Q4 2021 Alphatec Holdings Inc Earnings Call
Good afternoon, everyone and welcome to the webcast of E Teck's fourth quarter and full year 2021 financial results.
We would like to remind everyone that participants on the call. We'll make forward looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These.
These uncertainties are detailed in documents filed regularly with the SEC During this call you may hear the company refer to imported amounts which are in accordance with U S. GAAP as well as non-GAAP or pro forma measures reconciliation of non-GAAP measures to U S. GAAP can be five.
In the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors.
Leading today's call will be E checks chairman and CEO .
Myles and CFO , Todd Koning, now I'll turn the call over to Pat.
That mouse.
Thanks, So much Paul and welcome everybody to apex Q4 full year 2021 financial results.
In the call you will find some forward looking statements. So if you'd like to review that at your leisure I would invite you to do so.
The <unk> 2021 was a good year I would tell you that during a pandemic year. We grew to 243 million in total revenue, which was at 68% year over year growth rate a bunch of highlights that you'll hear about during the call. We continue to pioneer P. T P which is gone.
On exceedingly well.
It is the largest revenue growth contributor in 2021, we are we launched more than 10 products.
We closed the Eos imaging acquisition, which contributed 30 million to our full year revenue.
We opened a new headquarters, which is absolutely beautiful and increased shelves in surgeon education capacity, which is key to our effort moving forward.
We trained 400 greater than 400 surgeons, we opened up a distribution center in Memphis.
Due to the front of the foundation effort foundational building effort and close to 360 million convertible debt offering to fuel our investments in future growth and so if you look at Q4, 2021 and kind of look at the scorecard.
We had a 42% organic revenue growth, a we had 23% growth in and surgeon users.
9% growth in average revenue per case, 84% of the product's used were new.
We had a blended.
Uh huh.
Average product categories per case of two <unk>.
And it was our 13th consecutive quarter of double digit revenue growth 11 of 13 were greater than 20% and so the excitement here is really sector, leading growth in and so we have a three year organic U S revenue CAGR of 36% and so we have built one of med Tech's best grow.
Our stories and our best is yet to come there is no question about that and the reason our best is yet to come is because our focus continues on clinical distinction and so how do we best create clinical distinction, how we compel surgeon adoption and how do we continue to.
Evolve a a salesforce that keeps getting better.
So really we're going to kick off first with the whole clinical distinction scorecard and I think everybody knows who knows us as we are in pursuit of the perfect spine procedure spine still has challenges and hence a ton of opportunity and so we have released.
Approximately 40 products from 2018 through 2021, and I think that's why you see such a significant amount of revenue mm mm generated by new products, which as I said earlier is 84%. So when you start thinking about the pursuit of the perfect procedure you have to think about what's going on in.
And lateral on I think specifically in PTP and so.
I think I stated over 40% of Q4 revenue growth was was by our lateral portfolio, it's really PTP, that's driving the prowess.
Sophistication and Knowhow at APEC is unmatched. So it is unrivaled and I think it's reflective of the type of growth that we're seeing from the procedure. The great part is we're not only taking from lateral surgery. We're also building users that are conversions from cliff in Chile Vincent.
Surgeons, who like to operate on patients when they're when they're in the prone position really accommodates the surgeon transferring are coming over from having done Clifford T lift previously.
Also seeing utilization increase in complex cases, so the the volume of utility in complex deformity continues to grow as well as.
We're starting to see utility.
Utility in things like a perfect to me, which is cancer and and and some trauma utility in and that will continue to expand over time what is it one of the other things that we're super excited about it is for years minimally invasive surgery, where it was was relegated to to to the hospital and what we're seeing is we're seeing a <unk>.
60 minute 360 degree fusion in an outpatient ASC setting and so now youre seeing reconstructive minimally invasive spine surgery done in the outpatient setting and in water sales that is automated neurophysiology and more specifically what's most important.
When you do a lateral approach.
And it's not something that a nice to have it as an absolute requirement is to understand where the nerves are in the solar. So you can go through the solus and so we have the only technology that not only let you identify where the nerve is in the service. But also gives you an idea of the nerve health and so what's important is when you retracted plexus in the shows.
As you understand how you're hurting it or not and so from 2018, when we acquired save up the the technologies that we coveted was automated S. S. E piece, it's a very hard thing to do that's why very few people do it or nobody does it other than us and so we can't be more excited about it and what you see as you see there.
A reflection in the volume of surgeons, who are interested in coming out and so you can see the graph in terms of APEC surgeon training visits. It is a it is a hockey stick and I think that that is a.
That is a great lead indicator of the level of enthusiasm for the things that we're doing and so another I think clinical distinction driver really is what's going on with Eos in and wanted to give a little bit of progress on our strategic objectives are clearly you know the intention here is how do we how do we increase the volume of systems.
Placed so that what we could ultimately do as effectuate a surgery.
