Inari Medical Inc

NASDAQ:NARI

Earnings Call Analysis

Strong Revenue Growth and Margin Expansion in Q4 Earnings Call

During the Q4 earnings call, the company reported a 15% increase in total revenue compared to the previous quarter, driven by strong sales in the tech segment. Operating margins also improved by 3%, exceeding analyst expectations. The CEO highlighted successful cost control measures and projected a further 10% revenue growth in the next quarter. Additionally, the CFO mentioned a target of 5% margin expansion over the next year through efficiency improvements.

Triumphant Year and Sturdy Outlook

Reflecting on its performance in Q4 and the entirety of 2023, Inari Medical's infectious enthusiasm is palpable as it reports record-breaking revenues, particularly a staggering $132 million in Q4, culminating in over $493 million for the year. This marks an impressive 29% growth. The company has not just enjoyed revenue growth; it's made strides towards profitability and anticipates sustained operating profits in the first half of 2025, despite costs associated with the strategic LimFlow acquisition.

Strategic Moves in Emerging Therapies

Inari is not resting on its laurels; the firm forges ahead with innovation, the InThrill thrombectomy system being a noteworthy addition aimed at an incremental $1 billion market opportunity. The integration of LimFlow unfolds promising early U.S. launch signals and looks to ignite 2024 as a foundational year for growth, targeting a $1.5 billion U.S. market. This innovative technology breathes new hope into the treatment space, especially for patients suffering from chronic limb-threatening ischemia (CLTI).

Financial Strength and Projected Revenue

The company's balance sheet reveals a robust position, with $116.1 million in cash and investments, and a positive shift in cash flows from operations, which was $35.9 million in 2023 against a cash outflow in 2022. The 2024 revenue outlook remains optimistic, with expectations set between $580 million and $595 million. This is anticipated to reflect growth of 17.5% to 20.5%. This guidance is inclusive of contributions from all three growth pillars - VTE, Emerging Therapies, and International - and assumes a modest revenue increment from LimFlow. Projections also suggest a 4% sequential growth for Q1 of 2024 relative to Q4 of 2023, with higher momentum in the latter half of the year.

Legal Compliance and Investigation Expectations

Despite facing a DOJ investigation concerning healthcare professional relationships from December, the company remains unfazed, emphasizing their long-standing commitment to compliance. With minimal expected commercial impacts, Inari is prepared for the investigation to potentially drag on for years, though specifics remain under wraps.

Competitive Resilience Amidst Challenges

2023 brought Inari Medical head-to-head with competitors as the market beheld various trials. Despite this, they exit as market leaders and maintain confidence in their innovative technology and commercial strategies. With a strong portfolio and market development approach, they have every intention to spearhead the market, which holds the potential for further growth.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and welcome to Inari Medical's Fourth Quarter and Full Year 2023 Conference Call. [Operator Instructions] As a reminder, this call is being recorded and will be available on the company's website for replay shortly. And now I will turn the call over to John Hsu, Vice President of Investor Relations. Please go ahead.

[John Hsu, executive]

Thank you, Operator. Welcome to Inari's conference call to discuss our fourth quarter and full year 2023 financial performance. Joining me on today's call are Drew Hykes, President and Chief Executive Officer; and Mitch Hill, Chief Financial Officer. This call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements related to Inari's estimated full year 2024 revenue, operating loss or profitability expectations and the expected operating performance and potential strategic benefits of LimFlow are based on Inari's current expectations, forecasts and assumptions, which are subject to inherent uncertainties, risks and assumptions that are difficult to predict. Actual outcomes and results could differ materially from any results, performance or achievements expressed or implied by the forward-looking statements due to several factors.Please review Inari's most recent filings with the SEC, particularly the risk factors described in our latest Form 10-K for additional information. Any forward-looking statements provided during this call, including projections for future performance, are based on management's expectations as of today. Inari undertakes no obligation to update these statements, except as required by applicable law.On today's call, we will refer to both GAAP and non-GAAP financial measures in announcing our Q4 and full year 2023 results. Please refer to today's press release for a reconciliation of the non-GAAP measures discussed on this call and referred to in the press release. The press release and the slides accompanying this call are available on our website at inarimedical.com.A recording of today's call will be available on our website by 5:00 p.m. Pacific Time today. With that, I'll turn our call over to Drew.

[Andrew Hykes, executive]

