Alphatec Holdings, Inc.

Good afternoon everyone and welcome to the webcast of ATEC's second quarter financial results. We would like to remind everyone the participants on the call will make forward looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call you may hear the company refer to reported amounts which are in accordance with U.S. GAAP as well as non-GAAP or pro forma measures. Reconciliations of non-GAAP measures to US GAAP can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. Leading today's call will be ATEX Chairman and CEO Pat Miles and CFO Todd Koning. Now I will turn the call over to Pat Miles. Please go ahead.

Pat Miles Thanks, Audra, and welcome to the Q2 2022 financial results uh call um there will be some forward-looking statements so if you review that at your leisure we will be providing a forward view so um a a uh i'd say a very good um second quarter finished at a total revenue of 84 million dollars for the quarter which is a 35 year-over-year growth um I would say that the procedural investment thesis is working, and so we're scaling top-line growth toward positive adjusted EBITDA in 2023, training surgeons on PTP. There's a lot of them. There's big demand. We believe PTP is the next generation of lateral surgery. We're expanding indication with new product launches, reflecting our information-based competitive advantage in clinical publications, and we'll hit on that. extending EOS's influence while leveraging new hospital access. So we're getting more hospitals and more access. And so I want to take a minute and just make sure that there's great clarity with regard to the procedural investment thesis. And so the way that we look at the world is we try to align with surgeons, and surgeons don't think in terms of implants or widgets. Since implants and widgets are the currency of the business, I think oftentimes they're industry's priorities. But when surgeons think in terms of treating patients, they think of procedures. What procedural intervention will work best on a specific patient and respective pathology? What are the unique requirements? What procedure most predictably creates a sustained successful long-term outcome for a patient? And so many companies talk about procedures, but few have gone beyond really kind of implant and retractor design and development. And what we've done is really design and develop procedures based upon the unique requirements for each approach. For instance, if you're going to design a system for prone lateral surgery, It's been demonstrated that you need to have a comprehensive, automated neurophysiology system like SAFAP. You need to have a patient positioner. You need to have a specifically designed retractor. Additionally, we've invested in imaging technology. This assists surgeons to better understand unique patient requirements. We believe these efforts create a higher likelihood for predictability. And so when you're investing in predictability, these are the things that we believe to be really most important. And the nemesis of spine surgery is the volume of variables you're trying to control. So surgeons choose ATEC because we architect comprehensive procedures that obviate clinical variability. So the reason that we think ATEC grows faster and we think our growth is sustainable over a long period of time is that surgeons very much understand and buy into what we're building. They know we're best positioned really to deliver that clinical predictability. And what drives predictability is planning. Not only planning, but execution. I think there's been a bunch of literature on this. I want to go over it a little bit. Surgical planning is really a big deal. It's much more than when a lot of companies talk about planning. They're talking about planning screwed trajectory. Just like spine surgery is a heck of a lot more than screw placement, planning is much more than planning screw trajectory. It's part of it, but it's not what drives long-term successful patient outcomes. Planning includes picking the right patient and knowing you can achieve the goals of surgery, which is decompression, stabilization, and alignment. Surgeons want to know what other unique requirements they need to deal with with regard to a specific intervention. If they're going to stabilize a patient, it'd be nice to know what the bone quality is, and EOS will give you that information. And so then you start to think about alignment planning. It's important to have standardization, like a standing, weight-bearing, full-body image. That should really be a requirement as it relates to the planning process. And the surgeon needs to see a patient in a standing, active position. This is how they can determine if a patient is compensating, if a patient's bending their knees or retroverting their hips. Imagine that. It's the whole body that they need to see when they plan a surgery. Something you won't see in a short x-ray or when a patient is lying down. Other companies are not investing in these type of diagnostics, so they're going to struggle to have a comprehensive plan. Over time, predictive analytics will let us understand a reciprocal change. And what reciprocal change means is that if a surgeon fuses a certain spine segment, they need to understand how they change the mechanics of the entirety of the spine and how it affects other levels. And not just through gestalt, but the ability to know that before they intervene. Today's surgeons don't know that. And so we will have objective imaging data to help surgeons make better decisions for patients. And again, we think that that's a big deal. And so you combine a very comprehensive surgical planning with a fully thought-out procedure, and that begets predictability. And so we believe that combining specifically designed comprehensive solutions with the use of computer-assisted tools able to integrate several parameters and learn from the experience can change the traditional way of selecting treatment pathways. So we think that this is a very big deal and we think it completely sets us up uniquely. um changing gears a little bit i just want to make sure everybody totally got that because i think that people interject surgical planning for much less than how we've committed to the to the depth of of doing it in a way that's that's profoundly unique and better for patients in the long run so Anyway, I'll get off my soapbox and get to the organic scorecard for Q2 of 2022. So I think it's a validation of what we're doing. So year-over-year organic revenue growth at 30%. This is our 13th consecutive quarter of greater than 20% revenue growth except for the Q2 pandemic quarter in 2020. 