Q4 2019 Earnings Call
Good afternoon, ladies and gentlemen, and walk in Q4 quarter 2019 fees Fine Holdings Corporation earnings Conference call.
At this time, all participant coming to listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should be quite assistance during the conference. Please press star do zero I get that Don telephone.
I would like to turn the conference over to your host mislead Salvo of Investor Relations. Please go ahead.
Thank you and thank you for participating in today's call.
Joining me from sea spine.
CEO, Keith Valentine and CFO, John bus chance sick.
Earlier today, she find Willey Stifel financial results for the fourth quarter and year ended December 31st 2019.
During this conference call, we will make forward looking statements within the meaning of federal securities laws in regard to our business strategy expectations and plans our objectives for future operations and our future financial results and condition.
All statements other than statements of historical fact are forward looking statements.
Such statements May include words, such as believe could would well plan intend and similar expressions.
You are cautioned not to place undue reliance on forward looking statements, which are only predictions and reflect our beliefs based on current infinite information and speak only as of today the right 26 2020.
For a description of risks and uncertainties that could cause material differences between our actual results and those stated or implied by the forward looking statements. Please see our news release isn't periodic filings with the FCC, which are available on our corporate web site at the dubbed up doubts you find dotcom and it dot dot dot dot FCC that God I will now turn the call over.
Keith Valentine Keith.
[noise] excuse me.
Thank you all for joining me on [noise].
2019, [laughter] was another year of solid execution for the she's buying cheap we.
We delivered on our commitment.
To double digit revenue growth by posting 11% growth for the full year [noise] in more than 13% growth in the second now since 2019 [noise].
We topless this through an aggressive cadence of new product introductions [noise].
Including 10, new products are line extensions into key commercial launches, we also expanded or distribution footprint.
In the U.S. and internationally with the addition of even more committed and exclusive distribution partners [noise].
Along with a robust product pipeline beyond what you need to lunch 70, Surgicals machine vision image guided enabling technology and 92 major net proceeds raised from an equity offering last month, we have never been better position to continue the momentum and gain additional market share.
We remain laser focused on our vision to develop surgeon centric cost effective solutions that combined innovative spinal implant systems with industry, leading orthobiologics [noise].
Which together will drive improved procedural solutions and deliver clinical value to the surgeon hospital inpatient [noise].
That's a recent global sales meeting demonstrated this monster the entire Ses find organization has steadfast in executing this vision and we look forward to achieving even greater results in 2020 [noise].
Turning to our topline performance in the fourth quarter 2019, we delivered the highest quarterly revenue and in our history as a Standalone company [noise].
Posting total revenue of 43.7 million increase of 15% versus the year ago period [noise].
I'm, especially proud of the 21% gross we posted for U.S. spinal implants in the fourth quarter of 2019, [noise], which is by far the highest growth rate in that portfolio to date.
Total U.S. revenue increased 16% to 39.3 million International revenue grew 10% to four point Fourmillion [noise].
In the U.S. growth was once again led by higher sales by our core distributors have recently launched products in line extensions.
New and recently launched products contributed more than 60% of U.S. spinal implant revenue in more than 25% of U.S. orthobiologics revenue in the fourth quarter [noise].
Somebody distribution perspective, we have continued to add more committed increasingly exclusive distributors in the U.S. [noise].
For the fourth quarter and full year 2019, these core distributors collectively generated nearly 58% and 54% respectively.
Our total us revenue.
Core distributors collective revenue mix is roughly 60% spinal implants, and 40% Orthobiologics, which is approaching the average revenue breakdown per procedure for spinal implants versus orthobiologics.
Turning to our product launches 2019 was another exciting year for innovation and execution highlights included Alpha launches of three line extensions to our Mariner platform for among us midline cortical and more complex revision surgery and our full launch of the midline cortical says.
Stones in December we also L. full launch the incorporation of the innovative new reef topography into our shoreline anterior cervical system.
We continue to invest in the scientific work to evidenced the value of lease. We recently completed a large animal study that demonstrated significant benefits infusion performance and early file mechanical strength.
Within the Orthobiologics portfolio, we introduced a new integrated hydration system for the Osteo stranded Osteo strand, plus demineralized bone fibers products that allows the surgeon to seamlessly hydrate, the DBM Cyrus with blood ceiling or bone marrow as spreads in a convenient opened for switch.
