Q3 2020 NuVasive Inc Earnings Call

Greetings and welcome to the new bases incorporated third quarter 2020 earnings Conference call. At this time all participants are in listen only mode. A brief question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press Star then one on the telephone keypad as a reminder.

This call is being recorded.

I would now like to turn the conference over to your host Suzanne Hatcher, Vice President of internal and external affairs. Thank you you may begin.

Thank you welcome to Nuvasive third quarter 2020 earnings call. The Companys earnings release, which we issued earlier. This afternoon. It's posted on our website and have been filed on form 8-K with the Securities and Exchange Commission. We have also posted supplemental financial information on the IR web site to accompany our discussion.

We're going to begin with prepared remarks from our CEO, Chris Berry and see if all that hard, though then well open it up for Q1.

I'd like to remind you that discussions during today's call will include forward looking statements, which are based on current expectations and involve risks and uncertainties assumptions and other factors, which if they do not materialize or prove to be correct could cause the basis results to differ materially from those expressed or implied by such forward looking statements.

In particular, there are significant uncertainty around the duration and the impact of Kobe biking pandemic on the company's business operations and financials.

The comment I can pandemic continues to evolve and it is important to note that our commentary reflects our best estimates as of today's date.

I just felt with some uncertainties that may affect future results are described in the base, that's news releases and periodic filings with the Securities and Exchange Commission.

The base of assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.

This call will also include a discussion of several financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures include our cost of goods sold gross margin selling general and administrative expenses research and development expenses.

Operating margin non-GAAP earnings per share free cash flow and EBITDA.

Reconciliations to the most directly comparable GAAP financial measures maybe found in today's news release and the supplementary financial information, which are accessible from the Investor Relations section of Nuvasive website with that I would like to turn the call over to Chris.

Thank you Suzanne good afternoon, everyone and thank you for joining US hope everyone is well and remaining healthy during these times.

In the third quarter, we continued to make progress on our business financial and operational strategies, well, keeping safety of Nuvasive employees and customers like top priority.

Over the next few minutes I will discuss our third quarter performance and market trends that led to the company's returned to net sales growth year over year.

Then Matt will provide details on Q3 financial results. The Companys current cash position ensure initial thoughts on our fourth quarter outlook.

Nuvasive experience a faster than expected recovery from the impact of COVID-19.

Net sales of approximately $295 million, representing a growth of 1.5% on a reported basis.

And 1.2% on a constant currency basis from prior year.

These results were primarily driven by a strong international performance along with several spinal hardware product lines growing at high single digits or better.

Offsetting this growth is the clinical service businesses in certain legacy products the decline year over year.

Let me provide some additional commentary on quarterly trends.

As we track the recovery throughout Q3 month to month case volumes and results were relatively consistent indicating that market volatility has likely flatten.

While these trends are encouraging the market recovery still watch uniformity, which certainly best regions and across the globe.

Particular database the U.S. footprint in the northeast and southeast regions reached a steadier state more quickly what others lagging behind.

So for the case volumes in key international markets accelerated like Japan, and Germany in certain region that you well others like the UK, Spain in certain countries in Latin America continue recover at a much slower rate due to ongoing local COVID-19 impacts.

Also throughout the quarter, our clinical professional development team continue to pick up on how we deliver surgeon training to our current and new surgeon partners.

Early in the pandemic, we developed a suite of online training resources and over the last quarter started to ramp up regional and localized in person training labs closer to surgeons due to ongoing COVID-19 travel and safety concerns.

In the third quarter, the CPD and commercial teams completed about 30% more remote labs then in Q2.

In addition.

In person training and our surgeon experience center has increased during the past quarter and although we have not yet returned to pre cobot levels, we're seeing steady training events on a weekly basis.

In addition.

We are moving forward with our commitment to further research and development and clinical education with the planned opening up or East Coast experience Center next year.

Surgeons are excited about this new opportunity it'll be located near major transportation hubs facilitated convenient access where those traveling from domestic and international markets.

The team is constantly working with surgeons to best meet their training needs and they've done a great job given the circumstances over the past year.

I'd like to share an update on the poll system and post robotics development as well as the Companys innovation roadmap.

The engineering and development teams have made significant progress on Pauls, we still anticipate launching the platform next summer with revenues to be recognized in the back half of 2021.

I'm pleased with the team's accomplishments over the last quarter, including the successful completion.

The key technical milestones for the hardware and software components.

Overall, the platform development essentially complete.

We have now transitioned to integrating testing of the technologies, including Neuromonitoring Lyman assessment, <unk> patient specific rod bending navigation and our proprietary radiation reduction application lessray.

We continue to believe that an integrated system that combines multiple technologies to both meet and advance clinical needs, but also advancing enhanced workflow efficiencies will ultimately win in the market.

We are more confident than ever and our enabling technology strategy.

Another accomplishment over the last quarter has been surgeons resuming weekly hands on kinda Barrick labs of the post platform to validate integrated technologies and help enhanced surgical workflows.

Feedback on the technologies enhancements has been very positive with surgeons, citing that it's a one of a kind platform categorically advantage over whats on the market today with the navigation component exceeding your expectations.

As previously communicated we need to file a submission with the FDA given some of the recent hardware level updates.

