Conformis, Inc.
Q3 2016 Earnings Call Transcript

Published: 8 Nov 2016

[Operator:]

Good afternoon. My name is Donovan, and I will be your conference operator today. At this time, I would like to welcome everyone to the ConforMIS Third Quarter 2016 Conference Call. All lines haves 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 the management will make statements during this call that include forward-looking statements within the meaning of 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 to be forward-looking statements. All forward-looking statements, including without limitation, statements about ConforMIS' strategy, future operations, future financial position and results, market growth, total revenue and revenue mix by product and geography gross margin, operating trends, the potential impact and advantages of using customized implants, the results of the broad commercial launch of iTotal PS, the progress and results of clinical studies, the companies targeted commercial strategy and other sales and marketing strategies about Medicare and the Comprehensive Care for Joint Replacement Model, pricing trends and the results of company's products, the impact of the company's voluntary recall and the company's planned transition of its President and Chief Executive Officer are based upon current estimates and various assumptions. These statements involve material risk and uncertainties that could cause actual results or events to material 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, November 3, 2016. I will now turn the call over to Philipp Lang, the company's President and Chief Executive Officer. Philipp?

[Philipp Lang:]

Thank you, Donovan. I would like to thank everybody for attending our Q3 2016 earnings call today. Joining me on the call this afternoon is Paul Weiner, our Chief Financial Officer. We have a lot to discuss with you on today's call. Let me start out by defining a brief agenda. I will provide you with key highlights of our third quarter results. Paul will then give us a detailed review of our financial performance. I will then update you on our progress with our base business, with iTotal CR, our cruciate-retaining total knee new system; iTotal PS, our posterior stabilized total new system, which triples our available market and which is now under the second quarter of broad commercial launch; our strategy to leverage the Medicare Comprehensive Care for Joint Replacement or CJR bundling program with our targeted commercial strategy, targeting select metropolitan statistical areas to increase market penetration; recent clinical and economic data, which we plan to leverage with surgeons, hospitals and payers; new strategies and programs for new surgeon acquisition and increased in surgeon account penetration, including new direct-to-consumer marketing programs and outpatient total knee replacement. Then we will open the call for your questions. We had a solid third quarter of 2016. Product revenue was 18.4 million, resulting in a 37% increase year-over-year on a constant currency basis. We saw double-digit growth in our base business, with iTotal CR and our partial knee system. Our base business is back. ITotal PS grew at an impressive pace in its second quarter of full commercial launch. With this background, let me turn the call over to Paul for a detailed financial review. Paul?

[Paul Weiner:]

Thank you, Philipp. Total revenue for the third quarter of 2016 increased $4.7 million to $18.4 million or 34% year-over-year on a reported basis and 35% on a constant currency basis as compared to the third quarter of 2015, which was affected by our product recall. Total revenue in the third quarter of 2016 includes royalty revenue of $243,000 as compared to $404,000 in the third quarter of 2015. Third quarter product revenue increased $4.9 million to $18.4 million or 36% year-over-year on a reported basis and 37% on a constant currency basis. U.S. product revenue increased $4.5 million to $15 million or 43% year-over-year. Rest of World product revenue increased $421,000 to $3.4 million or 14% year-over-year on a reported basis and 18% on a constant currency basis. As detailed in our press release this afternoon, third quarter product revenue from sales of our base products, the iTotal CR, iDuo and iUni increased $1.7 million to $14.4 million or 13% year-over-year on a reported basis and 14% year-over-year on a constant currency basis. Third quarter product revenue from sales of iTotal PS, which we launched on a limited basis in February 2015, and initiated a full commercial launch in March of this year increased $3.2 million to $4 million or 401% year-over-year on a reported basis and 403% year-over-year on a constant currency basis. Third quarter U.S. product revenue represented 81% of total product revenue compared to 78% of total product revenue in the same quarter of 2015. Third quarter Rest of World product revenue represented 19% of total product revenue compared to 22% of product revenue in the same quarter of 2015. Turning to a review of our results across the rest of the P&L. Third quarter gross margin was 32% of total revenue compared to 20% of total revenue in the same quarter of 2015. The increase in gross margin compared to the prior year was driven primarily by higher product revenue in the third quarter of 2016 as compared to the third quarter of 2015, which was affected by the product recall. Gross margin included $1.2 million in unused product or 7% of revenue in the third quarter of 2016 as compared to $700,000 in unused product or 4% of revenue in the third quarter of 2015. Historically, the cost of unused product has averaged approximately 4% of revenue, with modest volatility on a quarter-to-quarter basis over time. Third quarter operating expenses decreased modestly by $71,000 to $18.9 million or 0.4% year-over-year. Sales and marketing expense accounted partially for the decrease as well as general and administrative expense, offset by a slight increase in research and development expense. Net loss was $12.8 million or $0.31 per share, compared to $17.1 million or $0.45 per share for the same period last year. The decrease in net loss as compared to the prior year was driven primarily by higher product revenues in the third quarter of 2016 as compared to the third quarter of 2015. With that, I'll turn the call back to Philipp.

