Q3 2020 SeaSpine Holdings Corp Earnings Call
Sorry, all participants are in a listen only mode. After.
After the speaker's presentation, there will be a question and answer session.
A question during the session you will need to press star one on your telephone keypad. Please be advised that todays conference is being recorded.
Require any further assistance during the call you we press Star zero.
I would now like to hand, the conference over to your speaker for today.
Salvo Investor Relations ma'am the floor is yours.
Thank you Carl and thank you all for participating in todays call joining.
Joining me from C. Fine is CEO, Keith Valentine CFO, John bust years early.
Earlier today I released financial results for the quarter ended September 32020.
During this conference call, we will make forward looking statements within the meaning of federal securities laws in regard to our business strategies expectations and plans our objectives for future operations and I feel future financial results and condition.
With other than statements of historical fact are forward looking statements such statements May include words, such as believes could would will plan intend and similar expressions with.
You are cautioned not to place undue reliance on forward looking statements, which are only predictions and I.
Our beliefs based on current information and speak only as of today.
Bernanke 2020.
For a description of risks and uncertainties that could cause material differences between our actual results in those stated or implied by the forward looking statements. Please see our news releases and periodic filings with the FCC, which are available on our corporate website <unk>.
That's fine dotcom and dumped <unk> dot dot dot com.
Now I'll turn the call over to keep all the time Keith.
[laughter] Julie good afternoon.
Joining us.
Today, I will discuss the key people.
Why don't hurt either.
[music].
Thank you Jamie.
[music].
[laughter].
Additional guidance I know its [laughter].
Well then open the call to your questions.
[laughter] like team continues to rise to the challenges presented by the current environment we.
We not only aspire to deliver the highest quality patient care, we are building, an even stronger company for the future.
It's still a sheepish regular <unk>.
What I'm, saying.
Okay shouldn't fashion.
Okay.
Oh did your children or commitment to making a positive impact on spine patients lives.
Never been stronger.
[laughter] continue.
Continued to be impacted by the 19.
[laughter]. However, we saw a significant increase in the number of spine procedures performed in the U.S. as the quarter progressed.
Many of our surgeon customers you've communicated to us it worked through most of your backlog of spine surgery, and a schedule cases deep into the fourth quarter with Asia.
Patient demand is typically.
Well Bob.
We are closely monitoring the recent uptick can get 19.
Thanks, Dave in the U.S. and globally, it's true that if that were once again in Q3 volumes.
Fourth quarter two questions.
<unk> third quarter results in line with the only now she didn't know the October.
It is.
It was $43.2 million.
It 8% increase compared to the prior year period.
In the U.S., which is twice the guidance.
We should.
[laughter] pushes you over your growth in the third quarter.
Well in the U.S. was primarily driven by three factors.
[noise] well continued cadence of new product launches include surgeon adoption.
We recently launched products.
Hi, Michelle contracting wins, and some meaningfully large health care systems, and lastly, like further expansion and diversification.
Your graphic revenue.
[noise] diversification was especially beneficial in light of the continued kindred related surgery restrictions that many of our surgeon customers faced during the third quarter.
More specifically, California, Texas, and Florida, which can bind to the stores. They tried it for approximately 85% of our U.S. revenues collectively grew less than troopers should you were here in the third quarter.
Okay. Thank you Russ.
Still increased by 2% as we took share in new markets.
We are also generating revenue growth from higher revenue per case is recently launched products allow us to participate in more complex surgeries and from increased utilization of our spinal implant systems and Orthobiologics project products.
<unk>.
[laughter], which we believe it can result.
[laughter] and complimentary product offerings, we market today.
The quarter of 2020, it was an average of 1.9, she spine products and systems use per procedure.
There are two 1.7 in the prior year quarter.
Yeah, well opportunities to further diversify our revenue footprint and drive accelerating growth in the U.S. both from our tenured core distributors continuing to hire more sales reps, which has been driving accelerated growth in existing territories as well as from Onboarding of new or distributors currently underserved market.
[noise], we're particularly excited about the upcoming elfa launches or add no sure look cool wage system and were really in any list inter body system.
These products have been important catalyst to attracting new core distributors and for the hiring of additional sales reps by our existing distributors.
All in all we're quite pleased to now be generating meaningful revenue growth to the U.S. So these important sources. They will no doubt be important drivers of our expected what church double digit revenue growth if market conditions in surgery levels maintain its free to bid levels.
Shifting gears to Nash as many.
You know the annual meeting that show virtually last month was disappointing that it couldn't be a person, especially since it was scheduled in our backyard of San Diego This year.
Truly showcase the benefits of our recently launched products highlighted are increasingly comprehensive product portfolio.
