SeaSpine Holdings Corporation

Ladies and gentlemen, thank you for standing by. And welcome to the Q3 2020 C-Spine Holding Score Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance during the call, you may press star zero. And I would now like to hand the conference over to your speaker for today, Leigh Salvo, Investor Relations. Ma'am, the floor is yours.

Thank you, Carl, and thank you all for participating in today's call. Joining me from C-SPINE is CEO Keith Valentine and CFO John Bosjancic. Earlier today, C-SPINE released financial results for the quarter ended September 30, 2020. During this conference call, we will make forward-looking statements within the meaning of federal securities laws in regard to our business strategy, expectations, and plans, our objectives for future operations, and our future financial results and conditions. All statements other than statements of historical fact are forward-looking statements. Such statements may include words such as believe, could, would, will, plan, intend, and similar expressions. You are cautioned not to place undue reliance on forward-looking statements. which are only predictions and reflect our beliefs based on current information, and speak only as of today, November 9, 2020. For a description of risks and uncertainties that could cause material differences between our actual results and those stated or implied by the forward-looking statements, please see our news releases and periodic filings with the SEC, which are available on our corporate website, www.cspine.com and www.sec.gov. I will now turn the call over to Keith Valentine. Keith?

Thank you, Lee. Good afternoon, and thank you all for joining us. In my prepared remarks today, I will discuss the key highlights of our third quarter, provide our current views of the market environment and color as we close out the year. Sean will go into more financial details of the third quarter with some additional guidance on our expectations for the fourth quarter. We'll then open the call for your questions. The C-Spine team continues to rise to the challenges presented by the current environment, and we not only aspire to deliver the highest quality patient care, we are building an even stronger company for the future. C-Spine starts with the strength of our employees, and I am thankful for the dedication and passion of our entire team. Our future and our commitment to making a positive impact on spine patients' lives has never been stronger. The spine market continued to be impacted by the COVID-19 pandemic during the third quarter. However, we saw a significant increase in the number of spine procedures performed in the U.S. as the quarter progressed. Many of our surgeon customers have communicated to us they have worked through most of their backlog of spine surgeries and have scheduled cases deep into the fourth quarter when patient demand is typically most robust. However, We are closely monitoring the recent uptick in COVID-19 cases both in the U.S. and globally to determine if that will once again impact surgery volumes as the fourth quarter progresses. Turning to our third quarter results, in line with our announcement in early October, total revenue in the third quarter was $43.2 million, reflecting an 8% increase compared to the prior year period. In the U.S., which comprises more than 90% of our total revenue, we posted 10% year-over-year growth in the third quarter. Our growth in the U.S. was primarily driven by three factors. First, our continued cadence of new product launches and quick, urgent adoption of those new and recently launched products. Second, the recent contracting wins in some meaningfully large health care systems and lastly, by further expansion and diversification of our geographic revenue footprint. This diversification was especially beneficial in light of the continued COVID-related surgery restrictions that many of our surging customers faced during the third quarter. More specifically, California, Texas, and Florida, which combined have historically accounted for approximately 35% of our U.S. revenue, collectively grew less than 2% year over year in the third quarter. However, our total U.S. revenues still increased by 10% as we took share in new markets. We are also generating revenue growth from higher revenue per case as recently launched products allow us to participate in more complex surgeries and from increased utilization of our spinal implant systems and orthobiologics products per procedure. which we believe is the result of the more complete and complementary product offerings we market today. For the third quarter of 2020, there was an average of 1.9 C-spine products and systems used per procedure, compared to 1.7 in the prior year quarter. We have more opportunities to further diversify our revenue footprint and drive accelerating growth in the U.S., both from our tenured core distributors continuing to hire more sales reps, which has been driving accelerating growth in existing territories, as well as from onboarding of new core distributors in currently underserved markets. We are particularly excited about the upcoming alpha launches of our Admiral Cervical Plating System and Meridian ALIF Interbody System. as these products have been important catalysts to attracting new core distributors and for the hiring of additional sales reps by our existing core distributors. All in all, we are quite pleased to now be generating meaningful revenue growth in the U.S. from these important sources. They will no doubt be important drivers of our expected return to double-digit revenue growth if market conditions and surgery levels maintain at pre-COVID levels. Shifting