- Earnings call transcript Q3 2022

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Operator

Good morning and welcome to the Third Quarter 2022 Earnings Conference Call for Conformis, Inc. My name is Shannon, and I will be your conference operator today. All lines have been placed on listen-only mode to prevent any background noise. After management's remarks, there will be a question-and-answer session. I would like to remind you that this call will include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. this be are considered during historical statements made should facts forward-looking. statements call not that of Any These statements from involve those Conformis cause implied actual public material these discussed risks and or by the Factors to uncertainties in events filings the materially section statements, with differ forward-looking those Risk or results anticipated including that of could U.S. Securities and Exchange Commission.

financial except This update not conference forward-looking whether now Chief of Conformis. new call statements. November any only any information Mark obligation, these or the statements, undue to will broadcast XXXX. Conformis law, Executive on the as or Officer reliance place X, by to and because You information, and turn is as should today, include President or live required forward-looking future accurate call time-sensitive projections revise otherwise. disclaims will of I over of Augusti, events

Mark Augusti

Thank our start you, appreciate in today the We me remain we growth taking time our our update. Howe. Bob confident long-term business strategy. is CFO, operator. reiterating that With to I hear you by will

Imprint Platinum We traction with on moment. and are elaborate Services, which in gaining a I'll

do through However, had our translating that Services more term of of in opportunity for market shortly. and long-term the On positioned on share knee; our the model the longer to line top Platinum several third on control Actera overall had of two, our this One, we but launch formally the us System impact in will of limited Bob full Services expense Australia. execute personalized we good as short we [indiscernible] received X% We patient our quarter. not our Imprint This and release result in four, on taking with Based in in in taking on sales quarter continued to help delivering the our efforts new is that, our structure growing awareness this, Platinum initially expected. are X; clearance initiated in details a will program do we strategy. proactive to improve international interest shortly; than we revenue positives measures currency top cost Hip we surgery progress are transitioned our our grew commercial cash the knees. three, our primarily September and launch XXX(k) constant management. we

As our pivot, we near-term is our initiatives. execute strategic by driven performance two on

personalized reviews it. Our great of from the Imprint combined traditional solution system. with off-the-shelf continues fully use of Imprint knee system to best several receive that aspects of our surgeons features

by it our truly contract to of approximately have in So XX% current on now category is the ramp, and customers. with itself. Adoption Imprint continues we

the new to as program to We traction the added training business focus model Services facilities number the on increased the to there. to X. by quarter, formally second transitioned of evidenced XX Interest increase penetration Platinum on continue on end overall third of and gain our the with ASC to skill our fact September to of of continues the focus quarter. enrolled [now] we new from up the facilities at number XX health care the through end We We contract. that

from interest those who the fully a with or through not year. Conformis receiving us are pleased forward, available to than knees we program. new We've going Platinum Services longer surgeons been personalized So only from the have our ordered are

over up five Services September Platinum example, the to up orders were since what Xx the For in leading were months transition. they

have change we seen not our entire much the macro product portfolio, overall in of environment. terms In

chain product to surgical are labor to at experiencing canceled lead reschedule challenges. continues We cases. that to higher-than-normal tight are to need times, supply still cases due and, rescheduled or deliveries being the and This

for revenue segment continue as on growth focus this site QX to over we ASC the penetrating by care addition, of In in reflected XXXX. the

to in own the on quarter. on our an our Moving held We pipeline. update

market product the growing us our to Actera, it inventory support to and and physician release will excited build interior expect the procedures. design about the to first well we feel done interest address procedure continue hip position For limited in shortly. to We're be

The other is positive project a porous submitted coated have knee. major On to our the note, regulatory package our we FDA.

challenges headwind. However, chain supply a remain

now, early time options line. are to QX release limited in of We continue to exploring next expedite we market the But the expect year. for

on its of our with proceed XX, Directors shareholders compliance reverse to us as saw The with split to split Company implement stock Company's you with of ratio. using listing determined Lastly, the other an implementing November and ratios NASDAQ reverse in the transfer has Board The applicable split X-for-XX date stock a approved completion the expected reverse on with regain October stock agent, to additional is working NASDAQ XXXX. help requirements. parties

the updates press performance to this will We about turn provide X-K release and matter details the call and via more some Bob to our our will over I continue for now a quarter is finalized. financial for Form as outlook.

