Thank you, operator and welcome everyone to Conformis' third quarter 2020 earnings conference call. With me on the call today is our CFO, Bob Howe.

During the call, we will share prepared remarks on a variety of topics, including our third quarter financial and operating performance as well as comments related to the COVID-19 pandemic's impact on our operations. Following our prepared remarks, we look forward to answering your questions.

On March 23, 2020 we withdrew our full year growth targets and noted that it was due to the pandemic and its impact on orthopedic scheduled surgeries. On October 6, 2020 we pre-released our third quarter revenue results and those numbers are consistent with what we are reporting today.

As expected, our third quarter performance was impacted by the pandemic, while we have continued to be pleased by the resumption of scheduled orthopedic procedures in the quarter. We are still not seeing primary arthroplasty surgical value in the prior year levels.

Please recall that Conformis does not have any revision, oncology or trauma products. Therefore, we are heavily weighted towards pure elective total joint replacement.

Nevertheless, we do expect Q4 revenue to be sequentially above Q4 although with the year-over-year growth rate in the fourth quarter slightly lower than Q3. We do anticipate in 2021, we will return to full year growth over 2019 and we'll provide more color on the 2021 quarterly phasing during our Q4 earnings call.

Moving on, I'd like to point out some other notable items from the past quarter. Our hip sales in the quarter grew 122%.

Our team continues to make progress in this area in spite of the challenges related to new product introductions during the pandemic. In this quarter, we were able to hold our first medical educational event since the pandemic started which included both in-person and virtual attendees.

We're very pleased with the quality of education we were able to deliver for our virtual attendees and expect this to become a routine part of our surging [ph] training going forward. We are also pleased to see good operational rigor in the quarter.

We saw a gross margin increase to 48% which was of course an increase over the prior quarter. But importantly an increase over prior year as well.

Perhaps most significantly in September, Conformis agreed to sell a combination of stock and warrants to a healthcare focused institutional investor resulting in gross proceeds of approximately $17.25 million. This additional capital will be used to support continued execution of our strategic plans.

Before I provide further comment on the quarter. Let me turn the call over to Bob for more detailed financial review.

Bob?

Thank you, Mark and thank you everyone for joining us. We reported third quarter revenue of $16.1 million, representing a decrease of $1.2 million or 7% year-over-year on a reported and constant currency basis.

Revenue in the third quarter of 2020 and 2019 includes royalty revenue of $146,000 and $191,000 respectively related to patent license agreements. Third quarter product revenue was $16.0 million representing a decrease of $1.1 million of 7% year-over-year on a reported and constant currency basis.

Sales of our knee products decreased $1.6 million to $15.1 million or 10% year-over-year on a reported and constant currency basis. Sales of our Conformis Hip System were $0.9 million, an increase of 122% year-over-year on both the reported and constant currency basis.

US product revenue decreased $1.0 million to $14.1 million or 7% year-over-year. US sales of our knee products decreased $1.5 million to $13.3 million or 10% year-over-year.

Third quarter US product revenue represented 89% of total product revenue same as our third quarter last year. Rest of world product revenue was $1.8 million, a decrease approximately $130,000 or 7% year-over-year on a reported basis and 10% on a constant currency basis.

With that, I'll now move onto our results across the rest of the P&L. Third quarter gross margin was 48% of revenue compared to 44% of revenue for the same quarter last year an increase of 360 basis points.

The increase in gross margin was driven primarily by lower cancelled case inventory reserves, improvements in yield and other manufacturing improvements. Total operating expenses increased $0.3 million to $14.8 million or 2% year-over-year.

Increase in expense was primarily due to increases in general, legal and litigation expenses. Net loss was $6.2 million or $0.9 per share compared to net loss of $8.7 million or $0.13 per share for the same period last year.

Net loss per share calculations assumed weighted average shares outstanding of 71.2 million shares for the third quarter of 2020 compared to 64.8 million shares for the same period last year. Net loss in the third quarter included foreign currency exchange income of $1.5 million compared to foreign currency exchange loss of $1.3 million in the same period last year.

We had cash and cash equivalents totaling $32.9 million as of September 30, 2020 compared to $26.4 million as of December 31, 2019. Lastly, I want to close with few comments on liquidity.

As Mark mentioned we're pleased to have raised approximately $17 million of gross proceeds from the registered direct offering in the third quarter. The funds from this offering prior to significant amount of additional capital that will allow the company to continue to execute its strategic plans.

We continue to make good progress on our Stryker development efforts and during the third quarter we achieved second milestone CD [ph] associated $3 million payment. We're still on track to achieve the last remaining milestone which we expect to be completed prior to the middle of next year and which will result in Conformis receiving an additional payment of $11 million.

With recent equity raise completed and the anticipated payment. We believe we've made substantial progress in funding the company towards the goal of cash flow breakeven.

With that, let me turn the call back over to Mark to add additional color.

Sure, thanks Bob. The effects of the pandemic continue to be challenging as mentioned in prior releases and commentary.

Conformis has maintained its key development activities. As a result, we've continued to progress our most important new product development programs.

