Conformis, Inc.
Q1 2018 Earnings Call Transcript

Published: 3 May 2018

[Operator:]

Good afternoon. My name is Ashley and I'll be your conference operator today. At this time, I would like to welcome everyone to the ConforMIS First Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities law, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be considered forward-looking statements. All forward-looking statements, including without limitation statements about ConforMIS' strategy, future operations, future financial position and results, gross margin, product margin, operating trends, financial guidance, market growth, total revenue and revenue mix by product and geography, the anticipated timing of the limited launch of our hip product offering, the potential impact and advantages of using customized implants, business initiatives, and transitions in our commercial operations, are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause the actual results or events to materially differ from those anticipated or implied by these forward-looking statements, including those discussed in the Risk Factors section of ConforMIS' public filings with the Securities and Exchange Commission. Accordingly, you should not place undue reliance on these forward-looking statements. While ConforMIS may elect to update these forward-looking statements at some point in the future, ConforMIS disclaims any obligation, except as required by law, to update or revise any financial projections and forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 2, 2018. I will now turn the call over to Mark Augusti, the company's President and Chief Executive Officer. Mark?

[Mark Augusti:]

Thank you, operator, and welcome everyone to ConforMIS' first quarter 2018 earnings conference call. With me on the call today is our CFO, Paul Weiner. During the call, Paul and I will share our prepared remarks on a variety of topics, including our first quarter financial and operating performance. Following the prepared remarks, Paul and I look forward to answering your questions. We are pleased with our first quarter results. From a commercial perspective although we continue to face reimbursement challenges in Germany, we do have good news related to seeing the reimbursement coverage in the U.S. that we’ll share late in the call. Importantly our vertical integration and operational initiatives are driving our gross margin performance. We continue to manage our expenses appropriately and I am also pleased to report that we are on track for a limited hip arthroplasty launch in the second half of this year. We saw further good clinical results published in the beyond compliance report based on data collected through the National Joint Registry for the UK. The data shows the patient treated with the ConforMIS iTotal CR knee implant experienced a cumulative revision rate of 0.5% at four year compared to 1.9% cumulative revision rate at the same time point among all patients in the National Joint Registry who underwent knee replacement. With that let me turn the call over to Paul for detailed review of our first quarter 2018 financial results. Paul?

[Paul Weiner:]

Thank you, Mark, and thank you all for joining us. We reported first quarter revenue of $19.7 million, representing a decline of 4% or $799,000 year-over-year on a reported basis. Excluding the positive impact of changes in foreign currency exchange rates of $385,000, revenue decline 6% on a constant currency basis. Revenue in the first quarter of 2018 and 2017 includes royalty revenue of $173,000 and $76,000 respectively related to patent license agreement. First quarter product revenue was $19.5 million, representing a decline of 4% or $896,000 year-over-year on a reported basis and 6% on a constant currency basis. Sales of iTotal PS increased $655,000 to $5.9 million or 13% year-over-year on a reported basis and 12% on a constant currency basis. Sales of the iTotal CR iDuo and iUni declined $1.6 million to $13.6 million or 10% year-over-year on a reported basis and 12% on a constant currency basis. iTotal PS represented approximately 30% of total product revenue in the first quarter of 2018 compared to approximately $25,000 for the same quarter last year -- 25%. U.S product revenue represented -- remained consistent at $16 million year-over-year. U.S. product revenue was driven by sales of our iTotal PS, which increased 10% year-over-year offset by a 4% year-over-year decline in sales of the base business product lines. First quarter U.S. product revenue represented 82% of total product revenue compared to 78% for the same quarter last year. Rest of world product revenue was $3.5 million, a decline of $959,000 or 22% year-over-year on a reported basis and 30% on a constant currency basis. Rest of world product revenue was affected by sales of the base business product lines, including the Germany partial knee reimbursement rate change and weakness in our iTotal CR sales. Turning to a review of our results across the rest of the P&L, first quarter gross margin was 45% of revenue compared to 32% of revenue last year. A 1,300 basis points increase. The increase in gross margin year-over-year was driven mostly by costs reductions as a result of vertical integration and manufacturing efficiencies, as well as a 200 basis points favorable foreign exchange currency impact and 100 basis points of higher average selling prices. Gross margin improvement has been a point of emphasis and we continue to see the positive impact from the hard work that has gone into the costs reduction programs. We are starting to see the positive impact from the completion of the vertical integration of the iTotal PS poly inserts. We continue to make significant progress with the development of new processes for the 3D printing of our patient-specific instruments, resulting in print cycle time reductions and lower powder utilization. Our plan to offshore some of our CAD design work, as well as our continued improvements in design software and CAD automation, should continue to provide additional gross margin expansion. We continue experienced substantial progress in our COGS reduction programs, which we believe will yield further gross margin improvement as we move forward. First quarter operating expenses decreased $2.6 million to $21.2 million or 11% year-over-year. The decrease in operating expenses was driven primarily by lower general and administrative costs, due primarily to a reduction in patent litigation expense, strategic consultant expense, severance, business insurance expense, and other administrative expenses, and lower sales and marketing costs due to a decrease in personnel costs. Net loss was $12 million, or $0.22 per share, compared to $17.2 million or $0.40 per share for the same period last year. Net loss per basic share calculations assume weighted average basic share outstanding of 54.7 million for the first quarter of 2018 compared to 42.9 million for the same period last year. As of March 31, 2018, we had cash and cash equivalents and investments totaling $57.3 million compared to $45.2 million as of December 31, 2017. As previously announced, in January we closed our follow-on public offering in which the company received $23 million in gross proceeds or $21.6 million in net proceeds. First quarter change in cash and cash equivalents and investments excluding proceeds from the follow on offering was $9.3 million. With that, I'll turn the call back to Mark.