Pre interest post in and be able to impact the predictability associated with surgery. The real virtue here it becomes in the data collection and what we can do with that over the long term and so our enthusiasm for Eos has done nothing but grown with regard to Ah it being under the auspices of APAC and we.
Can't be more excited about it too.
Several Q4 'twenty, one highlight is $13 million in iOS related revenue.
For the for the fourth quarter established a cadence of discipline on the on the on the product development front, Eric Dashel and the team over in France are doing a great job is starting to reflect the same type of rigor that.
<unk> has existed here and is reflected in all of the different product launches over the last three years, we've accelerated deliveries and increase the size of the order book, we've we've more than two actually.
The number of capital reps as well as.
We placed a very high caliber leader and a guy by the name of Jo Walton who was the the USA CEO for met at Korea. So, it's a guy who loves the space and I think he's a great leader. He reports up through Dave Sponsel, who runs our sales force, but it can't be more excited about what's going on from a from a commercial perspective on the Eos front.
Oh, one of the things we wanted to make sure that everybody appreciated. It is really kind of the strategic value of this technology and one of the things you have to look at is what's the kind of the immediate term and then over time, how you see this thing kind of unfolding and and so the opportunity immediately is expanding the footprint and expanding you'd.
<unk> and what that does is it gives us not only hospital access but access to surgeons, who may have never seen us before and so if a certain utilizing E check product.
And maybe its partners not we have immediate access to his partner, which is which is such a such a such a value driver and then the type of surgeons, who are traditionally a coveted Eos had been deformity surgeons and so our ability to increase sales per surgeon is is significant the other thing. It does is it enables us to.
Increased sales in general when we do things like user base rebate type agreements whereby.
These guys can utilize our implants to to help offset there or to help them.
Acquire Eos unit.
And then the other thing is how do we continue to drive utilization and when you start to think about utilization rates you look at a place like HFF and we've talked about it before but they do over 90 scans a day of Oh scans a day when you start to think about the relevance of that and our opportunity to translate the relevance of the volume of scans a day it becomes exceedingly attractive.
Active and that's just a single place and then you start to think about how do you extend that clinical influence and I would tell you that win.
When when companies Wanna get upstream of the surgeon's practice, what they have to do is insert themselves in the diagnostic phase and so for us to understand from a Preop film perspective, and these guys judge themselves by their films and children get upstream with regard to the diagnosis yet in the operating room by integrating that information and the and the surgical.
<unk> into the operating room, and then to determine how did I do against my plan is so valuable and so and then to better understand the outcomes from a myriad of different ways, we believe to be a absolutely reflective of a value creating experience and so that.
The long haul of this is the value of of the data and so for us to be the mavens of of clinical data based upon our ability to understand the preop understand the intra up against our plan and then understand how close they got too it is extraordinarily valuable in the type of opportunities to monetize that.
<unk> is a virtually endless and so the other thing that I think a lot of people don't realize is just how inefficient. The operational dynamics are in our business and just the opportunity for us to to understand what the pre op what the requirements of the surgery as well preoperatively and so are a good start accustomed configure.
Not only implants, but instruments is really kind of been the Holy Grail and it's being done in some places that utilize us for total joint replacement and so these are very doable experience and so also you know, we always kind of complaining a little bit about the currency in our business being only implants, and I think that our opportunity to.
To be creative.
Created with regard to the economics and the spaces available by the type of information that Eos is providing and so.
Anyway, it can't be more excited about that and when you start to think about clinical distinction one of the other things that we we talk a lot about is just the volume of product launches that we're doing if you thought 2021, clearly a lot on the informatics front.
We're gonna start making it.
A more a larger contribution from a surgical perspective P.
P T P as in the first inning of a long game.
Clearly we've done a lot on the Invictus fronting and Youll start to see more contribution from biologics from us as we roll forward as well and so can't be more excited about what's going on from an R&D focus area perspective, I won't go through each of these but you know, but you know.
Let it be known that there's still so many opportunities to make spine surgery, better and that's what we're committed to and and we have a very sound of a perspective as to how to get that done. So one of the things. We talk a lot about is really kind of a clinical thesis like what's our clinical thesis and when you start to.
Objective you as to what your clinical thesis is it's like are they buying into what were communicating as the procedural event and so when we talk about compelling surgeon adoption, we oftentimes, we'll get the average products per case as a as a driver of of are they accepting the clinical thesis and so if.
If you look at the full year growth in average revenue per case, it's been it was 10% as we talked about before greater than 400 surgeons.
Trained in 2021 and then the expansion of the user base of 24%, but we always like to point back in terms of why we're different and I think that if you really try to align yourself with what the requirements of surgery or it's.
It's not just implants and I think that so often are the other people in the industry think that I'll bring the implants in an and and all in all really helped the surgeon. The reality becomes is that to create predictability of reproducibility oftentimes a surgeon needs more than just the implants is things like safe up which is such a <unk>.
I'm change or an Eos, which is a game changer and.
