Alphatec Holdings (NASDAQ:ATEC) Q4 2020 Earnings Call

0:00 Good afternoon everyone and welcome to the webcast of ATEC's fourth quarter and full year 2020 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. Pat Miles, and CFO Jeff Black. Now I will turn the call over to Pat Miles.

0:55 Welcome, everybody, and good afternoon to the Q4 2020 ATEC conference call. Clearly, today we will be making some forward statements, so if you'd familiarize yourself with that, I will save you from having to listen to me read it. Things are going well. Really, no complaints. I think, you know, when we say well, we oftentimes like to quantify what that means, and so average revenue growth over the past eight quarters has been 30%. And so I think that that's a good start to how we're turning around the company and the momentum that it's created. I guess more importantly, and what I guess provides me the most optimism is really what we're doing is we're fulfilling the mission of revolutionizing the approach to spine surgery. And I think the launch of our prone transois PTP is really a reflection of that. And and I'll give you a little bit more on that to come.

1:52 We're also increasing the clinical prowess, really the know-how of our sales force and expanding in exclusivity, which is exceedingly important. Elevating surgeon and sales training through the state-of-the-art education facility. We just opened it up about a month ago. We have a seven-station cadaveric lab. We have an expanded biomechanical lab. We have an expanded what we call technology advancement group or machine shop. And so the facility really is starting to fit in with the very strategic priorities that we've advanced. The other thing is really kind of the greenfield opportunity we have with furthering clinical sophistication through improved information with EOS. So that's very exciting to us. So if you were to kind of look back and just Q4 seems a long way away, but it was a good quarter.

2:44 Year-over-year U.S. revenue growth at 38%. Thank you for joining us. One thing that you'll find about us is that you're going to hear the same thing over and over as it relates to really the strategic imperatives. And our view is if you're going to make for meaning in this business, you better do something different and you better do something better. And that's what the whole create clinical distinction is all about.

3:30 And we feel like we're making progress. And we'll delve into each of these priorities and give you a little bit of color. Also, compelling surgeon adoption comes from being better and creating clinical distinction, and we feel like we're doing that, and that really helps us revitalize the sales channel that ultimately translates what we're doing with regard to the procedures. And so just to jump right into creating clinical distinction, you start to think about what the march has been over the past few years, and what we've really kind of had is a reasonably good approach in terms of making sure that we're making the investments at the proper time in terms of building things. So 2020 was reflective of 11 product launches. And more importantly, we start to think about what the effect's been on the procedures.

4:17 And so when you start to think about what the investment thesis is, you have to say, gosh, the return's been pretty good. And where we've invested, we've made significant progress. And probably the places that I'm most proud of, and it's not just because it's the biggest area of growth, but you start to look at what we call alpha informatics, and that's the AIX part. It includes SAFOP, but you look at SAFOP and Lateral, and it's places of significant experience in the company. I would tell you that we have the industry's best, and not for a moment will I ever back off saying that the new home of Lateral sits up here at ATEC. and also from a posterior fixation perspective there's, suggesting there's significant product development aptitude would be an understatement.

5:10 And then we're also making progress in the other procedures in ALIF, PLIF and TLIF and this year should be a significant contribution on the cervical and biologic side seeing as we're obviating some of the legacy products that were here when we arrived and so When you start to look at how we think about making the investments and where we make the investments, we think of the world in procedural means. This is really intended to provide you a little bit of a view. When we think about making things better, what we do is we think about what the procedure needs and what we should do and what priority with regard to the specific product development. Some of the elements that I think need to be called out is when you start to look at at sophistication, say, gosh, you know, SafeOp EMG, SafeOp SSEP, maybe not unto themselves the greatest revenue drivers, but they mean so much as it relates to ultimately dominating things like lateral surgery.

6:07 And then you go over to the right and you start to see, gosh, we break up lateral and lateral transois LTP and prone transois, which is PTP, and start to think of things like positioners as being very meaningful as it relates to the dynamics of being procedurally focused. And so, Love this slide in that really I think that there's different approaches in terms of the way that people think about the business. And our pursuit is really in the perfect procedure. How do we ultimately fulfill the requirements of the perfect procedure? And then what we do is we build solutions from the ground up to address really the unmet specific procedural requirements versus just reactively trying to jam technology into something that candidly may not fit. And so...

