Conformis Inc (CFMS) 2018 Q1 法說會逐字稿

Good afternoon. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the ConforMIS First Quarter 2018 Earnings Conference Call. (Operator Instructions) Before we begin, I would like to remind you that the management will make statements during this call that include forward-looking statements within the meaning of the federal securities law, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be considered to be forward-looking statements. All forward-looking statements, including, without limitation, statements about ConforMIS' strategy, future operations, future financial position and results, gross margin, product margin, operating trends, financial guidance, market growth, total revenue and revenue mix by product and geography, the anticipated timing of the limited launch of our hip product offering, the potential impact and advantages of using customized implants, business initiatives and transitions in our commercial operations are based upon current estimates and various assumptions.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by those forward-looking statements, including those discussed in the Risk Factors section of ConforMIS' public filings with the Securities and Exchange Commission. Accordingly, you should not place undue reliance on these forward-looking statements. While ConforMIS may elect to update these forward-looking statements at some point in the future, ConforMIS disclaims any obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 2, 2018.

I will now turn the call over to Mark Augusti, the company's President and Chief Executive Officer. Mark?

Thank you, operator, and welcome, everyone, to ConforMIS' First Quarter 2018 Earnings Conference Call. With me on the call today is our CFO, Paul Weiner. During the call, Paul and I will share our prepared remarks on a variety of topics, including our first quarter financial and operating performance. Following the prepared remarks, Paul and I look forward to answering your questions.

We are pleased with our first quarter results. From a commercial perspective, although we continue to face reimbursement challenges in Germany, we do have good news relating to Cigna reimbursement coverage in the U.S. that we'll share later in the call. Importantly, our vertical integration and operational initiatives are driving our gross margin performance. We continue to manage our expenses appropriately, and I am also pleased to report that we are on track for a limited hip arthroplasty launch in the second half of this year.

We saw further good clinical results published in the Beyond Compliance report based on data collected through the National Joint Registry for the U.K. The data shows that patients treated with the ConforMIS iTotal CR knee implant experienced a cumulative revision rate of 0.5% at 4 years compared to 1.9% cumulative revision rate at the same time point among all patients in the National Joint Registry who underwent knee replacement.

With that, let me turn the call over to Paul for a detailed review of our first quarter 2018 financial results. Paul?

Thank you, Mark, and thank you all for joining us. We reported first quarter revenue of $19.7 million, representing a decline of 4% or $799,000 year-over-year on a reported basis. Excluding the positive impact of changes in foreign currency exchange rates of $385,000, revenue declined 6% on a constant currency basis. Revenue in the first quarter of 2018 and 2017 includes royalty revenue of $173,000 and $76,000, respectively, related to patent license agreements. First quarter product revenue was $19.5 million, representing a decline of 4% or $896,000 year-over-year on a reported basis and 6% on a constant-currency basis.

Sales of iTotal PS increased $655,000 to $5.9 million or 13% year-over-year on a reported basis and 12% on a constant-currency basis. Sales of the iTotal CR, iDuo and iUni declined $1.6 million to $13.6 million or 10% year-over-year on a reported basis and 12% on a constant currency basis. iTotal PS represented approximately 30% of total product revenue in the first quarter of 2018 compared to approximately $25,000 for the same quarter last year -- 25%. U.S. product revenue represented -- remained consistent at $16 million year-over-year. U.S. product revenue was driven by sales of our iTotal PS, which increased 10% year-over-year, offset by a 4% year-over-year decline in sales of the base business product lines. First quarter U.S. product revenue represented 82% of total product revenue compared to 78% from the same quarter last year.

Rest of World product revenue was $3.5 million, a decline of $959,000 or 22% year-over-year on a reported basis and 30% on a constant currency basis. Rest of World product revenue was affected by sales of the base business product lines, including the Germany partial knee reimbursement rate change and weakness in our iTotal CR sales.