And things like our patient positioning that ultimately makes for a a a procedure.
That debt that ultimately has improved and that that's what we believe to be a real commitment to the field of of spine surgery is providing the requirements of the environment.
So.
Again looking at the adoption and looking at you know kind of the whole convoy sales thing and you look at lateral and clearly that's the leader, but a blended rate of two point out we feel like we have a long run ahead of us with regard to cause this very area of opportunity.
<unk>.
Probably the place that I'm most of them are enthusiastic today I guess to talk about is we just had our national sales meeting.
The.
Enthusiasm was palpable and it feels like its total understatement and so you know it's.
It's it's so much fun to see the sales force starting to evolve and I think some of the statistics are awesome that the growth rate clearly and in the in the strategic distribution organically.
Organically has been a phenomenal the number of sales reps trained has been phenomenal here's the statistic that I think is most important which is the revenue growth of our top 20, PTP distributors is 77% and so I think that if.
If you have any question that the PTP as a confidence creator I think.
That should say at all and so.
When you start to think of us.
We're still either on or underrepresented in a ton of different geographies.
We're at the sales meeting and we're all excited to see the the distribution force from Kansas, Arkansas, and Oregon, and nobody stood up because nobody needs there and so it's it's a it's a situation where we have I think some some great distributors in focal places around the country, but we still have such an opportunity to grow in that.
Space and do more and I think that based upon the growth rate and based upon the undercutting of enthusiasm around it.
They're they're coming.
The other thing I loved that we're doing is building a foundation for distribution in Memphis.
And so the vast majority of our cases gets supported out of Memphis.
It's it's been tend to vary.
It's reflected the very expectation that we had in terms of creating efficiencies and and so we can't be more excited about that also building the foundation for our international opportunities are forthcoming.
Forthcoming and then can't be more excited about what's going on with it with Eos and the and the and the footprint, but with that I will turn it over to Todd to review the financials, well, thanks, Pat and good afternoon everybody.
Thanks for joining us today I'll begin with revenue fourth quarter total revenue was $74 million, reflecting 68% growth over the prior year and 18% growth compared to the third quarter, our $74 million in revenue is comprised of $61 million in organic revenue and $13 million of Eos contribution fourth quarter or.
<unk> revenue of $61 million grew 42% compared to the prior year period and revenue from lateral procedures contributed over 40% growth in the quarter on the continued expansion of our lateral market share strong reception to the recently launched a lift Standalone Interbody system was also a notable contributor to growth in the quarter.
While the resurgence of COVID-19 in hospital and continue the hospital labor shortages pressured surgical procedure volumes inspiring late last year the magnitude of impact was lower in the fourth quarter than it was in the third quarter.
Our fourth quarter year over year volume growth was 30% and driven by the advancement of our sales footprint and the continued expansion of surgeon adoption with surgeon users up 23% compared to last year.
Average revenue per case grew 9% year over year as revenue mix continues to shift towards procedures that future more products per case and procedures with greater complexity.
In the fourth quarter, we recognized $13 million in Eos related revenue, reflecting strong deliveries in the quarter, the $13 million reflect pro forma growth of 42% compared to the revenue Eos recognized on a standalone basis in Q4 of 2020.
Now turning to the full year 2021, total revenue was $243 million, reflecting 68% growth compared to 2020 that is comprised of $212 million in U S organic revenue.
$30 million contribution from <unk>, and a $1 million contribution from the now terminated international supply agreement full.
Full year organic revenue growth of $212 million grew 50% compared to the prior year driven by volume growth of 37% and average revenue per case growth of 10% with.
Core business contributing over 40% of the full year revenue growth.
And we recognized $30 million of Eos related revenue for the seven month period since the transaction closed which represents growth of 42% on a pro forma basis.
Now continuing through the remainder of the P&L fourth quarter non-GAAP gross margin was 70% down 550 basis points compared to the prior year the year over year decline in gross margin was primarily due to the consolidation of Eos imaging the approximate 40% Delta between Eos is gross margin profile in the gross margin profile of our base business resulted.
And an unfavorable 680 basis point impact compared to the prior year.
That was partially offset by favorable impact of 130 basis points driven by leverage in the base business.
Operating expenses in the fourth quarter reflect continued thoughtful investment to fuel long term industry leading growth.
And our fourth quarter, non-GAAP , R&D was $8 million and approximately 10% of sales in the fourth quarter compared to $5 million of 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 as well as Eos related activity.
Our non-GAAP SG&A was $59 million and approximately 79% of sales in the fourth quarter compared to $36 million and approximately 81% of sales in the prior year period.
The increase on an absolute dollar basis was driven by continued expansion of the professional organization of the APEC distribution network surgeon training and investments required to support the increasing size and sophistication of the company.
Total non-GAAP operating expenses amounted to $66 million and approximately 90% of sales in the fourth quarter compared to $40 million and 92% of sales in the prior year period and.
