Q1 2022 Orthofix Medical Inc Earnings Call
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I would now like to pass the conference I thought to our highest Alexa what's huh.
Senior director of Investor Relations Alexa over tea.
Thank you operator, and good morning, everyone welcome to the Orthopedics first quarter 2022 earnings call. Joining me on the call today are our president and Chief Executive Officer, John <unk>, and Chief Financial Officer, Doug Rice, I'll start 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 uncertainties.
All statements other than those of historical facts are forward looking statements, including any earnings guidance, we provide and any statements about our plans beliefs strategies expectations goals or objectives.
Busters are cautioned not to place undue reliance on such forward looking statements as there is no assurance that the matter contained in such statements will occur.
The forward looking statements, we will make on today's call are based on our beliefs and expectations as of today may six 2022, we do not undertake any obligation to revise or update such forward looking statements.
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 factors in our Form 10-K for the year ended December 31, 2021, and Form 10-Q for the quarter ended March 31.
<unk> 2022 filed this morning may 6th 2022, as well as additional SEC filings, we make in the future. If you need copies of these documents. Please contact my office at Orthopedics and Lewisville, Texas.
In addition on today's call, we will refer to various non-GAAP financial measures, we believe that in order to properly understand our short term and long term financial trends.
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 first quarter 2022 results for reconciliations 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 welcome everyone and thank you for joining our first quarter 2022 results conference call on today's call I'll provide an update of our first quarter performance and review progress against our strategic initiatives before handing the call over to Doug who will provide our financial update our COO.
Close the call with our perspectives on the balance of 2022 before opening the line for questions.
Starting with our first quarter performance total revenue in the quarter was $106 million growing approximately 1% over 2021 on a reported basis and 2% on a constant currency basis.
In January and February we experienced a significant slowdown in procedure volumes due to hospital COVID-19 restrictions and staffing shortages across most of our geographies in the U S and Europe.
In March we saw an increase in procedure volumes highlighted by a strong month over month growth coinciding with the declining COVID-19 hospitalizations and lessening of global restrictions.
The March into April trends this year, it looks similar to the prior year.
Turning to the performance of each of our product categories, starting with bone growth therapies or <unk> sales for the quarter were $42 million down 2% compared to the first quarter of 2021.
The decline was due to the lingering effects of Covid, which impacted procedure volumes on complex cases.
Spike the headwinds experienced broadly in GPT, we saw another quarter growth in our physio stim fractured therapy products, which are prescribed after 90 day period of nonunion fracture.
A reminder, the physio product portfolio is focused on non union fractures within the orthopedic market and will be a key growth driver for us in this year and beyond.
I am proud of the team's focus despite the environment.
Moving to spinal implants, which includes both spine fixation and motion preservation revenue was up 4% on a reported basis and constant currency basis as compared to the first quarter of 2021, we saw growth across the portfolio. During this period, which was primarily driven by our international spine fixation sales and growth.
The <unk> artificial cervical disc in the U S.
Turning to our biologics portfolio revenue was up 3% compared to 2021, the growth was driven by sales of fiber to us and our other new offerings as we continue to broaden our biologic portfolio.
Lastly, in our global Orthopedics business sales were up 2% on a reported basis and 7% on a constant currency basis over 2021. The increase was due to less mean COVID-19 restrictions in our international markets orders from international stocking distributors and continued strong contribution from the <unk> limb lengthening system.
Before discussing the progress against our key initiatives I wanted to mentioned the recently announced leadership transition in our orthopedics business.
Last month, Kim <unk>, our chief legal and development officer became the president of the global Orthopedics business. She succeeds Paul Gonzales, who left the company to pursue other opportunities.
Jim has more than 25 years of medical device experience, including her more than five years in order to fix she has significant experience in the medical device product lifecycle, supporting research and development and commercialization functions and leading business development initiatives that strengthened organic and inorganic growth for our company.
Since starting at Orthopedics in 2016, Kim has led many functions, including regulatory and quality.
Communications and business development. In addition to her legal group.
We will transition our current responsibilities over the near term and the replacement search for the new Chief Legal officer has already begun.
