Alphatec Holdings, Inc.

Good afternoon everyone and welcome to the webcast of APEC's fourth 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 non-GAAP or adjusted measures. Reconciliations of these measures to US GAAP can be found in the supplemental financial tables included in today's 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 APEX Chairman and CEO, Pat Miles, and CFO, Todd Coney. Now, I will turn the call over to Pat Miles. Please go ahead.

Thanks very much, Desiree. Welcome to the Q4 2023 financial results call. Clearly, there will be some forward-looking statements, but I would characterize 2023 as a very good year, and a few of the highlights much of which has been communicated, but revenue of $482 million, which was a 37% total revenue growth, 890 basis points of adjusted EBITDA expansion, 40% surgical revenue growth was a broad contribution, 31% surgical volume growth versus 25 in 2022, which suggests acceleration. greater than 500 surgeons trained, and a lot of work really in three key areas, which is beginning with lateral. We launched LTP with the ALIF midline element. We launched expandables in lateral. From an informatic perspective, EOS has really expanded from a developmental perspective and look forward to talking a little bit about that. We also acquired a Navigate enabled robotic system from an informatic perspective, and from a capital raise, raised $150 million. So I would say a very productive year. To put it in context, we've gone from about 1% market share to probably a little north of five, depending on how you calculate it. Again, I think the interesting elements are the growth rate of 40% over that period, from an annual growth rate perspective, a compound annual growth rate perspective, 17% new surgeon CAGR, a 24% procedural volume CAGR. So people are doing work with us. And then a revenue per case CAGR of 12%. And I'll get into that as well, because I think it's such a buy-in to our surgical thesis. Our priorities have not changed. really what we're committed to is earning share through clinical distinction. And it's interesting. We've been talking about this since 2018, but surgeons adopt technology when there's a reason to and when there's clinical distinction. We attract salespeople when there's clinical distinction. And so our enthusiasm for that continues. Our opportunity to really kind of initiate the company's resurrection, if you will, was around how do you create clinical distinction? And there's such an expertise within lateral here. That's what we did. And so we've gone from about 1% to about 12% share in lateral. And the ability for us to continue to improve the utility and expand its application is very apparent. And so we're doing that through really fulfilling the surgical requirements and addressing hurdles within the procedure itself, We're integrating SafeOp to avoid the complications most associated with lateral surgery, which really speaks to the whole automated SSEP element, which you don't only determine where the nerve is, but also its health. And then one of the other elements was when we created PTP, really what we were able to do was obviate the need to approach from posteriorly with PLIF and TLIF. And so what the essence of that becomes is a lateral franchise that addresses really a $3 billion market opportunity versus what was previously a $1 billion market opportunity. So we love that because one of the things that it does is it furthers confidence. So if we do lateral surgery extremely well, what we find is that we have access to a greater part of a surgeon's practice. We call that the halo effect. And so if one of our salespeople executes with a surgeon a lateral approach in either the prone or the lateral position, what happens is we often earn trust. And that trust ultimately expands the footprint of what type of surgery we do with that respective surgeon. We've continued to commit to approximately 8 to 10 products per year. This was a big year for us at 15. And, you know, we always look for product launches to ultimately expand the influence of our procedures. And if you look kind of across each of the areas, from a lateral standpoint, the expandables was a big one. The other thing that I love that we do is really we establish a foundation for what's next. We launched some products in lateral for thoracic. We will prepare for thoracic clopectomy. As well as we launched an LTP position, we applied our learnings from what we knew in PTP and applied it to LTP, which is lateral trans service. From an anterior perspective, access is hugely important to surgeons. We developed an access system for ALIF, and ultimately that's going to integrate with regard to the procedural vision of L4 to S1 with regard to So super excited about that from a posterior perspective. Expandables was a big part of our launch profile this year, as well as some tools for stabilization in osteoporotic bone. That's important as it starts to lay the foundation for where we're going on the EOS front with regard to bone quality measure. From a cervical standpoint, there's been significant demand of our cervical portfolio. I would say that's reflective of the halo dynamic that we speak of. as well as SafeOp2 in our biologics portfolio. It's fun to see not only continue to launch a demineralized bone fiber product, but also start to see the integration of our biologics within the context of our expandables. And so when you have an expandable device and you expand it, what you want to do is backfill it with biologic and integrate these steps into a workflow that's elegant is part of our proceduralization view. And so When you start to think about how we garner more surgeons, the surgeon adoption effort is really multifaceted. And so we compel more surgeons because of the clinical distinction. And then we earn more of their cases based upon the confidence it created with their experience. And then the more products category sold in each case is really, in my mind, a buy-in to the procedural architecture or the thesis that we put forth. And so certain procedures are going to have less products per procedure. Other surgeries are going to have more products per procedure. But we think it's a good proxy for what we're doing with regard to the whole proceduralization effort. So distinction doesn't only compel adoption by the surgeon, but it also attracts salespeople. And so we think that it's continually important to further our distinctions. And so elevating our distribution network is going to be a constant priority. You will continue to see us do that. As we said earlier, we earned an approximate 5% market share. The inspiring thing for us is that in places where we've had distribution in a place that has a number of people within their distributor network, There's places that we have 25% market share. And that just speaks to the application of our portfolio into an expanded utility, as well as the competence of the