Q2 2019 Earnings Call
Greetings and welcome to the Axogens second quarter 2019 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the conference over to our host Kayla Crum. Thank you you may begin.
Thank you Diego and good afternoon, everyone welcome to Axogens second quarter 2019 financial results Conference call. We appreciate you joining us.
I cannot promise Vice president of Investor Relations and corporate development with me on the call today are Karen data Ray Chairman, Chief Executive Officer, and President and Pete Mariani, Chief Financial Officer.
The format for today's call will be as follows.
First Karen will discuss 2019 second quarter highlights and review our full year financial guidance. She will then turn to our key operational and strategic objectives.
No Pete will then provide details on the financial results outlined in today's press release, we will then open the call for your questions.
Today's call is being broadcast live via webcast, which is available on the oxygen website within an hour. Following the end of the live call. A replay will be made available in the investors section of the company's website at www dot oxygen inks dot com.
Before we get started I would like to remind you that during this conference call. The company will make projections and forward looking statements regarding future events.
We encourage you to review the company's past and future filings with the FCC, including without limitation, the company's Form 10-K , and 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward looking statements.
These factors may include without limitation statements regarding product acquisition, and or development product potential regulatory environment sales and marketing strategies capital resources or operating performance and with that I'd like to turn the call over to Karen salary Karen.
Thank you Kayla and good afternoon, everyone.
Second quarter revenue grew 30% to 26.7 million.
We're pleased with our continued growth and the progress we've made in strengthening our commercial execution.
Sales in the quarter came in at the low end of our annual guidance range.
Due primarily to delayed productivity growth.
As a result, we're updating our guidance for the year to reflect this current run rate.
We now expect revenues will be in the range of 106 to 110 million.
Representing growth of 26% to 31% for the full year.
We now have 100 direct sales representatives and expect to continue to grow to at least 115 by the end of this year.
The new reps allows to split larger territories add clinical sales specialists and convert independent agency territory to direct.
We've increased the number of direct reps by 40% and our direct business now represents 87% of our revenue versus approximately 80% one year ago.
Our direct coverage is much improved over the prior year with smaller more dense territories, which we believe will drive productivity improvements as the structure matures.
These are important and strategic initiatives that we will that will allow us to continue to drive long term sustainable growth in the developing markets.
We are the leading company solely dedicated to restoring quality of life for patients suffering from peripheral nerve damage.
Our purpose driven team of professionals works with skilled clinicians to further our mission to deliver life changing evidenced based solutions to better serve this patient population.
Were advancing this mission through the pursuit of our strategic initiatives, which we refer to as our five pillars of growth.
Building market awareness.
Educating surgeons and developing advocates growing body of clinical evidence executing on our sales plan and introducing new products and expanded applications in nerve repair.
I will now comment on our progress in each of these areas.
First we continue to build market awareness of Axogen and our products by engaging with patients and surgeons.
We are growing clinical awareness of our products and nerve repair algorithm within the surgeon community.
In the quarter, we participated in the 2019 meeting of the International Federation of societies for surgery as a hand, a clinical conference the hand surgeons from around the world.
There were 10 scientific presentations related to Axogens products. In addition to these presentations we hosted two educational symposium focused on optimizing outcomes by utilizing axogens peripheral nerve repair out for them.
The symposiums were highly attended and proved increased and provided increased awareness of clinical evidence supporting the use for a portfolio of nerve repair products.
Our second pillar of growth is focused on surgeon surgeon education, and the development of surgeon advocates.
We conducted seven National Education program for the second quarter, including one Fellows program.
We're also growing the number of educational programs specific to our specialty applications, including all MF and breast reconstruction.
The surgeon led event focused on advances and best practices in nerve repair with participating surgeons gaining confidence in nerve repair techniques.
On average, we see accident product utilization from surgeon attendees more than double in the six months after they attend the program.
In 2019, we plan to conduct a total of 25 National Education program, including six Fellows program.
We remain committed to training the next generation of nerve surgeons and expect to train three quarters of all hand, and micro surgery Fellows this year.
Our third pillar is to grow the body of clinical evidence.
Recently, we announced the publication of the hundred peer reviewed paper featuring results from clinical studies involving our product portfolio.
An important milestone for axogens that reinforces our ongoing commitment to advancing clinical evidence in peripheral nerve repair.