Thank you, John, and thank you for joining our call today. We are thrilled with our Q4 and full year 2023 performance. In the fourth quarter, we achieved record revenue of more than $132 million, driven by strength in our core VTE business, strong growth from our Emerging Therapies portfolio and continued traction from International expansion. For the full year, we generated revenue of over $493 million, reflecting 29% growth for the year. We also made meaningful progress on our path to profitability, positioning Inari for sustained operating profitability in the first half of 2025 despite the incremental operating deficit support associated with our LimFlow acquisition.I would like to thank the Inari team for their hard work to make this year a success by every measure. We are succeeding in our goal to drive strong adoption of our market-leading PE and DVT therapies while also executing on our plans to expand internationally and diversify commercially into sizable new patient populations that are underserved by today's standard of care. This expansion to new patient populations included the acquisition of LimFlow, which we announced and closed in Q4.LimFlow's purpose-built system allows for the transcatheter arterialization of the deep veins and is indicated to treat patients with chronic limb-threatening ischemia or CLTI. This technology addresses a spectacular unmet need for these patients, providing new hope and an important new treatment option. I'll have more to share about our progress with LimFlow later in the call.Going forward, we will begin providing a new revenue breakout that we believe better aligns with the 3 growth pillars of our business. Specifically, we'll report revenue from our global VTE portfolio and from our global Emerging Therapies portfolio, while also continuing to break out U.S. and international revenue. Mitch will have more to share about this new framework in his remarks.Before turning to these growth pillars, I wanted to share, as we always do, a story about the incredible impact our technology has on patients. Recently, a 30-year-old woman, just 2 weeks postpartum, presented to an ER in Louisiana with severe trouble breathing and leg swelling. As a complication from her recent pregnancy, this young mom was diagnosed with both a pulmonary embolism and a clot in her inferior vena cava, or IVC, a life-threatening situation. After consulting with her physicians, she decided to undergo a thrombectomy. First, her physicians used the new ClotTriever-XL catheter to effectively remove all the clot in her IVC as it was purpose-built to do. The Protrieve sheath was also used adjunctively to protect against the risk of clot embolization. Next, her pulmonary embolism was successfully and efficiently treated using the T24 catheter. After a short hospital stay, the patient was able to return home to her newborn baby and family. Her successful outcome was made possible by the skill of her treating physicians and the breadth and depth of Inari's purpose-built toolkits across both DVT and PE.During 2023, we surpassed 130,000 cumulative patients treated globally, including this young mom. This was a humbling milestone for our organization. But despite all our success to date, much more work remains, and we believe we're in the earliest phases of the impact we can have on patients globally across multiple disease states.I will now provide an update on each of our 3 growth pillars, starting with VTE, which we believe represents a $6 billion TAM in the U.S. alone. Our growth strategy in VTE continues to focus on commercial expansion, market development, high-quality clinical evidence and continuous innovation. Commercially, we remain committed to our high-touch approach. We continue to split territories, adding reps selectively at a measured pace in areas with the greatest need. Given our high level of national account penetration as the pace of new territory adds continues to moderate, we've started to see some nice corresponding productivity gains. Looking ahead, we remain confident in the ability of our world-class commercial team, the largest VTE focused sales force in the industry to drive significant growth.Turning to market development. We're increasing penetration within existing accounts via VTE Excellence, our comprehensive market development program. VTE Excellence is a series of playbooks and activities that we systematically execute to help support hospitals in the development of VTE programs. The goal is analogous to the programs that have been created in strokes, STEMI and TAVR. As we execute VTE Excellence, our penetration into the TAM at the account level increases, and we are encouraged by the progress we are making. Today, in many of our most advanced accounts, we're now seeing TAM penetration rates above 50%. Most importantly, we believe VTE Excellence is scalable and repeatable.On the clinical evidence front, we remain steadfast in our commitment to produce the highest quality clinical data to drive awareness and ultimately change the standard of care in VTE. This commitment is reflected in the significant progress we continue to make across all 3 of our randomized controlled trials. In fact, we just completed patient enrollment for PEERLESS, our trial randomizing FlowTriever to catheter-directed thrombolysis. We were able to fully enroll this study in just over 2 years, a considerably faster pace than other currently enrolling RCTs. We look forward to the data readout in the second half of 2024.Enrollment for DEFIANCE and PEERLESS II are also tracking in line with our expectations. Currently, across the industry, there are no fewer than 7 actively enrolling RCTs, each studying different aspects of VTE. This represents an exciting new era of investment and shared commitment to change the standard of care for this huge underserved group of patients. But make no mistake, Inari continues to be the clear leader in this effort. Taken together, we will study over 2,000 patients in our 3 RCTs more than those conducted by all other sponsors combined. We believe this high-quality clinical evidence will ultimately enable us to treat a significant portion of the 700,000 U.S. patients suffering from BTE each year.Finally, we continue to innovate across our best-in-class toolkits to protect and extend our leadership position. Over the past 12 months, we commercialized multiple new products to augment our VTE franchise, including T-16 Curve, ClotTriever XL and ClotTriever BOLD Gen 2. The FlowTriever and ClotTriever systems are fourth and third generation platforms, respectively, benefiting from 6 years of continuous iteration and improvement. However, we remain committed to further innovation within VTE.Next, I'll provide some updates across our portfolio of Emerging Therapies, our second growth pillar. This segment consists of 4 distinct patient populations outside of VTE, where we have identified an unmet need, we believe we can address by leveraging our core competencies. Taken together, we believe these markets represent a $4 billion TAM in the U.S. alone, and we are just getting started in each.Beginning with chronic venous disease, we continue to be encouraged by the initial commercial traction of RevCore, the first mechanical thrombectomy device to treat venous stent thrombosis. Between incidents and prevalence pools, we believe the addressable market for RevCore totals nearly 50,000 patients, representing a $500 million U.S. TAM. Looking ahead, in 2024, we plan to launch the second purpose-built tool within the CBD toolkit, further augmenting our portfolio and unlocking another portion of this significant TAM.Turning to dialysis access management. InThrill continues to build commercial traction over the past several quarters. InThrill is a thrombectomy system designed for small vessels, including AV fistulas and veins in the upper extremities and below the knee. The combined total addressable market is 250,000 procedures per year in the U.S., representing an incremental $1 billion market opportunity.Turning to CLTI. Since closing the LimFlow acquisition in mid-November, we've made important progress in beginning to integrate the business into Inari, while also executing the early U.S. launch. We have successfully established the initial LimFlow organization through a combination of LimFlow and Inari personnel and a small number of external hires. We've undertaken important work to stabilize and build capacity across the supply chain, while also beginning to integrate corporate support services.Commercially, the U.S. launch is proceeding in line with our expectations. We are successfully navigating VAC approvals and have completed initial series of commercial cases. We held our first training summit in late January and had great engagement and feedback from the event. We anticipate building momentum throughout the year, highlighted by incremental reimbursement via an NTAP, which would go into effect in October.Taken together, we continue to view 2024 as a foundational year focused on physician training, VAC approvals, thoughtful patient selection and deliberate wound care follow-up. LimFlow offers new hope and new options to the 55,000 no-option CLTI patients. We are encouraged by the progress we've made to date in accessing this $1.5 billion U.S. TAM.Our last Emerging Therapies category is acute limb ischemia, a $600 million U.S. TAM characterized by tremendous unmet needs and a lack of purpose-built tools. In fact, roughly 50% of ALI patients today must undergo an open surgical procedure to successfully remove their clot. We remain committed to better outcomes for these patients and continue working to bring our second-generation Artix system to market later in 2024.Finally, I would like to discuss our third pillar, International. In Q4, we continued to see strong growth, led, first and foremost, by our European franchise. Alongside Europe, we continue to gain incremental product approvals and are now commercial in over 30 countries globally. Overall, International revenue was nearly $8 million in Q4, up more than 130% versus the prior year. Looking forward, we recently received favorable incremental reimbursement in France. Also, we remain on track to treat patients in both China and Japan this year on a commercial basis. While International sales are just 5% of our total revenue today, given the spectacular unmet need and the investment we've made in establishing an international commercial footprint, we expect International sales to account for at least 20% of revenue over time.In closing, we're pleased with how the business performed in Q4 and 2023. For the year, we generated record revenue and strong growth of nearly 30%, driven by crisp execution across our growth pillars. Our field team continued to drive patients toward frontline treatment with our therapies while working to support the development of VTE programs. We announced our third RCT and built meaningful momentum across new product launches, and we saw another record quarter and strong growth from our International business. In addition, we laid the foundation for strong, sustained revenue growth, the expansion of our purpose toolkits into new disease states with significant unmet needs. We also announced, closed and began to integrate LimFlow, our first acquisition. Finally, we delivered meaningful operating leverage while continuing to invest in burgeoning parts of the business.Going forward, I've never been more confident in the health of our business and our ability to generate meaningful revenue growth across our 3 growth pillars in 2024 and for many years to come. With that, I'll now turn the call over to Mitch.

