Q4 2020 SI-BONE Inc Earnings Call
Good afternoon, and welcome to S. Iphones for quarter earnings Conference call at this time all participants on average.
What would be for trading day.
Question and answer session until we're teamed up todays call.
This call is being recorded for replay purposes I would now.
I would like to turn the call over to Matt.
From the COVID-19 growth for a few introductory comments.
Thank you for participating in today's call. Joining me are Jeff Dunn, President and Chief Executive Officer, and Laura Francis Chief Financial Officer, and Chief operating officer of upside on earlier today Si bone released financial results for the quarter and full year ended December 31, 2020, a copy of the press release is available on the company's website before we begin I'd like to remind you that many.
But we will make statements. During this call that include forward looking statements within the meaning of federal Securities Law, which are made pursuant to the safe Harbor provisions for the private Securities Litigation Reform Act of 1995 any statements contained in this call that relate to expectations or predictions of future events results for performance are forward looking.
These forward looking statements are based on the company's current expectations and inherently involve significant risks and uncertainties. These risks include the impact for COVID-19, pandemic will have on the ability and desire of patients and physicians to undergo procedures using the <unk> implant system. The duration of the COVID-19 pandemic and what isn't.
The COVID-19 pandemic will recur in the future. Other forward looking statements include without limitations, our examination of operating trends and our future financial expectations, such as expectations of hiring surgeon training and adoption.
Net active surgeons, new products clinical trial enrollment and reimbursement decisions are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our most recent quarterly report on form 10-Q filed with Securities and Exchange Commission on November three 2020.
Si bone disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast today March eight 2021 and with that.
I'll turn the call over to Jeff.
Thanks, Matt Good afternoon, and thank you for joining us before we get into the details for the quarter I want to thank all the health care workers taken care of Covid patients as well as the over 100 Si bone field personnel, who are on hospitals on ASC is virtually every day as well as the almost 600.
<unk> surgeons, who treated sacroiliac joint dysfunction patients with Ipos during the quarter.
In accordance with our pre announcement on January seven total revenue for the fourth quarter was a record $22.1 million, a 12% increase compared for the fourth quarter of 2019, and a 9% increase compared to the third quarter of 2020.
As an organization, we continue to execute at a high level, which is reflected not only in our revenue growth, but also our ability to control expenses and manage operating losses.
As we proactively adapted during the early days of the pandemic one of the most impactful initiatives that has increased surgeon utilization rates and reduce cost there has been the rollout for the Si bone simulator surgeon training system.
This innovative training platform eliminates many of the barriers that we historically have had to overcome prior to the COVID-19.
COVID-19 pandemic, our sales and medical affairs teams can now trained surgeons on demand bypassing the cadaver lab, which eliminates radiation exposures for surgeons and staff. Additionally, there are no travel requirements on the part of the physician and reps, which significantly reduces overall core.
<unk> and logistical planning well this has been a positive for the company from an efficiency perspective. The key driver has been the positive reception from the surgeon community specifically approximately 45% of all first time U S surgeon trainings from July to December were executed using Si bone.
<unk> the number of trainings continues to ramp and we expect this remarkable capability will attract many more searches for the future. We are targeting the approximately 7500 spine surgeons in the United States of which 1600 had been trained and completed a procedure today.
We are making an impact but there is still much more opportunity ahead, the enthusiastic reception of our simulators over the last six months.
With which surgeons can be trained have allowed us to more effectively target new surgeons and reengage with inactive surgeons for additional simulators where to deploy to the field for training on February 15th and we expect 16 additional units to be deployed by the end of the.
Second quarter.
We completed a follow on offering in October.
Yielding net proceeds of 71 $6 million, we believe that our cash and marketable securities of $196 4 million. We had at the end of the fourth quarter, including the proceeds from the offering will allow us to continue focusing on driving sustainable growth specifically given the <unk>.
Approved reimbursement landscape with expanded insurance coverage from private payers as well as the 23% increase in surgeon payment, which became effective at the beginning of 2020 before the pandemic began impacting our operations. We believe we are on a unique position to expand the mark.
For minimally invasive Si joint fusion.
We estimate the U S market in 2020 was a little over $100 billion with the potential to be over $2 billion per year in the future.
As the current market leader, we are the we will be the primary beneficiaries of market expansion and to capture this opportunity. We are investing in a number of growth initiatives from 2021, we intend to grow our field sales force leverage our simulators to train surgeons investing patient awareness.
Expand product offerings and soccer Joy.
<unk> fusion trauma, and deformity and engage in process improvements and systems initiatives to scale the business to profitability.
At the end of February we had 70 direct sales reps and 53 clinical support specialists. We have also added to our sales leadership team to manage our expected head count and sales growth in 2021.
Effective January one 2021, we added a third area Vice President of sales and the center Central U S to complement our east and West regions. Finally, we expanded from 12 to 14 regions promoting three of our top direct sales rep through regional sales director while back.
