SRGA - Earnings call transcript Q4 2020 | Surgalign Holdings, Inc.

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Operator

Good afternoon, ladies and gentlemen and welcome to the Surgalign Holdings' Fourth Quarter and Full Year 2020 Results Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. [Operator instructions] As a reminder, this conference call is being recorded. I'd now like to turn the conference over to your host Jon Singer. ahead. go Please

Jon Singer

thank fourth and joining Surgalign the Good and you full Inc. quarter year Holdings afternoon for conference call.

on Executive Joining President today the Terry is me Rich, and Chief Officer. call our

with are make and based Before we other lines we economic current on our are will our be will forward-looking. following uncertainties call They The on conference statements in earnings management's matters environment this and the subject discussing involve business start, risks with and disclosure. These associated to me various let that of statements expectations. are the general.

urge vary on our to to events as call. these about information may reliance results actual and consider about during make expectations We concerning the future accuracy Our to all are this you made place company from undue we the forward-looking statements of guarantees our not these no statements. that Accordingly, statements.

During measures certain can U.S. to indicative to in the for externally the tables accompanying non-GAAP forecast measures performance for found core non-GAAP our earnings also other believes a our presented our the are be Reconciliations which will website. useful and excluding in section results provide and Management that compensation both of strategic compare that are non-GAAP between benchmark our decisions. against plans to uses certain expenses Management in certain and Investor of and and relative performance on operating competitors U.S. Relations release, GAAP our information information management taken investors present financial call, results. financial measures we by non-GAAP noncash conjunction financial basis. not GAAP with

Terry. I will to turn Now call the over

Terry Rich

from procedures Jon that company. on both a $XX.X XXXX in for uncertainty call fourth down on Amidst primarily the performance, quarter $XX.X negative XXXX, an businesses which thought an to quarter an of to fourth and the the quarter the by to John. overview events million as pursued afternoon, a overhaul US included Taking XXXX. known XXXX provide provide financial Thanks now Total July, after I'll the was we I'll our two driven the company fourth during back, turn overview, year the which in was over COVID-XX everyone. Surgalign. on provide then today's separation COVID, standalone million call update during of Good a On occurred our for organizational transformational all the create and elective with associated play internationally. impact of pure of spine step revenue

the of Henriquez the been looking When Board recent We [indiscernible] department the experience members in Along in calls the made insubstantial Head add in length growth about and leadership We've shifting tremendous able at September, talked on Holo with Directors. we've which build, of becoming At our towards was surgery a brought we only within on remaining appointments, immediately we with during we've senior in International months. organization Sangiorgio literally continue who XXXX. the and we of leadership components of employees, spine. of strategy assembled three up at innovate laid the the we round the time team out acquire. an senior the these team, space world-class business, of progress of are management for team out to our myself our the and year. initial the so a organization the organization. few acquired team we months do every beginning and the Starting build; of at throughout are focus from a months each our John, five to to part team made the Surgical, the later Surgalign, priority leader to have Just the previous want digital with and

marketing Our large is new. in completely part team

we clinical, marketing Our our new added number of R&D people quality, finance, a education, within and and medical have communications is team regulatory, entirely functions.

during On included the the extensions the expansion and product innovation third side, capabilities of and the portfolio overall manufacturing functionality portfolio, most of importantly, line application platform. our and which fourth new made progress quarters we and the towards the of development Biologics materials additional of digital

we within roadmap to shift half product talent However, as ensure the we the the back In re-imagine conjunction take development and of of time launches. our organization. we pace innovation of align down the digital. need roadmap, all to our properly through current progress integrate One with and to XXXX, it of our to intentionally the new product new portfolio slowed supports our onboard,

and are the class XXXX into in in Holo innovative XXXX, emerge, products which systems back highly the beginning that portfolio We now a integrated are platform. best confident will and of with half includes that

have fourth continued following close of as of to in Cristian have acquire; promotion healthcare be fourth the is mining its team and component intelligence during of Surgalign and the data initiatives. organization. the In quarter of and joined the R&D joined the Holo Paul the development quarter, are Kris of the two artificial leader digital continues third with key in widely up the cofounders surgery our Siemionow, of platform in last the the Surgalign part Holo a Board our of head Our roles lead Holo forefathers Holo one of Dr. core members Prof. of Paul to known of Directors. we of Luciano acquisition the him joining as Lewicki, is predicted Cofounder thought the excited and

