Q1 2020 Earnings Call
We're not listen only mode. Later, we would could that day question and answer session and instructions will follow at that time, if anyone should require assistance during the call Bridge. Please press Star then zero honor touched all the telephone as reminder, at this conference call is being recorded I would now about trying to conference over to your host.
Mr. Mark quick senior director of business development and Investor Relations.
[music]. Thank you operator, and good morning, everyone. Welcome to the Orthofix first quarter 2020 earnings call joining me on the call today, our President and Chief Executive Officer, John supposed to Chief Financial Officer, Doug right.
Third are safe Harbor statement and pass it over to John.
During this call will be making forward looking statements involve risks and uncertainties.
Statements other than those of historical fact.
Statements, including any are you guys we provide.
These statements about our plans beliefs strategies expectations goals for objectives.
Sensors are cautioned not to place undue reliance on such forward looking statements that there's no assurance that the matters contain statements will occur.
[music] statements, we make on todays call are based on our beliefs and expectations as of today.
In 2020.
We undertake any obligation to revise or update such forward looking statement.
Some factors that could cause actual results may vary materially different from the forward looking statements made biochemical.
The risks disclosed.
Risk factors in our form 10-K put a year ended December 31st 2019.
In our form 10-Q expected to be filed later today as well as I just want to see filings we make in future.
Be copies of these documents please contact mountains at Orthofix in Lewisville, Texas.
In addition on today's call will refer to berries non-GAAP financial measures.
We believe that in order to probably understand or short term and long term financial trends investors may wish to redeem these matters matters.
The financial measures determined in accordance with U.S. gap.
Please refer to today's press release announcing our first quarter 2020 results.
Reconciliations of these non-GAAP financial measures tour U.S. GAAP financial results.
Going I'll turn the call over to John.
Thanks, Mark and good morning, everyone.
I appreciate you joining us on todays call.
This call I'll start by discussing the impact to cope with my team sounding on our business after which.
Quite an update on first quarter performance.
I will then review the progress we have made within our strategic initiatives before handing the call over to Doug will provide financial update.
At the end the call I'll provide our perspective on the business going forward.
We're opening the lines for questions.
Beginning with the Cobot 19 update as we work for this pandemic. Our first priority is to hold the safety of our employees and their families as well as ourselves partners surgeons patience in customers.
[music] I'd like to start by saying on behalf of everyone at Orthofix out until we are.
Her tireless work being done by a coalition partners in the global Health care community to address this crisis.
I'd also like to thank each and every one of our employees.
So could it incredibly well in the face of uncertainty and adversity.
The adaptability creativity resourcefulness dedication, we have shown as an organization, especially.
The speaks volumes to the quality of people in orthopedics, how dedicated they are to improving the lives of patients around the world.
I'd also like to thank our investors for their continued support as we navigate unchartered market dynamics.
As noted in our April press release, we're experiencing a material impact to our business.
Governmental directives and recommendations from surgical societies, and healthcare organizations to delay certain surgeries to conserve resources for cobot care.
Having immaterial impact on surgery broadly.
Putting elective surgeries, which make up the majority of our case volumes around the world.
We believe that given ourselves momentum that trajectory in the January February and into mid March we were on track to exceed our revenue expectations for the quarter of a year. That's a number of our initiatives put into place. During late 2019 in early 2020 began to take hold.
Although our trajectory was temporarily to drive interrupted.
We have continued to strengthen our organization.
We have taken a number of proactive steps during this period of uncertainty.
Business continuity plan and ensure the continued financial strength of the company.
[music] from an operational perspective.
The operate safely and efficiently while doing so under the guidance of the W. Cho the CDC as well as a public volte federal state and local directors.
For many employees, we have shifted to 100%.
We have continued to work remotely.
Limited interruption.
We prepared and maintained our sales force to cover any emergency procedure as requested by our surgeon community and it would keep focused on personal safety.
So, Texas Sunnyvale, California.
We are maintaining operations.
And each of those facilities were being created with the staffing.
And the physical set up for the production floors to allow for an effective output without sacrificing safety for quality and importantly.
<unk> governmental director.
[noise] coal.
[laughter] to ensure our ability to source materials was unaffected.
Early on during the global escalation cobot for each portion of our supply chain to make sure that we've dedicated any potential supply risk, particularly from geographic perspective.
Quickly made sure to order sufficient raw materials can meet the needs of our customers through the end of 2020.