Favorable results have been replicated across both sponsored and independent investigator initiated studies evaluating our technology.
With more than 10 years of comprehensive clinical evidence demonstrating positive outcome, we're seeing growing surgeon interest and acceptance of the accident portfolio of products.
We will continue to sponsor clinical research, where we believe we can make a meaningful difference.
In late April we provided an update on recon, our phase three pivotal study to support our BLE for advanced nerve graft.
This prospective randomized controlled double blinded study compares advanced nerve graft to synthetic conduits.
Specifically, we announced the completion of the blinded interim analysis and our plan to expand enrollment by 50 subjects to support the original power the study.
Over half of our study sites have now then re initiated and are actively recruiting study subjects and we're in the process of selecting and Onboarding up to five new centers.
We started the enrollment of additional subjects and continue to anticipate we will reach our goal of 220 subjects by the end of summer 2020.
Our Ranger registry has now enrolled more than 1800 advanced nerve graft repairs and continues to provide significant new evidence in the management of nerve injuries.
Data from the registry continues to demonstrate meaningful recovery treating a variety of nerve injuries and GAAP length.
The data demonstrates the ability to restore sensory and motor function and shows positive outcomes law, eliminating the donor site co morbidities associated with autograft.
Surgeons are using this clinical data to better understand nerve repair outcomes and to expand their treatment algorithms.
We also continue to enroll the match study, which is a contemporary cohort control within the Ranger study that provides reference controls for nerve autograft and synthetic conduit for participating registry centers. We expect data from this study will recruit will be presented later this year.
Additionally, we continue to enroll subjects and build clinical evidence and the sensation noted patient outcomes for women or sensation now clinical registry.
We believe the data from this registry will demonstrate that the recent station technique provides meaningful recovery of sensation and improved quality of life for women, who choose nerd innovation along with their flap reconstruction following of affected me.
In 2018, we initiated our repos clinical study.
Repos is a prospective randomized controlled study evaluating the use of axoguard nerve cap in the management of painful Nora as compared to a standard nephrectomy procedure.
Repos is a two phase study consisting of a 15 subject pilot and an 86 said subject pivotal phase we have completed enrollment of the pilot and we've initiated enrollment of the pivotal phase of the study.
Recently, we have also begun enrollment in our assist clinical study.
Assist its a cohort study that evaluates the use of sort of a vibe soft tissue membrane.
As compared to a non treatment control in non transected transected acute traumatic nerve injuries.
This study will enroll over the next several years and includes a one year follow up.
Our fourth pillar is sales execution.
We continue to grow and refine our commercial capabilities across our three core nerve repair applications.
We ended the quarter with a total of 100 direct sales representatives and increase of seven in the quarter and 28 over the last 12 months.
We ended the quarter with 19 independent agencies, we've converted certain independent territories to direct territories as well as adding new agencies, we expect to continue to add agencies in select geographies.
With an expanded sales footprint, we've been able to reduce territory size and we believe this will create efficiencies for our direct sales team, allowing them to drive deeper penetration in our current active accounts, while also adding new active accounts.
In the second quarter, our number of active accounts increased 20% to 762.
Up from 634 in the second quarter of 2018.
We define an active account as an account that it typically gone through the committee approval process has at least one surgeon who has converted a portion of his or her nerve repair algorithm to the axogens portfolio and has ordered the accident products at least six times in the last 12 months.
Our objective is to continue expanding the treatment algorithms of surgeons to include all of our surgical implant products across their full continuum of nerve repair.
This is important because accounts ordering at least three of our four nerve repair products generate more than six times. The revenue of an account ordering just one of these products.
Our fifth pillar of growth is the introduction of new products and expanded applications in nerve repair.
We are making investments in opportunities to innovate our product portfolio and to expand the application of our nerve repair products to address the many unmet needs in the surgical repair of peripheral nerves.
In November of last year, we announced several foundational initiatives planned for 2018 to help support a broader introduction into the surgical treatment of pain, a nerve repair application, we believe could expand our total addressable market.
As we've discussed one of the sources across pain following traumatic injuries or orthopedic procedures is the symptomatic neuroma.
Surgeons can surgically removed and aroma and repair the resulting nerve injury using our products.
As we explore this market opportunity, we see significant surgeon interest in treating this underserved patient population.
Before I turn the call over to Pete.
