Alphatec Holdings Inc (ATEC) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. I'm Mark Francois, Senior Director of Investor Relations for Alphatec Spine. Thank you for joining us today for Alphatec Spine's conference call to discuss our second quarter 2013 financial and operating results.

Speaking today will be Les Cross, Alphatec's Chairman and Chief Executive Officer, Tom McLeer Senior Vice President of US Commercial Operations, and Mike O'Neill, Vice President and Chief Financial Officer. Also on the call today is Ebun Garner, our General Counsel.

During our prepared remarks, you'll be in a listen-only mode, and after our prepared remarks have concluded we'll open up the call for your questions.

As a reminder, this conference call is being recorded today, August 6th, 2013. A replay of the event will be available later today on our website and will remain there for the next 30 days or so.

Before I turn the call over to Les, I must remind you that today's conference call contains forward-looking statements made under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Such statements include statements related to the Company's revenue and adjusted EBITDA expectations for 2013, the success of the Company's initiatives to drive global sales growth, the ability to achieve surgeon conversions in connection with the Phygen acquisition, contributions to the Company's revenue and earnings in 2013 from the introduction of new products and sales and marketing strategies, the timing of US FDA and other foreign and domestic governmental agency decisions that impact the commercialization and distribution of our products.

These forward-looking statements are based on the Company's current expectations and are subject to a number of risks, uncertainties and assumptions that could cause actual results to materially differ from the forward-looking statements.

The Company undertakes no obligation to update any forward-looking statements, whether a result of new information, future events or otherwise. Many of these risks, uncertainties and assumptions are discussed in our 2012 Annual Report on Form 10-K for the year ended December 31st, 2012, which we filed on March 4th, 2013 with the Securities and Exchange Commission, as well as other filings on Form 10-Q and periodic filings on Form 8-K. Our security documents are readily available on our website at www.alphatecspine.com.

And with that, I'll turn the call over to Les.

Great. Thank you, Mark. Good day, everyone, and welcome to Alphatec Spine's conference call to discuss our second quarter financial and operating results.

We are very pleased to report another strong quarter for revenue growth for Alphatec Spine. Q2 2013 revenue totaled $51 million and represented nearly 6% growth over the second quarter of 2012, or almost 9% growth on a constant currency basis.

We achieved this result in spite of the second quarter -- misspeaking -- our second full quarter without the biologic product, PureGen, which together with the pull-through products -- the other products that were sold with it -- had been generating close to $2 million per quarter of the revenue prior to our decision to voluntarily remove the product. So, all in all, pretty good growth.

For the first half of 2013, revenues have totaled $101.5 million on a reported basis, trending well ahead of 2012 by about 5%, or almost 8% on a constant currency basis. This puts us solidly on track to achieve our full year 2013 revenue guidance of 2004 -- I mean, $204 million to $210 million on a constant currency basis.

While the spine market fundamentals appear to have stabilized somewhat, they still remain challenged by reduced implant pricing; diminished reimbursement for some products. However, in spite of this environment, Alphatec is succeeding, and grew its business in the second quarter.

The factors that have driven our success this year are as follows. Our international business continues to achieve strong revenue gains across all geographic channels -- this in spite of significant currency headwinds in certain territories. We are achieving solid implant sales increase and share gains in our core US hospital channels. We are accelerating surgeon adoption of and revenue growth of our new products.

The increased adoption of the innovative new minimally invasive surgery products in our ILLICO MIS family, are gaining traction in the market, and the market is rapidly moving towards MIS-type procedures.

And Alphatec is in the midst of a strong innovation cycle that has -- brought forward by the launch of several key new products, which has already been completed this year in some of the fastest-growing areas of the spine market. We expect full market launch of these products in the second half of the year. Tom will cover these new products in much more detail in a few moments.

With that as an introduction, I'll briefly cover our geographical businesses, which include our US and international performance in Q2, as well as a few other interesting general topics.

Similar to last quarter, our international business drove our second quarter sales growth. We had exceptional growth in Japan, Europe, Asia/Pacific, Latin America, Middle East, and Africa -- in other words, everywhere. Our overall international business operation totaled $18.5 million, representing a 21% growth as reported, and over a 30% growth on a constant currency basis.

In fact, excluding the impact of the foreign currency conversion, our 2013 Q2 revenues represented a record for the Company.

