Alphatec Holdings (NASDAQ:ATEC) Q2 2020 Earnings Call

0:00 Good afternoon, everyone, and welcome to Alpha Tech's second quarter 2020 financial results and recent corporate highlights announcement. 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 for pro forma measures. Reconciliations of non-GAAP measures to US GAAP can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors.

0:55 Joining us on the call today will be ATEX Chairman and CEO Pat Miles and CFO Jeff Black. Now I will turn the call over to Pat Miles, Chairman and CEO of Alphatec Spine.

1:09 Good afternoon, everybody. Welcome to the second quarter ATEX conference call. I'm coming up on my three-year anniversary in October and really wanted to share with everyone some of our learnings around the transformation of ATEX. When I arrived, I was told that all we needed to do was transform the sales force and all would be well. The reality is that it's never that simple. In our second investor call, we outlined three commitments that we made to transform ATEC. The first one was how do we create clinical distinction? The second one was how do we compel surgeon adoption? And the third one was how do we revitalize the sales channel? And so when we start to think about creating clinical distinction, what that meant to us is really creating more sophisticated surgical solutions, meaning to create the internal know-how to be able to serve the interest of spine surgery.

2:05 It is about serving the clinical requirements really better than anyone. With that, we'd be able to then compel surgeon adoption, which means how do we create confidence and predictability? How do we make surgeons buy into or have confidence in the distinction we are generating? The distinction didn't have to be really from an individual product, but rather in how we were addressing our procedures of specific type pathologies. The question was, are we creating the type of confidence that can be reflected in surgeons engaging and more. And then the whole revitalizing the sales channel. This meant how do we attract the best salespeople?

2:50 It doesn't matter how well we do things internally if it is not reflected in the field. We are revitalizing our sales force with an interest in clinical aptitude. Our people have to be clinically focused. Last, these people are savvy. They know what companies are creating products and procedures that determine a prosperous future. We want them to be clinically adept and totally focused on hate tech, which hopefully becomes the exclusivity approach, which we will earn over time. I'd like to delve into each of our commitments and demonstrate how things have changed. What is important is that we create a methodical approach, which means that our commitments or claims are reflected in metrics. But the first thing you better do is create an organic innovation machine. That is a team of experienced, passionate people curious as to how to improve spine care.

3:42 We built the fundamentals of that team or the foundation of that team over the past few years and have launched 17 products, which makes up 61% of our sales. I think where others see spine surgery as being commoditized, we see nothing but opportunity. Spine surgery still needs improving, and we intend to work with surgeons to do just that. When we talk about compelling surgeons, most of it gets reflected in earning procedures where there are multiple products used or increasing surgeon confidence where there is an increasing complexity of surgery. In speaking of spine procedural development, we develop products based upon the requirements around the specific approach. You will see a lot of companies apply legacy technologies to new approaches and claim, we've got one of those, but surgeons are compelled by companies willing to design and develop specifically for the approach in pathology.

4:35 Also, creating a shared interest with surgeons is about designing products beyond only those that are billable. It is about fulfilling the requirements of spine surgery. As a reflection of our progress, things like the number of products used per case, up 27% since Q2 of 17. Cases with more than one product sold, up 46%. When you look at things like average revenue per case, up 47%, that's one that really speaks to confidence. The surgeons have more confidence in the products that we're creating. And then revenue up from top 20 surgeons, up 51%. Number three is about revitalizing the sales channel. I love this one. There becomes a cynicism around sales guys running toward whoever has the highest commission rate. The reality is that they run toward the company with the most promising future. They want to be effectual to the surgeons they call on.

5:30 I believe that they love being part of something special, and the great ones are a significant resource to their surgeon's success. They create certainty in an uncertain environment. The number one question a salesperson gets is what's new. Well, at ATEC, there's a lot new. What we have seen thus far in our sales transformation is 77% increase in the revenue per distributor with less distributors and the percentage of sales of our strategic channel at 91%. So things are getting better. So when we start to think about creating clinical distinction, I look back over the last few years, and as we created the organic innovation machine, what we created is really unbelievable know-how.

