Q2 2020 Orthofix Medical Inc Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the Orthofix second quarter 2020 earnings results Conference call.
At this time, all participants are in listen only mode.
Later, we will conduct a question answer session and instructions will follow with a time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host Alexa Huerta Senior director of Investor Relations and Finance. Please go ahead.
Thank you operator, and good morning, everyone welcome to the Orthofix second quarter 2020 earnings call joining me on the call today, our President and Chief Executive Officer, John servicing.
In Chief Financial Officer, Doug right.
I'll start with the Safe Harbor statement, and then pass it over to John during this call we will be making forward looking statements that involve risks and uncertainties.
All statements other than those of historical facts are forward looking statements, including any earnings guidance that we provide and any statement about our plans beliefs strategies expectations goals or objective.
Investors are cautioned not to place undue reliance on such forward looking statements as there is no assurance that the matters contained in such statements will occur.
The forward looking statements, we will make on today's call are based on our beliefs and expectations as of today August six 2020, we do not undertake any obligation to revise or update such forward looking statements. Some factors that could cause actual results to be materially different from the forward looking statements made by us on the call.
All includes the risks disclosed under the heading risk factors in our form 10-K for the year ended December 30, Onest 2019.
And our form 10-Q expected to be filed later today.
Well as additional SEC filings, we make in the future if any copies of these documents. Please contact our office at Orthofix in Lewisville, Texas.
In addition on today's call, we will refer to various non-GAAP financial measures. We believe that in order to properly understand our short term and long term financial trends investors may wish to review these matters as a supplement to financial measures determined in accordance with US GAAP. Please refer to today's press release.
Announcing our second quarter of 2020 results for reconciliations of these non-GAAP financial measures to our US GAAP financial results at this point I will turn the call over to John.
Thank you letter welcome everyone and thank you for joining us for second quarter 2020 results conference call.
Before getting into my prepared remarks, I'd like to introduce you to collect worked.
He will be taking over as our head of Investor Relations looks has been with our finance group for over eight years and we're excited to now however in this role for Chris who most of you have interacted with over the past has taken a leadership role in our business development group.
Work will be transitioning or responsibilities to loxa over the coming quarters.
On today's call I'll start by discussing the impact to covert nice team has had on our business after which I'll provide an update on our second quarter performance.
I will then review the progress we've made in each of our strategic initiatives before handing the call over to Doug who will provide financial updates.
I will close with our perspective on the business going forward, including an update on the trends we're seeing through July.
Before opening the lines for questions.
Starting with a proven 19 update.
Privilege to start by saying on behalf of everyone at Orthofix Health banks, who we are for the tireless work being done by everyone in the global health care community to address this crisis.
I'd also like to thank each and every one of our employees who have executed incredibly will during these challenging times.
The magnitude of this pandemic and the challenges presented for patient care created an unprecedented environment.
And I am truly proud of the resolve and adaptability of our team.
With that mine.
We continue to actively monitoring the situation with a focus on safely and effectively supplying or customers, while taking care of their patient needs.
On our last call in May we provided you with an update on all the actions we took to keep our employees and their families safe and ensure we maintain business continuity.
During the second quarter, we focused on making sure our facilities and operations for adapted to this new cobot environment and implemented new office procedures to ensure everyone feel safe from the office.
As I will discuss during my flavor comments I'm very proud of our proactive measures and accomplishments. During this difficult time as represented by our ability to adapt operationally execute on our strategic plan.
Effectively integrate system into our commercial channel.
Our strategic progress towards creating a high velocity new product innovation program.
The increase of safety stock for key products as a hedge against the potential supply chain disruptions and successful management of cash as demonstrated by our election to repay 50 million of the 100 million advance we took in the second quarter.
Now shifting to second quarter performance.
Total revenue in the quarter was down 36, 7% on a reported and constant currency basis compared to the prior year quarter.
The year over year decrease was largely driven by a significant decline in elective procedure volumes during the quarter, which represented the majority of our procedures.
To provide more insight into our performance during the second quarter I'll provide you with our monthly sales during the second quarter.
Total revenue compared to the three months of the second quarter 2019 were as follows.
April was the weakest month of the quarter down approximately 60% versus the prior year month.
