Orthofix Medical Inc.
Q4 2020 Earnings Call Transcript

Published: 26 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Orthofix Fourth Quarter 2020 Earnings Call. At this time, all participations lines are in listen-only mode. After the speakers' presentations there will be question-and-answer session. I would now like to hand the conference over to your speaker today, Ms. Alexa Huerta, Senior Director of Investor Relations. Thank you. Please go ahead.

[Alexa Huerta:]

Thank you, operator and good morning everyone. Welcome to the Orthofix fourth quarter and full year 2020 earnings call. Joining me on the call today are our President and Chief Executive Officer, Jon Serbousek and Chief Financial Officer, Doug Rice. I'll start with the Safe Harbor statement and then pass it over to John.

[Jon Serbousek:]

Thank you, Alexa. Welcome everyone and thank you for joining our fourth quarter and full year 2020 results conference call. On today's call, I'll provide an update of our fourth quarter performance. I will then review the progress we have made within each of our strategic initiatives throughout the year before handing the call over to Doug, who will provide financial update. I'll close with perspective on the business in 2021 before opening the line for questions. Shifting to our fourth quarter performance, we're pleased with our performance for the quarter delivering a total revenue of $118 million, which was down 3% on a reported basis and 4% on a constant currency basis, compared to the prior year quarter, largely driven by strong performance of our spinal implants, and a rebound of our BGT business. All offset by COVID related elective procedure hit volume headwinds that impacted our entire business, including our biologics and extremities business.

[Doug Rice:]

Thanks, Jon. And good morning, everyone. I will provide additional details into our net sales and earnings results and then discuss some of our other financial measures. Many of the financial measures covered in today's call are on a non-GAAP basis. Please refer to today's earnings release for further information regarding our non-GAAP reconciliations and disclosures. Starting with revenue, as Jon mentioned, total net sales for the quarter was $118 million, down 3% on a reported basis and down 4% on a constant currency basis when compared to the fourth quarter of 2019. In the U.S., total net sales for the fourth quarter were flat to prior year and U.S. total net sales were down 15% on a reported basis, due primarily to the timing of certain stocking orders in Q4 '19, that Jon mentioned earlier. Gross margin in the fourth quarter of 2020 was 75%, compared to 78% in the prior year period. The decline was primarily a result of increased inventory reserve charges that resulted from lower sales as well as increased depreciation expense related to the addition of new instrument sets over the previous 12 months to support new product launches. For the full year, 2021, we expect gross margin to be in the range of 77% to 78% in line with our pre COVID historical averages.

[Jon Serbousek:]