I want to reiterate that I am pleased with our progress as we continue to execute against our strategic initiatives and a large and developing market.
I'm confident we're building strong capabilities to drive long term sustainable growth.
Across an expanding set of nerve repair applications.
Now I'll turn the call over to Pete for a review of our financial highlights Pete.
Thanks, Karen.
Second quarter revenue grew 30% to $26.7 million revenue growth was primarily the result of increases in unit volume as well as the net impact of price increases and changes in product mix.
As in prior quarters, our revenue growth was largely driven by increased revenue in our active accounts and the addition of new active accounts. We added that sequential increase was 31 active accounts in the second quarter to now have 762, an increase of 20% over the prior year.
We also continue to see growth in our pipeline of new accounts as surgeons become more familiar with our products can begin to incorporate them into their treatment algorithms.
Gross profit for the second quarter was $22.5 million, a 29% increase compared to Q2 of 18 gross margin was 84.1% for the quarter compared to 84.9% in the prior year second quarter.
Total operating expense in the second quarter was $30.1 million up 35% over the prior year. The increase includes investments in our expanded commercial capabilities as well as higher investments in clinical R&D and general corporate expenses associated with our growth.
Operating expenses also include non cash stock compensation expense of $2.7 million in the second quarter compared to $2 million in Q2 of 18.
Sales and marketing expense in the second quarter was $18.5 million up 32% over the prior year.
As a percentage of revenue sales and marketing expenses for the quarter increased to 69% compared to 68% in the prior year.
Research and development spending in the second quarter was $4.3 million compared to $2.6 million in the prior year.
Our increased investment in R&D includes additional clinical and product development programs as well as expenditures supporting our view for our advanced nerve graft.
As a percentage of revenue R&D expense for Q2 was 16% compared to 13% in the prior year.
General and administrative expense in the second quarter was $7.4 million up 30% over the prior year. The increase includes higher compensation expenses, including higher noncash stock compensation and litigation and related costs as a percentage of revenue Gionee expense in the second quarter was 28%, which is consistent with the prior year second quarter.
Net loss for the quarter was $7 million or 18 cents per share compared to 7.4 million or 20 cents per share in the prior year.
Excluding the impact of non cash stock compensation as well as litigation and related charges adjusted net loss.
And net loss per share in Q2 was $3.7 million.10 per share compared to 3.2 million and nine cents per share in the prior year.
The adjusted EBITDA loss in the quarter, which also excludes the impact of stock compensation litigation and related charges was $4.1 million compared to an adjusted EBITDA loss of $2.6 million in the prior year.
On our balance sheet, we ended the quarter with a $109.1 million in cash cash equivalents and investments compared to $113.8 million at the end of the first quarter.
And now turning to guidance as Karen mentioned, we are updating our 2019 revenue guidance to be between 100 and sex and $110 million. We continue to expect gross margins will exceed 80% and Additionally, we expect to have at least a 115 direct sales reps by year end consistent with our prior comments.
In the second quarter, we continued to make significant investments to build a foundation for long term sustainable growth. We will continue to invest in our commercial team and broader capabilities, but we are pleased with the moderation spending growth that we saw in the quarter.
And with that wed like to hand, the call back over to Karen Thanks Pete.
Accident remains the leading company solely dedicated to improving quality of life for patients suffering from peripheral nerve damage.
We believe that we are building a foundation based in science and clinical outcomes that will allow us to address these important unmet clinical challenges.
We are confident that the underlying fundamentals driving our business are strong and we believe that the continued execution of our strategic initiatives will deliver long term sustainable growth.
As many of you know big part of the accident family lives and works in the Dayton, Ohio area.
While our employees and their families are safe, our prayers and deepest sympathies are with the El Paso and date and communities. During this challenging time.
I want to thank our investors for their ongoing support and the accident team for their commitment to our values and mission to revolutionize the science of nerve repair.
Before taking questions.
I'd like to end our prepared remarks by our prepared remarks by featuring a patient who's quality of life was improved by a nerve repair or using the accident algorithm.
John as a patient from here in Central Florida.
He is a fitness enthusiast and an engineering student who loves dogs.
One afternoon. He heard is done and distress in the backyard any random check on them. Unfortunately, he slipped and fell through his glass patio door badly and during his hand and arm.
The damage left in bleeding significantly and unable to feel or move his hands his hand, our fingers.
