Q2 2021 Orthofix Medical Inc Earnings Call

Okay.

[music].

Good day, and thank you for standing by and welcome to the Orthopaedics and Medical Inc. Q2, 2021earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the chassis and you need to press star 1 on your telephone. Please me.

And I said today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Alex There were attempts. Please go ahead.

Thank you operator, and good morning, everyone and welcome to the Ortho <unk> second quarter 2021 and earnings.

Joining me on the call today are our president and Chief Executive Officer, Jon <unk>, and Chief Financial Officer, Jack right on.

And with the Safe Harbor statement, and then pass it over to John during this call we will be making forward looking statements that involve risks and uncertainty statement.

Statements other than those on historical facts are forward looking statements, including any earnings guidance, we provide and any statements about our plans.

Strategies expectations goals or objectives and.

Investors are cautioned not to place undue reliance on such forward looking statements and there is no assurance that the matter contained in such statements will occur and the forward looking statements. We will make on today's call are based on our beliefs and expectations as of today August 6.2021, we do not undertake any.

The obligation to revise or update such forward looking statement. Some factors that could cause actual results to be materially different from the forward looking statements made by us on the call include the risk factors disclosed under the heading risk factor and our form 10-K for the year ended December 31.2.

2000, and 'twenty and form 10-Q for the quarter ended June 30th 2021 filed this morning August 6.2021, as well as additional SEC filings, we make and the future. If you need copies of these documents. Please contact my office and worth of fixed and Lewisville, Texas.

And in addition on today's call, we will refer to various non-GAAP financial measures, we believe that and in order to properly understand our short term and long term financial trends and investors may wish to review these matters as a supplement to the financial measures determined in accordance with U S. GAAP.

Please refer to today's press release announcing our second quarter 2021 results for a reconciliation of these non-GAAP financial measures to our U S. GAAP financial results at this point I will turn the call over to John.

Thank you.

And welcome everyone and thank you for joining our second quarter 2021 results conference call on it.

Today's call I'll provide an update of our second quarter performance I will then review our strong progress we've made against each of our strategic initiatives before handing the call over to Doug who will provide our financial update.

On calls with our perspective on the balance of 2021 before opening the line for questions.

Starting with our second quarter performance given the massive disruption caused by Covid during the second quarter of last year, we will be giving comparisons to the 2020 and 2019 and order to provide better context from a performance.

Total revenue was $121.4 billion growing approximately 66% over 2020 on a reported basis and 63% on a constant currency basis, when compared to 2019 total revenue was approximately $5.5 million or 5% on a reported basis and 4% on a constant currency basis.

Total revenue grew 15% sequentially over the first quarter 'twenty 1.

We were very proud and what we accomplished during this quarter.

While we still saw some procedural headwinds due to Congress and our intern.

A national business and to a lesser extent and certain pockets and yes, we are.

And saw benefit in Q2 from procedures that were delayed in Q1 and 21.

Our strong top line performance was driven by contributions from a number of key new products, including the <unk> artificial cervical disc and the fit on 1 line system as well as contributions from new strategic commercial channel partners.

Now, let's turn to the performance within each of our product categories.

Starting with our bone growth therapies or BTT sales for the quarter were $50 million of 75% over second quarter 2020, compared to 2019 PTT sales were relatively flat.

Sequentially over the first quarter of 'twenty, 1 PTT sales grew 16% per.

Performance for the quarter was largely as a result, and a continued sequential rebound and volumes, particularly in multi level complex spine procedures.

And these complex procedures, which are high utilizes our BTT products continue to improve throughout the quarter and we expect to see return to growth.

On the levels of 2019 during the back half of the year barring any significant setbacks and hospitals pulling back on complex procedures to 2 and surge and Covid cases.

Moving to spinal implants this income.

And the spine fixation and motion preservation.

Revenue was up 62% on a reported basis compared to 2020 and more and principally.

30% over second quarter of 2019.

This growth was primarily due to solid performance and our U S spinal implants business, increasing 37% over second quarter of 2019.

Revenue per spinal implants grew 70%, 17% sequentially when compared to first quarter 'twenty 1.