Japan continues to represent our largest international business, and this is driven by our ILLICO MIS products and the recent approval of our new Novel interbody devices that happened late last year. In the second quarter, Japan grew 5.9% on a reported basis, but almost 30% on a constant currency basis. This is an incredible result, and our hats are off to the entire Japanese team for another excellent quarter.

Overall, we are extremely pleased with our international results, which in the second quarter represented over 36% of our Q2 total revenues. We truly are a global Company. And we look forward to this momentum carrying through the secondary half of the year.

We also look forward to receiving key product registrations approval in Brazil, China, and other certain Asian/Pacific geographies in the second half of 2013, and this should further benefit our international revenue growth in 2014.

Our US business has remained flat year over year for both the second and third quarter of the year. However, we are encouraged by the continued unit sales gains we are making within our core hospital business, which is benefiting from the increased surgeon adoption of our products, and from our new product introductions. In the second quarter, unit sales to US hospitals grew 10.2% year over year, and 6.2% over Q1, the first quarter of this year. This suggests we are gaining share in this important channel.

Another bright spot in our Q2 US business was the increased adoption by our Phygen members. We continue to believe that Phygen and its network of over 100 leading US spine surgeons, represents a significant growth opportunity for Alphatec in 2013 and beyond.

I would now like to provide a quick status update on our PODs distribution. As has been the case for more than a year, sales to PODS have represented a small and shrinking component of Alphatec's revenue. And the second quarter of this year was no different. We tend -- we continue to manage our internal distribution policies regarding PODs in a manner to remain compliant with all laws.

Currently, we have only distribution relationship with two PODS. These organizations have voluntarily met with the OIG and the Senate Finance Committee to discuss their respective business models. In addition, each of these organizations has agreed to have an independent law firm selected by us, Alphatec, review their business model and practices to ensure that they are in compliance with the applicable laws and regulations.

So, with that discussion out of the way, it is clear, through the first half of the year, that we are having success even in the challenging spine market.

On top of this, I'm very pleased to report that our US facilities, which include our manufacturing facilities, were inspected by the FDA in the second quarter. After a week-long site inspection, the FDA left without issuing a single observation -- a true testament to the sophistication or our manufacturing, R&D, quality, and regulatory compliance teams. I am extremely proud of these groups and all Alphatec employees, for delivering another excellent quarter, and helping transform Alphatec Spine into a true world-class organization.

At this time I would like to invite Tom McLeer, our Senior VP of US Commercial Operations, to provide additional color around our US commercial strategy. Tom?

Thanks, Les. Technology will continue to be a key driver in our revenue growth. This includes major upgrades to our existing product portfolio as well as new game-changing options for our surgeon customers.

This past June, we conducted a successful and well-attended Technology Day in New York City that showcased the depth of our product line-up, including our newest technology innovations.

Our ILLICO MIS System was recently enhanced with the release of our ILLICO Multi-Level Instrumentation for longer constructs, and it continues to gain market share among the growing community of surgeons who are embracing minimally invasive surgery techniques to improve patient outcomes.

The ILLICO MIS products enjoy strong year-over-year increases in both units and dollars, and is becoming a larger component of our US business. We attribute this to having developed excellent technology and products in concert with ongoing surgeon training on MIS techniques. MIS will continue to be a core focus of our R&D efforts.

Likewise, our Zodiac DVR Deformity System has enhanced our deformity offering by providing the surgeon with additional options the correction of spinal deformities. This has allowed us to expand our customer base and become a more attractive option for longer deformity constructs.

We are pleased with surgeon adoption from the beta launch of Alphatec Solus in Q2. Alphatec Solus is a unique and patented anchored ALIF device that provides four points of fixation and is deployed using a single zero axis step. Surgeons continue to be impressed with Alphatec Solus' quick and easy implantation, which is intended to yield benefits to patient outcomes and hospital costs.

Recent biomechanical studies that will be released in the near future, will show the performance of the product when used in conjunction with our ILLICO FS and BridgePoint products.

As we mentioned last quarter, our new anchored anterior cervical fusion device, which is named Pegasus, encountered a minor instrument issue, which we believe has been resolved. We feel that Pegasus offers significant advantages over currently-available products. Pegasus anchors are designed to be smoothly deployed using the insertion tool, while other products' blades are deployed using a hammer to impact them.

