Greetings and welcome to the AxoGen Third Quarter Earnings Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Pete Mariani. Thank you, Pete.

You may begin. .

Thank you, Omar, and good afternoon, everyone. Joining me on today's call is Karen Zaderej, AxoGen's Chairman, Chief Executive Officer and President. Karen will begin today's call with an overview of our third quarter performance and an update on the ongoing recovery in our markets.

I will then provide an analysis of our third quarter financial performance, followed by closing remarks from Karen and a question-and-answer session. Today's call is being broadcast live via webcast, which is available on our Investors section of the AxoGen website.

Within an hour, following the end of the live call, a replay will be available in the Investors section of the company's website. Before I 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 10-K and 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

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 third quarter was $33.4 million, representing growth of 17% compared to the prior year.

I'm very pleased with this performance and believe our return to growth reflects the improved commercial execution of our team, the priority that surgeons and healthcare facilities have placed on the timely repair of nerve injuries and the clinical and economic benefits of AxoGen technologies for patients surgeons and facilities.

Our third quarter results were stronger than anticipated, as we believe many of our hospital customers became more adept at operating under COVID restrictions and were able to successfully navigate local resurgences of COVID-19 cases and continue to serve patients, including patients with nerve injuries.

Additionally, we received some benefit during the third quarter from a catch-up of previously deferred procedures, which we estimate to be approximately 10% of our third quarter revenue.

Similar to our experience in the second quarter, our focus on the core trauma opportunity was the primary driver of the recovery in our business during the third quarter. We believe that the lifting of COVID-19 restrictions led to an increase of daily activities for many people, which in turn resulted in an increase in traumatic injuries.

However, we believe that our year-over-year growth continued to be dampened by lower ER volumes in the third quarter as a result of COVID-19. During the quarter, we believe surgeons and hospitals continued to prioritize nerve repair procedures, as elective surgical procedure volumes returned.

While nerve repair can result in positive outcomes months after a nerve injury, optimal outcomes are achieved by repairing the nerve in a timely manner.

Additionally, in a COVID environment, the desire to shorten procedure time to increase patient and healthcare worker safety and minimize resource utilization, favors the use of our Avance Nerve Graft compared to surgically harvesting and autograft for the nerve repair.

While we are experiencing recovery and growth across our product portfolio, our Avance Nerve Graft has led our recovery. Our breast neurotization business improved throughout the quarter, with ReSensation centers resuming breast reconstruction and catching up on previously deferred procedures.

However, we also note that new cancer screenings were significantly reduced for several months during the pandemic and it will take time for the number of breast reconstruction patients to return to prior levels. As such, we anticipate that our breast neurotization recovery may lag a few quarters.

Recovery and growth of oral maxillofacial nerve repair and the surgical treatment of pain continue to lag for the time being, as these surgeries have been more readily deferred.

We understand that patients with nerve-related pain have remained reluctant to enter hospitals for a surgical procedure, choosing instead to continue reliance on pain medication. We expect that nerve repair for our OMS and pain applications will continue to recover, as we progress through the remainder of the year and into 2021.

Turning now to commercial execution, late last year we rebalanced our commercial organization toward our largest market opportunity, extremity trauma and refocused our team on driving deeper penetration within our existing surgeon customers.

Throughout the pandemic, we kept our sales team and broader commercial organization intact and took the opportunity to provide extensive sales training. Our sales team developed skills and shared best practices around remote case support, where hospital access has been restricted.

We believe this remote support has been appreciated by customers and has expanded our sales team's ability to support surgeons during COVID-19 and beyond. We ended the third quarter with 110 direct sales representatives in the U.S., a decrease of two representatives during the quarter.

Our direct sales channel was supplemented by 20 independent sales agencies, who generally cover more remote geographies. Our independent agencies represented approximately 13% of our total revenue in the third quarter, compared to approximately 15% in the second quarter.

