Q1 2020 Earnings Call

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Ladies and gentlemen, thank you for standing by welcome to be I don't first quarter 2020, <unk> operating results conference call. At this time, all participants aren't listen only mode. After the speakers presentation. There will be a question and answer session to ask a question at that time, you'll need to press star one on your telephone.

A reminder, taste program is being recorded I would now like to introduce your host for today's program Carrie Mendivil Investor Relations. Please go ahead.

Thank you all participating in today's call.

Any today, our Jackson, President and Chief Executive Officer Indoor Frantic Chief Financial Officer in Chief Operating Officer, I guess my though.

Earlier today, I say been released financial results for the quarter ended March 31st 2020.

I'll be the press releases are available on the company's website.

Before I begin I'd like to remind you that management will make statements. During this call that include forward looking statement in the meeting a federal securities laws, which are made pursuant to the safe Harbor provision the private Securities Litigation Reform Act of 1995.

Anything contained in this call that relate to expectations or predictions of future events result are performing or forward looking statement.

All forward looking statements, including without limitation or examination of operating trends and our future financial expectations, which include expectation for hiring active surgeon new product reimbursement decision and guidance for revenue are based upon current estimate dairies assumption. These statements involve material risks and uncertainties.

That could cause actual results or events to materially differ from those anticipated or implied by these forward looking statement.

Accordingly, you should not place undue reliance on these statements.

For listen description of the rest.

He is associated with our business. Please refer to their risk factor section of our most recent quarterly report on form 10-K filed with Securities and Exchange Commission on March 11 2020.

So I don't disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

This conference call contains time sensitive information and it's only accurate as at the life broadcast today me for 2020 and with that I'll turn the call over to John.

Thanks, Gary Good afternoon. Thank you for joining us I hope you and your loved ones are safe and healthy as our communities continue to be affected by the Corona virus.

Before we get into details of the quarter I want to take a moment to pick our partners in health care community, all of whom are making extraordinary efforts to kill for both <unk> and non Kroger patients in these difficult time.

The year started off very strong and for the first two and a half months or the quarter type use procedures in the U.S. and in Europe.

Paced expectations.

We attribute this strong growth to the significant investments we made in 2019, including Salesforce expansion surgeon training and education and reimbursement.

However, beginning in mid March elective procedures began to be deferred in order to preserve resources for cobalt 19 patients and to protect surgical candidates from potential exposure to the current environment.

During the last two weeks for the quarter. We saw significant are significant decline in the scheduling of new cases, and 300 scheduled patients were cancelled worldwide.

Including justification scheduled through the quarter rent as of March 15th revenue growth for the quarter would've been 29%.

Accordingly, our first quarter 2024, 20 performance was impacted revenue for the first quarter was $16.8 million with $15.3 million of revenue in the United States up, 12% and 14% respectively compared to the first quarter from 2009.

Team.

In the short term, we expect our business to continue to be impacted by the deferral of elective procedures. However, we are confident that most deferred procedures will ultimately return and patients will eventually receive treatment.

A robust procedure volumes, we saw early on in the quarter confirmed the increasing acknowledgement of the site joint because a paid generator and one that we can address our teams in the field have done a wonderful job posting positive doing what they can to ensure the best possible customer service.

And continuing to perform prioritize the safety of our patients people and partners.

About half of the states have resumed elective procedures and things are continuing to open daily.

We are already beginning to see pockets of Optimisms for procedures resuming both regionally and on a hospital by hospital basis, where our while we are unable to predict the ramp of ideas procedures throughout the recovery for period, we're prepared for a number of different scenarios and our monitoring this is.

The way should extremely closely to ensure that we are there for support as high fuse procedure begin to come back online.

I missed this pandemic our priorities are in three places first the health and safety of our employees customers can patients.

The conservation of capital to whether this challenging period and third sustaining investments across our organizations. So that we are well positioned to support positions now through the recovery and over the long term.

As covered 19 cases began to rise in the U.S., we took actions and implemented early measures to ensure the protection and well being of our employees customers and patients.

All employees in the Santa Clara Office, and other office locations have been required to work from home mix with the exception of those related to order fulfillment and select others based on local restrictions and guidance when the tick pandemic took shape, we pushed inventory out into the field. So we could fulfill demand.

Our critical suppliers are functioning and we have not experienced any supplier disruptions today, we're continuing to maintain streamlined shipping perceiving and other related processes in order to continue providing products to our customers in doing so we have taken essential step to design and employ.

Matt specific protocols in order to minimize contact time among employees working on site.

We acted quickly to reduce spending in areas not critical to patient care to ensure our financial flexibility over the coming months.

While our business will be materially impacted over the short term short term, we have a strong balance sheet with over $145 million in cash and marketable securities as of quarter end.

As we carefully review our expenses, we are making exceptional efforts to preserve our salesforce. So that we are well positioned when moratoria on elective procedures are lifted and volumes began returning.

Over the last few years, we have built an outstanding team of top quality reps and dedicated rigorous training efforts to ensure their success in the field.

We ended the quarter was 62 direct sales reps and 52 clinical support specialist we believe their strengths will be essential in the recovery that follows.

Importantly, while while we are navigating the challenges of the current environment, we are continuing to sustain our commercial priorities to strengthen our long term growth opportunity.

At the core of our commercial strategies is our focus on driving I views procedure volumes on our last earnings call. We outlined three ongoing initiatives. We are implementing to help us grow our active surgeon base first to train new providers second to reactivate inactive surgeons and finally to continue.

To grow KNL support for I fuse to further these initiatives our sales team is supporting health care providers via telephone and online technologies until conditions permit resumption of more normalized healthcare operations.

We are also ramping up our virtual education for both our side on Salesforce and surgeon customers to take advantage of the additional time to devote to training.

Our virtual education series has been very well received a very welcome receive program over the last several weeks. We've completed seven programs to date and have an additional five programs plan through the end to make the most recent webinars on adult deformity and bedrock was attended by over 100 surgeons.

Led by Dr., David Paul a couple of University of Minnesota.

During the quarter. We also continued to build on a significant reimbursement progress throughout 2019 and obtained a positive coverage policy by Health Alliance plan, a commercial payer in Michigan.

Additionally, we continue to make progress expanding our portfolio a comprehensive say grow pelvic solutions on the last day of the quarter. We received FDA five 10-K clearance for an expanded indication for the ESI bone Ifyou implant system to support our trauma broke this new indicate.

Patient applies to ESI joint fusion in conjunction with the treatment of acute non acute and non traumatic fractures involving the sacroiliac joint.

We are launching the trauma education program in the United States in the second quarter I personally have spoken to half a dozen surgeons about this program devices used in trauma have evolved little in the last 25 years and we believe the use of our technology may well improve the outcomes for many patients that have.

And treated surgically and non surgically under earlier treatment paradigms all additional work in both the lab and the clinic will be required to evaluate evolving treatment options for certain patient subgroups. There was considerable enthusiasm among the thought leaders with whom we are working on this.

Initiative.

We remain in close contact with our customers.

Our community Representatives are employees in our suppliers during this period.

Well the depth and duration of the current challenges are difficult to predict I believe our mid and long term opportunity just substantial and our business is well position financially and organizationally to whether this to pandemic with that I will now turn the call over to more Francis our Chief Financial Officer and Chief.

Operating officer to provide more detail on our financial results.

Thanks, Jeff.

First quarter revenue increased by 12% to $16.8 million.

You have failed provided the majority of this revenue just over 90% delivering a growth rate across the quarter, 14%.

International revenue was relatively flat at $1.5 million compared to the corresponding prior year period.

As Jeff discussed our case volumes dropped in the second half of March which meaningfully impacted our performance.

Gross margin for the first quarter 2020 was 89% compared to 90% in the first quarter 2019.

The change in gross margin was due to higher cost of operations to support the growth of the business.

