Q1 2021 Alphatec Holdings Inc Earnings Call

Okay.

[music].

Yes.

Okay.

[music].

Right.

Okay.

Yes.

Okay.

Okay.

Okay.

Good afternoon, everyone and welcome to the webcast of ethics first quarter 2021 financial results, we would like to remind everyone that participants on the call. We'll make forward looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ.

Lisa.

Detailed in documents filed regularly.

During the call you may hear the company refer to reported amounts rich in accordance with U S. GAAP.

Non-GAAP or pro forma measures reconciliations of non-GAAP measures to U S. GAAP can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors, leading today's call will be <unk>.

Chairman and CEO, Pat miles and CFO, Todd Koning, I'll will turn the call over to Pat miles.

Thanks, very much Jim and walking through the Q1 2021 conference call.

We will clearly be making some forward looking statements. So if you review the forward looking statement at your leisure.

Let me start by saying.

I'm Super proud of.

He kept family and one of the things we talk about around here is we always say that the.

Revenue Chase's value creation, and so over the last eight quarters. We grew at an average of 33% and so I would say that we're well positioned for continued industry, leading growth and and.

And we'll talk more about these but really revolutionizing spine surgery through the launch of P. T. P. A lot of excitement there Inc.

Creasing clinical prowess and progressing towards sales exclusivity will talk more about that.

Elevating surgeon and sales education through our new state of yard facility, we have a beautiful facility and our hosted a lot of people and the traction is palpable and then really how do we improve our information from diagnosis through follow up with really a set standard which is what else is going to provide and so.

You know historically, we've provided a bit of a scorecard of leading indicators and we will continue to do the same but expect some evolution in how we view the demographics of our business and so for Q1, our strong momentum.

50% year over year growth, our 10th consecutive quarter of double digit year over year growth.

77%, new product revenue contribution, which is which is clearly up over the previous couple of years, 17% year over year growth in revenue per surgeon, 13% year over year growth in average revenue per case, and and we're seeing a tick up.

And the average products.

Sold per category.

So the one thing that you're going to find is that our commitments will remain unchanged and we will accelerate growth by prioritizing.

These key initiatives and we will continue to create clinical distinction.

That's really built an organic product development and advanced our information based core competence.

True clinical distinction will compel surgeon adoption and we measure that objectively true increase revenue and products sold per surgery.

And then also perpetually revitalize the sales force, making sure that we have the congruence between the inside and the outside of the company.

And that things are going well so.

Well jump into the scorecard really under each of the each of the commitments and so I would say that the organic innovation machine will continue to create clinical distinction really through a sophisticated understanding of what approach based technology compel surgeon adoption and so probably the thing that that is a is most evident as you're really seeing it.

And adoption of the products.

That that really survey procedure and so the interesting thing is clearly we've gone from really nothing in the inception of our turnaround to 'twenty two to 56% to 77%. So I think you would affirm the fact that based upon what we're picking and based upon the reflection of the growth.

And of the adoption of the new products that we're creating clinical distinction and so.

That part is is clear.

When you start to look at examples of relevant additions. So we launched what's called Invictus OTT O G. T stands for occipital cervical thoracic and historically companies would design a post your cervical system completely separate from a theoretical lumbar system and in doing that they rarely function elegantly income.

And so in the short time, we've been here, we've launched a completely contiguous system from oxo put to Elliot.

When we say organic innovation machine I would tell you that that's a reflection of that and so when you look at Invictus as a system. It is a completely comprehensive system really from from the head until the helium.

It has very consistent instrument design color coding nomenclature the function. The confidence is very much the same and it really kind of speaks to the development speed and addition to Invictus hosting T. We also launch Invictus media wise Mod. This adds a critical screw option for circumstances.

Require immediate wise trajectory so.

You'll you'll you'll start to see that influenced the post your fixation number. However, we did return to revolutionize spine solely based upon individual products.

We designed multiple products based upon the specific requirements of a procedure and so one of the things that is truly making a difference and why youre seeing such lateral surgery prowess is because we designed a specific procedure based upon the specific requirements associated with that technique.

And so when you start to see the adoption of PTP happening very quickly.

It really harkens back to work that we've previously done in terms of designing for the specific requirement and so.

A litmus test always is that what you'll find is people will initially adopt something in a very kind of a simple application and when you see them start to March more toward complex surgery, what you're realizing is that youre getting significant traction and so we're seeing this thing apply to more complex surgery I think the other.

Tracked at par is.

We've directly witnessed and interfaced with surgeons, who have tried prone lateral and candidly they struggled and pro and lateral is capitalism together instruments that aren't designed for specific requirements up and so these guys have tried prone lateral and candidly had a not a very good experience and only to try PTP and have a <unk>.

