SPNE - Earnings call transcript Q1 2019

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day ladies and gentlemen and thank you for standing by. Welcome to the SeaSpine Holdings Corporation First Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference call is being recorded. to conference like to now would turn over the Ms. I of Investor Salvo Relations. Leigh Ma'am please begin.

Leigh Salvo

thank participating you and you Thank for in call. today's

Earlier from March ended me CFO, financial SeaSpine CEO, for today Bostjancic. results Keith full SeaSpine first XX, XXXX. Joining the released Valentine is John quarter and

of business future During this strategy, plans, statements objectives for would, meaning expectations of and and will Such expressions. condition. laws All intent our in statements than within make forward-looking and conference securities words forward-looking regard statements operations future and fact call, the financial statements historical we other federal statements such results to our are as will, similar include may believe, could, our plan,

are information that on only beliefs based cautioned XXXX. speak May and our predictions reliance are You to which place reflect current not as undue X, of only today statements, on forward-looking

risks For our Keith are with between and and which actual available results differences the a at that forward-looking Exchange www.seaspine.com www.sec.gov. corporate turn the description on Keith. to please and material or call the of will could Valentine. periodic I website, cause Commission, filings our releases by and now statements stated over and those Securities uncertainties our implied news see

Keith Valentine

momentum continued facility. execution at positive pleased margin investment. the gross We you both Leigh. focus Good portfolios. Irvine, strong growth afternoon to generating in to the our for Thank orthobiologics our a manufacturing you, XXXX spinal and improvements were and emerging and all in off continue us. last successful from revenue I'm from see on results to thank implant is joining start our we also as process implemented California orthobiologics expansion year see

following. growth Our remain to priorities long-term drive the

into and continued sufficient penetration in First, systems to innovation market. an of with through products investment and drive number sets a deep development the inventory launch of and new timely differentiated product

internationally. US both And quality distributors exclusive committed our relationships to systems. establish that new Second, to third, more potential the and have thoughtful committed existing with in and exclusive and the and products distributors and collaborative more re-engage become

priorities As only X these We but confident than for sound free with the scale this achieve our gaining on focus X a enable cash position to a to is are the spine the that improved spine times these we and and in share, margins not market successful overall encouragingly faster remain build committed that result path, operating of have reduce our growing rate our combined flow to been at ongoing market priorities, us to financial required market. size goals will and in burn.

built an have surgeon-centric drive implant systems amazing laser and improved hospitals value solutions SeaSpine We that developing surgeon, cost with which and patients. at culture solutions vision, together focused combine remains innovative effective team clinical procedural to on deliver orthobiologics our the can spinal that industry-leading and

Turning to sales for XXXX current day XX% by primarily are US, once by to of an period. increased our totaled to X% Despite ago being selling the first quarter of quarter, X% in versus topline revenue performance; year revenue million, less US the there the one increase improved $X.X and led million. again of network. our grew growth $XX revenue distributor increased that driven In products million launched and international extensions line recently the and new was $XX.X

first our spinal in more revenue the implant quarter and US XXXX. of US New XX% our revenue products nearly recently contribute orthobiologics launched of of and than XX%

distributors and the quarter. carry the opportunities in to is were both distributor growth network the committed us, that and continue opportunities about generating in a several In exclusive excited percentage second in the first as portfolios that product additional close quarter, onboarding we build are We of our we increasing revenue. an expect develop and exclusive successful overall we on of to US more ahead more

the the percentage XX%. distributors time both For carrying generated of ever, by topped orthobiologics revenue portfolios first

a several have what production we tremendous Over the is spinal of we believe products. innovative towards delivering efficient and made new and progress of implant orthobiologics highly platform full-scale systems years an past utilized foundational

we innovation are and product In make continue training products expanding investments meaningful in and education by to programs. supported and addition, further that distributor surgeon new

As of give a can result, to businesses. distribution network exclusive their larger we're the support that able and confidence and our we increasingly the will growth

ongoing call, the alpha Turning are the to we launches success of of both on launch February the track and the our to access we on system. our lateral Mariner our by implant system quarter. Regatta by systems end we remain and fully launches near-term discussed product of cortical And excited the second

our expect to to will alpha to now wrap I financial proprietary by up. end John? And in the system Outrigger anterior interbody technology. the cervical revision also fully our launch second over John Shoreline surgeries Reef the launch Then financials I'll use incorporating call our and turn We Mariner detail of outlook. provide for on quarter. more the the system to

