Q2 2020 OrthoPediatrics Corp Earnings Call
Thank you how do your conference will begin momentarily. Thank you for your patience.
[music].
Welcome to the Q2 2020.
Corp. earnings Conference call. My name is enough and I'll be operator for today's call. At this time, all participants I listen only mode. Later, we'll conduct a question answer session. During the question answer session and you look question. Please press Star then one on your Touchtone phone. Please note that this conference is being recorded no kind of.
Uh-huh Camilo among you may begin.
Sure. Thanks, everyone for participating in today's call joining me from the company or Mark drug <unk>, Chief Executive Officer, Chris <unk>, Chief operating Officer at Chief Financial Officer, and David Valley present, before we begin I would like to caution listeners. The comments made by magic. During this conference call will include forward looking statements within the media Federal Securities Law.
Including the Safe Harbor provisions on the private Securities Litigation Reform Act like you know you bought.
These forward looking statements involve material risks and uncertainties and when companies actual results may differ materially for a discussion of risks factors, including among others. So that's really its cobot Nike impacts such pandemic may have on but mad catz companies products and the company's ability to respond to the related challenges I encourage you to review the company's most recent.
Nearly report on form 10-Q, which will be filed with the Securities Exchange Commission.
During the call today 90, but will also discuss certain non-GAAP financial measures, which I use the supplemental measures of performance. The company believes these measures provide useful information for investors and evaluate its operations period over period for each non-GAAP financial measure reference on this call. The company has included a reconciliation of the non-GAAP.
Financial measures to the most directly comparable GAAP financial measure and its earnings release.
Please note that the non-GAAP financial measures have limitations at analytical tool and should not be considered in isolation or a substitute for or the pediatric financial results prepared in accordance with that.
In addition, the contents of this conference call contains time sensitive information guys accurate only as of the date live broadcast August six 2020.
Except as required by law the company undertakes no obligation to revise or update any statements reflect events or circumstances that take place. After the date this call, but that said I'd like to turn call over to Mark.
Good morning, everyone and thank you for joining us today on our second quarter 2020 earnings Conference call.
I'd like to start by thanking our associates for the impressive progress we've made during the second quarter advancing our corporate initiatives. Despite the dislocations of the cobot 19 pandemic.
Despite a year over year sales decline in the second quarter, we've been encouraged by significant and consistent monthly improvements in sales growth throughout the period.
This morning, I will provide an update on how we're managing through the pandemic and then focus on our progress executing on key initiatives, including new product development than the integration of novel acquired technologies regulatory and operational advancements set consignments and clinical education.
Then turn the call over to Fred for a financial review before we open up the call for questions.
After sales growth in January and February exceeded 30% March sales dropped dramatically as elective surgeries throughout the world were postponed.
This decline deepened in April before turning around a significantly in May and June.
Our revenue for the second quarter of 2020 was down 25% from last year, reflecting the global impact of corporate 19. This was significantly better than our worst case scenario in March which did not anticipate such notable monthly improvements.
From a geographical perspective, the U.S. is bouncing back quicker than international markets, evidenced by a 12% U.S. decline versus the 67% international decline for the second quarter.
More specifically revenue in April was down 60% from prior year with international sales slightly worse than domestic sales.
May improve with sales down only 15% versus the prior year with domestic sales equaling their level last year.
This encouraging trend continued in June when sales were down 17% from prior year, but domestic sales were up 5%, indicating further stabilization of the domestic business.
We provide these numbers in an effort to maximize transparency to investors during this unprecedented time.
Moving on to revenue contribution by product line trauma and deformity sales declined 22% for the second quarter. Despite strong sales of the Orthofix hexapod system, our new P.M.P. femur system, and two new Cannulated screw systems.
Scoliosis sales declined 35%.
Jim sales approached the level seen in the same period last year.
Sports Medicine, and other grew 20%.
Reflecting contributions from the Telos partners acquisition.
The improving domestic trend in elective deformity correction in scoliosis surgeries was further seen in July leading us to anticipate that third quarter domestic sales could generate single digit growth over the third quarter 2019.
This is further supported by significant contract activity at a number of large domestic accounts, indicating that stabilization is in progress, particularly here in the United States.
Beyond these encouraging sales trends, we continued to be impressed by our associates focus on productivity during the period, allowing us to advance virtually all our twentytwenty strategic priorities at the pace anticipated when they were established last December.
Before I turn it to a more detailed update on these strategic initiatives. However, let me address how we are leading the company through the global Cobot 19 and Debbie.
We view covert 19, as an opportunity to strengthen our industry, leading position and enhance competitive advantage at a time when large competitors, which have nominally focused on pediatric orthopedics and the past must instead focus on repairing their large adult businesses and to dealing with the employee.
