Aurora Spine Corporation

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00:17 Thank you, Gary, and good afternoon, everyone. Thank you for all -- for joining us today to review the financial results for Aurora Spine third quarter results ended September thirty, twenty twenty one.

With us on the call representing the company today are Trent Northcutt, President and CEO of Aurora Spine; and Chad Clouse, Chief Financial Officer of Aurora Spine. 00:37 Before we begin, I’d like to remind everyone that statements made during this course of this call maybe considered forward-looking statements within the meaning of Section 27A of the Securities Act of nineteen thirty three, as amended and Section 21(e) of the Securities Act of nineteen thirty four.

These statements reflect current expectations concerning future events and results words, such as expect, intend, believe, may, will, should, could, anticipate and similar expressions are words that are used to identify forward-looking statements, but their absence does not mean a statement is not forward-looking. 01:05 These statements are not guarantees for future performance and are subject to risks and uncertainties and other important factors that could cause actual performance or achievements to be materially different from those projected.

For a full discussion of these risks, uncertainties and factors, you're encouraged to read Aurora Spine’s documents and file with SEDAR, including those set forth in periodic reports filed under the forward-looking statements and Risk Factors section. Aurora Spine does not intend to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

01:37 On this call, management may refer to EBITDA, adjusted EBITDA, adjusted net income adjusted EPS, which are not measures of financial performance under Generally Accepted Accounting Principles or GAAP. Management believes that these non-GAAP figures in addition to other GAAP measures provide meaningful supplemental information regarding the company's operational performance.

Investors should recognize that these non-GAAP figures might not be comparable to similarly titled measures of other companies, these measures should be considered in addition to and not as a substitute for or superior to any measure of performance prepared in accordance with GAAP. 02:09 A reconciliation of non-GAAP measures to the most directly comparable GAAP measures in accordance with SEC Regulation G can be found in the company's earnings release.

02:19 With that now, I'd like to turn the call over to Mr. Trent Northcutt, President and Chief Executive Officer of Aurora Spine.

Trent, please proceed.

02:30 Thank you, Adam and pleasure to be here. I'd like to welcome everyone to the Aurora Spine third quarter twenty twenty one financial result conference call.

Earlier today, we issued a press release detailing our financial results. Hopefully, you've had a chance to review if the new this release, but if not a copy can be found on the website at www.aurora-spine.com under the Investors section or other financial websites that are listed on this release.

003:02 To lay out the agenda for today's call, let me first summarize a few events of the quarter, including some brief commentary on the numbers. Then I'll talk a bit about the status of each of our key initiatives and products, including the highlights of our new Pain division, the products such as SiLO, ZIP and our initiatives on the Spine division, including the new DEXA product platform.

Chad Clouse, my CFO is here and he'll be joining the call with us. And he can give a recap on the financial results.

He will conduct a Q&A session at the end of it. We will conduct review.

03:40 The key events in Q3, overall, the third quarter produced solid results and demonstrated that the issues experienced from COVID-19 started -- starting to look behind us. While there's still may be some pockets in areas that surgery cancellations can pop up here and there.

Overall, the business didn't experience any slowdown for us in the third quarter like the other companies and industry as seen. Aurora actually surpassed pre-COVID revenue levels and showed the growth year-over-year as well sequential improvement from the second quarter.

04:22 During the quarter, we are excited to tap the capital markets and successfully raised five point one million dollars. I'd like to clear upfront my comments that additional capital was to strengthen our capital structure in order to certain key investments in order to accelerate growth efforts and several of our new products.

As we've now clearly fully commented in our sales proprietary Aurora products from third-party products. We now prepare to approach more doctors, more surgeons, and immersive in more of the suite offering that Aurora has to offer from a product standpoint.

05:07 To do so, it was imperative to add more manufacturing capabilities, add some inventory and build up more of our kits, which contain amount of instrumentation to deduct the procedures in an effective way in hospitals and surgery centers. If we couldn't supply the products to the -- surgeons then we would have run the risk of losing those accounts, which we put so much effort towards gaining.

5:35 In addition, with the infusion of the new capital, we also plan to hire several new direct sales reps in key strategic markets around U.S. And this would be both in our Spine and our Pain division.

The demand was apparent on the Pain side of the business. This pain management division we saw was growing.

In which, we had established a year ago that caused more of a phenomenon and growth. Let me take a step back and explain why it was going on the pain market, when we entered into it.

06:08 We have a few products that we introduced to the pain market, specifically with ZIP products and the SiLO product. That has been experiencing meet spine care practices, which have an established pain care offering within those practices to implant new treatments to treat back pain prior to sending them to a patient to a final surgery.

Aurora Spine have been able to assist in the pain interventionists and the pain management doctors to help treat that patient with a quick and seamless manner of recovery. 06:42 This avoids the need for a longer surgery and also helps that patient get recovery in an area where they might not be able to sustain a long-term surgery or even short-term surgery.