John Bostjancic

and Keith Thanks, everyone. afternoon good

Keith to year. international X% Australia XXXX our $XX prior noted increase million distributors from revenue XX% largely grew US revenue to first on of implant spinal replenishment Europe. orders compared the million, of total increased of As revenue for the an and and in the $XX.X strength earlier, $X.X quarter to million, was X%

approximately focused declines of digit XX.X% Gross extra the base. quarter $XX first quarter as California efforts XX.X% revenue anticipated period of quarter expenses our in $XXX,XXX wages to the $X.X as licensed same capacity headcount $X.X expenses. in to expanded we the less revenue general the was of first the expanded in sales DBM in clinical will XX% products, matrix the $XX product systems driven First collagen at the product outstanding and related scrap in upgraded expenses, totaled selling, net of to volumes primarily orthobiologics depreciation first at implant costs, the by that selling the approximately to bone increased X% breadth the our year of first implant portfolio. the US prior of Mozaik declining revenue, to of process benefits quarter to current increased and no facility manufacturing in ceramic manufacturing day orthobiologics procedural million The increased offering commissions, surgery studies. of Net selling . May for DBM to and US benefits to our million salary led lower million investments are increased results year-over-year first product recently and somewhat in but synthetic this by quarter Cash, our of Research day reported decline under $X recently and gain other expenses line. and and had XXX-basis wages XXXX XXXX. sequential first XXXX. This which graft replacement $X.X costs driven compared reduce impacted growth NanoMetalene our of single by and our to Spinal was $XX our and in launch increased X% inventory offset be Biosciences margin XXXX be The yields loss Mariner a stock-based the of XX, cash in substitute and Shoreline our anticipated a a the the increased again an result our the X.X% In and expansion for improvements end loss stabilize reflects primarily case equivalents The for realizing slightly amounts launched of orthobiologics for to of same to $XX.X and Plus quarter a million or million stock-based by OsteoStrand was facility. one is in and and the product we instrument prior March continues credit salary were million now development upgrade compared cost the quarter rates the expected driven costs revenue we low products. the XXXX by million in year. and higher to sold. quarter OsteoCurrent XXXX for costs selling manufacturing product operating price XXXX in primarily XXXX growth manufacturing Kuros by recently for million $XX.X should spinal was led help launched million we fourth mix. teams P&L an product benefit by in compensation and The by million by quarter compared year-over-year the due Operating was to is that for expansion by by third $X.X products. development related the and margin point Irvine, implemented that compensation, we gross of higher series of and totaled offset administrative year. compared versus the quarter XX.X% revenue period and once growth reflects lowered and increase products including

the of During we we nor utilizing anticipate the did the our not stock near sell of program shares quarter ATM do common any future. XXXX first ATM program under in

of cash excludes of cash G&A incentive margin continuing million quarter outflows focused on period. and based reduce and to our which prior March remain percentage burn, $X.X a year. in was cash annual Recall we free year flow $X.X as revenue. expanding payout bonuses the first that compared XXXX Our inflows of million We financing expenses each the for in gross to

are flow million the free driving the to implant XXXX. to initiatives in marketing short our R&D are Accordingly, we redeploy capital incurred term, free flow the much leverage sustained burn scale that critical expect free needed the and of $XX.X that flows inventory we towards XXXX and achieve positive exceed However future. and set and build to from to in growth continue we the to in that revenue expenditures cash cash plan the burn sales, building operating sustained spinal cash

to our financial previous our expect to XXXX, $XXX growth to the we revenue now X% be end are $XXX XXXX to million million expectations revenue Turning $XXX This full bottom compares X.X% of to million $XXX raising revenue guidance and reflecting million. of the of of over revenue. for to XXXX; year range year outlook in full for

recently While still launched quarterly second of of systems. half slightly guidance, based the our will of timing anticipate deployment outpace of not we the first sets the growth we additional revenue implant providing spinal XXXX half are that expected the on in

and P&L; stock in any investment XX% of XX% in increase product over we to to increased XX% fair recently we comments. Moving R&D of related to non-cash losses the of to revenue. approximate At continue process We would gains clinical based the the back And to XX% changes X% the excluding of charges point, and SG&A implemented expect to or Keith development realize to and compensation benefits approximate margin we've to turn I for XX% of now Irvine. studies range gross within down for a non-cash improvements, to to in yield liabilities as this call value headcount. to expect reflect closing NLT like revenue contingent consideration to the the XXXX