Great experience and so we feel very bullish in our firm based upon our lateral prowess and I think when you. When you have the type of experience and you have the type of.

Our understanding of the techniques you, but these are the types of things that you do and so as we've shown but where we've invested we've prospered and I would say that we are in the very early stages of enjoying a really Kevin.

Long growth profile and so that.

The technology were developing is not only moving the needle clinically, but also financially and so I think when you start to look at.

The ROI on these investments I think you have to look into things like that.

I'd say Fob, which is really part of it what we call Alpha informatics and that's the AI ex have a slide but also lateral and and that pushed your fixation and so when you think about AI ex that's.

That's the conduit that we're going to deliver the Eos information through and so again I think what youre going to see is continued enthusiasm on that front and then you see a growth of 76% and this is all back since 2018.

In the phase two investments inhalant play from T lift and then we're starting a lot of investments across the cervical and biologics portfolio Youll continue to see a growing contribution overtime and so.

As we look at how we did in Q1 with regard to compelling adoption I would say we continue to grow in average products categories per surgery, which is which is clearly the the reflection and so the kind of an interesting statistics statistics you can see by the slide.

We're slightly above one nine average product categories per surgery day year over year growth in average revenue per case is 13% year over year growth in revenue per surgeon at 17% I think what's interesting, though is rarely do you see companies growth sequentially and so from Q4 to Q1, we had.

Bump in the in our growth.

Of our top line I think the interesting part is if there was a slight dip in the volume of procedures and when you start to think a convoy sales and the influence. It has on the topline number then I think that you can appreciate the fact of why that is is it is really important and so.

I think now to kind of jump into <unk>.

Thinking around proceed utilization and cowboy sales.

It's also good at two to reflect on what drives adoption and what ultimately drives adoption is better surgery and better outcomes.

One of the things that is interesting to me is that there's still so much opportunity to make spine surgery, better and just generally improve spine care and I think theres some of the business, who conflate spine surgery with pedicle screw placement.

Spine surgery is much more than placing pedicle screws or mitigating poor screw placement.

Is that day.

Compression stable.

<unk>.

In alignment and so I love, our investment thesis and it's focused on the prioritized list of procedural requirements and that's solely on the specific requirement, but I think that what youll see is that we'll continue to differentiate us.

As a company I think too when you start to look at that what what drives adoption and what are the core elements.

Kind of defining the future and I think that that.

If things like economics.

That will drive.

A greater position forward and predictive analytics, and I think that that really kind of driving clinical and financial decision, making is much about what we're doing with regard to iOS, but it's also about preparing for the for the best spine procedure and when we think about that in the near term we're thinking about the convoy.

And when you look at the convoy tells you you have to look at them not just blended but individually and one of the things that I think is exciting is when you create something like PTP. What happens is you get to make the rules and you didn't make the rules based upon the required number of products that create.

Predictability and so as you can see a disciplined approach to this effort ultimately output.

More consistent numeric reflection of convoy sales and so.

We start to think about the future and we start to think about economics.

We start to think about predictive analytics, we start to think about how iOS roles in here the ability to start to to understand what type of procedure goes with what pathology and what the economic profile is is really kind of a game changing opportunity. So we're very excited about that.

The.

The other commitment that we talk about is really.

The revitalization of our of our sales force and we worked out I think most of it most of those who are not going the distance with us.

And that and really kind of the March now is toward exclusivity, we want to dominate the very thinking and you can see the work over the years from 72% and.

In terms of contribution of revenue up to up to 95% and that group grew at 60% and so the importance. There is that what we do is expand geographically and so I would still consider us a very pocketed.

Sales force and when you start to look at 95%. It would suggest gosh you guys must be done, but I would say is all of the 95% reflects is our current sales force in place and what we have is still a lot of geographical holes that we still need to plug with a type of prowess that debt.

<unk> in many of our markets.

One other comment I am exceedingly.

Enthusiastic with regard to the maturity and the prowess of our sales management team I've got to say for a company of this size. They got a lot going on and a lot of.

And a lot of experience and a lot of prowess and so.

<unk> still have a lot of geographies that remain.

Under or completely without paycheck representation, our focus is still recruiting.

With clinical acumen in and that will go the distance with us.

Our interest is still kind of a number around 50, a show of distributors and about a $4 million contribution and clearly that's a relatively dynamic number we're running north of that and some in south of it than others, but.

But that's that's kind of the.

The update as it relates to what the what's going on in the business and it's a real pleasure.

