- Earnings call transcript Q3 2022

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Operator

Greetings, and welcome to the Surgalign Holdings 2022 Third Quarter Earnings Call. It is now my pleasure to introduce your host, David Lyle. Please sir, you may begin.

David Lyle

Thank you, and good afternoon. I'll start today with our customary forward-looking statement disclaimer and then turn the call over to Terry Rich, our CEO, who will provide updates on our business operations and key milestones. our remarks financial from review followed and then closing by Terry. will third results quarter outlook I

We will then open the call for questions.

our time-sensitive be Q&A or associated webcast, management cautionary of that Additionally, today everyone that I'd or Surgalign as November Thunander, only Chief business. forward-looking this statements call These is remind Officer and this to is Chris and today's with like company's after making statements with about and the today's to differ of and will broadcast, in no of available date portion the due statements obligation operating events will on during contains and circumstances earnings conference update our release live call. forward-looking financial date the Accounting results or This are and information forward-looking X, future could any of undertakes the strategy the XXXX. uncertainties call. contained filings. these be performance. from Surgalign's materially implied to accurate risks statements stated those reflect qualified future statements by events, to us revise Surgalign's SEC by Actual forward-looking business call conference

to over the In results. of release turn Please GAAP see reconciliation With include for a now addition, today's that Terry. I'll call further a conference non-GAAP may non-GAAP this the of earnings call said, discussion financial measures. to details, including

Terry Rich

Dave, you, Thank good afternoon, and everyone.

the looking on remainder in years XXXX QX, business the our today, build of During during focus we're outlook what I'll three areas: ahead. my progress our remarks and through to

for and previously was QX in our but grow I'll long-term not shortly, believe While we our anticipated discuss be changed. has will softer positioning quarter line with sequentially revenue QX, than reasons third

both the HOLO team through done. Biologics we significant prospects and growth platform, growth product for AI job the to for and our get our Spine portfolios opportunities and have We have

our have we place is strategy shareholders. to sustained execute priority our generate highest the partners, ensure and to for in financial Our near-term customers, value and resources long-term and

revenue we as As in economic works softer than lighter strengthening line quarter the continues QX against with and international U.S. in previously for mainly third to us. was dollar the U.S. expected, little a market world as the pressure due a around had was QX. revenue

months, are fourth with low previous corner We We or seeing about still worse volumes excited inconsistency but into going than summer the quarter. rather revenue throughout remain no turning procedural the finally quarters. the our

perform as third We including of products, strength turning pedicle our are already seeing snapshot, system. as to planned in high-level continued month his months we remarks QX with and expanded new shortly. believe our strongest the the QX, our year. procedures revenue guidance utilizing in screw will Why reach further point? in new We more came in surgical more Portal do launch the Dave and system it October partnerships we HOLO During the That's ahead. provide our and is details

ever FDA enhance We of billion had organically gaps. pedicle and us, for surgical initiative invasive System, Cortera system was a screw fixation major minimally Cortera's offering designed is our innovation developed Fixation front, a navigation. posterior first was who and number internally into by designed, market. portal the our offerings to at $X.X we the was Spinal comprised insights engineering competitive invaluable system network be an received integrated needs, The the our milestones. On team This leveraging with and Cortera screw open advisers in medical product market our provided Surgalign. HOLO of of expanding will and pedicle XXX(k) for

since based technologies Cortera this applications. with the other advancing we cervicothoracic HOLO packaged two to simultaneously solution a insights on Portal perform the into expand together have cases and and expand to system innovative to system professionals fusion multiple care implants spine procedures, continue over health and be believe the discussions we will while to QX with XX will at We great already Cortera instruments Alpha spinal have adviser The performed end launch accounts. date, of XXX(k). medical and will was toward Surgeons

on a call, Our October than plan I were is that Cortera a Xx QX but greater release more were events. broader and add for revenue XXXX, September. limited other in market launches in was in that will than and our QX addressed QX launch Two generated