In addition, we believe Pegasus technology is superior in that surgeons have the ability to retract the anchors intraoperatively if needed to reposition the implant. We expect to see full market launches of both Alphatec Solus and Pegasus in the second half of 2013.

Our biologics products continue to support our implant sales, and Alphatec NEXoss continues to grow nicely. This product consists of nanostructured HA granules and an open collagen structure that we believe provides the surgeon one of the most advanced synthetic options on the market. With an expanding variety of sizes and delivery options, we believe our biologics offering will continue to grow throughout the year.

ProFuse has also rebounded nicely after our voluntary withdrawal of PureGen from the marketplace. We have expanded our product offering, and in conjunction with our proprietary VIP packaging, which allows for enhanced infusion of cells and bone marrow, we continue to gain new customers in the marketplace.

We look forward to continuing to provide advanced technology and innovation to the marketplace. The momentum we are generation with these products, should allow us to continue to provide new solutions for our surgeon customers.

With that, I'd now like to turn the call over to Mike for a discussion of our first quarter financial results.

Thank you, Tom. The following remarks are related to our reported operating performance for the second quarter ended June 30th, 2013.

Considering the ongoing challenges in the spine market, revenue growth in the second quarter and the first six months of 2013 has been noteworthy among spine companies.

Gross profit for Q2 2013 was $32.1 million, or 62.9% of revenue, compared to $30.2 million, or 62.6% of revenue in Q2 2012; and was impacted by both price and regional mix.

Similar to Q1 this year, Q2 '13 year-over-year declines in US hospital pricing were higher than the typically low to mid single-digit declines that we experienced throughout 2012, rising to mid single digits. Sequentially from Q1 '13, however, pricing was flat.

As mentioned, gross margin was also impacted by regional sales mix in the second quarter. With robust growth in our international businesses and with international revenue typically carrying a lower gross margin, our consolidated gross margins declined accordingly.

Additionally, gross profit in the second quarter and first quarters of 2013 were each reduced by about $1 million or 200 basis points, for the amortization of a licensed intangible asset as part of the Cross Medical settlement, which we have described in our prior results.

While we now have parity year over year, we will still highlight the quarterly amortization charge and the impact it has on our gross margin expansion.

US gross margin was 67.6% in Q2 '13 compared to 68.6% in Q2 of '12, and was primarily driven by price impacts, more than offsetting the favorable product mix from reduced biologics revenue.

We believe that the larger part of our business that will be exposed to contract renegotiations in 2013, are now behind us; and as our new product launches such as Alphatec Solus, Pegasus, and ILLICO ML, are deployed into the market, we expect to be generating higher average selling prices than our current base business. Combined with a focus on increasing the revenue per procedure in general, our expectation is to compensate for some of these pricing impacts.

Our international gross profit improved by $2.5 million in Q2 '13 versus Q2 '12. Our international gross margin improved substantially from 49.6% to 54.6%, and was driven by a positive regional mix within the group of 120 basis points, and improved cost of goods sold at 380 basis points.

The cost improvement reflects continued progress in managing our global supply chain activities and inventory management as we transition more of the business to the Alphatec product lines.

Overall, the combined impacts of US pricing and regional mix have accounted for approximately $1.4 million or 260 basis points of gross profit and gross margin, against our internal expectations for the second quarter.

While perhaps not as visible in the P&L, I would like to highlight some of the operating improvements associated with our ongoing lean initiatives in our Carlsbad facility. Specifically, we have seen multi-million-dollar reductions in the inventory levels of our core technology platforms. In addition, work in process has been reduced from $2 million 18 months ago to $600,000 in Q2 of '13.

At the same time, back orders at the end of each month have been reduced from 200 individual SKUs to less than 20, with only one or two of that population being our high-volume products.

The time it takes to complete a work order within manufacturing has been reduced by a factor of five, by introducing a [combined] customer demand pull system in conjunction with dedicated manufacturing work cells. We are systematically improving efficiencies and effectiveness across our manufacturing and quality operations, resulting in greater flexibility and responsiveness, and we hope to see continuing improvements flowing into our underlying manufacturing costs. While not world-class yet, we believe we are clearly well on our way.

