Misonix, Inc.
Q3 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Good day, and welcome to the Misonix Third Quarter Fiscal Year 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Norberto Aja, Investor Relations. Please go ahead.

[Norberto Aja:]

Thank you, operator, and good afternoon, everyone. Thank you for joining the Misonix Fiscal 2021 Third Quarter Conference Call. We'll get started in just a minute with management's comments, but before doing so, let me take a minute to read the safe harbor language. Today's call and webcast, taking place on May 6, 2021, contain forward-looking statements within the meaning of the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995 and can be identified by words such as anticipate, believe, estimate, expect, future, likely, may, should, will and other similar references to future periods. Examples of forward-looking statements include statements regarding guidance and relating to our financial results. Forward-looking statements are neither historical facts nor assurance of future performance. And because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances. Therefore, you should not rely on any of these forward-looking statements, and the company undertakes no obligation to publicly update any forward-looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise.

[Stavros Vizirgianakis:]

Thank you, Norberto, and good afternoon, everyone. Thank you for joining us on the call today to review our fiscal 2021 third quarter results. Joining me on the call is Joe Dwyer, our Chief Financial Officer. Our results for the fiscal third quarter of 2021 return us to overall growth, something that we are very pleased with and which reflects both the strong value proposition of our products and solutions as well as the enormous talent we have across the entire organization. It is also further proof that the overall operating backdrop is improving, and we're in the early stages of returning to a more normalized environment. Growing our top line by approximately 3% on a year-over-year basis as well as sequentially compared to fiscal Q2 is something we're very proud of as market conditions remained largely challenged during the quarter. While January and part of February experienced some disruptions, many of our markets began to show marked signs of improvement in March. And I'm pleased to report that this trend has continued from March into April. I'm particularly pleased with the 14% growth across surgical, including 15% growth domestically and 12% internationally. While this is a little below our recent run rate of domestic growth, it is important to keep in mind that we had a difficult comp this quarter as it was the third quarter of fiscal 2020 that we launched Nexus and had 41% growth domestically in surgical. We are seeing continued growth in this revenue segment, reflecting very strong mix of adoption rates as well as continued strong appeal of both BoneScalpel and SonaStar, which domestically grew 25% and 29%, respectively. That is compelling growth for both. With regard to Nexus, the platform is helping drive domestic revenue growth despite the headwinds brought on by the pandemic, and has been critical in our ability to secure some significant wins in both the spine and neuro arenas. We are confident that we will achieve our prior stated goal of placing over 180 units in fiscal 2021. In fact, we're increasing our guidance by over 10% to 200 units in the market by the end of fiscal 2021 or by June 30. The success of Nexus bodes well for continued handpiece and disposable sales, creating a flywheel effect that generates significant ongoing or recurring revenue from the sale of handpieces and disposables, making our business more stable and predictable and in turn, more valuable.

[Joseph Dwyer:]

Thanks, Stavros, and good afternoon, everyone. Starting with the top line performance. Third quarter revenue increased by 2.5% to $18.5 million compared with $17.9 million in the third quarter of 2020. This is the first quarter we've had posted a year-over-year quarterly increase since before the start of COVID-19 over a year ago. We're pleased to return to growth and to be in a good position to leverage the important opportunities in front of us. We're also pleased with our ability to generate top line improvement while maintaining healthy margins, with the gross margin percentage for the third quarter improving to 70.6% compared with 7.3% in the third quarter last year. Moving down to operating expenses. The various expense reduction initiatives we have implemented over the last year have resulted in significant savings. The team has worked extremely hard to find additional opportunities to generate opportunities to operate more efficiently and effectively across all aspects of the business. Total operating expenses decreased by $2.1 million during the third quarter of 2021 to $15.8 million or an 11.6% reduction compared with the third quarter of last year. As we have returned to growth mode, we are now investing more heavily in our sales resources. So while we expect to increase our investments across sales and marketing, we're keenly focused on balancing that investment with revenue growth at a rate of 20-plus percent going forward.

[Operator:]

. And we can now take our first question from Alex Nowak of Craig-Hallum Capital Group.

[Alexander Nowak:]

Thanks for the update on the Nexus placements. I was just hoping you could go through the mix of where you're getting the most usage for Nexus, whether it's spine, wound versus neuro? And then maybe explain, are these new to my size customers? Are some of these drop-in replacements? Are you seeing them on high-volume complex cases or more on the routine side? And then also just on the pull-through that you're seeing, is it higher than a legacy box in terms of pull-through? A couple of questions there.

