Q2 2020 SeaSpine Holdings Corp Earnings Call
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Good trading in today's call joining me.
CEO, Keith Valentine CFO, John I can't say.
These fine released financial results for the quarter ended June 30 2020.
During this conference call, we will make forward looking statements within the meaning of securities.
Our.
Strategy expectations plans, our objective for future operations and our future financial results in condition all statements other than shape shortly.
Looking statements such statements May include works centric bleed.
Well plan intend and similar expressions.
Fashion not to place undue reliance on forward looking statements, which are only predictions and reflect our belief based on current information.
Only as of today are these four to 2020 [noise].
For a description of risks and uncertainties that could cause material differences between our actual results no stated or implied forward looking statements. Please see our news releases.
Periodic filings with the FCC, which are available on our corporate website at <unk>, she's buying dot com and.
I've got 50, so you've got gosh I will now turn the call if they keep.
Okay.
Thank you.
Thank you all for joining us.
I want to thing to see spine family for their continued commitment to final mission of improving patients' lives.
Well, there's flexibility in these extraordinary Todd.
I'm inspired by the dedication and commitment of nobody wanted this organization as they tirelessly band watch professionals and pushing their responsibilities during the compared to 19 pandemic.
We continue to maintain [laughter] organizational capacity through a combination of went from having capabilities wherever possible daily on site operations for those groups that much work from our facilities and the use of virtual online tools to facilitate good projects and to provide political support.
Sure surgeon customer.
And sales training to our distributor partners.
We ratio conducting essential activities, such as onsite clinical support in New York and for Kinda Viret product development labs as needed.
We have implemented through guidelines for safe physically distinct interactions to ensure the safety of our employees and others required to be presenting at our facilities.
Our teams have adapted well to the new environment, and who seem to be able to support or operations and our customers, while keeping everyone and thanks [laughter]. Despite continued to be impacted by the curve in 19 pandemic throughout the second quarter.
With many other medical device companies, our revenue reflected and initially significant year over year decline.
Well by gradual improvement throughout the quarter.
As the quarter progressed, we experienced a return of previously deferred spine surgeries as more and more hospitals throughout the country loosing restrictions on surgical.
Procedures [noise].
Many of our surgeon customers have communicated to us.
But going to work through their substantial backlog of spine surgeries, which we are increasingly better able to support but recently launched products and the deployment.
Our spinal implants.
As previously communicated April revenues declined by more than 60% compared to the prior year.
The state National governments mandated a broad based high two elective and urgent procedures [laughter] may revenue began to showing some improvement declining by 24% year over year on a sales per day basis with U.S. sales declining just over 21% in June our trailing revenues as measure.
And on a sales per day basis showed meaningful improvement and we were essentially flat compared to the prior year, which you with sales increasing just over 1% [noise].
We attribute more resilient performance to the significant investments we've made in expanding both our product portfolio and are increasingly committed an exclusive core distributor network, our adaptability and continuing to provide robust surgeon and distributor training and education programs as well as the dedication and hard work.
Oh, the outstanding cease buying team.
The recovery in second quarter revenues exceeded our initial expectations at the time of our earnings call in early May and we are encouraged by the positive trends that have merged in July, particularly in the U.S., where revenues are up high single digits quarter to date.
Our surgeon customers continue to report a significant backlog of deferred procedures and we're seeing the immediate benefits if recently launched products and newly Onboarded core distributors. However.
We are keenly aware of the ongoing risks and potential for further business disruption due to the resurgence of coded 19.
Today as we it relates to elective and to further procedures in states like Texas, California, and Florida.
With our recent distributor additions and those targeted for the second half of 2020, we're making progress towards further diversification of our geographic revenue footprint to mitigate those risk.
We are cautiously optimistic on our business outlook for the second half of 2020 and beyond and we believe Seaspine has never been better position to participate any upside benefit when the market returns to pre pandemic surgery volumes.
We remain steadfast in our belief that most of the spine surgeries are not elective surgeries, but rather an affordable for only limited periods of time as many patients will continue to degenerate inexperienced increasingly debilitating pain and seek surgical treatment that believe we'll continue to guide our strategy.
And our priorities accordingly.
We remain focused on the goals, we set out to achieve at the beginning of this year to innovate and to drive accelerated revenue growth through aggressive commercialization of the innovation into take market share through outstanding customer service.
To that and I'd like to take the next few minutes to highlight our recent operational progress and product development and launch milestones and to provide an update on the initiatives. We are driving in the second half of the year.
In May we resumed operations at our Irvine Orthobiologics manufacturing facility, which is now operating at full capacity to ensure uninterrupted supply of essential orthobiologics products to our customers.
We continue to place and managed orders with our spinal implant suppliers.
And.