Well, we've been working on the new F.D.A. submission. We also have been focused on dual track work on our CE, Mark submission, which creates potential for simultaneous launch of the pulse platform.

We had originally planned for a phase launch, but our current time and provides the opportunity for a broader launch.

But post development now largely completed and the platform insurgent testing resources have shifted back to developing pulse robotics impeller parallel with polls.

We've hired several robotic engineers build a key development leadership position and further build internal capabilities to advance new basins robotic program.

Our time on expectations for first in human use for pulse robotics in 2022 remains unchanged.

You can't be overstated that focusing on the successful launch of the pulse platform well.

Well it was an add on a false robotics applications is key to our long term, enabling technology strategy.

We believe the value proposition of an integrated platform procedure lies in spine surgery safer and more predictable outcomes.

With robotic capability resonates more than ever with surgeons and hospitals.

As we execute on our enabling technology roadmap and further proliferate the benefits of less invasive surgery. There are also several significant technologies, we plan to launch by year end.

First and foremost is the launch of our new cervical portfolio branded seed Threesixty. The C stands for cervical and 360 refers to the comprehensive procedurally integrated solutions to treat cervical generation trauma and deformity.

The seat Threesixty portfolio includes several new products with highly differentiated features an integrated best in class access.

Implants, and Syria, and post your fixation systems, enabling technologies and biologic materials into a procedural solution for cervical spine.

A key technology set to launch in December.

The anterior cervical plate system, featuring the dentists play currently on the market and designed to help reduce calm and post operative complications.

In 2021, we plan to launch a posterior cervical system with new instrumentation and implant options that seamlessly integrate with our market, leading relying broke lumbar system.

This includes your line cervical which will round out the C 360 portfolio and feature similar design principles of the current Reline system to provide a comp a complete cluster spine fixation solution.

With these additions to our portfolio, we believe our complex several spine surgery solutions would be the most comprehensive on the market.

The global cervical market opportunity of approximately $2.6 billion and at least its current share in the low single digits. There is a tremendous opportunity for growth ahead.

This new full line of surgical products also demonstrates new base its ongoing commitment to being a surgeon partner of choice in cervical.

And execution against our five year strategy.

In addition to the new surgical systems, we are furthering our advanced material science portfolio with the launch of Cohere excellent next month.

The first FDA cleared course peak in plant that will be brought to market for use in excellent.

In conjunction the company will introduce decoder excellent A.M. best play, which.

Which is low profile antenna migration played that allows for up to two points a fixation, an excellent surgeries and rounds out the advanced material science portfolio.

Recent clinical research studies.

I've been completed of course, peek interbodies, which demonstrate the efficacy of this first of its kind technology.

Further <unk> preclinical studies have shown that poor peak technology improves so in response with three times, the integrations straight smooth or titanium coated peek technology.

As well as durability.

Bijan capabilities and stiffness coal.

Oh here ex slippage yet. Another example of Nuvasive combining its expertise in lateral implant designed with a clinically validated poor surface technology.

Lastly, as the leader in less invasive lateral spine surgery and focused on procedural techniques that help improve patient outcomes nuvasive has been pioneering single position procedures in both lateral and prone patient positioning for many years.

Our global K.L. team started performing excellent prone cases in early 2010, and we continue to partner with our Kale else to further enhance the safety profile and reproducibility of this procedure.

Nuvasive is uniquely position to be able to offer comprehensive single position surgery for all levels patient anatomy and pathology. In addition to developing a robust education framework.

To apply these techniques to maximize both surgeon and patient benefits.

Regardless of which single position approach in procedures surgeons deployed excellent extra 60 excellent prone RTL posterior procedures nuvasive is well positioned to continue to lead in lateral surgery market.

As I wrap up my formal remarks, I'd like to emphasize that I'm encouraged by the faster recovery in the market and the more stable spine environment over the last several months.

Although remained unclear when creek cobot case volumes fully return, especially as we face a recent global resurgence of grown a virus leading to some governments reimposing locked down and health care facility restrictions. The management team is committed to executing our five year strategic plan.

We continue to maintain the same level of R&D investment, we budgeted for it being any of the year and are excited to launch a game changing technology and cervical and rpms portfolio over the next months.

With this ongoing commitment to innovation in 2021 were approximately 20, new Alpha and commercial launch is planned to support our position as an innovator in spine.

These new technology is directly aligned with our leveraging our leadership position and less invasive lateral surgery to drive increased share investing and penetrating favorable open markets and procedurally integrating with enabling technologies and less invasive in open surgery.

Real making solid headway on many commercial and operational initiatives, while maintaining rigor and discipline on expense management throughout the organization.

I'm confident in our long term plan and we continue to invest in key growth drivers of the company to create and drive shareholder value.

Thank you and I'd like to turn the call over to Matt to discuss the company's financials.

Thanks, Chris and good afternoon, everyone.

Get started let me remind you that many of the financial measures covered in today's call are on a non-GAAP basis unless noted otherwise please.

Please refer to today's earnings release as well as the supplemental financial information on Www Dot invasive dotcom for further information regarding the non-GAAP reconciliation provided.

For the third quarter 2020, net sales were $295.3 million up 1.5% year over year as reported and 1.2% on a constant currency basis.

