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MAKO Surgical Corp. (MAKO)

Q2 2010 Earnings Call

August 3, 2010 04:30 pm ET

Executives

Mark Klausner - IR

Maurice Ferré - President, CEO and Chairman of the Board of Directors

Fritz LaPorte - SVP of Finance and Administration, CFO and Treasurer

Analysts

Matt Miksic - Piper Jaffray

Kim Gailun - JPMorgan

Rick Wise - Leerink Swann

Patrick Clingan - Lazard Capital Markets

Michael Matson - Wells Fargo Securities

Presentation

Operator

Good afternoon ladies and gentleman, and welcome to the MAKO Surgical Corporation’s 2010 second quarter results conference call. As a reminder, this conference is being recorded and will be available for replay on the company’s website www.makosurgical.com, under the Investor Relations section after the completion of this call. It is now my pleasure to introduce your host Mr. Mark Klausner of Westwicke Partners.

Mark Klausner

Thank you operator. Joining us on today's call are MAKO's President and CEO, Dr. Maurice Ferré, and the company's Senior VP and Chief Financial Officer, Fritz LaPorte. The company's press release of financial results has been released via Globe Newswire. Mr. LaPorte will detail the contents of this release following remarks by Dr. Ferré. If you have not received a copy of the press release, it is available in the Investor Relations section of MAKO's website www.makosurgical.com. I would also like to remind you that this call is being webcast live and recorded. A replay of the event will be available later today on our website and will be available for at least 30 days following the call.

Before we begin, I would like to caution listeners that certain information discussed by management during this conference call, including answers to your questions, will include forward-looking statements covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the company's business. For discussion of risks and uncertainties associated with MAKO's business, I encourage you to review the company's periodic reports filed from time to time with the Securities and Exchange Commission, including the Form 10-K for the fiscal year ended December 31, 2009, the Form 10-Q for the quarter ended March 31, 2010, and the Form 8-K filed with our earnings release. MAKO disclaims any obligations to update any forward-looking statements made during the course of this call.

With that, it's my pleasure to turn the call over to MAKO's President and CEO, Maurice Ferré.

Maurice Ferré

Thank you Mark and good afternoon and thank you for joining us to discus MAKO’s second quarter results. On today’s call, I will provide you with an update on our business and Fritz will provide you with the details on our financial results.

I am pleased with the progress we made in the second quarter and particularly on the new system placements, increased procedure volumes and continued utilization we are experiencing in the market. Specifically, we sold seven RIO Systems in the quarter. Six of these were installed at new domestic commercial sites, increasing our installed base of domestic commercial systems for 46, up from 40 at the end of the first quarter of 2010.

Additionally, we sold our first international system to our exclusive South Korean distributor and placed a system in Scotland for credible research purposes. Worldwide, our customer performs 793 MAKOplasty procedures in the second quarter, representing an 8% increase over the prior quarter and a 122% over the second quarter of 2009. Average monthly utilization per domestic system was 6.3.

We continue to focus on the development of clinical data supporting our RIO System and MAKOplasty procedures. In partnership with Strathclyde University, Glasgow Royal Infirmary and the National Health Services in Glasgow, Scotland, we will be conducting our first randomized perspective clinical study. This study compares unique compartments on MAKOplasty to a conventional unique compartmental procedure.

We attended 14 medical meetings this quarter, including Current Concepts in Joint Replacement or CCJR in Las Vegas and the International Society for Computer Assisted Orthopedic Surgery or CAOS in Paris. We completed two BioSkill meetings, brining the total number to four in 2010. We continue to see strong interest from existing perspective surgeons in attending these meetings and we continue with the development of our anticipated future application that assist a surgeon in performing a total hip arthroplasty procedure using the RIO system. The preliminary results of an ongoing cadaver study on hip MAKOplastys were presented at CAOS during the quarter.

Overall, the second quarter was another positive one for MAKO. Our team continues to execute on our business plan as demonstrated by the expansion of our installed base, our first international sale and the increase in procedure volume.

Now I would like to turn the call over to Fritz to review our financial results for the second quarter. Fritz?

Fritz LaPorte

Thank you Maurice and good afternoon everyone. In the second quarter of 2010, we recognized procedure, system and other revenue of $10.3 million, compared to $14.9 million in the second quarter of 2009. It is important to note that total revenue in the second quarter of 2009 included the recognition of $8.8 million of differed revenue associated with upgrade of 13 Tactile Guidance Systems or TGS units to RIO systems and $2 million of deferred revenue associated with the sale of three RIO systems in the first quarter of 2009.

As depicted in the non-GAAP reconciliation table in our Q2 earnings release, excluding the recognition of the deferred system revenue for comparative purposes, revenue generated in the second quarter of 2009 was $4.1 million. Accordingly, revenue generated in the second quarter of 2010, represents a 151% increase from the same period in 2009, excluding the recognition of deferred system revenue. Revenue in the second quarter of 2010 was primarily comprised of $4.2 million in procedure revenue and $5.7 million in RIO system revenue.

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