Q2 2021 SI-BONE Inc Earnings Call
Good afternoon, and welcome to aside from second quarter earnings Conference call. At this time all participants are in listen only mode. We will be facilitating a question and answer session towards the end of today's call.
This call is being recorded for replay purposes.
I'd now like to turn the call over to Matt backs up on the Gilmartin group.
Your introductory comments.
Thank you for participating in today's call joining me on Laura Francis Chief Executive Officer, and on Hu on Shaw <unk>, Chief Financial Officer earlier today Si bone released financial results for the quarter ended.
June 30th 2021, a copy of the press release is available on the company's website before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions from the private Securities Litigation Reform Act from a 1995 any statements contained in this call separately.
Late to expectations or predictions of future events results from performance are forward looking statements.
These forward looking statements are based on the company's current expectations and inherently involve risks and uncertainties. These risks include the impact of COVID-19, pandemic will have on the ability and desire of patients and physicians to undergo procedures using the <unk> implant system. The duration of the COVID-19, pandemic and whether the COVID-19 pandemic will reoccur in the future.
Other forward looking statements include our examination of operating trends and our future financial expectations, such as expectations for hiring surgeon training and adoption active surgeons new products clinical trial enrollment and reimbursement decisions are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could.
Cause actual results or events to materially differ from those anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements for a list of descriptions of the risks and uncertainties associated with our business. Please approach the risk factors section of our most recent form 10-K and form 10-Q filed with the Securities Exchange Commission and Si bone disclaims any intention or obligation except as required by law to.
8 or revise any financial projections or.
Our forward looking statements, whether because of new information future events or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast today August 2nd 'twenty, 'twenty, 1 and with that I'll turn the call over to Laura.
Thanks, Matt Good afternoon, and thank you for joining us before I cover our second quarter results I wanted to share some exciting news on the reimbursement front.
Based on the strength of our long term level, 1 clinical data anthem has adopted coverage guidelines that are exclusive to our I T was triangular titanium implants for minimally invasive Si joint fusion.
Anthem is the second largest commercial health insurer in the United States with over 40 million members.
Income joined more than 35 other plans could cover Ips exclusively in the U S amounting to over 120 million exclusively covered lives in total.
With anthem exclusive coverage, we see reimbursement is a tailwind for our business.
We will capitalize on the opportunity through our 2021 commercial growth plan, which include failed infrastructure expansion.
Surgeon engagement products and solutions and patient awareness initiatives.
Now onto the quarter.
I'm pleased to report that outside bound had a record revenue quarter as our employees continued to relentlessly execute through this unique operating environment.
In the second quarter, we generated revenues of $22.2 million representing growth of 58 per cent compared to the second quarter of 2020.
As a reminder, the prior year quarter was significantly impacted by Covid.
Sequentially, our second quarter revenue grew by 9% due to increased underlying demand for our products and solutions. Our strong results from the second quarter give us confidence that as the operating environment normalizes, our industry, leading diverse portfolio will accelerate our capture of the multibillion dollar.
Its entity and the fake or public space.
Now, let me provide an update on our key growth initiatives as we look to extend our leadership position and drive durable long term growth.
Starting with sales infrastructure expansion.
At the end of the quarter or 133 person sales organization was comprised of 74 territory managers and 59 clinical support specialists.
We continue to be strategic about our mix of territory managers and clinical support specialists specifically.
Specifically, our clinical support specialists are crucial to driving revenue productivity for our territory managers, while also serving as an important training ground for future territory managers.
Additionally, we continue to methodically expand our sales organization to support our surgeons and as of July 1st added 2 new regions for a total of 16 regions in the U S.
Moving on the surgeon engagement being backman and our sales organization, our expanded product portfolio and training infrastructure drove a significant increase in the number of active surgeons in the quarter to approximately 640, an all time high.
During the quarter, we had 24 simulators deployed worldwide, including 21 simulator and the U S.
Simulator, which accounted for more than half of our trainings in the quarter not only allowed us to train new surgeons efficiently, but also reengage with inactive surgeons and drive adoption going.
Going forward with travel restrictions easing we believe the combination of in person local training and simulator training will continue to drive surgeon engagement for new and previously inactive surgeons.
As a reminder, we are targeting the approximately 7500 spine surgeons in the U S of which 1700 have been trained and completed a procedure to date.
Yeah.
Turning to products and solutions, starting with ICU, We recently announced results from Sally our 2 year perspective, multicenter trial of ICU Streety for chronic S. I joint pain clinic.