Well this wasn't a huge investment we felt it prudent to secure our supply chain early on.
[noise] well, many elective procedures have been either canceled or delayed there a variety of procedures.
[laughter] such as acute aren't.
The presentation.
On the cases.
Before.
The company's execute operationally to satisfy immediate.
The near term Park and proceed to support.
So planning.
[laughter] demand that could lead to higher procedure volumes later in the here.
We are taking advantage of this low and procedure volumes to accelerate and expand.
<unk> chronic trainings for surgeon sales reps distributors.
We have delivered all levels of products, including even the didactic portion of the F. the required extraneous too far larger groups.
It's ever been possible prior to the cold 19.
Good day, everyone has look for silver linings and its crisis.
We believe this has been.
Thanks to an excellent work.
Great and professional education teams during the month of March and April we held over 80 virtual training programs.
And over 3000 sales representatives.
Distributors and more than 2000 healthcare professionals on our products.
Additionally, as we pride ourselves channel.
We are focusing on driving synergies by training on multiple product lines.
Taking full advantage at this time.
As we think about bringing employees back to our various global offices, we've assembled a task force to determine the optimal way to do so.
They were focused on how we will safely reenter facilities.
And how our Salesforce will re enter hospitals analyses.
We will do this in accordance with guidance from the Whrrl, the CDC and all governmental and hospital requirements make sure that we're keeping our teams state.
On a fiduciary perspective.
We are focused on closely managing expenses. During this period of uncertainty to ensure the highest levels of financial flexibility going forward.
Implemented a number of cost saving initiatives.
Putting a temporary eight weeks salary reductions of course salary U.S. employees on escalating scale with the largest impact at the executive and board of director level as well as the suspension of the four one k. matching contributions for two quarters.
Importantly.
We're doing this to help maintain the strength of our balance sheet in the near term without impacting the quality of our products that we deliver for sacrificing the scope and scale of our commercial organization.
During this period, we decided to keep our commercial team intact, ensuring that we're able to take advantage of the opportunity that exists.
The world Riocan, and the pent up demand in the market rebounds.
Additionally, we have taken steps to ensure our access to necessary capital for continuity.
Doug will provide more color on this in a moment, but we drew down 100 million from our existing credit facility in April to ensure availability cash to fund operations strategic initiatives in the event of a prolonged slowdown of elective procedures.
We also utilize that number of benefits under the cares that including the CNS accelerated and advance payment program and the payroll tax deferral for U.S. based employees.
[noise] clearly we've seen a significant impact on our business late in the first quarter and into the second quarter. We're confident we will come out of this experience as a stronger team.
I need to support a ramp up in the volume of procedures as we expect.
Once the world has turned the corner on the management of Cold It 19.
Shifting to our first quarter performance, our first quarter performance reflects accelerating impacted cobot 19, and the global impact it has caused.
Total revenue was down 3.9% on a reported basis and 3.4% on a constant currency basis compared to the prior year quarter a.
The year over year decline was largely driven by a significant decline in procedure volumes during the month of March as previously stated.
Moving to our product categories, starting what bone growth therapy sales.
Sales were down 3.9% versus prior year.
Operationally this business is pivoted crew changing environment by implementing virtual patient trainings and remote getting.
As we look ahead, we continue to see the service side of this business has a great differentiator for us.
Additionally, as we realigned our business to maximize sell synergies, we're starting to focus on our cross selling efforts, what physio stim through the extremities distribution channel.
Moving onto spinal implants sales were up 0.5% constant currency over the prior year. This category is made up of our core spine fixation and motion preservation products.
By and large are utilized with an elective procedures.
These procedures were impacted in March and continue to be in the current quarter. As a result of the global impact Cobot has had on hospital based elective procedure volumes.
Motion preservation sales grew 84.9% in constant currency over the prior year, because we have had a tremendous start in 2020 with Pmsix task.
In the U.S.
Sales in the quarter were $2.9 million.
And the negative revenue impact of Ampsix due to cold it was less than our other product line.
We continue to be excited about the early adoption, even with the disruption from cobot.
We've had tremendous success utilizing virtual training tools to address the demand we are saying for mpsix artificial desk by enabling remote learning initiatives for medical providers and hosting virtual surgeon training events.
For spine.
We are filled our VP of sales position, who is now well on his way to building out his sales management team.
We've had a renewed sense of enthusiasm from our channel and our customers.
Have narrowed our product focused in our investing and working capital in those areas.