Closing cost in collaboration and dialogue with them, we have been able to maintain sufficient inventories to support the recent rebound in spine procedures and to increase inventory levels to support potential revenue growth and the second half of the year. Additionally, we work very effectively with our third parties.
Buyers to procure and deploying more sense of higher volume spinal implant systems and to launch many of our new systems, all of which we expect to be critical components future revenue growth.
Earlier this year, we hired rate Muqtada previously with Zimmer Biomet as vice President of global spinal implant supply chain.
He is leading renewed efforts to build even more effective and collaborative partnerships with our suppliers in short our supply chain remains healthy.
Turning to product innovation and commercialization, we prioritized our investment dollars in supplier capacity towards the most critical new product introductions and additional set builds of existing spinal implant systems needed to satisfy expected procedural mix later this year and early 2000.
21.
Well, we did experience a few delays or new product introductions due primarily to Coovick 19, we remain firmly committed to the robust launch cadence we committed to for 2020.
As evidenced by some of our more recent notable achievements.
We also launched a number of new systems, including the Northstar oversee team and surgical for said fusion systems, which significantly expand procedural offerings for per student posteriori cervical fusion.
We are particularly energized by the norstar launch as it addressed last big product gaps in our surgical franchise and ultimately replace two aging systems that were launched almost 10 years ago.
We also just recently initiated the L. for launch of a suite of Lordotic Unparallel expanding implants under the explore brand name.
Allows us to more effectively address the estimated 400 million dollar market opportunity of expandable Interbody devices. Finally, we also launched a hinged telus inner body featuring Nanometalene with recent typography that enables larger implants to be placed.
Articulated within the anterior column of the disk space.
This is the third interbody device to feature our proprietary grief typography, which has been shown in preclinical sheep model to increase the tensile strength of early bone integration by three times.
We also executed the full commercial launches of both the Mariner am I guess in Mariner outrigger systems.
The latest expansion of a proven technology platform and both minimally invasive and complex pass allergies.
Additionally, we recently expanded the alpha launch of our minimally invasive pedicle based team if retractor that is compatible with our Mariner system.
Lastly, we also launched a line extension of our Daytona small stature deformity system that provides us with additional opportunities during the summer deformity season.
Looking forward, we're focused on executing the many new product launches scheduled for the second half of 2020.
We have resumed development in launch activities on most of the new product introductions and that we had deferred at the time of our first quarter earnings call in early May.
Our current expectations for some of the more significant upcoming new product introductions include the following.
For the antibody franchise, we expect to L. for launch before the end of the year. The first of a series of three D printing devices that we are developing with restore three date.
First alpha launch is expected to be a threed printed version of our foundational shoreline anterior cervical systems.
Our threed printed implant portfolio, which will ultimately spans cervical telus interior and lateral approaches.
I was just to be more efficient with capital expenditures because they are designed to utilize the existing instrumentation from their nanometalene counterparts systems that value proposition is perhaps more important than ever as we carefully manage costs during the pandemic.
Continuing with the Interbody franchise, we expect to launch during the fourth quarter.
Line extension of our Nanometalene regatta lateral and plan to include a modular locking plate and to further extend the application of reef typography with the alpha launch of a new no profile anterior lumbar implant that includes both the screw and an optional modular locking plate.
And the surgical franchise, we expect to Elfa launched during the fourth quarter next generation anterior cervical plating system designed to complement our highly successful shoreline system.
We believe the played ease of use robust instrumentation and differentiated driver engagement will help us take additional market share.
We also expect to complete the full commercial launch of shoreline SCS system with reef topography before the end of August.
In the Thoracolumbar franchise, we continued development efforts to extend our foundational Mariner modular pedicle screw technology to included deformity specific application.
We'll give us a complete procedural solution to address these and other complex cases.
We have been able to complete a number of in person in virtual surgeon development labs, and we expect to Alpha launched this new applications of the Mariner technology within the next six months.
We're also progressing on the many viable leads we've received for the sale or placement of the machine vision image guided surgery platforms.
Your co marketing was 70 surgical.
Recognizing the relatively long sales cycle for this type of capital equipment. We are optimistic that we will close one or more of these opportunities in the second half of this year.
Our ability to place units of this enabling technology and a capital efficient manner will be particularly valuable in the current environment as hospitals are likely to continue restricting their capital purchasing budgets due to the financial impacts of coded 19th.
Before I turn the call over to John I want to reiterate our growing confidence and see spines position as a leader in surgical solutions for the treatment of spinal disorders by providing products and systems that are engineered for fusion.
We will continue to stay in close contact with our distributor partners and surgeon customers and with additional insight from our surgeon Advisory Board plot of course for innovation clinical responsiveness and superior customer experience that we expect will lead to sustained and long term accelerate.
Good revenue growth as surgeons works through the backlog of pent up spinal surgery demand and as they bring on new patients when we ultimately emerge.