Clinical results at 24 months showed market and sustained improvement in our Si joint pain patient function and quality of life.
The results demonstrated a significant reduction in the proportion of study subjects, taking opioids for Si joint pain.
59% at baseline to 18% at 24 months.
In addition, the study included 3 objective physical function test.
Active straitly grades 5 times debt to stand and transitional timed up and go all of which showed statistically significant improvements from baseline.
And earlier publication of 12 month results from Sallie reported radio graphic analysis C. T scans, showing accelerated bony bridging across the Si joint.
100% of treated ethane Joyce showed bone integration to the <unk> implant surface on both the sacral and iliac side and 77% of treated join showed bony bridging across the joint.
There are now 95 peer reviewed publications demonstrating the safety effectiveness by on mechanical or economic benefits of our <unk> technology further substantiated ICU as the gold standard for FY joint fusion.
Moving on to Ip's torque, we're pleased with the initial reception for Ice's torque following its commercial launch in April while still in the early days, we are seeing adoption in trauma as well as several competitive conversions. As a reminder, torque is a highly differentiated 3 D printed threaded implant which was done.
Relative to solve unmet clinical needs for pelvic trauma and attracted 350 million dollar adjacent market.
Pes torque also has applications in the primary outside joint fusion market last year, we estimate that our competitors generated approximately $40 million of business in primary as Si joint fusion and ICU torque allows us to offer a product that leapfrog the competitor screw based implants and extends our leadership.
And market share.
And adult deformity bedrock is driving revenue growth and interest in the bedrock technique among deformity surgeons and key opinion leaders continue to increase.
We currently anticipate that our second generation adult deformity product a first of its kind design based on feedback from Kols will enter market preference testing in early 2022, a bit later than previously scheduled while.
While we're not experiencing supply chain issues with their implants, we are experiencing longer than normal delivery times with some of our instrumentation supplier due to raw material labor and capacity challenges due to the COVID-19 impact.
The instrumentation delays impacted our validation verification testing, causing a delay in our second generation adult deformity product launch. However, we are developing plans to mitigate this risk in the future.
Next on to our patient awareness initiatives we.
We've completed our second television marketing test program in multiple cities and compared the broadcast results toward digital marketing initiatives, including search social media display and video we're seeing a higher return on investment in the digital marketing initiatives.
Based upon these results, we're focusing incremental investment toward digital marketing in the second half of 2021.
These investments are expected to fuel revenue growth through patient and professional experiences amplifying our reach to health care professionals and empowering patients through their S. A journey our.
Our digital initiatives will allow us to be highly targeted data driven technology enabled measurable and allow for continuously improved marketing we expect to see the revenue impact from these programs beginning in 2022.
Finally, let me provide some more updates on health economics effective July 3rd Centene Corporation established positive coverage for minimally invasive Si joint fusion Centene is a major intermediary for both government sponsored and privately insured health care programs and covers more than 25.
Million members with the decision from anthem Centene substantially all of the U S. Insured population now has access to minimally invasive Si joint fusion.
Internationally in June the French health Ministry granted national reimbursement for Ics 3 D.
This reimbursement decision by the French National Health care system provides coverage for Si joint fusion procedures exclusively using <unk> bonds <unk> implant.
With that I will now turn the call over to onshore to provide more detail on our financial results.
Thanks, Laura our second quarter total revenue was the highest in company history at $22.2 million representing growth of 58% compared to the prior year period, a 9% compared to the first quarter of 2021 due to the growing underlying demand for our product and solutions.
U S revenues were $22 million, increasing 53% compared to the prior year period, and 8% compared to the first quarter of 2021.
International revenue of $2 million was a record increasing 137% compared to the prior year period, and 17% compared to the first quarter of 2021.
While we had a solid quarter the month to month revenue growth trend has not been linear as we continue to emerge from the pandemic.
We did not see material cancellations due to COVID-19 in the quarter, but we did experience higher than normal deferral of cases.
We believe this is due to the patients and surgeons, taking advantage of the economic reopening to plan vacations earlier in the summer.
Based on feedback from healthcare professionals, while backlog continues to grow we believe delayed diagnosis and use of telehealth to manage patients during previous COVID-19 surges impacted the timing and pace of backlog replenishment of patients who met the medical necessity criteria and who are ready for surgery.
These 2 transient factors had an impact on patient volumes in the second quarter and could impact the third quarter.
With regards to sales force hiring we ended June with 74 direct sales reps and 59 clinical support specialists.
