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spk02: Welcome to the Aurora Spine third quarter 2021 financial results conference call. I would now like to turn the call over to Adam Lowensteiner with Lithium Partners. Please go ahead.
spk00: Thank you, Gary. Good afternoon, everyone. Thank you for all for joining us today to review the financial results for Aurora Spine's third quarter results ended September 30, 2021. With us on the call representing the company today are Trent Northcutt, President and CEO of Aurora Spine, and Chad Klaus, Chief Financial Officer of Aurora Spine. Before we begin, I would like to remind everyone that statements made during this course of this call may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Act of 1934. These statements reflect current expectations concerning future events and results, words such as expect, intend, believe, may, will, should, could, anticipate, and similar expressions are words that are used to identify forward-looking statements. but their absence does not mean a statement is not forward-looking. These statements are not guarantees for future performance and are subject to risks and uncertainties and other important factors that could cause actual performance or achievements to be materially different from those projected. For a full discussion of these risks, uncertainties, and factors, you're encouraged to read Aurora Spine's documents on file with CDAR, including those set forth in periodic reports filed under the forward-looking statements and risk factors section. Aurora Spine does not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. On this call, management may refer to EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, which are not measures of financial performance under generally accepted accounting principles or GAAP. Management believes that these non-GAAP figures, in addition to other GAAP measures, provide meaningful supplemental information regarding the company's operational performance. Investors should recognize that these non-GAAP figures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition to and not as a substitute for or superior to any measure of performance prepared in accordance with GAAP. A reconciliation of non-GAAP measures to the most directly comparable GAAP measures in accordance with SEC Regulation G can be found in the company's earnings release. With that now, I'd like to turn the call over to Mr. Trent Northcutt, President and Chief Executive Officer of Aurora Spine. Trent, please proceed.
spk04: Thank you, Adam. It's a pleasure to be here. I'd like to welcome everyone to the Aurora Spine Third Quarter 2021 Financial Resort Conference Call. Earlier today, we issued a press release detailing our financial results. Hopefully, you've had a chance to review the news of this release. But if not, a copy can be found on the website at www.aurora-spine.com under the investor section or other financial websites that are listed on this release. To lay out the agenda for today's call, let me first summarize a few events of the quarter, including some brief commentary on the numbers. Then I'll talk a bit about the statutes of each of our key initiatives and products, including the highlights of our new pain division, the products such as Silo, Zip, and our initiatives on the spine division, including the new DEXA product platform. Chad Klaus, my CFO, is here, and he'll be joining the call with us. He can give a recap on the financial results. He will conduct a Q&A session at the end of it. We will conduct a full review. The key event in Q3, overall, the third quarter produced solid results and demonstrated that the issues experienced from COVID-19 started a starting look behind us. While there still may be some pockets in areas that surgery cancellations can pop up here and there, overall, the business didn't experience any injury slowdowns for us in the third quarter, like the other companies in our industry did. As seen, Aurora actually surpassed pre-COVID revenue levels and showed the growth year-over-year, as well as sequential improvement from the second quarter. During a quarter, we decided to tap the capital markets and successfully raised $5.1 million. I'd like to clear up front my comments that additional capital was to strengthen our capital structure in order to certain key investments in order to accelerate growth efforts in several of our new products. As we've now clearly fully coveted in our sales proprietary of our products from third-party products, We now prepare to approach more doctors, more surgeons, and immerse in more of the suite offering that Aurora has to offer from a product standpoint. To do so, it was imperative to add more manufacturing capabilities, add some inventory, and build up more of our kits, which contain an amount of instrumentation to conduct procedures in an effective way in hospitals and surgery centers. If we couldn't supply the products to the doctor surgeon, then we would have run the risk of losing those accounts, which we put so much effort towards gaining. In addition, with the infusion of the new capital, we also plan to hire several new direct sales reps in key strategic markets around the U.S., and this would be both in our spine and our pain division. The demand was apparent on the pain side of the business. This pain management division we saw was growing, which we had established a year ago that caused more of a phenomenon of growth. Let me take a step back and explain what was going on in the pain market when we entered into it. We have a few products that we introduced to the pain market, specifically with the Zip product and the Silo product. It has been experiencing many spine care practices which have an established pain care offering within those practices to implant new treatments to treat back pain prior to sending them to a patient to final surgery. Aurora's products have been able to assist in the pain interventionists and the pain management doctors to help treat that patient with a quick and seamless manner of recovery. This avoids the need for a longer surgery and also helps that patient get recovery in an area where they might not be able to sustain a long-term surgery or even a short-term surgery. Aurora's proprietary products into the pain market have offered patients and doctors a new solution that they can offer this patient for their chronic back pain or pain recovery. A little bit of background on this is that the pain market is an emerging market where the pain interventionalists are actually performing more surgical-based procedures, such as SI joint fusion and interspinous device fixation and fusion. This is allowing the patient to have a procedure performed in an outpatient setting where the patient can actually have a recovery of their back pain, their disc degeneration, or their SI joint