6:20 There is great know-how at ATEC. It's easy to get consumed with only financial reflection and lose sight of serving the interest of a marketplace. Our job is to serve the interest of spine surgery. We are doing that by serving a process of how we do things. And back in 2018, we acquired foundational technology that enabled us to provide unique information to surgeons. We realized that when we acquired it that we were immediately one of two companies that could create distinction in lateral surgery with automated neurophysiology. The beauty of SAFOP was that we knew the value of what we were providing didn't stop at identifying a nerve with automated EMG in lateral. There were multiple applications beyond lateral. However, the value that we could provide in lateral was unique. It would be both nerve identification as well as discerning nerve health.

7:08 It is a very big deal. That means that we immediately can do something that no one else can do. The competition will immediately say, we got one of those or we can do that. But the surgeons and salespeople know it's just not true. So moving into 19, we launched 12 plus products, including an integrated SafeOps system with peripherals that integrated with our instruments and implants. This was the start of our effort to proceduralize or build individual approaches. The new products were foundational and it enabled us to begin building a portfolio of products to compel surgeons and attract significant sales talent. The great part was that our team designed in feature sets with our foundational products that are unique and clinically valuable. Clearly, products like Single Step that integrate with Safe-Op is one of them.

7:57 We move on to 2020. So we hit 2020, and with all of our momentum, we went smack dab into a global pandemic. However, what we don't do is panic. What we do is concentrate on what we know, which is serving the interest of spine surgery, and control what we can as we steward the company as everyone would expect. So what we do is focus on three things. We design and develop new products that we deem to be weaknesses in our cervical portfolio, both the insignia of cervical plate and Invictus Posterior Cervical System will alpha launch in Q3 2020. It seamlessly extends Invictus up to the posterior cervical spine from the lumbar and thoracic region. We also added modularity to Invictus and integrated with our T lip retractor, Sigma, which will launch in Q4. These are things we do very well.

8:48 So we have great expectation around these products. Lastly, we developed a new lateral single position procedure named PTP, which will launch in Q4. This is a lateral prone trans-soas surgery, whereby once again, everyone will say, we got one of those, and in typical fashion, they don't. We're the team that launched lateral surgery back in 2003. The level of lateral know-how at ATEC is unrivaled. Having previously built the lateral market, it is a space for which we are profoundly familiar. The guy pictured in the loops is Luiz Pimenta. For those of you who may not realize it, he pioneered lateral surgery. He is our chief medical officer. And among he and other spine surgeons with whom we interact are people never satisfied with where spine surgery is today.

9:39 PTP will be a very significant addition to not just ATEX armamentarium, but the armamentarium of spine surgery. We are several hundred surgeries into our experience, so we are not guessing. More on this as we launch in the fourth quarter. So when we look at the investments that created value over the years, we go back and look at the importance of the people and the portfolio investments in recreating ATEC. It is very clear that we are making progress. As you can see, where we have invested, we've prospered. Where we haven't, we've struggled. The priority of our investment was to create clinical distinction with information and lateral in our first phase. Since Q2 2017, we've grown 61% in the categories of information, lateral, and posterior fixation. In Phase 2, we began to invest in ALIF, PLIF, and TLIF.

10:35 It is up 34%, and we are just getting started. You will see continued upcoming launches in 20 and 21 in these categories. Lastly, our redesign slash investment program. and all things cervical and biologics is at a very early stage. You will see the fruits of them in 20 and will fully launch in 2021. The point is that we have been very deliberate with our investment thesis. We know the market well and our ability to continue to invest and create clinical distinction is significant. Now on to the scorecard for Q2 2020. The momentum we built is strong and candidly somewhat undeniable. We are up 11% year-over-year, 15% within strategic distribution.

11:21 We're growing at 25% amongst our top 20 surgeons. 61% of our revenue is new products versus 32 in Q2 of 19 and less than 10% in 2018. The confidence reflected in a 14% year-over-year growth in average revenue per case is significant. It's our seventh consecutive double-digit year-over-year growth quarter, and one that I really like is that we are selling 1.8 average product categories sold per surgery. That means we're starting to combine and proceduralize the portfolio in a way that's creating clinical distinctions. As we look forward, you're going to see profound change, which means we're going to do three things. We're going to create clinical distinction, we're going to compel surgeon adoption, and we're going to revitalize a sales channel.