Thanks, Doug. Before providing our outlook for 2021, I'd wanted to lay out our key focus areas for the year. At a high level, these will look similar to those we focused on in 2020. Probably with the promise we made over the last 12 months, we're shifting from a design and strategy phase into an execute phase. Our focus areas remain in structuring leadership, operational execution, product innovation and differentiation and commercial channel. Starting with structuring leadership. There is still some more to be done to add talent in select areas within the businesses to finish up building out certain teams which we expect to be complete in the first half of 2021. I'm very proud of our transformation that has occurred within the organization and with the full team in place, we can accelerate the execution of the rest of our initiatives. Our next focus area is operational execution. While COVID will likely continue to be a factor in the operating environment for some time, we've adapted to the situation in our 100% operation across the globe. In 2021, we'll focus on the refinement of our global supply chain to become a more efficient and agile organization while allowing us to more rapidly introduce new products, integrate new distributors, focus on working capital management and deliver innovation to our customers and patients. Our third focus is product innovation and differentiation. We've spent a considerable amount of time reviewing our current portfolio and we have developed a comprehensive long-term roadmap to refresh our current products and bring new innovations to Orthofix. We started to see early progress towards that roadmap in late 2020 with several new product introductions. And we will continue to work to drive adoption of those in the marketplace. Looking ahead, over the next 12 to 24 months, we anticipate contribution coming from both organic and inorganic strategies. On the organic side, our near- and medium-term efforts will focus on key spine procedural segments of anterior spinal care, posteriord cervical, minimal invasive surgery and deformity care. For the extremities business, we will focus on the key orthopedic markets of pediatric deformity in reconstruction, foot and ankle and especially trauma. We will also work to roll out enhancements to our existing products with line extensions and continue to pursue additional indications of expansion of efforts to open up new addressable markets in the years to come. We had expanded our interaction with leading KOLs and global spine care institutions who will work closely with us and our teams to guide our thinking and our development of our portfolio broadly. And to help develop innovative and differentiate products. Our ability to track this level of talent speaks highly to the excitement we have created around Orthofix in our recent innovation strategy. On the inorganic side, we'll look to be more of active in bringing products and technologies into our portfolio to supplement our internal R&D efforts, all aimed at bolstering our portfolio and accelerating top line growth. Our fourth and final focus area is our commercial channel. The playbooks here remain the same as it did in 2020. Invest to create stable and predictable channel that is highly effective. As we've said in the past, we're looking to expand our network of strategic relationships and we are agnostic to the model of these partnerships. We are looking to our quality people in organizations who can help us through our business. We grew the number of these strategic relationships in 2020 and we'll continue to focus on developing the delivery relationships in 2021. Now, shifting to guidance. For the full year 2021, we expect top line revenue to be in the range of $445 million to $460 million. This guidance assumes the COVID impact on proceedings will continue throughout the first half of the year with the first quarter being more heavily impacted than the second quarter and that procedure volumes will pick-up in the second half of the year as vaccines become more widely distributed. We'd also like to point out that from a quarterly cadence perspective, we continue to see headwinds associated with COVID during the first half of 2021, but expect the back half of the year to show low to mid-single-digit growth over 2019. In order to provide more clarity in the near term, we'll provide revenue range for the first quarter only and do not anticipate providing quarterly guidance ranges respectively. For the first quarter, we expect revenue to be in the range of $95 million to $96 million due to continued COVID related hospital restrictions. We want to communicate that we're seeing additional pressure early in Q1 on current procedure volumes as compared to Q4 of 2020. In the U.S. we're seeing about a 50% decline in procedures in January, and the first part of February, with most of the decline coming from more complex procedures that require multiple nights of hospital recovery and stay. The impact on this segment not only reduces our procedural ASP, but also delays the procedures, where the patients would most likely be prescribed a bone growth stimulator to aid in their healing. Last week, the national weather emergency created further disruption to our procedural volumes in all storm affected areas. Our hearts and our thoughts go out to those impacted including many of our own employees. Although the storm has passed, it caused major challenges and disruption to our entire local community, state and regions around the country. We are fortunate to have a great headquarters facility and staff that allowed us to get back to normal operations following the storm cleanup. With regard to the U.S., we anticipate hospital restrictions to begin to ease in March, with improvement in elective and complex procedure volumes, as we believe this trend will continue into the second quarter of 2021. The third and fourth quarters are expected to show continued improvement in elective procedure volumes. In our international markets, we continue to see country restrictions on elective procedures. We believe that markets will begin to open up in the second quarter, but timing of increased procedure volumes are country to country specifically. As we have mentioned, we will begin to ramp up our investments in product innovation and differentiation, EU MDR spend, operational execution and our commercial channel developments in 2021. Our expense reductions from travel restrictions, hiring and project delays in 2020 will not continue into 2021. We expect our adjusted EBITDA to be in the range of $50 million to $54 million and our adjusted earnings per share to be $0.45 and $0.55 using a non-GAAP long-term tax rate of 27%. Despite the backdrop of a challenging 2020, we are very excited about the future of Orthofix. We have assembled a world class leadership team and organization and work tirelessly to implement a culture and strategy to drive this business forward into the future. We are no longer in planning mode. We're now transitioning into execution phase. There was no doubt the headwinds to navigate in 2021, but we are prepared to address any uncertainty that comes. We will continue to work to bring high value solutions to patients, surgeons and hospitals around the world. With that, I would like to transition to the question-and-answer session. Operator, please open the lines.