Most proud of the four podium presentations related to see spike researching products that were featured at NASS. This year, we two papers receiving best paper designation. Additionally, just last week, we announced the publication in the journal of bone and joint surgery.
Clinical study that concluded the cells and bone matrix products did not improve fusion or bone formation, and that's C. Spine de mineralized bone matrix product must just stripped plus outperformed the cellular graft products that were tested.
These research papers and studies are foundational elements of our culture and mission at sea spiked a differentiator products through strong science it compelling data in it.
Otherwise very crowded field.
Furthermore, this study substantiates, the increasing payer and provider pushback, we see around secular bone matrix products.
When combined with the previously published preclinical study comparing the Osteo Slant GBM fibers, just six leading competitive yes.
We have a robust set of scientific support for our differentiated PBM offerings.
With respect to differentiated product offerings, she's buying team is remain committed to maintaining a steady flow of new product introductions consistently throughout this year. Most recently, we initiated the limited launches of our explore geo expandable pushed your interbody system and the wave forms.
See inner body implants system. The first of five Threed printed interbody devices that we anticipate launching mid 2021.
Collectively expandable and Threed printed interbody platforms provide C spine with new were significantly greater access to more than 800 million dollar market opportunity. Additionally, we are very pleased by the quick market adoption of our North Star RCT cervical subset fusions.
Systems, which we launched on a limited basis in June of this year.
These key additions to our portfolio along with a full commercial launch in August or shoreline, Archie cervical interbody implant system, featuring a week technology.
Revenue from recently launched products to 66% of U.S. spinal implants revenue in the third quarter of 2020.
Looking forward, we are focused on launching more new products over the next two months, including a line extension of our Nanometalene with data lateral implants, which will include a modular locking plate and will further extend the application we typography.
The l. for launch of the Meridian no profile anterior lumbar implant featuring Nanometalene and reach topography that includes both the school and optional modular locking plate.
It's a next generation anterior cervical plating system under the Anvil brand name, it's designed to complement our highly successful shoreline system.
We believe the Ed will place ease of use robust instrumentation and differentiated driver engagement will help us take additional market share in the cervical market.
In the Thoracolumbar franchise, we continued development efforts to extend our foundational meritor modular pedicle screw system for more complex adult deformity surgeries.
We expect.
We also launched this new application of the Mariner technology within the next six months.
Finally, we are progressing on many leads for the placement of that machine vision image guided surgery platform.
We are co marketing with 70 surgical [noise].
As a growing awareness and interest in this enabling technology. Just this past week, we hosted three days of workshops at our Carlsbad Calif their training facility with a number of surgeons from around the country to highlight the clinical benefits of the 70 image guided surgery system.
Recognizing the relatively long lead time to place. This type of equipment. We are optimistic that we will close one or more of these opportunities in the next several months our ability to place units this enabling technology in a capital efficient manner for hospitals will be particularly valuable in the current environment as hot.
But those are likely to continue restricting their capital purchasing budget due to the financial impacts of COVID-19.
Despite the business challenges and changes to the market landscape throughout 2020, we have delivered on our effort to continue expanding our product portfolio.
Your market share and limit Casper looking ahead to 2021 once again prioritize product launches. Most importantly, the migration of the many alpha launch has delivered a 2020 to full commercial launch. The addition of more core distributors added deeper penetration into existing.
Territories with more sales reps hired by those core distributors.
I'll turn the call over to John I want to reiterate our continually increasing confidence in spite its position as a leader in surgical solutions for the treatment of spinal disorders by providing products and systems that are engineered for fusion.
Working with our core distributor partners surgeon customers it with additional insight from our surgeon Advisory Board. We will continue to plot of course for innovation and aggressive product commercialization strong scientific data.
Political responsiveness and superior customer experience that we expect will lead to sustained and long term double digit revenue growth when we ultimately lurch.
The disruptive impacts of COVID-19, with that I will turn the call over to John for a recap of Q3 financial results John.
Thanks, Keith and good afternoon, everyone total revenue for the third quarter of 2020 was $43.2 million, an increase of 8% compared to the prior year period.
US revenue was $39.1 million, reflecting a 10% year over year increase in international revenue was $4.1 million, reflecting a 5% year over year decrease.
U.S. spinal implant revenue in the third quarter was $19.2 million, reflecting a 10% year over year increase.
Increase was driven by higher demand for our recently launched products, specifically to meritor MKS poster fixation system.
Suite of Nanometalene with leaf topography inner body implants in the post year cervical Northstar CTG system.