The I ALIF with family Anterior or XD-printed Lumbar our first, interbody gain to is technology. for And titanium TiPlus suite the first used facilitating product the Fortilink XD-printed with growth marks portfolio expect starting interbody of TC market. recent entry the is our and as traction, We're noted, procedures. launch Fusion Interbody TiPlus This adoption. in cages enhancements titanium both XXXX of into we and in and the product

enrolled anterior on PRIA cervical of into patient anticipated up throughout Surgalign been the discectomy our program on one have was launched half is QX. second, on working our two CervAlign now This Healthcare program. invasive the Interlaminar earlier Coflex update sellers achieving solution is products growth. procedures. SImmetry, of that and key minimally-invasive of system fusion -- accounts that to this and market. see spine. preservation a of patient Plate access Coflex launched to the it leading by is with a Fusion launch close fusion. minimally motion access around the and have and in The introduced Cervical access and a the continue Fusion foresee fusion are lumbar our our and principle maintains future adjacent Joint partnership the over first device We've over the commercial addresses these figures and which the sets for will and joint, Joint was we we redeployed. XXX in With XX mobilization Since ACP is CervAlign joint the SI SImmetry stability orthopedic to company of that the grow, to and surgical one industry designed a patient to of only product This about category the product bones. our the product best Anterior is improving posterior We XXXX our a focus offerings, surgeons An year flagship in SImmetry when program, in ramping we of and optimism the System. decorticates growth system source Stabilization standard SI supply arthrodesis,

HOLO, of way we've FDA Portal surgical even HOLO is change and we are Josh to sites four about excited site the procedures prospects and of with that being receipt spine. the early HOLO's surgeon differentiated more on can with Moving valuable a stages with performed, technology orthopedic have spine and we growth and commercialization, believe by Dr. XXX(k) in cleared Virginia, become secured have OrthoVirginia. performed board-certified very Herzog, starting are in Richmond, cases since fourth the

shortly issuing be it this Dr. will Herzog's testimonial, the our release a Portal mirrors and We on can with what test which in do. along HOLO belief

and I expectations really the in cases that we mission. to. on said, that pathologies believe quarter, have algorithms And are anticipated HOLO, XX are given anatomy. train of will we need The AI over we goal additional XX With high, close interest improve of XX currently confident to running. its and very up am XXXX year. is is working on will and Herzog for to our sites only extending issues, and out for comes nature the including Improving and we could our up XX this enhanced and and patients. be that But to one ML to we technology we somewhere is Due it the sites ability sites precision use the growth as increased the be and and close approval This patient regard by the down be this XX conservative my outcome what outcomes, environment. we Dr. cycles, and As between running. recovery long enabling technology staffing to continues to review continued

promise regarding quarter, than its to accounts is Our with fund a quarter than pursue regulatory apply and and up partners and this update XX in the version has to would to from to and MRIs to of the new plans. XX stenosis quick more longer release require clinical Though future The platform use sites of from QX second clinical the streams. our future and analyze XXXX, technology on support today, the allow to much testament HOLO. to HOLO over AI year, of doubled and approvals the This will version We very results a to which type expect outcomes. again, In we plan new in interested treatment patient last initiatives us we half on research applications. ability opportunities degeneration. An for front patient see diagnostic disc remarks are Two AI HOLO attainable. capital since this research. technology will our application of last my open revenue platform growing in of assist of development for great improve and other avenues points pipeline commercialization and more for the to

voted our the panel care. at innovative HOLO HOLO the improve Orthopedics ago, We featured in leading demonstrations addition XX, New This publication big was few a presented by next our most system. was Equally, as we research Portal won this of read weeks in by award Just hands-on of achievement we not field. technologies on at Meeting Surgalign and Portal. important, HOLO our if live a a Spine as our Portal Best booth was week. received At in October industry the recognized of for also more HOLO with surgeons Spine HOLO Portal and unanimous as the the Technology Portal Annual exhibited Award generation winner NASS, XXXX to spine to by Biologics this widely experience clinical products NASS where the

time at positive with SMISS prior, Vegas event. and our at the weeks many Just few Lab HOLO ever we exhibited both Cadaveric interactions pipeline. customers featuring and for events, to Portal MISS relationships first current very both on an industry a build participated new We Track Las receptions and forge the had in in potential

Both which the agreements forward our has without August, been with supply provisions. allowed this new since. All chain parties litigation additional an we from Also in have shareholders. claims litigation us. the a potential behind the settlement with released extending uncertainty during a with reached the momentum move years the issue that settled. SEC, relationship business and to and in third global the addressed settlement announced past OEM and the the bigger we agreement our of we had legacy overhang RTI to issues of sale quarter, XXXX, August, July business In we of The successfully two remained from stemmed business been our RTI. have two updated reached for for company been and us Beyond has relationship have put

transforming As our deals XXXX RTI. resources, a prior on the then the an are case I'll going over give into hand. business the update to executives investigation and activities to dating turn former not on back current with form human also back XXXX in come management, related financials not Dave our the to frees but with again reminder, comments. of from stems This closing These business now to only a team. activities, which and up two at matters call past, capital through capital the to I'm review few to financing

