ConforMIS Second-Quarter Revenue Dips 4.4 Percent

It’s been a rocky three months at ConforMIS Inc. 

The company’s second-quarter sales are down 4.4 percent from last year, reaching $18.5 million for the three months ended June 30. Product revenue is down as well, falling 5.5 percent to $18 million, (4.8 percent on a constant currency basis).

“As ConforMIS continues into this transition year, we experienced mixed results in the second quarter,” said Mark Augusti, president and CEO of ConforMIS. “The impact from changes in the field sales organization and in reimbursement adversely affected our overall revenue growth, while on a positive note, we were able to achieve a 300 basis point improvement in gross margin and a $2 million reduction in net loss over the prior year. We believe the changes that we are making will have a positive impact on our results moving forward. That said, we have adjusted our 2017 guidance to reflect our revenue expectations for the remainder of the year.”
 
Total revenue in the second quarter of 2017 included royalty revenue related to patent license agreements of $438,000, as compared to $229,000 in the second quarter of 2016.
 
U.S. product revenue increased $200,000 to $15.2 million, or 1.5 percent year-over-year, and Rest of World product revenue decreased $1.3 million to $2.8 million, or 31 percent year-over-year on a reported basis and decreased 27.5 percent on a constant currency basis. Product revenue from sales of iTotal CR, iDuo and iUni was $13.3 million for the three months ended June 30 compared to $15.7 million for the same period in 2016, a decrease of $2.4 million, or 15.3 percent year-over-year, on a reported basis and 14.8 percent on a constant currency basis. Product revenue from sales of iTotal PS was $4.8 million compared to $3.4 million for Q2 in 2016, an increase of $1.4 million, or 41.2 percent year-over-year, on a reported and constant currency basis.
 
Gross profit increased $200,000 to $6.2 million, or 34 percent of revenue, compared to $6 million, or 31 percent of revenue, in the second quarter of 2016. The increase in gross margin year-over-year was driven primarily by manufacturing efficiencies and cost reductions as a result of vertical integration and the timing of royalty payments received.
 
Total operating expenses increased $100,000 to $20.2 million, or 0.2 percent year-over-year.
 
Net loss was $12.1 million, or 28 cents per basic share, compared to a net loss of $14.1 million, or 34 cents per basic share, for the same period last year. The decrease in second quarter net loss was driven primarily by higher foreign currency exchange transaction income related to international intercompany receivables and higher royalty revenue.
 
As of June 30, the company’s cash and cash equivalents and investments totaled $71.2 million, compared to $65.5 million as of Dec. 31, 2016.  As previously announced, in January 2017 the company secured up to $50 million in term debt financing, of which $15 million was borrowed in January and $15 million was borrowed in June.
 
For the full year 2017, ConforMIS expects total revenue in a range of $75 million to $78 million, representing year-over-year decline of 6 percent to 3 percent on a reported basis and 6 percent to 2 percent on a constant currency basis. This is updated from previous guidance in a range of $80 million to $84 million, representing year-over-year growth of 0 percent to 5 percent on a reported basis and 1 percent to 6 percent on a constant currency basis. The company’s 2017 revenue guidance assumes product revenue in a range of $74 million to $77 million, representing year-over-year decline of 6 percent to 2 percent on a reported basis and 5 percent to 2 percent on a constant currency basis. This is updated from previous guidance in a range of $79 million to $83 million, representing year-over-year growth of 0 percent to 5 percent on a reported basis and 1 percent to 6 percent on a constant currency basis.
 
Royalty revenue of approximately 800,000 related to ongoing patent license royalty payments has not changed.
 
For the full year 2017, the company expects gross margin in a range of 34 percent to 36 percent, from previous guidance of 36 percent to 38 percent.
 
ConforMIS uses its proprietary iFit Image-to-Implant technology platform to develop, manufacture and sell joint replacement implants that are individually sized and shaped, or customized, to fit each patient’s unique anatomy. ConforMIS offers a line of customized knee implants and pre-sterilized, single-use instruments delivered in a single package to the hospital. In clinical studies, ConforMIS’ iTotal CR demonstrated superior clinical outcomes, including better function and greater patient satisfaction, compared to traditional, off-the-shelf implants. ConforMIS owns or exclusively in-licenses approximately 450 issued patents and pending patent applications that cover customized implants and patient-specific instrumentation for all major joints. The company is based in Billerica, Mass.