System.
During the fourth quarter of 2019, we also launched a minimally invasive pedicle based TNF retractor that is compatible with our Mariner system and a bullet interbody featuring nanometalene with read typography surplus and Telus approaches that accommodates post straight impaction and instead.
In rotate techniques in 2019, we also completed the full launch of our regatta lateral system, featuring our proprietary nanometalene surface technology.
Looking ahead for the next 12 months from a product development perspective ceasefire enters 2020 with our most ambitious launch schedule in our history, starting with our inner body franchise, where we have the most new product introductions plants, we expect Elfa launched three new implants, featuring nanometalene with three topography.
At articulating Telus and plan.
And hinged to the chief implants in a new no profile anterior lumbar interbody implant that includes both to screw and an optional modular locking plates. We also plan to L. for launch in the first half of this year a newly designed comprehensive anterior decompression and just.
Preparation instrument system to better support this next generation a lifts and our existing implant systems. Our plans are on track for our Lordotic unparallel expanding inner body and plans to launch under the explore brand name during the first quarter. We also expect to launch a line extensions of our National media.
I don't meddling regattas lateral implant to include a modular blocking plates in the first half of 2020.
We are perhaps most excited to begin alpha commercialization.
Well the suite of Threed printed interbody devices under the agreement, we announced with restore three D. Late last years. These threed printed implants, which will ultimately spans cervical telus interior and lateral close approaches allow us to be more efficient with capital expenditures.
Because they are designed to utilize the existing instrumentation from their nanometalene counterparts systems.
In our cervical franchise, we expect to Elfa launch, our Northstar posters cervical RCT systems in the first half of 2028, a next generation anterior cervical plating system in the second half of the year.
We're particularly excited about the launch of the North Star system as it will address the last big product gaps in our surgical franchise and will ultimately replace two aging systems that were launched almost 10 years ago.
We also expect to transition our Mariner msps and revisions revision system and the shoreline SCS system with reduced topography to full commercial launch in 2020 and to launch a line extension of our Daytona small stature deformity system in the first half of the year to capitalize on summer.
Deformity season.
Finally, I want to highlight our enthusiasm around our recently announced strategic Alliance was 70 surgical two co market their flagship machine vision image guided surgery platform and to develop see spine specific instrumentation optimize to work with their platform. So this agreement allows us to offer a best in class navigational salon.
In addition to our hospital and surgeon customers, which combined with our innovative and differentiated spinal implant systems and Orthobiologics products collectively provide for a complete integrated and seamless procedural solution in spine. So this enabling technology uses only visible light.
Eliminating patient and staff exposure to inter operative radiation, which is common with other technologies, perhaps most importantly, we have been extremely impressed by the system's ability to improve surgical work flow by registering the patient and just seconds and by allowing the surgeon to control the system.
From the sterile fields, which is a great value added benefit to this navigational platforms continued investments in product innovation and in the deployment of more of our highly utilized foundational spinal implant systems combined with the increasingly efficient in full scale production of our.
Vance DBM products gives our larger and increasingly exclusive distribution network.
Confidence that we can support the growth of their businesses. These investments are further enhanced by our expanded surgeon and distributor training and education loans programs, which underscore our commitment to providing a world class customer experience to our surgeons and distributor partners.
We believe that our greatest strengths is our focus on mirroring our best in class a cost effective dbms with a differentiated spinal implant portfolio built upon a solid foundation of advanced surface technologies, including Nanometalene and Threed printed implants and modularity features.
That provide surges with the inter operative flexibility to meet their patient needs.
As mentioned earlier this message was on full display at our global sales meeting, which was held in La Jolla, California earlier. This month. So it was also a venue to recognize and celebrate our most successful sales leaders.
And distributor partners and how we have transformed seaspine into a company focused on designing procedural solutions for spine fusion, we shared aggressive product launch plans for 2020 with all of our employees and our most committed distributors and you could sense the excitement in positive energy that we generated throughout the meeting.
We all are ready to translate that energy into even greater commercial momentum and success for everyone in 2020.
I'll now turn the call over to John to provide more detail on our financials and our financial outlook, then I will wrap up John.
Thanks, Keith and good afternoon, everyone as Keith noted earlier total revenue for the fourth quarter of 2019 was $43.7 million, an increase of 15% compared to the prior year.