Aurora’s proprietary products into the pain market have often patients and doctors and new solutions that we can offer this patient for their current back pain or pain recovery. 07:14 A little bit of background on this, is that the pain market is emerging market, where the pain interventionists are actually performing more surgical base procedures, such as SI Joint Fusion and Interspinous Device Fixation or Fusion.

This is allowing the patient to have a procedure performed in an outpatient setting where the patient can actually have a recovery of their back pain, their disc to denervation or their SI Joint denervation (ph). This has been improving in our cadaver labs, our biomechanical labs, and now we're starting to show it in our short-term results and we plan on continuing to build off of this because what's happening with Aurora is that we're now entering into a multi-center study with our ZIP implant that is focused on the pain interventional market and our SiLO SI Joint system that is now addressing the SI Joint pain needs.

And our SiLO product, which is evolving into a new system in the coming year will also be part at a new multi-center study. We will have two parallel path multi-center studies running in twenty twenty two.

08:28 Other areas we have advanced during the quarter is our new DEXA technology. We received our patent last year and we applied that product into this year's development.

Last year, the patent hit the ground running with this first-class DEXA product. The DEXA-C, which retained FDA clearance during the quarter.

This patented technology allows us to create a series of implants, manufactured with varying densities in order to match that patient's own density and T-score, which should employ superior fixation and promote quicker bone growth. We are now working towards commercialization of this product and plan on security, its use and initial launch of this products before the end of the year.

09:17 In addition, we are identifying several key proprietary Aurora products. That are certainly, which will offer the use of DEXA technology.

So, it's a complete technology platform for Aurora, where we decline DEXA technology to help leverage the technology representing maybe even licensing opportunities with other medtech companies that are outside of the world of spine. And this would help benefit the patient from an implant standpoint where the patient will be better suited for that patient's bone density.

So, we're focused on this and we think some really key initiative for us in this quarter and going into next year. 09:59 The market overview and dynamics of this new product and our clinical studies, we could be more impressed with our faculty that we've asked to help participate in multiple cadaver labs around the country.

We trained over two hundred doctors this year and we will continue this trend going into next year. 10:20 So to summarize, I’m extremely proud of our team's performance, and staying focused during the turbulent time.

We are seeing focus on building the company through the pandemic and all throughout this year seeing focused on our goals. We are well positioned to take advantage of several new initiatives, including new products and new platforms and new surgeons and new doctor approaches.

And looking for the long term as well as a well-positioned for success, the company is well positioned for the success growth, especially as we have launched these new products and have new prices that will be launching along with more clinical studies, proving out our technology and teaching more doctors using the Aurora products. Good news is that the pandemic is mostly behind us and surgeries have resumed.

11:07 I'd like to take a moment now to introduce Chad Clouse, our CFO, and I'll turn the call over to Chad Clouse for the third financial results. Chad?

11:18 Thank you, Trent. Happy to be here.

With the numbers highlighted in detail in the press release, let me focus my comments in few areas and provide some adding – added color. Revenue during the third quarter of twenty twenty one was two point nine million dollars, an increase of twenty two percent compared to two point four million dollars in the second quarter of twenty twenty one, and two point four million dollars in the third quarter of twenty twenty.

Sequential improvement in revenue was driven by strong usage of proprietary product, especially the ZIP device. 11:50 Gross margins in the third quarter of twenty twenty one was one point four million dollars or approximately forty five percent of revenue.

This compares to gross profit of one point one million dollars or forty eight percent of revenue in the third quarter of twenty twenty and one point one million dollars in or forty one point four percent of revenue in the second quarter of twenty twenty one. 12:15 Gross margins shared continued progress improvement on a sequential basis as Aurora shipped more proprietary products.

Proprietary products in the quarter were sixty nine percent of revenue and rose as high as seventy five percent in the month of September. Margins could expand beyond these levels as we incorporate more proprietary products in the interim there is some added cost, like increased shipping costs that has helped margins in the area they are now, but as we expand the amount of kits we have, that should create more efficiencies.

12:52 Total operating expenses for the third quarter of twenty twenty one were one point seven million dollars compared to one point one five million dollars in the comparable quarter twenty twenty, sequentially, lower from the one point nine million dollars in the second quarter. These expenses were been in our range and due to continued investment into building our sales and marketing initiatives, investors should anticipate these levels to remain in the coming quarters.

13:22 EBITDAC in the third quarter of twenty twenty one was a loss of zero point two million dollars compared to zero point five million dollars in Q3 of twenty twenty, but improved on a sequential basis from Q2, which was a loss of zero point five million dollars, a decrease year-over-year in EBITDAC was due to higher operating expenses compared to last year and received a PPP loan in the last – PPP loans last year. 13:51 Net loss in the third quarter of twenty twenty one was zero point four million dollars or zero point zero one dollars per basic and diluted share compared to zero point three three six million dollars or zero point zero one dollars basic diluted share in Q3 twenty twenty.

