Aurora Spine - Nothing, Nothing, Nothing, BOOM!

Here comes the boom!

Company: Aurora Spine
Ticker: ASAPF / ASG.v
Price: $0.20 USD $0.275 CAD

The Story

Most of my 5X baggers have played out as “nothing, nothing, nothing, boom!” For instance CLPT (Clearpoint Neuro Inc) traded as low as $3.08 before jumping as high as $24 less than a year later. I sold a chunk I got around $3 for $20.

ADCOF (Adcore Inc) went from $0.37 as high as $2.16 in less than a year. I sold a good chunk of shares for 4X what I paid, though I did wait through a year of Adcore doing nothing before it exploded. Unfortunately for Adcore, they lost their largest customer and have never really recovered.

I believe a similar “nothing, nothing, nothing, boom!” awaits Aurora Spine (ASG.v / ASAPF). I expect in 2024’s Q3 and Q4 we finally get the overdue boom! It is my intent to show you why by the end of this article.

2022 was supposed to be the breakout year for Aurora Spine. In Q2 of 2022 Aurora hit almost $4.1M in revenue. Year over year it was 67.7% higher than Q2 of 2021. A banner quarter for sure. There was talk about hitting a record $5M in revenue in Q3 or Q4 off strength from the new DEXA-C line, an exciting newly FDA approved product with a vast potential market.

Fast forward from that high point in 2022 to 2024 Q2 and the headline numbers are nearly the same. Revenue of around $4M with a net loss of $150K and receivables of $4M.

It has been nearly two years and Aurora has been stuck in the mud at this $4M a Q or below mark. What in the world happened to Aurora Spine?

Why Aurora Spine Stalled

In August of 2021, DEXA-C, a patented custom density lumbar cage, became FDA approved, and in 2022 Q2 first revenue from DEXA-C hit the books at $215K. That was followed by a $383K Q3 for DEXA-C. In Q4, the full launch of DEXA-C was supposed to happen. For 2022, much of Aurora’s focus seemed to be setting up DEXA-C for a big launch. But by mid-2023 DEXA-C was discovered to be much harder than anticipated to sell than Aurora envisioned. Convincing a doctor to use DEXA-C was just step one in a series of steps to get it hospital approved for use. Those involve having a sponsor to bring it to the purchasing committee, and then waiting for a decision from that committee which might meet once or twice a year.

It might be hard to get sales reps excited about selling DEXA-C when they won’t collect a commission for 6-12 months because of all the steps involved.

In 2022 another bright spot for Aurora was Silo, a new FDA approved product gaining a lot of traction, hitting $1M in revenue for 2022 Q2. But by 2023 Q1, Silo revenue was facing a huge headwind from a new billing and coding revision which took effect Jan 1, 2023. Physicians took a “wait and see” attitude for Silo surgeries. They wanted to see how reimbursement would turn out after the billing code change. That billing change also poured cold water on the much anticipated launch of Aurora’s new titanium Silo TFX product, which transfixes the SI joint. In the end both Silo and Silo TFX ended up with solid billing codes and are reimbursed well. However, the uncertainty from the billing and coding change really slowed the 2022 and 2023 adoption of Silo and Silo TFX products.

Historically, for 10 years, Aurora had used mostly 3rd party distributors and independent sales representatives to get their products to market. The strategy was reasonably successful as Aurora over 10 years built a business from nothing to $15M a year revenue. That changed when Aurora got three new products approved by the FDA, after many years of R&D. Those new products were Silo, DEXA-C and then Silo TFX. These products are creating new markets and require a more focused approach.

In Q3 of 2023, about a year ago, Aurora hired Matt Goldstone as Chief Commercial Officer to lead Aurora’s shift to a direct sales force. This snippet from the Q1 2024 conference call sums it up nicely:

"In Q1 2024, we have made significant strides in expanding our direct sales force as part of our strategic initiative to drive growth. By focusing more on direct sales, we aim to improve our control over the sales process, increase our market penetration, and build stronger relationships with healthcare providers. This shift is critical for our long-term success as it allows us to better align our sales strategy with our product innovation and customer needs.".

Since Matt Goldstone was hired, Aurora expanded their direct sales team by 150%. This direct sales approach is necessary for the company to go next level with their efforts, but it has taken time to find the right people, hire and train them, and then let the news sales representatives get started calling and meeting doctors.

The final challenge Aurora faced was partially caused by the success of Aurora’s new breakout product, Silo TFX. New sales people hired were focused broadly on selling Zip and Silo products - and those products were easier to sell than Aurora’s ortho and neuro focused products such as DEXA-C / Apollo / Solo / Echo. In addition there were supply chain issues for some of these ortho / neuro products. While Silo TFX was ramping up its revenue slice, these product lines slumped from $1.8M a Q to $0.8M a Q.

In summary four things have stalled Aurora from breaking out sooner:

• DEXA-C was complicated to sell, with a hospital customer base creating a long lead time and lots of process. DEXA-C ate up a lot of focus that might have been placed on other products that were easier to sell with a faster revenue cycle.

• Silo / Silo TFX products were temporarily slammed hard by uncertainty around a billing and coding change for reimbursement.

• A new direct sales approach became necessary as Aurora transitioned to its own organic products that are creating new markets. The lack of direct sales hampered Aurora’s ability to execute.

• Company sales focus was on hotter selling Silo and Zip product lines, and the neuro / ortho product lines were somewhat, though not entirely neglected. In addition there were supply chain issues in these product lines. As a result revenue suffered for the neuro / ortho product lines.

In my opinion management could have navigated some of these situations more aggressively to better results. However, bringing so many new FDA approved products to the market at the same time was just going to be complicated and messy. They have controlled financial bleeding and dilution under these circumstances, which most management teams would not have the discipline to do. Overall, they have navigated the transition from reselling others' products to manufacturing and selling their own FDA-approved product lines exceptionally well. While this shift has been ongoing for the past decade, the pace has accelerated significantly in the last two years. The company has undergone a significant transformation from being largely in an R&D phase to full commercialization of their own organic product lines.

Where are We Today?

Year over year the last two quarters have been increased revenue of 25% in Q1 and 15% in Q2. Aurora is also close to profitability, losing only $154K in Q2 of 2024. That is showing progress. Shareholders and previous shareholders on the sidelines watching are waiting to see if Aurora can deliver a quarter that looks like growth.

If we look at revenue trends, even a 15% increase in revenue for Q3 will put Aurora at a record $4.5M, a firm breakout from this holding pattern.

Additionally when we look at net income, they are getting very close to a net profit. At $4.5M I’m optimistic they will break even at least.

If we look at the Silo revenue numbers, they have been steadily rebuilding after the billing issue late 2022. Starting in Q1 of 2023 it appears Silo revenue has been increasing every Q. Most of that growth is coming from the titanium, transfixing Silo TFX. Numbers are incomplete because Aurora doesn’t provide product line revenue breakdowns every Q.

A Record Q3 is Brewing

There was a vitally important, under the radar, detail given in the Q2 conference call. A detail we are happy to share below with our paid subscribers - thank you for your support!