Axogen (NASDAQ:AXGN) Q2 2020 Earnings Call

0:00 Welcome to Axiogen, Inc.'s second quarter 2020 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Pete Mariani, Axiogen's Chief Financial Officer. Please begin, Mr. Mariani. Thank you, Devin, and good afternoon, everyone. Joining me on today's call is Karen Zadare, Axiogen's Chairman, Chief Executive Officer, and President. Karen will begin today's call with an overview of our second quarter performance and an update on the ongoing recovery in our markets, followed by a review of the recent announcement of our recon study enrollment and our path to a BLA submission. I will then provide an analysis of our second quarter performance, along with a summary of our recently announced debt deal with Oberlin Capital.

0:54 Today's call is being broadcast live via webcast, which is available on the investor section of Axigen's website. Within an hour following the end of the live call, a replay will be available in the investor section of the company's website at www.axigeninc.com. Before we get started, I'd like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. We encourage you to review the company's past and future filings with the SEC, including, without limitation, the company's forms 10K and 10Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

1:41 These factors may include, without limitation, statements related to the expected impact of COVID-19 on our business, statements regarding product acquisition and or development, Product Potential, the Regulatory Environment, Sales and Marketing Strategies, Capital Resources, or Operating Performance. And with that, I'd like to turn the call over to Karen. Karen? Thank you, Pete, and good afternoon, everyone. Our total revenue for the quarter was $22.1 million, representing a 17% decline versus the prior year period. While COVID-19 had a material negative impact on total revenue, We saw steady improvement across the quarter as our customers reopened their surgical schedules.

2:29 Our second quarter performance reflects a recovery in our market that was stronger than we anticipated, as well as the priority that surgeons and hospitals have placed on nerve repair with actogen products in the early stages of the recovery. Our recovery also reflects the hard work and creativity of the entire Axigen team to support our customers and their patients in this difficult environment. The recovery varied regionally based on the intensity and trends of COVID-19 in local markets. As elective surgeries resumed, we experienced short-term regional surges in nerve repair cases, reflecting the completion of deferred procedures. These recovery surges were typically followed by returning to more normalized levels for the territory.

3:19 Surgeon interviews that we conducted confirmed that nearly all surgeons had experienced significant disruption to their practice and a reduction in surgical procedures due to COVID-19. But many surgeons believed that they were already caught up with their current backlog of deferred procedures, while most others believed they would catch up by the end of the summer. In addition to regional variation, Our recovery also varied by nerve repair application, with our core trauma business leading our recovery. The recovery of procedures in our breast and OMS applications, as well as our emerging business in the surgical treatment of pain, began later in the quarter. Overall, we're encouraged by the execution of our team and the priority hospitals and surgeons are giving to nerve repair with oxygen products during the recovery.

4:15 However, we remain measured in our outlook for the remainder of the year as most currently deferred procedures will likely be completed by the end of the summer and COVID-19 may continue to negatively impact the incidence of trauma and regional surgical procedure volumes. We therefore expect third and fourth quarter revenue to remain below prior year levels. In the area of sales execution, We continue to strategically focus our sales representatives on extremity trauma and on driving deeper penetration with our existing surging customers, although COVID-19 required us to adjust our approach. During April, healthcare facilities broadly restricted vendor access, and we directed our sales team to enter facilities only when requested and necessary.

5:04 Our sales representatives remained in frequent contact with our customers virtually, and they worked together to provide effective case support remotely. We also used this restricted time to provide six weeks of extensive product and skills training for our sales team, which we believe provided the benefits of keeping the sales team positively engaged and improved their ability to support our customers. On May 1st, we released our sales team to begin reentering healthcare facilities following local, regional, and national guidelines and using contact tracing. While our access to healthcare facilities has improved, The ability to effectively support our customers remotely continues to be an important learned capability that our team has embraced and we believe our customers have appreciated.

5:55 We ended the second quarter with 112 direct sales representatives, an increase of three representatives added early in the quarter. With our flowing of sales headcount expansion this year, we have minimized change and disruption to stabilize our sales territories and provide consistency of support to our customers. Our direct sales channel was supplemented by 19 independent sales agencies who generally cover geographies that are less impacted by COVID-19 during the quarter. These geographies delivered better year-over-year performance than those covered by our direct sales representatives. As a result, the indirect channel represented approximately 15% of our total revenue in the second quarter compared to an approximately 10% in the first quarter.