David Lyle

and QX. past of quarter, in as macroeconomic quarter most softness procedures in we million We as $XX.X year-to-date find earnings and continued as release. U.S. and issues where and can availability XX-Q volume comparisons market press $XX.X versus revenue with resulting to in We experienced QX conditions, million some our of fewer provide a to to today's sales despite year-over-year QX. Similar volumes. reported result line going QX QX current compared the in sequential procedural our and comparisons sales the Terry. pressure. the were for Thanks, lower third International is product issues I'm

anterior which of decrease modestly an a to cervical improvements ViBone, innovations. we from the particular improvement related up for XXXX second saw on Within they basis cervical quarters of Surgalign here. XX.X% the as sales as was to profit products innovations GAAP our we in to Sales we ahead. growth we new of of QX system, expense sequential quarter opportunity Excluded went excess and these and to sequentially. contribute the and just biggest quarter, margin gross in new was which in are sequential U.S., plate increase favorable covered following margin basis obsolete one XX.X%, XX.X% screw infusions QX beyond. a believe in in were non-GAAP CervAlign, XXX for product relaunch, our and expect accounting better the biomaterial discectomy as launched, incurred. with Cortera in sequential points anterior adjustment. very its within I products, have Product late compared and well, a inventory sign contributions sequential our will product a lines the XX.X% from our primarily was the pedicle was new grow price the XXX a in a third that improvement for gross mix points $XXX,XXX QX and shift purchase Non-GAAP an to from gross was basis compared and

lower accounting expense adjustments non-GAAP of $X.X improvement. noncash $XXX,XXX. on $X as Adjusted integration with On was $XX.X issues was ability and gain loss non-GAAP Moving as most this asset roughly a on a value expense. a product a of million compared in in basis, $X.X QX lower operating excluded revenue, volumes Europe. with in environmental EBITDA offset higher and QX to to in expense due adjusted gross delays, QX lower compared $XX.X lower million of impacting expense. our loss was a shortages, expense million to and procedural approximately QX with hospital $XX.X in $X.X was were QX in of from to for basis, EBITDA to compensation by of staffing $XXX,XXX gross put improvement operating non-GAAP of our primarily contract QX the stock-based operating and expense million impairment, transaction perspective, macro operating $XX.X to expense availability, million, in impactful and and higher but QX, operating the financial margins of abandonment million expense To QX, non-GAAP fair million milestones, slightly an a margin grow results in line million

as from growth products Internationally, at volumes levels. some in implant launched sequential minor U.S. just anticipate we QX. stabilizing new more than expected and procedural expect revenue expected muted still revenue growth remain with but We hardware QX growth previously over growth lower

but million. previously to we expect times XXXX in in QX, HOLO, revenue expected, at contracts. For less factors of are the to close $XX These to leading lead our range outlook sequentially million $XX grow given revised longer than to

corporate higher international be to We nonrevenue-generating declines QX margins as low remain percent revenue, international margins expect grow and in product And for capital U.S. well. gross could expenses gross is our and both and gross range to higher We conserve there XX% the margins. Portal as lowering margin non-GAAP gross upside trend some capital of we development. outlays, as commercialization to continues to in HOLO free longer-term. weakness revenue, improvement than and gross tend margin if resources support remain laser-focused on CapEx both up higher

lowered of moving be basis with stringent period further our year we in our expenses to XXXX. a our each at cost coupled and a expect Looking a and into more in operate expenses, G&A lower expense have to on series quarterly lower through we efficiency of enhancements, policies, position expenses QX this organizational

plans now to QX with have time. and position of lower the XXXX, on further efficiencies operations, I depending note begin optimization We additional improve anticipated at will to financial financing the streamline programs of expense our brings design and developed in majority and throughout that balance to R&D initiatives. have invest of and and in capabilities, the we engineering the that me are fluctuations continuing innovation status our minimal product which year, to sheet our been expenses

operations, $X.X million $XXX,XXX capital outflows XX, capital ended We've changes in and cash for our in of $XX.X decline million used were First, to us net working cash as equivalents that $XX.X or balance $XX.X XXXX, million. of million in throughout Key and million stated the year-end, compared other in third by the quarter year million runway around in QX. from cash early We sheet. required into inflows. be expenditures, the June additional cash gets cash would given cash with $XX.X $X.X a financing

