Alphatec Holdings, Inc.

Good afternoon, everyone, and welcome to the webcast of ATEC's third quarter financial results. We would like to remind everyone that 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 US 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 provides management's view of why this information is useful to investors. Leading today's calls will be ATEX Chairman and CEO Pat Miles and CFO Todd Koning. Now I will turn the call over to Pat Miles.

Thanks very much, Michelle, and thanks everybody for joining the Q3 2022 financial results call. As you would expect, there will be some forward-looking statements, so if you'd review the small print at your leisure, that would be great. celebrating my fifth year here and recollecting back to the first full year of 2018 we finished with US revenue that approximated 84 million dollars it's nice five years later to be generating 90 million for the quarter and which is a 43% year-over-year growth rate and the the thesis clearly is working so What we're doing is scaling top line growth toward positive adjusted EBITDA in 2023, advancing lateral sophistication with innovation, improving the predictability and reproducibility of core elements of spine surgery, reflecting our information-based competitive advantage, and extending EOS's influence while leveraging new hospital access. So taking a quick look at the Q3 2022 scorecard, I do believe it to be a validation of what we're doing. So 43% year-over-year growth as stated. It's really 53 in terms of surgical revenue growth. And so the growth is very strong. It's our 14th consecutive quarter of greater than 20% U.S. revenue growth, excluding the 11% in the pandemic-ridden Q2 2020. 32% year-over-year growth in procedure volume. 15% year-over-year growth in average revenue per case. $11 million in EOS revenue with a significant opportunity pipeline up 45% year over year. And we'll get into the blended average of product categories per case, but that ended at 2.3 and continues to grow. And so what I want to do is just give a little bit of a strategic view with regard to our commitments and kind of why we're doing what we're doing. These are the things that create value in the company. I want to make sure that we're providing some illumination with regard to these areas. Ultimately, they get categorized into three commitments, and it's creating clinical distinction, which we love to move the field of spine surgery forward, and that compels surgeons. Surgeons want to do better work, and they're compelled by clinical distinction. And then also focusing on elevating the – the sales channel. And so just jumping right into that is a clinical distinction is driven by an investment thesis around asset allocation to create clinical predictability. And as stated, you know, the momentum really has demonstrated buy into that. And our focus, and we've really kind of had the opportunity at numerous meetings this quarter to display this, is really a focus on lateral surgery. And we'll get into a little bit more of that. We're super proud of what's going on on the SAFOP front. We'll get into that. The first really of many expandable implants to come. We're bolstering ACDF with a new cervical plate insignia. And then also expanding the ecosystem of AIX, which is the alpha informatics ecosystem with an app called Zia. And so We'll talk a little bit about that as well. But our intention, to be hugely subtle, is to dominate lateral surgery. And there is great internal competence at ATEC in lateral surgery. The group here really popularized it, and so our know-how on that front is significant. And you may ask, why focus on lateral surgery? And our belief is that it's better, and the literature is profoundly compelling. Less blood loss, shorter hospital stays, shorter return to normal activity. It truly is the most coveted market in spine and the one that continues to grow. So if you're going to dominate lateral surgery, a foundational requirement is neural monitoring. And there's no way around it. And having been at this for north of 20 years, you're not getting around being a player in lateral surgery without neural monitoring. It's really why we focus so much effort. and garnered so much expertise in this area. The group here internally is phenomenal, and our experience with regard to automating EMGs and automating SSEPs really kind of has been foundational. And so, SAFOP is the only neuromonitoring system that provides both location and health information of the neural plexus. And really, the most concerning part of lateral surgery is the risk of femoral nerve injury. And so to be able to locate where it is and to understand what its health is is of significant value. It is actionable information that drives surgeon decision-making. And the history of spine has been