Q4 2020 SeaSpine Holdings Corp Earnings Call

March 1, 2021

[music].

Thank you for spending by and welcome to the flight there for when did the one P. C Spine Holdings Corporation earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. The asked the question.

During the session you will need the press star one on your telephone keypad. Please be advised that the day conference is being recorded if you require any further assistance. Please press star zero I would now like to hand the conference. So for a day your speakers the day, Mr Hunter Cosby Investor relation.

Please go ahead Sir.

Thank you for participating on today's call joining me from Seaspan is CEO, Keith Valentine and CFO John boss currency.

Earlier today, She's bond, where the school financial results for the fourth quarter and year ended December 31 2020.

During this conference call, we will make forward looking statements within the meaning of are some of the federal securities laws in regards for our business strategy expectations and plans for our objectives for future operations and our future financial results on condition.

All statements other than statements of historical stock of historical fact are forward looking statements. Such statements May include words, such as believe could would will plan intend and similar expressions.

You are cautioned to not place undue reliance on forward looking statements, which are only predictions and reflect our beliefs based on current information and speak only as of today March for 2021.

For a description of risks and uncertainties that could cause material differences between our actual results and those stated or implied by the forward looking statements. Please see our news releases and periodic filings with the Securities and Exchange Commission, which are available on our corporate website at www Dot <unk> dot com and at Www Dot SEC Dot Gov.

I will turn the call over to Keith Valentine Keith.

Good afternoon. Thank you all for joining us.

'twenty one.

The significant and volatile.

The COVID-19 pandemic.

Yeah.

Proud of them.

Net.

The effective spinal implants.

Thanks.

The cash.

The quality.

Right.

Translated into the night.

Product launches.

Yes.

And in 2020.

Yeah.

Nearly 90%.

The year.

And the second half of 2020.

With the increased percentage of our U S revenue from an expanded and increasingly exclusive.

Network.

The meters.

Factors.

Foundational pillars.

Executing on market share taking strategy.

Okay.

The COVID-19 pandemic.

[noise] revenue per day.

[noise] less revenue per se.

[noise] clash.

Yeah.

Yes.

Gross.

The strength.

When the U S hospitals began to restrict cash.

Elective surgeries.

<unk>.

19 cases.

Revenue growth.

Year over year.

Net.

Great.

For sure.

Sure.

Into January and early February however.

We should decline in Covid cases spine surgery volumes are proving once again in many of our surgeon customers have communicated to us that they have once again the accumulated of backlog of spine surgeries to work through.

While we don't yet have sufficient market visibility to provide revenue guidance for full year 2021 based on these trends we feel confident in our ability to grow total revenue in 2021 20 per cent over full year 2020, assuming COVID-19 night in cases of hospitalizations continued to the.

However, given the adverse impact COVID-19 had on spine surgery volumes in January and early February we anticipate most of this growth will be later in the year and the total revenue growth for the first quarter of 'twenty 'twenty, one will be in the high single digits.

The fourth quarter results in line with the announcement in early January total revenue was $46 $4 billion.

The highest quarterly revenue reported since the spinoff.

This reflects a six 2% increase compared to the prior year period in the U S, which comprises more than 90% of our total revenue, we posted seven 2% year over year of growth in the fourth quarter.

In the U S growth was once again led by the higher sales by our core distributors of recently launched products and line extensions, specifically, new and recently launched products contributed more than 68 per cent of the U S. Spinal implant revenue and more than 35 per cent of U S sports of biologics revenue.

Encouragingly.

The growth came from increased spinal implant surgery volumes and from higher revenue per case as recently launched products allow us to participate in a more complex surgeries.

We also benefited from increased utilization of our spinal implant systems and ortho biologics products per procedure, which we believe is the result of the more complete and complementary product offerings of the market today.

For the fourth quarter of 2020, there was the average of 1.9, she spine products and system the huge per procedure compared to one eight in the fourth quarter of 2019.

From a distribution perspective, we have continued to add more committed and increasingly exclusive distributors in the U S for.

For the fourth quarter of 2020 is core distributors collectively generated <unk> 56 per cent of our total U S revenue, we have opportunities to drive further growth of the U S. Both from our tenured core of distributors continuing to hire more sales reps sales reps, which has been driving the accelerating growth.

On an existing territory.

As well as from on boarding new core distributors income.

Currently underserved markets.

We are particularly excited by the recent alpha launches of our Admiral cervical plating system and Meridian Atlas Inter body system. It's these products have been important catalyst in driving this progress we're pleased to be generating meaningful revenue growth from the U S. So all of these important sources.

A couple of it.

They will be important drivers of our ability to take more market share and to grow meaningfully faster than the overall U S spine market provided market conditions of the surgery levels return to pre COVID-19 levels.

Turning to our product launches 2020 was an incredibly exciting year for innovation and execution. We completed the most ambitious launch schedule of the history of the company. The full commercial launches of two line extensions towards Mariner platform for M. A S in for more complex revision surgery and of our shoreline on.

Cheap cervical interbody implant system, featuring our proprietary reef topography for major catalyst for revenue growth in 2020, we also launched many new systems in 'twenty and 'twenty, particularly in our cervical Interbody franchise key launches in our cervical franchise the franchise included.

The wait for see three D printed interbody implant system for use in Hdds, which offers the next level of.

The three D printed architectural innovation balance.

G geometric and manufacturing requirements without compromising the political requirements for the C represents the first three D printed interbody device to the co developed with restore three day.

The Northstar OCG system features screw technology with market, leading angulation of up to 90 degrees and the novel occipital played with angle holes that facilitate a new cranial took total trajectory and the Sip it'll kill the.

The performance at a rapid market adoption of the Northstar system in Alpha launch has consistently exceeded our expectations.

We eagerly await the planned for commercial launch of the system in mid 2021.

The alpha launch of the Admiral cervical plating system represents the next generation of anterior cervical plate designed to strike the optimal balance between strength profile income.

Rigidity.

One of the many alpha launches and our antibody franchise I want to highlight the launch of <unk> for additional inner body systems, featuring the reef topography, including the aforementioned already in English system with a inner body, plus Greek ta and articulating implant.

T H hinged implant and reef T O, which accommodates both the direct impact assertion and insert and rotate techniques. In fact, we just announced earlier today for the full commercial launch of the T O system.

We also launched the explore T O expandable interbody system. The innovative post two of your inner body solution that offers both parallel and Lord Diotic expansion options.

Which is our first new product offerings since 2017 in the estimated 400 million dollar expandable interbody market.

And in late December we launched the word got up lateral plate system, featuring our true profile true technology. This launch represents the first standalone for lateral play for <unk> and allows for multiple plating options, including one two and for all place to bring maximum fixation.

With minimum profile and address a wide range of of that anatomy and pathologies.

Looking ahead for the next 12 months, we expect the Alpha launch. The next line extension of our foundational mayor of platform with an adult deformity indication in mid 2021.

We also have for more three D printed interbody systems scheduled to alpha launch of 'twenty 'twenty, one highlighted by the recently announced launch of the wave for Ta articulating inter body system. Our first three D printed lumbar interbody system.

We will devote a significant amount of our product development and marketing resources in 'twenty 'twenty, one to enabling of the timely and successful for commercial launches of the mini systems. We also launched in 2020 those launches are expected to be significant contributors to revenue growth in 2021.

And beyond.

In the ortho biologics franchise, we continue to focus our efforts on conducting studies aimed at differentiating our products through strong science and compelling data in an otherwise crowded field.

We are particularly proud of the recent publication in the journal of bone and joint surgery of the results of the preclinical study that concluded the cells in the cellular bone matrix products do not improve fusion or bone formation and that our demineralized bone matrix product off.

Steel strength plus output for the cellular graft products that were tested this study substantiates, the increasing payer and provider of pushback, we see around cellular phone matrix products.

When combined with the previously published preclinical study comparing the Osteo strength DBM fibers, the six leading competitive D. P. M. We have a robust set of scientific support for our differentiated D. B M offerings.