Yes revenue increased 16% to $39.3 million, an international revenue grew 10% to $4.4 million.
Yes, orthobiologics revenue in the fourth quarter increased 11% year over year to $20.2 million and was driven by growth in recently launched products led by the Osteo Strand asked just trend plus products use spinal implant revenue in the fourth quarter increased 21% year over year to $19.1 million and was.
Led by growth from new and recently launched products, particularly our expanded Mariner platform and Nanometalene Interbody systems.
Spinal implant surgery case volumes increased by more than 10% and we were able to capture more revenue per procedure with our expanded portfolio.
We continue to experience low single digit price declines.
Gross margin for the fourth quarter of 2019 was 64.2% compared to 60.6% for the same period in 2018.
The increase in gross margin was due primarily to the favorable shift in geographic and product mix with higher margin us revenue growing faster than international revenue and higher gross margin spinal implant product revenue growing faster than orthobiologics product revenue.
And from lower amortization of technology related intangible assets compared to the prior year.
We also continue to see the sustained benefits of our focused efforts to reduce the raw material and manufacturing costs of our orthobiologics products.
Gross margin for the full year 2019 was 63.6% inline with our guidance.
Operating expenses for the fourth quarter of 2019 totaled $36.9 million, a 4.4 million dollar increase compared to $32.5 million for the same period of the prior year.
The increase was driven primarily by $2.4 million in higher selling and marketing expenses, the majority of which relates to selling commissions.
$900000 in higher research and development expenses that enabled the increased cadence of product launches in 2019.
And $1.2 million in higher general and administrative expenses.
The increase in Gionee expenses was driven entirely by the impact of a $900000 noncash gain recorded in the fourth quarter of 2018 related to a decrease in the fair value as an LTE contingent consideration liabilities compared to a 300000 dollar noncash loss recorded in the fourth quarter of 2019.
Excluding the impact of noncash and LT gains and losses DNA expenses were flat year over year.
Net loss for the fourth quarter of 2019 was $8.6 million compared to a net loss of $9.5 million for the fourth quarter of 2018.
Cash cash equivalents and investments at December 30, Onest 2019 totaled $20.2 million and we had no amounts outstanding under our credit facility.
We significantly strengthened our balance sheet in January 2020 through a public offering of $7.8 million 8 million shares of our common stock, bringing in net proceeds of approximately $92 million.
Our free cash flow burn, which includes operating cash flows and purchases of property and equipment was $7.6 million for the fourth quarter and $33.1 million for the full year 2019.
We deployed more than $11 million of instrument and set dead capital expenditures in 2019, a more than 65% increase compared to 2018, which was an important investment catalyst for the accelerated spinal implants revenue growth in the second half of 2019.
We remain focused on expanding our gross margin and continuing to reduce cash base gionee expenses as a percentage of revenue. However, we plan to continue to redeploy much of that operating leverage towards the sales marketing and R&D initiatives and inventory in spinal implant SEC build capital expenditures.
That are critical to driving sustained accelerating revenue growth.
Turning to our financial outlook for 2020, we continue to expect full year revenue to be in a range of $177 million to $181 million, reflecting growth of approximately 11% to 14% over full year 2019 revenue.
This guidance does not include any potential revenue from the recently announced 70 surgical partnership which will provide more clarity on as the year progresses.
We expect growth in the U.S spinal implants portfolio to exceed 15% for the full year 2020 with higher growth coming a second half of the year based on the expected timing of the full commercial launches of our expanded mariner platform and shoreline with reef topography.
Moving down the PML, we expect gross margin for 2020 to increase to within a range of 64% to 66% gradually expanding throughout the year as we continue to generate leverage from our Irvine manufacturing facility.
We expect R&D to approximate 9% to 10% of revenue.
Sales and marketing to approximate 52% to 53% of revenue consistent with a 52.5% reported for 2019.
And Fourg DNA, excluding noncash stock based compensation charges, and any noncash gains or losses related to changes in the fair value of an old t. contingent consideration liabilities to approximate 16% to 18% of revenue a slight improvement compared to 18.4% reported for 2019.
We expect to reduce our free cash flow burn to less than $30 million for full year 2020, but much of that spend will be front end loaded because of the timing of cash bonus payments in March and set builds in preparation for the full commercial launch as Keith outlined earlier.
