conference call earlier this week with 4 physicians. And one of them is in the process of treating his own daughter, right? So there’s great confidence and great kind of bullishness, if you will, in both med derms which this person was as well as with the aesthetic practices. So I think that has really made us quite bullish frankly, in what’s going to happen and how it’s going to happen. I think the concern, as you talk about the high and the low, some of this is timing based I think, is certainly something we’ve learned through this process. In many cases, you’ve got people that are booked out 2 months. So when somebody comes in and they present the AviClear and then send that patient home to think about it, it’s 2 months before they come back or 1.5 months before their scheduled visit to come back in. So there’s a big delay that we’ve seen in kind of that kind of that pickup, that ramp. So we’re working with different physicians and different practitioners to understand how we can maybe start to affect that gap and that lead time.
In other cases, we’ve got some early adopters that really are fundamentally full believers and they have ongoing patient traffic that they’re able to harvest very, very quickly, which was some of our assumptions with some of these med derms and larger practices where the patients are already sitting in the waiting room and it becomes a conversion effort from isotretinone to some other treatment to the AviClear. And the ones that are having the greatest success are the ones converting at the highest rate and have probably the greatest belief in the product. And there’s always that bell curve of early adopters, mid-level adopters and late adopters. And I think we see that firsthand.
Our next question comes from Chris Cooley of Stephens.
If I could just follow up on Jon’s line of questioning there kind of coming back to the current economic environment and what you’re seeing there. Could you maybe give us some additional color just with regards to the types of procedures that seem to be in demand? Are these body contouring? Are you seeing greater focus on maybe some facial type procedures. Just trying to further parse out what’s driving that step up in demand? And if that those types of procedures are being done predominantly at a med derm type location that may be is diversified throughout the COVID pandemic into a little bit more cosmetic application or a high-end cosmetic practice as opposed to maybe a more economical med spa, just want to get some clarity around that. And then I have a follow-up.
Okay. Thanks, Chris. Look, I think one of the points I tried to stress in the prepared remarks is this business is as strong as it’s ever been, and the pipeline is exceptionally strong in our view. And that goes across the entire portfolio, quite frankly. So as I think about your question and wonder about the treatment volumes, certainly, we track those on the consumable side of the business, in particular, and we’ve seen great uptake and continued uptake in the body and the truBody portfolio, our truSculpt portfolio, if you will. We also see strong presence in the Secret RF as people continue to use Zoom and want to look their best and feel their best when they go into work, even if they Zoom from one cubical to the next, they’re still looking and trying to look their best as they invest in themselves. So I would say that the truBody and the Secret microneedling, had probably had great uptake.
But in addition to that, with Zoom, we’ve seen a lot of XLV and vascular laser work an interest in — across the board. Now as we think about AviClear and the rollout of AviClear, I think the one thing I would point out to you is as you get into the med derms, the access to a device like XLV in combination with having AviClear allows you not only to treat acne, but to effectively treat rosacea, which is another large obviously, indication in pathology. So we believe that there’s a little bit of a halo effect with AviClear to potentially bring more XLV into the market, specifically around the med derms.
I appreciate all that color. And then maybe just quickly as well on AviClear. I know there was a lot of buzz around this when we were back at ASLMS earlier in the year. I’m just curious, as you’ve been rolling this out, seeing the adoption kind of fine-tuning the go-to-market plan, kind of what you’re seeing in terms of the initial patient commentary on the out-of-pocket aspect of this. And similarly, I think you said 100-plus locations in the third quarter are new clinics, I should say, in the third quarter with a further acceleration in the fourth that would still, I think, imply a pretty big backlog of potential demand. So just trying to think about how you can start to address that as you come into the first half of next year from an inventory perspective.
Yes, great series of questions. So let me start with your first comment around patients and their willingness to pay. I really do believe that one of the learnings we have is that the med derms, who are not used to asking patients to pay out of pocket are probably a little bit more concerned on that price point than the patients are, frankly. And our market research beforehand certainly indicated that patients would be willing to pay the up to that amount or a little bit higher than that amount. And I think we’ve seen that. We had some pushback early with some of the med derm saying that it was too much, and they didn’t think they could get it get people across the finish line. And every chance that we’ve had to intervene into those accounts with the physician, we’ve been able to get them and their staff more comfortable with the process and ultimately converting patients at the price point that we’ve talked about.
