Q4 2022 Alphatec Holdings Inc Earnings Call
Speaker 1: The P.
Speaker 2: Good afternoon everyone and welcome to the webcast of ATEC's fourth quarter financial results. We would like to remind everyone that participants on the call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call you may hear the company refer to non-GAAP or pro forma measures.
Speaker 2: I do apologize. Reconciliations of non-GAAP measures to US GAAP can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. Joining today's call will be ATEC's Chairman and CEO Pat Miles and CFO Todd Conning. Now I will turn the call over to Pat Miles. Thank you, Angela, and welcome everybody to the Q4 2022 ATEC conference call. We will be providing some forward-looking statements, so please review that at your leisure.
Speaker 3: Our momentum by revolutionizing the approach to spine surgery continues. Our finish for 2022 was 351 million. We grew 44 percent over four years. We've grown at least 25 percent each year and had a 40 percent four-year taker. That comes via a year where we launched 10 new products, including our first expandable implant. We expanded lateral procedural sophistication with PTP and LTP, which includes a midline ALIF. We drove $48 million in EOS revenue, trained greater than 500 surgeons, achieved greater than 20 percent growth in surgeon users, and increased our access to cash and liquidity to approximately $275 million. I believe much of our value creation is unlocked by our culture. So it is worthwhile describing who we are and who we're not. I would say who we are is a winning culture focused solely on spine surgery, committed to moving the field of spine forward through informatic and procedural innovation.
Speaker 3: So who are we not? I would say we're not a division of a division. We're not a congometer acquiring growth and disinterested in furthering technology or an implant only transaction uncommitted to the full clinical experience. Our commitments haven't changed. We focus exclusively on spine, fulfilling unmet clinical needs through integrating technology to create predictability. That we call creating clinical distinction. And so when we create clinical distinction, we believe that we compel surgeon adoption. When we compel surgeon adoption, we believe we have access to a more effective sales force and an expanding sales force. So our clinical distinction view is different. Our 100% spine focus allows us to invest in procedural technology that furthers the predictability of spine surgery. Around here, we have the propensity to make up words, like proceduralization. At the heart of our proceduralization is lateral.
Speaker 3: We like to say more distinctions you draw to a subject, you're more sophisticated. Lateral is a place of great sophistication at A-Tech. Why would it not be? The gang who pioneered it is here. What makes a procedure predictable is removing variables. That requires designing from the ground up and applying technology where it is most required. To be successful in lateral surgery, you must not only have automated EMGs, but also automated SSEPs. It only makes sense when you start to think about lateral spine surgery. What exists between the skin and the spine from lateral is soft tissue. A key part of that soft tissue is the lumbar plexus. The number one complication potential in lateral surgery is injury to the lumbar plexus. So it's a requirement to have a
Speaker 3: Automated EMGs to know where the nerve is, and automated SSEPs. We are the only company with those two technologies combined in a workflow that makes the information actionable. So we believe that actual information drives improved clinical decision making. Our view additionally is that experience should not stop with lateral. It is really the reason behind the informatics ecosystem that we are building. In that system is a standard. No other company has a front to back standard from which to build. Our opportunity to affect the operative experience through information starts with EOS. Bringing that information from pre-op to plan into the operating room is really key. Judging the plan in real time in the operating room against the same image post-op is the foundation for predictive analytics.
Speaker 3: and that won't slow our efforts with regard to continuing to refine our neurophysiology platform.
Speaker 3: So having an automated alignment report based against the pre-operative plan and understanding the interoperative reconciliation is really the foundation for how the analytics will begin. So our analytics will only be patient related but they're also be operational related.
Speaker 3: having an automated alignment report based against the preoperative plan and understanding the interoperative reconciliation is really the foundation for how the analytics will begin. So our analytics will only be patient related, but they'll also be operational related. And so we feel like that.
Speaker 3: in looking forward, the opportunity to provide these analytics is really in its inception. And so the opportunity to go ahead and understand what type of release will be required in the spine. I think so often people require or rely upon implants to do the job of alignment, but it would be valuable to ultimately have the understanding as to what needs to be achieved not only from a surgical perspective, but from a building of lordosis perspective.