<unk> and <unk> artificial cervical disc sales grew over 105 per cent compared to the second quarter of 2020, driven by our continued success and attracting new surgeon users as a result of our ongoing marketing education and training efforts and.

In fact, our revenue from new surgeons performing their first <unk> procedure and the U S continues to strongly perform.

Our U S spine fixation business increased significantly when compared to 2020 per fell slightly versus 2019, as we continue to see procedural volume somewhat below 2019 levels.

Overall, our surgeon base and the U S spine fixation has increased modestly versus 2019, despite still being impacted by COVID-19.

During the second quarter, although sequentially, improving we continue to experience and negative impact on complex multi level procedures due to COVID-19 factors.

Our strategy within the next generation and <unk> continues to be focusing on training new physician users.

And with current surgeons practices to broaden their adoption and.

Producing new physician users to the entire worth fixed spine portfolio and strengthen our global and <unk> clinical evidence, including a recent initiation of the and 62 level study.

And also mentioned the success, we experienced in Q2 related to our spine channel partners and our new sales leadership structure, which includes a very experienced and respected team with strong industry relationships and is focused on attracting new strategic distribution partners to strengthen our performance does.

And this strategic group is very important to our growth plan and we were.

Worked together to provide mutual value and meeting surgeon and patient care needs.

Turning to our biologic portfolio revenue was up 34% compared to 2020.

Compared to 2019 revenue was down 11%, primarily driven by an overall decrease and multilevel conference procedures and previously anticipated channel disruption.

We did experienced growth of 8% sequentially over the first quarter of 2021.

Our biologics portfolio is a key piece of our growth strategy.

Investing in additional technologies and products to expand this portfolio along with clinical evidence investments support the long term success of our biologics business.

And lastly, moving to our global Orthopedics business sales were up 78% on a rig.

Ported basis, and 66% on a constant currency basis, Hoover and 2020, when compared to 2019 sales were up 4% on a reported basis and were relatively flat on a constant currency basis sequentially sales increased 15% from the first quarter 'twenty 1 despite the continued impact to procedures.

And from Covid related headwinds and shutdowns and certain key European geographies.

These headwinds were often offset by solid contribution from the coupon on limb lengthening system, which generated procedural growth during the quarter as we just completed our second quarter of our global launch.

Surgeon feedback on this new technology has been very positive.

Firms are investment and this platform.

Before providing an update of our key initiatives I want to highlight changes to our board of directors.

And I'm pleased that Kathy Bursik was elected by our shareholders to the board and by our directors and our new chair.

Chassis is already highly engaged and providing great leadership and have <unk>.

Recently enjoying our partnership.

Kathy is nomination followed the announcement and our former chair and Ron Matricaria.

And <unk>, both opted to not stand for reelection this year in order to focus on personal commitments.

July Alex with you on off resigned from the board to pursue a cruise business opportunity outside of the company reported.

Thanks, and see you agreed presented a conflict of interest and.

We're very appreciative of the years of leadership and the contributions of Ron and Maria and Alex and look forward to maintaining our friendship going forward looking.

Looking ahead, we're very excited about chappie, joining the organization. She brings an incredible wealth of knowledge and experience and the health care space, having been part of some very successful medical device and diagnostic companies.

Now moving to our first initiative product innovation and differentiation.

During the quarter, we made solid progress and our efforts to develop and acquire products and procedure solutions to address unmet needs and the marketplace.

Want to specifically highlight a few products that we launched during this quarter.

First is our fiber feeds shrimp, which is a preformed allograph to consistent mineralized cancellous bone and demineralized cortical fibers, providing an ideal matrix for bone healing.

The addition to our <unk> portfolio and partnership with MTF Biologics provides procedurally focused solutions for cervical and lumbar spine procedures.

<unk> maintains its shape after being hydrated conformance of the surgical site and is 100% allograft.

And our initial cases have received very positive surgeon feedback on this technology.

Our second new product added to our biologic portfolio and the third quarter of this year 2 recently completed license agreement.

This will provide a procedure specific magnesium page suitable synthetic <unk> and trauma, providing immediate compressive strength post implantation.