Based on the success of 2019, we will continue to invest confidently and aggressively in the spinal implants inventory instruments and sets that are needed to achieve the higher 2020 revenue growth rates that we're projecting.
We once again expect to spend more than $10 million on instrument and set build capital expenditures in 2020 to commercialize the many alpha and full commercial launches planned for this year and to deploy even more of a higher turning sets to the field.
Based on the strong correlation we've identified between spinal implant set additions increased revenue growth as measured by revenue generated per set we continue to believe there is meaningful unmet demand for our key systems that is being generated by our core distributor partners.
With a more than $100 million of cash we have on hand, following the recent financing plus the additional liquidity that we can access through our $30 million credit facility, which we expect to exercise our option to expand to $40 million. Later in 2020, we believe that we are sufficiently capitalized for at least the next three.
To four years as we continue to build scale in order to achieve profitability and positive free cash flow.
At this point I'd like to turn the call back over to Keith for closing comments.
Thank you John Seaspine remains one of the fastest growing pure play spine companies. We're firmly committed as an organization to continue to innovate and to drive accelerated revenue growth through aggressive commercialization of that innovation and to continue to take market share through outstanding customer service.
We have an exciting pipeline of differentiated new technologies on a robust cadence of full commercial launches planned for 2020, and there still remains plenty of white space in the us to color Orange with the addition of new more committed distribution.
With many new systems in line extensions, we plan to launch in 2020, we will be able to capture more of the surgical procedure and to address nearly $2.5 billion of additional market opportunity in the poster cervical and lumbar fixation as well as the interbody device market segments.
With the added procedural synergies from our advanced Orthobiologics portfolio.
We see almost $3 billion of new opportunity.
We are pleased with our accomplishments over the past year and our goal to reposition seaspine for sustained and accelerated growth, which has been realized we are led by the very experienced focus leadership team that collectively has more than 230 years of experience and spine and orthopedics.
Perhaps most importantly, the almost 400 employees of Seaspine are more motivated and capable than ever to deliver clinically relevant cost effective procedural solutions that differentiate us with both surgeons and distributors in this competitive market, we are energized yet humbled by our.
A recent successes and we are committed to continuing to grow at a rate that is at least five to six times faster than the overall spinal implant market.
With that we will now open it up to questions operator.
Thank you ladies and gentlemen, if you had a question at this time. Please press Star then the number one on your Thats still in California.
Great question have you been Eric are you extremely yourself from your please press the parents.
First question comes from the line of Matthew O'brien of Piper Jaffray. Your line is open.
My question.
Keith matters here and account afternoon.
We started to cure as we as we look at the growth acceleration that you're expecting this year and I think you mentioned about a 10% growth and volume last year, maybe since Q4.
How do we kind of deconstruct that growth as we think about 2020 between volume more revenue per case, and then as you're introducing and I'm sure you're not quite there yet, but as you're introducing more more differentiated technologies I'm, assuming that your pricing pressures will come down ever so slightly so how do we.
Think about that acceleration this year.
Hey, Matt.
The growth is.
Driven by procedural growth and then the mix as you point out rate capturing more of the procedure and a good portion of the revenues as we indicated was in the fourth quarter driven by capturing more that procedure and I think the growth in 2020, we anticipate is going to continue to come from both volume increases in capturing more of the procedure.
With all the new products and systems that keep talking about right. If we're in the LR, we want to have the Orthobiologics. We want to have the fixation, we want to have the inner body and having something like this pedicle base retractor Thats compatible with our Mariner My assistant Theres No reason for someone to bring another retractor into the procedure, which is opens the door to a competitor. So we're.
We're looking to continue to drive growth from both volume increases and capturing more procedure per revenue, which we were successful in 2018.
So we expect that to continue in 2020 as well and in terms of price we with as you indicated with all the new products, we're launching and how that's driving a lot of revenue growth, we're not seeing much price deterioration on average we said it was low single digits, but some of our franchises were actually seeing.
Overall, ASP increases because of the new technology that we're launching and obviously that helps with revenue growth as well.
Okay, and again for thanks, John either John or Keith and revenue per case opportunity.
Can you help frame up where you're at at this point, if you're thinking about hey, we can get too.