Turning to a review of our results across the rest of the P&L. First quarter gross margin was 48 -- 45% of revenue compared to 32% of revenue last year, a 1,300 basis point increase. The increase in gross margin year-over-year was driven mostly by cost reductions as a result of vertical integration and manufacturing efficiencies as well as a 200 basis point favorable foreign exchange currency impact and 100 basis points of higher average selling prices

Gross margin improvement has been a point of emphasis, and we continue to see the positive impact from the hard work that has gone into the cost-reduction programs. We are starting to see the positive impact from the completion of the vertical integration of the iTotal CS poly inserts. We continue to make significant progress with the development of new processes for the 3D printing of our patient-specific instruments, resulting in print cycle time reductions and lower powder utilization. Our plan to offshore some of our CAD design work as well as our continued improvements in design software and CAD automation should continue to provide additional gross margin expansion. We continue to experience substantial progress in our cost-reduction programs, which we believe will yield further gross margin improvement as we move forward. First quarter operating expenses decreased $2.6 million to $21.2 million, or 11% year-over-year.

The decrease in operating expenses was driven primarily by lower general and administrative costs due primarily to a reduction in patent litigation expense, strategic consultant expense, severance, business insurance expense and other administrative expenses and lower sales and marketing costs due to a decrease in personnel costs.

Net loss was $12 million or $0.22 per share compared to $17.2 million or $0.40 per share for the same period last year. Net loss per basic share calculations assume weighted average basic shares outstanding of 54.7 million for the first quarter of 2018 compared to 42.9 million for the same period last year. As of March 31, 2018, we had cash and cash equivalents and investments totaling $57.3 million compared to $45.2 million as of December 31, 2017.

As previously announced, in January, we closed our follow-on public offering, in which the company received $23 million in gross proceeds or $21.6 million in net proceeds. First quarter change in cash and cash equivalents and investments, excluding proceeds from the follow-on offering, was $9.3 million.

With that, I'll turn the call back to Mark.

Thanks, Paul. As I laid out last quarter, we have 3 operational objectives for 2018: meeting our top line revenue guidance, continuing to improve our gross margin and successful limited launch of our ConforMIS Hip System later this year.

Regarding commercial execution, as mentioned, we continue to face reimbursement challenges in Germany. We are working within the German system to better establish our health economic story and to stabilize the reimbursement environment for ConforMIS. However, for the rest of 2018, I see the business remaining under pressure and struggling to deliver growth as we give in our guidance.

In the U.S., though, I'm pleased to report that after learning about our health economics, Cigna has updated their medical coverage policy to include ConforMIS technology, including the coverage of both the CT scan and the implant procedure. We anticipate that it'll take some time for to Cigna to operationalize the new policy within their systems. Our U.S. commercial team will continue to educate their physician offices about coverage policies in their area.

Moving on. We had previously detailed much of our gross margin activity. Our performance in Q1 gives me increased confidence in achieving our longer-term aspirational goals of greater than 60% gross margin. I appreciate the significant progress the operational teams at ConforMIS are making in this area.

As I mentioned earlier, our ConforMIS Hip System remains on track for a limited launch in the second half of this year. I would like to acknowledge the incredible effort the ConforMIS team is making towards this anticipated launch. In addition, I would like to report that I am personally pleased with the level of surgeon interest we are generating around our total hip product offering.

Finally, just as information, our next-generation iUni partial and iTotal knee replacement systems do remain on track for a limited launch next year.

As we discussed in February, and as mentioned earlier by Paul, we did successfully conclude a follow-on offering in Q1. The cash we raised gives us additional runway to execute on our commercial strategy and continue our gross margin expansion as well as to explore other strategic opportunities.

That's all the comments I have for now. I look forward to answering any questions you may have about our business and the Q1 results. Thank you. Operator, with that, back to you.

(Operator Instructions) Our first question comes from Robbie Marcus of JPMorgan.

This is Christian on for Robbie. Maybe the first question, on gross margin. The 45% in the quarter came in better than, I think, The Street was modeling. I think you mentioned 200 basis points of that was driven by FX. But how do you guide The Street and investors to think about margins on the nearer term, exiting 2018? And what were the main factors that you had progression on under the vertical integration process in the quarter that was better this quarter than you've seen throughout 2017?

