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Edited Transcript of MSON earnings conference call or presentation 5-Feb-20 9:30pm GMT

Q2 2020 Misonix Opco Inc Earnings Call

FARMINGDALE Feb 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Misonix Opco Inc earnings conference call or presentation Wednesday, February 5, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph P. Dwyer

Misonix, Inc. - CFO, Treasurer & Secretary

* Stavros George Vizirgianakis

Misonix, Inc. - CEO & Director

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Conference Call Participants

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* Alexander David Nowak

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Kyle William Rose

Canaccord Genuity Corp., Research Division - Senior Analyst

* Ryan Benjamin Zimmerman

BTIG, LLC, Research Division - Director & Medical Technology Analyst

* Norberto Aja

JCIR - MD

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Misonix Second Quarter Fiscal Year 2020 Earnings Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Norberto Aja, Investor Relations. Please go ahead.

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Norberto Aja, JCIR - MD [2]

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Thank you, operator, and good afternoon, everyone. Thank you for joining the Misonix Fiscal 2020 Second Quarter Conference Call. We'll get started in just a minute with management's presentation and comments. But before doing so, let me take a minute to read the safe harbor disclosure language.

Today's call and webcast contain forward-looking statements within the meaning of the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995 and can be identified by words such as anticipate, believe, estimate, expect, future, likely, may, should, will and other similar references to future periods. Examples of forward-looking statements include statements regarding guidance relating to our financial results. Forward-looking statements are neither historical facts nor assurance of future performance. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances. Therefore, you should not rely on any of these forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise. Today's call and webcast will also include non-GAAP financial measures within the meaning of the SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website.

With that, I'd now like to turn the call over to Mr. Stavros Vizirgianakis, President and CEO of Misonix. Please go ahead.

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [3]

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Thank you, Norberto, and good afternoon, everyone. Thank you for joining us on the call today to review our fiscal 2020 second quarter results. Joining me on the call today is Joe Dwyer, our Chief Financial Officer.

We are pleased with our results for the second quarter and first half of 2020, in particular, in our ability to continue the strong growth and overall operational improvements from prior periods, including total revenue growth of 93.8% for the fiscal second quarter and 58% for the first half of the fiscal year on the back of the Solsys acquisition. On a pro forma basis, with TheraSkin sales being included for last year, I'm pleased to report total revenue growth of 17.3%, pro forma domestic surgical revenue grew by 20%, domestic wound revenue grew by 20%, and international revenue grew by 9%. As a reminder, we are now reporting on our results across 2 separate sales channels: our surgical division and our wound product division. We will no longer be presenting results across consumables and equipment. We think that this better reflects the way we have organized the company on the back of the Solsys acquisition.

Taking a look at the surgical division. Our performance reinforces the resilience of our product offering despite the yet limited rollout of Nexus. With a 15.8% revenue increase, 20.1% domestic and 10.6% international, I'm pleased with the direction in which we are headed and excited about the opportunities ahead. As we commence a larger rollout of Nexus and further leverage and expand our sales force, I'm confident that our surgical division will be able to grow at a higher growth rate over time. Our sales resources are better positioned than ever before to capitalize on the growth of this division with the introduction of Nexus.

Regarding the wound division, we continue to be very pleased with its performance, a 20% pro forma increase in domestic revenue and have increased confidence in our availability to further its growth as we optimize the powerful and compelling combination that TheraSkin and SonicOne bring to health care practitioners. As a reminder, the reason for a small international contribution in wound is largely driven by the fact that TheraSkin is not yet sold outside of the U.S.

Taking a quick look from a geographical perspective. Domestic sales increased by a healthy 151% or by 20% on a pro forma basis, while international sales increased by 8.9%. As it relates to Nexus, I'm pleased to report that the limited rollout is proceeding as planned on the back of our 510(k) clearance by the FDA and the receipt of CE Mark approval. We have addressed some minor issues, and there are no major hiccups or issues to report, so we are ready to move ahead with our broader market launch.

Coming to on TheraSkin. Our biologically active cryopreserved human skin allograft indicated for all chronic wounds across a variety of applications, we view TheraSkin as a logical partner to SonicOne, our ultrasonic debridement technology that allows health care practitioners to address wound care in its totality and enhance patient outcomes by both debriding wounds and then applying a human skin substitute. We're investing in additional clinical studies to expand TheraSkin coverage amongst private payers.