gears to NASS, as many of you know, the annual meeting was held virtually last month. While disappointing that it couldn't be in person, especially since it was scheduled in our backyard of San Diego this year, we virtually showcased the benefits of our recently launched products and highlighted our increasingly comprehensive product portfolio. We're most proud of the four podium presentations related to C-SPIN research and products that were featured at NASS this year with two papers receiving best paper designation. Additionally, just last week we announced the publication in the Journal of Bone and Joint Surgery of a preclinical study that concluded the cells in cellular bone matrix products did not improve fusion or bone formation, and that C-spine's demineralized bone matrix product, Osteostrand Plus, outperformed the cellular graft products that were tested. These research papers and studies are foundational elements of our culture and mission at C-Spine to differentiate our products through strong science and compelling data in an otherwise very crowded field. Furthermore, this study substantiates the increasing payer and provider pushback we see around cellular bone matrix products. When combined with the previously published preclinical study comparing the osteostrand DBM fibers to six leading competitive DBMs, we have a robust set of scientific support for our differentiated DBM offerings. With respect to differentiated product offerings, the C-SPINE team has remained committed to maintaining a steady flow of new product introductions consistently throughout this year. Most recently, we initiated the limited launches of our Explorer TO expandable posterior interbody system and the Waveform C interbody implant system, the first of five 3D-printed interbody devices that we anticipate launching by mid-2021. Collectively, the expandable and 3D-printed interbody platforms provide C-SPINE with new or significantly greater access to a more than $800 million market opportunity. Additionally, we are very pleased by the quick market adoption of our NorthStar OCT and cervical facet fusion systems, which we launched on a limited basis in June of this year. These key additions to our portfolio, along with the full commercial launch in August of our Shoreline RT cervical interbody implant system featuring Reef technology, helped push revenue from recently launched products to 66% of U.S. spinal implants revenue in the third quarter of 2020. Looking forward, we are focused on launching more new products over the next two months, including a line extension of our nanometalline regatta lateral implant, which will include a modular locking plate and will further extend the application of reef topography. the alpha launch of the Meridian no-profile anterior lumbar implant featuring nanometalling and reef topography that includes both a screw and an optional modular locking plate, and a next-generation anterior cervical plating system under the Admiral brand name designed to complement our highly successful Shoreline system. We believe the Admiral plate's ease of use, robust instrumentation, and differentiated driver engagement will help us take additional market share in the cervical market. In the thoracolumbar franchise, we continue development efforts to extend our foundational Mariner modular pedicle screw system for more complex adult deformity surgeries. We expect to alpha launch this new application of the Mariner technology within the next six months. Finally, We are progressing on many leads for the placement of the machine vision image-guided surgery platform that we are co-marketing with 7D Surgical. There is a growing awareness and interest in this enabling technology. Just this past week, we hosted three days of workshops in our Carlsbad cadaveric training facility with a number of surgeons from around the country to highlight the clinical benefits of the 7D image-guided surgery system. Recognizing the relatively long lead time to place this type of equipment, we are optimistic that we will close one or more of these opportunities in the next several months. Our ability to place units of this enabling technology in a capital-efficient manner for hospitals will be particularly valuable in the current environment as hospitals are likely to continue restricting their capital purchasing budgets due to the financial impacts of COVID-19. Despite the business challenges and changes to the market landscape throughout 2020, we have delivered on our effort to continue expanding our product portfolio, capture market share, and limit cash burn. Looking ahead to 2021, we will once again prioritize product launches, most importantly, the migration of the many alpha launches delivered in 2020 to full commercial launch, the addition of more core distributors, and a deeper penetration into existing territories with more sales reps hired by those core distributors. Before I turn the call over to John, I want to reiterate our continually increasing confidence in C Spine's position as a leader in surgical solutions for the treatment of spinal disorders by providing products and systems that are engineered for fusion. Working with our core distributor partners as surgeon customers And with additional insight from our Surgeon Advisory Board, we will continue to plot a course for innovation and aggressive product commercialization, strong scientific data, clinical responsiveness, and superior customer experience that we expect will lead to sustained and long-term double-digit revenue growth when we ultimately emerge from the disruptive impacts of COVID-19. With that, I'll turn the call over to John for a recap of Q3 financial results. John?