people in that respective area. We've really never been more enthusiastic with regard to the status of the marketplace in general. We internally characterize it as 35% disrupted and 60% apathetic. And I don't know if there's a better place to be when you are sprinting at moving a field than a market that's disruptive and apathetic. And so one that would suggest that there are good things happening would be that we have a 36% same-store sales dynamic. And that means that there's a growth rate that clearly far exceeds anybody else from a same-store perspective. And so when people come here, their ability to build a big business is significant. The beauty is we are attracting people who want to play long, those committed to moving the field. Surely not the ones interested in a single-year experience or a single-year guarantee. We're in this for the long haul, and I think can't be more excited about what we're building. When you start to think about our place in the market and our portfolio as we speak, if we wanted to build a good company, we would have stopped right here and we would have built a lateral franchise and And candidly could have been done. It's really what we did at the last company. Our aspirations are much greater, and we genuinely want to revolutionize the approach to spine surgery, which we've committed to. So, you know, much like we built the first part of the company around the informatic element of safe op and performing better lateral surgery, we're doing the same here with regard to deformity. And so started off building it with the people. Clearly, it's always about the people. acquired SafeHop, built a lateral franchise, and I think you're seeing the same thing happen again with regard to EOS. And so you can't be more excited about that. And so the value of our informatics set is that it creates an ecosystem. What we've seen is we've seen silos of information. And I think they're less valuable than when you have the opportunity to combine elements. And it is the proceduralization not only mechanically, but informatically. It's really proceduralization on steroids, the ability to assemble these goods to ultimately improve not only the interoperative element, but the predictive nature of what we're trying to do from an improvement of spine care perspective. Several years ago, I said that the spine business needs ATEC, and I have never believed it more. And I think that you could look here and if you think the science is settled when you have a 10 to 15% revision rate within one to three years in short segment surgery and 25 to 30 in two to five years in deformity surgery, I think you're kidding yourself. And so while being in an area where clearly the spine science isn't settled and I think there's a very clear requirement for spine to have an objective informatic ecosystem. And I think an interesting place to look really is at what we're doing here with regard to EOS. And if you look at the box in the lower left-hand corner, that's what most surgeons see. They see a very focal view. And I think when you pull up and you start to see a more global view, you can see how a limited view really starts to mislead the surgeons. And so one of the beauties of the EOS Insight is that it's going to provide you automation where, at this point, it's alignment measured by hand calculation, which is hugely time-consuming. And it requires software that's, candidly, not very friendly from a workflow perspective. And so when you start to think about spine surgery as being decompression, stabilization, and alignment, And alignment is the greatest correlative to a long-term, successful, durable outcome. And you look back at what the revision rates are with regard to fine surgery, you start to say, gosh, there's a heck of an opportunity to bring objective information into an environment. And so if science needs to become more settled, then it needs to become more settled with data. And there's not a better source of data than the tool that informs pre-, intra-, and post-op that's completely aligned with surgical goals. Back to the surgical goals of decompression, stabilization, alignment. You'll love that you have a tool that ultimately informs through automated alignment reports, automated surgical planning, pre-bent rods, interoperative alignment reconciliation, and assessment and follow-up. So it is the data that will provide a pre-intra and post-informatic that will ultimately really just provide a richer ecosystem of information. It is very, very straightforward, I think, to be inspired by how it's going to influence deformity. And data and informatics informs better surgery. Clearly, our opportunity in deformity is apparent. And so in the image respective of an idiopathic deformity, you can see the value that understanding the rotational deformity has with the assembly of the procedure, with the assembly of an understanding of neurologically what's going on, where it's the assembly of the parts that ultimately plays a role. And so the opportunity within deformity is very clear, and I think it's reflective of the type of demand that ultimately was demonstrated here a few weeks ago at our first annual deformity summit. We had 30-plus participants. deformity thought leaders across the field join us in Carlsbad for the first one and could not be more excited about the understanding and appreciation of the tools that ultimately will reflect the sophistication within the field. And so when you start to think about really a unique dynamic that sits in a 5% market shareholder's bag is an ecosystem that informs not only the preoperative element in terms of who to operate on and and and why but also the intraoperative element which in which enables a procedural understanding of not only informatic needs but also the mechanical needs in a workflow that ultimately begets predictability and then inform that again with regards to the post-op information that that comes from the exact same image that was taken for the pre-op and the plan so um great year in in in 2023 Clearly, there's momentum. But the beauty is what's in front of us. And so we will continue to expand our lateral sophistication with regard to new products and broader and deeper sales footprint. We're literally just starting off an international, had a decent year in Australia and New Zealand, and about to get into Japan next. More hospitals are providing us access based upon our clinical distinction. We love, love, love the market dynamics of disruption and apathy. The integration of a more sophisticated, integrated navigation robotic element into what we're doing laterally, the whole navigation robotics plus neurophysiology in real time providing information, informational feedback. We love that. And we're just getting going on the EOS front with regard to the EOS Insight. So I would tell you that there's a lot of momentum, and there's more to come. And so with that, I'll turn it over to Tom.