6:55 It's a pursuit that we have that I think is the value creation engine of what we're doing. And ultimately what it does is it compels surgeon adoption. Surgeons get it. And surgeons, I think, very much appreciate this tech because it feels like we're aligned with them in their pursuit to make sure that they're serving the interests of patients. And so if you look at kind of the numeric reflection of success, we keep walking up the product categories per case to 1.9 in aggregate. The year-over-year growth and average revenue per case at 13%. This just means we're doing more and more sophisticated things. And then revenue per surgeon. So we're compelling them better, I guess, in that we just keep seeing the growth. But the reason for that really is what the investment thesis is. And the investment thesis is in things that ultimately make a difference. I remember talking to a surgeon friend not long ago and and we were just prioritizing those things that ultimately make a difference in the success of his treating patients. And oftentimes the implants may be fourth or fifth in terms of importance. And I think so often companies think that spine surgery is implants and it's just not the case. What we are is stewards to the effort and I love the fact that what we're doing is engaging technology in a way that integrates so that people can make objective, actionable decisions during a surgery to better fulfill the requirements of care.

8:22 You also start to think about adoption and you start to think, gosh, you know, how much of the surgery are we getting and what is the opportunity? One of the quotes around here that I so appreciate is sophistication is in direct relation to the number of distinctions you draw to a subject. When you start to look at what we're doing with regard to lateral, clearly we have LTP and PTP. And then you start to look at the number of products per surgery that we can ultimately fulfill to create the pursuit of the perfect procedure. And you realize that we're literally just, you know, it's the tip of the iceberg, so to speak, with regard to the different ways that we can ultimately influence care for the better. And so we believe that that creates value. And so when you start to think about how we're translating that to the field, and revitalizing our sales channel, it's going very well. Hats off to that group. I will tell you, I think that from a sales management perspective, it's as good as it gets. We have a great team and I'm exceedingly proud of them.

9:21 The percentage of sales driven by our strategic channel is 95% and the revenue growth from that strategic distribution group is 47%. The great part is that We're growing. The growth in U.S. revenue per distributor is significant and has been, and that's been a big part of the turnaround. We still have a ton of open geographies, and we keep the walk of trying to maximize the number of people on the street and minimize the volume of agents and making sure that those agents continue to grow in size. But with that, I'll turn it over to Jeff Black.

10:05 Thank you, Pat, and thank you all for joining us today. I'll just spend a few quick minutes on some color commentary on the results that we announced today. First with revenue. Following the initial COVID impact that the industry saw, we all saw in Q1 and Q2, we did see a robust recovery acceleration in our U.S. product revenue, really on the strength of new and expanding product portfolio that Pat just walked you through. We actually finished the year ahead of our initial 2020 guidance, even though we did see some pressure on volumes in late Q4 from the uptick in COVID cases. On the OUS international front, our international supply agreement for our legacy products is winding down as expected, and that agreement expires in mid-2021.

10:54 On gross margins, when you look at our gross margins, we're running in the high 70% range on a non-GAAP basis. and that excludes non-cash charges for excess and obsolescence. On a GAAP basis, we're running in the low 70%. So the reason we're stripping out E&O for now is that over the past two years, we've been taking really outsized reserves on our legacy product inventory representing about 800 basis points in 2019, about 500 basis points in 2020. So we'll continue to see Some of this E&O drag in 2021, but by the end of the year, that should be primarily behind us. On a normalized basis, we continue to expect E&O to be somewhere between 300 and 400 basis points and our gap margins in the mid-70% range.

11:48 A couple of comments on the P&L. Consistent with prior quarters, we focused investments in product development and sales channel. For this view, we strip out stock-based compensation, litigation, restructuring, transaction-related costs, really to provide a sense of our true core investments. And when you look at R&D as a percentage of revenue, it continues to track above peers as we continue to fill the product pipeline. You can expect a similar profile into 2021. SG&A, it's a similar story in that growth in our SG&A It really represents an increase in variable costs associated with the rampant revenue, as well as key investments we're making in our strategic sales channel, going broader into new geographies and also deeper into existing geographies.

12:40 As the business continues to scale, we'll need to make investments in G&A-related infrastructure, but to date, we've really held the line on G&A and are already beginning to see cost leverage on the G&A line. in the fourth quarter, we shored up the balance sheet pretty significantly. We reduced debt. We secured capital required to fund continued investments in the business as well as the purchase of our pending acquisition with EOS. So we secured $250 million in new capital during the fourth quarter through public and private placements of common stock. And we're better positioned than ever from a balance sheet perspective to execute the business. In terms of cash balance, Thank you for joining us.

13:53 including the pipe that we secured in December and closed just this past Monday. We have pro forma cash and available cash through our credit facility with Squadron for about $280 million. On to revenue guidance, we are reaffirming guidance that we provided in the fourth quarter, $176 million in U.S. revenue that represents 25% revenue growth. That will continue to be driven by Strong Surgeon Adoption, Expanding Strategic Distribution, and we'll continue to see a ramp up in new products. Our international supply agreement, as I mentioned, will terminate in August of 2021, and so we're seeing that ramp down as expected. And again, as you all know, the EOS transaction, which we expect to close in the second quarter, not including this guidance, and we'll update guidance when that transaction closes.