Speaker 3: Not only will we utilize the analytics to drive our engagement in specific alignment, but also the opportunity to continue to build procedural elements beyond the core elements of the procedure. So for instance, we will have corpectomy for both lateral as well as PTP, lateral transosis as well as PTP, as well as we will expand the offering in the cervical realm. So we believe that creating distinction compels surgeon adoption. As you can see, we've increased surgeon adoption by 22%.
Speaker 3: growth over previous year. There's more products per category at 2.3 and we train more than 500 search. There is clear interest in what we're building here at 8 days. Additionally, the procedural thesis is working. More products per procedure reflects more surgeon buy-in. You can see we've gone from 1.5 in 2018 to 2.2 in 2022. We will be rewarded for our spine-only focus. Imagine if you're a surgeon or a salesperson who is committed their entire career to spine. Would you not want to deal with a company that has done the same? Our effort with regard to distribution is all focused on expanding the footprint. Strategically filling in gaps and compelling disurgen users. We are a less than 5% shareholder at this point. Our opportunity is endless. So additionally, one of the things that you want to know is are we growing into the awareness of adding people.
Speaker 3: And the great reflection here is that in those people who have been with us for a period of time, their growth is in the 46% range of year-over-year revenue growth. And so that gives us great confidence in terms of we're growing in the established territories as well as we're growing with regard to adding individuals. And so our real focus here is increasing the contribution from the existing team and making sure that the clinical attitude continues to increase in the operating. Thank you.
Speaker 3: So we have a lot of work to do as we are focused and committed to distinguish ourselves by serving the requirements of spine surgery over the long haul. So can't be more excited about where we are right now, but we have a heck of a big future in front of us and with that I'll turn it over to Todd. Thanks, Pat and good afternoon everybody. We appreciate you joining us on the call today. I'll begin with revenue. Fourth quarter total revenue was 106 million dollars reflecting 43% growth over the prior year and an 18% increase compared to the third quarter. 106 million dollars in revenue is comprised of 91 million dollars in surgical revenue and 15 million dollars of EOS revenue which grew 14% over prior year. Fourth quarter surgical revenue of 91 million dollars increased 49% compared to the prior year.
Speaker 4: Procedural volume grew 26% in the fourth quarter with an average revenue per case expanding 18% year over year as revenue mix continues to shift towards procedures with more products per case and greater complexity. The average revenue per lateral procedure is about two times our overall average and lateral related revenue continues to grow meaningfully faster than surgical revenue overall. And while lateral related revenue contributes the most to growth, revenue related to ALIF and biologics also continue to grow solidly in the quarter. Turning to the full year 2022, total revenue was 351 million dollars reflecting 44% growth compared to 2021. That is comprised of 303 million dollars in surgical revenue and 48 million dollars of EOS revenue. Full year surgical revenue grew 43% compared to the prior year driven by volume growth of 25% and average revenue per case growth of 14%.
Speaker 4: Posting over 500 surgeon training events in 2022 fueled surgeon adoption and drove a 22% year-over-year increase in the number of surgeon users. As newly trained surgeons become increasingly familiar with ATAC clinical distinction and partner with us both for more cases and for more complex cases, utilization is also growing. Walking through the remainder of the P&L, fourth quarter non-gathrose margin was 69%, on 120 basis points compared to the prior year. The pressure was attributable to increased EOS service costs as we continued to address the backlog of service needs created during the pandemic and an increase in our biologics attach rate, which features a meaningfully lower gross margin than our overall business.
Speaker 4: As we begin the anniversary of these impacts in 2023, we expect gross margin to improve on a full-year basis. Fourth quarter, non-GAAP R&D was $11 million and approximately 10 percent of sales, compared to $8 million and 10 percent of sales in the prior year. The increase on an absolute dollar basis was driven by continued investment to organically expand our product portfolio and advance the EOS platform. Our EOS GAAP SG&A was $74 million and approximately 70 percent of sales in the fourth quarter, compared to $59 million and 79 percent of sales in the prior year period. We delivered 940 basis points of improvement. Consistent with our long-range plan, leverage of our SG&A infrastructure delivered about 70 percent of that improvement.
