Q3 2021 Alphatec Holdings Inc Earnings Call
Good afternoon, everyone and welcome to the webcast of APAC third quarter financial results.
He 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 materially.
These uncertainties are detailed in documents filed regularly with the S E T.
During this call you may hear the company refer to reported amounts which are in accordance with U S GAAP as well as non-GAAP or pro forma measures.
He got some occasions 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 managed must be of why this information is useful to investors.
Leading today's call will be <unk>, chairman and CEO, Pat miles and CFO, Todd County, now I will turn the call over to Pat miles.
Thank you very much Carla and welcome to the Q3 2021 conference.
Conference call at the conference call, but clearly we will be sharing some forward looking statements. So please review at your leisure.
And she's going to walk through some slides and really talk about our Q3 2021 2021 result, and.
The revenue for Q3, 2021 was $63 million, which is a 53% year over year growth.
With a contribution by Eos of $11 million in and I think as much as anything. It's just spells out are you kind of a unique positioning for continued industry, leading long term growth and kind of the elements that are the driver of it is is it can't be more excited about what's going on with P. T. P. M I.
Our ability to expand the lateral market is is very clear.
I think we're getting better and our clinical attitude is increasing from our U S distribution perspective.
I, just think laying the foundation and then reflecting the value of the heels information is a tailwind.
And I think building confidence such that there's kind of this halo effect of driving adoption of our of our entire portfolio and it is a it is clearly going on and then Additionally are really starting to build the foundation for what goes on outside the United States in the international marketplace. So.
When you start to look at the scorecard of the.
The year over year revenue growth in a declining market was 29% and where clearly compelling surgeons, because we had a year over year growth of 20% and surgeon users.
You start to look at a few of the clouds out there the year over year growth in average revenue per case I would say was muted based upon some of the pandemic.
Pandemic flare ups in staffing flare ups going on and so just the ability to do more complex stuff was somewhat muted, but the great part is the adoption of our new products continues to say stay super strong, which spells a you know a.
Kind of a a attractive continues.
Continued growth in future and also the blended average product categories per surgery of of 2.0, AR continues to grow and remain robust.
This is the 12th consecutive quarter of double digit year over year revenue growth.
More importantly, our 10 or 11 quarters are greater than 20%, which which we're excited about and hopefully what that reflects is is it tech has achieved the highest organic U S growth of any public spine company in every quarter since 2018, and I think that our thesis.
It is reflective of that dynamic in and clearly there's been a bit of a tough backdrop. It but we're doing the things that we are committed to doing and and our commitments are going to you know remain these for for as far as the eye can see but we will continue to earn our place in the market.
By really creating clinical distinction and that means we will perpetuate our organic product.
Product development and it continue to advance our information based core competency.
When you create clinical distinction you compel surgeon adoption and so we see the the kind of the objective reflection of that are compelling and an increase in revenue per product.
Her case route through a through innovation and then as you create clinical distinction compel surgeon adoption the likelihood of attracting them. Our approach to this thing is it is very very high and so we will continue to attract clinically adept at.
Salespeople and so when.
When you when you think about clinical distinction and it's really not as.
It's much about individual product development as it is developing products that support our procedures and and you cannot pursue the perfect procedure, if you're unwilling to design the specific requirements of the perfect procedure and so we're super excited about the the volte.
<unk> of our product revenue contributed.
The new product revenue contributed.
Contributed at 83%, but I think more importantly, what we're seeing is an expansion in the products in and kind of an acceptance of the type of enabling technology that I think is just can't candidly the more challenging things to them to do so.
Hmm.
When we when we commit to innovation, we talk about the cadence of eight to 10 new products.
Per year, and and and and clearly we continue to fulfill that commitment but.
If something too I think appreciate is if there's a prioritization that takes place that allows for the most influence and I think that we've laid a tremendous foundation through the work of our organic innovation machine and in.
Imagine our opportunity to translate yes, likely like we have safe up we haven't talked much about say if up as of late but but clearly our competency in terms of translating information as well as well as the whole mechanical.
Device design I would tell you is it clear a clear competency and so we like to leave a list here because we don't P. R. Every product that we released we are we like to communicate that most often in terms of the clinical effect. They have on on on spine procedures and so when you start to think about you know you see when you start.