wrought with subjective rules. And another one in lateral surgery is one that says, hey, I got to get in and out of the surgery in 20 minutes, meaning the exposure that I make in the psoas has to be no more than 20 minutes. That stuff goes on until someone creates an objective measure. And that's what we did with Safe Op. It's proprietary us, and we can't be more excited about the effect that automated SSEPs is having on lateral surgery. And so remain profoundly bullish on PTP, super excited about what's going on on that front, super excited about the momentum. A big reason why traditional lateral did not become ubiquitous was that from a single position, it didn't serve all three goals of spine surgery. And so only in the prone position, so PTP can serve predictably decompression, stabilization, and alignment, which are the goals of spine surgery. So PTP has enabled surgeons to address multiple different types of spine pathologies that explicitly achieves the goals in a single or from a single position. is increasingly utilizing complex surgery and is early in the reflection within the peer-reviewed publications. And so the reason why people are coming to Carlsbad is because of PTP. And there's a boatload of them coming and they continue to come and we've had a big year in terms of surgeons coming to Carlsbad to learn PTP. So one of the ways that we talk about sophistication around here is really, I think, through a quote that in essence says, sophistication is in relation to the number of distinctions one draws to a subject. Our intent is to dominate lateral surgery. In so doing, we have recently begun to release LTP, which is a lateral trans-soas surgery really built from the ground up. It enables surgeons who have traditionally applied lateral surgery in the lateral position and prefer to approach the bottom level, which is L5S1, from an ALIF perspective. I think one of the easiest ways to kind of start to think through PTP and LTP is I would think of it as that which is driven by the pathology. And so the more complex pathology where there requires a direct decompression and stabilization, I would think PTP. more of a degenerative population, which is short segment that may include 5-1 for a surgeon who wants to do it through an ALIF, I would think LTP. But the beauty becomes is back to the sophistication thing. Our ability to provide both platforms that accommodates the surgeon's interest is really what we're after. So we've taken all the learnings from PTP and developed a patient positioner that facilitates lateral surgery and a more midline ALIF access to L5S1. It's amazing that we're in this day and age and people are talking about the commoditization of spine surgery, but we're still taping patients to beds. And so we believe that the addition of the patient positioner, a specifically designed retractor system, the integration of SafeOp, and just an entire procedure built from the ground up is going to be a welcome evolution in the field of lateral trans-psoas surgery. So cannot be more excited about that either. So speaking of applied learnings, we have also launched our first of many expandable inner body devices. This is a posterior approach expandable, first and foremost to assure lordotic correction is accomplished from the back in the prone position. It anchors PTP by providing a medialized posterior approach at L5-S1. In expected ATEC fashion, the medialized posterior procedure includes specific Invictus cortical screw design coupled with an elegant retractor system and expandable interbody device. And so now we have solutions both from an LTP via ALIF and a PTP via the medialized posterior approach for both lateral techniques. Transferring now to really the informatic element and just a little bit about VIA. Our interest is in integrating our multiple informatic elements. We've recently released an app called VIA. What it does is it quantifies the alignment parameters and it will enable broad EOS image access for integration into our interoperative solutions. And so it's another tool whereby we can distribute EOS-related information. More to come, but wanted to provide a little bit of a view in the many ways we will deliver information that will improve decision-making. So I want to talk a little bit about EOS. EOS continues to go quite well. We believe that the value of EOS is unmatched. We believe that a standing weight-bearing biplanar non-magnified image we have the makings of a spine alignment standard. Alignment remains the greatest correlative to a successful, durable, long-term outcome. And it doesn't matter in short-segment or long-segment surgery. It is profoundly valuable in terms of the ability to understand how a spine need be aligned. There's an old quip in spine surgery that 100% of spine surgeons are deformity