Q2 2023 Alphatec Holdings Inc Earnings Call
Good afternoon, everyone and welcome to the webcast of apex second quarter 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 uncertainties are detailed in documents filed regularly with the SEC.
During this call you may hear the company refer to non-GAAP pro forma or adjusted measures reconciliations of non-GAAP measures to U S. GAAP can be found in the supplemental financial tables included in today's 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 the apex, chairman and CEO , Pat miles and CFO Todd Koning.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star One again. Thank you now I will turn the call over to Pat miles.
Thanks, much Danica and welcome everybody to the Q2 2023 financial results call.
I would ask you to review the forward looking statements.
At your leisure.
I got to tell you. This has been a very good quarter. So our growth has been fueled by our spine focus. So if you look.
We had 117 million in Q2 'twenty three revenue.
Which is a 39% growth.
41% surgical revenue growth that would exclude.
Yes, and a positive one and a half million dollars adjusted EBITDA.
The highlights are that we extended the lateral momentum really the strongest contributor to our Q2 growth.
Walsh airlift access to procedure wise L. T P and midline ayliffe approach for L. Three to S. One we.
We acquired navigation enabled robotics platform, which we'll talk a little bit about we drove $15 million in iOS revenue, which was a 24% growth, we achieved 32% volume growth and 7% growth in revenue per procedure and.
And expanded adjusted EBITDA margin by 1100 basis points.
Our commitments.
Really since <unk> recreation have not changed.
But kind of under the auspices of spine focus.
We've been able to continue to create authentic clinical distinction and so the commitment of clinical distinction continues.
There's nothing better than being aligned with your customer and.
Spine surgeons commit their career their vocation to spine surgery.
Being aligned with them in terms of being spine focus is big and so we continue to compel surgeon adoption.
And I would say same with regard to being.
The elevated by the whole spine focused thing its just being aligned with the sales force and being sophisticated with regard to the subject matter in spine becomes.
Very very important so one of the great misnomer in spine is that its commoditized spine is not commoditized, if something is commoditized oftentimes, there's great predictability associated with it when you see a 10% to 15%.
Revision rate in one to three years in degenerative surgery, I would say that that's not a predictable environment at least to start a durable environment and when it's 25% to 30% in two to five years.
I would say the same and so as we look at the opportunity in front of US we think we can.
Drive predictability reproducibility and durability by mitigating variables and.
And so when you start to think about how do you mitigate variables and how do you elevate procedural sophistication and spine is a very challenging environment in doing so and so our view is what you do is you would take.
And informatics view and you create an ecosystem and you control variables from end to end and you start off preoperatively and you start to look at the.
The measures of a patient and you start to plan against a patient early on so diagnostics and Preoperatively and then what you do is you do everything you can interoperability to mitigate variables and I think we continue to demonstrate the things necessary I think the acquisition of the navigation enabled robotic platform would suggest gosh.
We continue to make progress on that front with the continued evolution of our safe up platform, the neural navigation and nerve health tool, we continue to get better on that front as well so not only pre op and interop, but also we're trying to inform future surgery with regard to the post op experience and so I think that there is a.
There's a great opportunity to create greater predictability in a field that candidly.
Candidly currently lacks it.
But I think what is what is important is to talk about why is a tech continues to grow.
Significantly outpacing the marketplace and I would tell you the driver is lateral and.
It's it's if you look at all of the clinical data out there it's tough not to think that in certain indications for surgery that lateral is just not better and so as it relates to blood loss less blood loss as it relates to hospital stay less hospital stay and days back to normal activity in terms of just.
It's a it's been demonstrated to be better and that's in 500 peer reviewed publications.
I would say make no mistake the lateral link market is the most coveted market. It is the growth market and the great part is as other companies are out celebrating anniversaries and it's often the wrong date.
<unk> is doing is setting a new standard in lateral and that's it's it's the thing that we do best because we have great experience in the space, where the very people who created the first generation led by Dr. Louise Pimenta, who was the original lateral pioneer and as our CMO and so there is nothing better than having them most versed mode.
Sophisticated in it so we're applying decades of lateral experience to address really what we did in the first generation. So what we're doing is we're saying what are the goals of surgery and the goals of surgery or decompression stabilization and alignment.
How does PTP in essence continued to evolve what we did initially well the great part is with the <unk> platform, we are addressing the neuro retraction complications.