14:49 And finally, just to wrap up with an update on EOS, as you likely saw, we expect to file the tender offer tomorrow to execute the transaction. We still expect that we're on track that it'll close in the second quarter. When you look at their 2020 results, they reported a month or two ago up just under 20% year-over-year in revenue. Recurring revenue is strong. They're seeing a strong book of business. Even though they did get impacted by pandemic-related elements on the capital business, they are seeing nice, robust uptake and demand in their new products. So we're excited about bringing them on board. Very significant opportunities for us to take advantage of cross-selling opportunities.

15:36 Very minimal overlap in the customer bases and real ability to access their installed base with our in-plan business and vice versa. We're excited about that transaction and more on that as that evolves. And with that, I'll turn it back over to Pat.

15:56 Thanks, Jeff. I've got to tell you, we can't be more excited. We feel like we have a multifaceted growth strategy, and in the meantime, we're perpetuating clinical distinction by revolutionizing surgery. We're advancing sophistication both on the on the sales force front and on the EOS is going to provide us more opportunity to do so. Cervical and biologics is going to meaningfully start to contribute 8 to 10 products a year. We'll keep going. The sales channel, I think we'll start to run toward 4 million per distributor, which has been a long-term goal. And so we believe we'll continue to compel surge in adoption and the headwinds reputationally and from a sales force have for the most part dissipated, and we're looking forward to the other headwind of the international supply agreement to expire.

16:53 So can't be more excited. It was very fun this past weekend at the Seattle Science Foundation. Dr. Pimenta, who is the pioneer of lateral, undisputed, really gave a presentation of PTP, and it was one of those gratifying experiences to watch a pro talk about what's next in lateral surgery. And so if opportunity presents, I believe it will be linked to the investor part of our website if there's interest in understanding more about PTP. But with that, I guess we'll take questions. In order to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key.

17:39 We will now open the floor up for questions. Your first question comes from Brooks O'Neill from Lake Street Capital.

17:47 Hey guys, great presentation, great quarter, great everything. So what I wanted to start off with is kind of a big picture question. You spine guys took over ATEC a couple years ago and you've done a great job with the company and the stock's begun to respond well. How would you assess where you are in your overall journey, number one? Number two, can you point to a couple of the big things you hope to accomplish in 2021 as milestones? And then as you think about the next couple of years, what are the kind of two or three big things you feel you need to kind of cross over to get to the other side of the big boy, little boy picture in the spine industry?

18:37 Well, we've always felt like we're big boys, so we're going to run at that. I'm just kidding you, Brooks. I would tell you, we're still super early in this thing. One of the fun things was that when we acquired SafeOp, it was such an important part to be a conduit into surgery that we can deliver information. and I got to tell you that those guys that are only delivering mechanical devices without information are going to suffer and so much of the opportunity to make something better is through the informatics of surgery and so we're thrilled about that acquisition but more importantly we've created a conduit where surgeons can rely upon meaningful actual information that we are delivering to them and so I think that that was such a great kind of start and it's really the start of our opportunity to make sure that we identify the requirements of each procedure and deliver the informatic element that's most important to make for predictability.

19:36 And so that's super exciting. I think that will continue through 21. And just the ability to take all the EOS elements and start to be able to take that information and a preoperative plan through that conduit to make sure that the surgeons are getting what they need is profoundly valuable. And so you start to think about closing EOs. That's a big thing this year. You start to look at, you know, we've been developing some cervical products this year. So cervical will start to make a nice contribution. We'll continue to expand the sophistication from an indications perspective as it relates to things like PTP and LTP. And so I think that there's a maturing process that's going on in 2021 that's very, very valuable. And so, but I think, you know, Long term, you know, I got to tell you, there's such a great opportunity.

20:28 There's a lot of people running our way with regard to, hey, listen, what's the next 10 years look like and who's going to be the company that ultimately giant kills based upon their understanding of the requirements of the environment that we're working. And I feel like that's us. And so I'm super excited about the long term prospect of this company.

20:48 Great. That's really fantastic. And then just the last thing. I think you were just talking about it, but clearly your efforts are all about empowering spine surgeons with informatics, with great tools, etc. Obviously, there are people in the industry who think the right approach is to just offer up a robot and get it into the OR. Can you sort of distinguish your thrust from the robot thrust you see from some of the other guys out there?