And adjusted EBITDA was a loss of seven and a half million dollars compared to a loss of $4 million last year and a sequential.
Improvement from our $10 million loss in the third quarter.
Now turning to full year 2021 results non-GAAP gross margin was 73% down 390 basis points compared to the prior year, reflecting Eos mix <unk>.
non-GAAP R&D for the full year was $28 million, an approximate 11% of sales compared to $17 million and approximately 12% of sales in the prior year period.
2021, non-GAAP SG&A was $198 million and approximately 81% of sales compared to $114 million and approximately 79% of sales last year.
In total non-GAAP operating expenses for the full year 2021 amounted to $226 million and approximately 93% of sales compared to $131 million and 90% of sales in the prior year. Adjusted EBITA was a loss of $28 million for the full year compared to a loss of $10 million in 2020.
We ended the fourth quarter with $187 million in cash operating cash use was $34 million, which consistent with previous quarters was predominantly related to investments in inventory and instruments to support sales growth.
2021 overall was a year of significant investment for US was about $96 million invested in instruments inventory and capex that was related to a need to catch up on purchases that were deferred from 2020 due to pandemic related uncertainties as well as the purchases made to support 2021 procedure volume growth and what ended up being another year of pandemic related variable.
<unk>.
We expect cash used in 2022 to meaningfully improve with asset leverage and a more favorable full year adjusted EBITDA as we begin to drive leverage in the business.
That the carrying value was $336 million, which includes $316 million of convertible debt. We continue to believe that the convertible debt offering place last year will support our baseline growth plan for cash flow breakeven at a revenue run rate of approximately $5 million to $600 million in revenue.
Now turning to our outlook for the full year 2022 in line with our pre announcement in January we expect full year 2022, total revenue will approximate $305 million representing growth of 25% compared to 2021 that includes the following we expect full year 2022 organic revenue to approximate $260 million, which.
Plus growth of 23% compared to 2021, driven by the impact of clinical distinction on surgeon adoption and the elevation of our strategic sales network.
We expect Eos related revenue of approximately $45 million for the full year 2022, and continue to be pleased with the strength of the kyocera systems placed the progress being made with the ongoing integration and the strength of our order book.
Now I'd like to frame APEC organic growth by sharing some context about its underlying components, namely the growth of procedure volumes and average revenue per surgery.
You can see from the chart on the left side of this slide the procedure volumes have increased at a significant pace since the training business began back in 2018. The expansion of surgeon adoption has been essential to that growth now over the years, we've leveraged the APAC organic innovation machine to create clinically distinct portfolio and rapidly.
Train surgeons to utilize our unique procedure lives technology, both of which are fueling procedure volume growth the.
The increased penetration and expansion of our geographic footprint in the U S is also contributing meaningfully.
And the chart on the right of the slide demonstrates growth in average revenue per surgery, which also has increased at a healthy clip over the years.
Average revenue per surgery grows as our procedural mix shifts towards procedures like PTP and L. T. L. T P, which have higher revenue per procedure than our overall average. Additionally, our procedural solutions are being utilized in procedures with greater complexity like multilevel degenerative deformity cases, which require more products per surgery and in turn generate.
Asps and.
And finally, the level of distinction engineered into APAC approaches and the cadence of new products launched generally enable us to command a price premium another continuing driver of growth in average revenue per surgery.
And so when we set external revenue expectations, we take a bottoms up approach modeling the anticipated growth of the business in a variety of ways, our expectations for procedural volume growth and the expansion of average revenue per surgery are central to that math.
And in the 2021 procedure volumes expanded to about 26000 cases, the factors I've just shared give us confidence in our ability to grow that number at a mid teens percent rate.
Average revenue per case in 2020 , one was approximately $8200 and our guidance contemplates a expanding at a mid single digit percent rate in 2022.
As many of you know our guidance philosophy is to be thoughtful and prudent about how we set expectations by putting numbers out there that we believe we can achieve and have a reasonable opportunity to exceed and we felt sharing this level of detail and context will help connect the multiple drivers fueling our growth to how they impact volume and revenue per case.
So in closing 2021 marks an epic milestone we achieved the highest revenue ever recorded for a tech company that went public 16 years ago in 2006, we.
We delivered total revenue growth of 68% in 2021, which includes U S organic growth of 50% that isn't just industry leading growth. It is growth that puts APEC in the upper echelon of the med Tech sector. While we are proud of our accomplishments. We are even we are even more motivated by the opportunity to continue delivering sector, leading growth well begin.
The walk towards cash flow breakeven our commitment to revolutionizing the approach to spine surgery has created a durable growth story that will continue to create value in the decade to come with that I'll turn the call back over to Pat.
Great stuff that thanks, so much and that's the reality is so much of this becomes about the creation of confidence in the creation of content comes when things go right and PTP things are going right and so what we're doing it is is we're taking share of a large market and we're expanding the market.
By converting over traditional T lift.