We expect to end the year with approximately 150 full time field sales professionals.
We now anticipate ending the year with 85 direct sales reps and 65 clinical support specialist a change from our original target of $19.60, respectively.
Gross margin for the second quarter of 2021 was 89% compared to the prior year period at 85%.
As higher cost of operations to support the growth of the business were offset by lower inventory write offs.
Our second quarter 2020, gross margin was impacted by certain period costs that were expensed as incurred due to sub optimal capacity utilization driven by lower case volume and increase in inventory write downs.
Operating expenses increased 49% to $32.8 million in the second quarter 2021, as compared to $22.1 million in the prior year period.
The increase was driven by higher sales and marketing costs related to increased sales hiring research and development expenses for new product development and increased stock based compensation expenses. Our second quarter 2020 operating expenses were impacted by preemptive steps taken in response to COVID-19.
To reduce discretionary spend.
Our net loss was $14 million or <unk> 42 cents per diluted share for the second quarter of 2021 as compared to a net loss of $12.5 million.
Or <unk> 44 cents per diluted share in the prior year period.
As of the end of the quarter on cash and marketable securities were approximately $176.6 million and long term borrowings were $39.6 million.
Moving to guidance.
While encouraged by the strong underlying momentum in our business, we remain cautious given the uncertainty surrounding COVID-19, including potential risk resurgence driven by new variants of the virus and uneven vaccination rates.
Disruption from surgeon and patient vacation schedules.
So backlog replenishment and the potential negative impact on hospitals in afcs.
Our guidance is highly sensitive to assumptions on a global recovery, which anticipates continued progress on vaccinations.
<unk> and normalized case scheduling an elective procedure levels progressing throughout the year.
While we had a solid first half of the year, we continue to take a measured approach given the early stage of COVID-19 recovery.
Based on this we continue to expect total revenue of $92 million to $94 million representing.
Representing a growth of 25% to 28% compared to full year 2020.
Given the gross margin trends in the first and the second quarter of 2021, we are updating our gross margin guidance to between 87% to 89% for full year 2021, I will now turn the call over for questions operator.
Thank you as a reminder to ask a question you will need to press star 1 on your telephone.
Draw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from Bob Hopkins with Bank of America. Your line is open.
Hi, Thanks for taking the questions and good afternoon.
Just 2.
On kind of the.
What we learned on your last call versus what we're learning on this call on Big picture. It sounds like obviously, youre, making progress, but it felt like things went a little backwards.
Relative to how you exited the first quarter throughout the rest of the second quarter, whereas what we heard from other spine related companies was a little bit better in Q2. So I'm. Just curious do you think that your procedures, a little more elective than traditional spine and just wanted to get a little more color on kind of what you saw in the quarter relative to how things.
Exited in Q1.
Yeah, Bob Thanks. Thanks for the question in terms of how we think about how things are developing we actually feel great about the second quarter.
I think the difference between us and potentially some of the other companies that you're talking to is.
And this is this is my opinion on the matter on.
80% of cases in in for ICU.
<unk> R.
Outpatient or ASC cases, and so what we saw as you know is a pretty rapid bounce back of our business already starting in March and so I think what other companies may have seen is is more of a.
And orderly.
Transition with both new cases, plus rescheduled cases coming in more in the second quarter. So you know as as onshore mentioned on the call. What we saw is a little more choppiness during the the corridor, but overall feel really good about where we ended up we grew 58%.
Year over year, obviously last year was impacted pretty significantly by Covid, but we're also pleased that we grew 9% sequentially between Q1 and Q2.
And so we think that bodes well for the best are the rest of the year.
Yes on all all fair points.
Trying to understand the difference in what we're hearing and maybe you could talk a little bit about kind of what you're seeing currently and you. You know you mentioned a bunch of different things that could impact on near term are you seeing those things have an impact on your business regionally manoj stupid things turned a little bit negative from.
From what you've been seeing recently as a result of the spread or are you just suggesting that those are things that could have an impact in the future. Thank you yeah.
So.
I think it's more of the the the situation, where we really haven't seen a significant number of canceled cases similar to what we saw during the third during the winter or at the very beginning of the.
At the very beginning of the pandemic. So these are more cautionary statements at this point in time. Obviously every single day is a new day, we're seeing a lot of information just today about Florida and.
So once again these are cautionary notes in a lot of cases. The the situation is that cases can't necessarily be performed inpatient if elective procedures are being stopped they maybe moved out of hospitals into ASC. It really does feel like.