We expect our gross profit and gross margin will continue to be affected by factors impacting revenue and cost of goods sold.

Due to an expected decrease in overall demand in the second quarter 2020 from Cowen 19, we anticipate that our operations will run at less than normal capacity.

Accordingly, certain labor and overhead costs will be expenses incurred significantly reducing our gross profit in gross margin.

We cannot reliably estimate the extent to which the coven 19 pandemic will impact our overall demand in the near term. However, we have sufficient inventory our supply chain dynamics are well in hand and product flows in good shape.

Operating expenses increased 20% to $26.8 million in the first quarter 2020 compared to $22.3 million in the first quarter 2019.

The increase in operating expenses was primarily driven by higher employee related costs due to higher headcount, mainly from sales hiring surgeon training and stock based compensation.

As Jeff noted, we've taken preemptive steps to curtail spending while there is more clarity to the extent in duration of the impact from the pandemic.

We've already implemented a number of cost saving measures, including implementing hiring restrictions, eliminating discretionary spending reducing executive salaries, reducing capital expenditures, reducing non essential marketing expenses.

And delaying clinical research projects.

We're taking an extremely thoughtful approach to spend and it also identified additional cost saving levers that could further reduced opex and thats this uncertain environment.

Our operating loss for the first quarter 2020 was $11.9 million compared to $8.8 million in the first quarter of 2018.

Net loss was $12.8 million or 47 cents per diluted share for the first quarter 2020, as compared to $9.3 million or 38 cents per diluted share in the first quarter 2018.

Cash and marketable securities were $146.2 million at the end of the quarter.

This balance reflects the $63 million and proceeds from our January follow on offering.

Based upon our current operating plan, we believe their existing cash and marketable securities will enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months.

We lived through our 2020 revenue guidance on April 2nd due to the evolving environment and continued uncertainties about the impact to covert 19.

We remain unable to estimate the magnitude or duration specific impacts on our business and for that reason, we will not providing updated outlook until the impact of Cowen 19 becomes sufficiently clear.

Looking to the next several months, we expect that our business will continue to be impacted by the deferral of elective procedures as Jeff mentioned about half of the states new asset resumed elective procedures were planning for a number of different scenarios of what I'd volume may look like over the next several quarters.

That said as a company, we're well prepared operationally financially and strategically to navigate through this challenging period.

I'll now turn the call back to Jeff for closing comments.

Thank you Laura before closing I want to thank our team at ESI bone for their efforts and strength through these difficult times I'm incredibly proud to be part of this team and believe that we will come out of this period, even stronger as a company.

Well the immediate future is unclear I'm confident that aside bonus is well positioned to navigate these challenging times the underlying fundamentals of our business remains strong through mid March we saw a record procedure volumes, resulting from the significant investments we made across our commercial organization to develop.

It's mark.

And as Lauren mentioned in the near term, we are taking a very disciplined cam thoughtful approach financial decisions and capital allocation priorities.

As we continue to do our part to battle the spend on my we remain fully committed to support patients customers and our communities.

Stacey and thank you for joining us.

We will now open it up to questions operator.

Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one and you touched on telephone. If your question has been answered and he'd like to move yourself from the Q. Please press the pound key.

First question comes into line of David Lewis from Morgan Stanley. Your question. Please.

Good afternoon, thanks for taking the questions Jeff a few for me. This afternoon. The first is just I want to kind of getting to covert in a second here, but obviously the first two that bunch of the quarter by our math you had at least five seven points momentum acceleration I just wonder how do you think about.

Where the regions of the country that was strong any sense of but the primary drivers for how much was driven by your new commercial expansion, new payer contracts or frankly was it more national which should be sort of more indicative that the benefit was tied to better physician reimbursement just any color in the first should have been for the year in terms of the inflection will be greater than a couple of follow ups.

Sure David Huh.

Well it really was absolutely all across the country for the first two it out lots and.

The that that growth rate and that strength.

Felt great.

And obviously, we had a lot of cancellations in the last two weeks.

Those numbers that 29% did that include.

Bookings that might come in so there really was good strength all across the country I think it's no different than what we saw a.

Quarters things getting slotted in the five or so drivers of the business.

More salespeople more people trained more surgeons trained.

So more reimbursements.

And that of course, the surging payment Didnt hurt and we were really firing on all cylinders.

It's a little bit different.

As we get into cold, we are seeing pockets and I'm happy to answer that if that's where you want to go.

We are those strengths of the.

In the country, that's coming back so the.

Than other areas.

Okay. Let me just to ship to cover for second here I kind of maybe a couple of part question here, Jeff but.

People are generally doing spine procedures is being fairly deferrable.

And then some emerging procedures, how do you think about s. idhone kind of relative to traditional spinal procedures and.

Maybe just some more color on sort of what are some of the characteristics of what you're seeing these pockets of strength you. They had a very significant outpatient mix and I wonder how much of that is participating or you're seeing more procedures shifted to the outpatient market. So just sort of where you are from an electric perspective relative despite and sort of what is the characteristics of some of these places you're seeing recovery.

Well I think David first of all of you know if you talk to surgeons out there I think a.

Most maybe.

A big percentage say this is something they love to do.

It has tremendous success rates the patient satisfaction is tremendous so I think.

It's a very popular surgery and it has great impact very quickly.

And now what the payment I think it's it's a very attractive procedure from that aspect as well.

So so I think.

We certainly going to see more procedures that are outpatient.

As a percentage over the last number of weeks, we've seen more in a way of sees but I think thats more result of slower numbers.

The hospitals themselves. So the percentage certainly has gone up.

From our what we talked about traditionally at 10% out in a sees.

As to.

What we're seeing now the last week, we certainly are seeing.

Or seizure volumes coming back on with the opening of.

I think were 25 states as of today with Florida opening up and that's more than 70% of the potential volume a little bit higher than that.

Of our traditional volume across the country. So.

Where it's hard for us to parse out what percentage of those cases are actually cases that were cancelled in March.

You know those hundreds of cases.

Or are there new procedures. So that's a that's a mix that's a little more difficult, but but certainly over the last five six days we've seen.

Strength coming back to the business.

Okay, and just last week for me just international that number actually fared better than expected and maybe just relative to your exposure in Germany, where.

Procedures have been a little better, but just you your thoughts on how to international and any recovery are you seeing outside the U.S. and I'll jump back in queue. Thanks.

Sure you welcome David.

So yeah, we're seeing strength and germn.

Prior to us Paul at March 15th we saw strength and.

In Germany, and the UK and in France, So some of the bigger countries.

As to the the cobot effect.

We are seeing Germany come back the UK as I'm sure you've heard from other companies as well as Francis slower.

At this point.

And we'll just have to see how that develops from an opening standpoint.

Great. Thanks, so much.

Well thank you.

Our next question comes from the line of Bob Hopkins from Bank of America. Your question. Please.

Hi, Thanks.

Soon.

Hi, Bob.

Hey, Jeff.

Just curious I am happy to hear you say that last seismic data from improvement.

This is can you get through a sense here the last week the okay.

The down 30% or 60 presented some sense as to what the year over year.

Growth rate looks like a week or so.

Yeah.

The.

The numbers going into May.

Year over year.

So the one point I'm talking about is the first day of day, how bookings look like how big the backlog was going into may our compared to a year ago.

Whereas.

Not hugely down from but from a year ago.

So.

It's it's hard to say how much how much of that is those cases that came back on from there were cancelled again.

But.

April April was was quite honestly very very rough.

Down very significantly, but I think we're seeing a nice recovery in may.

Okay.

And then.

One other question I wanted to ask because obviously for a period of time here you've been unable to.

Beyond that we're going to regular sentence and you know.

Not probably not able to kind of be out they're going to developing your market within it was huge part of the story.

How much do you think that.

So to get back at this sort of inability to go out there and tell your story just over the last month over month and Uh Huh.

I don't think of.

