Amedica's (AMDA) CEO Eric Olson on Q2 2014 Results - Earnings Call Transcript

Aug. 7.14 | About: Amedica Corporation (AMDA)

Amedica Corporation (NASDAQ:AMDA)

Q2 2014 Earnings Conference Call

August 7, 2014 10:00 AM ET

Executives

Mike Houston – Director, IR

Eric Olson – CEO and President

Jay Moyes – CFO

Analysts

Mike Matson – Needham & Company

John Newman – JMP Securities

Operator

Good day, ladies and gentlemen, and welcome to the Amedica Second Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded.

I would now like to introduce your host for today for conference, Mike Houston, Director of Investor Relations. Sir, you may now begin.

Mike Houston

Thank you, Marcus. Good morning, and welcome to Amedica Corporation’s second quarter 2014 earnings conference call. With me today are Eric Olson, Chief Executive Officer; and Jay Moyes, Chief Financial Officer.

Right now everyone should have accessed to the earnings release for the period ending June 30, 2014 that went out this morning at approximately 9:00 A.M. Eastern Time. If you have not received the release, it’s available on the Amedica website at www.amedica.com. This call is being webcast, and a replay would be available on the company’s website.

I’d like to remind you that certain items that maybe discussed in today’s call are not based entirely on historical facts. These items should be considered forward-looking statements, and are subject to many risks, uncertainties and other factors that are difficult to predict and may affect our businesses and operations.

As a result, our actual results may differ materially and adversely from those expressed or implied by our forward-looking statements. A discussion of some of these risks, uncertainties and other factors are set forth in our SEC filings. We undertake no obligation and do not intend to update any forward-looking statements, as a result of new information or future events or circumstances, arising after the data on which it was made.

With that, I would now like to turn the call over to Eric Olson. Eric?

Eric Olson

Thank you, Mike. Good morning, everyone, and welcome to our second quarter 2014 earnings conference call.

I will begin today’s discussion with an overview of our second quarter business highlights. Afterwards our CFO, Jay Moyes, will provide greater detail on the financial results for the second quarter and first half of 2014. And then, we will open the call for questions.

I am pleased to announce that during the second quarter of this year, revenues for the company’s proprietary silicon nitride products increased by 51% over the year period to $2.7 million. For the six months ended June 30, 2014, our silicon nitride revenues increased by 46% over the first half of 2013. In addition, silicon nitride revenue increased by 8% sequentially over the first quarter of 2014. Our total revenue for Q2, 2014 was $5.84 million, which is in line with consensus estimates.

Our silicon nitride sales continue to grow in the second quarter, due to launch of our second generation Valeo interbody devices.

Marketplace acceptance has been very positive, and we are excited with the improved features and benefits of these products, which enhanced surgeon control during implantation and stability post-procedure.

Beginning at the end of last year, we launched new second generation designs of our Valeo anterior, posterior and oblique lumbar interbody fusion devices. Tube versions of the second generation posterior lumbar device resulted from our Design and Build Program. As you recall, this strategy was initiated during the first half of 2013 and has enabled us to cooperate with influential surgeons to develop, customize silicon nitrides spinal fusion products and instruments.

Additionally, we initiated the limited release of our second generation cervical interbody devices during the month of July, which is also receiving early positive feedback from influential surgeons within our Design and Build Program.

It is important to reiterate that our silicon nitride products have unique beneficial properties that aid in rapid bone growth and are anti-infective. Based on scientific data, our silicon nitride interbody devices have superior biomaterial characteristics that are preferred by surgeons instead of older products made from titanium or PEEK technologies.

Turning now to our research efforts. We are pleased to announce that three research papers have been accepted for presentation at the Annual Meeting of the International Society for Technology in Arthroplasty. This event will be held in Kyoto, Japan next month.

The first of three research papers will review the friction, lubrication and wear between two silicon nitride moving surfaces as tested in a classic hip simulator. It will be an independent presentation by Dr. Ian Clarke of Loma Linda University, a distinguished scholar in the area of bearings for hip arthroplasty.