surgeons. They either create them or they fix them. Many truths are clearly said in jest, but the revision risk for malaligned patients is 10x that of a properly aligned patient. The SRS, who is really the authority when it comes to spinal alignment, are big fans of EOS. During a recent meeting in Sweden, Larry Lanke, previous SRS president and famed deformity surgeon, polled the audience and 70 of the surgeons in the audience at srs owned an eos machine another 30 raise their hands that they had more than one so we see this as as the society um that influences these types of uh of surgeons and and to me as as as the srs goes uh oftentimes the rest of the spine community goes and so The question really becomes is, all right, what do you do from here? And really, you know, our work has really been defined and described and it's ongoing. And what it's about is integrating and designing feature sets that can integrate into ATEC procedures. And so providing automated alignment reports that enable expedient surgical planning, generating data to drive pre-op and interoperable bending, understanding bone density, measure to provide surgeons an understanding of underlying bone quality, Not to mention all the back office work that's going on that's assembling a predictive analytics platform and a platform that ultimately will enable us to gain some operational efficiencies as well. So something else that occurred to us as we were thinking about the quarter, and so often we utilize things like, hey, we're just getting going. And I think a lot of people utilize that nomenclature to fill space, but to us it's very apparent that as we demonstrate that the foundational elements of our platforms are very relevant well beyond lateral surgery. And so just wanted to provide an example of a field that we're working on. So imagine an idiopathic scoliosis patient with a rotational deformity. That's kind of right in the middle of what companies like us focus on. It would be profoundly advantageous to understand the apex of this deformity via EOS. So you start to think about what the value of our foundational technology is. You think, gosh, EOS will provide great value in that patient type. And then you start to ask yourself, what's the reciprocal alignment? You know, what reciprocal alignment would be gained through direct vertebral rotation via the Invictus DVR system, direct vertebral rotation system? And then you say, gosh, positioning her or the patient in a patient position to assist the surgeon maximizing the correction, that would be quite valuable. and then assuring the neurologic safety of the correction with facilitated MEPs as they're derotating the spine. So I think so often people look at these foundational elements as unique or independent when the reality is the application for these elements will be reflected in future types of applications. So when we say we're just getting started, we genuinely mean it. We're literally just getting started. And so that's just a little bit about the whole clinical distinction. And we would love to give you a couple of objective measures with regard to compelling surgeon adoption. And so we have more surgeon users, 22% growth in surgeon user base year over year. As we talked a little bit, the aggregate products per procedure is growing. It was at 2.3 and 2.3 of 22. And the volume of surgeons coming through our surgeon education group and coming through ATEC has been significant, and that was right around 150. And so not much to add to this slide other than the fact that what we're seeing is just continued growth in our thesis. And we look at this as a proxy for our people buying into the very clinical thesis that we're putting forth. And when they use more of the proposed products, then the likelihood for them buying into this thesis is much better. Love what's going on in the sales channel. Love what's going on Dave Sponsel's lead with regard to the field force and the continued evolution. In those areas that we have established sales agencies, we enjoy a 46% year-over-year revenue growth. And for us, that's a proxy of same-store sales and the stickiness of what's going on. The market share is always a bit of a challenge, but we believe ourselves to be a 3% holder. And I always think that means we have 97% to go and that we're a 5% holder in those markets that we participate in. We still have uncovered geographies. So in the aggregate, probably a 3% in those geographies that we participate in, more like a 5%. And as I think everybody appreciates, the sales force is very much shaping up However, it is the perpetual build and the perpetual place of improvement. And so anyway, just wanted to give you a few kind of background dynamics of what's going on with the company and probably best that I turn it over to Todd at this point.