Filling their areas with high performing sales reps. Additionally.
Additionally, we have hired a vice president of digital marketing, Brian Brian broke a light to <unk>.
Spearhead, our direct to patient efforts and digital marketing initiatives to increase awareness and Utilizations of Si bone technologies, Brian has an extensive background and expertise in digital marketing was formerly with Starkey hearing from medical device company and Kellogg company and has years of <unk>.
It ties in agency experience.
We look forward to Brian its impact on our growth. Our initial strategy is to pilot direct to patient marketing tactics on.
Though it is still early we are encouraged by the results. We are on the midst of a second television marketing test program in multiple cities as well as making improvements in the operations related to patient inquiries to our call Center.
We will be evaluating the results of this second direct to patient TV test in the next few months.
On the reimbursement front, we continue to add exclusive coverage from some of the largest health insurance providers in the United States specifically in December Humana established exclusive coverage for <unk> use in minimally invasive Si joint fusion procedures, adding approximately 13 million covered lives. In addition priority.
<unk> became the 36 payer to announce an exclusive coverage policy in late December adding roughly 800000 lives mostly in the state of Michigan.
Lastly, Blue Cross Blue Shield Association's evidence street updated its policy continuing to support only triangular implants overall reimbursement continues to be a tailwind for the company with broad coverage across the United States with total covered lives eclipsing $300 million, including approximately <unk> <unk>.
80 million lives covered exclusively for procedures using ipos.
And other reimbursement news the international Society for the advancement of spine surgery for ISS, which is the largest spine surgery only society in the United States published its updated policy and guidelines on.
Si joint fusion the policy and guidelines remains supportive of continued adoption of M. I ask Si joint fusion procedures by the clinical and payer communities limited to procedures using our lateral trans iliac approach, which includes ICU the icu's procedure.
On the all SaaS, while the ICF policy did not endorse any specific mis Si joint fusion system. The updated policy states that most high level for like one month.
The effectiveness durability and economic benefit of lateral mis Si joint fusion is derived from the use of eye fuse ISS does not recommend minimally invasive post urea or dorsal si joint fusion procedures, whether using an implantable device or a product.
Such as bone allograft.
In addition to the reimbursement momentum we benefited from in 2020, the number of clinical studies reported positive outcomes of Ipos continues to increase specifically at the end of 2020. There were 92 different published papers highlighting the breadth positive result, and consistent.
C of our clinical data despite COVID-19 challenges to clinical trials, we were able to enroll more than 40 patients and are Sylvia adult deformity study a randomized controlled trial of <unk> bedrock against SJI screws alone and multilevel fusions, we expect to have our firm.
First readout from the study in 2022.
We expect to talk to you quite a bit about new product introductions. This year. Our goal is to become the global leader in sacral pelvic surgical solutions. In addition to Ipos. We have been pleased with the reception by surgeons to iqs bedrock for our second product <unk>.
Intended for use the Si joint and long construct adult deformity cases, we expect to launch on next generation adult deformity product by the end of the year we've.
We've also spoken about applications for our current products for general trauma.
I've used is currently indicated for acute non.
Non acute and non traumatic fractures involving the Si joint.
We would be launching a product in the first half of this year that is targeting trauma patients. The product will also have applications for our Si joint fusion core market.
To conclude I would like to take a minute to thank BSI Boeing family as many of you know we announced in early January that while I will name with the company as executive Chairman I will be handing off the role of CEO to Laura on May 1st It has been a privilege and honor to work with our remarkable team and lead the effort.
Help over 50000 patients to date.
Laura has been an exemplary leader and operator for assai bonds since joining the company in 2015, she's an exceptional executive who is passionate about our mission.
Highly respected by investors and our team as well as our board of directors is committed to our principles and values and knows how to lead and execute our strategy to invest in future growth.
As executive Chairman I look forward to remaining highly engaged with cyclone and our strategy and supporting Laura and her new role as CEO.
We also announced the promotion of Tony Recoup wrote to President of commercial operations. Tony is one of the industry's leading executives and has been with the company for the past five years as Chief commercial officer.
In his new role he will be heading up worldwide sales marketing reimbursement and medical affairs.
Since announcing the easily senior leadership changes we are also on the process of searching for our new CFO.
We anticipate that we'll have a new CFO in place by May.
We're also excited to welcome me can issue more to our board of directors Meeker brings a wide range of financial strategic and commercial leadership expertise, having launched disruptive medical technologies around the globe. Most recently Meeker was vice president of commercialization at envision.
Medical and currently on operational partner with skilled healthcare partners, a $1 2 billion dollar life Science focused venture fund.
<unk> holds a b, a and economics from Yale on an MBA from Harvard.
With that I will now turn the call over to Laura Francis Our Chief Financial Officer, and Chief operating officer to provide more detail on our financial results.