17% year-over-year growth in procedure volume, 23% year-over-year growth in surgeon users. So more surgeons come in our direction, which we love. 10% year-over-year growth in average revenue per case. That would suggest more products per case, which is 2.2 blended average, which is growing. And so more complexity, more cases. And so... Our commitments are not going to change. We're going to continue to create clinical distinction. We're going to unleash the company that revolutionized in spine surgery and extend our information-based advantage. We're going to continue to compel adoption from surgeons, expand our procedure utilization, and really earn loyalty by furthering clinical predictability. And there's a lot going on that I'll get into with the sales force, so we're going to continue to elevate the sales force and begin to lever these investments made to increase the clinical aptitude in the footprint. And so let's take a look at a few of the accomplishments from a scorecard on creating clinical distinction. We're likely, from a market share perspective, around 2.5%. I take that to mean we have 97 and a half to go. We launched four products on course to the 8 to 10 a year. The pipeline for EOS has grown since acquisition by 40%. And the largest contributor to our growth continues to be lateral surgery, which is the way that we intended it. And so we had another record number of surgeon visits in Q2. And it's because of the interest in PTP. We truly have unmatched sophistication and know-how. You have somebody like Dr. Pimenta and the PTP group of surgeons who really popularized and architected this surgery. And surgeons want to come and learn from the most experienced. And so that is without question. And to that end, we hosted greater than 65 surgeons at a PTP summit as well as did a Duke Emory anterior column conference. And that's independent of the greater than 150 who came out to be trained on PTP in the quarter. And so I would tell you this is a very active place, and our surgeon education group is exceedingly busy. The other thing that's been fun is just I would tell you a – A competency of the group is applying our learnings, and some of the learnings around PTP will be integrated in terms of what we do with regard to our lateral trans-solar surgery. So applying our learnings is something that we love to do. We're also seeing more utilization in complex surgery, and it's starting to be fun to be able to see 19 peer-reviewed publications that further validate the clinical thesis for PTP. So one such publication was a study of SSCP monitoring for femoral nerve health during PTP. This is an example of designing a procedure from the ground up. If there's a documented risk of femoral nerve complication in lateral surgery, our view is that you should develop a technology that detects it so as to avoid it. So when you start to think about proceduralization, this is a foundational requirement. It's not a retractor and an implant. It's technology that ultimately assists the surgeon. The study showed that SafeOp automated SSCP enables actionable nerve health monitoring. The historical challenge for gathering SSCPs has been these are very, very small signals, and capturing has been difficult. And so we were able to capture the signals through amplification, and then provide real-time actionable information through providing a moving average. And so the way that SafeOp does this is that, again, it amplifies the small signal, provides the information real-time, and the computer takes predefined parameters and classifies the waveform. So a very predictable automated tool that ultimately makes for safer surgery, which, again, we think is a foundational requirement for doing things in a sophisticated way. So getting to the EOS scorecard, I still get to meet a surgeon who doesn't want an EOS. It's really doing what we intended, which is providing cross-selling opportunities and hospital access. So Q2 revenue was $12 million. Pro forma revenue growth was around 49%. There's approximately 450 EOS units installed. and 40% growth in pipeline since the acquisition closed, as I previously stated. And it's the highest unit order since acquisition closed. So, you know, EOS will just continue to expand our information-based competitive advantage. I was with our marketing and engineering team yesterday, Mike, Aaron, and Avi, and they were just showing me, you know, some of the images that have come into the portal and it's I can't tell you how exciting it is to start to see and understand the type of thing that comes over the the world wide web in terms of into the cloud portal and and just to continue to see the building of our informatics system with regard to live imaging and just the ability to use that information clinically use it operationally and use it economically is very very apparent to us and and And, again, I just can't be more excited about what we're doing from an EOS perspective. Our second commitment is really around compelling surgeon adoption, and it's clearly happening. I mean, 23% growth in surgeon user base year over year. I think I stated that greater than 150 surgeon attendees at training events, 10% year over year growth in average revenue per case, So more complexity, more products, and then more product categories per surgery as well. And so we believe this is important. reflected buy-in to our clinical thesis, meaning the products per surgery and the number of products per surgery is that reflection, and we think this is a great way to really reflect that buy-in. It continues to rise, and I think things like PTP continue to lead the way. I think lastly, but surely not least, is what we're doing in the field with regard to our sales force. Some companies are growing by adding distributors. We're growing by both increasing revenue in established territories. Think of it really as same-store sales at a year-over-year rate of 25%. Again, these are objective elements that reflect buy-in to what we're doing. So not only are we driving revenue by creating bigger businesses, we're also doing it through adding new distributors as well. 34% of our territories are larger than $5 million. And I state that because I so vividly recall years ago when we talked about getting to $200 million and we said, gosh, there's going to be approximately 50 agents doing $4 million. I would tell you that that's more than happened, and it's going to continue to more than happen. And so clearly... That's happened, and we continue to compel adoption, and it's somewhat undeniable. We also see an increase in average case revenue, which is really a reflection of confidence. We always talk about creating confidence based upon clinical aptitude, and that seems to be going on based upon seeing some of the demographics associated with increased case revenue. So anyway, we're doing this while we elevate the clinical aptitude in our sales force. in a footprint that is still under or unrepresented. And so from our view, opportunity abounds. And with that, I will turn it over to Todd.