This higher demand translated into a 5% increase in surgery volumes and a 7% increase in revenue per procedure. So our product portfolio that participates in more complex surgeries. It captures more of the procedure as Keith mentioned earlier.
This increase in demand was partially offset by low single digit unit price declines.
We were encouraged to see the percentage of us spinal implant revenue generated from new and recently launched products increased to 66% in the third quarter of 2020 as Keith noted earlier.
[noise] U.S. Orthobiologics revenue in the third quarter was $19.9 million, reflecting a 10% year over year increase there.
The increase was driven once again by higher demand of our recently launched products, particularly our cyberspace DVM franchise.
The percentage of us Orthobiologics revenue generated from new and recently launched products increased to 31% in the third quarter of 2012.
We believe that our continued focus on clinical evidence as demonstrated by the multiple last podium presentations and the preclinical study published in JBG, yes.
During our Orthobiologics products is helping to drive growth in this portfolio as healthcare systems increasingly appreciate the value proposition of our advanced DBM products.
Expected that behavior to drive our future market share growth in Orthobiologics.
From a distribution perspective, our core distributors collectively generated 55% of total us revenue in the third quarter of 2020 up from 54% in the third quarter of 2019.
We continue to look for more of these committed and increasingly exclusive distributors in the U.S. and to support the hiring of more sales reps by our existing for distributors.
Gross margin of 67.4% improved 350 basis points as compared to 63.9% for the same period in 2018, primarily from lower excess and obsolete inventory charges in the current year as we prioritize more legacy product discontinuation activity.
Yes.
Additionally, higher margin you asked us based revenue outpaced international revenue.
Anticipated shift to more more full commercial launches spinal implant systems in 2021 is expected to generate higher excess and obsolete inventory charges in the future from the substantial investment in outsized implant inventory required with the set builds.
However that impact notwithstanding we believe that we can continue to expand gross margins by 100 to 150 basis points per year over the next two to three years.
Operating expenses for the third quarter of 2020 totaled $35.8 million, a $1 million increase compared to $34.8 million for the same period of the prior year.
The increase was driven largely by higher headcount related and stock based compensation costs.
Net loss for the third quarter of 2020 was $6.6 million compared to a net loss of $9.7 million for the third quarter of 2009 to.
Cash cash equivalents and short term investments at September Thirtyth 2020 totaled $93.2 million, we had no amounts outstanding under our credit facility.
At $6.2 million of loans outstanding under the Paycheck protection program, which was used in accordance with the requirements of that program and for which we filed forgiveness in the third quarter.
Our free cash flow burn, which includes operating cash flows and purchases of property and equipment.
$7.2 million for the third quarter of 2000 $21.6 million decrease compared to $8.8 million for the third quarter of 2019.
Our year to date free cash flow was $23.6 million, we continue to carefully manage operating costs and cash spend in light of the ongoing impacts of over 19 on our business, which has resulted in a $1.9 million decrease in our year to date free cash flow burn compared to the 25.
$5.5 million for the prior year to date period.
Turning to our financial outlook for 2020, we are reader reiterating our guidance for fourth quarter 2020 revenue to be in the range of $47 to $48 million.
Selecting growth of approximately 7% to 10% over fourth quarter 2019.
We expect gross margin for the fourth quarter 2020.
Range of 64% to 65% as we continue to realize the benefits of the operating leverage able to gain at our Irvine manufacturing facility.
Some of that likely to be offset by higher excess and obsolete inventory charges for new spinal implant product launches.
To date, we have not seen a return of widespread restrictions on certain spinal surgeries in the U.S. due to the recent resurgence of coated 18 cases. However, we continue to closely monitor the situation and it should we experience a return of such widespread restrictions it will very likely impact our ability to achieve.
Weve, our expected revenue and gross margin guidance ranges.
Fourth quarter of 2012.
I will now turn the call back over to Keith to wrap up keep.
Thank you John off the back of a bumpy second quarter. We are very pleased with the improvement we experienced in the third quarter. However, the recent resurgence of COVID-19 cases still possess meaningfully meaningful challenges in business risk that we will continue to monitor and respond to as Neal.
Yeah.
With that said, we remain optimistic that we can once again return to sustained and long term double digit revenue growth when we ultimately emerge from the disruptive impact.
Yes.
With that we'll now open it to questions.
Operator.
As a reminder to ask a question you will need to press star one on your telephone keypad.
Again that is star one to ask a question.
Our first question comes from the line of Ryan Zimmerman from BT.
Your line is now open.
Good evening, thanks for taking the questions and congrats on the strong quarter.
Thank you like you can John.
I can certainly appreciate the risks.
Around the guidance and you know where we stand today.
I just appreciate your thoughts around the.
