Surgalign (SRGAQ) 30 Mar 232022 Q4 Earnings call transcript

Greetings, and welcome to the Surgalign Holdings 2022 Fourth Quarter and Year-End Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to David Lyle, Chief Financial Officer. you. Thank

begin. may You

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

for call We will up then questions. the open

be available Chris us will Additionally, our today our of Officer, Chief the with is during call. Thunander, Accounting portion Q&A and

by I'd and and like risks to Surgalign's making about today's results stated to remind associated these uncertainties financial company's everyone and implied business. materially events, performance. operating that forward-looking forward-looking the webcast, on call differ statements business future future those could be due management and with Actual strategy will from statements or

the as qualified call. to conference filings. contained statements XX, only accurate revise time-sensitive by date reflect today's forward-looking undertakes any statements contains events the this of or XXXX. conference SEC to call cautionary of These Surgalign's circumstances Surgalign or release forward-looking obligation This broadcast, no live earnings of after date statements this March the is and that update are in information

results. a In further today's non-GAAP financial earnings the this details, of discussion release including call addition, may measures. conference to include GAAP for non-GAAP of Please see a reconciliation

said, the Terry. turn call now With I'll to that over

and the platform. quite and plan, over lines, Coflex been Thank HOLO CoFix closing our We've AI of past months, enhancing you, sale and executing further HOLO Dave good and our portal the busy several on restructuring afternoon. our product

us sheet, restructuring. our of our program a growth, drive begin Much lower much centered cost, operationally. put with position to our balance Last we November, announced update in stronger restructuring I'll today planning an long-term strengthen and resources a for line required that resources or both years been financial as ROIs not support capital the had to and low had products a of them. and had human product number decline only on we rationalization on for on operational

the approximately reduce plan, amount in than eliminate product removing in Our which by a which resulting evaluation turn product lines costs, revenue our performing reduced infrastructure from and more will will of resulted lines. lower offset enable us large to two-thirds,

will already been result coming business, company. over discontinued the have and Some more and lower will the others ongoing to The requirements focused be a end cash quarters. offering a simplified run be

our and a since in are half in in the with continue Now changed let's to financial nearly with are higher $XXX incurring than beyond and margins volumes. year they've Expenses they prior According and the times are to conditions business. and systems more year process hospitals supply worst and globally hasn't move to lower off coming American remarks have an negative on shortages, billion losses than abroad. facing slow estimated unprecedented face financial been XXXX. have challenging Association, market our sales remain both the experienced. Hospital healthcare patient issues seeing and Hospitals to still We're workforce much market overall disruptions U.S. projected along here update The to be perhaps November. the the

OR platform. drive the within health can digital which new just other that our for is healthcare to systems, the efficiencies in me not need On technologies brings the hand, building,

fell we our HOLO short XXXX, In of projections. portal

XX part opportunities approval the XX in currently over more of administrative pipeline have we plan, than in sales funnel. the our and below While

demand So is strong.

in we've updates today, intend quarters. given the forecast but available, information with the number system year timing. provide has especially we been to I buying Thus, of coming difficult throughout made environment refrain to we're becomes enhancements and target and as As challenging do and going to environment, the current have planned remains from the the it more noted, forecasting sites

HOLO portal turn system's important launched, used been enhance we've the surgeons, in Since capabilities. very feedback from has was to which gathered

part additional of system. of hardware workflow. efficiencies support in features over procedures With and now software, broader the and New setup added, XX upgraded drive a and range are we new can instruments

of which HOLO Earlier discoveries launched will this to with AI offering. that unstructured firms, and more respected IDC, medical According form Insights we in of imaging transform care month, highly for generated we spine this will believe health two Digital we Universe data. artificial industry patient the our intelligence. research new patient than imaging, with is research data through And EMC lead XX% important to address

biomarkers, MRI data images, key different is comparison, which into MRIs sets is of measurements providing structured a HOLO thousands process analyzes today data for imaging just In lumbar the AI spine, anatomic able used data in quantifiable assessments Insights in of to informed few based measurements, surgeons and manual. process quantitative images process they data. structures analyze translate again, make hours. medical currently based first of research. subjective can Insights medical on for imaging the surgeons help and and Radiologists the on and HOLO automated just rather someone's reports, view. with This more time ever, make read take decisions, is AI be will for will than and Insights, XX