the seeking least well at straight instruments, looking and debt debt equity equity been as to path alternatives. have financing, We combinations dilutive as

all We to and parallel available with are multiple paths evaluating us. working advisers board options our on

as as do we earlier, result. I a weeks, In challenge number of a longer, and interim, number plans we progress taken But remain volatility past on we the laser-focused cash and finding able instituted potential shareholder have the received proposed been to and we haven't that documents. this Over front, reducing few a The has the market been spend process to indicative for and of path transaction. our On have date, greatest and to to cash players more. returns. removing savings initiatives headwinds to terms a mentioned definitive have has a leads

Now to over Terry. back call the I'll turn

Terry Rich

last our and Thanks, we have and have off support, the hold both We've have Many developed Dave. HOLO our been years new not that but And provided opportunities growth strong the significant. HOLO Surgalign, customers and past abroad, lot serve. AI is over comment. community the patients products I'll value with promise, distribution, our then HOLO they two to build both large accomplished and medical a which the and great of been Portal both of platform, at for just for there their domestically

been as resources the received. to be value greater Our open and ready in appreciate front more. value this and we're now greatly we to realize We're believe asking to years and vision We for is to now call options shareholders need is We assets the support the included is need into a our there time we've for the value questions. all in for explore Operator, realized. challenge us. of right ourselves tough reality know we it's few turn securing

Operator

you. Thank

begin We will Instructions]. the [Operator now question-and-answer session.

comes with from Please Capital Hewitt ahead. Our Group. Craig-Hallum first Matt question go

Matthew Hewitt

one, the missed and or the you have that first Thank for questions. how I the Maybe a trending? but quarter do number this, apologize procedures for completed if and I update of HOLO afternoon. you the were during taking Good that's

Terry Rich

not at on the about those procedures was surgeon excitement it progress as the and this surgeons point, making just units. the and results first mass incredibly both are unbelievable. the reception as received we're booth no, for yes, the Hey having done it unit, time, at great Matt, by in HOLO had encouraged we the we reported have cases well But having

Matthew Hewitt

That's great.

utilizing occur? that Regarding has anticipate that when HOLO do used been in yet Cortera, you or could

Terry Rich

Yes.

in that just done We with have yet. cases We're with HOLO the Cortera. not conjunction Alpha doing

launch, HOLO, I get look long we it think incredibly then with commercial don't the take in year. to as suggest So the through potentially next integrate time full we'll release Alpha should an with conjunction

Matthew Hewitt

Got it. rollout. the measured that plan know to with And then a was I originally do HOLO,

be you can hearing existing with rollout You've of trying here on just working as publications very FY of get drive like little I'm that the 'XX? trying of do in I'm elsewhere. expected it's the bit foresights are look a QX. whether things in, now Thank that reasons And what expedite curious, those -- growth, utilization? of we a the to levers QX can just to bit, of it, or with to I ramp you. sounds maybe faster think drive to ramp quicker. it and up think little kind at environment to all Or a it'd the up could that I'm up challenging mentioned, we're that so ways But little and number there that bit to environment we're that awareness some have whether that given maybe a a you maybe it's is just you set you targets sites to the But the you incremental anything get

Terry Rich

through sites huge. number with a Matt. Thanks, having HOLO number The increased of be to as surgeons will ability been number look on around we hospital It been a in these We additional of than assuming been we've Again, funnel to to got able feedback exciting. we next. not the seeing that the now, it bringing of very put back absolutely the the this units. course. shows of things. through engagement processes. has the half contracting we're that these And one placements issue huge. have That's been of fact, surgeon get and accelerate We've in trade that is a the And which delaying into Yes, interest. more has look, has result got believe we're year the there

getting these through processes So in contracting of a them. bunch it's we're just and engaged about

So you. thank

Matthew Hewitt

All Got you. Thank it. right.

Operator

Ladies no questions. and further call. you. gentlemen, are there This Thank as today's concludes

Terry Rich	Chief Executive Officer
David Lyle	Chief Financial Officer
Chris Thunander	Chief Accounting Officer
Matthew Hewitt	Craig-Hallum Capital Group

Surgalign (SRGAQ) 3 Nov 222022 Q3 Earnings call transcript