Finally, I want to highlight our continued enthusiasm for our strategic alliance for 70 surgical to co market. The flagship machine vision image guided surgery platform and to develop the ceased buying specific instrumentation optimized to work with their platform.

In addition to the systems, we directly assist at 70 and selling to our hospital accounts from 'twenty 'twenty. We continue to progress on many leads for the placement of seventies system and are helping to grow awareness and interest in this enabling technology.

Recognizing the relatively long lead time to place. This type of equipment. We are optimistic that we will close these type of opportunities over the coming months, our ability to place units of this enabling technology and the capital efficient manner for hospitals will be valuable in the current environment.

As hospitals are likely to continue restricting the capital purchasing budgets due to the financial impacts of COVID-19.

Continued investment in product innovation and in the deployment of more of our highly utilized foundational spinal implant systems combined with our best in class D B and portfolio of gifts, our larger and increasingly exclusive distribution network confidence that we can support the aggressive growth plans as we emerge from the cold.

The 19 pandemic.

Despite the business challenges and changes to the market landscape. Throughout 2020, we are very proud to have delivered on our efforts to continue expanding our product portfolio and to capture market share and now I'll turn the call over to John for a recap of Q4 financial risk.

It's John.

Thanks, Keith and good afternoon, everyone as Keith noted earlier total revenue for the fourth quarter of 2020 was $46 $4 million, an increase of six 2% compared to the prior year.

U S revenue increased seven 2% to $42 $1 million and international revenue declined by three 2% the $4 $3 million.

U S spinal implant revenue for the fourth quarter increased eight 3% year over year to $27 million and was led by growth from new and of recently launched products, particularly the merit of M. I ask from the revision systems. The Northstar Oc T system at our expanded line of nano Meadow everybody Goodbye.

This feature of the reef topography.

Spinal implant surgery case volume increased by more than seven per cent and we were able to capture more revenue per procedure with our expanded portfolio. We continue to experience low single digit price declines.

U S worth of biologics revenue in the fourth quarter of increased six 2% year over year to $21 $4 million that was driven by growth in the osteo strength plus product.

Gross margin for the fourth quarter of 2020 was $62 eight per cent compared to 64, 2% for the same period in 2019.

The decrease in gross margin was due to higher spinal implant excess and obsolete inventory provision in the quarter, which as we indicated on our prior call it can be volatile from quarter to quarter.

The anticipated shift to more full commercial launches of spinal implant systems the 2021.

Specced at the generate higher excess and obsolete inventory charges in the future from a substantial investment in outside of implant inventory required with the set dose.

However that impact notwithstanding we believe that we can continue to expand gross margins by 100 of 150 basis points per year over the next two to three years.

Operating expense for the fourth quarter of 2020 totaled $39 $5 million at $2 $6 million increase compared to $36 $9 million for the same period of the prior year.

The increase was driven primarily by $1.8 million in higher selling and marketing expenses, the majority of which relates to selling commissions and spinal implant set depreciation and the instrument the deployment costs.

$300000 and higher R&D expenses, and $500000 and higher G&A expenses.

Net loss for the fourth quarter of 2020 was $10 $3 million compared to a net loss of $8 $6 million for the fourth quarter of 2019.

Cash and cash equivalents at December 31, 2020 totaled $76 $8 million and we had no amounts outstanding under our credit facility.

We had $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 for forgiveness for the third quarter of 2020.

Our free cash flow burn, which includes operating cash flows and purchases of property and equipment was.

$17 $1 million for the fourth quarter of 2029.

The $9 $5 million increase compared to seven $6 million for the fourth quarter of 2019.

The substantial majority of that increase was attributable to higher investments and inventory and spinal implant set build an instrument capital expenditures in the fourth quarter of 2020.

Our free cash flow burn for the full year of 2020 adjusted to account for the benefit of the $6 2 million dollar Forgivable P. P. P alone was $34 $5 million of slight increase compared to 2019.

We remain focused on expanding our gross margin and continuing to reduce cash based G&A expenses as a percentage of revenue.

However, we plan to continue to redeploy any operating leverage towards the sales marketing and R&D initiatives and inventory and spinal implant set the capital expenditures that are critical to driving sustained accelerated revenue growth.

We expect our free cash flow burn for 2021 to be slightly higher debt that we reported for 2020 as we invest even more in spinal implant inventory and instrument set the capex to support the many full commercial launches slated for 2021 and that will be critical the.

But 2021 of the revenue growth expectations, Keith outlined earlier.

With the nearly $77 million of cash and cash equivalents, we have on hand, plus the additional liquidity that we can access for a $30 million credit facility, which we can elect to expand the $40 million.

We believe that we are sufficiently capitalized to continue to invest confidently in aggressively for growth.

That kind of a range based on the positive results, we've seen from investments made in 2020 of them and before.

And then she founded on the underlying premise that spine surgery is not elective surgery to those patients who need it it's temporarily the horrible at best and the surgery volumes will return to pre COVID-19 levels as 2021 progresses.

At this point.

Like the turn the call back over the key for closing comments.

Thank you John.

All of these for 'twenty 'twenty, one are very similar to those which I believe we have executed on very well in the past, namely the timely and effectively develop and launch of clinically relevant products to increase the number of core distributors and their exclusivity to see spine to generate above market revenue growth through more of.

Efficient utilization of our spinal implant sets and to further expand our gross margins to that end, we plan to launch more than a dozen products in 2021, the most impactful being the alpha launches of the line extension of merit or with the adult deformity indication.

For additional three D printed interbody systems and the migration of the many alpha launches we delivered in 2020.

The full commercial launch.

We expect to exit 2021 generating more than 75 per cent of our U S. Spinal implant revenue from new and recently launched systems and more than 65 per cent of our U S revenue from existing and new core of distributors and we expect to generate between 150 to 200 and.

50 basis points of gross margin expansion for more efficient utilization of our spinal implant sets and inventory and by gaining additional operating efficiencies from our Irvine manufacturing facility.

We remain optimistic that we can once again return to sustained long term double digit revenue growth as we emerge from the disrupted the impacts of COVID-19.

The optimism is fueled by the more of that 400 passionate and dedicated employees of C. Spud for motivated by our past successes and are driven to deliver clinically superior.

Yet cost effective procedural solutions that differentiate us with both surgeons and distributors in this competitive market with the.

We will now open it up to questions operator.

Thank you all of them participants as a reminder for US. The question you will need the price.

Then the number one on that.

Again, that's sorry, that's the number one on your telephone.

Okay part of your question.

With that.

Your first question comes from the line of Matt O'brien from Piper Sandler Your line is now from.

Hi, guys. This is drew on for Matt and thank you for taking the questions.

The early color on the for 'twenty, one outlook, especially considering all of the moving parts on the course of the year here.

I mean, the kind of talk through some of those.

On that we should be factoring that into our models.

Previously discussed the international has been a bit of a wildcard from my perspective.

All of the time for the business, but just wondering if it's true there to a degree.

And then obviously I think your spinal business here in the U S should be of a key growth driver Oh, you know what should we be you bought from a mixed perspective between the two businesses.

Yeah, I think international is still.

The area, where we have the least visibility only because most of the growth all of that business is done through stocking distributors. So we don't have on the ground marketing and sales support.

We do think it'll grow in 2020, but given.

Given the lack of visibility we have we don't like we can't really dialing in I think any better than that at this point given that the continuing COVID-19 uncertainties, but I think you you got it right on the spinal implants in the U S driving the growth rate, we expect both portfolios for though and spinal implants to growth.

But you picked up on the fact that we're investing in more spinal implant sets.

Launching a lot of products, obviously and that'll be moving a lot of those will be moving to full commercial launch. So we are investing aggressively in deploying more of our existing sets, but also deploying sets that come with those full commercial launches and we do anticipate spinal implants will be leading the growth in the U S portfolio.

Okay. That's helpful.

Just wanted to follow up on that comment on the new product side, obviously 19 launches last year. Despite COVID-19.

Obviously, you've been a big driver for the top line.

You mentioned 12, new launches here in 'twenty, one I guess going back to the Nike what youre most of the launches.

Far as contributing to the top line and then how many of limited launches are you currently that you're in.

