Q1 2021 OrthoPediatrics Corp Earnings Call
Welcome to the Q1 2021, most of the Pediatrics Corp Earnings Conference call. My name is John and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
During the question and answer that's kind of feed you are of course.
And then one on your touch going forward and please note the.
And is being recorded.
And I will now turn the call over to Christine that's for Ddos.
Yes.
Thank you John and thank you everyone for joining today's call with me from the company are Mark Saad Al Chief Executive Officer for.
Hi, Chief operating officer, and Chief Financial Officer, and David Bailey, President before we begin I would like to caution listeners that comments made by management during this conference call.
Includes forward looking statements within the meaning of federal Securities laws.
And the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
These forward looking statements involve material risks and uncertainties and the company's actual results may differ materially for.
For a discussion of risk factors, including among others the risks related to COVID-19.
Impacts such pandemic may have on the demand for the company's products and the company's ability to respond to the related challenges.
Cause you to review of the company's most recent quarterly report on form 10-Q, which will be filed with the securities and Exchange Commission.
During the call today management will also discuss search and the non-GAAP financial measures, which are used as supplemental measures of performance. The company believes these measures provide useful information for investors and evaluating its operations period over period.
For each non-GAAP financial measure of referenced on this call. The company has included a reconciliation of the non-GAAP financial measures for the most directly comparable GAAP financial measures and its earnings release. Please note that the non-GAAP financial measures have limitations and the analytical tools and should be should not be considered and.
Isolation or as a substitute for ortho pediatrics financial is the prepared in accordance with GAAP. In addition, the content of this conference call contains time sensitive information that is only as of date of this live broadcast today may six.
2021.
Except as required by law the company undertakes no obligation to revise or update any statements to reflect events or circumstances take place. After the date of this call with that I like to turn the call over to Mark.
Good morning, everyone and thank you for joining us today on our first quarter 2021, the earnings conference call.
I'd like to begin by recognizing my fellow orthopedic Patrick's associates for their tenacity and hard work, our strong performance and the quarter is a testament to our committed team and the resilient business, we built together and I couldnt be prouder of where or the pediatrics. He is today and.
We're starting out fiscal 2021 on and excellent node with our quarterly revenue growth exceeding 30%, which is back up to pre pandemic levels and with adjusted EBITDA and gross margins continuing to improve steadily.
Of course, we didn't achieve this overnight we've been building momentum for more than a year as we reflect on our progress to date. We are very pleased to report that the initiatives. We put in place last year beginning at the start of elective surgery deferrals and mid March and positioned <unk> stronger today than it was at the hour.
Set of COVID-19.
We said that we would emerge stronger from the pandemic than when we entered it and we have done so.
Before I walk through our results this quarter I'd like to comment on our succession plan.
As you'll recall last May we announced the appointment of David Bailey as President and following our upcoming June 2nd annual meeting David will formally be appointed CEO and I will become executive chairman of the board.
As we continue to advance toward recovery from the pandemic and build on the strong foundation, we've established as the team I believe this transition is well timed.
In addition to this being a meaningful moment for our company. This change and leadership is an important personal milestone.
And I was named CEO and 2011, our annual sales were only $7 million, we had just restructured the company and our financial condition was tenuous the.
One thing, we had going for us was opportunity and the abundance of opportunity.
Despite the very different company. The orthopedic matrix is today, we still have an abundance of opportunity and I look forward to remaining actively involved as executive chairman and seeing all of that this team will accomplish in the years to come.
So with that said, let's begin today's call with an overview of our financial results and then discuss results by product line, including our thoughts on procedure recovery rates and the United States and abroad, and we will.
And also comment on additional progress that is setting us up for success. During the balance of 2021, Fred will then lead US and of detailed financial review following of which will open up the call for your questions.
Overall the success, we achieved and the first quarter was driven by strong core business growth, both domestic and international our acquisitions of <unk> at the fix and tell us partners as well as our continued investment and sets served as additional catalyst to our growth.
As we look ahead and continue down the path to recovery from the pandemic.
And I'm confident that <unk> is well positioned to drive sustainable long term value creation.
First quarter 2021 sales grew 31% to $21 5 million compared to $16 $4 million and Q1 and 2020.
All three businesses across domestic and international markets showed a marked improvement over the same period last year.
Our sales growth and Q1, 2021 and return to pre pandemic levels with sales growing 30% or more levels. We had previously seen in Q3, and Q4 2019 and continuing into January and February 2020.