Speaker 4: with a reduction in variable selling costs attributable for the balance. Total non-GAAP operating expenses amounted to $85 million and approximately 80% of sales in the fourth quarter, compared to $66 million and 90% of sales in the prior year period, demonstrating 970 basis points of operating leverage year over year. Adjusted EBITDA was a loss of $2.8 million and approximately 3% of sales in the fourth quarter, compared to an $8 million loss and a negative 10% of sales in the prior year. The 750 basis point improvement as a percent of sales was driven by operating expense leverage, which is partially offset by gross margin. Sequentially, Adjusted EBITDA improved $3 million and a revenue step up of $16 million.
Speaker 4: resulting in 420 basis points of improvement sequentially, and an indication of the leverage we can deliver as our business scales. Turning to full year 2022 results, non-GAAP gross margin was 70%, down 250 basis points compared to the prior year. non-GAAP R&D for the full year was $39 million and approximately 11% of sales compared to $28 million, an improvement of 40 basis points compared to the prior year. 2022 non-GAAP SG&A was $267 million and approximately 76% of sales compared to $198 million, an improvement of 510 basis points compared to the prior year. non-GAAP operating expense was $3.5 million.
Speaker 4: For the full year, amounted to $306 million and approximately 87% of sales, compared to $226 million, an improvement of 550 basis points compared to the prior year period.
Speaker 4: 2022 adjusted VBDAB was a loss of $28 million and approximately 8%, a negative 8% of sales, an improvement of 360 basis points compared to full year 2021. We ended the fourth quarter with $85 million in cash.
Speaker 4: Year-end debt at carrying value was $364 million, which included $316 million of the convertible debt and a drawdown of $35 million from the revolving credits.
Speaker 4: With the improvement in adjusted EBITDA, operating cash use improved relative to last quarter and totaled $22 million. We expect full year 2023 cash use to meaningfully improve relative to 2022 as adjusted EBITDA improves, consistent with our long-term plan. In January , we entered into an agreement with Braidwell securing a non-dilutive debt facility. With the new debt facility and the revolver, we now have cash and access to capital of up to $275 million. This provides us flexibility to invest further in instrument sets.
Speaker 4: approximately 26% and $383 million, and EOS revenue of approximately $55 million.
Speaker 4: As sales growth drives leverage across our business, we continue to expect to achieve adjusted EBITDA breakeven for the full year 2023 by delivering 800 basis points of expansion. Now keep in mind that Q1 revenue is typically seasonally lower than Q4, and even with the 800 basis points of margin expansion, adjusted EBITDA would also be lower than Q4, sequentially.
Speaker 4: We anticipate delivering positive adjusted EBITDA beginning in the third quarter of 2023, which positions us well to achieve the profitability and free cash flow goals in our long-range plan. Now, the next few slides provide additional context for our 2023 guidance. I'll start by sharing how our expectations for procedural volume growth and the expansion of average revenue for surgery shapes surgical revenue guidance. We will continue to train surgeons at a robust rate, which drives both surgeon adoption and utilization. Training surgeons builds loyalty and enables surgeons to work up the procedural complexity curve.
Speaker 4: both of which increase utilization. The middle chart is a testament to the consistent ramp and utilization that our surgeon cohorts have demonstrated each year. We expect these dynamics to fuel mid teens percent procedure volume growth for the full year, 2023. Average revenue per surgery grows as our mix shift towards procedures that require more products for surgery like PTP and LTP and towards surgeries with greater complexity, all of which feature higher revenue per procedure than our overall average. The gradual addition of expandable implants to our portfolio and increasing biologics attach rate are also enabling us to capture more of each procedural revenue opportunity. We expect these dynamics to drive growth and average revenue per surgery at a high single digit percent rate for the full year, 2023. Turning to EOS, we anticipate approximately $55 million
Speaker 4: 810 basis points of adjusted DBA-DEL leverage delivered in the second half of 2022 gives us confidence in the continued progress that guidance implies for 2023. And the margin expansion we saw in the second half of 2022 was driven by SG&A infrastructure leverage as investments we made began to scale. And that dynamic will continue to play out in coming years, coupled with the benefits of an improving variable expense profile. And we saw in the second half of 2022, 60 to 70 percent of operating expense leverage will come from...