Yes. So yes, like you said, of the 45% of gross margin that we had in the quarter, it was favorably impacted by the 200 basis points in foreign exchange as well as about 100 basis points in favorable average selling prices this quarter. We can't count on the average selling prices continuing to stay high. It does -- it is variable on a quarterly basis. So we still -- we do feel very comfortable with our guidance that we gave for the year of 44% to 46%. We're looking to leave this year at 50% level, and we're certainly holding to that guidance. And as far as the improvements that we've gotten in our gross margins in this quarter, there's a number of initiatives that we're doing with efficiencies throughout our manufacturing process, and they're all pretty much on target, if not a little bit ahead. And one of the impacts that we had that was probably the most favorable for this particular quarter was the iTotal PS poly inserts. So last year, we had completely brought in-house our iTotal CR poly inserts, and that started to positively affect us in the second half of last year. And that's why we had the positive impact there. The iTotal PS poly inserts were 100% in-house by the end of last year. We figured, working through inventory, it would take us till the second quarter to get the impact of the PS, and we still believe we'll get the full impact in the second quarter on that. But in the first quarter, we actually started to get some positive impact from that as well.

Great. And then maybe to touch on the positive Cigna reimbursement announcement. It sounded like you were reiterating the guidance that you gave for the full year, in the fourth quarter or in January. But I didn't see it especially in the press release. Does the Cigna reimbursement decision change your outlook for 2018? And then how -- what's the best way to think about the contribution of that revenue stream going forward?

Yes, no, I think that's an obvious question, Robbie. This is Mark, I appreciate the question. At this point, it doesn't change our outlook. I feel like our revenue guidance is still fine. It's going to take a little while for them to operationalize the changes, and this is very similar to the challenge we had. They made the change in -- early in the first quarter last year, and it took them months -- multiple months to operationalize that change back then. And we're seeing the same thing here. It takes a little while to get the message. So we're going to be moderate as to where we're at. We still have to work. And the thing I would remind people is, if you guys know who are experts in following the orthopedic industry, if you lose some business for whatever reason, it's always a little longer to get it back. So look, we're very pleased. I think we can all probably count on one hand the number of times you're actually able to reverse a policy change in a matter of a year. So this is good news. But I think it's going to take a little bit here till we see it at the top line. But it certainly won't be a drag going forward, which I'm very pleased about.

Our next question comes from Larry Biegelsen of Wells Fargo.

I guess -- it's Adam Maeder on for Larry. I guess, just first, I wanted to clarify, so the previous guidance of $79 million to $83 million, that still stands? I think it's 2% to 7% constant currency growth. And then in terms of the sequential ramp for the remainder of the year, just wondering how we should think about that. Is it fair to maybe think mid- to high single-digit growth in Q2 and Q4 and then maybe a low to mid-teens in Q3 just given that the comp is easier in the third quarter?

Yes. We still -- our guidance stands at the $79 million, $83 million like you talked about as far as the product revenue is concerned. And as far as -- we didn't -- we don't really talk about our quarterly -- guidance on a quarterly basis. But if you look at historically how we fared, the first 3 quarters, generally, are relative -- generally relatively similar as far as seasonality. And then in the fourth quarter we have a step-up. In this particular year, we are -- we do have the hip launch in the second half of the year. It's a limited launch. It's not material to the overall, but it should positively impact the second half and, more particularly, the fourth quarter. And that's included in the guidance that we had given.

Okay. And maybe just one more on guidance. What are the factors, I guess, that are under consideration, like the top end versus the bottom end? And then, just lastly, it seems like there's a shift in knee procedures to ASCs, so just wondering what the strategy is for penetrating the outpatient market. And have you seen good success thus far?