I'd like to point out that there were two fewer billing days in Q1, 2021 versus Q1, and 2020, which impacted our growth rate that otherwise would have been 35% for the first quarter 2021.
This represents a significant turnaround and following the sharp decline in the sales that we experienced in Q2 2020, and the slow but accelerating growth and Q3 and Q4 as a result of the impact of COVID-19.
Despite a slow start for the quarter and continued regional spikes and COVID-19 throughout the United States. We again delivered strong domestic growth. However, the decisive factor and the quarter was our impressive international performance, where sales grew dramatically as a result of continued strong agency growth.
And the return to double digit growth by stocking distributors.
All segments of our business performed well and Q1 and 2021.
Domestic sales of $16 $8 million grew 26% maintaining the strong growth rate, we achieved in Q3 and Q4 2020.
International sales of $4 6 million grew 56% demonstrating and extraordinary recovery from the 21% decline we experienced in Q4 2020.
We were pleased to see the international stocking distributors began purchasing again in Q1 2021 and generated 15% revenue growth. This is an indication and both of their depleted the inventories as well as surgical procedure of backlogs and many countries.
International sales agency revenues grew 122% with the addition of Germany, Austria, and Switzerland, or the conversions in January of 2021 versus 26% growth and Q3 and 51% in Q4 2020.
Agency growth was stimulated by the Dol conversions, which positions us for continued agency growth in 2021 and beyond.
We're pleased to have expanded the sales agency model to 14 agencies in 13 countries.
And to continue agency conversions and broadening our product portfolio and these markets to include new technologies, such as the <unk> and Asics as we build out our product offering we are expanding our ability to improve the lives of children in those markets.
We're particularly encouraged by the strong growth of our worldwide trauma and deformity business, which grew 19, 2% to $14 6 million.
And 2020 of the deformity segment of this business was negatively impacted by the deferral of elective surgeries.
Trauma and deformity revenue continues to be bolstered by strong contributions from new product launches such as Pnp femur calculated screws and <unk> as well as the consignment of inventory to new and existing accounts.
Additionally, the first orthopedic surgical cases in Europe were performed at the paler European Institute met to cover Hospital and January and February 2021.
We expect that the <unk> launch, we will have a positive impact on 2021, and as well as future years and anticipate further <unk> launches across additional international markets.
Worldwide, Scoliosis, which had also been impacted by deferred surgeries last year grew 64% to 6.0 million.
We had strong growth across all product lines and continued to gain market share and our fusion and business.
As a reminder, app of fix is one of two recently approved non fusion technologies and represents a paradigm shift and how scoliosis is treated it.
It addresses patients with curves between 35% and 60 degrees, we're embracing is failing.
<unk> is a much simpler surgery than the spinal tethering the other non fusion product on the market, which comes with the big learning curve as one user foot.
And in addition to the positive clinical results, we anticipate benefiting from and extremely high sales per dollar of set inventory that can improve our overall revenue per dollar of consigned and set of investment and the future.
Worldwide and sports Medicine, other grew 125% to 1.0 million draw.
Driven by Telos partners consulting contracts and repeat of advisory business.
To that and we're seeing very positive results of our Telos partners acquisition.
We acquired tell us and March of 2020 to access state of the art expertise on regulatory trends and clinical trial management, but we're pleased to report that their expertise is in demand by med Tech companies, particularly in light of the complex and dynamic regulatory environment and tell us continues to add and.
<unk> revenue and customers to their portfolio.
While we're proud of our performance in Q1 2021.
And we must note that we are seeing continued shutdown of elective surgeries and important Latin American markets, like Brazil, and Colombia due to the pandemic.
And while the UK is returning to normal elective surgery schedules, we continue to see the negative impact of spiking COVID-19 cases in some other European markets.
We are confident that continued vaccination programs will further stabilize elective surgery of rates in this country and abroad, but we would caution that regional performance will remain lumpy for some time.
Therefore, we will continue to focus on our strategy of surgeon conversions and new product development sales training clinical education, and the continued deployment of set inventory in this country and abroad.
In addition, we have reached agreements on both of alleged intellectual property infringement cases of which the company had financial exposure.
The coupled day rotation procedure patents and by a surgeon and the inventor and of the four year old of proceeding with the <unk> striker the.
The settlements preserve us from incurring considerable legal expense this year and beyond and we have stopped all trial preparation and spending as of the first of April 2020 one.
Turning now to the new products and surgeon conversions and <unk> is building and scoliosis portfolio to treat children across the spectrum of this condition from early onset scoliosis or Eos to fusion.