But he was able to call 911 using siri.
As he waited for CMS to arrive all John to think about was whether you'd ever be able to lift weights and have an active lifestyle again.
Dr neurons goop discover John has suffered severe lacerations and that both is median and all learners were transacted.
The median and all their nerves control motor function and sensation and the risks in hand.
His median or who is repaired using advanced nerve graft and his owner was repaired using axoguard nerve connector.
As I fast forward to today I'm proud to report that John has experienced a return of both sensation and motor function to his hand in arm.
He's completing as engineering degree and has returned to lifting weights and has active lifestyle.
We encourage you to visit our website to see more of John story.
At this point I'd like to open up the line for questions Diego.
Thank you.
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Our first question comes from Richard Newitter with Leerink partners. Please state your question.
Hi, Thanks for taking my questions.
Karen I was hoping maybe we could just start off with with guidance I I appreciate that.
The quarter came in towards the low end of your low end year range.
But maybe you could just tease out for us what exactly is being delayed by by productivity gains and what gives you kind of visibility into I guess that you know the future productivity.
Contemplation that you have in your guidance for the back half that this is the right range it feels like productivity and sales force.
Related issues.
Have kind of made a little bit it's challenging to forecast the business. So help us understand what's contemplated in your guidance in the back half maybe even between the third quarter in the fourth quarter.
What exactly led to delays and.
What gives you confidence that you have visibility.
You know into the into the back half and for the new full year target. Thanks.
Sure. Thanks rich.
So weve demonstrated that as you take these territories and make them smaller and more geographically dense. So we can generate both better productivity and high growth in those territories and that's what we're looking to replicate.
Across more metropolitan areas at the same time, we're taking some of the geographically diffuse cities and moving those to independent agencies. So there's some moving pieces in both geography and our percent of revenue too.
To make these changes happen, we see that as a strong footing and platform for continued long term growth.
The transition as we looked at our original guidance was that we would remain flat we see the productivity has remained relatively flat with our with our direct reps.
But and we've not seen the uptick that we expect to see.
That we would.
Originally hope to see in the in the full year, but we think it's a timing thing.
Because as we look back at territories that we've done. This previously we do see how they come up when you get that good concentration.
Allowing the reps to focus on it and not just from a practical matter as you can see how that would happen in that it reduces driving time for the rep, they're not driving out to cover a trauma case that might be five or six hours from their house instead, they're focusing on the territory around the high value accounts that are close to their home, where they can spend more time and having better touch points with their surgeons. So that we don't lose surgeons during their wait period, and we continue and can continue to drive penetration in those accounts.
Okay, and then just to be clear, what what exactly what rep productivity assumptions are embedded in the back half and can you maybe give us a sense as to when in the year. You think we should expect for modeling purposes, you know between Threeq and Fourq you to start.
Seeing that bottom and then maybe start to improve.
Help us help us think about the cadence between Threeq and Fourq. Thank you.
Yeah rich so the way we think about it is as we look at where we came through the first half was sales rep productivity at the low end of the range of our original guidance.
We looked at this and said what is what is the current run rate or the top end of the range and we set some additional conservativeness around a range of outcomes.
That could be below that for you or for whatever reason, we add some pullback in productivity as we continue to move some things around.
So we've set the current run rate at the top end of the range and I think thats give us and I hope investors confidence that.
We've got a range that makes sense for us right now.
And that.
That should define our where we go through the back half of the year.
When it comes to the Q3 Q4 split again I think if you look at where we ended the second quarter and apply.
Historical seasonal patterns.
That's the way we've looked at it.
And I think that would be.
Right way to go as we think about the rest of the year.
Okay, and then if I.
Yeah, and I guess in the so what we're saying is that the current run rates at the top end range, if we see that pickup.
Towards the back is the range that puts us in a.
A better position.
Right and maybe just if I could one more.
As we as we take a step back.
I just think about what the.
Normalized.
Projected growth rate of the company is.
You know you're now in that call it 26% to 30% range.
Got it.
For for 2019.
When when you come out on the other side of the productivity curve presumably.
Assuming it all goes to plan.
How do you view the longer term growth profile of the company are you now at 25 plus percent growth company has anything changed in the end markets are there.
Or the size of the market. Thank you.
Yes, no nothing has changed in the fundamentals of the market Nothing's changed.