Morale impact of job cuts and salary reductions.
We recognized in mid March that the company had sufficient cash resources to weather. The cobot 19 impact in 2020 and fund the anticipated set investments both this year and in 2021.
The supported the decision to make no draconian expense reductions and just to continue aggressive initiatives in product development European regulatory compliance sales training acquisitions and management succession.
We made no cuts or base salary reductions for Opie employees.
We stabilize the domestic salesforce by establishing a distributor relief fund that enables distributors to borrow low cost loans from the company, which do not need to be repaid until December 2021.
Furthermore, in the second quarter every orthopedic Patrick's associate was contacted personally by a senior executives every week.
We also held a weekly town hall meetings to maximize communication and maintain positive morale.
In tandem with stabilizing our employees, we maintain instrument implants set deployments with a $9.1 million of investments in the first half of twentytwenty versus $10.6 million in the same period last year.
New product development has tracked plan.
And we have received a significant number of regulatory approvals and jurisdictions outside the United States.
In addition, we used our dark matter surgeon community to host Webinars led by leading pediatric orthopedic surgeons, including the president of pause now who described how they were treating PD patients in the cobot environment.
Furthermore, we remained the only double diamond sponsor of Pops and Pos in Twentytwenty.
Our decision not to reduce our financial commitment to surgical societies was in Stark contrast to others, who either reduced or eliminated their contributions entirely and this has received considerable notice by surgical societies and the global surgeon community alike.
We also completed phase one of a CEO transition begun in 2018.
The second phase will and next year, when I stepped down as CEO, becoming executive chairman.
David Bailey will then become president and CEO.
This follows our announcement in May when Bailey, who was appointed President and Fred height was appointed Chief operating officer, and Chief Financial Officer.
In summary, virtually all our 2020 corporate objective subtract plan through the first half of the year. Despite our associates working remotely since March 16th.
Over the past months, we've learned new ways to work that will be implemented permanently in future.
We have proven that we can work effectively with less travel and fewer face to face meetings, we can effectively conductor virtual surgeon design meetings, the can speed product development and.
And utilize a telemedicine system developed by Epifix that can allow surgeons to be supported in the operating room by clinical experts located anywhere in the world.
Finally, I'd like to thank our existing and new shareholders for their support that helped us raise an additional 70 million net dollars in a follow on offering in June the provides financial flexibility for acquisitions and future opportunities as well as meeting the cash obligations associated with Apple.
Next milestone payments set deployment initiatives and general working capital needs the Fred will describe.
Let me now turn to more specific accomplishments in the quarter, starting with new products.
We continue to make substantive quality improvements on certain trauma and deformity correction products keeping these systems evergreen.
We also continue advancing the development of a novel early onset scoliosis system and are optimistic about the additional market opportunities that will create as we near design completion.
Of 19, driven by a new user adoptions and supported by successful domestic sales integration and extensive training programs.
Although new system, such as PD foot are also demonstrating success with the surgeries perform to date, but they do remain in beta launch with limited sets in the field.
While it is a small percentage of our sales. It is worth mentioning that we are pleased with the impact of tell us partners consulting revenue, which is reflected in our sports medicine other sales.
As a reminder, we acquired tell us in March of this year to access state of the art expertise on regulatory trends in clinical trial management.
But we're finding that this business has thrived cove at 19 environment.
In June we purchased the patents associated with our band lock systems for a total consideration of three $4 million consisting of $750 in cash and two $6 million in stock.
Allowing us to avoid licensing fees of $500000 annually.
In April we acquired App or fix for non infusion treatment of progressive adolescent idiopathic scoliosis or a I S and recently commenced it's domestic launch.
Based on early surgeon feedback, we're confident in the system's potential to transform scoliosis surgery and patient treatment.
We're already seeing initial sales contributions and impressive surgeon demand.
As a reminder, <unk> is one of two recently approved non fusion technologies and represents a paradigm shift and how scoliosis is treated.
It addresses patients with curves between $35 and 60 degrees, where bracing is failing.
<unk> is a much simpler surgery, then spinal tethered ring.
The other non fusion product on the market, which comes with a big learning curve as one user put it.
Importantly, we anticipate benefiting from extremely high sales to dollar a set inventory, which can improve our overall revenue per dollar of can sign set investment in the future.
<unk> reached critical second quarter milestones on schedule, including establishing 18 post approval study registry sites year to date against the total of 20 sites this year.
All 20 sites are anticipated to achieve IRB approval by year and.
Furthermore, we're delighted the first surgery was successfully perform that Mayo clinic at the end of June.
<unk> there were please with how easy it was to place the implant.
