Surgalign (SRGAQ) 11 May 232023 Q1 Earnings call transcript

Good day, ladies and gentlemen, and welcome to Surgalign Holdings 2023 First Quarter Results Conference Call and Webcast. [Operator Instructions]

At this time, it is my pleasure to turn the floor over to your host, David Lyle, Chief Financial Officer of Surgalign.

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. our up financial the review will and then open then call will first results quarter we I for questions.

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

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

addition, of non-GAAP a this include discussion conference measures. In financial call may

for GAAP including Terry. now further earnings reconciliation of a the Please today's the call see to release I'll results. to non-GAAP details, turn over

Dave, good afternoon. Thanks, and

business, the done more on of which I'm and we this second rationalization to better very to customers' needs. quarters, We execution third rightsized and carefully Product and proud operating a meet on has have Along our front, manage programs our many efficiently, managing both to and realigned of changed. rationalization, the and been make job. has not intensified the with progress continue our resources. outlook we continue restructuring program, and has areas and ensure remarkable distribution team will product we've enabled our throughout us we're

call. the unchanged ago market, since remain earnings comments X our for in weeks As conditions my

similar stabilize, been the part, For the seen to reporting. have what most market we've many

hospitals coming that the delays seeing shortages some negotiations. still respect pipeline with of and in been with new and support hasn't and cycle, on have and a sites focused onboarding all on the currently accounts are are with system progressing process up still impact and hardware we The Portal, are several With procedures. sales system range that well upgraded drive experiencing of to in the for unveiled report in are contract long side drive procedural I'm discussions Domestically, but two and we're HOLO business. final a many adoption. quarter. staffing pleased to upgrades to our in reach the and to stages our but remain of commercialization the new it our of cases broader scheduled expand set March workflow our goal We in efficiencies instruments a designed

research On the Insights Insights Surgalign. our a which prospects in only last for portfolio. our the Nunley aggregated of We formed the up subsequently for uses launch launch of HOLO for AI alliances, Diego AI data. as is imaging and and with partnered to new Louisiana; late Foundation with HOLO medical QX call, one San other offering initial use we and Dr. of analyze and Institute into Dr. Spine discussed and imaging, markets another AI opening our the part It's event translate quantifiable Pierce new was Spine of with and spine

and are to working the of in be spinal one with we of valuable the area prestigious world. be happier Vaccaro, couldn't the relationships, experts such in spine Alexander surgeons rank research. top These in

decision-making how AI applied ultimately, leveraged can and process. insights best how into of the the in research best gain clinical in it with align to is strategy be be and can Our the

from our are Vaccaro The I'd opinion, to from like with the we doing to work one a announcement relationships given the artificial most pull "Surgalign, we feel have and in from. exciting, groundbreaking foundation in build is strong have they most my recent all alliances Dr. important we intelligence." of reference one place

with continued aggregates a launch as different Just cranial leveraged in of identify This the configurable the for XX Insights And latest with last I've off for specialist Dr. disorders. and and applications is from future, in the more upgrades. HOLO evolution care. We precision mentioned This clinical only week, experience a patient Portal believe of addition our with the care announced news HOLO we apply images, and medicine in previously, beginning. HOLO graphical health, Jankowitz, new different and we research-based into that automatically see to AI collaboration MRA population sets regarding AI extensive kicked technology new neurosurgery and and structures Surgalign a analyze commercializations can portfolio the neurocritical be to can formats. AI Insights research research. our neurovascular Expect solution use file with data large Brian to many

working with for are a use, AI to for spine community plans alliances research We both medical replace XXXX. imaging product for MRI clinical to in lumbar the assessment HOLO and Insights of images AI within expand spine neurovascular research

to now turn I'll over Dave? call our the outlook. to financial cover and Dave results

revenue and in into QX of our or on and our a it we which down XXXX U.S. hardware grew offset We our key Thank February which by of Coflex out $XX.X $XXX,XXX. revenue $XXX,XXX sequential ahead reported of prior XX, expectations. and X.X% million, business restructuring taking sold approximately a components was Breaking of CoFix, basis, on international you, decline Terry. by

from April In in revenue far so products, addition, revenue and contribute million to in in which we May. continued approximately obsoleted captured $X.X

note, QX. revenue to higher gross range and until was sequentially our products generated in XX.X% about million on margin QX of the Non-GAAP January QX side of in Coflex the for months our slightly in it a $X previous As sold. end February, was down and compared guidance

rationalized out inventory of adjustments. non-GAAP purchase taken for continues inventory, Items XX.X%. purposes and were was to $XXX,XXX international of price QX in margin gross $XXX,XXX GAAP be which

expenses, sequentially. million improvement As compared for in expense as was operating $XX million QX, non-GAAP of operating $XX.X $X.X million QX to an

and manage have to program removed greater future continue impact diligently a anticipated our through the in with We restructuring periods. expenses costs