The size of the market the way we look at it.
This for US we continue to see ourselves as a premium growth companies.
Like Karen mentioned earlier, we've grown our sales reps by over 40% over the last year.
We're splitting territories were adding clinical sales specialist we're creating.
Much better footprint, especially across the larger metropolitan areas and I think we're doing the things are going to allow us to continue to be a premium growth company going forward, but from where we're sitting right. Now I think this updated range is appropriate based on where we are coming through the first half of the year and we'll see how things develop in the back half.
Thanks.
Our next question comes from Raj Denhoy with Jefferies. Please state your question.
Hi, Karen.
I guess, maybe following up on that last line of question is you know I'm curious why you think the productivity is perhaps taking longer to ramp with these new sales reps relative to your original expectations is there anything different in the market I think from a competitive standpoint. There are just really what's what's kind of slowing that progress for these new hires.
Yes. So first there is nothing that we see that any difference in the play from a competitive standpoint, there is no new entrants there's no change in competitive.
Levels of all right.
Market attention.
And as the market is growing and it's that growth is really coming from the things that we x. engine are doing to build the nerve repair market. So so no market dynamics other than the ones, we create which are that we are bringing awareness in our repair and and helping to teach surgeons.
An algorithm or repair that we think we will yield optimum results for patients.
In terms of the productivity.
I think it is.
We are coming in at the lower end of our range. Its not an unexpected range were coming in at the lower end of the range, we're not seeing the pop up that we could see at a higher end.
So we've always talked about how there is a productivity range for reps come.
Kind of come in between the nine to 12 months and we're just seeing things run on the longer end and so we felt it was prudent just to reflect that.
That's fair and I suppose you are part of this dynamic can you kind of.
Kind of prepared us for the city, you're adding a lot of new or junior reps that I guess I'm curious what's happening at the other end right. So reps that have been tenure down for a period of time it or what are you seeing in terms of productivity of those folks are or is there any maybe just trying to figure out and get a gauge for where productivity could go overtime. I mean is it still is it still improving even with some of the more tenured folks or what are you seeing broadly.
Yes so.
We're still seeing the same dynamics in the marketplace with the more tenured reps, we have like we've talked about before as territories get to $2 million, we will split those territories, sometimes we'll split them two for one sometimes will flow from three or four to one depending on where they are at and we have many reps who are crossing that level. In fact, we've got some that go above it.
And it's okay to keep them above it for a little while based on their specific territory. So there's there's nothing here fundamentally about the business or the ability of these reps to continue to drive growth.
I think as Karen mentioned this is really about this this this broader.
Better organization, beginning to mature tenants in its current setting and we continue to be optimistic about where this will where this could develop.
And just to add I think weve run.
Some of these scenarios, where we've really looked at.
What we think the micro potential of the territories are and when we've added.
This this more concentrated.
On territory, we see very solid results and that's what we're looking to replicate across the country. So this is something that weve demonstrated and now we're looking to expand to that that demonstrated approach and more geography.
Nope, that's great and then just quickly Pete you mentioned a price you took a little price in the quarter.
Yeah can you give us more around what that was and what that contributed.
Yes, we continue we expected a mid single digit net price increase and Thats what were continuing to see.
Okay, great. Thank you.
Yep.
Our next question comes from Ryan Zimmerman with BTG. Please state your question.
All right. Thanks for taking the questions just to continue to follow up Karen you know you're talking about this territory realignment and going deeper in the territories.
Where are you in that transition.
Process so.
Are we on the front end of that.
What's the timeframe for that transition and then I have a follow up as well. Thank you.
So we see this as an evolution not a for evolution and changing the market. So.
We've said, we'll have at least 115 direct reps.
That is it will be spread over Q3 and Q4, we're not we're not trying to punch them all at one time.
So it and Weve that will be reflected just like we've done in the earlier part of the year, where we did some reps and Q1 and some reps in Q2, so you'll see a continued change.
As we continue to increase our sales team.
Right Okay.
And then you know just to follow a similar line of questioning but.
As new accounts come online.
Maybe you can characterize them or talk about them. You know are you seeing similar levels of productivity in those new accounts.
Or are they more marginal users and.
Maybe just characterize kind of where you were previously with accounts as they came online say 612 months ago to to maybe what you're seeing now in the accounts and if there's any difference between between those groups.