21:23 Completely. And, you know, I genuinely have nothing against individual types of technology, but I think when you start to prioritize what the, you know, what's going to have the greatest impact on a specific procedure. And, for instance, you know, we, you know, developed the whole PTP thing, and you say, gosh, is a robot or is a patient position are going to have a larger effect on the predictability associated with an outcome of, say, prone trans-soil surgery? I got to tell you, it's not even close. It's the patient positioner. And then you start to say, gosh, is neurophysiology, meaning being able to identify where neural elements are or understanding the health of them, what's more important, that or a robot? And by far, and so again, I think that there's nothing wrong with robots. I hope we all get to some robotic view.

22:13 But there's things that are priorities to that when you start to look at what the requirements are of a specific procedure. And so I don't want to get in a big argument with anybody over the value. We'll see at the end when the market reflects the demand on what we're doing. But I've got to tell you, I'm very bullish on our understanding what the requirements are of what the priorities should be from a product development perspective.

22:37 Absolutely. Makes sense to me. Keep it up. Thanks a lot. Thanks so much, Brooks. Your next question comes from Joshua Jennings from Cowan.

22:49 Hi, thanks, Pat and Jeff. Congrats on the strong end of the year and all the progress. I wanted to follow up on Brooks' question. And thinking about the alpha informatics, SafeHop's been a huge enabler for some of the procedure and surgical techniques and approaches you guys are introducing. I imagine you guys aren't standing still on neuromonitoring. Anything you can share just in terms of how you see SafeHop platform evolving?

23:21 Yeah, I think it's a great question. It's like a lot of the core technology around SafeOp, it was really kind of the inspiring part. It's like, you know, the ability to automate SSEPs has been really revolutionary. And the speed by which we can deliver that information is significant. But kind of the foundational elements of the technology where we can pick up super small signals has been the reason why we get to do it over and over and over where most people can't capture the signal consistently from a somatosensory evoked potential standpoint. The beauty of that is what are the other applications where we can apply these technologies in a way that the signals are very small but very meaningful.

24:11 We're deciphering those. We believe there's some DSCP or hopefully some more individual neural kind of information that we can provide, but is it important as we look at, say, T-LIF, or is it important as we look at some of the cervical applications? And then, in addition to that, as you start to look at, gosh, can we start to say, hey, there's a canary in the coal mine saying that there may be a retraction injury, and then verify that with other technologies. So, I think that there's so many opportunities to continue to utilize this technology in ways that are very valuable to the surgical experience, and so It feels like we're just getting going on that front.

24:50 Excellent. And then I noticed in the kind of portfolio build-out section in Alpha Informatics, you guys listed TrackX. I was hoping you guys could just help us kind of think about that kind of interoperative imaging and how that's evolving and how you're integrating it into your Alpha Informatics platform.

25:10 Yeah. Thanks much. You know, it's funny. It's like people will talk about robotics and think that, gosh, we don't like, you know, imaging technology, but we're going to buy EOS. You know, we love imaging technology. And one of the great elements of creating surgical predictability is making sure that the entire bell curve can do this thing reproducibly. And what happens is one of the best ways to do that is to devise procedures that are orthogonal. If you go directly to the front of the cervical spine and do an ACDF, that's very predictable because it's a very straightforward movement. If you go to the front of the spine and the lumbar spine, it's very predictable. If you go absolutely directly to the side, it's predictable.

25:55 What happens is if you continue in that lane, it becomes a very safe corridor. To be able to utilize TrackX, which in essence is radiationless biplanar fluoro, and be able to say, hey, am I staying in my lane and from an informatic perspective, we believe that that creates safety. And so, you know, it's much like your car when you start to get out of your lane, it says, hey, you know, you're getting out of your lane. And so, you know, we tease around here, stay in your lane, bro. You know, so we feel like the whole TrackX element becomes a very valuable part of alerting surgeons to making sure that they're staying orthogonal.

26:33 Excellent. I just have one more, sorry, just to sneak it in. I think it's clear and I have an understanding of just the kind of halo effect when you launch a surgical technique like PTP and you get some pull through in some of the other procedure categories. But I was just wondering specifically for the cervical portfolio launch, does a PTP customer, can you experience the halo effect even in cervical and maybe just more directly and what percentage of your of your kind of minimally invasive lumbar surgeons are also performing surgical, cervical procedures, excuse me. Just wanted to think about as you introduce cervical products, you know, the launch and anything that can help in the trajectory. Thanks for taking the questions.

27:18 Yeah. Thanks, Josh. I got to tell you, this is an interesting business, and I love the kind of nomenclature of halo effect because what happens is when you compel someone or create confidence with them The likelihood for them to throw you the things that are less complicated is important. And so the opportunity for us to create a best-in-class cervical portfolio is often earned by the confidence created through things like PTP. And so it's funny to us when we see people touting things that candidly are very conventional and haven't evolved much surgically. in a way that ultimately our view is that what we'll do is we'll do the hard things very well, and I bet we get allocated the things that are relatively straightforward.