This study will show the lack of detectable wear for silicon nitride bearings after testing almost 13 million cycles. The negligible wear-up was particularly due to the strength and toughness of the silicon nitride material itself, but also the result of a preferential protein absorption on the surfaces of the bearing couple.

We’re very pleased with Dr. Clarke’s findings of the application of our non-op side ceramics may become a viable alternative for total hip arthroplasty designs in the next decade.

The lead author of the second paper is Dr. Sonny Bal, a noted orthopedic surgeon and member of the Amedica Board of Directors. His paper will review the essential physical, mechanical and surface chemistry of silicon nitride, and contrast these properties with other available bioceramics for total hip arthroplasty. In particular, a comparative demonstration of the inherence stability of silicon nitride over oxide ceramics will be highlighted.

The third paper led by Bryan McEntire, Amedica’s Chief Technology Officer, will discuss the use of silicon nitride in spinal fusion cages using laboratory data and human case studies. The results will demonstrate its improved osteointegration characteristics when compared to PEEK cages.

Every year, the ISTA hosts a congress where the best clinicians, engineers, researchers and industry members from across the globe come together to present and discuss re-network in the field of arthroplasty, and we are honored to have a presence at this event.

I would now like to provide a manufacturing update. In support of our roll-out of our second generation silicon nitride spine products, manufacturing volumes increased by approximately 500% during the first half of this year, as compared to prior year period.

Production yields have also increased by approximately 18% in 2014, compared to the same half year period in 2013. Unit product costs for silicon nitride interbody devices have commensurately declined between approximately 26% and 45% depending on the product when compared to the first half of 2013.

Additionally, we experienced a sequential increase of 32% in production volumes during the second quarter of 2014, as compared to the first quarter of 2014.

Now I’d like to move onto the company’s clinical trials. First is our retrospective study. We are on schedule for the September completion of a retrospective analysis of cervical patient outcomes in California. The analysis compares silicon nitride to PEEK, and will compare data on lumbar silicon nitride interbody devices.

Next our prospective studies, the first of which, being our perspective clinical trial in Europe named CASCADE. It is fully enrolled with 100 patients, and compares our first generation Valeo composite silicon nitride interbody devices, utilizing our porous CSC material to PEEK interbody devices.

Once results become available, we expect to file a manuscript submission for publication in the second half of this year and then 510(k) submission with the U.S. FDA by mid-2015. The primary endpoint for this trial is patient outcomes namely the Neck Disability Index while the secondary endpoint is fusion.

Next, our SNAP perspective study is 88% enrolled, and compares our first generation oblique lumbar silicon nitride devices to PEEK devices. Enrollment is progressing and expected to be completed by the first quarter of next year. The primary endpoint for this trial is patient outcomes namely the Oswestry Disability Index and the secondary endpoint is fusion.

Lastly, we’re pleased to announce that we’ve initiated a new randomized perspective clinical trial in Jacksonville, Florida, which compares our second generation cervical silicon nitride devices to PEEK devices. The study is in the final stages of development as we await IRB approval. The six surgeons leading this study will be using our second generation cervical interbody devices, developed out of the Design and Build Program that I mentioned earlier. We’ll have more details on its progress during our next call in November.

Jay will discuss our recent refinancing activities later in the call, but I wanted to reiterate that this was a significant milestone for the company. Refinancing the GE Credit Facility and securing the additional working capital now puts us in a stronger financial position to further our company objectives. We are pleased to have the support in maximizing the potential of our silicon nitride biomaterial

Finally, on our call last quarter, we announced an expansion of our sales organization. This expansion is now complete with the addition of two new area vice presidents and three new medical education managers during Q2, and we look forward to their contributions.

The addition of these new experienced and accomplished key members allows us to continue our enhanced focus on our silicon nitride products and drive additional growth and acceptance in the marketplace. As a result of the sales team expansion, I am happy to report that we’ve added 34 new surgeon customers in 2014 so far.