Eventually 100% of certain cases on average are you at 70, 80% of that I mean, how much more runway do you have in those cases as you're introducing more net products, yes, I would say, it's a much smaller percentage than that and we want to drive towards that couple initiatives that went on last year, Matt that give us the ability.
Get better granularity and we'll be able to start taking a look at how that combination is more effective is because we have some ability now to do single single invoicing with both of our between our implants and our Orthobiologics as the year progresses, I think we'll start.
Able to get better granularity on some of that data, but I think it's also important to note that in a number of accounts. We also may already have the orthobiologic on the shelf and so we want to start figuring out how to get granularity when we're using implants for orthobiologics that are already on the shelf as well, which is a little bit harder thing sometimes.
To get granularity on but we absolutely one could be focused on how we're getting a broader procedural sell especially with some of the continued good news we're getting out of.
Frank, especially a team.
Work on the effectiveness of our DBM versus competitors that are at two times the price.
Got it and then just two more for John.
And I really don't want to make a big point out of this perspective.
Guidance for topline growth in from the release today versus the pre announcement, the low end, 11% versus 12 in the pre announcement.
Just a currency thing.
It's just because when we did the Preannounce, we put the I think is a $400000 range around the top and bottom because it was day three so on the low end of the range. It got to 12%, but now that we've honed in on the final number it's 11% just because there's no range. So thats just demand.
Okay. Thanks, Sara it's pretty straightforward actually the thought of that.
And then secondly, your comments about more the growth coming in the back half when there are just a little stronger in the back half I get that there's new products, which have easier comps in the first half so generally trying to get into cadence is too much but.
And easier comps in the first half of the year versus the second half.
What.
How do we think about how things kind of marks throughout the course of the year.
Yeah, I think there's a few levers that we're we're trying to give visibility Joe I mean, obviously the one man is the number in the investment and significant full product launches that we'll have a very positive impact on the second half of the year. The other is you know just just kind of this general.
Phenomenon or at least.
Micro environment, and even macro environment, we're seeing different signs of this as we talk to do our own channel checks that.
There is increasingly bigger opportunities in that second half of the year, specifically in the fourth quarter and there seems to be this fall off that you have some some clinicians we talk to say that the first quarter as has a bit of a different falloff as patients started accepting the fact that they are under new deductibles and what have you and the question.
We just want to get through that first half of the year and feel very comfortable about the second half and I think if you look at our history. We have typically shown that that the first half of the year is a little bit yes little bit different than than the second half of the here, we feel like thats kind of how we're going to see our progression, especially in light of the amount of said investments we.
Having the second half of the year.
Okay got it thank you so much.
Thanks, Matt.
Thank you next question comes brand a line of a Ryan Goodman of BT IP. Your line is open.
Hi, This is Sam onto Ryan Thanks for taking the question you guys have.
So it shouldn't dig a little bit into the 70 agreement some moorings kinda if you could.
Describe a little more the strategic rationale whether this was.
Good morning, something where you see spine needed a imaging and navigation system or it was specific to the 70 product that you sounded Liz.
Additive to the company.
Yes.
I think that we have demonstrated that especially the fourth quarter that I don't think you necessarily have to have an enabling technology to show very strong growth on spinal implant, but that said I also do feel strongly that having an enabling technology, especially the kind of partnership with like cultured company like said.
R&D is creates an opportunity for us to get into accounts that were not in right now or that were in at a very small market share and I think the opportunity to provide accounts that are very interested in navigation or interested in some sort of of additional technology that eliminates maybe some of the radiation.
In the Indio, our or as I think many surgeons have demonstrated or have explain it's got to have a seamless workflow that over the course of the past 18 months receiving the progress that 70 is made and Phil. This is a great partnership for us to having the ability to place systems and work through certain.
Earnout structures that enable us to participate in a different way and that hospital chain.
And so.
I think again it comes down to like culture. The reason. This this this deal I think ultimately went in the direction. It did is because it's like cultures. Its companies that are very focused on innovation and have the wherewithal to make the appropriate investments to drive that innovation.
Great. Thanks, and then separately on the biologics market and seeing some competitors have some issues in the stem cell and amniotic space.
Hi, just kind of characterize on market going into the first half.