The roll out more broadly in 2021 thank you.

The.

The full launch is that were most meaningful the revenue last year and she'd be.

Impactful going forward was the Mariner mis and revision system that allows us to participate more complex deformity surgeries. So those were two big contributors from an alpha launch shoreline with reef.

Topography is another Big addition, right I think that's been a nice refresh to the shoreline portfolio would that reef topography enhancement and then everything else was pretty much an alpha launch most of everything else on the Alpha launch and we've called out the Northstar Oc T system for post your cervical and the particular.

The successful pre.

Product in terms of driving growth and that was an alpha launch in 2020, that's expected to be one of the many products go into full commercial launch in 2021, but you know even outperformed our expectations of an alpha launch in terms of the amount of revenue contributions were expecting good clinical into.

You can take by our uptake by surgeons given some of the features of the device, but that was the one particular the I'd call out is exceeding even our own internal expectations for an alpha launch with the limited number of since we have so all around.

Good year led by full commercial launches as you pointed out a lot of alpha launches last year and more to come this year, but we're really excited about bringing all of that technology in the full commercial launch because you think about what we're able to do with just mariner shoreline and Mariner M. I ask the revision in shoreline and what growth that generated the thinking about all of the alpha launch.

In 2020 of that moved the full commercial launch, including our three D printed interbody portfolio and what we can do there in terms of growth.

Thank you.

Your next question comes from the line of Kyle Rose from Canaccord. Your line is now open.

Great. Thank you very much I appreciate you taking the questions.

So I just wanted to just talk about the state of the commercial team keep on.

Obviously, you've outlined plans to drive higher revenue is coming from the core distributors.

And in your commentary at the end of the prepared remarks, you talked about 65% I think I heard that right 21 revenues coming from from that.

Group, that's up from where you ended the year at 56 per cent in the queue. Born so maybe help us understand what's been happening behind the scenes that youre seeing from the commercial team on that gives you confidence of the C. B the.

On the higher mix of revenues.

Driving towards that channel when we think about 2021.

Yeah, I think there's really there's really two things. The first one is of course, we're rounding out the the portfolio and getting some I think big.

Opportunity of items that are very important to the more exclusive distributors. Perfect example is the posting of the cervical was one of our last.

Very old legacy systems to legacy systems that will now.

The obsolete as we as we continue to go into full launch.

With that opportunity the.

The other two is that over the course of the last year. We have brought onboard a number of of new distributor partners that we feel good about that they will have they will be fully up to speed there'll be the the training that goes along with it just the the ability for them to be more functional on the territory representing us.

Often you know it takes nine to 12 months to really be comfortable the functional and so we feel good about the fact that the investments that we made a year ago or nine months ago will start paying off as we get into 2021.

Great and then when I think about the commentary about 'twenty, one I know you're not providing formal guidance, but you did talk about you know revenue growth.

North of 20%.

The weighted to the second half of the year when I look at the performance you put in in the second half of this year.

You know almost a record quarter in the Q3, you did have a record quarter in the Q4 and you talked about growing 20%.

Presumably upside to that number in the second half so maybe help us think about the puts and takes the first half the second half of it is it really just.

You know the incremental COVID-19 uncertainty near term or is there some sort of geographic focus that we should be thinking about as you move through the rest of the year as well.

No it's exactly that it's just it's how we saw.

2020, and the continued Covid COVID-19 disruptions, we saw in throughout January and even the early part of February.

That has us cautious about the first half of the year right things are trending well with vaccine rollouts in lower case counts, but.

I think until we're.

More.

Widely distributed on vaccines and a little bit more stability is why we want to be cautious in terms of the backend weighted growth, but that being said, we're continuing to launch products and launch systems as we talked about on the call on.

We feel good about the annual number and hopefully we're able to do more on the first half of the year, but just feel like it's the prudent thing to be cautious given the fact that there are still are near term uncertainties presented by Covid, particularly what we saw in the first half of Q1 that we experienced as we wrap up the year, but things are trending in the right direction.

Since that time.

Okay, great. Thank you for taking the questions.

Your next question comes from the line of Ryan Zimmerman from <unk>. Your line is now open.

Hey, guys. Thanks for taking the questions and congrats on end of the year.

Maybe just on the guidance a little bit in the back half weighted the.

Your guidance contemplate any disruption in the market I mean, we have.

Fairly large spin now coming from one of the major players and so I'm just trying to get a sense of kind of how you thought about that guidance in the context of <unk>.

Maybe some of the market dynamics that could actually provide additional upside.

We havent specifically.

Dressed what that disruption would be from.

On the spin out but.

For more focused on what we've done in terms of the distributors, we brought on board and the ones. We've had on our pipeline that we're managing and also the products that we've launched and will transition to full commercial launch I think when you bring up the good good opportunity for us to take even more market share Opportunistically. If there is some of this.

Option that comes out of that but.

I think our guidance is more just based on the things we control today and what we've been managing in terms of the distribution addition pipeline and new product launches.

Yeah.

Okay Fair enough. That's the that's good to know and then Keith I appreciate the metric around the number of products that you're using today of $1 nine relative to one eight a year ago.

Just broadly speaking if you can.

Paint the picture of where you think that can go over time, not as an indication of the guidance necessarily but youre kind of where you see maybe the opportunity to get incremental usage of the.

Your products.

And whether that could trend the north of two.

Maybe even higher than that thank you.

Yeah, I think it's it's a good conversation to have and what goes on Ryan. If you look back in 2019, where we were really around kicked off of the year in 2019. It was 1516 nation moving into you know.

As we close the year, one point closer to one point.

We're really can go as you start getting into the ability to capture both the.

The pedicle screw the inner body case as well as the worth of biologic and then you start getting into three and three plus right. So ultimately three of us.

Three is phenomenal because that means that you are capturing the entire.

Fusion case.

You could go beyond that if you were doing.

Multi specialty Ryan if youre doing a longer construct.

I think the way we look at it we want to start getting up over two we want to start having biologics continue to have.

The strong influence and the entire case and we also as we just announced on.

One of the unique interbody offerings that we now have we feel strongly that.

Now carry with the the pedicle screw or the rock.

<unk> cases.

Alright ill leave it there.

Alright, thanks for taking the questions.

Thanks, Ron Thanks, Ryan.

Again for participants if you would like to ask the question you May Press Star then the number one on us on the phone.

Your next question comes from the line of Kyle of homes from through with your line is now open.

Hi, guys. Thanks for taking our questions for Jeff.

Starting out I mean, we're two months into the first quarter can you just speak for what you're seeing year to day really what I'm trying to understand is you guys have said that you plan to do high single digit growth of in the in the first quarter I mean, the things need to get better from here or do they simply need to be stable or can they get worse and you're still confident in that outlook.

Yeah, a couple of things to think about it you know.

Right now we feel good about the fact that numbers are at something more manageable for.

For the hospitals that elective surgeries have kicked back.

Our in force and so, but there's no way to be predictive for Theres no way to understand if theres going to be continued ebbs and flows I mean.

There always is the time or there is of concern the holidays create certain better spreading events. There's always a concern that theres new strands that may have to have to be addressed so you know.

The way we look at it though is that we love the progress that's being made.

At the tail of happened this quarter and we love. The fact that it looks like it's going to be a strong book of business as we move forward because there's a number of delays that are now getting rescheduled and getting back on the books, but I still don't have we don't feel we have the crystal ball to figure out whether we're done with elective surgery slowdowns and whether there'll be more.

Coming forward.

Yeah, no that's kind of things there that makes sense that makes sense, Keith and then I know a lot of other companies are talking about sort of how well robotics and enabling technologies are doing I know you guys had mentioned kind of 17 briefly on this call, but that'd be great just to get more of an update there what you're seeing with that relationship.

And just how you're expecting it could contribute in 2021. Thank you guys.

Yeah, you know I think that interestingly you know we started that relationship in early 2020, and then obviously COVID-19 hit but it gave us the great opportunity to get better trained and to better understand how we can participate.

Participate deeper with them and I think as we exited COVID-19, we had a number of great training opportunities and collaborations that we're now seeing a lot of different opportunities that we now need to close and help close with them and so we see the relationship even stronger obviously than it was last year, we see a lot of excitement by <unk>.

