Q1 2021 Misonix Inc Earnings Call
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Please standby.
Good day, everyone and welcome to the Sonics incorporated first quarter fiscal year 2021 earnings call. Today's conference is being recorded at this time I'd like to turn the conference over to Norberto Ashok and that's true.
Go ahead.
Thank you operator and good afternoon.
Hi, everyone. Thanks for turning the lights Phonics, that's called 2021 <unk> Conference call.
Well get started in just a minute with management's comments before doing so let me take a minute to read the safe Harbor language.
Today's call and webcast contain forward looking statements within the meaning of the safe Harbor provision or the U.S. Private Securities Litigation Reform Act of 1995 and can be identified by words, such as anticipate believe estimate.
Estimate expect future likely may should will and other similar references to future periods.
I had to make many tough decisions on a daily basis and our team has been tested in unimaginable ways, we've had to adjust our behaviour and business practices to be able to not only survive, but prosper endless disrupted and uncertain environment.
While we believe that the worst of the pandemic is behind US we cannot say when the COVID-19 disruption in and when things there'll be more predictable, although we exceeded our expectations and grew up business organically on many fronts. We reported Amman percent overall perform a declining filed for Q1 birth prior yet but 17.
7 million of revenue include a growth of 21.5% and optimistic surgical business. That's represented a deep trying a 12.6% and I wound business International style declined pretty fast between type of pride yeah.
It makes us platform help drop domestic revenue growth of 21.5% in the quarter and we had some significant when he was in both spine in Europe as both spine in Europe procedures generate significant profit for most hospitals, we believe that the segments will remain healthy for the foreseeable future as long as we do not have further significant shutdown.
With the hospital surgeons nurses and patients adjust behavior in order to keep functioning in this environment.
<unk> sales team to find innovative ways of engaging with customers and you were looking to hire at least five to six new individuals by the end of flips he'll pick and quarter as an experienced more herbal stability in this market.
And a recent clinical publication and the journalists Podiatric Medical Association toppled diabetes related amputations pandemic within a pandemic, but also spoke of a tragedy unfolding journey COVID-19, with diabetic patients with Covid infections were between two to 10 times more likely.
To undergo an amputation.
Has been a major amputation or offer associated with a 70% five year relative mortality rate. So it is essential that diabetic patients needing kid do not experienced any delay as the delights could have catastrophic effects as we have seen with a significant uptick in numbers of amputation globally.
The pandemic a lot of room kitchen cause we're forced to claire's, resulting in patients either not receiving kid or guide to alternative slots a case such as physician offices, we estimate but there has been between a 30% to 35% reduction in the number of patients treated and wound care centers.
We have found us to be particularly challenging and acute reason for a decline in our tissue business access is also very limited in the center and even patients family members are restricted making it almost impossible to launch new products. During this time or to grow your market shape.
We have also seen disruption in certain markets more than others. During this quarter. We've had some success with physicians offices, but are established productive lithophyte of it to the fitting of the cave and others due to the fact that it requires coltrane management and it goes from up the most profitable solution to provided that are more profit orientated we.
The 9.1% to $17.7 million compared with $11.1 million in the first quarter fiscal 2020.
On a pro forma basis, assuming we had acquired focuses for the full fiscal fiscal quarter.
2020.
Total revenue decreased 9% driven by domestic surgical growth of 21.5% our.
Our pro forma wound revenue declined 12.6% and an international revenue declined to 35%.
Our topline growth was achieved while maintaining healthy margins with a gross margin percentage on sales for the first quarter coming in at 71.2% compared with 71.0% to first quarter of last year.
Operating expenses increased by $6.5 million during the first quarter of 2000 $21 million to $15.7 million compared with the first quarter of last year, primarily reflecting incremental expenses associated with the ACS acquisition has told us that the end of September last year we.
Also had higher bad debt expense in our first quarter.
I also want to highlight that if we look at operating expenses on a pro forma basis, assuming that we had acquired sources for the full fiscal.
First quarter last year, and excluded M&A fees and bad debt expense.
Our AP Opex was actually down over 10% this year compared to last year.
We have instituted cost reductions across the board, including salary and headcount TNT marketing activities and trade shows ASCO.
Discretionary is discretionary spending.