[Philipp Lang:]

Thank you, Paul, for this detailed financial update. As you can see, we have made significant commercial progress through the third quarter of this year. Most important, the number of new orders now exceeds pre recall levels. We believe this higher rate of new orders shows the confidence of our surgeon customers in our products. We also believe the single most important aspect in this progress was the value proposition of our implants for our surgeons and hospitals, which includes faster order time with less inventory to manage for the OR staff, better clinical outcomes than compared to leading off the shelf implants including faster recovery and better function for the patients, and the potential for economic savings to the hospital. This includes, for example, lower adverse event rates in the 90 day period after the hospital stay and fewer patients discharged to costly rehab facilities. Moving forward, our focus will be to continue to expand the base business, which we're planning to do with the help of our latest clinical and economic data, the opportunity presented by the Medicare CJR program and a number of new commercial initiatives, which I will touch on in a moment. The commercial impact of our iTotal PS is expanding at a high rate. As you heard from Paul, year over year growth in the third quarter of 2016 exceeded 400%. This result speaks to the interest that this product is receiving in the surgeon community. The feedback from our growing iTotal PS surgeon user base is that this implant demonstrates many of the benefits observed in our iTotal CR product, including stability through the range of motion in a very simple and reproducible surgical technique. What is exciting for ConforMIS is that iTotal PS represents an approximately three times greater market opportunity when compared to our base business with iTotal CR and our partial knee systems. So what does this all mean from a commercial execution perspective? First, we are clearly continuing our efforts to grow the base business with iTotal CR by adding new surgeons and by increasing penetration of existing accounts. Second, we are focusing on recruiting and on boarding more iTotal PS surgeons to drive our commercial growth. For example, we've implemented a new surgeon on boarding program for the iTotal PS, which includes surgeon visitation program as well as national training labs. In the surgeon visitation program, a new potential surgeon can visit another surgeon who is using ConforMIS and observe live surgeries prior to performing his or her own initial cases. Any concerns that the new surgeons may have can be readily addressed in the peer to peer interaction and discussion. We have found this to be one of the most powerful tools for on boarding new surgeons. In the national training labs, a new potential surgeon can practice his surgery first hands on in a cadaveric knee. We've been operating this program for a number of years with our partial knee systems and iTotal CR, and we are now replicating their success with iTotal PS using the same company resources and infrastructure by targeting PS surgeons with our latest implant, which is rapidly evolving into our flagship product. We believe that the success of this approach is reflected in the third quarter numbers for iTotal PS. Our targeted commercial strategy involves identifying Metropolitan statistical areas, or MSAs, based on knee replacement procedure volume, surgeon density, surgeon preferences and prevailing average selling price for knee replacements. Once we have decided to enter a new MSA, we work with regional key opinion leader surgeons to help develop our presence in the MSA to add more surgeons and to rapidly expand our regional market penetration. At the end of 2015, as compared to the end of 2014, we were able to increase the number of MSAs in which we have at least 10% market share of all primary knee replacements by approximately 50% to 22%. We have made further progress with our targeted commercial strategy by adding more MSAs with more than 10% market share of all primary needs in 2016. Achieving this type of market share with a limited product portfolio of an iTotal CR in a partial knee system was impressive. For the remainder of this year and moving forward, we will leverage iTotal PS, the only customized posterior stabilized knee replacement system worldwide, into our current MSAs and new MSAs that are predominantly PS markets. The Medicare Comprehensive Care for Joint Replacement Model helps and potentially amplifies our targeted commercial strategy in select Metropolitan statistical areas. 792 hospitals and 67 MSAs are now enrolled in the CJR bundled payment program. As a reminder, this program entails that each year Medicare will set target episode of care prices for each hospital participant, which includes payment for all related services received by Medicare beneficiaries through 90 days post operatively. Hospitals will continue to be paid as they are now, however, Medicare will reconcile actual versus target prices. Hospitals will either keep savings or owe Medicare for price overages on an annual basis. This will effectively result in the bonus of penalty system to the hospital. We believe that ConfirMIS is uniquely positioned to compete in this bundled care environment given the clinical and economic benefits we have discussed previously plus new outcomes that I will review momentarily. ConforMIS is now strategically overlaying the CJR program onto our targeted commercial strategy, focusing on MSAs and hospitals that are heavily exposed to bundled care under CJR. Going forward, we look to expand in existing MSAs and into new MSAs that are involved in CJR bundled care. Our targeted commercial strategy is supported by a growing body of evidence attesting to the superior clinical outcomes of our implants and the potential for significant economic savings. Most recently, in an independent prospective, single-center investigator initiated study of 62 total knee replacement patients, those patients who received an iTotal CR had significantly better outcomes compared to patients who received traditional off-the-shelf implant. Specifically, iTotal CR patients have significantly shorter length of stay, 1.6 days compared to 2.7 days for the off-the-shelf patients. Additionally, 66% of iTotal CR patients were discharged within 24 hours as compared