Speaker 4: And that question has been answered as we've delivered a 40% compounded annual growth rate over the past four years.
Speaker 4: Now, we've entered the next phase of our company's growth, where we are beginning to deliver a return on the investments we've made. As a result of this operating leverage, we expect to achieve adjusted EBITDA breakeven in 2023, which will improve our cash use as we walk towards cash flow breakeven in 2025. Clearly, the wheels of the growth story are in motion, and the momentum behind what we are doing is strong.
Speaker 3: Now it is up to our team to continue to seize the opportunities in front of us and execute. It's my hope that our financial performance thus far has earned your confidence. This is a team that is serious about delivering on our commitments. And with that, I'll turn the call back over to Pat. Thanks much, Todd. I think what you'll find is our share earning strategy will not change. We will continue to garner value out of the investments that we made in procedures like PTP and LTP. What you will see is an expanding complexity of the type of pathologies that we will address through these different procedures. The investments have been made. Now the opportunity to exploit those investments is before us.
Speaker 3: Now it is up to our team to continue to seize the opportunities in front of us and execute. It's my hope that our financial performance thus far has earned your confidence. This is a team that is serious about delivering on our commitments. And with that, I'll turn the call back over to Pat. Thanks much, Todd. I think what you'll find is our share earning strategy will not change. We will continue to garner value out of the investments that we made in procedures like PTP and LTP. What you will see is an expanding complexity of the type of pathologies that we will address through these different procedures. The investments have been made. Now the opportunity to exploit those investments is before us. That effort will continue.
Speaker 3: allow us the confidence that we've created in a way that will enable a halo effect that will increase other product adoption. So an expanding portfolio adoption. That confidence in that expansion will ultimately compel salespeople to come our way. Those salespeople coming our way will avail more opportunity. We are continuing our early experience in the international marketplace. As we stated, we will be direct and narrow and deep in those spaces. As it relates to EOS, we have only just begun. So we're literally laying the foundation for an opportunity that will avail itself in 24, 25, 26. We believe that the translation of the EOS information is before us and that will be the real value creation. Where we love to sell EOS units, it is an investment that will pay off in the future that will ultimately avail the translation of the very information that comes from those systems. So our enthusiasm is exceedingly high. Our opportunity to apply our nimble focus to improve spine care is massive.
Speaker 3: I guess the second one first. We're hugely bullish on LTP and cannot go overtly deep into the each of the different reasons why just because I think I may lose the interest of the audience.
Speaker 3: The ability to ultimately change the position to get access to 5-1 is game-changing. And so in places that we have historically been, they've tried to tape a patient to a bed and do a lateral ALIF at 5-1. And it becomes very hard. And I think that surgeons agree that the best position to do an ALIF is supine. And so if you can get medialized access between the bifurcation at 5-1, it's a game-changer. And so to be able to go 4-1 from an LTP perspective and have a patient control orthogonally with a patient positioner and protecting the neural elements with things like safe pumps.
Speaker 3: It is a very valuable tool. So when we start to think through the elements that ultimately avail the top end of our guidance, what we do is we say, gosh, what are we confident in? And as the guys who pioneered lateral from the inception, our confidence is in our ability to compel the interest. And I think that you see signs of that through all of the surgeons who've come through the building. And so I would say that our confidence is in the volume of people who are compelling to come through the building. And then the clinical aspects of the lateral technique that ultimately will expand the halo effect across the portfolio. So, you know, PTP is still in its early infancy of a big run. We love to get LTP out there in a much more wide way. You start to see the expandables come in. And it speaks to a company that's just enjoying the early part of its momentum.
