Q4 2020 Misonix Inc Earnings Call

That's great.

Please standby.

Okay. That's what my son next fourth quarter fiscal year 2020 earnings call. Today's conference is being recorded at this time next turn to cover so works.

<unk> Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone. Thank you for John even like Onyx fiscal 2024th quarter Conference call.

Well, that's starting to just a minute management's comments, but before doing so well be taking on its always the safe Harbor language.

They it's called the webcast shipping or looking statements.

The safe Harbor provision.

That's probably Securities Litigation Reform Act with 1990.

Can be identified by words, such as cancer to pay elite estimate expect future likely nature.

Ill and other similar buffer stage to future periods.

Examples of forward looking statements include statements regarding guidance and the leading <unk> financial results.

Forward looking statements are neither historical fact, small shops or future performance.

Because forward looking statements relate to the teacher they are subject to inherent uncertainties, that's going to changes in circumstances.

Therefore, you should not only were like.

You should not like many of these forward looking statements in the company undertakes no obligation to publicly update any forward looking statements that may be made from time to time.

We have resulted mainly from the <unk> future developments cost wise.

Thanks, Collyn what counts will include non-GAAP financial measures within the meaning of the FCC regulation G.

Require a reconciliation of all non-GAAP financial measures.

Most directly comparable financial measures calculated on a percentage and of course with gap.

Can be found in today's press release as was in the company's website.

With that I like to turn the call over to Mr. stop girls gets really Americas, President and CEO. My Sonics. Please go ahead.

Thank you the board Saar and good afternoon, everyone. Thank you for joining us on the call today to review our fiscal 2024 quarterly and full year results. Joining me on the call is charged while not chief financial Officer.

Before commenting on our recent performance I want to the type of opportunity to thank our employees for their dedication and exceptional work, that's going above and beyond to ensure that must sonics continues to operate effectively and providing the highest level of customer service and support at healthcare practitioners and patients under the most chat.

And you got circumstances since March of this year.

Just a quick look at our financial results on a pro forma by just accounting for the full since acquisition total revenue.

Go fourth quarter, 2020 decreased 21.6% well Finfets School 2020 pro forma revenue increased 8.6 per stage, that's led to a net loss for the fourth quarter 20, 28.5 million or lots of 50 cents per diluted share at a net loss of 17.4 million for fiscal 2000.

20 or loss of $1.19 per diluted share.

Despite the significant headwinds during the second part about fiscal year and many difficult decisions. We've got to Mike. We're pleased with our ability to react quickly and effectively and what the results. We've had as you work our way through these challenging talks.

Given the cut out buzzing with an added detail, let me begin with the wind division.

Very early on in a pandemic I Wouldnt division sales were significantly impacted at most prestigious were viewed as elective.

That's such hospitals, where many patients billing kit, while most outpatient facilities, where a great number when kids love treat chips were closed however, doctor who provide as quickly realized that many of these wins, especially chronic wounds well, becoming more serious admitting patients to be treated in the operating room that in some cases.

Leaving haven't even having to I'm the guy mutations.

Look to many hospitals reversing that positions as one of an increasing number of physicians treating patients and their office.

As such we had a significant rebounded I wouldn't division during the fiscal fourth quarter as reflected in revenues recovering to approximately 90% of quite yet.

We have experienced some cobot vantiv related disruption in case volumes in specific markets, such as Florida, and Texas During July and August which were less impacted during the early stages of covered my team.

We believe that we will continue to see pockets of disruption as the pandemic moves around for the next six months, but remain confident that the long term opportunities we have to further grow our business continued to be there.

We have used these past few months, that's constructively as possible engaging with physician employees hospitals are mostly through burchill technologies and we're in the process of launching two new products. The first is very are which is of amniotic membrane allograph manufactured by our popular require a lot.

We will also soon be bringing to market. The CTX program. The first new products under the mix of platform.

Your next we'll provide surgeons with both the why the surface area to bleed as well as Boston overall, the breed meant that we expect will help creates an even faster adoption of makes us. It is important to note that gtx.