May showed recovery and was down approximately 40% versus the prior year month.
And June was the strongest month of the quarter down approximately 15% versus the prior year month.
Overall, we're very encouraged by the performance that we saw during the second quarter, which has continued into July where net sales were down less than 10% compared to the prior year month.
This reflects a strong execution and nimble management in face of our uncertainty.
We believe the drivers of this recovery were patients surgeons and hospitals as they address the surgical backlog in regions that reopened for elective procedures and the execution of our sales leadership team.
We're very optimistic about the long term opportunities in a business segments in which we operate but remain cautious about the balance of the year.
We believe it is too early to predict a return to normalcy in the near term and to to the unpredictable nature of our current environment, including.
Comfortably levels of patients to return to the clinics.
Continuing to localize shutdowns.
Increased unemployment, leading to a lack of medical coverage and hospital capacity constraints.
Now, let's turn to the performance within each of our business units.
Starting with loan growth therapies sales were down 43% versus prior year for longer therapies was greatly impacted by cold in the quarter, particularly in procedure volumes. During April and May we saw rebound in June as order volumes picked up nicely compared to the prior two months.
Moving to spinal implants sales were down 20% constant currency versus prior year.
This category is made up of our spine fixation and motion preservation products, which are by and large used in elective procedures.
Yes motion preservation sales were $3.6 million in the quarter up significantly over the prior year and also sequentially up over the first quarter.
We continue to see strong mpsix see adoption trends with June being our best month, we've had to date in U.S sales.
Our sales training team was able to virtually train over 75 us surgeons on M. sixsix during the second quarter of 2020.
A subset of which performed cases that drove approximately $1 million of revenue in the quarter.
In biologics sales were down 34% versus prior year, primarily as a result, a reduction in election procedure volumes.
After a slower start in April our procedure volumes are now right in line with our spinal fixation volumes.
Moving onto extremities business sales were down 40% on a reported basis versus the prior year, primarily as a result for the impact decoded on procedure volumes.
While certain procedures is extremities business, our non elective, especially as trauma procedures. A large portion is car comprise of deformity correction procedures, which are elective and can be postponed.
During the second quarter, if we completed the integration of the biologics had spinal implants product categories under a single sales management team.
We're excited about this reorganization by bringing these businesses under one sales management, we believe we can better leverage the portfolio and our brand or making it easier to do business with us and the company.
Additionally, by establishing a unified sales structure, we can support a commercial team with market by market strategy in decision making.
With this new structure in place and with the completing hiring of all key senior leadership roles and that our global spine business very.
Mister go out the future of global spine.
Continue with our leadership focus we are pleased and our progress for the search or a new president of global extremities <unk>.
We have identified several qualified candidates and or the process of moving towards a selection.
I look forward to making this announcement in the near term.
Moving to our second initiative operational execution.
We have address the challenges associated coded we continue to constantly deliver for our customers, which is a testament to our team.
We are proud to say that there are no supply or manufacturing disruptions in that during the quarter.
This was due to impart to the rapid implementation of continuity initiatives put in place at the onset of the pandemic as well as supply chain improvement initiatives implemented during the second quarter.
We strategically realign facilities to focus on near term demand while at the same time replenishing inventories to allow us to meet the future product demand.
While the majority of our folks has been on the short term initiatives are mid in long term programs are receiving folks as well.
Our third initiative is product innovation and differentiation.
We made solid progress during the quarter delivering new products to the marketplace.
Oh I'd like to first highlight the Firebird Sci fusion system.
In June we announced FTA clearance and the first patient implant for the Firebird aside fusion system.
Designed to compressive stabilized secretly act or S. I joined turning fusion.
<unk> fusion system is a three D printing bones crew with nanos surface technology and currently launching in the U S for treatment of Sci joint dysfunction.
The new system is another example of our commitment to providing innovation solutions and options that compliment are growing product and procedure solutions portfolio.
This is just one of our upcoming product launches slated for this year's NASS conference in early October.
Well, a virtual conference and setting will be a unique opportunity we intend to use this event to launch a number of new products across the spine portfolio.
Our new product innovation processing team are still developing but as you can see we're starting to gain traction as our entire spine team is focused on building our portfolio with innovation products and procedures.