[Operator:]

Thank you. . Your first question goes to the line of Anthony Petrone of Jefferies.

[Anthony Petrone:]

Thanks, and good morning. I hope everyone is well and staying healthy. A couple questions on my end, one for 2021 on new product contribution. Just wondering how we should be thinking about the Q-PACK and FITBONE contributions for 2021 just considering the launches. And then a follow-up on FITBONE would be its focus on the pediatric space. I'm just trying to get a sense of where Orthofix currently is in pediatrics, and how it views that market opportunity? And I'll come back with a couple of follow-ups.

[Jon Serbousek:]

Thank you, Anthony. Let's start with FITBONE on that. Our position in the deformity or the pediatric area was regarding around deformity care and limb reconstruction. In that area, we basically focus on highly elective cases, predominately around or external fixation. With the addition of FITBONE, we now have internal fixation and correction methods. This combined with our JuniOrtho Plating System provides us a comprehensive portfolio to address this market. And we are positioning ourselves to execute more heavily in the U.S. as we've already begun to execute in the international markets. Regarding the Q-PACK, that product is basically being introduced into our inter body line and we basically use it as a portfolio opportunity to basically address with not only our PTC and also our titanium antibody devices. So, it's a comprehensive portfolio for the surgeon to utilize.

[Anthony Petrone:]

That's helpful. And then couple of follow-ups would be, one is there a way to kind of quantify overall backlog just coming out of COVID, where we sit in terms of backlog. We were on a few orthopedic calls this week, specifically also in spine and fourth quarter did see some deferrals. And I believe that is extended into early part of '21. So, is there a way to quantify the deferral backlog? And then the last one for me would be, what should we be expecting post the FDA add-com meeting where it's recommending more data, and post market surveillance in order to down classify in the bone stem space? Thanks.

[Jon Serbousek:]

Let's start with deferrals. Deferrals, as we look at the dynamics in fourth quarter, electives continue to press into the early parts of December, but then decreased heavily towards the back part of December. We don't know how much of that was pulled forward, as far as it depends highly on the segment we're talking about. We saw in certain areas of cervical more push towards the ASC environment. And that kept further --kept procedures going further into the part of December. However, the highly elective complex procedure cases, those started to attenuate earlier in the December month. That trend has continued on into January, into the mid-February, where the highly complex procedures are being postponed because they require multi day hospital stays. And so, it's hard to handicap how much of that is pushed forward. But the point about those patients is that they are deferred, those complex cases will not get better on them sit by themselves. And so, we see them as deferred cases, which will pick up in the months to come. But it's difficult to talk about when that might occur, because hospitals all have capacity issues right now. So, there's a high capacity, full capacity currently today and how do we fit in those patients over the last six weeks will be determined by the hospital specifics, specifically. On the FDA re-class, we don't know exactly the timing on that as well. We discussed the timing where October they closed their open comment period. And typically, in a re-class, it takes six to 12-months for them to come and reaffirm their position or accept the panel's decision. So, this is a little different situation. So, we don't know whether it's going to be three months, six months, nine months, or 12 months from that close date. We're monitoring it closely. The good news regarding that is that, even as a re-class that has robust clinical data, we believe we're well positioned the way we operate that business. We have a very strong sales and service team. We have a strong order to cash. We have our very large contract basis as far as to be in all counts. And then we also have very robust clinical data, which further positions us in the marketplace. And so, will there could be new entrants and there will be new entrants. We think we're well positioned to address those.

[Anthony Petrone:]

All right, thank you very much. I'll hop back in.

[Operator:]

Your next question goes to line of Mathew Blackman of Stifel.

[Mathew Blackman:]

Good morning, everyone, and I hope everyone there is doing well as well. Maybe I've got a few questions. To start, can you remind us what percent of your spine implant business is skewed to complex procedures, even just in the roughest sense? And then I've got a couple of follow up questions.