This new bone void pillar, which we marketed as hope is Mg is multiple and injectable to the surgical site, providing a personal handling for clinical applications.

These new biologic products further demonstrate our commitment to this space and our focus on expanding the order fixed biologics portfolio.

In addition to these new regenerative technologies, we launched multiple products within our force Ty family and <unk> printed titanium interbody devices and leverage our unique nanometer technology.

In April we launched the <unk>.

And as a tie T lift designed to help optimize transfer ammo lumbar interbody fusion procedures and.

In June we launched Forza tie clip developed to enhance post your lumbar interbody fusion procedures. Both of these products feature our optimized design raspy and surface that allows bone to grow into and through the spacer.

And the introduction of these products into our leading interbody portfolio accelerates our penetration into this fast growing inner body market and is an important part of our growth strategy.

I am proud of our recent progress within the development and introduction of new products, having watched 22 spine and orthopedic products. Since January of 2020. The continued cadence of new product launches further demonstrates our ability to operate through COVID-19 with the transformational plan, we put in place and early 2020.

Our second initiative is commercial channel development or BTT channel as tenured client is found and a key strength of our organization. It is comprised comprised of dedicated orthopedics distribution partners and direct sales representatives. We are focusing our efforts on building a similarly committed and predictable U S channel for our buyer.

<unk> spinal implants, and orthopedic product lines on this investment is ongoing we are pleased with the progress we've made to date and.

And Q2, our U S strategic channel partners, which we define as distribution partners that are committed to orthopedics and carry both hardware and biologics paid up 37% of our spinal implants, and biologics and of Orthopedics U S revenue.

At the same strategic group grew 30% and that time period compared to 2% growth for the remaining distributors network selling the same products, but truly validates our strategy.

We will continue to drive higher growth within our current and our new strategic partners that will be additive and future.

Our final initiatives and operational execution, we continue to be focused on a refinement of our global supply chain to become more efficient and agile, allowing orthopedics to rapidly innovate and deliver on our products on a structure and process improvements continue on.

And unique example of this is and the second quarter was the adaptability of our supply chain and secure a future supply of micro chips for our bone growth therapy devices and the cash.

Byron's of Microchip shortages on.

Operational execution across the organization is an ongoing initiative and we will continue to successfully execute our plan and adapt when and where necessary.

Overall I am very excited about our performance during the quarter. We've continued to work through our transformation build out the foundation for our long term accelerated growth on delivering innovation and the near term and continuing operational execution.

Look forward to leveraging that momentum throughout the end of the year and beyond.

With that I'll turn the call over to Doug to review, our financial performance, Doug. Thanks, John and good morning, everyone. I will provide some additional details into our net sales and earnings results and then discuss some of our other financial measures.

Many of the financial measures covered on today's call are on a non-GAAP basis. Please refer to today's earnings release for further information regarding our non-GAAP reconciliations and disclosures.

Starting with revenue as John mentioned total net sales and the quarter per $121 million up 66% on a reported basis and 63% on a constant currency basis, when compared to the second quarter of 2020.

And when compared to 2019 total revenue for the quarter was up approximately 5% on a reported basis and 4% on a constant currency basis.

And the U S. Total net sales for the second quarter were up 4% over the second quarter of 2019 led by the strong recovery and spinal implants that John mentioned earlier.

Oh U S International total net sales were up 7% and as reported and up 2% at constant currency over the second quarter of 2019, reflecting the growth from our football and limb lengthening system as well and strong sales from stocking distributors.

Gross margin and the second quarter of 2021 was over 77% compared to 68% and the prior year period the.

The increase was primarily due to the easing of Covid restrictions and the return of case volume over the prior year.

Second quarter gross margin indicate to return to our pre COVID-19 margin levels for the full year 2021, we now expect gross margin to be and the range of <unk>, 76% to 77%, which reflects changes and our sales mix as wells and expected short term increase and microchip cost as a result of the global Microchip shortage.

Sales and marketing expenses and the second quarter of 2021 were 47% of net sales and improvement from 59% and the second quarter of 2020. The decrease was primarily a result of the increased sales and 2021, the second quarter of 2021 reflects lower travel expenses, including delays on.