Patient that we're doing the PTP and is a much more familiar position to surgeons and it mitigates inefficiencies if a surgeon does a decompression, which is again part of the goals of surgery. They are in a prone position. So it's a better position your ability to stabilize meaning put posterior fixation, our pedicle screws. It is in the prone position as the.
Most.
Favorable place to place pedicle screws.
Our ability use patient positioning us to control the patient positioning again is something that we've learned and applied the PTP you don't have to turn the room over and clearly the sagittal alignment is is better.
Our view and.
Really it's not even in our view, it's an undeniable truth is you're not serious about market participation in lateral surgery, unless you have automated neuro monitoring.
Foundational requirement there is not a nice to have so ours is designed to directly address the most common documented risk, which is femoral nerve complications in lateral surgery and so.
It is one of the things that we really celebrate which is having unmatched organizational neuro monitoring expertise we have the best of the best we have great experience in this space and we just continue to get better and so when you know when we see people knocking off of retractor, meaning, meaning topping our attractive or copying our patient positions we know.
They can't copy the neuro monitoring.
Taking capturing a.
Small signal in a very noisy environment, and then interpreting that and providing and providing actionable feedback is the magic and without doing that youre not ever going to be a serious participate in lateral surgery.
So we are we covet the safe up platform and what's going on and also think about it as what we're doing is is where we're taking.
<unk> and driving greater predictability with this tool and I think there's going to be a consistency with regard to how people look at APEC in terms of what the competencies are but I think part of being the most committed to an environment, meaning lateral you have to do research and you have to do education, and so I would tell you that we're the most committed to both the research.
In education within the field and I think its being demonstrated some of the most recent publications our PTP for adjacent level disease PTP versus <unk> PTP versus the standard first generation lateral that we did.
And so there's 27 peer reviewed publications currently.
We've trained over 500 surgeons in 2022, and we continue to host.
Really important events with a PTP counsel continues to provide feedback and we apply the learnings.
As expediently as we possibly can as well as the had a Duke Emory conferences, as well, which again I think just.
Illustrates our demonstrates a commitment to lateral surgery and so.
I would tell you that.
We are quickly becoming the the the lateral standard bearer and.
I think the bottom line as PTP is really more aligned with the goals of surgery and really enables us to expand the marketplace in a very meaningful way and so really from just participating in the $1 billion segment to making it a $3 billion segment based upon the addition of addressing but pathology that.
<unk> historically been addressed by pushing T lift where you would need to do a post some type of a posterior decompression so I.
I would say that only <unk> committed to the.
At the outset to improve lateral challenging its pioneers to better meet surgical requirements and address hurdles.
We are.
Have a solution designed to avoid the complications which is the safe, Bob part, which I talked about a minute ago.
I think you know the whole applying our learnings is I would tell you a cultural reflection of who we are here and the other thing is is obsoleting. Our last best effort. So when someone copies as they're gonna copier last best effort, because we're gonna player learnings forward.
I think transforming and expanding the market.
To surgeons, who are accustomed to more conventional techniques. So.
Really our interest is to continue to advance the most coveted market, which is which is lateral surgery.
I think the other way that we've been rewarded as I think when you create lateral competencies earns a surgeons trust and we deem that to be really a halo effect and when we say a halo effect what that means as it expands <unk> product utilization in <unk>.
Conventional procedures and so.
That becomes very very.
A valuable in terms of reflecting the momentum and so.
I've previously talked about informatics mitigating variables.
And the experience in translating say safe up in terms of the information and how it drives safety or we're looking at how we're going to integrate the navigation navigation enabled robotics.
Into.
Into lateral surgery.
But <unk> is really kind of staring at us is such a great opportunity.
To expand its influence in the in the reasonably near term.
And the first things that youre going to see mid 20 fours, you're going start to see automated alignment reports.
<unk> three D models.
Automated surgical planning and the option. If you want to is up is applying the surgical planning elements to a patient specific rod and so when we say automated alignment what we mean is as you as the as the bi planer.
Our view is taking on the image or ability to immediately add public parameters and the measurements to assure alignment.
Our immediate and so this opportunity to continue to add informatics too.
The.
The planning element becomes very very apparent the other thing in 'twenty four is going to be the assessment and follow up and so that will be a big part of what youre going to see in 2024. So we expect a lot of influenced by yields.
Our next year and then subsequent to that is going to be things like bone quality, if youre going to stabilize the spine, which we said the goals are decompression stabilization and alignment youre going to want to know what the underlying material is and so we feel like having a bone quality measure is very valuable will also integrate and interoperable rod bending element to continue to make refinements.
