CFMS - Earnings call transcript Q1 2019

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Operator

Good afternoon. My name is Sarah. I will be your conference operator today. At this time, I would like to welcome everyone to Conformis First Quarter 2019 Earnings Conference Call. [Operator Instructions] Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities law, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. this be are statements. considered in historical statements contained should facts to statements call not that of Any be forward-looking forward-looking mix and limitation operations, without guidance, market margin, statements Conformis' revenue financial and All future and geography. total strategy, revenue operating statements trends, future products gross results, about positions growth, margin, by product financial include commercial our using The anticipated transitions operations advantages the of customized potential estimates assumptions. business offering, based and in timing of are our hip limited current upon impact product launch and implants, of initiatives various and involve public These discussed by those cause differ with Exchange and filings these events risks from statements results materially Conformis' including statements, in material the could Securities the and uncertainties to implied forward-looking Commission. actual Risk that those Factors or anticipated of or section Accordingly, undue not on statements. forward-looking place the you should reliance

accurate revise This is time-sensitive forward-looking While turn at to I any now except Conformis call company's the as to statements conference contains required Mark Conformis information, forward-looking future of some events new point or financial update elect law, disclaims to the future, statements of whether President today, obligation, any may to by as because projections X, and Augusti, information over call these Officer. would like live and Chief and in XXXX. Executive the otherwise. May the or broadcast only Mark? update

Mark Augusti

With me call and to XXXX the everyone, Conformis' conference Sarah, on welcome, call. you, is quarter Paul Thank our first today Weiner. CFO, earnings

operating including remarks a and call, variety Paul prepared of the topics, and first financial I our on will our share quarter During performance.

perspective, the had questions. I consecutive XX% look for U.S. a the From remarks, nice Paul a to forward the in and answering prepared quarter. growth second delivering performance your we commercial Following

improvement international as in QX realized however, margin. to margin gross decelerated continues decline. we business, XX% our gross Operationally, Our

challenges onetime charge XXX of sequential limited the impact QX due hip in decline printer XD to SLS three off sequential commercial supplier. over it impacts quarter-to-quarter basis compared anticipated Operational an improvement to While these our maintenance prior from services, issues. primarily margin production. of in gross our and phase the of points outsourcing year, was planning QX as that this CAD role was readiness the improvement final was a We

these announced and that by significant I'm and opportunistic in opportunities, to development report administrative higher-growth XX, efficiencies, December As over on sales, product actions expansion that in year. with optimize reduction a quarter $X.X new or in on create we million marketing sharper achieve pleased continue personnel fourth actions segments prior focused to last QX intended took expense to more of to were year streamline expense focus resulted organization. operational product international a prioritizing XX%

in versus million Importantly, overall $X during the the cash this released our million quarter prior $X.X year. to outflow

over the Let for to more Paul? Paul performance. review me turn detailed now a our financial call of

Paul Weiner

Mark, you reported all us. you, $X on or representing thank an million, of first year-over-year basis. million X% and quarter We revenue Thank $XX.X reported a of increase for joining

X% increased in to related Excluding $XXX,XXX, exchange of Revenue patent the quarter rates and currency in the agreement. of a includes foreign revenue XXXX license first of respectively, revenue and $XXX,XXX, a on negative currency changes royalty impact constant $XXX,XXX of basis. XXXX

for XX% product Sales iTotal currency quarter basis of the increased million constant million, X% $XX.X represented the reported to product iUni iTotal approximately $X.X XXXX year. representing PS CR, on $X.X currency X% iTotal Sales basis. PS of First iDuo a on $XX.X to X% declined of revenue approximately and total year-over-year of XX% compared million a first last and reported and quarter reported a currency basis. revenue million or was X% year-over-year XX% and $X.X million basis or a the to or on basis. constant same on increase $XXX,XXX quarter in year-over-year constant of on an a

the year-over-year. third driven increased product quarter launch by revenue offset PS, million of XXXX, to U.S. decrease sales first increased beginning $X.X Conformis year-over-year was a which XX% hip U.S. in limited the quarter $XX.X revenue of or iTotal in product product With sales business by year-over-year, of our sales base in million $XXX,XXX the XXXX. were X% of XX% approximately lines. the

quarter quarter was last products represented a reported was in Germany. constant-currency a affected on total basis. of of XX% by product primarily decrease of to World basis the for revenue XX% revenue of product revenue World year. $X.X or year-over-year First and U.S. million, compared XX% a Rest reimbursement on Rest $XXX,XXX revenue XX% same product challenges

results the across Turning to of our review the P&L. rest of a

gross revenue last to XX% improvement quarter a cost revenue compared point gross margin was manufacturing XX% reductions First XXX a basis vertical efficiencies. integration increase. of was and of by as year, of margin driven result The