I am confident Kim will bring strong leadership and continue to drive growth in the orthopedics business, which has seen a significant investment over the past couple of years.
The team has responded very well to her new leadership role and we believe the momentum we have in the business will continue I would like to take a moment to thank Paul for his contributions and wish you best of luck in his next endeavor.
Now I'd like to provide an update on our key initiatives.
Recall from our last earnings call I provided our growth expectations over the coming years targeting mid single digits for 2022 at constant currency and growth accelerating to mid to high single digits in 2023 and beyond with increasing adjusted EBITDA margins.
All of this assumes the macro environments will cooperators of course.
In order to achieve the growth we are focusing on two key initiatives product innovation with differentiated technologies and our commercial channel.
First our focus on new product innovation and differentiation. This includes delivering near term growth through our increased adoption of our recently launched products. In addition, we have also accelerated our organic inorganic investments in new products indications and procedural solutions that build.
Onto our core strengths.
In the first quarter, we made significant progress in this initiative across all of our product categories. Since January of 2020, we have launched 26 spine and orthopedic products.
Starting with <unk>, we recently expanded our portfolio in a meaningful way with the FDA PMA sales, Tim bone healing therapy, a low intensity pulse ultrasound or life is product for the healing of bone, both fresh fracture and non union fractures.
We've been building out and training the commercial team in preparation for the planned initial U S market launch.
Which will be staged during the second and third quarter.
This product is the result of our exclusive license of the J a portfolio and we will continue to evaluate and leverage our EGF partnership as we look to expand our BTT offerings into the future.
We are proud of the investment we're making in the external bone growth stimulator market and frankly at a significantly higher level than any of our competitors.
This will enable us to expand our leadership in this space.
With biologics our goal is to continue to build on our leadership position in the marketplace by providing a comprehensive offering of products and solutions for surgeons to use in both spine and orthopedic procedures.
During the quarter, we launched and saw the first cases completed with our opus.
Our synthetic bioactive bone graft solution for spine fusion procedures.
SBA is an excellent complement to our hope is Mg set technology, which we launched in the second half of 2021.
We are working with hospitals health systems, and our channel partners on commercial expansion to provide a comprehensive portfolio and its rapidly growing synthetics category.
Earlier this week, we announced the extension of our agreement with MTF Biologics together, we have built out a highly competitive allograft portfolio and have worked tirelessly to become leaders in the cellular bone allograft space with our Trinity Allograft.
Happy to announce our continued investment in our partnership through the planned introduction of two new important allograft additions in our biologic portfolio purchase and legacy.
As you know or the facts together with MTF had been a pioneer and innovator in the cellular based allograft market, which resulted in our market leading position with the Trinity franchise too.
Today, we are excited to announce the beginning of the next evolution of this space with an entirely new category, we are calling <unk>.
First tissue launched is called virtual <unk>.
Is derived from a breakthrough tissue processing and preservation approach developed by MTS.
This innovative approach called low graph preservation is the process in which inherent growth factors and viable cells are preserved in the graph to provide a shelf stable option for clinicians purchase has been developed by MTF.
Of course of several years, which preserves the inherent osteo conductive osteo conductive and osteogenic properties necessary for bone formation for to US is the first of its kind shelf stable complete autograph substitute.
This tissue offer significant logistical advantages to the hospital, providing efficiencies in the operating room by being available for immediate use and supports sustainability.
We will begin an exclusive launch of virtuous this month with a broad commercialization later in the year.
We are excited to enter into this next phase of revolutionizing biologics through our partnership with MTF biologics.
Our second Allograph offerings legacy is an acceptance process pre hydrated global DBM putty and.
That is ready to use out of the syringe leveraging decades of experience with demineralized bone processing with MTF biologics legacy allows us to expand our DBM portfolio by providing a cost effective option that has a strong history of positive clinical performance.
Rounding out our portfolio with orthopedics, our focus remains on investments within limb reconstruction and pediatric deformity building on our strong portfolio of internal and external limb reconstruction and deformity correction solutions.
We have long been a leader in the external training and during the quarter, we announced the FDA clearance and first cases of the true lock Evo Marine fixation system.