12:17 That means that what we're going to do is continue to develop product. We're going to increasingly do things that are more complex. We're going to continue to attract surgeon interest. We're going to continue to advance toward exclusivity with regard to our sales channel, and we're going to continue to expand in under-penetrated geographies. So, clearly, a lot of good things going on and can't be more excited about where we are as a company. And with that, I'll turn it over to Jeff.

12:47 Great. Thank you, Pat, and good afternoon, everybody. Just a few quick minutes on the financial results, first with revenue. Again, as Pat mentioned, we are expanding our revenue per case. We saw very strong momentum, particularly going into the last month of the quarter. June was the second highest month of volume in the company's history. And again, as expected, we continue to see the international headwind under our supply agreement that's winding down as anticipated. And as Pat mentioned, as you start to really dig into the growth metrics here, 11% growth in U.S. revenue still reflects headwinds from our legacy distribution. That was down 23%, so strategic grew 15%. And when you look at our performance and our year-over-year growth of 11%, even in a down market, we grew off a very strong second quarter 2019 comp where we saw 28% year-over-year growth a year ago.

13:50 So that speaks to continued momentum in the sales channel. When you look at gross margin, again, the story is the same, although we're beginning to get a lot more clarity on the path toward our margins at scale. As expected, we saw E&O drag from legacy products, so that continues. Last year in 2019, it had about an 800 basis point impact on margin. For the first half of 2020, it's more along 600 basis points. Historically, we've seen it more in the 300 to 400 basis points. So this speaks to future margin improvement opportunities as we scale our gap margins in the mid to high 70s are well in sight.

14:37 We take a look at high level at the P&L. Again, we're making continued investments, expanding the portfolio, investing in the sales channel. In late Q1, when the pandemic first hit, We took immediate actions to shore up spend. And we did that with an eye toward not compromising key product development initiatives. We're well on track still to release 8 to 10 new products in 2020. But at the same time, we're able to avoid workforce reductions and keep the ATEC team intact. In fact, we continue to make a number of key hires while deferring spend where it made sense. While Q2 is probably not representative of near-term expense profile, It's definitely an indication of our ability to pull the appropriate cash levers when we're required to do so.

15:28 Again, a segue into the balance sheet. When you take a look at our balance sheet, we ended Q2 with more than $55 million in cash and available draws on our squadron line. That provides us runway through mid-2021. Our term debt with squadron does not begin to amortize until the third quarter of 2022. We also just entered into a one-year repayment holiday on our $1.1 million quarterly obligation to Orthotec. So when you take a look at our cash burn profile, more than 50% of our operating cash for the last four quarters was really to support CapEx for new product launches. In Q2, it was nearly 60%. So as we start to think about financing these, it's really about making the capital investments required to drive continued growth. The shelf filing and the ATM we put in place today is intended to give us ultimate flexibility to access capital markets when it makes sense for us to do so.

16:28 Before I wrap it up and turn it back over to Pat, just a little bit of commentary and a look at our historical P&L. Again, when you look at our revenue, our annualized U.S. revenue run rate from strategic distribution in the first half of 2020 has actually doubled We've made investments we committed to make in product portfolio and sales channel, which has driven the revenue performance we also committed to. We've also held the line on G&A, so what you're seeing in the SG&A line is truly an investment in the sales channel. The operating leverage will come over time. For now, our focus is making the right strategic investments to build predictable and sustainable top-line growth.

17:14 With that, I'll turn it over to Pat to wrap up.

17:18 Thanks, Jeff. Our vision for the new ATEC has begun to materialize. We have enjoyed our seventh quarter of double-digit year-over-year sales growth. And as we talked about a few years back, really what creates double-digit growth is focus, execution, and building organic innovation. And there's a group here that knows how to do that. And so when you look at our efforts, it's all about executing and a culture committed to serving the interest of spine surgery. And I would tell you that we are just getting going.

18:06 And so we're very excited. And with that, we'll turn it over and take questions. As a reminder, to ask a question, you will need to press star one on your telephone. And to withdraw your question, you may press the pound key. And first question is from Lake Street Capital, Brooks O'Neill. Brooks, your line is now open.

18:31 Thank you very much. Good afternoon, guys. It sounds like you spine guys are hitting some stride out there. We're trying, Brooks. Way to go. So... First question, I guess. I think Jeff mentioned that June was the second highest month in the company's history. Can you give us a little feel for what you're seeing in July and maybe early August? Obviously, some spikes occurring, but what we hear is a lot of procedures are getting done. So what are you guys seeing?