6:45 We had 789 active accounts in the second quarter, an increase of 4% from 762 one year ago and down 4% versus the first quarter. We have always reported our number of active accounts as an average for the quarter, and the significant decrease in the number of orders from accounts in April and early May had a material impact on the average for the second quarter. Our active accounts have continued to increase each month, such that for the three months ending July 31st, our average active accounts has increased and is more consistent with our Q1 average of 825. We were pleased that a large majority of our top surgeons and hospitals continue to use and order oxygen products for their patients despite the challenges of COVID-19.

7:38 The top 10% of our active accounts continue to represent approximately 35% of our revenue. Our sales team remains focused on our strategy of going deeper with current surgeon customers and exited the second quarter well prepared for the second half of the year. We continue to focus on building market awareness of Axigen and our products despite reduced in-person access to surgeons and restrictions on surgeon travel to scientific conferences. In June, we expanded our digital marketing capabilities allowing us to more fully engage with surgeons electronically. These digital efforts provide an enhanced long-term capability to supplement the efforts of our sales team and help our sales reps engage with surgeons where access to hospitals remains limited.

8:30 Our efforts to educate surgeons and develop advocates continued in the second quarter. In March, we canceled the remainder of our 2020 schedule of in-person surgeon and fellows education programs and we've since developed several virtual education programs led by surgeon experts in nerve repair. In June, we launched an invitation-only program for early career upper extremity surgeons who are passionate about advancing the field of nerve repair. The program is an interactive six-part series led by an expert faculty. Similarly, we launched a surgeon-led extremity trauma webinar series open to all of our surgeon customers. We're also continuing our commitment to educating hand and microsurgery fellows and are launching an updated training program for the second half of 2020.

9:22 We've previously discussed our plans to introduce new products and expand the application of our portfolio into the surgical treatment of pain, focused on symptomatic neuromas. We launched AxiGuard NerveCap in February and are pleased with our early results as we focus on expanding the nerve repair algorithm of our current surgeon customers. NerveCap is an important addition to our solutions portfolio designed to protect the peripheral nerve end and separate the nerve from the surrounding environment to reduce the development of symptomatic or painful neuroma. With the addition of NerveCap, we now have a full portfolio of products for nerve connection, nerve protection, and nerve termination. Increasing surge in adoption of our product portfolio continues to be supported by a large and expanding body of clinical data.

10:16 We recently announced that our RECON clinical study had reached its targeted enrollment of 220 subjects in July. RECON is our phase three pivotal study supporting our biologics license application, or BLA, which will transition our advanced nerve graft from a section 361 tissue product to a section 351 biologic product. We're pleased to have reached this important milestone despite a challenging environment for clinical studies and we appreciate the dedication and commitment of our participating study teams as well as our internal team of clinical professionals. The RECON clinical study protocol requires a one-year follow-up assessment with the allowance for an additional three months visit window. With the final subject enrolled in July of 2020, the last subject is expected to complete the study no later than October of 2021. We've increased our efforts to support completion of subject follow-up visits during the COVID-19 crisis by implementing an expanded home health visit program to allow follow-up visits to be conducted by a trained healthcare professional outside of the clinic environment and with appropriate safety precautions.

11:28 We're working closely with our research centers to monitor follow-up visit windows and minimize any potential disruption. We anticipate providing a preliminary report of trial data in the second quarter of 2022 and expect to file the BLA in 2023. In addition to the completion of enrollment of the RECON study, our ranger registry now has over 2,200 nerve injuries enrolled. and we expect data from the study to be presented at clinical conferences and published in the second half of the year. Enrollment in our REPOSE study is ongoing. REPOSE is a prospective randomized controlled study evaluating the use of Astigard Nrfcap in the management of painful neuroma as compared to a standard neurectomy procedure.

12:15 Preliminary outcomes from the pilot phase of the REPOSE study found that at six months, subjects reported meaningful improvements in pain and quality of life scales. We've completed the last subject follow-up visit and data analysis is underway to support a reposed study pilot phase manuscript. While this is a small pilot study, we remain encouraged by the positive impact reported to date and will continue enrollment of the comparative phase of the study as centers reopen to research subjects. As we noted in our call in May, we've paused enrollment of our SensationNOW Clinical Registry for the remainder of 2020 given the COVID-19-related restrictions in our study centers. We are pleased with the enrollment of 600 subjects in the registry and believe this will create a significant body of evidence around this important breast neurotization technique.