28:09 But it's great because they're all a reflection in the confidence a surgeon has in what you do, and so it's important that this stuff is best in class. So we're excited about the contribution in cervical. And one of the other things, we're going to launch in the time that I've been here, We're going to launch what's called Invictus OCT, and that's occipital cervical thoracic system, and it's going to come here in the very near term. So we will have gone from head to sacrum in the period of time that we've been here where most others have not even come close to touching that expedience, and I think it just speaks to the level of prowess of our product development group.

28:48 Great. Thanks again for all the details. Your next question comes from Kyle Rose from Canaccord.

28:57 Great. Thank you very much for taking the questions. I just want to take a little bit of a step back. I mean, you guys grew 30% this year. That's clearly multiples above the broader market. But when you talk about some of the key products, when I think about SafeOp, PTP, Those are products that, you know, I think on the last call you talked about 550 cases in PTP. I mean, those are techniques that take a lot more surgeon training. So I guess help us understand, you know, when you think about the growth in 2020, how you were able to put up like this type of growth in this market, you know, despite, you know, some of the heavy lifting, you know, required for the new product launches.

29:43 And I'm just trying to understand how that really sets up and informs the growth, you in 2021 when the burden of education hopefully gets easier, you can get more in front of people. I'm just really trying to understand how much of the underlying groundwork was really laid in 20 to continue to see more upside in 2021.

30:03 Yeah, I'll speak to the color and then I'll let Jeff probably add some intelligence to it. I think that what we saw in 2020 was really kind of just the initial entree. One of the things that we do a lot of is alpha evaluation. And I think that the alpha evaluation for something like PTP was very robust. And the great part is if you look at the impact that it has on our price per surgery, it's significant based upon the number of categories of products used. And so when you start to think about SafeOp and and posterior fixation and, candidly, the inner body stuff. There's a lot of categories in things like PTP, so there's a magnification of the reflected revenue when you start to pile on the volume of cases that ultimately are earned through it delivering what we believed it would. And so I would tell you that those are the types of things that have developed or delivered The majority of the growth.

31:11 The other thing is, candidly, there's sales groups coming our way that have significant books of business and inspired surgeons. And I think that they start to get a feel for the type of technology that this new company has, and they're not underwhelmed. And so I think that the fun part is that that there's few things worse than not fulfilling the very expectation that you created with regard to bringing these people over, and their ability to be successful with our technology has been very high. Anything, Jeff?

31:46 Yeah, I think just to expand on that a bit, I think, Kyle, there are a number of growth drivers, and I think that's why maybe it's hard for you to get your head around where it's all coming from, but I think it's certainly the expansion of PTP. but it's from a surgeon base that already exists that are already using our existing products. So from that perspective, it's incremental to what they're already doing. And then to Pat's point, we're going not just expanding geographies, but we're going deeper into existing geographies. So there are a number of sort of growth levers, if you will, that we could pull that gets you to that growth rate.

32:24 Great. No, that's very helpful. I'm just trying to – to understand the type of growth we saw in the second half in relation to guidance for the full year in 21. So maybe let's touch on that a little bit. Obviously, you closed out the year very strong. I think when you listen to your peers, although you're clearly not apples to apples given your growth, when you listen to your peers, they saw a slowdown in cases in the latter part of the Q4. That seems to have continued significantly. for the first two months into the Q1. So when we think about the 25% growth year over year, obviously you've got some big comps in the second half, but just how should we understand and think about the progression of revenues through the year, given we still will have some COVID headwinds in the near term?

33:13 Yeah, I would say my view is – You know, we felt some of the lumpiness at the end of the year and then some of the lumpiness at the beginning of the year. And I think that the great part is, I think to everybody's commentary, the uncertainty is dissipating. And so we're seeing, you know, upticks in terms of just the confidence in the availability to deliver surgery. And so but I would say it wasn't different in terms of the dynamics of what they saw and what we saw.

33:50 Great. Thank you for taking the questions and congrats on a great end of the year.

33:55 Appreciate that. Thanks, Kyle. Your next question comes from Matthew O'Brien from Piper Sandler.