As we noted in the previous call, we believe that the current size of our direct sales team, supplemented by independent agencies, provides a solid commercial footprint to execute our commercial strategy. We plan to limit further sales rep headcount growth over the next several quarters.

We believe this will allow us to mature our sales team and stabilize our sales territories, thereby minimizing change and disruption, to provide consistency of support to our customers and resulting in increased sales productivity. In the third quarter, we had 875 active accounts, an increase of 11% from 791 one year ago.

The top 10% of these active accounts continue to represent approximately 35% of our revenue. We're pleased with the continued growth in our number of active accounts and our improved penetration of these accounts. Turning now to our continued focus on building market awareness of AxoGen and our products.

We recently participated in three clinical conferences that were held virtually, the American Society for Surgery of the Hand the Federation of European Societies for Surgery of the Hand and the American Association of Oral Maxillofacial Surgeons.

Nerve was well represented in each of these conferences, including numerous sessions on nerve injury, nerve repair, and the healthcare economics, of managing these cases.

AxoGen's nerve repair portfolio was featured in clinical and scientific sessions, of each conference, with findings from independent, investigator-initiated research, and from our RANGER and MATCH clinical registry presented at FESDH and at ASSH.

Additionally to build market awareness, we've 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 us to engage with surgeons where access to hospitals, remains limited.

We also continue to raise awareness among patients and providers, regarding the quality-of-life benefits of repairing injured nerves. October is breast cancer awareness month. And we were excited to have breast neurotization, featured in the segment on the October 1st edition of the Today show.

The segment featured an AxoGen patient and her surgeon, who performed ReSensation nerve repair, to restore feeling to our breasts, which were left numb, following mastectomy. This segment is available on our website.

And is an excellent illustration of the meaningful, personal and emotional benefits that women can receive, with the ReSensation technique. Our efforts to educate surgeons and develop advocates, continued in the third quarter.

Since canceling our in-person surgeon and fellows' education programs in March, we've held several virtual education events, led by surgeon experts in nerve repair. We've been hosting an invitation-only program, for early career upper-extremity surgeons who are passionate about advancing the field of nerve repair.

Similarly, we've held several surgeon-led extremity trauma webinars, open to all of our surgeon customers. We're also continuing our commitment to educating hand and microsurgery fellows. And have launched an updated training program, being held virtually.

We continue to expand our body of clinical data, in support of our product portfolio and increasing surgeon adoption. We previously announced that our RECON clinical study, reached its targeted enrollment of 220 subjects in July.

RECON is our Phase III pivotal study supporting our Biologics License Application or BLA, which will transition our Avance Nerve Graft from a Section 361 tissue product to a Section 351 biologic product.

RECON remains on schedule for completion of a one-year follow-up assessment on the last subject enrolled, no later than October of 2021, including the allowance of a three-month follow-up window. We continue to anticipate, providing a preliminary report of trial data in the second quarter of 2022. And expect to file the BLA in 2023.

The last three months have been very productive, for our RANGER and MATCH study teams. We were excited to see the recent Journal of Hand Surgery publication, from the MATCH study investigators. The article titled A Multicenter Matched Cohort Study of Processed Nerve Allograft and Conduit.

In Digital Nerve Reconstruction, compared the outcomes from Avance Nerve Graft and manufactured conduits.

The study of 162 digital nerve reconstructions in gaps up to 25 millimeters, found that Avance Nerve Graft demonstrated a significantly greater rate of meaningful recovery and a significantly higher return of two-point discrimination than conduits.

Specifically, the Avance group reported a meaningful recovery rate of 88% as compared to 61%, for manufactured conduit. The average static point two -- the average static two-point discrimination was found to have improved to 9.7 millimeters for Avance, as compared to 12.2 millimeters for conduit.

Additionally, the study stratified entries into gap lengths groups of those less than 15 millimeters. And those between 15 millimeters and 25 millimeters. Avance outcomes exceeded those of conduit.