Overall, we saw rapid recovery from COVID-19 impacted in the quarter with a majority of our product lines returning to growth combined with the international business is performing well.

Let me provide some details on our business line results U.S. spinal hardware net sales increased 0.8% year over year to $161.2 million as case volumes returned within the quarter. We saw more normal mixture procedures driving results thoracolumbar procedures grew in the low single digits.

Driven primarily by the expandable implant portfolio launch of modulus, T. live aid and sealant, Oh and fixation products.

The pediatric deformity portfolio perform at pre COVID-19 levels. That's surgeons worked through a backlog of cases, our cervical portfolio offset this performance with a low single digit decline due to the legacy product line within the C.D. up despite growing momentum from cervical alpha launches.

Innovation remains a key pillar for the company with contributions from alpha product launches across our various product portfolios, including lateral cervical and posterior procedures.

Pricing pressure this quarter was negative 1.5% inline with what we've seen historically.

Net sales from U.S. surgical support came in at 69, and a half million dollars a 3.4% decline over prior year. The decline was primarily related to the impact of Nuvasive clinical services stronger billings and collections in the prior year as expected.

This was partially offset by growth in inter operative monitoring disposable products due to an increase in thoracolumbar case volumes in the quarter.

Turning to international net sales were $64.6 million for the third quarter, increasing 9.6% year over year as reported and 7.8% year over year on a constant currency basis results were driven by strong growth contributions from Asia Pacific and in particular, Japan.

Here, where we have experienced less impact from COVID-19 overall, Japan also benefited from the recently launched cervical laminoplasty quite specifically designed to strengthen our cervical offering in this local market.

In Europe, we saw mixed results, while northern Europe had solid quarterly performance, we did see declines in the UK and Spain, driven by COVID-19 impact in General Latin America also experienced declines driven by code at 19.

Turning to the rest of the income statement gross margin for the third quarter was 71.3% a decrease of 220 basis points year over year. This decline was driven by increased expired and obsolete inventory reserves when compared to prior year as a result of declining demand for legacy product.

Lines and continued launches of new products this year.

Non-GAAP EPS DNA expense was $144.6 million or 49% of net sales of $5.6 million decrease compared to prior year the.

The decrease in SGN a expense over prior year was the direct result of our efforts to control discretionary spend this year in light of anticipated COVID-19 impact.

Non-GAAP research and development or R&D expenses totaled approximately 19, and a half million dollars or 6.6% of total net sales in the third quarter.

Consistent with previous quarters. This increase over prior year is reflective of our ongoing commitment innovation, new product introductions and further investment into the polls platform and pulse robotics we.

We continue to maintain our focus on transforming spinal surgeries and have increased our R&D spend sequentially by.

By approximately $1 million each quarter this year to achieve the innovation timeline, Chris shared previously.

Third quarter non-GAAP operating margin came in at 15.8%, a 10 basis point improvement from prior year or 15.7%.

Savings initiatives implemented in the year offset gross margin pressure and increased R&D investment and demonstrated the company's commitment to disciplined execution.

Non-GAAP other income and expense for the quarter was $9.1 million up from five and a half million dollars in the prior year.

This increase is primarily related to higher interest expense from the principal amount of $900 million and convertible debt issued earlier this year.

Non-GAAP tax expense in the quarter was $9.2 million, resulting in a non-GAAP effective tax rate of 24.4% versus a tax rate of 23% in the same quarter last year.

In the third quarter. The company reported non-GAAP net income of $28.3 million or non-GAAP diluted earnings per share of 55 cents compared to non-GAAP net income of $30.9 million or non-GAAP diluted earnings per share of 59 cents for the same period last year.

Turning to GAAP results GAAP net income for the third quarter of 2020 was $5.9 million or GAAP diluted earnings per share of 11 cents compared to GAAP net income of $11 million or GAAP diluted earnings per share of 21 cents in the same period last year.

Notably free cash flow for the third quarter was $54.3 million versus $38.1 million in the prior year.

The increase in free cash flow as a result of solid accounts receivable collections reductions in operating expenses noted earlier and controls implemented around inventory and capital purchases in light of impacts anticipated earlier in the year on the COVID-19 pandemic.

Throughout the quarter, we maintained strong cash and liquidity and ended the quarter with $982.1 million of cash cash equivalents and short term investments on hand, along with an undrawn revolving credit facility of $550 million base.

Based on steps taken in the first half of the year to improve our capital structure, we are well positioned to repay the $650 million principal amount of convertible debt due in March 2021.

The remaining capacity affords us the ability to invest in value drivers for the company and continue our disciplined capital deployment, which includes continued investment in R&D and operations as well as opportunistic M&A.

Now I'd like to share how we're thinking about the fourth quarter.

The spine market continued to stabilize throughout the third quarter, we saw several positive recovery trends continue these.

These trends include positive patient sentiment to return to hospital and clinic settings.

Surgeons working through their patient backlog and the new patient bundle starting to replenish.

Well, we anticipate these trends will continue we remain concerned for the potential virus resurgence as signaled by the current rising COVID-19 cases, and walk downs occurring in many geographies around the world.

Further recall that the fourth quarter is usually the company's strongest performing quarter of year, creating challenging year over year comparisons.

Finally, I want to reiterate that the third quarter was marked with a faster than anticipated return to growth given the challenges and impacts from COVID-19, and positive momentum gained throughout key areas of the business.