In addition, shortly after we closed the Solsys acquisition, we announced an exclusive distribution deal with CryoLife, a leader in the world of tissue, granting us exclusive rights to NeoPatch, their amniotic product, which we will be launching later this month and into full commercial phase, by about midway through the year.

Nexus, TheraSkin and NeoPatch support the EPOS submission of Misonix, Better Matters. This comes down to cementing our proprietary procedural solutions as the standard of care around the world across spine, neuro and wound as we aim to do by building off the best-in-class surgical ultrasonic technology and platform. As you can see, it's a really exciting time at Misonix with many transformative initiatives underway, from the launching of the most significant product in the history of the company, to the integration of Solsys, to the strategic changes taking place across our sales force, the distribution agreement with CryoLife, to the recent capital raise. We are doing everything in our power to drive growth and create value for our employees, partners, shareholders and customers.

With regard to the sales resources, we now have over 147 domestic field resources across both divisions, 65 in surgical and 82 in wound, and plan to add a net 5 new team members to each of our 2 divisions each quarter for the next few quarters as we look to grow addressable markets and better support our product and clients. That translates to between 30 to 40 new sales reps per year. While we will maintain a small deal of presence in the U.S., we remain in control of our business, our products and our clients.

Looking at our operations. I'm pleased to see continued success on our initiatives focused on driving sales, productivity and efficiency across the business as reflected in our gross margin of 70%. We are pleased with the progress we are making in integrating Solsys into the Misonix platform and creating what we refer to as One Misonix.

Looking ahead, we expect the strong momentum to continue through fiscal 2020. As such, we remain committed to our full year guidance. With projected sales for fiscal 2020 of roughly $72 million with only 3 quarters of Solsys' revenue, we believe that over time that we could increase the sales growth rate as well.

In summary, fiscal 2020 so far continues to trend from fiscal 2019 on overall improvements across our financial results and the company as a whole. Our outlook heading into the second half of fiscal 2020 is constructive, underpinned by the strength of our resources across R&D, sales and operations. And we remain well positioned to continue building on our scale and to further benefit from the diversification of our business.

With that, I would now like to turn the call over to our CFO, Joe Dwyer. Joe?

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Joseph P. Dwyer, Misonix, Inc. - CFO, Treasurer & Secretary [4]

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Stavros, good afternoon. Thank you, everyone. As mentioned in today's press release on September 27, Misonix acquired privately held Solsys Medical. Our reported results reflect the Misonix legacy operations as well as the acquired Solsys operations. The actual results for the 6-month period ended December 31, 2019, reflect the company's legacy Misonix operations as well as Solsys operations from September 27 through December 31.

With that, I'll begin by reviewing our financial results in greater detail. Fiscal second quarter product revenue increased to a record $19.7 million compared with $10.2 million for the second quarter of last year. By geography, 77% of revenue was from domestic sales with 23% coming from international markets. On a pro forma basis, assuming Misonix had acquired Solsys for the full second quarter of last year, revenue for the current quarter increased 17.3% over last year, including a 20% rise in each of domestic surgical and domestic wound sales and a 9% rise in international revenue.

The gross profit percentage on sales for the quarter was essentially flat at 69.9% compared with 70.0% in the prior year. Total operating expenses increased to $18.1 million compared to $8 million in the prior year period. The year-over-year increase primarily reflects $8.3 million in operating expenses for the quarter related to the acquisition of Solsys, which includes $6.3 million of selling expenses, $1.7 million in G&A expenses and another $400,000 in R&D expenses.

In addition, we recorded a $960,000 noncash charge to fully reserve for a contract asset relating to our royalty agreement with our Chinese partner, which was charged to G&A expenses during the quarter. Our Chinese partner defaulted on a December 2019 minimum royalty payment, which caused us to take this charge. Our plan is to renegotiate the agreement in the coming months to better align the economics and benefits to both Misonix and our Chinese partner. This charge does not impact our revenue guidance.

On a pro forma basis, assuming Misonix had acquired Solsys for the full second quarter of last year and excluding M&A fees, total operating expenses for the current quarter increased by $3.4 million or 23%. This increase consists of $2.3 million from sales and marketing costs primarily from the compensation cost of the larger sales force in addition to the extra $1 million in G&A costs for the contract asset reserve. Interest expense was approximately $800,000 during the quarter from the newly acquired debt.

We reported a second quarter net loss of $5.1 million or $0.33 per diluted share compared to a net loss of $800,000 or $0.09 per share in the prior year period. The year-over-year decrease in net income and net income per share was primarily attributable to the acquisition of Solsys and the $1 million contract asset reserve.