From the disruptive impacts of Colgate 19.
With that I'll turn the call over to John.
Recap of Q2 financial results.
John.
Thanks, Keith and good afternoon, everyone.
Total revenue for the second quarter of 2020 was $28.6 million a decline of 27% compared to the prior year period.
Hi, guys revenue was $25.9 million, reflecting a 26% year over year decrease in international revenue was $2.7 million, reflecting 36% year over year decrease.
You asked spinal implant revenue in the second quarter was $13.2 million, reflecting a 22% year over year decline.
Decrease was driven by low single digit unit price declines and a more than 20% decline in procedure volumes, particularly in April and May when procedures were down an estimated 36% compared to the same two months in the prior year.
The percentage of use spinal implant revenue comprised of new and recently launched products increased to 65% in the second quarter 2020.
You mentioned with the biologics revenue in the second quarter was $12.7 million, reflecting a 30% decline. This decrease was driven by low single digit unit price declines and a significant decline in procedure volumes, particularly in April and May.
The percentage of US Orthobiologics revenue comprised of new and recently launch products increased to more than 30% in the second quarter 2020.
We will continue our focus on clinical data as healthcare systems increasingly appreciate the value proposition of our advanced DBM portfolio, and we expect that behavior to drive our future future market share growth in Orthobiologics.
From a distribution perspective, our core distributors collectively generated 60% of our total U.S. revenue in the second quarter of 2020 up from 53% in the second quarter of 2019.
We continue to recruit from Worthies committed an increasingly exclusive distributors in the us.
And have identified additional near term opportunities that we expect to capitalize on in the second half of 2020.
Gross margin for the second quarter, 2020 was 59.2% compared to 63.6% for the same period in 2019.
The decrease was due to idle plant cost associated with our nearly two months shutdown Irvine Orthobiologics manufacturing operations.
Recall that in the prior years quarter earnings call, we guided for gross margins to be in the 40% 50% range.
We exceeded those expectations as we resumed production in Irvine sooner than anticipated to keep a steady supply of inventory to meet the better than expected revenue demand. We saw in late May and June.
Operating expenses for the second quarter, 2020 totaled $30.6 million $6.4 million decrease compared to $37 million for the same period prior year.
The decrease was driven largely by a 5 million dollar noncash intangible asset impairment charge recorded in the second quarter the prior year.
By lower selling commissions and travel expenses in the current year quarter.
As we noted on our last earnings call in response to the revenue disruption caused by Cobot 19, we identified a broad range of opportunities to reduce operating expenses, including a temporary 25% reduction in base salary for the senior leadership team.
Largely as a result of these initiatives, we reduced our budgeted operating expenses, excluding selling commissions by more than $2.2 million in the second quarter inline with expectations.
We are also utilizing applicable relief available to us under the care Zack via the employer payroll tax deferral programs.
If we experienced further revenue disruptions from another widespread halt to spine surgeries due to covert 19, we will once again evaluate implement additional cost saving measures as necessary to preserve liquidity until we see a recovery.
Net loss for the second quarter, 2020 was $13.7 million compared to a net loss of $12 million for the second quarter of 2019.
Cash cash equivalents and investments at June Thirtyth 2020 totaled $100.5 million.
We had no amounts outstanding under our credit facility, which means we amended to extend through July 2021, the time to exercise our option to expand the facility by $10 million $40 million.
We had $6.2 million of loans outstanding under the Paycheck Protection Program Act.
Which we expect will be forgiven in accordance with the requirements of that program.
Our free cash flow burn, which includes operating cash flows and purchases of property and equipment was $11.5 million for the second quarter of 2020.
$2.2 million increase compared to $9.3 million for the second quarter of 2019.
The net change in our cash for the second quarter of 2020 was a 4.7 million dollar use of cash which reflects the benefits of the $6.2 million PPP loan, which is classified as a financing activity in the statement of cash flows.
Due to the potential negative impact on spinal surgery is of the recent resurgence of coded 19 related hospitalizations and the risk of a second wave of coded 19 of infections.
We cannot rely on the recent and still ongoing recovery of spinal surgeries as a dependable long term indicator of our likely performance in the second half of 2020.
Nor can we confidently estimate the magnitude or duration that cobot 19 presents as a risk to our business.
As a result, we cannot provide reliable guidance on revenue or free cash flow burn expectations for 2020.
While we are excited by the relatively strong start to the third quarter that keeps shared earlier, we want to temper expectations that we can maintain that revenue growth for the full quarter.
We understand that many surgeons have devoted much of their time and catching up on the surgery backlog of existing patients and less time on the pre surgical councils that typically translate into new surgery candidates.
Additionally, the outlook for new patient demand for surgery.