<unk> of our sales channels to collaborate and try to do the right things in hospitals and of certain hospitals can purchase it outright that's of great direction and of others.

You need to work through a.

A better way to get them get of unit place to earn it out then we're in a great place as well to do that and so we really feel like the first half of this year, we will start to see additional.

The placements that will give us a great deal of momentum for next year not next next half of the year or so on Tao half of 2021, where I do think that we're going to continue to see budgets open up and of.

Greater opportunity and we've seen certainly from from.

The companies talking about the robotic sales that there there is of robustness, that's going on right now as far as capital.

Capital equipment being being made on our capital funds being made available by hospitals.

Okay.

Thank you guys.

Your next question comes from the line of Matthew Blackman from Stifel. Your line is now open.

Mr. Mathew Blackman your line is now open.

Sorry, I had kind of learn how to turn off mute button of policies. Thanks for thanks for taking the questions Ive got Jordan.

On the Med Tech analyst amount of Tech analyst.

[laughter] maybe debt to start.

Curious about the procedure mix in the fourth quarter of some of your peers have been talking about lower complexity of procedures haven't gotten done while the more complex procedures were disproportionately deferred so in essence, there was almost like a double headwind in the quarter on on volume and mix do you see a similar phenomenon and if so on the surgeries that are being put back on the on the books now.

More complex the nature and I've got one follow up.

Yeah. So so.

Not a significant component of our business today is the more complex and.

For many surgeries I still believe it's less than 10%. So it doesn't have the same impact on us we typically do get the bump in Q2 and the height of skull the season and a little bit late in the year. So it wouldn't have the same impact on this but we did see the mix shift a little bit and we talked about most of the growth came for the procedure volume growth.

That was the 7%.

Little bit of price decline, which has been pretty consistent throughout the industry and then we did benefit from mix, but not because of the tilt towards more complex deformity surgeries the.

The ASP per surgery, but as Keith was talking about earlier, it's the number of systems used per procedure. So we're getting a higher revenue per procedure in the fourth quarter, mostly because we are seeing an increase of the number of of our products used per procedure and.

And I do think we will see a benefit like probably other companies are talking about down the road as some of those more complex cases get rescheduled and that becomes a more meaningful part of our business and one of the reasons, we're making the investments in extending that meritor platform into.

In adult deformity indication, because I think that'll allow us to take advantage of that.

Is that dynamic does come to fruition in 2021, when it was more complex cases start getting rescheduled.

Alright that makes sense and then my follow up just thinking about all of the new product flow for anybody.

The characterize the early traction and are of interest in existing accounts versus new or under index customers are on the new products resonate more or less with either of these cohorts I guess, what I'm really asking is the portfolio, allowing you clearly, it's allowing you to go deeper but its also allow me to the broader thanks.

Yeah. It is actually it's a it's a good observation because theres no question that our new product opportunities.

Giving us the ability to to continue.

Continue going to a deeper relationship and the hospitals, we're already in with those surgeons.

We're also seeing and was certainly nice on Alpha was a lot of new customers coming forward, Ryan and Thats because they.

They not only the werent interested necessarily on our legacy products, but they're also very interested in some of the new features that we've incorporated the other systems don't have and so we feel good about the fact that both segments. If you will are working for the new products, but we're especially seeing new customers come aboard and that will be our goal as we can.

Continued through this year of next year is continue to drive going deeper in those accounts that we've gotten on opportunity. The finally participate.

Alright appreciate the Keith Thanks, so much on congrats on a great end to the year.

Yeah. Thanks.

Your next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Your line is now open.

Hi, Keith I'm bullish on for you.

Good how are you Jeff.

I'm just trying to issues I wanted to drill on a little bit.

Firstly bonds from calling on some of the Opex of like two six and extra items for the quarter one a share.

300, R&D 500, G&A. So that's one time of the two six out of the Opex for Q4, and we shouldn't think about that as far as on modeling forward.

Did the inverse.

The depreciation in the instrument deployment of expense I don't want to characterize any of it as one time, but.

But it was particularly higher of the spend in the fourth quarter as we were gearing up for all of the upcoming product launches.

No.

That was the biggest increase in the Opex.

But the G&A and R&D increases were more.

The permanent in nature of recurring in nature and reflect growth from the business and the infrastructure to support that but I'd say of the sales and marketing increase debt instrument deployment expense depreciation will continue at an elevated rate as we continue to launch more products, but it's also more of the noncash expense because.

It's just deploying the instruments for depreciating the instruments that are part of the historical capital expenditures of the business.

Okay, and if I tried to correlate some of it over to the inventory you would expect the inventory of the new order of what about Fox channel for the year.

The couple of that inventory is going to go up for the year of you.

Talking about 2020, or 2019, I'm, sorry of 2021 or 2020.

For 'twenty one versus 'twenty.

Yeah inventory should go up again in 2021 versus 'twenty because.

It went up in 'twenty 'twenty versus <unk> 19, with a bunch of alpha launches and for the full commercial launches right. We're typically doing two or three extra the number of sets deployed in the alpha launch so capex and inventory would both be expected to go up as we deploy all of those full commercial launches.

Perfect got it and then as we think about the margins you had a comment of Ghana of 152.

Hundreds of 150 aspirational basis point increase.

And then Keith was talking about $150 to 50 basis points could you clarify the differential between the two <unk> range.

Yeah. The second one is just the estimation for 2021, we we've been saying for a while the long term expectation to grow of hundreds of 150 basis points, that's still intact, but I think we've got an opportunity to grow it even more in 2021. So that was the genesis of the percentages Keith gave up.

Okay, perfect that's awesome for us thanks for the commentary.

Yep, Thanks for sure.

Again participants if you would like to ask the question you May Press Star then the number one on the telephone keypad. Your next question comes from the line of bad debt.

From time from Chiara.

Your line is now open.

Hi, Thanks for taking my questions and congratulations on a good quarter.

Just two for me.

So obviously you had a fantastic pace of launches in 2020 in <unk>.

Starting on 'twenty 'twenty, one as well.

Yes, without getting too greedy, how should we think about kind of 2022 and beyond in terms of new product launches instead of.

This thing of bonus of launches, which is going to drive share.

Yes, it's the midterm growth and then.

The other one just moving on gross margin and the additional color you can give us on the phasing throughout the year would be great. Thank you.

Yeah. So on.

The continuation of our product launches.

Think that we're still going to see a very healthy pipeline as we've seen the past couple of years and it also.

As we move forward and it'll be similar to the 2021 of the projects that we're putting in place that we'll have momentum or launches in 2022 are as numerous as what we're planning.

This year I think in addition, though what Youll see is youll start to naturally see us continuing to improve on existing product lines. So updating in and driving additional features and the ability to address different pass allergies.

Kind of message before then we will start moving into opportunities with the tumor trauma, which are important.

Goals for us the very important to our distribution network as well, but it's also one that we have taken a very thoughtful approach of when we would be.

Be able to.

Effectively launch those will be at the right critical size and we feel like now is the time to start the development process and direction.

And then on the the gross margin comment there is a couple of puts and takes.

Overall for the year, we ended up having a higher <unk>.

Charge compared to 2019 and again, that's a function of the number of <unk>.

That's deployed because you've got the so called the odd sized implants that you don't expect to sell very many of them, but you need to have one in every set deployed.

And then I would anticipate that to go up a little bit more again in 2021, because you're doing two or three ex the number of sets for the full commercial launch in 2021 compared to the alpha launch in 2020.

But the the big savings for us, it's tough to quantify but the savings is the Irvine manufacturing facility of having slower growth overall in the cost of that facility, but absorbing more of those costs through the production of inventory, which ultimately we sold and worth of.

<unk> inventory I think it was down a little bit.

Versus the end of 2019, so we're not just building inventory for the sake of absorbing overhead.

But our overhead.

Absorption as we produce a debt facility.

