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Conformis announces improvements to business model
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Conformis Inc. announced plans to improve its overall business model with a plan that includes prioritization of certain product development opportunities, cost reduction initiatives with the optimization of sales, marketing and administrative expenses, and a reduction of its workforce. In addition, Conformis announced the reduction of its debt facility from $30 million to $15 million.
By optimizing its overall operating expense structure, Conformis plans to leverage its improvements in gross margin, which the company believes will lead to a reduction in the use of cash by operating activities to less than $4 million per quarter in 2019 compared with approximately $10 million per quarter during 2018, according to the release. The release noted these expense reductions will impact sales and marketing, research and development, and general and administrative expenses. Conformis has also selectively identified opportunities to expand its distribution in certain international markets with the intention to help offset the sales weakness experienced in Germany.
According to the release, Conformis reduced its workforce by approximately 10% and expects to incur employee severance charges and other exit costs of approximately $700,000 in the fourth quarter. In 2019, the company also expects to generate annual personnel expense savings in excess of $4 million. Conformis entered into an amendment in their current load and security agreement with Oxford Finance LLC by using cash on-hand to pay down $15 million of its $30 million debt facility. Under the amendment, Conformis reduced the total debt outstanding to $15 million and the associated interest expense going forward, the release noted, and adjusted certain financial covenants.
The release noted Conformis plans to continue to execute its new product development programs with focus on the Conformis Hip System, iTotal G3 and cementless Press Fit knee. The company expects to achieve full commercial launch of its Conformis Hip System and limited commercial release of its iTotal G3 total knee in the second half of 2019, according to the release, as well as limited commercial release of its cementless knee offering in early 2020.
“We are taking decisive actions to prioritize our highest-impact new product opportunities, our Conformis Hip System and our cementless Press Fit total knee, which we believe provide us an opportunity to build a stronger, more sustainable business. As a result of these actions, we believe we can achieve profitability in 2021,” Mark Augusti, CEO of Conformis, said in a company press release. “These actions include the difficult decision to part ways with many valued employees. On behalf of the entire company, I thank these colleagues for their many contributions to the business.”
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