Q3 2021 Surgalign Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to your search online Holdings, Inc. Third quarter 2021 results call.
All lines have been placed on a listen only mode and the floor will be opened for your questions and comments. Following the presentation. At this time. It is my pleasure to turn the floor over to Kristen Andrew Chief Accounting Officer, Sir the floor is yours.
Thank you operator, good afternoon, and thank you for joining the surge of Lion Holdings, Inc. Third quarter Conference call. Joining me joining me today on the call are Terry Rich, our President and Chief Executive Officer, and Doctor Christian and now our Chief Medical Officer.
Before we start let me make the following disclosures the earnings and other matters, we will be discussing on this conference call will involve statements that are forward. Looking these statements are based on our management's current expectations. They are subject to various risks and uncertainties associated with our line of business and with the economic.
Environment in general.
Our actual results may vary from our statements concerning our expectations about future events that are made during the call. We make no guarantees as to the accuracy of these statements. Accordingly, we urge you to consider all information about the company and not to place undue reliance on these forward looking.
Looking statements during the call. We will also present certain financial information on a non-GAAP basis.
Management believes that non-GAAP financial measures taken in conjunction with U S. GAAP financial measures provide useful information for both management and investors by excluding certain noncash and other expenses that are not indicative of our core operating results.
Management uses non-GAAP measures to compare our performance relative to forecast and strategic plans.
Benchmark, our performance externally against competitors and for certain compensation decisions reconciliations between U S. GAAP and non-GAAP results are presented in the tables accompanying our earnings release, which can be found in the investors section.
Our web site.
On today's call I'll begin, providing an overview of our third quarter performance and an update to our guidance for the year. I'll, then turn the call over to Teri to walk through the progress we've made with our digital strategy and the whole low platform. We will then open the line for questions.
Starting with the review of the quarter Global spine revenue for the quarter ended September 32021 was $20 5 million compared to 27 9 million for the prior year period.
Decrease in revenue is primarily due to decreased demand as a result of COVID-19 related elective surgical procedure headwind in the third quarter.
Domestic revenue was $17 3 million compared to $23 7 million in the prior year quarter and international revenue was $3 2 million compared to $4 2 million in the prior year quarter.
Gross profit for the quarter was $13 7 million or 66, 8% of revenue compared to $16 million or 57, 4% of revenue in the third quarter of 2020.
Marketing general and administrative expenses were $27 6 million for the three months ended September 32021, compared to $27 7 million for the three months ended September 32020.
Research and development expenses in the third quarter of 2021 were $2 9 million compared to $2 2 million for the three months ended September 32020.
Adjusted EBITDA for the third quarter of 2021 was a loss of $13 6 million compared with a loss of $6 2 million in the prior year period.
We ended the third quarter with $68 4 million in cash and cash equivalents, which includes the net proceeds of the financing completed on June 14th 2021, as well as final settlement related to the sale of the OEM business for tax liabilities and the resolution of the working capital dispute.
Turning to guidance.
Based on the impact of Covid on our third quarter performance as well as our expectations for continued COVID-19 headwinds during the fourth quarter, including pressures of unelected procedural demand hospital staffing shortages and global supply chain related headwinds, we now expect full.
Year revenue in the range of $88 million to $92 million.
Compared to prior guidance of $95 million to $100 million.
We now expect full year adjusted EBITDA loss will be in the range of <unk>.
$44 million to $48 million.
With that I would like to turn the call over to Terry.
Thanks, Chris.
Our main focus for driving long term growth in the business continues to be the development of the whole platform and the achievement of near near term milestones on the path to commercialization.
Starting with a regulatory update we continue to have a productive dialogue with the FDA as it relates to our initial five 10-K clearance.
Recently, we were notified of an FDA automated system are regarding our application and as a result, our timeline for clearance has shifted slightly.
The air amended <unk> or additional.
All information requests that require certain testing activities to validate the performance of the system.
We are performing the required tests and will revert to the FDA as quickly as possible, but this does pose a risk to clearance and first cases by the end of the year and could push us into early 2022.