Outpace the increase in cost to produce the higher volumes at a really nice pace. So that's where we get the benefit from it is just the lower unit cost to produce and that's a function of two things right higher production volumes given the fixed cost of that plant, which is pretty meaningful. But then also of a lot of the lean manufacturing.

Projects, we've implemented at that facility over the last two two and a half years that youre able to just produce things more efficiently on a variable cost basis as well using the tissue more effectively of more efficiently. So that it's hard to quantify where it came from but it's mostly coming from the Irvine facility, because it's a very scalable facility with more growth.

The room to grow because of the fixed cost component and the fact that we can add a lot more volume without adding many more costs fixed costs at least.

Great. Thank you very much.

Sure.

Again participants if you would like to ask the question you May Press Star then the number one on your it's all the.

For the people.

That's for then the number one on your telephone.

Okay.

There are no questions over the phone.

Valentine.

Thank you everyone for joining us and we look forward to connecting with you after Q1.

Yeah.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

Okay.

[music].

Thank you for his funding by and welcome to the of White there for when did the one piece you Spine Holdings Corporation earnings Conference call.

This time, all participants are in a listen only mode.

Craig as speaker of presentation, there will be a question and answer session. So ask the question during the session you will need the breadth for one on your telephone keypad.

The advice for todays conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the call on friends. So for a day your speaker of today, Mr. Hunter Cosby Investor Relations. Thank you. Please go ahead Sir.

Thank you for participating on today's call joining me from Steve Fine is CEO, Keith Valentine and CFO, John Boston on sick.

Earlier today, She's bond, where the school financial results for the fourth quarter and year ended December 31 2020.

During this conference call, we will make forward looking statements within the meaning of our suite of the.

The federal Securities laws in regards to our business strategy expectations and plans our objectives for future operations and our future financial results on condition.

All statements other than statements of historical stock of historical fact are forward looking statements. Such statements may include birds I do believe could would will plan intend and similar expressions of expression, you're cautioned to not place undue reliance on forward looking statements, which are only predictions and reflect our beliefs based on current information and speak only as of.

Today March one 2021.

On the call over to Keith Valentine Keith.

Good afternoon. Thank you all for joining us.

The challenge.

The volatile.

The cost by the COVID-19 pandemic.

I have never been proud of.

Sure.

The effective spinal implants and rationale on injection procedure.

Solutions for surgeons.

Hospitals.

The quality of patient lives.

Net cash translated into the night.

The product launches successfully executed in 2020.

The most of in a single year.

And nearly 90%.

On a year of U S revenue growth for the second half of 2020.

With an increased percentage of our U S revenue from the expanded and increasingly exclusive network for this.

Three meters.

Those factors.

The foundational pillars upon which we are executing on market share taking strategy.

The Sky happy when you actually can add partially impacted by the COVID-19 pandemic.

The amounts.

For example.

Okay.

Net starting October one worldwide revenue per day.

<unk>.

For years.

U S revenue per se.

The increasing.

The 2%.

Does the rush spinal implants.

Of course biologics portfolios.

Generated.

Gross.

In mid November with U S hospitals began to restrict when cash is.

The elective surgeries due to the surge of COVID-19 cases.

On the U S revenue growth year over year as of November and December.

And a slower range.

Cash with restrictions on spine surgery volume.

Into January and early February however.

The recent decline in Covid cases spine surgery volumes are improving once again in many of our surgeon customers have communicated to us that they have once again the accumulated of backlog of spine surgeries to work through.

While we don't yet.

Have sufficient market visibility to provide revenue guidance for full year 2021 based on these trends we feel confident in our ability to grow total revenue in 2021 by 20% over full year 2020, assuming COVID-19 teen cases of hospitalizations continued to decline however.

Given the adverse impact of COVID-19 had on spine surgery volumes in January and early February we anticipate most of this growth will be later in the year and the total revenue growth for the first quarter of 2021 will be in the high single digits.

Turning to our fourth quarter results in line with the announcement in early January total revenue was $46 $4 billion.

The highest quarterly revenue reported since the spinoff.

This reflects a six 2% increase compared to the prior year period in the U S, which comprises more than 90% of our total revenue, we posted seven 2% year over year of growth in the fourth quarter.

On the U S growth was once again led by the higher sales by our core distributors of recently launched products and line extensions specifically new debt.

The recently launched products contributed more than 68 per cent of U S spinal implant revenue and more than 35% of U S force of biologics revenue.

Encouragingly our growth came from increased spinal implant surgery volumes and from higher revenue per case as recently launched products allow us to participate in a more complex surgeries.

For the fourth quarter of 2020, there was an average of 1.9 C spine products and system the huge per procedure compared to one eight in the fourth quarter of 2019.

So on the distribution perspective, we have continued to add more committed and increasingly exclusive distributors in the U S for.

For the fourth quarter of 2020 is core distributors collectively generated 56% of our total U S revenue, we have opportunities to drive further growth of the U S. Both from our tenured core distributors continuing to hire more sales reps sales reps, which has been driving the accelerating growth.

An existing territory.

As well as from on boarding new core distributors income.

Currently underserved markets.

We are particularly excited by the recent alpha launches of our Admiral cervical plating system and Meridian, a less inter body system. As these products have been important catalyst in driving this progress.

We are pleased to be generating meaningful revenue growth in the U S. From all of these important sources we are confident.

They will be important drivers in our ability to take more market share and to grow meaningfully faster than the overall U S spine market provided market conditions of the surgery levels return to pre COVID-19 levels.

Turning to our product launches 2020 was an incredibly exciting year for innovation and execution. We completed the most ambitious launch schedule of the history of of the company. The full commercial launches of two line extensions to our Mariner platform MAA assets for more complex revision surgery and of our shoreline.

Archie cervical interbody implant system, featuring our proprietary reef topography for major catalyst for revenue growth in 2020, we also launched many new systems in 2020.

Currently in our cervical Interbody franchise key launches in our cervical franchise. The franchise included the wait for see three D printed interbody implant system for use in Hdds, which offers the next level of.

Three D printed architectural innovation that lets say gee geometric and manufacturing requirements without compromising the political requirements wait for see represents the first three D printed interbody device to the co developed with the restore three day.

The Northstar Osage T system features <unk> technology with market, leading ambulation of up to 90 degrees and of novel occipital play with a drilled hole the facilitate a new free of total trajectory and the occipital killed the.

The performance at a rapid market adoption of the Northstar system in Alpha launch have consistently exceeded our high expectations.

We eagerly await the planned for commercial launch of the system in mid 2021.

The alpha launch of the Admiral cervical plating system represents the next generation of anterior cervical plating designed to strike the optimal balance between strength profile and cash.

On strict rigidity.

On the many alpha launches and our antibody of franchise I want to highlight the launch of <unk>.

Additional interbody systems, featuring the reef topography, including the aforementioned Iridium Atlas system with eight antibody plus Greek ta and articulating implant.

T H.

<unk> implant and <unk> T O, which accommodates both the direct impact insertion and insert and rotate techniques.

We just announced earlier today, the full commercial launch of the T O system.

We also watched the explore T O expandable interbody system. The innovative post theory of inner body solution that offers both parallel and Lord Dodik expansion options.

Which is our first new product offerings since 2017 in the estimated 400 million dollar expandable interbody market.

And in late December we launched the regatta lateral plate system, featuring our true profile total technology. This launch represents the first standalone for the lateral play for <unk> and allows for multiple plating options, including one two and for all place to bring maximum fixation.

With minimum profile and address a wide range of of that anatomy and pathologies.

Looking ahead for the next 12 months, we expect the Alpha launch the next line extension of our foundational Mariner platform with an adult deformity indication in mid 2021.

We also have for more three D printed interbody system scheduled to Alpha launch in 2021 highlighted by the recently announced launch of the wave for Ta articulating antibody system. Our first three D printed lumbar interbody system.

We will devote a significant amount of our product development and marketing resources in 2021 to enabling the timely and successful for commercial launches of the mini systems. We sell for launch in 2020 of those full launches are expected to be significant contributors to revenue growth in 'twenty and 'twenty one.

And beyond.