Ah things are a little bit different this time that the hospital systems are more on a position to address the issues that are out there.
And to to manage through them.
But we're certainly.
Taking all of that into consideration as we're providing information on the call and on our guidance.
Great and then just 1 last really quick 1 does your guidance assume a big difference during Q3 and Q4.
Or is it sort of normal seasonality or just maybe talk a little about the cadence and then thank you.
Yeah. So.
I mentioned when I, when I think about our revenue growth for the third quarter and the fourth quarter.
You know we delivered a solid first half this year.
And continued to navigate COVID-19 headwinds and it gives us confidence in the growing underlying demand.
To drive growth in the second half of the year on beyond is is we continue to progress more towards normalization, but we're still on the early stages of recovery in COVID-19 still exists and it remains an unknown and for all those reasons. We do continue to be measured given the variability in the growth rate trend that we.
<unk> in the fourth quarter and the first half of the year.
And while we're not giving quarterly guidance I will share how we're thinking about the U S. In the second half and continued sequential.
<unk> growth, which very similar to 2 are our typical seasonal pattern will be.
Weighted toward the fourth quarter as we're entering the third quarter, we continued to see the patient and surgeon vacations as well as the backlog replenishment dynamics continuing into the quarter on when we combine that with normal Q3 seasonality in the U S which.
Historically, it's been flat versus the second quarter and you also even have 3 major surge in conferences in the third quarter double AOS in double E and F or in August joint infection was in July and then masses in September and a couple of those used to be in the second quarter. So we do think that that.
That will likely impact cases, and and so overall, we think it's going to result in a modest third quarter sequential growth rate. So we do anticipate that we will continue to grow sequentially, but that it'll be modest.
Also as I said, the fourth quarter, historically has been our strongest quarter and as a as a point of reference going back to the fourth quarter of 2019 pre pandemic, we had year over year growth on.
26% quarter over quarter growth of 22%.
Now, we're still dealing with the recovery, but we do expect the fourth quarter pace.
Assuming no disruptions to the recovery trends.
Just finally with the investments we've been making across our strategic priorities and with the recent exclusive approval from anthem, we're excited about the opportunities in.
In the second half of the year as well as into 2022.
Great. Thank you Laura.
Thanks, Bob.
Thank you. Our next question comes from Kyle Rose with Canaccord. Your line is open.
Great. Thank you very much for taking the questions.
I just wanted to see if we could go back to some of the Q2 commentary I mean, you talked about some of the transient factors as far as maybe more deferrals.
Then.
People are taking vacations and things of that sort and then also just the.
Yes.
On a rebuilding of the funnel could you just maybe help us quantify maybe what that impact was in the Q2 and kind of how you're thinking about that impacting in the Q3, because it does sound like you're still poor.
Turning to growth quarter over quarter I'm, just trying to understand what that would have looked like in the Q2.
So if I'm walking through the trends for the second quarter. We we ended the quarter with $22.2 million and that was a record revenue quarter. It was 58% year over year growth and it was also 9% quarter over quarter growth, So I'm I'm pretty.
Pleased with that performance and our team's execution in the first half.
Let me share a little more on the dynamics, we saw on the quarter and I'll start with the U S.
Yeah, we talked previously about finishing March very strong. So then April was also 1 of our strongest month, but it was actually below March and we continue to see some non linear or lumpy recovery during the quarter and we believe that was driven by.
By a few things.
We saw higher than normal deferral of cases as surgeons and patients took advantage of the economic reopening the planned vacations earlier in the summer that's our that's our estimate based upon the higher than normal rescheduling of cases.
And so we think these vacation trends impacted the scheduling of new procedures in the quarter. So so that's something that we're on look out for and we can actually see some of that in our in our numbers in terms of rescheduling cases, and then also just in conversations with.
With surgeons.
And based on that physician feedback, while there is pent up demand.
The patients that delayed diagnosis and use telehealth to manage patients during the previous COVID-19 surgeons that impacted some of the timing of the backlog replenishment.
For patients who need to meet medical necessity criteria and are ready for surgery.
We think these trends, which we've seen throughout the industry contributed to some of the month to month variability, we experienced and with volumes being pressured in the early part of the quarter, but but we didn't really see a very nice.
Trend upward a tour.
The end of the quarter once again, so like I said, just a little bit of Lumpiness in these monthly numbers for the couple of reasons that I mentioned.
If I talk about outside of the U S. We saw a really strong performance actually from our European operations and that was led by Germany, and France and also saw some early signs of recovery in the UK, which lagged the recovery. So we're pleased with how Europe is performing in the <unk>.