These results underscore the company's ability to execute against its long term strategy in a challenging environment and reflect our commitment to disciplined execution to drive value for patients shirt surgeons and shareholders.

Before turning the call over to the operator for today I'd like to take a moment to recognize our commercial and R&D teams in particular for their performance throughout the COVID-19 pandemic that enabled us to achieve these results.

Thank you I'd like to turn the call back over to the operator to start the Q and a session.

Thank you we will now conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation tone indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please also note that we ask that participants limit their remarks to one question during today's Q and a session one moment, while we poll for questions.

Our first question comes from Kyle Rose with Canaccord Genuity. Please proceed.

Great. Thank you very much for taking the question.

So I just wondered if you know Chris you could give us a little more color around some of the training programs that have been put in place I mean, obviously X 360 has been a major focus of the organization over the last several years in a big driver of growth.

But you know the inability to get in front of physician over.

Over the course of late Q1, Q2, and it sounds like still continuing a little bit that have to have impacted some of your growth trajectory as far as your training physicians getting them Trialing and then having them adopt the procedure. So can you just maybe help us understand.

The specific levers you put in place from a training standpoint, and maybe what the pipeline for physician demand with respect to those training programs looks like just so we can get a good sense of what.

What that pipeline should translate to to commercial sales once you actually do get that back up and running.

Yeah. Thanks, Kyle I'll answer that the best I can knowing what we know today, but.

I think the CPD team pivoted very early and obviously shifted our focus to online training education through remote labs. So we over the course of the last nine months or so we've seen a 30% increase in remote labs.

Really it in Q3 for burst Q2, a 30% increase.

We also have a lot of fellows, graduating in the August September timeframe, that's a big focus for us as we speak.

We have been able to now start.

Bringing people into the San Diego experience Center and in addition, we've also moved people out.

Two or started going out to remote labs, taking the training to our customers and where they are.

And for all those are relatively like we bridge the gap, we're still net down and the number of surgeons trained year over year from 2019 to 2020.

And having said that as we've talked a lot about training education is a big part of our strategy in driving procedural adoption not only in continuing to drive.

Training to our existing rattle surgeons and extra 60, but attracting new surgeon so hard hard to really say the impact at this point you know I am I'm encouraged if you dig into our results.

The the the the Thoracolumbar procedures, where we actually spent a lot of our time were X 360 is really housed in our in our numbers you'd really dissect that out you see that that's still growing in the mid single digits. So for that we feel pretty good.

We have made decisions in this this predates kogut, but go bit actually slowed it down to open up a new experience that are on the east coast.

So we're building out our plans to open that up that'll that'll take our training capability from San Diego over to the East coast or think will also attract a lot of the European Oh surgeons as well so.

Hard to answer exactly what the impact has been thus far there's so many variables, but but clearly our commitment to education and training is still very much part of our key strategic focus.

And good news is our labs are starting to fill up and the weekends are starting to fill up with that with certain is coming in San Diego to to resume training.

Our next question comes from Matt Miksic with Credit Suisse. Please proceed with your question.

Matt Your line is live.

Our next question comes from David Lewis with Morgan Stanley. Please proceed with your question.

Hi, Thank you good afternoon. Thanks for taking the question. This is kelvin on for David.

I was wondering two questions could you please.

Comment on your view on market share so certain peers have seen breakout performance recently, indicating potential share movement. So just wanted to get your view, how you see the pace.

I see.

Sharon moving and also how how do you see kind of pace of bomb rep hiring and attrition relative to your sort of normal trends and a quick follow up.

All right to two different questions, but let me start with the first which would probably be a bit of a linked the answer in the second will be probably pretty quick.

You know the obviously, we've been keeping tabs of what other companies are saying, but just keep in mind that when you look at the spine space.

Six companies make up 60% to 70% of the market and the other 30% to 40% are made up by literally hundreds if not thousands of other companies worldwide.

That said with the market contracting the way it did in Q2 and this now resurgence in the market however, not necessarily getting back to pre coated volumes I I've heard everything from its flat to slightly down to to what we've seen through our NCS business.

That actually monitors volumes that we say it is probably flattish or not necessarily grow from prior year, but maybe flat to prior year. All those things considered I have a hard time really looking at the variables markets here I can say from us I'm actually pleased by our performance over the quarter.

You look at how the company grew we reported a one 1.5% a reported basis, but if you exclude the service businesses, we grew approximately 3%.

Really driven by strong international growth of almost almost almost double digits, 9.6% reported.

And we've seen just a lack of uniformity across the markets. So where the market has returned weve seen very strong growth and where it hasn't we've seen some lagging.

Are they as I said earlier, our thoracolumbar procedures, if you really dig into even in the U.S. business out there for lumbar procedures, where we have major focus grew more in the mid single digits is offset by some legacy lines specifically in cervical, but if you look at cervical I'm still encouraged based on the fact, you've got some are biggest launches coming in the cervical space.

And also look at the East coast versus the West Coast East Coast, we saw low double digit growth and the U.S. business offset by by by lagging sales and lagging results in on the West coast. So.

It's it's really hard to discern share in this in this particular moment I'm just very pleased and encouraged that the progress that we've made gets us back to growth either.