To think about our our our mechanical aptitude in terms of design and development and our ability to translate information imagine an opportunity to demand match implants based upon bone quality and you see osseous through a write up here and just the ability to to be able to understand what the requirements are.
Other specific patient is and then.
GAAP this based upon their bone quality and so when you start to look at these things and you start to look at Invictus you start to see such distinction in in our fixation or our stabilization system and so I think so often we talk about spine surgery as decompression stabilization and alignment. This is it really kind of a core part.
Our stabilization and Invictus goes from the OXXO put to the helium and then the volume of integrated features is is substantial everything from single step which is which.
Which is a a unique product that they'll ultimately integrates to our modular screw system that attaches to our neurophysiology system.
That delivers retractor blades I think it really speaks to the level of of distinction that this group has in terms of understanding their requirement.
Of spine procedures and so.
We are we have recently launched Invictus Osseous grew and then tomorrow, we build upon the identity implant system with an improved Atlas a device that will that will launch tomorrow, and and really kudos to the internal organization and the sales force he was probably our most comprehensive.
Festival Alpha.
And now we're ready to go for commercial and we have a really great expectations of the contribution of Oh getting more sophisticated more sophisticated the anterior column surgery and so.
Another T organizational focus really has been kind of the Hughes.
Integration and when you start to think about what we are committed to we said gosh, let's first integrate our selling efforts.
I got to tell you that that's that's gone very well and I feel great about where that is we are prioritizing the product portfolio. I think we have a very good internal cadence of how we released products.
We're doing the same with regard to the Eos family and making sure that they coincide and then really scaling operations to meet demand.
Those have been kind of the the really the three key efforts and some of the highlights are the Eric Nacho is is in a leadership position or the leadership position in France, and so I think that he is really bringing together the strategic imperatives of APAC and iOS and how they fit together I love. The fact that we've contributed $11 million.
[noise], an eos related revenue in the third quarter I think it speaks to the enthusiasm around the the the shared interests of the company.
And then.
Just the volume of our of our pipeline leads has also increased significantly and and when when I'm in the field and I and I and I get the opportunity to meet with customers and I hear the the level of a sincere enthusiasm as it relates to adding Eos machines, we have institution.
Like hospital for special surgery that has four Eos units. Currently there there is an interest to expand the volume of units and so when we start to think about opportunities and start to think about geez, what's what's the what's the opportunity with yes. It is not one per hospital you know the opportunity is is.
And in our minds very very substantial and we'll outline that more as we roll forward, but I think when you. When you think about the spine industry and you start to think about the most sophisticated part of the spine industry a lot of people point to deformity and and I think that when you look at the Scoliosis Research Society or Srs, it's often a beacon of kind of clinical relevance.
And when somebody of Larry Linky stature says, if you're going to treat deformity Eos imaging as a requirement I would say that's not a passive affirmation that the these are the things that are necessary in terms of of Oh, but a value in that space and so you know the strategy in the near term is how do we start to place.
Units and I think that you know.
Our ability to sell into spine surgeons, who really understand the benefits of this technology is phenomenal and then starting to integrate kind of the the.
The the information through our planning platforms and the like it becomes very very valuable and then facilitating purchase decision based upon not just selling capital equipment, but also the ability to utilize our earn purchase agreement type things that ultimately facilitate a much more expedient exercise in terms of placing.
The volume of units and so.
A lot of great things going on and and and and I think you know when you start to look at the demographics Theres 100 units in France, and you start to say gosh, how many units could just the United States utilize effectively and just by population. If I took the population of France at that 60 million and there's 100 units there that would.
Two a 500 unit.
Population of iOS units here without really doing anything different and so we can't be more excited about the opportunity we feel like it really kind of furthers our multifaceted a tailwind that we talk about and when you start to talk about multifaceted tailwind. How you don't talk about P. T. P would would would truly be a miss and so.
50% of our Q3 revenue growth was driven by was driven by lateral length and so when you. When you you'll look to what's going on with regard to our P. T. P. I think that really there's unmatched sophistication and knowhow here at a tech and and I think that you know that.