All right. Well, thanks, Pat. Appreciate it. And good afternoon, everybody. We appreciate you joining us on the call today. So I'll begin with revenue. Third quarter total revenue was $90 million, reflecting 43% growth. over the prior year and a 7% increase compared to the second quarter. The $90 million in revenue is comprised of $79 million in surgical revenue and $11 million of EOS revenue. Now that we've fully anniversaried the close of the EOS transaction, what we used to refer to as organic revenue will now be referred to as surgical revenue. The third quarter surgical revenue of $79 million increased 53% compared to the prior year period. Procedural volume grew 32% year over year as surgeon adoption continued to expand. The number of surgeon users increased 22% compared to last year, reflecting the strong level of training activity we've consistently seen over the last year. Additionally, much of our growth is coming from established sales agencies with at least one year of tenure. And that cohort achieved 46% growth in the quarter, demonstrating durable sales growth from our most tenured agents. Average revenue per case expanded 15% year over year as revenue mix continues to shift toward procedures with more products per case and procedures with greater complexity. As a reminder, the average revenue per lateral procedure is about two times our overall average, and lateral-related revenue continues to grow meaningfully faster than surgical revenue overall. While lateral-related revenue, again, contributed the most to our growth, revenue related to biologics, CLIF, and ALIF also grew significantly in the quarter. EOS revenue in the third quarter was $11 million, flat compared to Q3 of 2021 on a reported basis, and up 7% in constant currency. Results reflect the timing of capital deliveries and installations in the period. Experience is increasingly helping us to better manage the complexity of deliveries and installations and also continue to make nice progress with the integration. We have achieved 45% growth in the opportunity pipeline year over year and are on track with platform innovation initiatives. Continuing through the remainder of the P&L, third quarter non-GAAP gross margin was 71%, down 130 basis points compared to the prior year. Increased EOS service costs as we addressed the backlog of service calls created during the COVID-19 pandemic contributed 90 basis points of pressure year over year. Another 60 basis points of gross margin pressure was related to an increase in our biologics attach rate. which comes at a meaningfully lower gross margin profile than overall business. Our expectation is that the margin headwinds outlined above will persist throughout the year. Operating expense in the third quarter demonstrated leverage while thoughtful investments in the long-term sector leading growth continued. With third quarter non-GAAP R&D was $10 million and approximately 12% of sales, 100 basis points lower than the 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 $67 million and approximately 75% of sales in the third quarter, compared to $52 million and approximately 84% of sales in the prior year period. We delivered 860 basis points of improvement while continuing to invest in the expansion and training of the ATEC sales network, surge in education, and support for the increasing size and sophistication of the company. Total non-GAAP operating expenses amounted to $78 million and approximately 87% of sales in the third quarter compared to $60 million and 96% of sales in the prior year period, delivering a total of 960 basis points of operating leverage year over year. I'd also like to highlight that we achieved 200 basis points of operating leverage sequentially. That is an early testament to the leverage we are expecting to deliver as our business scales. Adjusted EBITDA was a loss of $6 million and approximately 7% of sales in the third quarter compared to a $10 million loss and 16% of sales in the prior year. The improvement of 870 basis points as a percent of sales was driven by 960 basis points of operating expense leverage, which was partially offset by gross margin. Sequentially, adjusted EBITDA improved $2 million on a revenue step up of $6 million, and resulting in 290 basis points of improvement. As sales growth leveraged across our business, We expect an adjusted EBITDA loss for the full year 2022 of approximately $28 million, or about 8% of sales relative to approximately 12% of sales in 2021. And this will position us well to deliver the breakeven adjusted EBITDA that we are committed to for the full year 2023. Turning to the balance sheet, we ended the third quarter with $106 million in cash. Operating cash use improved relative to last quarter and totaled $24 million. Roughly half of that sequential improvement was driven by lower instruments, inventory, and PP&E spend. Approximately $2 million improvement was related to reduced litigation spend and the balance by improved EBITDA and working capital. We continue to expect full-year 2022 cash use to meaningfully improve relative to last year, consistent with our long-term plan. Debt at carrying value is $370 million, which includes $360 million of a convertible debt and a drawdown of $35 million from the $50 million dollar revolving credit facility that we closed in the third quarter. Now turning to our outlook for the full year 2022, in line with 40% full year growth rate that we previewed in conjunction with the pre-release of the third quarter financial results, we now expect full year 2022 total revenue to approximate $340 million, which as a reminder, compares to guidance of $325 million previously. Updated guidance includes the following. We now expect full year 2022 surgical revenue to approximate $294 million compared to $277 million previously. Updated expectations reflect growth of 39% compared to 2021, which contemplates strong performance in the third quarter and continued momentum into the fourth quarter. We now expect EOS revenue of approximately $46 million for the full year 2022 compared to $48 million previously. Updated guidance for EOS reflects the timing and complexity of installations and deliveries from our order book as the EOS business becomes more U.S. market concentrated. Let me share how our expectations for procedure volume growth and the expansion of average revenue for surgery support updated ATAC surgical revenue guidance. With surgeon adoption expanding and surgeon utilization increasing, we have achieved strong procedure volume growth throughout the year, including 32% in the third quarter. As a result, we now expect procedure volumes to grow at low 20s rate for the full year, compared to the high teens percent rate we anticipated previously. Average revenue per surgery grows as our procedural mix shifts towards procedures that require more products per surgery, like PTP and LTP, and towards surgeries with greater complexity, all of which feature higher revenue per procedure than our overall average. The strength of the growth in revenue per surgery year to date, including a 15% growth rate in the third quarter, drive our new expectation for a low double-digit rate of expansion for the full year. compared to the high single digit percent rate that we expected previously. 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, the third quarter marked the introduction of significant innovation. We showcased LTP at NASS, launched our first expandable interbody cage, and introduced our medialized posterior approach. Our sector leading growth continues to validate our procedural thesis and reinforces that clinical distinction what ultimately compels search and adoption we also demonstrated how revenue growth will enable us to scale the business and begin to deliver operating leverage in short third quarter performance with another step toward the achievement of our long-term objectives as you may expect we have another active ir calendar over the next few months and i hope to connect with many of you in person with that i'll turn it over to pat thanks so much todd um i think that uh we uh