HOLO measurements, it This is detailed these patient at medical outcomes very specific sets to can patients the treatment the how electronic population will for data based similar allow that is precision large to by benefit be this prognostic physician data level. data health much will built and Over us combined believe get data patient to very with models patients. Because informed beginning. to of decision-making designed AI images. automate EHR more plan HOLO and metrics a quickly very options leverage more generates systems with existing AI build having we a Ultimately, we This on patients. of comprehensive records, succeed the facilitate of to will groups model positive Insights leading view specific much factors for and well only time, medicine. for very

leading Eastlack the San doctors, with The Greg and team HOLO Diego first adopters Insights Robert We Foundation. surgeons to be foundation. Spine here such an AI be happy and are of Mundis, couldn't spine with experienced Hani working Malone,

what's to next me for brings of the HOLO portfolio. Which the question

of The HOLO valuable system some incorporated adding same moving had surgical portal advance surgical upgrade the successes the we've experience. our next-gen We've about the valuable and feedback to in adoption market forward. first early experience. At gathered gaining guidance surgeons, latest was time, is improve the the and was thereafter features will Each seating launch. which system from generation

the on to stereotactic the system navigation. to incorporate a of competition the artificial start as the both portal the is we Over capabilities long-term, believe FDA cleared intelligence head HOLO reality expand has first augmented on it and

physicians towards is platform about with their quarter will more migrating upgrading the plan just be to itself, up looking OR in follow and factor, redesigning Our and flexibility XXXX workflows. platform. staff to on be We'll two open as provide every additional form the bigger a The center OR and systems more initiatives enhancements.

that be systems. So used adoption. will implant We and not this in portal HOLO hospital can greater surgeon if believe with result most, all

the By with equal we ASCs and that accounts the more is portal Second number imaging we capability. Medtronic's increase system is capability which to. and consult work importance can with of system of number only in. expanding OR, Today, we HOLO compatible devices, limits hospitals of the

for HOLO With intracranial this application research we with up based AI our later application assessment AI HOLO year. aneurysms a AI portfolio, respect plan follow Insights to on to of of the spine

In release in assessment addition product applications, of clinical to a for lumbar we images research the plan to MRI AI XXXX.

to to Surgalign global relates be and technology use and spine, applied cases in market with highly AI advantage believe different as first many it is a mover and valuable AI can much playing larger treatments. before than ever we that

to market a billion XXXX. following global Our global grow COVID transformation the is coming years. has been AI learning massive be in behind growth is of what key in and $XX to billion driving towards addressable advanced expect over to with There machine excess forces $XXX being by today technologies expected

I will in aggressive and in been today. adoption leading the add fastest America play healthcare we this has is the North segment, AI and global particular, growing most the market, is AI where software

rather medical power That's at Data leveraging then first capture the areas the expand we're use. its to be spine, other replacing to AI use more information is fields and insights decision-making. process focused to assess of on applied not of professionals, and Surgalign. assist to a AI can data. that anatomy different efficient about medical can what but and

our confident in We and its technology are potential.

therein on our Coflex United the $XX.X cash, of was to business transaction Coflex we in medical worldwide Moving million, property needed a that for extend lines extend the sold approximately holdings to cash intellectual cash our sale which to Surgalign, in product to in In netted million and rights runway. States and February, QX. $XX the CoFix

avenue internationally our to assets, other competitive about discussions then have to and pursue we'll every but and and per will pursue liquidity position. domestically We improve

our Dave turn over cover I'll call the that, financial outlook. to With to Dave? now

focus and our our Thanks start I'll Terry. then my results fourth remarks XXXX with on XXXX quarter outlook. financial

XXXX reported line, of growth growth essentially of pedicle HPS modestly streamlined product a revenue We European over system. a environment. pedicle on primarily which flat the QX $XX.X and international a sequential represents to $XXX,XXX and to from our weak this, million, due alpha increase and basis, screw screw our QX launch, due out revenue Cortera increase Domestically was despite

the compared margin difference primarily Non-GAAP negative GAAP the gross in to XX.X% mix with non-cash compared gross a quarter, by inventory margin in in as entirely almost in was product attributable driven QX, a write-down rationalization. XX.X% XX.X% line third product QX XX.X% with associated was to shift. to QX

$X.X expense the expense, QX. restructuring million in throughout led QX improvement well of as in accrual reduction was a controls $XX.X as to bonus million QX, lower and related for in compared as expenses to operating sequentially. Cost to an operating the $XX.X implemented non-GAAP program year As million

of operating million financing approximately severance impairment contingency, $X.X expense, non-cash a expense. are Excluded expense $X.X million and of and $XX $X.X as and to was well from million, contain and abandonment QX, in compensation asset expense restructuring acquisition costs gain as of transaction million, related stock-based non-GAAP in $XXX,XXX

to note, fair and value of between warrants financing charges $XX To were the difference offering. raised our the accounting in non-cash related the in predominantly expense million amount and the transaction

loss in a by as lower of driven an improvement improvement of $X.X an in million. was The sequential loss was revenue operating and to QX, primarily million million higher QX of Adjusted expense. adjusted EBITDA $XX.X compared EBITDA $X.X

changes our over we of Now, a our effort Coflex balance like made impacts view minutes both few I'd and past which have restructuring to the our specifically, our sheet. More business materially our considering many to two and the the of spend business, P&L quarters. through XXXX, walk sale to