completely the us, what to deliver. behind to forward long-term and going Holo done aligned on of integration company be needs our strategy is the With

variety acquisition, the of opportunities to out products fit market are would and that and evaluate continue partnership We feel strategic of be continue believe we'll our we and to digital that technologies within and in framework interesting our supportive a there portfolio. licensing

currency the moves from device that significant create surgery learning of to and outcomes in patient-specific leaders companies digital of digital many services. see the commitment industry to medical to will resources machine include leveraging all Our thought we change predictive the perspective thrive towards We the additive as implant the on year embrace of leverage These surgery. informed Surgalign will manufacturing services future aligns believe with progress to significant industry the a paradigm digital foundation where by medicine. companies implants, for and a transformation. that building transformational personalized move deliver in to XXXX this analytics new made AI, was in a promise near

company in months, I'd an the XX While, to implants the to that, transition turn Surgical like Solutions. a With an our of from accomplished that Jon what to surgery months to over a I'm update. to will proud we it six company call complete expect additional take past we financial XX for delivering digital

Jon Singer

was $X.X return the both return XXXX international fourth globally a We quarter from was biologics, Thank in decline impact COVID-XX revenue you, from prior-year and $XX.X our quarter compared global million to Terry. the of of ended Domestic $X.X for will historical decline demand implants and the the $X.X million, of $XX.X pandemic levels electric and XX, with quarter million, fourth core for million was December revenue domestically million the and Global internationally The spine elective XXXX. XXXX to the procedural was believe procedures. period. due decline volumes. to global the that in $XX.X revenue for million primarily line revenue a of

million prior-year historical our the the family related However, levels at reduction million $XX.X in mark-ups the reduction general to product or quarter related of compared compared inclusive predominantly we The the decline quarter will fourth accounting charges, of expenses purchase and recall for or fourth expenses rest administrative of pace impact business the of revenue fourth of to transition R&D and Gross headcount. the quarter was System R&D result in $XX.X revenue separation as of of profit ACP Marketing, OEM period. compared period. to the to XX% million the a of expenses in costs the the The decline fourth the in administrative $X.X for R&D return the administrative anticipate sales-related revenue of of XXXX and in the of to million OEM driven Surgalign a XXXX the for the to infrastructure, the inventory slower in due was $XX.X is than prior-year in $X.X $XX.X $X.X in inventory. general predominantly was million by marketing, the to XXXX. decline and profit a of to was of portfolio. $XX.X and XXXX million incremental million, million Adjusted complex quarter XX% the for sale. charges, relates gross

all in driven in of with expenses period. million. acquisition in in EBITDA primarily research Improvement was related operating substantially of rebuild of transaction conjunction contingent expect is stock, prior-year it related related and platform. the million a to treating Adjusted $XX.X fourth asset quarter $X.X the a of $XX spend the Surgical was rules. with the cash, acquisition. R&D not as purchase transaction common within loss million one-time levels that by Holo, fourth present Holo assessment competency asset, the resulting technical expenses Since million in the enhanced of platform the reduction XXXX total in resulted and value million development a of was of Holo for purchase in the us the a the to to by We which the purchase predominantly accounting $XX.X the Company feasibility million fair $XXX nonrecurring outlined $XX.X in the as determined our pre-commercial, million price an value compared acquisition of of costs the operating XXXX, experience as return quarter charge the $XX.X expensed $XX right spine of $X.X during in of EBITDA The with quarter has occurred approximately invest as we and comprised reached in-process of fourth we acquired million above. adjusted In payments. prior-year defined loss to the with the of million

we As raising $XX approximately $XX equity million million X, of had cash incremental secondary December February XX, on XXXX, closed and in we cash. of offering approximately

$XXX is our in of million. impact for demand X-XX% the guidance, the COVID-XX XXXX in range approximately approximately Turning quarter, the through fourth global operations which would of the from XX% full-year compared of pandemic full-year We by revenue be to products global anticipate sequentially first to spine growth XXXX. to continuing down quarter continue

Based to a to like now this turn $XX manufacturing we in recall adjusted in million to Terry. EBITDA loss partner a normal levels call assumes volume million. from contribution to a market limited ACP with Surgalign of due of Our return relatively which returned to historical XXXX coflex global guidance slower the the second the from levels range the will revenue, I'd the withdrawn our be of during on of quarter January. was $XX by anticipate to procedures in back revenue the

Terry Rich

Thanks, Jon.