Thanks, Jeff is.
As founder of the business over 12 years ago, Jeff has been a pioneer for the use of <unk> to treat accurately actelion dysfunction.
He's left an indelible legacy and will continue to be a valuable resources, our executive chairman.
I'm honored and excited to lead on Si bone during this unique period of opportunity.
Turning to the financials fourth quarter total revenue of $22 $1 million increased 12% compared to the prior year period.
Sales of $27 million, which accounted for approximately 93% of total revenue in the quarter increased 12% compared to the prior year period.
International revenue of $1.5 million increased 15% compared to the prior year period.
The credit it started off as expected with October revenues growing at a similar rate to what we experienced in the third quarter of 2020.
However in the back half of November cancellation rates started to increase cash.
Kevin by the resurgence in COVID-19 cases in.
In December these trends worsened, resulting in roughly 90 U S cancellations in the month, we estimate cancellations in the fourth quarter represented an approximate U S revenue headwind of $1 million to $5 million, which does not include other procedures that were likely not booked in the quarter due to the surge in COVID-19.
Teen cases.
COVID-19 was also a challenge in certain European markets, especially the U K.
Although COVID-19 was a headwind in the quarter. We believe we will recapture many of the COVID-19 impacted procedures as infection rates diminish.
We ended the year with 60 for direct sales reps and 58 clinical support specialists.
In addition, we ended the fourth quarter in 2020 with a record 588 active surgeons up from 539 in the fourth quarter of 2019 and 567 in the third quarter of 2020.
Gross margin for the fourth quarter of 2020 was 90% compared to 90% in the fourth quarter of 2019.
Relative to the third quarter 2020 gross margin increased by approximately 300 basis points, driven primarily by management of operations expense and revenue recovered.
Operating expense increased 6% to $27 $7 million in the fourth quarter of 2020 compared to $26 $3 million in the fourth quarter of 2019.
The increase in cost was primarily driven by higher employee related costs.
Stock based compensation due to higher head count.
Mainly from sales hiring.
We also made additional investments in research and development for our new product launches planned for 2021 as discussed previously by Jeff.
The increase was partly offset by a reduction in general and administrative expenses in the fourth quarter of 2020, primarily due to the accrual on the estimated settlement costs of the P. C. P. A class action lawsuit on $600000 in the fourth quarter of 2019.
Our operating loss for the fourth quarter of 2020 was $7 $9 million compared to an operating loss of $8 $5 million in the fourth quarter of 2019.
Our net loss was $9 million for 28 cents per diluted share for the fourth quarter of 2020.
As compared to a net loss of $9 $1 million or <unk> 36 cents per diluted share in the fourth quarter of 2019.
To further strengthen our balance sheet, we completed a follow on offering with net proceeds from $71.6 million in October of 2020.
Cash and marketable securities for $196.4 million at the end of the fourth quarter.
Based on our current operating plan, we believe that our existing cash and marketable securities will enable us to fund our operating expenses and capital expenditure requirements.
Now I'd like to provide our 2021 outlook.
While encouraged by the strong underlying momentum in our business, we remain cautious given the uncertainty surrounding COVID-19 cases, and the potential negative impact on hospitals and Nancy.
Our guidance is highly sensitive to assumptions on a global recovery, which anticipates more normalized case scheduling and elective procedure levels progressing throughout the year.
Based on these assumptions, we expect total revenue of $92 million to $94 million representing growth of 25 to 28 per cent compared to full year 2020.
Additionally, we expect to end 2021, with approximately 90 direct sales rep and 60 clinical support specialists up from 64% and 58, respectively in 2020.
Lastly, we expect gross margin to trend toward the mid to high 80% range in 2021, as we increase spend in operations to support growth of the business.
I will now turn the call back over to Jeff for closing comments.
Thank you Laura in closing our confidence in the opportunity in front of us for the business and for shareholders is stronger than ever.
With the additional funding we have put in place at an accelerated investment for growth plan. Most importantly, it will help us achieve our mission to help many more patients direct to patient initiatives increased surgeon training additional field sales personnel to educate and support the surgeons new product developed.
And automation can scaling initiatives are the five key focus points are for our investment strategy.
With reimbursement broadly established in the U S. We believe that now is the time to invest and substantial growth in our market and as the market leader, we and our shareholders will be the beneficiaries of that market expansion. Thank.
Thank you for joining the call today, we will now open it up for questions operator.
Thank you and ladies and gentlemen, as a reminder to ask a question just press star one on your telephone keypad to withdraw your question press the pound our in house team.
Again star one to them.
Our first question comes from David Lewis with Morgan Stanley. Your question. Please.
Thanks, and good afternoon first Jeff Congratulations on on building, a fantastic company and creating a dramatic amount of value will be missed and Laura congratulations on the new position.
Thanks, David.