We are particularly proud of the recent publication in the journal of bone and joint surgery of the results of the preclinical study that concluded the cells in the cellular bone matrix of products do not improve fusion or bone formation and that our demineralized bone matrix products Osteo strand, plus outperformed the <unk>.

Cellular graph products that were tested this study of substantiates, the increasing payer and provider of pushback, we see around cellular phone matrix of products.

When combined with the previously published preclinical study comparing the Osteo strength DBM fibers, the sixth leading competitive D. P. M. We have a robust set of scientific support for our differentiated D. B M offerings.

Finally, I want to highlight our continued enthusiasm for our strategic alliance with 70 surgical to co market their flagship machine vision image guided surgery platform and to develop the ceased buying specific instrumentation optimized to work with their platform.

In addition to the systems, we directly assistant 70, and selling to our hospital accounts in 2020, we continue to progress on many leads for the placement of seventies system and are helping to grow awareness and interest in this enabling technology.

Recognizing the relatively long lead time to place. This type of equipment. We are optimistic that we will close these type of opportunities over the coming months or the ability to place units of this enabling technology and the capital efficient manner for hospitals will be valuable in the current environment.

As hospitals are likely to continue restricting the capital purchasing budgets due to the financial impacts of COVID-19.

Continued investment in product innovation and in the deployment of more of our highly utilized foundational spinal implant systems combined with our best in class DBM portfolio gives our larger and increasingly exclusive distribution network confidence that we can support the aggressive growth plans as we emerge from the Covid.

19 pandemic.

<unk> John.

Thanks, Keith and good afternoon, everyone as Keith noted earlier total revenue for the fourth quarter of 2020 was $46 $4 million, an increase of six 2% compared to the prior year.

U S revenue increased seven 2% to $42 $1 million from international revenue declined by three 2% the $4 $3 million.

U S spinal implant revenue in the fourth quarter increased eight 3% year over year to $27 million and was led by growth from new on our recently launched products, particularly the marrow M. I asked in the revision systems, the Northstar <unk> system and our expanded line of nano mentally everybody.

Featuring reef topography.

Spinal implant surgery case volume increased by more than 7% and we were able to capture more revenue per procedure with our expanded portfolio. We continue to experience low single digit price declines.

U S worth of biologics revenue in the fourth quarter of increased six 2% year over year to $21 $4 million and was driven by growth in the osteo strength plus product.

Gross margin for the fourth quarter of 2020 was 62, 8% compared to 64, 2% for the same period in 2019 of.

The anticipated shift to more full commercial launches of spinal implant systems. The 2021 is expected to generate higher excess and obsolete inventory charges in the future from a substantial investment in the outside implant inventory required with the set dose however.

However that impact notwithstanding we believe that we can continue to expand gross margins by 100 of 150 basis points per year over the next two to three years.

Operating expense for the fourth quarter of 2020 totaled $39 $5 million of $2 6 million increase compared to $36 $9 million for the same period of the prior year.

The increase was driven primarily by $1 $8 million and higher selling and marketing expenses for <unk>.

Majority of which relates to selling commissions on spinal implant set depreciation and instrument deployment costs.

$300000 in higher R&D expenses of $500000 and higher G&A expenses.

Net loss for the fourth quarter of 2020 was $10 $3 million compared to a net loss of $8 $6 million for the fourth quarter of 2019.

Cash and cash equivalents at December 31, 2020 totaled $76 $8 million and we had no amounts outstanding under our credit facility.

We had $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 for forgiveness for the third quarter of 2020.

Our free cash flow burn, which includes operating cash flows and purchases of property and equipment was $17 $1 million for the fourth quarter of 2029.

The $9 $5 million increase compared to $7 $6 million for the fourth quarter of 2019.

The substantial majority of that increase was attributable to higher investments and inventory and spinal implant set build an instrument capital expenditures in the fourth quarter of 2020.

Our free cash flow burn for the full year of 2020 adjusted to account for the benefit of the $6 $2 million Forgivable TTP alone was $34 $5 million of slight increase compared to 2019.

We remain focused on expanding our gross margin and continuing to reduce cash based G&A expenses as a percentage of revenue.

We expect our free cash flow burn for 2021 to be slightly higher debt that we reported for 2020 as we invest even more in spinal implant inventory and instrument and set the capex to support the many full commercial launches slated for 2021 and that will be critical the.

The 2021 of the revenue growth expectations of key outlined earlier.

With the nearly $77 million of cash and cash equivalent from you have on hand, plus the additional liquidity that we can access through our $30 million credit facility, which we can elect to extend the $40 million. We believe that we are sufficiently capitalized to continue to invest confidently in aggressively for growth.

That confidence is based on the positive results. We've seen from investments made in 2020 on and before and is founded on the underlying premise that spine surgery is not elective surgery to those patients who need it which temporarily the horrible at best and the surgery volumes will return to pre COVID-19 levels as too.

'twenty one progresses.

At this point I'd like to turn the call back over the key for closing comments. Thank you John of priorities for 2021 are very similar to those which I believe we have executed on very well in the past, namely the timely and effectively develop and launch clinically relevant products to increase the number of core distributor.

And their exclusivity to see spine to generate above market revenue growth through more efficient utilization of our spinal implant sets and to further expand our gross margins to that end, we plan to launch more than a dozen products in 2021 the.

Most impactful being the alpha launches of the line extension of Meritor with an adult deformity indication and for additional three D printed interbody systems and the migration of the many alpha launches we delivered in 2020.

The full commercial launch.

We expect to exit 2021, generating more than 75% of our U S. Spinal implant revenue from new and recently launched systems and more than 65 per cent of our U S revenue from existing and new core of distributors and we expect to generate between 150 to 200.

We remain optimistic that we can once again return to sustained long term double digit revenue growth as we emerge from the disruptive impacts of COVID-19. The optimism is fueled by the more of that 400 passionate and dedicated employees of C. Spud for motivated by our past successes and are driven to deliver.

Superior yet.

Yet cost effective procedural solutions that differentiate us with both surgeons and distributors in this competitive market with that we will now open it up for questions operator.

Thank you on participants as a reminder, the asked the question you will need the press hard on the number one on that.

I guess, that's fine, but the number one.

One on the telephone.

That's the part of your question, perhaps for Bob.

Your first question comes from the line of Sam.

One from Piper Sandler Your line is now from.

Hi, guys. This is drew on for Matt and thank you for taking the questions.

The early color on the for 'twenty, one outlook, especially considering all the moving parts on the course of the year here.

But maybe the kind of talk through some of the.

And then we should be factoring nature of models I know you had previously discussed the international agreement been a wildcard from out of home at perspective.

All of the chunk of the business, but just wondering if there's billions of true there to a degree and then obviously I think your spinal business here in the U S. B of a key growth driver Oh, you know what should we be thinking about from a mixed perspective between the two businesses.

Yeah, I think international is still.

This is the area, where we have the least visibility only because most of the ground from all of that business is done through stocking distributors. So we don't have on the ground marketing and sales support.

We do think it will grow in 2020, but given.

Given the lack of visibility we have we don't like we can't really dial it in I think any better than that at this point given that the continuing COVID-19 uncertainties, but I think you you got it right on the spinal implants in the U S driving the growth rate, we expect both portfolios for though and spinal implants to ground.

But you picked up on the fact that we're investing in more spinal implant sets.

Okay. That's helpful on my eye.

One of the follow up on that comment on the new product side, obviously 19 launches last year. Despite COVID-19.

Obviously been a big driver for the top line I.

I think you mentioned 12, new launches here in 'twenty, one and you know I guess going back to the 19, what is your most of those launches as far as contributing to the top line and then how many of limited launch and are you currently in that you expect the roll out more broadly in 2021 thank you.

Yeah. The for the full launches that were most meaningful the revenue last year and should be impactful going forward was the mariner mis and revision system that allows us to participate more complex deformity surgeries. So those were two big contributors from an alpha launch.

Shoreline with reef topography.

Topography is another Big addition, right I think that's been a nice refresh to the shoreline portfolio would that reef topography enhancement and then everything else was pretty much an alpha launch them. The most of everything else of the Alpha launch and we've called out the Northstar OTT system for posterior cervical and the particular.