That much Bob I think the sales forces.

Just to get back to work or they are getting back to work in the middle of the country and and places like Texas, We're seeing cases come back on.

Very strongly.

I think the surgeons and I've talked to.

Quite a lot of them, they're very anxious to get back to work and as you might recall, we went deeper as a team.

Into the accounts that we have worked and increase the number of cases per surgeon.

Last quarter I don't remember the exact number I think it was 3.1 quarter 3.41 or something like that.

Lower could probably help me there.

But I I honestly don't think.

That this month and a half of.

You know sort of being on the sidelines.

As.

Any any material effect over what we think about the business longer term mid term and longer term.

I think I.

I think theres greater realization, we've seen store or this is a problem.

Is there are surgeons actually who.

Don't have time to alert.

And because they're so busy in their practices and one of the things that we we have seen is the sales folks.

Our communicating with the surgeons the Webinars, though we had done and I mentioned, one earlier, where we had over 100 surgeons in the adult deformity deformity, a webinars for an hour.

That actually brought in some surgeons who.

Traditionally just haven't had time to meet with our people. So the world is changing a little bit them and so there are some positive things around some of these education.

Initiatives and.

I find that the surgeons or have you know staying on the phone with me and staying on might suspect with the salespeople.

A little bit longer because they have a little more time, whether again so.

Ours is a story as you know Bob about understanding education differential diagnosis, including yes, I joints, and I think that momentum continues and I think that these webinars.

As the salespeople, reaching out to the surgeons in the sales management.

It is continuing that momentum will clearly we didn't wish for this we were as I said firing on all cylinders and.

But a very rough period for everyone.

But I don't see anything different about the opportunity for the business in the future.

What do you think last quick question, where do you think better I might have done in the quarter.

I was that trending.

Its a.

It's getting a lot of traction, particularly from an education standpoint I.

I mean, I I have to tell you Bob I was.

When the when Tony Recoup ROE told me that there were going to be over 100 surgeons on the adult deformity.

Webinars.

That was.

Way more than double what I thought it would be on that webinars.

So I think I think we have.

Really good strategy in place I think that there has been.

You know as I've said said before pretty lousy development from a technology standpoint in the US I joined before we came on to see.

Thank the adult deformity.

Results were seeing and.

The thing I, just got a report on revision rates are which we track.

And they're terrific on the ESI joint there unbelievably good on the adult deformity cases, and then thirdly, I think that the Oh, the whole trauma space, which were just starting to enter has had pretty substandard the.

Technology development.

And with our technology now entering back we've seen or a tremendous interest there and so I think all three areas of are going to contribute and and be a force multiplier.

Our with each other for our company.

So.

I Didnt quite a quite tell you exactly how many adult deformity cases, we did what term.

But we are seeing strength in all three of those areas.

Great. Thank you very much.

Welcome Bob Good to talk to you.

Thank you. Our next question comes in the line of Kyle Rose from Canaccord. Your question. Please.

Great. Thank you very much for taking the question I kind of wanted to dovetail a little bit on us in the previous questions from from David in Bob Yes, definitely when I think about the sales trends through April I think there has been really our survey suggests anywhere from a 70% to 80% decline and procedure volumes, but for the month.

On April, but you had some encouraging commentary about the 50% of states opening backup in May and those represent about 75% your business, maybe kind of help us frame. How we should think about that month over month improvement when we get into May and June does that go from 70 to 30% to 40% declines just trying to.

Understand on a relative basis, how we should think about the business trending.

Yes, maybe I can help out on this particular question because they do I do have some data on it Kyle.

As Jeff said the month of April looks like it was a wasn't troughs and and what we experienced it was a decline compared to our plan over 80% in terms of case volumes in the United States. So we were off by over 80% and cases and.

Until April.

But when we look at named bookings and it's it's just looking at May at first and where the bookings are in the United States for the whole month in May. This is our primary leading indicator that we use add to understand what the month is going to look like a typical case will be.

Two to three weeks prior to the time, then it's performed and if we compare that metric to last year were at approximately 80%.

Last year bookings and the same day as is made first.

If you compare that to warrant a plan, we would be more and then 60% of plan or 40% down from where we would have anticipated so a big jump from that 80% down and.

In April two it looks like more like 40% down in may at least with that one indicator.

That's very helpful. Thank you very much.

For the color there and.

Also touch a little bit on the trends in the outpatient in as Keith said and I just want to make sure I heard you correctly did you say that 10% of your historical businesses in the ASV isn't it.

I just wondered if you could break out the mix.

With respect to outpatient versus.

Inpatient and how that may have changed even in the first quarter to date with that with the better.

Physician reimbursement.

Well into the tile in it has traditionally been 10 10, 12% in agencies, we don't have the exact number or in a in the hospitals I'd both the outpatient in inpatient.

But certainly we think that about 80% plus of the surgeries that are done in hospitals are actually outpatient.

Procedures.

As to the change in that there really wasn't much change through the first.

Two and a half months.

And in the in the first quarter.

And you know.

The last two quarters, there wasn't much done at all but.

In April we certainly saw the assay numbers.

Even though we were working off we working off a small smaller base as Laura alluded to with being down 80%.

More were done today as sees a significantly greater percentage was done in may of sees but.

I think Thats really you know a little deceptive in the sense because the.

Number there were actually done in hospitals was was quite small.

Okay. Thank you very much for taking the questions I'll hop back and give you all.

Welcome.

Thank you. Our next question comes from the line of Kayla Chrome from Suntrust. Your question. Please.

Great Hi, guys. Thanks for taking your questions such circling men.

You mentioned that that you're continuing operating expenses as we navigate have been.

And you talked about you know the hiring restriction the end delaying clinical projects. So can you speak I guess to how significantly those plans have changed and just help us understand or give us comfort that there were any major changes how do we think about your long term growth from here or is there any impact to your competence there.

So why don't I wanted I just talking in general the bark an add on here are a killer.

You know, we as we talked about in the past hot.

Variable expenses some of those were cut naturally obviously with with.

Conventions, and and annual meetings and those kinds of things I don't think thats going to change all year I don't think those expenses are coming back and they're not in our control. So I think that that expense you have to sort of take them one at a time.

The expense were related to.

Surgeon training will go up and we will support whatever surgeon wants to get trained and slot those back in as surgeons are allowed to be trade.

Within that training area I have alluded in the past to a new training system that we're developing which is an advanced training system that can be used that we'll be able to trained surgeons on different kinds of anatomy August.

As a proprietary system.

This will allow us to do it or do the surgeon trainings.

More locally which means surgeons won't have to travel and we'll we'll be rolling that out for the second half of the year. So that actually from an expense standpoint, I'll, let lore comment on that but.

Theres some capital equipment expenditures in there, but they'll be travel expense changes.

Our within.

That whole program.

As to variable expenses and marketing.

We have cut back quite a bit on things of.

Like Facebook and those kinds of things, but we have been doing webinars and I think is as things evolve over between now and the end of the year, we'll begin to ramp that up as we see fit in there will be a little more change or in the percentage of money that we spend on.

Direct to patient marketing versus going to these annual meetings because that number is not as I said going up.

Lore anything you want to add into that.

I think probably the most important thing to add based on your question. Kayla is we did not make any changes from a people perspective with the exception of the hiring freeze and management salary reductions we are we had.

Spent the last 18 months since we went public building a quite extraordinary group of people.

Both at our headquarters operation as well as in the field and we were seeing significant acceleration of our revenues and so our goal was to keep our people intact and supported during this difficult period. So that we can come out of this pretty rapidly in and.

I just talked a little bit about what happened in April which was with a low point for us but that that may is starting to kick it to come out as this at least based on early indicators and we have the people in place with relationships with our our surgeons in order to to get those cases go.

Going again, and we have the support staff in order to tinge, our I'd sales.