This includes activities related to our Stryker partnership as well as work on plan new knee offering, we announced last quarter. Well it also includes other important projects such as Identity PS Knee and our Conformis match Hip System both of which received FDA clearance in the quarter.

Identity PS is the posterior stabilized version of Identity iTotal [ph] knee system which was launched Cruciate Retaining or CR version last year in limited release. Customer feedback and our Identity Knee product has been favorable and we were pleased to be able to expand our addressable market with our PS offering.

Our Conformis match hip system applies our leading patient specific instrumentation or PSI capabilities to hip arthroplasty. When utilizing our Cordera Standard Hip and cup [ph] implants.

Combined with our proprietary iView planning system. We expect Conformis match to allow surgeons to apply our innovative solutions to clinical situations where a personalized hip implant is not indicated.

We believe Conformis match will help expand and accelerate adoption of our hip arthroplasty technology. We anticipate launching Conformis match prior to year-end.

A few additional comments on the pipeline, as previously reported we received our second of three milestones payments contemplated in the Stryker collaboration. This is an indication of remain on track towards successful completion of that program in mid-2021.

Regarding our new knee system targeted at hospital outpatient and ASC sites of care. We have made significant progress in the quarter and continue to believe we can meet an aggressive timeline for launch.

Thus we continue to anticipate launching this innovative knee arthroplasty system in the second half of 2021. Lastly, I would like to comment on the capital raise we executed in the quarter.

Though there remains uncertainty around COVID-19 related demand disruptions. As Bob previously mentioned, we believe this raise will allow us to focus on operational execution and on the commercial priorities of our business such as attracting and retaining great surging customers and launching new and innovative products.

Once again, I'd like to acknowledge and thank all the Conformis employees, consultants, advisors and customers that continue to shoulder on through us through the challenging time. All the efforts and goodwill are greatly appreciated.

We're pleased with the performance we had in the quarter. Thank you.

With that, I'll turn the call back over to the operator and we'll take questions.

Hi, this is actually Ian for Kyle. I was hoping you could talk a bit about the benefit of having both the hip and the knee products together, any potential cross selling going on into accounts?

Is it helping you potentially attract sale talent or is it still early to have given the COVID impact last quarter? Thank you.

Thanks, Ian. Certainly COVID is not helping and everything is new, these days.

But there's no doubt the strategic reason for launching the hip and the innovation around it remains. We do have great opportunities for cross selling and we're actually very detailed tracking that, looking that, that's obviously the low hanging fruit for us is to present the new product innovations to customers right have relationship with.

Having said that, I'm pleased with the ability to attract new surgeons which we've done that haven't before have been using our knee as well as our ability and important pieces same as our - as I've mentioned this one. We talked about the hip launch before is our ability to get on contract.

So the ability to cross sell and leverage the knee relationship isn't just for surgeons. It's also with the financial buyers and the people we contract with.

So we've been very pleased with our ability to do that with our hip. So there's still a lot work to do.

It's never easy. It's a highly competitive market.

But we think we've got a very differentiated solution. We're launching first with just [indiscernible] stem.

But as we've talked about previously, we have other stems planned and we think that will be a big source of growth for us in the coming quarters.

Perfect, thank you and then just one follow-up, if I could. You talked a lot about the new knee system for ASC and the outpatient arena.

Is there same kind of opportunity for hips in outpatient ASC or is that a little less of an impact there in that segment?

So I firmly believe the opportunity is there. I think that the ecosystem that we're in and the physician community has done, let's say a better job on the right clinical indications and the right clinical procedures to do outpatient total knee arthroplasty and that's because also a little easier and also Medicare CMS removed that from the inpatient-only list earlier.

They have now as you know done it for the hip and I think the work is being done in the hip. So that demand will follow.

I think it lag the knee a little bit. But it's like anything else.

There are some physicians that already aggressively doing outpatient in ASC hip arthroplasty. It's just not at the same level that knees will be, but we believe that opportunity is strong and will eventually follow just the strong as the knee.

Great, thank you.

This is actually Eric [ph] on for Josh. Thanks for taking my question.

In past quarters, you guys have provided the monthly progression of volume recovery for the quarter. I was just wondering, if it would be possible for you to do the same here for 3Q.

Yes, we didn't do that just because it had flattened out a little bit. I don't know I don't want to put Bob on the spot.

I don't know - if we're prepared to do that so probably going to decline at this point to be thoughtful about it. But it was something that we did just because I think was more uncertain but I do believe we've seen - as I indicated I alluded to, we've seen a resumption.

We're not quite where we were from office visits and surgical levels of prior year. But it sequentially is back.

Understood. Thanks for sharing that.

And then moving elsewhere, in the 2024 financial targets, you guys have outlined previously expansion into international markets like China and Japan was highlighted as a key initiative. I was just wondering when we could possibly expect to see Conformis' entrance into those markets and then how the strategy might differ from other international markets that you guys are in.