Even in a time, where volume hasn't necessarily returned and we're poised to launch products that actually I think will further contribute to the growth were seeing within our really our sweet spot of lateral procedures in the in the door lumbar space.

On your second question, a little bit easier answer as far as rep hiring.

This is a trend.

Got it and a tactic we continues to see in the market I can say that I've seen nothing different this year.

We've hired competitive reps and we've got some that go onto competitors no single competitor specifically, it's it's a it's a competitive industry and will continue to lead with our innovation and try to attract talent by ensuring that we have the broadest offering possible. So so the sales reps and go and better suit serve their surgeons ultimately serve their patients.

Our next question comes from Ryan Zimmerman with BTI Ji. Please proceed with your question.

Hi, This is Matt on for Ryan. Thank you for taking my questions. I was just hoping to get a little bit more detail about month over month trends in terms of volume I know previously you said that you ended June at volume down low double digits, and then that kind of leveled off in July just trying to get a sense of how volume progress month over month throughout the quarter and anything that you can provide in terms of.

How volume is trending here in October.

Yeah, I'll take a shot we saw we saw obviously volumes through Q to continually increase.

The good news is they're nearing grieco bid levels the challenging pieces, they they sort of flattened out in the quarter. So we saw a pretty uniform volumes in.

July September August September and early July August and September kicking month month straight here, it's a little bit early.

So so encouragingly as I said the volumes were nearing three code levels I would say that they are probably flat to prior year I don't know that you're seeing growth in volume yet and we know we haven't we clearly haven't seen a trend.

In growth in volume, but we have seen volumes returned to pre kogan levels at least nearing pretty comfort level. So that's encouraging.

Lunging is normally we saw it we would see a slight uptick from August to September and we didn't necessarily see that this year. So the seasonality is a question going into the fourth quarter. So it's really just the the position that we're taking as we're seeing you know pre cobot volumes, but not necessarily growth and as we look at Q4.

For which tends to be our strongest quarter Big question as Matt said in his in his in his opening comments, we're unsure about what the seasonality will impact and how we'll see that translate into volume growth in Q4. That's that's what we see today. We look we look at many different external sources, obviously paying close attention. What other companies are seeing we also look at it.

Oxy with our NCS businesses really.

Basically agnostic on just pure.

Looking at volumes and they are still reporting volume in Q3 down a couple percentage points over prior year. So triangulated around it I I would still say, we're probably flattish. The question is how would that translate well be seasonality that really drives tailwinds into the business in Q4, I think that remains to be seen yeah, and the only thing I would add this is Matt is.

Our fourth quarter last year was a very impressive quarter. We grew 8%. So that's sort of total order just going in with Alcobra going on.

Okay got it that's helpful. Thank you and and just sticking with expectations for fourth quarter, recognizing that last year was a seasonally strong quarter and I know, it's difficult to kind of parse out and back from backlog and procedure in February but just kind of looking at where consensus is that in the fourth quarter. I mean, we're kind of expecting at 2% to 3%.

Sequential increase relative to this quarter I mean, I know, it's hard to say, but just anything you can provide there in terms of maybe a sequential increase relative to the third quarter results.

Yeah.

Thanks, it's hard hard to peg it right now because we are.

Seeing countries in Europe in particular that are being shut down.

And 47 out of 50 States right now are having cobot go.

In negative territory right now I don't know if you had a chance to look at Dr. Brough cheese announcement late yesterday. So we don't know how that's going to impact the fourth quarter, but we do know is our European business. We are seeing impact right now the negative. So it's just too early to predict.

Got it thank you.

You bet.

Our next question comes from Robbie Marcus with Jpmorgan. Please proceed with your question.

Hi, This is actually Lilly on for Robby Thanks for taking the question.

No I appreciate the color you've given but I was hoping you could provide a little bit more detail on.

The impact of blocked out in Europe.

France, and Germany, obviously both.

Recently announced restrictions and cases are on the rise across the us as well so to what extent have you seen these volumes slow down is it anything close to it.

Do this one time, we're better equipped to deal with it for a second wave country by country and hopefully the the the the shutdowns and some of the restrictions will be more societal about the health care market will be maintained as much as much as possible. It's a little bit early to tell in certain markets, but but I'm encouraged by by the success we saw it.

He's like Japan, and Germany over the course of the last nine months.

Alright, great. Thank you and just a quick follow up can I said do you think that backlog wise and giant red the recovery in this corner and how much of that.

You're asking me has been work you have to print.

Well that's a that's a that's a really important question that I that that I I I see recovery and I see normal volume and I see those things occurring at the same time, so it's really hard to discern.

The I think in the first month of the quarter, you probably saw continuing backlog into the second the the right.

Alright, you should say the slowdown in monthly increase month over month would indicate that the backlog is subsiding and you're seeing now normalization of volume at least the way I interpret it.

Which which would say that we we saw a lot of that backlog, which again starts within question how much of a current volume is is backlog versus what's the true volume growth what's through volume velocity in these markets I.

I wish I could I wish I had the greater detail to to help you out more there I just we just don't at this point, we do continue to seeks positive signs of of of patients going into clinic and I was out on the east coast last last week and several different cities and their surgical or the clinical small items are are are strong they are a lot of.

The telehealth technologies have been implemented and that's being being being fairly successful.