Keith Valentine

by as organization emerging for SeaSpine, high-quality, we and In core product execute are John. and now as you, pivotal the technologies of we to summary, spinal am of interbody will Thank our With and of systems. established, for providing orthobiologics, distributor complementary employees, differentiated continue foundation we've open year Operator? expand committed nearly XXX I reach it supported questions. is to devices another who network. competencies up that, exclusivity solid our sustainable XXXX growth that is which our in launches instrumentation to modular proud leverage energized global and the on

Operator

Our from comes the from Instructions] Piper Jaffray. line O'Brien Matthew or comment first [Operator question of

is line Your open.

Matthew O'Brien

much questions. taking thanks the so for gents, Afternoon

just good the us Just for either John, the can was facing you're because in biologic the sense for there headwind you starters pretty give quarter. a that Keith, either performance

like? trying that a So, that if get out for what look you headwind just net to sense would

Keith Valentine

Yes, revenue working So orthobiologic in think, so products. we're headwind. approval, have through that through a the as perspective, continuing over getting still of I coming We're past don't number products -- working don't been through that year, believe the it's I work XX% I accounts, from of getting the to we new still call, Matt, pricing is mentioned an a our new from launched

as accounts. now immediately I launched. think we're not It's of in products some just it's nature the the get in of the market available new

process. through You have go pricing a to

orthobiologics we of about So to going percentage the I perspective we've also perspective. those new on think think, We're continue that to to are new headwinds the great products really the areas effective specifically those go continuing on we're alternatives the continue especially of a a from we cost see see that strides in from made. the the to products, continue sure sell good market, to I feel in up side. opportunity and we'll side as well clinical other for that make Strand us good spell as products have material focus that

Matthew O'Brien

Fair John enough. would good. And half that you the goes, year being guidance wondering said range to I'm and range what when we second than kind the far look here higher about as the happen of have lower at the just fast get is QX the to then you're being as the end pretty range. providing first of the the end of to half versus the what of

John Bostjancic

in outlook and range, new of about Yes, high performance are the third rest to the the scheduled the half how quarter the have, answer is expectations set for execute what's I that the planned our of we quarter start that we side, puts end Shoreline all-time sort got product got around talked for our like on to those guidance utilization we quarter quarter, the and Mariner to how fourth terms of for continue of we as first the we've cadence mean more quarter, based of the fact product the to builds us and the in high we've prefer call, market. into I'd of second with The set and It's an year. launches the right, question kind executed continuing on of the of the back deploying of on that strong what penetrate deeper and implant expectations we're scheduled early builds sets year. the at revenue confidence the launches the first because the

Matthew O'Brien

little a get clearer John, be to finer point on or bit just that, just But on Okay. that. a

about did You [indiscernible].

expect half bit in the the better overall back a You're the little for year. business of saying

the is deceleration, fair not going probably as just end to the how the it far as about assuming midpoint, like so range massive of even higher a a So of bit QX towards be feels little think we is models.

John Bostjancic

way characterized to We're we're revenue what to the in And with being with half. of you not QX, product massive guidance I deceleration fourth agree. the launches are the back just meaningful and rate. call the a continuing a said right, be the cadence impact Yes, -- about quarter consistent cautious deceleration we how in going expecting

Matthew O'Brien

of -- don't me distributors of And as I all commentary Got as think one I just new then onboarded Keith last it. like for far it, ramping caught on the I part of nicely. sounds caught it. number that you've that's

given you tiers are are onboarding, just breadth the some as much. of offering more lot these of the far exclusivity a to as you now your folks, continue the of far of as so there's among have? some up little as new those go you're moving you seeing the of like distributors? to you bit more as color, as of distributors quality Thanks getting far Keith, product Sounds Can opportunity onboard are exclusive. distributors even a the some And provide