[Mark Augusti:]

Thanks, Paul. As I laid out last quarter, we have three operational objectives for 2018, meeting our top-line revenue guidance, continuing to improve our gross margin, and successful limited launch of our ConforMIS Hip System later this year. Regarding commercial execution, as mentioned we continue to face reimbursement challenges in Germany. We are working within the German system to better established our health economic story and to stabilize reimbursement environment for ConforMIS. However for the rest of 2018, I see the business remaining under pressure and struggling to deliver growth as we've given in our guidance. In the U.S. though I'm pleased to report that after learning about our health economics, Sigma has updated their medical coverage polity to include ConforMIS technology, including the coverage of both the CT scan and implant procedure. We anticipate that it'll take some time for Sigma to operationalize the new policy within their systems, our U.S. commercial team will continue to educate their physician officers about coverage policies in their area. Moving on, we've previously detailed much of our gross margin activity. Our performance in Q1 give the increased confidence in achieving our longer term operational goals of greater than 60% gross margin. I appreciate the significant progress the operational teams of ConforMIS are making in this area. As I mentioned earlier, our ConforMIS Hip System remains on track for a limited launch in the second half of this year. I would like to acknowledge the incredible effort that ConforMIS team is making towards this anticipated launch. In addition, I would like to reported that I'm personally pleased with the level of surgeon interest we are generating around our total Hip product offering. Finally, just as information our next generation iUni partial and iTotal knee replacement systems do remain on track for a limited launch next year. As we discussed in February and as mentioned earlier by Paul, we did successfully conclude a follow on offering in Q1. The cash we raised gives us additional runway to execute on our commercial strategy and continue our gross margin expansion as well as to explore other strategic opportunities. That's all the comments I have for now, I look forward to answering any questions you may have about our business and the Q1 results. Thank you. Operator with that back to you.

[Operator:]

Thank you [Operator Instructions] Our first question comes from Robby Marcus of JP Morgan. Your line is open.

[Unidentified Analyst:]

Hey good afternoon this is Christian on for Robby. Maybe the first question on gross margin, another 45% in the quarter came in better than I think the street with modeling. I think you mentioned 200 basis points of that was driven by FX. But how do you guide the street and investors to think about margins on the near-term exiting 2018? And what were the main factors that you had progression on under the vertical integration process in the quarter that was better this quarter than you’ve seen throughout 2017.