And the differences were found to be statistically significant with meaningful recovery rates of 92% versus 67%, in the less than 15-millimeter group and 85% versus 45% in the 15 to 25-millimeter group.

Importantly, meaningful recovery rates for Avance, were found to be consistent, across all the gap lengths, while conduit performance declined with increasing gap length. AxoGen Technologies were prominently featured on the program, at the FESDH and ASSH conferences. I'd like to highlight three presentations that were a particular interest.

At ASSH, the latest clinical data from the MATCH autograft cohort of the RANGER registry was presented comparing Avance Nerve Graft repairs to autograft repairs in sensory and mixed-nerve injuries in the upper extremity.

The study reported meaningful recovery rates for 156 nerve repairs and found that both sensory and motor outcomes for Avance Nerve Grafts were comparable to those reported for nerve autograft, without the loss of function and risk associated with the autograft harvest.

Complementing the MATCH clinical outcomes, a study on nerve repair procedure costs was also presented. The study evaluated payer data from 340 individual claims. And found that the hospital facility procedure cost, for Avance Nerve Graft were comparable to that of traditional nerve autograft. This study included acute procedure costs only.

And did not consider the potential additional costs, associated with the management of donor site complications. As such, data from the RANGER study was presented on the use of Avance Nerve Graft for reconstruction, following the removal of a painful neuroma.

The study titled What to do with a Painful Neuroma, Resection and Reconstruction with Processed Nerve Allograft, Provides a Promising Solution to this Dilemma, evaluated 36 neuroma resections and reconstructions of the resulting gap with Avance Nerve Graft.

The study found that, in addition to achieving a clinically meaningful improvement in pain scores, meaningful functional recovery was observed in 94% of subjects. This approach offers surgeons with a new option, for the management of these challenging cases.

And provides insight into the role of Avance Nerve Graft, in the care of patients with neuroma pain. REPOSE, our prospective randomized controlled study, evaluating the use of AxoGuard Nerve Cap, in the management of painful neuroma as compared to a standard neurectomy procedure, continues to enroll in the comparative phase.

And we anticipate enrollment will be completed in Q4 of 2021. For the pilot phase, we have completed the last subject follow-up visits and data analysis is underway to support a REPOSE study pilot phase manuscript. We anticipate sharing the pilot study findings in Q1 of 2021.

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 are encouraged by the performance of our AxoGen team to creatively adapt and adjust to these challenges.

We have 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. We remain as excited as ever about the opportunity in front of us and we believe we are well-positioned to drive continued growth as we emerge from the pandemic.

Before I turn the call over to Pete, I'd like to spend a moment discussing our outlook for the fourth quarter. Coming off of the strength in the third quarter we see the momentum continuing in our business.

And absent a material change in the health care environment due to COVID-19, we do expect to see year-over-year revenue growth in the fourth quarter. We anticipate the growth rate will be more moderate in Q4 as we do not expect to receive the same benefit from deferred procedure revenue that we saw in Q3.

And we believe that it's appropriate to expect COVID-19 may continue to have a dampening effect on overall procedure volumes in the quarter. While we remain cautious in the near-term, we're encouraged by the strength of the business and our ability to execute our commercial strategy.

We remain confident that we will continue to be a long-term growth company as we pursue our mission to change the standard of care for patients with nerve injuries. Now I'll turn the call over to Pete for a review of financial highlights.

Pete?.

Thanks Karen. Third quarter revenue increased 17% to $33.4 million. Our revenue increase for the quarter was a result of a 12% increase in unit volume and a 5% net benefit from changes in pricing and product mix. Gross profit in the third quarter was $27.7 million, compared to $24 million in Q3 of last year.

Gross margin was 83% for Q3 compared to 84.2% in the prior year. Gross margin also improved sequentially from 74.7% in the second quarter as a result of restarting production at our previously idled processing facility during the third quarter and as a result of increased overhead absorption due to higher production levels.