Well, thank you, Pat. And good afternoon, everyone. We appreciate you joining us this afternoon. So I'll begin with revenue. Second quarter revenue was $84 million, reflecting 35% growth over the prior year and a 19% improvement compared to the first quarter. of 2022. The $84 million in revenue is comprised of $72 million in organic revenue and $12 million of EOS-related revenue. Second quarter organic revenue of $72 million increased 30% compared to the prior year, which is probably our most difficult quarterly count given the very strong performance in Q2 of 2021. Year-over-year volume growth of 17% was driven by the continued expansion of surge in adoption with surge in users increasing 23% compared to last year. Much of that growth is coming from established sales agencies with at least one year of tenure. That cohort achieved 25% growth in the quarter, demonstrating durable sales growth from our most tenured agents. Average revenue per case expanded 10% year-over-year as revenue mix continues to shift toward procedures that feature more products per case and procedures with greater complexity. Strength was portfolio-wide, with lateral, biologics, and ALIF all contributing significantly to the growth this quarter. EOS deliveries in the quarter were solid, driving $12 million in EOS-related revenue and growing 93% compared to the Q2 of 2021, and on a pro forma basis, growing 49%. As a reminder, the transaction closed in May of last year, and we've continued to make progress with the integration, showing strong revenue growth, achieved the highest number of orders in any quarter, and are seeing improvements in the time required to install new orders. Continuing through the remainder of the P&L, second quarter non-GAAP gross margin was 70%, down 320 basis points compared to the prior year. Just under half of the year-over-year decline, or about 150 basis points in gross margin, was mix-related due to the consolidation of EOS imaging, which has a lower gross margin profile than our spinal implant business. Second is an increase in biologics revenue mix, as we are seeing biologic detach rate increase significantly. Biologics comes at a meaningfully lower margin profile than overall business, and this is contributing about 80 bits of pressure year over year. Finally, increased EO service costs as we address the backlog of service calls created during the COVID-19 pandemic and contributing about 40 basis points of pressure. Our expectation is that the margin headwinds outlined above will persist through the back half of the year. Operating expense in the second quarter demonstrated leverage while we continued to thoughtfully invest in long-term sector-leading growth. Second quarter non-GAAP R&D was $9 million and approximately 11% of sales, 50 basis points lower than prior year. The increase on an absolute dollar basis was driven by continued investment to support organic portfolio expansion and the advancement of the EOS platform. Non-GAAP SG&A was $65 million and approximately 78% of sales in the second quarter, compared to $50 million and approximately 80% of sales in the prior year period. While the increase on an absolute dollar basis reflects continued investments in the expansion and training of the ATEX sales network, surge in education, and support for the increasing size and sophistication of the company, we delivered 260 basis points of improvement on a percentage sales basis. This speaks to the leverage we have begun to deliver as our business scales. Total non-GAAP operating expense amounted to $75 million in approximately 89% of the sales in the second quarter. compared to 57 million and 92% of sales in the prior year period, delivering a total of 320 basis points of operating leverage year over year. I'd also like to highlight the fact that we delivered 910 basis points of leverage sequentially from Q1 2022. Adjusted EBITDA with a loss of $8 million and approximately 10% of sales in the second quarter compared to a $7 million loss and 11% of sales in the prior year period. An improvement of 80 basis points as a percent of sales Sequentially, we saw $3 million or 570 basis points of improvement driven by 910 basis points of operating leverage, partially offset by gross margin. As sales growth