[Stavros Vizirgianakis:]

Yes. Thank you, Alex. Thank you very much for your question. I think we're seeing a couple of things with Nexus. I think as markets open up and we have more access to the OR, we can certainly leverage Nexus into more specialties. So neuro, as you know, has been a big focus for us. So most of our neuro wins have been wins of competitive accounts. So when you look at the 29% growth that we put out on SonaStar, for us, that's pretty significant, and that's more competitive business that we're taking. On the BoneScalpel side, it really is a combination of upgrading legacy customers, and also converting surgeons from traditional tools to Nexus. But while we look at metrics, I think it's still too early to quantify how much upside we get when we place a nexus in an account, we've started looking at early metrics and those signs are very encouraging. But I think we haven't been in a state where we have no disruption and free entry into the OR. So we're seeing that there are some restrictions in terms of getting people into the OR. And I think it will probably be another 2 or 3 quarters till we can really quantify what that upside is as we leverage the entire portfolio. But we're seeing good uptake really on all 3 specialties on the wound side, on the neuro side as well as the bone cutting side.

[Alexander Nowak:]

All right. That's great. I know you had a variety of new products that were waiting to go into the clinic really across the entire portfolio, but you're waiting for the rep access to improve. So do you think you're there, maybe in March or April or now May where rep access is at the point where you can start to put those new products in the bag?

[Stavros Vizirgianakis:]

Absolutely. I think what we saw, Alex, if we look at the last 2 weeks of March, we launched orthoplastics in a limited rollout, a couple of accounts. We did the same with micro disc. We identified our first 9 accounts, actually in April. We were able to move surgeons around to get some training. So still very early days. Our strategy with our Therion product, the amniotic product is literally going to market next week. So we've got a whole backlog of products to launch, TheraGenesis, similar situation. We started doing a couple more cases in April as well. But we're certainly seeing that access is improving on a nationwide basis. And as access improves, I think those are better conditions to look at launching new products.

[Alexander Nowak:]

Okay. Understood. And then just last question there. Just going on the wound side. I know there's a ruling out by FDA, I think it's gathered more steam recently, requiring amniotic wound products to complete a randomized controlled trial by - I think the deadline is May 31. Otherwise, there is the potential they can get pulled for the market. So just curious, does that open up any sort of competitive win for the TheraSkin or the TheraGenesis product? And then the same question, I guess, just what does that mean for the Therion product that you mentioned?

[Stavros Vizirgianakis:]

Yes. I think if we look at the new proposed regulation, I think, will really affect parts of the amniotic market. I think sheets manufacturers have managed to change their claims over the last couple of months and years. So I think it really - the biggest impact is going to be more on the micronized product. So we're not seeing it as really a big change to our business. I think amnion makes up a very small portion of our market. We don't think that this will be - disrupt the amniotic market or our launch in any way. Whether there is a significant opportunity for products like TheraSkin, only time will tell. I think that TheraSkin is well positioned as we increase the number of insurance companies that reimburse the product. I think that's a bigger opportunity, quite frankly, than the change in regulation. But I think for us, it's a net positive, because if we look at the mix of our business right now, TheraSkin can make up the vast majority of the wound tissue sales and TheraGenesis wouldn't be impacted by this ruling. So we've looked at it and the impact to our business really looks to be miniscule.

[Operator:]

. We can now take our next question from Ryan Zimmerman of BTIG.

[Ryan Zimmerman:]

Maybe to start, Stavros, if you could talk about your confidence level in terms of getting the tissue business working again over the next few months. I mean, is this a dynamic where the patients - you expect patients back into wound clinics out of the office. I mean, I guess I'd love to understand kind of your confidence level that, that can happen. Because we have had - it's been challenged for a couple of quarters now.