So when an account start it usually is very small one surgeon using one product in one portion of his or her treatment algorithm and as we've talked about.
We really see the momentum when they start to adopt the broader range of our algorithm. So its more than six times, our revenue and account using three of our implants versus one right. So it's not a one to one relationship. It really is a broader adoption of the algorithm.
And if I look at those accounts that are have three or more products today the growth rate and the revenue generation isn't it it's it's higher and faster than it was historically, so we see that as positive but at least that doesn't mean that it happens all at once it's we still go through these stages of.
Adopting the first product in fact, the surgeon Trialing the first product waiting to see outcomes from that first product in adopting that first project and then starting to expand in the second and third product as they expand the applications that they approach in nerve repair and that is still in my experience nerve repair is a slower adoption period.
Slower adoption path than many other surgical areas because the time to get outcomes is much longer and nerve repair that would be for a fracture for example, and a and so that part we don't see changing but once we get into it we don't see also a degradation.
Of that adoption, we don't have a marginalization of the potential of the accounts that we're moving into.
Okay. It's very helpful. I'll hop back in queue. Thank you.
Our next question comes from Craig Bijou with Cantor Fitzgerald. Please state your question.
Hi, good afternoon. Thanks, Thanks for taking the questions. Karen maybe you know I guess I've, a couple of follow ups or clarifications.
Karen you talked about some of the moving pieces and you know the territory splits so I guess I want to get a sense for.
Are those were those changes that maybe weren't contemplated earlier in the year I know you have given the guidance or you have given the guidance about adding reps.
So we knew this was coming but I guess, maybe with some of the Salesforce leadership changes. We are there any things that happened in Q2 or maybe additional splits that werent contemplated say at the at the start of the year.
Our attrition rate has not changed with the addition of the sales leadership and in fact, I think the sales team has rallied well now behind our new sales VP.
And we continue to execute on the plan that we've had in place. So so no we have not seen that as I've said before we do.
Our focused performance management approach and we would expect to see 10% to 15% attrition than a year and we're tracking in that range.
Okay, and then maybe another one on the rep productivity and I just want to make sure that I'm clear because.
I believe that the most of the growth. This year was going to come from the reps that were more more mature.
And I know that.
The delayed productivity growth I guess I'm just trying to understand.
Was that productivity slowdown more focused in.
Reps that have been there over a year.
It was it you didn't see the impact or any impact from some of the newer reps.
I know you've gotten a couple of questions on it but I'm just.
Maybe a little bit more of a clarification on exactly where that delay like what group that delay came from.
So we see it.
I would say the.
The original assumptions were that the growth would be from the 85 reps that we had at the end of the year with modest contributions from the new reps that we've hired and as we've talked about before.
New reps as they come on in the first year, we've assumed a very <unk>.
A modest growth for all the reasons I talked about in terms of the conversion process of surgeons and so if I look at the RUPS overtime I would say that our more tenured reps have actually grown a little better.
Than we expected the reps that are sort of the one year to two year have grown a little worse than we expected and the reps that have been our recent hires have done actually on a percentage basis, a little better, but it's still very small numbers because they do contribute a very modest approach. So I would say, it's a mixed bag its not something that I think is a substantial trend.
Got it and just.
Go ahead.
Yes, I think that some of this is it's not so much rat specific as it is just the geographies that were putting folks and then and giving them a chance to get thrown in there get introduced to get go on and get up to speed.
It's I think we've got a great team I think we've added tremendous.
Training for our folks I think the way, we're putting the sales reps through training and updating that training on a regular basis I think has gone extremely well.
And I think the team is positioned.
Very well. This this really is in our view.
Moving along well.
Just at the lower end of the range at this point and well, we'll continue to see how things develop in the second half and just a reminder, and when I talked about the 85 reps. So we ended 2018 with 25 of those were hired and 2018 with some some of them certainly in fourth quarter. In fact nine of them were in fourth quarter. So those folks are still coming up the productivity curve as well as the people that we're hiring this year and that's the balance that we're trying to look at is continuing to maximize the productivity of the people that we had in place last year. It as well so again, the new hires were doing now.
Great. Thanks for taking the questions.
[noise].
Thank you. Our next question comes from Josh Lamers with William Blair. Please state your question.
