Q1 2020 Earnings Call
And even gentleman to stand by or conference call will begin momentarily. Once again, thank you for your patients simply standby.
[music].
Good afternoon, ladies and gentlemen, and welcome to the Tele by L. first quarter 22020 earnings conference call. At this time, all participants are analysts and only mode. A question and answer session will follow the prepared comment as a reminder, this conference being recorded I wouldn't like to turn the conference over to Stewart Henderson Vice President of.
Corporate development and Investor Relations for <unk>.
Thank you born in good afternoon, everyone earlier today Tele bio relief financial results for the quarter ended March 31st 2020 coffee at the press releases available on the company's website.
Joining me in states call or Tony <unk>, President and C.O. and nor brand in Seattle before we begin I'd like to remind you that during this conference call become people make projections and forward looking statements regarding future events.
Encourage you to review the company past and future filings with the L.C.C., including without limitation to accompany forms 10, K. and 10, Q., which identified a specific factors that may cause actual results are event two different materially from those described to me forward looking statements.
Factors may include without limitation statements regarding product development product potential the regulatory environment sales and marketing strategies capital resources.
Passively coded 19 pandemic in our business or operating performance.
With that I'll know turn to call overtones.
Thanks Stewart good afternoon, everyone.
I want to begin by thanking our health care community, including fall Hospital workers and staff.
Dedication and sacrifices you battle the coast 19 pandemic greatly appreciate your heroic contributions to saving lives.
In addition to review and our first quarter results I want to use our time today to discuss the impact of this global crisis on our business and the various initiatives we have taken to position ourselves for continued growth.
Nor a bright animals start with a review of our first quarter results and then I will provide remarks on the impact that this pandemic on our business allow turn the call over to new thanks, Tony and Hello, everyone.
Refer to our press release issued earlier today for a summary of our financial results for the first quarter of 2020.
70 for the first quarter increase 13% you every year to 3.7 million increase was primarily driven by the rising tales of our product from the expansion of our commercial organization and increase penetration within existing customer account.
They weren't revenue increase over the prior year period, it was impacted by where the unexpected procedure volumes and the second half of March 2020.
The the hospitals in patients suffering collected for teachers another factor it's related to the curve in 19 pandemic.
Gross profit as a percentage of revenue improved in the first quarter compared to the prior year period, increasing to 59% of revenue from 50.4% of revenue and it prior year period to the higher quarterly revenue and a decrease in a charge recognized for access.
Obsolete inventory.
Marketing expenses for 5.3 million in the first quarter of 2020 compared to 4 million in the same period in 2019, Theincrease, it's even higher salaries benefits and commission costs as a result of our sales expansion activities.
G.N.A. expenses, which would have have nine in the first quarter of 2020 compared to 1.3 light in the same carried in 2019 increase was due primarily to the increase costs associated with operating at the top of the company.
Aren't expensive 3.9 million and at first quarter 2020, compared to 1.7, and the same period and 2019.
This decrease with data reductions in licensing payments reduced outside of that men expenses and a lower level of laboratory expense.
Lots from operations for 6.5 million and the first quarter of 2020 compared to 5.2 main in the prior year period.
We ended the first quarter of 2020 with four point 46.7 million in cash cash equivalent in short term investment.
Based on a business plan a day, we believe that are <unk> resources in short term investments will be sufficient to meet or capital requirements and finder operations for at least the next 12 months.
Cheated several catch conservation of tragedy for the second quarter, including reduction of third party spending temporary base salary dot chance for all employees ranging from 5% of 35% a hiring freeze.
We will continue to monitor or cash burn relative to our revenue and adjust our spending as appropriate.
Becoming ongoing impact on restrictions on surgical procedures and shelter and played policies. We expect revenue to decline in the second quarter of 2020 as compared to the most recent completed quarter and same quarter in 2019.
This time, the full extent of the impact of <unk> at the club in 19 pandemic I revenues cannot be predicted reasonable accuracy and we will continue our suspension of full year 2020 revenue that.
But that will now trying to call over to Tony Alright.
The World continues to face an unprecedented kind of uncertainty from this global pandemic.
As this crisis significantly impact each of our lives recovery is dictated in part by government guidelines and mandates that continued to evolve based on a multitude of factors that remained dynamic and very by geography.