I'm just compatible with the mix was platform and not our legacy consoles.

We're also close to announcing a distribution deal with a significant part the from abroad in that the backdrop to remain so there are a lot of good things happening and I wouldn't business.

As it relates to our surgical division, we experienced a decline of almost 52% in international file for the quarter. Almost every market was impacted and although we still some improvement in July we believe that international sales will take a look longer to recover and will come and we will continue to monitor that very close.

Good.

Domestic surgical sales declined dramatically April often exceptional first start to 2020.

On the back of the mix those commercial launch although domestic surgical sales declined 21% for the quarter. The division returned to growth by the end of June as surgical procedures continued the rebound.

Postop fiscal Q4 would seem good momentum on the surgical business improving at an even faster write them to win business. That's largely the result of the increase profitability for health care providers inherited many of the spot to Europe procedures, we address within our surgical division.

As one of the continued strong adoption of mix us.

With set a goal of pricing 150 mixes units and we're pleased to report that we exceeded that number.

Moving to the opportunity the mass surgical division.

We have a very strong talk long for Nexus and we'll focus our efforts on leveraging these opportunities to significantly grow and expand the mix its footprint for body in the foundation, each a hand piece than disposable probe styles as well as cross selling opportunities and new product placements. The first of the products in the surgical division will launch later.

And Kevin the Twentytwenty and will be the macros, it's good to be solution to address micro decompression mica deep.

Correct.

Procedures realized if any added desks.

In addition, we see many of the list of complex spine procedures moving to that you like to treat surgical center, providing an opportunity for us to aggressively target a fees as opposed to cause that 19 environment locked incentivize positions to move these procedures out of the hospitals.

Yes continued about dialogue with potential partners, an acquisition targets throughout the pandemic GE evaluate adjacent and complementary technologies.

Going forward as we've done on the wound front, we have to be able to shift some of these updates with you in the near future.

From a supply China industry perspective, we have worked diligently to expand them de risk our supply chain, bringing in additional partners and supplies that we are confident will help will help mckee guys any future challenges to the supply chain and making sure. We have deal then the for each product.

In addition, real strategic you built up inventory levels of the mix was called installed as well as the hand pieces and disposables to best meet the growing demand, we expect in future quarters.

Moving onto our sales resources, we have used these past few months to further the trading about direct sales team via online tutorials surgical setting an all and other initiatives that provide valuable information and feedback to both position and our sales team across surgical endless.

Looking ahead, we expect to once again expand sales forces as we restart the hiring process in the coming months.

On the clinical front, we are happy to announce that we have resumed enrollment in our randomized controlled trial for diabetic foot ulcers and hope to have the significant and valuable study completed by the end of the calendar year.

As it relates to our financial position, which John will offer added detail I wanted to highlight that we've taken a number of initiative and put forth stringent controls to ensure we maintained a strong cash position in order to manage through the unprecedented environment and that we're at a healthy position financially.

<unk> million dollars them cash we have the means to adequately support I mean based in the business.

Did across our initiatives to gain added operational efficiency.

Improve inventory and procurement management.

Further our Salesforce training and development or continue investing in critically important research and new product development.

Thats during these past few months of unprecedented volatility and disruption have been largely successful and have not only allowed us to overcome these highly uncertain times, but perhaps more importantly have placed must sonics than the position that added strength and improved our ability to leverage the opportunities ahead of us in the near Med.

And long term.

In closing, we remain confident that the value propositions that consignment model brings to the health care facilities and practitioners as I need to become more attractive and relevant given the constrained budget that many health care providers are experiencing in particular regarding capital equipment expenditures and access to hospital facilities.

Consigning Nexus of offering world flaw, some industry, leading solutions for wound spine in Europe, we bring a very compelling offering to the table.

And that is likely to be a change business and operating environment post cause of non team.

Well, that's odd lots and lots of the full areva QST it barge O'dwyer Joe.

Starbucks and good afternoon, everyone.

Taking a look at our financial results fourth quarter revenue increased 40.6% to $13.7 million compared to $9.8 million into fourth quarter fiscal 2018.