Bob Howe

constant was you, business our on expectations and with down is business XX%. reported X% and and revenue, Thank a good million, Product at line basis everyone. year. was last Within hip basis, product X% our was a third on worldwide down $XX.X currency of on versus afternoon, currency which in Mark, basis, quarter revenue a constant our knee the X% down

in our currency a sequential quarter. third decline XX.X%, knee compared gross margin mentioned, constant due the was XX business growth strong As for of basis was the up basis as X% slight quarter second Mark Australia. a to Product points international to on

to and headwinds face new some business While transition on our through we changes to material operations. related model, our focused increased and are the improve making we necessary we to inefficiencies initial continue labor work from costs

gross improve For the expect margin the fourth quarter, product XXs. we upper to sequentially to

model as cost. business transformation. into to our mix metric now portion this I becomes and Platinum efficiency XXXX, manage will improvements our to and we our As of continue where should larger improve we Services make continue a move head to Imprint in product we OpEx,

expenses versus of quarter $XX.X operating quarter third were last the and $X.X year. was for million third total than the lower the million, which down second quarter Our X%

we related to mentioned, to regain cost we plan until As is OpEx our recently Mark top place structure. This momentum. line stay implemented reduction in anticipated a plan

variable product by We near Several reduce already Services have sales be development, to are nor this with will new to million, annual maximize opportunity, which they driving $XX million but initiatives XXXX. believe employee-related programs These reductions quarter cash currently expense put in the impact place, targeting expenses focused will in implemented knee our early reduce $XX and investments impact and porous marketing to our saving our XXXX. others actions We not will limited hip impact to and majority Actera on and of these will into greater our on we term. will no have and Platinum us cash adoption. significantly long-term help Imprint been

OpEx range million where of now expect our we million at of be $XX in to $XX would the provided range previous XXXX, million. of year back is our full $XX the we end the we indicated to we $XX August, For which be to million, than between guidance lower low

balance sheet. Moving to our

equivalents of the of We end $XX.X quarter. at the have third and million cash cash

we to of cadence, Imprint release which to product commercial Actera market fluctuate knee. coated Our quarter, next use quarter-to-quarter quarters the the launch over the last to of support and inventory near includes full as increase launch will and cash continue few level expect term. porous limited highlighted our And of our hip

inventory be We $X additional the to over million investment expect few million next to between $X quarters.

as million to $XX our million In low [product] back we product and operational revenue $XX to $XX our million. by challenges. to we be for impacted expect terms established continuing to of our the between range We our quarter new believe revenue to two this us $XX complete transition the business we quarters the in the at of new expect August. of been one million existing fourth offering At and outlook, our supply performance This customers line puts we model. has year end top to point, by transitioning chain pressure

these And growth. we'll believe and that, we will happy relatively this challenges, is we to term. return While disappointing, I short after questions. With your take impact work the then to through be are Mark

Operator

from from first Our question Cowen. Instructions] [Operator comes Eric Anderson

Eric Anderson

like with it's growth. service not model Services but been sounds revenue into start customers translating just positive, from quite adopting the has Platinum the to program. It Wanted feedback

to just a the this gap. hear Company with education surgeon the what try to bridge curious program? is Is Is of Just that trying there sales to for thing? and to can that sort do do accelerate uptake force you anything

Mark Augusti

question. great a Yes. That's

of One a collection So course is normal the to to we're some little in longer things the this their sort outside a from them it program, feedback couple but doing. implement their is we're then change since takes and customers. there's a of agree They business. of billing taking

the taking to the of from from were sites earlier than implement able that implementation we expected So actual longer it is them quicker. some

in and Eric. some place working go putting try help consultants So quicker, we're with up to stuff implementation package some that to things to

the So of doing. we're that's one things

well other first gotten and whatnot, year. launch materials quarter direct-to-consumer The work as plan additional next as we've some we promotional thing to advertising is which into of

got help with mean a should to though, the contract of XX from this done. that big as QX So was XX. that support the lift at I move pleased, amount end we of effort. that We're

So involve And those of importantly, we some XX contracts contracts. new facilities. added multiple

operationalize into But that. as longer actual we're translate now they their you're program to with taking Platinum the end. Services pleased So it's right, on try growth to

Eric Anderson

the And just medium any could especially markets term? see here. the seems Okay. on some near you're then that Are nice seeing growth, to in other opportunity. enter international It Australia the like in there we portfolio Conformis international