For those investors who may be new to Amedica, I’d like to summarize our company’s competitive strength. Amedica is the only company that designs, produces and sells silicon nitride medical devices. We operate at 30,000 square foot state-of-the-art manufacturing facility that allows us to control the entire process of manufacturing silicon nitride implants, both internally and with our outsourced vendor.

Our established network of over 50 independent distributors and an in-house sales and marketing teams are highly experienced experts from top companies in spine orthopedics. Additionally, the company has a highly active network of leading surgeons that advises in the design, development and practical use of our silicon nitride and non-silicon nitride products and product candidates.

Thank you. This now concludes my remarks. I would like to turn the call over to Jay Moyes, who will discuss our financial results. Jay?

Jay Moyes

Thank you, Eric. I’m pleased to discuss the financial performance of the company during the second quarter of 2014. As Eric mentioned, our total revenue for Q2 of 2014 was $5.84 million. And for the six months ended June 30, 2014, our total revenue was $11.62 million.

As for product mix, our silicon nitride ceramic products were responsible for 46% of our overall product revenues in Q2 2014, compared to 29% of our overall product revenues in Q2 of 2013.

The company experienced a 1 point increase in the gross margin percentage to 72% for the six months ended June 30, 2014.

Research and development expense for Q2 of 2014 increased by $1.9 million, when compared to Q2 of 2013, primarily related to a $700,000 increase in an enhanced focus on our silicon nitride products – sorry, in non-cash stock-based compensation expense during the second quarter of 2014.

We believe that research and development expenses will continue to increase in 2014 as we implement additional clinical studies to support the utility of our silicon nitride products.

General and administrative expenses amounted to $6.3 million in Q2 of 2014, compared to $1.5 million in Q2 of 2013. This was primarily due to, again, a non-cash stock-compensation expenses of $4.6 million, and to a lesser extent increases in professional service expenses and patent expenses.

We expect general and administrative expenses excluding non-cash stock-compensation expense to grow modestly in 2014, as a result of becoming a publicly traded company. Non-cash compensation expense will remain elevated during the third quarter of 2014, due to vesting of the restricted stock units, which I will cover later in the call.

Sales and marketing expenses were $5.6 million in Q2 of 2014, compared to $4.8 million in Q2 of 2013, an increase of $800,000. This increase was primarily result of non-cash stock-compensation of $1.1 million, and increased sales and marketing expenses, including new headcount that Eric mentioned. We expect that sales and marketing costs will increase in 2014 as our sales continue to increase.

Other expenses of $2.6 million for Q2 of 2014, was a result of $1.6 million charge for loss on extinguishment of debt related to the GE Capital debt facility, which was refinanced by June 30.

Interest expense of $600,000 and a $450,000 non-cash charge from the change in fair value of our derivative liability related to warrants. Speaking of non-cash expenses, I would like to emphasize that during Q2 of 2014 and six months ended June 30 of 2014, we recorded approximately $7.4 million and $8.8 million respectively in non-cash stock-compensation expense. This compares to $300,000 of non-cash stock-compensation expense for each of the same periods in 2013.

A large portion of the non-cash stock-compensation expense for 2014 is related to the RSUs, grants to employees and directors at the time of our IPO. As a reminder, the magnitude of the total of non-cash charge related to the RSUs is in the neighborhood of $11 million. So the remaining $3 million or so will be recorded in Q3 of 2014 when the RSUs vest.

Our GAAP net loss for Q2 of 2014 was $13.2 million, compared to a loss of $3.1 million for Q2 of 2013, an increase of $10.1 million. This is primarily due to non-cash stock-compensation expenses of approximately $7.4 million and a loss on extinguishment of debt of $1.6 million in Q2 of 2014.

Finally, our adjusted EBITDA which we define as our earnings before deduction for interest, taxes, depreciation and amortization, non-cash stock-compensation expense, change in fair value of our derivative liability and loss on extinguishment of debt was a loss of $2.6 million for the second quarter of 2014, compared to a loss of $1.9 million for Q2 2013, an increase in loss of approximately $700,000.