Also unclear due to potential patients concerns about contracting cobot 19 in health care setting.
As a result of these uncertainties theres elevated risk that we experienced a slowdown or revenue growth in the second half of the year.
Knowing these risks we will continue to manage the business with a two to three year liquidity runway, but with a bias towards investing responsibly for long term growth and innovation. So that we are best positioned to continue to meet the needs of our surgeon customers and their patients.
Fine surgery volumes recover to pre pandemic levels, we will however quickly shift to preserving cash through appropriate cost cutting measures such as those we implemented in the second quarter. This year, if youve future circumstances, so while.
Ill now turn the call back over to Keith to wrap up.
Keith.
Thank you John.
We believe the vast majority of patients in continual back pain will eventually see and received the necessary treatment.
That is the critical underlying assumption that is driving our current decision, making with respect to managing the business in costs.
Our priorities remain the health and safety of our employees and their ability to protect and provide for their families. Our distributor partners and our surgeon customers and their patients.
We've strengthened our culture and maintained or operational readiness and I believe that we will emerge from the Kobe 19 crisis stronger than ever to address the needs of the market.
With that we will now open it up for questions operator.
Thank you as a reminder to ask the question you'll need to press star one on your telephone. So withdraw your question press the pound Keith Please stand by will be compiled the Q and a roster.
And our first question comes from Matthew O'brien from Piper Sandler Your line is now open.
Afternoon. Thanks, so much for taking my question Keith can we start off with the performance in June and the commentary about July.
Looking at all of your competitors first of all you did better than everybody in Q2, and I know, it's all relative because you contracted but you did better than everybody else. The Gen commentary is better than everybody else July commentary better as well so.
Where is that coming from between.
New distributors new product all these new instrument that and what what could really be rail you as we as we move through the year understanding that you know cobot could flare up again.
Yes.
Hey, Matt it's it's really a combination of things that I think it nicely as this pent up demand started freeing up in later May and then of course into June and even portions now or even as we as we get into the third quarter in July I think it's a combination of really three things one you have the.
Pent up demand you have an opening for elective and more emergent cases second secondly, we've done it. We just spent a lot of time, even pre coded and then as cobot time started still recruiting distributors and still bringing onboard new folks.
At least ensuring the ones that were already aboard and just getting started before covered hit.
That we took extra time to do training for them and get them ready for what we felt was inevitably going to happen, which was the opening up of surgery and so that's that's a significant influence and then on top of that we have alpha launches moving to full launches and some new products going into preliminary alpha launch and so.
All of that came together very nicely as we started exiting may getting into June and now into July. So I think it is an influence of all three of those factors and keep in mind. We have a robust July that went on that we talked about and there's still a number of significant markets that we feel like we partner.
Okay, well and in California.
Texas, and Florida that David intermittent spots, where surgery has been slow down. So we feel very good about the pent up demand. Despite the fact that some of our larger markets are still under some stress.
Okay. That's helpful. And then as we think about the back half of the year. What what are what are the extra instrument sets, allowing you to do as far as adding new clinician customers can you give us any metrics as far as how that's gone even through co bid and then what about adding distributors are they a little bit.
More.
Cautious about potentially making a switch right now given what's going on from a macro perspective are they.
Every bit is engaged in terms of coming over given all the new product flow.
Yes, Hey, Matt its John The addition of additional spinal implant sets of Hi runner sisters systems like shoreline Mariner the full launch America, MKS and revision, it's really providing a great tool to continue attracting new distributors and then.
Having those that's being able to have them proactively to deployed right earlier in our history, we would recruit new distributors and try to understand what they are set needs are and try to figure out.
How do we make the most use of this sets we have for the timing they'll need them as they bring onboard surgeons and we're just in a better position today with the deployment as more of those sets to hit the ground running and understanding what surgeon conversion opportunities as they have and being able to move faster in terms of climbing that revenue growth curve.
Just because we have that many more sets available.
We're putting more internal emphasis and resources on.
Tracking set utilization understanding which distributors amusing most efficiently pulling back the ones that aren't redeploying to those distributors who are using the more efficiently. So.
It's a great opportunity to recruit distributors.
And providing a source of growth does the newer products or whats what historically has been driving the growth and they performed very well even throughout the second quarter, particularly as we exited June to see the growth rate in new sets. It just it provides a great recruiting opportunity to bring onboard more distributors and frankly hit the ground.
Running in terms of revenue growth faster than we could have before when we are allocating sets because we just didn't have as many deployed in the field.
Got it last quick one for me just.
John I know SDMA came down.
Relative to your expectations.
Down as much as elsewhere across orthopedics and then the R&D spend is still up nicely year over year off of a pretty tough comps. So clearly you are still on the offensive here.