to only 30% of the off-the-shelf patients. Analysis of discharge destination data revealed that 97% of iTotal patients were discharged directly to home as opposed to a skilled nursing facility, as compared to only 80% of the off-the-shelf patients. At an average follow-up of 16 months, 84% of iTotal patients were able to achieve range of motion greater than or equal to 120 degrees as compared to only 45% of the off-the-shelf patients. All of these differences were statistically significant. Based on previously published cost analysis of length of stay, by shortening the average length of stay -- hospital stay by 1.1 days compared with the off-the-shelf implants, the investigator concluded that there's a potential for in-hospital cost savings of approximately $1,100 per patient. Similarly, based on previously published cost analysis of discharge destination, home versus rehab facility, the investigator concluded that a lower proportion of iTotal patients being discharged to skilled nursing facility has the potential for an additional savings of approximately $1,100 per patient, for total potential savings of approximately $2,200 per patient. We believe that these numbers show how our differentiated technology has the potential to contribute to substantial cost savings in the health care system. Personally, I believe our technology has the potential to become the treatment of choice in a bundled care setting. In addition to these ongoing commercial efforts, we have recently started two new strategic initiatives to support our sales growth. The first initiative is what we call our patient ambassador program. We believe the results of our technology speak for themselves and who would be the best person to speak to those results? Our patients. We have established a number of patient ambassadors across the United States. These are patients of diverse background, gender, age, with diverse interest and activity levels which range from hiking, biking, kickboxing, mountaineering to ski racing. All of these patients have received at least one of our partial knee systems, an iTotal CR or an iTotal PS. Any patient who is considering a knee replacement can now connect with one of our patient ambassadors to ask questions and learn from a patient who has experienced getting a ConforMIS knee replacement. We hope that with this approach, we can enhance our direct-to-patient marketing efforts, spreading the word about the benefits of our customized technology. Another key new initiative that we are looking to grow and expand in the coming quarters is our outpatient total knee program. Many patients prefer an outpatient procedure over a hospital-based procedure, recovering at home as compared to a hospital bed. Surgeons are also increasingly looking to perform some of the procedures in ambulatory surgery centers for clinical and economic reasons. Fundamental challenges exist with outpatient total knee replacement with off-the-shelf technology. The number of reusable instrument trays that need to be managed ranging typically between five and 10, exceeds the infrastructure and inventory management capacity of most outpatient surgery centers. In addition, as we saw in the independent investigator data comparing off-the-shelf implant patients with ConforMIS patients, off-the-shelf patients recovered more slowly, and statistically significantly fewer were discharged within 24 hours. We believe that ConforMIS technology is well suited for outpatient total knee replacement, with pre-sterilized disposable iJig instrumentation, only one reusable tray and based on clinical studies with iTotal CR, implants that offer faster recovery to our patients. At this juncture, we have established several training sites for outpatient total knee replacement across the United States. These training sites are managed by key opinion leaders in total knee replacement. We're looking to scale up our outpatient total knee program by training surgeons throughout the U.S. at these sites. Outpatient total knee replacement is an exciting new development for which we believe ConforMIS is ideally positioned due to its just-in-time delivery model payout with the clinical and economic benefits of our implants. What about the hip? The key concerns in hip replacement today are hip dislocation and leg length discrepancy. iTotal Hip addresses these concerns through its unique customized design. All of this is paired with an elegant, simple surgical technique using our iJigs, leveraging a delivery model similar to what we're doing in the knee. The surgeon feedback is that this is a very exciting product. Since most surgeons who do knee replacement also do hip replacement, we believe we can launch this product into our existing knee surgeon base once we will go from a limited launch to a full commercial launch. In September of 2016, we filed a new application with the FDA seeking 510 K clearance of iTotal Hip. Going forward, we will not be advising on future submissions to the FDA but we'll update you when we receive clearance. Last, I would like you to join me in welcoming, Mark Augusti, who will become the company's President and Chief Executive Officer on Monday, November 14. Mark has held executive positions at Smith & Nephew, GE Medical Systems, JPMorgan and Bioventus. In 2014, he became President of Orthopedic and Tissue Technologies at Integra LifeSciences. Mark will be assuming the leadership role at an exciting time. Our clinical and economic data portfolio is expanding and the value proposition is now further corroborated by the most recent independent study that suggests as much as $2,200 savings per patient. We are adding more MSAs and we're increasing penetration in the existing MSAs leveraging now also iTotal PS in addition to some of the potential economic savings, for example, in the bundled care CJR setting. We expect that this progress will be further supported by a number of new commercial initiatives such as our patient ambassador program enabling direct patient to patient interactions and our outpatient total knee program. iTotal PS grew at an impressive pace in its second quarter of full commercial launch. Last but not least, ConforMIS has reestablished the number of new orders, which we have which have now exceeded pre-recall levels. In summary, ConforMIS is back. Operator, Donovan, let us please go ahead and open the line for questions.