Beginning in the middle of March hospitals began preserving their time space and resources to address the emerging and potential need for treating code. It 19 patients and also can mitigate the spread of the virus.
Changing focus has caused delays and non emergency and elective procedures in many parts of the world how old however over the past few weeks, we understand that certain hospitals in some areas of the country.
Beginning to lift to move their moratorium on performing elective procedures and we have begun to see an increase in surgery volume relative to several weeks ago, Indeed geography.
Our portfolio as a reminder, consistent product for hernia repair and plastic and reconstructive surgery.
<unk> these procedures can be deferred and post calling to a later date.
However, hernias worse than with time, and we'll eventually require surgery and patience with complex hurting as often have other comorbidities and health challenges that require intervention.
Plastic and reconstructive surgery, they're also critical to our patients health and we expect that most of the cancelled procedures will be rescheduled.
As a result, we anticipate our volumes to <unk> rebound as the country recovered from this pandemic an elective procedures come back online.
As we navigate the challenging time I continue to be impressed by the resilience of our team and our shared commitment to emerge stronger as we position in the company for sustained growth.
Our priorities are focused on these main areas first ensuring the health and safety of our employees customers and patience.
The conservation of capital third driving quality engagement with our customers during the presentation of including the presentation of our Bravo clinical data and developing a high caliber commercial organization.
Worth that continued implementation of our recently awarded G.P.O. contracts and lastly, the expanded roll out of our Overtax P.R.S. products for plastic and reconstructive surgery.
Turning first to the health and safety of our employees and our customers following guidelines mandates.
Our employees continued to work remotely with non essential travel restricted to.
To protect their employees that they work we have increased sanitizing measures and had to implemented specific protocols for employees to practice physical distancing. We are also developing safety protocols far field base employees as they prepare to re enter hospital.
Manufacturing at our partner facility in New Zealand continues to be operational as an essential service and support of our customers and to date, we have not encountered any delays or supply shortages.
[noise] as nor discussed earlier, we have taken several proactive measures to reduce our spending for the second quarter to ensure we can invest in driving growth as we recover from this pandemic.
Continue to invest in.
And make progress on our <unk> primary strategic initiatives that will monitor expenses as we gained visibility to surgical procedures returning.
Our commercial team remains focused on supporting our customers and develop any strong surgeon pipeline.
We are continuing to operate with virtual solutions that have allowed our teams to effectively educate surgeons and our product portfolio and clinical data.
We have been impressed by the level of engagement in these virtual programs and has successfully reached over 100 surgeon.
We have also established virtual training initiatives throughout our commercial organization to increase our level of service intuition or is that our team provides supported resources to our customers.
We continue to go the pipeline of quality candidates to recruit and place in high potential geography used to service our hospital customers when surgery volumes improve.
Clinically we remain on track with Bravo are multicenter prospective post market study, which has shown a zero percent hernia recurrent that 24 months in the first 20 patients studied and a 2% recurrence rate in the first 57 patients at 12 months.
As the Bravo data continues to mature we plan to provide additional data over the next several quarters.
Prior to cope with 19.
We were awarded multiple G.P.O. contracts, providing us with access to approximately 1900 hospital accounts.
Interactions with supply chain and clinical resource directors within hospital two systems have been limited engagement has improved in recent weeks at hospitals began to come back on line. We remain laser focus on leveraging the G.P.O. contracts that we have been awarded to drive the adoption of our Overtax and.
Oh, that's X.P.R.S. products.
We also appreciate that many of our hospital customers are facing economic challenges as they manage their businesses through this crisis.
Remain at their service to provide our product portfolio significant cost savings.
Let's have to competitive natural repair technologies.
For plastic and reconstructive surgery, we are continuing with the limited launch of our public X.P.R.S. products and have experienced high engagement with new surgeon customers buyer of virtual education programs.
We are working to expand our surgeon network surgeries every schedule and continue to collect feedback on our product portfolio to identify additional product opportunities. We plan on leveraging our existing adaptable technology platform to develop new generation of both our Overtax hernia and Overtax P.R.S. products.
Circumstances arising from cold at 19.
Avidly evolving and continue to be uncertain.