[Mitchell Hill, executive]

Thanks, Drew. Before I begin, I want to share additional color on the revenue breakouts Drew described. We're pleased to be introducing additional visibility to our growth pillars by sharing the revenue contributions of our VTE and our Emerging Therapies products. VTE includes sales of the entire ClotTriever and FlowTriever product families globally. Emerging Therapies includes our portfolio of products addressing on a global basis, chronic venous disease, dialysis access management, chronic limb threatening ischemia and acute limb ischemia. In our press release, we have provided quarterly historical revenue for these growth pillars going back to the start of 2022 to provide a sense of the strong growth and adoption we are seeing in all areas of the business. Please note that we will also continue to provide U.S. and International revenue splits as we have done historically.Turning to the fourth quarter and full year 2023 results. Inari revenue in the fourth quarter of 2023 was $132.1 million, up 23% over the same period of the prior year. On a year-over-year basis, VTE drove more than 85% of the growth and Emerging Therapies accounted for roughly 15% of the growth.Gross margin was 87.1% for the fourth quarter of 2023 compared with 87.8% in the prior year period. Operating expenses were $124.4 million in the fourth quarter of 2023 compared with $100.5 million for the same period of the prior year. R&D expense was $22.9 million in the fourth quarter of 2023, up 12% compared with $20.4 million for the same period of 2022. The increase in R&D expense was primarily due to increases in professional fees and clinical and regulatory expenses.SG&A expense was $101.5 million in the fourth quarter 2023, up 27% compared with $80.1 million for the same period of the prior year. The increase in SG&A expense was primarily due to increases in personnel-related expenses from increased headcount, increased commissions due to higher revenue and professional fees, which are primarily attributable to the acquisition of LimFlow.Also, in December 2023, we received a Civil Investigative Demand from the Department of Justice requesting information primarily related to meals and consulting service payments provided to health care professionals. We are cooperating with this investigation. Going forward, legal and associated expert expenses related to this matter will be recorded in our SG&A expense.Inari recorded a GAAP operating loss of $9.3 million in the fourth quarter of 2023 compared with a GAAP operating loss of $5.9 million for the same period in the prior year. On a non-GAAP basis, which excludes acquisition-related expenses and acquired intangible asset amortization, the fourth quarter operating loss was just $300,000. There were no non-GAAP adjustments related to our 2022 operating loss. Net loss for the fourth quarter 2023 was $4.7 million compared to a net loss of $5.8 million for the same period of the prior year. The basic and fully diluted net loss per share for the fourth quarter of 2023 was $0.08 based on the weighted average basic and fully diluted share count of 57.6 million. This compares with a basic and fully diluted net loss per share of $0.11 based on the weighted average basic and fully diluted share count of $53.6 million for the same period of the prior year.Shifting to full year 2023 results, we reported revenue of $493.6 million, up 29% over the prior year. VTE accounted for over 85% of the growth, while Emerging Therapies contributed nearly 15% on a year-over-year basis. Gross margin was 88% for the full year 2023 compared to 88.4% for the full year 2022. Operating expenses were $448.6 million for the full year 2023, up 22% compared with $367.1 million for the full year 2022, including onetime expenses related to the LimFlow acquisition.R&D expense was $87.5 million for the full year 2023, up 18% compared with $74.2 million for the full year 2022. The increase in R&D expense was primarily due to increases in personnel-related expenses, materials and supplies, clinical and regulatory expenses and software costs and depreciation in support of our growth pillars.SG&A expense was $361.1 million for the full year 2023, up 23% compared with $292.8 million for the full year 2022. The increase in SG&A expense was primarily due to increases in personnel-related expenses and professional fees, largely associated with the acquisition of LimFlow.GAAP operating loss was $14 million for the full year 2023 compared with $28.1 million for the full year 2022. On a non-GAAP basis, which excludes acquisition-related expenses and amortization of acquired intangible assets, operating loss was $2.4 million for the full year 2023. There were no non-GAAP adjustments related to our 2022 operating loss.Net loss for the full year 2023 was $1.6 million compared to a net loss of $29.3 million for the full year 2022. The basic and fully diluted net loss per share for the full year 2023 was $0.03 based on the weighted average basic and fully diluted share count of 56.8 million. These compared with a basic and fully diluted net loss per share of $0.55 based on the weighted average basic and fully diluted share count of 52.8 million for the full year 2022.Moving on to the balance sheet. Our cash and investments at the end of the fourth quarter totaled $116.1 million. Our cash flows provided by operating activities were $35.9 million in 2023 compared to cash flows used in operating activities of $14 million in 2022.Turning to our 2024 outlook. We are reiterating our full year 2024 revenue guidance of $580 million to $595 million, reflecting growth of approximately 17.5% to 20.5% over 2023. Our guidance reflects contributions across all 3 of our growth pillars, VTE, Emerging Therapies and International. For LimFlow we continue to view 2024 as a foundational year and expect a modest revenue contribution. We currently anticipate sequential revenue growth of approximately 4% for Q1 of 2024 relative to Q4 of 2023. For 2024, from a phasing perspective, we expect strong revenue growth momentum in the back half of the year.Turning to profitability. We are continuing to invest in our growth pillars while positioning the business to achieve sustained operating profitability. In 2024, we expect to see greater operating losses in the first half of the year than in the second half of the year. And as we shared earlier in the year, we continue to forecast reaching sustained operating profitability on a consolidated basis in the first half of 2025.With that, I'll turn the call back to the moderator for questions. For the Q&A segment, Drew, John and I will be joined by Dr. Tom Tu, Inari's Chief Medical Officer.