In addition, where we're keeping our project prioritizations in place as well major projects that the company was working on we are continuing to push forward I noticed in so the real focus was on expenditures that would not have a significant impact long term on the business so that as things return.

Currently we are ready to and to to jump on the opportunity and re accelerate the business.

Sometimes the terminal.

Yeah in from a percentage perspective, when we were looking at variable expenses, we tried to cut out 10% to 15% of operating expenses with those variable cost that we took out and so we went through every single expense and Jeff talked about quite a few those already we also looked at working capital.

Just to make sure we were being.

Prudent with our you know our inventories and our payables and receivables and all of those items and then Jeff also mentioned that that we looked at capital expenditures for example, you know not.

Purchasing certain items that we intended to or just pushing those out a little bit so winter a full list is.

Items and that means some decisions to be both prudent from a capital perspective, but also make sure that we did not impact the long term opportunity for the business.

That makes a lot of sounds thank you, Laura and Jeff that I guess, just as a follow up to that you're still continuing your efforts with wet trauma can you just give us a little bit more detail on your effort there and how your effect.

Planning to launch into it into that space. Thank you.

Well the first the first thing obviously scale as we use this time with our field organization to train them up in the trial.

Area.

So that actually was was well spent time we've we've.

Used a whole we've implemented a whole new.

Training system called brand shark, which allows us to push out educational content to the field and and its.

A pace learning track learning and so I think of the team actually has had the opportunity to come up and understands the opportunities.

And get trained to the trauma space more rapidly than they might have if they were at work every day, so Ah, Tony and and the team or along with his training team are.

Most of the way through a lot of that it's launching now is you know certainly we're starting to see.

Some nice trauma cases.

And so so that's that actually worked out okay, Oh, it's in that sense.

There are going to be some investments so in in the clinical area, we've seen or a few surgeons step up and say we want to do our ROE study or because we just said.

Hold on some of this clinical investment.

For a few months and.

So I think we're going to see some doctors validates some of this on the ROE and so we're we're pretty excited about the trauma spacing and what we see going on.

And more to come on that.

Fronts.

Great. Thank you.

You're welcome.

Thank you. Our next question comes on line that they've definitely from.

DMP Securities Your question please.

Hi, Thanks, So just wondering Jeff if you could remind us the average age of the patient treated and then I think you talked a little bit about CMS first private payer mix last quarter, but.

I'm trying to get that is.

The age of the patients it seems like some of the elderly may not be as willing to be in the hospital and I know that still is kind of a majority of the procedures today. So.

If you could just remind us where that aid stands today and then the mix between private or CMS.

Happy to David.

So.

We have patients that are 20 to 80 years old of the average patient as 50.

And two thirds or female so that's the landscape.

The.

Percentage of patients.

In 2019.

That were Medicare patients was a little shy of 15%.

We certainly expect.

Got to.

Change and we expect over call. It the next year or two for 80% of our patients are to be.

Non Medicare patients so the commercial side to increase.

Makes sense I'm glad to hear that you you're going to add that kind of.

Those numbers I guess the other one.

Quickly was.

In terms of the procedures what percent would.

Would you say today that your salesforce with the assistance or actually in light of I guess.

You mentioned some.

The places bouncing back, but I know rep access has been a problem at some hospitals so.

Well I'm imagining that some of your accounts don't don't need.

Somebody there all the time, but any thoughts on that as places begin to reopen thank you.

Youre welcome David.

As you know on virtually all of our procedures in the past have had.

Our reps in there we certainly.

Hope we can continue on that front they add value.

We are adding training capability or two.

Actually I think trailer surgeons better so they could practice or on male patients female patients dysmorphic patients et cetera, where we haven't had some of that capability will roll that out.

We view our Salesforce is.

Highly skilled and adding value.

As you know somebody surgeons do.

Just a few procedures in a quarter.

And you might have a sales rep to seeing.

No.

The order of magnitude larger than that so they absolutely add value as to actual access.

I think it's too early to tell exactly how that's going to play out here I think it's going to.

We certainly see reps and I get emails from reps of pictures them in their car on the way to work. These days and say I'm going to do a case, Jeff and I've asked them to sundry those pictures because I want to.

Want to know that that's going on so there are certainly.

A few instances, where we've seen reps.

That haven't been allowed to go in but.

At least what I've heard so far.

And I may want to get back to your this.

After talking a little more would totally but I think is almost all the cases the reps have been allowed in.

To the cases that we've done in the last.

Total week or so.

Thank you.

You're welcome.

Thank you. Our next question comes from the line of David Second from Needham Your question. Please.

Yes, good afternoon.

I guess just one on on the recovery what have you been hearing from doctors about their capacity as they reopen and how long it might take to work through the backlog and then you mentioned 300 cases were were pushed out I was just wondering.

What portion of those do you think will be ultimately rescheduled.

Yes.

So Oh hi, David.

As to the.

Surgeons capacity I think that they can go up 20% or so from where they would normally be.

Of the surgeons I've talked to and I know the salesforce with Dr. because I've heard this multiple different places.

I think everyone coli expects in in Q3, and particularly in Q4 as a country hopefully.

Fully opens up to work Saturdays and and and work a lot evenings and I think our salesforce is super dedicated them and.

Not not just willing to go back to work, they're excited to go back to work and get into the game and help these patients and so.

I suspect we're going to.

I see a bunch of Saturday soccer games missed our and we're going to be [laughter] in in the operated group pretty often.

Uh huh.

And.

Remind me what the second portion of your question was [noise].

You mentioned three into cases were pushed out just wonder yeah, you know how many of those yes.

I suspect.

It's hard to say, but I wouldn't be surprised at 95% of those cases.

Come back on the books.

I don't think that a lot of people that are ready to go to the operating room for three days just plant.

I think these people are in severe pain in there there could.

Convinced in their surgeons are convinced that they can be helped in a significant way and and so I don't think we're going to see a lot of lost there I think it's more a question when as opposed to Jeff.

I think in certain places like the northeast, where we're going to see and I think all companies are going to see a lower recovery.

Okay of the surgical rates.

You know those ones are going to take longer to come back you know those those those places may not get back to normal took Q4 Q1, I I don't know arm.

Not the Oracle here in that sense I don't think anyone is in places.

Like the South, Florida, and Texas and.

And some of these other places I think you're going to see much much.

Faster recovery in those 300 cases or the portion thereof, there in those particular geographies or should come back pretty fast.

Okay, Yeah, that's a that's helpful and encouraging.

And then I guess my second question is on I mean, previously you've talked about the decor to cater and the IP phone.

And that as the kind of the move to attract new new surgeons just wanted to hear up through mid March on how those.

Products were doing.

In terms of bringing in new active surgeons.

Thanks, so much.

You're welcome.

They are doing.

I think that we're very different from every other company that's competing in this space in that sense that we have the full we have a full bag.

So absolutely.

New surgeons are coming on I.

I think we've got a couple of a big things in our pockets that will come about.

Call it a year by a year from today or so in that kind of timeframe and and we're going to add add to our strengths there. So.

Oh.

Although the strategy is is enter all those mark all three of those markets with the ASI joint fusion spaces as the the foundation to the whole company.

But expand out in the trauma and adult deformity spaces to increase the awareness and increase the revenue and then.

Bringing these other products so that we're even more competitive than in the next year.

Great appreciate the color.

Youre welcome.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Jeff done President and CEO for any further remarks.

Sure just give us or a quick thank you for joining today, obviously did challenging times.

Honestly feel pretty pretty good about or how the team has held together in fact I feel great about how the team has.

Held together and we're excited to get back to work.

I Hope all you guys are gals out there are safe and families a healthy.

And look forward to.

Getting back to whatever the new normal is.

In the not too distant future. So thanks again for joining.

Thank you ladies and gentlemen few participation in today's conference. This does conclude the program you may now disconnect good day.

[noise].

[music].

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[music].

Ladies and gentlemen, thank you for standing by welcome to the.