The it's being reflected really in the adoption and when you'd go back and you understand kind of the origin of lateral surgery, a key element to the origin of lateral surgery was hey, Where's the nerves and when we acquired shape up in 2018, We said Hey, you know what we have in this technology as we have a unique way to determine.
<unk> Health, we said, we would add automated E N G and that we find ourselves in 2021 completely revolutionizing this technique and it should be of no surprise to anyone and so we are.
Clearly penetrating the lateral market, but also expanding the utility we talked earlier about lateral shirt or we took share about surgical goals being <unk>.
Decompression stabilization and alignment and just the ability to add the ability to directly decompression of lateral surgery becomes very very valuable and when you start to think about why people do cliff in tea with it's because they like to decompress the spine and so our ability to make sure that we're doing the things that ultimately enable us to find out.
Cells within a market spaces that candidly traditional lateral didn't is very very valuable and so what we're seeing is really an increase in the number are utilized in complex cases as well as we're seeing an increase in the number of cases done in afcs, which we.
Love nothing more than a a 360 degree fusion done in 60 minutes in an outpatient center I think it just speaks to predictability it speaks to sophistication and so what we're doing from a safety perspective, and if you look at the APAC surgeon visits I think it's reflective of a of.
Of an increase in demand and so those of you who are not looking at the slides it.
It's a bar chart that shows the increase up to the right and so when you start to think about surgeon adoption, but it's really driven by approach based innovation and so that's how we can tell you say gosh, how do you compel surgeon adoption and you and you do it through.
Through.
Through creating clinical distinction and and so you can see the third quarter in terms of the year over year average.
Revenue per case was slightly was slightly muted in our mind. It just speaks to a little bit of a black cloud from the staffing and the and the Corona virus dynamic.
Well you can see the enthusiasm has not hampered in any way is as we saw a significant increase in the volume of surgeons desire to be trained.
And we continue that are moving forward and so when we when we think about you know adoption and compelling surgeon, it's oftentimes because we're aligned on how they serve the interest of patients and that's why we think holistically about design and develop of spine procedures and there remains so many op.
Parties to continue to move the field forward as long as you're not hampered by only designing currency items and that's not.
Being aligned with the with a customer and I think our ability to continue to to remain in alignment based upon our interest in furthering the field of spine surgery. That's what alignment is all about and the great part is as we get to see the objective reflection of that when we start to look at convoy sales and so when we we think about convoy sales, we oftentimes talk about the blue.
London right, but the real opportunity is where are we creating distinction and where are we committed to that investment.
I'm kind of thesis too to reflect in improved surgery and.
So you can see we were nearing four which would suggest our acceptance of our of the thesis and clearly that's grown year over year in terms of.
All of our of our approach.
Continued place of improvement also is is really in our sales force.
And in our minds, who doesn't want to sell clinically distinct procedures that compel surgeon adoption and and and so we continue to to drive almost all of our sales from those who are committed to the long haul and that's the whole, 97% driven by our strategic sales channel and when you commit to each other.
And what happens is you grow fast and the reason you grow faster is because in essence, you adopt the a share in the interest of the clinical thesis and so you see the organic revenue growth.
From a strategic distribution at 37%. If you look at those groups, who have committed to P. T P and have done very well a PTP, it's even more than that and so just the ability to start to.
Make sure that there is true alignment in the in our selling organization has been a lot of fun. So although 97% of our sales comes from the strategic distribution, we still have uncovered a poorly covered geographies and and really another key component of managing growth is.
It is so we continue to expand our sales footprint and now what we do is we say gosh, how do we manage.
Manage the assets and so into three if my memory serves me.
We opened up in Memphis, and and so there's few things better than the type of efficiencies that you've gained from the ability to turn assets in a centralized location, where fedex as a hub and so we're thrilled to death to be in Memphis, and and have opened the distribution center and we expect.
Get them kind of continued efficiencies out of out of Memphis, and so you start talking about you know again tailwind. These are the things that we're willing to do to commit to the long term growth, which would include things like Eos and then commit to the to the the long haul of kind of our our the creation of the international.