A couple of things here just want to focus on guidance and then the pipeline here. So a couple of questions on guidance as the first is just.
If either Jeff or Laura just what did you see throughout.
We're getting pretty late here in the first quarter. So what transpired in the business sort of late February into March because consensus has your business down kind of 10% sequentially as sort of what what are you seeing in the business February March and what's the relative comfort at that sort of $20 million level kind of building off up to start the year.
Maybe I can share.
Sure go ahead on me to start Jeff for Okay.
I'll just talk about the quarter in general and from a from a January perspective.
If you call. This the third Covid surge.
I I would put January is the trough he had the highest.
Cases that were out there there were issues in the hospitals there were issues with elective procedures in hospitals and there was also patient concern and so we actually experienced a decline.
In the month of January in our business for the first time since April of 2020.
But then in February we started to see a return COVID-19 started to abate.
And so we had fewer canceled cases in February although to be honest February was impacted by some of these ice storms as well we saw a lot of cases that were canceled to be rescheduled.
So it did tend to be in the Texas area in the mid part of the country, where there were where there were some issues, but we did see positive growth in the month of February and then as you know we look at our case bookings honestly every single day, but.
Certainly at the very beginning in the month, we just take a look at where our case bookings are at and our case bookings are at a historic high for a March they are the highest that they've ever been at the beginning of the month. So what appears to be happening is that like I said you saw this trough in <unk>.
Anywhere in our return to growth in February and then a very strong start to March and if you. If you take all of that information and you linked it to our guidance on what we're saying is we don't think that March is going to make up for what we saw in January and February.
We're starting to see the rescheduling of those cases that were canceled in Q4 as well as those cases.
That were canceled in January and February.
Okay.
That's super helpful. And then just I'll just ask my next to and I'll jump back in Q1 is another guidance based question. So I look at 'twenty, one guidance and I appreciate you providing guidance because many of your peers did not do so.
Well look it represents 40% growth 21 for 19.
<unk> 20 per cent per annum growth, which I think do you think the underlying business is probably tracking higher then secondarily.
Hello.
It seems that we lost faith in him.
David When you return, yes, sorry about that one can you hear me now.
Sure sorry about that.
So im just wondering on guidance, it's $40 20 per cent per annum growth, but then sequentially you Laura Jeff if I back out stocking and the.
The backlog, it's kind of 20% growth into the fourth quarter, which is pretty robust, suggesting kind of 'twenty one guidance for little conservative. So what kind of went into that 'twenty. One number I guess just a question on guidance kind of first half versus second half and then Jeff maybe for you just I don't think anyone really is focusing on significant impact from the fixation business, but now what I think.
About diligence for getting from.
On the fixation from bedrock and then the second generation launch you have in the second half of 'twenty, one I sort of feel like this could be a much bigger part of the business 22 and beyond so we just sort of share your thoughts on what percent of the business that could be or some of the trends you're seeing there. Thanks, so much on sorry for the connection problem.
No no margin.
Wanted to ask first one on I'll do the second.
That's perfect yeah. So in terms of how we thought about the guidance what we were taking into consideration is the.
The impact of Covid.
Early in this year and then what we're assuming is that COVID-19 will diminish with each sequential quarter as vaccine availability improves and patients begin to seek elective care and typical levels. So for the assumption here is that we will see.
More on normalized key scheduling an elective procedure levels beginning in the second quarter of 2021.
So I hope that's helpful information.
Jeff maybe you can answer the final question.
Sure.
So David.
As you know there are three parts of the business the core Si joint fusion business.
They're very solid.
Feeling great about it.
And.
For the fixation business or the adult deformity space, which I think you just generalizing in calling fixation.
So it's turned out that this is.
Not an easy sell but a very straightforward sell and in fact surgeons understand the dynamics of the situation.
And that there is 29%.
Some kind of complication with these adult deformity cases.
At the base of the spine on the bio mechanics are very clear.
That there.
There's additional adjacent segment disorder effect from that.
And we're engaged with.
Dozens and dozens of surgeons across the countries that are very excited about this particular area.
And so on.
Although it was.
Not a huge part of the business.
In 2020.
We certainly expect it to.
Be a growth driver for us.
In 2021 and 'twenty two.
Particularly as we are.
<unk>.
As you know the bedrock technique is more of a technique with the same product that's longer.
But as we introduce the next generation product later late this year.
We can envision.
Not every surgeon, but any surgery, we believe that goes to the sacrum.
We think we'll benefit from our next generation product or even from the current bedrock technique. So.
I don't think we've had.
But a handful of surgeons to say that's not necessary the vast vast majority think.
This makes complete sense no one has anything like this and when when you see our next generation product.
I think it will it has the chance to become.
On a very standard part of adult deformity, which is a good sized market and then on the trauma side.
We.
As we've said.
Going to introduce the trauma and Si joint fusion core product.