Yes, so this is Mark. So I think, if you look at some of the things that would have to happen and give us comfort at the higher end of that guidance, it would be an improvement in our U.S. performance. As you can see in the guidance that we've given at the beginning of the year, it's down materially, and we need to hopefully see if we can work within the German system to change some of that. I like some of the things we have going on in some of the other countries on a small basis. But to that point, if those activities can bear fruit and maybe offset some of the decline in Germany as well as maybe a little bit of improvement in the German performance, that could help us towards the top end. And then to Christian's question before, certainly if the ConforMIS -- excuse me, if the Cigna policy changes operationalize towards the second half, then maybe that'll help us take it towards the top end. But like Paul said, I think we reiterated the guidance that we had previously issued of $79 million to $83 million. As far as ASC, you're right, the trend continues in that direction, and we really appreciate that. We think we benefit from that. We're having continued discussions with ASC operators, with physicians that are looking to perform surgeries in the outpatient, and there's a dawning reality that, frankly, the ConforMIS model is much better suited to the ASC environment, both from an ability to "be efficient between cases," if you will, so from a throughput or efficiency standpoint, as well as from a logistics and sterilization standpoint. Our model, with one instrument tray and then one kind of box of patient-specific custom instruments and implants really works well. Trying to do an off-the-shelf knee and reel in 9 instrument sets as well as the corresponding volumes of inventory just is not a model for success in the ASC. So we feel very good about attacking that space as it grows.

Our next question comes from Bruce Nudell of SunTrust.

This is Stan Fediuk on the line for Bruce Nudell. Can you describe the interplay between the sales growth in a cruciate-retaining versus posterior-stabilized total in the U.S.? There seems to be more room for share gains in cruciate-retaining and, hence, would like to know -- hence, would like to understand if that product has stalled in U.S.?

Yes. So yes, the growth of the PS certainly is greater throughout the world as we launched it. The full launch was 2 years ago. And so the PS is a market that is at least twice the size of the CR market. And there are different surgeons that do PS, and so we're able to bring in new surgeons and new business. And that should continue over the future as far as where a lot of our growth should come from. Now as far as PS versus CR, the CR has certainly leveled off in the United States. We have to keep in mind that as far as the attention of our sales force has migrated towards a bigger market, the PS. We continue to have the CR surgeons and add to the CR surgeons, but the growth is certainly in the PS side. Internationally, it is actually similar, even though internationally the CR is more popular than in the U.S. We still see surgeons and our sales force internationally migrating a bit towards the PS. And I wouldn't -- I'd be surprised if that doesn't continue over the coming years as we execute on the PS strategy.

Okay. And my second question, your competitors, Stryker, Zimmer, and Smith & Nephew, are aggressively promoting their major joint robots. How does ConforMIS fit in a robotically enabled world? And I have a follow-up question.

Sure. Yes, Stan, so this is Mark. Yes, that's a great question. And I actually love having the robot discussion. If a customer is talking about a robot, then they're talking about trying to get better outcomes, and I think that really plays into our hands. One could imagine that a custom knee implant that is robotic existed, it would probably be the penultimate product offering. But at the end of the day, I think our alignment data, our clinical work shows that we're very accurate, and we get very good results and high patient satisfaction. And while the robot can help with the variability between surgeons, it's not going to help out with, ultimately, doing any better beyond the traditional off-the-shelf implant. So it's a great discussion to have with customers because it means they're looking to get better outcomes and/or potentially are also looking for marketing potential based on a robot. And I think as you can all appreciate that we're, at ConforMIS, every bit as marketable, if you will, with custom knee as a robot. And we love having that discussion as well with hospitals because when we talk to their marketing departments and talk about the ability to market, offering a customized knee, they get very excited because there's a lot of patient interest around that. So it's an exciting time in total knee arthroplasty. I think there's still a lot of evaluation that has to be done. And frankly, the onus is going to be on a lot of these providers because they're having to make some significant bets related to capital equipment purchases if they decide to go the robot way whereas, I think with us, it's obviously a more economical benefit. And I might add, it's also lends itself to the ASC. It's not clear to me yet that, again, with the movement to ASCs and the efficiency desired therein, that the robot is going to be the best play from that standpoint. So a lot to be sorted out in the coming years.

Great. And as follow-up, what would be the cost of goods sold consequences if you could remove the use of personalized cutting guides?

Well, I think that's a great question. We're obviously not going to give you the specific COGS for that piece. But I think, to the extent that people truly understand our model, there is no doubt that, that is a cost that we bear within our model versus off-the-shelf with the reusable jig. So as I said, the penultimate product would be a robotic custom implant, and that would significantly be able to enhance our margins. So I would just say that we're already looking at aspirational margins north of 60%, and we could only do incrementally better above that if we weren't printing custom jigs with every knee that we do, and instead if we were shipping a virtual surgical plan to a robot.