All of these active activities have started to show progress specifically, we've added some new distributors in late 2019 in early 2020, and it had started their onboarding process.
Biologics, we saw an 11.3% decline over prior year going into the quarter, we expected some headwinds given the continuation of our realignment efforts.
Well, we did experience some of those mid single digit pricing declines and cobot were the primary drivers of this decline.
We expect continued headwinds in 2020 long term, we see an opportunity to build out this portfolio and sell through both stronger spine extremities channels.
Moving onto extremities.
Sales were down 0.6% versus the prior year in constant currency.
On a trailing 12 month basis growth was 2.8% constant currency.
Well a portion of this business segment consists of nonselective, especially trauma procedures. A larger portion is comprised of deformity correction procedures, which are elective and have been postponed.
Our team based in Berlin, Italy was first hit by this global pandemic.
No not only did they stays healthy and continue to produce and deliver products for patient care.
Provided valuable experience and insight regarding how to navigate these dynamic times.
In late March we announced the closing of the fit on acquisition.
Well, we don't expect a material impact from this product within extremities in the near term.
As many of the expanded what we can offer in this segment going forward.
And now the only company that has an internal and external deformity care system.
We have increasing adoption of products for Shareco foot.
And we have a number especially external fixation trauma procedures with a variety of advantage over the internal fixation.
Irrespective of Cobot 19, we're making great progress within our strategic initiative and priorities that we outlined in our prior earnings call.
I will take a moment to go through those and provide some highlights.
In line with our first initiative focused on structure in leadership I'm happy to say, we have successfully filled all of our key senior leadership roles in our spine and motion preservation business with season and extremely talented leaders.
Our leaders are collaborating well across the business and product lines and identifying revenue leverage opportunities.
As well as the extremities business I believe this business has tremendous opportunity to accelerated its growth.
I felt it made sense to reset the leadership.
The business.
We're currently looking to hire a new global presence of extremities to take advantage of untapped opportunities in that business, particularly in the units.
Moving to our second the net share operational execution.
As with all companies. This is always a work in progress, but I'm pleased with the steps being taken by our new global head of operations.
He and the teams under him quickly and successfully secured our supply chain at the onset at this crisis and insured are continuing operations and supply product needed by physicians and patients for non elective procedures.
Our burden has ship product innovation and differentiation.
Progress in the first quarter with a closing that don't acquisition.
Our portfolio pipeline process and cadence review for key organic.
And inorganic opportunities is underway and we look forward to sharing details as they develop in the future.
They are going to be laser focused on both developing and acquiring high value products and procedure solutions that solve unmet needs that exist in the spine and extremities markets.
Our fourth and final strategic initiative is our commercial channel development.
We had some early wins with distributor additions in the first quarter and have others under active review.
Over the next 24 months, our plan is to focus on adding for developing long term strategic distribution partners.
These partners, we'll share our vision and sell multiple orthopedic product lines to realize inherent synergies across our portfolio, while creating high quality sustained growth.
We believe we are well underway to realizing this vision and that the strategy. We have put in place will yield our desired results.
With that I'll now hand over the call to Doug for further commentary around the quarter's financial performance Doug.
Thanks, John I'll now provide additional details into our net sales and earnings results and then discuss some of our other financial measures, including certain liquidity matters.
As John noted total net sales for the quarter were $104.8 million down 3.9% on a reported basis.
3.4% on a constant currency basis, when compared to the first quarter 2019.
There was a material impact beginning in March on our business as a result of cobot, which causes significant revenue headwind at the ended the quarter.
Gross margin in the first quarter 2020 was 77.7% compared to 78.3% on the prior year period. The primary drivers of this decrease were lower fixed cost absorption and de leverage due to lower revenue for the cobot impact.
Based on our historical sales mix. Please keep in mind that approximately one third of our historical cost of goods sold our fixed costs.
Accordingly in the short term, we expect to see lower gross margins associated with the lower revenues.
Sales and marketing expenses were 51.8% of net sales in the first quarter of 2020, an increase of 2.6% compared to the first quarter 2019. This increase was primarily a result of will also leverage to lower revenue in the quarter that resulted from cobot 19, as well as increased training and education costs related to the law.
Onto them six in the us.
It is worth noting that about half of our historical sales and marketing costs are variable. So we would expect to see short term de leveraging associated with the anticipated lower revenue in the near term. This de leverage will be partially offset in the second quarter by our near term expense savings initiatives.