And the timing of industry events and trade shows and.

Spending in these areas is expected to increase and the third quarter and beyond.

We are excited to get back to more normal travel volumes and participated in 3 major trade shows and the third quarter.

In 2021, we now expect sales and marketing expense to be approximately 48% to 49% of net sales as travel and event spending are expected to return to normal and we invest further and our commercial channel.

GAAP G&A expenses and the second quarter of 'twenty, 1 where 15% of net sales down from 21% and the prior year period to.

And the percentage decrease was mainly due to the significantly increased net sales and the second quarter of 'twenty, 1 versus the prior year, even though the absolute dollar spending increased about $3 million.

As a reminder, spending levels and the second quarter of 2020 reflected several cost savings measures, including short term salary reductions for 1 day match suspension of travel freeze and a pause and investment spending.

GAAP R&D expenses for the second quarter decreased to 11% of net sales down from 12% and the prior year period. However, the absolute dollar spending increased approximately $4 million.

The dollar increase reflects spending to support new product development and clinical studies took on the integration expense as well as costs associated with our EU and Dr compliance efforts.

We intend to continue to ramp our efforts to drive organic innovation and differentiation and.

Best and clinical studies, such as Brocade, Arca and on <unk> 2 level indications study and continued spend to build a robust product pipeline and both spine and orthopedics.

And as a reminder, this is causing our R&D spending as a percentage of net sales to significantly outpaced revenue growth and the near term. We now expect 2021, GAAP R&D expense to be approximately 12% of net sales, including and impact of about 200 basis points related directly to our EU and Dr compliance efforts.

Port, which we adjust within our non-GAAP financial metrics.

Adjusted EBITDA on the second quarter increased to $18.4 million, 15% of sales compared to a loss of $5.6 million and the second quarter of 2020, driven primarily by the 66% increase and net sales over the second quarter of the prior year.

Now turning to tax we had GAAP income tax expense for the quarter, a $2.2 million on 48% of income before income taxes as compared to income tax expense of $1.6 million and negative 9% of income before income taxes and the same period of 2020.

Tax expense and the resulting effective tax rate in 2020 were significantly affected by the impact of Covid on global earnings.

For our non-GAAP results, we continue to use 27% as our adjusted long term effective tax rate, which normalizes for acquisition related expenses certain law changes and operating losses that have no GAAP tax benefit.

Yes.

For the second quarter of 2021, we reported GAAP earnings of <unk> 12 per share as compared to a GAAP loss of 96 per share on the second quarter 2020.

After adjusting for certain items and when normalizing for tax using a non-GAAP long term effective tax rate adjusted earnings for the second quarter of 2021 was <unk> 32 per share compared to an adjusted loss of <unk> 59 per share and the second quarter of 2020. This increase was primarily driven by increased net sales.

Regarding cash we continue to maintain a strong liquidity position with $81 million at the end of the second quarter of 2021 compared to $95 million at the end of the first quarter of 2021 weaker.

We currently have no borrowings outstanding under our $309 senior secured revolving credit facility and.

In Q1 of 21, and we triggered the first and 6 revenue milestone payment of $15 million to the spinal kinetics sellers by achieving $30 million and global trailing 12 month sales, which we paid out during the second quarter of this year. And addition, we commenced repayment of the $14 million Medicare advantage.

That we received in 2020 during the second quarter of 2021, leaving the balance at $11 million as of June 32021, we still expect the repayment to be substantially complete by early Q2 of 2022.

Net cash provided by operating activities was an outflow of $2.2 million in the quarter down $19.8 million compared to an inflow of $17.6 million from the second quarter of last year, primarily due to the $18.5 million that we received in Q2 of 2020 as part of the cares Act benefits.

And.

Capital expenditures during the quarter were $5 million.

Compared to $4.4 million from the prior year period, due primarily to the investment and instruments to support our future growth plans due to an increase and instruments and demand for our new products and to support our new strategic partners. We now expect capital expenditures to be and the $24 million to $26 million range for 2021.