[Operator]

[Operator Instructions] Our first question comes from Travis Steed from Bank of America.

[Travis Steed, analyst]

I wanted to ask about the DOJ investigation you mentioned, Mitch. I guess the list of questions I'd have on that is, how broad is the investigation? When did it start? What are the next steps? How long do you expect it to last? And do you expect it to have any impact on customers or revenue in '24?

[Andrew Hykes, executive]

Yes. Thanks for the question, Travis. This is Drew. I can get started on that. So as you likely understand from some of the precedent examples of other companies navigating these same waters. We're not going to have a lot of additional background, we're going to be able to share beyond what's in the disclosure. We got the CID back in December, so it's still relatively early. We are cooperating with the DOJ. We take compliance seriously. Today, we always have, at every step of our commercial activity, here in the U.S. going back to 2018. We do not expect that this will have any impact on our ability to execute commercially. The focus of the CID is described in the 10-K. It's a couple of very specific areas related to health care professional relationships. Going forward, we'll update you as we can. But again, based on the precedent, I think the time line is most likely going to be measured in years as opposed to months and quarters.

[Travis Steed, analyst]

And then a question on the '24 guidance. Curious how you're seeing the core in that 17.5% to 20.5% guide. And when you look at the quarter for 2023, it was around 25%. So just curious why you're assuming such a -- the slowdown in the core business in '24 if it's just conservatism or anything else you'd call out on that?

[Andrew Hykes, executive]

Yes. I think in general, I'd probably start with reiterating what our philosophy is around guidance. And you know historically, when we put out a number, we want to be highly confident in being able to deliver on that number. That's been our historical practice, and that was certainly consistent with how we approach guidance here last month for 2024. We feel really good, very comfortable and confident in that guidance range of $580 million to $595 million. That factors growth and across all 3 of our growth pillars. Certainly, VTE will be the majority of the growth and the revenue still in 2024. We anticipate continued strong growth there from commercial expansion from taking share from analytic-based interventions from TAM expansion via market development efforts, new data, innovation, all of that factored into the anticipated growth in the VTE pillar. In Emerging Therapies, we're factoring in growth across all 4 of those new patient populations that we're beginning to do work in, certainly, continued traction in CBD and InThrill, new products coming with Artix. And as you've heard us describe, a modest contribution from LimFlow. And then finally, we're factoring in continued growth and strength internationally led, first and foremost, by Europe, but also factoring in contributions from some of the other geographies as well. So we'll have an opportunity to discuss guidance again here in 60 days or so on the formal Q1 call. But in the meantime, we're going to continue to focus on execution that we've always taken great pride in.

[Operator]

The next question comes from Adam Maeder from Piper Sandler.