But we'll see what it translates into volume over the course of the fourth quarter.

Once again, please gentlemen, please remind you that we've taken one question doing today's Q&A. Our next question comes from <unk>, New Winter with S. V. Please proceed with your question.

Hi, Thanks for taking the questions <unk> I'm.

I'm just curious.

Okay. So you are you kind of suggesting that to the cervical the performance. This quarter in contrast to the U S. Lumbar performance, where you know you you are potentially outpacing a flat market single digit growth, but circles declining, but you're kind of maybe suggesting that that that's probably a decent.

Explanation for kind of adult between maybe you'll your overall U S results for just some chairs and then.

Uhm and then I would follow up on that.

Yeah, I mean, I I I feel very strongly that a couple of things I think whereas we've talked about earlier in the call. Some of the challenge we had with training slowed some of our dark lumbar growth, but we still solid roughly mid single digit there.

The launch scheduled with a cervical products and things like a C. D F and some of these other procedures, we saw pretty sharp decline.

The good news is we do have the <unk> you know a host of technologies coming specifically in circle that we're very excited about so I do think it if you look at our performance versus peers, you gotta kind of cut through some of those things that I do think that uniformity of where we had a business on the east coast for some on the West coast.

Is something we're still trying to assess.

But but absolutely I feel very good about a dork lumbar business and and the progress we're making and clearly with are are continuous now of a re engaging are are full scale C. P. D group to continue to educate and train I think we'll continue see could grow up there.

Thank you. Our next question comes from Kayla Crumley choose Securities. Please proceed with your question.

Alright, Thanks for taking my questions I've, just uncalled to start I mean, you mentioned your ear expecting revenue now in the back half of 2021, just I'd like to get your initial thoughts on on the commercialization strategy, there and potential contribution I think most of us aren't aren't putting it are much in in our models today a bedroom in your mind do you think that's wellbeing.

[noise] materiel contributor next year, and then what does material I mean to you.

Let me take the first part and I'll turn it over to math to take down the material piece of it let's see we we we've made it we made a ton of progress on Paul Some I'm excited about the the milestones that we've we've covered over the past several months.

As far as the commercialization strategy I think I've said, all along and I'll continue to say the word I use as flexible we want to get this technology integrated we did get the synergy to a procedure Jose some strategy that includes instrumentation implants biologics supposed to your fixation and now the whole host of technologies that will that will be bring to bring to.

Bear with with our pulse technology. So we're gonna get this involved in installed as as many locations as we can so to that end. We felt we felt very good and we are working through the the commercialization strategies, obviously planning through the offer launch into the beta and then a full scale launched towards the end of next year as far as material.

Are there any old hold as Matt to comment Yeah, we're thinking in a few million, it's not gonna be significant but it then will in turn for the following year be much more material and so I'm more focused on you know getting the orange setup investing in the launch making sure that that's done as well as possible and.

Probably is gonna require a fair bit of investment that'll eat up the margin, but this is a long term play for us.

Thank you on next question comes from that music with Credit Suisse. Please proceed with your question.

Thanks, so much and for for before on one question on on on patient flow and another just on sort of the advanced technology or enabling technology can competitive landscape. So if I could on patient willingness you know this is something that we.

Good questions about all the time I think folks are trying to understand it ended and flows a patient swelling to come in the house. So we can get cases done given that the demographics of spy infusion tend to skew younger not Medicare patients et cetera, you know wondering to what degree you saw any of this over over the summer is C as flare ups happened or to what degree.

Surgeons are speaking to your reps are you have any sense of of the ebbs and flows of demanded if that's changed at all I've been affected by the headlines and then it quick follow up okay.

Hey, Thanks, Matt Thanks for the question Uhm simple.

Simple answer is no not until this point now clearly, we're we're sort of on the horizon of the second wave and the and the and the noise level has increased substantially but as as early as as when I was on the East Coast last week in New York, New Jersey, Philly Baltimore and many different cities asking a question are you seeing really.

Patient willingness to come in and talk to a person the surgeons in clinical staff I'll talk to you said that was they weren't seeing any decline in patient sentiment. So.

Up to this point, we've seen increasing level of patient sentiment I think that's reflected in the volume increases we've seen now whether or not this is the second wave of resurgence that we're hearing about today.

Has an impact on that will be it will be a question. You also during the end of the year and a lot of People's deductible plans essentially encourage them to go in and get procedures done that may also pull people into the health care market, even with a second waves or a lot of variables that.

That we we'd lived within the past, but under the veil of Covid, just just not real clear on how the next three months will play out.

Sure Super helpful and so the the same question on enabling technology I know, we've we've all had this conversation about paulson in Nevada consultation and the and the timelines for for that but I Wonder if you could give us a sense I mean, you've got enabling technology and every one of your you know hospital customers or so and then.

The form of and five and and the tools that they use every day to do to do lateral surgery and I'm. Just wondering like you know from a practical standpoint.

At what point or or where and when is is is a you know inability to sort of you know 222 wheel polson and it was a robot in you know impacting the way that you sell or the the patience of your customers just trying to get a sense of what's the demand there or is it.

Sort of just business as usual in in instead of Atlanta Relaxes N M. I S and you know with each other things kind of more of you know, making alright, our expectations for where you're going.