Total operating expenses in the third quarter declined 5% to $28.8 million, compared to $30.2 million in the prior year. Total operating expenses in the third quarter included $3 million in non-cash stock compensation compared to $2.4 million in the prior year.

Total operating expenses were down primarily as the result of our cost mitigation efforts and the impact of prior-year litigation charges partially offset by higher variable compensation due to higher revenue in the quarter. Sales and marketing expenses in the second quarter declined 3% to $17.7 million, compared to $18.2 million in the prior year.

The decrease was driven by a reduction in travel and education programs including in-person surgeon education and conference expenses partially offset by higher variable compensation. As a percentage of total revenue, sales and marketing expenses decreased to 53% for the three months ended September 30, compared to 64% to last year.

Research and development spending in the third quarter was $4.2 million, which is consistent with the prior year. Research and development costs include product development, which includes expenses in support of our BLA for Avance Nerve Graft and clinical research.

Product development expenses represented approximately 49% of total R&D in the third quarter compared to 51% in the prior year, while clinical expenses represented the other 51% in Q3 of 2020, compared to 49% in the prior year. As a percentage of total revenues, research and development expenses were 12% in Q3, compared to 15% in the prior year.

General and administrative expenses in the third quarter decreased 12% to $6.8 million or 20% of revenue, compared to $7.7 million or 27% of revenue in the prior year.

The decrease is primarily related to lower travel and professional fees, as well as the impact of litigation fees in the prior year, partially offset by increased variable compensation. Net loss in the third quarter was $1.5 million or $0.04 per share compared to $5.6 million or $0.14 per share in the prior year.

Excluding the impact of noncash stock compensation, as well as litigation and related charges, we are reporting adjusted net income and net income per share in Q3 of 2020 of $1.5 million and $0.04 per share compared to adjusted net loss and loss per share in the prior year of $2.6 million and $0.07 per share.

We also achieved positive adjusted EBITDA of $2.3 million during the quarter compared to an adjusted EBITDA loss of $3 million in the prior year. This adjusted EBITDA number also excludes the impact of stock compensation, litigation and related charges.

Turning to our balance sheet on June 30th, we announced a new seven-year interest-only financing agreement with Oberland Capital, which provides up to $75 million in total financing commitments with $35 million drawn as of the end of Q3.

A portion of the interest incurred under this facility will be capitalized into the cost of our Dayton biologics processing center during its construction period as required under ASC 835. In the third quarter, we paid and capitalized $490,000 of interest as construction and process and recognized and paid $397,000 as interest expense.

The balance of cash, cash equivalents and investments on September 30, 2020 was $106.7 million, compared to a balance of $109.9 million on June 30 2020.

And that change includes capital expenditures for our new facilities of $5.2 million including the amount of capitalized interest, partially offset by positive operating cash flow of $2 million in the third quarter.

As anticipated, we will soon be fully operational in our new Tampa facility and will make final cash payments for the facility totaling approximately $3 million in the fourth quarter. And as previously disclosed, we are resuming construction of our Dayton biologics processing center in early 2021.

We anticipate completing construction of the facility in the third quarter of 2021, followed by a one-year validation process, and expect to convert production to the new center in late 2022.

Our positive adjusted EBITDA of $2.3 million and operating cash generation of $2 million during the quarter were primarily the result of strong top line revenue and the impact of our cost mitigation initiative that we implemented in April.

Our cost mitigation initiative was designed to put us on a more efficient spend run rate, while also preserving our ability to support customers and patients and remain on offense through the recovery.

While we are encouraged by this result and believe that it highlights the underlying potential for strong profitability and cash flow generation in our business model, we would – we would also caution that our positive cash flow in the third quarter was the result of this unique confluence of events that allowed us to over-deliver from a profitability perspective, and we are unlikely to receive that same benefit over the next few quarters.