These products and food she'll of two for Eos Emmanuel growing Rob now and development.
<unk> fix for failed bracing cases response for fusion response neuromuscular for complex cases, and children with conditions, such as sort of a policy and Firefly patient specific guidance for accurately placing pedicle screws and we believe this portfolio gives us the broadest.
Offering focused on the pediatric market and the positions the company for significant long term share gains.
To walk through some highlights 14 of the 21 App of fixed IRB sites have now been fully approved with four to five more on the verge of approval.
Through April there have been 50 surgeries in the United States, including 'twenty, and 2020 with 32 more patients scheduled or approved for surgery.
This means that we are on track to complete the registry of 200 cases during Q4 2021.
The registry requires to IRB approvals one for the site is required by the humanitarian device exemption and the second for the registry itself.
And second approval process has been impacted by COVID-19 related delays.
We continue to convert and surgeons to our <unk> system, which we acquired in 2019.
We converted 10, new domestic users and six international Surgeons in Q1 and 2021.
Additionally, we are now beginning to see the results of conversions made in 2020 as elective surgeries resume a more normal level.
And 2020, we introduced <unk>, and Australia, and Canada and in both markets. We are seeing of rapid adoption of this technology.
More recently, we announced the long awaited launch of <unk>, and Europe and expected to further impact our international recovery, especially in large agency markets like the the United Kingdom and Germany.
Moving on to sales training and clinical education and February we launched a dedicated website for at the fix at the fixed dot com to support this game changing the spinal deformity correction and technology.
This new online resource focuses on educating patients families and health care providers about the viable alternative we offer for the treatment of progressive adolescent idiopathic scoliosis.
Through this site. We also enable patients to identify surgeons, who are approved to perform and the surgery and one case of patient and their family flew from Hawaii to Dayton, Ohio to have the at the six procedure completed.
We also launched an app effects of the site on the orthopedic Patrick stock matter of platform the.
This allows clinicians to share patient data surgical techniques and experience as well as outcomes.
The <unk> Dot com website, and dark matters sub site are part of our commitment to smart and steady success, introducing app of fixed to the U S market.
We also launched the orthopedic metrics app called PD portal, which provides instant access to technical data technique guidance and case planning for OE sales reps and and the future for surgeons.
<unk> portal allows our sales reps to be and even more valuable consultative resource for their surgeons.
And this quarter, we continued to execute our strategy of aggressively deploying sets.
And five $3 million of sets were consigned and Q1 2021 compared.
Compared to $3 3 million and the first quarter of 2020.
We anticipate $13 million to $15 million of set deployments in 2021.
Somewhat lower of number from recent years because of the significantly greater ROI of <unk> and <unk> instrument sets.
We also grew our domestic sales organization head count to 177 sales reps compared to 167 as of the first quarter 2020, with six new reps hired during the first quarter of 2021.
Further recruitment efforts are now underway by many of our domestic sales partners underscoring their confidence and the recovery of our business and.
And as the U S market continues to normalize we expect that and increased number of sales associates will be added over the coming year.
Switching gears to factors enhancing our competitive advantage, while the pandemic temporarily reduced our sales growth and 2020. It provided it to be and excellent proved to be an excellent opportunity to strengthen our industry, leading position and pediatric orthopedics at every step of the.
<unk> has remained committed to supporting our patients and surgeons. Despite the challenges we did not cut our financial support to important of surgical societies in Stark contrast to other industry sponsors.
Being the market leader requires a long term multi dimensional and commitment to innovative product development selective acquisition of complementary technologies investment and non commercial clinical education, and leading the financial support of pediatric orthopedic surgical societies and.
Moreover, it is rooted in our build to last strategy of consistent execution that balances aggressive growth with steady improvements and profitability.
At <unk>, we take this role as the market leader very seriously. We believe it is our responsibility not only to deliver value to our stakeholders, but to contribute to advancing the field of pediatric orthopedic surgery as a whole.
Our corporate objectives have tracked to plan and thus far and we don't intend to slow down anytime soon.
Before I turn things over to Fred Let me conclude by saying that the COVID-19 pandemic required us to take a fresh look at how we operate it put every aspect of our business to the test, including our company's leadership and culture.
Among the many lessons learned from the pandemic is that culture more than anything else carries the company forward.
And our accomplishments in the face of uncertainty reaffirm this belief.
Not only are we are stronger today from the financial perspective, but we are also of more resilient more agile team.