[Operator:]

[Operator Instructions] And our first call is from Kristen Stewart with Deutsche Bank. Your line is now open.

[Kristen Stewart:]

I was just wondering if you guys are reaffirming your original guidance, I guess, or past guidance that you've had for the year. I don't think you mentioned that on the call or in the press release.

[Paul Weiner:]

Yes, we're not I mean, we are I guess we are reaffirming our guidance by not commenting on it. But yes, we stand by our guidance that we gave earlier in the year. Yes.

[Kristen Stewart:]

Okay. So you can say it's all comfortable with what you'd given in the last quarter just given the trends that you've seen now in terms of order rates and things like that? Any comment on the higher, low end of the range I guess given trends and order rates?

[Paul Weiner:]

Yes. So I mean, as we're getting obviously closer to the end of the year, so we feel that much even more comfortable certainly with our guidance. And certainly with the midpoint of our guidance, we feel very comfortable being able to achieve that.

[Philipp Lang:]

And to give you a little follow up for that, Kristen, very clearly, the order rate today have exceeded what we saw last year pre recall. And if you look at our base business, that has recovered to pre-recall levels. It's back. And if you look at iTotal PS, we're confident in the growth -- if you look at this today now, we're confident in the growth of our iTotal PS. We are confident in the growth of our new surgeons and we are seeing strong orders through our PS surgeons. So we're very confident in the business.