On a pro forma basis, assuming we had acquired 12 says for the full fourth quarter of 2018.

Total revenue for the fourth quarter of 2020 decreased 21.6% driven pivoting by a pro forma domestic revenue declined 13.6% and international revenue decline of 52.6%.

For the full year fiscal 2028.

Revenue increased by 60.8% to $62.5 billion.

Compared with 38.8 million in fiscal 2018.

Had a pro forma basis revenue for fiscal 2020 increased.

8.6%, which include pro forma domestic revenue growth of 15.3% upside offset by an international revenue decline.

The 12.2%.

I'm pleased to report topline growth was achieved while maintaining healthy margins.

The gross margin.

Percentage on sales for the fourth quarter coming in at 68.8% compared with 69.6% in the fourth quarter of last year.

For the full year gross margin was 70.0 per cent compared with 70.2% in fiscal 2019.

Operating expenses increased $7.8 million during the fourth quarter of Twentytwenty.

As compared with the fourth quarter of 2019 and increased by 28.4 million.

For the full year, primarily reflecting the acquisition of Solstas.

And the fourth quarter sales and marketing expenses were $11.6 billion compared with 4.4 million in the prior year period, primarily reflecting the acquisition of Salsas. In addition to a 2.2 billion dollar bad debt charge, we took during the quarter to reserve for exposure of our China.

These accounts receivable.

On a sequential basis without the bad debt reserve, we were able to lower sales and marketing expenses by over $2.2 million or 19%, reflecting the various cost cutting initiatives implemented during the past few months.

DNA costs were down at a quarterly sequential basis by about $300000 or 70%.

As we are R&D expenses, which fell by $629000 or 34% compared with our third quarter.

Hi sequential basis before the bad debt reserve and also please.

Our ability to realign our overhead structure, resulting in operating costs during the fourth quarter dirt decreasing.

$3.1 million or 17.6% from the third quarter fiscal 2020.

Reflecting the various cost savings initiatives, we implemented.

Including reductions in salary and headcount TNT marketing activities discretionary spending along with a number of other overhead reductions.

This led to a net loss of $8.5 billion or 50 cents per share compared with the that loss of $2.3 million 25.

Thats per share in the prior year period.

We reported a Q4 adjusted EBITDA loss of $3.4 million compared with an adjusted EBITDA gain of approximately $220000 in the prior year period.

And an adjusted EBITDA loss of $3.8 billion in the prior quarter.

We're pleased that we're able to improve adjusted EBITDA in a difficult revenue quarter.

[noise] moving on to cash flow in the balance sheet.

We had $38 million in cash at June Thirtyth, largely as a result of gross proceeds of $34.6 million related to the equity offering we completed at the end of January 2020.

We ended Q4 with approximately $44 million in debt and we're in compliance with all of our debt covenants.

Working capital.

As of June Thirtyth was $47.4 million compared with $55.2 million at March 31, 2020.

Cash used in operations for the fourth quarter was $5.4 million compared with $70.9 million, we used in the third quarter and $8 million, we used in the second quarter fiscal 2020.

In the fourth quarter cash used in operations consisted of $4.5 billion.

For the that laws that less than cash items and $900000 for working capital.

The sequential quarterly increase in inventory of $1.1 million was strategically made to increase inventory levels. So that we are ready to.

Due to an acceleration in demand a procedural volume is anticipated to take place at the pit pandemics inside.

Regarding guidance, given the continued uncertainty and volatility in both buyer because we operate.

And across the economy at large we feel it's prudent not to provide specific guidance at this time.

In closing, we have taken meaningful steps to maintain our financial flexibility, while continuing to support the growth of the business in positioning like statics to operate more efficiently going forward, regardless of the operating environment.

The ongoing uncertainty.

We believe that were extremely well positioned to capture market share and despite the ongoing uncertainties remain excited about the future that life like trying to call over the operator for questions.

Thank you.

I'd like to ask a question basic know by pressing star one on your telephone keypad choosing a speaker phone. Please make sure. Your mute function has turned off till last lottery try equipment.