As Karen noted earlier, we expect to see year-over-year growth in the fourth quarter, but absent a material change in the healthcare environment due to COVID-19, we anticipate the growth rate will be more moderate in Q4, as we do not expect to receive the same benefit from deferred procedure revenue that we saw in Q3, and we believe that it is appropriate to expect COVID-19 may continue to have a dampening effect on overall procedure volumes in the quarter.

Additionally, we restored the 10% to 15% salary reductions for non-executive employees in August and are restoring the 20% reductions for executives and Board fees at the end of October.

And we have begun to slowly ramp investment into projects that were previously on hold, including certain clinical trials, product development, and marketing and administrative initiatives, all of which are key to driving long-term sustainable growth.

As a result, we anticipate that operating expenses will see a moderate sequential increase in Q4, and that we will return to a moderate cash burn in the fourth quarter.

It is also important to note that several of the initiatives we enacted earlier in the year in response to COVID-19 have evolved into an improved operating model that maybe more permanent in nature and put us on a path to improved productivity.

We are encouraged by the strength of our business in the third quarter, as we continue to realize improvements driven by increasing demand across our markets and by our team's improved commercial execution.

As the healthcare community in general and our business specifically, moves toward a normalized environment, we are confident that the operating improvements that we have delivered and the investments we are making will position us to grow the business meaningfully and emerge from this pandemic-related downturn, a stronger, leaner organization on a path to profitability.

And with that, I'd like to hand the call back over to Karen..

Thank you, Pete. Overall, we are pleased with our performance during the third quarter, as our commercial team continued to execute with the renewed focus on our core trauma opportunity.

We are encouraged that our recovery progressed faster than expected during the quarter, and we are well positioned entering the fourth quarter and 2021 to continue developing the nerve repair market.

I'd like to thank the entire AxoGen team for their dedication and resolve during these challenging times, as we remain committed to delivering innovative nerve repair solutions designed to improve outcomes for patients, surgeons, and hospitals. At this point, I'd like to open the line for questions.

Omar?.

[Operator Instructions] All right. Thank you. Our first question is coming from Raj Denhoy from the company, Jefferies..

Hi, good evening, guys.

Can you hear me okay?.

Yes..

Yes, we can..

Great, great. Maybe, Karen, I can start with you on the revenue side. So I think you noted that about 10% of the revenue in this quarter was probably catch up, right? And so, I think that leaves something around $30 million or so as kind of the base in the quarter.

Is that a good starting point for where you think you can settle or a least start in the fourth quarter?.

Well, you're right to back out the deferred procedures and thinking sequentially what will happen, because those were really injuries that happened in Q2. But I think we're mindful of the impact on COVID-19. And remember that usually, we're sequentially flat between Q3 and Q4.

So, while we think we'll show year-over-year growth, we're not anticipating significant growth year-over-year..

So, you'd maybe suggest something a little light from that, just to account for perhaps COVID having an impact during the quarter?.

Yes..

From that $30-ish million? Okay. Fair enough. And then maybe, Pete, I'm just trying to parse out the comments that you made around expenses, right? So the expense load in the quarter was not as low as it's been in times past, but I guess as a percentage of revenue, it was a little bit lower.

But it sounds like as you're going forward, maybe that absolute number on expenses will tend to drift upwards, or really, how do you think we should be modeling this? That $28.8 million in operating expenses in the quarter is that sort of a baseline now and it goes up from there, or how should we really be thinking about it?.

Yeah. No, that's right. I do think it's going to continue to tick up. Now, it's not going to go very quickly. But we're going to – we've begun to make additional investments on projects that we put on hold, things that are pretty important around clinical trials and continuing to get back into growth mode.

Look, we're encouraged about the growth opportunity of the top line. We've remained on offense from a commercial perspective. With that, we kept that team in place and these guys are doing just a very good job of capturing the top line as we – as the economy continues to recover and as these hospitals continue to open.