Looking around guidance, and where do you see risk in and what level of risk you kind of accounted for within that guidance.
When you put out the Preannouncement you know maybe cobot headlines weren't as significant as they are today and so just maybe help us get comfortable kind of with the guidance for fourth quarter and then I have a follow up thank you.
You know Ryan it's kind of a balancing act right now in the sense that as we mentioned in the call that the larger states that were most concerned about half have a little bit of a run on numbers and not I see balancing the good news is I think that as you talk to surgeons can you talk to.
The folks closest to elective surgeries, they do feel like unlike the first round they have a different way in a different perspective of looking at the surgeries and still being able to do most of them.
Balancing better.
Profile, but they weren't able to do with the first wave came now I say that if the wave comps margin option and the space in the hospital becomes concerning that I do think that they will resort to restrictions on elective surgery. So obviously, we're monitoring it very closely there's a couple areas and that's that.
We have greater concern than others, but as of right now it still appears to be a very robust fourth quarter like we always see in spine.
Okay.
Very helpful. I appreciate the commentary thus far John just one for you I mean, the operating expenses were up a bit this quarter relative to last quarter and I get to kind of back to your normal run rate.
I guess my question for you is you know what kind of pace do you want to sign as we think about going forward and you continue to accelerate.
The topline.
Yes, one of the big increases.
Was stock based compensation, so that was one of the big drivers, but other pieces right as we did.
As we talked about earlier this year, we kind of put the brakes on hiring particularly in the depth the.
Cool that uncertainty, but weve since gotten back to hiring given the growth trajectory, we saw for the quarter.
The expectations for the fourth quarter and even beyond into 2021 with the product launches all being pretty much back on track to the original commitment. We had for this year, we want to make sure that if we're going to invest in the products and systems that we're going to have the right support behind them from a supply chain perspective, a marketing perspective.
Quality perspective.
So we've really worked hard to.
So a lot of it is because this is the need that are going to help enable the sustained double digit revenue growth that we plan to get to in both portfolios and picking on tech activities on the clinical side as well so after a pretty significant pause through many the summer months, we got right back into hiring.
Fortunately been able to fill a lot of these positions that are going to be so important to not just getting to that so.
Sustained double digit revenue growth, but also enabling it long term as well.
Appreciate that thanks for taking the questions I'll hop back in queue.
Thanks Ryan.
Our next question comes from the line of Matthew Blackman from Stifel. Your line is now open.
Hi, good afternoon, everyone and thanks for thanks for taking the questions I.
I just have a couple and just the start and I'm sure they're eager to provide the 2021 outlook, but just conceptually or should we be thinking about sort of 2021 off of the 2019 banks is that sort of the right starting point as we think about growth as we as we look ahead to next year in aggregate.
That you're willing to comment if that is the case if I look at consensus is somewhere in the upper teens gross profit on between Nike based and just curious how your level of comfort with where the consensus number is.
Granted we're we've got some time before you have to guide, but that and then a follow up on gross margins.
Yes, 2019 is the right baseline think about it as sort of a two year CAGR off the 2019 baseline.
And with the systems were launching in deploying in buying more of on the spinal implant side, we anticipate that to lead the growth.
As it has pre coated.
With that.
Increase in the distributor network rate. The fact that that portfolio is help them higher competitive reps that brings surgeon relationships with them. So we can go deeper into territories. In fact, we can own more of the procedure.
With the combination of spinal implant systems.
Fixation robust interbody systems, the orthobiologics presence in the large to help us on that.
That procedure in fact, we can participate more complex surgeries right. Those are all great sources of growth that we think spinal implants is going to be leading the growth, but do you have good expectations for the biologics as we expect to see more payer pushback on cellular graphs and I think some of that the clinical data we published recently.
Gives us confidence that there's an increasing interest in our advanced DBM portfolio.
But if there is continued payer pushback then we think we can see.
Low double digit revenue growth in the Orthobiologics franchise, as well, particularly in the United States.
I appreciate that there's there's clearly a lot of drivers and again you may not be comfortable talking to it but does the consensus number in 2021 feel like it's in the right spot and again feel free to comment or not and then I guess one follow up.
Yeah.
Yes.
High teens growth overall seems a bit steeper than we'd anticipate for the full portfolio because there's still some uncertainty for international even though it's 10% of our revenue right. We don't have good visibility to what the growth runway looks like with international because obviously they've had.
More recent surge is accruing a virus.
We don't have on the ground visibility because we work through a lot of stocking distributors as well so.
International a bit I think is a bit of a wildcard for us and I said orthobiologics.
Getting to sustain high teens growth for Orthobiologics.