Hi, Yeah. Good afternoon. This is actually Andrew Bragman on for Brian Weinstein, maybe just piggybacking off of the previous line of questioning there as it relates to the new leader sort of brought into the sales organization can you talk maybe a little bit more about the specific changes they brought to the to the commercial team and how is that being received by the by the reps in the field. Thanks.
Yes, I think Chris and supported also by Eric have done a really good job of first coming up to speed on the execution of the strategy that we have in place. The fundamental strategy has not changed but I think they've done some very good fundamentals that have helped to reinforce.
The plan that were on for example, one of the things that I think the team has done a great job is really laying out and standardizing what is our hiring criteria for new sales associates as we continue to expand the sales team obviously with the growth. We have this year that was a really important.
Criteria that we get in place and they did a nice job of benchmarking what are the best of what Weve hired where have we seen the best growth and development to try and set these people that we're hiring up.
Right that we're hiring now for the best possible growth really again impacting 2021 or excuse me 2020 next year, but we think we're bringing on a very strong a class of people who will have the best potential for success. So they've done a nice job of standardizing there.
They've also put in a I think the best training program that we've ever had both for our management and our sales associates in both the way we're delivering it in a messaging that we're delivering to educate.
The the people that were bringing on board.
To again try and maximize the the opportunity for them to ramp up quickly and so they put a good emphasis on those two things that I think set us up for the long term with with strength.
Okay. Thanks, and then just one point of clarification I want to go back I think there's something that you said around sort of the.
The the Salesforce sort of territory splits throughout the year was that contemplated as you enter 2019 or is this a new strategy that's being put in the place. Thanks No. Yeah. That's we've actually done this for a number of years as we've grown we have been splitting our territories and such that when we are in the range of $2 million, we will split the territory.
We set up we set up a a compensation plan that rewards and recognizes grows.
And as a territory gets larger it is off and harder to get the growth dollars out of it. So it ends up being a good win win and that the rep will make more money with a smaller base.
And and the company I've also wins, because we go back to a good growth rate and leasing this over and over again that as we split the territories. They continue to then boost up within a better growth rate as the reps are able to focus their time and attention and that was part of the thinking that allowed us to then again pilot and several geographies. The focus on these smaller more directed territories.
And has also had US then move to some of the changes that we've done in our independent agencies, where we have taken geographically.
Diffuse areas Oh, just Fresno, California is a good example of the trauma centers good area for it to have some focus because geographically removed from other areas and we don't want a rep driving out there.
And moving that to an independent so while our independent the revenue that is from independent has gone down from 20%.
Down to 13%, we've actually increased our number of agencies with this idea that will help us improve our overall efficiency.
Thank you.
Our next question comes from Kyle Rose with Canaccord. Please state your question.
Great. Thank you very much for taking the question.
I've just got just got one and when you talked about.
Expanding the sales force you also talked about investments in specialty reps just wondering if you could talk about.
I guess, how many reps you you've actually specialize towards some of the smaller markets or at least the smaller more growing markets on that in breast in particular, and then just kind of how those markets are tracking relative to your expectations and how we should think about them.
As a contribution to the overall growth. Thank you.
Sure.
Well again, just as a grounding our largest opportunity and our biggest dollar area is in the traffic injuries and and so that's that's the foundation of what we have as a business, but we recognize a number of years ago. Then there was the opportunity and the oral and maxillofacial segment. So these are either.
Mandible reconstruction or antigenic injuries, and dental procedures that damage the nerves.
And then also in breast reconstruction or acquisition and so we've put in place to specialty teams focusing in on this they work in conjunction with the area manager.
So that the territory manager.
The specialty team for RMF is as six people across the country.
Excuse me eight people across the country.
And then in the breast team refocused on selected centers.
About 30 centers that really specialize again in breast mineralization and we have six specialists to support those 30 centers. In addition, again to the area manager and those are included in our Rep count.
Great. Thank you very much.
Thank you there are no further questions at this time I will turn it back to Karen Zaderej for closing remarks. Thank you.
Thank you Diego well I want to thank everyone for joining us on today's call and we look forward to seeing many of you at the Canaccord Conference. This week and at the Morgan Stanley and Tanner conferences in the coming months.
Additionally, we'd like to announce we will be conducting our analyst and Investor Day in New York City on November 25th.
More detail about this and that will be made available in the accident website in the coming months. Thank you.
Thank you. This concludes today's conference all parties may disconnect have a great day.