Star one to ask a question.

Well take our first question, Dave from Kyle Rose with Canaccord.

Great I'm, hoping you can hear me all right it sounds like we've got to.

Connection here.

I just wanted to follow up.

A little bit on Nexus it sounds like you exceeded 150 units as far as the first year, maybe help us understand where those are really getting place any of the competitive accounts is it going deeper into existing Bonescalpel. Sonastar accounts are you seeing then more from a euro or an auto or wound care side just public.

Characterize where that business is now and how we should think about that over the course. The next 12 months then I have one follow up.

Sure I'll call Hot.

In terms of Nexus music E 150 units that was really a combination of.

Upgrade accounts and new accounts committed Tom if we had to categorize that.

You know the biggest guidance, obviously come with a bonescalpel spot, but roughly 15% of the placements included the sale of Nomura and B. So you know we supposed to be achieved our goal to get a 15% penetration on the mix of sides on euro during the first yet.

Plot in remains very robust going forward, so you're not for the new yet it's in excess of 150 units as we stand right now.

We're not going to give specific guidance on it but it's it's even stronger than it was in the prior yet and I will say that we were expecting more momentum on the euro side of things to continue as well as as we.

In a row lot more thoughts.

Great and then.

The other question if I understand.

Yes, certainly in the hesitancy to provide guidance, particularly for the long term perspective, maybe just help investors understand.

We are 10 weeks or.

We ended the quarter.

A couple of understand how the trends look to over the course of of July and into August.

And then you also talked a bit about distribution agreements and business development activity, both on a wound and.

On the orthopedic side or the surgical side.

How should we think about potential contribution of any types of a of agreements, particularly over the course, the next 12 months.

Yes, I think if we have to starting on the surgical slots.

You're hoping to announce a distribution agreement scene and that's going to be on a complementary product on the nearest side of things, obviously, that's a difficult environment to launch new product, but we're going to take this opportunity to get the salesforce trained up.

You know just.

Just fully but did the sales process in the coming months and then.

In a position in the new Yeah, you calendar, yet you provide guidance from a revenue perspective, but I think you could add single digits.

To to the style side in terms of the Euro Ed on the inside it. It's an interesting one incident xenograft Spice a guy will probably be launched formally in the beginning of the calendar year, we'll probably use the last quarter of this year to fit the sales process in the market.

I think the focus there will be more squarely on the award that as the market that we are guiding often with the xenon product but.

That we should have more details and be able to shipments in the coming weeks, it's it's pretty imminent.

Great. Thanks for taking the questions.

Thank you Carl.

Next we'll hear from Ryan Zimmerman with B T H.

Hey, guys you're going after.

Hey, Radnet.

Great. Thank you.

So couple of questions from me and.

So that's one of the me, let me hand piece by both we've talked about it.

Little choppy, but I think callable CTX program tracking along there, but you know one.

When do you think about bringing that to market to kind of what impact cannot have what's the pace to launch a lot.

That's my first question and then and then I've a couple evolves.

Sure assessment CTX program in the process of launching luxury right now obviously this is dining conexus accounts.

So from a revenue perspective, it's not going to be significant stride out of the guide, but we think that distant guy and increases our presence in the alarm and as we start unit more aggressively going off to those bigger wounds, we see that product is having a lot of utility.

The the style forces also on the room side fully integrated and and selling wound debridement everybody's been cross trained and you know.

Has the expertise to sort of go into those cases and confidently.

Pull out the product and.

When I get the physicians to use them. So we think that Nexus is just the logical next step an upgrade from from a product perspective, yeah. We've seen a lot of do not positivity coming back from surgeons just in terms of a speed of use and the fact that you can do big area. So Lisa.

That is up a largely I'm test all cut on the degrees and difficult to quantify given all the disruption and the stopped starts as I said, what we found worried a little bit choppy and hasn't been as.

Steady as they define and in Europe business, where we've seen sequential improvements all the Tom.

So with alluded a little bit disrupted, but nonetheless big interest from from the physicians in the product.