It's not consistent with the market dynamics and what the overall market is growing the fact that we're already the number two player in the Dbms space right. We don't have that same upside opportunity that we do in spinal implants to achieve high teens growth. So I think a more balanced growth trajectory for next year.
The in order, but that being said those numbers do you see him within the realm of what our internal expectations would be for spinal implants in the us because of the improvements we've made to the distributor network and all the products, we've launched and are planning to launch, particularly the ones launch. This year announcement that go into full commercial launch next year to help drive revenue.
Growth.
All right that makes a ton of sense I appreciate that and then gross margins.
No the strongest parts and feel like the biggest update we got today relative to the pre announcement. So I guess the first question is are you willing to quantify or could you quantify some of that the year over year, you know net impact of that that you saw this quarter and what that provide in terms of lift and then as we think about sort of the expansion the underlying expansion that we're seeing.
He is not as simple as we're now getting over a picture, but some of the 2019 product launches early 20 clean product launches can bring in terms of a mix benefit and then and then of course, the sort of the scale from the new plan or those that are the primary drivers we should be thinking about.
Yeah, first and foremost it's the Orthobiologics gross margin.
Expansion is the big driver, there's a lot of fixed cost in that facility and as we drive more volume through it you get the benefit of the higher absorption lower costs, but also a lot of the lean manufacturing processes and other efficiencies that we've been investing in frankly over the past two to three years, we've seen the pay off over the last year and a half and anticipate that will.
You need to see benefits. So that's going to be the biggest source of gross margin expansion I think better utilization of our spinal implants systems as we ramp.
Ramp up volumes with some of the full commercial launch products is another opportunity.
Opportunity.
Driving costs through more collaborative relationships with our suppliers, we can have an opportunity to drive costs down. So there's a lot of different levers that we anticipate pulling I think worth of biologics manufacturing.
He's going to be the biggest driver of that over the long term and with respect to the you know yeah, I don't want to get into the dynamics of how it might impact one quarter to the next because it is it can be volatile quarter to quarter, but year over year, it's going to be less of an impact in and it's it's not something I want to be chasing quarter to quarter because.
It may be driven by the magnitude of the number of spinal implant systems, we launch in a particular quarter, how those launches go versus expectations.
Not anything I want to get more granular with.
Fair enough really appreciate it thanks, so much.
Sure.
Your next question comes from the line of Karl Rose from Canaccord. Your line is open.
Great. Thank you very much for taking the question. So I'm just wondering if we could start on the commercial channel and maybe also a little bit on the contracting went to on the commercial channel. It sounds like you're upgrading your some of the distribution talent or at the very least driving your existing distributors towards exclusivity.
But it sounds like those distributors are our hiring new individual sub perhaps maybe just help us understand and he can you characterize what the pace or the scale of that hiring could potentially be.
And then over what time, you expect that to translate into topline growth and then secondarily you talked about some contracting wins with.
Health systems help us understand maybe what those represent from a from a dollar amount does that give you the right to play in the account does that give you a percentage of that account in plant utilization just helps it helps frame that opportunity.
Yeah I'll answer the second question first if I could go and then boss can answer the first question. So.
Exactly what you said, there's been a couple of opportunities that now we have a new license to hunt so to speak and they're they're big health systems that we feel very good about in fact in.
And one of them I think it's going to be a combined opportunity with spinal implants as well as with with seven D. and so were very excited that not only we have an opportunity to participate in this account, but that were already starting to get great momentum and the good news was we had started to get momentum and then we got formally ups.
Approved onto it as a preferred supplier so yes.
Yes, I feel good about that there is that there is a couple others too that are that are in the works were had been just completed that also will give us greater opportunity in that particular area. As you can imagine with what we talked about in the script with new distributors coming aboard we have with that new distribution.
Unity coming aboard we're also going to have to be very aggressive in how we try to participate in some new accounts and so I think this will continue this opportunity in new accounts will continue as we get into 2021 and beyond as well.
And then with respect to the pace of hiring so two things.
Sure with the portfolio, we have today, the more complete portfolio as key called out in the scripted comments, particularly the admiral cervical plate and the Meridian Ayliffe inner body that were on the customers launching those have been two big drivers of a lot of conversations not only with new potential exclusive distributors, but also.
The existing tenure distributors being able to bring on competitive reps into their distributorship and that brings more immediate revenue with it. So you know good examples in the southwest we had seen some competitive reps hired into an existing distributorship and we're already seeing the benefits.
Of that revenue growth. So I think the opportunities can come to fruition faster.
With getting competitive reps into the existing distributor accounts.
Versus adding new distributors, but we also have good opportunity for growth with adding more core distributors and the ones that for the most part were entertaining.