I've heard and building a foundation around that so anyway, just want to provide a little bit of color commentary with regard to the goings on in Q3, and we're very excited about the about the business and I think with that I'll turn it over the time I didn't talk about the financials. Thanks, Matt.
And good afternoon everybody.
Thank you for joining us today.
Begin with revenue third quarter total revenue was $63 million, reflecting 53% growth over the prior year and 1% growth compared to the second quarter.
$63 million in revenue is comprised of $52 million inorganic revenue $11 million in the Eos contribution and $100000 of revenue related to our international distribution agreement.
<unk> revenue of $52 million grew 29% compared to the prior year period and was down 7% sequentially.
As we announced in late September a resurgence of COVID-19, and hospital labor shortages pressured surgical procedure volumes and spine and affected hospital operations throughout the months of August and September.
We've estimated the negative impact of that to be approximately $4 million of revenue for the third quarter.
Alright, the COVID-19 related headwinds are third quarter organic revenue growth outpaced the overall market.
As Pat mentioned revenue from lateral procedures contributed 50% to growth in the quarter on strong expansion of our lateral market share third.
Third quarter year over year volume growth of 22% was driven by the advancement of our sales footprint and by the continued expansion of surgeon adoption with surgeon users up 20% compared to last year.
Average revenue per case grew 6% year over year, reflecting disruptive impact of the pandemic on hospitals during the third quarter, which resulted in a shift in case mix toward the outpatient setting and more emergent cases.
Those cases favorite less complex procedures, which generally require fewer categories per case and generate lower per case revenue.
Sequentially organic revenue was down 7% with volumes down 4% in case, a S. P down 3% again as more complex higher ASP cases, where deferred overall, our procedural volumes trough than August.
Began to improve after labor day and continued to improve through the months of September and October.
While the disruption created by Covid and hospital labor shortages hasn't entirely dissipated average daily sales for the month of October were higher than the average daily sales in the second quarter, which is an encouraging sign of recovery.
In the third quarter, we recognized $11 million in Eos related revenue, which was up $5 million compared to the second quarter, but keep in mind that the transaction closed midway through Q2. So we didn't recognize a full quarter of revenue like we were able to in Q3.
Timing of Eos replacements in the third quarter drove a better than anticipated revenue result.
Finally revenue from our international supply agreement, which ended on August 31st totaled approximately $100000 in the quarter.
So to summarize the total revenue results of $63 million represents 53% growth and is comprised of organic revenue of $52 million, which grew 29% Eos related revenue of $11 million and a minor contribution from the now terminated international supply agreement.
Continuing through the remainder of the P&L non-GAAP gross margin was 72% in the third quarter down 490 basis points compared to the prior year quarter and down 120 basis points sequentially.
The year over year decline in gross margins was primarily due to the consolidation of Eos imaging.
The Delta between Eos is gross margin profile and the low forty's on $11 million of Eos revenue and the 79% gross margins at our base business generates resulted in an unfavorable 660 basis point impact compared to the prior year period that was partially offset by a favorable impact of 170 basis points driven by leverage in the base business.
Operating expenses in the third quarter reflects continued thoughtful investments to fuel long term industry leading growth.
During Q3, we maintained our planned investment levels through the pandemic related reduction in volume and revenue.
That unfavorably impacted our year over year and in particular, our sequential comparisons.
Non-GAAP R&D was $8 million and approximately 13% of sales in the third quarter compared to $4 million and approximately 11% of sales in the prior year quarter. The increase on an absolute dollar basis was driven by continued investment to support organic portfolio expansion in <unk> activity.
Non-GAAP SG&A was $52 million and approximately 83% of sales in the third quarter compared to $31 million and approximately 76% of sales in the prior year period. The increase was driven by continued expansion and professionalism of the APAC distribution network surgeon training spend behind major events like NASA at our national sales meeting.
As well as investments required to support the increasing size and sophistication of the company.
Total non-GAAP operating expenses amounted to $60 million and approximately 96% of sales in the third quarter compared to $36 million and 87% of sales in the prior year period.
Adjusted EBITDA was a loss of $10 million compared to a loss of $2 million last year and to a loss of $7 million last quarter. The sequential increase in adjusted EBITDA loss was primarily driven by the combination of lower third quarter sales and the sustained pace of investment.