Consistent with our decreased operating cash flow, our free cash flow, which we define as cash flow from operations minus capital expenditures was $7.2 million outflow during the quarter, which was down from $13.2 million.

Inflow and the second quarter of 2020.

Our free cash flow levels.

Will decrease significantly in 2021 compared to 2020 due to several items, including the repayment of the Medicare advance the Q2 milestone payments to the spinal kind of accelerates mentioned earlier additional investments and our sales channels and product innovation to support our future growth as well as increased spending on EU MD our compliance efforts.

I'll now turn the call back over to John.

Thanks, Doug.

And looking to the back half of 2021, we remain highly focused on our 3 near term growth drivers, including the <unk> artificial cervical disc fit on limb lengthy system and our leading spine interbody portfolio I'd like to provide a quick update on each of these growth drivers.

Starting with the <unk> artificial cervical disc since the 2019 U S launch on <unk> task, we have been consistently delivering triple digit revenue growth as we continue to attract educate and train new doctors and see increased utilization within existing surgeon users to date.

And we've trained over 900 surgeons and we expect to see more new surgeon conversions as we continue to take share and expand the overall size of the artificial cervical disc market.

We continue to develop our growing set of clinical data on long term outcomes of the <unk> artificial cervical disc.

At this year's <unk> SaaS conference in May and data was presented from our IV study demonstrating the long term clinical efficacy of the <unk> disc.

The retention of benefits and disability and neck shoulder and on pain scores at 3 and 4 years post procedure.

We believe the ongoing compilation of high quality data like this will continue to attract new surgeons.

Patients this device will benefit.

And I am pleased to announce that we've enrolled our first patient and the <unk> 2 level study.

Although COVID-19 slowed the initiation of the study we anticipate the enrollment of patients and in this area to accelerate quickly and to this multi year study.

The second key near term growth driver is our fifth on technology, which enables full Linden line and limb lengthening and Intermet jewelry now.

This acquisition expanded our already comprehensive deformity correction portfolio and should.

<unk> filled our robust deformity pediatric offering.

Early interest and the fifth on product has been strong, particularly given that we completed our acquisition and integration of the technology during what turned out to be massively disruptive macro environment in 2020.

And a relatively short timeframe we secured.

Only U S FDA clearance for pediatric use.

<unk>, a smaller 9 millimeter and now it is well suited and this patient population and ramped our commercialization and the pit on system seeing approximately $3 million and sales during the first half of 2021.

Since acquisition over 140 surgeons have been trained on the fit on procedure, mostly outside of the U S.

There is strong enthusiasm for this patient solution given the current limited options available for pediatric surgeons and our clinical performance from the fifth on system, and we expect to see accelerated adoption and use as more surgeons are trained.

The third key near term growth driver is our technology, leading interbody portfolio with.

With the introduction of a <unk> printed titanium lumbar and cervical interbody systems, all with nanometer technology.

We are 1 of the few companies with truly unique and comprehensive nano clearance for all titanium and PTC products.

With the introduction of titanium interbody products during the second quarter, we expect to see positive impact to our top line during the balance of 2021 and beyond.

In addition to a number of exciting near term growth opportunities, we have highest priority segments of our business that we believe will drive growth over the long term.

First is expanding our commitment to the bone growth stimulation market.

Second is the expansion of the fifth on technology platform from limb lengthening spinal deformity and last is the focus on expansion of our biologics portfolio offerings.

Beginning with our bone growth therapies portfolio expansion and <unk>.

During the first quarter, we entered into a partnership to commercialize a portfolio and stimulation devices in the U S from easier and innovative medical technology company based in Italy. This.

This agreement will expand our current bone and stimulation products and treatment modalities with a number of new technologies, such as low intensity pulls ultrasound, where life is and capacitive coupling cc.

We anticipate our first U S regulatory approval for 1 of these new technologies indications and 2022 and go to market plans are actively and development.

Beyond the <unk> investment.

<unk> to invest organically to remote expanded utilization of our existing industry, leading technologies and.

July we announced the publication of data, indicating that the efficacy and infusion rates generated by our spinal stim bone growth therapy system when used in 3 and 4 level fusion surgery patients.