Keith Valentine

Yes, mix couple questions. good space that were those have a areas that of strong with also education experience. in that and They and have now force very white on we surgeon the spinal sales that feel good as good both partners Thanks, have about well. There's areas that Matt. education contacts good we

new traction an it that and aboard, us does aboard for need part proficient about also all the we've we distributors to are of of them process aboard have to and approvals take good feel talked I what time faster that products be be XX they're education but think of it we've quicker than the X seated process. still is process, start to and on at getting before. that month get seen fully very folks coming And to to for quality the we come bit able so trained is for to always still hospitals, from and to month a that about quicker be they're

feel products, the new both second good the ones are folks new you the year the coming And the John the get knowing if kind And especially on. pipeline so we what of We the encouraging of to about started as half to feel about that will. be good in to going described to come need I innovation produce are and into on XXXX. that is call, we absolutely get them the pipeline and quickly successful they of that aboard

Operator

Thank you.

Our or comment next of question line comes Cantor from the Fitzgerald. Craig Bijou from

open. is line Your

Craig Bijou

just the there? Is once onboard. wanted start them? -- you're going it negotiation to once them bringing cost in the longer going questions. have past and follow-up a bringing I to what necessarily Is not to longer to the that quickly seeing taking how expected. a for for maybe and some, of out you're know had on takes Thanks process over identify impact better than goal into distributors, taking question it or get get want Matt's they larger of with kind other there maybe them but a them quickly as they're ramp run onboard? go Hi level after they're that earlier seeing sense quality, just on Keith, the And how I any similar strategy have have, line little on companies to the maybe on you're up board, a the distributors distributors

you're I So get little a color seeing to from just wanted on perspective? that what

Keith Valentine

think they're and we aboard the conversation to when non-compete they're whatever they thanks the have the for have both about similar highlighted new team we've very new we plan the I we think exclusives ready how serious management come we coming right consistent can the I make comes and engineers we to do excited it, sure together all most about mean, theme timing that one or out products. very through inventory, in number and aboard may investment very have that innovation. it's hospital thoughtfully always I that's the theme investments. do at to talk our these to to putting the are can excited actually They're others is new it of making have agreements, what and they're deployed all things The earlier to, seem and going of whether approval folks interesting. they're product John Yes, ensuring they working make a to when available you appropriate and be investment to our some contractual these they're the that the new be, those about with is our with are it time we that can to different lot is call they we're so time about that in importantly obviously, really back are than I it where seeing, that the you invest make of go. spend products. how sure and your managers adds And have to the in And direction excited of right. a been the ability But sales thoughtfully Meaning lead have inventory. have

we going would with successful. raise ability so a our to they door. access year so the we're current very the line, come can And, how say concern the certainly inventory we credit and they have deploy obviously, afford to it strong And did pathway show them be our we how can to one I when and last number the is that in and

John Bostjancic

recap Yes, to It's we on sets the I hasn't our we're the that to made inventory, return it's just like between to and through the growth. means this and we energizes on talk the of accelerating about like based invest recent and comes it to position the invest cash going got on point also credit And in meet liquidity resonates got and SeaSpine I with everybody we've is that's them investments, that best and the access here investments, been really continue with this I that with to at been really revenue the how think continue hand, where on into resonates immediate since like really investments drive kind add continue just home show facility. better to those them spin. I but we've its ever cash say to translated the And them. this. invest confidence financial think I we've And think

Craig Bijou

of and, the helpful. been bit guess, there's I turning of affecting the same that's growth side quarters number divergence over couple the implant Great, area. side. said each in Maybe last And in the roughly Traditionally have should of that difference. and I that just that guys the implants grow and to a know a orthobiologics rates you moving orthobiologics in growth there's a pieces between are

that forward of just other? XXXX growth compare get term how So each a thoughts your specifically the on sense just maybe and kind for to wanted to in rates going will then longer