I Surgalign Before application shifting care initial smart enabling will applications, and outlook, and platform long-term we digital our surgery a is robotic surgery that platform spinal are how company spine is platforms a company. surgical revolutionary performed technology to enhanced visualization, today's thus, believe limitations of approaching in is to XXXX whole and provided vision The our alerts we real-time and from the addresses performance. for Holo surgery guidance, introducing computer-assisted patients. The to wanted The technology ultimately of a how it surgery. is exist to platform enhancing implants warnings, digital how by transformation discuss impact foundational and our

believe autonomous spine smart surgery and makes applicability the outcomes. the diagnostic the better We and surgical from landscape patient We to has planning lead anatomy intelligent it believe safer, leverage will of post-op pre-op and the functionality. develop improve intend software benefits predictive identification to the expand of to we will instruments the throughout outside analytics as provide autonomous we workflows segmentation to EOR capabilities which surgical to platform to analysis potential

as spine While surgical into Once for beyond we a we a opportunity, other market application stone intend is the been model the significant to spine. expand specialties has platform. it proven, view the stepping

We are this are in innovative the of this about early innings excited we technology. the through potential transformation, but of our journey

we screws, through personalized selling moving intend intelligent platform a moving application of this This from is are towards integrated and through transformation, instead everything access technology. will immediately, and implants, possible outcomes through intention traditional medicine model the supporting digital with this the doing be point onward better part move we as away of As re-imagining shift package will not what from pull for of the by procedural of to towards but the technologies. done happen delivering

XXXX building to call and growth At beyond. Q&A, Before the opening of discuss level the I'd will for in foundation our for and be like investment key a to up transition XXXX. a high year XXXX priorities

Our strategy. of organization the continue priorities to for the year are digital build support first out our in

to of support the digital shifted the the the platform our the Second, U.S., build-out of Starting place Holo leadership in third, the with months, our over the year. strategy, portfolio team first performing structure reimagine senior pace the of cases with of And now by introductions. and of development product we the new continued our accelerate goal and of to includes in continue which integration end product of scale organization Holo team the have optimizing our have the put last tremendous the we company. nine from of

number of the aligned talented organization our strategy. continue very We with across also brought to and a add people on significant will talent

we development ongoing to Turning key to year. are of milestones achieve number expect there this the of Holo, a

is clearance First FDA the the platform. XXX(k) for

half in year. of the happen to We expect the back

of to clearance. filing ensure testing, continue technical together a this as delay short and to a the near we absolute Despite an the the requirement expect are third-party foundation platform to complete a put highest confident We term. in initial quality in work file associated with submission timely very additional to the to submission

We lumbar procedures. to specific spine the initial to for be expect use indication

proceeding diagnostic Following of launch clearance, well as steady of the to initial second a is launch. of prepare efficacy expansions, clearance, the optimize IRB use submissions purpose indication software the and development and for of we as studies software milestone in capabilities studies. interactions for to FDA phase, phase The platform for marketing expect XXXX hardware After prove file and for additional the marketing the predictive initially our stream the before the analytics. humans, to these related are to

clearance, to our year. platform priority, successful the this cases U.S., Following the Holo we later anticipate our first the having product in third using Shifting performed re-imagine the portfolio.

change Solutions. long-term roadmap focus, material product Surgical are the the we development promise to digital our re-imagine support working Holo and Given to of to our

assessment new identify going company, leadership at focusing about the addition spine surgery development our managing for stood we all products Surgical, of positioned our digital to excited up summary, portfolio of future a operations Surgalign. a while of pure-play was segments brought In product We we the on very strategy spine critical we ongoing Holo existing be global will also a will a are believe to initiatives, In individual that in and digital identifying or don't through year organization. undergo a any supportive XXXX successfully during our ourselves team together acquisition leader transformational as world-class the an pandemic. forward.

build to growth Looking ahead, offering XXXX foundation will be a surgery With year open we for digital years of our long-term questions. to I'd like line initiatives the the invest the come. that, support to in our to

Operator

Piper from with [Operator Instructions] coming first question line have Sandler. our the We Matthew O'Brien of

Your line is open.