To be very clear this is a nominal delay and this shift in timing due to document automation error does not impact impacted our expectations for clearance or change our belief that the whole system is now meeting or exceeding FDA clearance criteria.
Additionally, the shift does not change our expectations related to our ability to initiate <unk> alpha sites through the first half of the year and more broadly launched the platform in the second half of 2022.
We are branding the initial application of the whole platform, our surgical surgical guidance system is hollow portal.
Whole of portal combines image based guidance technology with augmented reality automated spine segmentation and surgical planning utilizing proprietary artificial intelligence software that we believe will help surgeons performed better surgery more quickly and ultimately deliver on the promise of better outcomes.
And patient satisfaction.
As we previously noted the market opportunity for the whole platform over the long term is tremendous as it encompasses a variety of uses outside of interoperable support including diagnostic surgical planning and post operative solutions when looking at whole of portals initial application within the lumber.
<unk> spine procedures, we estimate the total addressable market to be approximately $5 billion.
Which would expand exponentially as we move into new indications and integrate additional capabilities.
As a reminder, this submission is the first of many as our R&D has already been working on expanding the applications into neuro orthopedics in general and many other surgical specialties in applications across the continuum of care.
Early interest in utilizing the system has been extremely strong and we are currently working directly with a number of U S surgeons and their institutions to install the platform.
Because of this preliminary work, we expect to have multiple sites up and running in a relatively short order after clearance.
Before turning to Q&A I wanted to highlight a recent addition to our board of directors in September Sheryl Conley was appointed as chairman of the board. Following her appointment to the board as part of our annual meeting.
Cheryl brings over three decades of executive leadership experience in the orthopedic space, including over 25 years spent at Zimmer.
We're excited for her to now help guide the development of our company as we position ourselves to be leaders in the evolution of surgery through the application of artificial intelligence data analytics and augmented reality.
Let me reiterate we're incredibly excited about the opportunity that lies ahead for surge aligned as it transforms into an AI technology focused company with a broad selection of applications and addressable markets are.
Our impending five 10-K clearance will be a major achievement for everyone across the organization and represents the first major step towards surge align becoming the leader in digital health care.
Subsequent to clearance, we will shift our focus to taking the steps required to ensure a successful commercial rollout of the hollow portal.
In addition, we will continue to invest heavily in the technological development of the platform to take advantage of the massive market opportunity that exists for this revolutionary platform and ultimately deliver on the promise of qualitatively better outcomes and patient satisfaction.
With that I'd like to open the line for questions.
Thank you the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if youre using a speaker phone we ask that you pick up your handset will pose posing your question to provide the best sound quality.
Again, ladies and gentlemen, if you do have a question or comment you may plus star one on your telephone keypad at this time.
We will take our first question from Matthew O'brien with Piper Sandler. Please go ahead.
Hi, guys. Thanks for taking the questions.
Zimmerman on for Matt.
And I guess I just wanted to first start off with the automated documentation air and the FDA filing.
Sounds like reprocessing of the submission is contingent upon completion of this customer requirement that was omitted from the initial processing and am I understanding that correct.
Yes, there were two questions that were left off of the original.
Group of AI as a request for additional information that we received and so we're in process. The rest are complete so we're in process of.
Finalizing the testing to reply to those last two.
Okay.
And what do you expect the turnaround to be in terms of getting that information back to the FDA.
And thinking.
Thinking ahead with the FDA in your data right now what makes you confident in.
Those timelines for hollow only being pushed marginally.
Just based on our conversations with the FDA and so when we get the questions and it starts the 30 day clock with them again.
So we're again pushing to.
Get the testing done as efficiently as possible and we'll re submit.
Submit the last two components.
Okay, and then a quick one on the balance sheet. It looks like you guys have a little over $68 million in cash.
How much cash runway does that provide you with a given.
You guys are pushing ahead with with hollow and we are expecting to see some new product launches next year and then maybe from an Opex standpoint could you help us understand.
Quantitatively or qualitatively the pace of spending.
In.
Subsequent quarters, both on the R&D and SG&A side.
Yes.
Answer to your first question on the runway for cash.