Total operating expenses for Q2 2013 were $35 million, an increase of $1 million compared to the prior year of $33.9 million. Q2 of 2013 expenses were impacted by higher legal expenses for ongoing litigation matters. We have also absorbed the entire operating costs of the Phygen business within our existing infrastructure, and are working towards delivering against the promise of profitable accretive growth in the P&L.

Adjusted EBITDA, a measure we guide to, was $4.9 million in the second quarter of 2013, or 9.6% of revenues, compared to $2.7 million, or 5.7% of revenues reported for the second quarter of 2012. Please note that the adjusted EBITDA was influenced by the gross profit impacts indicated earlier, and the currency exchange impact of the Japanese yen on our profitable subsidiary in Japan.

Adjusted EBITDA represents net income or loss, excluding the effects of interest, taxes, depreciation, amortization, stock-based compensation, and other nonrecurring items such as restructuring expenses, IP, R&D, and transaction-related expenses.

GAAP net loss for the second quarter of 2013 was $4.7 million, or negative $0.05 per share, compared to a net loss of $6.4 million or negative $0.08 per share for the second quarter of 2012.

Adjusted EPS was negative $0.01 for both Q2 '13 and Q2 '12. Cash and cash equivalents were $12.9 million at June 30th, 2013, reflecting payments totaling $4 million to Phygen in Q2 of '13, and $2 million to Cross Medical in the first six months of 2013, part of the settlement discussed above.

Operating cash flow was positive $2.5 million year-to-date. The Company is currently in the process of seeking to increase its debt capacity to ensure that we can continue to add accretive technologies and businesses to our existing portfolio, on top of our normal operating cash needs.

As of June 30th, 2013, our net inventory position was $50.6 million, an increase of approximately $800,000 versus Q4 of '12, and the increase being primarily related to our new product launches. Our net accounts receivable at the end of Q2 '13 was $41 million, which is flat compared to Q4 of '12 and an increase of $300,000 as compared to Q1 of '13.

Accounts receivable performance has been a function of our continued diligence with respect to collections, and I want to reinforce that we are not seeing any meaningful deterioration in days sales outstanding on a global basis.

The Company continues to expect revenue for 2013 to be in a range of between $204 and $210 million on a constant currency basis, or approximately 4% to 7% growth over 2012.

The significant devaluation of the Japanese yen has impacted our first quarter business by over $1 million and our second quarter by over $1.6 million, and with the expectation that the yen's exchange rate will not substantially improve in 2013, the aggregate revenue impact in the remainder of 2013 could potentially be as high as $3 million.

To provide a little more color on guidance, as we indicated at the end of Q1, we anticipate seeing the contributions from new products in the US that Tom discussed earlier. With continued surgeon conversions and strong ongoing commercial operations internationally, we believe we can continue to drive our business forward and offset some of the price and mix effects that we have experienced in the first half of the year.

As a result, we are maintaining our revenue guidance on a constant currency basis. Similarly, we are maintaining our adjusted EBITDA guidance, which should be in the range of $24 million to $27 million, or approximately 21% to 36% growth over 2012, and representing approximately 12% to 13% of revenue. As previously stated, this guidance assumes only modest contributions from PureGen that have been realized earlier in the year.

Now, I'd like to turn the call back over to Les.

Great. Good job. Thank you, Mike. As we entered 2013, our theme was execution, and we have certainly accomplished this through the first half of the year, and will continue to remain focused on it for the remainder of the year.

We expect the global spine markets to remain choppy, with continued price and reimbursement pressure. However, with only a modest market share, our strategy to deliver continuous flow of new products, reduce our cost in working capital, strengthen our global commercial operations -- this should enable Alphatec to deliver the planned results that Mike just talked about.

I would like to, again, thank all Alphatec Spine stakeholders, especially our employees, who are persevering to make Alphatec Spine a stronger Company that delivers greater value to all stakeholders, and really delivers world-class experience to our customers.

Finally, I'd like to thank Mark. Mark is leaving us today to seek new career outside -- I think he's going to be a real estate landlord down on the beach or something. Mark, thank you for all your years of help with our investor relations.

No worries. Thank you, Les.

And you have our -- to everyone on the phone, you have our commitment that Alphatec Spine will remain dedicated to conducting our business with a sense of urgency, accountability, and in search of excellence. Thank you, everyone.

Karen, let's open the call up for questions, please.