Well, thank you, Pat, and good afternoon, everyone. We appreciate you joining us on the call today. I'll begin with revenue. Fourth quarter total revenue was $138 million. reflecting 30% growth compared to the prior year and 17% increase compared to the prior quarter. The $138 million in revenue is comprised of $123 million in surgical revenue and $15 million of EOS revenue. Fourth quarter surgical revenue at $123 million increased 34% against a tough 49% previous year comparison with strong contribution from our entire portfolio. Underlying that surgical revenue growth was robust procedural volume, which grew 29% this quarter. That is an acceleration compared to the third quarter procedural volume growth of 24%. Growth reflects both a solid increase in the number of surgeons adopting APEC procedures and an increase in surgeon utilization. Average revenue per case grew 4% year-over-year, driven by increased mix of lateral surgeries and expanding biologics attach rate and greater case complexity. Increasing mix of cervical surgeries is offsetting those tail limbs to some degree. And EOS revenue in the fourth quarter was $15 million, up 5% compared to last year. Turning to results for the full year 2023, total revenue was $482 million, reflecting 37% growth compared to 2022. That was comprised of $423 million in surgical revenue and $59 million of EOS revenue. Full year surgical revenue grew 40% compared to the prior year, absolute dollar growth of $120 million. Procedural volume grew 31% year over year, which accelerated compared to the 25% volume growth in 2022. Volume growth in 2023 was underpinned by a 27% increase in surgeon users. Average revenue per case grew 7% driven by increased mix of lateral surgeries, and expanding biologics attach rate and greater case complexity. The increasing mix of cervical surgeries is offsetting those tail ends to some degree. EOS of $59 million grew 24% over full year 2022 on continued strong interest in the technology. A geographical mix shift towards the U.S. is also benefiting EOS ASPs. Now before I work through the remainder of the P&L, I'll spend a moment on the updated definition of non-GAAP that we have adopted. For those of you that have followed the ATEC transformation since its inception, you know that the creation of clinical distinction was our number one commitment, a priority that catalyzed the complete overhaul of the product portfolio. That overhaul generated material but non-cash, excess, and obsolete inventory charges, or E&O, as legacy product portfolio were obviated and discontinued. To help investors assess the core performance of our business throughout that process, we determined it was appropriate to exclude E&O charges from our calculation of non-GAAP cost of goods sold. Thankfully, that transition is largely behind us. Now, the E&O charges we are taking are a recurring aspect of our current business operations. As a result, the non-GAAP financial results and guidance for 2024 that we share today include the non-cash charge part of the calculation for cost of goods sold and adjusted EBITDA. You can see from this reconciliation that the inclusion of E&O and cost of goods sold impacts reported gross profit and thus adjusted EBITDA by about $4 million in the fourth quarter 2023. Fourth quarter adjusted EBITDA under the previous non-GAAP definition would have been $6 million, drop through on incremental revenue dollars of 28%. and strong performance compared to the $5 million expectation implied by previous guidance. With respect to the full year, the inclusion of E&O and cost of goods sold impacts gross profit and adjusted EBITDA by about $14 million. Full year, 2023 adjusted EBITDA under the previous non-GAAP definition would have been $4 million, reflecting drop through of 25% on incremental revenue dollars and ahead of the $3 million that we guided to last quarter. I'd like to first emphasize, one, this updated definition of non-GAAP does not have a material impact on either the degree of margin expansion reported in 2023 or on the degree of expansion that we expect going forward. Under both the prior definition and the updated definition, 2023 adjusted EBITDA expanded 890 basis points year over year. P&O inventory expense is a non-cash item and has zero impact on our commitment to achieve cash flow breakeven in 2025. We've shared a reconciliation of the updated definition on previously reported periods in the appendix of this deck and in a supplementary financial file. Both documents are accessible from our IR website. Now, I'll turn to the results for the remainder of the P&O, which incorporate the updated non-GAAP definition I just shared. Fourth quarter non-GAAP gross margin was 70%, up 310 basis points compared to the prior year. The year-over-year increase was primarily driven by improved EOS gross margin, which is benefiting from the execution as we improve service operations and for pricing initiatives. Additionally, surgical revenue mix and operations efficiencies drove margin improvement in the quarter. Fourth quarter non-GAAP R&D was $13 million and approximately 10% of sales, compared to $11 million in 10% of sales in the prior year. The increase on an absolute dollar basis was driven by continued investment in organic innovation and investment related to Valence, the robotic navigation platform that we acquired in 2023. Non-GAAP SG&A was $93 million in approximately 68% of sales in the fourth quarter, compared to $74 million in 70% of sales in the prior year period. We delivered 230 basis points of net improvement even after investing in both the U.S. and international sales channels. In line with the last several quarters, leverage is being driven by the expected contributors, infrastructure leverage, and variable rate improvements. Total non-GAAP operating expenses amounted to $107 million and approximately 77% of sales in the fourth quarter compared to $85 million and 80% of sales in the prior year period, demonstrating 270 basis points of operating leverage year over year. Adjusted EBITDA was $2 million and approximately 1% of sales in the fourth quarter compared to a $6 million loss that represented 5% of sales in the prior year. A 650 basis point improvement as a percent of sales. The consistent adjusted EBITDA margin expansion that we are driving underscores our confidence in achieving the long-term profitability goals we've committed to. Turning to full year 2023 results, non-GAAP gross margin was 70% up 220 basis points compared to the prior year. Non-GAAP R&D for the full year was $51 million and approximately 11% of sales compared to $39 million and an improvement of 40 basis points compared to the prior year. 2023 non-GAAP SG&A was $335 million and approximately 70% of sales compared to $267 million and improvement of 660 basis points compared to the prior year. Total non-GAAP operating expenses for the full year amounted to $387 million and approximately of sales compared to $306 million and an improvement of 700 basis points compared to the prior year period. 