As of June 30, 2014, our cash balance is approximately $11.6 million. For the first six months of 2014, we paid monthly principal payments to GE Capital of $600,000 along with approximately $100,000 per month in interest.

As we announced last month, we completed the restructuring of our debt facility on June 30, which provided the company with 12 to 18 month interest-only period and other favorable terms. The repayment of the GE Credit facility will eliminate approximately $3.6 million of remaining scheduled principal payments in 2014, which would have otherwise been due under the GE Credit facility. This will enable the company to now spend those resources on the commercialization of our products.

Lastly, as you may have already seen in the filing this morning, I will be stepping down as Chief Financial Officer and Board Director effective tomorrow. I very much appreciated the opportunity to serve during my time here in Amedica. I look forward to watching the company continue to grow and execute on the strategy to drive awareness and adoption of its innovative silicon nitride technology platform. Back to you, Eric.

Eric Olson

Thank you, Jay. And before we open the call for questions, I would like to acknowledge Jay’s invaluable contributions to Amedica through both IPO and debt refinancing process. We wish him well in his future personal endeavors, as he leaves us with an experienced financial team in place that will help ensure a seamless transition.

Operator, will you now please instruct the callers on how to join the queue for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Mike Matson from Needham & Company. Please proceed.

Mike Matson – Needham & Company

Good morning. Thanks for taking my questions. I guess first of all, I wanted to just make sure I knew where your cash position stands post the refinancing, because I think it was completed after the end of the quarter, so the balance sheet in the press release doesn’t reflect that. So I think you had a net increase of about $11 million in your cash. So that would put you at around $22 million. Is that correct?

Jay Moyes

No, that’s not correct.

Mike Matson – Needham & Company

Okay. So where are you, I guess, as of the completion of the refinancing in terms of debt – sorry, your cash and debt positions?

Jay Moyes

At June 30, cash balance was $11.5 million.

Eric Olson

And we were expecting an additional $3.5 million that will be coming in over the course [ph]. It is in connection with that refinancing.

Jay Moyes

So the $6 million from Magna will come in two tranches; $2.5 million we’ve received on June 30, and the additional $3.5 million upon the effectiveness of the S-1.

Mike Matson – Needham & Company

Okay.

Eric Olson

In the third quarter.

Mike Matson – Needham & Company

Okay. So the $11.5 million as of the end of the quarter included $2.5 million from the refinancing?

Jay Moyes

From the Magna portion of the refinancing. And all of the proceeds from the Hercules refinance.

Mike Matson – Needham & Company

Okay, all right. And then, I guess, what was your cash? How much cash did you actually used during the second quarter?

Jay Moyes

Cash used in operations was – I don’t have it right at my fingertips. We’ll look at in just a second, Mike.

Mike Matson – Needham & Company

Okay, all right. And then, I guess, just can you give us an update on the number of distributors and sales people that you have? You mentioned the numbers that you added. I just wanted to make sure that is that net increase given potential for turnover, etcetera.

Eric Olson

Yes. So the number of distributors, I don’t believe has changed. It’s still in the range of 50 distributors.

Mike Matson – Needham & Company

Okay.

Eric Olson

No, actually it has increased, Mike. It’s 63 distributors now in total that we have.

Mike Matson – Needham & Company

Okay

Eric Olson

And that’s approximately 250 sales reps that represent through those distributors. And we have four internal area vice president individuals, and we also have four field medical education experts. So for total of – with other sales manager, we have 10 in the sales team and 10 people in the marketing department.

Mike Matson – Needham & Company

Okay. All right. And then, I guess, just on your metal biologics business. I understand the impact from the BioD agreement ending, but I am just wondering, going forward, what’s the outlook for that part of your business. Do you expect it to continue to decline, or do you think it’s largely stabilized at this point?