Our larger tend to be larger geographic coverage areas than in the past. So I think that they have an opportunity to be more transformative in terms of driving revenue growth over multiple states.
Whereas in the past they were more localized.
Localized opportunities still big opportunities and they come with that exclusivity, but again I can't stress enough how important that more complete product offering and the products. We've got ready to launch how attractive that is to.
Potential reps, joining or existing distributors, but also more larger transformative exclusive distributors covering more states in more geography that can help move the needle in terms of revenue growth over larger areas in mostly underserved markets. We haven't really had to swap out distributors as we talked.
On prior calls there's still a lot of white space on the map, that's totally additive and it just having is much more comprehensive portfolio.
Makes it a much easier conversation and we've never been more confident in our ability to bring on these distributors and we're making the investments in additional sets to be able to support that growth not just in the near term. We're looking six 912 months ahead to make sure that.
As fast as they can move we can support them with new sets.
That's very helpful. And then just to dovetail off that last part of that answer was just a question around the state of inventory.
Inventory and supply, particularly for some of the newer more differentiated systems. When you think about launching into the expandable market and with the three inter bodies and where do you stand from a supply standpoint, now or you would be really have the ability to you know press the gas pedal down there or or is that more incremental investments from yeah from that standpoint.
Right now, they're all an alpha launch. So there is a specific subset of surgeons and distributors that are priority to getting through the alpha evaluation phase, which is typically six to nine months.
That being said long term, we know we have a growing capacity, particularly in threed printed implants, because that's the newest market entry for US is what we'll be ready.
For the full commercial launch to be able to really push the pedal to the metal and aggressively commercialize those more getting the full commercial launch I just want to temper expectations in Alpha launch there is only so far you can push it because it's so important to get that surgeon feedback in evaluation and hopefully make just design tweaks to the instrumentation before you get the full commercial launch.
But that's where you put the pedal to the metal and we're already thinking forward about what the supplier capacities can be for those type of products as they go to full commercial launch.
Great. Thank you for taking the question.
Your next question comes from the line of Sheila Chrome from Truth Securities. Your line is open.
Thanks, Hi, Keith and John Thanks for taking our questions I think you guys had mentioned.
Several states that had underperformed relative to sort of the broader U.S. markets and third quarters I'm curious like what you've seen from those geographies. In October have you started to see some recovery or I guess are you assuming some recovery in your fourth quarter guidance.
Some recovery in which specific territories would usually about California, Texas and Florida.
He asked yet, but I think you you mentioned that that group.
About 2% in the corner yes.
Yes, I based on where things sit today I anticipate they are going to be a source of growth.
Unlike they were in the third quarter, and Thats, where that geographic diversity of the revenue footprint. It really helped us to grow in the in the third quarter and we did it largely without any benefit of the three states that represent over a third of our revenue, but given where market conditions are and and whats surgical volumes look like and the general.
Lack of any current restrictions on surgeries due to coated I would anticipate those three geographies to be growth generators for us in the fourth quarter.
Okay, Great and then you guys mentioned that the JBG gas publication can you just speak to how you're using those data in the field and you know how surgeons how hospitals are responding to those data at this point just trying to understand how significant or how material that that could be I'm going into next year. Thanks.
Yeah.
Yeah, So you know it.
The key to it is obviously, we had an opportunity to present.
That information previously through Nason, then now it was accepted in and such a such a well kind of read and understood Scientific journal.
So there's a couple of different avenues, we've already gotten a lot of we know a lot of hits to the to the site to see the article to understand the article obviously, we did a press release in and around us to give greater detail to what the opportunity is it will be incorporated into how we think about getting in.
Information not not only to our distributors for training, but also to the surgeons overall in the field as we as we talk about and get better education and clinical research in and around Orthobiologics I think that you know.
Number of folks have already felt the pressure from insurance providers on this exact topic right that that sells or continue to get pushed back from insurance providers not only because of cost would because of the lack of data. So I think this is a meaningful shift for us on two fronts one.
We do go head to head off and we're cells. We are a more cost effective solution and but I think most importantly, when you look at the space for Orthobiologics DBM across across all the United States is accepted as a bone graft alternative is worth a biologic.
And all insurance companies support it. So I think this is kind of a double shift right that we're we're playing right into the fact that insurance companies are concerned about price so concerned about.
The results from lack of published scientific data and now we have it at a much much more cost effective way.
Great. Thank you.
Your next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Your line is open.
Hi, Keith and drilling how are you.
How are you Jeff good Jeff how are you.
Great just a few questions are for most firstly are you made some reference on.