[Paul Weiner:]

Yes. So yes, like you said of the 45% of gross margin that we had in the quarter it was favorably impacted by the 200 basis points in foreign exchange as well as about 100 basis points in favorable average selling prices this quarter. We can't count on that average selling prices continue to stay high, it is variable on a quarterly basis. So we still -- we do feel very comfortable with our guidance that we gave for the year 44% to 46%. We're looking to leave this year at 50% level. And we're certainly holding to that guidance. As far as the improvements that we've gotten in our gross margins in this quarter there is a number of initiatives that we're doing with efficiencies throughout manufacturing process, and they're all pretty much on target if not a little bit ahead. And one of the impacts that we had that was probably the most favorable for this particular quarter was the iTotal PS poly inserts. So last year we had completely brought in-house our iTotal CR poly inserts and that started to positively affect us in the second half of last year and that's why we had the positive impact there. The iTotal PS poly inserts were 100% in-house by the end of last year, we figured working through inventory, it would take us till the second quarter to get the impact of the PS. And we still believe we'll get the full impact in the second quarter on that, but in the first quarter we actually started to get some positive impact from that as well.

[Unidentified Analyst:]

Great. And then maybe to touch on the positive Sigma reimbursement announcement. It sounded like you're reiterating the guidance that you gave for the full year on the fourth quarter or in January. But I didn't get specifically in the press release does the Sigma reimbursement decision changed your outlook for 2018? And then what's the best way to think about the contribution of that revenue stream going forward?

[Mark Augusti:]

Yes, I think that's an obvious question -- this is Mark, I appreciate the question. At this point it doesn't change our outlook. I feel like our revenue guidance is still fine. It's going to take a little while for them to operationalize changes. And this is very similar to the challenge we had. They made the change in -- early in first quarter of last year and it took them multiple months to operationalize that change back then. And we're seeing the same thing here. It takes a little while to the message. So we're going to be moderate as to where we're at, we still have to work and the thing I would remind people is as you guys know who our experts and form the orthopedic industry. If you lose some business for whatever reasons solely a little longer to get it back. So look, we're very pleased, I think we can all probably count on one hand the number of times you're actually able to reverse a policy change in the matter of a year. So this is good news, but I think it's going to take a little bit here so we see it in the top-line. But it certainly won't be a drag going forward, which I'm very pleased about.

[Unidentified Analyst:]

Great, congrats on the good quarter. Thanks.

[Operator:]

Our next question comes from Larry Biegelsen of Wells Fargo. Your line is open.

[Adam Maeder:]

Hi guys. it's Adam Maeder on for Larry. Thanks for taking the questions. I guess, just first I wanted to clarify. So the previous guidance was $79 million to $83 million that still stands. I think it's 2% to 7% constant currency growth. And then in terms of the sequential ramp for the remainder of the year. Just wondering how we should think about that? Is it fair to maybe think mid to high single-digit growth in Q2 and Q4 and then maybe low to mid-teens in Q3 just given that the comp is easier in the third quarter?

[Paul Weiner:]

Yes, so yes, we still -- our guidance stands at the $79 million to $83 million like you talked about as far as the product revenue is concerned. And as far as -- we don't really talk about our quarterly guidance on a quarterly basis. But if you look at historically how we faired the first three quarters, generally are relative -- generally relatively similar as far as seasonality. And then in the fourth quarter we have a step up. In this particular year we do have Hip launch in the second half of the year it’s a limit launch, it's not material to the overall, but it should positively impact the second half and more particularly the fourth quarter. And that's included in the guidance that we had given.

[Adam Maeder:]

Okay, thanks. And maybe just one more on guidance. What are the factors, I guess, that are under consideration the top-end versus the bottom-end? And then just lastly, it seems like there is a shift in the procedures to ASCs. So just wondering what strategy is for penetrating the outpatient market and have you seen good success thus far? Thanks for taking the questions.

[Mark Augusti:]

Yes, so this is Mark. So I think if you look at some of the things that would have to happen and give us comfort at the higher end of that guidance would be an improvement in our U.S. performance. As you can see in the guidance that we've given at the beginning of the year, it's down materially and we need to hopefully see if we can work within the German system to change some of that. I like some of the things we have going on in some of the countries on a small basis. But to that point if those activities can bear fruit and maybe offset some of the decline in Germany as well as maybe a little bit of improvement in the German performance that could help us towards the top-end. And then to Christian's question before, certainly if the ConforMIS excuse me if the Sigma policy changes operationalize towards the second half then maybe that will help us to take towards the top-end. But like Paul said, I think we reiterate the guidance that we had previously issued for $79 million to $83 million. As far as ASC, you're right, the trend continues in that direction and we really appreciate that. We think we benefit from that, we're having continued discussions with ASC operators, with physicians are looking to perform surgeries in the outpatient and there is a downing reality that frankly the ConforMIS model is much better suited to the ASC environment both from a ability to quote be efficient between cases if you will. So from a throughput or efficiency standpoint as well as from a logistics and sterilization standpoint. Our model with one instrument tray and then one kind of box of patient specific customer instruments and implant really works well. Trying to do an off the shelf knee and wheel in 9 instrument sets as well as the corresponding volumes of inventory just is not a model for success in the ASC. So we feel very good about attacking that space as it grows.