We continue to see many demonstrations of leadership and initiative and selflessness at all levels of the company and although we have worked remotely since March 2020, we remained closely coordinated with the high degree of morale and productivity of.
Great validation of our ability to come together over the past year. Despite working virtually is the recognition we continue to receive as the employer of choice in the industry.
In Q1 and 2021, we were again named one of the best places to work and Indiana for the fifth time.
This recognition is accorded only two of few companies out of thousands surveyed by the Indiana Chamber of Commerce, and we are honored to have been selected again.
Finally, and most importantly, during Q1 and 2021 and we surpassed the estimated milestone of treating 200000 children with orthopedic conditions.
This is an exceptional number of surgeries for of medical technology company of our size and highlights our role as a trusted partner within the pediatric orthopedic surgical community.
With that let me now turn the call over to Fred to review, our financial results and outlook.
Fred.
Thanks Mark.
Total revenue for the first quarter of 2021 was $21 5 million.
A 31, 2% increase compared to $16 4 million for the same period last year.
U S revenue for the first quarter of 2021 was $16 8 million, a 25, 8% increase compared to $13 4 million for the same period last year.
Presenting and 78, 5% of total revenue.
International revenue for the first quarter of 2021 was $4 6 million, a 55, 6% increase compared to $3.0 million for the same period last year, representing 21 five percentage of total revenue.
The increase during the three months ended March 31, 2021 reflects the normalization in both the U S and international markets, which during the three months ended March 31, 2020 and began experiencing the impacts of COVID-19.
With domestic sales growth accelerating during the first quarter were very encouraged that we can continue to build on this momentum.
Outside of the U S. As Mark mentioned as shown marked improvements.
On first quarter revenue breakdown by category was as follows.
Trauma and deformity revenue was $14 6 million, a 19, 2% increase compared to $12 2 million in the same period last year.
Strong growth and trauma continue to drive domestic sales with encouraging signs of recovery seen and elective deformity surgeries.
Scoliosis revenue in the first quarter of 2021 was 6.0 million.
A 64% increase compared to $3 7 million in the same period last year.
Our scoliosis business has shown signs of improvement given the backlog of elective surgeries plus the addition of <unk> revenue.
Finally sports medicine, and other revenue and the first quarter of 2021 was 1.0 of $1 billion.
Representing a 121% increase over the zero of $4 million and the same period last year.
As Mark mentioned <unk> continued to excel.
<unk> represents a small percentage of our business. The strong performance reflected the impact of new <unk> partners consulting contracts and repeat advisory business.
Moving down the income statement gross profit for the first quarter of 2021 was $16 3 million, a 33, 7% increase compared to $12 2 million for the same period last year.
Gross profit margin for the first quarter of 2021 was 76, 1% compared to 74, 7% for the same period last year.
The strength and gross margin was driven by a larger percentage of domestic and U S Agency sales.
Sales and marketing expenses and the first quarter of 2021 increased 18% year over year to $8 9 million.
This was driven by an increase in unit volume sold and associated commissions and the U S and.
And the international markets, where we have agencies.
General and administrative expenses and the first quarter of 2021 or $12.0 million.
And increase of 53% over the $7 9 billion for the first quarter of 2020.
The increase and expense was primarily due to the additional expenses associated with Abbvie fix and tell us acquisitions person.
Personnel and resources to support the expansion of our business as.
As well as an increase and legal and other professional services expenses associated with our ongoing litigation and acquisitions.
Depreciation and amortization expense increased $1 $2 million of 85% from the $1 $4 million and the first quarter of 2020.
The increase was primarily due to the amortization of intangible assets acquired through <unk> or effects and <unk> acquisitions and the purchase of the band lock intellectual property.
Research and development expense of $1 $3 million and the first quarter of 2021 remained flat as compared to the first quarter of 2020.
Total operating expense and the first quarter of 2021 or $22 3 million compared to $16 7 million for the same period last year.
Primarily due to the increase in G&A.
Operating loss and the first quarter of 2021 was $6.0 million compared to a loss of $4 $5 million and the first quarter of 2020.
And adjusted EBITDA for the first quarter of 2021 was negative $1 4 million compared to negative $2 1 billion for the first quarter of 2020.
This improvement over prior year was achieved from revenue growth combined with effective cost containment.
And despite continued strategic investments, which will drive future growth.
Interest expense and the first quarter of 2021 was <unk> $7 million.
Of which the <unk> 6 million was from the imputed interest on the <unk> acquisition fixed payments.
The <unk> 7 million compared to zero, and one $4 million and the same period last year.