XXXX the basis line For pro our our walk this the which outlook. as and arrive financials QX SEC Using in the to revenue with we call. the reported XXXX and of full a through year forma range revenue like was we filings, XXXX, building at $XX how we for provided million, on from I'd

line in In XXXX $XX revenue product much removing of with the million approximately we through complete. our are rationalization lifting effort, heavy

in be products year, estimate. million discontinued throughout Some will accounted the the are for $XX but

sold we family February XXXX, million a generated product that on revenue Coflex of XXXX. XXth, approximately in Additionally, $XX

sold revenue for products sales. us for Given remove a business February, to have that the we been then rationalized sold, in expect this we point million Coflex out using in the approximately in revenue that million for and removing $XX starting brings $XX that approximately end as to million and determine thus roughly at to million $XX XXXX being of XXXX, $XX

our the the throughout projecting we As we in believe guidance revenue revenue are and we time, portal of conservative into rationalization resulting a to potential modest the We this product portal to to year product is of growth system. account $XX XXXX, some range and expect several are the million as We see $XX the be to impact intend loss as taking forecast million. biologic from revenue and same new rationalization. we made enhancements lines. we update across At hardware from look HOLO into HOLO out the

So, let's XXXX we we can where to be think for move in margin. gross now

to our line high of non-GAAP sale starting and ongoing As mix expect gross in reported product gross of Coflex XX%. we to XXXX, was XXXX with XX% it part where business gross about non-GAAP margin of to a XXXX be global margin Coflex our longer no margin as for the non-GAAP revenue. efforts, in we margin generating XX.X% the point, XX% a gross With decline we approximately the full expect rationalization year with

approximately for as we As netted cash million had $XX by of cash have the in year-end, so at have balance burned million end and QX, this of $XX selling in about we'll about million of by quarter sheet, XXXX. the Coflex, million first the about we'll of $XX $XX end

get to looking into of us we burn sufficient XXXX. have cash we Given expected our believe forward, the cash fourth quarter

strategic our runway. our We sheet all continue extend enhance and to explore avenues to balance

and shareholders. have that smartly to growth, and value for align our but on We platform to innovation, to digital providing with our coming we are value in health long-term strategy for requirements investing sustainable maximizing capital paramount we our remain our our strategy focused given plans stakeholders AI and years. HOLO our the intend in continue the Products

to I turn back for Now the closing call remarks. Terry

lot done few of corporate our years to work drive the strategy remove health digital of many on We've a Dave. past Thanks overhangs business over and our forward. the

We executing set and strengthening to out track while on achieve, the restructuring we our are our and remain to technology. infrastructure savings realize

we this, sheet currently us. my improving generate health believe With strong. are have and for AI to lowered capitalize digital massive It focused suppliers, plan. to we Throughout our all balance our is shareholders said, we everything, our in will with key needed our know We've simplified stakeholders. and business, we relationships need needs, that on and additional we've needs opportunity on which we value customer's managed that our ahead will remain resources capital have our mind and the the partners capital market-leading technology, and business belief working that with remain and execute of distributors our

Our AI global is on and AI the in and scale, medical of AR a intensify. much only larger platform opens to market field going use up the a

or digital over the speed are Surgalign innovation, and maximize While continue employees for for view our introducing have more supporting it or value we have to of focused when bullish more cloud, path on management, even which advanced than them we're health, happens the we product technologies health, half invest whether some XXX we had are testing, software, as bumps going creating, on shareholders. all design hardware, opportunity to to right digital in in is

questions. open ready now the we're to for up Operator, call

be [Operator We'll a question-and-answer you. now conducting session. Thank Instructions]

with first question. proceed questions the come Our Craig-Hallum. your from Please Matt line Hewitt with of

back your working that seven you broadly. that time at you on which XX, some point to or Good afternoon. confirm, start intention expected going I publications your to I is XX of ago do the seven realize to you adoption? the to hopefully got are to the questions Maybe platform, hope Thank currently you that working was of would to that start that publications that one previously publications to XX XX to. using sites you're providing kind and what first five -- could and you're stepping talked once of to a still for or kind your update. you and things more to was get system the some I year second want some had see then is for on layer to get you of sites that would roll out at the expectation drive be Is question is the taking believe the just think about that from had But you at that your and