2023 adjusted EBITDA was a loss of $9 million and approximately 2% of sales, an improvement of $29 million and 890 basis points compared to full year 2022. The magnitude of drop through or the contribution of incremental revenue dollars to adjusted EBITDA was 22% for the full year and 26% in the second half of 2022. We demonstrated an ability to grow the top line and significantly expand profitability margins while also investing in the future growth of the business. For example, investments in Valence and International combined comprised almost 110 basis points of adjusted EBITDA for the full year 2023. These investments will drive growth and profitability in the business beyond 2024. Turning to the balance sheet, we ended the fourth quarter with $221 million in cash, and year-end debt at carrying value was $527 million. Free cash use totaled $51 million, with $35 million of that invested in the inventory and instruments that support our growing distribution footprint and new product launches. As you can see on the chart at the bottom of this slide, adjusted EBITDA improvements are benefiting operating cash use. Cash use for revenue-generating assets stepped up in the fourth quarter as we invested in instruments and inventory to enable recent sales recruitment wins to serve surgeries. As we communicated previously, Our recent raise will fund the revenue-generating assets required for the teams we have already onboarded and those that we will onboard in the future. And that investment has an attractive ROI of about three times over the course of five years. In 2024, we will continue to put that capital to work, expecting to use approximately $100 million of cash for the full year. We anticipate cash use to be front-end loaded with the magnitude of investment in Q1 stepping up relative to the Q4 2023 and Q2 stepping down relative to Q1 and the second half of the year progressing toward breakeven. Turning to our outlook for the full year 2024, consistent with our January pre-release, we expect continued portfolio-wide momentum to drive full year 2024 total revenue growth of 23% to approximate $595 million. That includes 2023 surgical revenue growth, excuse me, 2024 surgical revenue growth of approximately 25% to $530 million, and EOS revenue of approximately $65 million. Note that EOS revenue in 2023 benefited from purchases related to our decision to exit non-strategic geographies, creating a tougher growth comparison to 2024. As sales growth powers leverage across our business, we expect to achieve continued solid profitability progress. We expect full year 2024 adjusted EBITDA of approximately $22 million, inclusive of a $18 million E&O inventory provision. Using the prior definition of non-GAAP, 2024 adjusted EBITDA guidance would have approximated $40 million. We expect to deliver 560 basis points of adjusted EBITDA margin expansion progress on top of the 890 basis points of progress delivered in 2023. That positions us well to achieve our long-term profitability and free cash flow commitments. The next few slides provide additional context for 2024 guidance. I'll start with how our expectations for procedural volume and average revenue for surgery growth shape surgical revenue guidance. The clinical distinction we have created has driven a robust rate of surgeon adoption and utilization. Surgeon user growth has consistently been strong, growing 27% in 2023. Another possibly less appreciated, yet consistent and sustainable aspect of volume growth is surgeon utilization. The top middle chart is a testament to the consistent ramp in utilization that our surgeon cohorts demonstrate each year. Our procedures build surgeon confidence. which inspires loyalty and empowers surgeons to work up the procedural complexity curve, both of which increase utilization. Each new surgeon relationship that we establish typically unlocks a multi-year utilization growth opportunity. We expect these dynamics to fuel up 20% procedure volume growth for the full year 2024. Average revenue for surgery grows as our mix shift towards procedures that require more products for surgery, like PTP and LTP, and towards surgeries with greater complexity, all of which feature higher revenue per procedure than our overall average. The increase in procedural complexity and increasing biologic test rate are also tailwinds. Revenue growth that recent cervical innovation is delivering is a slight headwind to average revenue per case, as cervical cases feature a lower than average ASP. We expect these dynamics to drive mid-single-digit percent growth in average revenue per case for the full year 2024. Now turning to our expectations for the adjusted EBITDA guidance for adjusted EBITDA of $22 million for the full year 2024 implies 560 basis points of improvement and approximately 28% drop through on the year-over-year growth in revenue dollars compared to 26% drop through in the second half of 23. The degree of progress that we have delivered and the drivers of expected leverage contributing as planned give us great confidence in continued operating profitability improvements. We expect the components delivering leverage to continue to be consistent with what we described in our long-range plan that we gave in May of 2022. 2023 was a remarkable year, a financial reflection of execution. It marked our inflection to profitability. It presented us with an unprecedented competitive opportunity, one that we seized, equipping our balance sheet with cash to invest in the high-return, revenue-generating assets that will fuel growth in the years to come. The profitability progress we have and will continue to make, along with a well-funded balance sheet, position us to progress toward cash flow break-even in 2025 and self-funded growth thereafter. The sector-leading growth that we are driving is dovetailing with the delivery of significant operating leverage is no accident. We committed to a financial plan, and we are executing to that plan, and in doing so, we have set the stage for continued value creation. This one scrappy David and Goliath-style spine story continues to shift into a very different kind of story, one of profitable, sustainable, long-term growth. Our best is truly yet to come. And that's a great segue to remind you of our long-range plan update on March 19 in New York City. The event will feature additional detail about our plans for profitable growth, adding two years onto the long-range plan that exists today. If you plan to join us in person, please RSVP through our IR website And for those that can't physically attend, the event will also be webcast. We hope to see you there. With that, I will turn the call back to Pat.