Average per procedure, increasing from one seven from wondering what's the denominator that you're using on that and could you speak a little further his first cross selling.
Hi, there from <unk> worth or sorry, due to hardware or vice versa.
Yeah, we're looking at surgery data, where our spinal implant system is used.
As the denominator and then looking to see how many systems are on that chart. She.
Typically fixation inner body.
We don't have complete visibility to every orthobiologic products that use because some hospitals do stock it on the shelf. So it's not going to be part of the chart.
Sure. She so most of that number that we report is going to be metal.
That was used in the procedure the denominator, which we have the most visibility.
Surgeries that use our spinal implant systems and how many different systems typically fixation and interbody. Most common are used together and that surgery.
Okay got it you spoke earlier about the 30.
31% of revenue from a new product just remind us that's a inside of 24 months from launch including also sets.
No. So I'm sorry, the overall number yeah.
Spinal implant new product revenue was 66% of U.S. revenue.
Orthobiologics lower.
And we're looking at all products launched since the spin.
What we define as new and recently launched the more meaningful ones are clearly in the last year or two I'd say two to three years, but it does reach back to the spin, but those are much less significant contributors than the full launches we've had in the last two to three years.
Okay got it and then lastly for me.
Give us Americas standpoint, or what youve seen from Q3 as far as your.
Our two procedures healthier at your posture et cetera, and any particular insight into our Aries exploring which are driving growth from a surgical dillenburg or beyond.
Thank you.
I think the biggest impact Jeff on the quarter is that mix to see that more complex.
Ah surgeries were done.
As the country opened up to elective surgeries more so as the quarter progressed rate early on.
It was more.
Ample cervical fusion.
Fusions.
Things opened up and then we saw as time goes on in many of the states that we saw the shift to be more complex surgeries IC use space freed up.
So that was one of the things we are tracking in terms of getting mixes surgeries.
I don't want to get into the different mix by graco lumbar surgical et cetera.
We did see that.
We were able to participate in more complex surgeries with the systems, we have on the market today and from checking our channel checks. We saw that more complex surgeries became more prominent as the quarter went on whereas in the beginning it was much more simple typically surgical cases.
Yeah, and just keep in mind too I think we show it in a few of our slides at times about the addressable market, we're expanding too right and so when you look at Thoracolumbar that as the giant part of the the addressable market that we're expanding into meaning.
Getting into as John said complex to getting into.
Am I ask two different M.I.S. opportunities getting into both.
Three D printed as well as our proprietary nanometalene and so I think that those are the biggest bucket of new share opportunities that we're we're driving towards but again.
With the.
With the Norstar launch we're also now getting into a very large opportunity for posterior cervical with a newer system right. We had probably our oldest systems in our in our bag are getting replaced by by that system. So it's it's a big new market opportunity for us.
Okay got it thanks for taking the questions. Yeah, you bet have a good one Jeff yeah.
Yep.
Our next question comes from the line of Matthew O'brien from Piper Sandler Your line is open.
Good afternoon, Thanks for taking my questions. So.
Either.
Either either keeping buys you know as far as the Q3 results goes if you net out what was going on in those three territories that made up 35% of your sales historically that equates to about 14% growth that you saw in the rest of the U.S.
And so what I'm trying to figure out is you know I know some parts of the U.S. and still working well below capacity in terms of the number of cases, they can actually do.
But it's always you know Q3 is a typically seasonally easier quarter or so.
Cornered a comp off of so what are you seeing I guess underneath the surface in terms of your business from a share taking perspective, new accounts that maybe we don't have good visibility on was that 14% much much higher than that just because you know.
The inability to you know to be as.
On the capacity factor about from a volume perspective, or just any other commentary you can provide kind of under the surface in terms of what you're seeing from eight a share taking perspective.
Yeah. So you know this is.
This will be an interesting quarter, because I think that that number of providers, probably did a little bit better than we did have a couple that didn't do as well as I think that were anticipated, but it but I think overall it was a robust surgical quarter.
I think.
It just depends on different companies and where their concentration points are right. So.
Our concentration point was an advantage at one time when we win when there's been some some disasters or what have you and then in other times, it's been it's been our challenge in so.
In this particular case those are the areas that were hotbeds recorded. So so there was some.
Some slowdown in certain cases, I think overall, though.
We feel good about where fourth quarters going we feel good about how hospitals seem to have a new decision tree or algorithm when it comes to how they're going to address.
Spikes for a return to the I see you and how that will impact or not impact the elective surgery scheduling so.
But your math is right I think if those would have been on par to the rest of our our growth profile across United States, you would have seen that lift and and growth overall.