13:07 Similarly, we've paused enrollment in our Rethink Pain Registry and our Avive Assist Study. We continue to monitor the recovery of activities at study centers and will prioritize the potential restart of these clinical programs based on our business needs. We remain committed to providing meaningful and impactful clinical evidence on the utility of our nerve repair portfolio. Despite ongoing COVID-related challenges in the market, we're encouraged by the performance of our Axigen team to creatively adapt and adjust to these challenges. We've learned new skills in supporting our customers and continue to advance our strategy focused on extremity trauma and driving deeper penetration with our existing surgeon customers.

13:53 We remain as excited as ever with the opportunity in front of us, and we believe we are well positioned to drive continued growth as we emerge from the pandemic. Now I'll turn the call over to Pete for a review of financial highlights. Pete? Thanks, Karen. Second quarter revenue declined 17% to $22.1 million. Our revenue decline for the quarter was the result of a 19% decrease in unit volume, partially offset by a 2% net benefit from changes in pricing and product mix. Gross profit for the second quarter was $16.5 million compared to $22.5 million in the prior year. Gross margin was 74.7% for Q2 compared to 84.1% in the prior year second quarter. Gross margin was negatively impacted in Q2 as a result of increased period and variance costs associated with the suspension of tissue processing during the quarter of $1.6 million and increases to inventory reserves.

14:58 We began a gradual restart of our tissue processing in June, are continuing that ramp in the third quarter, and anticipate that gross margins will return to normalized levels as sales and production levels recover. Total operating expenses in the second quarter declined 18% to $24.8 million compared to $30.1 million in the prior year. Total operating expenses in the second quarter included $2.2 million in non-cash stock compensation compared to $2.7 million in the prior year. Sales and marketing expense in the second quarter declined 23% to $14.3 million compared to $18.5 million in the prior year.

15:45 This decrease was primarily due to reduced compensation expenses, including lower commissions, a reduction in our surgent education expenses after canceling in-person education programs, and lower travel expense as a result of the travel restrictions and canceled programs. As a percentage of total revenue, sales and marketing expense decreased to 65% for the three months ended June 30, 2020, as compared to 69% for the previous year. Research and development spending in the second quarter decreased 5% to $4.1 million, compared to $4.3 million in the prior year. Research and development costs include product development, including expenses and support of the BLA for the advanced nerve graft, and clinical research.

16:40 Product development expenses represented approximately 50% of total R&D in the second quarter compared to 58% in the prior year, while clinical expenses represented the other 50% in the second quarter of 2020 compared to 42% in the prior year. As a percent of total revenues, research and development expenses were 18.4% in Q2 compared to 16% in the prior year. General and administrative expenses in the second quarter decreased 13% to $6.4 million, or 29% of revenue, compared to $7.4 million, or 27.6% of revenue in the prior year. The decrease is primarily related to the reduction in litigation and professional fees as well as lower compensation and travel expenses.

17:33 Net loss in the second quarter was $8.1 million or 20 cents per share compared to $7 million or 18 cents per share in the prior year. Excluding the impact of non-caste stock compensation as well as litigation and related charges, adjusted net loss and net loss per share in Q2 of this year was $5.9 million and 15 cents per share compared to $3.7 million and 10 cents per share in the prior year. Adjusted EBITDA loss in the quarter, which also excludes the impact of stock compensation, litigation and related charges, was $5.7 million compared to an adjusted EBITDA loss of $4.1 million in the prior year.

18:20 Turning to our balance sheet, The balance of cash, cash equivalents, and investments on June 30th was $109.9 million, compared to a balance of $89 million in March of 2020. The net change reflects the receipt of net debt proceeds of $34.7 million, partially offset by capital expenditures totaling $7.7 million and net operating cash burn of $6 million during the quarter. Capital expenditures in the quarter included $6.5 million related to cost incurred for our Dayton Biologic Processing Center prior to the suspension of construction in April and $1.2 million related to our new office and lab facility in Tampa. We anticipate completing our new Tampa facility in the third quarter and restarting construction on our Dayton Biologic Processing Center in early 21.

19:20 On June 30, we announced a new seven-year interest-only financing agreement with Oberlin Capital, which provides up to $75 million in total financing commitments, with $35 million drawn at close. The second tranche of $15 million can be drawn at the company's option upon achieving two consecutive quarters with revenue of at least $20 million. And this second tranche can also be put to the company at any time by Oberlin. The third tranche of $25 million can be drawn by the company or at the company's option upon achieving two consecutive quarters with revenue of $28 million. Oberlin cannot put the third tranche to Axigen. Under the terms of the agreement, the option to draw both the second and third tranche expires on December 31, 2021.