34:04 Good afternoon. Thanks for taking the questions. I guess just to follow up a little bit on Kyle's question on the guide for the year, I mean, 25% growth is phenomenal. It's well above the market growth rate, obviously. A little bit of a decel versus, you know, Pat, what you've been talking about over the last eight quarters as far as 30% growth. And then you're moving into cervical, you're moving into biologics a little bit more. So I'm just trying to make sure I understand that you're trying to be more conservative, still, you know, plenty of opportunity on the lumbar side of things versus, you know, things are, you know, just our penetration opportunities may be slowing down a little bit on lumbar, so we're shifting into cervical or anything along those lines that you're trying to call out here? Again, are you just trying to be conservative with the outlook for the year?

34:50 Any color therapy helpful? Thank you.

34:54 Yeah. The thoracolumbar ain't slowing down. It's one of those things where it's like there's lumpiness out there and you start to look at us having just come out of a pandemic and it It would be irresponsible to get too ahead of ourselves. And so we're enthusiastic about growing this thing out. And what we do is we chart the different categories in terms of our procedural influence very carefully. And so what we're just trying to do is architect forward. But it's not a matter of our concern over the demand for what we're doing being affected. It's more a matter of just saying, gosh, How do we think about the lumpiness of the environment and the different things that we have to do?

35:44 And so I think that we're trying to be thoughtful. I don't know about conservative. I think nobody else is talking about 25% growth. So it's one of those things where I think we're just trying to be proper stewards of the process.

35:58 Okay. Makes total sense.

35:59 And then, you know, thinking about the space, just generally speaking, you've got a bigger player, not, you know, not one of the biggest three or four players, but a bigger player that's spinning off, you know, their spinal dental businesses. And you don't have a disc, so you can't go after that piece of their business, but they are a sizable player. You have a big domestic presence. Is there a way to make a bigger push or thrust into some of those accounts here? Because I know they're already thinking about... Some guys are already pretty nervous. Is there a way to really get more kind of a disproportionate amount of that share into the alpha tech organization over the next maybe year or two? And then I'm also curious about national accounts.

36:45 You haven't talked a ton about that. I'm just wondering what you're doing from a national account perspective. Thanks.

36:51 Yeah, yeah. If there's one thing that we love, it's disruption. And so it's... It's one of those things where it's like, I think that there's leaders of companies that don't like spine because they don't know it. And I think there's so much opportunity to make spine surgery better that I think people have fatigued on how to do that. And I think one of the virtues of the company is the fact that we're great students of the requirements of the environment. And when I say that, what I mean is, is we can't be more optimistic about making things better. And when there's disruption, especially with companies that haven't been super excited about this space, gosh, we love it because there's a ton of disruption and we feel like it avails opportunity, significant opportunity. And so we love the continued disruption. And if the rest of them want to spin their spine divisions off, we would be thrilled about that.

37:51 And so as it relates to national accounts, You know, not to just, you know, I'm bullish on what we're doing. I think we're earning a lot of respect based upon the types of things that we're doing. And one of the ways in becomes, do you have something that's unique? And so we've got into a number of IDNs based upon the fact that nobody else has a fully baked prone transois portfolio. A lot of people say, hey, I can apply our stuff to this. and then they have a terrible experience and they say it's a bad surgery. The reality of it is they haven't designed and developed for the specific utility. And so our opportunity is with these IDNs is to insert ourselves with regard to having unique technology and then being able to expand our footprint the best we can with them. And so that's been very successful and we've gotten access to a lot of places based upon having something unique better.

38:46 So anyway, it's part of the fun.

38:50 Got it. Thank you.

38:53 Thanks, Matt. Your next question comes from Matthew Blackman from Stiefel.

39:00 Good afternoon, Pat and Jeff. Appreciate the questions. Congrats on a great end to the year. Pat, to start, can you just give us perhaps a little bit more color on the PTP rollout or any metrics to share on surge in adoption to date and whether it's skewed to ATAC customers or if there's more of a balance of new customers adopting and then a follow-up to that is Have you been able to go full bore with the rollout given the 4Q COVID resurgence? I assume there's incremental training required. Is that something you've been able to adjust to, or has that been a headwind? And I've got a couple of follow-ups.

39:32 Okay, great. Yeah. You know, it's been interesting. You know, the rollout has been interesting in that, as I said, this group has as much lateral experience. When I say that, I'm trying to be nice. This place has more lateral experience than anybody. And so what happens is you go out there and you solicit surgeons who have had a large experience with lateral surgery, and to ultimately compel them to come get trained and to adopt it into their practice has candidly not been overly challenging. And so we've gotten a very good reception. One of the core reasons we've done PTP is really not to just stay with a bunch of – and people who've already adopted what we deem to be great surgery in specific types of indications, but also to attract surgeons who have historically been surgeons who've approached the spine from a posterior perspective.