drives leverage across our business, we continue to expect adjusted EBITDA for the full year 2022 to improve approximately 400 basis points as a percent of sales relative to the 12% we saw in 2021. Now to the balance sheet. We ended the second quarter with $107 million in cash. Operating cash use was $40 million, which, consistent with previous quarters, was predominantly related to investments in inventory and instruments to support our expanding distribution footprint and new product launches. Included in Q2 operating cash was approximately $10 million in one-time legal spend, which, if excluded, would bring cash use to approximately $30 million. During the quarter, we settled two lawsuits, including the patent lawsuit originally filed by Nuvasiv in early 2018. While the specific terms of each settlement are confidential, they are fully resolved multiple future royalty obligations. We are pleased to have put both disputes behind us. With asset leverage and a more favorable full-year adjusted EBITDA, we expect cash use this year to meaningfully improve relative to last year, consistent with our long-term plan. Debt at carrying value is $336 million, which includes $316 million of a convertible debt. We also recently signed a term sheet for $50 million revolver with a $25 million accordion feature, which coupled with convertible debt offering place last year will support our baseline investment plans toward cash flow breakeven in 2025. We expect to have the revolver in place by the end of this quarter. Our outlook for the full year 2022, we now expect full year 2022 total revenue will approximate $325 million, representing growth of 34% compared to 2021. That includes the following. We now expect full year 2022 organic revenue to approximate $277 million compared to $269 million previously. Updated expectations for growth of 31% compared to 2021 contemplate the strength of performance in the first half and the momentum with which we have entered the third quarter. We now expect EOS-related revenue of approximately $48 million for the full year 2022 compared to $47 million previously. Updated guidance for EOS reflects the strong execution-driven Q2 result. Let me frame up updated ATEC organic revenue guidance with our expectations for procedure volume growth and the expansion of average revenue per surgery. We are raising full-year organic revenue guidance due to increased expectations for volume growth, which is driven by expanding surgeon adoption and increasing geographic penetration. We've achieved solid momentum in procedure volumes in the first half of 2022, including 17% in the second quarter. As a result, we now expect procedure volumes to grow at a high teens rate for the full year, compared to the mid-teens percent rate we anticipated previously. Average revenue per surgery grows as our procedural mix shifts toward procedures like PTP and LTP, which have higher revenue per procedure than our overall average. Our procedural solutions are also being utilized in surgeries with greater complexity, which require more products per surgery and in turn generate higher ASPs. Finally, the level of distinction engineered into ATEC approaches and the cadence of new product launches generally enable us to command a price premium, and we continue to anticipate a high single-digit percent rate of expansion for the full year. As most of you know, our guidance philosophy is to be thoughtful and prudent about how we set expectations by putting numbers out there that we believe we can achieve and have a reasonable opportunity to exceed. In closing, we have built a business capable of driving sustained sector-leading growth. The scale that revenue growth affords is shifting ATEC toward a new phase of business growth, a phase characterized by consistent operating leverage improvement and ultimately an inflection to free cash flow generation. Our procedural investment thesis is earning surging confidence and enabling us to methodically execute the plan. We know that through continued solid financial performance, we are earning your confidence too. We have an active IR calendar over the next few months, including the NASS conference, and I hope to be able to connect with you. With that, I'll turn the call back over to Pat.