20:14 Interest on this facility is calculated as 7.5% plus the greater of LIBOR or 2%, leading to an interest-rated closing of 9.5%. An additional quarterly royalty payment calculated on up to $70 million of annual revenue will begin on September 30, 2021. This royalty structure results in approximately 1% per year of additional payment on the outstanding loan amount. We believe the terms of this debt agreement allow us to strengthen our balance sheet and support the completion of the Dayton and Tampa facilities. The financing provides a manageable and flexible covenant structure and we believe the interest-only provision for the full seven years provides a sufficient liquidity extension without diluting our shareholders that can support our continued growth through an uncertain environment and as we drive towards long-term profitability.

21:12 On April 23rd, we announced a cost mitigation initiative designed to defer and reduce certain expenses and capital expenditures in response to the anticipated reduction of revenue caused by the ongoing COVID-19 pandemic. This initiative preserved our ability to support customers and patients in the second quarter and through the recovery and put us on a more efficient spending run rate. The initiative included the reduction of executive cash compensation and board fees by 20% and reduced cash compensation for all other exempt salary employees by 10 to 15%. We have restored pay levels for most employees as of August, although our officers and the board have continued with a 20% pay cut for the time being.

22:01 Additionally, we were able to defer approximately $25 million to complete our Dayton, Ohio facility for up to a year. While the path and pace of our business recovery continues to be uncertain, we are encouraged by the execution of our team and the trends in our markets that we observed during the second quarter. We also believe that the strength of our balance sheet, our cost mitigation initiatives, and our continued commercial execution will allow us to emerge from this pandemic-related downturn a stronger, leaner organization and on a path to profitability. And with that, I'd like to hand the call back over to Karen. Thank you, Pete. We're encouraged by the performance of our commercial team during the pandemic and believe that our renewed focus on the core trauma opportunity has supported the pace of our recovery and has positioned as well as we enter the second half of the year and continue to develop the nerve repair market.

22:59 We believe that the regional surges we experienced as surgical cases reopened indicates that nerve repair with oxygen products ranks high among surgeon priorities and provides additional evidence of our product's clinical benefit and value proposition to patients, surgeons and hospitals. At this point, I'd like to open up the line for questions. Devin? At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, as we pull for questions. Our first question comes from the line of Raj Dinhoy with Jefferies.

23:47 Please proceed with your question. Hi, good afternoon. Good afternoon, Brad. I wonder if maybe I could start with the revenue lines. You know, pretty encouraging to see only down, I think it was 17% for the quarter after the negative 70%, I think you talked about in April. And so it does imply that, you know, very strong recovery in the second couple of quarters, second couple of months of the quarter, but you're still, I guess, pointing to that being mostly recovered procedures as opposed to underlying demand. And so what I'm trying to get at is what is that underlying demand right now? And you did talk about it being still below 2019 levels in the back half of the year. And so maybe you could just ground us in terms of where you think we are on that metric. Yeah, so the recovery in the quarter was both.

24:32 It was both deferred procedures from the March time period that got rolled over into the Q2 time period, as well as current trauma that just happens day to day that as surgical ORs opened up, surgeons were able to do in real time. and so we saw both of those occurring and driving the demand. We definitely saw a surge or a spike as various regions opened up and of course those happened at different times as regions had different time periods of the recovery. As you can imagine, some of the Northeast recovered either late June or even into July and other parts of the country started to recover in May.

25:17 Balanced by some of the pullback that we've seen in some of the regions as COVID starts up again. So from an impact to us overall, we feel that the incidence overall of trauma is still down somewhat, not as much as it was during the full shutdown. We believe that the overall incident is somewhat depressed. We believe that from a deferred procedures Actually, many of them were completed in the second quarter, so those March procedures that didn't happen got rolled over into second quarter. There are some deferred procedures that will still get wrapped up towards the end of summer, but really we think that, again, given the priority that surgeons placed on nerve repair, they moved those procedures pretty quickly into the OR, and so we won't see a big surge from deferred procedures, but we do see the underlying demand continuing to stabilize.