And the alignment effort, we believe that Theres, a configuration opportunity to lessen the number of assets required in the room and then.
The great future as really a predictive analytics foundation that enables us to provide the surgeon data on like patients that have had a technique that have like pathology and give them a foundational view with regard to a rich dataset. We're building the foundation for that rich dataset, we recently got.
At a station for a stock too which is a requirement to ultimately house data. We're on our way to high Trust. We have numerous accounts currently adding.
Patients today that have iOS edge to our to our data set and so we will have the most rich dataset.
In spine and I think having been at this for a very long time.
All of the data collection forever has been manual and so when I make a big deal out of the automated element. What we're telling you is that we're collecting objective data in an automated way and it's going to make for a more assured.
Data collection source.
And so we talked a little bit about the the navigation enabled robotics.
The integration is right on track.
Our learnings continue to affirm the investment thesis, we're thrilled about the team they have deep expertise and.
And our ability to advance the integration and development is very very apparent to us.
We expect the initial experience in.
Late this year following regulatory clearance for Invictus screw placement.
We will continue to expect free hand navigation clearance in mid to late 2024, then full integration into lateral procedural workflow.
In in 'twenty, five and so we remain totally bullish and profoundly enthusiastic about what's going on on that front.
So I think from a creating clinical distinction a ton of momentum and a ton of excitement in terms of compelling surgeon adoption. We went from about one eight products per procedure to now it's at two four so I think the convoy element of the way that we view surgery is coming to fruition also.
If ever you're wondering about the demand the demand for educational experiences is still exceedingly high and so we had 150 surgeons in in Q2.
There remains a tremendous amount of interest in what we're doing.
It relates to elevating distribution.
I can't be more excited on this front I think that when you.
You talk about spine focus and you talk about opportunities to grow where are less than 5% shareholder at this point and we're so well positioned from a spine focused perspective, we celebrate the uncertainties.
In the marketplace, we think that they improve the quality and quantity of the of the funnel of <unk>.
Salespeople interested in working with a tech.
We will continue to strategically fill in large geographic gaps and we will continue to compel surgeon adoption and again I think that this speaks to the to the spine focus, which which which candidly others don't yet another very very affirming view is if youre going to come join us the likelihood of you growing at 38% is very high.
That's the that's a percentage growth rate of our of our same store sales.
No.
The thing that we love is the fact that the very places that we have today are growing very fast we're not growing through just the addition of people and so our interest is to advance the clinical attitude of the team.
Earn increased share of existing surgeon users and further penetrate adjacent geographies within existing territories and so.
Would love for you to join Us.
We will have an innovation update at NASS on October 18th.
Los Angeles, and so consider this an invitation for you to join US so with that I will turn it over to Todd well. Thank you Pat and good afternoon, everyone. We appreciate you joining us on the call today.
So I'll begin with revenue the second quarter total revenue was $117 million growing 39% over the prior year and increasing 7% compared to the previous quarter. The $117 million in revenue is comprised of $102 million in surgical revenue and $15 million of Geos revenue.
Quarter surgical revenue of $102 million increased 41% compared to the prior year period.
<unk> procedural volume grew 32% in the second quarter, reflecting strong surgeon adoption with growth in the number of surgeons utilizing our procedural solutions up over 25%.
Average revenue per case expanded 7% year over year due to continued mix benefit from the momentum of our lateral franchise. The continued increase of our biologics attach rate and an increase in case complexity.
Strong performance in lateral drove increases in both procedural volume and revenue per case, the number of surgeons using PPP is growing and utilization of PTP. Among those surgeons is expanding as the procedures applied to a broadening set of pathology.
Robust reception to our poster expandable cages also contributed to growth overall importantly, the areas, where we have invested to create clinical distinction are the areas achieving the strongest growth.
<unk> revenue in the second quarter was $15 million up 24% compared to last year with solid execution on deliveries and installations.
Working through the remainder of the P&L second quarter non-GAAP gross margin was 73% up 340 basis points compared to the prior year. The year over year increase was primarily driven by royalty rate improvements in mix. The mix benefit came from both an increased contribution of surgical revenue and an improved <unk> gross margin iOS grow.
Margin improvement is due to the success we've had in addressing the backlog of service needs over the last 12 months as well as pricing initiatives we've implemented.