However, the savings will be partially offset by support for our direct sales representatives.
GAAP DNA expenses were 17% of net sales in the first quarter of 2020 down from 18.8% in the prior year period.
This was primarily due to lower succession and transition related expenses and de leverage from the cobot impact cost in this line item will also reflect our short term savings.
Expense savings actions, including travel restrictions and the suspension of most hiring.
Please note that our DNA is generally not variable with changes in revenue.
GAAP R&D expenses for the first quarter were 9.5% of net sales up from 8.5% in the prior year period, due primarily to investments in our MDR compliance initiatives additional headcount in quality and regulatory and de leverage from the cobot impact. We expect the addition to the quality and regulatory team to be advantageous over the coming years.
As we expect to accelerate our new product launch cadence.
Cost of this line item or not generally variable changes in revenue. However, we have delayed the timing of certain projects to the back half of the year.
But we'd like to point out that we recognize the 9 million dollar noncash gain in the quarter related to lower and fair value of the liability related to the two remaining spinal kinetics revenue based milestone payments.
Although this calculation was performed at the end of March we expect that the fair value of the liability will increase as we get closer to the expected milestone payment dates and as the cobot impact decreases.
Adjusted EBITDA decreased to $11.4 million or 10.9% of revenue.
From $15.7 million or 14.4% of revenue in the first quarter of 2019.
A significant portion.
But this de leverage was due to the lower sales from the cobot impact as well as the planned investments in our growth.
Now turning to tax.
We had income GAAP tax benefit for the quarter of a negative 356% of income before income taxes as compared to income tax benefit of 118% of income before income taxes in the same period of 2019.
The tax provision for this quarter was significantly benefited by the release of a noncash liability on hit certain historical tax positions due to the lab substitute.
In addition, we recorded a benefit for anticipated income tax impacts arising from the net operating loss provisions in the cares that which was enacted in late March.
We expect beneficial cash tax impacts in 2020.
Due to lower earnings as a result of cobot 19.
For the first quarter 2020, we reported GAAP earnings of $1.32 per diluted share as compared to five cents per share in the first quarter 2019.
After adjusting for certain items and when normalizing for tax using a non-GAAP long term effective tax rate adjusted EPS for the first quarter 2020 was nine cents compared to 27 cents on the first quarter of 29 team.
As with adjusted EBITDA, a significant portion of this deleverage was due to the lower sales from the cobot impact.
And the remainder due to the planned investments and our growth.
Moving on to the balance sheet highlights day sales outstanding or Dsos were 68 days at the end of the first quarter 2020 up from 66 days at the end of the first quarter 2019.
Our inventory turns at the end of the first quarter 2020 were 1.2 times, which were flat over the first quarter 2019.
Cash and cash equivalents in restricted cash at the end of the first quarter 2020 totaled $58.3 million compared to $49.2 million at the end of the previous years first quarter.
As John mentioned, we've implemented several initiatives to reduce expenses and preserve cash in order to maintain the strength of our balance sheet and ensure that we maintain that ILEC adequate liquidity during these uncertain times.
These initiatives include.
Temporary salary reductions for salary us employees on an escalating scale with the largest impact at the executive and board of directors level.
The suspension of four one k. matching contributions the furlough of about 50 Italian manufacturing employees.
The suspension of most hiring.
Travel and meeting curtailment.
Including expense reductions associated with the implementation of the virtual product training that John mentioned earlier in the postponement or deferral of certain projects.
Additionally, we borrowed.
Third million dollars from our revolver in April we expect our net interest expense to approximate.
225 basis points to 250 basis points in the short term depending upon LIBOR rates.
We've also utilize the number of benefits under the cares act, including the CMS accelerated in advance payment program, which has provided us with approximately $14 million.
Hundred and $75 million.
Caspar from operations for the first quarter 2020 was $12.5 million.
From a cash flow.
$9 and the first quarter 2019, the scroll cash flow performance was driven primarily by working capital efficiencies, including strong cash collections and a lower your every year bonus pay out when compared to the perrier.
Capital expenditures were up roughly flat and the quarter at 4.9 $9 compared to the prior year period.
I'll turn the call back over to job.
Thanks.
I would like to spend a moment discussing our outlook for the remainder of the year.
Due to the uncertain scope and duration of covered 900 pandemic in a general uncertainty around the timing of the global recovery.
We previously Rutshuru, our full year 2020 financial guidance.
