Q2 2021 Alphatec Holdings Inc Earnings Call
Good afternoon, everyone and welcome to the webcast of apex second quarter, 2021 and financial results, we would like to remind everyone that participants on the call. We will make forward looking statements. These statements are based on current expectations and are subject to uncertainties that could cause.
The results to differ materially.
These uncertainties are detailed and documents filed regularly with the S. E. C. During this call you may hear the company will be afraid to report and announce which are in accordance with U S. GAAP basketball and less non-GAAP or pro forma measures reconciliations of non-GAAP measures to U S. GAAP can be found in the supplemental financial table include.
And 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 now I will turn the call over to Pat miles.
Thank you much faith and welcome everybody and the Q2.2021.
And actual results and an update.
Clearly, we would be making some forward looking statements.
And just to jump right in.
I Love, where we're positioned and I'd say that we.
We are uniquely positioned for continued industry, leading growth and and I think when you start looking at the tailwind you have to think.
And from a P T P perspective, or I'd say, we're penetrating the current market and we're really expanding the Ms market and I'll go through further explanation of that.
Later in the prepared remarks.
I would tell you that our our U S distribution is also improving and expanding and so that's another tailwind.
Love, what's going on with regard to iOS from just our ability to have and academic influence and and so many of the other benefits of the type of information that comes out of the machine and I think a lot of that is providing a halo effect.
With regard to more kind of conventional procedures and so I think we're earning our way and with with some of our unique stuff and then getting rewarded. Additionally by the Halo effect of other procedures and then you know you you you love the building of a of a foundation for the international marketplace.
With Eos.
If you look at the scorecard.
On a year over year revenue growth of 93% up 28% sequentially, which is which is good a 46% 2 year CAGR, which I think is good it's our 11th consecutive quarter of double digit year over year revenue growth.
Another I think driver is is there's real acceptance of of our new products and I think that that's reflected in the 84% new product revenue.
A 30% year over year growth and revenue per surgeon I would tell you. That's a phenomenon due to P. T. P. Clearly complexity of the type of surgery. So we're earning confidence and then the halo effect of the type of competence that we're building and them applying it to 2 other procedures and.
And a 15% year over year growth and average revenue per case, and I would say that that's a convoy reflection and so we're seeing more products used per case, and then and then clearly a complexity are dynamic and then and.
Now we're up to 2 products and that's a blended average of categories per.
For surgery, and so 1 thing that you may hear from us over the coming years as is and it's not a lot's going to change, we where we're going to earn our market place by creating clinical distinction and that just means improving our products and procedures in spine surgery.
And that compel surgeon adoption unto itself and so and that'll be reflected based upon how surgeons are applying the type of procedures that we're creating and then what you're seeing you'll see and expansion and and Clinton and a clinical aptitude increase with regard to the sales force and and and so we're really excited about what's going on on that.
Front, and and as they move more toward exclusivity and and and the type of people that we're attracting are clinical apps people I I like where we're going and starting off with regard to clinical distinction.
And our clinical distinction.
And again I think that the reflection of the the percentage of revenue driven by new products is is it would suggest that theres been acceptance of the type of things that we've put forth.
From 2018, and 'twenty 'twenty, we've released around 30 products and you could expect 8 to 10, a year from now and and into the future.
Thank the relevance, though really becomes in terms of of how do you create and how would you pursue the perfect spine procedure and I think that that's really the architecture that most fascinates us and that's why you saw.
The the really the reflection of P. T. P is really 1 of the first kind of a very uniquely assembled procedures come out of the come out of a tech 1 of the things that we highly covered however are things like information and that really kind of drives predictability and so what I wanted to do is spend a little bit of time on.
Really the the unmet need and a great creating clinical.
And.
And economic predictability really through the through the vision of informatics and and.
And so when we think about information I think oftentimes, we think about how relevant is the information and is it is it actionable type of information 1 how do you integrate information into workflow and then we also think about just you know the spatial availability and the operating room that ultimately makes a 1 that makes.
And from information available and so when you think about kind of the 3 pillars of what we've done today first of all safe up and we acquired <unk> back in 2018, we said, what we're gonna be able to do and we're gonna be able to identify where nerves are and then we're gonna be able to tell you gosh you know, what's the health of the nerve over time and I think that the the you know the Utah.
<unk> of that technology has been very very valuable and if you look across the landscape of our industry.
And we are now the purveyor of neurophysiology automate and neurophysiology and spine, we continued to invest and we continue to make improvements in it and nobody else is doing real monitoring, meaning the whole S. S. E. P element of determining nerve health over the time and a case and so the value that that creates the other beauty of that is it comes and a tablet form.
So when you start to think about the impediments to adoption and and bringing huge pieces of capital equipment into the operating room, we're bringing a tablet and so the you love just the dynamics of being able to make available that information and a very seamless way.
When you start to go to to to.
Vacation and really what you want to make is you want to make sure that the that the work flow is is very very seamless and predictable and so part of the challenge that that navigation has had over the years is the fact that oftentimes and.
It is it is a very difficult tool to use from our work flow perspective, like if you start to think about our inner operative C. T that requires a 2 minute spin there's substantial radiation delivered to the mostly to the patient because of the surgeon can step away.
But realize a lot goes on during an operation and when a patient moves and in the operation and what you want to do is be able to update the image because now the image is no longer relevant because the patient moved the beauty of track actually is the way it acquires and image and provides by plane navigation is by a ubiquitous tool and a and a horoscope rush.
C arm and you see the CRM picture are there and so the beauty of track X is your ability to create an updated and navigation of exactly where you are based upon acquiring and image out of a C arm and so we love the how that fits into the workflow of how we're executing a procedure and these things become very very relevant and the other.
Thing becomes is I talked about space and the operating room is finite and so the ability to attach to a a current tool that's already accepted and utilized and the operating room is valuable and not have to sell in and other he's piece of the capital and when you talk about another big piece of capital Yeah. So it's a very big piece of capital, but it's not it's not and the operating room. So the.