For me to turn the call now over to Todd Koning R. Our new EVP and CFO sales already.

You bet.

Thank you Pat and good afternoon, everybody before I go through the first quarter financial results I want to express just how delighted I am to be here at Eyetech.

Having previously worked closely with many on this team well acquainted with the profound caliber of committed spine expertise that has been assembled here.

Lots from the periphery as they took posted quarter after quarter of phenomenal growth and in fact, a tech or 30% last year, a year in which there was little to no growth from anyone other than <unk>.

Needless to say I wholeheartedly recognize the opportunity for significant value creation that lies ahead and I'm eager to contribute to that success.

<unk> growth into a much larger spine company I intend to expand on the strong foundation that has been established to build a world class Finance organization, one capable of scaling the company through rapid domestic growth and eventually expansion outside of the U S.

Inaugural earnings release, certainly marked a solid start to an exciting year for <unk> and I am honored but now I get to be an instrumental part of it.

I'll begin with revenue.

We had a great start to the year with the first quarter U S revenue of $43 7 million, reflecting growth of 50% compared to the prior year period.

Total revenue, which includes the contribution of our international supply agreement was $44 1 million in the quarter up 47% compared to the same quarter last year.

<unk> search and adoption of new products and procedures and the continued revitalization of apex strategic distribution channel offset the pressure we saw on surgical volumes early in the quarter.

As evidenced that our ability to deliver clinically distinctive procedural solutions.

<unk> surgeon adoption.

Continuing through the remainder of the P&L non-GAAP U S. Gross margin was 77, 9% in the first quarter roughly in line with the prior year quarter excluded from the non-GAAP gross margin number or charges related to legacy products, which were down almost 100 basis points compared to last year as a percentage of sales.

Charges are beginning to normalize and we will continue to do so following years of transitioning to new products.

Operating expenses continued to reflect consistent thoughtful investments to support rapid long term growth.

Non-GAAP R&D was $5 3 million and approximately 12% of sales in the first quarter compared to $3 8 million and approximately 13% of sales in the prior year quarter. The increase on an absolute dollar basis was driven by continued investments to support organic portfolio expansion.

Non-GAAP SG&A was $36 5 million and approximately 83% of sales in the first quarter compared to $24 5 million and approximately 81% of sales from the prior year period. The increase was driven by continued expansion of professionalization of the <unk> distribution network and increased variable selling costs related to strong perf.

<unk> in the quarter.

Total non-GAAP operating expense was $42 million and approximately 95% of sales in the first quarter compared to $28 5, million% to 95% of sales in the prior year period. This level of investment in operating expense reflects the priority. We have placed on fueling our organic innovation machine and transitioning the sales channel to support our.

Industry, leading sales growth.

Turning to the balance sheet, we secured approximately $132 million through the pipe funding that closed in March as a result, we ended the quarter with just over $190 million in cash and roughly $100 million of that remains earmarked to fund the Eos transaction.

With the remaining balance plus the $40 million remaining on the squadron credit facility that we have in place we are well positioned to continue to invest in growth.

Cash use of approximately 34 million in the first quarter was driven primarily by Capex, which continues to account for more than 6% to 2% of cash burn.

We are investing in the instrument kits and implant inventory to support our strong sales growth through an expanding product portfolio and commercial distribution footprint.

Yeah.

This transaction continues to progress as planned a few weeks ago on March 30, we secured clearance from the IMF to commence our cash tender offer for iOS was outstanding shares and convertible bonds.

On April one the opening of the offer occurred and will close tomorrow likely to be followed by a second phase of the offer as a reminder, once we owned 90% or more reveals the share capital and voting rights will trigger a squeeze out of any remaining non tender shares according to French law and regulation.

As of March 31, we would receive tender commitments for 23% of outstanding shares and recently filed with the IMF that we exceeded 25% ownership from our open market purchases.

We are pleased with the progress and continue to expect the transaction to close during the current quarter.

We will provide updated revenue guidance, including <unk> when we report financial results for the second quarter of 2021.

Now turning to our 2021 outlook as a result of the strength of the first quarter and continued strong momentum we are increasing full year 2021 U S revenue guidance to approximately $188 million, which implies growth of approximately 33% on a year over year basis, our growth will continue to be driven by the impact.

Clinical distinction, which is the ultimate catalyst for expanding both surgeon adoption and our strategic sales network <unk>.

Including the international supply agreement, we now anticipate full year 2021, total revenue to approximate $190 million.

This guidance contemplates the termination of our international supply agreement in August of this year.

But given the quarter to quarter variability, we saw in 2020 I encourage you to assess our revenue results and our full year guidance from a two year compound annual growth rate basis.