We reported Q2 adjusted EBITDA net loss of $1.9 million compared to an adjusted EBITDA gain of $400,000 in the prior year period. As we stated on prior calls, with the addition of Solsys, we expect EBITDA to be negative for the rest of this fiscal year and beginning to report positive adjusted EBITDA at some time next year in fiscal 2021.

Moving now to our cash flow and balance sheet. We had $14.4 million in cash at December 31, and we added another $32.5 million of cash at the end of January to our equity offering. So pro forma cash at December 31 with the equity raise was $46.9 million.

Working capital at December 31, 2019, was $28.7 million, and cash used in operations for the second quarter was about $8 million mainly due to an increase in use of cash to build inventory to support growing demand for our products of about $4 million, along with funding the operating loss for the quarter. We ended fiscal Q2 with approximately $32 million in debt.

As you recall, we assumed $24 million of Solsys' secured debt at the closing of September and renegotiated the terms to expand our borrowing capacity while reducing the interest rate and improving other key terms. And in December 2019, we further strengthened our balance sheet with $5 million of increased term debt financing, and we expanded our revolving credit facility from $5 million to $20 million. With the expanded debt facility and our $47 million of cash, we believe that we're well positioned to fund our rapidly growing operations to profitability, and we'll be able to service our debt when it matures in the future.

Regarding guidance for fiscal 2020. We continue to expect product revenue growth of 20% and gross profit margins at approximately 70%. With Solsys consolidated for 3 quarters of the year, a 20% growth rate on a pro forma basis puts us at about $72 million for fiscal 2020.

In closing, we are successfully executing on our integration and operating strategies, and we'll continue to follow the approach we've deployed to grow both top line and bottom line while preserving a healthy balance sheet and capital structure. As we continue to successfully execute our growth initiatives, including improving sales productivity across our surgical and wound verticals and commencing the broad market launch of our Nexus platform, we remain in our ability to meet our goal of enhancing long-term shareholder value as we move through the remainder of fiscal 2020 and beyond.

With that, I'd like to open up the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Alex Nowak with Craig-Hallum Capital Group.

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Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

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Stavros, it's been about 5 months now since you closed the Solsys acquisition. Can you just talk about how the integration of the 2 sales forces is going? And is all the wound product now swapped from the Misonix legacy team to the new Solsys team? And then just bigger picture, has anything surprised you with the wound product or the wound market at all since completing the deal?

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [3]

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Yes, thank you for that, Alex. Thank you very much. In terms of the integration, I would say that we are complete in terms of transitioning the SonicOne wound debridement product from the legacy surgical team into the wound team. That took place during the quarter, the recent October, November, December quarter. It accelerated towards the end of the quarter.

As you will remember, the Solsys' financial year-end was December. So a lot of people are still chasing their TheraSkin numbers to essentially close the year. So I think given everything, the integration is well underway. And we've learned a couple of lessons. I think what we've seen is we need additional people on the ground because part of the opportunity that we had with SonicOne is that SonicOne was only 5% covered from a TheraSkin perspective, meaning that only 5% of the SonicOne accounts with dual accounts with TheraSkin.

So I think what we've seen in the first quarter is that we need some additional people on the ground so that we can cover cases. Because, as you know, debridement cases, you do sit around there for a while longer than just a typical tissue case. So I think what we've seen is we need a couple more feet on the ground. We've also seen some additional training has been needed, having a sales force that was essentially just selling a single product now selling a product, which is more OR-focused, has taken a little bit more in terms of training time and just getting people comfortable with the product.

But I think that where we had dropped a little bit of business here and there, we certainly know where it is. And we've got plans to pick that up and accelerate the growth. And I think very early out of the gates in January with the new comp system that's aligned well to reach company goals where people are incentivized for making not only the tissue number, but the SonicOne debridement number, I think that's provided the focus to the team and given them what's needed to go and grow the business aggressively.

So I think we're optimistic that the integration is going well. I think 6 months is really a reasonable time to get everything bedded down because we closed really late September. So we've had -- we're now -- just completed 4 months now, but so far, it's looking good.

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Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

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That's good to hear. And then just thinking on my last point there about the overlap with SonicOne and TheraSkin, that being at 5%. I mean if you look at it just a couple of years, what could that ultimately look like? And is that -- would you consider that to be what I'd call low-hanging fruit? Is that an easy sale for a -- for the Solsys rep to make to sell the SonicOne in there? Or -- just thoughts on that.