[Kristen Stewart:]

Okay. And just in terms of the number of physicians for PS, can you comment on how many more you've added? Or just kind of account-wise?

[Philipp Lang:]

So we're not advising on the actual surgeon numbers but let me reiterate that we're very confident how that is tracking today.

[Kristen Stewart:]

Okay. Thanks very much, and I’ll get back in the queue.

[Operator:]

And our next question is from Larry Biegelsen with Wells Fargo. Your line is now open.

[Craig Bijou:]

It's actually Craig on for Larry. So I just want to start with the base business and the 14% growth that you saw in Q3. And I just wanted to understand, obviously you guys had the recall in Q3 of last year. So I mean, if we looked at the growth rate on the normalized way, I mean, what is that 14% look like, if you basically take into account that you have an easier comp for the recall.

[Paul Weiner:]

Yes, it's really hard to say as far as putting numbers to it. There was a mix of as far as -- because the recall happened towards the end of August. It's only affected the month of September, so only one month of the third quarter was affected. But it is hard to tell what the revenues would have been in the month of September. September generally being the stronger of the three months during that -- during the third quarter, but it's hard to go back and reconcile what the revenues would have been had it not been for the recall.

[Philipp Lang:]

But if you take a step back, Craig, the single biggest challenge that we had along the way was trying to predict when is that business back to pre-recall levels, the big business, the partial knee and CR, and I can tell you it's back. So the base business is back to pre-recall levels and that uncertainty is gone.

[Craig Bijou:]

And I appreciate those comments. I guess what the genesis of my comment, I'm trying to understand run rate going forward. You said that the pre-recall orders are back for the base business. And I know you also have programs that your strategic programs to expand that base business. But is the 14% the right way to think about the growth of that base business going forward? Or is it higher? Is it lower? I mean, any color there is -- would be helpful.

[Paul Weiner:]

Yes, I mean, we haven't given guidance obviously moving forward past this year for 2017 or beyond. We do, as far as where we expect the largest growth certainly is in with the new product launch with the iTotal PS. On the other side, the base business with the iUni, iDuo and iTotal CR makes up a majority of our overall revenues, we do expect to continue to grow those revenues moving forward. And the bigger growth area certainly is on a percentage basis is -- we are looking at the iTotal PS for that.

[Philipp Lang:]

So the faster growth with PS, a lot of this is simply driven by the sheer market size, three times larger opportunity. But very clearly, the base business is back and is growing.

[Craig Bijou:]

And if I could just follow up on some of the comments on PS. I know you guys called for measured growth in 2016 for PS, as you fully launch a product. And I guess when would you expect to see that measured growth accelerate? Is it once the product has been out a year? As we look to '17, is it something that happens in the first half? Second half of '17? Is there, I guess can you help us think about when we would see an acceleration in that growth?

[Philipp Lang:]

Let me briefly explain the dynamic of how we're building the sales, and then I'll have Paul answer the question related to the growth and the acceleration. The dynamic is, for 2016, the focus has really been on onboarding of the new surgeons. The more, the better and this will continue, and it will continue through 2017. And then historically what we're seeing is progressively increasing penetration in those accounts over a 12-month period. So you're going to see basically 2016, the scene is onboarding of new surgeons, initial penetration. 2017, you're seeing progressive penetration with those surgeons who were brought on in 2016, and continued onboarding of new surgeons.

[Paul Weiner:]

So just to follow up on what Philipp just said there, so if you were to time it, we did the full commercial launch at the end of the first quarter. So we started really onboarding surgeons in the second quarter by the time they started actually doing procedures, you're talking about the third quarter. So this past quarter was really the first quarter that was -- that we could see the positive effect related to the full commercial launch. And based on looking at historical penetration into our customers, looking at our other products like the iTotal CR, in about a year's -- it takes about a year's time to get the high penetration within those accounts. So if that continues, if that same history with the iTotal CR is the same for the iTotal PS, we would expect in the second half of '17 for the ramp rate especially as it relates to penetration to take hold.