(Operator Instructions). Josh Jennings, Cowan and Company.

Congratulations on such a strong international performance. My first question is on the US business. I was wondering if you could just help delineate or define a pathway to incremental growth there. I know the Phygen -- the PureGen issue, and a tough comp with that being excluded, and the $1 million or so in the revenue in the quarter that's lost out. But can you talk about, kind of, your path to return to stronger growth trends in the US with new products, and any other incremental drivers there?

Sure. Absolutely. This is Tom. I think a lot of it comes down to the new products we've just launched. When we talk about Solus and Pegasus, those were launched, and then we had a little modification to Pegasus near the very end of the quarter.

So, we're going quite well here in July. We are still seeing some pricing pressures, but that along with the ILLICO MIS and deformity extensions that we have, are really helping us a lot. And then as Les mentioned, Phygen is coming along very nicely.

And can you give any incremental color on Phygen in the US in Q2 versus Q1, and what are your expectations, you know, in the back half of the year for Phygen in terms of picking up?

Yes. No. Phygen -- I think we said, we got off to a slow start. We talked about that last quarter. We've now fully integrated the business. It's all running here out of Carlsbad. Business is accelerating at a good clip and we expect to be, you know, in line with the guidance we originally gave when the year started, of around $15 million contributions.

Hey, Josh, this is Mike. One of the aspects is that, now that the business is completely integrated within Alphatec, we're invoicing all institutions the same. So, the complete delineation is actually a bit of a challenge. But to Les's point, you know, we're back on track with surgeon adoption. We're fully integrated in the Company. And certainly, we feel that we'll be able to get back to the numbers that we originally communicated as part of the transaction.

Great. And last question, just -- there have been a number of product approvals in the motion preservation product lines for cervical. Do you see that as a threat to your core cervical fusion business going forward? And how are you approaching that threat? Thanks.

Yes. No. I don't see it as a big threat now. I think some of it depends on the insurance reimbursement and, you know, there's still significant interest in the motion preservation in the cervical spine. But I think our product offering right now in the cervical area, and given our market share, we have plenty of room to grow without that really impacting us.

Matt Miksic, Piper Jaffray.

Just one -- there's been some questions throughout the quarter, other companies in spine kind of giving their perspectives on the POD environment out there after the OIG language. I -- sorry if you made a comment on this already; but can you give us a sense as to whether, in your opinion, the sort of progress proliferation of those structures has kind of slowed, or stopped, or continued at a slower rate, or whether it's actually reversing, and you're seeing any meaningful change in the industry yet? Just love to get your perspective. And then I have a couple of quick follow-ups.

Yes. The answer to that is yes. You know, we're seeing a lot of PODs disappearing. Believe it or not, there are still some PODs appearing. But certainly from our perspective, we said in the call, we have been doing less and less business with PODs. It's never been a significant part of our business, no matter what anybody says. We're down now to two POD customers only. The rest have either gone away or have transferred to normal distributors.

So, we only have two left, both of who have a unique business model that they have actually shared in Washington; and we're also verifying that through an independent law firm. So, I think the market definitely is changing. They are going away.

Yes. I think I'd also add -- this is Tom -- that hospitals now, in some cases, are no longer having any interest in dealing with PODs. So, that by itself will eliminate a lot of PODs, just because they won't have the hospital to sell to any more. So, if that continues to evolve, then you'll see this decrease occur even more rapidly.

That's helpful. And then just one, maybe, on what you see as the environment for sales reps. It's -- one of the challenges in this industry, is finding the right people. With the momentum you're building, are you finding any change in the dynamics in your ability to attract new reps? Product pipeline, maybe?

I think, actually, in our case, having the new technology flowing through, which we talked about a little earlier, has given us the opportunity to attract better distribution. As you know, we don't use direct reps unless we have a direct-to-hospital situation or something like that. But we're very flexible in our distribution model.

So, with the new technology coming up, it's very competitive. We're getting access to some other better-quality distributors out there, which in turn means they have much better sales representation.

And then just -- finally, just a quick one on price. Maybe if you could give us an update as to where sort of price and payer pressure have been, and in your conversations with surgeons, just sort of your view from where you stand in the market, that would be very helpful.