We plan to use the NASS conference to further showcase this progress.
Moving on we continue to make could early progress with football.
While we're still in the process of integrating the acquisition building inventory and gaining additional regulatory clearances. The U S. We are quickly delivered results by adding new surgeon users and bringing on new distribution partners.
As we think about building out high volume surgical <unk> solution portfolios.
One area of focus is the development of a market, leading limb reconstruction and deformity correction offering.
It's not every deformity as a candidate for external fixation, where folks are offering both internal and external correction solutions.
We made early progress towards this with fit bone and now we're adding Judy ortho plating systems.
Which received FTA clearance and CE marketing just recently.
[noise] innovative internal fixation system is designed to address that demands of advanced deformity and trauma reconstruction of the lower extremities, specifically for pediatric patients.
The junior Ortho plating system is complemented by a preoperative planning software that assist an implant selection prior to the surgical procedure.
This unique platform enables the surgeon to actually planned the osteotomy position to visualize the implant in relationship to the anatomy.
This agent a selection of the size of the device to ensure the best fit in optimal positioning for the patient's body.
The Judy Ortho software is currently available in Europe, and the U S release as planned for later this year.
The Judy North of playing system represents our continued commitment to advancing pediatric orthopedics by providing surgeons the devices they need to treat even the smallest patients.
A targeted launch will begin in the U S. During the third quarter of 2020.
Our fourth and final initiative is our commercial channel development.
We continue to focus on adding in developing long term strategic partners.
And during the quarter, if we continue to expand training and product knowledge with over 1000 surgeon representative training sessions.
There were over 90 events during the second quarter of 2020 to fill associate sales training.
In order to continue to support are physicians and distributor partners. We have started using remote case preparation in some instances without a change in service level.
As I mentioned earlier, there were over 75, new <unk> physicians trained in the quarter, we will continue to enhance and utilize R. Virtual training platform into the future.
So in summary, we're very proud of our second quarter performance, which highlights the teams efforts and initiatives throughout our organization as well as the growing demand for our evolving portfolio products in the marketplace.
While coven 19 creates at level of uncertainty and looking forward we of work to solidify our foundation.
Spanned our talent.
Execute on a strategic initiatives.
Build a winning culture and position aurthur fixed for long term success.
With that I'll know hand over the call to dogs for further commentary on our financial performance Doug.
Thanks, John.
Provide additional details into our net sales and earnings result, and then discuss some of our other financial measures. Many of the financial measures covered in today's call or on a non gap basis. Please also refer to today's earnings release for further information regarding our non gap reconciliations and disclosures.
John Notre total net sales for the quarter was $73 $1 million down 37% on Ah reported basis and constant currently basis, when compared to the second quarter of 2019.
Gross margin and the second quarter, 2020 was 68% compared to 78% and the prior year period.
[noise] primary driver of this decrease was lower fixed cost absorption as well as the recognition of non-cash inventory reserves, both due to lower revenue from the Cove it impact.
Is procedure volumes rebounds, and revenue increases, we expect gross margins to approach historical levels.
Sales and marketing expenses were 59% of net sales and the second quarter 2020 up from 49% and the second quarter of 2019.
This increase was primarily a result of the loss of leverage from lower revenue in the quarter and commission support for a direct sales reps.
As we noted last quarter. This deleverage was partially offset by a near term expense savings initiatives.
<unk> expenses were 21% of net sales and the second quarter of 2020 up from 19% in the prior year period. This increase as a percentage of net sales was due to deleverage from lower revenue in the quarter.
This was offset by a step down on strategic initiatives spending and lower succession and transition related expenses and the quarter as well as our short term expense savings actions, which included salary reductions travel restrictions and a significant slowdown in hiring.
On a sequential dollar basis G&A decreased by two $8 million or approximately 16% is a direct result of our short term savings initiatives. We expect to keep some of these initiatives in place until we approach normal levels of net sales.
R&D expenses for the second quarter, where 12% of net sales up from 8% in the prior year period.
Since on one dollar basis or R&D expenses were approximately flat year over year. This percentage increase is primarily due to lower revenue in the quarter.
<unk> increase spending related to the fifth bone acquisition then.