degeneration. This has been proven in our cadaveric labs, our biomechanical labs, and now we're starting to show it in our short-term results, and we plan on continuing to build off of this because what's happening with Aurora is that we're now entering into a multicenter study with our ZIP implant, that is focused on the pain interventional market, and our silo SI joint system that is now addressing the SI joint pain needs. And our silo product, which is evolving into a new system in the coming year, will also be part of a new multicenter study. We will have two parallel path multicenter studies running in 2022. Other areas that we have advanced during the quarter is our new DEXA technology. We received our patent last year, and we applied that product into this year's development. Last year, the patent hit the ground running with this first-class DEXA product, the DEXA-C, which retained FDA clearance during the quarter. This patented technology allows us to create a series of implants manufactured with varying densities in order to match that patient's bone density and T-score, which should employ superior fixation and promote quicker bone growth. We are now working towards commercialization of this product and plan on securing its use in the initial launch of this product before the end of the year. In addition, we are identifying several key proprietary Aurora products that are asserting which will offer the use of DEXA technology. So it's a complete technology platform for Aurora where we're deploying DEXA technology to help leverage the technology by pursuing maybe licensing opportunities with other med tech companies that are outside of the world of spine. And this would help benefit the patient from an implant standpoint where the patient would be better suited for that patient's bone density. Okay. So we're focused on this, and we think it's a really key initiative for us in this quarter and going into next year. The market overview and dynamics of this new product and our clinical studies, we couldn't be more impressed with our faculty that we've asked to help participate in multiple cadaver labs around the country. We trained over 200 doctors this year, and we will continue this trend going into next year. So to summarize, I'm extremely proud of our team's performance and staying focused during a turbulent time, but staying focused on building the company through the pandemic and all throughout this year staying focused on our goals. We are well-positioned to take advantage of several new initiatives, including new products and new platforms and new surgeons and new doctor approaches. and looking for a long-term as well as a well-positioned for success. The company is well-positioned for the success growth, especially as we have launched these new products and have new products that we'll be launching, along with more clinical studies, proving out our technology, and teaching more doctors using the Aurora products. Good news is that the pandemic is mostly behind us, and surgeries have resumed. I'd like to take a moment now to introduce to Chad Klaus, our CFO, and I'll turn the call over to Chad Klaus for the third quarter financial results. Chad?
spk03: Thank you, Trent. Happy to be here. With the numbers highlighted in detail in the press release, let me focus my comments in a few areas and provide some added color. Revenue during the third quarter of 2021 was $2.9 million, an increase of 22% compared to $2.4 million in the second quarter of 2021 and $2.4 million in the third quarter of 2020. Sequential improvement in revenue was driven by strong usage of proprietary products, especially the ZIP device. Gross margins in the third quarter of 2021 was $1.4 million, or approximately 45% of revenue. This compares to gross profit of $1.1 million, or 48% of revenue in the third quarter of 2020, and $1.1 million, or 4.1, 41.4% of revenue in the second quarter of 2021. Gross margins showed continued progress improvement on a sequential basis as Aurora shipped more proprietary products. Proprietary products in the quarter were 69% of revenue and rose as high as 75% in the month of September. Margins could expand beyond these levels as we incorporate more proprietary products. In the interim, there are some added costs, like increased shipping costs that have held margins in the area they are now. But as we expand the amount of kits we have, that should create more efficiencies. Total operating expenses for the third quarter of 2021 were $1.7 million compared to $1.15 million in the comparable quarter of 2020, but sequentially lower from the $1.9 million in the second quarter. These expenses were within our range and were due to continued investment into building our sales and marketing initiatives. Investors should anticipate these levels to remain in the coming quarters. EBITDA in the third quarter of 2021 was a loss of $0.2 million compared to $0.5 million in Q3 of 2020, but improved on a sequential basis from Q2, which was a loss of $0.5 million. The decrease year-over-year in EBITDA was due to higher operating expenses compared to last year and receipt of PPP loans last year. Net loss in the third quarter of 2021 was $0.4 million, or one cent per basic and diluted share, compared to $0.336 million, or one cent per basic and diluted share in Q3 2020. Net loss was $0.7 million, one cent per basic and diluted share in the second quarter of 2021. The improvement in Q3 from Q2 was due to higher revenue levels and slightly lower operating expenses. Turning to the balance sheet, the company strengthened its balance sheet to capital raise net of fees of $4.5 million. These funds will enable the company to secure the necessary inventory to ensure product availability to surgeons utilizing our products in their practices. We also would use the capital to add more salespeople in both the spine and pain markets to educate more doctors and conduct more training labs in various large cities around the U.S. Now that the business has stabilized at nearly pre-COVID revenue levels, we should continue to demonstrate additional stability and improvement in the coming quarters. At the end of the third quarter, we had cash for nearly $4 million, a increase of $3 million in the prior quarter. We exited the quarter with $2.7 million in receivables, nearly a million-dollar increase in the quarter, of which $0.5 million was collected in mid-October and should be reflected in Q4. We are working to improve our cash collection, but we are confident in our current system and have been able to use the capture collections within 60 days. As the business has recovered and our operating expenses have been tightened, and as our operating expenses have been tightened, we believe that we are positioned for more stability and growth in the coming period. I'll now turn this conversation back to Trent.