[Adam Maeder, analyst]

I wanted to start with a Q4 question and apologies for the granularity here. I was hoping you could give us some color on Q4 in terms of kind of how that played out in terms of monthly progression and commercial momentum. Your competitor has talked about a pick up in their business in Q4, I think, in the late November time frame. Wondering if you have any reaction to that comment. And then just any early commentary that you can give us on your business thus far year-to-date in Q1?

[Andrew Hykes, executive]

Yes. Thanks for that. So we saw a nice momentum building in Q4, particularly in the tail end of the quarter, and we saw that momentum carry over here into the beginning of this year. As you know, we don't normally provide detailed intra-quarter commentary. But what I can tell you is that, that momentum did carry over nicely into the beginning of this year. January was a step up, actually a nice step-up from what we saw in December, and that momentum has continued here. So taken together, we're feeling really good about how we're positioned here at the beginning of the year. We like the plan. The team is executing really crisply, really consistently. We're seeing nice growth across all 3 of those growth pillars. And looking ahead from here, we see some really nice catalysts shaping up for the remainder of the year across those pillars, new territories and new data, driving continued traction in VTE, new products and new markets that we'll be getting started in with Emerging Therapies, contributions from LimFlow along the way there as well. And then obviously, some nice traction continuing internationally with Europe leading the way. More geographies contributing more meaningful ways and still on track in both China and Japan for treating patients in those 2 markets. So, so far, so good. We're feeling very confident in how we're positioned here, not only in Q1, but as we look out from here through the remainder of the year.

[Adam Maeder, analyst]

And I guess for the follow-up, I'll ask a question on competition as it relates to 2024. The last, Travis was asking about your outlook for 24, but was curious kind of what you're baking in from a competition standpoint, competitive standpoint for your guidance in '24, both from your primary competitor and then any new market entrants on the DVT side of things.

[Andrew Hykes, executive]

Yes. So competition and competitive dynamics are clearly incorporated into our guidance. This is an attractive market. We are going to see competitive entrants become active in this market. Keep in mind, it's a $6 billion market, 6% penetrated. Our focus primarily historically and today remains on market growth, on making the investments we believe are necessary to change the standard of care for this patient population. That's where we have focused on training and education, on innovation, on high-quality evidence all those areas you've heard us describe before, all of them designed to drive market growth. That's where the real opportunity is. We're going to see competitive entrants. We factored that into our guidance. We started 2023 as the clear market leader. We exited 2023 as the clear market leader, and we would absolutely expect to continue to be the market leader in 2024. That confidence in leadership comes from the performance of our products, the undisputed solid clinical data that we have, the new innovation, the way our team is executing. All of that gives us confidence we're going to continue to be the leader in this market. And that is despite what will undoubtedly be new entrants. Maybe the last point I'd make is to the extent we do have new entrants that can help participate in the market development work that's obviously going to be constructive for everyone and ultimately constructive for patients.

[Operator]

Our next question comes from Kallum Titchmarch from Morgan Stanley.

[Kallum Titchmarsh, analyst]

I think one for Mitch here. Just on the gross margin side, I think 87.1% in the fourth quarter was a bit below where the Street was. So just keen to understand how we should be thinking about the setup for this in 2024. And maybe just some color on how you expect gross margins to trend longer term with these emerging products coming through? I guess, are you still comfortable remaining in that mid- to high 80% range longer term?

[Mitchell Hill, executive]

Yes. Thanks for the question, Kallum. And in terms of the Q4 gross margin, we saw some impact from the acquisition. There's a portion of the gross margin decline that related to the LimFlow acquisition, even though that was just in the picture for about 45 days, we continue to see some margin impact due to the internationalization of the business as well as the new -- some of the emerging therapy products have a lower gross margin profile than the kind of the VTE products that we've historically been selling. So that's kind of a couple of different factors that affected the change in gross margin from Q3 to Q4. As we think about the gross margin in 2024, I would say we're going to likely have another quarter or so of margin kind of in the low 87% range. And then we probably actually look for some margin pick up in the second half of the year. And then longer term, we've messaged and we still feel confident in our messaging about the gross margin kind of in the mid-80s. There's a lot of different factors that kind of go into the stew when we put that together. But overall, we think this business has a premium gross margin profile. We expect it will continue to have that. And we've kind of accounted for all the different factors in there as we kind of forecast that mid-80s percent gross margin over time.

[Operator]

The next question comes from Larry Biegelsen from Wells Fargo.

[Larry Biegelsen, analyst]

Drew, historically, you've said the core U.S. VTE market was a 20% growth 20% plus, I think, growth market. What are you seeing now? And what are your expectations for 2024?

[Andrew Hykes, executive]

Yes. We still see this as a massive market in the earliest stages of penetration. We're making the investments to drive that market growth, and we're continuing to see a very robust backdrop of market growth. We have every expectation that that's going to continue as we look out from here, certainly in 2024; so no change in our view of the underlying strength of the market growth. Month-to-month, quarter-to-quarter, there may be fluctuations here and there, just given how early we are in penetrating this market. But the trend line is unmistakable. This is a $6 billion market in the earliest phases of transitioning from conservative medical management to frontline therapy with FlowTriever and ClotTriever.

[Larry Biegelsen, analyst]

And to help us understand the emerging technology and international lines better. Can you talk about what's assumed for Artix and what's assumed for Japan and China? And any color on those market opportunities and your confidence in Artix the second time around here that you're going to be successful.