[Doug Rice:]

As we look at the numbers, we have a good portion of complex procedures. It balances out right now in our mix, because we have a higher percentage of M6 coming into the mix. So, when we talk about spinal implants that balances out some of that activity as far as overall revenue. So, we're still monitoring that right now, as far as how much is complex versus simple. Much of the simple, one level type of low back cases, we're still monitoring how that plays out between the ASC and the hospital environment. But we've basically captured we've not lost any business as far as between account basis during this last period of time.

[Mathew Blackman:]

Okay, great. A few questions on the profitability outlook. It sounds like they're very specific growth enhancing investments in 2021. Just want to make sure though, that there isn't any change in your longer-term profitability trajectory. And then the second part of that, can you talk through where some of these investments are going, you mentioned commercial channel, and also how much of this overall spend is new versus perhaps catch up on deferred or paused 2020 investments?

[Jon Serbousek:]

Let's talk about the investments first. We've talked through 2020 and we'll continue talking 2021 about our channel where we're basically continuing to on-board new distributors, train new distributors and then and we spend time and energy working with them. But a good portion of it is in the new product innovations and differentiations initiative. This initiative, we are basically building platform projects that are currently that I referenced in my prepared remarks. And we're also looking for additional inorganic activities, which always have some type of spend falling on when you're bringing them on into the organization. So, we look at that as well. The other side of the research and development spend is this EU MDR, which Doug mentioned in his prepared remarks, that this is a heavy lift for all organizations in the company, and we think we're positioned at a percentage comparable to what others are spending to be in that European or the EU market.

[Doug Rice:]

Matt, this is Doug just overall our comment on profitability that our investment in longer term growth is not new this time last year pre-COVID, the guidance that we did give at that time, not expecting COVID, obviously, sort of the midpoint was in the 14% range. And so, the range that we gave for '21 is certainly COVID impacted here at the beginning of the year, but reflects sort of 11% to 12% EBITDA, which reflects both short-term and long-term investments that we've been chatting about for a while with regards to things like FITBONE and other investments. But I would say in the short-term, your question around expenses coming back, we certainly hope to be able to travel and meet with our customers and partners. And we certainly hope to pay full commissions on all of our sales plans that we didn't get to do in '21. So, I'd say overall, it's a balance in terms of how we're investing and why we guided EBITDA on flow through the way we did.

[Mathew Blackman:]

Okay, and then if I could sneak one last one in. Jon, I just want to get your thoughts on the competitive environment. And in particular, there were a couple of recent developments in BGT and now in cervical discs. So just any thoughts on how these new competitors may impact your growth outlook in those two franchises? Thanks so much.

[Jon Serbousek:]

Yes, in the - so let's start with cervical disc. We've been monitoring the latest entry into the market for years now. And we've been tracking it very closely in our selling activities for the last six months. And we look at this as cervical disc is at its infancy as far as adoption. So, we believe that additional competitors in that market, especially new innovative technologies, that excite surgeons to want to try artificial cervical disc, because it benefits us. We're having great success with M6 and we're not only converting business from other disc companies, but we're also converting new surgeons to the disc market. And that latter category, I think, is benefited by having new high-tech innovations into the marketplace. Regarding the BGT area, we spend a great deal of time developing our channel and also investing in this business. We have multiple investments that we're talking in BGT, such as stem on track, and we're also looking at other ways of basically enhancing that product. Additionally, we have clinical trials invested in the area of shoulder repair, our rotator cuff repair, it's ongoing clinical trial. And so, it's we'll see new entrants come in, it's an exciting area that we'd want to invest in. And so, we think we're well positioned as I stated earlier, that we're pretty well positioned to take full advantage of the marketplace and address any competitive entries.

[Mathew Blackman:]

Thanks so much.

[Operator:]

Your next question comes from the line Dave Kirkley of JMP securities.