I think that some of the science that was presented at this past NASA as done a nice job of being able to be articulated understood in the marketplace post NAF I think Additionally, there continues to be insurance providers that that have concerns and have.
I would say sometimes in some markets significant pushback on other higher price technology, and so I think that if our opportunity that the DBM space has been a long recognized space for many decades. It has full if you will support kind of reimbursement perspective and at our opportunity to.
Rating why were so differentiated and have the best technology in the marketplace.
Thanks.
Thank you next question comes from the line highly relative Canaccord. Your line is open.
Great. Thank you very much for taking the question because I just wanted to take.
Hey.
Congrats on a good quarters I wanted to take a step back it is going to become a big picture.
You've got all the stat.
You've got the new products that are opening up the incremental market opportunity.
I guess, how do you think about the medium term growth is it more about going deeper in capturing that extra dollar per case of the existing cases or do you see more from going out and taking competitive share both from a distribution and in a position standpoint.
I think we're seeing both encounter some of that may be kind of just the reality of of how are more exclusives and committed distributors are evolving right I think that we continue to bring on new folks in those new folks are absolutely going after competitive business first and then we have existing folks and.
Number of those.
Larger distributors that we were able to celebrate at our recent GSM that are doing both right. They're continuing to go after competitive business, but theyre absolutely.
Coming larger market share and the accounts that we already participate in so I still think there's a balance of both but certainly as new distributors come aboard it is absolutely about going after competitive accounts and going after especially in areas that we have white space and we're bringing in a new participate if you will or new partner.
Okay, and then just to.
John with respect to the Capex guidance for the year I guess Im just trying to understand you got this opportunity it sounds like you've got the improvements from a distribution perspective over the course of the last 24 month.
More accountability from the core distributors, but still kind of consistent capex spending year over year you just.
Shored up the balance sheet I guess.
That is more conservatism or is it just being prudent in the planning or is there an opportunity to you I guess pull ahead some of that capex spending build more in instrument sets and kind of take advantage of some of the disruption we're seeing on the market from competitors integration and streamlining of.
Commercial channel.
The 10 million is a combination of two things it's the investment in new set launches in the line extensions.
Large pipeline that Keith outlined we plan to launch, but also its deploying more of our higher running sets in anticipation of that demand. So it does reflect the fact that there are market opportunities for us to continue to take market share from the competition by bringing on the new distributors, because we still have a pipeline of those more committed distributors that were.
Eager to bring onboard but also the ones that we have going deeper in their accounts, which requires more set so we mapped out what our revenue growth expectations are for the year and then we tend to over budget on the number of sets that we're going to deploy in addition to the capital spent on new product launches because to your point, we don't want to Miss out on those opportunities as.
They arise some of them are planned others are pleasant surprises and that's why we tend to over budget, so the $10 million.
Again, it's the same as last year, but you do get some of the efficiency of for example, the Threed printed implants, we don't have to have one to one instrument set purchases for every implant sack because some of those will be shipped out with the nanometalene implant set and you only need one set of instrumentation, so even though it's a very aggressive.
Cadence of new product launches, we are trying to design them for the efficiency simply because of the cost the instruments to go with those sets, but but we are.
Planning in our Capex.
Expenditures to capture additional market share beyond our.
Stated guidance.
Okay, great. Thank you very much for taking the questions.
Thanks Scott.
Thank you next question is from the line of Jeffrey Cohen with Ladenburg Thalmann. Your line is working.
Hi, Keith and John how are you.
Yes.
Sure well I go to boast question I was just showing the market other fuel and so it looks like.
You are going to.
Breakout the.
In January so previous 60% to 71% is now 52 under half in 16 18 on the June I assume you'll be doing their forward.
Yes, Sir.
Awesome, Okay, and then you talked about this Telemundo investment, which we expect happens with the inventory gains on the balance sheet from the 47 two for now so that go up like 10 mill over the next four quarters or 20 year, we're going to next four quarters.
I think you'll see a little bit more growth than you did in 2019, because the overall inventory growth for the full year was around $6 million I think that goes up a little bit just because we're going to be supporting the accelerated growth rate in 2020 that greater than 15% plus launching all the new systems.
I don't think it's 10 million, but I think it's you're going to be a healthy number above the 6 million. We put up in 2019, just because of the cost of the implants to put in the new sets, we're launching and also to support that greater than 15% revenue growth across the full year.