First quarter 2020 breeding results conference call.

I'm all participants are in listen only mode.

Because presentation, there will be a question and answer session.

And at that time, you'll need to press star one when you're talking about.

It takes program is being recorded.

I like to introduce your host for today's program carry my to Bill.

Please go ahead.

Thank you all for participating in today's call joining me today, our Jeff Dyke, President and Chief Executive Officer, and more Frances Chief Financial Officer in Chief operating Officer.

Earlier today I think on released financial results for the quarter ended March 31st you'd probably 20, a copy of the press releases are available on the company's website.

Before I begin I'd like to remind you that management will make statements. During this call that include forward looking statement.

Meaning a federal security block, which are made pursuant to the safe Harbor provision the private Securities Litigation Reform Act 1995.

Statements contained in this call that relate to expectations or predictions of future events result performance are forward looking statements <unk>.

All forward looking statements, including without limitation or examination of operating trends and our future financial expectations, which includes expectations for hiring for Jay new product reimbursement decision and guidance for revenue are based upon current estimate various assumptions. These statements involve material risks and uncertainties.

That could cause actual results or events to materially differ from those anticipated or implied by these forward looking statement.

Accordingly, you should not place undue reliance on these statements.

Well listen description of the Rep.

Keith associated with RBC, please refer to their risk factor section of our most recent quarterly report on form 10-K filed with Securities and Exchange Commission on March 11 2020.

I don't disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

This conference call contains time sensitive information and it's only accurate opposite the live broadcast today may four 2020, and with that I'll turn the call over to John.

Thanks, Gary Good afternoon. Thank you for joining Josh I Hope you wouldn't your loved ones are safe and healthy. It was our communities continue to be affected by the Corona virus.

Well, we're getting the details of the core I want to take a moment bank our partners in health care community, all of whom are making extraordinary upwards to kill for both <unk> and non covered patients in these difficult part.

The year started off very strong and for the first two and a half walk through the quarter, Hi, fuse procedures in the U.S. and in Europe outpaced expectations.

We attribute this strong growth to the significant investments we made in 2019, including Salesforce expansion shirt in training and education and reimbursement.

However, beginning in mid March elective procedures began to be deferred in order to preserve resources for covert 19 patients and to protect surgical candidates from potential exposure to the current a virus.

During the last two weeks for the quarter. We saw significant are significant declines in the scheduling a new cases and 300 scheduled patients were cancelled worldwide.

Including justification schedule through the quarter rent as of March 15th revenue growth for the quarter would've been 29%.

Accordingly, our first quarter 2000, 24.1 of the performance was impacted revenue for the first quarter was $16.8 million with $15.3 million of revenue in the United States up, 12% and 14% respectively compared to the first quarter 2019.

In the short term, we expect our business to continue to be impacted by the deferral of elective procedures. However, we are confident that most deferred procedures will ultimately return and patients will eventually receive treatment.

The robust procedure volumes, we saw early on in the quarter confirmed the increasing acknowledgement of the aside joint because a pain generator and one that we can address our teams are the field I've done a wonderful job posting positive doing what they can to ensure the best possible customer service.

And continuing to put brought prioritize the safety of our patient people and partners.

About half of the states have resumed elective procedures and things are continuing to open daily.

We are already beginning to see pockets of Optimisms for procedures resuming both regionally and on a hospital by hospital basis.

Our while we are unable to predict the ramp of ideas procedures throughout the recovery period, we're prepared for a number of different scenarios and our monitoring the situation extremely closely to ensure that we are there for support as high fuse procedure begin to come back online.

I missed this pandemic our priorities arent three places first the health and safety of our employees customers and patients.

The conservation of capital to whether this challenging period and third sustaining investments across our organizations. So that we are well positioned to support positions now through the recovery and over the long term.

It's covered 19 cases began to rise in the U.S.. We took actions implemented early measures to ensure the protection and well being or borrow employees customers and patients all employees and the Santa Clara office and other office locations have been required to work from home.

With the exception of those related to order fulfillment and select others based on local restrictions and guidance when the tech pandemic took shape, we pushed inventory out into the field. So we could fulfill demand.

Critical suppliers are functioning and we have not experienced any supplier disruptions today, we're continuing to maintain streamlined shipping proceeding and other related processes in order to continue providing products to our customers.

In doing so we have taken essential step to design and implement specific protocols in order to minimize contact time among employees working on site.

Reacted quickly to reduce spending in areas not critical to patient care to ensure our financial flexibility over the coming months.

While our business will be materially impacted over the short term short term, we have a strong balance sheet with over $145 million in cash and marketable securities as our quarter end.

As we carefully review our expenses, we are making exceptional efforts to preserve our salesforce. So that we are well positioned when moratorium on elective procedures are lifted and volumes began returning.

Over the last few years, we are built an outstanding team of top quality wraps and dedicated rigorous training efforts to ensure their success in the field.

We ended the quarter was 62 direct sales reps and 52 clinical support specialist we believe their strengths will be essential in the recovery that follows.

Importantly, while while we are navigating the challenges of the current environment, we are continuing to sustain our commercial priorities to strengthen our long term growth opportunity.

At the core of our commercial strategies is our focus on driving I views procedure volumes on our last earnings call. We outlined three ongoing initiatives, we are implementing to help us grow our active surgeon base.

First to train new providers second to reactivate inactive surgeons and finally to continue to grow KNL support for I fuse to further these initiatives. Our sales team is supporting healthcare providers telephone and online technologies until conditions permit resumption of more normalized healthcare.

Operations.

We are also ramping up our virtual education for both archived on Salesforce and surgeon customers to take advantage of the additional time to devote to training.

Our virtual education series has been very well received are very well received program over the last several weeks. We've completed seven programs to date and have an additional five programs plan through the end of bag. The most recent webinars on adult deformity and bedrock was attended by over 100 surgeons and.

Led by Dr., David Paul a couple of University of Minnesota.

During the quarter. We also continued to build on a significant reimbursement progress throughout 2019 and obtained positive coverage policy by Health Alliance plan commercial payer in Michigan.

Additionally, we continue to make progress expanding our portfolio a comprehensive say growth outlook solutions on the last day of the quarter. We received FDA five 10-K clearance for an expanded Nick indication for the aside wrong Ifyou implant system to support our trauma program. This new indicate.

Asian applies to ESI joint fusion in conjunction with the treatment of acute non acute and non traumatic fractures involving the sacroiliac joint.

We are launching the trauma education program in the United States in the second quarter I personally have spoken to half a dozen surgeons about this program devices used in trauma have evolved little in the last 25 years and we believe the use of our technology may well improve the outcomes for many patients that have.

Been treated surgically and non surgically under earlier treatment paradigms.

All additional work in both the lab and the clinic will be required to evaluate evolving treatment options for certain patient subgroups. There was considerable enthusiasm among the thought leaders with whom we are working on this initiative.

We remain in close contact with our customers.

Our community Representatives, our employees and our suppliers during this period.

Well the depth and duration of the current challenges are difficult to predict I believe our mid and long term opportunity just substantial and our business is well position financially and organizationally to whether this to pandemic with that I will now turn the call over to more Francis our Chief Financial Officer Angie.

Operating officer to provide more detail on our financial results.

Thanks, Jeff.

First quarter revenue increased by 12% to $16.8 million.

You have failed provided the majority of this revenue just over 90% delivering a growth rate across the quarter, 14%.

International revenue was relatively flat at $1.5 million compared to the corresponding prior year period.

As Jeff discussed our case volumes dropped in the second half of March which meaningfully impacted our performance.

Gross margin for the first quarter 2020 was 89% compared to 90% in the first quarter 2019.

The change in gross margin was due to higher cost of operations to support the growth of the business.

We expect our gross profit and gross margin will continue to be affected by factors impacting revenue and cost of goods sold.