At this time, the full extent of the impact on the cold in 19 of the cold in 19 pandemic on a business cannot be predicted with reasonable accuracy.
I had to the coming months, we continue to actively monitor.
Aggression of code at 19 on our outlook, especially with hospitals beginning to come back online.
<unk> procedures.
In closing I want to thank everyone again for your time this afternoon and for your interest in Tele by I also want to think our team for the continued commitment to our mission.
Confidence in the fundamental strength of our business as we support our healthcare community to overcome this challenging time, we are well positioned to deliver on our initiatives and I remain optimistic that we will continue our success and achieve sustain a joke sustainable growth in the long time.
Oh now turn the call back over to our operator, Lauren and open up the question.
Thank you to ask a question you don't need depressed star one on your telephone to withdraw your question press the pound or hash key again that Star then one to ask a question. Our first question comes from rushed annoying Jeffries Carolina's now.
Oh, hi, good afternoon.
I could start with we'd have the quarter has progressed and so I. Appreciate that you don't really pro was was probably quite poor as he was for most companies and then maybe a bit of recovery as you described but maybe you could just grounded <unk>, how bad things gotten April in what you're seeing in terms of procedures coming back.
Sure Rush so.
Started very slow.
And I'd say improve somewhat as the month progress.
It has continued to improve at least that's far in may.
We believe that we saw at least the decline.
70% level for April you know in comparison to create coated 19 surgical volumes.
So far in May I mean early.
But you know I'd say, we are we're doing better and we may be more like in the 50 per cent range.
Compared to <unk> for the first week.
That's okay.
Right right that's helpful.
I guess when one thinks about you'll be you know what would've been driving your growth rates for the the adoption of the technology by new surgeons in certainly exploiting the G.P.O. contract when you you've had recently.
You know how was that progressing right. So I I imagine there was surgeons, who had already seen the product to maybe could access it because he wasn't on contract within the institution have you seen any sort of steady adoption you know despite not having sales people that could that could push the product.
Yeah. So I'll you know what I should've said to finish off I think your first and second question are related so.
If you look at the case is that we are doing right now I would say on the hernia side, we're doing the more complex procedures right. So <unk> complex vegetables will lead us out.
We're also seeing P.R.S.
Continue to be you know cases continue to be gone. So our view is is that p. or is that a complex natural M.P.R.S. will eat it out. So you know we have had tremendous success with virtual a surgeon V.I.P. programs, we stand up for two hours.
With with a surgeons that I think that's a unique time because they have time.
And and we've crank these out.
And in many of those meetings, we've we're gaining commitments to either expand usage of the product or just start using our products. So we've already seen some of those new customers come online and use the products.
In early May in places, where things have cracked open a little bit.
I can say just from a color commentary perspective that we've touched so many scenarios through this V.I.P. doom process that for all.
All of April.
You know most of April I would say they all appeared to be home in street clothes like the rest of.
Recently, the last week or so maybe week and a half we're starting to see the surgeon and scrub they're in their offices are there somewhere in the hospital, they're by no means doing a full days work, but they're starting to do some things right, they're starting to do emergency cases, some emerging case.
Maybe some simpler cases, there certainly starting to see patients again, so we're starting to see a little bit.
The through the V.I.P. program surgeons as they migrate from home to to their their their base of operations in the hospital.
So yeah, I I think it's a little bit of everything I think as you as you look at the base business in April complex central and P.R.S., probably mostly legacy an AD. We're starting to see may come on line. We're very pleased that we're seeing new surges again more oriented towards <unk>.
Natural M.P.R.S. stuck to come on line.
Great. That's very helpful and maybe just last week nor for you.
A couple of quarters operating expenses have been you know roughly 8.7 8.8 million and I. Appreciate you guys you're looking at cost reductions, but you wouldn't work can you take those expenses you know how much you know how much leeway do you have to actually cut into those.
So.
I think when we talk last time, we we went through and our variable expenses between 20 and 25%. So that's exactly where we're cutting is you know torturing mentions are going to come down naturally just from you know lower lower sales, but there's also some spending that we had around.
Some consultants that we had or whatever variable costs. We can remove we did so we also mention their salary reductions that we put true for the entire organization and that's really to conserve cash and and keep to the same level elsewhere.