Okay got it and then two more if I may kind of big picture whatever order you'd like first the talk about the.
The portfolio freshness as far as the products that or is your through two years is your through three years from a launch.
Hello that.
No it's changed dramatically, but how you'd expect that continues to change over the next four quarters, and then perhaps a little bit of commentaries floors.
Anything from a macro standpoint, what you're seeing on approaches 40, some anterior versus latter on any trends out there in the marketplace should we be cognizant of thanks.
If you don't Mylan scope will go reverse or I'll, let John ill answer the first part in the second part I think from a from a trending perspective, we've seen some consistency on how that interior space is continuing to evolve I think that from a from a true lateral perspective or.
You have an old lift pro style perspective continues to still be a popular alternative I think there a lift is become a very stable market and I also in addition to and if I think more and more is being done as you start thinking about the trends and opportunities for sagittal alignment and the trends in opportunity.
These four.
Adults even in slight deformity situation, so still I think a very robust market and one that's why we mentioned in the messaging that we're continuing to pursue the next generation of products. So we've had great success.
Shoreline product offering we've learned a lot from the modularity of that system and the features and benefits and we feel like we have an extremely unique offering that we're going to be able to doing a lumbar spine as well that builds off of if you will those learnings and we think thats going to get to be also a game changer for us as we can.
10, you to want to get deeper into that not only the inner body opportunity, but combining that with orthobiologics and the complete procedure in the screw system as well.
And then Jeff the first part of that question is where do we see new revenue growth as a percentage total revenue was that.
Yes, just a sense of.
The portfolio freshness, where over the past couple of years, you know a larger portion of your revenues come from more recently introduced products and how that looks.
A few quarters out with good newer introductions coming as well sure, particularly with the full commercial launch of the extension to the mayor platform with EMI Essen revision surgery I think.
Exceeds 70% of U.S. spinal implants coming from the new products, particularly in the back half of the year and I think total product revenue in the U.S. should exceed 50% of the year, including Orthobiologics, because we're continuously a nice uptick in the fiber based DBM products, we launched two years ago. So overall revenue.
It gets over 50% spinal implants should be well over 74% as we exit the year and probably over 70% for the full year once we get the traction as full commercial launches the meritor extensions.
Okay perfect there were more slowly so heavy oil and so on the international for and it seems like your your hovering around 10% and growing around 10%.
Related stories, you have to use in your financial commitment ex US I mean would you expect to continue to kind of how long is used or is there an interest in kind of leveraging that up.
Third we are side or status quo works for awhile.
I think for the near term you should assume it's going to stay around 10% of the revenue growing 10%.
We're selectively entering into new markets, it's a pretty efficient business now because we have a sales and marketing office in we own France.
And obviously the U.S. team spend some time focused on international but it's a pretty efficient business right now and theres not a ton of big market opportunities for us to enter into but there is plenty of opportunity with the recent entry into Mexico with the spinal implants portfolio.
Entry into New Zealand that we think 10% is it reasonable expectation for international in the near term longer term, we'll see what opportunities might arise to create scale, but near term I think it has a similar profile that we've seen recently.
Okay perfect at those Permian nice retail thank you awesome. Thanks, Jeff Thanks.
Thank you.
Next question comes from the line of Hagen thing of Wells Fargo lining broken.
Great. Thank you so much for taking the question. So I just wonder just under seven B.
Just wanted to focus on the seven be surgical deal.
You bet in having navigation is access to us, it's certainly been right step for the company.
So this is the cool, but this is a co marketing beer and you will be economics and incremental systems placed on a go forward basis that keeps can you help us understand what kind of success 70 has had so far in placing systems. What steps you plan to take on the marketing side and do you expect the transaction to be meaningfully in 2020, and then anything.
Can share.
With respect to the economics that you would be sharing.
Yes, so if you few.
Questions in there the first the first one is obviously 70 is a private companies like obviously, we do know of all the installs they've had I can I guess I could suffice it to state say that over the last 15 months.
Of being fully 15 18 months of being fully available in the spine space for a mark for the for the navigation module. They have had very good traction I would taking a look at.
Being and other organizations over the years.
Traction that they had been successful with it how they've been successful and getting it through sometimes difficult capital budget.