Of the successful pre.

Product in terms of driving growth and that was an alpha launch in 2020 that is expected to be one of the many products go into full commercial launch in 2021, but you know even outperformed our expectations on an alpha launch in terms of the amount of revenue contributions were expecting good clinical into.

The intake by our uptake by surgeons given some of the features of the device, but that was the one particular the I'd call out is exceeding our even our own internal expectations for an alpha launch with the limited number of sets we had so all around.

The good year led by full commercial launches as you pointed out a lot of alpha launches last year and more to come this year, but we're really excited about bringing all of that technology in a full commercial launch because you think about what we're able to do with just mariner shoreline and Mariner mis revision in shoreline and what growth that generated the thinking about all of the alpha launches.

In 2020 of that moved to full commercial launch, including our three D printed interbody portfolio and what we can do there in terms of growth.

Thank you.

Your next question comes from the line of Kyle Rose from Canaccord. Your line is now open.

Great. Thank you very much I appreciate you taking the questions.

So I just wanted to just talk about the state of the commercial team keep obviously, you've outlined plans to drive higher revenue is coming from the core distributors.

And in your commentary at the end of the prepared remarks, you talked about 65 per cent of I think I heard that right from 'twenty, one revenues coming from from that group.

Group, that's up from you know where you ended the year at 56 per cent in the Q4. So maybe help US understand you know what's been happening behind the scenes of that you're seeing from the commercial team and that gives you confidence that the you know the the are you on the higher mix of revenues.

We're driving towards that channel when we think about 2021.

Yeah, I think there's really there's really two things. The first one is of course, we're rounding out the the portfolio and getting some I think big.

Opportunity of items that are very important to the more exclusive distributors and a perfect example is the poster of cervical was one of our last.

Very old legacy systems to legacy systems that will now.

The obsolete as we as we continue to go into full launch.

With that opportunity the.

The other two is that over the course of the last year. We have brought our board of number of of new distributor partners that we feel good about that they will have they will be fully up to speed and it'll be the the training that goes along with it just the the ability for them to be more functional on the territory representing US you know of.

Often you know it takes nine to 12 months to really become fully functional and so we feel good about the fact that the investments that we made a year ago or nine months ago will start paying off as we get into 2021.

Great and then when I think about the commentary about 'twenty, one I know you're not providing formal guidance, but you did talk about you know revenue growth.

North of 20%.

The weighted to the second half of the year when I look at you know the performance you put in and in the second half of this year.

You know almost a record quarter in in the Q3, you did have a record quarter in the queue for you talked about growing 20% you know.

With presumably upside to that number in the second half. So maybe help us think about the puts and takes the first half the second half of it is it really just.

On the incremental Covid uncertainty near term or is there some sort of geographic focus that we should be thinking about as you move through the rest of the year as well.

No it's exactly that it's just it's how we saw.

2020, and the continued Covid COVID-19 disruptions, we saw in throughout January and even the early part of February.

That has us cautious about the first half of the year right things are trending well with vaccine rollouts in lower case counts, but.

I think until we're.

More.

Widely distributed on vaccines and a little bit more stability is why we want to be cautious in terms of the back end weighted growth, but that being said, we're continuing to launch products and launch systems as we talked about on the call on.

We feel good about the annual number and hopefully we're able to do more on the first half of the year, but just feel like it's it's the prudent thing to be cautious given the fact that there are still are near term uncertainties presented by Covid, particularly what we saw in the first half of Q1 that we experienced as we wrapped up the year, but things are trending in the right direction.

Since that time.

Okay, great. Thank you for taking the questions.

Your next question comes from the line of Ryan Zimmerman from <unk>. Your line is now from.

Hey, guys. Thanks for taking the questions and congrats on the end of the year.

Maybe the on the guidance a little bit in the in the back half weighted the does your guidance contemplate any disruption in the market I mean, we have on.

Fairly large spin out coming from you know one of the major players and so you know just trying to get a sense of kind of how you thought about that guidance in the context of maybe some of the market dynamics that could actually provide additional upside.

We havent, specifically addressed what that disruption would be from the spin out but.

We're more focused on what we've done in terms of the distributors that we brought on board and the ones. We've had on our pipeline that we're managing and also the products that we've launched and will transition to full commercial launch.

I think what you bring up the good good opportunity for us to take even more market share Opportunistically. If there is some disruption that comes out of that but.

I think our guidance is more just based on the things we control today and what we've been managing in terms of the distribution addition pipeline and new product launches.

Yeah.

Okay fair enough so that the casino and then you know Keith I appreciate the metrics around the number of products, they're using today of $1 nine relative to one eight a year ago.

Just broadly speaking you know if you could paint a picture of where you think that can go over time, not as an indication of the guidance necessarily but you know kind of where you see maybe the opportunity to get incremental usage of your products are and you know whether that could trend to the north of two maybe you know even higher than.

Thank you.

Yeah, I think it's a good conversation to have and you know what goes on Ryan. If you look back in 2019, where we were really around when we kicked off the year in 2019, it was 1516 ish and moving into.

As we close the year, one point closer to 1.8.

We're really can go as you start getting into the ability to capture both the the.

Pedicle screw the.

The inner body case as well as the worth of biologic and then you start getting into three and three plus right. So ultimately threes three is phenomenal because that means that you're capturing the entire fusion.

Fusion gas.

And you could go beyond that if you were doing you know multi specialty right, if you're doing a longer construct.

I think the way we look at it we want to start getting up over two we want to start having biologics continue to have the.

The strong influence and the entire case and we also which says we just announce all of the unique inner body offering that we now have we feel strongly that you can now carry with the pedicle screw or the.

Rod cases.

Alright ill leave it there thanks for taking the questions.

Yeah. Thanks, Ron Thanks, Ryan.

Again for participants if you would like the asked the question you May Press Star then the number of one on us on the phone.

Your next question comes from the line of Kyle of home from true with your line is now open.

Hi, guys. Thanks for taking our questions. So just starting out I mean, we're two months into the first quarter can you just speak for what you're seeing year to day really what I'm trying to understand is you know you guys of stuff that you plan to do high single digit growth of in the in the first quarter I mean, the things need to get better from here or do they simply need to be.

Cable or can they get worse and you're still confident in that outlook.

Yeah, a couple of things to think about it you know.

Right now we feel good about the fact that numbers are at something more manageable for.

For the hospitals that elective surgeries have kicked back.

Enforced and so but there's no way to be predictive theres no way to understand if theres going to be continued ebbs and flows I mean, you know there always is the time or there is of concern the holidays create certain better spreading events. There's always a concern that theres new strands that may have to half of it.

The address so you know.

The way we look at it though is that we love the progress that's being made.

At the tail after this quarter and we love the fact that it looks like it's going to be a strong book of business as we move forward because there is a number of delays that are now getting rescheduled and getting back on the books, but I still don't know we don't feel we have the crystal ball to figure out whether we're done with elective surgery slowdowns and whether there'll be more.

Coming forward.

Yeah, I know that's something that is there that makes sense that makes sense and then I know a lot of other companies are talking about sort of how wild robotics and enabling technologies are doing I know you guys had mentioned kind of 17 briefly on this call, but that'd be great just to get more of an update there what you're seeing with that relationship.

And just how you're expecting it could contribute in 2021. Thank you guys.

Yeah, you know I think that interestingly you know we started that relationship in early 2020, and then obviously COVID-19 hit but it gave us a great opportunity to get better trained and to better understand how we can participate.

<unk> of our sales channels to collaborate and try to do the right things in hospitals and of certain hospitals can purchase it outright that's of great direction of others need to work through a.

On the better way to get them get of unit place to earn it out then we're in a great place as well to do that and so we really feel like the first half of this year, we'll start to see additional placements.

Placements that will give us a great deal of momentum for next year not next next half of the year. So on Tau half of 2021, where I do think that we're going to continue to see budgets open up and on a greater opportunity and we've seen certainly from from other companies talking about the robotic sales that there there is a robot.

Justice, that's going on right now as far as of.

Capital equipment being being made on our capital funds being made available by hospitals.

Thank you guys.