First happened and we expect the EU to continue to perform well.
They have a strong leadership team over there in each of the major countries and then we also have our newly announced Frank French exclusive coverage for <unk>.
I hope that's helpful. Kyle It is thank you and then just 1 on an anthem.
And then I'll hop back in the queue is you obviously congrats on the coverage.
Great to see exclusivity.
How should we think about the timeline until and when that coverage could potentially impact.
Underlying momentum.
Yes.
6 months is it a 'twenty 2 event I'm, just trying to really understand to get the gears moving.
When we should see those debt impact growth. Thank you Yep Yep, we're pretty excited about the anthem announcement obviously.
And what anthem did as they transition to the aim clinical appropriateness guidelines for Si joint fusion and that includes a requirement that iqs triangular implants be used exclusively.
And so with that we have nearly universal coverage for the U S insured population for FY joint fusion and that includes our coverage by over 35 health plans that are exclusively requiring the use of ICU triangular implants for the procedure. So so we're pretty.
Happy about all of that.
Anthem has 40 million members across its health plans and prior to the transition anthem was approving ICU patients more on a case by case basis, because they had a pelvic girdle trauma coverage policy only.
And so what we saw was.
Only around 50% of cases, we're actually getting approved so it was it was hit or Miss as to whether the the coverage would occur.
So they were 1 of the toughest payers in terms of denying patients.
Access to the procedure in terms of their move to the aim criteria. We do think this is going to be a great thing for patients going forward as well as surgeon offices, feeling confident that all of their patients will have coverage and it really does open a huge opportunity for us our bes.
Estimate is that this is approximately 15% of the.
U S covered population that previously didn't have consistent and fair access to Si joint.
And I see our <unk> procedure.
In terms of the timeline, what you asked about it we.
We typically estimate that it takes 6 to 12 months for this to work through the system before we see a meaningful impact on volume. So we may have some impact in 2021 for example, some patients are currently.
In the pipeline.
For.
Appeal, so those patients who have been denied and are appealing.
But for the most part what we really want to see is for.
In 2022, or starting now we want for surgeons and we expect for surgeons to start regularly diagnosing patients.
With Si joint dysfunction on lead generation that have anthem coverage and that that will and particularly in particular be a catalyst in 2022.
Thank you. Our next question comes from David as Scott with <unk> Securities. Your line is open.
Hey, Thanks for taking my questions on.
First wanted to start on the the number of sales reps you plan for the year I know you lowered the guidance there as far as how you are expecting to add reps for the year.
Do you see this as more as something is wrong. There is more difficulty in the hiring environment than you originally thought or is this more around the electric procedure recovery just trying to understand what the changes here and then I guess as a second part to that question.
Is this really impacting on any type of.
Any of the sales rep productivity metrics that you've had in the past.
Yeah, David Thanks for the question and actually this doesn't have anything to do with the hiring environment. It doesn't.
It's actually how we.
Work with our business. So we are still going to have the same number of ftes when we exit 2021.
And so we're continuing to make progress and we're methodically expanding the sales organization. It continues to be 1 of our key growth initiatives and as I said the number of people that we will finish.
The year will be exactly the same at that approximately 150, what we've done is we've shifted.
5 of those hires from territory managers to a clinical support specialist and that's really driven by what's happening from a territory perspective and from a growth perspective. So we typically add a clinical support specialist at the point in time, where.
A territory is only has 1 territory manager in it in that territory manager is starting to have issues from a bottleneck perspective with adding new surgeons.
Or with covering cases, and so that's when we'll add.
A clinical support specialist to grow that territory from an estimated $1.5 million to more of the $2 million range, we split a territory at the point, where they're typically approaching or exceeding $2 million.
And and so it's really this interplay between the territory sizes the amount of growth that we're experiencing and also in some cases, we do have territories, where there are 2 clinical support specialists. If we're seeing strong growth in those particular territories and it makes sense.
To do that so this is really just.
A small fine tuning of how we're handling things from a sales force perspective, we're hiring terrific people.
And.
It's just being very thoughtful about how our territories are developing and making sure. We're doing what we need to do in order to to grow the business.
Okay that makes sense. Thank you for clarifying that.
Second on on talk I know you would launch in the U S. In April could you provide on any any any color around how the early days of the launch has gone so far.
Maybe through July on I know that on the last earnings call you had talked about how you include.