Mark Augusti

bigger some I doing performance at the know, also near don't the we're markets. There's Australian we're to with think of our existing in some [their that But some there's significant challenged growth opportunity. of improving anything recurrence] things look that. like you is in and as as term things

distracted focus of ability to sort those the really that's So areas. on

Asian as expect, custom I at you as for some might looking you a the there, is convoluted term, But Japan pathway we're think China. regulatory especially know, of product. the and markets, longer

anything factor in the wouldn't that near I term. So in

Operator

Caitlin comes question next Canaccord Genuity. Our from Cronin from

Caitlin Cronin

Kyle is Caitlin Rose. This for on

guys off And such from mix, So well. can Services that do just time taking hold? you is on how you really percent, rate, conversion need cetera? as disclose to as Platinum Platinum Platinum How et to much metrics tell jump any

Mark Augusti

clearly, bearing metric clearly the numbers the Yes. And it's offers When The patients that successful. of the say I to XX% are XX% facility -- reversely. anywhere upgrade. out program, only from answer I'll a would

is getting out. The So player, the opportunity like is a smaller market It's reach anything challenge share that and message else. real.

We have after and going sales that. a challenge with field our force distribution about

to every program. clearly got new facility a successful. the educate and We've But confident. time launches or to feel offered, that feel continue it's we've when make them think confident I help it's them seen

sense these the As for it's IT been interested, contracts their have taking to places. that in it that have they it, get -- big surprise I said them pleased places executed was management, the us earlier, it's with we're cycle quickly to with ability revenue are and Eric's some which to because question, some of they But just through we've pretty think a or bigger policies, longer. their operationalize because to

us so do things the And help in some to asking they're actually term. for short

that we but respond in, have kick that we're taking continue adjustment of So increased discussions, to lot a that have that that'll from things. we a to and in and facilities number are the interesting and doing those pleased of But queue. that with people longer it I'm quick the very is to standpoint. And hopefully,

when are the expect it when as offering It expect than they top a lag as I from fully that, anticipated. So translate have of I more number Platinum execute it into that should Services they do And the of long just to growth. line -- got we facilities operationalize to grow. would we agreement the

Caitlin Cronin

And then Got you. more questions. just two

updated business customers? spending, are all currently also changes the of the to of the of under have With losing products the the the model timing And impact development? with reduction you that you transition, what's

Mark Augusti

Well, thanks, Caitlin.

said There's have XX% in question, a -- it's I we off, that a about So the is first no -- in Imprint. there of good contracted really insightful think with our the asked way. news is as prepared first one, business good think remarks, the so doubt really you existing we which I

XX% to There's fully And well, no doing. a So to significant. result, for their probably we something Imprint that it's short-term at. world detail. They reason, -- do didn't of is range, were want -- exactly hard I'll think X% they but estimate product, can't that impact continue may that it come do decided, we're on the We've changed. It's to it will is. there existing exposure pretty what a get that like some I we have Imprint Imprint what else. gone back of to a after that access by want to some they is think as whatever sort custom detail and then doubt some is customers where if We through customers stuff could by lot do in

So in and that we're top the there's seeing disruption, clearly some line.

to solution. guidance. have I We everybody interoperative We Now still a we robotic non-optimized like remind suffer would don't just also portfolio. a We cementless. don't have have from don't that

we So those are working know, on, we don't all porous but coated things have, things like as and we're that.

aggressive very quarter, use would everybody last very come Service reality pressure But continue clinical other -- our And pleased question has thing prepared a And pullback the and small is that's a reporting, a -- with has that company who surgeons the the for which as we've more a that We're from unique I Conformis number model, you've line throughout a potentially it's it's to of back. supply time, clinical in implicit we'll to we a us. just-in-time the to the great, other the Platinum the a remarks. the growth, continued it program say has we while So it a us headwind And is has used operational top some had, for companies -- in there's do be see for lot also we challenges to have that's is performance. of that like now, surgeons mean of we've in challenge. delivery Imprint market. which in I your mentioned caused performance first seen chain. good. from and have had

line had our rescheduling -- And has deal of top it's to I growth. headwind and with to a around. so that's And think moving cases field things

Okay?

Operator

from Our comes Oppenheimer from Lichtman Steven & next question Company.