[Adam Maeder:]

Thanks very much.

[Operator:]

Our next question comes from Bruce Nudell of SunTrust. Your line is open.

[Unidentified Analyst:]

Hi, this is Stan Suduc [ph] on the line for Bruce Nudell. Thank you for taking my question. Can you describe the interplay between the sales growth and Cruciate Retaining versus Posterior Stabilized total in the U.S.? Seems to be more room for share gains in Cruciate Retaining. And hence we like to know -- hence we like to understand if that product installed in the U.S.?

[Paul Weiner:]

Yes so, yes the growth of the PS certainly is greater throughout the world as we launched it. The full launch was two years ago. And so the PS is a market that is at least twice the size of the CR market. And they are different surgeons that do PS who are able to bring in new surgeons and new business and that should continue to over the future as far as where a lot of our growth should come from. Now as far as got PS first CR, the CR has certainly leveled off in the United States, we have to keep in mind that as far as the attention of our sales force has migrated towards a bigger market the PS. We continue to have the CR surgeons and add to the CR surgeons, but the growth is certainly in the PS side. Internationally it is actually similar even though internationally the CR is more popular than in the U.S. We still see surgeons and our sales forces internationally migrating a bit towards the PS. And I would be surprised if that doesn’t continued over the coming years as execute on the PS strategy.

[Unidentified Analyst:]

Okay. And my second question, your competitor Stryker Zimmer and Smith & Nephew are aggressively promoting their major joint robots, how does ConforMIS fit in a robotically enabled world? And I have a follow-up question.

[Mark Augusti:]

Sure, yes, Spence, so its Mark. Yes, that’s great question and I actually love having the robot discussion. If the customer is talking about a robot and they are talking about trying to get better outcomes and I think that really pleasing into our hand one could imagine that a custom knee implant that is robotic existed would probably be the pent ultimate product offering. But at the end of the day I think our alignment data, our clinical work shows that we’re very accurate as we get very good results and high patient satisfaction. And while the robot can help with the variability between surgeon it’s not going to help out with ultimately doing any better beyond the traditional off the shelf implant. So it’s a great discussion to have with customers because it means they are looking to get better outcomes, and or potentially are also looking for marketing potential based on robot. And I think as you can all appreciate that where ConforMIS every bit as marketable if you will of a custom need as a robot and we love having that discussion as well with hospitals because when we talk to their marketing departments and talk about the ability to market offering a customized knee they get very excited because there is a lot of patient interest around that. So it’s an exciting time in total knee arthroplasty I think there is still a lot of evaluation has to be done and frankly the owners is going to be on a lot of these providers because they are having to make some significant bets related to capital equipment purchases if they decide to go the robot way. Whereas I think with us it’s obviously a more economical benefit. And I might add it also lends itself to the ASC it’s not clear to me yet that again with the movement to ASCs and the efficiency, desire and the robots going to be the best play from that standpoint. So a lot to be sorted out in the coming years.

[Unidentified Analyst:]

Great. And the follow-up, what would be the costs of goods sold the consequences if you can remove the use of personalized cutting guides?

[Mark Augusti:]

That’s a great question, we’re obviously not going to give you the specific costs for that piece. But I think to the extent that people truly understand our model, there is no doubt that that is a costs that we bear within our model versus off the shelf with the reusable jig. So as I said the penultimate product would be a robotic customer in play and that would significantly be able to enhance our margin. So I would just say that we’re already looking at aspirational margins north of 60% and we can only do incrementally better above that if we weren’t printing custom jigs with every knee that we do and instead if we were shipping a virtual surgical plan to a robot.

[Unidentified Analyst:]

Great, thank you for taking my questions.

[Operator:]

Our next question comes from Steve Lichtman of Oppenheimer. Your line is open.

[Unidentified Analyst:]

Yes, hi, this is Jia on for Steve. You had mentioned before the goal of growing fee amnesty [ph] by 20% to 25%, I was wondering if you could comment on whether or not you’re still on track to hit that target for 2018? Thanks.