And in a number of other areas, where we see room for leverage without impacting our business effectiveness.
In addition, we've taken a good hard look at additional cost efficiencies from from our acquisition of salsas that have been able to drive incremental cost savings on the back of the merger of the two companies.
Importantly, we have done this while ensuring that we adequately support our revenue growth, including increasing sales headcount where necessary and supporting R&D initiatives.
This led to a net loss of $5.0 million or a loss of 29% 29 cents per share compared with a gain of $1.8 million or 17 cents per diluted share in the prior year period.
As a reminder, the prior year period included a one time income tax benefit of $4.1 million.
Adjusted EBITDA for the quarter was a loss of $2.2 million compared with a gain of $300000 in the prior year period.
This marks a significant sequential reduction of our adjusted EBITDA loss from $5.9 billion in our prior quarter ended June Thirtyth.
Moving on to cash flow and the balance sheet, we had $34.9 million in cash at September Thirtyth.
And ended Q1 with approximately 44 million debt, we continue to be in compliance with all our debt covenants, we are very comfortable with our liquidity position.
As it relates to working capital at September Thirtyth, we had $42 million compared with $47.4 million at June Thirtyth.
For the three months ended September Thirtyth, our cash used in operations was down to $3.8 million.
Reflecting a use of $2.8 million for working capital for inventory and accounts receivables. In addition to the net loss for the quarter.
This compares favorably to cash used in operations of $5.4 million for our last quarter ended June thirtyth.
And the approximate eight point.
Zero million used in the second and third quarters each of fiscal 2020, providing further proof of our efforts to streamline operations.
We've been able to lower our cash burn during the last three quarters or lighter sales.
Also on the good news front in October we were able to resolve the payment issues with our Chinese partners, which resulted in $2.6 million of incremental cash.
Which have further strengthened our cash position.
In closing our efforts during use them pretty unprecedented times replaced by Starbucks in a position of added strength and improved our ability to leverage our opportunities ahead of us.
And the near mid and long term.
With $35 million in cash.
We have the means to adequately support and invest.
And the growth drivers in the business for.
With that I'd like to turn the call over to stop or some additional some additional commentary. Thanks, John during this unprecedented time in our history, it's been very difficult to provide investors and analysts to a 100% accurate full costing data as things can change on a daily basis or the single announcement for those of you who have come to not be in job and the.
Rest of the management team you will know that we do not like to speculate or take an overly optimistic view of things as we value our credibility.
We're being as transparent as possible during the pandemic by pre announcing results. So that we can give you more insight into the business in a timely fashion, but were found us to be more of a disruption in constructive.
Thus going forward, we been continues to be pre announcing revenue results in the ordinary course of business.
It's important to understand that we are building a differentiated business and in spite of the challenges. We are facing we assign the course and remain on track to reach our goals. We are not a pure play surgical alluded company, but a disruptive ultrasonic technology company that does not have a direct comparable company in the market today, So we cannot be.
Compared to other method for companies of our size as we are truly different both in our business model and in the solutions, we bring to the market.
Next is at the center of our universe and were intent on leveraging our proprietary technology to disrupt various markets improved patient outcomes and lower overall health care costs and disruptive business model was a winner before kind of 19 struck and is now even more relevant given the fiscal constraints and challenges most healthcare providers.
Modest price across the world today.
When we made our first acquisition with both with medical our reasoning was much us to acquire revenue in a product, but much more important to acquire a larger sales channel and the opportunity to bundle ultrasonics and tissue in a way that had not been done before and that would be disruptive over time in a very short period, we have added both an amniotic.
Darien.
And the buyer with matrix that regenesis to our human skin allograft solution Parris skin. So that we have a more complete product offering.
In the midst of our integration and launch phase card with 19 hit so we really started seeing the early results of our vision integrating two organizations in different locations is challenging in a normal environment. So things have taken a bit longer than we originally planned, but we're almost done consolidating our virginia operations and streamlining the team.
Yield a more effective and efficient operating platform.
As you are all acutely aware definitive tissue product space is a competitive space for profit healthcare funded by limiting reimbursement to product that have relevant clinical data.
Since we see ourselves as a long term player in the space. We have made a significant investment in a 100 patient randomized controlled trial for Bob did it put offers.