Surgeons, we're also increasingly the complexity of cases.
And also doing outpatient reconstructive spine surgery and in in 60 minutes period. So it's it's a I think PTP is a mis category killer and then when you create confidence what happens is there's a halo effect on the other portfolio elements that are our best in class by the organic innovation machine.
You do that well and you attract a better and better U S distribution in and we have a lot of room to grow within that group and so we can't be more excited about what's going on there and then you start to think about expanding internationally and you say gosh, how do we how do we do this in a way that ultimately is is.
Focal and deep.
And so in the coming years Youre going to see a contribution from our international efforts that are that will be a valuable contributor to both the top and the bottom and so.
And then lastly, I think.
Don't underestimate the.
<unk> opportunity our opportunity to access hospitals and surgeons that we haven't had before our ability to translate that information and our ability to to evolve.
Evolve the industry based upon the debtor is yes is.
Out in front of us and so.
We believe the decade belonged to APAC and we loved the quote by Bill Gates, who says most people overestimate what happens in two years and underestimate what happens in turn we're in this thing for the long haul and in it to win it. So I feel like we're just getting started with that.
I want to make sure and announced it that you are invited to the 2022, a tech investor day in beautiful Carlsbad, California at our headquarters, where you'll see some management presentation facility to our Q&A, a surgeon panel PTP demonstration and an Eos demonstration you can sign up on our website.
So with that we will close and take questions.
We will now begin we will now open the floor for questions and the interest of time, please limit yourself to one question.
The first question comes from Brooks O'neil with Lake Street Capital. Your line is open.
Hey, guys. Congratulations on a great year, the progress Youre, making I don't understand why you're not going to have this.
Bester day in Minneapolis, Minnesota this year.
[laughter].
Well, let me let me just ask you.
Obviously tremendous success with PTP and it sounds like procedural innovation in spine is really working for <unk> Tec can we expect.
Any additional new procedures in 2022 or beyond or do you think you've laid out the areas that are most impactful for you guys and thanks a lot.
Yeah. Thanks, Thanks, a lot Brooks and.
Yes spine spine surgery.
Is.
It's still not yet predictable in the hands of the masses, which really avails itself to a.
So many opportunities and we even think there's opportunity.
The vast majority of surgery is is what would be considered L. Florida S. One and and there's there's few things better than analyst at L. Five S. One and so our ability to ultimately effectuate anterior column surgery from L. Florida S. One.
<unk> is so apparent to us and so that'll be really kind of the next significant foray into procedure realization, but but also even even things like.
Media wise approaches from the back end and Theres, a myriad of opportunities cervical theres still opportunity to procedure wise and so there's a myriad of opportunities and I think that you know.
The challenge has always been that the industry is only invested in implant and then the suggest that they are aligned with with the surgeon I think it is a it's a misnomer and so our ability to align with the surgeons based upon assembling the goods necessary. So what they can do is think hey, this patient needs. This intervention and here's a procedure intervening with.
Is it is a tremendous opportunity so what youll see immediately as more anterior column stuff from a threat lumbar spine perspective, but youre going to see surgical stuff over time.
Sorry for the long with that.
No that's great.
The next question comes from Matthew O'brien with Piper Sandler Your line is open.
Afternoon. Thanks for taking my question can you talk a little bit more about the PTP growth that you saw in Q4 and what's contemplated for.
'twenty two because what really got my attention I know theres plenty of share for us still to take but you know.
Doing less invasive surgery and getting into the pillar and to lift cases seems like a humongous opportunity that's never really materialized. So when you're starting to talk about some of those cases moving over that really gets my attention because the market opportunity. There is still enormous so talk about again the growth that you saw in Q4, what's contemplated in 'twenty two and then.
That progression that youre, making into pillar and keyless. Thank you.
Yeah, Thanks, Matt Yeah.
The what we're seeing it is.
When you have 400 surgeons come for training or more than that come.
Come into the the new building for training I think it suggests an enthusiasm for a technique and so as you know this business is a bit of a lag you know it's one of those things where it's like the guys in Q1, and Q2 start to ramp up too.
Heck of a lot more procedures in Q3, and Q4 and so you know the.
They'll go back they'll look for the simplest patient they could do to kind of get their arms around the procedure. We will do a few of those and then what Youll see is youll start to see the reflection in Q4 in Q1, and so there's always a lag and so I would tell you, though that we're starting to see kind of the guys in Q1 and Q2 start to do procedures and so if you think.
We launched this thing back in late Q4 of 'twenty that the guys in Q1 and Q2 are now on a ramp the guys in Q3 and Q4 have you have yet to even started the ramp you gotta be bullish about the procedure and so what one of the things that we the very team here.
Here we.
The guys, who created the marketplace for lateral surgery down the block and one of the most difficult questions to answer for a surgeon was hey, if I have to directly decompress this patient.
Am I going to do it in the lateral position.