Just a little bit of revenue contribution from torque and the guidance for 2021, So I guess as far as <unk> gone. So far are you feeling any more or less bullish about that opportunity and then somebody else would be 1 time.
Describe how that's contemplated in your guidance.
So far yes.
Yes, I'm happy to share that so obviously, we're only 1 quarter and since the full launch we started we launched in April but we are very pleased with the.
The initial reception for torque across trauma and competitive conversions from early surgeon feedback. We're hearing is innovative design and differentiation that's been exhilarating to here.
And we're still in the early days of the product, but we like the momentum.
And as a reminder, <unk> was primarily developed for trauma, which is a $350 million new adjacent market for us and and then we also have an opportunity with competitive Si joint fusion conversions.
Since the trauma market is new for US, we expected targeted competitive Si joint fusions.
Conversions to drive the initial adoption momentum and so we are seeing some of that and while we have continued to execute on the competitive conversions. The adoption of torque for trauma has been been strong as well. So <unk> been a great addition to the portfolio and with the ICU 3 D.
Which is the gold standard for Si joint Fusion and then we also have ICU bedrock for adult deformity, it's helped us to further extend our leadership as a sacred pelvic surgical solutions company. So very happy with torque and think we're going to continue to see the the momentum growing and we're tracking very nicely.
<unk>.
Okay. Thanks for taking my questions. Thanks, David.
Thank you. Our next question comes from abandoned folks with Cantor Fitzgerald. Your line is open.
Hi, Thanks for taking my question and congratulations on a good quarter.
Hey, Kelly I, just wanted to go down into the patient related delays.
Looking at it from the surgery level.
The understandable I just wanted to maybe from the diagnosis level.
Should we think about debt impact there and maybe how long these patient journey until surgery.
Just trying to get a sense of whether the.
Patients who should have been diagnosed we're on vacation does that impact maybe for <unk> and 'twenty.
2022.
And then secondly.
It's a tough Christian I know Marc you know go on to do so many moving pieces, but how do you view, where we on now so she's a normalization.
And in terms of your guidance.
Thinking about for Q2.2021, as a normalized quarter or do you still expect us to be having.
Having pockets of disruption thank you.
Got it so so good to very good question from a patient pipeline perspective.
So the medical necessity criteria is 6 months of conservative care.
Simplistically and so when we think about the pipeline, we really think in terms of that 6 months of conservative care.
And and so.
So.
During the surge and also.
During the surge that occurred in the.
The winter.
And then the you know the original.
<unk>.
Pandemic issues, we certainly saw a lot of the use of telehealth and those particular areas and.
This is a diagnosis where the patient comes in there is a patient history thats taken which that certainly can be done via telehealth, but then theres also provocative tasks, which is typically the surgeon, placing his or her hands on the patient or a physician assistant or a nurse practitioner.
Our.
And so some of these things become a little more difficult and then additionally, it's typical for a diagnostic injection to be administered in show, 50% to 75% reduction in pain.
No.
Some of these things do certainly require in person.
Our conservative care.
So overall I don't want to overstate, where we're at if if if.
We look at how we performed in the first half of the year I'm pretty pleased with it if I look at the sequential growth that we've experienced I'm pretty pleased with it.
Do think that based upon the discussions that we've had with surgeons that most of this impact from the patient pipeline will likely be worked through in the third quarter and so getting to your question on fourth quarter I do think that we're going to see a pretty normal life.
<unk> fourth quarter for the business.
And a lot of different tailwind that we that we've seen here so.
Fourth quarter is historically, our strongest quarter and.
I had mentioned previously that we grew 26% year over year in Q4.2019 in the quarter over quarter growth was 22%. So that's a normal that was a normal year for us prior to the pandemic and so our expectation is that we.
We'll see those similar patterns occurring.
Net the patient pipeline issues that we've been talking about that are causing some lumpiness in the month to month sales.
That we really shouldn't see those in the fourth quarter.
Great. Thank you very much that was very helpful. I appreciate it thanks Brandon.
Thank you. Our next question comes from Julian <unk> with Morgan Stanley. Your line is open.
Hi, everyone just to touch on the guidance question from a different angle.
Just as Youre looking at active surgeons for the year I think you said $640 for the second quarter.
You noted that there could be some delays on procedures from from vacations, but just how are you thinking about.
Bringing on more active surgeons in the back half of the year.
Is there a target, especially as you're getting these simulators out in the field.
More actively and re engaging prior approach surgeons.
Yeah. So good question on the active surgeons.
We are actually pretty pleased with how training is going at this point we are.