[laughter].
We ended the third quarter with 224 million in cash and I walked out from our June 30th balance of $77 million on August five we closed an upsized convertible debt offering of 360 million with 75 basis point coupon and a conversion premium of 32, 5%.
Net of fees are capped call feature of share repurchase and debt repayment. The offering generated 188 million in cash offsetting that was $37 million in operating cash burn of which close to $22 million was invested in inventory and instruments to support sales growth and $16 million was attributable to other operating investments and working capital fluctuation.
<unk>.
That the carrying value is $327 million, which includes $316 million of convertible debt and Eos related debt of approximately $20 million less debt issuing costs of $10 million.
I want to address a few more implications of the convertible debt offering in addition to supporting a continued investment to scale. The business a portion of the proceeds extinguished $53 million of debt, which bore a much higher 9% to 12% coupon compared to the 75 basis point that we now have.
The new debt structure will save us a little over $2 million in interest expense annually, while significantly increasing our access to capital we close the convertible debt at a stock price of $13.84 and have a premium of 32, 5%, which implies that that conversion. We will issue approximately 17 million shares in exchange for.
The debt.
Common shares outstanding as of September 32021 were 99 million in the fully diluted share count, including employee equity awards and the Orange is 132 million shares use.
Using the Treasury stock method, the fully diluted share count at September 32021 is $121 million.
When the debt converts to equity approximately 17 million shares will be added to our share count at that point $316 million and that will be excluded from the calculation of our enterprise value as it will have converted into equity.
<unk> familiarity of the approach coupled with a predictable reproducible outcomes that PTP begets congratulate convert cliffs and T lift surgeons that haven't yet adopted the lateral approach.
Due to the challenges that the traditional technique presents the conversion of class and T lift surgeries to a lateral approach will enable us to shift a significant portion of the $2 billion cliff and T lift market into the lateral market our ability to demonstrate clinical value in a space that still needs a predictable outcome improving innovation is all.
Already building surgeon trust and creating a halo effect broadening the overall adoption of apex now comprehensive portfolio to drive significant share taken cross the $10 billion U S spine market. Additionally.
Additionally, our recent acquisition of Eos imaging opens the door to an estimated $2 billion market opportunity, assuming roughly 3000 U S hospitals and <unk> at the average ASP for an ecosystem that doesn't consider the potential to place multiple ecosystems at a single center a dynamic that is already at play today.
So it was a $12 billion U S market opportunity in front of us and our differentiated procedural approach. It is clear why we're so optimistic about the road ahead over the past three years, we've consistently demonstrated the significant growth that share taking through clinical distinction can deliver and we are just getting started we.
We are building a sustainable growth story that as we execute on our share taking strategy can span decades.
In closing we continue to do what we said we'd do in the third quarter, we delivered industry, leading growth up 53% in total and 29% organically compared to a U S. Spine market that was down we remain relentlessly focused on the long term and steadfastly committed to revolutionizing the approach to spine surgery I.
I hope to connect with many of you over the next few months as we have a full calendar of investor outreach activities planned and with that I'll turn the call back over to Pat.
Thanks Todd.
Our strategy is about evolving the clinical experience, we believe that good medicine is good business.
In that way, we will earn our share and you don't need to earn.
Sure well she has not earned.
Good fortune to come visit your headquarters and training facility in San Diego recently can you just talk a little bit about how that integrates with the.
The effort to procedure wise and sell platform opportunities into the spine market going forward.
Yeah.
Thanks for the question.
To me like this whole opportunity to to demonstrate the kind of the reality of the of how to further the field of clinical spine care is one of those where the surgeon puts their hands on you know.
On all of the products that ultimately, reflecting a procedure in a cat of Eric setting as close to the LR as possible and they're doing it with luminaries in the field and I think that just the opportunity to understand why each of the individual components that reflect in the sophistication of the procedure is very very valuable and it's not one of those things where it's like.
They're coming here and where pumps on them to sell what we're trying to do is compel them based upon the clinical application of a specific procedure and I think that's why you're seeing such a robust interest in volume of people who are interested in coming to learn PTP is it's not that they're coming here to learn about invictus, our pedicle screw system.