The first half of this year. So you will see that in the not too distant future.
And we believe the reception for that product on it.
There's going to be.
Very robust.
Deform or trauma screws have had no invention to speak of as we see it.
And there are lots of aspects to improve.
The capability.
On a trauma devices and I think we've incorporated lots of those things and this new product line.
And we think it'll also help grow the business in our base Si joint fusion business. So.
On both fronts, where we're quite quite.
Excited about both and most importantly, it's because the surgeons that we've engaged in with all the labs, we've done out there testing the product trying the product iterating the product.
Have made great progress in 'twenty, recoup ROE and Nick for who led that charge along with our engineering team led by Scott Your B.
On an extraordinary job setting setting those product lines up based on the needs out there not on what we thought but what on the needs work.
Okay.
Great. Thanks, so much.
Welcome David.
Our next question comes from Bob Hopkins with Bank of America. Your question. Please.
Oh, great. Thanks, and good afternoon I appreciate the the call here a couple of things just following up on on David's questions I'm, sorry, if I missed this but but Laura.
Curious relative to where consensus is for the first quarter is that a number that you're roughly comfortable with.
So if you if you take a look at where the numbers are currently at.
And I think that consensus was at around $94 8 million for the year, we are providing guidance of $92 million to $94 million.
Certainly I was focused more on the horse for just in the first quarter.
Certainly a good portion of that difference is related to the first quarter.
And so if you think about what I said about January and February we actually had a decline in the business in January and then a return to growth in February and we see a very strong march but not to the level.
Making up for what happened in January and February.
Hello, lower numbers in Q1 got it no no. Thank you I apologize for interrupting your net that was very clear okay.
And then.
Something else you said in response to David's question is really caught my attention, though case bookings for March for the highest ever could you just by.
If I ever do you mean heading into any month in the history of the company heading into it.
Heading into any.
On the company ever.
Okay and so what it tells me is that we're seeing cases returned to more normalized level.
But then on top of it we're seeing these rescheduled cases coming in that that's what I believe is happening based on looking at our bookings okay.
Similar to what we saw a year ago in Q2.
It it it you certainly didn't have the trough that we saw in March and April of last year, but as you may recall. Our April was it declined in May we saw some growth and then we started to see very strong growth in June and July which included those.
New cases, as well as the rescheduled and this feels like the same exact pattern once again.
Okay is that well balanced across the country or is it you've got a couple of really active places and then and then a couple of it still need to catch up from them from a book cash.
You're right it is still on.
It's variable by by region. So for example, our southwest region is still a little bit behind where we would've expected for it to be so southern California. Those areas are still appear to be challenging, but most other areas for the country, but we're seeing a theory.
Nice rebound okay. That's helpful. On the same kind of thing Bob in Europe, where we're seeing countries like France and Germany.
Doing doing really really well, but the U K as.
<unk> trailing.
Because of Covid.
Yeah.
And on the U K was coming on so strong before Covid, we expect that true.
Once that dissipates.
We would expect that to be a major contributor.
Yeah and on a very positive way.
Once we get a little farther down the road book for vaccines.
And then for Lora or Jeff.
The the launch that's happening in the first half for the year on the on the trauma side can you just spend a quick second on.
Exactly what youre launching and maybe set some expectations on how big on how would you quantify this market opportunity is just a little more color on the on the first launch that you're scheduling on the trauma side and that'll do it for me. Thank you.
Yes sure Bob.
So.
You know what we've said is it's a device that will be used bolt on.
On.
On the trauma side in our core business.
We have.
Gotten clearance on that product. So, we're just ramping up training and getting ready for the launch and inventory and that kind of thing so.
We have on almost ready to go so we'll certainly watch it from the first half.
But it's in the trauma space suits for.
It can be used for fixation of either small or large bones and that could be.
Either in a high energy fractures or low energy fractures, depending upon.
On the particular circumstance, so it'll it'll it'll be.
I think a very effective capability to to fix.
Fixate on.
Uh huh.
Bones in the trauma space.
We think better than anything that's out there on the marketplace today and then on the core business.
Oh, sorry.
Si joint fusion.
We're seeing we think theres a significant capability your opportunity there too on.
Our leadership product and in certain circumstances.
If you just be a little patient with us it's not that far off that will launch that product.
Okay, great. Thank you very much and congrats all around.
Thanks, Bob.
And our next question comes from Kyle Rose with Canaccord Your question from.
Great. Thank you for taking the questions.
So I just wanted to ask a little bit more about the stimulators I mean, it sounds like that's obviously a huge initiative you've got a lot more simulators coming on by the end of the first half can you just maybe help us understand how that changes.
Like the ROI on your marketing and education programs does it allow you to take a wider shot.
Of surgeons.
Does it allow you to go deeper into into specific territories and accounts I'm just trying to understand.
What that looks like and then how that productivity with the stimulator.