Thanks much, Todd. I will tell you that what brings us here is our spine-focused momentum. I can't be more deliberate with regard to the value of being focused and aligned with a customer base on a very specific segment of the orthopedic market. And so that brings about 40% revenue growth It brings about a huge opportunity forward with a disrupted market. It brings about growth that is profitable from a sales perspective and a lot of momentum driven by the things that I spoke to previously. So anyway, super excited about that. 2023 celebrated a big year with our national sales meeting as of late. And I think we go into the 2024 with significant momentum. So. With that, we will take questions.

We will now open the floor up for questions. To accommodate everyone on the call today, please limit yourself to one question. The first question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open.

Hey, this is Phil for Matt. Thanks for taking our questions, and congrats on the excellent quarter. I was just curious if you could provide an update on the rep hiring cadence you've seen since your last update, I guess Q3. How much disruption is still out there? And you've talked about being under indexed in certain US geographies in the past. Any update on that front from these ads?

I would say 94% of the market is still disrupted. I'm just kidding. We're almost 6%. These things take a long time to play out. And I would say that the approach that we're taking is one of methodical nature. And so we have areas of great need. We have areas of adjacent need. And so what we're trying to do is identify where we're going to get the most expedient influence that we can with the best people that we can. This is going to play itself out over a three to five year period. I love those who think it's a 12-month phenomenon. It's not. It will be rewarded by those who play long. And so the great part is there's plenty to do. Our portfolio becomes richer and richer with regard to its distinction. And I just can't be more enthusiastic with regard to an improving portfolio with probably a best-in-class commissionery.

And that kind of reflects all that stuff that's going on.

That's helpful. And I guess just on that same storyline, with respect to guidance, is there any guardrails around cadence through the year as these rep hires and recent rep hires ramp? And you're going to continue to hire this quarter as well. Do you expect it to ramp? fairly uniformly through the year or is there going to be a bigger jump in the back half?

I'll let Todd speak to the numeric reflection if there is one. What I think so often happens is revenue is a lag indicator and it's a lag indicator for bringing people over, getting access to the hospitals, getting the surgeons familiar with the goods, But there's a lot that goes into it. And so the immediacy of the influence is somewhat muted. And so my concern always is kind of the over-enthusiastic view on someone who just comes over. If we're playing long, our view is that these guys got to help us in the years to come. We want to prepare them to do so with an unbelievable portfolio, with unbelievable training.

And Phil, I can tell you the way we constructed the guidance really was reflecting the organization that we have here kind of coming out of the fourth quarter and really allowing new rep ads to be upside to that and execution of the underlying business really driving the strength of the guide. And so I think we've set up the year well in that regard. And as a reminder, our our guidance philosophy is to put numbers out there that we believe we can have achieved achieve and have a reasonable opportunity to exceed i think as it relates to um cadence i i think you know as you as you see normal seasonality cadence you typically have to step down from q4 to q1 step up to q2 kind of q2 to q3 is slattish uh and then slip up in q4 and so i think that overall shape of the curve will will remain and i think fundamentally where we land overall will really be a reflection of the underlying strength of the business as we go throughout the year.

Makes sense. Thanks so much for taking our questions.

Our next question comes from the line of Matt Blackman with Stifel. Your line is open.

Hi, this is Emily on for Matt. Just wondering if you can provide some color on the trainings that you've had thus far this year and expect to have? in terms of what you're seeing for demand versus prior years or anything on the mix of new versus existing ATEC users or lateral versus non-lateral? Anything there you can help us with?

Yeah, I hope I can help you. I'm not sure I will. The dynamic becomes, I think people come here to learn lateral from Luis Pimenta, Bill Taylor, but I've never, these guys are unbelievable lateral surgeons and there's a whole slew of them. And so the dynamic is I think surgeons come here to learn lateral. And then I think that they're, you know, inspired by the other things. And so the continuation of the expanded indications of the portfolio would indicate that we're going to get some people who are returning because what they're doing is they're expanding their application of, say, a PTP. We're starting to see the early experience with regard to corpectomy, which is really fun just from the standpoint of, if you're laying on your stomach, you get to control the back of the spine, the front of the spine, the same, in the same sitting. And there's just some real advantages from a, from a, uh, a, a kind of a big surgery perspective. And so that part of it is, is, um, uh, is great. And so we're seeing some return, but we're also seeing a ton of new interest. And I think you saw that through the numbers on the, you know, uh, on, on, you know, new surgeon contribution. It's, it's, uh, um, There's a lot of interest and there's a lot of geography that we haven't touched yet. And so we feel like it's the right combination of people who have already adopted, who are expanding, new people coming in. And so that's kind of the demographic.

Okay, great. And just maybe to expand on that one piece in terms of the expanded indications for lateral. So we've had the $1 billion bucket and the $2 billion bucket of TLIF, PLIF for a while. Is there any kind of traction moving into that bigger bucket, and would maybe an influx of experienced lateral surgeons that may be new to ATEC accelerate that trend?

Yeah, it's a great question, and the answer is yes. And so I think when you start to see, like, more of a new footprint of surgeons who come over, I think just the familiarity and the comfort in navigating the retroperitoneal space, which is core to the lateral approach, And so no matter what the position, these guys are very comfortable in terms of doing that. And so the opportunity to expand indications is going to be faster. And so if you think about kind of the cadence of our products to engage that space, we wanted to make sure that we built a great procedure with a patient positioner, with a retractor and instruments and all the necessary elements, but then was super sophisticated on the safe out front. And then we thought that would inform us to be able to lock up the indications for surgery. And so you saw a regular static implant, then an expandable implant, now you're seeing a corpectomy. And so you're seeing the kind of lockup of sophisticated applications of surgery. And so it's, you know, the more informed, the more sophisticated the lateral user, the faster they will uptake and the more indications for surgery that they will utilize. And so previously, if there was like compressive material in the, posterior part of the spine, it would indicate, gosh, I should do a T-lift because I can't do a decompression with a patient in a lateral position. The advent of PTP avails the opportunity to do all of what you would normally do with a patient in a prone position and approach from the back and do a direct decompression, but also get all the benefits of lateral in that position. And so that's our enthusiasm with PTP, and that's how we're seeing kind of the utilization. But if you're a lateral surgeon, what we're seeing is a faster outcome.