Subsequent surgeries have taken place at Atlanta Children's Hospital, and Mercy children's in Kansas City.
Early surgeon feedback has been very positive regarding the simplicity and speed of the procedure. The degree of correction limited blood loss post surgical hospital stays of only one or two days and rapid patient recovery.
Look forward to an increasing number of cases is the 20 sites adopt <unk> and the second half year.
Also a note we recently received FDA approval to expand the label to 35 to 60 degrees for progressive curves from 40 to 60 degrees previously thus, allowing the <unk> system to compete head to head with tethered rings indication.
Skeletal immature patients.
Turning to international and domestic sales organizations. We're currently working on the conversion to sales agencies of two E. M E. A stocking distributors one of which is in a very large European market <unk>.
We anticipate that both conversions will take place by the first quarter 2021.
On the domestic side, we added one sales agency during the quarter, bringing the number to 37, we also restructured Orthodox sales representatives and added several of our representatives in underserved cities for a total of 164 consultants and the second quarter, representing and 8% increase from 100.
Two consultants and the second quarter 2019.
Additionally, we will soon break ground on a 20000 square foot warehouse expansion here in Warsaw, nearly three times the size of the warehouse expansion completed only 18 months ago.
We anticipate the new warehouse will be completed and the first half of 2021.
The current warehouse space will then be used for enhanced social distancing in the short term and new personnel in the long term.
Moving to clinical education, we led 23 sales training sessions and sponsored for Covid 19 sessions on dark matter.
In Latin America, we sponsored 14 small group surgeon training sessions 20, large group training programs with more than 120 surgeons precession.
And 11 company led training programs.
We're excited to be working with pass on the development of the resident Masters series. These courses will be released through the orthopedic Patrick's Foundation and will be taught by eminent pediatric orthopedic surgeons.
We also expect a full beta launch this year of a new Opie mobile App that is now well along and development.
This app will allow surgeons in sales consultants to access all Oh peace training videos surgeon technique, guys and other information on the company's 35 surgical systems, both before and during surgery.
This is a time the tests accompanies leadership and it's culture <unk>.
<unk> been delighted by the spontaneous demonstrations of initiative in leadership at all levels of the company despite working from home.
I'll sales declined in the period, our company has remained cohesive and productive executing on our 2020 objectives as if cope with 19 had not occur.
With that let me know turn the call over to Fred to review our financial results.
Fred.
Thanks Mark.
Total revenue in the second quarter of 2020 was 13 $6 million down 25% compared to $18 $2 million for the same period in 2019.
U S revenue in the second quarter of 2020 was 12 $1 million, a 12% decrease compared to 13 $8 million in the same period last year, representing 89% of total revenue.
International revenue in the second quarter of 2020 was one $4 million, a 67% decrease compared to four $4 million in the same period last year, representing 11% of total revenue.
Is mark mentioned, while global sales were clearly impacted by co bid 19, we're very encouraged by the consistent improvement we realized throughout the quarter, which also carried over into July.
Strengthening trend was led by our domestic business, which reported year over year growth and both June and July.
Our second quarter revenue breakdown by product category was as follows <unk>.
Drama and deformity revenue in the second quarter of 2020 was nine $2 million, a 22% decrease compared to $11 $9 million in the same period last year.
Favorable trauma.
<unk> hexapod deformity correction system in new product introductions, partially offset the code bid slowdown elected the form the surgeries.
Scoliosis revenue in the second quarter 2020 was three $8 million, 35% decrease compared to five $9 million from the same period last year.
Scoliosis business continues to be more impacted by co bid is elective surgeries are differed two of varying degree by geography.
However, we also saw favorable trends in our scoliosis business across the quarter and into July.
Lastly, sports medicine other revenue in the second quarter of 2020 was 0.5 million.
Representing a 20% increase compared to zero point $4 million in the same period last year.
Favorable growth was primarily driven by the inclusion of tell us revenue in this category.
Nearly all the changes in each category was due to a decrease in unit volume sold and not a result of selling price changes.
Moving down the income statement gross profit in the second quarter of 2020 was $10 $1 million compared to $13 $6 million in the same period last year.
Gross margin in the second quarter 2020.
74 zero percent compared to 74, 8% and the second quarter of 2019.
Sales and marketing expenses and the second quarter of 2020 decreased 26% $256 million compared to seven $6 million in the same period last year.
This was driven by a decrease in unit volume sold and associated commissions and the U S and international markets with sales agencies.
General an administrative expenses and the second quarter of 2020 with 10 $6 million, an increase of 61% compared to six 6 million.
And the second quarter of 2019.
Increase in expense was primarily driven by the addition of Appy fix and tell us G&A <unk>.
Increased quality and regulatory expenses.