When you do that for our 2021 U S revenue guidance Youll see that we are growing 32% on average over the last two years. We believe this consistent level of growth through the past two years as an industry, leading as you can see in the chart.

So in summary, I'm a firm believer in the long term thesis of the company and our mission and vision that Pat has challenged us to achieve I'm already engaged in ways to meaningfully contribute to apex distinction fueled evolution into the standard bearer in spine I'm also eager to establish relationships with the <unk> investor base. So please feel free to reach out to me directly.

Either with questions or just to say Hello, and with that I'll turn the call back over to Pat.

Todd Thanks, much as I look to.

Look at Q1, and the number of catalysts for growth forward.

I really can't be more excited.

We will continue a sustainable approach to long term execution through the things that we've already committed to which is perpetuating clinical distinction I love, where we are from a PTP and our lateral momentum perspective.

Bringing the sophistication of the Es transaction on is fantastic, we've yet to make a statement in cervical and biologics we have products in that those areas forthcoming.

In large ways and we will continue to be aggressive as we can.

Design and develop solutions.

Our sales force I think it is.

Is being revitalized as we.

As we continue to grow we continue to compel people forward as well as the clearly the surgeon adoption is going quite well and so.

<unk>.

Think eradicated many of the headwinds that we had previously faced and we just.

The business that we're in and we intend to continue to advance spine surgery faster and really make a difference where accounts, which is in the operating room, which is where our expertise lies so with that we will turn it over and take questions.

As a reminder to ask a question you will need to press star one on your telephone can withdraw your question press the pound key.

So the advice I just wanted to take questions at this time. Thank you.

We will now open up the floor for questions. Your first question comes from the line of Brooks O'neil from Lake Street Capital. Your line is open.

Good afternoon guys.

Cited as you are for the future of Big Tech.

And I can see all the progress you've been making over the last couple of years. So congratulations on that I.

I guess, we should open it up by by starting to just talk a little bit about what you're seeing in the marketplace now.

Pat and Todd in terms of.

Reopening activity and I'm curious if you think there is any.

Sort of late.

Backlog of procedures, they do have an opportunity to capture over the next few months.

Yes Brooks.

Thanks, very much for the comments.

Probably like everybody else has already talked about it.

There is softness in in January and February and then.

March was more of a breakout month and I think everybody has kind of commented on that but my expectation is if theres likely some backlog in it.

As we've always talked about it.

500 counties in 3000 hospitals, so it's always tough to appreciate the demographics and we're such a small player. It's one of the things where it's tough for us to make big market.

Big market assessments as it relates to just the reflection of our performance, but it feels a little bit like things are starting to normalize and I think that's all that we want is is the grade of the normalization of the greater the opportunity for us.

Great.

Then my second question.

Talked about your excitement about PPP.

I recall was.

A lot of wonder.

Mind above.

Above meeting Luis comment, though at the spine Society meeting last year, maybe it was the year before kidney remember but.

Is it your assessment that there is anything left and Louise.

Bag of tricks or do you think the.

Ford procedure.

Leasing efforts are going to come from other places than Luis.

Yes.

I got to tell you.

That makes me very proud is Luis has been a pioneer for years Louise pioneered the lateral space.

All the way back in 2003, and we created a monster company true some of his thinking and so.

When I see.

Him engage in the development of a of an idea that he's very very bullish on cash.

Candidly the guy who's been right a lot.

And I think PTP is just another example of Indian right and so.

Clearly what we do is respond to the requirements associated with each individual technique I would tell you Louisa is forte is lateral surgery.

I should give it back that's a lateral in anterior column surgery and so.

When we look at lateral and a lift I think that we have a light years of a runway because theres an expertise that exist nowhere else and so I think he is the driver of that expertise and that and I think that the people around him like a bill Taylor.

Brent and other surgeons.

All contribute in their respective ways to the sophistication of that portfolio piece and so anyway I think it's an exciting time.

And I think the guys at <unk>.

Such a meaningful contributor to who we are as a company. So hopefully that answer to your question I started gushing when I talk about Louise.

Your next question comes from the line of Josh Jennings from Cowen Your line is open.

Yes.

Hi, Thanks for taking the question.

Awesome.

From the HSBC.

Our loan growth.

PCP.

No questions.

That profit.

And could you share where you think you are in the launch.

Still early day month by month.

This is more of a multi year sales or even longer persistency for us from revenue.

<unk> moving on to the PCP.

Our income burdening.

Mostly volume.

From <unk>.

Bob Copeland Bernie.

The new businesses already.

Maybe we partner with Halo effect from.

Welcome to the PCP adoption from you.