And then if I have to place pedicle screws I don't want to do it in a position with which I'm unfamiliar and so what happened is a lot of the cliff and T lift guys kind of steered clear of the technique and so what we're finding now is is when guys come into the office, it's not only kind of the lateral types that loves the all of the benefits of lateral spine.
But it's also the guys who were really kind of stuck on the whole hey, I want to operate on the patient laying on their belly.
And I want all of the virtues associated with not only can we indirectly decompress like we did laterally before but I can directly decompress the patients such that I know when they leave the or I are fully decompressive patient and so I think that becomes a big part of why a T live in a cliff surgeon it started that come over and it's been fun to look at the demographics of those guys.
Training and Youre seeing it.
Initially, mostly lateral guys and now more and more pleasant T lift guys are coming forth.
The next question comes from Joshua Jennings with Cowen Your line is open.
Hi, good afternoon, and thanks for taking the questions.
Great ended the year, we'd look to to see just to hear more pad about your your vision.
Migration of spine surgeries into a season clearly.
Teck is well positioned as you describe.
I Wonder if you could share sort of percentage of.
Of revenues right Tech in ASC today, we're assuming it's still very very early innings.
And then just how do you see just the industry.
Evolving in this migration occurring.
I assume some naysayers and industry that don't see the IC was a big opportunity in spine.
Maybe the pandemic with this move towards same day discharge user overnight stays as it is when the catalog is a faster migration.
Couple of questions here I apologize one topic. So thanks, thanks again.
No Josh.
Got it.
<unk> been at this since 1995 and I remember years ago. When I was a sophomore danek, we released a minimally invasive discectomy device.
And we thought that that would overtake outpatient spine surgery, and so I think the frustration with the topic as it is as much as there's not been a solution that is so so meaningful from a clinical perspective, and that's why I think that the whole reconstructive element of reco lumbar surgery.
Is ultimately whats going to demonstrate the most benefit like a little decompression and outpatient surgery doesn't make for a much of a difference when you start reconstructing people and doing it predictably over and over and over and over I think it makes a huge deal and I think your point with regard to the pandemic driving that dynamic I think is exactly the case so what.
And I think that we and industry get consumed with packaging or with.
Sterile pack goods are going to be what ultimately drives less invasive or not less invasive.
C or outpatient surgery when the reality is it can I do something that's very meaningful from a clinical perspective for a patient and that's where I feel like the whole PTP thing has really been.
Attractive and so when you look at a.
A single level.
Spondylolisthesis the number one reason why someone gets operated on in spine surgery now can be done in an outpatient setting I think you're starting to think that cash the relevant associated with the intervention be gets an opportunity to do it in a in another site of service and that other side of service clearly is is the ASC I got to say.
I believe at some point adjacent level surgery spondylolisthesis.
Grade one and grade two will be done in an ASC and and I think the economics support that I think that the clinical element, which is going to be most important clinical always first the economics chase it will be oh, it will be how things go so anyway, sorry to be long winded, but I think that your point is everybody's waiting not a surgery or honest.
And I predict that predictable experience to ultimately have that start to show and I think the pandemic has been a driver of that.
The next question comes from Mathew Blackman with Stifel. Your line is open.
Good afternoon patent Todd Thanks for taking my question I'll just go with the boiler plate question about about one queue.
I assume January was challenging just just curious what youre seeing in the first quarter and maybe the best way to frame. It is are you guys comfortable with where consensus is in the first quarter, something like 66 or $67 million.
Yeah. Thanks, Matt you know I think as.
Probably most most people who've reported now I've kind of talked about how I'm a crown showed up kind of mid December 2nd half of December began getting tough in <unk>.
And January was certainly more difficult than December .
As we kind of looked at it and as we've been looking at kind of average daily sales are kind of week by week.
It it got better it's been getting better through January and through February .
And so ultimately I think January was better than February and we feel like the second half of February February was better than the first half and so.
It's trending in the right direction, which is good.
The first call I think to your point $65 66, and we're feeling feeling feel comfortable with that in terms of where that's at and so you know.
I think at the end of the day.
We're going to work through the pandemic. We had you know we've talked about this on the full year, we had the pandemic in 2021, we're going to have some pandemic in 2022.
Our our kind of fundamental assumption on the full year guide is ultimately that.
You got to deal with it when it shows up I don't know, but our assumption it is going to kind of be a net neutral and so growth rates overall in the full year should should look.
Real and in a sense.
Alright I appreciate it thank you.
Youre welcome.
The next question comes from Kyle Rose with Canaccord. Your line is open.
Good afternoon, everyone I'm wondering if we could talk a little bit more just about Eos.
Maybe what youre seeing as far as the commercial model evolves. When we think about guidance. This year, how much of that is capital versus maybe more of a recurring or service based revenue to just kind of help us understand what the puts and takes of of that business should look like in 2022. Thank you.
Yeah.
Okay.
I guess.
What it looks like is is that.