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [5]

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Yes. I think in terms of the product sell, it is easy. I think the reality is what we are finding as we spend more time in the OR that there are still the back committees that you have to go through. So in many instances, it's not just easy to bring tissue into the OR if it's not an account that's been used to using it.

I think over time, as we cement those relationships and we show the value of our offering, it will get easier for us to do. But we're certainly seeing a lot of early successes that really just validates our whole theory that combining debridement with tissue can result in significantly more business. So we're getting a lot of the early wins. I think it's going to be a business that accelerates over time. It's going to be really something that we can build on as people get more confidence.

I think what we've seen as well, to your earlier point, is that some of the people that haven't had a big portion of their business in the OR, it's taken them a little bit longer to get comfortable. As soon as they see that, that's not really an impossible mission to get comfortable in and have success, people will spend more and more of their time there. So I think that becomes an area that will drive the sales force towards growing the business in the OR because that's where we see the real value on these big wounds, complex wounds, where you're able to debride big areas and then use bigger pieces of tissue. We think that's where our solution is most valuable.

So we think that we'll get the early wins. But I think over time, as the sales force matures and gets more comfortable with the technology, we'll really see bigger and bigger growth in that segment of the business.

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Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

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Understood. That makes sense. And then in spine and neuro, where you already have a product there today in the market, where could you add product that would complement BoneScalpel and SonaStar just like you're doing with TheraSkin and SonicOne?

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [7]

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Yes. I think a number of niche areas within spine. Obviously, we've looked to move from being a tool company to more of a procedurally orientated companies. I think one of the areas that certainly stands out as in the neuro side. If we look at cranial neurosurgery, I think, in the dural side of things, there are definitely opportunities to add a complementary product. So that will be something that we look at. I think in niche spine areas as well, there are some opportunities in that area also.

And then I think, as we've seen with the CryoLife announcement, we'll continue to basically fill up the bag with complementary products that we can offer a variety of solutions to surgeons.

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Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [8]

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Okay. Understood. And then just one quick question, just on the Chinese partner that you mentioned there. Just remind us how much revenue did come from that Chinese partner over the last 12 months. I know there was the $4 million, call it, license payment that they made a while back. And just remind us the role that this Chinese partner was taking in the country. Were they just a sales agent? Or were they also doing manufacturing as well?

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [9]

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Yes. This is essentially -- our Chinese partner that was going to be doing distribution will -- still done distribution very successfully and is also involved in manufacture. So I think that the partnership is still very much in place. I think what we've had to do is modify the agreement because things are certainly taking longer in China to get product registered with the Chinese regulatory authorities. We had our -- the tech transfer team, our Head of Operations as well as our engineers over in January. And what we saw is we need to provide a greater level of support to get manufacturing up and running in China.

That has meant that, from a royalty perspective, it would be onerous to say the least to expect these people to make royalty payments without them being up and running in terms of being able to manufacture products. So we think we're probably 12 to 24 months away from being able to have product manufactured and registered in China for the Chinese market. But we still do see an opportunity in the nearer term, where we could manufacture product in China and essentially ship that back to the U.S. for use in the domestic market but mainly in the international market because all our resources are really focused on Nexus.

So we think it's an agreement that needs some modification. Obviously, tariffs had an impact on that agreement as well, increasing the costs. So with a new manufacturer, when profit becomes strained, I think you need to relook at the agreement. So I think it's something that we're in process, looking at it. We will engage with the partner, and we'll come up with a new solution in the coming months.

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Operator [10]

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And we'll take next, Ryan Zimmerman with BTIG.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [11]

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Great. Congrats, guys. A lot of a good change in the quarter here. Just want to discuss a few things. One, can we start with the Nexus launch a little bit? And I saw that you're going from soft launch to the full rollout. Can you elaborate on what that implies or what that means, Stavros, in terms of the full launch? How you're approaching that? How you're thinking about your pipeline? Any color there would be helpful. And then I have a follow-up on the sales force.

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [12]

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Sure. I think in terms of Nexus, we've adopted the approach that we would go slowly since this was the most significant launch the company's headed and really a young group of individuals after launching the product. So we went slowly. We've learned a lot about Nexus in the first couple of months.

That being said, I think, towards the middle of December, we really managed to get Nexus to every salesperson around the country, get them trained up, get them comfortable, get them into evaluation phase and also close really the first round of valuations and sites that we have targeted. So I think we ended the quarter with more than 50 Nexus units consigned and handpieces purchased. So that was really above expectations. We gave a number for the year of 150 units being in the pipeline.