On cookies quarter Q1 in Q4, yeah, right, just a little bit of color on that though our goal for Q2 is to try to balance the equation whatever we lose in sales and Q2, we're trying to cut out of the operating.
So that we do not go backwards in cash consumption.
Yeah.
Targets.
Great. Thank you.
Thanks.
Thank you are next question comes from Matthew O'brien with Piper Sandler Your line is now open.
Oh afternoon. Thanks for taking that question Q. for me for starters for Nora I didn't hear this split between that'd be tax and N.P.R.S. can you provide that and then gross margins were just softer than we we're anticipating a in Q1 again I know he's getting a little bit lighter than I think you guys worried because I didn't given to slow down in the back.
Marks but was there's something there as far as you know mix shift or something else that like a gross margin speak a little light up what governor my one.
No.
The first question man, so I think that mix between.
Attacks N.P.R.S. was about 91% for Overtax at about 9% prepare s. So again, it's we manage our limit launch M.P.R.S.
On this but given what's going on given how big an established the market is with a lot of.
Competitors, it maybe not maybe aren't paying close attention as they should be are you guys going to focus a little bit more on the near term here given what's going on with Tobin on the hernia side of the business and maybe pushed a little more aggressively on the breast side next year or on the classics I'd next year and beyond or is it still more of the same strategy going forward, we're going to you I.
I think you're going to see actually an uptick in prs as a percent ratio of our sales at least in Q2 right as we as we work through you know the shift in procedure types.
So.
What I think we're going to be firmly be into more complex eventual arena in the Prs Arena and that's what we're going to we're going to go after and a and B of service I would say I think is more likely be of service.
I don't think you're going to see simple, England old in high hurdles, which we've seen a big shift towards as as we discussed in a.
Previous call I don't think you're gonna see those come back I mean, the way as soon I think the way. We're looking at this is the simpler that procedure. The last it comes back right. So complex ventral you may have an infection you may have pain suffering mass.
Removal required at polypropylene match likely has to come out.
These are going to come back first.
And then Prs are also going to be more emerging as well given the nature of those procedures. So we're going to crack open prf starting in end of May early June.
As much as possible we've already started that process through this virtual surgeon VIP program.
Which has touched many surgeons.
And then I think on the ventral side, we run a virtual KFL Webinars series, where we just block a full day, we have our Caone I'll.
People presentation every hour on an hour and we and we get surgeons to interact with our K a well those are mostly focused on overtax hernia.
So I think we've got a balanced approach here that is going to basically.
Allow us to be of service, where when needed, which is prs and and complex central.
Okay, and that's really helpful. And then last one is just on.
On the backlog on you know, there's there's just a big part of your strategy for this year was really you know moving markets are over tour you or your products given the backlog somebody's clinicians are going to be seeing it how busy they're gonna be trying to get through it.
How challenging is he going to be for you guys to add new surgeon customers over the last maybe five to four to five months of the year.
Well I I think the volume of surgeons VIP that we've done virtually in.
Amazing to me.
And we're going to keep doing them and we're going to make it a permanent part of our repertoire.
It's not going to fully replace bringing surgeons in to have the tour like like you had a you know I think it's very impressive to see our labs in our technology and our testing rigs and.
And our data and meet the team, but I think what we're realizing is is that we can do many many more within an hour could two hours.
The management team a full management team can be on these calls the surgeons can have a full interaction with the Q in a and we can get 80% of what they would exact by coming here.
Done.
On a good month, we're doing four or five VIP, maybe three to four is more more like a usual month.
But at the height of you know this process last month, we were doing four and five day.
At some point not every day.
So I think our ability to think through using screens.
To have our management team be highly involved in the selling process allows for the throughput and for telling the story in absolutely the perfect way.
And the surgeons can understand touch and feel what this team is about and how we're committed to innovation and cost savings.
And then you know if we if we wind up having our sales team you know running the logistics to make sure the product is getting to where it's gotta go.
That's fine with us so we're going to we're going to dedicate ourselves to being agile and nimble flexible.
And then continue with this screen Bache based virtual approach not all of our reps, they're going to get back into hospitals. We know that so you know we've already covered cases through face time, we're looking at can we get onto the screens in the Oh, our through this integrated operating room.
Thing that could be emerging.