40:32 And so to have a position prone and have them approach it from that patient positioning is much more familiar to them. And so we feel like The initial guys, when they see Luiz Pimenta and Bill Taylor and people like that, they say, gosh, I know these guys. These guys are luminaries in the field of lateral spine. Gosh, this is something I should listen to. And then ultimately, our expectation is we're going to continue to expand it based upon those people who are most comfortable operating in a prone position. And so hopefully that answers your question.

41:04 Yeah, I appreciate it. Makes sense. And then just two more. As we think about the key growth drivers in 2021, they're all basically the same drivers we saw in 2020 with EOS layered on top of that. As we think about each of those, the revenue per procedure, channel productivity, channel upgrades, and U.S. geographic expansion, has the rank order importance of those changed at all versus 2020? And specifically, as we think about, and you've mentioned it a couple of times, expanding the U.S. footprint, does that become a bigger contributor in 2021 directionally versus 2020?

41:40 Geez, I kind of think of them as all being so important. It's one of those things where it's like, you know, it's tough to say, gosh, one is going to be a larger contributor. I think that we always start with saying, you know, can we drive clinical distinction, which will ultimately compel surgeons, which will ultimately drive, you know, kind of a sales footprint, and then making sure that it gets reflected in a way that the surgeon finds success and and then success breeds success. And that's kind of the order of always how we think about things. And so, you know, unless Jeff has any other commentary, I don't think about it any differently than what I just described.

42:21 Yeah, and I would say, as Pat had run through on the presentation, The average product categories per case, you know, still in the early stages, still a ton of room to expand. And so I would think about, you know, growth drivers being very similar as they were in 2020 because we're just getting started. There's still so much opportunity to expand both product per case as well as revenue per case and then expand geographies and go deeper into existing geographies. So I think the growth levels are very similar to what they were in 2021.

42:58 And then last question, sort of following up on Kyle's question earlier, and for a number of reasons, I know this is not a fair question, but with all the success in 2020, clearly momentum in 21, now you've got EOS on top of that. Is there any change in how you think about or how we should think about the sustainable growth rate for Alphatec in like 22 and beyond? I guess what I'm asking, can you sustain 20% plus growth over the next several years or are the things that we should be sensitive to or law of large numbers or anything like that. It sounds like you're still in the very early innings here.

43:32 Yeah, you know, it feels like, you know, we're in the early innings. You know, we're a smaller company and, you know, just from a pure numeric perspective, but I think that, you know, we're playing big. And so I think that there's a significant runway for the company ahead of us. And so it's tough, you know, to say, hey, listen, we're just going to, handle this on a year-by-year basis and do what we know how to do as well as we can and not get ahead of ourselves. It's like, you know, a pandemic last year was a great reflection on not getting ahead of yourself. And so I would tell you that we're just going to stay the course and focus on what we, you know, are pretty good at and what we love to do, and we feel like that will reflect growth.

44:21 All right. I appreciate it. Congrats again, guys. Thanks.

44:23 Thank you very much. Thanks, Beth. Your next question comes from Jason Woods from Northland.

44:31 Hi, thanks. Just a few questions here. So first off, it sounds like you did have maybe some COVID hit, but it was somewhat indiscernible. Is that the right way to think about it? And, you know, going into this, you know, I guess we're into 2021 at this point. Again, is that also the case that, you know, there may be some, but it's not necessarily discernible? to the mix of your business given the growth rate you guys have?

44:58 Yeah, I would describe it like kind of the end of the year was lumpy, and the beginning of the year is lumpy. And, you know, as we've talked about, it's like it's the tale of 500 counties. I used to say it's the tale of 50 states, and now it's the tale of 500 counties because everybody's kind of making their own decisions as to when they – They start back, and then you layer that in with regard to the reasons why people operate and the type of demographics they're practicing. It just creates a confluence of just to be able to prognosticate is very hard. For us, we've just seen lumpiness in the closures of hospitals and whatnot, but we feel like a lot of it is dissipating, and we're well on the back end.

45:46 Okay, that's fair. and, you know, I think it was mentioned earlier on TrackX, you know, it's a pretty slick technology and, I mean, basically if you talk about narrowing the bell curve so that every surgeon can do something and also reducing radiation, it seems to do all that. That relationship, is that exclusive to you guys and is that something you consider central to your navigation strategy as well?

46:10 Yeah, so the... One of the things that we're huge fans of is workflow. And so the ability to ultimately integrate within someone's workflow becomes very, very important. And TrackX is such a great tool. And part of it becomes is how do you acquire the image? And to be able to upgrade the image or update the image based upon a single fluoro shot and continue on with bi-planar fluoro is so valuable because what happens is is It doesn't require a brand new spin as a lot of the technology requires. We love the fact that what you can do is update it on the fly and really keep the workflow of the experience at a very rapid pace.