26:18 I guess I'm trying to understand what level. I know you're not giving guidance, and I appreciate that you're operating under pretty limited information, but is that down 10%? Is it down 20%? What level of lower demand are we talking about at this point? And I appreciate you also have the ability to speak to July, so I don't know if you want to comment on that as well. Well, I think we saw good, solid trends as we moved into the third quarter and in July. We're encouraged by that, and I'll just tell you, my hesitation on giving you a depression of the incidence of trauma and the surgical repair of those procedures is because I still don't know what's going to happen regionally around COVID as it resurges in different places. And that's going to affect the trauma rate.

27:04 And so I really, I just, I don't feel like it's fair to give you a guidance number because it's going to be based on the resurgence of COVID. The underlying demand for the products remains strong and surgeons certainly are prioritizing getting those nerve repairs done. Understood. You had a separate topic. You were, I guess, pretty encouraged by what we're seeing on your transition to more kind of digital or virtual training and even case support efforts. And I guess what I'm asking you about is how permanent do you think some of these might be? I mean, is this something you could see playing out even once COVID ends and you can get back into the hospital? Does this represent some potential cost savings for you longer term? How do you see this playing out over the next couple of years?

27:51 I think that we have learned. We've been really nimble. We've learned some new skills and built some new capabilities. And I'm pretty optimistic that these are permanent additions to our skill sets and capabilities. And so when we think about the remote case coverage, some of the virtual education work that we've developed, and the digital marketing tools that we've developed, we think we're going to keep those in our tool belt for the long term. We think they really are beneficial to us. But I guess, do those replace things you were doing or are those really additive in a sense? I mean, is there the potential that you could see a permanent reduction in your selling costs, for instance, from where you were pre-COVID? Yeah, I think that they contribute to sales rep productivity and overall commercialization productivity. So I think they are added tools that improve our overall productivity and make us more efficient.

28:48 Okay, understood. Thank you. Thanks, guys. Our next question comes from the line of David Terkelly with JMP Securities. Please start with your question. Yeah, hi. This is actually Dan Satter on for Dave. How's it going? Hi, Dan. Good, great. So I guess just going back to Roger's question, you mentioned that sales consisted of both deferred procedures as well as some current trauma demands. Could you give us any more color on that? You know, how much contributed from both? Was it mainly from recoup cases or, you know, any amount of detail you can go into that would be great. Well, by far the majority is day-to-day trauma. The deferred cases that rolled in were what was delayed in March. So we saw procedures start to drop in the early part of March and some of those obviously rolled in and were deferred procedures.

29:40 But trauma overall in the peak of April, we estimated was down about 20%. It has come back up from that. Again, it's highly affected by activity and activities affected by COVID and the lockdowns in various regions associated with that. But we've come up materially from where we were at the low points, both in, we believe, the incidence of trauma, as well as patients' willingness to come into either hospitals or surgery centers to get that traumatic injury repaired. Great. And then just to follow up on that, you know, as different regions reopened, how much of that headwind from the stay-at-home order has really waned off? Was it really, you know...

30:26 were all pretty immaterial in June as construction and other activities were able to resume, or do you think that's probably here for the back half as well? Thanks. We still see high regional variations. It definitely waned across much of the country, but we saw impacts in Texas and South Florida and Southern California in the June time period, given the incidence of COVID that was happening there. It is tough to tell for us at this point whether it's the incidence of trauma or whether it's people's willingness to come or ability to come in to get surgery completed. But that's counterbalanced by the opening up of places in the Northeast, which really didn't happen until late June, early July.

31:15 Great. Thank you, guys. Our next question comes from the line of Richard Newwood with SVB Learning. Please see what your question is. Hi, this is Jamie on for Rich. Hi, Jamie. Hi, Jamie. Hey, guys. So I just wanted to kind of come back to just the trends and what you're seeing. Could you potentially comment on, I guess one way to think about it would be, is there potential that you could hit that second tranche for the new financing agreement with Oberlin in 3Q? Kind of help us think you know if that's something that could be a possibility and then as you look into 4Q is it reasonable to think that there could be year-over-year stability or potential growth or just based on what you see and with the resurgence you're not thinking that that could be something that's on the table at this point?

32:15 We're still seeing or estimating, and again, this is trying to create our own crystal ball around the impact of COVID on nerve repair cases that we would remain below our prior year Q3 and Q4, which is right about where that Oberlin, oh, the 20 million, sorry. The 20 million we're already above and that would not be unreasonable to think that we'll be above that. The next tranche at $28 million would be aspirational. Got it. Okay. And then just, you know, we've been hearing from a lot of other companies, COVID seems to be accelerating the trend to ASCs, and I think we've kind of talked about this in the past, but can you just comment on how or potentially when you guys believe this could impact your business and and what you guys are potentially doing to capitalize on this at all?