We have an absolute mirror of the implant.
Sales management and the Eos sales management.
One of the things that was exciting tile is is just watching the teams come together at our sales meeting and looking at a very integrated approach to to both organizations and so to me when you start to look at at and integration and you see these these groups.
Getting together and then you look at things like.
A a user base rebate type of agreement to ultimately drive.
<unk> placements.
And then and then utilization getting driven by the implant forced because now they have access to people, whom they haven't had access to before and then you get access to hospitals.
Is it an example, if theres a bonds of course, I think it's like a 15 or more hospital 20 Hospital group that.
We didn't have any access to we sold them in Eos and now we have full access to all 24 hospitals and.
So it's things like that that give us great enthusiasm with regard to the integration of the two groups and so not only the placements which were bullish on and the and the funnel looks great. But also in the relevance of once they get placed our access from an implant perspective, which is a part of what we negotiate with every.
Placement that we make we also negotiate access to data and so what we're doing is putting a lot of effort into a high trust environment from an it perspective, such that what we can do is start to really be.
Data mavens with regard to the all the imaging that comes out of the.
Of Eos and so the opportunities are almost endless, but probably evaded your question I'll, let Todd jump in on the number of placements and how we ultimately look at the demographics of the sales, but I guess I just wanted to make sure that it's so important that people understand the the value that a eos provides and I think that that oftentimes.
It's like what are you guys doing in the in the imaging business and I got to tell you I'm thrilled to death, we are.
And Kyle you know when I think your question was what percentage of the $45 million is recurring and about a third of it is on a full year basis and so.
You can kind of think about one third of that being recurring in two thirds of that being related to placements.
And just in terms of how you should think about that kind of over the course of the year. When you look at the historical Eos experience in terms of revenue recognition when those placements happened about about 36% of revenue has historically been placed in the first half of the year and 64% is replaced in the second half of the year and so.
We don't have any reason to think that this year, but any difference that's kind of how we're thinking about the timing.
The demographic of that.
The next question comes from David Saxon with Needham Your line is now moving.
Yes, hi, good afternoon, and thanks for taking my question.
Just wanted to follow up on an Eos you mentioned these kind of volume based agreements.
The Eos placements and obviously, we've seen that with other companies, but for for APAC is this predominantly a U H U S arrangement, just given that Globus international reach.
A restriction or are you seeing that internationally and then any metrics or color you can share about how we should think about the magnitude of that benefit.
From those volume based agreements thanks for taking the question.
Yeah, Yeah, I think thanks.
Thanks, so much.
When you look at the demographics of our of.
Of our sales.
Of the you know we had I think was it a $1 million last year of international sales, Yes, we are.
We have no footprint implant wise internationally and so the reality is is this is a domestic program by default and and so we feel like there's there's there's a ton of opportunity to do these types of things. The great thing is Tod Tod mentioned this in years past.
At that previous place.
We we designed and developed.
A anterior program and not a post to your programming and much of the interest in terms of the kind of the original iOS group. It is in post your fixation and so when you have the type of system like in Invictus, the ability to attract people to utilize our poster fixation system as a offset to the <unk>.
Expense on an ecosystem is super valuable and so that's kind of been the focus of concentration is again, creating confidence with a system that has done exceedingly well.
And so you have a sophisticated bunch of surgeons utilizing.
The this system and what it's done is create the level of confidence for us to expand in and really create the halo. So you want to.
David and I think in terms of how we think about the pull through I think the.
The most meaningful impact of Eos. This year is really going to be as Pat kind of talked about gaining access to facilities that they wouldn't have had access to before ultimately.
That's kind of contemplated within our guidance.
And then you know as as we work with each individual customer on figuring out how do they want how do they want to purchase and ultimately finance.
The placements of their Eos some of those will do do capital sales some of them will lease them and some of them will kind of.
Avail themselves of the they use based rebate. So I think it's going to be a mixture and ultimately.
The net upside as contemplated in our guidance.
Great. Thank you.
The next question is from the line of Phil Coover with Goldman Sachs. Your line is open.
Alright, thanks, so much for taking my question.
We've seen a myriad of different guidance philosophies from different med Tech companies. This year I think it's pretty clear.
Actually from the bottoms up analysis to target that.
Guys have a ton of confidence in the micro and what what's within your control already touched on COVID-19 expectations for the year a bit but I was hoping you could touch on a few others.
Staffing situation and the impact that's contemplated both in <unk> and for the year as well as any impacts from supply chain.
Componentry other parts that could inhibit your growth profile. So thanks, so much for taking the question.
Youre welcome.
So thanks for the question and I think what.
I guess, what I'd say just in terms of my commentary earlier on Covid really was both kind of the viral impact as well as the hospital staffing impact combined and so our expectation is that we had COVID-19 .
In 2021, and the same order of magnitude will hit US here in 2022, now whether that takes the form of more staffing shortage, feeling or or kind of the the virus impact on patient flows.