Thanks much, Todd. I think if you look at really what we're doing is we're in the middle of our share earning strategy, and that means – several things. It means that PTP is taking share, and that means we're earning more lateral, traditional lateral surgeons, as well as TLIF and PLIF-type surgeons, guys who were traditionally posterior approach, as well as we're seeing it applied to more complex cases. And it's perfectly well-suited. We're seeing a fair amount done in the ambulatory surgery centers. This confidence is creating a halo effect that impacts the rest of our portfolio. We have a fantastic portfolio that gets applied based upon oftentimes the entry via PTP. Our sales channel is getting better and broadening, and so that speaks to further confidence in earning share. And we're dipping our toe into the international business in a narrow but deep way. And I think we've defined that in previous calls, and that remains very consistent. And so we also intend to capture the greater than $2 billion EOS opportunity and hopefully try to lay out a little bit about what we mean by creating predictability through a planning effort today. thrilled to death with regard to our ability to uniquely have that information that's going to drive better surgery. And we think that it'll reflect in just the consistency by which we perform. And so our commitment that we made at our investor day out here at ATEC of a 2025 being $555 million, which reflects a 23% CAGR, and a $80 million EBITDA, adjusted EBITDA breakeven in 2023, and the perpetuation of a disciplined investment that will deliver cash flow breakeven without the additional dilutive capital. And so excited about that. Our opportunity to address the need for predictability and reproducibility is massive. What is the nemesis of spine is the volume of variables that you have to control. And so we know that spine surgery needs ATEC. So with that, we will take questions.