Oh is suspended guidance for the full year.
We will not be providing formal guides for the second quarter. We believe it would be helpful to provide some qualitative information as we can give.
A sense of our thoughts for the second quarter.
In a month of April 2020.
Our top line performance was approximately 40% of our April 2019 results.
I want to provide additional detail with respect to our product categories.
Don't grow therapies, and biologics volumes for each approximate 35% of 2019.
Spinal implants.
50% of 2019.
Spinal implants was supported by double digit growth in motion preservation.
Global extremities was approximately 40% of 2019.
We would expect these results to be indicative of the impact to queue to consolidate net sales.
As the current situation is to fluid to protect the timing of a rebound intellect to procedures.
Well the slope of the broader recovery curve is focused on macro events, such as reopening of cities states and count and countries. The recovery of our business will be determined by a series of hundreds of individual and local decisions.
As with Stayton municipality directives, it falls under individual hospitals to decide to begin easing restrictions.
Individual surgeon to decide to begin performing cases.
In addition patients need to feel comfortable heading to the hospital or S.C. for the surgical procedure.
Given all these variables we are not in a position to be able to provide specific guidance for the second quarter or for the full year.
Well, we are hopeful that the broader healthcare system will generally reopened in the near term we cannot predict the pace at which the situation will progress.
Based on current public projections in our internally gathered information, we do and test the paid but the second quarter will be our worst quarter of the year with sequential improvements in the third and fourth quarters as we believe you'll see increases in procedural volumes throughout the year.
However, the recovery plays out.
Operationally and commercially ready to meet the needs of our hospitals inserting customers and we will continue to monitor the situation closely.
Thanks to everyone at Orthofix and all the health care providers around the world working to solve this challenge.
Efforts are truly heroic.
We appreciate that is difficult to provide business precision at this moment.
Please know that we're doing everything possible to maintain and grow pork effects to these times and set ourselves up Christ access once the world returns to normalcy.
We believe that our people our products and our strategy will position as to whether this storm and emerge even stronger.
With that I'd like to open up the line and take your questions.
Ladies and gentlemen, if you have a question at this time. Please press start and then upper wine and your cat.
If your question has been answered are you waste your Mayfair share found they keep please press the pound key.
Our first question.
I Shan't Hoi wait Jeffrey.
Hi, good morning.
You know I appreciate there's a lot of food.
I won't believers sort of the outlook there, but there was a couple things I wanted to ask about.
You've highlighted.
Six again and you saw it still decent gross and the first quarter and some of the ships you hadn't your training around that and then my question is really you know when you think about what is going to take to get surgeons to use that product is didactic training enough, where you're going to have to see sales reps is able to go back into hospitals to really start to get positions on board would that product.
The rush. Thank you for question.
On M. six we have an obligation to it.
<unk> three D.F.D.A. requirement. So we will be doing hands on training, we actually have started even remote hands on training because we have.
Training representative dispersed throughout the country, we're able to do that regionally as well and so we're <unk>, we're well positioned to basically address that training for m. sex as far as their desire to use the product. We're seeing a strong continued strong interest in the utilization of M., six and out that surges actually and to highlight.
Interest even in one virtual call we had over 40 surgeons trained on a didactic in on an evening call, which in normal circumstances, you would not get 40 surgeons.
To come to an even called.
It'd be locally directly or virtually.
Understood.
I know, you're you're not going to give you had previously given some outlines for what you thought that product could do this year, but I guess, all that's been taken off now because of coven.
Mmm White My next few questions I guess, what is on against the phone goes stimulation Netscape handle meeting that was supposed to taking place in April appreciate that's being postponed it had there been any updates right you heard anything about how that was tracking.
You know any any any updates you can give their.
No. It was it was tracking towards an April panel meeting and that has been indefinitely suspend at this point in time, so weren't what a great position. We believe in that regard because it highlights be provided to pass as far as the strength of our cells channel contracts, the customer service and the order to cash in compliance programs as we felt will strengthen its going.
Forward, regardless of what the determination of Reclass might.
Put forward to us but in the end.
No one that panel would go forward.
Okay.
Understood. It just my last question that John You know you mentioned near prepared remarks about looking for new leadership and extremities.
And I'm curious what what you're thinking is there you know it it's been an area where there is a significant amount of opportunity I think but.
Did you guys haven't done a lot there yet in some curious what what you envision you know what do you think the opportunity said is for you and extremities and what what are you trying to accomplish by changing leadership.