And integration as well as additional spending on improvements in our quality systems and regulatory functions.
This was offset by lower clinical study expenses due to patients postponing an office follow up appointments.
Interest expense and other income for the quarter was for 2 million.
Up from $200000 in the second quarter of 2019, although we did incur $500000 in interest expense during the quarter from our bank borrowings. This was more than offset by four $7 million of income from the department of health and human services as part of the care Zach benefits.
<unk> decreased to negative 5694 negative 8% of revenue down from 17 $3 million or 15% of revenue on the second quarter of 2019, a significant portion of this deleverage was due to the lower sales from the impact of Cove.
And the remainder due to planned investments, partially offset by the short term expense savings actions mentioned earlier.
I would like to point out that we recognize the two $1 million non-cash expense in the quarter related to the increased fair value of the liability related to the two remaining spinal kinetics milestone payments.
Although this calculation was performed at the end of June we expect that they're fair value of this liability will continue to increase as we get closer to the expected milestone payment dates predicated on electric procedure volume staying at or above current levels.
Now turning to tax we had gap income tax expense for the quarter.
Negative 9% of income before taxes, or one $5 million as compared to gap income tax expense of 181% of income before taxes and the same period of 2019 to primary factors affecting our effective tax rates for the second quarter of 2024, the financial expenses not recognized for tax purposes.
Related to acquisition related Remeasurement as well as refinement of our estimate related to possible loss carry bags under the cares Act.
For a non gap results. We will continue to use 27% is are adjusted effective long term tax rate, which normalizes for acquisition related expenses and certain law changes.
For the second quarter 2020, we reported a gap loss of 96 per diluted sure as compared to a loss of three per sure on the second quarter of 2019.
After adjusting for certain items and when normalizing for tax using a non gap long term effective tax rate adjusted EPS for the second quarter of 2020 was a loss of 59.
Compared to earnings of 28, and the second quarter of 2019.
As with adjusted EBITDA, a significant portion of this decline over the prior year for the second quarter.
Was due to the lower sales from the impact of Coke and the remainder due to the plan investments related to our strategic focus areas offset by the short term expense savings we had mentioned.
Moving onto the balance sheet highlights day's sales outstanding are Dsos, where 84 days at the end of the second quarter 2020 from 63 days at the end of the second quarter of 2019. This increase was primarily due to lower revenue in the period.
Accounts receivable balance in the quarter went down 10 $4 million sequentially from Q1, 2020 and gives us comfort that we were able to continue to collect from our customers.
Our inventory turns at the end of the second quarter 2020, or at one two times compared with one three times in the second quarter of 2019.
Regarding cash cash equivalents and restricted cash we maintained a strong liquidity position with $173 million at the end of the second quarter 2020, compared to $52 million at the end of the previous years second quarter note that this cash balance includes a second quarter $13 $9 million advanced payment from Medicare is part.
The cares act this advanced will be recouped by Medicare and Q3 Q for 2020 is we submit new Medicare claims for reimbursement.
Also is John mentioned earlier in July we repaid $50 million of the $100 million Bank borrowings that we took as a precaution and April.
Cash flow from operations for the second quarter, 2024, 17 $6 million up from $944 million from the second quarter 2019.
While we were positive in the quarter, we did receive $18 $5 million in relief as part of the cares Act during the second quarter 2020 is the Medicare advanced payment has settled throughout the third and fourth quarters, they will reduce our cash flow from operations.
Are working capital and the second quarter fours also bolstered by lower commission payments as well as collections outpacing billings.
Capital expenditures were down on the quarter to four $4 million from five $4 million in the prior year period due to reduce spending on the remodel of our facilities and a reduction from our near term cash savings initiatives previously mentioned.
Free cash flow, which we define is cash flow from operations minus capital expenditures was in inflow of 13 $2 million during the quarter. This was up from an inflow of $4 million in the second quarter last year.
Lastly, I'd like to think all of the employees and sales partners aborts effects for executing everything from getting patients products on time every time to making sure. Our facilities are safe at all times. This pandemic has had a deep impact, but our team delivered impressive results during the quarter I I'm very grateful to work with such a dedicated team of people.
I will now turn the call back over to John.
Thanks, Doug.