Or the lateral interbody device, but what they are trying to understand is how they put it together what the specific patient that they're going to apply this to and what the expected experience is going to be and so we have that.
Laid out I think as well as anyone the other thing is we start to give them an understanding of yields, especially those guys who haven't been.
Ones is.
The patients who get operated on is claudication. So if there's something pushing on a nerve and its more emergent those people get operated on and so when you start to talk about long construct stuff I gotta pay sometimes it's.
And please take this in the venous intended is yeah. It is cosmetic and they may it may not be a qualification issue maybe more of a cosmetic issue, which means the deferral is likely.
To go longer but when someone has a more immediate intervention required I think those are the the the cases that are going on and so I think the northwest was a was a kind of a perfect storm, where you saw the flare up of of the of the pandemic and what you would see as you you'd still see some stuff come out of there, but not at the volume that we.
Previously expected as well as none of the complexity and so our view was gosh based upon you know the goofy staffing dynamics that were in the the cloud on the on the pandemic. What we're seeing is some a S E type of stuff, but not a longer complex stuff that often would be less about emerging quad occasion.
And more about longer construct.
I'd add to that Pat.
Certainly when you looked at the mix of procedures and kind of how big that grew year over year.
Ultimately you definitely saw a stronger growth in cervical relative to the other contributors and I think again that kind of speaks to the.
The place in the.
So the ability to do those procedures.
And maybe a little bit lower risk environment, if you will or a lower risk procedure rather.
And so we saw probably a stronger experience there than we did in some of the more complex areas.
You know, Matt we talked about I think it's most.
Most clearly seen in our sequential where total revenues down seven <unk>.
Volumes down four asps down three.
So ASP as you know.
Almost half of the contributor in the movement of revenue sequentially and that really kind of comes down to the fact that.
Many of the more complex procedures and higher revenue higher case Asps were.
Were deferred out of the period.
Off the field and I think that what they see is is a significant momentum you know from again it I think it a small but pivotal player that's very interested in continuing to to to move the field forward and I think that that that <unk> is is a is a great driver of interest because I think they understand how we will ultimately <unk>.
Translate that information to continue to improve surgery and candidly it creates a moat around it gets unique where the only guys that habit and I think that it's a little bit misunderstood to realize hey, listen when you think about lateral surgery. There's two company that two companies that have neurophysiology ourselves and some guys down the street and.
Candidly arner physiologist profoundly more sophisticated than theirs and so our ability to ultimate earn people's confidence in that is is very high and then to look longer term about hey, we're gonna lay the foundation and then translate the information out of <unk>. I think are two key factors of really bringing over a sophisticated group and so we're seeing that.
Real time in the northwest we're seeing it real time in the in the middle part of the country Chicago's Ah Ah Ah starting to bulk up and and so we're seeing a lot of different areas, where there's a low level of sophistication that we haven't and enjoyed previously.
Thank you appreciate it.
The next question comes from the lineup, Jason West turn loose capital.
Alright, Michigan the questions just a quick complication in terms of your fourth quarter outlook I assume there is still some COVID-19 impact assumed in there I think you said volumes aren't quite up to speed you assume.
I don't know how much quantitation you'd give on what you think the impact might be N. B do you is there into the expectation that by year, and we can resume kind of normal volume levels.
Jason.
I think I guess like say a couple of things one just in terms of context, we know COVID-19 still out there you know still hotspots in northwest a little bit in the southwest in the middle of the country still we also know that staffing challenges.
Continue to be a.
You know kind of come over from doing traditional lateral.
The challenge has been with laterally positioned surgery is that we never really got much above 20% of the surgeons applying that technique and so what we're seeing is the very thing that we'd hoped for which is a lot of the guys didn't.
In essence do lateral surgery because one.
A lot of them typically believe that you want to do a directed decompression and so the great part about PTP as it provides that optionality. The other one is a whole alignment thing when you're in the lateral position to align someone from a lordosis perspective is harder candidly and so the ability to have the belly hanging from a prone position really speaks to the post area approach.