spk04: Thank you, Chad. Before I open the call for questions, I'd like to conclude that we believe that the company has stabilized from COVID and should continue to improve as we move further away from it. And more surgeries get booked. And we are also being very prudent about our newly invested capital. We plan to deploy some new initiatives in the coming quarters, including building inventory and additional kits and making some new key hires to improve our sales and Given our very unique situation as an innovative medical device company, we remain very confident that the opportunity creates essential long-term growth and value for our shareholders and stakeholders. With that said, I'd like to pass along to Adam a call and proceed to begin with some questions.
spk00: Thank you, Trent. Thank you, Trent, and thanks, everyone, for emailing me some questions here for the management team. Trent, any update on the trials you're doing with Silo and Zip? When will those be completed, and how will they help the company?
spk04: So the Zip trial, we're really encouraged and excited about the Zip multicenter study. We have over six sites selected out of the first ten sites are selected. and we have began to collect that data. We have a weekly call on the ZIP study, and we're very encouraged by the very early, but very encouraged by the results that are coming in right now with the ZIP study. We, as another part of our study, is we have the silo system, which has a national registry began on that, and we are collecting information on that registry that is going to queue up a multicenter study for our silo SI joint system in 2022. We expect to begin that multicenter study as early as Q2 of next year.
spk00: I know there's the Silo TFX, which is your new version of the SI joint product. Any update on that?
spk04: Yeah, it's still in the hands of the FDA, so I can only comment on limited, but I can tell you that we're very encouraged and motivated by the biomechanics of the system and that we feel that this system is really going to offer superior outcomes for patients and perform really well in the hands of the doctors. So we're You know, we're anticipating a launch on this product in the first quarter of next year, hopefully in the earlier part of the quarter versus the middle or later part of the quarter. But we're encouraged by what we've done so far with all the testing and the data that we've collected and that we're submitting with the FDA.
spk00: Regarding DEXA, are you looking to only develop that on your own, or will you be open to licensing that IP directly? And also, are you planning on creating other DEXA products with other proprietary ROR products? How should investors kind of grasp onto the DEXA technology platform?
spk04: Well, it's a good question, Adam. And it really is a multi-part answer to your question. Is that – is that it's a platform. You know, DEXA technology is based upon that patient's bone density. And bone density matters because what's true with one patient and their bone density isn't true with, let's say, the next patient. And doctors know this. Doctors understand that the bone density matters on the patients that they're performing procedures on. And we are going to take the products that our core belief of products and our core structure of products at Aurora and we're going to apply the DEXA technology to those spinal implants and those interventional pain products that we believe that we can launch with that platform. Equally to that, we recognize that we're not in the market of total hips or total knees, in the maxillofacial market, cranial plating market, and there's so many other subsets of medical device, such as orthopedics and trauma and dental. So we see a real benefit to DEXA technology in those sectors of the market. So our arms are wide open for discussions on that platform for those technologies and those companies who are very good at that technology. So DEXA platform, the DEXA technology, is going to be a leading platform for Aurora and hopefully some other key companies that are out there that are looking at this style of additive manufacturing advantage over standard 3D printing.
spk00: Regarding the new product silo and the zip lines, do you feel that these can become major drivers of growth for Aurora going forward? And what sort of percentage would you expect that these products could make up the entire revenue base of?