Due to an expected decrease in overall demand in the second quarter 2020, Cobot 19, we anticipate that our operations will run at less than normal capacity.

Accordingly, certain labor and overhead costs will be expensed as incurred significantly reducing our gross profit and gross margin.

We cannot reliably estimate the extent to which the cobot 19 pandemic will impact our overall demand in the near term. However, we have sufficient inventory our supply chain dynamics are well in hand and product flows in good shape.

Operating expenses increased 20% to $26.8 million in the first quarter 2020 compared to $22.3 million in the first quarter 2019.

The increase in operating expenses was primarily driven by higher employee related costs due to higher headcount, mainly from sales hiring surgeon training and stock based compensation.

As Jeff noted, we've taken preemptive steps to curtail spending while there is more clarity to the extent in duration of the impact from the pandemic.

We've already implemented a number of cost saving measures, including implementing hiring restrictions, eliminating discretionary spending reducing executive salaries, reducing capital expenditure, reducing non essential marketing expenses.

And delaying clinical research projects.

We're taking an extremely thoughtful approach to spend and have also identified additional cost saving lever that could further reduced opex and thats this uncertain environment.

Our operating loss for the first quarter, 2020 was $11.9 million compared to $8.8 million than the first quarter of 2019.

Net loss was $12.8 million or 47 cents per diluted share for the first quarter 2020.

As compared to $9.3 million or 38 cents per diluted share in the first quarter 2018.

Cash and marketable securities were $146.2 million at the end of the corridor.

This balance reflects the $63 million and proceeds from our January follow on offering.

Based upon our current operating plan, we believe their existing cash and marketable securities will enable us to fund our operating expenses and capital expenditure requirement through at least the next 12 months.

We lived through our 2020 revenue guidance on April 2nd due to the evolving environment and continued uncertainties about the impact to covert 19.

We remain unable to estimate the magnitude or duration specific impacts on our business and for that reason, we will now provide an updated outlook until the impact and co at 19 becomes sufficiently clear.

Looking to the next several months, we expect that our business will continue to be impacted by the deferral of elective procedure as Jeff mentioned about half of the states new apps have resumed elective procedure. We're planning for a number of different scenarios of what I'd volume may look like over the next several quarter.

That said is the company, we're well prepared operationally financially and strategically to navigate through this challenging period.

I'll now turn the call back to Jeff for closing comments.

Thank you Laura before closing I want to thank our team at ESI bond for their efforts and strength through these difficult times I'm incredibly proud to be part of this team and believe that we will come out of this period, even stronger as a company.

While the immediate future is unclear im confident that ESI bonus is well positioned to navigate these challenging times the underlying fundamentals of our business remains strong.

Mid March we saw a record procedure volumes, resulting from the significant investments we made across our commercial organization develop this market.

And as Lauren mentioned in the near term, we are taking a very disciplined cam thoughtful approach financial decisions and capital allocation priorities.

As we continue to do our part to battle the spend on Mike we remain fully committed to support patients customers and our communities.

Stay safe and thank you for joining us.

We will now open it up to questions operator.

Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on you touched on telephone. If your question has been answered as you'd like to move yourself from the Q. Please press the pound key.

First question comes the line of David Lewis from Morgan Stanley. Your question. Please.

Good afternoon, thanks for taking the questions jet fuel for me. This afternoon. The first just I want to kind of getting to covert second here, but obviously the first two that bunch of the quarter by our math you had at least five seven points from that some acceleration I just wonder how do you think about.

Where the regions of the country that was strong any sense of but the primary drivers for how much was driven by your new commercial expansion, new payer contracts or frankly was it more national which should be sort of more indicative that the benefit was tied to better physician reimbursement just any color on the first two that month for the year in terms of the inflection will be greater than a couple of follow ups.

Yeah sure David.

Well it really was absolutely all across the country for the first two and half lots and.

The that that growth rate and that strength.

Great.

And obviously, we had a lot of cancellations in the last two weeks.

Of those numbers that 29% Didnt close.

Bookings that might come in so there really was good strength all across the country I think it's no different than what we saw Oh.

Previous quarters things getting slotted in the five or so drivers of the business.

More salespeople more people trained more surgeons trained.

No more reimbursements.

And that of course, the surgeon payment.

And we were really firing on all cylinders.

It's a little bit different.

As we get into call that we are seeing pockets and I'm happy to answer that if that's where you want to go.

Well this Greg.

In the country Thats coming back so.

Than other areas.

Okay.

Just to ship to cover for second here I kind of maybe a couple of part question here, Jeff but.

Good for Kevin doing spine procedures is being fairly deferrable.

In some emerging procedures, how do you think about ESI bone kind of relative to traditional spinal procedures and.

Maybe some more color on sort of what are some of the characteristics of what you're seeing these pockets of strength. You then at a very significant outpatient mix and I wonder how much of that is participating or you're seeing more procedures shifted to the outpatient market. So just sort of where you are from an electric perspective relative despite and sort of what is the characteristics of some of these places you're seeing recovery.

Well I think David first of all so if you talk to surgeons out there I think.

Most maybe.

A big percentage say this is something they love to do it has tremendous success rates the patient satisfaction is tremendous so I think.

It's a very popular surgery kind of has great impact very quickly.

And now what the payment I think it's a very attractive procedure from that aspect as well.

So so I think of we certainly going to see more procedures that are outpatient.

As a percentage over the last number of weeks.

We've seen more and have seen but I think thats more result of slower numbers.

In the hospitals themselves. So the percentage certainly has gone up.

From our what we talked about traditionally at 10% out it seems.

As to.

So what we're seeing now the last week, we certainly are seeing.

Procedure volumes coming back on.

With the opening of.

I think were 25 states as of today with Florida opening up thats more than 70%.

The potential volume a little bit higher than that.

Our traditional volume across the country. So.

Where it's hard for us to parse out what percentage of those cases are actually cases that were cancelled in March.

Those hundreds of cases.

Or are there new procedures. So that's that's a mix that's a little more difficult, but but certainly over the last five six days we've seen.

Strength coming back to the business.

Okay, and just lastly, Jeff for me just international that number actually fared better than expected and maybe just relative to your exposure in Germany, where.

Procedures have been a little better, but just you your thoughts on kind of international and any recovery are you seeing outside the U.S. and I'll jump back in queue. Thanks.

Sure we welcome David.

So yeah, we're seeing strength and germn.

Prior to our Paul at March 15th we saw strength.

In Germany, and the UK and in France, So some of the bigger countries.

As to the the cobot effect.

We are seeing Germany comes back.

The UK as I'm sure you've heard from other companies as well as Francis slower.

At this point.

And we'll just have to see how that develops from an opening standpoint.

Okay. Thanks, so much.

Well thank you.

Our next question comes from the line of Bob Hopkins from Bank of America. Your question. Please.

Hi, Thanks.

And.

Hi, Bob.

Yes.

Just curious I am happy to hear you say that last five six Davidson through improvement.

I'm sorry, if can you get through a sense.

Okay.

Down, 30% or 60 prepared some sense as to what the year over year.

Growth rate looks like.

So.

Yes.

The.

The numbers going into May.

Yes.

Year over year.

What I'm talking about is the first day of May how bookings look like how big the backlog was going into may.

Compared to a year ago.

Whereas.

Not hugely down from a year ago.

So.

If it's hard to say how much how much of that is most cases that came back on from there were cancelled or down.

But.

April April was was quite honestly very very Ross.

You know down very significantly, but I think we're seeing a nice recovery in may.

Okay.

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And then.

One.

One other question I wanted to.

Because obviously for a period of time here.

Been unable to.

Yes.

Going to regular sentence and.

Not probably not able to kind of be out there kind of developing your market, which I know is huge part of the story how much do you think that.

So let's get back at this sort of inability to go out there and tell your story just over the last month or most of the hat.

I don't think.

Much Bob I think the Salesforce is.