To integrate that information into the operating room through the conduit that we've already created in a tablet type of platform becomes very very attractive and and what you start to integrate in our things like a standardized standing full body weight bearing image and and.
There's just such a wealth of information in these in these tools and so have.
And if you think about spine surgery is being decompression stabilization and alignment our ability to plan in 3 dimensions.
From a standing images, so opportune and and the ability to really drive alignment and alignment has been discerned as of the the the greatest predictor of a long term successful outcome you start talking about spine and you start talking about durability and what you want is aligned patient and and so just the ability to align and somebody and know before you can get them off the table.
And is aligned is such an opportunity for us to design and develop into the other thing that hasn't been touched very well is is bone quality assessment and so to utilize some of the elements to make sure your demand matching your stabilization tools in a way that ultimately enables you to fix the spine and stabilize the spine specific to a patient and.
And and that begets, the patient specific type of treatments and and the ability to contour you know your implants to the specific patients and in and to understand.
The other unique dynamics really provides an insight into the cost of care the whole clinical work and the whole economic work and so are our view of of of this.
Acquisition is that it really is the foundation for a multi year opportunity for expansion and the great. Part is is the academic community has already spoken if you look across the really the world.
And these things have been placed in and in and in a who's who of institutions. The great part about us owning this asset is the fact that.
And we can avail to virtually everybody through things like.
And a lease agreement or and earn purchase type of an agreement. So the ability to start to translate these assets is really tremendous and so you say gosh, what's the crawl walk run associated with this effort and I would tell you. The first thing that we've done is really kind of integrated our selling efforts and that means aligning the sales force. It means taking what used to be 6.
People selling capital to now 306 people.
And having a field force of implant people and then having a a a group of capital people really start to focus the opportune efforts, especially in North America, and so the ability to expand the footprint. The other thing becomes driving utilization. When you start to think about a salesperson going and trying to change the behavior of our spa.
<unk>, it's a very challenging work and I think the opportunity for <unk>.
And spine sales person to walk and without the confrontational, Hey will you use my implants, and a surgery, but really start to say hey, we will utilize yes in a way that ultimately enables you to be more well informed about the the.
Prospective patient I think is a much less confrontational opportunity and I think the ability to walk someone through that experience and and walk them into are our way of thinking and and ultimately inform surgery with with our stuff and really be get to I think a reasonable walk into a selling environment and.
Also if you look across the.
The landscape most of the footprint out there for E. S is is 3.5 or their previous generation.
Which was more of a of a pediatric or adolescent type of a of a of a tool.
And really expands the opportunity for us to really kind of utilize this in and all types of patients with.
With different habitus, and and really pressing up and opt.
And to upgrade current users.
And the other thing that is going on and real time is really trying to focus our resources on the highest priority product development initiatives that will have the greatest strategic impact and and.
And what that means it is now that that is part of the spine company, how do we make sure we maximize the opportunities available to us and the most immediate term and to that 0.1 of our executives is going to move over to Paris into the E OS facility and.
And it's and it's it's a guy Eric Dasa, who I've worked with for for many years, who I have great confidence and the ability to really create a a a sound cadence of <unk>.
Execution.
Between the 2 groups and so I'm greatly excited about the reflection of that and then also I think that you know just investing and the infrastructure to enable increased product and.
And service requirements. If you think about iOS as a standalone company and it was really a different dynamic and for us to really expedite the order to installation and and and have the available.
Resources too.
Fourth Ah.
Greater experience and a greater service level I think it is is opportune. So its amazing we talk all about that and we've yet to touch on P. T P and and I would tell you.
And that.
Clearly every other company coverage pro and lateral or they wouldn't be trying to do it and that I would tell you what we're doing with PTP as is outstanding and having been the guys who created lateral surgery at the other place just not to be shy I got to tell you this is better and and <unk>.
And it's better because what it provides is really greater optionality for the surgeon.
And when you when you talk about predictability and spine.
In terms of the the surgical approach itself 1 of the things that drives predictability is orthogonality and so if you look at those surgeries that have gone very well and are very predictable AC D. F is 1 of them a lift is 1 of them lateral is 1 of them and oftentimes, it's because they're most there orthogonal but for us to be able to create a very.
Orthogonal type of a surgery.
And then provide the type of Optionality and go from the back of the spine to the front of the spine and back to the back of a spike in the same sitting becomes very very valuable and you start to think and what's the value of that and you start to see what a T. Lift does an uplift does and you start to say above at 4.5 and above really.
And this really avails, a access from a surgical perspective to really almost any surgery above above 4 or 5 that requires inner body fusion and so we're super excited about the opportunity there and clearly as is the number of people who are coming in for educational visits and if you look at the graph.
There is a tremendous demand on the educational and group at a at a check and and they're working very very hard to see.
The volume of interest in coming to San Diego and and learning from the Masters like Luis Pimenta, and Bill Taylor and and guys who were part of the the core crew that created the procedure and the first place. So we're seeing the utilization really both and complex settings as well.
Yeah, it's fun to see you know for years Theres been such great promise of cash what's going on in the ASC setting, but there's also several guys who are doing this and the ASC setting, but that is fun to see so reconstructive surgery and outpatient environment. I think is as exciting if you're if you start to look at and kind of the R. O Y clearly where we've invested we've.
Cost burden and so you look at and clearly and in the in the informatics and and lateral and post area. There's been great momentum in those spaces and and Youll see the others follow follow suit as we continue to.
Reflect the investment of a zone.
Of the other areas.
The next.
Priority is about compelling surgeon adoption and we look at that as a convoy sales dynamic and I previously said that we're seeing a blended.
The average of 2 products per surgery, and and you know the way. We think about this is are people accepting the entire thesis of how we think about a spine procedure and when they use all of the products and the likelihood of their accepting that thesis is higher and so the great part is as we're seeing ever increasing number of products per procedure and we're also seeing.