Can you talk about those investments in what you're thinking that will lead to especially on the CNH side are there. Some smaller companies that are really struggling now you're able to capture some share bigger companies, maybe spending less time focused on.
Fine given that.
Formats here in Q2 and outlook for for the rest of the year I mean, those are to me aggressive investment I again on a relative basis.
So how do we think about how that should play out over the next year. So.
Yes, the continued focus on selling and marketing expense, obviously with the commission dip in the second quarter from the decline in revenues is what.
Sure of that to be lower but we're continuing to play offense in terms of marketing hiring that product managers, who can help manage the deployment of the sets the launch of the new products because it's Keith outlined on the call. We've launched a lot. This year and we still have a lot more to launch. So this is still going to be our most most robust year.
For product launches and making sure we've got the right sales management team, which we've expanded and integrated the orthobiologics and the spinal implants under one sales management team make sure we had the right marketing product managers, the right supply chain folks as Keith talked about we're making big investments on the supply chain side.
'cause, it's such a complex supply chain on.
On the spinal implant side that we want to make sure we have the right resources to stay ahead of the curve.
And continue to invest in building up more inventory and launching more as a high runner sets and launching more than new products.
We continue to play offense, because we think yes, there is opportunities from the robust portfolio. We have today, our ability to take market share in the past, where we see some potential.
Less well financed competitors, particularly smaller private companies that may not be able to come out of this is strong or continue invest for growth.
We've had a lot of success prior to coded hitting in terms of taking market share in our portfolio and our distributor network frankly has only gotten better. So we're really looking forward to when things return to normal and that's why we're continuing to play offense, which speaks to the confidence Keith talked about in his closing remarks.
Okay very helpful. Thank you so much.
And thank you.
Next question comes from Ryan Zimmerman from BT I'd. Your line is now open.
Hey, Thanks, guys. Thanks for taking the questions, let me Echo, Matt sentiments, certainly doing better than your peers. So.
Hey, Keith you mentioned the 70 commentary you made some commentary around seven days and the expectation to have some placements potentially later this year.
Help us understand kind of what happens for you guys.
In terms of hardware benefit that you may pick up as a result of that placements.
I will follow.
It really just depends where we're going into it being flexible Ryan meaning that.
Every hospital has kind of a different situation, we fully anticipate that hospitals will will have someone a challenge.
With capital equipment for a period of time right and so.
If we can.
Help with that capital equipment delay or that capital equipment challenge, we can do it with with the clear agreement. How are you plants will participate in can you help earn out that seven de system.
So we have a couple of different ways, we can deploy that and we can assist the hospital in those decisions, it's really not a very different model than than others have employed with even larger capital equipment purchases.
In our space and so we feel like it's an advantage for us just because the price points for 70 is so attractive that'd be really leads to a very easy earn out kind of proposal for for the hospitals. So we're excited because we think we're going to have a couple as we mentioned in the second half of the year, we really feel like it.
Brings great value and system integration for the hospital in a seamless way to participate in the neo are.
And then just some commentary would be great run the PBM space and really Orthobiologics business in general there has been less discussion I think amongst all the spine players about the biologics space were nice things about their performance again, you guys will continue to do anything better than peers and so.
No it would be helpful understand jobs.
What you're seeing.
Whether you feel like you're in.
Offensive position, particularly if indeed beyond just as it gets less attention that's almost spot on hardware.
Well, maybe forgetting how big you R&D beyond.
Yes.
The DBM space is robust as we saw on in the second quarter and moving into the third quarter and I think a couple things it hit to our favor one in particular is the the clinical work that we've been committed to and talking about over the past couple of years is started to produce.
I think very compelling data as you know we had.
Great conversation last year at NASS, we'll have four different conversations this year NASS will be done remotely, but I think it certainly is a testament to Frank and his team and Schafer and his team about how they've combine the our ability and our investment in the science of fusion right in that.
Signs of fusion is not just about the Orthobiologic. It's also about the material choices you make it in your implant systems into synergy that those that can be created by that combination and so I think for company our size to have four talks.
Planned at NASS in and around this this technology and the clinical work that's been done in the preclinical work that's been done.
Certainly a testament to that team and its estimate I think to how we're seeing our dbms accelerate and I see that continuing especially because we're continuing to invest in that science and we also have some some new things that will be.
Launched and brought forward. So again I think we made the right investment and doubling down if you will in that space and we're now starting to see those rewards and we're seeing those rewards at a cost the cost effective way and I think thats really.
An additional focus that hospitals are having in making their clinicians responsible to not only results, but cost effectiveness in those results.
Thanks, good same questions.
You bet. Thanks Ryan.
Thank you and our next question comes from Kyle Rose Canaccord. Your line is now open.
Great. Thank you for taking the questions and I guess, congrats on a strong quarter here.
Now back drop.
I just wanted to talk.