[Mark Augusti:]

I am sorry, I didn’t hear the question, but I think you asked the growth in the sales force, is that was...

[Unidentified Analyst:]

Yes.

[Mark Augusti:]

Okay, thank you. Yes, that still remains our goal, we were -- so we actually did add reps in the first quarter, but we also had some workout of underperforming reps. So, we didn't quite hit what we wanted in the first quarter, but I'm pleased with the start we've had thus far. So, I guess I can just tell you again we don’t put out numbers, but that remains still a goal for us, an achievable goal for the full year.

[Unidentified Analyst:]

Okay, great. And on the DTC marketing programs, you are looking to implement this year. Can you talk about where you are in terms of rolling out those initiatives and any feedback so far?

[Mark Augusti:]

Yes, so we are continuing -- for the first quarter we basically continued on the same trend, we did a little better in overall leads and we did a little better in conversion. So, we're seeing some growth in that area. It's not where I want at this point and part of that is simply because we are still adding to that team and haven’t fully built it out. I was hoping that we would have that done by the end of Q1, unfortunately like anything else we just weren’t able to identify the candidates that we thought we wanted to fully bring on the team. I'm pretty confident that's going to get done here in short order in the second quarter and then I anticipate to ramp that up. So, the best way to describe that is we're getting better than last year, but it's incrementally better than that. We haven't opened up to spend like I like to increase the activity just because we haven't brought on the full team yet.

[Unidentified Analyst:]

Okay, great. Thank you.

[Operator:]

Our next question comes from Kyle Rose of Canaccord. Your line is open.

[Unidentified Analyst:]

Hi, this is actually Brendon, on for Kyle. Thanks for taking the questions. First, I just wanted to start from a high level, obviously we have the Q1 results, but is there anything in the joint replacement market that you guys are seeing to be interesting to call out obviously you guys have a unique view maybe six weeks forward out. So, is there anything in the whole market as a whole that you would like to call out or just in the general health of the market?

[Mark Augusti:]

Brendon, this is Mark. Nothing that I'm seeing, my -- again and you guys have probably your own views clearly the robotic trend and the ASE trend remain. I think there is an interesting also increase in prestip [ph] which of course as you know we don't have that offering, but it's a part of our portfolio improvement. We're not ready to say when, but I will tell you that it's on the table. So, we're acutely aware of that. I think the price mix dynamics have roughly been the same. Nothing that I see, I mean, clearly obviously I don't need to tell you what the bigger larger share players have reported and you can judge by their own performance I don’t feel the need to comment on that. But I think the utilization and the market itself remains within historical norms and strong.

[Unidentified Analyst:]

Great. Okay, that's very helpful. And if I could focus a little bit on the Hip launch, as the Hip comes out and probably starting into 2019 as the full launch starts at some point. How do you feel the sales force is -- do you feel the sales force is probably incentivized to continue growing the entire portfolio? Do you anticipate any kind of maybe temporary disruption in call it the core knee business as the Hip comes out and maybe the sales force start to focus on the Hip product?

[Mark Augusti:]

Yes, I think, I appreciate that question. I'm not worried about that much at all obviously it's our job to make sure the competition plans and commission plans align well. But as you know every knee company carriers a Hip and we're really the only major knee company that doesn't. This is going to be incredibly synergistic with our sales force, many of our existing customers are interested in obviously no ConforMIS technology the power of our eye view, the power of customer implant and we are offering a Hip in a box solutions as part of our value proposition. So, as I said earlier on the prepared remarks, I'm actually very pleased with these level of surgeon interest. And I'm of course very pleased with the fit within our sales force. I think look if you are a larger orthopedic company and you are thinking about dropping yet another product into the bag of your distributor network that already has hips, knees and potentially shoulders and extremities and everything else. it's a fair question. But in ConforMIS case, we definitely have the bandwidth. All we have is a total knee offering, and it's an imperative that we get to hip out. Having said that, you mentioned 2019 I appreciate that will be the full product launch. And we'll obviously provide more information going forward. But it is depending on how well we do in commercial launch and the user feedback we get. I'm sure there will be some changes, the question is will it be minor tweaks and changes, or will there be some things where we really feel like we have to make a change to make the value proposition better for everyone as we go forward. And obviously anything related to patient satisfaction and those things. So I just feel a little bit caution on that, just the good news is we're on track for a limited launch second half of this year. And then as we move through that launch as always we'll be very transparent about the timing of our full commercialization and we do hope that that will occur in 2019. But we haven't said exactly when yet. So we'll get to that.