Matthew O'Brien

it just that a on color software, and was any was can hardware thanks maybe a be else? quantify about Afternoon, would it what the my taking delay Holo Jon, helpful. how Terry something it for it specifically was there talk Just more or just the bit you little more that, way questions. was and saw bit long on you was

Terry Rich

thanks, Yes, Matt.

and software testing are is fix the and to go is to minor had the systems prior through the was testing the was identified some finishing required in that as news yes, submission. now. We into for quickly perfect, up third-party relating of hardware So – some ran great which a couple process issues electrical of that that we

So it's really a nominal delay.

Matthew O'Brien

a basically? couple weeks, talking We're Okay. of

Terry Rich

Yes.

Terry Rich

Yes, right. that's exactly

Matthew O'Brien

can timeline secondly, I cetera? those get technologies confidence again still comfortable we're timelines. the side, at in just that does seeing of but And guess just feel make those with really you like it, love out you're differentiated I that. happens, the get to first some guess products It much you new the you about then can on how you're Got I'd you don't in how if product COVID-related, what et talking new side, Then okay. then, premiums the hear FDA pricing I the that on of factoring slowdown Holo approval and can kind thing. delayed, new that sounds know product on the pretty roll

Terry Rich

sure. Yes,

insight outstanding We've them them So have conversations to how is had good and FDA put and together don't submission. with again, we back up. an [ph] the COVID it any

And timeframes. what are mentioned the very certainly and we that contemplating you so feel about into confident

The has to – our other forces products been sales referred look a that for now. you products for starving of years number

and increase So we all into growth, it per continue believe will surgeon just to distributor, our they those per the getting up. them metrics revenue field drive of will drive products

really As GPOs certainly maximize best for But the a it can. will the level. look product premium with lot anymore we pricing, at and we opportunity, IDNs pricing there driving the isn't to of

Matthew O'Brien

going and as year? course we How the just EBITDA year QX? into last in and the Holo to do about of approval on rollout think closer that – we're think one Okay Thank loss about that there? the to next loss cadence you. for do how getting that the big we the Jon, for over we ramp year, the And see then carries a

Jon Singer

no, going the through of the year. competency Yes we're don't to anticipate the build we course

So output kind less then, it's between we And now pretty of resources you think the launch. to [ph] alpha commercial year, than full at really in a based incrementally for but support cost the quarter. will IRB. just, the we'll as the we need XX of that an I assessment of, talking on we're fourth And were bit get the the of in end it's the build X-X what

cadence. revenue significantly the it's I to it's be don't with think that more to going grow in the quarter, that I And so going fourth yes, look, line overall anticipate it in will

Matthew O'Brien

Thank you. Understood.

Operator

from BTIG. of our Zimmerman next have with We line the Ryan question coming

open. is line Your

Ryan Zimmerman

taking questions. the Hey, hey thanks Terry, for Jon,

if we on quick? about terms think half that, of, like, initially? could Is in and array once scale? of the are – think kind size of first kind first XXXX? gradual of that in on, that XXXX market, we in should follow-up at end launch terms color question Just launch of that of of product Holo case and look what thinking is beta testing how So kind maybe Matt's get on is to year, the you a real know of the going a we about you Just the that out in some

Terry Rich

as throughout we out clearance the of should ensure to way and want half, and outcomes these experience. to up to the begin sure. and so a we are get initial the gain multiple especially units is we deployed as to begin to the can getting units we'll best that number course Based physicians that Look, Yes, of do as on we in the delivers to do the that we on be plan the we key systems of XXXX, it prepared quickly experience, the and launch be field responsibly these through success that competency back patients. scale for build possible ready