Other expense was negatively impacted by $4 2 million of fair value adjustments of contingent consideration.
And this is a non cash expense, resulting from the accretion associated with the Abbvie fixed acquisition and is expected to continue each quarter and 2021.
Net loss from continuing operations for the first quarter 2021 was $10 4 million compared to a net loss of $4 9 million and the same period last year net.
Net loss per share and the first quarter of 2021 was 0.54 per basic and diluted share compared to 0.3 per basic and diluted share and the same period last year.
First quarter 2021, adjusted non-GAAP earnings loss per share is a negative the zero to five per diluted share compared to a negative 0.30 per diluted share in the same period last year.
Free cash flow of negative $7 $5 million versus negative $12 $5 million in quarter, one 2020.
And shows of $5 million improvement.
We are very pleased by the continued progress, bringing the company to a positive adjusted EBITDA.
Thus lessening our dependency on capital markets to raise capital to fund future set consignments.
As Mark mentioned, we have reached agreement on both the alleged IP infringement cases, and which the company had financial exposure.
The couple of the rotation of procedure patented by of surgeon inventor and the four year old proceeding with <unk> and Stryker.
A provision of $6 3 million was accrued in the fourth quarter of 2020 for these cases.
With an additional 150000.
<unk> added and quarter one of 2021.
These settlements preserve us from incurring considerable legal expenses this year and beyond and we have stopped all trial, perhaps spending as of the first of April of 2021.
Turning to our balance sheet as of March 31, 2021 of our cash and restricted cash was 78.0 million.
Compared to $85 3 million as of December 31, 2020, currently we have no outstanding term loan obligations.
As previously disclosed we have of $25 million revolving credit facility, which expires in January of 2020 for with the full $25 million available to us at this time.
The change and property and equipment during the first quarter of 2021 was $2 7 million.
Compared to for zero million dollars for the same period last year.
And in Europe and.
And the backlog of <unk> surgical procedures and many international markets.
While the COVID-19 pandemic environment will continue to evolve potentially and unexpected ways are proven business model consistent and strong execution continued focused on cost containment and are strong balance sheet, all combine to give us confidence and the future of the business.
Now, let me turn the call back over to Mark for some closing comments excellent Fred Thanks.
This past year has reminded us how fortunate we are to serve the surgeons and healthcare Provider's, we're proud to call our customers.
We have unbounded admiration for their sacrifices as they put their lives on the line to improve the lives of children.
As I shared at the start. This is my last earnings call is C E O and before I hand of the call over to the operator for Q&A I would like to sincerely. Thank everyone on the line or investors are associates and our other stakeholders for their support.
I am, particularly grateful to our associates throughout the world for their personal leadership that has allowed us to treat more than 200000 children and since 2008.
I am confident that with the teams continued execution under a new generation of management orthopedic matrix will build on its leading market position and advance it's corporate purpose to transform the lives of children throughout the world.
That's now turn the call over to your questions. Please.
Thank you and I'll be getting the question and answer session. If you do have a question Preston and one on your Touchtone phone.
If you wish to be removed from the queue. Please press the pound sign or the Ashkey, if you're using a speaker phone you mean and eat.
The answer for before pressing the numbers once again and if you have a question for starting the one on your Touchtone phone.
And the first question and the room at the O'brien for them papers Hammer.
Morning, and thanks for taking the questions and and Mark really best wishes of you're transitioning of the the chairman role and.
Thanks for all your stewardship over the the last several or many years for the company and and Dave really excited for you as you step into the C E O role.
Thanks for math isn't that good of you to say.
Yeah of course, so I guess you know.
Yeah.
Understood, Okay, and then as the follow up.
Complex spine again was just the eye popping number I know, there's easy comps and all of that but but.
Talk a little bit more about physician interest conversion.
And I don't know if its that'd be fixed specifically or the rest of the portfolio, that's really driving the interest level, but but just talk about just kind of the the ground swell of interest that youre seeing on the complex side I know, we're seeing some of the come through here in Q1, but.
As we looked into the the remainder of the season and even into 'twenty. Two if you could just help us understand.
And again, what youre seeing from the physician interest perspective.
Sure Matt its David.
So no question customers and we're very excited about ethics and I think there is a bit of a halo effect, we're getting with the <unk> and some of the IRB sites and we're seeing surgeons, who had been previously used our screws for fusion start to use of our scores for fusion from the IRB sites, but overall I think we're executing the strategy of <unk>.
<unk> and account conversion and our fusion business continues to grow the response business was up again this quarter.
Margin.