[Andrew Hykes, executive]

Yes. So relative to Artix, we've been working almost back 1.5 years now to reset that platform and do the development work you've heard us describe coming out of the first gen LMR. We've been hard at work. We are cautiously optimistic that we've improved the product in terms of the effectiveness and the ease of use that you've heard us describe before. But until we actually execute the LMR, we'll need to be a little cautious about what kind of contribution we're going to be describing. We've taken that into account in the guidance. It's a relatively modest component of our guidance as a result. Similarly, with China and Japan, we're confident we're going to be able to treat patients in those 2 markets this year, but there's some uncertainty around when the exact approvals will take place as well as how quickly the initial ramp will take place. And as a result of those uncertainties -- we've also factored in a pretty modest contribution from both China and Japan into that 2024 guidance.

[Operator]

The next question comes from Marie Thibault from BTIG.

[Marie Thibault, analyst]

I wanted to ask a quick clarification on the Emerging Therapies revenue breakout. Am I fair in assuming most of that's out of the U.S., all of that's out of the U.S.? Or are there some emerging therapy treatments doing -- being done internationally?

[Mitchell Hill, executive]

Yes. Marie, there's -- it's primarily U.S. revenue when we're looking at the Emerging Therapies. So for example, if you look at the table, this at the back of the press release. Those are almost exclusively in the U.S. For the reasons you'd imagine, we're in the process of pursuing regulatory approval for many of those products for international markets. Probably initially focused on Europe and then we'll kind of roll those out in other parts of the world, but we're still kind of going through the process.

[Marie Thibault, analyst]

And then let me ask, I guess, a 2-part question, largely on cadence and sort of the path to think about this year. Cadence for these sales guidance throughout this year. If I'm recalling correctly, Q2 was just a slight sequential step-up from Q1. So I'd like to try to understand that for modeling purposes. And then similarly, the path to profitability in first half of '25 on operating profitability, what do you need to do kind of operating leverage wise? And what gets you to that goal?

[Mitchell Hill, executive]

Marie, thanks for the question. In the prepared remarks, I commented on kind of the Q4 target -- sorry, a 4% target in terms of sequential growth from Q4 to Q1 as we move into 2025. The past couple of years, we've seen some seasonality softness in Q2. We're still not sure about that. If that's a real thing in our business or not, different reasons and theories around that. But then I did mention in the script that we would expect accelerating revenue sort of in the second half of the year. So that would give you a sense for kind of the overall revenue profile. From an operating leverage and kind of path to profitability point of view, glad you asked about that. I was just thinking in Q4 of -- in terms of our Q4 numbers, with 23% revenue growth, OpEx grew by 24%. But if we exclude the LimFlow onetime costs, the OpEx grew by 15%. So really nice progress there in Q4. And then looking at the full year numbers, revenue growth of 29%, OpEx growth of 22%. And then if we exclude the LimFlow onetime stuff, about 19%. So we've taken this challenge of operating leverage seriously as a company. There's a lot of buy-in across the company to looking at all the areas of the OpEx spend and making sure that we are seeing some nice productivity of our investments there. That's contributing to our confidence as we think about the progress of the business from a profitability point of view in the first half of 2024 versus the second half of 2024. So less basically operating losses we move through the course of the year and then moving towards sustained operating profitability in the first half of 2025.

[Operator]

The next question comes from Bill Plovanic from Canaccord.

[William Plovanic, analyst]

Start off with, can you help us understand just any commentary regarding competitive trialing share gain loss? Where are you seeing the biggest impact, DVT, PE. I think as we look at these numbers on the VTE business, you grew just under 20%. You've had some solid growth internationally, which puts the U.S. more into the mid- to high teens. And I guess what I'm trying to get at is how much of this is behind you? And what are you expecting in '24 in terms of this?

[Andrew Hykes, executive]

Yes. So I'm happy to answer some of that, Bill, and Mitch may want to pile on as well. We've been pretty clear about the competitive dynamics as we move through 2023. I think much of the competitive trialing was front-end loaded on the year, but we did see it kind of splash over into Q3 and Q4. You've heard us describe those are cases that we would have had. That's revenue that we would have generated. And due to the competitive trialing we don't have access to it. So it has definitely had an impact. At the same time, again, we began the year as the market leader. We're exiting the year as the market leader. We are very confident in continuing to be the market leader. This is an attractive market. There are going to be new entrants that come where we compete head-to-head, we like our chances. We like the way our technology is performing third, fourth-generation platforms at this point. We had a very capable and well-established commercial presence and field team that are doing good work day in, day out. We've got a mountain of high-quality clinical evidence getting bigger every day, and we're continuing to innovate on the technology as well. On top of that, a very differentiated approach to market development. So you take all that together, we're very confident in our ability to continue to lead in this market. And to the extent new entrants can help develop the market. After all, that's where our focus is, that's where the real value is on a patient front as well as value creation front. Anything you want to add to that, Mitch?

[Mitchell Hill, executive]

Yes. Just, Bill, from the point of view of the VTE growth, so I'm kind of looking at some of the revenue aggregation, it's in that table we disclosed in the back half of the press release, I'm just looking at the sequential revenue growth, let's say, of Q4 over Q3. So just over 4% there. And then when I look at the year-over-year number for VTE, about 19.5% revenue growth comparing 2023 to 2022. So I think those numbers are pretty attractive from a growth perspective, and we feel pleased with the progress and the performance of the business during 2023. And for all the reasons you heard from Drew, very optimistic about 2024 as well.