19:06 Yeah, Brooks, this is Jeff. Thanks for the question. Yeah, you know, momentum continues to be encouraging and strong. We're obviously cautiously optimistic and, you know, given the current environment, but we're seeing strong demand, right? And I think what we're finding is that, you know, the question is, is spine surgery truly elective when you've got patients in chronic pain that need surgical intervention? So we're encouraged by what we're seeing early in the third quarter.

19:38 Great. And Pat talked about the efforts to proceduralize various aspects of spine surgery. Obviously, your deep history in lateral with Luiz and all of that is great. What are some of the areas you think you can proceduralize going forward? And maybe talk just a little bit about those efforts.

20:05 Yeah, Brooks. I hope you're seated. I'm going to speak for an hour. It's one of those things where I've got to tell you, I think surgeons are looking for partners that will invest in things that ultimately make spine surgery better. And so often it's been only the billable that companies invest in. Having shared interest with a surgeon means that you care enough about what he's doing to invest in the things that he needs. and it may be not a great business as it relates to the individual components, but assembled it becomes a great business. And so I think all the way from anterior cervical discectomy infusion, all the way down to T-lift, to lateral, all of them require adjunctive technology that at this point they all kind of parse together and it's a bit of an underwhelming experience.

21:02 And so for us to be able to choreograph or architect These things is just such a great opportunity and really create greater predictability. So when a patient goes in with a specific pathology, the likelihood of them knowing exactly how things are going to go goes very high. And so it's really virtually every procedure.

21:23 Every procedure. Great. And then maybe my last one. I just love to hear how things are going with SafeOp, what the response is out there in the field. and maybe if you can share any thoughts about what the next 12 months might bring to the SafeOp platform, that would be really interesting.

21:46 Yeah, love SafeOp and I am thrilled with how it's doing. And when we created it, we said we want a conduit to deliver information into the operating room. And the first bit of information was going to be neurophysiology. and what we're doing is providing better nerve physiology than anybody else, you know, as I hope I was clear, which means both where's the nerve and then what's the health of the nerve, which nobody's doing today. And so, you know, there's one or two companies doing that and I got to tell you, we have a better solution and so that part's very fun. But how the thing evolved in is what's the information based upon the procedure that you're doing? And so there's all kinds of different, not only neurophysiologic additions we can make to the alpha informatics platform within SAFOB, but also we're still profoundly interested in things like alignment. And so what you'll start to see is things like alignment elements added to the platform whereby you'll have just additional information.

22:48 There's a fair amount of things that we believe will create predictability in surgery, and we believe can be delivered through that platform.

22:58 That's great. I told you that was my last question, but I actually have one more, and I ask you quite often about this, but a lot of buzz in the spine marketplace about robots, and we've talked about the fact that you believe in empowering surgeons more than putting a robot to work. But tell me what you see out there in the marketplace today with regard to robots and your interest in pursuing some track along those lines.

23:27 Yeah, it's a bit of a loaded question, clearly. The way I would answer it is we look at a specific procedure applied to a specific pathology. If you're to do the math on that and you look at the applicability of robots, it's relatively narrow. And as ubiquitous as everybody wants to think that they are, they're just not. And so the reality is there's still kind of interesting pieces of equipment that are not getting utilized very significantly. and I appreciate all of the exuberance, but having been around for the exuberance of the lumbar total visc replacement when it came through, what you do is you watch these things and you say, gosh, what is the specific pathologic application that it's solving or what's the problem that it's solving?

24:18 Well, robots at this point is only solving placing pedicle screws, which have been done for years. And so it's one of those things where I just have a tough time suggesting there's a ubiquitous value associated with robotics when I see so much good surgery being done, as well as I look at it as a tool for very complex surgery where there's goofy anatomy or big time rotational issues where a surgeon really struggles. And that's, again, a very narrow part of the market. And so, again, I'm enthusiastic about the technology, and as anyone, as it relates to its applicability today, I think it's limited.