Our year over year, and the average revenue per case at 15%.
Average revenue per surgeon at 30% and then the demand on the and.
Surgeons trained is is significant would be an understatement and so we love that but what it follows is is it follows that the thesis that we're willing to invest and the things that others aren't and those things that ultimately are the requirements of predictability and I think thats why youre seeing surgeons adopt things like P.
T. P is because there is a day 1 a unique know how and that unique knowhow drives.
The design and development of different elements, and ultimately drive a predictable experience and so I.
I will tell you it to this day, there's still a lot of the competitive groups out there that are not designing for the specific requirements of and I would tell you. If you want predictability and and experiential design for that experience and so.
I will.
And I'll leave it there.
When you when you look more closely at the non.
Non blended where you're seeing the significant kind of by and for the way that we would propose to do a surgery is in the is in the lateral space and so when you start to choreograph. These elements to all work together there'll be gets in and you know and enthusiasm.
Utilizing multiple products per procedure and so the great story here is there's still so much opportunity ahead of us in terms of things to ultimately design and develop and create further the level of predictability and so excited.
Excited about that I'd say lastly.
Just coming off a national sales meeting.
And the enthusiasm was palpable and and we are are loving, where we are I got to tell you. We got to continue to evolve and so are we.
We need to continue to elevate our sales force got to create exclusivity.
I love it and 97 per cent of our sales are driven by our our strategic channel.
The organic revenue growth within that channel as is is that a 106% and that I think a lot of the right things are going on with regard to the walk toward exclusivity and the clinical attitude. The crazy part, though is if you look.
And you'll get a third of the U S geographies are under are under or completely.
Unrepresented, So we're where we have the right people in place that you would expect we're making 4 effect and I think that yeah. That's the exciting part and that's where you're seeing 97 per cent of the revenue contribution are these people.
The the the great part of it is is the tailwind remains in that third of the geography that we can continue to elevate.
Elevate and create sophistication and and really.
To build a relevant in those marketplaces.
Another thing Thats going to augment distribution is we recently opened up a distribution facility in Memphis and when you start to think about our know how and when you start talking about distribution and you better think about Memphis and there's there's a there's a keen and knowhow in Memphis by which our distribution.
And really part of it is a great competency as we continue to spend significant amounts of money on capital. The 1 thing we want to do is make sure that we can utilize that efficiently if you're going to utilize it efficiently and the Memphis is like a great place to be and so we see that and again our foundation builder for a great long run in front of US and then when you start to see.
Cash flow.
This is a foundation for great long run in front of US how do you also not think about the foundation for what we're doing and the international space with regard to iOS and realizing that there again theres been great acceptance I think and interesting dynamic is that.
If you've been around spine, a long time, you really appreciate the influence the french's had especially deformity surgery and when you think about what's going on with iOS and you're starting to think about what the reaches globally not that we want to run to the French market as it as an implant market. When you just think about the amount of influence with a French who's had on.
And on spine surgery, and and I think that oftentimes a lead indicator becomes.
And what's going on there and and in.
In Q3, we will see the 100 iOS unit placed in France, and again I think it speaks to what's forthcoming with regard to much of the rest of the world is the acceptance of this technology in a arena that is steeped in experience and profoundly sophisticated in the realm of spine surgery and so those.
Things give us great enthusiasm as tailwind to our business and I think just to kind of have a great second quarter and a great start to the year, but it should likely to turn it over to Todd and have him walk through the financials well. Thank you Pat and good afternoon, everyone. It's a pleasure to share the results of another strong quarter with you.
I'll begin with revenue second quarter consolidated revenue was $62.2 million, reflecting 110% growth over the prior year. This includes organic revenue of $56 million, reflecting 93% growth.
Compared to the prior year period and growth of 28 per cent compared to the prior sequential quarter and preferably the organic growth demonstrated in Q2 was not simply attributable to an easy pandemic driven comparison.
2 year CAGR accelerated to 46%.
Both are strong 2 year CAGR and sequential improvements speak volumes about the powerful momentum of our business is driving.
The strength of our organic sales results from the second quarter of this year are driven by a significant increase and procedural volume and continued growth in case I S. P.
And with the close of the iOS immigration and imaging transaction, we recognized $6.1 million and <unk>.
And related revenue and the second quarter, reflecting sales from the day to the transaction closed on May 13th through June 30th.
Finally revenue from our international supply agreement totaled approximately 400000 and the quarter.
So to summarize the total revenue result, and a $62 million represents growth of 110% and is comprised of organic revenue of $56 million.
<unk> acquisition, which contributed $6.1 million and revenue and 400000 and revenue from the international supply agreement.
Yeah.
Continuing through the remainder of the P&L.
The non-GAAP gross margin was 73% second quarter down 430 basis points compared to the prior year.
Pressure on gross margins was due primarily to the consolidation of Eos imaging, which had an unfavorable 390 basis points impacted period.
Historically <unk> business.
This generates gross margins in the mid to high Thirty's range. After you adjust for GAAP, <unk> differences and internal accounting policy and 1 that.
And as compared to <unk> gross margins and mid to high <unk> range. So we do not anticipate we do anticipate a lower growth lower consolidated gross margin profile as a result of the combination.
Operating expenses continued to reflect consistent thoughtful investments to support rapid long term growth non.
Non-GAAP R&D was 7 million.
<unk>, 12% of sales and the second quarter compared to $4 million and approximately 13% of sales and the prior year quarter, Inc.
<unk> on an absolute dollar basis was driven by continued investments to support organic portfolio expansion and <unk>.
Activity.
Non-GAAP SG&A was $50 million and approximately 80% of sales from the second quarter compared to $23 million and approximately 76% of sales from the prior year period. The increase was driven by continued expansion and advancement of APEC distribution network increased variable selling costs related to strong performance and the quarter.
And investments required to support the increasing size and sophistication of the company.