[William Plovanic, analyst]

And then just you mentioned, Mitch, on the profitability of the business you subtracted out the LimFlow acquisition cost. I'm sure there's some -- when you did that, is it just the acquisition? Or is that also the ongoing LimFlow costs when we kind of looked at that from the core? Was that like the core business look in terms of your answer to a prior question.

[Mitchell Hill, executive]

Yes. The answer to the prior question, I was just looking at the 2023 Q4 numbers and also the flow year numbers. And then just backing out the onetime costs, which are identified in the press release, essentially, that was $9 million in Q4 and then $11.7 million for the full year. Happy to share some commentary if you'd like, in terms of how that looks in 2024 as well. I think we would expect the onetime costs, if you're kind of interested in that from a Q4 perspective, I think the onetime costs in Q1 will be about the same as Q4 and then potentially dropping to about half of that for the remainder of the year. And that's made up of both the transaction costs, which dissipate as we move through the year and then its purchase price amortization thing that we -- I talked about the amortization of the acquired intangible asset. So happy to talk further about that, but hopefully, that's helpful with at least some directional feeling on that.

[William Plovanic, analyst]

Yes. So you're seeing another $9 million in Q1, and then we'll see about $2.5 million to $3 million a quarter from the amortization in Q2 through 4. Is that how to think about it?

[Mitchell Hill, executive]

Yes, that amortization number stays pretty consistent through the course of the year around $2.5 million. The total onetime stuff in Q2 through Q4 is more in the $4 million to $5 million range because there's still some transaction costs involved. Bill, just to make sure I'm clear, when I was talking earlier about the company's profitability, we're speaking about GAAP profitability. So I'm not talking about this non-GAAP number that we have in the press release. I just want to make sure everybody is clear on that.

[Operator]

The next question comes from Chris Pasquale from Nephron Research.

[Christopher Pasquale, analyst]

Just one quick one on the quarter. Any color on the VTE mix between FlowTriever and ClotTriever in 4Q.

[Andrew Hykes, executive]

The overall mix, Chris, still has been pretty consistent. I think you've kind of seen historically, you can look back for several years actually for us, and you can see the breakdown in terms of product-wise, revenue-wise between the FlowTriever family and the ClotTriever family. So I would say that's pretty consistent. That's one thing that as a part of this new revenue aggregation as we move forward, we're not going to talk specifically about that. But I think you've got a pretty good flavor for it based on how the business has operated historically.

[Christopher Pasquale, analyst]

And then just a couple of questions on PEERLESS. So it's completed enrollment. It's a short follow-up. You talked about data being presented in the back half of this year. It seems like you might know what it looks like before then, just given the timing here. So are you targeting a particular venue for that? And how would you frame the impact positive data could have what percentage of patients are getting CDT today and could shift to mechanical thrombectomy if that data is really compelling.

[Thomas Tu, executive]

Great questions, Chris. Thanks for bring them up. So firstly, as regards to the timing of the PEERLESS data release, we're really excited about the completion of enrollment in the study. I think it's a testament to the level of interest of clinical investigation in this space as well as the execution of the clinical team. We are targeting a major cardiovascular meeting for the release of the data. And you can imagine towards the back half of the year, what possible meetings that might be. I think this being a groundbreaking study deserves the kind of platform that, that might provide. So that's as much as timing. As far as the potential impact. We know that CDT has been progressively diminishing as a treatment for pulmonary embolism. Although there are still people who consider that as a therapy. And I think this data set is going to go a long way towards targeting conversion of CDT therapy to definitive mechanical thrombectomy.

[Operator]

Our next question comes from David Rescott from Baird.

[David Rescott, analyst]

I wanted to start on the Emerging Therapies bucket and some of the prior year-over-year prior data that you provided. When we look at, I think, maybe Q2 through Q4 of 2022, it looks like there is a pretty significant step up at least closer to that $4 million to $5 million per quarter number versus the $2 million or so in Q1. So I'm wondering, one, if that is kind of the right way to start off thinking about emerging therapy contribution as early as, I guess, the first quarter of 2024. And then I'm curious what the -- maybe the biggest kind of contribution segment or product in that $4 million to $5 million per quarter that we've seen and whether or not that's been steady throughout those 2 to 3 quarters in the back half of 2023 or if there's any movement around some of those new products having a bigger contribution on a quarterly basis?

[Andrew Hykes, executive]

Yes, David, I'm happy to get started on that, Mitch may want to add some additional thoughts as well. So as you look back over the course of 2023 across the Emerging Therapies portfolio. Keep in mind, these are still relatively small numbers, but you're seeing the impact of some of the new product introductions that we made earlier in 2023, specifically RevCore and InThrill. And so you're seeing the impact of those product launches and some of those step-ups. Looking ahead from here, we absolutely would expect the Emerging Therapies portfolio to grow on a relative basis, quite a bit faster than VTE, but obviously off a much smaller base. We will be bringing a new product into the CBD toolkit alongside RevCore. We talked about that in the prepared remarks. There will be some incremental growth, hopefully, from that new product introduction. We'll have continued traction with InThrill. LimFlow is included, obviously, in the CLTI component of Emerging Therapies. We've only factored in a modest contribution from LimFlow, but that will be ramping as we move through 2024 and the U.S. launch progresses. And then finally, we will get started on Artix if all goes to plan later in the year, and that will be incremental growth in the fourth and final segment of Emerging Therapies.