And so our ability to put them in a familiar position and be able to really address.
Lordosis really.
Really address.
The direct Decompressive element, but then also placed fixation or stabilization in a very familiar position is really kind of been phenomenal and so when we look at the demographics of those people who are coming in to be trained it's not just lateral guys. It's also guys who have been traditionally posterior guy and.
And so to us that that begets kind of our interest at above above.
Above five one our access to the <unk> of guidance is readily available and that's what I think Todd you talk about when he starts to quantify the value of the marketplace. It's different than what has been historically pure lateral.
That's helpful. It does describe that's why it will last just quick question on <unk>.
I assume that the numbers that you see.
In terms of revenues are still basically the book of business that you inherited.
I guess it is just too kind of is it right to assume it's just too early to see any purchase agreements tied to Eos as opposed to outright capital sales, which is what they were doing before or are we starting to see that now and in terms of when do you think what the timeline is before we can.
Really start to see the Eos APAC.
Combination really start to take a role in placing new systems is that still like a nine to 12 months.
I guess is what I'm asking.
Yeah.
I'll, let Todd again quantify it because all screwed up.
The whole ability to.
To have influence I think was relatively immediate in and that's why we believe the market opportunity is so big is because what happens is is we've already had guys who I would tell you are kind of a tech friendly acquire then.
In individual practices and so the relevance of this technology is such that guys are in essence opening up the checkbook write the check for a unit and we've seen that a couple of times through the.
Station that goes from Oxford put the ileum, you're not gonna see that at 99% of the booths at mass and so you start with you start to realize hey, it's not just stopping it yields are not just stopping at PTP, but really a C. A good to understand that there's a sophistication that gets delivered across the way and the the things that just continue.
To inspire is.
As I mentioned in the call who has a system in a political screw perspective that delivers a percutaneous pedicle screw that's K wireless that is a a modular device that's attached to neurophysiology.
Includes delivery of a blade for tea with and I'm Gonna tell you a notebook and so what happens is they come over and they see some of these things and they're like Oh. My Gosh. This is a real deal and so the great. Part is is these opportunities provide us the ability to touch people, who he may not be touching because of the maturity of our salesforce and again enables us to drive confidence in ways that we.
Wouldn't have otherwise and so again, you know nobody jumps up and down more about P. T. P. N E OS than me, but I Gotta tell you. The further people get into our portfolio. The more impressed they are and that's important Joseph because as you as you look at the utilization of PTP, obviously loyal to approach gives you opportunity to place a space.
<unk>, but often times they do get posted your fixation and and the fact that we have the best if not one of the best or one of the best if not the best poster fixation systems out there today.
Sophisticated as Pat has talked about while we're launching.
PTP and bringing what I think is a solution that physicians are looking for.
You kind of get the credibility of and credit for delivering that solution. The ability to then hang your your poster fixation and get all of the products per procedure, but that procedure requires out of your bag.
Is higher and I think that's why it's so I think impressive that the company has launched call at 40 products over the last number of years. It really sets up nicely for us to continue to get an increase in case ASP.
As we continue to penetrate the lateral market.
Okay.
Sure. Okay. That's that's super helpful. Thanks for taking my question.
You're welcome Thanks questions I'm, sorry, the line, if Matthew O'brien from Pipers handler.
[noise] afternoon. Thanks for taking my questions <unk> can you talked about this growth and new users I don't recall the exact numbers over the last couple of quarters, but you know I've played per cent, great how does that dovetail into.
You know the growth of the business as we look into 22, it's just difficult because there's you know there's a tough COVID-19 top here to kind of figure out what you're going to look like next year. So 20 per cent growth and users here. This this quarter you know afk's, helping a little bit should we think of you guys. As you know with 25% grower again next year, you've been so you've got a tougher co.
<unk> top.
Going forward, you're making all these investments grow the top line, which is the right strategic move, but when do we start to see a little bit of that leveraged start to start to squeak out versus you know some hefty spending numbers on the SG&A side of things here in 22, sorry, 20th and likely to 22 as well like.
Yep, So I'm on the margin side, you know ultimately we what was it about 490 basis point unfavorable year over year, that's about 660 basis point impact from Es. So that's the difference between their 40% margin in our high seventies on $11 million to be used.