Acquisition related costs, as well as increased non-cash stock compensation depreciation and amortization expenses.
The second quarter of 2020 G&A expense also included a one time grant investing of restricted stock of approximately one $3 million, a expense, which will not repeat going forward.
Research and development expense <unk> zero $9 million in the second quarter of 2020.
Decrease of 29% compared to one $2 million and the second quarter 2019. The decrease includes the revision of $250 of accrued R&D expense in the quarter attributable to the band block patents.
Total operating expenses and the second quarter of 2020 was 17 $1 million compared to $15 $4 million from the same period last year.
Operating loss and the second quarter of 2020 was seven zero million dollars compared to a loss of one $8 million in the second quarter 2019.
Adjusted EBITDA for the second quarter of 2020 was negative two $3 million compared to zero 6 million for the second quarter of 2019.
Interest expense and the second quarter of 2020 was one $4 million compared to zero point $6 million in the same period last year.
The increase includes a non-cash charge of zero $9 million for the accretion of the Appy fixed acquisition installment payments.
Effectively this is the difference between the net president value of the liability and the total anticipated expected to be paid in the future.
Separately from interest expense, we also had a non-cash charge in other expense for the fair value adjustment of contingent consideration of zero $9 million also associated with the Appy fixed acquisition.
In total these two non-cash amounts equaled one $8 million for the second quarter of 2020 and will continue to impact the net income and EPS on a reduced right until we complete our year for anniversary installment payment.
Net loss and the second quarter of 2020 was nine $4 million compared to a net loss of two $6 million in the same period last year.
Net loss per share in the second quarter of 2020 was 54 cents per basic and diluted sure compared to 18 per basic and diluted chair in the same period last year.
Turning to our balance sheet.
As of June 30th 2020, or cash and restricted cash was 114 $4 million compared to 54 $9 million as of March 31 2020.
This includes the 70 million and net proceeds from the follow on public offering in June of one 6 million chairs at $47 per sure.
These bonds will be used to strengthen the balance sheet and anticipation of possible adverse market conditions associated with <unk>.
To meet cash obligations of the Appy fix milestone payments.
Fund new implant instrument set.
Possible future acquisitions and to meet corporate needs.
Related to our debt.
On July 15th 2020, repaid or $20 million principal amount outstanding under our term loan agreement.
[noise] with all unpaid interest in other related amounts payable and currently we have no outstanding term loan obligations.
We also expanded are $15 million revolving credit facility to $25 million an extended the expiration date from January of 2023, two January of 2024.
With the full $25 million currently available to us.
The change in property and equipment during the second quarter of 2020 was one $2 million compared to three 6 million. During the same period last year, reflecting a decrease in construction in process, which includes partial sets waiting to be deploy.
Including the implants, five $8 million of consign sets were deployed during the quarter compared to nine 3 million during the second quarter of 2019.
Year to date, we have deployed nine $1 million upsets compared to $10 $6 million and 2019.
In terms of performance for the balance of the year, we anticipate sales and the second half of 2020 will continue to improve domestically as the elective surgeries resumed.
Although they will regionally very regionally in the U S and country by country internationally.
While we expect sales and the third quarter to continue the month to month recovery trend. We have seen in the second quarter is important to keep in mind. The pandemic is likely to continue to evolve.
As such we note that there are some level of uncertainty in the coming quarters are proven business model.
Are strong balance sheet and corporate objectives remains very strong and we're confident in our ability to continue to lead the market.
Let me know turn the call back over to Mark.
Or some final comments thanks Fred.
We'd like to conclude by thanking the entire healthcare community everywhere in the world or it's skill resilience and selflessness during the Cove at 19 pandemic, they remind us how fortunate we are to serve customers with such a noble calling.
I would also like to think our associates for their personal leadership and accountability that is allowed us to treat 178000 showroom from 2000 date through the second quarter 2020.
I'm confident that our focus and consistent execution will continue strengthening orthopedic patrick's leading market position and pediatric orthopedics.
I'm confident that we will emerge from the covid pandemic, even stronger than when we entered it.
With that let's turn the call over to your questions. Please.
Thank you well now begin the question answer session. If you have a question. Please post star then one on your Touchtone phone and you wish to be moved from the queue. Please post pounds or the <unk> have you using a speaker phone you may need to pick up the headset first before pressing the numbers. Once again, if you have a question. Please crestar then one touchtone.
Phone.
Our first question comes from Matthew O'brien from Piper Sandler Your line is now opened.
Good morning, guys. This is Patrick on for Mac can you hear me okay.
Yes, Patrick Nigeria your voice.
Great Congrats on the on the quarter, all things considered given the covid environment.