This is very small growth in programs.

Okay.

Unsecured from questions investments from start to.

For the year.

Thanks, Josh.

And to me.

<unk>.

We're in such the early phase.

Like you know.

This business runs like an 18 month arrears.

We're enjoying the work that we've done 18 months ago today, and then 18 months from now is when youre going to really start to see.

The kind of the real traction of much of the work that's been launched recently and so.

This will likely be a little bit quicker in terms of just they're not learning a heck of lot new other than this whole position and all of the utility of the specifically designed goods to make it successful the the the other guys who have not done the latter are learning a lot more with regard to the retrofitting he'll access from somebody other things. So we're we're seeing a little bit of a slower adoption on that front, but we were still forward it to them.

Thanks low.

Your next question comes from the lineup Matthew O'brien from Piper Sandler's Atlantis Okay.

Afternoon, Thanks for taking my questions for starters.

Can you talk a little bit more about the the distribution channel and you know exclusivity and you know for a million bucks per distributor I mean, that's a boatload some some better some from below that but but where does that trend overtime. How many more distributors do you need to cover the U S and and is there you know an opportunity in certain direct Parker.

In the U S to.

Certain markets in the us to go direct.

Yeah.

And that is you appreciate Matt. These are the hardest things to do is to make sure that there's just real can ruins in terms of kind of a clinical acumen and the and the and a longterm commitment within the field. So you spend all this money to creating solutions and you've got to make sure that the guys who are carrying the.

Kind of carrying the mail are are are are the demographics that are going to make that make the long run with it.

And clearly we've cleared out the vast majority of the of the historical Alphatec spine headwinds.

And so the challenge.

It is there's huge markets, where we have like very very little and I won't go individually and in their specific markets, but if he name the top metro areas in the country. It hit some of them and the challenges is zero like Saint Louis, Missouri, We have nobody you know like.

There's big swath of land that we don't have anybody and so it's found the money when we add a a a distributor but.

Or or when our best to really kind of carry the standard of making sure. The type of people that come in here are the type of people who want to build a monster. We're gonna be in this for a long time and we are totally committed to.

Really grown a unbelievably strong company and so we just want to make sure. The demographics of the people are reflective of the commitment that we require and so I know that the that day, but my my point is is.

There's a lot of geography, yet need be covered.

Okay. That's helpful and as a follow up in five minutes kind of throw two together here can you talk about and I know, you're only as it yet but the.

Bunnell, an opportunity there is some noise in the market about like a limited opportunity for E O as in terms of do system placements and I wanted to share a little bit more about that and then.

I think it's kind of important to talk about and Victor Associate T. I know, it's not the most maybe the sexiest product in the world, but as I understand that there's a lot of poultry sales that you get and having that one just generally speaking on the on the cervical side of things. So can you just talk about what that can do for you and that part of the business.

Yeah, I was going to be facetious and say the reason, we acquired Es's because of the limited opportunity.

[laughter].

Yeah.

I Gotta tell Ya.

It's what I love about the assembly of a bunch of students of the of the business of spine and and.

The ability to have the standard at the origin of the patient experience to understand from an AP in a in a standing full body lateral and understand all the compensatory mechanisms. When you start to think about what drives a great spine outcome, if things like alignment understanding kind of bone quality things.

A lot of surgeons are getting it today for us to Creat objective measure around those dynamics is such an opportunity and everybody always talks about predictive analytics and they talk about.

Machine learning and AI.

Reality is how do you do machine learning and AI. If you don't have the original standard input and so what we believe the value of of yes. It is our ability to start to understand the economics and the clinical elements and combine those of spines such as what we can start to do it is is is understand what's the likelihood for success within.

Specific pathologic stage with regard to specific approaches and what's the financial profile associated with it and I think when you're committed to those types of things. What happens is that you see great value of something like yellows and when you're into this thing just for the chargeable in the operating room, you're going to Miss it and so the the great opportunity as as we're committed the same for the long haul and we think there's great guy to be.

Created I Gotta tell Ya I think there's 380 systems already placed when I look at all the different capital equipment type technology, there's not a lot of people that have 380 system for us to make hay with the current systems.

Systems place, especially in and I'd stay towards a who's who of institutions I like our chances with regard to reflecting value from this afternoon and so to me, it's funny and somebody said in a limited opportunity I welcome that thinking because over time, what we'll do is just continue to demonstrate the value of the very thinking that is.

Contributed to our acquisition of of of of Es and so the.

Here's the second point I think it was a great one which is the whole O C. T things, So Invictus O C T.

We're at a previous place to get a threat Columbus system and is still haven't watched the poster circle system I Gotta tell ya in the in the three years.