Speaker 4: Absolutely, Pat. And, in fact, I think as you kind of think about the $438 million dollar guide, going 25 percent, you know, you think about the surgical revenue component of that. And I laid that out in terms of procedural volume and procedural ASP. And our procedural ASP assumption being in the high single digits, and that's actually higher than what our long-range plan assumption was. And then, if you look at our volume components, really being in the mid-teens growth over 2022, and that's really very much in line with our long-range plan.
Speaker 4: And I think you see our guidance blast becoming through here being putting out numbers that we believe that we can achieve and have a reasonable opportunity to exceed. And so I think so much of your question I think was really about industry factors. And I can tell you when we're guiding to 25%, I think our our upside is really more about our ability to continue to compel surge in adoption through I think all the things that Pat just laid out. And I think that will ultimately come through a stronger volume relative to our guidance. So that's kind of how I think about the range and where things can differ. It's probably mostly on the volume component. It's really dependent on our ability to continue to compel surge in adoption through clinical distinction.
Speaker 4: coming through here, putting out numbers that we believe that we can achieve and have a reasonable opportunity to exceed. And so I think so much of your question, I think, was really about industry factors. And I have to tell you, when we're guiding to 25%, I think our upside is really more about our ability to continue to compel surge in adoption through, I think, all the things that Pat just laid out. And I think that'll ultimately come through a stronger volume relative to our guidance. So that's kind of how I think about the range and where things can differ. It's probably mostly on the volume component. It's really dependent on our ability to continue to compel surge in adoption through clinical distinction. Great, thank you so much.
Speaker 5: The next question comes from line of Josh Jennings with Cowen. Hi, this is Eric, all for Josh. Thanks for taking the questions. Just starting on PTP, it seems like adoption and utilization of the procedure has been really solid in recent months. How penetrated do you think PTP is right now, and is it so early innings for PTP adoption, you think? It's fascinating, right? It's like, what's been interesting for us is to really look at the established businesses that we have out there from a distribution perspective or a sales force perspective.
Speaker 3: Those people who are selling PTP are growing at a rate that is far, far surpasses those people who are who have less success with it. And that's what provides us such enthusiasm with regard to when you start to see if I can know the established distributors reflected growth of 46 percent. I will tell you, it's in its absolute infancy. The beauty of the technique is the applicability to multiple different pathologic states. And so the opportunity to utilize it in things like deformity. Our enthusiasm is utilizing things like core pectomy. And so it is such the early phase of PTP. And so the applicability is very, very wide. The thing that thrills me is we've made the foundational investments to ultimately...
Speaker 4: opportunity kind of beyond the existing as we've talked about the billion dollar lateral market as as it is today and I think that is one of the the true I think opportunities that PTP has availed us which is to really expand that that market well beyond the billion dollars as we've defined it and frankly well beyond just dealing with
Speaker 3: or two level degenerative cases, but into complex cases as well. And so as you kind of think about our penetration in surgeon use, obviously more surgeons is good, but I think the more complexity you can apply with the procedure or you can address through the procedure, you get more utilization out of the existing surgeon base. Yeah, it's a great point. Like, you know, the reality is what we've seen in whatever a new technique is created and there becomes an adoption curve. There's people who run for with more complexity and when people who demonstrate more complexity, you'll get more people get on the bandwagon of kind of early adoption type of pathology. That makes a lot of sense. Thank you guys. The next question comes from the line of Drew Reigny-Ary with Morgan Stanley . Hi, everyone. Thanks for taking the questions.
Speaker 6: Maybe just to start, and I apologize, this is a multi-part kind of question, but in kind of thinking about your revenue guidance and what you were able to do last year, just maybe how should we think about any upside potential dropping through to the bottom line just in the context of your commitment to EBITDA breakeven? Are you more willing to let that fall, or are you still really kind of in an investment mode to drive volume and surge in adoption? Just love your thoughts on kind of that dynamic. I have a follow-up. Thank you.