Well we have.
Interesting program, there as far as what product that has diversity of not only external fixation, but also internal fixation and it works also in the in the foot and ankle spaces walls pediatrics and we wanted somebody had had a more diverse view on the commercial front and so we're looking to basically bringing something that has a view of driving commercial x.
Social acceptance and access inside geographic region reagents, specifically in the U.S. as well.
But in terms of you know the opportunity in terms you know broadening perhaps the footprint for you and extremities right. You do go broadly into into small joints do do you think about other areas you can potentially going to was it really more about commercializing, which you currently have.
Well, it's it's not like commercialized.
Have currently but put based on our acquisition of fit bond, it's about expanding and those particular areas fit don't use provides a very unique access to get into the.
Deformity business and the that limb correction business that we didn't have in the past tense specifically in the U.S.. That's a high demand for internal limb deformity correction and so we'll we'll school expand within the scopes, a pediatric set foot and ankle as well as look for new operatives explore in that space that are synergistic and we can deliver our existing technologies.
Okay. Thank you.
Thank you.
Yeah, and H. question <unk> Ladenberg Solomon.
Oh, how John how are you.
Well Jeffrey how are you.
You will find show firstly to you go back through as you were discussing for April.
From the first two segments by about your symptoms go without coffee being planted some extremity portion.
As far as outlook and you know kind of viewpoint, but just time for April.
Well, we provided for the month of April as far as our percentage of of revenue.
Versus prior 2019 and for B.G.T. is 35% and biologics is 35% and then a spinal implants was 50%.
Implants, including both fixation and motion and lastly, the extremities at 40% of of 2019 levels.
It combines.
<unk> totally it combines for 40%.
2019.
Oh can you give us any additional color on what you've found over the past couple of weeks on on me and could you all should provide or some additional colors for show by geography or by consonant, what you've been seeing over the past couple of weeks.
Let's let's start on on geography. It's this is really difficult because you know different regions are starting in their starting a different ramp level. So we we are current currently monitoring it from our sales channel and you know.
Typically in the southern part of the of the U.S. things. We're we're more open yeah. That's been publicly stated and it's consistent with our view as well as far as the.
The first couple of weeks of of May it's too it's too early to tell in that regard. We we just do I just closed or April books, and we provide that information for you. So that's that's really where we were what our lands is based on right now.
Okay got it and getting back a couple of Russia's questions on <unk>.
Physicians are word and plan to to call it.
Early March and since that time, how many more have been trained.
Hmm, which so.
We have not provided the numbers of implanting surgeons, we have been consistently training even the first January and February not only virtually but also in person and those those those classes were fall that we put together and as we got is a virtual training I highlighted that's even we've had that better response that we ever could have imagined as far as chatting.
Ritual training and that training continues on and even now as surgeons are going back to work. We see that continued interested in doing those virtual trainings, which will continue to amplify I couldn't be more proud of our our training and education program for putting together those programs.
Turned from in person to didactic, our virtual training and we didn't really Miss a beat as far as our ability to attract surgeons to m. six trading and train those surgeons.
Okay got it and then lastly for drug as far as some of the cost cutting initiatives in.
Virginia efficiencies talk a little bit about the the sales and marketing expense and how that May look as you know some of that is under your control the love, which saw it in so I'm just not being two distribution partners.
Yep. Good question. Thank you we've been just as proactive as we can be with regards to or liquidity and capital structure. We're fortunate to be an a very strong position from a balance sheet perspective and trying to.
Preserve that as much as we can from a sales and marketing perspective, you saw that line out impacted by the tail off at the end of the quarter in revenue in terms of the D. leverage we also continue to.
Invest in training and education for them six U.S. launch.
And so in my script that did try to provide some color around the fix nature of some of those costs roughly half of our historical sales and marketing has been fixed we will get some benefit from some of the project delays and and cuts in spending areas like salaries and.
Marketing and travels and meeting meetings and so on so that's the way I would look at it but are are as our revenue decreases the sales and marketing as a percentage of sales will certainly look look very inflated hopefully on a short term basis.
Okay and as it relates to the income tax benefit.
For the quarter wished at all accrued during 2019.
It was on the balance sheet at the end of 2019 and it has to do the closing of you know.
Tattooed on certain.
Historical tax positions, where we have reserved for tax contingencies and Oh it was accumulated in more than just 2019.