Unidentified Analyst

on around just it Steve. quick your as you're for previously had around to supply relates This on headwinds? is the a commentary chain what chain [Amir] Is seeing I any headwinds. question supply there like, indicated, ground

Mark Augusti

ground, that said, is So what [Amir]? what the seeing on you we're

Unidentified Analyst

Yes, Mark. Correct. Yes.

Mark Augusti

our it, from which perspective Yes. out impression One that right, running about a building is Bob four-week a build-to-stock new is going that patient-specific as even patient well in but and capabilities, build-to-stock capabilities. there's we deliver two to as we've give the frame. instrumentation, on. a model, our But close to I my just-in-time is things very we're requires to my warehouse, time too, Imprint, specific in on a got business three-week

same And so past, said it's everything there's One two components us. raw game I never-ending really to frankly, because to metals, commitments transition mean of as It's involved been, I've the packaging suppliers, in meeting Whac-A-Mole. materials. our delivery manufacturing facility. things a femoral in is At from -- their time, the challenged been have not

of its as the a one lot that problem then soon and a think turnover. one head. lot another with of As you that you combine you've got labor rears we have solved, market transition And

knowledge so for and to would that struggle continues any the And change, organization. level be of a institutional

organizations we than have engineering worse because don't hurt departments departments. smaller large manufacturing purchasing or get think large that I

and have three person you through when a one department the XXX%. you of that lose that So or you departments anywhere can consist from just lose to X/X person, bandwidth people,

So areas. affects have up other the slack, us to in pick other that and people

have sort but particular, want issues hard. So in of hit macroeconomic observations and if companies, I add. particularly the don't small challenges to labor are Those hit that are know my around things, pretty us you three

Bob Howe

the here as we're only big add with we thing right? I just Mark in deal sporadically shipping, would I time. unpredictable from Mark -- -- hit The mentioned, shipping, Yes. So think some are one

it and show the we off-the-shelf to causes thought it [indiscernible] the was going shipment when doesn't product. up, up So standard show

flowed, that and ebbed certainly some that's to the So has but added of complexities.

Unidentified Analyst

of working Great. And 'XX? a elevated you follow-up through these being rescheduled my in levels then see a of question on prior on backlog anything Is cases? you just rescheduled there that. cases side. to another And Do the potential can provide tailwind just quick

Bob Howe

backlog. I mean, is there look think necessarily the I at backlog, a Yes. don't big

those As -- big is and driver. our get think, how and on cases and and scans, scheduled, are how forecast. a those schedule, have don't times you There when that's But and I it. that factors back that we and know, that's our we projections, we into are from do standpoint, we have plan the backlog

far As the as a you're levels canceled seeing of 'XX headwind, elevated hear cases did being I in right? you

Unidentified Analyst

Yes. Correct. Yes.

Bob Howe

hasn't Look, ebbed elevated. that's quarters, it's been been consistent. has and something, again, flowed. It that Recent

stuff because is just move talked quarters us. us be several with it's has been going reschedule that of worse, don't some is been part due that staffing about. I This to I last to to to of the but dynamics the some predict. it's challenging Part the of and think having of I we tricky honestly, -- don't [indiscernible]. for of challenges the think expect -- with have

So should I seeing. what it that point don't expect at than get we're this worse

Unidentified Analyst

Great. Great.

one my question Just side. last on

On prior the there mentioned Platinum helping customers contract guys program the recently? that more it call? updates on attract -- you in Vizient the Has guys Services or you the any is been for increase

Mark Augusti

the Yes. have that helpful, other definitely talking said, I it it's helped. to when good about a of we're force go a but it's and And partners But "license of to number we and as those. Platinum also hunt." a of it's customers, and that time provide, our really has sales feel some qualify not been find forward. and the been about, in moving with to only Vizient real helpful corporate situations. helped Services, I announced And don't to specific it I more so it's definitely that, again, in couple But but takes

good. that part So has been

Okay?

Operator

Mark turn closing this [Operator like would time, remarks. to Instructions] for it any At to now I back Okay.

Mark Augusti

the to of we thanks operator. on and We Appreciate Appreciate, who a you questions at forward today. update in, look Thank listening you. the it. providing attended Thank fourth everybody start quarter. you further new had. Appreciate year Thank call the for the that to you.

Conformis (CFMS) 3 Nov 222022 Q3 Earnings call transcript