<unk> with some of your prior historical in person cases, they're just trying to understand that the on boarding and the productivity opportunity here.
Yeah, So Bob Weinberg, Laura why don't I start and then you can add in.
With the new simulators, because theres, so convenient where you can train anyone in their office without any radiation it will absolutely.
Expand the number of people that we trained and do so cost effectively Kyle So you know.
We're.
Training someone who we think's going to then do a case.
And then you've got to fly them too.
Three hours.
It can cost thousands of dollars here.
We think someone's going to do a case.
It costs us very little to go into frame them. So we can go wide and it's also from a productivity standpoint.
On a much greater capability, because if you think about the numbers I mean you have.
Call It 20 simulators out there.
And their use 50 weeks a year.
And they're used a couple of times.
<unk>.
A week.
You've been trading with many of you just a couple of thousand surgeons and if you train a couple in recession.
The numbers go up so it almost gives us a limitless capability to train as many surgeons as wanted to Trinidad.
Also as we've said in the past.
Interesting to see how many surgeons are interested in the technology because it allows you to look at your progress along the training way so with a cadaver lab you you put the screws in or do you put the implants and I should say.
And you really can't see exactly where they are until the end.
Here you can you can all along the process take as many pictures like without any radiation. So it's a very attractive thing and I think the.
On the trick and the whole thing is to make sure that we're choosing good surgeons in and using our time effectively but this makes.
The ability to widen the number a much easier.
Great and then I.
I think the.
Earlier this year I mean, I think it was really on the Q2 or the Q3 call you talked about.
Some agreements with some of the larger change on <unk> outpatient centers.
Maybe comment on on what type of trends, you're seeing as far as the location of procedures into 2020 and kind of how you think about that evolving in 2021, and then how that might influence.
Pricing and Asps on a per procedure basis.
I can we can talk a little bit about that yeah, yeah sure. So.
Our sales in AFC had continued decline, we're getting close to 20% of our sales that are now on an ASC setting and we think it is a very important setting for our prestige or getting on the simplicity of the procedure.
As well as the surgeon desire to be in an ASC in certain cases.
And and so we are continuing to.
See a trend in that particular direction.
Great. Thanks for taking my question.
Okay. Our next question comes from a day totally with JMP Securities. Your question. Please.
Hey, Congrats again on the executive leadership changes.
Maybe you've shown some really good progress of late with the active surgeon you know getting <unk>.
Increasing that base I was wondering as we look to the 'twenty One guide.
Is there any color in terms of how many you think you'll need to add to get to that 25% to 28% growth is that.
You mentioned the Rep adds but I am curious, where you think that stat.
Plays into sort of your forecast and should we expect over 100, new surgeons to become active this year.
Yeah. It's a good question. So in terms of how we're at least starting to think about active surgeons, we're looking at historical patterns and.
And historically, what we've done since we went public is we increased both the number of active surgeons that are.
Using our product.
As well as the number of procedures that the active surgeons are performing so for example, when we went when we went public on average an active surgeon was doing around three cases per quarter. Instead, now theyre doing close to four cases per quarter, instead, and so what we.
We're baking into our guidance is an assumption that the increase in the active surgeons what accounts for the majority of that growth.
But that there would also be some additional growth in the number of procedures being performed per active surgeon.
Got it and.
Jeff I think I heard you say the word profitability there so.
My follow up would be as well.
'twenty one should we expect more operating leverage you've been showing some ablate I know you've cut down the spending in <unk>.
Yeah, you're welcome David.
So in a.
What we've said.
'twenty, one we are going to.
Increase the loss a bit.
So we haven't slowed down the spending at all on and as Laura shared earlier our guidance for the year is just a little bit less because of the Q1 effect of Covid in this.
These storms in February.
So.
Net net where we're gonna widen the loss.
When we think about 2022.
We feel like Okay now we can.
Get back to hopefully to a more normal world and and get leverage in the business and as you saw the gross margin is holding pretty strong.
With 90% gross margins.
Well, we certainly expect it to decline.
Going forward somewhat.
But.
We are going to have a wider losses this year.
Because of.
The increased accelerated spending plan on it.
On a slightly less.
Revenue forecast because of Covid.
Thank you.
Youre welcome.
Our next question comes from Taylor comp with true your question. Please.
Hi, guys. Thanks for taking taking our questions. So just a follow up on the two new product launches coming can you just give us a little bit more in detail as to how meaningful these launches can be mostly how you're incorporating those new products in your guidance as it stands today and then just on on the <unk>.
<unk> side, how should we think about gross margins just as these new products are being rolled out and overtime.
Yeah. So.
Okay, well I guess I'll make two comments one on on market opportunity.
On the second one is on market penetration and then I'll, let Laura talk about a.
Margins and those kinds of things.
The first one is on.
And based on Si joint fusion as you know.
You know the markets call it two and a half a billion dollars.