[Dave Kirkley:]

Great, thank you and thanks for the guidance as well. Doug, maybe if I could, maybe push you just a little bit. The revenue side, it looks like we get back to, potentially back to where we were in '19. Obviously, we all know spinal implants is going to grow based on the disc product. And I would imagine you might think that the implants may come back to but I'd love to get any color you might want to share. Given that 2020 was so chaotic, as you mentioned, for either bone growth therapies or biologics or extremities, like did they all return to growth? I mean, I know they'll have easy comps, but maybe any color on what you'd expect from them in this year that might be implicit in that 445 to 460 guidance. If you could help out, that'd be great?

[Doug Rice:]

Yeah, no, good question, Dave. I'll start with some of the numbers and I'll let Jon provide some of the color on the product categories, but overall, we got in Q1, which is at its midpoint down, but versus '19 about 12%. We think we've got more pressure and COVID related activities going into Q2 obviously. But the back half of the year, as you look at it will exceed growth rates in 2019, as Jon said in the script, low to mid-single-digits as we exit the back half of the year. And that growth comes from a handful of different product categories, including spine implants. And I'll let Jon to provide color on the rest of it.

[Jon Serbousek:]

Certainly. Let's start with spine implants, and we'll get to the other ones. The spine implants went through a low period in the let's call it, 2012 to 2017 period. And it started to come back as far as the interest and innovation in new products, new procedures. And there's an excitement among these surgeons out there as far as they want to innovate now. They want to bring new technologies in. And if you take that combined, if you follow the demographics of the let's call it the U.S. population to start with, we're in the middle of the baby boom, basically in the post 65 right now. And that's a high, it's a large area for doing spinal procedures. And also, the millennials are coming into the 35, 40 age group, which is also another predominant area where spine conditions present themselves. So, we think we're well positioned not only from product innovation and surgeons wanting to advance, but also demographics. And but we think we're well positioned in that space as demonstrated by artificial discs and other minimally invasive approaches that are being rewarded in marketplace. Regarding the extremities business, we see a good position for us, especially with FITBONE. It rounds out our portfolio and it allows us to provide a comprehensive approach to providing a deformity and reconstruction in the pediatric space. And it also will augment our foot and ankle space going forward. We also did mention about our FITSPINE initiative, which will come into play, which is a growing rod which allows a procedure to be done in a pediatric environment where there's no second surgery to correct a deformity presentation. So, we're quite excited about that. And on the BGT area, I think I already highlighted about the new areas we're advancing in. But this is an area which is now starting to be recognized and has been recognized for its efficacy in these cases that are slow healers or non-healers. And that provides great value to the healthcare environment when you basically are allowed to do a non-upper repair of a non-union versus that are a slow healer versus having a secondary service. So, we think, we have a great value position going into that. And our expanded indications in shoulder will basically pay dividends in the future as well.

[Dave Kirkley:]

Great. And maybe just as a quick follow up, if you looked at your biologics and then let's say, your Fusion spinal implants, I would imagine that, in some procedures you're getting both of those cells. I don't know what percent that is, if there's anything you could share there. But I mean, over time, I would imagine that you would think that those would track maybe closer together or I mean, and if not, maybe any color there as to how much of your biologics businesses use with your implants. And, as we move forward, should we expect them to sort of not with M6, I'm saying just what the other part of the spine should we expect them to sort of be more closely aligned in terms of growth?

[Doug Rice:]

Yes, we would expect them to be more closely aligned going forward, and that was the fundamental reason why we put the spine and biologics cells management under one individual in one direction to align those businesses and get the leverage in that area. So, we would expect that. We're very pleased with our Trinity product line and our MTF biologics partner. You can't find a better partner than MTF. And so, we're looking to expand that portfolio as well. We have also the fiberFUSE program coming into that, which is another product. So, we are continuing to expand the portfolio and also have better collaboration between the biologics and the Spine Fixation Cells organization.

[Dave Kirkley:]

Thank you.

[Jon Serbousek:]

Thank you, Dave.

[Operator:]

Your next question comes from the line of Ryan Zimmerman of BTIG.

[Ryan Zimmerman:]

Hey, thanks for taking the questions. Good morning, everyone. So, Jon, I think you mentioned a little bit within BGS you won some competitive conversions. And I just wondered if you could expand kind of where you're taking share, who you're taking share from down the BGS side? And then I have one follow-up.