Net loss was zero point seven million dollars, zero point zero one dollars per basic and diluted share in the second quarter of twenty twenty one. The improvement in Q3 from Q2 was due to higher revenue levels and slightly lower operating expenses.

14:21 Turning to the balance sheet, the company's strengthen its balance sheet, the capital raise net of fees of four point five million dollars. These funds will enable company to secure the necessary inventory of insured products availability, decisions utilizing our products and their practices.

We also would use the capital to add more safe to people in both the spine and pain markets, to educate more doctors, instruct more training labs in various large cities around U.S. How the business has stabilized at nearly pre-COVID revenue levels, we should continue to demonstrate additional stability and improvement in the coming quarters.

15:01 At the end of third quarter, we had cash of nearly four million dollars, increase of three million dollars in the prior quarter. We exited the quarter with two point seven million dollars in receivables, one million dollars increase in the quarter, of which point five million dollars was collected in mid-October and should be reflected in Q4.

We are working to improve our cash collection, bigger confident of current system and have been able to usually capture collections within sixty days. As the business was recovered and our operating expenses have been tightened and as our operating expenses have been tighten.

We believe that we are positioned for more stability and growth in the coming periods. 15:44 I'll now turn this conversation back to Trent.

15:50 Thank you, Chad. Before I open up the call for questions, I'd like to conclude that we believe that the company has stabilized from COVID and should continue to improve as we move further away from it, and more surgeries get booked and we are also being very prudent about our newly invested capital.

We plan to deploy some new initiatives in the coming quarters, including building inventory, and additional kits and making some key hires to improve our sales efforts. Given our very unique situation as an innovative medical device company, we remain very confident that the opportunity to create essential long-term growth in value for our shareholders and stakeholders.

16:34 With that said, I'd like to pass along to Adam the call and proceed, with begin some questions. Adam?

16:43 Thank you, Trent and thanks everyone for emailing me some questions here for the management team. Trent, any update on the trials you're doing with SiLO and ZIP.

When will those be completed and how will they help the company?

16:59 So the ZIP trial, we're really encouraged and excited about the ZIP multi-center study. We have over six sites of selected out of ten, first ten sites are selected.

And we’ve began to collect that data. We have a weekly call on ZIP study and we're very encouraged by these -- very early, but very encouraged by the results that are coming in right now with the ZIP study.

We -- as another part of our study is, we had the SiLO system, which has a national registry began on that and we are collecting information on that registry that is going to queue up a multi-center study for our SiLO SI Joint System in twenty twenty two and we expect to begin that multi-center study as early as Q2 of next year.

17:59 I know there is some SiLO-TFX, which is your new version of the SI Joint product. Any update on that?

18:07 Yeah. It’s still in hands of the FDA.

So I can only comment on limited, but I can tell you that we're very encouraged and motivated by the biomechanics of the system and that we feel that this system is really going to offer superior outcomes for patients and perform really well in the hands of the doctors. So we're anticipating a launch on this product in the first quarter of next year, hopefully in the earlier part of the quarter versus the middle or later part of the quarter, but we're encouraged by what we've done so far with all the testing and the data we collected and that we familiar with the FDA.

18:48 Regarding DEXA, are you looking to only develop that on your own or will you be open to licensing that IP? And also are you planning on creating other DEXA products with other proprietary Aurora products?

How should investors kind of grasp onto the DEXA technology platform?

19:06 Well, it’s a good question, Adam. And it really is a multi part of answer to your question, is that -- it's a platform.

DEXA technology is based upon that patient's bone density and bone density matters because what’s true with one patient and their bone density isn't true, let's say the next patient and doctors know -- doctors understand that the bone density matters on the patients that they're performing procedures on. And we are going to take the products that our core belief of products and our core structure of products at Aurora, and we're going to apply the DEXA technology to those spinal implants and those interventional pain products that we believe that we can launch with that platform.

19:55 Equally to that, we recognize that we're not in the market of total hips or total knees in the maxillofacial market, cranio health plating market and there's so many other subsets of medical device such as orthopedics, trauma and dental. So, we see a little benefit to DEXA technology in those sectors of the market.

So, our arms are wide open for discussions on that platform for those technologies and those companies who are very good at that technology. So DEXA platform the DEXA technology is going to be a leading platform for Aurora and hopefully some of the key companies that are out there that are looking at this style of additive manufacturing advantage over standard 3D printing?

20:51 Regarding the new products SiLO and the ZIP lines, do you feel that these can become major drivers of growth for Aurora going forward and what sort of percentage would you expect that these products could make up the entire revenue base of?