We'd like to just start with the early onset scoliosis opportunity I know you mentioned you are nearing design completion with so many larger other spine companies not focusing on this market opportunity.
To hear more color on the work Youre doing there.
Any idea of when you will have the design completion, how should we think about the market opportunity. Some of your efforts with the surgeon panels. As you you work through this opportunity any any feedback you'd be willing to share. It would be would be greatly appreciate it and then I have a follow up.
Let me start with a general comment and then turn that question over to Dave Bailey, who is very close to the situation.
This was technology in fact that we license several years ago from a very large spine company that had basically given up on the product.
And the surgeon, who had developed the product with that company was frustrated by that and came to us and so I think it is indicative of the fact that.
At least that company.
Had very little interest in developing a specific product for early onset scoliosis, which is something we have seen mirrored by the behavior of so many other of the leading spine companies with that as a general comment, perhaps Dave though would comment more specifically about the potential of this and our expectations, Yes Patrick.
It's a good question. So we view the early onset scoliosis market as area of major unmet need in pediatric orthopedics.
And is mark alluded to recognize that the large or the beta companies are not focus specifically in pediatric orthopedics, but much less focused on a smaller needs a pediatric spinal deformity correction.
Further there are a number of ways to tree early onset scoliosis and we believe the development that we're doing with several key opinion leaders from major.
Children's hospitals.
Is a very unique and different way that will allow pediatric orthopedic surgeons around the world to treat a very very difficult indication with substantial unmet need. So I think we're very excited and maybe some time before we see the product hit the market, particularly in the United States, while we're nearing product.
Nearing completion of the development cycle will then move into a period of time, where it will be working with FDA to get product approved and certainly as you will know.
We couldn't give any specifics with respect how they FTA may react. Although we do expect given are long history of successful negotiations and discussions with FTA that.
We would be successful over time.
That's really helpful. I really appreciate that color and I think I'd be curious to shift and look at the <unk> Hexapod I know you had mentioned that the performance. This quarter was much better than you expected one really interesting component to the opportunity there was to expand the addressable market for the T&D business as a whole so I know.
Early and we're working with the Kobe 19 environment, but.
Have you been able to increase surgeon reach have you been getting to those more limb reconstruction specialists or at least having the conversations there. So you can get other products into those areas that you might not have been able to get to before.
Just be curious.
On your efforts to date with with the hexapod. Thank you.
Again in general terms, let let me say something and then asked day for additional comment when we acquired this business a year ago. There were 30 users. We've nearly tripled the number of users and that is indicative I think of how the breath of that.
<unk> has expanded.
Over the year that we have owned.
I think Furthermore, it has closed a major gap and the trauma deformity product line that is enable us to four really the first time in our company's history go after virtually all of the trauma deformity business at a number of major accounts and we've been delighted by the pro.
Grass of putting some of those accounts under contract or seeing very significant expansion of our market physician there and we're talking about some of the largest pediatric centers in the country.
Yeah, that's right Mark.
Extremely pleased with the adoption of the Earth X product very specifically.
29, new customers I believe new accounts that are utilizing the orthodox system here within the last few months, a number of which we picked up during the Covid pandemic I think we detailed some of our training and education efforts with our Salesforce that also we had a number of different training and education efforts with pediatric orthopedic surgeons around the world.
And training them on how to use the software and how to use the device remotely and I think we're already starting to see that training pay off with these 29, new accounts I think the first places obviously, we've been able to go and get success with this product are places, where we have a strong presence already.
Standing children's hospitals, our children's hospitals, where we have we're already have the market incumbent and so it's been I don't want to say easy, but certainly it's been those are the places where we can attract the most interests most rapidly.
We have started to expand into a few of the accounts, where we weren't very present with limb deformity correction surgeon.
Though as you rightly pointed out it's a little bit more difficult than the coven environment, because those accounts aren't typically accounts, where we have historically had a substantial present. So we are starting to see that.
But but we do expect to see that on an increasing basis as we move forward and come out of the Kobe pandemic.
Thank you so much for taking the questions guys.
Thank you Patrick.
Our next question comes from Brian Zimmerman from D. T. I T. You line is open.
Okay. Good morning.
Hey, Brian frame.
Thank you guys.
So one to ask a few questions.
Mark you noted.
Single digit grows in July and I'm wondering if you can put a maybe a little finer points on kind of your expectations there.
No.
No single digits mentioned visits.
Any color I think it would be appreciated in terms of how you are thinking about your recovery, particularly domestically, which which does sound very strong and then I have a comfortable follow ups.
With all due care I think I should turn that question over to Fred.
Yeah, So as Mark mentioned domestically in May we were equaled the last year in June we did see a 5% growth year over year.