Because of the only circular fixator in the market with both radiolucent rings and struts, allowing for clear radiographic visualization, which assists with clinical care. The true lock Evo system is also the first <unk> hundred six <unk> system kit available as a pre assembled frame and a ready to use single use.
Sterile packaging, allowing for ease of application and potential time savings during surgery, particularly when treating post traumatic injuries.
Shall surgeon feedback has been encouraging and we plan to prudently expand the launch of this system in the U S and international markets.
We also released Galaxy Gemini Fixator in limited markets. The next generation of the modular fixation system for fractured treatments is lower and upper limbs or.
Galaxy Gemini system combines two different procedure configurations to better address the customer needs.
<unk> offers a versatile choice of clamps, radiolucent rods and instruments in one sterile tray and provides a wide choice of ready to use sterile kits and components for different anatomical applications.
Importantly.
This up to date pin to bar system can be used as a hybrid system in conjunction with our true lock family of products extending its functionalities.
These new products build on the already innovative and comprehensive limb reconstruction and deformity correction portfolio and we expect them to contribute to our growth in orthopedics business in 2022 and 2023.
Turning to our second initiative, the ongoing development of our commercial channel to expand patient and surgeon access to our products worldwide.
In Q1, our U S strategic channel partners, which we define as distributor partners that carry multiple or fixed product categories, such as hardware and biologics grew revenue, 19% compared to the prior year quarter.
Most of our channel investment in the quarter was focused on adding U S direct direct reps and our bone growth therapies business.
Along with the channel expansion with direct Rep hires we are preparing for the initial launch of the cell stem with increased commercial readiness activities and training.
We will continue to expand dedicated resources as we gain commercial traction.
I would also like to highlight our continued investment in clinical data development.
As we see this as a critical factor in supporting the clinical efficacy and safety of our current and future devices to support the long term growth and expansion of product indications.
One example is the <unk> artificial disc, where we're investing in the two level study to support future indications.
Conduct pilot E post market surveillance and collecting real world evidence that will collectively highlight the safety and efficacy while protecting our innovation investment.
We will continue to invest and build upon our clinical database of over 60000 implanted <unk> desks, which has created one of the most robust sets of data and the artificial cervical disc market.
These efforts will be utilized to help expand the cervical disc arthroplasty market segment, while assisting us in our marketing efforts as new products and companies enter the space and elevate the competitive environment.
Overall, I'm very proud of our performance during the quarter, which highlights the team's hard work and the growing demand for our evolving portfolio of products in the marketplace.
<unk> made great strides working towards our growth transformation have capitalized on strong foundation built in 2021, despite that some challenges with COVID-19 early on these.
These developments provide us with elevated enthusiasm for our business and we've had a great start to the year, putting ourselves in a great position for success in 2022 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 because many of the financial measures covered in 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 in the quarter were $106 million up 1% on a reported basis and 2% on a constant currency basis, when compared to the first quarter of 2021.
In the U S total net sales of $82 million or 77% of our global total revenue for the first quarter were approximately flat year over year as both periods experienced reductions in complex procedures due to COVID-19 restrictions.
International total net sales of $24 million were up 14% in constant currency over the first quarter of 2021 as both of our business units had increased orders from stocking distributors as well as contributions from new products.
GAAP gross margin in the first quarter of 2021 was 73% compared to 75% in the prior year period. The decrease was primarily due to changes in our sales mix as well as a short term increase in certain component cost driven by global supply chain disruptions.
For the full year 2022, we expect gross margin to be approximately 75% to 76%.
Given the continuing COVID-19 related disruptions, including staffing staffing shortages and the Russian were on Ukraine, Our global supply chain is under pressure and it remains a top priority, we do not source any raw materials or components from Russia, Ukraine, or China. However, we have observed and anticipate a highly volatile supply.
Environment, mainly affecting price and availability this year with that in mind, we have taken the step of purchasing raw materials, including items, such as titanium and semiconductor chips to ensure a year's worth of supply. We believe this is an effective use of our strong balance sheet and is a prudent step that will ensure that we meet customer demand.