Yeah. Thanks a lot. Hey, Yeah. Matt.

working in found physicians And publications up come. in more be we open some currently. these some be we used that the early are But to would on in stages getting what mostly the system to more us percutaneous terms with there'll of system thought cases. we and quickly sites, market we is So,

we support had to very few that. And so, instruments

been couple that's in to has in instruments cases we business the added where the open a just XX-plus of lot a that upgrade workflow seeing components. so, And open and cases, support

workflow should to is But into make the additional the down with And we're what easier our also HOLO that AI about begin staff This spine. Foundation, sites offering say, Spine perspective excited that's with the from to of we release soon. they the more come a to the Diego and opportunity research very will a Insights. surgeons projects need about and excited predictive path system so, to huge and get patient significantly really or of better And use. broader in this first San very drive we're analytics and adoption, outcomes give help what believe I the

now question, then, the almost have one a it that as the and was structured early decisions realize with open Or to with that all How early Got I this back technology to needing needing implants with like go screws of had it deal that of platform? complicating that. platform some promises sounds the adopted, was and the use And factors markets of and on as proprietary went your change, into forces -- into pedicle that, your I But you've to and a the you run long-term with everything the it. pandemic it. model? another to hope to from decade proprietary And that source. does guess, sales change is you're and channel kind And maybe. would now expectation your it HOLO going you've

Yeah.

really help as and desire limit potentially So, for it's believe implant now to degrees new current use using which system these surgeon our well. success and key by Cortera it we're systems. But HOLO. think our surgeons preference will is of are systems having screw to integrating tied really can screw are driven some various we're and their different market look, I with forces certainly, the It implant offering, reasons

the because accounts can go believe So, that we're into in as much as share catch it up opening accounts. we we're we broader in other we well currently

really other hardware number whatever to usage. it, with that of be of it's being this issues you'll the new robotics, lot tied they've guidance, problems. weary a And technologies a is think of becoming find I caused administrators are thing into hospital run these them is, it and

implants. of areas, and the technology differently. orthopedics bone now offering advanced things ability just at offering in in the out spine, They're That's work that why companies systems. look to a starting to large coming with all other they're variety so in aren't And there's

-- the of thinking the headwind, And granularity the for and Coflex growth? to it. product you're going then still line the the some guidance. anticipating apples-to-apples looking back much you've and additional you on And we basis, an some are Got of But thank have if last some one okay, products maybe given the just and be in XXXX you side, the and realize got just hop I'll on HOLO about I puts of this how for and that or question, how you other queue. XXXX is you're will, kind rationalization. into one organic some hospitals curious, you've at that should saying, providing I'm thing The Dave, on assume going you are takes we growth to let's at this conservatively looking or that, see introduced, there let's whether year what's the market, flattish start struggling are growth? that all then we're some revenue where

to Yeah. going all of because complicated quarter actual XXXX to I'd at looking in say are a comes things when it's the the It's question. it going results to now. right on be quarter that

you end this number hitting we So, Coflex two revenue the sold our at February, we which QX we for revenue if year, of move Coflex make as look that so remember, higher had of months going forward. instance, to is

things to or default than So, being not we lower have having QX. QX did equal, lower in we're Coflex, a by than a going all flat

though of we them through and However, portfolio are we've harvest we the time on obsoleted obsoleted, talked other will hand commentary the selling, rationalized coming takes period about we over two-thirds and are that meaning months puts there quarters. that the continue that they are even some here. some we still of as have products, inventory the products and The

ramping think start and into should -- then And down we'll complete lastly, pretty I QX. process be will or much that

see numbers you going So that to hard be revenue end quarter. said, when it's quarter see to being the to

the when new some launch to of the alpha one growth, launched XXXX. saw Terry launch, well done drivers was However, Cortera, We talked comes it our that's pedicle our QX. summer. really It us about growth alpha in since it bigger growth screw pedicle in for over

to continue be growth XXXX. that expect We in driver biggest and our

growth see we some had, So, that, of I fixed. you're underneath the of past going to that now have out of been years described, in all products of products product those out like just that variables and issues

Got color. it. Thank you. Appreciate the

No problem.

[Operator you. Instructions] Thank

With does do at questions you. are no conclude your Thank There it time. today's appreciate participation. this that, teleconference. We further

lines day. your at Enjoy You may of rest this your disconnect time. the