Keith Valentine

I Yes, flows low think some they're there's of to patterns buying may I that promised. each behind mimic exactly I and don't capable by think that them be they that double-digit ebbs high quarter of -- There and growth certain still think do but rates sustaining going that the between kind on the products larger especially other, to new are that reasons in single-digit, both it's longer accounts ever some the Unfortunately side. really the are new But especially of buying right in orthobiologic now, the the of live with feel get good than our aboard market for new before, side. products groups. approval also orthobiologic we takes just coming it we on about we

get approval. enjoy DBM expedited still almost a I that sure number XX% -- the side, we the seat fact have market so share us is the doesn't which table, gives to And what three at but a make it's necessarily mean the enjoy position opportunity it we we on

so clinical in to we in as to call grows, talked for XX%, about the we continuing metric OR that. alternative through that stability pricing surgeons. new gives products And it see was the better working grow. continue The that a and the with is And going we're now along

area and and bigger more will lift the think, groups. approvals that in come I more come to you'll So buying continue at as see

Craig Bijou

last thanks. than be was higher bit in just one I 'XX. you to burn, squeeze can in little And John, cash was Great, said going it a if that in 'XX

-- how we thoughts but think leverage burn going the we there? 'XX is Just you're and know provide I at in be think to gained about that 'XX? about there looking should a should not guidance, how to

John Bostjancic

I of fibers carrying, think talked clinically, continuing based because we're DBM it's fibers but and a to cost investment the but quarter lower fill is the DBM we this we because to existing sure continue also to couple product better we want as say I'd what as DBM year, we're than right us for orders over beneficial to can this fourth of business There's the more that it's it's convert sets the factors. Yes, large optimal, that to goods on year in well. make levels us for a for think as the particulate robust we about up our well call, cadence of making launches drive. Orthobiologics ramp of finished legacy profile

the margin able with helps that implement. to been we've all So gross the efficiencies,

as So as we've and Also we opportunity an the pattern ramp better more DBM. that I on think on on focus had the the start predictability the bringing legacy products. have can continues goods we'll launch orthobiologic new builds, side up set evolve, and to cannibalization on the finished levels fibers-based down

international systems for we're well the to the we're if take of comes. of price buying higher essentially systems at about things quantities, on for breaks able since the going talked registrations as and international spin such products as new for add when additional advantage US Regatta as One time launch that we to in launch we've is launch

to we're international strategy products our year, to year the should not investments systems we those we need And because systems sets there than get price price or when those said as outside of a we through International at that inventory to more the US we're doing makes be this next it That's that number able rather US same across is sense time benefit for make higher financially part for to designated us give systems. investment knowing getting of While those points. for some making buying sell greater fewer year same it this clearances of the demand the points sell the may buy won't better I and launch. those

Operator

[Operator Instructions] BTIG. comes Our of line next from comment the Ryan question or Zimmerman from

open. is line Your

Sam Brodovsky

Hi sales there and distributors carrying With implants just guys, be curious be the for Ryan. faster if seeing it your and of now How's biologics biologics -- carrying to distributors there. compared and over that Sam exclusively it's implant your on growth going? XX%, see can implants you're of just the out if up, in driving inflection line curiosity that might to some if distributors your any

Keith Valentine

to that's it's share do able question. player fair It being I with think keep to some the position tell number at, a Yes, not. newer particulate consistent traditional But mind our in a market share XX% in exclusives get of interesting we orthobiologics to if newest we're probably penetrate a DBM. to market be that trend is the see quicker. It's too three early or the to

very have I accounts. long standing that supported They're think those accounts are nicely. been

the have even for to able to them product at the shelf ability of account. be probably Some

line Ballast. longstanding our and is Strand a driving alternatives I of job the And bit so that but there of newer traditional some newer and comfort done do in think in the with of a exclusives product launching have better

Sam Brodovsky

been that rapid that the newly looking had Are then a of the or in field end are better on more and in the expected growth And seeing kind about growth of quarter, on deployed would you the had came the guidance. to higher sets, helpful. the you're be your at that's set at uptake you you say? thinking utilization just in seeing where delta originally between you Great, when