And worth a modest impact to our margins as a result.
Sales and marketing expenses in the first quarter of 2022 were 51% of net sales up from 48% of net sales in the first quarter of 2021.
As communicated previously we prioritize the investment in our direct and indirect commercial channels over the last couple of years.
In the first quarter of 2022, we've made investments in direct sales reps in both orthopedics ANV GT and we have increased our sales training efforts in both areas.
<unk> <unk> conference spend is up for the quarter as trade shows were brought back in person, including double AOS and our internal global sales meetings for.
For the full year 2022, we expect sales and marketing expenses to be in the range of 49% to 50% of net sales to spending reflects further investment in our distribution channels and sales management early in the year to support our expected revenue growth, including our launch of <unk> cell stem and virtues as well as the.
The continued increase in travel and in person events.
As a percentage of revenue sales and marketing expenses will decrease throughout the year.
GAAP G&A expenses in the first quarter of 2022% to 18% of net sales up from 16% in the prior year period.
This increase reflects increased stock based compensation expense as we returned to historical levels of spend as the tenure of our new management team increases.
Also saw an increase in employee related spending including travel and medical expenses.
For those investors and analysts calculating the full year impact of certain noncash items for the full year 2022, we expect stock based compensation expense to be approximately $20 million of which about 75% is recorded in G&A. We also expect full year depreciation and amortization to be around 31 million.
Of which about 75% is in Cogs.
GAAP R&D expenses for the first quarter increased to 11% of net sales up from 10% in the prior year period.
The increase reflects our planned spending to support new product development clinical studies as well as costs associated with our <unk> compliance efforts.
We will continue to ramp up our efforts to drive organic innovation and differentiation through investment in clinical trials, such as the rotator cuff repair study within BTT.
Our <unk> C. Two level indications study and continued spend to build a robust product pipeline in both spine and orthopedics.
We expect 2022, GAAP R&D expense to be approximately 11, 5% to 12% of net sales for the full year, including an impact of about 200 basis points related directly to our <unk> implementation efforts.
Which we will adjust within our non-GAAP financial metrics.
R&D spend as a percentage of revenue will be the highest on both an absolute and relative basis in the second and third quarters of this year based on the timing of certain product launches clinical site enrollment and milestone achievements, we expect our spending related to the 2020 for EU MTR implementation requirements to taper somewhat.
After this year.
Adjusted EBITDA margin in the first quarter decreased to 7% of net sales compared to 13% in the first quarter of 2021, driven by the increased Cogs as well as growth investments in our sales channels and product development.
We continue to expect our adjusted EBITDA margin for the full year 2022 will approximate 12% of total net sales as we continue to profitably invest in growth.
We expect our adjusted EBITDA margin to increase sequentially throughout 2022, which is reflective of the heavier spending in the first half of the year that I mentioned earlier as well as leverage from the strong sales growth we expect in the back half of this year.
The $8 million GAAP acquisition related Remeasurement expense decrease in the first quarter, primarily reflects a $5 5 million noncash credit related to a change in the fair value of the spinal kinetics contingent revenue milestone payment liability.
This final revenue based milestone must be achieved within five years of April 32018.
Based on our first quarter results and the current operating environment, including the introduction of new competitive products, our current forecast and the achievement of this revenue milestone trigger was extended to Q1 2023.
Using the updated forecast and our probability approach the estimated fair value of this contingent liability at March 31, 2022 was $11 7 million, which was five.
$5 million lower than the balance at December 31, 2021.
Now turning to tax we had GAAP effective tax rate of negative 2% of loss before income taxes as compared to positive 3% in the same period of 2021.
The low tax rate in both periods was driven primarily by GAAP losses without a corresponding tax benefit.
For our non-GAAP results beginning in 2022, we are utilizing a 28% long term adjusted effective tax rate, which normalizes for acquisition related expenses certain changes in law and operating losses that have no GAAP tax benefit.
For the first quarter of 2022, we reported GAAP loss of <unk> 22 per share as compared to GAAP loss of <unk> 30 per share in the first quarter of 2021 after adjusting for certain items and when normalizing for tax using a non-GAAP long term effective tax rate adjusted earnings per share for the first quarter of <unk>.