[Philipp Lang:]

And what we've seen along the way is our sales force has really done a stellar job with the onboarding and bringing on all of those new surgeons. And they have also been very proactive about targeting high-volume surgeons. So on that front, the company has really performed. And that's certainly greatly aided by the fact that with the continued feedback literally as far as I know, most of the new surgeons -- for all I know, all of the new surgeons providing feedback, it's a very simple and reproducible surgical technique, and that really helps. And so it's going really well.

[Operator:]

And our next question is from Steven Lichtman of Oppenheimer. Your line is now open.

[Steven Lichtman:]

Philipp, you talked about the positive independent surgeon data and how that maps to economic value. I was wondering what other data sets we could expect in the coming quarter specifically on the economic savings of using iTotal.

[Philipp Lang:]

Yes. So there is more forthcoming. I can share with you our outpatient total knee program is really having it's early, as we emphasize, this is a new initiative. We have multiple sites across the country to onboard new surgeons. But it's having significant impact and it's met a huge amount of surgeon interest out there. And we are actually now planning for 2017 to do an economic study related to outpatient total knee because we believe we offer a number of very unique economic benefits there that we want to prove out in the outpatient setting, so that's one aspect. The other thing that you're going to see the recruitment for the double blind randomized trial continues. And what we are doing in the double blind randomized trial is we're also in the U.S. sites, we are capturing the economic data. So in fact, I believe as it pertains to the key outcome measurements for joint replacement and specifically also some of those functional outcomes measurements, this is the first double blind, randomized trial ever in joint replacement. But then on top of that, it's a blinded economic trial. And we're going to get those outcomes and there, we're looking at the 90 day period, so hopefully it won't take us too long to actually collect those, will still be past 2017. But that should be another powerful data set. There will be more data beyond that, but those are some of the key examples.

[Steven Lichtman:]

Great. And then just secondly on PS, obviously it's a door opener getting into surgeons who don't do CR. But I was wondering how much of an impact does PS have potentially on CR and your other base business in terms of being a door opener for that side of the business, where perhaps accounts were not willing to purchase CR or Uni without having a PS version? How much of a crossover effect can that have?

[Philipp Lang:]

So PS has multiple positive effects, Steve. One is clearly if you just look at our CR surgeons, we estimated about 20% of the volume, they are not they are, historically before we had the PS product when the arthritis was too advanced they are using an off the shelf implant. So here it's a door opener so to say to take those additional 20% of the volume in those existing accounts, and we are completely opportunistic looking to get that. The PS can certainly also be a door opener for our other implants, specifically the partial needs, with the PS loyalists who we couldn't, who didn't have an implant to offer to in the past and so those are some of the other opportunities that we're seeing.

[Operator:]

And our final question is from Kristen Stewart with Deutsche Bank. Your line is now open.

[Kristen Stewart:]

I was just wondering if you can give us an update on the vertical integration and improvements within the gross margin, all the initiatives there.

[Philipp Lang:]

So the vertical I'll let Paul comment on the gross margin, Kristen. The vertical integration is progressing very nicely. Example, we are progressively expanding our in house manufacturing of CNC metal trace. We are now also making our polyethylene inserts in house. Those are all initiatives basically that got really active here in the second half of the year, and we are going to see more and more benefit as we go into 2017. It is substantially better material cost structure. The software automation is progressing nicely. And also the expansion of our computer-assisted design into an offshore location is progressing nicely. So all of those and last but not least, I would say there's a lot of progress on increasing throughput on the existing machines, which will also help us with capital expenditures in 2017, we'll need less machines. So the overall program is clearly meeting our expectations. I find it very exciting. And Paul maybe if you want to comment more on the gross margin impact.