Eric Olson

Clearly the biologics is going to continue to decline as we work through the desolation of the agreement with BioD. And we anticipate that the metal sales will be flat, as we work on the launch of the third generation product of our metal devices and also the application of the coating of silicon nitride on the system.

So I think we’ll have to speak for the rest of the year is that the biologics will probably continue to decrease, the metals will probably stay about the same, maybe marginal growth. And all that growth – as you can see from this quarter, all that decline or being flat is being greatly offset by the dramatic increase in the utilization of our silicon nitride interbody devices.

Jay Moyes

50% is pretty good increase.

Eric Olson

Yes, 50% is a pretty good increase. And we anticipate that that will continue to grow as we go through the rest of the year, and we launch more of the new second generation products. And the feedback from the surgeons has been very, very favorable on the new design, and we’re very pleased with the direction that’s headed.

Mike Matson – Needham & Company

Okay. And then just on the manufacturing side of things. The numbers that you gave around the efficiency and so forth seem pretty good, but the volume number being up so much, I’m wondering where all that volume is going, if you’re sales are up 50%. And then secondarily, I guess on the – with the yields up and the costs down, wondering when will see that start to – I guess, we saw some improvement in gross margins, but given that big decline in unit costs, it seems like gross margin should be going up a lot more.

Jay Moyes

Well yes, so what happens is, as you know Mike, when you launch a new system and you put in 25 to 50 new sets into the marketplace, you have to have a complete bank of business – a complete bank of inventory that you send out with those new sets. And so the ramp-up is really the creation of that bank of inventory of products that goes out with each of the new sets.

And then as we drop those banks in place, what you will see is a dramatic reduction. All we do at that point is we replenish the products that are used in the procedures. So I think you’ve heard us give this example before, all orthopedic and spine distribution is pretty inefficient. You have to – it’s like if you were Amazon and selling a pair of shoes, you would send out the entire catalog of shoes. Your customer would pick out one and then ship the entire catalog back. That’s kind of what we have to do with implants.

And so to build up that catalog or that bank of business that has to be done before you can even send out the first instrument set.

Eric Olson

If you are selling that one pair of shoes that will definitely improve cost. I mean it does take a while for that to filter through the process and actually show an overall increase in the margins. But that will be occurring over the next couple of quarters.

Jay Moyes

Yes, absolutely. I think for the most part, we’ve build up a good majority of our banks so far. The production efforts have been very impressive. The fact that they’ve been able to increase production, at the same time dramatically improve yields and drive down the costs, I think it speaks very well for the manufacturing by Bryan McEntire and his team. So they’ve done a great job.

Mike Matson – Needham & Company

And just, where do they stand between your own manufacturing and Kyocera. So are these numbers you’re giving for your internal production or with Kyocera?

Eric Olson

What we were sharing right now is this internal numbers from our own manufacturing. That will be augmented, and as you know, the gross margins will improve as we get the products coming in from Kyocera. So we’re mostly through the process with Kyocera, and we hope to have products from them very soon.

Mike Matson – Needham & Company

Okay. To what degree, given your explanation there about getting the sets out in the field and so forth, and the 500% increase in manufacturing volumes. To what degree do you think that had been the lack of those sets had been a strain on your silicon nitride growth? I mean, were there doctors that were interested and wanted to use the products, and you just didn’t have the sets to get to them?

Eric Olson

Yes, I think there is actually a little bit of a pent-up demand, Mike, to be very candid. We’re trying to get new sets out as quickly as possible. It’s not just the build-up of the inventory, but it’s also the capital investment in the instrument sets that you need to grow. It’s probably – it’s a good problem to have if you’ve got more demand than you have products that we thought we had a pretty aggressive forecast, but we’ve exceeded our forecast and the demand that we’ve seen for the products. And we’ll continue to work towards ramping that up and getting inventory out to the surgeon customers that want the technologies.

Jay Moyes

Yes. And that’s a 50% increase in silicon nitride sales.

Eric Olson

Yes.

Mike Matson – Needham & Company

All right. That’s all I have. Thank you.