So we don’t really believe that to be assembling point in the long term. We think it’s something we can train people through and they can adopt too. But it does change. It does create a little bit of that hesitation early in the process. And we’ve learned through our limited commercial release thus far and intend to imply those learnings in the third and fourth quarter to help accelerate some of these practices on net adoption. So that being said, we also have fundamentally gone into patient financing with the view that, that will help accelerate this. And we’ll be a lot more aggressive in the rollout of that in the back half of 2022. So we’re trying to take away all of the obstacles and all the hindrances and resistance to adopt because frankly, the clinical results have been so overwhelming, we want to make sure that everyone has access to this treatment.
Kind of moving on to kind of the backlog and the pent-up demand, I think it’s totally true. We know that there is pent-up demand. We have inbound leads that would suggest there’s a lot more placements we could make. But taking it slow and understanding what we’ve understood to date and teasing out some more insights are going to help us be a lot more effective in the rollout of this in the long term. And we’re not playing this for a quarter or 2 quarters. We’re playing the long-term transformation of the company with this device. So my view is learning a little bit more and taking the time to do it right is the correct approach here. We’ve already learned quite a bit. You’ll see some of those learnings applied in the third and fourth quarter.
And I think we should be in a really strong position to apply all of those going forward with a full commercial lease no later than the end of this year.
[Operator Instructions] Our next question comes from Louise Chen of Cantor.
Congratulations on the quarter. So I wanted to ask you, do you have any metrics to look at repeat customers? Or is that still too early? And what is the exact out-of-pocket cost for patients? And last question I had for you as we get this question a lot is how to think about the magnitude of sales for 2023?
Okay. Thanks, Louise. And as always, I appreciate I had my pencil in hand very quickly knowing that you’re going to give you a multipart question. So thank you. We do have a lot of metrics that we track. I can tell you that this launch far exceeds any other launch in Cutera’s history in the amount of focus, energy and data that we’re collecting along the way. Each and every site is monitored. Our devices are kind of tracked individually. So we know firsthand when treatments are happening and how they’re happening to the point where we can see not only a patient but a patient being — whether it’s their second or their third treatment starting in the process, if you will. Keeping in mind, there’s 3 treatments to each and every patient procedure. So we can track that detail. And we know when it’s first treatment and when it’s a repeat treatment.
In terms of the cost, we don’t set costs. That’s something we can’t do and something we won’t do. However, we have been very clear with our customer base on our expectations for revenue associated with their conducting a procedure. And we’ve set that at kind of $1,500 minimum at this point in our initial release. And we’ll continue to monitor and adjust that upwards if need be, as the value of this procedure continues to improve. So at this point, we have not seen a whole lot of anxiety from the patient side of that payment. And with financing, we think that will reduce even further.
In terms of the magnitude, I think we’ve been slow and steady this year and we intend to be slow and steady this year. But we have the capabilities and the capacities to ramp this very, very aggressively. We’ve made arrangements with external manufacturing to ramp and have access to greater device placements in 2023, and that should not — that in itself should not be a barrier for us.
In terms of capacity in the sales organization, obviously, as this ramps, we can continue to hire and expand and get a greater footprint. And that obviously will pay for itself in the variable costs. So we do have the ability to ramp this pretty aggressively in out years. But I think what’s going to be most important is that we get it right this year to all of those to be able to accelerate in kind of in an optimal fashion in [indiscernible] years. And that’s what we’re focused on.
This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Thank you very much, Ariel. I just want to leave the conversation with this. This business has never been any stronger than it is right now on both of the core capital and consumable side of the business. We believe that headwinds in FX is a transient issue that we’ll move through quickly. And the results thus far and AviClear have given us great, great expectations for what the future holds for this company. With that, we couldn’t be more excited to be where we are right now with what we have. So we look forward to giving you an update in third quarter with those results and until such time, be healthy, and thanks for the following.
This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.