Revenue, that's partly offset by 170 basis points of manufacturing and an overall efficiency.
So I think that that hopefully speaks to some of that efficiency side on on our operations front, you know I think Matt longer term.
As we grow the business I think we get some tailwinds on gross margins just as our implant business grows probably gross.
Created lateral I think are our best informed to improve lateral and and and so you know I would tell you that that's such a that's such a key part of what we're doing uniquely you know the other thing is is it's interesting if you look over the kind of the history.
In spine surgery, there hasn't been companies.
That designed and developed for the specific utility of it.
And what happens is people are like gosh, that's fine. So we're just not very sophisticated well, it's not going to be sophisticated unless you design all of the elements to satisfy a specific requirement and so our ability to do those things and having done those things ultimately reflects in a a product that gets widely accepted very very early and so that's been our.
In in in our previously and I think that if you start to say gosh why are we what are we doing differently than other people are designing and developing for the specific utility of and there's great knowhow at the place where including technologies like <unk>.
Automated neurophysiology, both from a EMG and and that's S. E. P perspective. These things are very very hard and so when you start to say gosh, what are we doing with other people aren't doing as what we're doing is we're innovating based upon the requirement of creating a predictable experience and so.
October November and December and so I think we're well placed to to put guidance.
From our our our philosophical approach of you know thoughtful fully considered and put number out there that we believe we can achieve and have a reasonable opportunity to exceed.
Understood. Thanks again.
Next question that kind of line of how rose from 10 o'clock.
[noise] great. Thank you for for squeeze me and so a lot has been asked but one of the things that stood out on the call. It was it was not just the growth, but specifically the growth is coming from lateral I mean, you talked about 50 per cent of of the organic revenue growth came specifically from lateral I mean, that's you know.
Somewhere between five and $6 million.
When when we look at the Q3, so yeah I'm just trying to understand kind of that dynamic of of the strength and lateral but then also the commentary around hey, we're seeing a lot of cases moved the AFC, we're seeing a lot of cases move less complex.
So just maybe kind of frame.
The opportunity if if kobe hadn't been here. If you didn't have that 4 million dollar headwind would that five $6 million of lateral growth turned into 10 million I'm, just really trying to understand kind of your how much of this is really being driven bilateral alone.
Yeah Yeah.
I will not answer the specific numeric reflection.
Yeah.
So I I think what you're seeing is you're seeing really kind of a very positive early adoption of a technique that is going to be profoundly relevant and if you look at everybody else in terms of what they're doing yeah everybody's out there talking about you know prone lateral and and and we've already been through prone latter all.
All of our learnings in terms of failures ultimately reflected in what is now PTP and so the great parties is what we're seeing is kind of the early adoption and I think anytime someone adopt something early what they're gonna do is they're going to do something that is a gimme where will they find success and I think about things like grade one spondylolisthesis, whereby the likelihood for achievable.
<unk> high success rate is very good and so what you're seeing as you are saying kind of the early adoption. The great. Part is is those people who have been around this for a period of time, what we're seeing them do is more complex things with the technique and so the great. Part is is adult deformity is a very challenging kind of a pet.
The logic profile to treat and so when you start to think about the ability to start to move the entire column around that's going to reflect in a more sophisticated.
Lays out in the in the healthcare setting as well as as your as you're adding new surgeons to Pat's point, they're starting out with probably simpler path allergies. So.
All of that to say.
Had we seen $4 million certainly would have been more volume and I do think the hsp contribution would have been higher than 6%.
Okay. Thank.
Thank you and then just overall I mean, I think the queue for Annualizes. The actual you know the broad commercial launch of of PTP. I know you had some some alpha cases going on before that when we think about you all of the surge in education and things that you've done surgeons are up 20% here and the court or this year.
<unk> how.
How much of your user base is using PTP now.
Well.
It's a great question I would say I would say.
A fair amount.
Yeah.
And started not quantified it's one of those things, where it's like I think what compels people to come over here are things like PTP and so what happened in Canada normal cannot run of things is is they come here.
They they they see the building they see that we're serious about a long term.