Yes. I don't know as far as the surgeons and the -- they're seeing more pressure on the reimbursement side, with longer conservative care; a lot of pushback just on fusions in general, particularly for DDD. So, that's what they're concerned about, is getting their -- patients that they feel need surgery, in the queue to actually do it. So, that's the pushback they're seeing from the pricing standpoint. Mike, do you -- ?

No. I mean, I think, as we -- as I said in some of the earlier commentary, I mean, Q1 clearly was a change for us relative to '12. Q2 was a little softer. But we've also gone through a fair number of renegotiations.

And so, I think the important thing is that we believe a lot of the pricing hits that we took in the first half, are going to be moderated as we go into the second half. Obviously, there's no guarantees of that. But I think the pricing for us -- I think the first half of the year is where we took some pretty sizeable lumps.

Thanks very much.

Mark Landy, Summer Street.

Congratulations on the good quarter. For -- maybe it's a backhanded question but, you know, (inaudible) situation with PODs are not now an opportunity? You've brought Phygen in. You're kind of learning your way through that model. How many PODs are out there, do you think, that exist, that may be, you know, [similar] situation with these guys -- just want to give up, given what's happening. I mean, is it feasible to go out and look for them and bring them into the fold?

Well, that's a definite possibility. I mean, as these PODs are transitioning -- which they're all -- you know, all of the professionally run PODs are looking to transition their business models one way or another. And certainly, if there's a way for us to take advantage of that, we would -- you know, at a reasonable price, we would absolutely do so.

Les, will there be any pure geography there that would make more sense, given the litigation, or kind of the pressure from government, or is it just generally throughout the country?

Oh, I think it's throughout the country. But PODs are concentrated a lot in the West and the Southwest. But, no. I think everyone across the country understands that the day of PODs is numbered, in most business models. I think there might be one or two business models that might survive; but I think all professionally-run PODs are seriously looking at their business models today.

Mike, what was the med device excise tax in the quarter?

So, we actually -- most companies are work -- are operating around 2.3%. We're less than 2% at this point, [basis] the -- how we look at manufacturing versus marketing. It shows up in operating expenses. It doesn't show up in gross profit.

Because of our international, it's low.

It's -- yes. It's just based on the US business, obviously.

And then kind of, as you've seen this tremendous growth internationally, is there any opportunity to look at perhaps strategies to offset some of the pressure on gross margins? Perhaps maybe manufacturing OUS, or something along those lines, given that you have good footprints in the international markets. Unfortunately, the pricing in some of those markets is difficult.

Yes. I -- you know, we're committed to our manufacturing organization here. They really are turning rapidly into a true world-class operation. But some of the products that we outsource, it would make sense. And by that I mean, you know, trays and instruments and things. To really look to partner outside the country, to reduce the cost of those.

So, I think that's where you can see us focus more, is trying to reduce the cost. We spend about $10 million on instruments and trays. And so, the factory here is doing an excellent job. I would like to cut that by 25% or something. So, that's really our focus.

And I guess just a last one. Mike, do you think that you can, through lean and all of the manufacturing programs that you've got ongoing -- do you think that you could get to a point where you can handle some of the compression on gross margin -- internally caused that? Or is that too much of an ask?

No. I think the -- you know, obviously, part of the commentary there, was to highlight a lot of the activities that we see internally, and to provide some color for you as you think about the opportunity for cost of goods sold. We have plenty of physical space in the facility and we have opportunities to continue to drive lean.

You know, we're -- lean's a journey for us, and we're still -- while we're making good progress, we're not fully deployed. So, I still believe there's opportunities for us to continue to see benefits for our US-source products that actually benefit both US margins as well as international margins as well. For -- and I think there's a fair amount of runway there for the next couple of years.

I guess if I ask you for what your yields and scrap are right now, and what they would be next year, you'd probably laugh at me?

Yes. I probably wouldn't want to get into that level of detail right now.

Okay. Fair enough. Thanks, guys; and again, congratulations.

(Operator Instructions). Bill Plovanic, Canaccord.

So -- couple of questions. Help me do the math on this, Mike. Your unit volume in the US was up 10% and your pricing was down 5%. You've picked up the Phygen, which more than offset the biologics; but you were actually down year over year in the US. And I'm just trying to figure out what -- there had to be another headwind in there somewhere. And what is it?