We have gone deep in this before, but literally our focus is how do we continue to earn market share through lateral sophistication? How do we garner more by earning the respect and confidence of the surgeons to garner more of their practice? And that's the halo effect. And nice to have new products launched within that category. We'll continue to focus on the sales channel and continue to improve from now until the As far as I can see, we're in the process of getting international off the ground in a small way. And I would tell you that we haven't even begun to see the influence of EOS in the meaningful way that we expect it in the years to come. And so we love the acquisition and love the long view associated with our opportunity in that space. So as we talked about at our investor day, Our focus is $555 million in 2025, which would be an adjusted EBITDA of $80 million, and really focused on just the disciplined investment on the walk. And so our opportunity to address the need for predictability and reproducibility is massive. The spine market is massive, and it's ours for the taking. So we believe that the spine needs ATEC.

And with that, we will turn it back to the operator. Michelle, are you there? Yes. Okay.

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. The first question comes from... Matthew O'Brien with Piper Sandler.

Hey, this is Phil on for Matt. Thank you for taking my questions. And Pat, congrats on five years. You know, another impressive quarter in terms of procedural volumes. And this is despite, you know, longer vacation cycles that some of your competition pointed out. I was wondering if you could provide color as to why you were, you know, a bit more insulated from that dynamic compared to your peers. And I guess, you know, the, the real question I'm getting at here is could you have grown quicker in a more normalized environment? Thank you.

Yeah. I, you know, the, the, um, one appreciate the whole, uh, five year congrats. It's, uh, um, we love what we're building here and, and, you know, uh, hopefully we'll do another investor day at some point and get people here. I, I think the, the enthusiasm for the spine space is palpable. And we love what we're doing. I don't think that we're insulated from the dynamics of what is going on. We're also still what I would consider a smaller player in this space. And so some of the macro demographics, we're earning share. And so we're earning share at a great rate. And what's earning share is doing and making investments in some of the foundational technology that I was talking about earlier. earlier, like patient positioners and retractors and things that are super meaningful to surgeons. And so I think the adoption is still very early. And I think that we have great momentum. And, you know, I see great momentum moving forward. And so I know that doesn't give you any hard data, but I guess that's the way I see it.

Great, thanks. The next question comes from Young Lee with Jefferies.

All right, great. Thanks, guys, for taking the question. I also want to extend my congrats to Patrick of five years here. It's certainly been a fun ride. So I guess, you know, it's good to see the continued momentum in the business. You know, you have a nice cadence of new product launches this year and more to come next year. record surge in training this year with a pretty strong track record of contribution from the previously trained cohorts. It seems like this momentum should carry over in the forward period, maybe to some top comps. But any early comments you can make on the sustainability of your growth momentum in the upcoming period?

Yeah, thank you. Thank you, Lee. This is Todd. We appreciate the question. And I guess as I kind of think about the metrics you shared, I think one of the things that we talked about on our investor day was how surgeon training is a great leading indicator for surgeon adoption. And the level of interest that we're seeing coming through the facility is incredibly strong, as you mentioned, just approximately 150 million, surgeons came through again in the quarter. And I think what we also know that as surgeons adopt our technology, and I think we see it in particular in PTP, they not only begin to use the approach in more complex surgeries, but ultimately, as we earn their trust and confidence, we gain a greater share of their overall business. And so, you know, that continues. And I think that's ultimately why you see volume up north of 30%. And and surgeon users up greater than 20%. And so you also see implied there a meaningful growth in kind of procedures per surgeon. And so that's what's implied there. And so I think all of that actually reflects what we know to be true, which is when you do something clinically distinct, you ultimately compel surgeons to adopt it. And I think that's what we're seeing. And so, you know, our belief is that we'll continue to see that into the future because we're continuing to deliver clinically distinct solutions. And, you know, I think LTP is a great example of that that we showcased in the quarter.

All right, great. I appreciate it. I'm looking forward to seeing you guys in London. Yeah, thanks, Young.

All righty, your next question comes from Brooks O'Neill with Lake Street Capital Markets.

Hey guys, it was nice to see you at Mass. And I'm just curious if you could talk just a little bit about the response you got from surgeons to the stuff you were presenting and talking about at the Spine Show.

Yeah, Brooks, thanks. It's good to hear you. You know, I think it's one of those things where I think people have great expectation with regard to our continued transformation of the lateral space. I think when your CMO is Luis Pimenta and the other surgeons who are around this that have the level of technical aptitude in the lateral space, I think that there's a big expectation and a lot of enthusiasm around what we're doing laterally. And I think that that was very, very well received. I think the other thing that was exciting in the was just the volume of surgeons who see the vision on the EOS front. And just when you start to think through all of the opportunities that present themselves with regard to the information that comes out of that machine, it is significant. The other huge validation becomes when the SRS, the Scoliosis Research Society, has such a predominance of users, it again is a forward view of what's to come from a from a mainstream spine practice dynamic. And so I would say the things that really jumped out at me is just the momentum of the company is palpable. And I believe we're making investments in the right places.

Great. Thanks a lot. Your next question comes from Drew.

Ranieri with Morgan Stanley.

Hi, Pat and Todd. Thanks for taking the question. And, Pat, congratulations on five years, and I hope more could come. But my question, I'm going to pick on Todd and have a follow-up for you, Pat. But, Todd, just on, I think I heard you with leverage comments that you improved leverage about 200 basis points. I was hoping you might be able to drill in a bit more on really what the cash burn was or operating cash burn was in the quarter. I might have missed it, but it'd be great if you can make any comments about that and really kind of remind us about your confidence for improving leverage into next year and becoming EBITDA profitable or breakeven for 23.