Our next question comes from Steve Lichtman of Oppenheimer.

Yes, this is [Jia] on for Steve. You had mentioned before the goal of growing feet on the street by 20% to 25%. I was wondering if you could comment on whether or not you're still on track to hit that target for 2018?

I'm sorry, I didn't hear the question. But I think you asked the growth in the sales force. Is that what it is?

Yes.

Okay, thank you. Yes, that still remains our goal. We were -- so we actually did add reps in the first quarter, but we also had some work out of underperforming reps, so we didn't quite hit what we wanted in the first quarter. But I'm pleased with the start we've had thus far. So I guess I can just tell you again, we don't put out numbers, but that remains still a goal for us and an achievable goal for full year.

Okay, great. And on the DTC marketing programs you're looking to implement this year, can you talk about where you are in terms of rolling out those initiatives? And any feedback so far?

Yes, so we are continuing -- for the first quarter, we basically continued on the same trend. We did a little better in overall leads, and we did a little better in conversion. So we are seeing some growth in that area. It's not where I want at this point. And part of that is simply because we are still adding to that team and haven't fully built it out. I was hoping that we would have that done by the end of Q1. Unfortunately, like anything else, we just weren't able to identify the candidates that we thought we wanted to fully bring on the team. I'm pretty confident that's going to get done here in short order in the second quarter, and then I anticipate to ramp that up. So the best way to describe that is we're doing better than last year, but it's incrementally better and not -- we haven't opened up the spend like I like to or increased the activity just because we haven't brought on the full team yet.

Our next question comes from Kyle Rose of Canaccord.

This is actually Brandon on for Kyle. First, I just wanted to start from a high level. Obviously, we have the Q1 results. But is there anything in the joint replacement market that you guys are seeing to date that's interesting to call out? Obviously, you guys have a unique view, maybe 6 weeks forward out, so is there anything in the whole market as a whole that you'd like to call out or just the general health of the market?

Brandon, this is Mark. Nothing that I'm seeing. Again -- and you guys have probably your own views, clearly, the robotic trend and the ASC trend remain. I think there is an interesting also increase in press-fit which, of course, as you know, we don't have that offering but it's part of our portfolio improvement. We're not ready to say when, but I will tell you that it's on the table. So we're acutely aware of that. I think the price mix dynamics have roughly been the same. Nothing that I see -- I mean, clearly, obviously, I don't need to tell you what the bigger, larger share players have reported, and you can judge by their own performance, I don't feel the need to comment on that. But I think utilization and the market itself remains within historical norms and strong.

Great. Okay, that's very helpful. And if I could focus a little bit on the hip launch. As the hip comes out and probably starting into 2019 as the full launch starts at some point, how do you feel the sales force -- or do you feel the sales force is properly incentivized to continue growing the entire portfolio? Do you anticipate any kind of maybe temporary disruption in, call it, the core knee business as the hip comes out and maybe the sales force starts to focus on the hip product?

Yes, no, thank you. I appreciate that question, Brandon. I'm not worried about that much at all. Obviously, it's our job to make sure the compensation plans and commission plans align well. But as you know, every knee company carries a hip, and we're really the only major knee company that doesn't. This is going to be incredibly synergistic with our sales force. Many of our existing customers are interested and, obviously, know ConforMIS technology, the power of our iView, the power of the custom implant, and we are offering the hip-in-the-box solution as part of our value proposition. So as I said earlier on the prepared remarks, I'm actually very pleased with these levels of surgeon interest and, of course, very pleased with the fit within our sales force. I think, look, if you're a large orthopedic company and you're thinking about dropping yet another product into the bag of your distributor network that already has hip, knees and potentially shoulders and extremities and everything else, it's a fair question. But in ConforMIS' case, we definitely have the bandwidth. All we have is a total knee offering, and it's imperative that we get the hip out. Having said that, you mentioned 2019, I appreciate, that will be the full product launch, and we'll obviously provide more information going forward. But it is dependent on how well we do in commercial launch and the user feedback we get. I'm sure there'll be some changes. The question is it will -- will it be minor tweaks and changes or will there be some things where we really feel like we have to make a change to make the value proposition better for everyone as we go forward -- and obviously, anything related to patient satisfaction and those things. So I just put a little bit of caution on that, just -- the good news is we're on track for a limited launch second half of this year. And then as we move through that launch, we'll -- as always, we'll be very transparent about the timing of our full commercialization. And we do hope that, that will occur in 2019, but we haven't said exactly when yet. So we'll get to that, okay?