Anxious to get back to work they are getting back to work in the middle of the country and.

And in places like Texas were seeing cases come back on.

Very strongly.

I think the surgeons that I've talked to.

Quite a lot of them, they're very anxious to get back to work and as you might recall, we went deeper as a team.

Into the accounts that we have and increase the number of cases per surge.

Last quarter.

I don't remember the exact number I think it was.

3.1 quarter, 3.41, or something like that.

Lower could probably help me there.

But I I honestly don't pay.

That this month and a half of.

You know sort of being on the sidelines.

As.

Any any material effect over what we think about the business longer term and longer term.

I think I think theres greater realization, we've seen store or this is a problem.

So.

There are surgeons actually who.

Don't have time to alert.

And because they're so busy in their practices and one of the things that we are we have seen is the sales folks.

Our communicating with the surgeons the Webinars, though we had done and I mentioned, one earlier, where we had over 100 surgeons in the adult deformity deformity.

Webinars for an hour.

So that actually brought in some surgeons who.

Traditionally.

We havent had time to meet with our people so.

The world is changing a little bit.

So there are some positive things around some of these education.

Initiatives and.

I find that the surgeons or.

Staying on the phone with me and staying on I suspect with the salespeople.

A little bit longer because they have a little more time, whether again so.

Ours is a story as you know Bob about understanding education differential diagnosis include any ESI joints, and I think that momentum continues and I think that these webinars.

And the salespeople, reaching out to the surgeons and sales management.

It is continuing that momentum will clearly we didnt wish for this we were as I said firing on all cylinders and.

But a very rough period for everyone.

But I don't see anything different about the opportunity for the business in the future.

What do you think last quick question, where do you think bedrock might have done in the quarter.

I was that trending.

It's.

It is getting a lot of traction.

Particularly from an education standpoint.

I mean, I I have to tell you Bob I was.

When the when Tony Recoup ROE told me that there were going to be over 100 surgeons on the adult deformity.

Webinars.

That was.

Way more than double what I thought it would be on that webinars.

So.

I think I think we have.

Really good strategy in place I think that there has been.

As I've said said before pretty lousy development from a technology standpoint, and the aside joint before we came on the C.

I think the adult deformity.

Results were seeing and.

[music].

The I just got a report on revision rates are which we track.

They are terrific on the ESI joint there unbelievably good on the adult deformity cases.

Thirdly, I think that the are.

The whole trauma space, which were just starting to enter has had pretty substandard.

Technology development.

And with our technology now entering bathroom seen or a tremendous interest there.

So I think all three areas.

Are going to contribute and and be a force multiplier.

Our with each other for our company.

So.

I Didnt quite quite tell you exactly how many adult deformity cases, we did which are.

But where we are seeing strengthen in all three of those areas.

Great. Thank you very much.

You're welcome Bob Good to talk to you.

Thank you. Our next question comes in the line of Kyle Rose from Canaccord. Your question. Please.

Great. Thank you very much for taking the question I kind of wanted to dovetail a little bit on from the previous question, So from David and Bob as Jeff, putting when I think about.

Sales trends through April I think Theres been no. These are surveys suggest anywhere from a 70% to 80% decline in procedure volumes for the month.

On April, but you had some encouraging commentary about the 50% of states opening backup in May and those represent about 10% of your business. So maybe kind of help us frame. How we should think about that month over month improvement when we get into May and June does that go from 70 to 30% to 40% decline is just trying to.

Understand on a relative basis, how we should think about the business trending.

Jeff maybe I can help out on this particular question.

I do have some data on it Kyle as as Jeff said the month of April looks like it was a was the troughs and and what we experienced it was a decline compared to our plan over 80% in terms of case volumes in the United States. So we were off by.

Over 80%.

He says in the month of April.

But when we look at name bookings and it's just looking at May at first and where the bookings are in the United States for the whole month in May. This is our primary leading indicator that we use.

To understand what the month is going to look like a typical case will be but two to three weeks prior to the time that it's performed in.

We compare that.

Metric to last year were at approximately 80%.

Last year bookings and the same day as it is made first.

If you compare that to.

Plan, we would be more in.

60% of plan or 40% down from where we would have anticipated so.

A big jump from that 80% down and.

In April two it looks like more like 40% down in may at least with that one indicator.

That's very helpful. Thank you very much.

For the color there and.

Also touch a little bit on the trends in the outpatient and the as you said and I just want to make sure I heard you correctly.

Did you say that 10% of your historical businesses in the ASV in it.

I was wondering if you could break out the mix.

With respect to outpatient versus.

Inpatient and how that may have changed even in the first quarter to date with that with a better.

Physician reimbursement.

Well, yes, Karl in it it has traditionally been 10 10, 12% in a stcs, we don't have the exact number.

In the hospitals I'd, both the outpatient and patient.

But.

Certainly we think that about 80% plus the surgeries that are done in hospitals are actually outpatient.

Procedures.

As to the change in that.

There really wasn't much change through the first.

Two and a half months.

In the in the first quarter.

And.

The last two quarters, there wasn't much done at all but.

In April we certainly saw the assay numbers.

No we were working on working off a small smaller base as Laura alluded to with being down 80%.

More were done in a sees a significantly greater percentage was done in AOCI, but I think thats really.

A little deceptive in the sense because the.

So number there were actually done in hospitals, which was quite small.

Okay. Thank you very much for taking the questions I'll hop back can give you all.

Local.

Thank you. Our next question comes from the line of Kayla come from Suntrust. Your question. Please.

Great Hi, guys. Thanks for taking your questions that you're looking for men.

You mentioned that that you are curtailing operating expenses.

Navigate co Ben.

And you talked about you know the hiring restrictions and delaying clinical projects. So can you speak I guess to how significantly those plans have changed and just help us understand or give us comfort that there were any major changes how do we think about you have long term growth from here or is there any impact to your competence.

There.

So why don't I wanted I just talking in general on the marketing add on here are Kayla.

We as we talked about in the past cod.

Ill.

Variable expenses some of those were caught naturally obviously with with.

Conventions, and and annual meetings and those kinds of things and I don't think thats going to change all year I don't think those expenses are coming back and they're not in our control. So I think that that expense you have to sort of take them one at a time.

The expense were related to.

Surgeon training will go up and we will support whatever surgeon wants to get trained and slot those back in as surgeons are allowed to be trade.

Within that training area I have alluded in the past to a new training system that we're developing which is an advance training system that can be used.

It will be able to trained surgeons on different kinds of anatomy.

This is a proprietary system.

This will allow us to do it or do the surgeon trainings.

More locally which means surgeons won't have to travel and we'll we'll be rolling that out in the second half of the year so that actually.

From an expense standpoint, I'll, let lore comment on that but.

There's some capital equipment expenditures in there, but there will be travel expense changes.

Our within.

Capital program.

As to variable expenses and marketing.

We have cut back quite a bit on things.

Like Facebook and those kinds of things, but we have been doing webinars. So I think as things evolve over between now and we ended the year well begin to ramp that up as we see bit and there will be a little more change or in the percentage.

Money that we spend on direct to patient marketing versus going to these annual meetings because that number is not as I said going up.

Lora anything you want to add into that.

I think probably the most important thing to add based on your question. Kayla is we did not make any changes from people perspective with the exception to the hiring freeze and management salary reductions we are we had.

Spent the last 18 months since we went public building a quite extraordinary group those people on both at our headquarters operation as well as in the field and we were seeing significant acceleration of our revenues and so our goal is to keep our peak.

Paul intact and supported during this difficult period. So that we can come out of this pretty rapidly in and I just talked a little bit about what happened in April which was was a low point for us but that that may is starting to to to come out of this at least based on early into.

Caters and we have the people in place with relationships with our our surgeons in order to get those cases going again, and we have the support staff in order to tinge, our I'd sale.