Helpful helpful.

Joe you talked a little bit about Oh, let's say, we come back on.

Okay understand on a.

Your expectation for maybe reinvesting back from a business have you ever however.

What you may have pulled back on you know and you know what that does or doesn't do as it relates to your child's.

Interest in which I think cycles mentioned you expect to resume.

Enrollment here, but whilst I understand that's on the expense side and then also the impact.

Or the timing around Paris, and Charles Thank you.

[noise] taken out expenses we.

We've reduced across the board with the idea that we would take this kind of quarter by quarter basis and.

We have our own class and where we expect revenue to be if we find that we can exceed.

On the topline will start to invest back and probably probably start with sales headcount that will take and investing in sales and marketing engine.

We have kept.

I guess, a decent amount of money and the budget in the R&D side for these.

If you study that we have going on and we've got a number of other engineering projects.

On the I'm surgical site that we haven't development.

So ah so we still have a fairly robust budget, there, but and things like across the board and.

TNT and show at trade shows and things of that nature that lot of that's not happening anyway, but we're going to.

Okay keep that a lower and if it does start to come back than what we consider.

And that it.

Got it below you asked about.

There's.

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Well yeah on this terrorist and saw just run through a direct we're just saying you know that hundred patients a de if you study. We think is pretty significant it's obviously a big spend on you know those off in a child, which cost well over $2 million. We think that that is the evidence that it's really needed to get more cross.

Hi funded to reimburse for the full for the federal student product. So we're hoping that by the end of the year, we compete that study.

Enrollment just pasta, 50% markets as we speak and gaining momentum pretty rapidly obviously during the pandemic. We just thought it was prudent to.

Stopped to spend and also some hospitals and weeks into that were opened almost for on the unusual convenient you're not talking about in clinical trials of any thoughts I think things off on normalizing the and we'd hoping we brought on some additional slots for enrollment. So we're hoping that we can have that wrapped up by the end of this calendar year.

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Okay.

Our next question will come from Alex Nowak with Craig Hallum Capital Group.

Very good afternoon, everyone.

Carl's question here just in the prepared remarks, you said, we'll get back to I think you said, 90% acquired levels was that a June specific Carla and where that level God in July August and so far in September.

Yes, [laughter] isn't due in June that has basically if you would it we experienced significant.

Improvement from April I would say April Mark the low point.

Hey, we've seen a rapid improvement and June.

In the southern States as I said, Florida, Texas, We've got do not big chunks of business down there.

A lot about sales forces in the southern part of the country. So we did experience disruption in July and August we found the business to be choppy I think the reality is during the early part of the pandemic those markets were less affected so really able to show cost recovery in some instances you know.

This reduction in the Texas market and large parts of Florida at the beginning of a pandemic. So you know we see that coming back towards the latter part of August.

In September little bit early to tell but we're hopeful that United September will will continue to see the recovery, but we're also cognizant of the fact that has a thing moves around.

There is no different disruption by the week. So we think it'll take a couple of months, we haven't seen deciding trajectory in terms of improvement that we've seen on the surgical business. So you know wounds started in the United improving a lot quicker and then sort of plateauing out and bumping along getting better getting worse, whereas with surgical.

Really badly impacted a slow start to the recovery a big acceleration in June and that has continued from June you know all away through July and August and that's domestic that was talking about.

You know to your point that you made about yeah deferment of.

Well in procedures potentially leading to amputation, how much of the.

Improvement that you saw in June and July on the one side do you think with a backlog that just need to flush through and maybe to that point or the volumes that you're seeing in August and now the September would you categorize those as more organic meeting or not it's not a backlog. These are patients that need to get treated and they're getting too.

You did right now.

Yes, I would say that started spend is it's been in terms of wound down. So that you could classified as a as organic I think the reality is that you know if we looked at the surgical business. You know, there's if you draw the direct comparison between the two I think the there was definitely backlogs on on the surgical.

To work through and wind I would say is more organic it's just that you see the disruption in different regions more so than other places.