Eric Olson

Mike, thanks so much. I appreciate.

Jay Moyes

About your question on the cash proceeds. So we closed those on June 30. Like I said, we have an additional $3.5 million that will be funded probably in the next week, because there is one that got effective [ph], but in the quarter, we received about $4.3 million of net proceeds from the refinance. And we then have some expenses that hit in July. The latest of those refinances of about $1 million.

Mike Matson – Needham & Company

Okay, thanks.

Eric Olson

Thanks Mike. I appreciate your questions.

Operator

Our next question comes from the line of David Turkaly from JMP Securities. Please proceed with your question.

John Newman – JMP Securities

Hi guys, this is John on for Dave. Can you hear me okay?

Eric Olson

We hear you great. Thanks John.

John Newman – JMP Securities

All right, thanks. Hi Jay, congratulations on retiring again. We’ll miss working with you but certainly wish you would move on.

Jay Moyes

I’m getting good at it. Thank you.

John Newman – JMP Securities

All right. I want to start out maybe just hitting on the stuff you mentioned, the hip data that will be presented in Kyoto. I know that any revenue from that would be far out in the future, but I just want to make sure I am understanding it. Was that silicon nitride coated metal joints or was that solid silicon nitride?

Eric Olson

That’s all solid silicon nitride. You are articulating on polyethylene.

John Newman – JMP Securities

Okay. And then, do you know if CeramTec has any IP around that, because it could make that challenging. It just seems like it could potentially be a pretty solid homerun for you guys if you got that out there?

Eric Olson

Not that we’re aware of.

John Newman – JMP Securities

Okay, great. And then I wanted to talk just a little bit about some of the second gen products. Obviously, you guys have been referencing that. It’s been a big driver for you. Now that some of the surgeons have had a couple of quarters to get more used to those products, can you give us just some insights into the things you’re hearing from the field, what they are saying as they gain experience with those? What they like? Is there are any improvements they want to see as you move forward?

Eric Olson

I think clearly the new design with the threaded inserter, which is much more what surgeons are accustomed to, I think they really like that design. So the increased control of the device during insertion, accurate placement of the device, some of the more aggressive features on the products makes it much more stable at the time of implantation. And so, I think all of those things have been extremely positive.

The benefits of – we continue to hear from surgeons, which is that they feel like they are getting better fusions, faster fusions. We want to be able to demonstrate that obviously in our clinical studies that we’re doing, but the anecdotally the input that we get from these surgeons is very, very favorable. So I think it’s going very well.

I think not only just the standard instruments that we’ve put in place, but we’ve done some pretty impressive instrumentation enhancements with the systems. And I think it makes for the surgical procedure to be much more easy for them. It’s not just the second generation design of the implant, it’s the second generation design of the instrumentation as well.

John Newman – JMP Securities

Okay, that’s helpful. And then as you’re rolling those out, you’re getting pretty solid growth in silicon nitride. You beat our forecasts there. Is that more from increased penetration within existing accounts as you guys get more experienced with these and start using it more as a practice, or is this hitting out to new surgeons. Can you kind of help us tees those effects out a little bit?

Eric Olson

Well, I think there is probably a little bit of growth with our existing surgeons. I think as they – the way you see is sometimes surgeons will use one device for one application. For example, they will say, I really like silicon nitride for cervical, but I might not like it because I use a lateral device or whatever, but because of the really good results I think that they are getting with the cervical, they might consider converting from a lateral to maybe an oblique or a posterior implant, because they like the benefits of the material.

So I think we are definitely seeing – I know that we’re seeing some growth with our existing business, but the vast majority of the growth is really coming from new surgeons who are trying the technology for the first time and utilizing the new designs.

John Newman – JMP Securities

Thanks. And then looking at Europe, we’re still modeling a pretty small contribution there. Can you talk to us about how things are going in terms of rolling out the second gen products there, and any, sort of, impact you’re seeing from that?