[Paul Weiner:]

Yes. So many of these items that Philipp is mentioning, we started to implement in the second half of this year really towards the end of the third quarter and into the fourth quarter, so where we would expect to see gross margin improvements from this? A little bit potentially at the end of this year but certainly throughout 2017. And also, we continue in our process of implementing the additional software automation for the design of the implant and expansion of -- and expansion of the CAD design offshore as well, so all of these things should help us certainly in 2017 in a meaningful way as far as improving our gross margins. In this particular quarter, the unused product related to canceled orders, was higher than the historical norm at about 7% of revenue. Historically, that's running at about 4% of revenue, which did result in about 300 basis points reduction in our gross margins during the third quarter. Overall for the year of 2016, we are at about 5% of revenue, which is about close -- which is close to our historical norm.

[Kristen Stewart:]

I guess why are you still seeing an elevated number of canceled products going through the gross margin line at this point?

[Paul Weiner:]

It varies on a quarter-to-quarter basis, and we've seen that historically as well. The big thing to note, as I said, is that on average, we are -- about on average for the year, very close to where we've been running historically. The first quarter, for instance, was extremely low and -- at about 2%. This quarter happen to be on a higher end.

[Kristen Stewart:]

Okay. And then, Philipp, I know in the press release you had commented about completing enrollment in the Single Time-Point Study with iTotal CR I guess versus off-the-shelf in 800 patients. When will that data be, I guess, available for further distribution or release?

[Philipp Lang:]

So the principal investigator, to my knowledge, has the data, Dr. Mary O'Connor at Yale, and the next step basically for her is to write the manuscript. I would hope that, that will be submitted in the next few months. And then it will depend on how long the journal will take to actually publish it. So it's typically I think from the time of completing data collection to actual publication. What we've seen, we've seen for example the recent paper that came out in Journal of Arthroplasty that looked at kinematic comparison, how does the knee moved compared to iTotal versus one of the leading off-the-shelf brands. From time of -- from manuscript to publication, in that case, was a little less than a year and I think that would put us on place middle to -- middle next year to the fall of next year.

[Kristen Stewart:]

So nothing that we should expect it doubling next year, maybe more later in the year?

[Philipp Lang:]

I think you will see other data and more data forthcoming pertaining specifically to the publication of this paper. Again, it depends on the journal.

[Kristen Stewart:]

And then, I guess the last one of our questions since there's no one else in the queue. Just in terms of Mark's appointment, can you maybe just give some perspectives, I guess board discussions on what makes him the right person at this point in time to step in and fill your shoes from a CEO perspective?

[Philipp Lang:]

So Mike has held executive positions at a number of established companies and also companies that have a different background, not only joint replacements. So he was at Smith & Nephew, GE Medical Systems, JPMorgan, Bioventus. And he's joining us from his position as President of Orthopedic and Tissue Technologies at Integra LifeSciences. The key question that you need to ask in a recruitment for a CEO for ConforMIS is what does a company like ConforMIS need? And I think the key consideration here, Kristen, are you need someone who brings different expertise to our company than just large orthopedic company experience in large joints. You need someone who can succeed in a high-growth environment. You need someone who has a track record of successfully commercializing products. With this position, there is a significant component of market development. We are selling new, highly differentiated and disruptive technology into very established markets. So the commercialization approach has to be as differentiated as the technology, focusing how we can really leverage the superior outcomes into this established market. The new CEO has to identify new market trends and opportunities, such as bundled care or how we can work together with payers, which is something that we haven't even touched upon yet. So those are a few examples of what is possible under a CEO who will pursue a differentiated commercial approach. And as the Chairman of the Board of ConforMIS said, Mark Augusti's experience and performance in a number of challenging roles was a significant factor in his selection as ConforMIS' CEO, and he has led teams that delivered strong growth during his tenure at Integra. So those were the key considerations.

[Operator:]

And we have a follow-up question from Bruce Nudell with SunTrust Robinson Humphrey. Your line is now open.

[Imron Zafar:]

Imron Zafar in for Bruce. I had a couple of quick questions about your focus on the outpatient ambulatory surgery center opportunity. I'm just wondering, do you have a sense of how many centers are offering joint replacement outpatient in the U.S.? Like sort of what -- where you see them working right now? And then how you see that opportunity in the context of bundled payments, with CJR being limited to obviously to inpatient? Just wondering how you're thinking about that relative to the outpatient initiative that you announced today.