We are confident as we now speed up the launch moving into January and being able to go faster and essentially go onto a national platform right now that will probably exceed the 150 units that we've targeted by June of this year. So, so far, early indications are positive.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [13]

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Great. And then I want to ask about the sales force productivity. You're adding anywhere from 30 to 40, I think, reps in 1 year total. You have, I think, 137, as you said, between the 2 divisions. So how do you think about the productivity of the sales force across those divisions that the implied math, and again you can split it out a bunch of different ways. You've looked at it just by surgical, just by wound. But I'd love to just get your thoughts around the productivity of the sales force by division and kind of what you're expecting as you put the Solsys acquisition behind you.

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [14]

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Yes. I think it's really a plan of 2 different groups. I think what we are seeing on the wound team is that we have people that have been in that position 4 to 5 years, in some instances. So we've got productivity rates from territories that are in excess of $1 million, some even $2 million-territories, but more than a handful that our competitor in excess of $1 million.

So I think if we look at an average basis, we're probably around $0.5 million mark on the wound team. And I think we can start putting in accurate metrics there as time goes on and a couple of more quarters of having SonicOne. Essentially, the wound team has really just got 2 quarters this year because we start the new financial year in July. So I think by July, we'll have a pretty good feel as to what the upside is adding SonicOne into that wound portfolio. So is that number 550 per person? Is it closer to 600? We'll probably have more of those metrics for you by the end of the financial year, by the end of June.

On the surgical side, I would say that team has a newer team, so the average there is less than $0.5 million by a pretty significant margin. But we've also just started with Nexus. So again, I wouldn't want to give you a number that's going to change dramatically. I think by June, once we've had 2 full quarters of the whole sales team selling Nexus, I'll have a better indication for you as to what that productivity rate is going to be.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [15]

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Okay. Fair enough. And then I don't want to leave Joe out here. So Joe, I just want to ask the impact of the CryoLife agreement on gross margins. How do we think about that as that becomes more material over time?

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Joseph P. Dwyer, Misonix, Inc. - CFO, Treasurer & Secretary [16]

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So the margins will be fairly consistent with what we currently have. So it'd be a little bit lower than 70%, and I think we pay a 5% royalty on top of that. So we don't expect any immediate revenue. We don't have it in our fiscal '20 guidance that would start rolling out in fiscal '21.

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Operator [17]

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(Operator Instructions) We'll move next to Kyle Rose with Canaccord.

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Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [18]

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So wanted to circle back on Nexus. Stavros, I appreciate the comments regarding the 50 units placed already. It sounds like you also noted the handpieces being purchased there. I wondered if you could just give us an idea as far as what kind of ordering patterns you're seeing from people with respect to those handpieces. Are you seeing them buying them both for neuro as well as orthopedic applications? Are they buying 2 handpieces, 4 handpieces? Just trying to understand that contribution.

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [19]

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Sure. Thanks, Kyle. Thanks for your questions. I think early days, what we're seeing is every system going up. So our customers are certainly ordering 2 handpieces. Roughly, we'd say that the neuro contribution is about 10% of the total 50 units that we put out there. The number's a little bit north of 50. But it's running at about 10% on the neuro side. So there's a lot of neuro evaluations that are going on -- that are ongoing at the moment. And I think what we're learning in the first couple of months is how we modify our approach to these evaluations. So right now, I would think that neuro will speed up over time. But I think that coming out of the gate, what we are seeing is really 2 handpieces, and those are generally BoneScalpel and wound-orientated.

And of the total base, I'd say the number is probably just a little bit north of 10%, early indications, where people add in neuro handpieces to that initial order as well.

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Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [20]

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Okay. And then maybe just a little more insight into the neuro evaluations that you're seeing. I think historically, you had mentioned a large account on the West Coast that had completed an evaluation. But what are you seeing from a timing of those evaluations? When -- if they turn positive, when do you expect to get a decision and have any impact on revenues? And then also, can you talk about the supply chain? Where are you from handpieces in a tips perspective from supply? And any constraints that you're still feeling in that area?

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [21]

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Sure. So I think what we're seeing on the neuro evaluations, there's a definite trend that neuro evaluations take longer. I would say a wound, a BoneScalpel evaluation, is probably anywhere from 6 weeks to 3 months and you complete. What we're seeing on the neuro side is the shortest evaluation seems to be 4 months.

The competitive situation that we've spoken about on the West Coast, I mean, we've completed our evaluations. One of the competitors is literally in the last parts of completing their evaluations, I think, at 2 starts, literally a handful of cases. So we were hoping to get a definitive answer by the end of January, but I think we'll have that probably in the next 2 to 3 weeks, definitely before the end of February. And we'll hear how everything has panned out there. But the initial feedback was very positive.