February, in India a We our on gross in XXXX. to our gave margin that at are we for expectations During of we final the reduced cost. stages design stated the earnings team manufacturing direction call much offshoring year-end software

costs to XXXX We relatively half in we we gross the fourth of are which our to margin indicated that resolved. quarter believe, the first to expanding this encouraged also gross of we return margin through now stated and Due flat second expect half year. our to the we remain that them during of short-term manufacturing XXXX, this, transition, the

cost or in driven margin expenses to patent part XXX of related points burn due in All addition, sales of administrative and in we reduce reduction the reduction marketing to a as agents expense. in XXXX a primarily to decrease product litigation a in development This marketing maintenance and in Personnel a at of first the completion approximately programs. had was of reduced number to year-over-year. sales of managers, and $XXX,XXX certain projects in cost. quarter of Total end the announced result research decreased basis plan a expenses number software operating in programs, of XD costs certain mainly XX% to and or and reductions by was charge printer million reps XXXX. of gross reduced Personnel XXXX independent In was XXXX. direct cash also as marketing million personnel costs, $XX.X beginning the $X.X of conversion expenses development

were to XX, litigation XXXX. the in million reduced the excluding litigation loss for $X.XX $X expense period share of per million basic currency the assume of XXXX last million income share in We $X.XX to December $XX $X to exchange settlement in quarter million expense last to million same foreign $XX.X compared the million March patent net last had per $XXX,XXX for patent first Smith compared approximately our million or included was each quarter was settlement. or cash patent reducing equivalents average basic for overall of shares to XX.X loss due loss We of and with compared year. successful million $XX.X year. in currency period and last million same financing first cash weighted foreign versus during infringement as Net XX, Net XX.X to totaling the to of outflow the year. of as XXXX quarter period compared quarters year's and cash exchange $X.X investments Additionally, year, same per the Nephew. & last million the outstanding $X.X calculations of loss of the $XX share Net

to over target the the growth date, second call in range. X% continue XXXX X% first growth the to about expect this for back revenue orders year-over-year growth year-over-year did We X% X% let product exceed that on in the revenue We to product quarter. With target product the Based and revenue rate reminder me year-over-year Mark. to received quarter growth the year. in of turn we

Mark Augusti

Thank you, Paul.

to growth OUS of top pressure partly a U.S. and a the slower cementless CR in As segment due light we Paul continued just performance mentioned, iTotal expect growth. of demand, QX line slowdown

growth product confident pipeline However, XXXX. provide should in above-market we remain opportunity for new that our

journal patients. within of Orthopaedics was variability funded invest degree analysis continue and of TKA? study Clinical to Research. research supports and of femoral in on peer-reviewed prestigious patients. which possible distal CORR, which both study variability high at Related in of are the in is data anatomy We distal publication, The pleased XX,XXX CT geometry report significant of for A systems Conformis population looked the customized to and that offsets knees of XX,XXX high of what of impact This knee implant the adoption over study anatomic femoral results quantified the number posterior by this the a clinical

"Our of demonstrate results general of author, the stated, As among the out the of Stuttgart, Professor variability wide knee Sportklinik the lead population. Germany anatomy Johannes Stuttgart Beckmann

anatomies. X/X you forward tuned. for be come standard sizes face answering link can challenges disparate we so questions is One have we efforts, may OTS That’s and coming results very fixed to clinical comparing have expect knee data into be in our implants as full out of our which much. website. patients and on in Thank least even off-the-shelf of The greater study PSI's to to fit you Importantly, reviewed. and geometries would make the in study its patient all publications shows I any that to Paul of about able quarters, clearly that found surgeons X implants, results. stay A than size to a typically do the at that variability." more not this QX now. look match of with occur the I offerings, the In the Conformis’ the of report millimeters implants OTS with match determined biggest comments