We hope to have enrollment completed by the end of Twentytwenty and the overall study finished by the end of March or April of 2021.
This will give us the good strong for getting expanded coverage with more private pay and insurance company, which will help drive significant growth over time.
We believe that with our unique ultrasonic was to bring some technology combined with our regenerative portfolio of therapist in theory on interior Genesis that we are well positioned for growth over the long term while engineering some choppiness in the short term.
We exited the fiscal year have installed by the 70000 ultrasonic disposables confirming that we are leading the ultrasonic resolution globally. We are more convinced than ever that makes us as a game changer in the operating room, and we hope to achieve our goal of pricing and how that 190 to 200 units during the fiscal year.
We have numerous R&D projects on the go related to Nexus hand pieces and disposables development and we are in the soft launch phase of our CTX probe for advanced debridement and hope to be able to do a limited launch of the micro discussed into solution before calendar year end as we continue to gather clinical data during the year.
Micro district to me as an important opportunity for the company as we have seen added pressure to move spine procedures from Archdiocese, taking the ultrasonic micro description you could offer surgeons and patients a great solution for the fitting of kit.
On the IP front, we have a healthy portfolio of over 122 issued patents was more of a more than 50%. The issued during the last five years. We also have our the seven to non pending applications. So I'm confident that our new product pipeline has never been healthier.
Our supply chain problems are squarely behind us and our relationship with our vendors has grown during the pandemic as we have been fully transparent and they have accommodated our replaced without any disruption.
During the pandemic, we've continued to invest in product registrations around the world that we can launch Nicholas in many international markets in 2021 when business conditions normalize.
Our domestic sales forces back to almost 150 resources and we will start adding additional resources again this quarter in select areas.
As Joe has already shared we have undertaken various initiatives to limit our cash burn. So we're in a good overall position from a financial perspective.
While we expect to return to 20% plus sales growth over time, we're focused right now on getting back to base revenues of prior year over the coming months and we are hopeful that we will return to growth profit by our fourth fiscal quarter.
In closing I'd like to thank my team for their loyalty hardware can dedication during this challenging period as well as our shareholders for their patients as we continue to build a great business as 2020 will go down as the last year for everyone with that I'd like to turn the call over to the operator for questions operator.
Thank you if I could ask a question. Please press the star key followed by the kitchen, one on your touched downtown.
You know a strategy in the market, we called the one two punch rates debridement and tissue.
And what this isn't.
Resulted enough doing it's just having to refocus the sales force.
Into spending more time in a walk because we believe that we have a differentiated offering.
And we need to get people into those cases difficult to heal wounds. The bigger rooms that you traditionally done finding the wound case into them that you would find in the hour. So I think it's the early.
Install of us rolling half the strategy and what we're seeing we're encouraged by.
Have you think about taking that one two punch in now going over to sign and narrow obviously mentioned the tobacco detects me apart from the last call and then that near patch I think applies to be aerospace, but what else can you do within those two categories.
Replicate where you're doing a room.
Yeah, I think I like all of us in a bowling procedural solution. So you know, we we looked at different segments of the market whether it be fine. We're here and we're looking for complementary product. So if you look at you know procedures like a tumor removal for instance, there a number of other products that go with the ultrasonic technology.
Two of patches and see them. So I think that you know we continuously scouring the landscape pull those opportunities and as your voice. It makes us at the center of our universe. What we wanted to use that technology to give out the exits to the physician and the O R. And then drag alone complementary products.
It's alcohol within the next two quarters to announce.
Another collaboration strategically that will bundle products together with the ultrasonic technology, but.
We can't say much today, but we are looking at that strategy, we've taken that from the wound strategy and I believe we can apply to.
See the risk of ultrasonic business.
Oh, that's great and then Navy can you provide a bit more detail what's happening in Europe right now with the recovering obviously and the surge of cases way back you know.
A long time ago Napoles, a couple of months ago and the summer holidays start another surge of cases now so where is your a from a sales perspective and just your overall park there.
Yeah. The last couple of months, we we definitely saw something it's an improvement in Europe, and we were getting pretty optimistic that the pandemic seemed to be under control.
I'll file team has you know we could call with our European partners and just this week.
V P. A finals came in and it was giving me an update.