Your next question comes from the line of Matthew Blackman from Stifel. Your line is now open.

Mr. Mathew Blackman your line is now open.

Sorry, I had kind of learn how to turn off the mute button of policies. Thanks for thanks for taking the questions Ive got Jordan.

[laughter] of Med Tech analysts amount of tech analyst.

[laughter], maybe debt to start cures.

Curious about the procedure mix in the fourth quarter of some of your peers have been talking about lower complexity of procedures, having gotten done while the more complex procedures were disproportionately deferred so in essence, it was almost like a double a headwind in the quarter on on volume and mix do you see a similar phenomenon and if so on the surgeries that are being put back on the on the books now.

More complex the nature and I've got one follow up.

Yeah. So so.

Not a significant component of our business today is the more complex and deformity surgeries I still believe it's less than 10%. So it doesn't have the same impact on us we typically do get the bump in Q2, and the height of Scully season, and a little bit late in the year. So it wouldn't have the same impact on us, but we did see the mix shift a little.

And we talked about most of the growth came for the procedure volume growth.

The 7%.

The price decline, which has been pretty consistent throughout the industry and then we did benefit from mix, but not because of the tilt towards more complex deformity surgeries that you know the.

Asps per surgery, but as Keith was talking about earlier, it's the number of systems used per procedure. So we're getting a higher revenue per procedure in the fourth quarter, mostly because we are seeing an increase in the number of of our products used per procedure and.

And I do think we will see of benefit like probably other companies are talking about down the road as some of those more complex cases get rescheduled and that becomes a more meaningful part of our business and one of the reasons, we're making the investments in extending the mariner platform into the.

And adult deformity indication, because I think that'll allow us to take advantage of that.

Is that dynamic does come to fruition in 2021, when it was more complex cases start getting rescheduled.

Alright that makes sense and then my follow up.

Thing about all of the new product flow, so any way to characterize the early traction and are of interest in existing accounts versus new or under index customers or are these new products resonate more or less with either of these cohorts I got for I'm really asking is in the portfolio, allowing you clearly, it's allowing you to go deeper on but it's also allow me to the broader thanks.

<unk>.

Yeah. It is actually it's a it's a good observation because theres no question that our new product opportunities.

It's giving us the ability to to you know continue.

Continue going into a deeper relationship and the hospitals, we're already in with those surgeons.

We're also seeing and was certainly nice on Alpha was a lot of new customers coming forward right and that's because they're.

Not only they werent interested necessarily in our legacy products, but they're also very interested in for some of the new features that we've incorporated the other systems don't have and so we feel good about the fact that both segments. If you will are working for the new products for we're especially seeing new customers come aboard and that will be our goal as we.

Through this year of next year is continuing to drive going deeper in those accounts that we've gotten the opportunity to finally participate.

Alright appreciate it thanks, so much and congrats on the great end of the year.

Thanks.

Your next question comes from the line of Jeffrey Cohen from Ladenburg Thalmann. Your line is now.

The high coupon bonds for you.

Good how are you Jeff.

Just fine two issues I wanted to drill on a little bit.

Firstly on Boston, calling on some of Opex of like 2.6 extra items for the quarter one a share.

300, R&D 500, G&A. So that's one time the two six out of the Opex for Q4, and we shouldn't think about that on as far as on moving forward.

The.

Did the invest the depreciation in the instrument deployment expense I don't want to characterize any of it as one time.

But it was particularly higher of the spend in the fourth quarter as we were gearing up for all of the upcoming product launches.

So that.

That was the biggest increase in the Opex.

But the G&A and R&D increases were more.

Permanent in nature of recurring in nature and reflect growth from the business and the infrastructure to support that but I'd say of the sales and marketing increase debt instrument deployment of expense and depreciation will continue at an elevated rate as we continue to launch more products, but it's also of more of the non cash expense because it's just.

Deploying the instruments for depreciating the instruments that are part of the historical capital expenditures of the business.

Okay, and if I tried to correlate throw it over to the inventory you would expect the inventory of the order of one of our Fox time no for the year.

I mean off the cuff debt.

Inventory is going to go up for the year are you talking about 2020 or 2019.

I'm, sorry, 2021 or 2020.

For 'twenty one versus 'twenty.

Yeah inventory should go up again in 'twenty 'twenty, one versus 'twenty because.

It went up in 'twenty 'twenty versus 19, with a bunch of alpha launches and for the full commercial launches right. We're typically doing two or three extra the number of sets deployed into the alpha launch so capex and inventory would both be expected to go up as we deploy out of those full commercial launches okay. Perfect got it and then as we think about the margins you have of course.

On the Ghana.

<unk> 52 from.

Hundreds of 150 aspiration based support of increase.

And the reason Keith was talking about 152 to 50 basis points could you clarify the differential between the two average.

Yeah. The second one is just the estimation for 2021, we we've been saying for a while the long term expectation to grow of 100 to 150 basis points, that's still intact, but I think we've got an opportunity to grow even more in 2021. So that was the genesis of the percentage as Keith gave up.

Okay perfect good flow through for us thanks for the commentary.

Yep. Thanks Felicia.

Again participants if you would like to ask the question you May Press Star then the number one on the telephone.

Your next question comes from the line of bad debt from.

From Thompson.

Your line is now from.

Hi, Thanks for taking the questions and congratulations on a good quarter maybe.

Maybe just two for me.

So obviously you had a fantastic pace of launches in 2020 in.

It's not out of 'twenty 'twenty, one as well.

Yeah without getting too greedy, how should we think about kind of 2022 and beyond in terms of new product launches of various instead of.

This being a bolus of launches, which is kind of drive share.

Near to midterm growth and then yeah.

The other ones if I could on gross margin and the additional color you can give us on the phasing throughout the year would be great. Thank you.

Yeah, so on the other.

The continuation of our product launches.

Think that we're still going to see a very healthy pipeline as we've seen in the past couple of years and I also.

As we move forward and it'll be similar to the 'twenty 'twenty, one and of the projects that we're putting in place that we'll have momentum or launches in 2022 are as numerous as what we're planning on.

This year I think in addition, though what Youll see is youll start to naturally see us continuing to improve on existing product lines, so updating and and driving additional features and the ability to address different pass allergies.

Kind of message before that we will start moving into opportunities with the tumor trauma, which are important.

Goals for us are very important to our distribution network as well, but it's also one that we have taken a very thoughtful approach and when we would be.

Be able to.

Effectively launch those will be at the right critical size and we feel like now is the time to start the development process and direction.

And then on the the gross margin comment there is a couple of puts and takes.

Overall for the year, we ended up having a higher.

Charge compared to 2019, and again Thats a function of the number of <unk>.

That's deployed because you've got the so called the odd sized implants that you don't expect to sell very many of but you need to have one in every set deployed.

And then I would anticipate that to go up a little bit more again in 2021, because youre doing two or three ex the number of sets for the full commercial launch in 2021 compared to the alpha launch in 2020.

The inventory I think it was down a little bit.

Versus the end of 2019, so we're not just building inventory for the sake of absorbing overhead.

But our overhead.

Absorption as we produce a debt facility.

Outpaced the increase in cost to produce the higher volumes out of <unk>.

Really nice pace, so that's where we get the benefit from is just the lower unit cost to produce and that's a function of two things right higher production volumes given the fixed cost at that plant, which is pretty meaningful but then also on a lot of the lean manufacturing.

Projects, we've implemented at that facility over the last two two and a half years that you're able to just produce things more efficiently on a variable cost basis as well using the tissue more effectively and more efficiently. So that it's hard to quantify where it came from but it's mostly coming from that Irvine facility, because it's a very scalable facility with more growth.

The room to grow because of the fixed cost component and the fact that we can add a lot more volume without adding many more costs fixed costs at least.

Great. Thank you very much.

Sure.

Again participants of deal would like to ask the question you May Press Star then the number one on your thoughts.

That's for that the number one on your telephone.

Okay.

There are no questions over the phone.

Yes.

Thank you everyone for joining us and we look forward to connecting with you after Q1.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Q4 2020 SeaSpine Holdings Corp Earnings Call

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