Before discussing our outlook on the remainder of the year.
I want to comment on the upcoming FDA orthopedic and rehabilitation device panel Advisory Committee meeting, which has been rescheduled for September 8th 2020.
Our position on this has not changed and we believe along with the other manufacturers bgs devices that maintaining class three status is in the best interest of patients prescribing physicians compares can insurers that continued safety and efficacy of the device therapy.
Well, we believe our best in class bone growth therapy products will continue to remain a class re device should this get downgraded to a class too with special conditions. We believe based on our experienced that players and surgeons, who would require any new entrant to the marketplace to provide robust safety.
See clinical data proven technology and device efficacy, a clear reimbursement plan and exceptional service and support.
As we shift or outlook to the remainder of 2020.
The scope and duration of Cove at 19 pandemic and the timing of the global recovery remains uncertain and as a result, we will not be providing forward looking guidance at this time.
Despite the uncertainty the situation we continue to believe that the second quarter will be our worst quarter of the year.
We are seeing positive trends in the July business, as we noted which points to recovery and electric procedures.
We are optimistic about the pace in general timing of the recovery. We are aware that it is too early to constantly predict our business in the near term.
However, the global recovery planes out we are operationally and commercially ready to meet the needs of our hospitals and searching customers and we will continue to monitor the situation closely.
During the cold at 19 disruption, we have maximized strategic and structural improvements and it continued to execute operationally to set up our organization to emerge more successfully and ready for the future.
Or long term view on the underlying dynamics of the spine an extreme margaret's remained bullish.
And unchanged as a result of the pandemic.
Oh, there'll be volatility and uncertainty in the near term.
Patients will continue to require surgical intervention to improve their lives and we will be there to help surgeons meet those patient needs.
Thanks to everyone in or the fix and all the healthcare provider's around the world working to solve this challenge.
With that I would know like to open the line for questions.
Alright.
Click Apple.
Alright.
Telephone.
Okay. It has been.
Yeah first question.
With Jeffrey.
Hi, This is Zach entourage just a few for US you mentioned sequential recovery on a procedural basis do July.
How much of this recovery.
Backlog in that how much.
Rescheduled procedures.
Hi, Thanks for the question.
That is a difficult one answer at this point in time cleared there was a backlog, but we saw business continuity through those periods of time and we did clear good backlog at Pier time, we don't know if there is X percent at left right out in the marketplace, but we'll tell over the next month's what's left far but while we're on the continuity now procedures more so than ball.
We believe.
Okay.
And then.
All of your sales Rep spin.
Interacting with surgeons in three Dakota pandemic, and how do you think that interaction walks moving forward.
Get some semblance of normalcy here.
As I mentioned the prepared remarks.
We flipped very quickly to virtual interactions not only in training official training, but also in and how we ran sales calls in the such a good news it surgeons when they're not operator, not seeing patients. They have time to talk to you and so.
Significant advantage of that.
And will continue to use those measures going forward, but nothing replaces the interaction of face to face.
As far as detailing the.
The attributes and that positive nature of your products and also building was relationships but.
Get back to the traditional methods and many locations, but will continue to use the virtual technologies as well.
Okay, Great and then one last long just don't margin.
Gross margin as you mentioned.
And you said that.
It should recover to historical hours give any more detail.
The timeline or that recovery.
Fluid, but just curious if you can throw add more detailed there.
It's hard to say when the recovery will happen.
Question.
But as we approach those historical rates are cause the margins should returned to to our historical levels.
We hope sooner, obviously like everybody else.
Just as a reminder, until that happens.
On our last call we did.
Guide or at least provide some insight into what are fixed variable mix was on some of the line items like Cogs in sales and marketing so happy to help.
And that way as well.
Perfect. Thank you.
Thank you.
And your next question Telecom Jeffrey Cohen.
Oh, Hi, how are we will.
Hello, Jeopardy Mariota, Jeff.
Great. So just a couple quick ones for me so it looks like you had some.
Good velocity coming out of the quarter.
Cottonwood Circle July.
Again that that continues so.
These are good confidence into into August or at this point you are still kind of someone at the mercy of the.
The hospital as far as openings and access.
Wow.
Yes, Jeff that's we are the volatility marketplaces regionally.