Approximately at our target in terms of our training, we don't give out training numbers per say, we use the active surgeon number instead and when we originally gave information at the beginning of the year, we're targeting 20% growth in the number of surgeons.
By the end of the year compared to.
2020, and so we're feeling good about all of that we like what we're seeing in terms of the increases in the simulator has just been great in terms of giving us the ability to.
On train surgeons in their offices or quite frankly wherever wherever it is that they would like to be trained but what we also saw on the second quarter, which has been really nice is we've started to.
Start back up our regional training courses as well, so and local training courses. So.
As we mentioned during the earlier part of the call. We expect to see a combination of regional training local training and simulator training in order to keep us on track with those active surgeon numbers.
Got it thank you.
Just on gross margin for a second they were.
Clearly stronger than I think we anticipated it but can you just talk to trends in the back half of the year you pointed to the ASC setting potentially pressuring asps over time, but just.
Is this kind of a better sustainable level, just any any more detail would be helpful. Thank you.
Sure happy to take that so we're really pleased with us maintaining industrial leading gross margin in the first half and.
I do think that the strength of our gross margin signals the strength and differentiation of our products as well. So we did raise our guidance for our gross margin from 85% to 87% and a large part of that was driven by some of the favorability we saw in the first half.
As we think about the second half we do think that the gross margins will continue to be pressured.
It's a combination of things that we've talked about in the past the continued move to fees, which today accounts for close to 20% of our revenue.
We generally see price deterioration year over year of 1% to 2% so that will continue.
We've got some incremental ASP pressure from torque and bedrock because there are 2 implants versus 3 so while the procedure dollar revenue tends to be lower because of the number of implants are being used and then we've got some more depreciation that's going to go to the P&L for some of the Capex investments that we've made.
So overall all of those factors played into our 87% to 89% gross margin guidance.
Thanks for taking the questions.
Thanks drew thanks drew.
Thank you. Our next question comes from David Saxon with Needham Your line is open.
Yes, Hi, Laura and Joel Thanks, so much for taking the questions.
My first 1 is just on training.
I think you said this split was about 50.50 between the simulator and kind of traditional training but.
And I know, it's still early days on the simulator, but have you noticed any change in pattern from when you train a doctor to when you start seeing them too.
<unk> procedure.
Any color there would be helpful.
Sure.
So surgeon training is definitely 1 of the critical initiatives this year and and.
It's important from a surgeon utilization perspective, and the simulator has been the core pillar of the strategy for this year, it's been great for us from a training efficiency perspective, and the reception from the surgeon community. The community it's been very positive.
We don't provide specific data on on training, but we do have 3 different waves of training surgeons. The simulators, we have local training, where we use the anatomical model in an or and then we also have a regional training, which is a typical cadaver lab.
And we do track the number of programs by type and as you said over half of the trainings. This year have involved the simulator.
We expect that it's going to continue to be a hybrid training with a combination of these different modalities.
In terms of adoption. The question that you asked on on adoption, it's a little too early to say at this point.
There is.
When you when you have a surgeon attending a regional course in making a commitment.
To go to that course, it's typical that they'll have a patient already lined up.
But it's a major commitment and then it's a we've we've been at this for over 10 years and we've we've trained 1700 surgeons, who have treated at least 1 patient and we still have almost 6000 surgeons to go so what the simulator at least give it to US right now is the <unk>.
Ability to get out there and train a lot of the surgeons very quickly and so on.
The adoption rates are a little bit lower at this point in time, using the simulator versus a regional training.
But we also as I said are able to train a lot more surgeons using those simulators and we're also developing a lot of different ways in order to engage with those surgeons in and it's not just new surgeons, it's actually also.
Inactive surgeons that we're targeting with <unk>.
With the simulator those surgeons, who already went through a regional training course or went through a local training course and this is just a refresher for those particular surgeons. So we really see this as a as a.
A number of different ways in order to reach surgeons and get them trained and.
But as you said the most important thing for us is to get them converted to that first case.
Okay. That's.
That's really helpful. Thanks for that and then maybe just at a higher level question on torque.
Trauma is obviously the larger opportunity there, but it seems like it could be.
Slower ramps given that it's a different call point so.
Just wondering how we should be thinking about penetration into that.
$350 million market segment over the next few years and thanks, so much for taking the questions yeah.
No.
Here you are correct in how youre thinking about this.
The low hanging fruit right is really the Si joint fusion conversions those competitive conversions and.