Total non-GAAP operating expenses amounted to $57 million and approximately 92% of sales and the second quarter compared to 26 million and beauty 9 percentage sales in the prior year period.
This level of investment and operating expenses reflects the emphasis we have placed on fueling our organic innovation machine and transitioning the sales channel to support continued industry leading sales growth.
Turning to the balance sheet, we ended the second quarter with 77 million and cash walking back from our March 31 balance of 191.
We had a net 74 million outflow associated with the Eos transaction $37 million and operating cash burn and of which $24 million was for inventory and instruments to support the sales growth and a further $3 million and other investing and financing and facts.
Our debt at face value is now $79 million with the addition of <unk> related debt of $15 million and Osha arms outstanding at 6% rate and another $6 million and existing staff.
With a 77 million of cash we ended with and access to another $40 million that remains on our squadron facility. We are well positioned to continue to invest and the growth of the company.
Yeah.
Turning to our 2021 outlook, we now anticipate full year 2021, total revenue will approximate $238 million representing growth of 64% compared to the full year 2020.
And as a result of the strength of the second quarter and continued strong momentum we are increasing full year 2020, 1 organic revenue guidance to approximately $212 million, which implies growth of 50% year over year and as.
$24 million raise over our previous full year guidance growth will continue to be driven by the impact of clinical distinction which is expanding.
Which is expanding surgeon adoption and elevating our strategic sales growth.
We anticipate yields related revenue of approximately $25 million for the full year 2021, which includes the 6 million recognized in Q2 net.
And that implies a $19 million of iOS revenue and the second half of 2020, 1 and reflects mid teens growth compared to the second half of 2020 as we take ownership of yours as order book and thoughtfully integrate teams and technology.
We also expect the international supply agreement to contribute about $1 million of full year revenue before it terminates on August 31.
Execution against the commitments, we outlined back in 2018 is clearly delivered significant growth over the past few years and as.
As I mentioned, our organic revenue 2 year, CAGR and the quarter accelerated 46%.
We've updated full year revenue guidance to $238 million that implies that strong organic momentum coupled with the inclusion of Eos will propel growth of about 55% year over year and the second half and are certainly industry leading growth.
And closing after having a quarter under my belt I'm incredibly excited to play a meaningful role and what will be and exceptionally long growth story.
<unk> accomplishments to date are significant.
But we have multiple growth drivers in front of us and have only begun to earn the market share. The decades of experience has proven is achievable through and unwavering commitment to better surgery.
I hope to connect with many of you over the next few months as we have a full calendar of investor outreach activities plan with that I'll turn the call back over to Pat.
Thanks, much Tod and I think and in that in conclusion and I think the reality is is.
And we still have a lot of work to do but there are some great tailwind a PTP is is is the real deal.
And excited about the years of continuing to advance that the that procedure.
Clearly our ability to continue to improve our U S distribution and make it exclusive and expanded is standing in front of us and reflecting iOS is our next foundation and such an opportunity to make for better surgery, and and further academic inputs and so I think the halo effect of some of these things will.
We'll be tailwind as.
And as well as literally just the we've been a U S company, only and and now the but the.
And in March and the and the international space is something that we.
Hold very exciting so.
Our transformation requires strong execution against our commitments and we remained totally committed to advancing the clinical experience and spine and we feel like when value gets created then than that and then the dollars chasing and so.
And we're just getting started and in and can't be more excited about the route forward. So with that we will take questions.
Thank you as a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster, we will now open the floor up for questions.
Your first question is from Brooks O'neil from Lake Street Capital. Your line is open.
Hey, good afternoon, guys and congratulations on all you've accomplished 1 of those things from them.
Particularly curious about and I have a sense that with the safe Bob Informatics platform now.
And the cusp of being integrated with <unk>.
But theres, a significant and opportunity for pull pull through product sales and product utilization and.
Spine surgery can you just talk a little bit about where you're at in terms of integrating and it'll linking those 3.
Element such that you can really begin to drive the product sales.
Going forward over time.
Yes Brooks.
Thanks for the question and and and.
And.
Yeah.
Yeah.
And I tell you. It's it's a it's great fun to be able to pull stuff into the operating room and ultimately makes for.
The real effect and so the ability to drive that information into the into the operating room and even into the preoperative planning phase where what we'll do is we will inform the the preoperative plan with our products and you start to think about all of the opportunities to do that and that will reflect a pull through that.
Is that is abundantly clear and and so.
There's some very tactical ones that I think are going to happen sooner and that's going to be and how do we start to place more and more iOS units across the world and how do we ultimately tie implant utility to the to the iOS unit and and and I.
And I think that there's been such a widespread acceptance I very much like the combination of our currency, which becomes the implants to ultimately serve the interest of better information and so I think when you start to think about pull through I think initially you start to talk about just the.
Avi.
They are a current a population of EOG and that's out there that can be upgraded and upgraded through a currency and then you start to think about the acquisition of more units through a currency and all of those have an effect and the volume of implants utilized and then I think really where we want to go and is candidly the sophistication of a very small inner operative footprint.
And being able to deliver information that it becomes actionable and the operating room and and that's going to take a little work and a longer period of time, but that's where it's all going and that will completely effect what type of implants are used 1 based upon bone quality and demand and matching the type of fixation elements that that stabilize the spine and.
And then and then secondarily, making sure that cash things like how do we make sure that the patient is aligned in the way that I prescribed based upon my surgical plan and so I think those things are they are the real.
Net interest and and they're doable things and there are things that we've done before and so I I love, where we're going on that are.
Standpoint, but I think the earlier phase might be a great 1 with regard to seeing implant with implant sales reflected through the utility or value of use.
Yeah. Okay second question and I had was I'm excited about international obviously your international agreement with Globus and this month and the small.
Can you just talk a little bit about how you foresee.
Spending and and enlarging the presence and take advantage.
And as there are international opportunities, let's say over the next year or so.