And I think with our clinical development team, which are very very sophisticated.
Clinical development specialists, we can really crank out the screen based half hour one hour 1.5 hour sessions.
Yet the best possible presentation, and then have our reps you know coming behind us and.
And help close things out of the service and provide logistics. So I think this could be a model that's in place for some time here.
And that's the way, we're going to choose to spend our time totally committed to that the other thing that.
In terms of market share movement is.
Everything I just described we can do for crts and DCR deals in the supply chain at healthtrust or any GPL.
Now they went away they disappeared on us either they were redeployed or furloughed through most of the last month or so but they are now coming back. So we're starting to do these virtual programs.
For them as well so supply chain is now getting in on this.
We have tailored value props and messaging for them as well and I think that's going to help us because they can now help us organize surgeons for our virtual VIP program to drive implementation and cost savings don't forget we offer tremendous cost savings around Prs and complex central this is the.
Sweet spot of where we offer the highest value proposition and if hospitals are in financial dire Straits, we can be a very nice solution for them right. Now. So so we're pulling out the stops to ER to continue this business and to emerge from this stronger with a better tool kit.
That's more aligned.
Speed efficiency in volume in terms of interactions.
Got it much appreciated.
Thanks.
Thank you. Our next question comes from Kyle Rose with Canaccord. Your line is now open.
Good afternoon everybody.
Thanks for taking the questions. So I wanted to.
Just a continuation of some of the prior questions and I guess, maybe just a little help was.
How much work you were able to do in the Health Trust accounts just from a contracted in an access standpoint, I guess upfront.
And then how you expect the utilization of those count accounts to kind of trend over the course of I guess the recovery here in May and then into June.
Yeah. So I'll I'll just ground view that we had basically one month right. We had implementation started on February one.
So we had maybe okay, maybe five weeks or so you know Q3 of 29 team. We were in about 45 healthtrust accounts as they started to loosen the grip a little bit you know as we got closer to a real implementation by the end of Q1, we were in.
65, healthtrust hospitals, so that's really a very short amount of time a lot of that first month was spent getting to know the process.
And the meeting the people. So I think it's a very good sign that we that we made excellent progress with 20 or so accounts in a fairly short period of time, a lot of the new sales reps that we brought on it and I guess the other thing is is that we've retained our entire commercial organization right.
They were part of the reductions, but we made the decision that to come out stronger.
That we were going to keep the team intact, and then train the heck out of our sales teams. So in addition to all the surgeon interactions they've been training every day.
So this is a rare time as well, where we can hopefully give them Navy seals type training.
While there is downtime not train them, while they're running around hospitals trying to get their business up and running so high degree of focus on training, our commercial team and a lot of those reps were hired in the key.
Geographies of where healthtrust accounts are and a lot of the surgeons that came through our VIP program. So far a decent percentage of those have been healthtrust and like I said. The next phase of that is going to be to start the present presentation process to the supply chain and then help.
Organized surgeons as groups.
By that process. So that we can continue down this track and offer our innovative cost savings products that I think a critical time. So I think we have a very good shot at.
[noise] at building momentum here.
As the hope the Reopenings allow.
Thats very helpful. I appreciate the incremental color and then just when you think about.
The state Senate started to lift the moratoriums, where you're starting to see cases, maybe get back on the schedule.
Any context as far as.
What percentage of revenue historically might.
Lie in indices that look like there are getting better from a procedural standpoint, and then the same question as far as when you look at like the Healthtrust opportunity. Both in maybe just to 65 accounts that you had you were in exit into Q1, I mean, what's the opportunity there for the them to become productive year into Q2 versus maybe in the back.
Half of the year.
Yeah. So look I think one of our I think Texas, Oklahoma. These are two good markets for us.
That are.
Has historically been strong and also have excellent.
Prospects.
For future growth as well.
Florida is a place where we have not been strong the southeast in general, but I think we have tremendous opportunity to.
You know to drive growth a lot of the virtual VIP program.
Centered around the south which means healthtrust basically.
I think the way we look at this is a key piece of being Johnny on the spot available for these complex ventral and Prs cases is consignment. So we are rationally aggressively pushing consignment, where we can.