And July was slightly higher than that.
So I think more importantly than the exact number to us. It's the trend the favorable trend that were seen month on month, and we would fully expect that to continue throughout the third quarter, it's very encouraging to see even with some soft spots regionally how well the domestic.
Businesses performing.
Great that's very helpful.
A couple other questions.
Given the amount of sat investments send a message that you guys have done.
Over the years.
In our challenge actually talked to a lot of distributors and.
Do you have a lot of substance. So I'm wondering are we had a point where.
Set on not constraining growth.
Is there still robust demand for sets and and how can investors think about your set allocation over.
The balance of this year and into next year.
Once again, let me make a general comment and then ask Fred for more specifics.
We are still basically in a beta launch phase for a number of the new products that were developed even.
18 months ago, I had mentioned PD foot and this thing, but we could saving the same thing about skiffy, which was a new system that was launched even the cannulation screw said there is tremendous demand for those so.
I think that these answered with certain products is yes, there is still tremendous demand.
Pink internationally.
There will be ongoing significant demand, although a given the international situation in so many markets that that has not been apparent and the last several months, but after the specific outlook and what we make of that in terms of investment Fred would you have any thoughts yeah I think obviously.
No sets were deployed in the month of April given all the hospitals were shut down but as we started to come out of this as a management group. We really took view on what we can do to strengthen the business and deploying more set is one of those things. So I would anticipate we would continue to deploy new.
Set at almost a normal pays.
For the rest of this year and into 2021.
Thank the dollars will be more focused on new products as Mark mentioned PD PD foot Pnp <unk> Appy fix those are new requirements that we haven't had in the past, but it's also encouraging to see demand for the court legacy sister.
As we add new reps, we need more set as we win some of these major account conversions that Mark mentioned, we're gonna need new sets in those hospitals to support that incremental demand. So I would anticipate that we will continue to invest in the business.
Similar level that we did.
Cove it.
Got it that's that's very helpful. And then last one for me and I appreciate all.
Good there.
You guys recently made a point to emphasize your growth and Firefly and I thought it was interesting I'm just wondering mark.
Maybe a day for you what does it signal in terms of your view on potentially the role of robotics or lack thereof in pediatrics fine and and whether there may or may not be a place there.
Yeah.
Question [laughter].
Certainly the I think the verdict is still out in pediatric orthopedics, we don't encounter a number of competitive situations on the robotic side.
Certainly our success with that Firefly devices more predicated on the need for interoperable surgical navigation than it is for robotics, and we do see that in the future companies, most likely with a sweet of sort of intraoperative navigation products.
A firefly like device 30 printed device like hours as well as some type of.
Intraoperative navigation.
We see that is important and and we're looking into the options that we may have.
To offer Firefly in addition to some other.
Surgical navigation products, but at the moment, we don't see a huge.
We don't see a large competitive pressure applied or within our accounts off on surgical robotics and these open scoliosis procedures.
Okay I appreciate the final thanks for taking the questions on them.
Hey, Thanks, right. Thanks, right to hear from you as always.
The next question comes from Catacomb Trust security.
Hey, guys. Thanks for taking out the questions I have lots of just here a little bit more about how the app effects Rollouts going you mentioned you started doing cases.
Can can can you just give us a little bit more anecdotal feedback what you're hearing from dogs and then we spoke with the higher volume surgeon, who was really excited about about helping them both the existing surgical patients and nonsurgical bracing patient.
I mean do you think that mid see can ultimately grow with a surgical market volume over all just would love to get a little bit more more feedback there.
Well, let me comment and then ask Dave for his thoughts.
I think the bottom line is that palm roars, and we could not be more delighted by how there has been such enormous search and demand for this thing we've actually had difficulty deciding on what the 20 registry sites will be which is the number that we want to limit this to for the next.
18 months or so until the first 200 cases are completed.
But in the three institutions, where the surgery has taken place the feedback has all been very consistent.
Surgeons are frankly astonished at how simple it is to conduct a surgery how quick the surgery goes and 90 minutes to two hours.
And the very rapid.
Recovery of patients who are I think the last one the patient went home the next day.
And within several weeks or back to a full mobility.
Plus they're getting superb correction. So everything is going exactly as we had hope and if anything I think our challenge in the future will be too and the strain.
The tremendous demand as being fuelled by patients and families wanting this procedure as they hear more and more about it.
Oh by the way I thought that the call. If you arrange with Barron monitor it was extremely interesting launer is I think he mentioned need a a 140 tether encases a year and feels that.
Anywhere from half to 60% of them would be candidates for <unk> and I believe it was he who said that there is a big learning curve associated with tethering that you don't have with the App affixed product, but date, what more specific time, you may well, it's hard to amplify Mark your comments, but I think that.