<unk> thousand 22 was a loss of <unk> 10 per share compared to an adjusted EPS of <unk> 17 per share in the first quarter of 2021.
The decrease was in line with our internal expectations and was primarily driven by short term expense increases due to supply chain disruption increased R&D spend to drive organic innovation and differentiation and increased spend to build out our commercial channels.
Regarding cash we continue to maintain a strong liquidity position was $72 million at the end of the first quarter of 2022 compared to $88 million at the end of the fourth quarter of 2021.
The main decrease to cash this year from the end of 2021 is from increased inventory the timing of bonus payments in the first quarter and the final contractual payment to the fit bone seller for the fulfillment of its manufacturing and supply obligations. We currently have no borrowings under outstanding under our senior secured revolver.
<unk> credit facility.
Repayment of the 2020 Medicare advance was now complete.
Net cash provided by operating activities was an outflow of $8 million in the quarter down $10 million compared to an inflow of $2 million in the first quarter of last year, primarily due to the recruitment of the 2020 Medicare advance beginning in the second quarter of 2021 and the increase of inventory.
Due to new product launches over the prior year.
The buildup of raw materials to protect our topline and to support new distributions.
Capital expenditures were approximately $6 million in the quarter compared to $5 million in the prior year period, due primarily to investments in operations and our facilities as we expand manufacturing capabilities and build out our customer training and experience center for our partners at our headquarters in Lewisville, Texas.
We still expect capital expenditures to be in the $25 million to $27 million range for 2022, the increase over the prior year is due primarily.
To investments in our technology abilities, as well as investments in our facilities and operations.
Consistent with our decreased operating cash flow, our free cash flow, which we define as cash flow from operations minus capex.
Was a $13 million outflow during the first quarter, which was down from a $2 million outflow in the first quarter of 2021.
For the full year of 2022, we expect free cash flow to decrease somewhat year over year as we build up inventory for new product launches acquire raw materials in response to macro environment risk support new distribution and absorb the estimated impact from FX headwinds.
Now shifting to guidance for the full year of 2022, we still expect revenue to be in the range of 475 million to $490 million, which represents mid single digit growth at reported rates.
The guidance represents a modest raise in our growth rate at constant currency from our previous guidance, reflecting the absorption of about a $4 million headwind due to FX rates.
We are currently anticipating around a 2% headwind to our top line at reported rates due to the strengthened U S dollar compared to the 2021 FX rates.
From a macro perspective, we continue to expect a modest COVID-19 overhang through to the end of the second quarter with revenue acceleration in the back half of the year as key products like <unk> and virtual has gained momentum and delayed or deferred procedures continue to be made up.
However, we do assume that workforce challenges and hospitals will continue throughout this year and into 2023.
From a timing perspective, we expect Q2 revenue to be similar to the prior year and expect the third and fourth quarters to show strong year over year growth.
For the full year 2022, we expect we continue to expect our adjusted EBITDA will be in the range of $56 million to $61 million or.
There were approximately 12% of revenue and our adjusted EPS will be between $58 73.
These ranges reflect a $4 million FX headwind to our top line due to the strengthened U S. Dollar since the year end 2021 earnings call supply chain issues, which have expanded since progression where on Ukraine. Our continued investment in delivering a robust pipeline of differentiated products and continuing to expand our distribution channel.
To accelerate our growth trajectory.
I'll now turn the call back over to John .
Thanks, Doug.
Looking ahead, we continue to believe that 2022 will be an inflection point for our business as we move into 2023 and beyond we are anticipating an acceleration in our top line growth largely a result of our investments made across our organization over the last two years.
We have made important progress this year with key product approvals and introductions and for the balance of 2022, we will continue to invest in our growth, especially in areas of our business, where we have a competitive leadership position as a reminder, these areas are biologics in regenerate.
Technologies.
Category that includes both bone and soft tissue stimulation and biologics.
Spinal technologies, which includes innovative implants, and surgical solutions and third orthopedics, where we specialize in limb reconstruction and pediatric deformity.