[Philipp Lang:]

Let me answer the second part of your question by telling you I'm not an expert on reimbursement. But CJR is really hospital based. So I believe that and again, I'm not the expert, but I believe that would not be material to outpatient total knee. But outpatient total knee, from what we can tell, is the fastest growing segment. It's still tiny, but it's the fastest growing segment overall in total knee replacement today. And there is a tremendous and partial knee is already there. Medicare actually approved reimbursement for partial knee system in the outpatient setting. To my knowledge, they're currently evaluating potential reimbursement of outpatient total knee. We're not there yet. I would certainly hope in due time when they announce this, this is going to be another landslide for ConforMIS like the CJR is. But that said for the private payers, outpatient total knee is here today, there is a tremendous amount of interest. So for us, for those physicians that are already doing their partial knees in the outpatient setting, the door is wide open. And what we are also seeing as a trend is very clearly, many of the new surgeons who we are on boarding, there's a tremendous amount of interest in outpatient total knee. They're not currently doing it. They'd like to do it. That's clicking, with this I could do it, yes? They're doing select procedures already in the ambulatory surgery center, and now you get this technology, you can open it up. So recently, a prominent surgeon at Harvard contacted us and asked, where could I see this? and so we have a number of quite a few surgeons who are highly interested in this report. So this is going to be a big new focus for us.

[Imron Zafar:]

Okay. But for I guess so the near term is going to be driven just on the private payers then initially?

[Philipp Lang:]

On the reimbursement side, it's clearly private payers. But again, it will a lot will then depend [Indiscernible] what will happen with Medicare. But look what they did to the CJR program, look what they did with partial knee systems, which are now approved. A few years ago, they were not approved in the outpatient setting, they are approved now. And we are certainly going to meet that. And we will have, in due time, economic data from the outpatient total knee setting and that will make for an even more compelling situation.

[Imron Zafar:]

Okay. And the number of centers that are doing outpatient knee arthroplasties, is it like around 50, is that kind of right number to think about?

[Philipp Lan:]

I don't have a number across the United States, how many are doing this today, so I wouldn't be able to answer that. But I want to come back to your original question. One more data point to consider. So we have we are in active discussions today with some surgeons who are very high volume surgeons, developers for other companies that were looking to do outpatient total knee with ConforMIS in their ambulatory surgery center because they currently can do it, our head of sales is in active discussions, and is going to visit a surgeon who is doing several hundred total knee's a year very soon with exactly that background. So it's also it's another door opener for us to accounts historically we're not open.

[Operator:]

And we have a final follow up question from Larry Biegelsen of Wells Fargo. Your line is now open.

[Craig Bijou:]

It's still Craig. Just had a quick follow up on the hip. I appreciate your comments, Philipp, on submitting resubmitting to the FDA. I just want to know is there any how should we think about timing of approval or contribution to revenue?

[Philipp Lang:]

So timing of approval, we can't comment. So this is an active submission and we wouldn't be able to comment on anything that's in front of the FDA. The only reason why we did actually advise on this is because we had previously mentioned the product. And again going forward, we don't want to comment on submissions any further. In regards to contributions to revenue, I think the best time to discuss that would be next year, exampled in the Q4 earnings call when we'll be giving guidance for 2017.

[Paul Weiner:]

Yes. On the hip, as far as working and the process of getting FDA clearance, we also need to continue and work on setting up the manufacturing and the manufacturing development. So there is still some work to be done on the hip even upon receiving clearance. But like Philipp said, we would potentially give you -- potentially a little bit more clarity when we are giving guidance for next year in February, we'll have to evaluate where we stand at that point in time.

[Philipp Lang:]

And from a revenue contribution, keep in mind, Craig, this is a limited launch. So the revenues will not be material. Like on PS, like on CR, like on the partials, when we did limited launch. This was not about generating volume and revenue. This was always about getting surgeon feedback, perfecting surgical technique based on that feedback before we broadly launch. Okay?

[Operator:]

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