And it's still less than 10%.
<unk> penetrated.
In the trauma.
Deformity space, we think those markets are hundreds of millions of dollars each and we think those are.
Yeah.
So almost not penetrated at all because the whole opportunity, we think in front of us because it's a better product so.
Yes.
Putting an astro AI screws.
In adult deformity patients has not been a great adventure.
It's been fraught with a bunch of challenges and we are.
Sure.
Sure that our our capabilities will be much better than that and more importantly, the resurgence or think that so.
You know the penetration rate is very low there as well so I think in all three markets.
There's just tons of opportunity, but on a relative basis.
I know you're talking about two and a half billion you're talking about a few hundred million dollars on a few hundred million.
So that just gives you a picture of.
Market size market penetration on Laura can talk a little bit in general about the gross margins.
Yeah, So I did give a little bit of information on gross margin.
In the script and what we're expecting is that gross margins are going to continue to move.
Move a little further downward.
It's hard for first of all it's hard to keep up on 90% growth.
<unk> margin, which we have in this last quarter. We've obviously been very careful about our spend throughout the the COVID-19 challenges and you know given how high on gross margins are we don't want to lose business based on margin on.
And then we talked a little bit about ASC previously and there does normally tend to be a little lower.
Price that we get in an ASC book, but we have seen a CS is absolutely critical.
Sites of service were growing business, there were growing market share there and so they've been a very important place for us to sell.
Getting to your question about the new product launches the new products.
And in certain cases.
May have.
Contribute to to lower gross margins as well and in some cases, we'll be using to implants versus three implants with our surgeons, depending upon which product. We're talking about for example, right now on bedrock product uses.
Two implants versus the three in our typical <unk> procedure and so for all of those reasons, we are providing guidance, but let's say our gross margin should.
Do you expect it to be in the mid to high 80 per cent range.
Got it no that that makes a ton of sense and then you guys are I mean, youre hiring quite a bit is promoted from some folks in sales and you've added new leadership and for.
What do you what are you sort of expecting the cadence of sales rep hires to be over the course of this year it sounds like there'll be more front half weighted.
And then have you made any any sort of material changes to sales force compensation or priorities. This year as compared to last thanks for taking our question.
Youre welcome.
From a hiring standpoint.
<unk>.
We.
We are continuing to aggressively hire kayla.
You know.
But.
The hiring done.
During this year really on will affect 2022 so.
But where.
We absolutely believe it I mean, it's a base tenant of putting more feet on the street to particularly when you're you're going on we're going to have three three different areas.
On the Si joint fusion adult deformity, and trauma, we need more people out there to support those surgeons. So we haven't slowed down the cadence for the team is hard on the management team is hard at work trying to bring on.
And on successfully bringing on some really fantastic people.
With regards to compensation I think we've shared with you in the past that the sales forces because mostly compensated on.
Commissions related to.
On the revenue that they bring in but they all share out of a component.
That is associated with training.
To.
To encourage our.
Initiatives and efforts in that particular area, which yields fruit down the road.
And they are completely bought into that they understand that we have a.
A very sophisticated group and I think Tony and Troy.
Done a great job, making sure everyone understands the plans and I think more of the same as the right thing to do.
Thank you guys.
Youre welcome.
Yeah.
Our next question comes from David Saxon on with a need on your question. Please.
Yeah.
Yeah, good afternoon, everyone and thanks for taking the questions.
My first one is just on yeah, Hey, Jeff on just on on the fourth quarter. I think you said you had about 150 cancellations I mean it sounds like you also had a lot of January so just wondering how many you expect to come back and over what period of time and then just looking at guidance.
I guess, what does guidance assume in terms of how many come back.
So I can I can give some information on.
On the fourth quarter, I mean, you're right David we saw.
Around 150 in the fourth quarter and then we saw more in January and February and what's difficult about those numbers that we're providing in terms of cancellations or are those are only the ones. We're aware of.
And and you know what that means is that there are probably a lot more cases that never made it to us they never got on our books.
'cause the surgeon never book them or they were canceled before before they actually came to us so.
So we think that you know those numbers provide a good proxy for us to understand what was going on especially related to COVID-19, but they certainly don't tell you the extent of the issues.
Our surgeons, we're having due to COVID-19 in terms of the return of the business. It is that's another interesting question and that's why we felt it was important to provide month by month commentary to you and then do a comparison of what happened.
In mid 2020, when they were COVID-19 issues, so for like I said.
January and looked like a trough February we start to see the return of growth.
On a year over year basis to the business and then March we are seeing the highest bookings we've ever had in the history of the company just for this particular month and so what does that mean it likely means that the.
We're seeing those rescheduled cases coming back in so.
When this happened a year ago, we saw in the month of.
May a return of the business.
June very high growth in July very high growth and then more moderated growth in August and September. So it really takes around 90 days to get back on.