And if I could add one other thing to that, as far as your question regarding disruption or cannibalization in our knee business when we launch the hip. Unlike -- we are seeing some of this disruption and cannibalization of our CR business as we launched the PS because the PS, our sales force then went after, obviously, a much bigger market with going after new surgeons because the same surgeons that do the CR are not the same ones that do the PS. With the hip, however, we already have hundreds of surgeons that are using our customized knee implants, and our first targets would be the same customers. So the first users of the hip, we would envision being the same customers that are already doing the knee. So it should not be disruptive to our sales force like when we launched the PS.

Our next question comes from Kristen Stewart of Deutsche Bank.

This is really Kristen. I wanted to just talk a little bit more about the German market and what you're seeing there because this seemed to be first quarter, correct me if I'm wrong, that you were seeing some weakness in the iTotal CR business? I'm just trying to dope out what exactly has gone on in Germany.

Yes, well, I'll let Paul comment in a little bit. But I'd just -- to remind, the partial change did happen in the first quarter, so we do have still some of that effect. And as of the first quarter, that's kind of anniversaried out. But frankly, what we're seeing now is a couple of things. One is, by having this less business, I think it's also affected some of our customers' buying habits on the CR in Germany or the total, let's say. And the other thing that's happening is there's -- it's a little convoluted, but there are some areas within the German reimbursement system where they're making our hospital customers go through further justification for why they should get the enhanced reimbursement for the custom knee. And so we're having to fight some of those battles. And so in certain areas, that's put a damper on some of the buying patterns, and that's very frustrating. So as a result, we do see this in our German business. And we had -- we had anticipated a little bit of this, and that's why we had issued the guidance that we did, Kristen. But based on the first quarter and some of the discussions I have, I'm just worried about how quickly we'll be able to stabilize that or try to achieve towards the higher end, if you will, of that guidance as it relates to our OUS business.

Okay. So it sounds like in terms of the guidance that you guys are reiterating, as you had previously said, but maybe little trends outside the United States still give you a little bit of cautiousness, is that fair, offset by maybe a little bit more optimism with things like Cigna?

I think that's right. I'm not -- again, I would tell you if I thought this could get operationalized quickly and if there were something there. It just was too soon, and it is going to take some time. I mean, we still see some Cigna denials coming in, for instance, even though we know they've changed the policy. It just takes time to operationalize it. I'll have probably more commentary at the next call as far as how things are progressing. But I think what you said is a fair statement. I mean, while we might feel a little more optimistic on certain things in the U.S., potentially it would be tempered by some of the OUS stuff.

Okay, great. And then for Paul, just in terms of the cash position of the company. I think you had mentioned cash change in the quarter was somewhere around $9 million or $9.3 million. How should we just think about the funding of the company going forward and prospects for getting to breakeven?

Yes, so we're still looking at about $10 million a quarter as far as cash burn, somewhere in there or somewhere south of that. So that takes us, as we I think Ted talked about before, to the middle part of 2019. We'll continue to concentrate operations on the top line, on our gross margin improvement throughout this year, and we will look at options as we move forward as far as continuing to finance the company. We have in a long-range plan a number that we need as far as cash is concerned within our plan to get to that breakeven and profitability level. And again, we'll be opportunistic looking at different options as we move forward over the coming quarters.

Okay, perfect. And then the last question that I had is just on price. You had mentioned that price is actually positive in the quarter. Is that just due to geographic mix? Or is that just kind of pure price that's more favorable quarter-over-quarter or year-over-year?