24:57 Okay, that's great. Thank you very much and congratulations on all you're accomplishing. Thanks. Next question from Piper Sandler, Matthew O'Brien. Matthew, your line is now open. Good afternoon, guys. This is Patrick on for Matt. Congrats on the quarter, especially, you know, at the lens of COVID-19. I wanted to start on kind of a competitive environment you're seeing right now. You're in a really great position from a capitalization perspective, but there are smaller players who are less capitalized that are struggling during this time. So if you could kind of parse out where some of your competitive wins are coming from during this time frame, that would be helpful. Are they coming more downstream? Are you getting broad-based wins both up and downstream?

25:44 I think that would be helpful for us to understand. Thank you.

25:49 Yeah, I'll do my best in terms of... trying to create some clarity. I would tell you that we're getting geographic wins based upon earning people's interest and enthusiasm on what we're doing surgically. I think in pockets we have some very strong clinically adept salespeople. and I think when we have the people that can appreciate the feature sets that have been designed into the technology, we prosper and those are areas that we're finding success. Where we aren't finding success is when we have more legacy type people who don't engage in the clinical sophistication of what we're doing and when they're not bringing the surgeons anything new is is kind of where we have not seen much prosperity.

26:49 I'm not trying to be cryptic. I'm just telling you the way we see it and the way it is. That's helpful. I appreciate it. It's more of a convoluted question. I don't mean to ask difficult questions, but I'm just curious. When we think about the back half of this year, Can you just talk about some of the dynamics going on between the backlog and de novo patients as we kind of think about your growth rate as you move on? Are you still seeing surgeons working through their backlogs? Is a lot of that work done? Just how should we think about that for the remainder of this year? And then I have one more follow-up. Thank you.

27:29 Okay. Here's my view, Patrick, is the pandemic thing has been a tale of 50 states. And so what happens is there's so many puts and takes per practice that it's very difficult to discern what's pent-up demand and what's normalized demand. I think we saw a lot of the kind of pent-up elements from April show up in May and probably parts of June. My expectation is that there's so many puts and takes of why people get surgery and why they don't. Again, it just becomes difficult to discern what's pent-up demand and kind of what's normal kind of run rate type of things. I think surgeons are still seeing less patients in their clinics and hence less surgical candidates. And so it's a situation where it's like it's really tough to discern.

28:26 Thanks. That's really helpful, Collier. My last question, briefly, on the slides, when you're talking about Alphatec's vision moving forward, a component of that is expanding into under-penetrated geographies. Can you just help investors understand where those under-penetrated geographies you're specifically focused on? As you look to move into those, what's the demand like for distributors to get on board with Alphatec? I would think you're generating A lot of momentum right now for distributors to get on board, so I would think it would be a natural process for you to expand, but I'm just curious if you could provide more color there for folks. Thanks again for taking the questions.

29:06 Thanks, Patrick. It's a great question, and I think that what you're getting is there's a unique level of sophistication with regard to the design development prowess that exists at ATEC. and so when a new distributor comes over, I think they're blown away with regard to the technology that exists here. A lot of times you'll get a little company and they'll try to compel a distributor. What we see is distributors come over and realize that the technology here is better than where they've come from. As well as they see what's coming forward and I think that there's a lot of enthusiasm. From that standpoint, the The volume of distributors coming our way that are interested in innovation is very, very high. And so that part's great.

29:57 The challenges are that there's still geographies where we have some legacy people or we've just not been able to penetrate as expediently as we'd like to have. And so the great part is there's a hell of a lot of opportunity out there. The tough part is we still have some some disparity with regard to the prowess in the field. And so that's about as much resolution as I'd be enthusiastic to give. But I've got to tell you, from a technology perspective, the people who come through this door are blown away with what we're doing. All right, guys. Thanks again, and congrats on the quarter.

30:38 Thanks, Patrick. Next question from Northland Capital, Jason Wittes. Jason, your line is now open.

30:50 Impressive growth, especially relative to your peers. You guys actually grew this quarter, which, again, is quite impressive. So a follow-up to a question you had earlier, you mentioned I think June was your strongest month ever. Could you kind of give us some color in terms of how July went relative to June and sort of how the quarter went month to month? It's been a metric that a lot of the other companies have been providing.

31:19 Yeah, Jason, this is Jeff, and I guess similar to Brooke's question, you know, we're seeing, you know, continued strong interest in momentum. You know, typically, you know, July is typically slower than June, but we're certainly seeing strong momentum, and we still have every indication that, you know, to my earlier response was that it starts to to question whether certain surgeries are elective or not. So what I would tell you is momentum has continued, and we're cautiously optimistic about the third quarter.