So, it is very simplistic to start thinking about taking the math and working through the units and the pricing. The 10.25 unit growth was specific to our hospital metal implant. Pricing was overall hospital pricing. But we're down, as we had planned, in terms of our stocking POD business.

And so, you know, you've got to look at our US business as a function of our core hospitals, biologics, and stocking. And each one's got its own dynamic. Biologics was down because we lost PureGen, and we also lost some carry -- some spillover products there. Stocking was down because we are clearly down, now, to just a couple of PODs. And our overall US business -- volume was up, principally driven on surgeon adoption; a little bit from new products; and we took a little bit on price as well.

But, for example, we're also up 6% in unit volume sequentially, Q2 over Q1. So, you have to break it down by the components as opposed to say, volume's up 10%; price is down 5%; why aren't you up by 5%? It's not just as simple as that.

So, I mean -- and if I remember, did you say that biologics overall was down $1 million year over year?

Yes. Biologics is down over $1 million year over year; but that's because you've got PureGen and the pull-through on PureGen last year, that you don't have in Q2 of this year.

And the spillover from the --

Excluding that, our biologics business is up.

So, in -- you know, if I don't -- what -- your POD business, I think, at one time, was sometimes some point between, like, 5% and 10% of revenues. What -- just to help us understand, because obviously this is a headwind, and this will dissipate and go away, and we'll get to see the organic growth of the US business. Where is that POD business today as a percentage of your US revenues?

It's less than 5% of the US. It's less than 3% of our global business. And it's down substantially year over year and quarter over quarter.

Okay. So, that is the delta I'm looking for. I'm just trying to figure out -- so, as we think about the business going forward, obviously that's no longer going to be in the business. And the two PODs that you have remaining -- you know, what are the odds that they remain customers?

I don't really want to handicap that. I think, as Les pointed out in our prepared remarks, that both of those have agreed to a review by counsel picked by us. I can't hypothesize on what that would be.

Okay. Based on the discussions they've had in Washington, that their attorneys have represented to us -- if that is the case, then I would expect to continue to do business with them. You know --

What I'm trying to get to, Les, is to maybe have another $1 million at risk that could go away. You probably lost $1 million or two, with all the rest of the PODs going away. But it gives us what the base is to move off of, going forward, and with the incremental Phygen. I'm just trying to figure out where the base is.

Yes. No. I think that makes sense.

Yes. You're not far off.

And then my second question, just on Japan -- I think -- you know, that was up by 30%, including the impact of the yen. Is -- did I catch that correctly?

No, that was the operational increase. It's up 5% as reported. I think I got those numbers right.

Okay. And then -- and so, I guess my question there is, I mean, 30% operationally is huge. Is that sustainable, or is that stocking, or what is that? Because that's a pretty big business for you?

It is a pretty big business for us. Couple of things here is that, you know, ILLICO SE -- and obviously, Japan is a big minimally invasive market -- ILLICO SE is doing tremendously well. We have a significant amount of surgeon training that goes on, and they're exclusively interested in minimally invasive. We also have recently received approval and have launched Novel PEEK interbodies in Japan.

So, we are -- we have a good cadence of product approvals in Japan, and a pretty rigorous discipline about making the most of the opportunities that are there. So, we -- go ahead, Les.

Yes, that's true. And then the rest of the world, as we highlighted in the call -- you know, if you remember back, the Company acquired Scient'x. And Scient'x, being a French company, had a great global footprint.

And I will say that the team is really doing an excellent job of leveraging that footprint. It's a massive -- compared to my experience, they have a massive global footprint of customers, and they're doing very well leveraging them.

But some of them in the major markets are still selling old Scient'x products, awaiting approval of our products. And we expect both China and Brazil to make significant progress on getting approvals towards the end of the year.

So, I think there's a lot of upside in the international business still. I know it sounds amazing, with those numbers. Australia is just getting fired up. Japan -- as I say, Japan will continue now with the interbody approvals. So, we think the international business can continue to remain strong.

Okay. And then my last thing is just, say goodbye and thank you to Mark for being the IR guy for three of my coverage companies over a 17-year span. I wish you the best of luck, Mark.

Thanks, buddy. We appreciate it.

All right. With -- no further questions, Operator?

Yes, sir. We have no further questions in the queue at this time.

Great. Well, Karen, thank you, and thank you for everyone that participated. We look forward to getting back to you all and updating you on next quarter's results. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.