You did in the third out talking about all the puts and takes as far as Onboarding new distributors predicts the speed and then also the on just the overall throughput from an R&D perspective, but maybe.
Help us understand what kind of trends you've seen emerge from the hospital or the surgery Center standpoint.
From a contract Dean and just hospital access perspective, and you're clearly taking share with this revenue growth level, but how do you see.
Sales process kind of evolving as you're putting new products in the field as you're bringing these new distributors on board what are you contemplating as far as you're getting in front of physicians getting on contracts.
Just how that process might change or length and from a time standpoint relative to historical.
Yes, it's an interesting question I think.
Theres a couple contract opportunities that actually we were able to be successful with and are now on board and will add to an additional opportunity for market share in those areas that we got accepted so I still see it going on there was maybe a delay on one of them in that delay certainly had to do with two.
Having other priorities to move through.
There are clear bid.
Process, but.
I'll tell you I still think the process will continue on the conversations that we've had and we know which contracts are coming up and what areas, we still need to get on contract. There. There is still running their process now. The question of course will become will it be Tom a longer decision.
Period of time, but right now there is still running their processes and there were still participating in them. So I don't really have a line of sight of saying for sure it's going to be delayed all I know is that we've been successful in securing.
During this time and Thats reassuring because I was concerned that they would just push it off until.
Later date in Fortunately they did not.
Okay.
And then.
Just with respect to the overall case mix that you see maybe just comment as far as to how the trends looked over the course of April may and then into June and July.
With respect to simple one level fusions versus more complex cases, and just how the overall revenue on per case basis has trended over that time period.
Yes, it's a good question because we saw very simple.
One level two level surgical procedures seem to be.
The majority of the procedures in April and as we talked about on the call that was the the trough as seems to be consistent for many companies in the spine space April was the drop in terms of the drop off in procedures. Those that were being done we're typically lower ASP more simple procedures and then as we saw the quarter progress.
Mid may was kind a line of demarcation, where we started seeing more complex.
Procedures come onboard beyond cervical.
The timed well with the launch of.
There to am I asked and Mariner revision that we could participate in some of those surgeries as they came back.
But.
The deformity season seems like it may extend beyond what traditionally is June and July just because of the procedures were deferred earlier in the quarter, but we have seen a return because we're looking at.
Systems used per procedure ASP per procedure. In addition to tracking procedure volumes and we exited the second quarter and saw in July much more typical mix of procedures in ASP fees.
That we would typically see and in July timeframe. So it it was.
Certainly more on the simpler procedures early on and then kind of migrated back to what I consider more of a normal pattern as we exited the quarter and saw that stay consistent.
Throughout the month of July.
Great. Thank you very much for taking the questions.
Sure. Thanks.
Thank you.
And our next question comes from Kayla come from Joost.
Your line is now open.
Hey, guys. Thanks for taking your questions. So I guess, just as a starting point I bumped that to understand what specifically you're seeing in terms of rescheduled procedures and how you're thinking about the backlog from here.
Through most of the patients who had been canceled and rescheduled at this point or just just would love to get a little bit more more color.
Yes, it's a good question.
We haven't talked it every single surgeon, but certainly we had been busy not only on on zoom calls or the like Webex calls, but also busy.
With some kind of Eric work in our development efforts and there have been certain opportunities through our offices and to a t. everyone feels like the backlog is still there.
We have not heard anyone that had any concerns about the backlog specifically, there's still some states that are not moving through the backlog as we know in certain areas of Florida, and certainly the largest populations of Texas. So we still feel like there is a backlog that continues to be worked through we know from our Jack.
It's up in the Pacific Northwest. They also still have a good deal of backlog with it they continue to work through we know locally.
In Southern California, Theres backlog Thats being worked through so I still think it's there and I still think that you're going to see that probably as you go into the fourth quarter, because the fourth quarter naturally has a lift anyway and so you'll have the combination of.
Backlog in new patients now the question remains is or all the areas able to.
Be able to see patients either whether its remotely or whether its physically and I think that continues to be one of.
Caution as we move forward if things get worse, I think you will see less and less patients going to physicians offices to meet but right now I still feel good that we're not through the backlog from earlier this year.
Now that makes sense and then and it sounds like you guys are seeing strong performance ended July despite having exposure to the geography is that that im seeing more recent corporate flare up so I'd love to understand what you're seeing specific to those geographies, but that have had second wave now what is what have been sort of the impact specific to those areas.
How you're managing through that thanks, guys.
Yes, there's still surgery for example in Texas, there's still surgery being done in areas that do not have elective mandates. If you will associated tools theres still surgery being done in the area, but the largest cities are under some sort of restriction in so.
We feel like those will be areas that as they recover we are fully ready to support.