31:59 Okay, and I guess given COVID, though, it sounds like you're still not in a position to provide any sort of guidance at this point, but it sounds like things are generally optimistic.

32:09 Correct, yeah.

32:11 Okay. I noticed you mentioned the cervical launch. If I think about your current basket, which I know is rapidly changing, are you guys doing much cervical business or is this potentially a big incremental game with these launches I think you're planning at the end of the year?

32:32 Yeah, Jason. One of the best surgeries that a surgeon can do is an anterior cervical discectomy infusion, meaning the patients do most well. They'll go in and the most predictable thing that they do is that surgery. I would tell you that based on the historical challenges that Alphatec had is they didn't invest and continue to evolve the technology. And so we're dealing with a very aged cervical portfolio. And if you look at the demographics of that, one of my slides showed where we made investments. I would tell you that it's reflective of the type of prowess we have in the different areas. And so the frustrating part is it's a hard place to create significant distinction.

33:19 I think we've done a very, very good job with regard to the Invictus part. You think about us all being here for about two and a half years, and we're going to have a stem to stern solution with regard to Invictus with modularity and all the other elements of a posterior fixation system. It takes most companies five plus years to do. I could name the companies if you would. I'm just kidding. But the reality of it is that we're going to have an exceedingly strong post-year fixation offering as well as a continuing improvement on the anterior side as well. So a long answer to yes, we're going to be much more sophisticated. We're starting to evaluate those things in Q3 of this year, and we'll launch early in 21. Okay.

34:10 And then, you know, another product line question. You know, SafeOp, at least from my view, is kind of a linchpin technology for you guys. If I think about your customer base, can you give any kind of statistics or measurements in terms of who's actually using it at this point and what the outlook for SafeOp is in terms of adoption?

34:31 Yeah, first of all, realize those of us who built a previous company did so with inferior technology to SAFOP in another place. This technology is profoundly better. And so, you know, the things that we're really tracking is linkage to specific procedures. And so how often is it used with our screws? How often is it used in laterals? and are these percentages indicative of what we believe traction to look like? And so we're finding great success in the integration of those tools together. And so that's what provides us such enthusiasm. The other thing is there's such scalability.

35:18 Where we were previously working with an IBM 286 computer, We're working with a Bluetooth tablet that's awesome. And so just when you start to think about a footprint in the operating room, but the type of intelligence that we're bringing in, it's highly valuable. And so our enthusiasm is great. And the tie that we're seeing to the different spine procedures is very high. And so I would just tell you that it's doing what we expected it to do.

35:48 I mean, are most of your surgeons using SafeOp in one form? are another at this point, or is there still an adoption curve going on?

35:55 There's going to be an adoption curve until the cows come home. It's one of the things where if they're doing lateral with us, they're using safe house.

36:05 Okay, that might answer my question. That's helpful. Maybe a question for Jeff real quick. I mean, the non-strategic business, is there any sort of projection in terms of where that goes in the future? I mean, it's It's been on a decline, obviously. It seems like there's some residuals that stick around. How should we be thinking about that business, especially on a going-forward basis?

36:31 Yeah, Jason, I think we've got so much more visibility into that network than we did a couple years ago, and I think the expectation was that we would continue to see that cut in half every year and potentially not be able to control that transition. We're now at a point where it's still at about a $10 million run rate, but it's in some very specific key geographies, and those are geographies where that distributor will ultimately either decide to join us on a more exclusive basis, or we now have the ability to move in a new distributor who will take over that territory and walk to exclusivity with us. The answer is we don't think that the drag ultimately will create long-term kind of a net absence of revenue, if you will, which was a real risk two or three years ago.

37:28 But it's about a $10 million run rate, and we now have the ability to, more so than we did, to manage that transition.

37:37 Okay, and one last question on PTP. I think NAS is the unveiling, and I guess that's going to be online, unfortunately, due to COVID. Once that happens, when does that really sort of get launched? Is that the unveiling and then it gets launched into the field? And does that make this a 2021 event? Is that the right way to think about the launch of PTP?