Speaker 4: Thanks, Drew. And, you know, I think the first thing I'd say is our guide implies about 30% drop through on the year-over-year. And so, you know, that's a pretty big drop through. And so that's really kind of where we're starting. I think for you to think about how to the extent that we overachieve our guidance, how that might drop through the top line. Really the way we've kind of thought about it is after you go for the gross margin and the variable costs associated with the incremental revenue, what's left probably two-thirds of that gets invested back in the business and our need to drive growth and one-third of it kind of drops through the bottom line. And I think that that's kind of how we're thinking about it. And, you know, ultimately we believe that there's such an opportunity to continue to innovate, make spine surgery better and grow this business. We want to make sure that we're fueling the machine. Got it. And then still on the profitability context, but Pat, I mean, it sounded like you were calling out compelling and attracting Salesforce or sales reps just given the environment that we're in and industry. I mean, are you seeing any more evidence of an acceleration and maybe Salesforce additions? And as you are thinking about that potentially.
Speaker 3: Would you step back from the committed breakeven in EBITDA to greatly expand the sales force this year to drive a longer term opportunity? I guess, at least the way I'm thinking about is any way to make the team better since the inception of the company we've committed to. And I've always loved the view that companies are people and assemblies of people that are committed to making something better. And as those opportunities present themselves, we will make decisions that are in the best interest of our effort. I don't see us coming off of our commitments, but I gotta tell you, we will be opportunistic with regard to people who are aligned with our thinking. I gotta tell you, being a spine-only force and committing our vocation to spine, there's a lot of people out there that I think feel the same way we do. And so our enthusiasm is to expand the team with people with great experience that have the same joy for spine that we do.
Speaker 4: And Drew, I think as you can appreciate our plan, our guide assumes that we will be investing in the Salesforce. And so, I think that's an important component to understand about our guidance. We're going into the year and only we'll be adding. Okay. And just with your comments, maybe specifically on the cadence of the year, on the first quarter, should we think about that as really like a mid-single, digit step down sequentially, or is there any reason why it could be better given some of the growth drivers, tail-ons that you're back heading into 23? Thanks for taking the questions. Yeah, Drew, I think in terms of the question adjusted the Epidower revenue related. We can hit both. Yeah, perfect. You know, I think I think on the top line, I guess typical seasonality from a revenue, a surge of a revenue perspective would probably lead you to, you know, we did 91, probably a couple million dollars step down sequentially, would be the typical seasonality. I think if you looked at the EO seasonality from last year, it was another probably $2 million going from Q4 to Q1. So, if we were at $106 million in the fourth quarter, you could probably think about 102, or somewhere around those bad area in the first quarter. We do know, that, you know, one of our biggest investments in the organization is the people.
Speaker 4: And Pat talked about that. And some of the taxes and those types of things step up sequentially from Q4 to Q1. We also always have a national sales meeting that is an investment in the organization in Q1. And so from an expense profile standpoint, there's a bit of a sequential step up for those reasons. If you kind of think then about how that flows through to adjusted EBITDA, if you just take your 800 basis points margin expansion on the full year, and if you appreciate that that's probably 900-ish basis point improvement in the first half and a 700 basis point improvement in the second half, I think you kind of get to a mid single digit negative adjusted EBITDA absolute number in the first quarter. And so I think that obviously improves in the second quarter. And as I shared earlier, we do see a positive number in the third quarter.
Speaker 3: Great, thanks for taking questions. The next question comes from the line of Matthew Blackman with CIFIL. Hi, this is Emily on for Matt. Thanks for taking the questions. Just wanted to touch on EOS and the next kind of wave of product features. First is if there's anything in 2023 of note that we should be looking out for and then further out 2024-25, I wonder if you could give us an example of how a surgeon might be using EOS today compared to how they might be using it then with all these new features in terms of procedures, product opportunity, and then what needs to be done on the product side to keep pace and optimize that product pull through for EOS. Thanks. Emily, that's a question that worms my heart. I absolutely adore just the opportunity that EOS provides and when you think about what the output is today, the output today is a standing weight-bearing image in a bi-planar view, so both the front and the side. What you can do is you can reconstruct the entire skeletal system in a single image. What the near term will provide, and I'll give you some time frames, this year we'll go through the verification process of each of the different feature sets such that we know that they're perfectly operating and perfectly accurate. The effort this year will be really a verification of the elements and so what we're doing right now is our IT team and the software team is building the cloud infrastructure with things like high trust and...