[Jon Serbousek:]

Throughout the 2020 year, we focused on not only growing the business organically, but also attracting new distribution in that area. And so, we really have it mapped as far as where it came from. I mean, we're equal opportunity share taker in that regard. We look for the opportunity on the street. And so, we don't particularly do work on one specific area. And the reality is we've been successful in a couple of areas. And we'll continue to work on that. Because we have a very talented sales management team. And we have a very good reputation in the marketplace for sales reps want to come and work.

[Ryan Zimmerman:]

Okay. Doug, for you just, you got that $300 million revolver sitting out there. I'd love you just for your comments on kind of your comfort level, from a leverage standpoint, and just, as it relates particularly to M&A?

[Jon Serbousek:]

Yeah, no good question, Ryan, in terms of our ability to invest and grow. We're really happy with our capital structure and our firepower. As you mentioned, we've got a revolver that can scale up to $300 million, that we were able to tap, during the lowest of the lows last year, to get us through COVID. And make sure that we knew we were going to come out on top as we end the year with almost $100 million in cash. And with the cash flow that we do have, it puts us in a really good position to be able to invest. We'd like to draw down, we're certainly not afraid to use leverage and recognize the acceleration that business development can provide inorganically. And in terms of comfort level, I'd say it's deal specific, or we'd have to look two to three times would be fairly comment, I think comfortable. And beyond that, we'd have to look at how quickly things would pay down and be able to rationalize our investments, but we're certainly not afraid of leverage.

[Doug Rice:]

Ryan, I would add to this is that we're ramping up our business development team. And we're basically screening more deals than we've ever screened right now. And I'm certainly motivated to basically put new technologies and new products and programs into this company, and we'll take full use of our financial ability to do that.

[Ryan Zimmerman:]

Got it. Okay, and then just lastly for me, I'll hop back in queue. The $23 million to $25 million in capital spend that you're targeting this year, Doug, maybe you could just elaborate, is that - a lot of that on instruments, is there's manufacturing expansion, just kind of help us understand kind of where those dollars are going specifically in CapEx for the year? Thank you.

[Doug Rice:]

I'd say, probably a third of our spend is related to instrument sets. We've got technology investments as well, that works into our CapEx. And then we've also got some new products and tooling and molding and things that we're investing in. So, I hope that answers your question.

[Ryan Zimmerman:]

Thank you.

[Operator:]

Your next question comes from one of Jeffrey Cohen with Ladenburg Thalmann & Company.

[Jeffrey Cohen:]

Hi, Jon, Doug, how are you?

[Jon Serbousek:]

Great, Jeffrey.

[Jeffrey Cohen:]

Just fine. I was wondering if you could shed any further color on any changes or modifications on your distributor channels as far as upgrades and exclusives, at least domestically.

[Jon Serbousek:]

Domestically, we're - as I stated, we're agnostic to how we move forward. So, if we get exclusive, that's great. If we don't, our channel has been heavily populated by non-exclusive relationships. We're looking for strategic partners that want to create a stronger and stronger relationship with us and commit more and more their time to us. And as the work in process, we'll go from where we're at today, and we'll build stronger and stronger and the goal is ultimately to have exclusive relationships someday, everybody would like to add, but that's a longer-term objective. And we'll take non-exclusive along the way to make that happen. On building channels, it's time and it's basically find the right partner, and we're more interested in the right talent and relationship. And so, we'll create a business around that talent.

[Jeffrey Cohen:]

Okay, got it. As a follow up to Dave's question earlier, specifically on O-GENESIS. Can you talk about the specific approaches that are being taken there? And is that helping drive biologic, I know that you're also selling prefilled so, are you seeing your biologics being used on a larger, larger percentage there and how's that going on the firm?