I mean, I guess the basis of your question I think demand is still hyper enabling technology I think the man is still high for for me and my S and and some of the lateral techniques that we that we focus on I R. R.

Early or labs are are are the demand is still high for people to come back in and and.

Resume training so all of those things I think are high if anything they maybe they were they were paused over the last nine months, but I don't like the man has subsided demand has subsided I think it's still there.

Great. Thank you.

Our next question comes home Matthew <unk>, Brian with Piper Jaffray. Please proceed with the question.

Oh afternoon, Thanks for taking the question.

Yes, Sir Christopher Matt I'd Love to focus on the U S business as I look at the stock in the aftermarket it down a little bit and I think it's because to Rich's point earlier the performance that we're seeing versus the rest of the tour place. We've seen so far is lower than the recovery, there and I understand you've got a little bit of a whole on the cervical side right.

Now, but the other companies that were looking at out there yeah. Some are smaller somewhere about the same size and they're putting up a really good growth rates you've got some more competition you know on the single position side coming Matt links leaving circles an area that you know numerous historically struggled to really access successfully so lumbar's doing.

It's gonna see some pressure probably competitively cervical as an area that that's a big opportunity of a historically haven't done real well. So can you just square up you know what looks like some share loss with the ability to really stabilize some things and then kind of get back to market you know and some of the best grow with what they'd all of her spine before you get.

Pulse and pulse robotics on the market.

Yeah, I mean, it on the cervical piece I think it's it's we we've been working through the cervical what we call. The C 360 portfolio lineup for some time, which integrates you know best in class access implants enter them closer fixations, the whole nine yards, including enabling technologies as we get those out and biologics to really bring up <unk>.

Sweet and cervical spine I think that's that's the difference and maybe what we've done in the past.

The the the interior sort of a <unk> system that we're launching relied C, which exploding now extends are full line throw up a lumbar rely on system to have a comprehensive.

Plus your fixation system from from the entirety to spot. So I feel very good about where we're going cervical you know I I I do believe that we you know we we had a decline here we were we were we.

We've done some initial alpha testing last year and saw some initial growth, but over the course of this year, we had pretty much stopped installed on some of those Alfa launches taking those things back up now I think will will be a real synergy in relation to what we're doing a thorough or a lumbar procedures and again I also go back to the fact that our ability now to turn it back on our training and education programs, which is you recall.

Alright, dark lumbar procedures were driven by roughly about 30% of our existing lateral user being trained leading into the covid crisis, we still have runway to train more lateral surgeons to the X three six procedure as well as attract new surgeon so.

You know I I again, I go back to the fact that I'm I'm very I'm very encouraged because of the fact that in the areas I see deficit, we've got immediate launches coming.

And again the work that we've put in place around.

Training education and on the horizon of enabling technologies over the next couple of quarters I think line us up for for so long innovation growth a roadmap that we put in place.

Thank you.

Our next question comes from Joanne when it with city. Please proceed with your question.

Yes, Hi, this is Matt henrikson in for Joanne My question is to the Pulsar robotic system you guys reaffirmed first and human in 2022, but kind of what are the next steps that bridge between that first and human study and the actual launch what other milestones pick.

It'll trials you may need uhm that'd be helpful. Thank you.

Yeah. It. It you know once you go into first human that you're you're you're on the other side of your regulatory pathway. So so the fact is then we're really just going through.

The the the alpha testing that we do with any enabling technology very similar what we'll do a pulse. So there's a whole range of different testing modules and and use case scenarios are also getting our our organization ready to support the technology in the clinical setting more broadly. So once we kind of go through the regulatory approval get in first and <unk>.

Human.

And start really driving through the alpha testing, it's really all about ramping up the organizational capability fully launch and obviously learning any last minute things in a in a clinical setting that we didn't necessarily see in a lab setting and and those things always happen specific with these types of technology. So it's it's not an arduous pathway, but one that's very important so that we learn and and that and when we.

Launched this technology it meets our customers needs.

Our next question comes home, Mike, Matt So you wouldn't need them in company. Please proceed with your question.

Hi, Thanks for taking my question so.

So I guess just with regard to the robotic system, you know what would have to happen to pull the timeline in and is that even possible at all at this point.

Well I'm not gonna say anything is impossible I mean, literally we have as I said before we've we've we've shifted resources back to bolster robotics as we encourage some of the challenges we face with pulse early on and I have to say the team did have a really remarkable job.

In dealing with the component level change at the <unk> you know, it's really at the ninth hour and we're very close to the original you know at least what the previously communicated pulse launch timeline looked like that about this time last year.

As far as robotics as far as what happens to pull it in that's the question, we're asking our our team's everyday we brought in some new talent.

Build a very key position and the robotics development that group to to try to answer that question you know what will it take the move to move it forward again, we don't want a shortcut. This we want to make sure that this is is a is an effective technology that complements are pull system that integrates in our poll system.

But there is a there is a fairly regimented process go through in order to Lodge a technology like this and we will follow follow the right that way you Wanna make sure we have the safest most effective product in the market.

But we are consistently challenge herself. So so obviously more to come on the subject, but but what were pressing where we can yeah, and we're not limiting ourselves and for policy either we're continuing to hire or continuing to put the dollars and I would just echo.

Spend as.