The same efficacy rates demonstrated in patients with 1 and 2 level lumbar procedures. These results reconfirm the benefit temp therapy can provide patients when utilized and multi level lumbar fusion surgery.

<unk> results showed a 92, 7% infusion rate and patients with and without risk factors, such as diabetes and obesity tobacco use advanced age and osteoporosis all conditions that have been linked to higher rates of non union or bone healing complications.

We also continue to invest and our ongoing rotator cuff R&D and clinical trial, which will be our initial entry into the soft tissue regeneration market.

With the successful trial results. This could be the first of its kind therapy to enhance patient care for those undergoing rotator cuff reconstruction.

Consider the opportunity this market over 650000 patients received rotator cuff repair surgery and the U S every year.

These investments show our continued belief in and our positive outlook for the <unk> business and bone and soft tissue regeneration and post surgical markets.

The second long term growth driver comes from our expansion of our physical and technology platform from limb lengthening to spinal deformities.

This expansion called fit spine as an early intervention.

Growth Rod technology for non fusion treatment of pediatric and adolescent scoliosis application.

We expect fits spine will further differentiate orthopedics spine and amplify our long term commitment to the scoliosis and pediatric markets with this highly innovative technology the project.

Was initiated in 2021 with the engagement of our global surgeon thought leaders group to outline clinical approaches and will be developed over the next several years.

Lastly, as highlighted by the planned commercialization of our Opus Mg set bone void pillar.

And in partnership with MTF Biologics, the just launched fiber piece trip, we are focused on expanding our biologic portfolio.

We are building on the market, leading Trinity elite allograft with.

But the goal of having a comprehensive offering of biologic products and solutions for surgeons to use with our spine and orthopedics products and associated procedures.

We believe this will support the top line growth not just with our biologic products, but also our spine and orthopedic offerings.

During the first half of 2021, we also initiated 4 major development projects to create spine product solutions and the areas of and tiered call support lumber minimally invasive spinal platforms post share cervical system.

And a deformity correction system. These organic innovation products are supported by key surge and opinion leaders and we expect the resulting products will help differentiate or VIX and the market and drive top line growth and a long term.

Now shifting to revenue guidance.

For the full year of 2021, we are now expected top line revenue to be and the range of 468 million to $474 million.

These ranges assume minimal COVID-19 restrictions and Lockdowns and high risk areas and Europe will be open and the second half of the year when procedure volume should begin to return to 2019 levels. Despite the COVID-19 environment.

Assuming minimal COVID-19 related impacts we still believe the second half of the year, we will have mid single digit growth over 2019 and occurring fairly ratably each quarter.

We now expect our adjusted EBITDA to free the range from 58 million to $61 million and our adjusted earnings per share is expected to be between 74% and 82.

Using a non-GAAP long term tax rate of 27%.

I am very excited about the future more fixed.

We'll work to continue to execute on our near term impact from initiatives and our long term strategies to drive growth by delivering innovative high value solutions to physicians to improve patient mobility.

On a closing note and as a proud sponsor of Laura welcome since Olympic training journey and pursuit of another Olympic appearance, we'd like to congratulate her for advancing to the finals and the recent U S Olympic diving trials or as an Olympic gold medalist driver and is also on orthopedics bone growth therapies by.

<unk> and spinal implant the patient and and inspiration to all patients seeking to return to their everyday activities. She just happen to take it a little further and most of us.

With that I'd like to transition to the question and answer session. Operator, Please open the lines.

Ladies and gentlemen at this time, if you would like to ask a question. Please press star followed by the number 1 on your telephone keypad again, and they start 1 where possible just a moment.

Yes.

Your first question comes from the line of Mathew Blackman with Stifel.

Good morning, everybody. Thanks for taking my questions and congratulations on a very nice quarter.

Couple of questions to start for dog and and.

And then.

Maybe 1 for John.

Doug how should we think about the shape of the second half revenues in particular at <unk> I think John just mentioned and sort of expect.

A ratable I wanted to make sure that ratable as growth as opposed to absolute dollars.