[Stavros Vizirgianakis:]

Absolutely. I think, Ryan, we've been very encouraged by the trends that we've been seeing. I would say that wound care centers are not back to full capacity. I think they're still away from that. But I think what we are seeing certainly with the more complex wounds that more people are showing up at these wound care centers. And with that, historically being a strong call point from us, we've seen a significant uptick in revenue. So if we look at our TheraSkin revenue, I think we really probably hit a low in January. And from then, the rise in terms of income has been pretty significant. So I think there's still going to be a portion of the market that is going to be serviced in the physician's office. There's no doubt about that. COVID has made certain shifts to the market and how people receive treatment for their wounds. Ultimately, we still think the wound care center is going to provide us a big opportunity, and we're well positioned to win in that space. But I think we've also looked at adjusting strategy so that we can be more competitive in other settings of care. Because there is no doubt that physician office is not going away, but it does require some companies to pivot and amend their value proposition accordingly.

[Ryan Zimmerman:]

Okay. Appreciate that. And then, Joe, for you, I really appreciate that metric you gave around your cash for consignment on Nexus systems, the $1.5 million this quarter and the $3.5 million year-to-date. And so maybe - well, for both of you, really, is it your belief that if you are able to, say, flex up that cash, the demand is there to place more systems? I guess what was the deciding factor to place, say, $1.5 million this quarter versus $2 million or $2.5 million? And is the demand there if you were able to move that kind of - spend that kind of cash to consigned systems?

[Stavros Vizirgianakis:]

Ryan, if we look at overall demand...

[Joseph Dwyer:]

Do you want to take that, Stavros?

[Stavros Vizirgianakis:]

Yes, I'm happy to take that. Ryan, I think if we look at overall demand for Nexus, it really is robust. I think what we've wanted to do is not only consigned units into the market but try and get utilization across the platform. So I think right now, it's not necessary about placing as many units as we can in the market. What we want to do is drive deeper penetration within the accounts. We've also temporarily, last year, we suspended the growth of the sales force. It's only really been over the last 2 quarters that we've started hiring again. We've been very, very cognizant of the fact that we don't want to run into supply issues, supply chain issues, so we want to control the growth. But I think short answer to your question is we see robust demand. I think we can put the foot on the accelerator. But what we want to be able to do is to service the entire market. Whether it's going into markets like neuro that we traditionally haven't contested the business. And we've seen that it does take a lot more selling time to not only convert those accounts but get people really comfortable with using the product in your reps surpassed evaluation stage. So I think with Nexus, we're still learning, but the encouraging thing is that, that pipeline is robust. And over time, I do see us accelerating more. I still see a little bit of hesitancy. There's a lot of demand from overseas that we need to take care of. And with COVID, travel restrictions, it has been difficult to service those customers as well. But we've also seen that you can't hold back on the launch internationally too long because people are aware that the products are out there and they want to support as well. So more resources, could you go faster? I absolutely think you could, and that will probably happen in the coming quarters. But we are very, very encouraged by the robust pipeline that we see at the back of house.

[Ryan Zimmerman:]

Got it. Okay. And then if I could just squeeze one more in. And I'll take a shot at this, I don't know if I'll get an answer on it. But as you think about the installed base of Nexus systems, you're honing in on 200 this year. Jim, is it fair to think that we can target a similar incremental amount of systems for next year? Or is that something that you're going to kind of wait and see on and as you get to the 200?

[Stavros Vizirgianakis:]

I think without getting ahead of ourselves, we raised the guidance to that 200 level, as I said, the pipeline looks really robust. So barring any major slowdown, I think if we look at the market in the totality, we'd look to grow off that base. I think that for the foreseeable future, we can continue to increase that installed base. I don't know what it is. I'm unable to guide to what the number is going to be for next year. But internally, we'd be certainly gearing up to exceed that number in the new year.

[Operator:]

This concludes the question-and-answer session. I would now like to hand the call over to management for closing remarks.

[Stavros Vizirgianakis:]

Thank you, operator. In conclusion, we see the entire Misonix value proposition resonating with debridement, bone cutting, tissue and hardware and picking up momentum in the second half of 2021 and validating our strategy. We look forward with optimism to what the future holds. Before closing, I'm extremely proud of the Misonix team and what we've accomplished. While much of the world has changed in the past year, so much of what makes Misonix exceptional has remained the same. We leverage our cutting-edge technology and research our talented team to develop best-in-class products and solutions that improve the standard of care. Thank you, everyone, for spending time with us today and for your interest and ongoing support. We look forward to updating you on our fiscal 2021 full year results in August. Thank you.

[Operator:]

This concludes today's call. Thank you for your participation. You may now disconnect.