As that backlog starts starts getting back on lists and we also feel that the lift you saw in July is really about some robust areas that are really back at it and maybe back at it not only throughout the work week, but also working on some weekends and we feel good.
About the fact that that backlog coming off in our new products coming out at our investment in new sets makes for a perfect timing that we're able to support those surgeries.
Thank you.
Yes. Thank you thanks.
Thank you and our next question comes from Jeffrey Cohen from Ladenburg Thalman. Your line is now open.
Our kids and John how are you.
Good how are you.
Just fine so on John you had some commentary a couple of questions going I think was called out the.
In mix and the the complexity of some of the case since you went through the summer months, you talk a little bit about the mix as far as sees in hospitals during that time throughout Q2.
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Yeah, we still we still see support we still see there are cases that are going on analyses, but it really varies across the country. Our commentary on this really hasn't hasn't shifted as we got through the second quarter and that is there are some assay is out there that you are able to do more.
Advanced procedures, if you will because they have the appropriate backup in the appropriate safety in place in case to manage any kind of complications, but the majority of what we're seeing is just simple cases out of SCS and whether those are the depressive sort of procedures or whether it's the one level surgicals are simple.
Great forward lumbar as we're not seeing those more complex and multi levels as much in so we don't have a huge footprint analyses, but we're also not seeing a or at least we didn't see from our perspective, a huge shift in the second quarter.
I know some other procedures that are out there have seen from assay support.
Okay got it and then this first the inventory build in Irvine and three months being down what's what's the status now inventories come down specific to the facility.
Doesn't seem like you heard any issues for is the amount of inventory out again, but things are going to double turn now to catch up with with demand to build or what's the status group. Yes. Some really double time I would I would garner that I think we did a good job that is coded first hits, we were specific in making sure.
We had enough inventory and even purposefully than intentionally.
When too.
A larger inventory base than we usually carry right and then we did close down the facility for a period of time and then as things recovered in May and then we had some nice robust process for Orthobiologics in June and July we have been back at it for a while now and so we're at normal.
I would say production processes right now we feel very good that the decision we made in March to keep.
Keep manufacturing open for a couple of weeks to ensure supply was the right thing to do and then we were able to appropriately bring it down for a period of time to ensure all our employees are safe and we've been really happy with the efforts in Irvine, specifically I think the the safety and processes that have been put into place.
And the teams working on it and certainly all of the.
Great employees that are that are back at it and are very proud of the fact that they're providing orthobiologics and to to many many patients in fact, we had an opportunity to.
To visit and do a really wonderful walk through the celebrated our.
Our spin anniversary, if you will and folks are still pleased to be not only back at the office in gracious for how we navigated through it but super excited that they're part of the front lines of helping patients with a very motivating week last week.
Well to visit with us.
Okay, and then lastly from me one more for me.
Some commentary spurs or restore three do that you talked about those them with technology license.
Do because it is titanium and where you are you mentioned some interior systems or is it sort reduces first number users out there.
Yes, we are just starting getting through the five 10-K process and are excited that there'll be a few of those options as we exit the year I mean, that's one that I think we had some nervous energy that is cobot hit would it fall to delays and instead I think the development team and our partnership with the Duke.
Team has shown that.
Stephen Colbert can't slow us down and we're going to be able to launch those effectively this year. We're excited they're going to using as I said the some similar instrumentation is our are the same instrumentation is our nanometalene product lines, and we feel like that efficiency and to have choices. It is a titanium 30 in plant will be strong in the marketplace.
Okay perfect. It does it for me thanks for taking the questions and then speed in the quarter.
Hey, Thank you thanks, Jeff.
Thank you and our next question comes from Sweden Singh from Wells Fargo. Your line is now open. Thank you. So my thinking the question keep I was wondering if you could discuss the trends within your two key businesses from June to July I don't know if you already touched on this and then I was curious to get your thoughts on the deferred proceed bid.
Are you willing to shed what percentage of deferred procedures.
I have been performed or scheduled to be before I think what you're hearing is that you know about the backlog is about 40% to 50%. So just wondering if you're willing to comment on that and then I guess I'm I just squeeze undeployed part of my question.
Which is new patients entering the funnel as could you discuss in a little bit detail how that has evolved during the course of the quarter and into July. Thank you.
Yes.
Buys into the first question if you don't mind Shaygan and then I can give you some.
Granularity that questions over two or three.
Sorry, taking the first part of the question was results through July you're asking about what Oh, well, what do you talked about about trends.
I talked about intra quarter trends and growth in June as well as you provided some color on July I'm wondering if you can break it down between the two business division. So what can you might have seen but spinal implants.
Logic.
Yes.
Biologics is going a little bit faster than spinal implants, but the good news is that both of the portfolios grew and as Keith said its high single digits for the quarter to date results and it's really driven by the new product launches and the new distribution. So both of those cylinder.