Excluded from was contingency, and stock-based operating approximately abandonment million a impairment to integration severance $XXX,XXX gain noncash expense. and transaction of expense and $X.X expense acquisition $XXX,XXX, costs approximately in approximately expense QX asset and compensation of of related approximately $XXX,XXX, non-GAAP $X million restructuring of

lower EBITDA compared Adjusted a somewhat loss an The expense. of loss million adjusted of offset decline by was by and as gross sequential in $XX.X in million margin primarily $X.X operating to was revenue lower driven EBITDA QX. QX

cash of QX compared sheet, balance end netted had at which in of Coflex $XX.X in February, year-end. related million in position company. to million improvement in at As cash the to $XX.X $XX.X we million business sale our our the the the is to for The cash

million and including last during the and at runway. continue to to call all we extend and With position, our to for divestitures, looking in restructurings. plan guided versus $XX the continued cash cash strategic our QX, potential had period. are by is approximately expenses explore liquidity mergers on was that our improve operating avenues improvement primarily additional in Managing expenses driven our to We critical, reduction all said, we

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

[Operator from our question first is Instructions] H.C. Wainwright. And

from This is RK Wainwright. H.C.

only So you're next product not do quarter. you're this still but you continuing rationalization also saying starting to that off quarter from is which Coflex, will the restructuring but divested third quarter, continue in that program, also

second think when to So how we or in what and quarter think sort does -- what the just -- in the And happened trying talking about? products quarter it would -- impact how relationship XXXX? of about I'm how it are for third we revenues to year-on-year

quarter, million look us. out easiest that at that out Coflex an additional we take we down generated QX revenue those products and that kind obsoleted million. brings revenue Once revenue for and at look to in point, and $XX.X for $X QX to RK, $X.X first I think is of number the CoFix, in QX which the take expect to That $XX.X we to you million of down. way some million this, ramp of still generated the obsoleted products, that actually at of then we

now QX. revenues very QX We've been into fortunate, into and continued though, that even

harder little quarter you take contribution into look those say, you're like, be. out numbers looking about if to would that's taking and range, a revenue obsoleted talking products But what out QX a number will million a predict it's So a down those that $XX the as to proxy. future, what the just

Okay.

to saying the in that HOLO terms continues some cycle now XXXX? target achieve to add that long. of like -- sales is around mean of of by for will it end additional In long you the certain Can what you be what do commentary of terms you Terry, of base Portal, you're terms able note centers the end you a by the of installation year, number be in the

sure. Yes,

but provide has very capital. target, it it's because out all part didn't all capital cycle long been there of for Sales we regardless they a view as -- now that the RK, been So and model of long. is

funnel be. had have -- in we've And so now close for it We've accounts, a of couple that long on the been hopefully a we're has -- been coming could to got over year. getting

months. on it the path lot anywhere just from The industry been of broadly cycle capital typical is sales in XX So long to a a has these. X

full funnel And and about it's we've and so now, to full more we're pull So through. -- getting get . the units so very them looking a got placed. funnel

system commentary are that using And your the what is already what the as then hearing are units of -- the now? of are there, surgeons actually from that you

Yes.

the it's and AI how the the the we things feedback them that about for because So enhanced with positive easier they segmentation because identify of how can enhanced visualization system look, anatomy quickly. easy and use AR, the very generate so we're to is much getting use to makes really it how

will now that the very impact out to rolling And I well. instruments have of as we're So types procedures it's able this do very positive been be positive. also. believe more to a new

Our Matt next question Hewitt. is from

heard begun if on hiring procedure and you're volumes. the Jack budgets their Matt. end [Tennant], down seeing that and trickle all? better therefore at your and have is We've were on players from like helping larger HCA curious This We for trends

if yes, HCA and accounts, move Yes. working have did we're we they there. nicely But I'm not on. [Tennant] do pretty through sure have any accounts we

and up question. currently? are many running And remind how using Could then final sites platform Okay. HOLO the us you

are There and more. of X Yes. X bringing in we're up active process

concludes We participation. you thank teleconference. your This today's for

this lines You may time, disconnect great and day. a at have your