Eric Olson

Yes, so we’ve now fully converted all of K2M’s gen one products to gen two products in Europe. We are in the process of scheduling, kind of a commercial meeting with them here in the future in advance of EuroSpine, which would be held in October, for us to be able to really focus our joint sales and marketing efforts during that meeting. I think that the growth is – we didn’t anticipate strong growth in that area. This is mutual a partnership that we’ve been working on for a while.

We’ve built-in fairly conservative – really targeting key surgeons and trying to convert them and get them to have good experiences, so that we can utilize them to speak about the technology. And I think today, I think we’re fairly pleased with the progress, but we’re at a stage now where our expectations for the rest of the year is that they are going to start ramping up all the work that we’ve done in the first half to make sure that everything is in place is now completed. Our efforts – the objective of our meeting with them in the upcoming EuroSpine is to ensure that the second half of the year that we dramatically increase the use of the second generation products there in Europe.

John Newman – JMP Securities

Okay, that makes sense. And then can you just remind us, what kind of diligence process did you go through with K2M when they originally signed the license agreement for Europe?

Eric Olson

It was a long and painful diligence process. Back and forth between the two companies to have them understand the technology, get comfortable with it before they presented it to their first surgeon. We decided to do, kind of, a mini – not trial, but experiment or sample of our technology, so they identified key surgeons and allowed them to do. Can’t remember, the x number of implants, and then those surgeons followed those patients for, I think, it was three to six months depending on the surgeon.

And then based on feedbacks from those surgeons, then K2M decided that – they felt that it was so much more beneficial than what they were currently using, that they went ahead and signed an agreement with us to go to Europe. And we continue to have conversations with K2M about potential expansion plans and we’ll see where that goes.

John Newman – JMP Securities

That’s helpful. And then looking at the new surgeons, if my numbers are correct and if I’m remembering last quarter correctly, I think you had 12 surgeons new in the first quarter, which means that 22 of those 34 came in the second quarter, which would imply a pretty solid acceleration in first half. Are my numbers correct there?

Eric Olson

That’s exactly right. Good memory.

John Newman – JMP Securities

Okay. And then, so as you’re moving into these new accounts, how long does it take a surgeon to, sort of, really roll this out in their practice, and maybe you can help us think through some of the hurdles they’ve got to clear before they get comfortable enough to make it a meaningful part of their practice?

Eric Olson

Well, that’s a great question. And there is a lag between the time of the surgeons converted and the time of the hospital will actually allow the surgeon to utilize the device. Often times, hospitals have put in kind of artificial barriers of entry for new technology. They expect companies to go in and provide some kind of data on new technologies. And often, that data is used for a new tech committee, and then that has to be approved with that committee to get it for use in the hospital. That timeline depends really on the hospital. Sometimes it’s as quick as couple of weeks to a month. Other times it takes longer than that. But luckily for us, I think that the things that really support those efforts are the published data, the biomaterial claims and the sheer number of implants that we’ve done today with no issues at all, really bode well for us as we go to those new tech committee meetings and get the products approved.

So that’s the greatest gating item. Surgeons are actually – the time from – as we go in and present, and if we do a categorical trial with them for them to get comfortable with the implant and the instrumentation, it really doesn’t take very much time to convert a new surgeon to the technology. I think they readily see the benefits of it. And really the lag is, the time it takes to get into the hospital itself. I hope I explained that well, John. Does that make sense?

John Newman – JMP Securities

Yes, that makes sense. That’s helpful. So that’s everything from us. Congrats on the nice uptick in the silicon nitride sales. Thanks guys.

Eric Olson

Thanks John. We’re pleased with the quarter. Okay. I think that’s it. So that concludes our second quarter earnings call. I’d like to thank all those who participated, and we look forward to speaking to you again in November. And please feel free to call myself directly if you have any additional questions. Thanks again. We’ll talk to you soon.

Operator

Ladies and gentlemen, thank you for today’s conference. This does conclude today’s program. You may all disconnect. Have a wonderful day.

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