Any color there would be a helpful way to start.

Thanks, Matt appreciate.

I appreciate it.

Good question.

<unk> had a strong stronger than expected Q2, very pleased with our performance there and.

Like Don said in his prepared remarks, we expect to exit the year and mid single digits, and Q3 and Q4 as compared to 19, we really tried to focus a lot of our feedback on comparisons to 2019. So that's that's the way I would look at it and yes in terms of cadence.

Q3, and Q4 should be similar.

Okay, and then I wanted to push a little bit.

And I know, it's probably too early to ask.

But as we think about 2022, and we've seen youre doing this sort of and the back half of the year and in fact and though.

On the final 3 quarters of the year. This mid single digit growth and Thats sort of a good starting point as we think about our models for 2022 and sort of a mid single digit top line growth and then just 1 final question. After this.

Yes, Matt this is John and thanks for the question.

Reasonably to look at it we're executing on all of our initiatives.

Rebuilding the pipeline the product pipeline and the channel and so we're seeing good traction coming out of this COVID-19 and we'll continue to execute on that on that horizon.

And then I guess the final question.

And fix continues.

Formulary really while I'm, just curious what kind of pull through are you seeing on the rest of the portfolio, whether it's an existing customers or when new customers are on board with them, you'll see that pull through.

The portfolio any.

Color there would be helpful. Thanks, so much.

Thanks, Matt and.

Culture is a key area of focus for our team and it's early there it'd be everyone is focused on <unk> right now the surgeons are focused on <unk> as we continue to develop and and enhance our channel will get better pull through on those areas.

But right now, it's we're basically getting minimal pull through on <unk>.

Spine fix but it is a key focus area for us going forward.

Okay.

Net.

No I'm good. Thank you so much.

Alright.

Your next question comes from the line of Anthony Petrone with Jefferies.

Hi, and health.

And I was doing well, maybe just a high level sort of view on on the backlog just checking and there obviously and in ortho.

Across the space, whether it's large joint or spine. There is still talk this quarter of at least some of that.

Tailwind coming in and the second quarter, but certainly there is still a large pool out there of backlog patients. So maybe just the view from ortho fix on the backlog and.

And then in terms of.

The <unk> 6 and cervical.

Obviously, new base of us out there would simplify and and.

They they have views on.

And obviously level 2 surgeries and they got that clearance just wondering if the cervical if you're hearing anything competitively.

Now that that asset is a new hands and then I'll have 1 follow up thanks.

Kathy Thanks for the question on the.

<unk> join US just some of the press release from the press activities that are going on.

And we don't we don't directly participate in that area, but we've talked about where we're headed and spine.

We saw good activity and the second quarter.

Did see some attenuation as far as from the Covid activities. So we still think theres still some and the channel that's happening and we're still a little below 2019 levels as far as some of our spine fixation.

Growth and so we see a little bit back it's back loaded the good thing about R. R.

The thing about this market places that our patients don't necessarily get better without surgical care. Our intervention. So those patients are there and as soon as they are the hospitals and physicians and they decided to seek care. We believe those cases will come into the marketplace. We.

And we don't see a sizable volume sitting out there that's going to flow in but it's.

It's all Covid impacted net regard.

Second and second on the and fixed side.

As I highlighted we trained over 900 surgeons and we continue that we will continue to focus on training education and talking about the differentiation of <unk> and <unk> is truly the only artificial cervical disc out there that mimics the natural motion of the.

The date of desk and so we're going to focus on that and we're really going to drive that and that is actually 1 of the things that attracts these surgeons to us and also helps them consider switching up fusion procedure to emotion procedures. So we're seeing moving in that regard as well.

And regarding competitive activities, we're focused on where we're going and training education, and we really haven't seen any significant impact to date from tomorrow sales.

And the last 1 from me and I'll get back in and so when you think about cervical fusion versus emotion procedure.

On average, whereas the penetration on motion right now, but over time as the education continues to improve where do you think motion can go versus fusion.

Across let's say a high user accounts. Thanks.

Yes.

1 of the key things to focus on is that when you're talking about a fusion procedure.