Yes. It is geographic mix based on the hospital or our customer. Some customers -- so it depends on the pricing mix within each quarter. So we've had this in the past, I think 2 years ago. One of the quarters, where we had an extremely high ASP and in the next quarter, it was back to where it normally is. So I think this one isn't as dramatic as the one we saw a couple of years ago, but it is a bit higher than the average, and we would expect that to come back down in the next quarter.

Okay. So is it fair to say pricing trends are more stable than maybe that is leading one to believe?

Yes. Our pricing decline has always been less than the rest of the industry. Hopefully, it stays that way. We do build in some price decline in our model, but hopefully, we're able to keep it somewhat stable.

Our next question comes from Josh Jennings of Cowen.

I was hoping to focus on the U.S. business and just hoping you could help us understand where your sales force -- now that it's relatively stabilized, is it having more success so far this year in securing new surgeon customer accounts or driving old ConforMIS customer reengagement and a return to previous utilization levels, and then how you see that shaping up over the next 12 to 24 months in terms of those 2 channels for your sales force.

Yes, Josh, Mark here. I think you hit right on it. How would I describe it? I'm happy with the management changes we've made and how the management team has come together. I would just say, I'd have to say I'm a little slightly disappointed that we got a small surprise in the -- a higher number of exits than I would have liked at the feet on the street level. And while I was pleased with the adds, when you net it all out, we're not where we want to be in the growth. Having said that, we've had some, like I said, some positive stuff coming out of the gate here at the end of the quarter as far as signing up distributors and doing some other things. So per the previous question, we still believe we can grow the feet on the street by 20%. And again, just to remind you, these are mostly through distributors. So it's not going to be a heavy use of cash for us because these are not employee reps. I like the work that's been done on training and onboarding and those types of things. So that part is good. We need to continue to do a better job on that piece you so insightfully mentioned, which is the reengagement of surgeons or the ability to, as I like to say, increase same-store sales for our surgeons. And the Cigna policy will be helpful as well as some of the good clinical evidence that we're pulling out. But as I think it was mentioned earlier, let's face it, we're still a very small market share competitor, and we have lots of room to grow, and we need to be growing our CR and PS business, and that's the expectation here. So we're going to continue to pound away at this. It's a highly competitive market, as you know. But we like our clinical results, we like our story. And I've got parts of the country that are doing very well and then I have other parts of the country where they're still struggling to put together, as they say, all the pieces in the band, and we have to fix that. So -- but that's why our guidance is where it is, as it were.

And I just wanted to follow up on -- if Q1 was the most challenging comp for the U.S. franchise, as you go out in the 2Q and 3Q, if you have a similar performance level on a dollar basis, that would drive mid-single-digit growth for the U.S. business strictly due to the softer comps. I mean, how should we be thinking about sequential growth on a dollar basis going forward this year and into next year? I mean is that something we should be thinking about positively? And just in terms of -- sort of you mentioned, Q1, you had some sales force subtractions and additions. But I mean is the sales force stable out here where sequential growth on a dollar basis could be a reality?

I'm trying to think through kind of what you're saying. So you specifically said about the U.S., so your...

Sorry, it was a little bit jumbled. I mean, you did $16 million this quarter. If you do $16 million in 2Q and Q3, that will be 5% growth for the U.S. business. I mean should we be thinking that you could do better than $16 million? I know you don't give quarterly guidance, but -- just versus just off the comp but thinking about sequential growth on a dollar basis based on where you are with the sales force restructuring and reengagement for old customers and potentially capturing new customers as you go through the year.

Yes, so I think on the question of where we stand on a quarterly basis and some direction, I think I said before that we're not necessarily looking for and anticipating an increase on a quarterly basis dollar-wise till certainly we get towards the end of the year. Seasonally, fourth quarter is our strongest quarter. By then we'll have hip limited launch out there, and that would have a little bit more of a positive effect towards the end of the year. So we're not -- certainly are not anticipating necessarily an increase on a dollar basis Q1 to Q2, Q3.