Operator

question line of with Thank JPMorgan. Our from comes first you. Instructions] the Marcus [Operator Robbie

Allen Gong

what, then do like, follow-up for starting to number? with year, one that around guessing balance XQ, Allen Hey, year quick just XQ? currency. guys. for actually have Or for I mean you I’m that is of This then that that’s of the But said a Robbie. guidance X% the your of X% after. But just full is you the kind and X% question for will guidance maybe for constant XQ, be on that X%

Paul Weiner

A bit both. little of

third X%. fourth year to about So talking yes, we’re the quarter X% at at for as coming around as full continue and target well it

Allen Gong

a a limited kind meaningful think impact been trying competitors kind of do kind dynamics. own of to launching the has air that you’re Thank of systems? of robotics What impact And their the value rollout. out system business there like a on you. granted will now think sucking then it. just obviously, Zimmer Got for you room. that about have is on market bring? question And two the of have trying push all in are to now your Like, Like, kind kind proposition robotic that you do of robotic

Mark Augusti

for looking This the I and a I continue and I’ve outcomes. believe, you because questions. discussion market always is better great enjoyed past to that’s Mark. been long in Look, talking a been it robotics the says, that’s we’ve are Allen, for fielding Yes, time, in stated actually

getting things You’re thinking types potentially. you’re we well marketing, Conformis. suited And do And particular, are the all setting. of those and your about at how practice, improvement outpatient for the we ASC in that in of

So clearly. there’s a have of things. I think We quantified good specifically lot it don’t

there’s situated players we’re to sales think market And this able move that’s I combine probably for to dealing we’ll really handle that and force feel attention a that and with own think my important. among drive our when in have while, the may it. it. some to come bigger cementless think, of your experimentation, I couple is towards opportunity customers. a there’s you product I been why be well but where We’ll robotics appreciation the cases our But I to cementless, has for general, handle confident price

that Okay, did it? follow-up? Is any have you

Allen Gong

follow-up. was That

Mark Augusti

Thanks, Allen.

operator for ready Okay, question. are next the we

Operator

you. Thank

question Co. next with & the from Oppenheimer comes Our of Steven Lichtman line

Mark Augusti

Steve?

Unidentified Analyst

Steve. hear you It’s for guys [indiscernible] Can me? in filling

Mark Augusti

Yes.

Unidentified Analyst

Okay. Hi, thanks taking for questions.

latest more, outside was, guys your question through expansion, a you geographic if potentially can you touch So Germany, on terms first bit thoughts can walk of my in of that?

Mark Augusti

Yes.

do in pursue to and procedures continue Australia that. We

recently – expanded We have done in Europe.

kind of we Italy. UAE as pleased Netherlands Spain report as did well in that as in the cases to cases did week well this and first we in cases So I’m as

and opened reports, up by they went with well. distribution both those So we’ve markets our

even because goal decline, So it’s it’s in to it will smaller OUS continues that. slower important to incremental and decline it But business get hopefully it up opening context. the important offset markets – by rate Germany, is business, granted as going specifically at in a other to help to put an

strategy. part So appreciate the [indiscernible] it’s our important of an question. I

Unidentified Analyst

Street in how And expect grow sales fee I earlier, provide Great. of, to on think it your terms do in just one rep a you but a that. more the And little just if touched more on guys U.S. you guys bit on could question color XXXX? you

Mark Augusti

Yes.

And we – we proxy in report that’s agents. that grow our grow equity to to in specific number to see plan to goal. a because was distributors pleased it forth hope activity our we that available targeting report two. definitely that I we XX%, So to are can proposal make to proposal pleased put and that believe plan that passed. had we increased And

look to for going more hear So that forward.

We’re And if the we��ve going is but been is said I you the past, a recall, that do plan, company. one-product in because judiciously, that use it to that. on to challenged we’ve been

great in U.S. will launch we’re quality of the that hip, able having we’re to limited but We So our quarters. our with to upcoming having now to offer we over results the like knee. continuing but some ability in by participation, still the we to demonstrate equity hip, the would distribution think think add

Unidentified Analyst

Great. Thank all. That’s you. it. appreciate I

Mark Augusti

next appreciate question? it. I you. No. Thank Sarah,

Operator

Thank you.