Our investments in these product portfolios are focused on enabling technologies alternatives surgical site development and single use sterile packed product technologies as we believe these are important ways to deliver value to our customers.
We have several exciting updates on these investments that will be we believe will have positive near term impacts on growth specifically from fitbit, a cell stem virtually and legacy.
To fit on limb lengthening system remains an important growth driver as demonstrated in the first quarter with 50% growth in surgeries over the first quarter of 2021.
The development of our new Trochanteric now for the U S pediatric markets, which uses our cutting edge German engineering fit phone technology is still on track for a 2023 launch.
As mentioned earlier, we will soon be launching virtuous myograph and initial cases are anticipated in the second quarter. It is worth restating that virtual <unk> is the first graph to deliver all of the necessary properties for bone formation and a shelf stable form in addition to the upcoming exclusive launch.
We will be highlighting virtually at the SaaS meeting in early June .
Our second new biologic solution legacy.
Effective bone graphic standard that has clinical value, while maintaining a cost effective option for our customers. This solution in conjunction with our recent biologic edition of fiber to strip and fiber fused putty allows us to compete in an almost $500 million demineralized bone allografts.
U S market.
We anticipate that legacy will be initially available in Q3 of this year.
In summary, I am very happy with our performance during the quarter and the progress we've made towards our initiatives. Despite a significant COVID-19 impact restrictions early in the quarter.
We drove year over year topline growth supported by contributions from recently launched products validating the strategic investments we have made over the last two years, we continue to accelerate our product innovation efforts with achievement of a number of key accomplishments, including the launch of Opus two.
Lockheed Vo and Galaxy Gemini.
Additionally, we've put ourselves in a position to introduce a number of game changing products. This year, including the initial market release of our sales stem in the second quarter as well as a near term launch of two key biologic offerings, we talked about which will be hitting the market in the second and third quarters.
Taken together with the rest of our growth pipeline the strength of our existing portfolio and the progress made enhancing our commercial organizations I am excited to see what the rest of 2022 brings as we execute on our growth transformation.
With that I'd like to turn the call over to Q&A.
Thank you.
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Okay.
Again to ask a question it just start led by Bob.
I would now like.
I would now like to start the question with Matthew Blackman of Stifel. Your line is now open. Please go ahead.
Hi, Good morning, everybody I hope you're doing well thanks for taking the question or questions.
Maybe just to start I wanted to start on the guidance.
You raised it by about 100 basis points the underlying growth.
That manifesting is it in any particular franchise or geography or is it more broad based.
Had a couple of follow ups.
Yes, Matt it's a good point with about 23% of our revenue outside of the U S.
Impacted primarily by the Euro dollar rate. So you are right, even though we held reported guidance flat.
Basis effectively it was about a 1% raise.
We think we're going to get that with <unk>.
Just on the strength of our orthopedics growth, primarily it was a shining star for us last year.
Year over year, and they had another good quarter in Q1 benefited by football and in other new products.
And so.
Yes.
And achievable.
Metric for us.
Great.
Another bigger picture question, just reflecting on your commentary about complex cases coming back slowly.
Think about the recovery trajectory of cases, and then how that flows through your portfolio.
Fair to say that the easier cases, Tom are coming back first bank complex follows which then should pull through more of the biologics portfolio and then maybe on a lag thereafter.
See some uplift in particularly the spine stim business, that's the right way to think about the cadence of recovery and then how that potentially flows through your top line.
Matt This is John .
The question and that is the way, we think about as far as the complex cases by their nature have multiple hospitals.
Night stays and they also oftentimes hefty backed up by ICU not that they go to the ICU, but they have to have capacity. So as hospitals have that capacity. They will take more of those cases on what we're seeing in the physician's office that people are coming back and looking towards having those cases done so we see those coming back physicians.
Backlog as far as their wait periods are coming up to us anywhere from four to six to eight weeks and so as patients come back.
Two to.
Two 3% reduction in complex cases in the first quarter and so we look we know they're out there and they'll be coming back to your point about other products such as biologics biologics we stay in the past has been a leading indicator of those complex cases will come back and so you saw.