We've been here, we've gone from head to Gilliam and what happens is if you could pick cash does it.

What's what's the meaning of that the meaning of that is our ability to understand the clinical requirements of the environment and two things expediently and clinical meaningful and so.

To go from head to alien.

Again.

Those of you.

You are sophisticate students in this industry. There's there's there's very few systems that are contiguously build.

Built from head to alien and.

Kimberly as coveted as the type of sophistication that invictus bring so anyway, I think it's a great point, but it's a reflection if you're a student at this game to realize that sophistication.

Great. Thank you.

Your next question comes from the line of Keirns growth from Ken. According to your line is open.

Thank you for for taking the questions. Just you know I just wanted to circle back on on P. D B.

And talk a little bit more just about the components of growth to really think about how much.

Of the growth is coming from Atlanta outside of the business with P. P. P. Maybe maybe help us understand what that mix looks like what the new products from from from PDP and lateral relative to some of the traditional fixation business and then the real heart of that question is just around here now that you've got the opportunity with your more reopening in in certain training activities. You've got the education that are coming on board.

And I'm really just trying to understand how much have we seen already and how much is really yet to calm when we think about going deeper with with PGP mono.

Yeah.

To me that's.

I think it's.

Well, if you're in if you're in our boat.

Meaning so so we turn alphatec around and you better compel someone when you do that and I think ptp's like the perfect thing to compel people because what it does is enable surgeons to do things.

Things with with with Great Optionality and there's so many variables in surgery surgery. It's fine for these very complex and so the opportunity to to address the volume of variables that you do with PTP is is fantastic and so what happens is it gets reflected really I would say in the entire column. The great part is all of these things.

Have been designed to work together and so when you create a procedure like P. T. P to some degree you've made the rules and when you make the rules of the procedure surgeons when I saw those rules because especially in the early faith. They want they seem to be predictable until it happened. There's a sales gets reflected in the whole neurophysiology from to get reflected in the inner body element to get with that day.

<unk> fixation element so it gets reflected across the board and then you know.

In addition to that when a surgeon when we stood a surge in two successive specific new procedure that ultimately something that they didn't have before there's a halo reflection and so we'll start to see cervical pull through because what's happening if they trust us with something as you know.

<unk> intricate as a P. T P will surely trust us with an AC D F and so it just becomes a whole how you create confidence through the process and I think that what we're seeing is is a reflection across the board in terms of the sales but.

Within the context of PTP, it's just such an early phase, but I think the the surgery is going as we expect it would clearly.

Clearly it took us a couple of years to create this thing it's not like we we arrived by luck. It's it's a matter of having gone through that yeah. So hopefully the answer your question.

If it is helpful and then just.

So you you've spent a lotta time, you're particularly on this call an unapproved. Prior you know AOS calls you are talking about like the longterm vision procedure lives in fine obviously, you've got a lot of brainpower.

From an R&D perspective, but when do we think we see.

Some of that translate whereas with U S.

At the table.

Does it towards muted 12 months 24 months to to drive new procedural innovations that that may be fully integrate the the opportunity for from the U S.

And then all the pathway, but my last question just upfront as well, it's just any other major product apps you see there's a lot of focus on cervical disks now so just any commentary around product gaps moving forward to be helpful as well.

Yeah Yeah.

Kind of a way that I look at it is is the the longterm vision is the whole.

Machine learning and AI and how do we do predicted analytics, both economically and financially. It's a walk until the initial walk is going to make sure. The cash at a sales forces together you know we get now 300 people talking about is every day and then we also have the Es capital force going in and talking to the administration, so our ability to expedite Canada that.

Placements of this and I hate the term ecosystem, an ecosystem out there of of units for us to ultimately derived value from and so.

I would tell you it's going to be in the 12 months timeframe with regard to informing the.

The preoperative planning elements on a tech product and that will be it will be Kennedy. The early stage of things of our procedure elevation. The great. Part is is that will extend into kind of a continuation of everything from building fixation elements that are demand matched to the type of bone quality as well as a type of alignment tools.

We were able to ultimate efforts, so that would be kind of the day the.

The second thing that comes out, but that's what you get when you assemble kind of the the beauty of a spine company in this M controlling the imaging element you get it again make the rules to these things and so we'll be sprinting at the different procedures based upon.

How people interpret the algorithm for individual pathology adios.

But that will be kind of a little bit of the crawl walk in terms of informing through the preoperative planning elements and then some.

Some of the surgical tools and then the longer term I as I said it'll be that the AI stuff.

From a product GAAP perspective, I love sure local motion you know I I.