Thanks, Drew. Happy to do that and appreciate the opportunity. You know, our operating cash burn, our free cash burn, was $24 million in the quarter. So if you kind of remember what our commitment's been is to do tens of millions of dollars better than we did last year, we did $142 million of cash burn last year, free cash burn. And really the commentary implies about $122 million of free cash burn as kind of a ceiling for us. And so, you know, the $24 million free cash burn here in the quarter, I think, is very much in line with being able to deliver on that commitment. And so, you know, I think we feel good about where that landed. I think it's certainly within our expectations and sets us up for a good Q4 on the free cash burn standpoint there. You know, I think sequentially Q2, our free cash burn was $40 million. Really half the improvement was reduction in sets and inventory and PP&E. We saw a reduction in litigation spend sequentially. And then the balance is really an improvement in adjusted EBITDA and networking capital. So I think on the free cash burn perspective, we're right where we expected to be and set us up nice for a good finish. On the adjusted EBITDA line, you know, we... We had a negative $6 million of adjusted EBITDA in the period and ultimately feel good about that. I think ultimately the commitment again is to deliver flat adjusted EBITDA from 2021. So that implies a $28 million number here in the full year. And so ultimately, as you kind of look at what we delivered in Q1, which was 10 million in Q2, 8, and now 6 here in Q3. You know, I think what's notable there is that really implies a $3 million improvement in Q4, a $3 million adjusted EBITDA loss in Q4. And again, I think that kind of trajectory sets us up very nicely going into next year and achieving our commitment of being adjusted EBITDA break-even into next year. And I guess finally, I just kind of say, you know, we saw a $6 million step up Q2 to Q3 in revenue and dropped through about $2 million of that in adjusted EBITDA improvement. And again, I think that kind of all feels good and makes sense. So, you know, at the end of the day, year over year, adjusted EBITDA of negative $6 million is about 7% of sales and improved 870 basis points. over the prior year Q3. And really, this is a good quarter from a comparison standpoint year over year, because it's really the first quarter we have a fully comped out the EOS acquisition. So it gives you a good sense for where we're at and where we're headed.

Thanks. I appreciate the detail, Todd. And just actually on EOS, this is probably a question a bit for you and for Pat, but With the guidance coming in a little bit because of installations, can you just talk about what you can do to improve that? I know we're still kind of in a choppy capital environment, but would love to hear how you're maybe even thinking about EOS for 2023. I think consensus is about $60 million. And really, when you're looking at the pipeline for EOS, taking a look at kind of your quarterly slide here, How should we think about your ability to monetize some of those applications and features that are coming down the road? Thank you for taking the questions.

Yeah, I'll go ahead and start out, and then I'll let Todd clean up where I screw up. As it relates to the installation, our view is we're taking a long view on this, and we'll sell one to a Somebody who doesn't have the infrastructure yet and the installation will be less predictable due to all the goings on with regard to building out the space, which this is kind of an unpredictable time in that realm with regard to what's going on in the economy. And so we're a little bit beholden to that. Our view is that our enthusiasm for the integration of these technologies is massive. And we haven't really begun to see them. We've done, you know, a couple of UBRs whereby, you know, guys are, you know, in essence utilizing a rebate to buy the system. But once you start to see the integration of the tools, I think you're going to start to see massive momentum with regard to the both businesses complementing each other. I think, you know, candidly, a unique proxy is how did we use information with regard to SafeOp and how did we translate it? I think it's going to be not dissimilar here with regard to taking things like automated measurements, being able to plan surgery, being able to plan surgery with ATEC goods, being able to do all the preoperative rod bending elements, integrating the information that we're generating from the imaging into the operating room, understanding what happened post-op, aggregating the data. There's so many opportunities for us to reflect the value of that data Also, didn't even mention the bone quality element parts of this thing where not only does it give us an opportunity to rethink the way we do stabilization or fixation in the spine, but it also provides the user another tool to understand the underlying bone quality of the patient with whom they're going to intervene. And they're doing it on a much more sophisticated level, which is by individual spine level, not just a general... value that a DEXA scan would provide you. So my enthusiasm for us to integrate these technologies is exceedingly high. And you're going to see this over the coming, really the coming years, you know, bits at a time. But our view is one of a long walk.

And I think I'd kind of add to that, Drew, you know, if you think about next year, I think the street's around 400 million in total. representing about a 23% growth over our previous guidance, and presumably that'll get updated here post the call. But if you look at where EOS is at today, and the 46 million on a constant currency basis is growing north of 20% on a full-year pro forma basis, I think it gives us great confidence in our ability to continue to grow that business and to do it in line with what we've talked about in the past. And so You know, I think we're managing through some of the near-term really installation complexities, but that doesn't really reflect the level of interest and the pipeline and truly the value that EOS is bringing to us. So, you know, I think to Pat's point, we remain steadfastly confident. And frankly, if the year since we've bought it has told us anything, we're more confident that it was the right move than ever.