Yeah Yeah.
I think I think the.
I'll speak broadly about about the international opportunity and and again, it's something that we're very enthusiastic about we're also very realistic about how we get contribution out of our respective areas of the world and so.
I think that we will be very well served by being very narrow and very narrow and deep and.
As you appreciate I think the the clinical distinction that we're driving requires engagement at a deeper level and so for us to lay a foundation for depth through a narrow focus is whats in our interest and I think that you know anybody who's been around the spine space knows the the the the they're really the great 5 or 6 <unk>.
<unk> that are very apparent and and so I think that it's going to be a very apparent walk towards markets that have kind of a good paying environment have a very kind of clinically sophisticated environment and and well we're not we're going to go into these markets with the best of the best which is such an advantage a lot of people dump and markets and that's not our way or our op.
And he has to go in there and really go with out of the gate first generation products that are there the best of the best and.
And and Brooks I think as Pat said kind of this this narrow and deep allows us to be fully committed to a geography.
And ultimately drive penetration and then we believe that that will ultimately throw off our returns.
And her and give us a better overall margin profile and the long run and our international footprint.
And so they come to sense. Thanks, a lot for taking my question.
Thanks Brooks Thanks Brooks.
Your next question is from Kyle and Rose from Canaccord. Your line is open.
Great. Thank you for taking the questions.
And just really 2 from me 1 I Wonder if you could just talk about a little bit more about the case mix youre seeing and United States I mean, obviously with the growth from new products and the average products per case, I mean, the whole scorecards, moving and the right direction, but maybe you could give us just a little more color I mean, I think we've talked in the past PPP has got a pretty high training burden seems like training is happening and a lot.
More now than it was previously is are you seeing more of those PPP cases come in or just when you're bringing on the new reps.
Are they are they going towards 1 side of the product portfolio versus another.
And then I'll ask my my and my next 1 and a minute.
Okay.
I'll start off and then I'm going to and I turn it over to Todd because he's going to be more precise to me and.
And all things.
And I.
I think every.
And the people that come through here are super excited about about P. T P. But the beauty is if there's an underlying sophistication to what we've done from a product development perspective, and you know what's funny is people come here and they'll say gosh I want to come and learn PTP and then you'll see things like single step and we'll see things like safe up and we'll see things.
Identity, and and the different things that we're doing and they will say you know what this is truly next generation and stuff and so the great part of it is I think that people are compelled by the PTP thing and and and to your point is theres, a training requirement to there and and theres going to be a long walk on and that and it's gonna be a good 1 work, but I think that what's earning a utility becomes.
The sophistication associated with the type of design prowess that we have from a.
From an engineering, and and and marketing perspective and and.
The whole team honestly.
Anyway.
And overall Karl I mean, when we kind of look at our portfolio, our FERC lumbar portfolio.
<unk> was a strong contributor to our growth growth growth growth very much in line with our overall growth profile. We saw a strong contribution from our alpha informatics line as well as biologics and the quarter kind of above our corporate growth rates.
And then when you kind of look into it obviously, the PTP driving a lot of the procedural volume and then the pull through we're seeing strong contributions from from both Invictus.
And identity, which you would expect and I think is reflective and the fact that 84% of our total revenues are from new products. So I think when you kind of dig in and that layer to deeper it all really hangs together quite nicely.
Great and and then you talked about the strength of the exclusive team maybe just any more gaps that you see in the portfolio that you think you really need to address in order to really capture I guess.
The remaining portion that might not be exclusive and then.
And secondarily just on Pos on the exit velocity.
<unk> I mean I appreciate the guidance for this year $25 million.
Is that the kind of the run rate, we should think about moving forward. When we think about the second half of this year and the mid teens growth I'm just trying to understand.
Longer term modeling and implications of Pos as well, just particularly given youre going to take some of the earn out opportunities as well.
And that was really 3 questions.
This guidance assumes.
And I'm just kidding.
Let me answer the 1 way to go to hold and the portfolio and then I'll, let Todd answer the 1 on iOS and exit velocity.
If you look across our portfolio there are still holes in our portfolio and and I think the the ones that are most specific but candidly youre going to see and the short term are things like core <unk> devices and and so you know 1 of the real great opportunities with PTP.
It is a different types of surgery. So it's candidly similar to it and experience that we're very familiar with that we had previously which becomes as you teach someone how did 2 to ultimately do a procedure and then they walk up the sophistication curve and so you'll see start you'll see the applications of of J P. G P and things like you know.
A single level, 4 or 5 spinal those thesis or a 3.4 adjacent level and then youll see and start to walk up and so what we're doing is we're running 4 to catch the court Peck to me because it's ultimately going to get there and so I would say when you start to think about holes currently and expandable correct me devices is what I would consider a whole but again.
And we're running up the sophistication ladder and what we want to do is beat them to Quebec and me and I think we will.
Other elements becomes as we get more sophisticated about the.
And the utility of of of a PTP and longer construct surgery, our ability to start to go to the back first and released the search to make sure that we completely control the angulation of a specific level and then to be able to do that through and expandable device is super exciting I get a hard time from that love and expandable devices, what I don't like is it.
Introducing.
And more variability into an environment that doesn't require it I would tell you the level of sophistication that we will get to in terms of the <unk> segment is very very high we will take the Eos information integrated in and make sure that we were able to hold and the architect a a alignment that is completely what we intended and so things like <unk>.
And expandable devices are going to enable us to do that and things like core Peck to me are still what I would consider hold but again, we're walking up a sophistication ladder that I think is is it's.
It's candidly, what we love to do and and why we're here and and so on.
I'll, let Todd jump on it he was price.
Probably I think when you look at our guidance it implies $19 million and the second half and kind of mid teens growth as I said earlier and when you. When you look at the revenue a good chunk of that revenue was maintenance related recurring revenue.
Which which then we add to that.
Placements and the and the revenue associated with.