Ryan Zimmerman

Understood. launch with that And then, coming. of the are products

for particularly of and investments the to start may you about with as things of you other expenditures set how What with you're year think products? some [ph] – are this need kind you that? capital launch that Jon Just those anticipating as thinking you

Jon Singer

for you CapEx there and there the look Yes I of is at and capital overall is. between and then think somewhere million $X $X budget year million Holo set, between so, probably when our

we've part $X this activities capital. as into technology to signed capital on through about and that new that in related be prepare suites – another then, the a play San begin build probably we're is, surgical you'll $X we week, to previously, a variety work about the to beginning see it's build last will out, take be $X of But for year. probably into to we’re that comes to its million a implementation an going from lease, another talked other RTI, out. to of of there's and X-K they just that capital some separation year highlight that's million through a going movement an building for – to million ERP of it the we're And as digital Diego. as space We piece The working

Ryan Zimmerman

for Got it. Thanks questions, taking guys. the

Operator

coming our [Operator have Instructions] We of next Matt the question with line from Hewitt Craig-Hallum.

is line open. Your

Matt Hewitt

taking Thank questions. for you the

the step – not little a part storms, storms is step in back you that the off, QX, is somewhat bit has First stabilized versus the the a COVID much If QX southern those down or country. that winter from versus saw how of it the with for perspective? of market the here in COVID

Jon Singer

were mind of it's that And majority surgeries the winter from handful more way right revenue of impacted to thing much shortfall the global, a we're out important is would the to keep hard impact. COVID-related. really probably its that and the in yield XX% were COVID elective of say in that storms, our they was there's tease international I the impact draconian think vast the in by shutdown procedures. Look COVID. beginning I and but is They the

statistics. And I so, the watching would impact that significantly more of is was we've portion as the say, the the QX, of is business. gone felt everybody end through

And return At so, what in order to see don't going seeing that get waiting I we're you're think is procedures. to many of starting to to procedures. vaccinated. are patients to elective stage return this – the we're

the but in year. we see not half in to yes, full levels we sure we I'm steady kind of a QX, return should normalized see think So the levels of to second saw we'll the return

Matt Hewitt

gross that right. then it, in above we should are a of maybe getting is up said QX, that thinking be then, I Got margins? bit kind as for was the think all maybe should as as be and gross how you QX margins margin XX%, level or about gross concerned, thinking progresses far year And lower but adjusted how back little your

Terry Rich

way probably it. think about a that's Yes, to reasonable

Matt Hewitt

Thank that's me. Fantastic from right, it you. all

Operator

our coming Street Capital Frank line Lake of from Markets. the next question have with We Takkinen

open. is line Your

Frank Takkinen

my Thanks question. for taking

some you use And of add-on or a commercially a that develop some the additional to sort two been time? just model going Holo subscription trying packages curious approved. brought then Holo models little over Just services some the of platform? bit different that the of speaking the I going potential potentially a elaborate to it's further in be models on to of once packages Are to potential if get bit could on of but there know the software is be up today, those Just understanding it's you past, pay-per-click? could little

Terry Rich

Yes, sure.

capital we've think better hospitals I for out portion Anyhow, follow others we’ll revenue look, the to for to the like variety be software of on existing as programs the but next which said in some depending key The the hardware of short-term some the purchase the before, lease programs. So of the the need prove and of patient implants. couple licenses, outcomes. validate will factors, There like ability certainly, models technology the the years. the a pull-through

Frank Takkinen

Got And off, for then growth guidance within you're the assumptions maybe it, finish comfortable on any to of fiscal comments just okay. year with it XXXX us? one Jon, international sharing

Jon Singer

coupler about new they've Yes, number approved we is which X.X, a in faster in of but PMA I product a grow business, talked nice dynamic think than the pathway United States. introductions the international overall slightly got HPS which is will Europe,

CE this introducing number family Fortilink be a we're that. the there'll then So, and launching so not has year Mark, gotten

overall the XX% kind to significant market So, see we going market. domestic of the grow deviation the of slightly will it's, we're overall from faster But anticipate international not revenue. than a

Frank Takkinen

my all Thanks Perfect, for right. questions. taking

Operator

coming have of line next We from the with Brandon our Cantor question Folkes Fitzgerald.