At territory is going to open up or have a flare up we've actually through.
Florida, Texas, and California continue to see elected cases gallant, even assisi heightened cases, there. So we're really at the.
Mercy the elective procedures that you want to say, but yeah. During the day, we continue to operate and executing this and we're saying good lift and patients.
<unk> and even though sometimes they call them electric procedures spine cases are not always elective and surgeons are trading those patients when they need care.
Okay got it and then.
Just one other quick question for me on the.
The the cash in the desk. So subsequent check you too.
Take the 50 also 123 ish.
Because you're repaid 50 and then.
50 on the Cat and then you've got the.
The 13th of Medicare that should come off and the third quarter peeled off third quarter.
Right.
Yep, that's the right way to look at Jeff, except it'll kill off and Q3 Q for that but by the end of the year, we expect it to Ya.
Be down to zero.
Okay perfect.
That does it for me looking forward to some of the the last day, though thanks again.
Thank you.
And your next question comes from the Lions Zimmerman with me.
Hi, This is actually Max on for Iron This morning.
Just wanted to follow up on cash for a little bit I was impressed by the positive cash on the quota it seems like based on your decision to repay.
$100 million revolving credit facility that sounds pretty good about your ability to generate some positive positive cash flow and just I'm moving forward, but just given that positive cash flow looking at maybe accelerating some investments and R&D and being a bit more aggressive in terms of.
<unk> Junior sales reps, then maybe you would've expected to be a few months ago.
Yes, it ticket question Matt.
Answer some of the numbers questions and then turn it over to John in terms of outlook, but with regards to operating cash flow we did count.
Money.
Roughly $18 million.
As income that it positively impacted operating cash flow.
But we expect to have a negative burn.
As I said, a second ago as we pay is Medicare recoups.
Roughly $14 million of advanced payments that that we got in April so that will put negative pressure on our cash flow and Q3 Q for I'd say overall.
That we continue to be cautiously optimistic and we'll.
Take our foot off the break in <unk>.
Invest in the areas where.
We feel like we need to grow.
Invest in our topline so.
With that setup I'll, let John Madden that were continued incredibly disciplined Mitsui told you in February we're transitioning the business and we have a key focus areas of invest investment R&D being one of them, we've not taken our foot off that investment where we need to come out of this at this culvert activity and be poised.
Accelerate in the marketplace, and we're doing that and you'll see that as far as with the Firebird ESI <unk> and then as we come into Nash, you'll see more results of that activity and we're looking forward to that but we continue to invest in a very disciplined way and we think it's a good time to be doing that.
As we work through this transition.
Got it it's really helpful. Thank you for that commentary and then just a couple of follow ups here. So obviously you put up another nice quarter.
And six desk and I know you previously guided at 15 to $17 and 2023 Cove, it but I think you're already.
Seven $9 for the first half of the year, just trying to get a sense of why you think that's thinking go in the back half of the year.
Like the 15 to 17 range might still might actually be in play and then can you just have the potential market for the product.
And when that.
Revenue <unk> might go over the next couple of years I know, it's hard to say right now it's covered by any commentary that would be appreciated.
So as you heard the commentary, we're very bullish on the M six and the challenges just.
The dynamics of the marketplace and if we get slowed a month and it takes off.
Extra long haul, but we are pause about what we're going.
<unk> seen it continue to grow through covered and we continue to invest.
We train is we've talked about 75 additional surgeons and they brought an incremental approximately $1 million in that and that quarter and so we continue to execute on that what the overall marketers there's different points out there. If it's right now so it over $200 million market and we can we will get our portion of that sure and that's our focus to go out and get short Sharon This <unk>.
Space.
Got it. Thank you and then last time for me.
Alright.
And just kind of gone back to you first quarter.
Alright, any chance happen then more recently darrington investor conferences in May and June I think you're more optimistic investor compensating mancienne, calling it.
On the primary chivers of them over the next six to 12 months, whereas on the French quarter Orange.
I made some comments around not expecting the product imitating contribute takes remedies Newtown I'm just trying to reconcile those two comments a little bit is there something specific that you saw it may be made you where do you think the near Tampa potential for Hipbone or is it always kind of in the case that you viewed it as Maine.