In addition, where we're keeping our project prioritizations in place as well major projects that the company was working on we are continuing to push forward on those and so the real focus was on expenditures that would not have a significant impact long term on the business so that as things.

Turn to me, we're ready to.

To to jump on the opportunity and re accelerate the business.

Sometimes the time Oh.

Yeah and from a percentage perspective, when we were looking at variable expenses, we tried to cut out 10% to 15% of operating expenses with those variable cost that we took out and so we went through every single expense and Jeff talked about quite a few those already we also looked at working capital.

Just to make sure we.

We're being.

Prudent with our.

Our inventories and our payables and receivables and all of those items and then Jeff also mentioned that that we looked at capital expenditures for example.

Not yet.

Purchasing certain items that we had intended to or just pushing those out a little bit so winter a full list of.

Items and made some decisions to be both prudent from a capital perspective, but also make sure that we did not impact the long term opportunity for the business.

That makes a lot of sense, Thank you, Laura and Jeff that.

I guess, just as a follow up to that you're still continuing your efforts with trauma can you just give us a little bit more detail on your effort there and how your effect.

Planning to launch into it into that space. Thank you.

Well the first the first thing obviously, because we use this time with our field organization to train them up in the trial.

Area.

So that actually.

Was was well spent time we've we.

Used a whole we've implemented a whole new training system called brand shark, which allows us to push out educational content to the field.

And its a.

A pace learning track learning and so I think Oh the team actually has had the opportunity to come up in understands the opportunities.

And get trained to the trauma space more rapidly than they might have they were at work every day. So.

Tony on the table or along with this training team are.

Most of the way through a lot of that lives. It's launching now is.

Certainly we are starting to see.

Nice trauma cases.

So so that's that actually worked out okay.

It's in that sense so.

There are going to be some investments so in in the clinical area we've seen.

A few surgeons step up and say, we want to do our own study.

Because we just said.

Hold on some of this clinical investment.

For a few months.

So I think we're going to see some doctors validates some of this on the ROE.

So work, where we're pretty excited about the trauma space and what we see going on.

And more to come on that.

Okay.

Great. Thank you.

Welcome.

Thank you. Our next question comes on line of Dave Turkaly from.

JMP Securities Your question please.

Hi, Thanks, So just wondering Jeff if you could remind us the average age of the patient treated and then I think you talked a little bit about CMS first private payer mix last quarter, but.

I'm trying to get that is.

The age of the patients it seems like some of the elderly may not be as willing to be in the hospital and I know that still is kind of a majority of the procedures today. So.

If you could just remind us where that stands today and then the mix between private RCM.

Happy to David.

So.

We have patients that are 20 to 80 years old.

The average patient as 50.

Two thirds or female so that's the landscape.

The.

Percentage of patients.

In 2019.

That were Medicare patients was a little shy of 15%.

We certainly expect.

Got to.

Change and we expect over caused the next year or two for 80% of our patients.

To be.

Non Medicare patients so the commercial side to increase.

Makes sense I'm glad to hear that youre going to add that kind of that.

Those numbers I guess the other one.

Quickly was.

In terms of the procedures what percent would.

Would you say today that your salesforce with the assistance or actually.

In light of I guess.

You mentioned some.

The places bouncing back, but I know wrap access has done a problem at some hospitals so.

I'm imagining that some of your accounts don't don't need.

Somebody there all the time, but any thoughts on that as places begin to reopen thank you.

You're welcome David.

As you know or virtually all of our procedures in the past have had.

Our.

Our reps in there we certainly.

Hopefully can continue on that front they add value.

We are adding training capability.

Two.

Actually I think trailer surgeons better so they could practice on male patients female patients dysmorphic patients et cetera, where we haven't had some of that capability or roll that out.

We view our Salesforce is because.

Highly skilled and adding value.

As you know some of these surgeons do.

Just a few procedures.

In a quarter.

You might have a sales rep to seeing.

No.

Order of magnitude larger than that so they absolutely add value as to our actual access.

I think it's too early to tell exactly how thats going to play out here I think it's going to.

We certainly see reps in my gut emails from reps pictures them and their car on the way to work. These days and say have gone into a case Jeff.

I've asked them to suddenly those pictures, because I want to I want to know that that's going on so there are certainly.

[music].

A few instances, where we've seen reps.

That havent been allowed to go in but.

At least what I've heard so far.

I may want to get back to you our this.

After talking a little more with Tony but I think is almost all the cases the reps have been allowed in.

To the cases that we've done in the last.

The weaker so.

Thank you.

You're welcome.

Thank you. Our next question comes from the line of David Saxon from Needham Your question. Please.

Yes, good afternoon.

I guess just one on on the recovery what have you been hearing from doctors about their capacity as they reopen and how long it might take to work through the backlog and then you mentioned 300 cases were were pushed out I was just wondering.

What portion of those do you think will be ultimately rescheduled.

Yes.

So.

Hi, David.

As to the.

Surgeons capacity I think that they can.

We'll go up 20% or so from where they would normally be.

The surgeons I've talked to and I know the salesforce with Dr. because I've heard this multiple different places.

I think everyone fully expects in Q3, and particularly in Q4 at the country hopefully.

Fully opens up.

To work, Saturdays, and and and work a lot of evenings and I think our Salesforce is super dedicated men and.

Not not just willing to go back to work, they're excited to go back to work and get into the game and.

Help these patients so.

I suspect we're going to.

Sure a bunch of Saturday soccer games missed.

And we're going to be.

In the operated pretty awesome.

And.

Remind me what the second Porsche your question Wise.

You mentioned 300 cases were pushed out just wondering.

Hello.

Yes.

I suspect.

It's hard to say, but I wouldn't be surprised 95% those cases.

Pulled back on the books.

I don't think said a lot of people that are ready to go to the operating room at three days just parent.

I think these people are in severe pain in there there could.

Convinced and their surgeons are convinced that they can be helped in a significant away and and so I don't think we're going to see a lot of loss. There I think it's more a question when as opposed to Jeff.

I think in certain places like the northeast, where we're going to see it and I think all companies are going to see a lower recovery.

Of the surgical rates.

Those ones are going to take longer to come back to those those those places may not.

Ill get back to normal took Q4 Q1 I don't know on.

I'm not the Oracle here in that sense I don't think anyone is.

In places like.

Like the South, Florida, and Texas and.

And some of these other places I think you're going to see much much.

Faster recovery in those 300 cases or the portion there are other in those particular geographies or should come back pretty fast.

Okay, Yes, that's a that's helpful.

Correct.

And then I guess my second question is I mean previously you've talked about the decor indicator and the IP is bose.

And that as a kind of the move to attract new new surgeons just wanted to hear ups through mid March.

How are those.

Products were doing.

In terms of bringing in new active surgeons.

So much.

You're welcome.

They are doing.

I think that we're very different from every other company that's competing in this space in that sense that we have before we have a full bag.

And so absolutely.

New surgeons are coming on.

[music].

I think we've got a couple of a big.

Things in our pockets that will come out.

I'll.

Call it a year by a year from today or so in that kind of timeframe and and we're going to add add to our strengths there. So.

So.

That's the strategy is is at or all of those mark all three of those markets with the ASI joint fusion spaces as the the foundation of the whole company.

But expand out of the trauma and adult deformity spaces to increase the awareness and increase the revenue and then.

Bringing these other products so that we're even more competitive than in the next year.

Great appreciate the color.

Youre welcome.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Jeff done President and CEO for any further remarks.

Sure just give us or a quick thank you for joining today.

Obviously challenging times.

Honestly feel pretty pretty good about how the team has held together in fact I feel great about how the team has held together and are excited to get back to work and I Hope. All you guys are gals out there are safe and.

Families a healthy.

And look forward to.

Getting back to whatever the new normal is.

In the not too distant future. So thanks again for joining.

Thank you ladies and gentlemen few participation in today's conference. This does conclude the program you may now disconnect good day.