Marcus. question Our Robbie the comes of next line from

now is open. line Your

Mark Augusti

or Whether Bruce? open? is Robbie it’s Who

Operator

the comes of Bruce question line Nudell Humphrey]. [SunTrust Robinson next from Our

Your line is now open.

Stan Fediuk

the Bruce for my Nudell. of taking you Stan Thank question. This on is Fediuk line

Just in expense, looking just how the forward should on line it than think it we year? Can your going lower R&D for the at item we of came rest you comment about that expected. and

Mark Augusti

Yes.

a in when way, and as of we other work lower too. bringing we’re in as come had did and thank the It’s along than little far consultants the that more expected for timing of prototyping. some So

the expect first we numbers targeted stay we on is earlier. timing So more for had still of provided do This quarter. the that

Stan Fediuk

for, physician believe say it. a it capability? was when for And just an from order or in of weeks. out same? deliver that time time just when the the is I curiosity, it a U.S. to let’s places what that hip knee delivery the Got still OUS, and they So six current previously Is

Mark Augusti

Yes.

the an additional week order the weeks For internationally. the five with ordering and PS, in surgeon weeks six And is extra an United iTotal States it’s internationally. the – week, partial, in the six iTotal for an a the it’s CR knee, weeks or U.S.,

eight the weeks, For the the it’s in only U.S. hip, hip sell and we

Stan Fediuk

you Okay, Thank great. for questions. taking

Operator

Our of Cowen. the line next comes question from with Jennings Josh

open. now is line Your

Unidentified Analyst

for Josh. Gap] [Audio

feedback, surgeons what’s first customers? on off-the-shelf your So launch to with iHip the curious be price And one, based at that’s point AAOS? premium receptive that ahead if feedback if had been curious of a self-launch upcoming implants? you And believe, with will full the a early to still

Mark Augusti

you’re premium. the price it question. didn’t sounds the first I get part sorry, I’m of about But like asking

contract actually So be we maybe don’t target comment the that single-digit, it’s of contract get it. we prices. been And bit premium, specifically more But a on a price. and pretty at if our clear, low the pleased But to ability premium. of, in we’ve double-digit, to we do get kind

implants clinical think to a offering, and better solution really early say pleased we physicians. as we offering in we’re hit think I pricing the limited not don’t. it’s experience and like places, for Some there release, Xx are our case. price actually mean, you variable. that who because We kind know people able being is just three, standard target days that’s we’re two, still acceptable I of but an and are operative

Unidentified Analyst

near you term? expect on of the or Got impact do second an question, your upcoming line clinical sets of, us achieved, expect the publications kind any data can remarks you will it. publication. positive also in be made CORR How meaningful And reaccelerating data that some top of and you important remind you

Mark Augusti

I Yes. can bit. a little

reinforce latest errors knees, first of and the performance literature the think, quality to there you at we of have. And of, the I if it’s is look think thinking that continue quality data So in important I translates and to our mismatches patient some millimeters to and or just stability in a underhanging functional are dissatisfaction or daily particular, number activities. in this of deficits either studies do that realization, overhanging is of greater in in & X rotational and there

really we’re quarter, stuff going so and I got in talk one quarter. that try become to come that don’t They’re I talk published. funded has about that’s going that. actually got more we our that. to the But these and mean, that another think out, around own show And studies we’ve about we’ve I important to we got have and we’ve because this, because next

have these the the Conformis in that the are industry clinicians do also anatomical showing and We seen to mismatches. research Unrelated industry.

So paper continue important think we this. We it’s this starts we advocate sense. demonstrate it, well. if make to it’s you can just to think it’s where to important And to do read really of sort

match I their and And will so from the targeting, practice from we’ll continue can to we use the standpoint for that a better advocate patients that better in what can therapy. Conformis to the think be responders clinical be and help better physicians’ as

Unidentified Analyst

you. Thank Great.

Operator

Thank question-and-answer program. and you Instructions] for [Operator today’s does conference. concludes Ladies conclude And thank This you. participating you. Thank gentlemen, in this today’s session. today’s

all have great may You a Everyone, disconnect. day.

Conformis (CFMS) 1 May 192019 Q1 Earnings call transcript