And the first quarter of 2021 are stocking sales were of 15 per cent year over year, which is encouraging but it was primarily replenishment and a very little amount of set that were included in there and we still anticipate yet this year that are stocking distributors are going to.
Buying some additional sets and when those go through at the and no margin it will drag down the margin of little bit with that being said the the positive that we're seeing right now is definitely from the agency conversions, primarily docker, adding to the business and the strong revenue growth.
Stickley, which we do anticipate to continue so I think overall, we would expect that this year will be a little better than last year in total.
But it'll be a little lumpy depending on when those set the sales come in and.
Okay, and just any colors of follow up on that for me.
Three imagine remodel this out sort of have it steadily sequentially better or.
You know how do we think about that flow.
Flow through the yeah, that's the important too early.
Sure. It typically is better in the second and third quarter. When our volume is higher and you know the first and the fourth quarter weaker volume brings lower gross margin traditionally and so I would think the second and third quarter would be higher year over year, and then the fourth quarter could potentially be lower on a percentage basis.
If we start to see some more set sales and the fourth quarter of this year.
Alright uhm.
Two others the for me.
And and I'll ask and both on the I T. Some of my front. It is great to see that resolved just out of curiosity, what kind of litigation expense savings.
On a quarterly basis will you.
Garner from that and so we think about the miles for this year and maybe [laughter] and.
Higher level.
And that's a big endeavor for us that will take the balance of the year to get sets there and to get people trained internationally, but we expect it to be our largest launch internationally and in the company's history and so that's where our focus is we also will be launching the response neuromuscular system and we've talked and we've issued some press about having.
<unk> of 500, 10-K approvals there, but we've never launched the system and we believe that the first of its kind of in the marketplace. No. One has ever developed the system specifically for that indication and we're excited about that.
And the trauma and Linda form of the side, we expect to do a full launch of the Skiffy product.
And that's the product again, we have five 10-K approval for building inventory training and the sales force and planning the launch that this year and then last but not least we have been working on a companion product for <unk>.
The slightly different version of and external fixation device that would round out that portfolio a bit and we expect that to launch this year. So good to see the kind of organic growth that we're generating with the products, we have and the pipeline or in the in the.
And the portfolio.
Certainly excited about app of fixed and what's going on there or what's going on there. But then we have a bunch of new products that are going to follow all of that up and be launched this year.
And as last question was around M&A and a few of them.
Yes, so from an M&A perspective, we certainly don't have anything let's say the scale of athletics.
Told you and the path that we are looking and a number of smaller transactions potentially to add.
And some technology to the portfolio, maybe some partnerships or licensing.
We're always interested in and.
The biologics segment of this and there may be some things that we could do there we remain quite keen to continue to support our goal.
<unk> business and potentially the trauma, Linda for new business with certain navigation solutions and so we've kind of we've always been.
Looking at and potential partnerships and the net intraoperative navigation side, and we will continue but at this stage I don't think we can point to anything imminent.
Thank you so much.
Thanks, Rick Thanks for.
Our next question is from Calix.
True security.
Great Hi, guys. Thanks for taking our questions and and Mark I'll Echo the sentiments from others and we're going to Miss your insights and and also your voice on the call but for the best.
And the new role.
Thank you Kayla.
Of course, I now think of it would be in good hands with with that.
And Fred.
And I'm sorry.
And just wanted to just start off on the trauma and deformity of business, but it looks like actually grew by about 30% sequentially I wanted to fully understand the drivers. There you mentioned the stocking distributors posted 15% year over year growth and in the quarter can you just parse out I guess, how how big that was on a dollar basis.
In the quarter and then I want to understand if you can continue at the sort of $14 million to $15 million quarterly run rate and T&D or will it take some time to work down that inventory.
No I think we were obviously very pleased with with the for.
Performance the.
As mentioned the trauma business had continued to perform throughout COVID-19 and really what was different this time is the deformity correction.
Those serve both surgeries, but also we are encouraged by the activity in the clinics increased dramatically here in the first quarter.
And as many I think other companies of mentioned slower and January and February dramatically improved in March and that has continued into April with really the deformity correction piece of that business, which does include or effects as.
As the differentiator from what it was earlier several quarters ago, I think what's important to note that and deformity correction component of our business for limb deformity is.
It was probably the most elective.
In terms of all of our procedures that can be delayed maybe more than the scoliosis procedures and certainly emergent trauma. So it was really as Fred mentioned really gratifying to see that business come back here in the first quarter pretty aggressively and hopefully that continues obviously the or the <unk> is a big part of limb deformity correction and the the C. <unk>.