I don't know that I can comment on how that split is going to shake out but in aggregate, we see those things working in tandem in order magnitude being the same this year as it was last year.
And so I think that's that's kind of the Covid commentary in terms of how we think about the one two I think I shared.
Earlier, how the sales have kind of.
Progressed throughout the quarter and we shared earlier that we're feeling like the first call is a reasonable place to be feeling comfortable with that and so I think you can draw your conclusions there and then I think finally on on the supply chain side, well, while we'll certainly have have some.
Some some challenges there.
They haven't really been of the order of magnitude gotten in the way of us getting anything done to the extent that we know we need to and so.
Good job of mitigating and managing and working through those.
Okay fair enough. Thanks for all the color.
Youre welcome.
Yeah.
The next question comes from Jason Wittes with loop capital. Your line is open.
Hi, Thanks for taking the questions just two related to Eos one how should we think about the gross margin for that business and to Pat you had mentioned theres a lot of data sharing going on.
Where are we now in terms of what data is being shared and sort of what's the medium and longer term vision in terms of what kind of data.
That'll grow into.
I'll, let Todd jump on the gross margin, but I'll go ahead and start with the second one first.
I would say the data sharing is in its infancy, but the opportunity is massive and I think that's why we're committing so much effort to kind of the high trusted environment and so.
When you start to think about the opportunities.
Two to share imaging data and you match that with with a patient reported outcomes measures.
And then you start to group like patients.
He talks about the opportunity to to.
To provide analytics of sorts and this foundational he does and so we think of it as a clinical a operational and economic opportunity and so to be able to have a data rich environment that ultimately aggregates. This data and then to be able to again.
Our near neighbour them, meaning what is it like types of pathologies look like types of patients and start to understand complications profiles and the like and start to understand how someone should be realigned and what their bone quality is is such a profound opportunity from a data collection perspective, and then to understand what the requirements of surgery based upon having.
Kind of the preoperative plan generated here and they understand what needs to go can we start to take dollars out of the shipment based upon an understanding of exactly what's required we have a high expectation that you can and candidly. We know you can and so just our ability to start to customize the configuration that serves the <unk>.
Interest of our respective procedure to start to understand what specifically that patient needs and what the expectations are associated with them brings you to an economic opportunity that we think is exciting and so on.
In the Super early stages of this but as we said you know it's kind of the virtue of being interested in in the long haul and 11, the environment that you're serving and so we love spine, where to put a long haul and won't be the guy that ultimately I'll put this information.
And Jason as it relates to gross margin the Eos gross margins and kind of the mid to high thirty's kind of bounces around a little bit.
And Theres a couple of factors there one factor is the mix.
The mix of <unk>.
<unk> revenues are the O U S revenues many of those are.
Distribution agreements and so ultimately.
They're bearing a lower gross margin for us. So I think historically, that's been a reasonable percentage of total revenue we've placed our our incremental resource our investments here in the U S, where we have a higher ASP and ultimately a higher gross margin. So I think ultimately we will see some tailwind with that.
And and I think that'll be a driver of gross margin tailwind in the Eos space.
Yeah.
Thanks.
Your last question comes from Sean Lee with H C. Wainwright Your line is open.
Good afternoon, Pat and Todd and thank you for taking my question.
Maybe.
In the prepared remarks, you guys mentioned, our plans to expand internationally. So could you provide a little color on your thoughts on maybe what products or which geographies you liked the target first and also how does U S playing into that.
Yeah, It's a it's something that we're super excited about and so excited because ultimately we're gonna be very focal and so literally.
The countries of significant interest out of the gates are new Z, New Zealand, Australia, Japan, the UK and then maybe at some point, the South America, but but our interest is really to jump into countries, whereby we could have the effect of the same kind of shared Eos implant.
Strategy as we have in North America, and so there's so many kind of like minded approach to surgery in the countries that I named and we feel like the opportunity to enter those marketplaces very aggressively such that we get the same type of a uptake.
Is kind of the best place to utilize our time and resources. So that's the thinking yeah totally and I think Sean the for me. The differentiation here is we're fully committed to these.
Limited International markets.
And we're gonna bring are our best to those markets and I think oftentimes, there's a stratification of of what products and lifecycle you bring to different markets.
We want everybody to have the best offering that we have to offer and so we believe one that is the right thing to do for patients and clinicians to we also believe that that's ultimately how youre going to build a sustainable business because we're going to go in these markets direct.
And so ultimately you get a commitment to the clinical requirements of the procedure through neuro Fizzing particular, and so ultimately we think that's the best way to build a large scalable business as fast as possible.
Thanks that was helpful.
And that concludes the question and answer session I will now turn the call back to Pat miles for closing remarks.
Yeah, just wanted to say that we can't be more excited about what's going on in it for the long haul and we greatly appreciate everybody's interest in in a tick. So thanks so much.
This concludes today's webcast. Thank you for participating you may now disconnect.
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