And Emily, it really makes a lot of sense when you look at that and you understand that that kind of translates into more procedures or more products through the procedure. So products per case goes up, revenue procedure kind of gets some tailwind through that. Plus, as Pat said, when they apply it to more complex pathologies, oftentimes that means either more procedures within their practice get to use PTP or there are more levels in that procedure. both of which and all of which really contribute to this great same-store sales growth that you see, because ultimately the utilization of the procedure just continues to expand and broaden the more that we offer it and the more they get comfortable with it.

At a higher price because of the sophistication.

Great. Thanks so much.

Next question comes from the line of Vic Copra with Wells Fargo. Your line is open.

Hey, good afternoon. Thanks for taking the question. Just two for me. So, you know, you talked about 15 new product launches and line extensions in 2023. Can we expect a similar cadence in 2024 and maybe just talk about some of the key product launches we should be on the lookout for? And then I had a follow-up, please.

Yeah. Thanks, Jake. One of the things that I love about the company is that there is an organic innovation machine. There's an authenticity around wanting to move the field. And so we have kind of committed as a cadence of always doing between eight and 10. And some of these things will be line additions and others will be big new product launches. But I think the things that will start to move the needle is in 2024, you'll start to see kind of continuation of of this expansion of the cervical portfolio, which we think is opportune because as more people utilize lateral and get confident with this, what they do is they expand the utility within the cervical realm. We want to make sure that we get all of that. And so we continue to expand kind of the sophistication within that realm. Also, there's so many opportunities for us to continue to build the next foundation. And then one of the next foundations for us is that how do we think through things like bone quality as it relates to EOS? And can we translate that bone quality into an implant? And so us becoming sophisticated with 3D printing is very important. So you'll start to see 3D printed implants from us. And so we love the opportunity for the assembly of goods. I would say another one that's forthcoming that will get a lot of experience this year, but next year will be a big one, will be the integration of the navigated robotic element into PTP. And so just when you start to think about the opportunity for innovation, it's not in a single silo. It's in the assembly of goods. And so for us to understand neurologically where we are with regard to SafeOp, assembled to a navigated robotic element with regard to our valence platform, Those together become the innovation, not one or the other. And I think that so often people think, gosh, I'm going to commit to a single technology and this is going to change everything. Spine is a field of great variables. And so sorry for the diatribe, but it's things of that nature that I think you're going to see a lot of. We also have an expandable T-lift implant that's going to be excellent. And so I think there's going to be just a myriad of new products that you're going to see either delivered through a procedure that already exists or elevating the sophistication of a procedure through the utility of assembled goods. And the prevent rod from Insight is a huge add to... Yeah, that's this year. So the whole Insight portfolio, we are super excited about that. The crazy part, though, is if you've been in this business, sadly, as long as I have, what you see is that these things take a little while to, in essence, reflect the value from a revenue perspective. And so you'll launch these products. You'll train the field on these products. You'll get the hospitals to accept the pricing on these products. And then you'll see the revenue reflection. And so that's why we always say revenue is a lag indicated to the work we've done 18 to 24 months before. And so anyway, sorry for the diatron.

No, not at all. That was great. Thank you. And just my follow-up question, you have your upcoming investor meeting in March. Any hints as to kind of what we can expect at that upcoming analyst day? Thank you.

Yes, Vic. And I won't steal the thunder of the meeting, but fundamentally, we're going to give another two years of financial projections, very consistent with how we laid out the story in May of 2022. Obviously, we'll we'll have some additional kind of qualitative components to that. But fundamentally, it'll be an extension of our financial commitments through the year 2027.

Our next question comes from the line of Josh Jennings with TD Cohen. Your line is open.

Hi, this is Eric Hall for Josh. Thanks for taking the question. I wanted to focus on your opportunity internationally. I understand you guys are just getting going in some markets like Australia and New Zealand. Specific to 2024, what level of international contribution have you guys factored into guidance here?

So we haven't broken that out Specifically, Eric, I think you'll see us give more granularity on that type of, I guess, insight in our long-range plan update, so maybe stay tuned there. But, you know, I tell you that it's starting to contribute, and, you know, we're getting good growth in the Australia and New Zealand markets because they're really starting to work for us. And as Pat said, we'll begin very, very early stages to see a little bit of revenue reflection coming out of Japan later this year. Not material at all, but it'll be good to start seeing that. We've really built a great team in both Japan and Australia and New Zealand. Really, really starting to come on. So I think we're very excited about the opportunity. And I think our experience thus far in those markets has reinforced the strategy of going narrow and deep in a very specific geographic footprint that we've laid out. And so maybe I'll leave it there unless Pat has something to add.

No, I'm just kidding. Your organization has done a ton of work to lay the foundation for future success of international. And that's, you know, you're most proud of because of just the predictable cadence of what's transpiring. So each of the different teams, I think, has committed. And then to Todd's point, we have the right team on the ground. And so the translation of that business could be what we intended to be. Exactly.