[Paul Weiner:]

If I could add one other thing to that. As far as your question regarding disruption and cannibalization in our knee business where we launch the hip. Unlike we are seeing some of this disruption the cannibalization of our CR business as we launch the PS. Because the PS our sales force then went after obviously a much bigger market with going after new surgeons. Because the same surgeon that do the CR not the same one that do the PS. With the hip however, we already have hundreds of surgeons that are using our customized knee implant and our first targets would be the same customers. So the first users of the hip, we would envision of being the same customers that are already doing the knee. So it should not be disruptive to our sales force like when we launched the PS.

[Unidentified Analyst:]

Great, thank you. That's very helpful.

[Operator:]

Our next question comes from Kristen Steward of Deutsche Bank. Your line is open.

[Kristen Stewart:]

Hey, guys this is really Kristen.

[Mark Augusti:]

You win the award, Kristen, how are you doing?

[Kristen Stewart:]

Good. Got standing in for myself for anybody else. I wanted to just talk a little bit more about the German market and what you're seeing there. Because this seems to be the first quarter, correct me if I'm wrong that you were seeing so many test in the iTotal CR business I am just trying to build out what exactly is going on in Germany.

[Mark Augusti:]

Yes, well I'll let Paul comment a little bit. But just to remind, the partial change did happen in the first quarter. So we do have still some of that effect and as of the first quarter that's kind of anniversaried out. But frankly what we're seeing now is a couple of things, one is by having this less business, I think it's also affected some of our customers' buying habits on CR in Germany or the total let's say. And the other thing that's happening is there is I can't believe it, but there are some areas within the German reimbursement system where they're making our hospital customers go through further justification for why they should get the enhanced reimbursement for the custom knee. And so we're having to fight some of those battles. And so in certain areas that's put a damper on some of the buying patterns and that's very frustrating. So as a result, we do see this in our German business. And we had anticipated a little bit of this and that's why we had issued the guidance that we did Kristen. But based on the first quarter in some of the discussions I have, I'm just worried about how quickly we'll be able to stabilize that or try to achieve towards the higher end if you will of that guidance as it relates to our O-U.S. business.

[Kristen Stewart:]

Okay. So it sounds like in terms of the guidance that you guys are reiterating as you had previously said, but maybe little trends outside the United States. So give you a little bit of cautiousness, is that fair? Offset by maybe a little bit more optimism with things like Sigma?

[Mark Augusti:]

I think that's right. I'm not -- again, I would tell you if I thought this could get operationalized quickly and if there is something there. It just was too soon and it is going to take some time I mean we still see some Sigma designs coming in for instance even though we know they have changed the policy, it just takes time to operationalize it. I’ll have probably more commentary at the next call, as far as how things are progressing, but I think what you said is a fair statement. I mean while we might feel a little more optimistic on certain things in the U.S. potentially it would be tempered by some of the O-U.S. stuff.

[Kristen Stewart:]

Okay, great. And then for Paul, just in terms of the cash position of the company, I think you had mentioned cash change in the quarter was somewhere around $9 million or $9.3 million. How should we just think about the funding of the company going forward and prospects for getting to breakeven?

[Paul Weiner:]

Yes, so we still looking at about $10 million a quarter as far as cash burn somewhere there, somewhere south of that. So that takes us as we had talked about before, the middle part of 2019. We will continue the costs line operations on the top line on gross margin improvements throughout this year. And we will look at options as we move forward as far as continuing to finance of the company. We have long range plans a number that we need as far as cash is concerned within our plan to get to that breakeven and profitability level. And again we’ll be opportunistic looking at different options as we move forward over the coming quarters.

[Kristen Stewart:]

Okay, perfect. And then the last question that I had is just on price, you had mentioned that price was actually positive in the quarter, is that just due to geographic mix or is that just kind of pure price that’s more favorable quarter-over-quarter or year-over-year?

[Paul Weiner:]

Yes, it is geographic mix based on hospital or our customer, some customers so it depends on the pricing mix within each quarter. So we’ve had this in the past, I think two years ago one of the quarters we had extremely high ASP in the next quarter it was back to where it normally is. So I think this is one isn’t as dramatic it’s the one we saw a couple of years ago, but it is a bit higher than the average and we would expect that to come back down the next quarter.