A good portion of those rescheduled cases.
And we are assuming that we should be able to see those cases coming in now if they're continuing to be issues in certain places that question was asked about are there still problem areas. There definitely are.
They were a resurgence is or other things, where COVID-19 continues to impact the business. We didn't want to really bake all of that into the guidance on that as I said, what we did was we we assume that you know Q1 was impacted in January February and that we would see this.
Move back to more normalized case bookings in the second quarter and then further improving in Q3 ending in Q4.
Great very clear and thanks for that color.
My second question is on the direct marketing campaigns.
Can you just talk a little bit more about those and how are you measuring the success of those initiatives.
Is there any way you can use these as an incentive.
To get doctors trained and in the regions you're targeting initially.
And thanks, so much for taking the questions.
Sure David.
So that's on there.
As we mentioned there are a number of TV ads running in multiple cities.
We we really measure it by how many patients called the call Center and asked for.
On the names of our few surgeons to make an appointment with US we always give out multiple names.
And a particular locale or near that persons for patients Zip code.
And of course.
We'll do our best to track.
Those patients through to measure the progress that said we've done some testing on.
I would say, we've upped our game tremendously by bringing in.
From a Brian broke late who has.
With us advertising agency, you're experiencing lots of these programs.
Across many many companies who has experience of Kellogg, obviously, one of the better consumer companies from the world.
And as medical device experience so.
I feel like Okay. We've taken the ball about 10 yards download for field and we're gonna give it to Brian along with the rest of the team who has done some great initial work.
And we will hold on it a lot. So I think we're going to get some readouts from the initial programs, but I expect Brian.
On the team to refine this program tremendously over the next six months 12 months.
So it becomes an important part I think it's strategically important part of the business.
On to be able to get the patients to get them to understand that that there is a robust.
Clinically.
Effective procedure out there so that they don't have to.
Get injections over a long period of time.
And and that they actually can get fixed and stopped going to the doctor.
And so I think it's a very exciting message I think they've done as I said, a great job starting with the program.
But I think for us to really get a great deal of how the programs working.
I think Brian was here.
Nudging me he'd say.
I'm really not going to know how this whole thing works in crisply for nine to 12 months.
But we absolutely firmly believes that it's going to be a driver in the business certainly in 2022 and 'twenty three.
Great. Thank you.
You're welcome.
Thank you. Our next question comes from Brandon Folkes with Cantor Fitzgerald. Your question. Please.
Alright, Thanks for taking my question and congratulations on another good quarter.
Maybe just one thank you for whether they are happy to answer.
How should we think about sales force productivity.
Ramping up in 'twenty, 'twenty, one and maybe exiting 2021.
And I touched on sort of.
2022 is where we get the full impact on the highest day here, but maybe just some color in terms of how we should think about the ramp.
In productivity this year for sales.
Thank you.
Yeah.
Yeah.
No.
As we've said it takes about 12 months for for a.
Sales rep to start to chip in meaningfully.
That said you know when we can.
Productivity is a funny thing.
Since that.
If you add a lot of sales reps are the denominator.
Gets larger.
So really what we think about is the whole structural.
<unk>.
That Ah Tony.
Is driving forward with his management team along with the field team.
Saying when when people get up there or to a million 2 million 3 million for how do we give them help so that they can grow for territory and.
Uh huh.
You can read within the numbers that Laura shared.
About the number of people we put in place.
We have and we will continue to put in more support people are.
That helped drive.
The productivity of the sales rep. So I don't have any specific numbers because.
Certainly we track it every single month.
But I'm not I'm reluctant to share how the productivity is going to.
The forecast over the next year, but suffice it to say with with more products.
More sales reps on the simulator training, we feel great about the productivity of the sales force I think the sales force is very excited about.
What's going on in the field with the simulators, how that's really assisting them on.
They're excited about.
New products, they've been exposed to those products and and they're excited about how our baseline product is doing in the field. So I think the enthusiasm in the field is what really gives me.
And Laura.
A great feeling about how the productivity is going to develop.
Ross the entire company.
And as an organization.
Great. Thank you very much.
Thanks.
And this concludes our Q&A session for today I will pass the call back to Jeff for his final remarks.
Thank you Carmen and.
Thanks for everyone for joining today.
We're excited about what's going on obviously.
We're more excited about.
Getting back to a normal game plan.
Without COVID-19 it the way we feel like we've set up all kinds of great things with <unk>.
Reimbursement.
Sure.
With the people with the simulators.
And hopefully soon we'll actually.
Get the show you for shareholders.
On a real color, there's nothing wrong with our growth in the past book, but I think if we can get this out on the way we can.
Really on Dolores leadership.
For some really great shareholder value. So thanks again for joining.
Have a good rest of the day.
And with that ladies and gentlemen, we thank you for participating in today's conference you may now disconnect cut on wonderful day.
Yeah.
[music].