Okay got it and I know, we've been focusing so much here in the U.S. right now, but what are you seeing outside the U.S., obviously Europe is on summer holiday, so hard to engage there but.

Are you certainly see any signs that the recovery could be under way outside the U.S. as well.

No as I said.

The international business is a difficult one to quantify what we've seen as that capital equipment purchases have been significantly impacted and more than 60% of by international business is around capital equipment. So that is being impacted where we've seen green shoots is certainly on the disposable side of things.

Yeah, that's typically June as a very strong month for us from a sales perspective June was an extremely weak month from the international side. So if we look to the international business, we'd actually grown in the month of April size of the slowdown international sort of came off to the domestic slowdown I think that could have been distributors literally stocky mapping.

April nine what was going to happen in May and June I think we could have gone on holiday and that and the international dozens wouldn't have been affected our July came out and what was encouraging as most about distributors replaced award is better what sort of disposable options that tells us that you know surgeries coming back in the product so sticky.

No big capital equipment styles that was apparent throughout the world.

There was no much going on a nice side, there's been a.

A big them on the mix this.

No customers above is get heard about the success that we have it in the U.S. So there is pressure on asked to step up the launch of mix was on the international front as you're aware, we decided to launch makes us domestic in do very little on the international front, but I think that that is pent up demand. So we hoping that by the fourth calendar Q.

Water, we can start running makes us out into the international markets.

But we still think we're in for a couple more months of disruption depending on the countries that you're dealing with.

The disruption varies from being you know significant to a gradual recovery stub real real mobile in the next couple of months on that side.

Okay understood and then just one more if I could as we look at others space here. It does appear and you might be taking some share during the cold environment, Although it's hard to tell so what do you think that's true and.

Is there going to be it's trending well into the post over an environment that there's going to be consolidation or maybe standardization of wood products as its just harder for wraps from smaller organizations together these hospitals.

Yes, just to go one that likes to say with complete certainty what we can share with you as what we've seen in the all our which has been a a pretty seismic change in terms of excess before do another real issues with tissue, it's getting into the along.

I think as opposed to cover the world where people want to limit.

Footprints in the whole walk, it's very difficult if you're just studying tissue to get into the along the way. We've finding we're having success is by having the Friedman to that is the door opener to get out people into the along I think from from a cost perspective.

I think that is gonna be a consolidation in terms of products available on the shelf of surgeons to you we've seen hospitals literally.

Drilled down to every dollar that I spending right now generally the feeling was living products. If you within a certain ranged it was pretty much open hunting season in in a lot of a hospital systems, but what we see our Tyler that as people are really scrutinizing every dollar of cost I think the reality of hospitals have been really squeeze from the margin perspective.

So you know if you asked me I would say there is going to be some consolidation that happens down the road and from a problem and Oh arc perspective, but certainly more challenging than ever before to get beyond that red Lion and to get in there and then because to the position the Mets rafting, having an additional two lucked agreement.

You know could possibly help that's why we believe we stepped up the development process for the CTX program that was offered us new proud that came out because we see a lot of growth alongside of the boot business.

That's great really appreciate the update thank you.

Sure.

This concludes to coordinate portion of the call I'll turn it backs management for closing remarks.

Thank you operator, thank you everyone for spending time with US today, we appreciate your interest and support a block to once again extend a very special thank you to the Masonic team members for the contributions in making my son, It's a world class company in closing while the last few months have been extremely trying and the future remains cloud of uncertainty.

Bodies in the mid to long term effects of the cars at Monte and then it would believe that I go to market product line up sales resources, new product pipeline operational efficiency initiatives balance sheet and liquidity and I will tell him to the team we have assembled across the company will prepare us well to capitalize on the various opportunities ahead of us when it.

So to speak into again, when we report our fiscal 2021 first quarter results in the interim should you have any additional questions if you'd like to schedule a formal meeting with management. Please contact in the birds are Asha our investor relations firm JCR at up to 12358 500.

Thank you again and goodbye.

That does conclude today's conference. Thank you for participation you may now disconnect.

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