What we've seen is we need additional resources in the field, and we've been adding some people on the neuro side, from the specialist side to helping the sales reps because we've got to get our salespeople comfortable being in the neuro space.

From a timing perspective, what we are finding is that the salespeople are definitely spending a lot more idle hours around in the neuro cases because they're anywhere from 3 to 6 hours, whereas spine cases more than 1 hour or 2 and they're in and out, and they do multiple cases in 1 day. So what you're finding with the neuro evaluations that certainly take longer.

And where surgeons haven't used the Misonix technology before, they want to try it on a series of cases. So it's not like BoneScalpel where it's a couple of cases that gets done within 1 week. Sometimes it's over multiple weeks that you're coming back to see the surgeon. But so far, I think that's positive. It's given our people time to get comfortable in that neuro arena. And I think over time, as the confidence grows, so the success will grow in that area. But so far, so good on the neuro side.

In terms of the supply chain, I really break it down into 3 areas in terms of the console units. Our outsourced distribution partner has really been -- stood up and been able to produce what we've needed from a demand perspective. That's been very encouraging. In terms of the disposable packs, the tube sets and the tips, we've also had a lot of cooperation there from vendors. What we've seen, just pressure testing that has been good. Literally, a single line item has given us some issues where we have a unique process. On one of our MIS tips that we have outsourced to a single vendor, that has been a little bit of a pain point for us but a very, very small percentage of total business, like low single digits.

The handpieces, as I've said before, we are transitioning our existing team to be more focused on building and developing handpieces. So, so far, they are meeting demand. There is an excess capacity, but we're hoping to build capacity in the coming months that if we have to look at it from a back-order situation. I think every business has a small amount of back orders even the healthiest of business. But our back order is clearly a minuscule portion of total revenue and certainly manageable. So I think you will have seen that this quarter, we built a fair amount of additional stock. I think the number has gone up. Joe, is it 3 million, 4 million?

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Joseph P. Dwyer, Misonix, Inc. - CFO, Treasurer & Secretary [22]

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Right. Yes.

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [23]

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So I think we're certainly building capacity. The challenge is right now, we're not only supporting legacy Misonix, but we're also supporting Nexus. So we've literally had to double our production capability. So I think we've done that well. But it's not like we've got 6 months of stock on the shelf. I think over the coming months, we'll continue to build and then streamline. And as Nexus starts getting more momentum, we can cut back on some of the legacy products.

But I think short answer is, it's under control. It's not exactly where we want it yet, but I think it's no longer a pain point for the company.

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Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [24]

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Okay. Great. And then just 2 more questions for me, and then I'll hop back in queue. The first is, Joe, can you just break out the mix components with respect to the wound care side? I mean I understand that you're reporting on a consolidated basis. But just given we're in the first full quarter here, what was the wound contribution from Solsys relative to the underlying SonicOne business?

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Joseph P. Dwyer, Misonix, Inc. - CFO, Treasurer & Secretary [25]

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So we're not breaking out wound separately. I think if we look at the run rate of wound from what we had in our S-4 that we filed, it's probably in the tune of $8 million-something range from a revenue perspective, but we're not giving precise numbers on that. So just given the total wound altogether, which is $9.7 million for the quarter.

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Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [26]

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Okay. And then can you just -- from a housekeeping perspective, I think you've said 137 sales reps. Can you remind me what the breakdown between wound and surgical was?

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [27]

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Yes. 147, Kyle, is the exact number. And I would say it's at 65 on the surgical side and 82 on the wound side.

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Operator [28]

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That concludes the Q&A portion of the call. At this time, I will turn the call back over to management for closing remarks.

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Stavros George Vizirgianakis, Misonix, Inc. - CEO & Director [29]

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Thank you, operator, and thank you, everyone, for your participation in this afternoon's call. I'd like to take this opportunity to thank you all for the confidence you placed in us with your investment, and to extend a special thanks to the extremely talented and dedicated team members for their contributions to make Misonix a world-class company. We look forward to speaking with you again when we report fiscal 2020 third quarter results later this year.

Should any additional questions arise in the interim or if you'd like to schedule a formal meeting with management, please contact our Investor Relations firm, JCIR, at (212) 835-8500. Thank you, and goodbye.

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Operator [30]

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Thank you. That does conclude our conference call for today. We do thank you for your participation. You may now disconnect.