Holding back to tide, a bit here, which is really encouraging this early the inbound interest.
From Surgeons has been really strong in fact.
We are now we are now starting to deal with inbound interest.
Patients that are coming through the the <unk> site as well as coming even to some of our distributors or some of our managing directors, which is certainly a new phenomenon.
For the company. So we're very pleased extremely pleased that the first three of these procedures went off so well.
You can imagine and this in the Covid environment, ensuring that these cases, where well covered by Paul and getting sales representatives into the operating room, so that we could get our team more experienced.
That was a real challenge, but we were able to navigate that and are extremely pleased without the progression of the IRB approvals have gone we have three now.
That are completely already in within a week of full approval. These accounts had scheduled surgery.
And we have a number of additional sites that are ready to go and we expect that the minute. They get the IRB approval for the registry that we will start to see additional surgeries. There. So couldn't be more pleased I would also note that the expansion of the indications from 40 to 60 degree curves to.
To 35 to 60 degree curves is is very important for the company and it does exactly as you suggest and that it expands the indications into some of these very difficult racing patients patients who are noncompliant or are not receiving the kind of improvement that they'd like to see with bracing that.
Five degree indication expansion in fact really moves into segment of the marketplace right now, but historically may not have been surgical candidates and so you're very right to assume that we expect this will continue to <unk>.
Continue to expand.
The surgical market for patients, particularly young patients with a I S.
Thank you.
Great color.
IRB progress you guys have made so I mean I realize it's early but in in your initial target 20th centers.
I was surprised by the potential volume that Doctor monitor suggested he could you I realize he's a high volume guy but.
Is it reasonable to assume each of the 20th centers can do two to three cases of Keith per quarter could it be higher than that I, just would love to to understand.
Your thoughts around potential capacity for furniture dissenters. Thank you.
There's no question.
These are <unk>.
Number your site is.
Yeah. That's a good number I think that there's no question that these sites once once we get moving these sites will have the capacity not to do the kind of volume, but the doctor lawn or does maybe but certainly.
[laughter] the surgeons can do this kind of volume and the patient demand.
For this will definitely be driven to those accounts that that are offering this type of product.
Remained conservative for several reasons the first is that.
We got three cases under our belts you just don't know even though the European that are extremely encouraging and are being confirmed by this that that's an issue secondly.
There is the the <unk>.
Challenge that we only have a handful of people that can supports a surgery, so well to guarantee great results at the moment and it's so important that these first 200 cases.
B as good as they can be because we're going to be living with those registry patients for a decade or more as their follow so the future reputation of the technology will rest on a foundation that we missed carefully lay down over the next year to 18 months, but it could go a lot faster than we are anticipating no doubt about.
Great. Thank you guys I appreciate that the questions.
Okay, Let's go to hear your voice.
Our next question comes from Mike Mattson for need haven't company you line is open.
Yeah. So I just wanted to ask about the the international business.
Maybe why is it lagging the U S is it just.
You know those countries are just recovering more slowly from cove, it or or something else going on.
From my perspective, I think the Cardinal difference Mike is it so many of our international hospitals treat adults as well as children and so they were right in the epicenter of the Cove at 19 epidemic in their countries.
That is not the case here in the United States nearly to that degree most of the pediatric centers here, where unaffected by Cove it.
Except of course, the postpone none of elective surgeries and that reticence parents too.
Bring in their children and the April may time period.
Passing so I think that we continue to see very uneven recovery markets like Germany, Australia, New Zealand have certainly bounce bag others like the U K are just beginning elective surgeries now I in fact, I'm not even heard confirmation that they've begun but they were scheduled to begin.
Yeah by mid to late July.
In Latin America is still being ravaged by this disease and as you were aware we have a significant business in Brazil. So I think those are the factors I would 0.2, Fred do you have some other thoughts yeah, just the one other impact I think is.
To our stocking distributors historically, we had sold them set.
And that's how they really grew their business and as you can imagine many of them are struggling with cash right now and they're just not buying set.
And so that is impacting our second quarter revenue growth for sure on the international side of the business I do think it's encouraging as of late meaning the last couple of weeks that we're starting to see some green shoots in that area and while it's not clearly not recovered we're starting to see some favorable.
Items popping up and we would hope that trend would continue really throughout the second half of 2020.
We were surprised by how strong international sales were last month for example, but we've been warned by our international executives look that is not a trend so green shoot us a great great phrase.
Okay and then.
And my second questions.
For Fred just so G&A was up quite a bit and I I understand that there were it sounds like there were some combination of some one time things in there as well some things that may continue to be in there. So can you give us some idea of what they're run right you expect their going forward.