A small lift in our biologics business and we're seeing more momentum there as well and then as far as the BTT question.
BTT does go with those complex cases, and so today follow along with that so we look at the open orders for BGC and Theyre coming back as well.
So from that standpoint, you have it you have a directionally correct and we're looking forward to those cases coming back into the market.
And just are you seeing in April some improvement in that complex mix, just any color I'm sure you would love to give inter quarter color, but.
The extent you can any any color on how that's playing out in April .
We haven't really shared in our prepared.
Yes.
Sure to prepare that our trajectory between March and April is consistent from 'twenty, one to 'twenty, two and that's a mix we can't net stay tail in the month.
What the mix of our cases are until we analyze it several weeks later.
And then I'm just going to sneak one more in on itself Tim It came a little bit earlier, I think we anticipated so congrats to that.
On that how quickly can it visibly contribute to growth that sort of part one of that question and instead of prior to a bigger picture. One is unreasonable to think that now <unk> being the only company with all the approved indications and our multiple modalities that sterne could potentially have a halo effect.
On the broader <unk> portfolio.
Matt I like the way you phrase that question. The answer is generally say, yes, but let me get into a little detail on that as far as.
The cell stem we licensed.
The technology from <unk> in April of 'twenty, one and we received our.
PMA approval.
<unk>.
The first week of May of 2022.
Truly a remarkable effort on the teens.
Within orthopedics and also working collectively FPGA, we couldn't be more proud of that relationship and yes. It does put us into a licensed technology with fresh fracture and non union as we highlighted our physio Stim Nonunion has had good success here in the quarters and we've been building that channel.
Over the last several quarters to put more direct feed.
Pete a direct reps in those areas. So from that standpoint, we expect that the combination of the sales stand plus physio stim will be a powerful combination for both fresh fracture and non union.
Our channel is set up.
We do expect that there'll be more momentum more just with a number of them in the last weeks and excitement around the overall <unk> franchise.
Proactive training in the month of April we had the first 40 reps and train them on our sales stem and those and some of those reps also carry the broader BTT line. So.
It's a great product for us, we're really excited about where it could take us and it's the first product we put into the BTT first new product, we put at the BTG PTT product category for 15 years and so the teams there is our broadest and most.
Mature distribution channel, we're looking forward to really seeing the sales team as well as our BTT product portfolio sale.
Great John really appreciate it I'll get back in queue. Thanks.
Thank you.
Our next question comes from the line of Jeffrey Cohen with Ladenburg and Thalmann. Your line is now open. Please go ahead.
John and Doug how are you.
Good morning, Jeff how are you.
So first one can you walk through the <unk>.
Virtually the biologic platform as well as Larry Youre seeing could you just talk about.
This being a 351 or 361 it is.
And we will MTF be responsible for.
The critical work in the filings or is that something youre, taking on by year end.
Thank you Jeff for questions.
This.
Rituals and legacy do align with our traditional relationship with MTF, which we've highlighted in the last week, we've extended for another 10 years.
MTF is the 361, both of them or $3 61.
Tissues and with that MTF manages that for us that's the relationship we have and as I've said in the past.
Absolutely the MTF biologics into the best processing in and partner, we could have in the business and so we really rely on their expertise and they brought with US this new year.
Year to us, which is the wild grafts, a whole new process at <unk>.
Manage and process tissues, and we're looking forward to seeing what looking forward how that performs in the marketplace.
Perfect and then I'm going to jump back to <unk> could you talk about.
Currently.
Number of Skus that you're planning on introducing is just one and you're going after other.
Ladies and areas of the body and then can you also talk about the.
Manufacturing and assembly processes.
Similar.
Co joined with the defense technology.
Yes.
There are.
Theres more than one SKU. There is one major skew. The fact is there are some ancillary that go with it but effectively theres one SKU that's the beauty of this technology.
It is manufactured in with Eas in Italy, and it is what we work collectively with them and so it runs under our quality system as well and so we have a direct connection with them as far as all the operational work that goes forward. We are that we are the.