[Kristen Stewart:]

Okay. So fair to say pricing trends are more stable than maybe bad is leading one to believe?

[Paul Weiner:]

Yes, I mean, our pricing declines has always been less than the rest of the industry, hopefully it stays that way. We do build in some price decline in our model, but hopefully we are able to keep it somewhat stable.

[Kristen Stewart:]

Okay, perfect. Thanks for taking the questions, have a good night guys.

[Paul Weiner:]

Thank you.

[Mark Augusti:]

Thanks, Kristen.

[Operator:]

Our next question comes from Josh Jennings of Cowen. Your line is open.

[Joshua Jennings:]

Hi, good evening gentlemen, congratulations on the Sigma positive coverage decision and the gross margin progress. I was hoping to focus on the U.S. business and just hoping you could help us understand where your sales force, now that it’s relatively stabilizes, it having more success so far this year in securing new surgeon customer accounts or driving old ConforMIS customer reengagement and a return to previous utilization levels. And then how you see that shaping up over the next 12 to 24 months in terms of those two channels for your sales force?

[Mark Augusti:]

Yes, Josh, Mark here. I think you hit right on it and however I described it, I am happy with the management changes we made and how the management team is coming together. I would say, I’d had to say, I am a little slightly disappointed that we got a small surprise in the higher number of exits than I would have liked at the feet on the street level. And while I was pleased with the adds, when you net it all out, we’re not where we want to be in the growth. Having said that, we’ve had some I guess some positive stuff coming out of the gate here at the end of the quarter as far as signing of distributors and doing some of the things. So for previous question, we still believe we can grow the feet on the street by 20% and again just remind you this is mostly through distributor. So it’s not going to be a heavy use of cash for us because these are not employee reps. I like the work that’s been done on training and onboarding and those type of things, so that part is good. We need to continue to do a better job on that tissue so insightfully mentioned which is the reengagement of surgeons and the ability to as like to say increase same store sales for our surgeons. And the Sigma policy will be helpful as well as some of the good clinical evidence that will fully ramp. But as I think, it was mentioned earlier, let’s face it we're still a very small market share competitor. And we have a lots of room to grow and we need to growing our CR and PS business. And that's the expectation here. So we're going to continue to pound away at this. It's a highly competitive market as you know, but we like our clinical results, we like our story. And I've got parts of the country that are doing very well and then I have other parts of the country where they’re still struggling to put together as they say all the pieces in the band. And we have to fix that. So that's why our guidance is where it is.

[Joshua Jennings:]

Thanks for that. And just wanted to follow-up on Q1 was the most challenging comp for the U.S. franchise as you go out in the 2Q and 3Q. If you have similar performance level on a dollar basis, that would drive mid-single digit growth for the U.S. business strictly due to the softer comps. I mean how should we be thinking about sequential growth on a dollar basis going forward this year and into next year? Is that something we should be thinking about positively, and just in terms of so that would be mentioned Q1 you had some sales force subtractions and additions. But I mean is the sales force stabilize here where sequential growth on a dollar basis could be reality?

[Mark Augusti:]

I'm trying to think through kind of what you’re saying so. So you said about the U.S.

[Joshua Jennings:]

Sorry, it was a little bit jumbled. I mean, $16 million this quarter, you do $16 million in 2Q, and Q3 that would be 5% growth for the U.S. business. Should we be thinking that you could do better $16 million as we finally don't give quarterly guidance. But just -- versus just off the comp but thinking about sequential growth on a dollar basis based on where you are with the sales force restructuring and reengagement for old customers and potentially capturing new customers as you go through the year?

[Mark Augusti:]

Yes, so I think that on the question of where we stand on a quarterly basis and some direction. I think I said before though we're not necessarily looking for anticipating an increase on a quarterly basis dollar wise. So certainly we get towards the end of the year seasonally fourth quarter is our strongest quarter, but by then we'll have hip limited laugh out there and that would have a little bit more of a positive effect towards the end of the year. So we're not -- certainly are not anticipating necessarily increase on a dollar basis Q1 to Q2, Q3.

[Joshua Jennings:]

Great, that's helpful. And then just lastly on the Sigma positive recoveries. Is there any other payer decision on the horizon that we should be thinking about as we move through the next couple of quarters? Thanks taking the questions.