Have enough cash for the IRB sites and get prepared for the broader launch of <unk> broader commercial launch of polo. So that's how I would think of that.
Similarly on the Opex side.
Our opex spend will be in line with the development and the IRB Paulo, the alpha and the likes.
And we will continue to kind of support that legacy.
<unk> and the R&D related to it.
Okay perfect. Thank you guys.
Thank you. Thank you.
We will take our next question from Brooks O'neil with Lake Street Capital markets. Please go ahead.
Good afternoon all.
Just following up there quickly.
Terribly significant but I'm curious.
Did the FDA forget to ask you two questions or did you guys just see something they they at.
Ms responding.
Yes Brooks.
There is an automated system that sends over the PDF of the questions to us and two questions were amended.
Apparently this we werent the only ones.
Had this error.
And.
Just then automation air.
Sure.
Helpful.
Just thinking out loud.
Before we talk more about whole low obviously, you've got you provided sort of a revised outlook for us.
Historic business traditional spine device business.
I'm, hoping you could just talk a little bit about how you see that fitting into.
Your company.
Over the next year or two sort of should we.
Should we kind of ignore that business.
Is it significant.
How do you think about it.
Yes, Brooks I guess as I think.
Through this year and obviously no one wants to lower guidance.
We've just seen.
Things that we haven't experienced before.
I think largely related to the pandemic. If you look at the quarters, just the swings we have quarter to quarter.
Youre not picking up that much new business fast enough to have that kind of effect and youre not losing it fast enough to have that kind of effect and.
We really thought.
The worst was behind us.
We were quite taken back.
By how dramatic the effect was on on Q3.
We've made great progress in the area. If you consider some of the quality issues, we referred to in the previous quarters.
Knock on wood, we have those behind US we've made great progress in.
Several line is back out on the market.
We're the.
<unk> instruments are back out on the market we've got.
A number of new.
Inner bodies coming.
Coming out we've started in.
Europe with them and we will start here shortly after the first of the year. So.
Believe that we're headed down a really good path and really this is a testament to the.
R&D team that we've brought in to assure these up and now we look forward.
Moving forward and getting new products out the door.
Okay. That's helpful. And then just wonder if you are Chris could provide any color and youre thinking about a $5 billion Tam obviously that.
Really juicy number if you will and I'm, hoping you might be able to help us.
Sort of put some context around how you're seeing the market and the opportunity youre going after with <unk>.
Yes.
I'll start and then Chris why don't you jump in on the end, but.
Look I think that there are.
A number of reasons why.
Whether it's robotics or navigation has seen low adoption rate and I believe that whole low overcomes a number of those issues I think the other thing Brooks.
Yeah.
Im getting.
As excited or potentially even more excited about the applications that we're going to have outside of the or as I am for the applications that we're going to have within the <unk> and that's for spine brain.
Even orthopedics and general surgery, and so as we continue to advance and build out the team and see the progress we're making in these areas.
It's incredibly.
Exciting with what we see and we'll begin to unveil some of this.
Further.
Our first of the year with a number of programs. So Chris why don't you go ahead and.
Okay.
Yes, so brooks to two things that somewhat we have shown already which is the intra operative applications, but I think what's key to understand and this is something that we've actually highlighted that we made a press release.
Around the intellectual property that granted patent and normally we wouldn't do a press release about some ordinary patent giving granted about this as very foundational to what we're doing on a number of fronts and one of them is.
Outside of the operating room, so the technologies that we have been showing for surgeons and.
And people that have been coming through the office.
<unk> has multiple applications and once again, a very graphic one is guiding our surgeon during a surgical procedure.
The same core technology, and you know what I'm talking about so at the same quarter, yes.
Got it.
Yeah, you have the same the same core technology behind the curtain, we have been developing for a number of years to serve as an automated image reader. So imagine the Cte scans at Horizon X Ray that are.
Don everyday of the week at a hospital right now they are being led by radiologist right. So on the same technology that breaks breaks that anatomy down that we have deployed and the operating room to guide the surgeon.
We have also deployed to read MRI scans and X Ray.