33:18 Thanks. Sure. Well, as we talked about before, there was a change in the Medicare reimbursement rate or OPPS rates for both outpatient surgery and ambulatory surgery centers that was favorable for nerve repair in general and in particular nerve repair with implants, either a connector or an allograft. And so we see that as a benefit for the long term. The majority of nerve repair is not actually Medicare patients, so it'll have to roll through commercial payers as surgery centers adjust their contract with commercial payers. And we think that'll take a couple of years to roll through the system. We're seeing good interest in that.

34:08 But I would not say we've seen a material shift at this point. There's been certainly distractions in this quarter that may have put that as a lower priority. Having said that, one interesting thing that we did see, again, with the emphasis that surgeons really wanted to get their nerve repair patients in, in those locations where they were locked out of hospital OR, so in places, for example, in Texas, as the resurgence happened, they shut down elective procedures in hospitals. And what we saw was a very rapid shift of surgeons moving those patients to outpatient centers or to ambulatory surgery centers and still completing cases where they felt that was reasonable and the right option for their patients.

34:53 And so we do see them leveraging that avenue and we think that bodes well for the future as the payment schedules are adjusted as well. Okay, Jamie? Our final question comes from the line of Brandon Foulkes with Cancer Fitzgerald. Please proceed with your question. Hi, thanks for taking my questions and congratulations on all the success during the quarter. Maybe, firstly, could you just elaborate a little bit on the funnel of patients you have been seeing post the quarter and within your life? And secondly, can you just again elaborate on some of the positive shifts that have happened during COVID that you do think will be tailwinds to your business when we come into a normalized world. Thank you.

35:47 Yeah, Brandon, I just want to make sure I get your question because in the first part it broke up a little bit. The second part that I heard was positive shifts that will be tailwinds for us, but I didn't hear the first part. Can you just elaborate on the funnel of patients you are seeing in July? Okay. Well, what we have seen and have been seeing I'm really pleased with is that the surgeons who were active users have almost all, frankly, returned back to using Axigen products. And so we don't have a leaky bucket in that respect of users continue to be users. And as their practices ramped back up, they ramped up in... and using it at the same rate or in some cases even higher rates because there are, when we talk about benefits, there are benefits in a COVID environment to do an allograft or a Vance as compared to an autograft.

36:42 It is a much shorter surgical procedure time. There's less exposure. You can do wide awake surgery versus surgery requiring anesthesia in some cases depending on the patient. All of those are healthy benefits for the hospital workers while providing good care for the patient. So we think there's real benefits in doing an allograft repair or an advanced repair in this environment. In terms of our funnel overall, to go back to your first part, we also had new users start to use our product, particularly in our active centers. So that's where we have our reps mostly focused is developing our footprint in In places that we already have a strong surgeon user, we want to go deeper with that user and add in their partners.

37:33 We are still adding some new active centers, so we'll see some of that in our pipeline, but the majority of our emphasis is going deeper in the centers that we're already in. And so we feel that the pipeline is good, and there remains strong interest in it, and we certainly saw that with the virtual education programs that we set up with new and developing surgeons and actually really outstanding engagement from surgeons wanting to be a part of that educational program. In terms of going forward and some of the benefits that we see from the environment we have here, I mentioned before the benefits of using advanced nerve graft as compared to an autograft. There are safety benefits to the hospital staff because of reducing OR time and in some cases being able to do wide awake surgery.

38:26 There are also the learned benefits that we talked about in terms of the digital marketing, the remote coverage. We think that those are really going to help us continue to expand our productivity of our existing sales team and that they will pay benefits for the long term, allowing us to continue to grow in a cost effective manner. Thank you very much. That was very helpful. Great. Thank you. Since there are no further questions left in the queue, I would like to turn the call back over to Karen Zattery for any closing remarks. Thank you, Devin. I want to thank everyone for joining us on today's call. We look forward to speaking with many of you at the upcoming virtual conferences we're attending, including the Canaccord Genuity Growth Conference, August 11th through the 13th, the Morgan Stanley Global Healthcare Conference, September 14th through the 16th, and the Cantor Fitzgerald Global Healthcare Conference, September 15th through the 17th.

39:22 Thank you. This concludes today's teleconference You may now disconnect your lines at this time Thank you for your participation and have a wonderful day