Year to date year over year in a significant way.

Our next question comes from ways to annoy with Jeffries. Please proceed with your question.

Hi. This is Zack entourage can you just talk about rough accessing how that shifted through covid and it's more recently it's covid.

Research a little bit if you <unk> geographic basis, and wherever ups are allowed into hospitals and.

Thanks.

I mean in in in General I would say rep access is still fairly.

<unk> reps can still access where they need to go into surgical procedures that again, there's all kinds of protocols to enter hospitals today.

[noise] use my my own experiences out in many hospitals last week and.

Go through the same litany of things that you go to do a lot of public places where it gets temperature. They they bad you in the badges there for a period of beer at a time and.

And that's it so the the the it's probably a little more.

<unk> you as to move around.

But again you have to understand ourselves teens in our our our our commercial organization is is really is really an integrated part of the surgical.

Staff, they're they're they're they're working through the steps, they're they're showing that the the surgeon it in <unk> in the clinical staff has the appropriate instruments Nicole appropriate implantables.

So they're very necessary in many of these procedures into that and they're they're they're working through the protocols to make sure that they have they have full access no major change there.

You know the the situation, where you have a rep that that test positive, obviously that that creates a scenario, but but other than that it's it's it's kind of doing what we're dealing with a broader society, you're just having to go through the protocols.

Our next question comes from Matt Taylor with you B S. Please proceed with your question.

Thanks This is.

Match, Thanks for taking a question I guess, maybe one on the.

Robotics do you get the sense that sentiment for for using this fine robotics is changing.

From surgery or from a hospital and his perspective.

And and accounts that has.

A robotic system can maybe talk about that the past few days.

I mean, the sentiment is I think we're sentiments in a robotics and surgery is is changing I think it is and I've said this all along it will continue to evolve and I think it will become a standard of care overtime and not just in spine, but across all many.

Surgical areas.

I think it's a it's a it's a path at these things don't happen overnight and so to that end I believe we're still in the early days and.

And spinal robotics.

As far as a robotic system that enters into our our per view and one of our hospitals, where we were where we have business in other companies have business I'd have robotic systems.

You know it doesn't it doesn't necessarily change things overnight, we we still completely you know compete with our technology roadmap. The way we talked about we still tried to drive you know our lateral portfolio. Another early carries a portfolio.

You know they they they I think the the end of the day. The companies that have these enabling technologies inclusive of robotics will continue to gain footing and attract more of a customer share. We still fight for that today, we have a gap that will quickly filling when we have that I'll feel better but in the meantime, we we continue to drive you know <unk> <unk>.

Solutions that we talked about sport that would really world class training education rounding out the portfolio with surgical adult and pediatric deformity, specifically and some of the fixation technologies that we're bringing to bear.

And so to that and we'll we'll continue to push that.

Our next question comes from Matthew Blackman with Stifel. Please receiving the question.

Oh, Thanks, and do good afternoon, everyone. Thanks for the question sort of real quick win back on cervical.

When do you think you'll be at at fighting weight inseparable, where the the new product uptake starts outpaced the Dragon day of a legacy portfolio with it takes months nine months and just remind us again of the the biggest gating factors that we should be thinking about thanks. So much.

No I I I honestly, if if you get into the December January February time frame for not seeing if we're not seeing good growth in cervical next year I'll be very disappointed.

I am very excited about the the interior cervical play it is unique differentiated technology relying C system that is coming out to compliment and then we have posted arrow cervical system or the airlines the system.

That's that will be coming out in early 22, one that complements what we're doing in December so.

I feel very strongly that cervical group has done a good job it's been validated by the customers I've talked to we've got a great design team with many surgeons or around the around the country and around the world.

That are echoed that as well so I will still have some gaps to fill in the portfolio over time, but the good news is they're they're pretty sequential and the timing and and I think the the work that's done and where we go in December and January February of this you know leading out of this year and into next should put us in a girls motive circle.

Alright, thank you.

Okay.

Our next question from Josh standings, Mccowen places he with the question.

Thank you. This is Brian here for Josh Thanks for taking the question just one on the C. Mark strategy for pulse should we be thinking about this as a single launch into a single territory or is there something plan for.

Kind of a broader international plan based on the same mark.

Yeah, well I mean early on.

If you looked at our you know kind of what we talked about we it's weird originally started saying you know we're going to launch we're gonna get FDA approval and then.

Post FDA approval would go and file Percy Mark what the team has done is they've found some some unique ways and in a pathway that allows us to go after both FDIC mark almost simultaneously.

So to that end that opens up or opportunity to a much broader market opportunity both inclusive of U S or F D a country's oversee more country. So.

No they're the rate limit or hear good news is won't be a regulatory pathway likely it will likely would just be the number of units. We can get out support go through the alpha testing, but but but it'll be good to have a a pure you know a true global launch out of the gate now that's probably overstated with see Mark an F D a approval, but a much more global launceston than what we.

Had originally thought we would have and the timing we thought we would have it.

Thank you. Mr. Buried there are no further questions at this time I would like to turn the call back over to you for closing comment.

Okay. Thank you all for participating in our <unk> earnings call stay safe and we look forward to talking to you all next time.

This concludes today teleconference. You may disconnect your lines at this time and thank you for your participation and have a great day.