Speaker 3: and other elements that are required to ultimately house images in a HIPAA friendly way. And so those things are going on in the background. And so I would say the things that are going on right now is the automated measurements, the pre-operative planning elements, the ability to do patient specific rods, and some of the inter-operative reconciliation. So those will be the first things that you see on the marketplace in let's call it mid to late 24. We'll go through the verification process much sooner than that, and so they'll be in the marketplace late this year. And so our excitement associated with a surgeon having the ability to pull down an image from the portal, understand exactly what the imaging is, exactly what the plan is, what the inter-operative experience was, and then reconcile it back to the plan. That's the foundation of a predictive environment. And so when you start to say why is spine surgery not great in the hands of the masses, it's the volume of variables. And we feel like it EOS provides us an opportunity to really address the different variables that exist today in spine. So when you start to think down into the future, there's other elements. And I'm not going to provide timelines on things like bone quality measure. But when you start to think about my ability to ultimately effectuate the objectivity of alignment, which is the greatest correlative to a durable long-term outcome, and then say gosh, what type of devices are we putting in? What's the design of those devices are we putting into the foundational material, i.e. the bone, knowing what that bone is? These types of things become very very profoundly important to surgeons. And so when you start to think about effectuating surgery over a long period of time, this foundational standard becomes so important. And so I would say that that's probably is the best way of not being overtly verbose, even though I'm quite verbose. But anyway, it just becomes like when you start to think about informatics, informatics is...
Speaker 4: Our focus is on what we're doing. Thank you very much and keep it up.
Speaker 7: focus is on what we're doing. Great. Thank you very much and keep it up. Thank you.
Speaker 4: Your next question comes from one of Kyle Rose with Canaccord. Great, thank you for squeezing me in here. So I just wanted to, I understand the leverage commentary when we think about this year, about 30% drop through on incremental revenues. Maybe just help us zoom out from a big picture perspective and how we should think about that on a longer term basis. Obviously, as you scale the Salesforce and make additional investments, whether it's this year or you get productivity from previous cohorts, how should we think about that drop through on a ratable basis beyond 2023? Well, Kyle, I think when we laid out our long-range plan and we kind of said, going from 2021 to 2025, and then 2025 began at $555 million in revenue and then $80 million of adjusted either done. I think that's about 12%, 14%.
Speaker 4: just to leave it down margin in 2025. And so, you know, as we did that walk, we said, you know, call it two thirds of that's gonna come from our leveraging of the infrastructure and the investments that we've made. And the balance will come from improvement in our variable selling expenses. And ultimately, I think that's really where we're headed. And so, you know, I think on the margin, you can kind of do the math year over year on that. But ultimately, you know, that's the direction we're headed and the plan we've laid out relative to the profitability profile. Okay, and then I'll just be greedy and take a follow-up here as well. You know, you talked about, you know, the utilization increasing on a products per case basis as well as, you know, the productivity of surgeon, new surgeon users. Just wanted to see, you know, we saw the chart there, but if you could maybe just take it one level deeper. As you go to the wider group of physicians, how have you seen the procedural complexity curve, you know, elongate or be pulled forward? I'm just trying to understand.
Speaker 5: how the utilization rates are changing in the last several cohorts as the market has, you know, quote unquote, normalized coming out of the pandemic. Yeah, I guess if I understand your question and tell me if I got it wrong, is what we've seen is people are compelled to come out here and what they'll do is they'll come out here for PTP. So they will learn PTP, they will have had a successful experience, poultry, and how they serve the market in all areas. Often traveled there is no time track for free. Again, we won't have time. Yeah, maybe we'll have time track. We'll have time track.