I think that.

Clearly, it's a place where I think it's good surgery and so I think it's a gap for US. We also have a few other capsular.

Mm mm designing and developing through I would say, we've got to hurry up and fulfill the core pet to me requirements, It's a place where.

We have a lot of interest in terms of P. T. P applied in <unk>. So I think that those are great opportunities I'll tell ya.

We have a sound bad zone, and and and the great part of it is our sound bag has been created and the last three years by people, who know what they're doing and so there is there is much to be excited about with regard to a tech and I don't feel like the headwind a cervical day of school or the lack of a carpectomy devices or impediment.

Thank you for taking my questions.

Thanks.

Your next question comes from the line, that's Matthew Blackman from Sniffles your line or something.

Good afternoon, everybody. Thanks for taking my questions maybe to to start for Todd to fall welcome aboard.

Just curious what what are your marching orders and and and maybe give us a flavor of your your skill set an experience that you can bring to bear I think particularly as we look ahead from some of the longer term growth factors like international expansion et cetera.

That'd be helpful in that I've got a couple of follow ups.

Yeah, Matt Thank you take care of them.

Much so [laughter].

I think when I look at the growth vectors here and and the opportunity for us to create value.

At a tech and pass that up there, there's a long runway and I'm all in to build the small stroke long run so just to get that out there but.

The opportunity to to see revenue growth and our existing customers past talked about it when it when they trust us with something that is is difficult and complex and we've proven are worth and providing the solution that helps them to provide a better surgical outcome.

Then, it's a lot easier to kind of walk up to the the more simple.

Procedures in cases, and so I think there's a tremendous opportunity for us to grow with our existing customer base patch asked about our ability to and need to expand coverage throughout the us.

And as we think about partnering with from truly.

Truly partnering with distribution.

Channels and people really organization that that's an opportunity, but I also think I can I can add value in in terms of how we partner how restructure that partnership over the long run.

As we think about the international expansion in the opportunity we have to commercialize outside the U S.

Spent eight years in.

Enrolls outside the U S and so I'm pretty familiar with that environment, and and believe that I can add some value there and.

Have spent a number of years my career growing companies kind of in the sweet spot. So I think Pat and Jeff from the team of have done a great job of of giving us to this spot capitalizing the business.

Organic innovation machine is just turn it on and so if you think about what to take to scale of business. It takes a disciplined approach. It takes the prioritization of capital whether that be our cash or whether that be our intellectual capital and where we spend our time day to day and I think I can help add value.

One out there just to get out of the way on on gross margin.

Obviously excess and obsolete headwinds are fading as you said in 2021 should we expect in 2022 those those charges are de Minimis.

And sort of re approach that 77% <unk> <unk>, whatever you want to call it gross margin.

Or is it going to be more measured than that thanks.

So.

I guess, what I'd say on the growth Matt you know you look at that 50% growth in just over two thirds of that was really kind of driven by volume and then you can kind of see case, ASB and kind of the mix towards.

Higher ASP procedures kind of playing and playing into that.

I don't know that we've been terribly public about.

Our quantifying our expansion into new.

New customer base so.

I don't think we're planning on.

Being public about that at the moment, but what I can tell you is that we've got.

Kind of both surgeons and best spine sales force out there coming through our facility.

Using R R.

Our state of the art training facility, we've got eight suites.

Where we train our surgeons.

And our sales organization and that things chock full of people.

And so I think that's a great indicator of our ability to expand into other.

Our new two new accounts.

On that front so.

I guess as it relates to gross margin.

We've said that.

I think we quantified the impact that maybe 4% to 500 basis points over the last number of quarters.

And I think the company has been public was saying that's probably in the 300 basis point on a run rate basis that kind of gets us into an overall U S business of mid seventies gross margin I would tell you Matt.

I haven't learned anything in last three weeks that would tell me to come off that number.

Elect to hold none that that commentary.

So hope that helps.

Yes, I appreciate it thanks.

Once again to ask a question now the star one on your telephone Keypad, then with firewall on the telephone keypad. Your next question comes from the line of John and Jason from Northland. Your line is open.

Hi, Thanks for taking the question.

First of all Geos.

I understand that the potentials pretty significant, especially as you kind of work and some of the data analytics.

Analytics available to surgeons, but there is a value purchase.

Proposition now for Surgeons I mean, how do you see the current value proposition for one of your surgeons and I mean can you is it can you sell it on its current indications or more selling on the promise of what's to come in the future.

Jason.

The.

Sure.

If the right way to be thinking about the Es I have to say it is an immediate.

Need medium and long term value opportunity.