Is extremely impressive that said I will also say that that the absolute premise of this partnership is there going to continue doing well, placing capital equipment with the successes in the in the process. The algorithm. If you will that they already have what we think theres. Even additional opportunity is is for those accounts are for those.
Areas, where they may not have the capital budget or the capital budget is such a lengthy process that perhaps there's other ways to share and how we view additional market share at that account and Thats, where we come in and it can help participate so from an economic perspective, I think we struck a very balanced opportunity.
Where we can engage the hospital as well and talk about ways that can be earned out the gain additional market share and that also provide a fantastic utility for their surgeon base and for spine care in general.
And.
Every account, we know is going to be different so theres not a standard plan, but I think that way we have written this.
Partnership in cooperation is that we have a great deal of flexibility in how we can approach accounts and a great deal of flexibility at how they can earn them out and that's the spirit of the partnership to screw. The partnership is we also want them to places many units and as they place units that were part of we have that co branding or co marketing.
Attunitys that make it a C spying specific module or see spine specific instrumentation in and around it and that's what excites us what excites us that thats really the demonstration of the best kind of partnerships between enabling technologies and implant system.
Okay. That's helpful. And then just in light of the recent capital raise.
How are you thinking about balancing the need to invest in your business to drive topline growth and your profitability targets do you still expect.
EBITDA breakeven at sales up I think you indicated to 25 to 50, and then achieve dashville profitability at 250 to 75 and just from an internal perspective does this put forward your timeline to get there.
Yes, I think that I'll, let Bob give give specifics, but kind of how we manage through that raising process is there is there is a magic zone in and around that $250 million, where we get to EBITDA breakeven, but I think you know that innovation and the ability to be able to invest in growth.
Comes at a price of of investing in inventory and investing specifically et cetera. So that does drive actually cash flow positive out by that $25 million to $50 million, but I'll, let let buys give give some specifics on how we described that from recent calls in early January yes. At this point, we haven't changed our expectations for the EBITDA breakeven.
And free cash flow breakeven, but the Orthobiologics business is that continues to grow that really helps fund some of the growth initiatives on spinal implants, because as you know the scale is important and as we continue to launch more differentiated products and have the enabling technology of 70 that gives us opportunities that we may want to.
Spend more to continue to grow faster and achieve even more scale, but as of now we have not changed those expectations, but as Keith indicated in the comments earlier will provide an update as the year progresses on what the opportunities at 70 aren't as they rise and how will capitalize them in financing as well.
Okay got it and just last question from me.
Just wondering if you guys are hearing anything.
In the field with respect to procedure volume it looks like in Q4.
The spine market you assign market actually improve donis back to your basis, but go towards within the 2% to 3% range.
But in recent weeks.
It looks like the spine names of kind of taken ahead. So just anything you are hearing.
About spine procedures in the field and your expectations for market in 2020. Thank.
Yes so.
Like we mentioned earlier and again. This is this a sound checks and we've had a great opportunity to be in front of a number of surgeons as the year kicked off and to a key every surgeon described that they've never had a busier fourth quarter, they've never been trying to if you will box out and gain more opportunity in Neil.
Our in some of them even for the first time, taking doing doing surgeries on Friday post Thanksgiving.
Absolutely a very busy quarter. There's no question. So thats, what a few of the surgeons and identify that they continue to see is the years progress that theres. This build up in the fourth quarter to try to get.
Decisions than to do surgery, because of whatever it is higher deductibles and all the things that go in and around the higher cost of of insurance and patients being more aware of that cost once everything resets and the new year and so I think it really is.
Some of it is in and around that phenomenon and I think it has steadily been a more increasingly presence or issue as the years of progress, but that said I mean, we see very robust signs again that we're going to have another strong growth year in procedures in this marketplace I think.
You're going to begin see procedurally growth much higher there will be some giving we'll be giving back with some pricing.
Concessions, obviously, but I still we still view it as a very healthy market of that.
The 2% to 3% growth.
Great. Thank you for overall, yes. Thanks.
Thank you.
Sorry, no further questions at this time I'd like to turn it back to Mr. Keith gone. Thank for any further comments.
Sure. Thank you operator it. Thank you everyone for joining US today, please have a great evening cheers.
Ladies and gentlemen. This concludes today's conference. Thank you for participating and have a wonderful day you may now disconnect.
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Yes.
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