Right, so that's a good question and there as you - I'm sure you likely know longer term regulatory challenges. But we do have them in the out-year plans and we're still planning on those and doing the work that we need to do for those regulatory approvals and all the stuff associated with that.

I don't think I'm prepared to say exactly when you'll start to see us enter in those markets. But it certainly would be prior to 2024.

But it certainly won't be next year for instance we know those - in general those approvals take longer.

Excellent, thank you.

This is actually Saravanan [ph] for Robbie. Just a question on the ASC knee upcoming 2021.

Have you seen anything in the quarter regarding the shift to ASC that might have accelerated as a result to pandemic, anything on that opportunity that might have kind of changed throughout the quarter?

[Indiscernible]. I think the opportunity has only become more compelling.

I'm really in hard press to pull up data sources that I think are specific so to speak. But my conversations with physicians and people in the industry and people that are at the ASC and just really are doctors are probably the key source to me is, is they're seeing more demand.

They're seeing their patients seemed to be more comfortable given the COVID environment to proceed with the surgery in an outpatient manner versus inpatient manner. I think there's some residual fright if you will around hospital where that's warranted or not.

But it's real. So on the margin it's accelerated that shift and I think it's made the opportunity more compelling.

I mean I think if you look overall a total knee arthroplasty, the robotics trend, the cementless trend and the trend to ASC's are probably three of the biggest things going on right now. So we're very pleased that we think we have the best delivery model for the ASC site of care and as you know we've talked about cementless from our standpoint.

We've got to get that product launch and so that remains a big impetus for us.

Great, thank you and just one quick follow-up. I know you gave some color on kind of the longer-term international opportunity [indiscernible] the last call.

But did you see anything in the quarter. I know the international opportunity is smaller portion of the business now but the recovery by O-US versus US?

Well that's a good question and of course as [indiscernible] what other people have said. So I try not to - guess –where I'm coming from its challenge.

But we just saw the UK go to a month lockdown. We've seen some regional lockdowns in different parts of Europe.

So that's why I'm not prepared to comment. I talked to this and I appreciate you give the opportunity and time.

We're not out of this. I want to be clear I'm not being negative.

I think that we're not going to see the broad-based level of demand disruption we saw in Q2. Having said that, there's still uncertainly around that.

So we all have to be little thoughtful about that. The good news is, I think our customers and our industry have done a great job in figuring out how to manage patients through whether it's a hospital outpatient environment to protect them against COVID.

How to reassure them? I think you know Telehealth and different applications like that are allowing doctors to interact with their patients.

But you can't get away from the fact that if you look around, we're seeing some various spikes in different geographies and you just can't predict how the government's agencies will respond to that and to answer your question. Specifically yes, we've seen some shutdowns in some of our customer centers in Europe.

Again they're not - they tend to be a little more thoughtful in the sense that. They're not just - we're shutting down and there's no message about when or what we're starting.

It's more targeted and it's not broad based across. So to speak to country, it's more targeted around centrism and geographies and with the time limit.

So more to come on that and that's some more color we'll provide later in the fourth quarter.

Great, thank you.

This is David, on for Steve. Thanks for taking the questions.

Maybe one for you Mark. I was just wondering if you could provide an update on the status of your sales organization and do you anticipate any changes over the near term?

Well I'm really pleased with the sales organization and the focus they've been able to maintain coming through this COVID situation. I'm particularly pleased with leases in beginning of the year we wanted to add new agents and we've done that leasing with 7% growth and our agents since December 31, 2019, which I think is a good performance.

We're targeting 10% for the full year so we're well on the way and we continue to do that and so that's acquiring, entertaining surging customers important. But the big part of that is, good distribution and I think part of the success we're having this year is again, going back to one of the first questions by having a hip product.

It allows us to be more attractive to agents that have both hip and knee relationships and skill sets. So having only the knee in prior quarters was a challenge for us in recruitment.

But now that we've got - I think in innovative hip system we've also planned to add and fill up our portfolio has made Conformis a more attractive place for experienced orthopedic agent. So we're pleased with the performance we've made.

We can always do better and want to do better. But like the direction it's going.

Okay, great. That's helpful and then one just follow-up.

I was wondering if you could maybe talk about any updates on the reimbursement coverage that is from Aetna, how is that progressing there. Thank you.

No new news on that. I think we're settled in for the long winter here and typical litigation it's going to be while - whether there's new there.

I think that - well I don't think. We track now.

We're able to track through some automation I think I reported this last quarter. So we can expect to see exactly what our payer mix looks like and we still get some Aetna request and we have a process now for doing prior authorization and supporting surgeons and we actually still get some approvals on PO on that.

But we don't see a lot of Aetna request because I think our customers are sort of strained now to know. But every now and then we still get them and I'm pleased to see that we still get some approvals.

But the most important thing is, we don't anticipate or have reasonably will be any other changes to coverage at this point. Most of the commercial payers have been through this and we are pretty pleased outside of Aetna situation with the broad coverage that we have.

Okay, got it. Thank you.

Go ahead operator.

Okay, all right well with that. We'll end it.

I appreciate everybody who dialed in and listened in and thank you.