And this is a program that we've always had and we're going to continue to drive. It. We have multiple versions of consignment, we have a consignment via agreements directly to the hospitals, we have rep consignment, we have provisional consignment I mean, any way that a hospital can take product in.
We will provide product of availability for them to take it in and a very high percentage.
Of our sales I think 90 ish percent, 87% or so in Q1.
Came from some type of a consignment flavor.
That we and it's probably going to be more in Q2.
No that the shipments have been growing in may usually large shipments of products going out as sales come in meaning that we're reloading the shelves and consignment, which is a good sign for future. So I think consignment is going to be the key.
For us to be there to provide our products and services.
To help patients in hospitals in that complex ventral and Prs arena.
Thank you very much for taking the questions.
Thank you I last question comes from David Dave Turkaly with JMP Securities. Your line is open.
Great. Thanks, you May have said it may not have changed I was wondering would you be willing to comment on the number of reps you have and then.
The actor hospital accounts coming out of the quarter.
Yeah, so beyond or though I hate game high and so on heading into Q1, we ended up with about 39 territory.
And about 34 of them ourselves so I.
I think going into April we maybe add one more but you know we're on a hiring freeze right now, but attorney already mentioned I think earlier about how we're building a pipeline of could ramp to understand the pain. So.
We ended Q1 with 39 territory, Yeah, I mean, I think we can get to 50 from here.
If you know with sort of the soft circle that we have in place.
Of reps that.
We have contact with we we've never stopped recruiting we recruited through this process and we will continue to recruit and this process.
And our having candid conversations about start dates that hopefully will align with particular regions reopening so as we gain confidence.
In certain regions.
We'll we'll gain confidence in bringing new reps on to continue the buildout.
Great.
You could comment on active accounts I understood one other and I know last.
Time, we spoke the updated data was.
Yes.
Very solid I'm curious to hear how that's resonating maybe during some of these VIP event and then when do we expect to here.
Specifically I know you said in the coming quarters, but.
Any closer or the more color about exactly when we might get another update.
Thanks.
Yeah. So the update on Bravo, we'll get another cut at the data in Q3.
Or so.
We'll have.
70, some odd patients.
At the 12 month time point and then what do you think that the two year 50, or so yes 50 at the two years. So the next solid cut a data will be.
In Q3, that's when it will be in house and that continues or.
I think on an uninterrupted.
As far as where we're going to present it we have been presenting this data on these virtual VIP tours, it's a centerpiece of our discussion.
And I think it's had a very important effect on gaining commitments to use the product we've had a lot of very good conversations about.
The applicability of the Bravo data in the moderate to complex arena. So this is exactly lines up with.
With the cases that are emerging here first so it's been very positive.
We've got abstracts, I think it Fivesix abstracts drafted for various cuts of this data, including a robotic series within Bravo.
That have been accepted at various meetings these meetings have.
Been canceled or postponed.
So we're trying to figure out the best approach here on how to present is data and get it out into the hands of our Salesforce and surgeons efficiently. One approach is going to be just to take this interim caught.
And right it up as a paper and then submit to journal. So this process is already underway.
And we will submit fairly soon so hopefully we can get.
Ill get the data out via that mechanism. The other thing we're going to do is just to continue to work with the meetings.
And get their advice and make sure that were not burning any bridges that we can can continue to present the data, but we are taking a logical approach on how we can get the data out you know this data is super.
Important its very helpful compared to competitive products in terms of.
Recurrences and helping patients.
And you know, it's a big piece I think of us coming out of this strong, particularly with a focus on the complex ventral to start so we're very very focused and aggressive on getting the data out in the best possible way given the circumstances.
Got it thanks stay healthy demand you too.
Thank you and that does conclude today's question and answer session I would now like to turn the call back to Tony called wish for any closing remarks.
Alright. Thank you everybody for attending this call we really appreciate your interest in the company.
We are committed and I feel very confident that we will come out of this stronger like I hope, we all will come out of this stronger we've done a lot of good thing I've been impressed with how our team has evolved and reacted and worked hard you know all of our development programs all of our work continues in a room.
No fashion and we continue to interact with our customers in a positive way.
Our goal is to be of service. We think we can add a lot, helping hospitals with cost savings and high performing clinical products.
And we really appreciate everybody can track of us and we'll talk to you next time. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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