Okay, but is to catch continued shoes now x. zero or that was a a partial also <unk>, it's all noncash entry and benefit to our tax provisions this quarter.
Okay. So the issue is closed.
Correct, Yeah that with the statute exploration, we we consider that particular, the the the largest issue at our tax provision closed way, we had some other things going on right with the <unk> now to carry losses back and so that tax provisions benefited with with that as well, but the.
Are just item the benefit that we received as is now closed.
Okay, great. Thanks for the thoughtful read out of looks like.
Taken good advantage of the hiatus to kind of improved accompany yourself stature out there in the marketplace.
If I much right. Thank you <unk>.
I can't for any questions. Please press start the number one and your telephone keypad and you are nice question because time, Jim Sedated, Eva said already in company.
Oh good morning, it's good to hear your voice I Hope you guys are all well.
Thanks, Jim same deal Champ appreciate it.
So you know kind of a big picture question.
Sleep procedures are going to get pushed out in q. too cute three but yeah. These patients you know.
They were doing this sort of when they must have been in pretty significant pain.
They were scheduled to have a fusion or or spinal procedure don't you think that at some point the fourth quarter or possibly 2021 these procedures comeback.
Jim. Thanks for the question you you hit you hit a very important point spine patients are in pain, they're they're reaching out because they hurt not that other areas with total joins don't hurt, but these patients hurt and often times, they're having neurological impact and so as we look at the elective side of the case.
<unk>.
Find patients are in the middle I mean, the less electives, our total joints to more electives in C.M.S. is given some pretty good guidance on there. So we see the spine cases, as those that need to be done sooner than others on the elective scale and we.
Side of that is that we know that hospitals want to get back to providing these elective cases surgeons want to get back to providing selective cases, Kate pace excuse me cases, and we know the patients want to get pain relief. So we see that as a good indication for how those spell electors, we'll come back, but it's just very difficult to talk about the <unk>.
Signing cadenced to that but then we know there is good pressure for those to come back of the for the reasons I just highlighted.
So if they do start to come back by the fourth quarter or are you in a position to ramp up capacity to to meet the man.
Jim We we we as a as a.
I, let him I prepared remarks, we never closed our production facilities, we kept them working we balanced our inventory and we actually to keep people engaged and trained on the production of our products that we kept we built a little extra inventory not not remarkable from a financial standpoint, but allowed us to prepare for.
Any type of spikes in demand that we can clearly recover from quickly. So we were in a very good position to basically manage any amount of recovery and.
Second third and fourth quarters from based on where our product position is and also as we highlighted having our <unk> our sales organization trained and ready to go and basically ready to service those those cases as well as our program preparations for getting them back into the hospitals and the S.C. safely.
Alright, and then just one more on the sales force you know I know the second half of last year. There was a lot of transition was going on you know you were in the process of where you know new sales people.
Have you been able to to get the sales force to the to the place you want it to be at this point or had these disruptions caused you to to let people go again.
You might answer it this way we're we're in a great place from where we are from building our management team and we're also getting very positive attraction people coming to our company want to date engages from a distribution standpoint, or we were where we <unk> are we where we had we want to be at no. I mean, we have work to do and how I prepared but.
This will gone over a number of quarters in years as far as Guinea, the optimum level, but we're in a great place for where we are.
For management, attracting talent and basically getting some structure underneath that and that's one of those.
Key initiatives, we had going forward, so I'm pleased with our our position that right now.
Alright, and then last one for for motion preservation I I'm, sorry, I missed what you said how much was that up in the corridor.
What what it would it highlighted in the prepared marches that are spinal implants were 50% of 2019 results and it was Boyd by the motion preservation, because our spinal implants call out is for both fixation N. motion products.
Okay I thought it gave us a number for for that increase your idea, yes, yes, G.M. as it was $2.9 million.
And how does that compared to last year.
Last year was.
About a million dollars, Jim because we were just Oh U.S. The we we had gotten the approval.
By the F.D.A. and the first quarter last year, and just started have our first procedures and the second quarter last year.
So I think I like it was 80 is 84% increase over per quarter.
In the U.S. or is that global.
That's that's a global number.
Okay.
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Oh, I can't Star one for any questions.
Oh, that's time there are no further question.
Back to closing remarks.
No. Thank you operator appreciating we appreciate every dialing in and listen prepared remarks, and also the Q. and a and we'll look forward to a good quarter and look coming back to you. The following that to report out. Thank you very much have a great day.
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