47:01 As it relates to the relationship, we are exclusive as it relates to all things PTP. They started the company around the same time we did. It's not exclusive from a posterior perspective, but is from a PPP perspective. So all the anterior column stuff that we're doing together is something that is exclusive to us.

47:21 Okay, that helps. And then on EOS, I think when you initially announced the deal, I think you threw out an estimate of something in the range of $40-$50 million on a full year basis for 2021. That's full year, that's not inclusive of when you close the deal, but Is that still a reasonable expectation for what a full year of EOS might look like in 2021?

47:46 Let me jump on it, and then Jeff will provide the specifics. I'm not sure that that was thrown out. Okay, so I apologize.

47:57 It might have been my assumption, but go ahead. Sorry, Pat.

48:02 I guess the way that we think about EOS is there's very little overlap in the two businesses in terms as we channel check the interest of our customers in EOS, it is exceedingly high. And as we, you know, start to think how we can play a role in some of the academic institutions that have already acquired the technology, we also see that as being very high. And so, you know, the opportunity is significant, but, you know, as it relates to quantifying it, that's where I rely upon my pal Jeff.

48:35 Yeah, Jason, I think what you're referring to is when we announced the deal last We had shown a pro forma illustrative revenue profile that combined the two consensus numbers. I think that's what you're referring to. I think that's exactly where you're getting that number. I guess what we'll say is that we're still modeling the business. We'll be much better prepared to provide guidance once it closes.

49:06 Okay, that's fair. Let me just ask you from just a sort of integration standpoint. What does EOS look like on day one? I would assume there's a lot of work to be done to fully integrate it within the whole informatics platform within Alphatec itself. What does it look like on day one? What does it look like on day 365? And what does it look like five years from now, if that's a fair question to ask?

49:33 I'm not sure if it's fair or not. One of the things that we authentically want to do is kind of run at the integration of this thing. But we want to be super responsible with how we go about doing that. And so we will have somebody from this office sitting in Paris as part of that team. And just to start the cadence of how we do things together will be very, very important. And so I think the first thing that will be done is how do we ultimately help each other with regard to sales synergies? When you have guys selling capital and all they're doing is knocking on the door of a hospital administrator and then telling surgeons, hey, this is a very important piece of equipment. They see them once a quarter.

50:24 It becomes very hard to create this impetus for sales. for excitement and forward movement. And so when we have the number of guys that we have in the field with the surgeons every day and them hitting on the surgeons from kind of an implant sales force perspective and then having the capital guys hitting on administration, it really creates a much faster route to, I think, a buying position because the relevance of the technology is so high. our view is we're going to start informing surgical planning and things of that nature very, very quickly and that's going to be some of the first things that we do and then we think that there's so much opportunity to deliver information through the Alpha Informatics platform in a way that ultimately makes surgery better and so we feel like we have years of opportunity to take the type of information to make things better and so I don't know what the What the timeline of each of those projects are as of yet, but I know exactly what it looks like, and that's what makes us so excited.

51:34 Okay, that was a very fair answer to a maybe not fair question, but I appreciate it. I'll jump back in queue. Thanks.

51:41 All right, thanks so much. Your next question comes from Sean Lee from HC Wainwright.

51:49 Good afternoon, guys, and thanks for taking my question. Most of my questions have been answered, but I just have a higher level one on how you view the product portfolio. In the prepared remarks, you mentioned increased number of products per procedure as well as switching distributors to exclusive as the main drive for the coming years. I was wondering which part of your product portfolio you feel could do with the most number of new products. Where do you see, you know, how, where do you see New products can help the most in driving these two goals.

52:25 Yeah, I think it's a great question. I think that, you know, it's like we make, you know, nobody be exclusive, and we earn exclusivity. And I don't mean to be trite with regard to saying that, but it's one of those things where it's like, If you have the type of technology where these guys can really create a big business and have great confidence in the business forward, our opportunity to earn their confidence is very high. And so when I start thinking about things like, and I'm clearly the least objective human with regard to PTP, but when you start to look at lateral surgery and you start to say, gosh, right now, just the way that we see lateral surgery, there could be nine different product categories.

53:12 associated with lateral surgery. And you start to say, gosh, this is the type of resolution that we see these procedures. I start to think, gosh, we could really, really distinguish ourselves in lateral surgery. And then I thought that the comment with regard to the halo effect on, say, cervical may be very high. And so it's that type of thing that becomes compelling. And so I I get excited about the compelling exclusivity with things like PTP and then ultimately the halo effect of some of the different things that are maybe more conventional in nature.

53:53 That was helpful. Thanks.

53:55 Thanks very much. And that was our last question. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.