And so we're definitely seeing a good number of those but I will tell you. We're also very pleased with what we're seeing from a trauma perspective, too even though that's a new market for us and it's a different call point.
In terms of its a little early to talk about.
Penetration, but we have this great product, it's an unmet need.
And and so we're excited about this incremental opportunity with trauma, but as as we said we really did see this is something that was going to gain momentum. Moreover, a 12 month period, but torque is already having an impact on our business.
And as I said competitive conversion is probably a little bit easier in the early stages, but trauma is a big opportunity with the $350 million market, that's adjacent to our current market.
Great. Thank you.
Thanks, David.
Thank you. Our next question comes from Matt Henriksson with Citi. Your line is open.
Yeah, Hi, thanks for taking the questions on I'll start with the deformity market.
Are there any updates with the Silvia trial, including and especially since you made those comments about the second generation device.
Yeah in terms of Sylvia.
As you may gas.
We have been working hard on Sylvia and.
Bed rock, it's been an excellent platform for us it's both a revenue contributor and it's also terrific from a surgeon engagement perspective, and a and we are excited about the potential for our next generation adult deformity product too so.
The next generation adult deformity product. It's the first of its kind design, it's based on surgeon feedback and partnerships with leading kols in the space and.
Certainly we did prepared in our prepared remarks, we talked about bringing the product to market in early 2022 versus the original schedule or were not experiencing supply chain issues with our implants.
But the delivery dates.
Did slip a little bit because of instrumentation suppliers that had some issues with raw materials and labor and capacity challenges.
But it.
And that came with our validation and verification testing.
But we're working on some things internally to make sure that we don't.
Have these issues with future product delays, but in the meantime, what we have is we really do have a nice business with our bed rock product. It's a unique product we continue to add surgeons in this particular area and.
And so it's really been a terrific adjacent market opportunity for us and is helping to to.
Position us as a fake or public surgical solutions company.
Great. That's helpful and then just as a follow up.
To just the active trained physicians out there.
You made the comment that some of the active positions are new position and some of them are kind of those who were inactive on their back from the sideline can.
Could you provide any more color on that and then particularly for those inactive surgeons who are back on.
How quickly do they ramp up kind of compared to like new physicians on are they are you seeing them adopt the pork versus the traditional <unk>.
Hmm.
Yeah, there's a lot of reasons for surgeons to to come back to have not been performing ICU.
And reimbursement quite frankly is the primary 1 so and that could be either covered lives.
Or it could be the surgeon payment, which increased significantly last year, so and now with with anthem coming on board and coming on board exclusively as well. It's just another reason for for Surgeons, who previously had performed procedures to to start.
We're forming those procedures again and youre right that it is certainly easier to taken enact and surgeon and get that surgeon to perform cases versus a completely new surge on a new surgeon has to be convinced of the prevalence.
Si joint dysfunction, and degeneration, they have to really understand the diagnosis and then they have to understand the procedure, whereas an inactive surgeons, usually just needs a brush up on the procedure and we can use the simulator in order to do that.
You are correct, though that torque is also another.
The opportunity for us to Reengage those inactive surgeons, we we do believe that <unk> 3 D is the gold standard for Si joint fusion with the 5 years of data that we have with all of the exclusives that we have but there certainly are some <unk>.
<unk> that prefer not to impact and torque is such a unique solution for those surgeons.
That.
It gives us another opportunity to reengage them. So you are correct that we're also using torque in those conversations.
Great. Thanks for taking the questions. Thanks, Matt.
Thank you and our next question comes from Dave <unk> with JMP Securities. Your line is open.
Great.
On here quickly at the end.
You did mentioned that you werent experiencing supply chain issues, but debt instrument in our labor supply to those things that you saw were specific just to the second Gen bedrock, Matt too.
<unk> torque first Jim is that correct.
That is correct got it. Thank you so much that's all I had.
Thanks, Dave.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Laura Francis for closing remarks.
Great. Thank you again for your time today, everyone I'm really proud of our team's execution in the quarter, we were able to deliver a record quarter and make significant progress across our strategic initiatives and that's all while continuing to manage through this ongoing recovery the performance in the quarter combined with the coverage decision.
From anthem and Centene, they reaffirm my confidence in our ability to accelerate our capture of the multibillion dollar market opportunity on the sacral pelvic space.
Actual on I look forward to meeting with many of you in person at upcoming Investor conferences, and especially our surgeon panel at NAV and Boston in late September.
With that have a great evening.
This concludes today's conference call. Thank you for participating you may now disconnect.
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