Thanks for taking the questions. Your next question comes from the line of Josh Jennings with Cohen.

Hi, this is Eric on for Josh. Thanks for taking the questions. Just thinking about LTP with the launch kind of just around the corner. Could you talk about the learnings that you'll be able to take from your experience launching and finding commercial success with PTP that you will be applying to the launch of LTP? Thank you.

Yeah, thanks, Eric, for the question. I have to get comfortable because it's a subject that I absolutely adore, is the whole lateral surgery one. You know, I would say that probably the first kind of undeniable truth that we've learned is just the ability to manage the patient within a patient position and to put the surgeon in a position to ultimately effectuate surgery in a much more elegant and efficient manner. And so you think about you're trying to do orthogonal surgery. The ability to utilize a patient positioner to make sure that you are truly in an orthogonal position, as the patient's in an orthogonal position, compared to taking him to the bed, I would tell you that is diametrically different, and I think that we've been rewarded by our investment with PTP into a patient positioner because now what we can do is apply that learning to LTP. The other element is, you know, designing for the respective procedure. And so from a retractor perspective and then the integration of neurophysiology, you know, there is a really kind of a significant experience with SafeOp that the sales force has enjoyed that will absolutely integrate directly into what we're doing with LTP. And so I think that the sales force is used to what we're doing with regard to patient positioners and kind of the integrated components. And so I think where we will have a tailwind is within the sales force that has already been successful with people in terms of transforming them into PTP users and then picking up surgeons who want to continue to evolve into PTP. more predictability around what we're doing from an LTP perspective. The other place is at L5-S1, most surgeons still require an access surgeon. And so one way that we'll evolve is we'll do general or vascular surgeon access courses at the company. And so, again, a benefit of the patient positioner is that it puts you in a position to get more of a midline type of an ALIF at 5-1. And so just the ability to launch our whole ALIF retractor system with our LTP patient positioner avails really the opportunity to train both the vascular general surgeon with the spine surgeon such that if you want to stay in the lateral position and go L3 to S1, your ability to do that through lateral approach at 4-5 and 3-4 and then do a 5-1 ALIF and let the general surgeon do the exposure, it would be something that we would expect to be a common application of this position and procedure. So probably more than you care to hear, but at least hopefully a little color.

That makes a lot of sense. Thank you for the question.

Your next question comes from Caitlin Cronin with can accord genuineness.

Hi, this is Caitlyn on for Kyle Rose. Just a couple quick ones from me. On EOS, can you provide the U.S. or U.S. split? And also just on Zia, when do you expect to launch the app? Thanks.

On the EOS component, we haven't been explicit about the revenue split. I mean, what we have, Caitlyn said, is as we continue to grow the EOS business, it's going to become more U.S. centric. We are walking away from kind of non-strategic countries outside the U.S. and really kind of focusing our efforts. So you'll see more of a U.S. footprint as we grow this business over the coming years.

Yeah, no, I was just going to draft off of that comment. It will also further the predictability associated with our performance, I think, year over year. You know, there's a lot of economies around the world that EOS would previously sell into that candidly didn't facilitate our collective interest. And so, again, I think we're a different company now, meaning EOS and our ability to be more focal, as Todd said, into the states as well as into the strategic countries of our interest is going to be reflective of where the density of the business is. As it relates to VIA, it is rolling out now, and it's rolling out and being used, again, to quantify parameters, corrected parameters in deformity. And so, but the great thing is it's the beginnings of another conduit into the operating room that we will utilize for a multiple or a multitude of different reasons, be it you know, be it tracking inventory, be it tracking, you know, doing charge sheets from an operational perspective all the way through, you know, pulling down EOS images and preoperative planning elements and some of the rod bending parameters that ultimately will integrate into the experience.

So our thrill for these tools is significant. Great. Thanks.

Your next question comes from David Saxon with Needlehem and Company.

Hi. Good afternoon, guys, and thanks for taking the questions. My question, I guess, you know, you've talked in the past about how Alpha Tech is underexposed from a geographic perspective in the U.S. So, you know, just wondering with a competitor going through a merger and A-Tech clearly outperforming the rest of Spine, Are you seeing opportunities to bring on new sales partners to build out your footprint? Or maybe that comes later in the LRP or perhaps in the next LRP? Thanks so much.