That's great. And then maybe thinking about EOS, you guys have talked about the updated platform being slated for a rollout in the not-too-distant future here. I was just curious to hear your expectation for that launch and maybe how many systems you think you could have on the market exiting 2024, just any sort of launch metrics that we could be expecting would be great. Thank you.

Yeah. I won't give any launch metrics, but I will tell you that everything is on track. I probably blew it in the presentation. I didn't talk about the regulatory clearance of them. So the impediment, we found them and it's us. And so we should be on time is my point. I was just thinking about an impediment. The dynamic is one where I think that there's going to be great demand. The challenge of capital equipment is that You've got to get the dollars allocated. Then you have to get the room ready. And then you have to get the line in terms of getting it placed. And so, again, I think that our enthusiasm for the technology is over the moon. I just want to make sure that it's tempered with the practical dynamics associated with getting these systems in place. And so the technology is everything that we had hoped for and that we had intended at The automation that's ultimately being integrated into the workflow of how we're doing things is exactly what we expected. Again, I think it's creating just a more sophisticated field. And so all of that is coming Q2 24 as committed. But the dynamics of the influence on the volume of units in the field will be felt in the years to come.

Understood. Thank you for taking the questions.

Next question comes from the line of Brooks O'Neill with Lake Street Capital Markets. Your line is open.

Thank you. Good afternoon. I just am kind of intrigued by this notion that you have 25% market share in some markets, but 5% overall in the U.S. fine market. And I'm just hoping you could talk a little bit about some of the keys to getting to that 25% in the markets where you have it to whether you're confident that you can get to 25% in the markets where you don't. And are there any structural obstacles to achieving the big share in some key markets around the country now? Thank you.

That was a tough one, Brooks. I would say the features or kind of the reflection of those people who are at 25% market share oftentimes, you know, may have a kind of a key center that they have gotten into, and they've gotten into it with lateral surgery. And then the lateral surgery has proliferated amongst the partners, and so there's been a competitive dynamic for people to adopt what we're doing. And so I would say that there are some great statistics around if you have a significant lateral business as a distributor of ours, then the likelihood of you growing at north of 40% is high. And then that ultimately reflects in the 25% market share in their respective geography. And so I would say that that is really kind of the foundation. And it's a lot of the guys who candidly have been somewhat familiar to us from a previous company that came over early and they've been able to establish the business. And then what they've done is they've reaped the reward of the halo effect. Candidly, one of the great things with regard to people who have just come over as of late in areas where there is an EOS, kind of a focal EOS field reflection, those guys will ultimately likely not only build off the lateral space, but also build off the EOS installed base. And so when you ask kind of, you know, is there an impediment to long-term growth? There really isn't. This is an interesting business, though, just based upon the demographics of each of the individual geographies. Guys are very slow to change. And what we try to do is provide them every reason in the world to change. Our view is the more we can reflect in a wide geography of EOS informatics, the volume of information that we'll provide to create greater predictability will drive people to us. And so that's why I think that the strategy of lateral first, a procedural reflection, EO's second, a procedural reflection, I hope that 10 years from now nobody's talking about individual products because all they're talking about is what they're doing procedurally. And we feel like that that procedural opportunity informed by something like EO's and a kind of growing sophistication with the information that's driven at the surgeon will make for better outcomes. Better outcomes will drive a better day. And so that's how we're thinking about it, and that's how we're seeing it reflected. Hopefully that's kind of precise enough to answer your questions.

So that was great, Pat. I really appreciate that. And I'll just tack on one tiny little bit more. It's not to be greedy, but does deformity give you an opportunity to to grow your share in some markets even beyond the current 25%?

Yeah, I think it's truly the great question, Brooks. Why do you see this being somewhat of a stodgy environment? You see so many places that have committed to a provider for long periods of time. And so to unseat those providers in a long period of time, you have to do something that's unique. And so the deformity market is a big market. And, you know, the reason why the numbers kind of get a little wonky is because it's not as though there's a lateral market and then there's a deformity market. You know, often there's times that lateral is used in deformity. But let's just say it's a very large market. And the ability to ultimately participate in that market is a sign of sophistication. And so oftentimes if you do the complex things well, you can do the more straightforward things well. And what's happened is there's been companies that have long been in this business that have established themselves as deformity providers. We believe that deformity is best approached from an assembly of goods, much like we have with regard to lateral. It's a different assembly of goods. But the opportunity for us to do a patient positioner in idiopathic scoliosis where there's a curve that's more flexible, we think is opportune. We think neurophysiology in terms of automating it with regard to facilitated MEPs and even using automated SSEPs is valuable in those cases. And then understanding rotational deformity with regard to EOS. When you start to assemble all of those things, that suggests to us a procedural requirement. And that's where I think people have historically used gestalt. I'm so experienced in this field that I could do it. Our view is how do we provide objective information that ultimately drives behavior? And that's where we think that once that starts to become more commonplace, our ability to reflect and influence in that market is high.

Makes total sense to me. I'm looking for $2 billion. Let's go.

Me too.

Next question comes from the line of David Saxon with Needham & Company. Your line is open.

Hi, Pat. Hi, Todd. Congrats on the quarter, and thanks for taking my questions. I wanted to start on lateral, specifically for LTP. So for a doctor who's doing XLIF, is LTP the path of least resistance from an ATEC product perspective? And if so, how's that launch resonated with kind of new doctors? Is that where you're seeing the most traction in that cohort?