Great, that's helpful. And then just lastly, on the Cigna policy coverage issue. Are there any other payer decisions on the horizon that we should be thinking about as we move through the next couple of quarters?

Yes. Nothing material that I'm aware of. Obviously, if we find something that we feel like we want to talk about, we will. But when we started talking about this approximately a year ago -- I can't remember exactly which call it was, but it was about a year ago, we mentioned that part of the concern was would it -- would Cigna's, at that time, negative policy change potentially spread. And the good news is we didn't see that at all, and I have, knock on wood, no expectation that, that will happen. We continue to generate a supportive body of clinical evidence, we continue to put out good clinical data as evidenced by the National Joint Registry Beyond Compliance report. And I would add, we also continue to invest in good clinical studies. So we've enrolled a significant number of patients into our multicenter trial. We'll eventually talk through some of that stuff. So there's nothing -- short answer is nothing that I'm aware of and don't expect any further changes in that arena.

Our next question comes from Ryan Zimmerman of BTIG.

I apologize I was hopping in between calls, so if this was asked already, I again apologize. The hip beta launch, I think previously, you've communicated that it was going to take about 12 to 18 months to be in beta before you rolled that out more broadly. Is that still your thinking around the hip? And is there any view that, that could change, potentially increase or decline, based on just the feedback on the product?

Yes, so it was sort of asked and talked about but not as directly as you did. So you're right, we talked about that. And as I have said previously on this call, while we hope to be able to get into full commercial launch at some point in that 12- to 18-month time frame, please sit tight until we reported out how things are going and we get more knowledge around what that would be. So for now, I think that's still good. And as you can imagine, it all depends -- in all these things, you always have some level of changes that you want to make on your way to full commercial launch. Our hope and expectation and -- but again, our hope is that they're minor. And instead of being it more towards the 18 months, it could be 12 months. But if there are some things that are more significant, that are right things to do, both for patient satisfaction, clinical efficacy or user -- just user stuff, physician-related satisfaction, we're going to take time to do that to get it right, if that pushes us towards that end. So right now, that guidance still stands. I think the big thing is let us get to those first set of beta sites, see how it's going, and we'll be happy to be reporting a bit about how that's going. And as we get closer to the commercial launch, we'll let you know.

Understood. And then again, I apologize if this was asked. But on the Cigna policy, I recognize -- congrats on that, and it's really good news. How do you take that win and kind of transfer it to other payers out there? Is the same questions that Cigna was asking you -- are the same questions that Cigna was asking you the same ones you're seeing at other payers? Or does it require, say, other data or other information that you didn't have to do with Cigna?

Yes, no, I appreciate that. And again, just to remind everybody, right, we have full Medicare coverage, which is 55% to 60% of the market, and we actually have broad commercial coverage. It was just Cigna. And then as we had indicated before, some parts of Blue Cross Blue Shield, we had actually pretty quickly changed one of the major Blues plan coverage policy. And then, of course, we just were successful on the Cigna change. To answer your question directly, the discussions we have with the Blues that still have a challenging policy for us, we use the same data sets. We're able to use the same information. It's just about getting to the right people. And frankly, they typically wait until it's time for them to review the policy -- which is fine, but we want to make sure when they review it, they have our data. So the good news is all these policies, they didn't consider the data we have. And if you recall, we published the [color] study back in May of '17 on health economics, we published the Levengood study on alignment that came out. We now have the Beyond Compliance study. So we have a number of new studies that we're able to continue to talk to them about. And hopefully, we'll have that same level of success with those few remaining Blues plans. But those are really the only ones. And I don't know if you heard, there was a question like do we expect any other changes regarding reimbursement. And knock on wood, I really don't. I think we kind of -- we're very fortunate to effect change in the really only big national one that was out there, Cigna, and I love the working relationship we have with them and appreciate the ability to get the story and explain it to them. But now all that's left is dealing with the few individual Blues plans, and we're on it. And we'll certainly talk about that if we're able to change those policies. But with the Cigna change, I'd say, before, we would talk about 95% of the commercial coverage, now we're up to about 97%, 97.5%. So it's just a few points that we got to clean up, okay?

And I'm showing no further questions in queue at this time. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.