They are firing and we're seeing good acceptance.
The new products that we recently launched whether its alpha launches or the full commercial launch as those foundational mariner.
Systems for revision and for MKS. So.
Both are growing at a nice clip.
In the month of July that said high single digits and Keith talked about we have seen some pockets in Texas, California, and Florida, where we know surgeries have slowed down so it's encouraging that we're still able to grow. Despite the fact that the fact that this three states, where we generate the largest proportion of our revenue are still seeing surgery slow.
Downs and I think its most pronounced in Texas, where I think 100 counties.
I have a whole bunch surgery. So it's encouraging to see that we're getting that diversification of our.
Geographic revenue footprint, so that we still can grow in the face of those halts in those three big States and.
It's exciting to see what we can do once those states come back online fully and they're not experiencing any delays, but the good news is the growth was there for the month of July in both portfolios were.
Growing.
So the second.
Second question Shaygan.
Percent deferral.
I know theres been.
I saw writings bought it probably over the past 24 hours the hip market, perhaps it was that had a pretty big.
Commentary about how much was deferral, we don't have those sort of details, but I would say your 40% to 50% falls in line with the surgeons that we've talked to and how they feel things are evolving which also marries directly into your last question, which is about new patients.
Every that's one thing consistently that we've heard from surgeons. It all depends on how much activity. They had during the Clinton at times, there was certain practices that did really well with telemedicine and staying connected with the patients and staying connected with.
A better if you will ensuring the pipeline or the communication within that pipeline of patients is still full and then I think there's others that did not have that tele medicine. So I do think that it's kind of spotty right now to look at how the new patient.
Opportunities are coming because it depends on the area. It depends on the stated that area, where they are as far as the outbreak and it depends on the comfort of those offices to be bringing in patients in doing it in a.
Right.
Affective distance way right and so that I would say is more spotty across the country as we talk to.
Clinicians on how well they have been able to kind of keep that new patient flow, but I, but I feel good about the fact that fourth quarter again as I mentioned earlier is always a busy time, especially in.
In spine in spine surgery, and fusion surgery. So I do think that we will continue to see that as long as there is work going on right now in the third quarter in early fourth quarter to bring those patients.
I got it and.
Keith I was wondering if you could share your thoughts on M&A in spine just given the current environment do you think over 19, good actually drive consolidation among smaller players. Thank you for taking the questions.
Yes, it's a good question, it's one that we ask each other as well on on.
What obviously, there's a number of interesting commentary rumors that are out in the marketplace. But is this a good time to be thinking about consolidation is a good time, especially with with how salesforce as can be more efficient, perhaps some organizations may view, but by combining them in combining some technologies.
I think I think it's a fair question I just I just feel we're all in a similar spot and that is one of.
Wanting to make sure that the the resources and the cash on hand is one that helps us weather the storm and whether it effectively for for our own organic growth let alone how we're looking at M&A. So I do think it's a it's.
It's an interesting question.
And probably the larger players have a different perspective on it than the smaller players who who want to make sure that we can continue to fund our organic engine.
Thank you.
Thank you and our next question comes from Brandon Folkes from Cantor Fitzgerald. Your line is now open.
Hi, thank ready mix.
Hi, Dave.
Yes, so congratulations on the progress in the quarter.
Maybe could you just elaborate.
Moving on from what you're just saying there, but could you elaborate on some of the opportunity do you think kind of 19 has actually presented the company intends and stuff like that through training and you have initiatives that have been implemented turning to Tom that you believe will likely be a tailwind enterprise hybrid work. Thank you.
Yeah, you bet I think theres been some new practices that that a lot of us of have embraced and figured out how to be more efficient I do think in a post coded world, we're going to be a little bit smarter on travel we're going to be a little bit smarter on on when we have to deploy resources to actually go to different areas when.
When weve found ways to be very productive and effective through proper teleconferencing and good preparation beforehand for trainings and what have you obviously theres still a very important part of our business that we continue to recognize and support and that is the use of our CAD of their training lab the need to.
The face to face to do certain things for development and development milestones and Trialing of new implants, and prototypes and instruments all those things some of it can be done remotely, but often they need to have some sort of hands on experience to make sure that.
Everything is working before the first surgically implanted. So there is a balance I also think that that could be time will demonstrate those organizations that have continued to invest that continue to innovate and been successful with launching new products, which will give the right kind of fuel and opportunity postcode bid.
To really see additional market share gains.
Right. Thank you very much.
And thank you and I'm showing no further questions I would now like to turn the call back over to Keith Valentine for closing remarks.
Yes, certainly appreciate everyone for joining us today and wish you a very pleasant evening, and we'll talk soon cheers.
Ladies and gentlemen, this concludes todays conference call. Thank you participating you may now disconnect.
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