Your open. line is

Brandon Folkes

congratulations the and questions, quarter. on for taking thanks my Hi,

Do I XXXX but contemplate I And comments get guidance? then I impact you revenue secondly…? from wondering but as spine any you here, if could on your an Terry, revenue this two saw sorry, the calls was in sort in of between missed yes potential maybe hopping early, just how Holo? and XXXX, installs And Holo

Terry Rich

I questions. sorry Brad, finish interrupted your

Brandon Folkes

can the maybe of your into do just these willingness talk impacts partnership Thank field. partnerships continue then sort launch as to of you’ve expansion to the see into lost and you you. you secondly, either and there the about days Sorry the Holo

Jon Singer

a we Holo anticipate yes going question, in disposable to that majority the in So that so procedure in for would in through to [indiscernible] previous from obviously its certain I I partnering, the commercial a us. standpoint purposes relationship very we products. small and placing pretty revenue but characteristics had as there's IRB point internally. as be the start along but characterize it. yes think surplus recognized portfolio accelerate seeing so transformation relationship, you but with of what open we're and seen term for is for we of that that transition is take best the at of competencies we referenced do of for conjunction products the standpoint we both IRB product purposes revenue early -- portion acquiring study, the be from a to of Terry then that be licensing, and be that develop And moderate so from predominantly the of to call similar field the going There but going we output I would work It's And to the the of again to the that's From guess early to like anticipate product intention way handling the would a the in through anticipated driven days users launch, no and to that accelerating the the goes we're revenue this of product some time seeing the it's progression and and short will it's with implants. subset that. a nice

of Biologics there in. as be currently is space or constantly either we relationship Biologics competing product we're determine then product going the pathway, cash. order licensing best not to and what's to the there in expand a number within lot economic development that additional buy of Biologics we're distributions use portfolio look a or the decision we at example, or on an upgrade new make will Those to work So operating. of categories our is We anticipate do

to pillars our I think some cohorts the investment are I partner gap customers more but on aggressive portfolio exploit can internally. the probably sense the that that will the for of make develop to technology, that we've to got in valuable be that R&D Holo there to very and re-imagine organization

Operator

from our the Sidoti last with coming Jim We line Sidoti have of Co. question &

Your is open. line

Jim Sidoti

and changed Terry some sales So model has now and a super changes company their made to much teams. you your bit the quite the considering pretty distribution significant

becoming going think people story, Now the going you that that on that changes the do you be there have direction the do front place, in of of distribution forward? will in right digital think more a you more or you're

Terry Rich

an it's it's question Jim Yeah and evolution. a great

continue out competencies build those So access to and we the protocols add to those that various if player, the a technology. down and go digital begin to we willing will and to as they're to the want become but they it's have more to through support to trainings partners we going of whether sales come teams,

thought direct broad my internal both and to that move we'll path. in them organization a following the support committed So same to that and we'll to is have distributors are

Jim Sidoti

second update for then XXXX think And what burn end count cash an on my will the and where for think the you up year for the us can just will you be? give question Jon, you share

Jon Singer

first the which well The acquisition Holo the we is representative offering shares share quarter as count did will be impact the as of XXX the in that the we million, issued here. for

we the we use modeling for we I guidance, move this in the anticipate what capital year. then significant would at EBITDA anticipate through a as purposes and stage investment that's So don't working

improve of to in opportunity some certain there's categories. those think I

direction at you is the purpose EBITDA for of that gave of we you the think if year. guidance a around sense the I So to burn cash plus the just CapEx give look

Operator

Rich no time. call are at turn for remarks. will now further questions There the to back over Terry I this closing

Terry Rich

next everyone. today look you our us on quarterly joining for call. We our again progress forward updating on to Thanks

Operator

conference today's concludes call. This

You may now disconnect.

Surgalign (SRGAQ) 17 Mar 212020 Q4 Earnings call transcript