Very soon we will be doing some testing with surgeons and non surgeons because this technology is applicable not only once again in the operating room and not only surgeons, but to practitioners such as neurologists for example, where primary care physicians that have no surgical experience, but are faced daily with reading images and they rely heavily on the rate.
I'll, just do that for them and by no means are we saying hey, we're getting rid of the radiologist here, but we're definitely.
Introducing the software into the workflow to help them better understand what's going on with the patient. So that's something that you will be hearing more from us about in the coming months.
As we start.
Unveiling that a little bit.
Yes.
You guys talked a little bit about surgical planning and some of those things.
I think those are markets, where you know.
Specifically output surgical planning or do you think it's more of a component of it.
That enhance the value.
Derived from.
Yes.
I'm going to go down.
The answer to that is both actually right it depends on which which angle. You are heading is that because there are certain device manufacturers in a space, where not hand, such as orthopedics that are relying on a lot of manual engineering and essentially marking images by hand to achieve a certain goals such as to make a <unk>.
<unk> surgery procedure possible. So we see a lot of opportunities for our software to assist with that and once again speed up those workflows and reduce the amount of manual intervention, which equals time money and all those other things that that those teams and those companies have to do so that's on the outside of the operating room and then I.
I do feel that this will be one of the key differentiators of our of our system that we utilize artificial intelligence to help formulate a plan of course, the doctor checks. It validates that that's what the doctors job is but I do think that that will save significant time introduce errors or for those patients in the operating room.
Great I appreciate all that color I am excited about.
It continues.
Sure.
Thanks Brooks.
We will take our last question from Jim Sidoti with Sidoti <unk> Company. Please go ahead.
Hi, good afternoon, and thanks for taking the questions Youre not.
The first company to have issues with Covid in the quarter. It seems like it really picked up.
Are you seeing any relief.
Towards the end of the quarter and into October or do you think this will be an issue through the first half of 2022.
Yes, great Great question, Jim and.
I wish I knew.
Look certainly.
Various points in the quarter you get.
It takes some downturn and that's what's made.
This thing so difficult I mean again, if you just look at it.
Our quarters throughout the course of the year, I mean Q2's never bigger than Q1.
And so it has been.
Something that we struggle to predict we never thought we'd get back to the kind of level, we hit in Q3 and we're certainly.
Hopeful that things.
Continued progress in Q4, and we can get back on a more normal track but.
As I say that.
Europe is.
Experienced team greater pressures from Covid again.
And.
We have.
Recently.
Had some things closing down on US there at the same time, Australia seems to be picking it back up again, so it's just.
A tough balancing act to be able to predict where these things are at right now.
Okay and then.
Ill.
Is there anything you could do now.
Prior to the FDA approval.
To get feedback from them back to us on hold.
Kind of tweak the system to make sure that it's going to be what do you think it's going to be when you go out and launch it in 2022.
Yes.
Yes, so a lot of the <unk>.
Testing.
We've been doing with the system does require surgeons to come in and help us in and we've shown it to a number of folks and have taken in.
A lot of their feedback.
The things that you do.
With Phantoms or cadavers.
Are always.
No.
Different than how they work when you get them into the actual operating theater, which is why we plan on starting with the <unk>.
Alphas in IRR Beast.
Validate where we are prior to proceeding with a broader commercial launch.
Okay.
Despite the issue you had with the FDA you still think that's likely to happen in the first half of 2022.
Is that correct.
Yes, yes.
Alright, thank you.
Thanks, Jim.
I will now turn the call back over to Mr. Terry Rich for closing remarks, Mr. <unk> the floor is yours.
Excellent and thanks, everybody for joining our call again, we continue to be extremely bullish on the transformation that we're making in this company and our exceptionally excited to get the whole platform to market.
I look forward to updating you on our progress on the next call. Thank you.
This does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
Yes.
Okay.
Hum.
Yeah.
Yes.
Okay.
Okay.
Okay.
Yeah.
Okay.
Hum.
Hum.
Yes.
Okay.
Yeah.
[music].
Yes.
[music].