Got it and then that's helpful keep as a follow up for you specifically and no offense to John but you know you've been in this industry for a while you built that another company. Historically there was a lot of you know a lot of components to building that business new products, obviously, new approach getting access to a lot of.
These larger hospital systems, where are you at as far as the C. Spine lifecycle in terms of some of those areas that again may not be fully appreciate it I don't even think you have full distribution across the entire U.S. So.
Where are you at as far as that lifecycle goes the new distributors getting into some of these bigger hospital accounts and systems to really you know I don't want to say necessarily inflect because it your old employer you know obviously the spine market was much much healthier back then but you know to either continue to see this level of growth or even a little bit of an inflection.
Even further when we get into more of a normalized timeframe for a period.
I think it's a fair question and it's in the sense that at one point, we were able to get new distribution, just because we were able to show that we were going to innovate and I think that we're now at a place where we're able to get probably more.
Tenured seasoned distribution end markets that we don't participate in because we are now rounding out the portfolio I mean, if you look at what will be completed yes. As we end 2021 will really be a foodservice spine company with the new product portfolio, meaning we're not we're not resting on any law.
I guess the products to continue the majority of our revenue. So I think that is a big shift for us the conversations we're having now the new folks that are coming aboard and leadership as well as in our distribution channel I think that we'll have opportunities in some areas to be direct as we as we move forward it will be opportunistic, but we're not.
Altair purposely driving that strategy, but I do think in some cases, there's opportunistic.
No.
Individuals that we don't want to and prefer to be more to direct capacity or a modified direct capacity.
And we can be receptive to that I think we also will be in a place soon too that we're going to our partnership as it continues to unfold was 70.
He will be a very strong enabling technology, they have new products coming forward as well.
Peter very nicely into our am I asked platform that will cater nicely.
To how we want to drive those new market opportunities that I just mentioned in the previous question sorry.
Right.
From our look we still feel like we're in that very early stage of how we continue to accelerate growth and very much want to want to be focused on as Bob mentioned earlier, the high teens and getting into the.
Some quarters of 20% growth or more.
Very helpful. Thank you.
Your next question comes from the line of Brendan.
From Cantor Fitzgerald Your line is open.
Hi, Thanks for taking my question can you hear me.
Yes, we sure can all right. Okay. Thanks, congratulations on a very good quarter. So thank you.
I've been hopping between a few calls, but I wasn't a call earlier today, where comp admittedly in a different petco.
And told me that that the system. When you put those that had suspended indictor for surgeries due to the resurgence of Capex, obviously, you've put up good numbers in Threeq can you put out very strong and well.
[laughter] yeah.
Yeah.
Seems you have a lot of confidence in your business going forward, but I'd love to just get any color that you can provide on that and receive today and how you're doing.
Yes, Brad and you were going a little bit eating out for us what what.
Protocol and what area is is you moving.
Moving back on elective surgery, so that again.
So hey.
Hey, now the company today I always speaking man.
You mentioned that they had received the list of 20 hospitals that had suspended elective procedures. So.
So just I'd love to get any comment whether this is something you're seeing within your portfolio as well granted you have very strong for Q guidance.
Yeah I think.
We want to do a purchases based on where we see things now right and I know we copy out at that there is widespread shutdown impact guidance, but we put a lot of thought into it and we've seen.
Isolated pockets of hospitals, stopping or slowing down elective procedures.
I do believe that's fine is.
Lessen elective and more of a deferral procedure.
So yes, it can be shut down short term certainly as we saw earlier this year.
But based on the intelligence, we have we had as of today seeing that there are isolated pockets of hospitals that have shut down or slow down surgeries that presents a risk, but it doesn't present a material risks such that you know we wanted to pull back our guidance that we offered.
We put out our revenue.
Silver so as we alluded to you many times in the call. It's something we have to pay close attention to because we have seen some of that in the news in recent days and we know the cases are ticking upwards. So we're going to have to continue to track as Keith said, we're also optimistic that.
Healthcare providers are more equipped to deal with it than they were back in the spring as well.
That being said if hospitalization significantly increase and I see you capacity is completely consumed by co but it does present a risk to the revenue levels again, but we are looking at things as they stand today and as we've been tracking it in recent days and weeks to understand what the landscape looks like and and seeing that there are isolated cases.
But it's all based on intelligence, we had we had as of today.
Great. That's very helpful. Thank you very much.
As a reminder, you still have a question press star one.
I'm showing no further question at this time I would now like to turn the conference back to Mr. Keith Valentine Your CEO.
Thank you again for joining us for our call and we will be talking with you again after fourth quarter results have a great evening.
And that concludes today's conference call. Thank you for participating you may now disconnect.
[music].