Drive over the next six to 12 months.
Football doesn't have it was an asset that we wanted and our portfolio a product that basically not only got fit bummed that fit spine and so it was it was a key strategic acquisition for us.
We knew they are going to be activities to transition that business into the U S. As a product in the U S for fit down and so we're making those transitions I highlighted my prepared remarks, we're continuing to invest we're on track and we're seeing traction, especially in Europe as far as that goes but are we were very modest in our projections for the first year of football as we did.
[noise] transition, but the integrations is on track.
Great. Thank you.
Your next question comes from Jim Sidoti Sidoti.
Good morning, glad to hear you're mistaken challenge.
In Dallas, a couple of quick ones.
To be M. Six sales you reported that you're USL, we remember correct.
That's correct.
$6 million.
Correct, Yes, that's right Yep.
Okay I just wanted to make sure I heard you correctly September typically.
No doubt sequentially from the June quarter, but this year is hardly.
So you're saying September sales.
[noise] will likely to be up sequentially.
Alright.
Q3 based on what we've seen so far in July will turn above Q too.
<unk>.
J O clock part about Jim the hard part about this year is it typically there's vacations and activities had gone in July and August and we don't see those who I'm talking to the physicians that are <unk>.
Surgeons, we're talking to so that's a hardwood to predict year on year direction Appaloosa J Q3 Q for.
Being ahead of Q too.
Okay, and then the tax charge and the quarter can you just.
Tell me again, what that was four.
But over now at this point.
Reconciliation process.
Right.
Overall for the year, we're going to have a gap tax benefit.
Based on the significance of the.
[noise] tax reserves, but we were able to releases statutes.
Expired, but with regards to the quarter itself and cue to what we saw was the reversal of someday items that we had anticipated.
From some of the congressional relief.
At the end of the first quarter was reversed with regards to Los carry box and so we have two.
Take a different positioning and catch the books up on a year to date basis for that change.
Okay, Alright, and then.
John you talked a little bit about.
Classification for stimulation products.
Did you say one you expected FTA decision.
Happen.
Well the panel meeting is on September the eighth and typically the process. There is that the panel I'll make recommendations the FTA and then they they take it back and make that final decision. So we don't know the exact timeframe. We know the panel will make a decision on September the eighth but what the FDA does with that is unclear.
In their hands at that point in time.
Let's say that the the device does get.
Gal classifieds.
How long do you think it would take for new players to conduct studies get products into the into the marketplace.
So on this this particular panels, it's different X oftentimes people are asking for a reclassification.
A company that comes in and watch it down classification. This is purely FDA administrative activity. There is no one actually no company out they're asking for this kind of Bgs coalition is asking for them to maintain class three because of all the reasons <unk> highlighted so we don't know if there's any even even anybody out there would take advantage of it right now.
Okay.
Okay.
Even if theoretically it was down classified it sounds like it would be.
Months, if not years before any new players got into the space.
Yeah someone someone would have to run clinical trials set up their contracts set up their reimbursement at all and so.
Even though the 500 10-K with special controls are special considerations.
That is typically now require clinical data.
Everyone I've seen so far is required clinical data so someone would have to competition FDA and then run a clinical stopped clinical study and then basically present that the FTA.
For the it'd be more like years in that regard then shorter periods of time.
Okay and the last one for me.
Have a significant.
In Europe.
Can you just characterize how you see the recovery, they're relatively probably here in the U S are things.
Several months ahead do you think they argue in U S.
Jimmy have to look at it country by country I mean, if you look at areas that.
Scandinavian in the Nordic countries there ahead.
Italy is doing well.
Germany is doing well and what it comes down to is it. The UK is not in the UK still very slow because they've had their slower and slower to have the culvert impact them.
And so if you look at it kind of you like country, but by and large they're they're heading back the business and heading back to a lifestyle.
That they.
Adapting to Cove it of course, but they are back to their daily lives.
Alright, alright, thank you.
Thank you Tim Thank you Jim.
And I am showing no further questions at this time I would ask to turn the conference back to John surface day.
Thanks, operator, we appreciate everyone's time.
Taking your time. This morning, we look forward to updating you on our progress that our next quarterly call have a great day.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
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