Delivering the actual equipment and so you know certainly we've got a strong order book here Pat talked about our focus on reducing the amount of time from from order to delivery.
And you know I don't know how much we talked about I think there's a tremendous amount of excitement and interest from our existing surgeons people come in here. They see the Eos machine and so we got a lot of a lot of interest and in the technology and so I think that bodes well for our ability to continue to drive growth and placements as we go.
And into 2020.2 and.
And ultimately as Pat said, the reflection of the value of yields won't just begin the iOS revenue line itself. It will also be and our ability to translate that into.
And the implants and the utilization of our products.
Thank you very much.
Yeah.
Your next question is from Josh Jennings from Cowen Your line is open.
Hi, good afternoon, and thanks for taking the questions.
Congratulations on the first half of the year.
I wanted to ask about the search and education visits and just looking at the chart you guys provided and the presentation looks at least at least a doubling in Q2 versus even Q4 of 'twenty and towards the number of education visits and wanted to just understand better the conversion rate of new customers.
Percentage of.
If you can break it down and get this granular as a percentage of visits from from new new customers surgeon customers and.
And as the growth and new customer new surgeon customer adds kind of correlating with these new.
And the growth and the education visits and then within the new customer surgeon customer bucket are you seeing more bedroom and mis surgeons coming to get educated.
Or are these open surge and historically open surgeons that are migrating to my house and just have 1 follow up.
Yeah, Josh I think.
Talk a little bit about our conversion and pass it over the past and kind of dive into maybe the.
Who's coming through and what kind of folks who are participating but we pay a lot of attention to conversion and we haven't really been been public about the conversion rate but.
I think what I would say is we're very pleased with the level of conversion.
And we do pay attention to it.
And certainly there is an incredible amount of demand for 4 for access to the training and and and our sales organization understands that and and it's a commitment on their part it's a commitment on the surgeons parts commitment on our part and and I think what's really neat is that when you sit there and and and oftentimes on and Fry.
I'll pop in and kind of listen to some of the wrap up and and you get a chance to talk to different people.
Whats nice to know as everybody understands the level of commitment that it takes from from all parties to make that learning experience happen.
And so I think that's why we see the strength of adoption post training that we do.
And Pat maybe you want to talk about kind of who's coming through and yet.
Yes.
And as I listen to Todd and I and I thought about the history.
Last few years.
And that medically speaking they have to be new.
Yes.
Yeah.
Uh huh.
There's so many more people coming and they're coming for the reason to learn something new and so it's a demographic element that I think that we're most excited about.
The fascination for us and.
And is where these lateral guys that that are coming to in essence, refine a new skill set in and.
At the same type of and approach from a prone position.
Or is it guys, who are more conventionally minded who have done more posterior approach and and candidly. It's been both I would tell you that probably the familiarity with the person who is whose laterally trained has been.
Likely the guys who are most.
Early interested because I think they understand the effect of being able to address the back of the spine and the front of the spine and back to the back of the spine. It's been fun also to see a lot of conventional guys guys, who would do open T lift or open clip come through here and really be say I've been waiting to do.
Lateral surgery until there was a solution that enabled me to decompress directly the the back of the spine and so it's been kind of a fun thing to see but I would tell you that we're still and such kind of a bit of the early adopter phase.
There.
There's a lot of new surgeons to a tech which is I think the most.
And our exciting part of it because I think that we blow them away with regard to our new facility.
And our facility is state of the yard and it was designed specifically for this very utility and so the opportunity to create confidence and a group of people that ultimately come here to learn something and walk away with a renewed view of our company is just such a great opportunity and so independent of providing specific rates of closure with regard to those guys.
And they walk away with with great enthusiasm and.
Thanks for that color and then just.
A question on iOS and.
And just stenosis and short time since you closed the deal, but just any updated thoughts on cross selling opportunities of 8.
Check implants and instruments into the <unk> customer base and the other way around ecosystems into Europe.
<unk> customer base would.
It would be helpful. Just to understand thanks for taking the question.
Yeah, Josh I appreciate the questions very much and I can't tell you we've had several prominent iOS surgeons here and and and.
And the type of language that they use in terms of the.
The importance of this acquisition can't be understated and and I think that you know.
Our interest in terms of selling through that is clearly is clearly high but I think what's more important is to further the field from the experience and that's going to really drive real value. If you start to look at like so.
So you look at say a large multi specialty orthopedic group and you say gosh, how is how is relevant to them and.
And Theres been papers published and talk about and 8% to 10% dislocation right in total hip surgery when someone fixes.
Fixes a construct to the pelvis and a total hip patient and there and there's very clear reasons why that happens and it's and it's how people retrofit their published when they sit but the beauty of our mitigating some of that I think is is 1 the proper thing for a company like us to do but 2 there's great financial.
And in knowing that information and being able to do something about it and so as I look at the landscape and I start to think cash what's the reflected it's not that we're going to sell a few more pedicle screws based upon some alignment thesis, but it's more a matter of understanding the richness of the information coming from that unit and translating into a better care profile.
Okay.
Great. Thanks Kim.
Thanks.
Your next question is from Matthew O'brien from Piper Sandler Your line is open.
Afternoon, and thanks for taking my questions.
Pat can you talk a little bit about the U S distribution group that you have where that needs to go in terms of.
<unk>.
And getting them more exclusive of the opportunities that are there and then you mentioned that third of the group Thats still kind of under represented at the moment, if I do the math it seems like 2.
2 thirds that are doing well or about 5% market share and.
And the U S. Because overall you are about 4 so I'm just wondering if you have a couple of geographies and in the upper single digits.
And then when can you get the whole group up to that 5% level and then take it even beyond that.
Take a couple of years to get the whole group to 6 or 7% of the U S market or can you do it.
And you can take even longer than that.
Yes.
No.
The beauty of the question is is it you know who doesn't do math, well and so you're going to triangulate me into it.
Yeah.
And so.