And cervical spine is 1 of the most predictable procedures that spine surgeons do and have done.

It is moving to motion is a logical progression those discs or made the move and so it's logical to do that but when you're taking the most and the most successful.

<unk> will procedures that the surgeons do and transitioning its a slower transition for some 1 surgeon start doing it and they see how their patients react to that and benefit to it.

I see a bigger pull from their practice to doing more motion also there is a push from the patient community to want to go towards motion once they hear about the opportunities with motion and once again, we focus on on training and basically educating not only the patient but also community.

Thank you.

Ladies and gentlemen, if you like to ask a question. Please press star followed by the number 1 on your telephone keypad.

Your next question comes from Jeffrey Cohen, with Ladenburg and Thalmann.

Oh, Hi, John Judge of election, and how are you.

Good morning, Jeff.

Good morning, Jeff and I was wondering if you could run through some thoughts as far as the energy space and does your relationship with June and talk a little bit.

And our Pms technology, and how the pulse ultrasound may flow.

And it's a different utility, particularly institutional and.

So from skeletal such as cartilage.

As opposed to bone and place.

Jeff. Thanks for the question there is a fair amount and then I will start and then you can redirect me as we get through it.

Yes.

To see each year is that we have a strong view that.

Electrical stimulation has many positive effects as far as for soft tissue and bone healing and.

And what we see obviously.

Robust data and the temp area for bone healing not only for acute surgical but also non union.

And the Asia front, what attracted us to it was and alternative signals.

Ultrasound, which is really focused towards fresh fresh areas. So it comes down to that's a key area that they have data and and that we'd like we're exploring and also get a point of utilized when.

When you take a jump to the soft tissue area clearly, we have a focused and that with our Pam 4 and rotator cuff and we're in the middle of the IV study. So we believe there is a we know there's a positive effect there and the clinical data will bear out how positive we come forward.

Moving towards cartilage EJ has data says it affects cartilage and it has a positive effect on cartilage that is an area that has a great deal of research going into it and it's very early days, so to basically make it as <unk>.

<unk> statement as far as how efficacious it might be or not be.

It's really that it would be prudent however, theres positive signals of indication that has a strong affected cartilage regeneration.

Okay, perfect and and.

And just wanted to talk a little bit about ship bone in spine. So walk us through those skus on the ship on side it sounds like you're having a second 1 and 9 millimeters and then talk about.

FITZROY and as far as clinical work going forward and how Youre thinking about Australia you Sir.

Share certainly.

On fit bone.

And the asset.

In March of 2020, it had a very strong portfolio 1 area that they are working on was a smaller diameter nailed it had not been perfected by anyone in this industry. So we focused on getting that 9 millimeter.

Excuse me 99 millimeter nail in place and.

And we did that also and folks are getting a pediatric indication or clearance because no 1 and we've taken the time to get that cut clearance. So we got and only not only the 9 we also got the pediatric clearance, which was key for all wanted to this marketplace.

It's also to remind you that fit bone is also used and pediatrics, but also adult deformity correction as well so from that standpoint, it made a robust opportunity for us and basically a broad application that fit bone.

Now on spine. It has a similar mechanism, we're going to use and fits spine 1 on item 1 area of use.

Use will be at early onset scoliosis. These are very young patients which have.

Current needs and we've assembled a global group of surgeon key opinion leaders and Theyre, helping us map, the best way to create clinical procedures and.

And we know how to makes it could make the rod work and Theyre going to tell us how to make the broad work and clinical applications not only for those early onset, but also for adolescent idiopathic scoliosis cases as well.

And I must say that.

And with the shared attention that we got we have that from the key opinion leader standpoint, we have the who's who is in there and the early space of scoliosis care and he couldn't be more proud on the team internally that put together the group for external Guy.

Guidance.

Perfect.

John and thanks for the stronger dollar.

Good day.

Thank you Geoffrey.

There are no additional questions at this time.

Thanks to everyone that joined the call and.

<unk> hearing more about on orthopedics.

Progress Youre, making and with that we'll close the call. Thank you very much.

Ladies and gentlemen, this does conclude today's conference call you may now disconnect.

And.