And surgeon conversions, there, but also the start to see the usage rates of surgeons that we converted last year and I think we cited some 38 surgeons.
And that we converted last year, so to see the usage rates of those surgeons go up those surgeons get into a more normal volume.
And is really encouraging last thing I would point to is that we continue to have really strong success with the most recently launched products. The PMT femur continues to take share cumulated screws continue to take share. So overall I think we're very encouraged with what we're seeing on the trauma and deformity business and hope that continues.
Great. Okay that makes sense it sounds like it and it's really the core business continuing day to harm versus anything sort of onetime onetime in nature of air.
Yes, that's right.
Perfect Great and then just on App of things I mean is it possible the breakout how much of that product contributed and in the first quarter and I mean, how how do you think of this product can ramp over the next 12 to 24 months and at this point of what we're modeling a little over $5 million in 2020 one.
Would you be disappointed if amethyst wasn't the at least double of that size and 2022. Thanks for the question.
Yes, I think your assumption of $5 million in 2021 is of very good assumption.
We absolutely plan on executing on the 200.
Person registry during the fourth quarter of this year, which would equate to that number as.
As far as next year.
We'll see as we go throughout this year and how aggressive the uptick is what we're really encouraged by is the significant.
Demand from patients and and from other surgeons that are not within the registry sites and we're already starting to think about how do we get them started as soon as the 200 registries are completed so.
Couldn't be happier with the progress of the that product and the demand that we're getting from all avenues of the business.
Great. Thank you.
Thank you.
Our next question is from.
Ryan Zimmerman from <unk>.
Great. Thank you for taking the questions.
Thanks for everyone's sentiments.
David You mentioned show of two for and Scoliosis and and I know you've been working on of growing rod solution for some time.
But I think that is the first time I've heard of maybe maybe it's sort of before but can you just elaborate a little bit of that technology, the timelines for the potentially coming to market and anything else you'd want to share with us at this time on them.
Yes.
Yeah. So.
And good credit the question Ryan So I think.
And the way to think about this is that we have a strategy around Eos does not singular in nature. We don't believe that there is a single product that's going to solve all of the us.
<unk> indications and so for years, we have worked on and and enter a growing.
Distraction device for the mechanical in nature. We've also worked on a sale of like product Thats more of a trolley. This is the open screws that allow the spine to grow and.
And but keep the scoliosis procedures to keep the scoliosis aligned straight and.
And so it's not mechanized, but it's more of a passive.
Device that allows the body to.
To continue to hold the spine straight and the child for continued to grow we believe that's another product and what needs to be a series of products to support.
We are also internally working on.
System for pelvic fixation as well as rib base fixation for early onset scoliosis that would be of more of a manual distraction technique, which is still reasonably popular and pediatric orthopedics and that would be of companion product to our small stature response system and we think that over the next few years.
<unk>.
And we'll be able to bring all three of those types of products to market or at least of few of those solutions to market, which when we fast forward. Two three years, we believe will have the most solutions of any company.
And to address the extremely difficult pathology and early onset scoliosis.
Thank you for that and then the follow up to <unk> question you might have mentioned this the 32 surgeries for epic fix that are scheduled for those over the course of the next quarter over the course of 2021.
And just some sense of theirs in terms of the timing.
And what you would say for that or are those scheduled already and that's kind of of the bullets, we expect and the second quarter.
Okay.
We're scheduling surgeries.
The kind of ongoing scheduled and so yes, we have 32 patients approved.
That are either scheduled or and I would say that for the next several next few months and then we're continuing to add patients weekly to that 32 numbers. So I don't know if I would call. It a bolus of can't off the top of my head to remember exactly where the last one of those schedules come out, but certainly and indication Brian that we are accelerating in terms of.
Of the volume of patients that are and Q to have the ethics surgery done.
Understood understood and just lastly for me.
Converted obviously, Germany, Switzerland and Austria.
And what other major international distributors could we see converted this year for.
From the stocking distributor pool.
For some other I would say smaller markets that we are working on I would say nothing probably in the first half of the year, but potentially later in the year there could be some the much much smaller less impactful markets that we are working to convert but docker is by far the largest region for us.
And.
Any other location outside of the U S and so this is a big accomplishment to get this done we're very pleased with the start that we've seen there and and the expected growth that that will drive both this year, but more importantly, I think it's for years to come as we continue to deploy more consigned inventory and the location intra.