Versus the 10 six nine this quarter.
Yeah, So let's just <unk>.
Isolate some things in there so there's obviously higher depreciation in there that's going to continue higher amortization, that's going to continue associated with.
Prior acquisitions.
The one item that was in there I would say was the one $3 million non-cash stock comp is not going to continue there was about $300000 of.
D O related T as in there as well, but the rest of it is probably going to be there for the next.
Next several quarters.
Okay, So maybe kind of more on the.
Eight $8 million to $9 million range, it's more reasonable or yep.
Okay. Thanks.
That's all thank you.
And then we have our last question from Dave <unk>. Your line is open.
Hey, good morning, guys.
Hello.
Hum.
I think it's I've talked about in the past.
Service in the top 300, pediatric pediatric institutions, and maybe something somewhere along the line of 500 or so customers domestically.
I'm just curious.
Your thoughts are in terms of our all of those places now back doing electric procedures and as you look through the back half of this year you anticipate that they will remain doing so that there won't be further shutdowns to those procedures.
Yes. This is day Bailey.
That's a good question so throughout the second quarter I would say that not all of those accounts were back to doing electric procedures certainly the second quarter was affected more harshly bye.
Bye the northeast.
R distributor, there, which is our largest distributor salt nice progression from the end of March through April and then up in May and June.
But we are only now in July starting to see substantial.
<unk> in the northeast and we have some major accounts in the northeast. So I think we were particularly pleased with with you to them and June and July.
Because it was really unaffected at least from a positive standpoint from our some major accounts we have in the northeast.
Oh that said there are some hotspots, obviously, you described and while we hear the electric procedures have been stopped and some of these places, Arizona, Texas, we have not seen or have not been substantially affected by that within the children's hospitals.
So.
We remain optimistic Bowie are also cautious but at the moment, we have not seen the kinds of of reductions in electric procedures and some of the hotspots around the country.
That are kind of described in the news and we are starting to see places that haven't contributed to revenue as significantly in the second quarter start to do procedures.
Got it thank you for that.
Yeah, I think it's interesting remarked notes that you you could come out of the stronger and that there are some aspects of cove, it specifically that might be.
Dancing your competitive footprint I was just wondering if you'd give us.
Anecdotal evidence of sort of that actually happening where either the rep. Some other places may not be allowed in or where.
You might be getting stronger or higher penetration and some accounts.
Given that maybe maybe the lack of focus from some of the bigger guys but.
Any color that you could add to that would be would be greatly appreciate it. Thanks.
Well I think Davis specific example of that would be the many or S X training sessions that were.
Done online and the second quarter.
Some of these had hundreds of 150 sales reps dialing in.
The hexapod system is an extremely complex surgery it's.
Actually more complex and difficult and scoliosis in terms of how the product works and I think that is directly correlated to the number of conversions that have taken place.
And all those conversions remember are coming from well established entities Smith and nephew and ortho fix dominate this market historically, so that would be an example, I think beyond that the the work that we're doing on regulatory compliance.
In general on sales training.
The progress, we're making with the development of an app, which will be rolling out.
In beta form by year, and and and have a very significant impact on users who can literally on their cell phone dial up a training videos or walking into the operating rubber these things or what I was referring to is making the company much stronger Ironically as a result of this pandemic in the lessons that it's teaching us.
[noise], yeah, they've I would say as well from a very tangible perspective, we are seeing an increased number of accounts that are looking to reduce the number of vendors and our by default moving towards the incumbent and we have mark talked about the five different accounts that we're working on.
That we have.
Either single bid contracts or a few different vendors, where we would get let's say 80% of the volume we've talked about working on those things now for a long time and we have seen a few of those things here within the last let's say six weeks go in our favor and so our suspicion that accounts.
Would want to see less representation at least from new company I don't think I would want to be accompanied trying to launch new products into hospitals, our children's hospitals right now.
And so the our incumbent position within these 300 accounts is already tangibly, serving as well and in addition to conversion of some of these accounts we've been working on we're starting to see additional accounts come to us asking us to go on contract.
To go on contracts that would inevitably drive sales up and drive some of our more some of the historical incumbent competitors out of the market are out of these hospitals and so I think that's a very tangible thing we're seeing particularly as these hospitals have started to open up for both elected procedures.
As well as continue to new trauma procedures.
Alright, thanks, a lot that detail.
Thanks, Dave.
We have no further questions at this time.
Okay.
Okay.
Makes me closing.
So as always we like to.
Thank you very much for your interest in our company and your indirect.
For the cause of helping children throughout the world and we hope everyone stay safe and healthy and we're looking very much forward to updating you on our future progress.
Everyone have a good day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may know disconnect.