Let me just speak generally and and and and Todd will give you the math for beauty of him here.
And just.
1 of the beautiful and 1 of them.
Yeah.
And I look at the places like.
Where we have various sexual salespeople that literally and.
I'm still go into surgery, and I was and surgery recently and I watch these guys make surgery better and so I love the companies and talk about reckless models anything else I hope they further that that view because were.
And we're not and and and and so where we have a sexual salespeople, we prosper and and Theres multiple marketplaces around the country that we have very effectual guys, who are exclusive to us that are that are doing the very thing that youre, describing which is marching up the market share ladder and and and.
And so and candidly.
Yeah. They are they are bigger and bigger pockets as we roll forward.
There are about 2 thirds of our of our pop you know property yet.
The population just because some of the larger cities are places and we haven't had much effect, but if I look at New York City, candidly, Chicago, and Los Angeles were bit players and we're well below the numbers that youre espousing, but gosh, if you look at other geographies and.
And we're making significant hey, so it's kind of 1 of those things where it's like.
And we're taking in some markets, we're taking a C player to a b and other markets. We have a b players, we're moving to a and and and so once.
Once you provide a little yes.
We did have the national sales meeting a couple of weeks ago and it was really my first opportunity to meet a lot of the a lot of the sales force and then I would tell you that the quality of the individuals that show up and and not just to the meeting but to show up every day the surgery is great and.
And.
Encouraging to me and I just wanted to give a shout out to the team because I think they're fantastic.
And once we do get I think full coverage, we've got really sky's the limit based on based on what I've seen but to kind of get to your question.
What we've seen is we've seen and.
And ultimately our guidance here implies 50% year over year growth and and.
And ultimately I think Pat did a great job of laying out the drivers we have in front of us PTP penetration ability to expand that mis market into T lift and cliff.
Yes.
Reflecting the power of iOS, the Halo effect of all of that.
And I think.
All of that should should continue to help us drive.
Strong growth north of 20% and.
And to the into the next number of years and so ultimately how that gets reflected and in market share. It will depend on our performance and our ability to to deliver but I think we've got all of the makings of a strong run here in front of us.
Okay. Thanks for that patent Todd and I.
I really don't want anybody to know what my my math grade were in high School and college.
And so switching over to.
Just a couple of things maybe for you Todd just did I hear that the instrument set deployment number right did you say $37 million. This year and then just on top of that it may be helpful for investors, given where the cash level went from with the Eos acquisition and then some of the onetime transaction cost just to give us a sense for the cash burn.
Back half of this year and then into 'twenty 2.
Yeah. So our total operating cash was 37, Matt.
The 37, and 24 was deployed and instruments and inventory and so I think that's ultimately there to drive the level of growth and to support the growth that we foresee in the future.
Again, if you kind of walk back our cash position, we landed at $77 million, we were at $191 million going from 191% to 77, and 73 million and that was used on the Eos transaction, that's about $90 million of cash out.
And both of them.
Shares per stunning goes as well as our Xi'an <unk> acquired.
And then we've added about $17 million of cash and the transaction.
And so that's how you get 73 in terms of a net use of cash associated with iOS in the quarter.
When you take the $37 million and all.
Of that 37, and 24 as for instruments and inventories I said supporting our sales growth and.
And then the balance of the cash operating cash is at about 13 from there.
We had about $5 million of contribution from <unk> of which a good chunk of that was some transaction expenses and.
And we had some transaction expenses and our operating as well.
And so as you kind of think about the cash use and the second half, we certainly made additional investments and instruments and inventory and we're going to continue to do that to drive.
And the support to drive the growth and to support the growth that Youre seeing and we continue to expect so our estimate is somewhere in the $45 million $50 million of cash use and the.
And the second half of the year is our expectation.
Got it thank you and then.
And then just to I guess make the point.
77 million on hand, we've got access to another $40 million with squadron and.
So that would give us about $117 million of cash, which I think has plenty of runway into the future.
Understood. Thank you again.
Thank you and.
Your next question is from Jason Wittes from Northland. Your line is open.
Hi, Thanks for taking the question.
Just a couple of follow ups first off you mentioned international expansion.
Do we see any of that this year or is that something more for next year in terms of when we can see that sort of journey contributing to the topline.
Yeah. That's a that's a good question what I would tell you that we're and the foundation laying phase.
And and not ready to give specific timing with regard to our participation in the space.
Okay. That's fair and then related to iOS. It looks like this year, you're kind of track.
Tracking for the second half and I think you mentioned and mid teens growth year over year.
And does that include and any kind of assumptions on pull through or synergies or how should we think about that number and also going forward and.
Maybe this was asked.
Is that the right kind of growth rate to expect for iOS.
Why don't know, how we should be thinking about this part of the business.
Yes, Jason so and in the second half.
Our <unk> guidance is implied at $19 million, which is mid teens growth and.
And that reflects really kind of core <unk> revenue, so kind of think about the maintenance revenue.
Well as the revenue that we gain when we sell units and.
And deliberate and transfer the title.
And so.
That is really very specific as I mentioned earlier the ultimate.
Economic reflection of the Eos transaction is going to come both in the form of.
And <unk> related revenue as well as the pull through of our products and services kind of on the core <unk> side of the business and so ultimately.
And that'll be the reflection of the value of the transaction and.
And it'll come both in and our hardware products and services as well as yields placements.
In terms of how to think about the iOS revenue and 2022 and beyond.
The second half really reflects the order book that we've seen and so ultimately.
Net order book is there we're working to do those placements and deliver on our commitments and our ability to drive growth. There is of course dependent on our ability to drive interest and Nielsen and I will tell you I like our chances there I think we've got great interest from from the Tech friends and family and.
And I'm quite excited about what the future holds as it relates to true so the Eos iOS business, both kind of core iOS revenue as well as the broader reflection of the transaction as it relates to <unk>.
Implants, Okay. That's helpful. Let me push you a little bit harder, though.