[Mark Augusti:]

Yes, nothing material that I'm aware of. Obviously if we find something that we feel like we want to talk about well. But where we start to talking about this approximately a year ago I can't remember exactly, which call it was but it’s about a year ago. We mentioned that part of the concern was would it -- would Sigma at that time negative policy change potentially spread and the good news is we didn't see that at all and I have knock on woods and no expectation that that will happen. We continue to generate a supported by the critical evidence we continue to put out good clinical data as evidenced by the National Joint Registry beyond compliance report. And I would add we also continue to invest in good clinical studies. So we've enrolled significant number of patients into our multi-center trial, and we'll eventually talk through some of that stuff. So there is nothing -- short answer is nothing that I'm aware of and don't expect any further changes in that arena. Okay. Thank you, Josh, I think you had signed off. So, thank you.

[Operator:]

Our next question comes from Ryan Zimmerman of BTIG. Your line is open.

[Ryan Zimmerman:]

Great, thanks for taking the question. I apologized I was hopping between call. So if this was asked already I again apologize. The hip data launch, I think previously you've communicated that it was going to take about 12 to 18 months to be in beta before you roll that out more broadly. Is that still you are thinking around the hip and is there any view that that could change potentially increase or decline based on just good feedback on the product?

[Mark Augusti:]

So, it was sort of we've talked about, but not as directly as you did. So, you’re right, we talk about that and as I had said previously on this call, while we hope to be able to get into full commercial launch, at some point in that 12 to 18 months' timeframe. Please sit tight until we report on how things are going and we get more knowledge around what that would be. So for now I think that's still good and as you can imagine it all depends. In all these things you always have some level of changes that you want to make on your way to full commercial launch. Our hope and expectation and -- but again our hope is that they are minor and instead of being it more towards the 18 months, it could be 12 months. But if there are some things that are more significant that are right things to do both for patient satisfaction, clinical efficacy or user, this user stuff physician related satisfaction. We're going to take time to do that to get it right, if that pushes us towards that end. So, right now that guidance still stands I think the big thing is let us get to those first set of beta sites, see how it's going and we'll be happy to be reporting a bit about how that's going and as we get closer to the commercial launch, we’ll let you know.

[Ryan Zimmerman:]

Understand. And then again apologize if this was asked, but on the Sigma policy I recognize congrats on that it's really good news. How do you take that win and kind of transfer to other payers out there and is the same questions that Sigma was asking you, the same question that Sigma was asking you the same ones you are seeing with other payers or does it require say other data or other information that you didn’t have to do with Sigma?

[Mark Augusti:]

Yes, I appreciate that. Again just to remind everybody right, we have full Medicare coverage which is 55% to 60% of the market and we actually have broad commercial coverage. It was just Sigma and then as we have indicated before, some parts for Blue Cross Blue Shield we had actually pretty quickly changed one of the major blueprint coverage policy. And then of course we just we're successful in the Sigma change. To your few question directly, the discussions we have with the Blue that still have a challenging policy for us. We use the same data sets, we're able to use the same information, it's just about getting to the right people. And frankly, they've typically wait until it's time for them to review the policy, which is fine but we want to make sure when they will review it they have our data. So the good news is all of these policies they didn't consider the data we have and if you recall we published the color study back in May of 2017 on health economics, we published Levengood study on alignment that came out, we now have to beyond complain study. So, we have a number of new studies that we're able to continue to talk to them about. And hopefully we'll have that same level success with those few remaining blues plans, but those are really the only ones. And I don't know if you heart, there was a question like do we expect any other changes regard to reinvestment, and knock on wood I really don't. I think we kind of we're very fortunate to effect change in the really only big national one that was out there Sigma and I love the working relations we had with them and appreciate the ability to get the story and explain it to them. But now all that’s left is dealing with the few individual blue plans and we're on it. And we'll certainly talk about data if we're able to change those policies. But with the Sigma change, I would say before we can talk about 95% of the commercial coverage now we’re up to about 97%, 97.5%. So it's just a few points that we ought to clean up. Okay.

[Ryan Zimmerman:]

Understood, thanks for taking the question.

[Mark Augusti:]

Thank you.

[Operator:]

And I'm showing no further questions in queue at this time. Ladies and gentlemen thank you for participating in today's conference. This does conclude the program. And you may now disconnect. Everyone have a great day.