And we are going – we put a hold on some of the other projects around the business – clinical trials, some marketing initiatives, and other things that we'll begin to start spending some money on – but we'll do it, in a way that certainly keeps us on a much more efficient run rate than we were on pre-COVID..

Fair. Fair enough. And then maybe just one last one, Karen. So for you, I guess, you highlighted the MATCH cohort, or the RANGER study, I guess, in the press release as well as the publication that came out.

I guess, the question is really, is there any reason why one couldn't reasonably look at the results from that study as a good proxy for what we're going to see in the RECON study when we eventually get that data?.

Well, I think every study is its own study, so you can't assume that one study tells you the results from the next study. But having said, this, yes, it's confirmatory to the data that we planned for when we put the RECON study together and we see those same types of results coming out in the MATCH study. .

Very good. Thank you..

Thank you. And our next question is from Chris Pasquale with Guggenheim..

Thanks. Congrats on a nice quarter guys.

I'm curious on the deferred procedure component, how much visibility do you have into when the injuries occurred? Are you confident that that 10% number is pretty solid, or is some guesswork involved there?.

It's an estimation, but what we did see was a very noticeable surge in procedures done as hospitals opened up regionally around the country. And so for a discrete period of time, you'd see a big spike in procedures and that's what we're defining as that surge or deferred case volume.

We supplemented that with going out and actually interviewing surgeons to get their thoughts on where they are in catching up on their deferred procedures. And we had -- and we've been doing this on a rolling basis, and surgeons pushed to get their nerve repairs done quickly.

They found that the hospitals were supportive of that to provide good patient care. And really the surgeon community has told us that they believed and it looks like they did that they would get the majority of their deferred procedures wrapped up by August. And that's what it seems like they've done..

Okay that's helpful. And then second one for me, slowing the pace of rep hire is driving more efficiency from the sales force makes a lot of sense. I'm curious how you're thinking about the triggers for resuming hiring or resuming expansion of the sales force at this point.

Is there a certain level of revenue per rep or certain territory productivity size that you're using as a benchmark now? Just trying to gauge how long you expect to be on hold here while you go through this phase of driving improved efficiency?.

Well, we haven't set a fixed number. I think we're looking at individual territories and the growth that they're driving, but we've always said that we thought a territory theoretically could be around $2 million in revenue per territory. We want to continue to see productivity move in that direction.

We'll obviously split territories on a rolling basis through the year if we start to see some getting bigger than that or substantially bigger than that.

But we're really thinking that we've gotten several quarters in front of us here where we can really see the stability that we get and the productivity we get without the disruption of lots of splitting of territories..

Great. Thank you..

And our next question is from Rich Newitter with SVB Leerink..

Hey, this is Erin on for Rich. Thanks for taking our question. I was just hoping maybe you could flesh out some of what's contemplated in the moderate growth outlook for 4Q, maybe just kind of across the different segments like trauma, BRN, OMF and pain.

And what kind of growth do you think you might get in those types of segments?.

Sure. If you look that next layer deep at our overall growth, the majority of our growth -- majority of our business is upper-extremity trauma and the majority of our growth has been upper-extremity trauma. That's been really the first segment to rebound and to continue not only to recover from where we were from COVID, but to return to growth.

And so we think that we will see what are typical trauma patterns in the trauma segment perhaps dampened by resurgence of COVID regionally, as we saw in Texas and Florida that there can be shorter periods of time.

We don't think hospitals will shut down in any way, so this is not a total return to what we saw in the April time frame, but there are cases where they become overwhelmed and especially these level-1 trauma centers, which also often are some of the large centers in a particular region with treat COVID patients.

They may have to defer cases or move cases to other hospitals or ambulatory surgery centers and so we're trying to be mindful of that in Q4 that there might be some shifting.