spk04: Well, I see it as a major growth sector for Aurora. Number one, the Zip product has grown from the fourth quarter of last year to where we are today is that we've grown that product from 8% to over 40% of our monthly revenue number. So the Zip product is becoming an impactful product following up by all the trainings that we've performed, these cadaver R&D educational labs led by leading ortho and neuro doctors and pain interventional doctors conducting these over 200 doctors that we've trained this year. So we've seen a really impressive growth curve with our ZIP device, and we couldn't be prouder of this multicenter study with the ZIP implant. And that's really started to forge that path with the ZIP product. The silo at these cadaver labs, of course, we're teaching more than just the ZIP product. We're teaching the ZIP – I said the silo posterior SI joint system. That product has been terrific. It's grown now 20% quarter over quarter the last six quarters. So we've seen some really impressive growth with that product, and it's still in a limited – uh basis on our side but this is part of the reason why we took a capital investment because we needed to build more kits and with more kits more inventory uh we believe that we can reach new heights of uh financial growth uh because um you know if they build it they'll come right at least part of that is true uh but strategy wise the cadaver labs the training courses and having the inventory to support Those training sessions is really key, and I expect good growth out of the ZIP product line as we continue on in the ZIP study and as we continue to introduce the silo and the silo TFX product going into next year and also introducing the DEXA-C, which is the DEXA cervical product that we're releasing this quarter and going to be full-fledged release in 2022. Okay.
spk00: You mentioned before that you trained 200 doctors this year. Is there a number that investors can understand, a goal that you would look for for 2022? And when you do train these doctors, what is your experience typically after training? How quickly does doctor uptake happen?
spk04: Well, it depends. The answer to the first part of the question is we're going to replicate what we did this year and apply it to 2022 and advance on that. We're going to get more systematic about it. We implemented a a new CRM system to help us follow these doctors even closer and capture the information to follow up with them on the training courses and what they've learned and making sure that we're getting back with all the different 200 doctors this year and then 200 more that we'll do next year. There's always a ramp-up period with any physician a doctor, a surgeon that wants to use our product. So the lab is a great first step for them to be introduced to our technology, to see how it works in their hands and how it applies to that specimen that they've worked on in the lab. And then they go back and it takes a good 30 days for them to get on to the next surgery, to get that first surgery booked for them. Sometimes it's shorter than that period. Sometimes it's longer than that period. But we usually see if the doctor is going to move forward with the procedure. And some of these doctors who are training on some of our newer technologies have never done this before, so this is new for them. They're, of course, qualified medical doctors, and they have good hands and good skills, but it's a new procedure for them in their practice. So there are some steps that they have to take at either the hospital or the surgery center. and, of course, get themselves prepared for that first procedure and to get proctored, of course, to be able to perform that. You know, evidence-based and educational-based products is what we believe in. We're teaching these doctors how to use these products, and we will replicate what we did this year and next year with a nice, refined focus on getting the doctor more information, more education, so they can help disseminate that information to their patients.
spk00: I've got a couple questions here possibly for Chad. Gross margins are showing really good improvement quarter-over-quarter, sequentially. Are there any additional improvements there?
spk03: Well, I think our COGS are as competitive as any spying company in the market. Obviously, we'll look for any little efficiencies we can find in fluctuations quarter over quarter due to product mix, but I think we're very competitive in the spine market.
spk00: And expenses were higher year over year, but sequentially they were a little bit lower. Are these levels sustainable? How should investors look at the corporate expenses in the coming quarters?
spk03: Yeah, the increasing expenses are due to the study, to the cadaver training to do with the doctors and the R&D projects we've got going. They are sustainable, and I believe that, you know, the coming quarters it'll be, you know, it'll be about the same in the coming quarters.
spk00: And the burn was – the cash burn was fairly low, much improved this quarter and the third quarter, obviously higher sales and higher margins. How should investors look at it? Does this company now have enough cash to see throughout all these projects, product rollouts, new hires, clinical studies and such until you reach profitability?
spk03: Yeah, I believe we have enough cash on hand at this point to complete our projects, train doctors, expand our sales force. Yeah, I think we'll be able to pull that off.
spk00: Very good. That's all the questions that I have here. Trent, I can pass it off back to you for concluding remarks.
spk04: Thank you, Adam. Well, thank you all for joining us today. We appreciate your time and interest in Aurora Spine and Aurora Pain Care. We are very excited about what's ahead for us in 2022 and beyond. We look forward to speaking with many of you in the coming weeks ahead.
spk01: The conference is now concluded. Excuse me, go ahead, sir.
spk04: That's right. If you have any questions, feel free to always reach out to Chad, myself, at Aurora, but please feel free to reach out to Adam Lowensteiner from Latham Partners, and we'd be happy to schedule follow-up calls. Thanks again, everyone, for joining the call, and have a great rest of your day.
spk02: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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