If you look across the type of institutions that have already acquired and yes. They are significant and they are there.

They are criminals.

<unk>.

Much of the utility of iOS in the early phase.

Was based upon an earlier product called three five and it is mostly did adolescence. So there's such great value in terms of the type of imaging that it provided an adolescent they tried it and adult day image quality of the three five was not as good in adult all.

Our opportunity with the new iOS edge that has unbelievable image quality it does both.

Pediatrics through adult is phenomenal and so to your point in terms of the immediate opportunity is significant and so.

Theres, probably a kind of historical bias that you should think about this being purely in Canada pediatric adolescent utility.

Based upon kind of the low radiation and everything else. The image quality is so good with the new one and the type of information that you can garner from it I believe that there is unbelievable value immediately with regard to the the type of energy one gets from the iOS edge and so I think that as we start to put the companies together the ability to start to monetize these things in a much more expedient way than just selling capital with.

That was the situation that EPS was forced in previously but utilize our implant is a currency tool like everybody else is doing within the capital business is just an opportunity to edge out there in a way that provides the type of information where theres better decisions made for surgery and so I would tell you that your point exactly the right one which is.

The <unk> edge is a tool that ultimately will expand the application of the utility and I think that our ability to utilize our current team to get it out there is just an opportunity for us to start to again the ecosystem I think of a better term methane just.

Certainly.

Systems placed so anyway I appreciate the question I think it's the right thing.

I appreciate the color on that secondly, just sort of a clarification I'm looking at your slide when you talk about expanding our subsidiary.

It looks as if youre kind of at around 75 distributors, but it sounds like you want to get down to 50.

I assume.

That means there is some of our core starting to be done.

But also.

Obviously, I do 50 times, four I only get $200 million I assume theres multiple sales people under those distributors as well so just maybe a clarification and kind of.

What the game plan might be in terms of.

I guess further horse trading and or consolidation.

Yes.

I have committed the time that he can do all the math ones, but since you guys.

Yeah.

The.

The 54, I can keep up with that.

That's about right yes.

I think the.

Again, I think these are such fluid dynamics I think that our targets honestly, what we want to do is we want to create sales organizations that have the type of heck that they had they have a reasonably big businesses.

And so.

The intention was as we work.

What caused you remember back I think in <unk>, you said cash in 2022 will be a 200 day in our company.

That was kind of the.

On the 50, guys at 4 million a piece.

The intention of that slide is really to say cash how do we make for more significant but fewer kind of sales leaders, but more feet on the strength that ultimately are filling in and so we have guys that are well above the 4 million Mark and then guys that are well below the 4 million Mark just based upon kind of where they are.

When they started and what the run looks like and so I would tell you that somewhat fluid I would love to stay between 50, $50 75, a manageable number but again I want to make these guys have significant business that would make big loadings in <unk> ability to.

Create stability is the intention.

Okay, and just one maybe quick follow up another math questions I apologize.

In terms of EBITDA and cash burn.

How should we be thinking about this year I mean, you've got quite a bit going on.

Pedal to metal and a lot of respects so in terms of the.

Look for that piece.

Especially with all the Capex, which I assume is coming how should we be thinking about those those parameters.

Yes, Jason.

We used about $34 million worth of cash here in the quarter.

I think if you looked at our last four quarters I think we averaged.

Somewhere around 17, so if you assume that the next three quarters would be like that average.

You'd probably get to an $85 million number on the.

<unk> year.

And then you can ask well why is Q1, so so different so heavy relative to the rest of the year and I think I would tell you two things one.

We've definitely invested in the sets in the inventory.

Two to support the kind of growth that youre seeing here in the first quarter and then our guidance implies so I think that's a forward looking investment obviously, we'll continue to invest but I wouldn't expect it to be at the same rate.

You saw here in the first first quarter for the balance of the year and then the second point is we do have some one time compensation related items that tend to hit do hit the first quarter that don't hit other tenders. So that also kind of hits on the cash flow timing so.

I think looking at it.

Okay and it from that perspective, I think it can get pretty comfortable.

We ended at $190 million cash about 100 million of that is earmarked for iOS more or less plus another $40 million on squadron that gives us roughly $130 million of cash and dry powder. So I think we've got plenty of runway.

Great. Thanks for the Capex simple.

This concludes our Q&A session I will turn the call over back to your presenters for any closing remarks.

Just thanks very much for.

For your interest in <unk>, we are in the very early phase.

Building, what we intend to be one of the one of the great company. So thanks very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Okay.

Okay.

Okay.

Yes.

Yes.

Yes.

Good day.

Sure.

Yes.

Yes.

Okay.

Yes.