In the breast reconstruction segment, we're seeing a recovery in third quarter to start, but what we're hearing from our surgeons is because there weren't mammograms that were done for several months that there is sort of an air pocket in the pipeline of patient flow.

And that's going to take a couple of quarters to get all the way through to the reconstructions, because it can be three to six months between diagnosis before they may have their full breast reconstruction. And so we think the next couple of quarters will be dampened. We again saw some recovery in Q3.

We may see some continued recovery in Q4, but not returning to the continued growth rate until we get into sort of the mid to latter to mid-part of next year. Oral maxillofacial and pain again smaller segments, oral surgery we believe will continue to be somewhat dampened because of COVID until COVID starts to back down.

People are seeing the dentist less. They're having less dental procedures. The dentists are delaying if they can benign tumors; malignant tumors are still going forward, but delaying the benign tumors. And that's a direct effect of COVID in that this is high-risk procedures for disease transmission if the patient is positive.

And so we think that the oral maxillofacial segment will continue to be depressed until the resolution of a vaccine essentially in the coming year.

And then the surgical treatment of pain, it's a little different dynamic, but the same timing sort of midyear where we think we'll start to see a more return to significant growth in the surgical treatment of pain. This is a really new market for us. It's new for a lot of patients to even think of having their pain treated surgically.

And what we found is that in this environment, they're concerned about coming into the hospital to have a surgery and instead are willing to continue reliance on pain medications for a period of time not planning to never do the surgery, but willing to postpone it until they feel more comfortable coming into the hospital setting.

And so that's another segment that we think will continue to be relatively low growth until we get into the midyear time frame. .

Okay. Great. And then just one more quick one for me. I was just wondering if you could maybe shed some light on what you've seen in the first couple of weeks of October.

Given the recent rise in cases have you heard any feedback from customers indicating that there's a slowdown or that some of the elective procedures may need to be start to be deferred again? Thank you so much..

Well, of course, everything that happens in COVID-19 is very regional. We've seen strength into October from -- in the same way that we saw it in Q3, but we have heard of hospitals that are starting to signal that they may need to defer some elective procedures including in this case.

And again, typically trauma is not considered elective, but in this case they would look to see if they can defer even traumatic injuries for nerve repair.

So while we haven't seen anything to date that I would consider substantial as we look at the charts and as we talk with hospital administrators I think that there's a possibility that procedures will get deferred in some locations. .

Okay. Great. Thank you so much..

[Operator Instructions] Our next question is from Kyle Rose with Canaccord. .

This is Ian on for Kyle. I wanted to piggyback off the previous salesforce question a bit. Just how do you think about driving utilization in existing accounts versus focusing on getting those new users? I think you mentioned top 10% of accounts for 35% of sales again.

Are those surgeons using Avance for 100% of their procedures? Is there an opportunity to grow that at all? It seems like that's been fairly consistent here even with the COVID disruption as well. Any color there would be great? Thank you. .

Sure. Yes. No, we're really clear that our best opportunity is to drive penetration with our existing users and existing accounts. We'll continue to see expansion of accounts, but our focus is really on driving adoption among existing users because most of our users are extremely lightly penetrated.

And with the data that we've put together to date and the strength of some of the benefits, I think that we provide even in this COVID environment where we shorten procedure times compared to an autograft and allow them to do procedures in a more effective way we think that there are real reasons to help, push that adoption and to do it in -- particularly in this environment where we provide real benefits over what they've done historically.

.

Perfect. Thank you..

There are no further questions at this time. I would like to take the time to turn the floor back over to Pete Mariani for closing comments. .

Well it'll be Karen and thank you everybody and thank you, Omar. 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 are attending including the Jefferies Virtual London Healthcare Conference on November 18th, the Canaccord Genuity Virtual MedTech and Diagnostics Forum on November 19th and the Piper Sandler 32nd Annual Health Care Conference December 1st through the 3rd.

Thank you very much. .

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation and have a great evening..