21:08 So, I see it as a major growth sector for Aurora. Number one, the ZIP product has grown from the fourth quarter of last year to where we are today is that we've grown that product from eight percent to over forty percent of our monthly revenue number.

So, the ZIP product is becoming an impactful product in following up by all the trainings that we performed , R&D, educational labs led by leading ortho and neuro doctors and pain interventional doctors conducting these, over two hundred doctors that we've trained this year. So, we've seen a really impressive growth currently with our ZIP device, and we couldn't be prouder of this multi-center study with the ZIP implant and that's really sort of the forge back path with ZIP product.

22:04 The SiLO at these of cadaver of course, we're teaching more than just the ZIP products we're teaching the ZIP as of the SiLO post area side joint system that product has been terrific. It's growing now twenty percent quarter-over-quarter over the last six quarters.

So, we've seen some really impressive growth with that product and it's still in a limited basis on our side. This is part of the reason why we took a capital investment because we needed to build more kits and with more kits, more inventory, we believe that we can reach new heights of financial growth because if they build, they'll come, right and part of that is true.

But strategy wise the cadaver labs, the training courses and having the inventory to support those training sessions is really key and I expect to good growth out of the ZIP product line as we continue on the ZIP study. And as we continue to introduce the SiLO and the SiLO-TFX product going into next year and also introducing the DEXA-C, which is the DEXA surgical product that we're releasing this quarter and going to be a full-fledged release in twenty twenty two.

23:28 You mentioned before that you trained two hundred doctors this year. Is there a number that investors can understand that goal that you would look forward for twenty twenty two?

And when you do train these doctors, what is your experience typically that after training, how quickly does doctor uptake happen?

23:54 Well, it depends -- the answer of the first part of the question is, we are going to replicate what we did this year and apply it to twenty twenty two and in advance on that right, we're going to get more systematic about it. We implemented a new CRM system to help us follow these doctors even closer and capture the information to follow-up with them on the training courses and what they've learned and making sure that we're getting back with all the different two hundred doctors this year and then two hundred more than we'll do next year.

24:32 There's always a ramp up period with any physician, doctor, surgeon that wants to use our products, so that the lab is a great first step for them to be introduced to our technology to see how it works in their hands and how it applies to that specimen that they've worked on in the lab. And when they go back and it takes thirty days for them to get onto the next surgery to get that first surgery booked for them.

Sometimes it's shorter than that period, sometimes it's longer than that period, but we usually see if the doctor is going to move forward with the procedure and some of these doctors are training on some of our newer technologies have never done this before. So this is new for them, their course qualified medical doctors and they have good hands and good skills, but it's a new procedure for them in that practice.

So there are some steps that they have take, when you are in the hospital or the surgery center and of course, get themselves prepared for that first procedure. And get , of course to build to perform that evidence based and educational based products is what we believe and we are teaching these doctors how to use these products and we will replicate what we did this year, next year with a nice refined focus on getting the doctor more information more education, so they can help that information to their patients.

25:59 Had a couple of questions here for -- possibly for Chad. Gross margins are showing really good improvement quarter-over-quarter sequentially.

Are there any additional improvements there?

26:14 I think, our COGS is competitive with any spine market in the company or in the market or any spine company in the market excluding -- obviously, we'll look for any little efficiencies we can find in fluctuations quarter-over-quarter due to product mix, but I think we're very competitive in the spine market.

26:37 And expenses were higher year-over-year, but sequentially they are little bit lower. Are these levels sustainable, how should investors look at the corporate expenses in the coming quarters?

26:49 Yeah. The increasing expenses are due net of a good study to could have a training with the doctors and R&D projects we've got going on.

They are sustainable and I believe that’s coming quarters, it'll be about the same in the coming quarters.

27:09 And the burn was -- the cash burn was fairly low, much improved this quarter in the third quarter, obviously, higher sales and higher margins how should investors look at – does company now have enough cash to see throughout all these projects, product rollouts, new hires clinical studies and such until you reach profitability?

27:33 Yes, I believe we have enough cash on hand at this point to complete our projects, training doctors and expand our sales force. Yeah, I think we will be able to pull that off.

27:49 Very good. That's all the questions that I have here.

Trent, I could pass it off back to you for concluding remarks.

27:58 Thank you, Adam. Well, thank you all for joining us today.

We appreciate your time, interest in Aurora Spine and Aurora Pain Care. We are very excited about what's ahead for us in twenty twenty two and beyond.

We look forward to speaking with many of you in the coming weeks ahead.

28:23 I’m sorry. If there's any questions feel free to always reach out to Chad and myself at Aurora, but please feel free to reach out to Adam Lowensteiner from Lytham Partners and we'd be happy to schedule a follow-up calls.

Thanks again everyone for joining the call and have a great rest of your day.