Thank you. We will now open the floor up for questions. In the interest of time and in consideration of others with questions, please limit yourself to one question. As a reminder, press star 1 to ask a question. And we'll go first to Josh Jennings at Cowen.

Hi, this is Eric Ong for Josh. Thanks for taking the question. I appreciate all the detail you guys shared around volume growth expectations for the remainder of the year. I was just wondering if you could help us understand the recent procedure volume trends that you've observed to date that underpin those assumptions. What sort of month-to-month or month-over-month improvement have you seen through June, July, and now into August? Thank you.

Hey Eric, good afternoon and thank you for the call. You know, really when you look at our volume growth, 17% in the quarter, I don't think we're going to get into the nitty-gritty of month to month, but I can tell you that we exited the quarter or entered the third quarter with kind of the same level of momentum that we saw in the second quarter. And so, you know, we definitely saw an improvement sequentially from Q1 to Q2 in terms of volume growth. The year-over-year volume growth continued to remain strong and I think it's really on that basis that we raised our guidance the way we did, really on the back of incremental unit volume growth.

We'll go next to Matthew Blackmon at Stifel.

Hi, this is Colin on for Matt. Just one on EOS, appreciating the pressures hospitals are facing, given the challenging CapEx backdrop. Could you walk us through how these dynamics really affected EOS placements in the quarter and how that factors into the raised EOS guidance as well? Thank you.

Yeah, I'll let Todd take the guidance one, but We're so early in the whole EOS opportunity. There is such a volume of worldwide hospital interest, and there's so many different ways to acquire this system. I don't candidly see right now a huge headwind. We're such a small player, and the volume of units we need to place to be relevant is such that we're not kind of as appreciative of the macro – dynamics. That being said, I think people are holding on to cash, but again, I think what we're doing is our ability to gain access to an institution with regard to ways to rebate against implants provides hospitals access to the technology while perpetuating a relatively recession-proof business in the implant. And so that's kind of how we see it from a kind of an operational perspective, but I'll pass it on to Todd for a financial view.

Yeah, completely. And, Colin, you know, I think what we saw was a record number of orders in the quarter. So, you know, I guess we didn't really see a headwind from that perspective, and so I think we're very pleased with where we're at in terms of the number of orders in the period. And as it relates to the guidance, really what we did was we kind of dropped the beat and held the second half on EOS. You know, overall guidance was raised $9 million. We beat by about six in the quarter, five of that being in organic and a million of that being in EOS. And so we've really raised in the second half $3 million organic and have held the EOS guide. And so that's really how you should kind of read through our guidance and the performance in the quarter.

We'll take our next question from Gibran Ahmed at Canaccord.

Great. Good afternoon. This is Gibran on for Kyle. Appreciate you taking the questions, and congrats on another strong quarter. Maybe just to dig in a little bit further on EOS, just curious in terms of what you're seeing between a purchase and an earn-out dynamic, if you're relatively sort of agnostic to the two, and then secondarily with the broadened hospital access. How deep is some of that cross-sell and pull-through opportunity in these early innings? Maybe just trying to get a sense of, obviously, the opportunity is quite wide, but how deep are you getting in some of these initial accounts and initial wins? Thanks for taking the question.

Yeah, I would tell you that it's early goings. the vast majority of sales we have today are outright purchases. The interesting part is we're getting outright purchases in private surgeon offices and groups right now as well. And so I think what we're seeing is a place like Texas back, you know, um, uh, entered into a, a, a use-based type, uh, rebate agreement. And, and so the great part is, is the volume, um, for, for those types of things has, has, has been what we intended it to be. And so, um, we're somewhat agnostic as you say, and also, I think, you know, you did a good job framing the question, which is it's, it's the early innings, but you know, in the, um, In the corridor, we saw places like Wheel Cornell, OrthoIndy. OrthoIndy is the perfect example of a place that needs it both from a spine and a total joint utility perspective. Also, Hoag here in Southern Cal. The places that are acquiring these things, and clearly that's just a few of them, are really a who's who. And again, back years ago when we had challenge getting access to some of these institutions based upon this being a previously broken company, this is such a kind of a great way in, if you will. And so, anyway, probably more than you intended to get from me, but just a little bit of color.

Yeah, and I think I'd add to that, you know, over time, we'll be able to measure after you place these units, we can measure the impact on increased volume from places where we hadn't been. That'll kind of happen after we place the unit. But what's nice to know is that the leading indicator here is that these units were we're getting orders for where we don't have access. With the order, we're getting the access. And that's the leading indicator in why we have confidence that the value thesis is manifesting itself.