The approval holder that technology. So we do have responsibility for that but we've been producing these products over the last six to nine months there are products sitting on our shelves here in Lewisville, Texas, and we're just going through the final labeling as you might imagine.
Just obtaining PMA. So we're excited about where we're at and we're aligned with <unk> on this to bring this product forward in the market.
Perfect and then one more quick one for me could you talk a little bit about the.
The O U S and global business I mean outside of the.
Head ways on.
And currency does it feel like Youre picking up some traction there heading back to $100 million business on an annual basis.
Well.
Talk specifically as far as thank you for the question to pay the from the orthopedic standpoint, we are we haven't.
Very strong traction there the team the commercial team there continues to perform that performed in 2021 and they're performing at 2022 as well.
Regarding the.
Spine group, we've been building a spine group in the international markets and they continue to excel.
Generated a number of our results. This quarter also highlight that we've talked about our stocking distributors buying and buying products. That's a good indicator going forward when our stocking distributor byproduct there getting ready for <unk>.
Markets that are available and open to sell so.
So we look at our international business is working well for us and we still have work to do there, but we're pleased with where we're at.
Perfect. Thanks for taking our questions.
Thank you. Thank you.
Our final question comes from the line of Jim Sidoti of Sidoti <unk> Co. Your line is now open. Please go ahead.
Hi, good morning, Thanks for taking the question.
I've been on these calls for 20 years actually.
I've never heard the new product pipeline is as full as it is right now, but like everyone else.
Just in the <unk> product.
Can you talk a little bit more about that when would you use that as opposed to use enthusiastic.
Jim Thanks for the question faded away of the last that question.
Okay.
When when would a physician use the salesman.
Posed to using the physio stim.
Okay, Yes.
Yes, thanks, the cell stem.
Lightest technology is approved for both fresh fracture and non union.
Our previous physio stim.
Through for just non union. So we will be using as sales stem in the fresh fracture category, which is really beneficial to our sales channel because our physio stim reps are working in the area of fracture management and so they would fit with physio stim headway for non Union now they can go sell everyday looked.
For fresh fractures, and then basically applies to sell stems with fresh fractures and then.
The physio stim will be on the.
Non union, which has really demonstrated excellent clinical results. So we have the best of both world. We have technology that go both those categories.
And.
Doug It looks like inventories are up $45 million since the fourth quarter is that due.
Biogen issues that you're just having more safety stock on hand or is that finished goods in anticipation of higher sales going forward.
All of the above its good question Jim Thank you.
We kept inventory.
It's fairly flat over the last several quarters and Youre right. It went up about $5 million.
In Q1.
With all of the supply chain disruption, we proactively decided to deploy our balance sheet.
Our cash to invest in inventory and fixed.
Some of the risk out of our supply chain exposure.
And as we mentioned.
Advanced buying around titanium <unk> seen semiconductor chips that we've gotten out ahead of over the last several quarters.
Like it's a good way to deploy our balance sheet.
Ensure that we take some time out of the supply chain risk.
Alright, and then on R&D I think you said 11 <unk>.
11, 5% to 12%.
Revenue for the year, so it sounds like it's going to tick up pretty.
Pretty consider considerably in the second and third quarters $4 5 million.
What is that for.
Jim.
You heard correctly, our prepared remarks.
A lot of that is around <unk> and the bulk of our spend.
And this year it should start to taper as we get into 'twenty three in the 2024 deadly.
Deadline.
It also includes spending around clinical trials as COO.
<unk>.
Impacted Q1, we feel like the clinical trial spend will pick up this summer for rotator cuff as well as our <unk> two level study.
And we've got further investments in innovation that also hits that R&D line. So as we.
Launched new products and support their regulatory pathways, that's that's where those cost show up.
Yes.
Alright, thank you.
Thank you Tim.
Thank you.
There are no additional questions in the queue at this time, so I will pass the conference over to the management team for closing remarks.
Thank you on behalf of <unk>. Thank you for participating in our Q1 2022 call earnings release call and have a great day.
Okay.
This now concludes the conference call you may now disconnect your lines.
Okay.
Yes.
Okay.
Sure.
Okay.
Yes.
Okay.