38:04 You know, I think so, I guess. It's one of these things where it's so frustrating to The great part is the timing hasn't changed, and we're not going to change it. We're going to launch it when we committed to launching it, and we're going to see the momentum pick up. You'll start to see the reflection of it really, I think, in 2021. And like years ago when we launched Lateral, I think the uptake is going to be faster with this just based upon the acceptance of Lateral. We're not having to sell people on Lateral. But it's going to be one of those things where I think you're going to start seeing a reflection of it in our company in 2021 and 2022.

38:56 But it's a great opportunity to get people in our company so that we can train them on the new approach. inspire them with regard to our technology. And so we really see it as a significant opportunity.

39:10 Great. Thank you. Thank you very much.

39:13 Thanks. Thank you, Jason. Next question from Canaccord. Kyle Rose. Kyle, your line is now open.

39:24 Great. Thanks for squeezing me in, gentlemen. So a lot's been asked, but Jeff, you gave us a lot of commentary in the prepared remarks, but I just I want to go back to just the overall Q2 as it stands because the growth you delivered considering the economic backdrop of what we've seen the peer group do is exceptional. So I'm wondering if you can help maybe walk us through the Q2 on a month-over-month perspective. What was the low point? Some of the productivity improvements you saw because if you put up 15% in the strategic group overall, that implies your exit velocity in June was materially higher than that. So trying to understand what went right and then we'll kind of dig in from there.

40:15 Let me provide a color, Kyle. April was exceedingly tough. There's still places that we're doing surgery. you know I think some of the virtue that we I guess appreciated was the fact that you know in the pocket of areas where people were doing surgery they continue to do surgery and so you know that was of you know I guess a opportunity for us but I think it's not going to be profoundly different with regard to the case volume one thing that we did see is When we see the continued magnification of the number of products per surgery used and then less of a decrease in the volume of surgery, what we see is an expansion in our revenue number. And so much like we talked about strategically from the beginning is our expectation is if we do a great job assembling procedures, use more products per procedure, compel more people, then we're going to see a big expansion.

41:24 We saw a rescission in the in the volume of cases, but still saw more products per case used, as well as more complex surgery being done. So I'll let Jeff answer the numeric ones.

41:35 Yeah, just to give a little more color on that, to that point, obviously April, you know, April we saw significant impact. For the quarter, as we disclosed, we saw about a 4% year-over-year decrease in surgical volumes, right, and obviously more than made up for that in Thank you for joining us. and so on. We hit an average daily sales level that exceeded the peak in Q4 of 2019.

42:29 Okay, great. That's very helpful. So then maybe help me understand, I get that there's a lot of uncertainties and that there's a little bit of caution around putting in guidance and some goal posts for the back end here, but help me understand I guess how you think about some of those uncertainties and what would need to go wrong to, I guess, materially change some of the momentum you have. Because when I look at what happened in April, I mean, it's one of the biggest deferrals of procedures we've ever seen in the space. But you guys still deliver the type of growth you have. So I guess I'm just trying to understand, even in that backdrop you grew, I guess, what are you contemplating for the second half? from a headwinds, tailwinds perspective that might not give you confidence to put in a floor for growth when we think about some sort of goalpost.

43:22 Yeah, Kyle, I think it's the obvious things. I'm trying to think of anything that would be informed. But it's usually uncertainty around what's going on from a flare-up on the pandemic front. To me, there's nothing that's obvious around what could derail the momentum other than, again, this significant pandemic that becomes uncertain for us all. And so I wish I had a great answer, but that's all that... The other thing is, you know, back to the whole comment about, you know, it's a tale of 50 states. It's like, you know, there becomes puts and takes within each of the different states, and so it's just difficult to discern what's going on, you know, over a long period of time.

44:24 Okay. And then just the last one for me is, you know, we've heard a lot of commentary about, you know, hospitals restricting, you know, commercial patterns, you know, as far as, you know, rep access to to meet with physicians and get into cases, and then also just challenges meeting with value analysis committees and getting on contracts. So maybe kind of help us understand, I mean, obviously you're growing, obviously you're bringing on better talent, you're launching new products. How have your conversations and your ability to convert physicians, add new accounts during this backdrop, how has that played out and been maybe different or better than what you were expecting over the course of the last couple of months. And thank you for taking the questions.