<unk>, new products and that location and really accelerate the pace and the Doctor region as well of the other countries.
Got it alright, thanks for taking the questions guys.
Thank you Ryan.
Our next question is from Mike mentioned from Needham and company.
Hi, Thanks for taking my questions.
I wanted to ask about the international agency growth.
And the gross margin improvement as a possible Fred the quantify how much of those things came from the the Docker conversion that you guys did.
No we're not we're not going to break out individually how much <unk> is contributing but clearly the 122% growth.
Nice portion of it came from Docker, but a lot of our other agencies.
I would say aside from the UK delivered growth year over year and sequential Australia.
And almost back to normal if you would and as Mark mentioned, we've launched some new products. There recently and that's driving tremendous growth and it's so encouraging to see almost how normalized the country is in operating right now long may that last.
And many of other countries are the same except for I think the U K, which is just now starting to free up a bit and we would expect to them to start working through and enormous backlog that has been built up and that country.
Okay. So thats the good lead into my next question of Hudson.
You mentioned the backlog several times on the call. So.
How should we think about that is it possible to quantify the backlog at all and your growth last yourselves last year were almost flat over 19 versus 20% to 30% kind of normalized growth and a typical year or so.
I mean is that a reasonable way to quantify it or is that not reasonable.
Yeah, I think that is one way to quantify it the question in our minds I believe is how long is it going to take to release. So in many countries where government health care pays for this.
They're not working over time theyre not working weekends like they did and the U S to catch up on backlog and it could be 18, 24 months and many of these countries for that backlog to get cleared and so we're it's a question mark in our minds right now on.
And how long it is going to take the cleared the backlog.
The us, particularly I think and the U K.
That has not shown an ability to add additional resources or work over time.
So it could be there for a long time Unfortunately.
Okay. Thanks, that's helpful. Appreciate it.
Our next question is from David Kelley from JMP Securities.
Great. Good morning, guys, Fred maybe one for you just.
To start with.
Given what we're seeing on the.
The revenue side the margin side, knowing that we're losing some expenses and G&A from legal and I was wondering if you might comment at all Directionally about what we're thinking about adjusted EBITDA or net loss this year I imagine.
You could be breakeven very soon but just.
Just any thoughts you have on sort of the bottom line.
And given where you stand today as we look at this year.
Yes, as we've said.
Think from the last call we are absolutely committed to getting to positive adjusted EBITDA for the full year of 2021, the first quarter and the fourth quarter are always our softest sales and and having the same cost with softer sales is going to generate negative EBITDA, but we are.
We're very excited about sort of strong EBITDA and the second and third quarter.
As a reminder, and the third quarter of last year. Despite COVID-19, we generated $1 $3 million of positive adjusted EBITDA and we would obviously be expecting to improve on that this year given the increase in volume that we're looking at on the net income line, it's still going to continue to be nor.
Z if you will because of this accretion is from the <unk> acquisition on those payments that are coming up over the next many years. So that will continue to drag down the net income line, but really the main focus for the business is getting adjusted EBITDA positive, which is as you know.
The cash that the business is using more generating from true operations.
Got it thanks for that and.
I think you mentioned the $4 million.
Contingent and fair value adjustment was for.
At the fixed but.
And I think you said, you're going to see that for the rest of the year. So.
I think that would bring the total to north of $40 million, which I imagine is it.
Good thing probably means.
Youre hitting milestones, but can you just remind us of.
And what those milestones are and when.
The actual payment might be triggered.
Yes that particular line is tied to our year for payment for this acquisition, which is a multiple of the LTM revenue.
And so.
It takes the calculation of LTM revenue times of multiplier less the payments and we've already made and we true up the.
Of acquisition payments at that time.
You are absolutely correct that number is impacted by the time value of money so as we get closer.
It has to be accretive, but as we gain confidence and our forecast that number also increases which is some of what youre seeing right now.
Got it and then I'd be remiss, if I didnt throw went in for Mark if I could.
Obviously, I know language is important to him and.
And the press release. This morning was the most critically.
And when it was referring to the stocking distributors and knowing that O. U S is a small percentage of mix I just wanted to hear him explain exactly why that was most critical.
Thank you for the 15% growth and wealth.
Yes.
Price me, Dave is that that was the Achilles heel of the business last year, because we reported of 51% agency growth in Q4, and 2006% agency growth in Q3, but gosh. The stocking distributor thing was way way down. So the fact that it's back growing at mid teens levels I think is both of them.
Freedom.
With COVID-19 and still impact here and the international business Yeah Yeah.