In terms of how you are selling right now is it still going to be traditional capital equipment sale with service or.
Are you starting to bundle and was.
Or offer some kind of bundling or.
Something that takes advantage of the Alphatec platform.
Yeah.
And Jason let me jump in.
So I would say it really there's 3 ways, we're going to sell and sell outright capital release, it and theres going to be and earn purchase type of an agreement and so.
The things that I think.
And it created a headwind for iOS without a tech is the inability to have a currency by which people can appreciate all the the value of that technology.
Without multiple ways to ultimately offset the the.
And to requirements and so right I think and I think what we're seeing is a lot of enthusiasm and say hey, listen how do I partner with you guys. There's already interest based upon kind of all of their learning about a tech and then it's like cash how do we elevate that with regard to it and he knows and so I think our building infrastructure to support that demand is.
Of high interest to us.
And then just the last question and Alpha Alpha Informatics.
Now that you've added iOS, it's a pretty impressive offering.
Yeah.
Is that how do you think about this developing I mean, obviously, there's more to go on iOS are there other pieces that you think you need to add to this to the platform.
To make it even more compelling.
Yeah.
I think it's a great question and I think.
1 of the great things that I think that this company does as we apply our learnings and and that you couldn't have convinced me that I would be and the patient positioning business.
Years ago and in the and.
And so I I think whatever the requirement is to further the improvement and surgery is the business that we will be in and and so it's.
It's a tough 1 because the 1 probably and I'm Super excited about is so theres, great internal competence in terms of creating realigning the spine and and doing patient specific stuff I think another great outlier becomes the whole bone quality dynamics and just the opportunity to elevate.
The sophistication and and demand match and implant based upon the specific requirement of a patient's bone and so I think we have a great runway in terms of the cycling all of those things and so in the near and I guess in the near view those are the things that I think that that are that are super opportunities like imagine going into the <unk>.
Operating room, and having them and objective measure associated with how you're trying to realign our patient versus someone just.
Uh Huh guessing maybe too strong book, but relying upon gestalt and I'd much rather and objective measure and that's where we're heading and I think that's a great opportunity and the most immediate term.
Well, great guys I'll jump back in queue. Thank you very much.
Thanks, a lot of interest.
Your last question is from Sean Lee of H C. Wainwright Your line is open.
Good afternoon, guys and thanks for taking my questions. So I just have a couple of higher level questions for you. So in terms of <unk>.
And because we know that it has a different sales cycle and even more so from a separate customer base than your traditional offerings. So I was wondering whether you keep the sales teams separate but our operating under 1 big umbrella, who tried to integrate everyone and then.
All the reps cross selling both products from both sides.
Yeah.
I think it's a it's a good question and I think that the.
And in years past I think that was it was a a and imaging company and you sell imaging to radiologists and and but what you need is you need a someone who is going to utilize the type of image and that's going to be most often in spine.
Spine surgeon and and the ore and orthopedic surgeon and.
No.
I think what's important is is that what we do and it is we we overlap the the selling forces and if the main driver is going to be the spine surgeon and that's going to drive the demand for the imaging I think that it's important that that that's the the person that ultimately drives the acquisition of the <unk>.
The capital and so.
We've already.
And reconfigured our forces to overlie them. They all report up through it through a single channel and we believe that iOS is an informatic company and so our abilities and knock down the barriers associated with the financial headwinds to acquire a unit is what we believe to be most important but I think that your comment is a sound 1 and theirs.
And at some interaction with radiology, but it's something that the capital horses, as well used to doing and and very versed in terms of those are kind of selling cycles and selling dynamics and.
And I think when you look at the 2.
The 2 sales, it's really 1 sales force, but we've added some resources specific to the capital sales process and and so ultimately we're making sure that they are very much aligned with the objectives of our spine share. It's a share company ever of our spine team, but the reality is it takes a V.
Specific kind of know how and understanding and specific institutions on how to move a piece of capital equipment through the process and to get the deal done and that's really what what this team is all about because they have that expertise. They know how to do it they're going to work very closely with the implant team as we look at it.
The leads and understanding who we're going to target and how we're gonna go go forward here, but there is definitely a different skill set and and we want our implant team focused on implants.
I see thanks for the additional clarity.
My second question is on the call.
You will develop yields going forward. So looking back at the success, let's say for a lot of success comes from how it safe all of Australia being the pull through sales of other products. So I was wondering whether you would try to replicate that with yields and whether and the future you develop a spinal implant products that work specifically with yields.
And.
Yeah.
I think youre right on it with regard to the intention.
And so there's there's you'll love.
We tried to not be coy, and say a tech and formed by iOS and and really the informed by means what are things that we can do to improve spine care through the understanding and our learnings.
IOS and I think in the in the near term what Youre going to see is youre going to see a surgical planning platform that ultimately has informed with with a tech product and then what you're going to see is youre going to see the evolution of a tech product being a.
Evolved based upon the findings of the types of information that he was provides and that's where like it's like for instance, if you think of Ico screw. We are a screw that expands and you start to think about hey, someone may not have great bone quality at a specific level, our ability to take and osceola screw and apply it to that level based upon our surgical plan.
It is very apparent and so that would be kind of the least sophisticated thing that 1 could expect from the type of information.
Through through iOS, and so the excitement that we have in terms of really tailoring peoples.
Surgery and people always talk about our patient specific stuff I got to tell you that theres a real work toward a much more patient specificity associated with our findings through this tool.
I see that's all I have thanks for taking my questions.
Okay sure. Thanks, so much.
Thank you I will turn the call over to our apex, chairman and CEO Pat miles.
Thanks, very much and and just wanted to thank everybody for their interest in <unk>, we have a heck of a long run in front of us and Super excited about moving the field of spine surgery forward and just appreciate everybody's interest and then what we're doing thanks very much.
This concludes today's conference call and thank you for participating you may now disconnect.
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