And we'll go next to David Saxon at Needle & Company.

Hi, guys. This is Joseph on for David. Congrats on the great quarter. Just wondering if you guys could give us some of the – into next year for cash burn and, you know, potential even up break even next year. Thanks.

Yeah, Joseph. You know, I think as we laid out in our investor day in May, 2023 is expected to be cash flow breakeven and 2023's, excuse me, adjusted EBITDA breakeven. 2023's cash burn will be certainly lower than this year. And so, you know, I think we're a bit early to put a number on it, but we're certainly going to improve. But the key here is getting our adjusted EBITDA improving and breaking even next year. And I think what gives me confidence is Our sequential improvement here in the second quarter, where we saw a pretty significant improvement, both in dollars, but in terms of the percentage leverage that we saw from Q1 to Q2, and our confidence and ability to see continued improvement throughout the year to achieve really the commitments that we laid out from a long-term plan standpoint. And so I view our second quarter performance here as completely consistent with our expectations relative to what we laid out in our long-term plan.

And we'll go next to Amit Hazen at Goldman Sachs.

Hi, this is Phil. I'm for Amit. Kind of an overarching question. Try to understand, you know, I realize you're still pretty nascent on a lot of the accounts that you're in, but staffing challenges and issues related to COVID have still amounted to materiality for a lot of other companies that are more mature in nature. And so I'm just wondering, you know, what are you seeing in the environment? And basically, the question is, do you feel like you would be growing faster if conditions were slightly different right now and enabling kind of the top end to continue to grow faster? Thanks.

Yeah, you know, it's kind of interesting. I don't think the environment that we participate in is any different than anybody else. I don't care how big the company is. There's still kind of the ebbs and flows. I think the difference is there's a share-taking dynamic going on that is very apparent. And so, you know, what we're doing is we're growing through it. And I think that your point's the right one, which is we'd be growing faster if there was more predictability associated with the environment that we're participating in. But everybody's got these same dynamics.

And we'll go next to Philip D'Antoine of Piper Sandler. Hey, can you hear me all right? Yes. Please go ahead.

Hey, this is Phil on for Matt. Thanks for taking my questions and squeezing me in at the end here and congrats on the quarter. Just to ask a quick one, is there any update on the LUS front, you know, following your first PTP in New Zealand in the first quarter?

Thanks, Phil. It's like, as you appreciate, this is a one-by-one-by-one-by-one business, and so we celebrated our PTP in New Zealand. And so not much of an update. We have like a great team in place in Australia that we're not in yet, but the Australian New Zealand team is really kind of outstanding in We have a very high class opportunity in those two places. We can't wait to be able to get into Japan here in the coming years, probably 24 is what we're looking at. and then have maybe the U.K. and maybe Brazil. But we're going to stay narrow and deep, but really not a heck of a lot to communicate. We're still just getting going down there, and clearly a fair amount of ebbs and flows in that part of the world. But hugely excited about what's going on. We have the right leadership in place here and down there for the opportunity.

And we'll go to Amit Hazen at Goldman Sachs.

Okay, so thanks for taking the follow up. I don't believe I heard during the gross margin commentary, a comment on, you know, inflationary pressures and input kind of product costs. I was just wondering if that's something that you're seeing, especially peak resin prices up so much if you're having any difficulty with availability or costs are notably elevated. Thanks.

Yeah, Phil, we're definitely not seeing issues with availability. I mean, but from a cost standpoint, I mean, there is some cost pressure baked in there. You know, I think when I looked and kind of enumerated the big items, I think those are the major items that we've seen. But, you know, we're not immune to the cost pressures that everybody else is seeing out there from an inflation standpoint. And we're working through those. And I think, again, what's different from us is we are growing through some of those things. and that kind of helps us overall. But, you know, they definitely are there, and we're working to navigate them.

And that does conclude today's question and answer session and today's webcast. Thank you for your participation. You may now disconnect.