On the latest developments in Europe, and I was told by our partners in the UK that the UK with these 10, she was shutting down elective surgery until January mixed yeah, and we expect the same to fall out of.
In Italy, and Spain, but it looks like.
Europe is gonna shut down pretty significantly on on the list of surgery front, but that was a little bit of a a dampener for us.
But we also know that these cases ongoing away for one of the things that we did see during the pandemic when things opened up again, we sold disposable ribbon you pick up in capital equipment styles will still be disrupted but I think it's encouraging thing that we saw was these patients because he just Spanish.
There was a big a volume uptick win surgery degree open. So I can just really look at the food delayed surgery into 2021.
Understood very helpful. Thank you.
Thank you Alex.
Our next question is from Kyle Rose mechanic <unk>. Please go ahead.
I got a D in on Chicago, Thanks for taking the question.
Sure I can actually before that you were <unk> you mentioned before that you were seeing some of the less complex spine procedures moving out there should be a S. E have you seen that continue over the last few months and they can talk a bit more about what kind of opportunity that time it would be for ya there anything missing from the portfolio right now that would help their thank you.
Sure. Thanks, Thanks for the question I think before the pandemic.
A big shift in orthopedic procedures to the AFC central spine was one of the areas that there was really lagging, but I think engaging with more of a fun surgeons closely during the pandemic because a lot of surgeons had not a lot of time on their hands.
Talking to them about the future of spine surgery, and where they see if Gary and there's definitely pressure on them to move the list complex procedure Black single live a laminectomy and micro the fifth to move to the center do you have a trained that you're seeing as in many instances the spinal fluids are gonna have direct financial interest.
Any any more details on the early uptake of that CTX property grade as well. Thank you.
Sure. So first on the neuro side, we don't give specific numbers, but it is a healthy percentage. It is in the range that you referred to and we remain enthusiastic that we will continue to see success in that narrow arena CTX has been very very well received we've only introduce that into.
A handful of centers because one of the things is that during the pandemic of difficult to get new product wins into hospital, but the early feedback from surgeons as they really love the probe where theyre doing the bigger trauma cases.
They certainly Tom saving and the Devops also from a power perspective functions very well because with the mix of system. We are able to drive the power into this product more efficiently than we than we could with that.
Smaller products on the analog platforms, but positions are saying that in terms of deal fertile tech and overall performance. There is a noticeable difference in PA in our.
Gain will be interesting to see in regard to full launch in calendar <unk>.
One fiscal Q3 next year, what it looks like but we think that that any fracking opportunity for us and the first new product in the mix. This platform from an important one for us.
Great. Thank you.
Our next question will come from Ryan Zimmerman with Pete BP I G. Please go ahead.
Hi, This is actually Carolyn on Brian Thanks for taking my question.
Continuing purchase on Nextseq as that installed base Brown, how should investors think about incremental contribution from expect them and then could you maybe discuss the drivers to increase utilization. There are there new indications are many procedures I think.
Earlier, you mentioned, new bundling strategies that you might be adding thanks, and then I have one follow up.
Sure. Thank you. Thanks. Thanks for the question I think it is in terms of driving utilization in the accounts weve seen that in a nexus has got a lot of utility to a number of different speciality is within the hospitals. So its still early to see and and to quote accurate numbers of utilization per system.
But we can tell you early data is telling us that you know the average revenue generating the hospital on the mix the system is higher than the legacy systems.
For a start you have good access to the soft tissue platform as as well as hard tissue.
Where we want to go longer term and market. The second is really the first test of our fee for service is to be able to do soft and hard tissue in a single procedure, but right now everybody is familiar with our business model it.
Confining the.
Console units, I mean, selling hand pieces and disposable but.
Difficult enough that we are selling disposable one probe at a time. So we will look at procedure by market certainly using a pro than activating the bone cutting capabilities of the next was to essentially performed to be compression and then you're using the aspiration capabilities of the unit to actually remove the desk fragments so in that way.
You can actually provide a procedural solution to the to the physicians use twice the amount of product that you would on a single procedure and also ensure that there's not a single factor of downtime with surgeons, having to bring in other technologies in the.
Goodbye.
Thank you very much that does conclude our conference for today I would like to thank everyone for your participation Andrew May now disconnect.
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