John Bostjancic

sets, things distributors in as and about the the both. timeout it's of of timed out historical growth half and more to and we're the the because we the answer the ramped seeing the talked sets the we it's Well, utilization sets utilization more your through launch with the utilized, and us how expanded that usage are mid-year, slightly the with revenue portfolio. the exclusive Mariner of the the additional NanoMetalene deploy they'll the onboarding highly going think the get the And will additional well, deployment out additional, like those of Shoreline I more year, in getting the of the again of around we we full great question to timing systems on by getting time being existing of out be field play directly, high-demand patterns We're high of in Regatta rest up, of year. rates they a and both. these commercial based But the confidence higher gives second ones lot think of confidence have deploying

Sam Brodovsky

with the the And addition then on how get product just distributor where to across could network? can add the as last to do additional an year? quickly then one, you [indiscernible] And your for field, that thoughts that the to coming feel that, portfolio Kuros any

Keith Valentine

material even of that absolutely The a all to have going news that is kind follows hurdles approved. There's we're a but the that to side, on is product we've to have new Strand to I a synthetic where it price, go premium good I still think same I and about with follow, Ballast. excited of DBM had commented Yes, the think it we going -- through we're product I kind as opportunities premium go it having to get alternative, to will it deserve progression. will think the the but be of

down the road, we're so is it is this but fresh very good news a process. And

don't as switch rapid it progressive it's at acceleration. a a look that just and would picks a momentum. up think I launch it's So I turn

Operator

Thank you.

comes Thalmann. Our of Jeffrey line next from Ladenburg from or Cohen question the comment

open. Your line is

Unidentified Analyst

now know work. us is give -- adding update you're idea And going expanding give us your the an on you're please? along then what same currently of headcount. this clarity. towards on? I little wanted working bit is what an know you questions. your FTE for John, on a actually about some just R&D I taking Destiny going the and Jeff. to Keith Thanks for finance Hi you you mentioned, [ph] speaking get when the Could you in you're clinical Could is spend of about I efforts lines forward were

Keith Valentine

so of second John answer your question, first Yes, take the the half and I'll Destiny. part let

on clinical year value when very perspective, and orthobiologically like a feel and materials economic that mapping we and newest greatest, kind from our NanoMetalene of is materials. out we're we we technology of you our a DBM value combine last Strand been the have have what friendly with from and keeping clinical So course, focused significant

sure have we to in of about demonstrate that, effort so and even focused And from and is And value this a as want from studies that an around in that meaning want talked implant technology further work clinical made NanoMetalene. clinical call, on animal everything we we designing the is And the feature that make quicker an we're that patients. which we additional for stability potentially bonded opportunities be will the Reef that, that to that. a demonstrate that for implant, help sure foster will NanoMetalene effort to

it's worked greatest demonstrating study just and systems and number how demonstrate up so like studies responsibly outcomes. of orthobiologics. we NanoMetalene follow that economically goes are valuable we But with started, matter as on as a feel clinical it. implant And the newest getting of better have with we our we that everything along recruitment, And a of well effectiveness are our

those the focus of R&D so dollars been And towards clinical. that's

John Bostjancic

then on those R&D groups which just engineering spinal answer headcount, about and just that regulatory of the of and both ortho your on we're question the to portfolios. And under in and in just implants clinical, engineering side the XX are XX is

Unidentified Analyst

another thought I just Thank two see in quarters? Okay, the four the guess, clinical we presented got upcoming conferences for next at it. data expect to Thanks. to I Should you. then one any side. And of

Keith Valentine

some additional accepted keep of forward start be our those as animal work things on further up get And depending to but and No. year when least From the be There the enrollment looking start presented appropriate. that timing getting something it around or before may then clinical time stability by though posted see It at we on them submitted most like a patient for out opportunities work, not, we you podium. at it submissions follow points. we'll and to show would we true be a discussed. early, we to can no. get studies as like a move And accepted and be or

Operator

Valentine I'd to showing remarks. I am like conference any you. this queue Mr. at Keith closing Thank back turn questions in additional for time. no the the to over

Keith Valentine

you for evening. afternoon a everyone So this that us Cheers. thank you joining and have great

Operator

This the thank you gentlemen, program. and Ladies today's in conference. for concludes participating

Everyone, disconnect. now may You have a day. wonderful

SeaSpine (SPNE) 5 May 192019 Q1 Earnings call transcript