Yeah, completely. So as the poor soul who is in Sao Paulo taping people to beds in the early days of ex-life creation, to understand the requirements and having a product development group and marketing group that understand them viscerally is so valuable. And so what you're seeing is even, you know, we clearly communicate that PTP is the next generation to, to lateral or XLIFT, there's still many applications where LTP is super valuable. And so what we've done is we've taken all the learnings that we've had from XLIFT from the, you know, previous years, as well as from PTP, and we've combined those. And that gets reflected in terms of like a patient positioner. Imagine we're in 2024 and people are still taking people to bed and suggesting that there's nothing left to do in spine surgery. That'd be despicable. And then the opportunity to say, hey, I'm a monitoring company, but all I'm doing is telling you where the nerve is, and then the monitoring is not valuable after that. But people still have thigh pain because of plexopathy, because what they're doing is retracting the plexus to them. And so there's many opportunities to continue to make these things, to improve these procedures. And I think that we're doing those with regard to the assembly of the technology that we are to lateral. And so when a surgeon comes and tries to what they see is the next generation of goodness.

Okay, great. Super helpful. And then I just wanted to clarify something, Todd. I think you said in the script for the OpEx cadence, did you say it was supposed to be kind of front end loaded higher in the first and second quarter? I just want to make sure whether I heard that correctly or not. Thanks so much.

Thank you, David. My commentary was specific to the cash flow cadence throughout the year. So we've communicated we're going to spend about $100 million of cash this year as part of the investment in the sets and inventory, the revenue-generating assets that will ultimately fulfill the needs of the sales folks who come and who will come. And so that's what we're spending it on. We spent some there. Clearly, in the fourth quarter, you can see that And then ultimately, cash burn in the first quarter will step up from Q4. It will step down in Q2. And then the second half, it will be approaching cash flow break even. And so I think ultimately, that'll be the cadence that we're expecting throughout the year with respect to cash burn.

Okay, great. Thank you.

Our next question comes from the line of Drew Ranieri. with Morgan Stanley. Your line is open.

Hi, Pat and Todd. Thanks for taking the questions. And apologies if this has been covered already, but on Valens, could you give us an update on how you're thinking about development for the product? And with more competition coming potentially in 2025, just remind us how you're thinking about differentiation of your system, especially as maybe more spine procedures are starting to move towards the ASC. Thanks for taking the question.

Thanks much, Drew.

First of all, I guess, you know, I can't be more excited about what's going on with regard to valence. We're getting experience, so it's being utilized, which we suggested as much. That utilization is going to get expanded. It's going to be, 2024 is going to be more of a, you know, evaluation, verification type of a year with regard to, it's going to be used like all the other robots, in a relatively conventional way in terms of just placing screws. The launch in 2025 will ultimately be a verified tool that ultimately integrates or assembles with the workflow of, first and foremost, what we're doing in PTP. And so just the ability to assemble neurophysiology with navigation integrated into that effort will be phenomenal. making sure that you know where the bones are, you know where the nerves are, and you understand what the health of the nerve is. All of those things are great. One of the virtues of PTP is you have control of both the front of the spine and the back of the spine. And so your ability to literally manipulate both those at the same time in a navigated way is fantastic. And so you will start to see that in 25, and that's a unique opportunity for us. And so, you know, we have the ability to navigate two things at once here in the coming years. When you start to think about ASCs, one of the dynamics is that oftentimes they're surgeon-owned. And I've not met a ton of surgeons who love to buy expensive capitals. And so what we have done is ultimately created a footprint that accommodates the utility of navigation robotics in a way that's procedural. And so if we have to bring everything in, the site of service is really just not that big a deal because our thinking is only around the success of the procedure and the required elements that make for predictability. And so our enthusiasm with regard to the ASC is very high because the footprint of our goods is very limited. and our ability to ultimately execute critical surgery within a small space where there's not a high enthusiasm for capital is good. So that's the thinking, and that's where we are from a strategic perspective.

Got it. Thanks, Pat. And maybe just one more. I don't think this was discussed, but just how in your 2024 guidance, maybe just talk to us about how you're thinking about competitive rep hiring and what factor that might have to play in there with any additional hires that you did or will do beyond 2023. And lastly, just can you just remind us where you are in terms of Salesforce headcount for year end? Thanks for taking the questions again.

Yeah, Drew, this is Todd. As we kind of laid out our guidance for 2024, we ultimately said, what organization do we have exiting the year? What's our run rate? And so that really is how we built our 2020, excuse me, what was our exit rate in 23? That's really how we thought about and built our 2024 guide. So it's really a reflection of the fundamental, I think, underlying fundamentals of the business and the organization that we have in place. I think, as you know, Oftentimes what we do today really affects revenue in 12 to 18 months from now. So our view is as we get more competitive reps on board and as the business may do better than what we have assumed, that ultimately would be kind of what would drive an upside case to our guidance. But fundamentally, we're trying to put guidance out there that we believe we can achieve and have a reasonable opportunity to exceed. I think that opportunity to exceed would really probably be on the volumetric side and kind of the core business and or upside to the amount of reps that kind of come throughout the year. Relative to total sales force, kind of the low 300s, mid 300s, so that's more or less where we're at.

There are no further questions at this time. Mr. Miles, I turn the call back over to you.

Thanks very much, Desiree. And really just thanks, everybody, for your interest in ATEC. We're in this for the long haul, clearly, and can't be more excited about the momentum that was created in a great year in 2023. Thank you very much.