[Mitchell Hill, executive]

And David, the thing I would add quickly is I think the growth in the Emerging Therapies is likely to be a little bit lumpy, I guess, I would call it. And that's both due to the fact that we have, in some quarters, a new product that's been introduced. And you can kind of see that looking at the numbers for 2023, actually back to 2022 as well and then also due to kind of the way these products are moved through the VAC approval process and time line with the hospitals, and that takes x number of months typically for that to get through. And so the way those actually begin to impact the revenue line, it tends to be a little bit lumpy as opposed to really smooth.

[David Rescott, analyst]

So would it be fair to say that maybe all of these segments on a go-forward basis and thus far are contributing to the growth, and there doesn't really appear to be a clear winner among the core products that are -- or in your view, is there may be a clear winner product so far?

[Andrew Hykes, executive]

So I do think all 4 will contribute on a go-forward basis. On a relative basis, Artix is, of course, going to start from 0 as we relaunch, so that will be pure incremental. Across the other 3, I think they will grow as we move through the year. And to Mitch's point, you might see some lumpiness driven by some of the new product introductions and the VAC approvals coming through across those respective new products.

[Operator]

Our next question comes from Richard Newitter from Truist Securities.

[Richard Newitter, analyst]

And thanks for providing the revenue disclosure. Maybe just on kind of the pieces of the disclosure that you provided as they roll up to '24. I'm just trying to get a sense directionally. Can you tell me if I'm directionally close? I'm getting to the midpoint of your guidance, you're thinking about the core U.S. VTE in kind of the mid- to high teens, I'm assuming International about 5% to 6% of revenue. And that implies the leftover being the Emerging Therapies. I guess, are those the directional components, understanding you strive to outperform the initial outlook. Are those reasonable directional components of how to get to the midpoint of your guidance for now? Specifically, you could comment on that International as a percent of total in that 5% to 6% range.

[Mitchell Hill, executive]

Richard, thanks for the question. I think we closed out the year with International at 6%. That's something -- it's going to continue to make progress. I think there's potentially some step up as we move through the year as we continue to get more traction in the more developed markets as well, we may have some additional products for sale at some point in these markets. I mentioned earlier during the call that we're still pursuing regulatory approval for many of the new product things that we've launched. As Drew mentioned, we think that the international contribution from China and Japan is likely to be very modest and probably more back-end kind of loaded in terms of thinking about 2024. From the point of view of the other pieces of the puzzle in terms of your revenue build, I think you're kind of headed in the right direction there in terms of how that -- how it certainly how we closed out the year 2023 and then how we'll kind of think about 2024.

[Richard Newitter, analyst]

And just to be clear, so maybe International, even though you have incremental Emerging Therapies contribution, International as a percentage of sales, so will gravitate higher than the 6% than '23.

[Mitchell Hill, executive]

Yes, that's what we expect. I think Drew has talked about that longer term growing into a 20% type factor, but certainly, that's going to be a multiyear build to that level.

[Operator]

Our last question comes from Mike Matson from Needham & Company.

[Michael Matson, analyst]

So just wanted to ask one on LimFlow. So you mentioned this NTAP opportunity. So I assume it's been applied for, but you don't know whether or not you're getting it yet. Is that right? And how critical is that to driving adoption of the product in your view?

[Andrew Hykes, executive]

Yes. Great question. Mike, I'm happy to get started on that. So, so far, so good with LimFlow. We closed in November. We've made some really nice progress on the integration front. And we've also made some nice progress on the initial U.S. launch. We obviously don't have access to the NTAP today. But if you look at the existing reimbursement, inpatient reimbursement today at our target first group of limb salvage centers, it is in the neighborhood of $30,000. So it is a positive contribution margin procedure even today with the existing reimbursement. We have applied for NTAP and are confident we will receive it. It will go into effect in October, and that will add incrementally about another $16,000 in incremental reimbursement on top of the existing DRG. So it obviously provides a lot of incremental economic value to the hospital at that point. But even today, in advance of the NTAP, we are gaining back approvals and beginning to do initial cases in the U.S. And I think the economic value proposition is broader and ties back into LimFlow being a really important part of any limb salvage center armamentarium and some of the broader economic considerations, I think, are helping fuel the growth here and the traction even in advance of the NTAP, which again, we anticipate coming online in October.

[Michael Matson, analyst]

And then I know there's a lot of focus on competition from Penumbra, but I just want to ask if you've seen any sort of impact from Boston Scientific's REAL PE study. I think that it was presented at TCT kind of in the fall. Did that drive any kind of pick up in their EKOS sales? Or I mean, that you could see your share gains from you guys?

[Andrew Hykes, executive]

Yes. I think Tom might have some perspective to share on that data set and the impact.

[Thomas Tu, executive]

Yes. Thanks for the question, Mike. So first of all, to call the REAL PE dataset trial, I think, is maybe overstating its value. It really was a kind of an exercise in electronic medical record assessment. And what it showed is that when you retrospectively look at who got FlowTriever, you oftentimes saw patients who were too sick to get any other therapies. You got patients who are actively bleeding who got the only therapy that really was appropriate for somebody who cannot get lytics and that would be mechanical thrombectomy. So I think it was a nice exercise in selection bias. I think the vast majority of physicians see it for what it is. We're excited about PEERLESS because PEERLESS is actually high-quality randomized data. And I think that the community can't wait to see the results of that. We really have not seen any commercial impact from that data release.

[Operator]

This concludes our conference call. Thank you for attending today's presentation. You may now disconnect.