Yeah, I would say that we are always in the hunt. And, you know, I think a big part of the hunt for us is the shared interest in a long-term commitment. And it's, you know, last thing we want is transactional people. And with all of the money that we've invested in the technological advancement under the auspices of clinical distinction, we expect a heck of a lot out of the people who ultimately carry the lines. And they got to be people who are committed to the long term and committed to us. And so it's one of those things where it's like, I know that, you know, there's a number of companies that aren't as dogmatic with regard to The March Toward Exclusivity, where we are the only player in the bag, so to speak. But there's always good people in these things and good people that are looking for opportunities. And we will be opportunistic and perpetually hunt.

Great. Thank you.

Your next question comes from Jason Whitties with Loop Capital.

Hi, thanks for taking the question. I appreciate the detail you gave, and especially on the underlying drivers of guidance. And if I look at kind of what you've introduced most recently, you know, quite a bit again, but it seems like the expandable cage and biologics should be an easy layup in terms of just improving case revenue for case. Is that the right way of thinking? Whereas LTP, it sounds like, I don't know what type of trajectory we should be anticipating for that, but I'd love to get a little more understanding if you could.

Yeah, Jason, I'll start and then I'll let Todd, you know, fix my mistakes. There ain't no such thing as a layup in this business. And so I'm just kidding you.

Relatively speaking, but yeah.

I hear you. No, you know, the fact of the matter is, is your point's a really good one in that what we found is guys would use our T-lift retractor and our screw system and then you know, because we didn't have expandable technology, they would use somebody else's expandable device. And so, you know, those types of things get rectified immediately, and those are the things that we're super excited about. And as I noted in my commentary, it's really the first of many expandable devices. And so, you know, we'll have other expandable devices this year that we're enthusiastic about walking through what we call the alpha or the verification cycle of the performance of the devices, but you'll see many more. And one of the great values of an expandable device is really the control alignment or lordosis. And so, you know, again, things that you don't care about but are hugely meaningful is when you put something in a device and you want to control the spine, you have to release the spine. And one of the great things about PTP is you release the back of the spine and the front of the spine, and it provides you the ability to really – be very sophisticated with regard to how you drive alignment. And so we think the relevance of the expandable device is going to be significant based upon not only the fact that, gosh, we have an expandable device, but we have techniques that ultimately accommodate maximizing their meaning. And so those are some of the things I think that we're most excited about.

And Jason, I think you're spot on in terms of how that that plays out in our financials. Both the expandable interbody and biologics end up being a tailwind to revenue per procedure, because in the biologics case, especially as we're getting a lot of growth, and in particular from our synthetic biologic that we recently launched, we're getting more attach rate. And ultimately, that biologics attach rate is happening in procedures that we kind of have had in the past. we're seeing another product category being added to an existing procedure run rate. The same on expandables, and that may come through in the fact that the expandable has a higher ASP, and so maybe it's replacing a static cage that we get today, or in the case that Pat mentioned, maybe we're getting the expandable today where we weren't in the past. And so both of those are Certainly revenue tailwinds to the revenue per procedure and additions to products per case.

And just really quick on LTP, can we assume, you know, obviously it's too early to see how big this is going to be, but in terms of adoption and even types of surgeons, does it look like PTP or does it look different or how are you thinking about it?

That's a good question. It's one of the things where it's like we've been so focused on kind of the verification that everything is functioning like it's supposed to. We look at lateral as such a growth center of our business. We see this as really kind of a long walk. What we're going to do is – Yeah, it's interesting. We have a lot of the degenerative elements built and ready to plug in. And so my expectation is this is going to be a bit of a walk with regard to we're going to do degenerative cases. As I said, I think it's most applicable in L3 to S1 where somebody wants to do ALIF at 5.1. And so that's why I think about it as such a degenerative tool, but there's also going to be, as we continue, like next year we'll come out with a corpectomy device. And so you'll start to see again, expanding dollars and expanding complexity in our LTP portfolio. But I see it a bit, like you said, I think in terms of just the slow walk on the LTP front out of the gate and, and, You know, we're going to have some training courses with some luminaries in the field of lateral surgery. And so that will, I think, create some momentum. But, you know, it's like all of these things. You know, they just take time to get the people around them and get the people trained and comfortable to make for momentum. But you love doing it while you have momentum.

Very helpful, and also congratulations on five years. Look forward to congratulating you at a billion-dollar revenue, which I think comes before 10. So anyway, thank you very much.

That will be the real celebration. I didn't intend to speak about me. I was more excited just about the fact that five years ago we were at an $83 million run rate or 84 for the year, and now we're doing it quarterly, and you just love the continued momentum.

Mm-hmm.

Well, thanks very much for for your interest in a tech and very much appreciate the questions and look forward to talking everybody next quarter. Thanks much.