45:06 Yeah, I got to tell you, Kyle, I think that's the question. You know, the reality of it is, is we went into the pandemic and we said we can sit here and kind of take what's going on or we could be aggressive. And I'll tell you, you know, we I think we were very aggressive, you know, from a from a sales education perspective, from a surgeon recruitment perspective, from a sales recruitment perspective. You know, one of the things that I think that this pandemic has given us is pause and pause to determine who I want to partner with over the next 10 years and who is a scalable company. And what's transpired is that I would tell you that we've grown out of this thing based upon the enthusiasm to partner with us.

45:54 You know, not to be coy or, again, try to be, you know, funny, but it's really been an opportunity for people to reevaluate where they are and where they want to go. And so, you know, that's kind of what we've seen as it relates to, you know, the ability to get into accounts and the ability to pair accounts. kind of pair the visits. We've had some challenges with regard to salespeople coming out here, especially from the Northeast, and then going back into their accounts. So what we've had to do a lot is kind of the telephonic and, like everybody else, do WebEx stuff. But I think that the most foundational learning from this experience is that we're a small, aggressive company, and that didn't change over the pandemic.

46:43 and so our opportunity to go compel people is very high and we took advantage of that.

46:50 Great. Thank you very much and congrats again on an exceptional quarter.

46:53 Thank you. Thank you, Kyle. And last question from HC Wainwright, Sean Lee. Sean, your line is now open.

47:05 Good afternoon, Pat and Jeff, and thanks for taking my question. Most of the stuff I wanted to ask have already been answered. But if you could just provide a little bit more color on how the quarter went in terms of geographics and different types of surgery. Like, were you seeing surgery slowdowns a lot more in certain geographies than others? Were there faster rebounds in certain areas? Were there some procedures that affected more than others? If you could just provide us some thoughts on that.

47:37 Yeah, the answer is yes. I think your question is really an answer, which becomes there were differing volumes in different geographies, and then there were different types of cases. And I think it's probably reflective of everybody else's experience, which is where the pandemic was most high, what you would get is you'd get a fair amount of cervical cases that were emergent, which were myelopathic patients that potentially had The exposure of something bad going on over the long term, so they were cases that got done, or trauma type of cases where there was a car accident or some other issue where there was an immediate operative requirement.

48:23 What got pushed out are more of some of the degenerative type of things that were more long term in nature. And so I would tell you that that happened different in different geographies. and so kind of back to the puts and takes that we talked about earlier is depending upon how much of a pandemic was in the respective geography would kind of dictate the types of surgeries that would go on. But it would oftentimes start off with the most simple things that were most emergent and then evolve into the more complex type of surgeries.

49:01 I see. That's helpful. Another thing I would like to ask is Since you guys mentioned you kind of went into a cash shutdown, cash-preservation mode because of the uncertainties associated with the pandemic. I was wondering whether you've turned the faucet back on completely now. Is it back to business as usual? And are we going to see any impact from the spending slowdown in the second half of the year? Thanks.

49:32 I'll let Jeff answer the question most directly, but I will tell you that we're buying implants and instruments to keep up with demand. I would say that's the most, when we start to get back to normal operating activity, I would say that's the most aggressive thing that we're doing. As it relates to operating expenses, I think we're still trying to be exceedingly thoughtful stewards with regard to how we march forward.

49:58 Yeah, Sean, I think that's right. Just to give color commentary, we certainly have took a critical look and continue to take a critical look at hiring, been able to phase hiring for sure. We've not slowed down on the product development front, but our priority now is ensuring that we are making the right investments in supply chain to meet up with the demand for product, right? And so will continue to look at opportunities to defer or pull levers as we can. The pandemic in and of itself is a cost savings tool in that there's just not as much traveling happening. There's a lot of virtual training going on. Some of the spend slows down because we just aren't able to do it.

50:47 In other cases, we're taking a very critical look as is it necessary for today to to drive current momentum. And if it's not, we revisit it and figure out if it's spent, we can defer.

51:01 I see. That's very helpful. Thanks for these two, and that's all I have.

51:07 Great. Well, thanks for the questions, and I guess we'll end with companies are about people, and we've assembled a great bunch of people and are enjoying a Thank you so much for our presenters and to everyone who participated. This concludes today's conference call. You may now disconnect. Have a great day.