[Jon Serbousek:]

Yeah, on O-GENESIS, it can be used anywhere you want to, basically minimally invasively or percutaneously deliver graft. And that's the beauty of the system. As far as where we're at, we're early days in the blend and the launch of that. We've launched in the fall, partly part of the dynamic is going on is be with COVID is also many hospitals and surgeons are less apt to bring new technologies in during that period of time, so we're making headway in that area, but we're looking forward to 2021 to really driving that product forward. And we adopted into all of our procedures when we go out and sell. And so, we're looking for leverage there. Also, we're still working on prefills right now, you mentioned prefills. That's part of the pipeline that we're working on, it's especially around Trinity, because Trinity has certain characteristics that go with it. So, we're looking forward to Trinity prefills in the future, but they're not prefilled right now.

[Jeffrey Cohen:]

Got it. And then lastly for me, could you talk about your outlook a little bit as far as the U.S. versus international sales, and provide us a little more color there, if you're able to? Thank you.

[Jon Serbousek:]

We'll need to break in between spine and extremities to do that, and the extremities business, we look forward to building our U.S. sales. We're very strong O-U.S. right now. That's where the business was founded. And we have a high-quality channel put together there. And they are working diligently to grow that business. And they are very excited about new technologies such as FITBONE will bring into it. And the U.S. area, we're basically continue to build that channel and we're diversifying it to basically make a better impact, both foot and ankle and pediatrics. On the spine side, it's kind of the reverse of that. The U.S. distribution is stronger, and we're building the international business. We've hired key talent in the international markets, both in the continental Europe and emerging markets in Australia, and we look forward to them executing in the 2021 year.

[Jeffrey Cohen:]

Got it. Okay, thanks for taking the questions.

[Jon Serbousek:]

Thank you.

[Operator:]

Your next question comes from line of Jim Sidoti of Sidoti & Company.

[Jim Sidoti:]

Good morning. Can you hear me?

[Jon Serbousek:]

Hey, Jim, yeah, we got you.

[Jim Sidoti:]

Great. Hope you're all well, hope you survived that bit of weather a couple weeks ago, were you able to keep the facility open or did you have to shut down then?

[Jon Serbousek:]

We ended up closing the facility. Not that the facility didn't have power and heat, it just we didn't want to put the team in harm's way to direct travel to the office. Dallas, Dallas on a storm like that doesn't do well for transportation. So, we just elected to take the conservative way and that protect our team.

[Jim Sidoti:]

Yeah, I think that was probably wiser. All right, just one for me, because a lot of the questions, my questions have already been answered. The additional cost to update the product registrations in New York. Can you just give me a ballpark figure on what that is? And is that something that should go away by 2022?

[Jon Serbousek:]

It's a good question, Jim. It's a significant investment for us in 2020, you saw us spend just over $4 million already, primarily weighted towards the back half of the year as we deferred as much as we could during the uncertainty. But this year, we guided that about 250 basis points of our top-line is going to be invested in those efforts. That's both in Europe and in the U.S. And we would expect next year is going to be significant spend in terms of our '22 level of compliance efforts. It's a robust and thorough review and compliance effort that we have with complete with people and professionals and systems. But I would expect that the majority of the spend would be this year and next year, and as we engage in the clinical trials and underlying supporting things that we need, and then it would taper from there.

[Jim Sidoti:]

Okay.

[Doug Rice:]

And Jim if I might add a note on that is that, it was a strategic decision to do this. Because our extremities business is highly European based, we had to do it for that. But if some of our peers or competitors that don't have European businesses, they don't have this spend. And so, when you - if there are U.S. focused, you won't see this type of spend. And so, you have to look at that comparing company-to-company. We decided we're going to be a global company, and we're going to invest in Europe. And also the CE mark is required for certain other regions outside of Europe to be able to sell your products. So, that was a strategic decision, it's an expensive decision, but we think it's a great long-term decision.

[Jim Sidoti:]

All right. Thank you.

[Jon Serbousek:]

Thanks Jim.

[Operator:]

Thank you. There are no further questions at this time. I would now like to turn the call back over to management for any closing or additional comments.

[Jon Serbousek:]

Thanks, operator. And thank you again for joining us today. We look forward to updating you on our progress on our next quarterly call. Have a great day.