Second quarter, non-GAAP , R&D was $13 million and approximately 11% of sales compared to $9 million and 11% of sales in the prior year. The increase on an absolute dollar basis was driven by continued investment in our organic innovation machine to advanced procedural and information based solutions, including approximately $1 million of investment.
Associated with robotic navigation platform, we acquired in April .
non-GAAP SG&A was $81 million and approximately 69% of sales in the second quarter compared to $65 million, 78% of sales in the prior year period, we delivered 850 basis points of improvement year over year approximately half of that was driven by improved variable selling expense and the other half by infrastructure leverage including.
About 80 basis points of investment related to creating an international presence.
As we grow the business to be contributors to the leverage that we are delivering continuous to be in line with our expectations.
Total non-GAAP operating expenses amounted to $94 million and approximately 80% of sales in the second quarter compared to $75 million and 89% of sales in the prior year period, demonstrating over 800 basis points of operating leverage year over year.
Adjusted EBITDA was $1 5 million and approximately 1% of sales in the second quarter compared to an $8 million loss and negative 10% of sales in the prior year period. This represents another quarter of over 1000 basis points of margin expansion and we are pleased to have achieved positive adjusted EBITDA. This quarter slightly ahead of plan.
Continued topline growth and disciplined execution is delivering results and this quarter's performance reinforces our confidence in achieving the long term profitability goals, we've committed to.
Turning to the balance sheet, we ended the second quarter was $100 million one.
$101 million in cash operating cash totaled.
Operating cash use totaled $37 million of which approximately 90% was related to investments in the sales generating assets inventory and instruments that fuel our growing distribution footprint and new product launches given the strength of sales momentum in the first half we pulled forward the required certain inventory investments offsetting that.
Adjusted EBITDA improvements in the first half benefited operating cash and we expect that to continue into the second half of this year.
Carrying value was $470 million, we continue to have undrawn and available borrowings under both mid cap revolving credit facility in the <unk> term loan.
Turning to our outlook for the full year 2023, we now expect full year 2023, total revenue to grow 32% to approximately $462 million.
That includes surgical revenue growth of approximately 33% to $404 million and iOS revenue growth of approximately 21% to $58 million as sales growth drives leverage across our business. We expect to continue to achieve significant adjusted EBITDA progress. This year in conjunction with the increased top line guidance, we have raised.
Full year, adjusted EBITDA guidance to $2 million.
Representing 840 basis points of margin expansion.
Interest guide is in line with the framework, we've shared specifically that we anticipated about 10% of revenue upside to flow through to adjusted EBITDA, while the balance is reinvested to drive topline growth.
The next few slides provide additional context for updated 2023 guidance I'll start by sharing how are expectations in procedural volume and average revenue per surgery growth shape surgical revenue guidance.
We continue to train surgeons at a robust rate, which drives both surgeon adoption and utilization training surgeons built loyalty and enables surgeons to work up the procedural complexity curve both of which increased utilization. The Middle chart is a testament to the consistent ramp in utilization that our surgeon cohorts have demonstrated each year due to.
Movements in these dynamics, we now expect low twenty's percent procedure volume growth for the full year 2023 compared to high teens volume growth expected previously.
Average revenue per surgery grows as our mix shift towards procedures that require more products per surgery, like PPP and LTP and towards surgeries with greater complexity, all of which feature higher revenue per procedure than our overall average.
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 continue.
To expect these dynamics to drive growth in average revenue per surgery at a high single digit percent rate for the full year.
In some increased surgical revenue guidance is related to increased procedure volume expectations that volume growth is being powered by adoption. Both the quantity of surgeon customers and per surgeon utilization. These dynamics validate our thesis that when you create clinical distinction you do compel surgeon adoption.
With respect to the rest of the P&L, we have begun to demonstrate the operating leverage that sales growth enables and we expect that dynamic to continue guidance for the adjusted EBITDA of $2 million for this full year implies 840 basis points of improvement relative to last year.
The components that are delivering leverage have been consistent with what we described in our long range plan last may at that time, we committed to 2500 basis points of operating leverage over the 2021 to 2000 2025 time horizon that entailed about 300 basis points of contribution from R&D.
1000 basis points related to variable selling rate and about 200 basis point contribution from SG&A infrastructure leverage the improving variable selling rate and the infrastructure leverage that sales growth has enabled over the last several quarters gives us great confidence to continue investing in growth, while achieving our financial commitments.
Now in closing results. This quarter are continuing are a continued testament to our belief that good surgery is good business, our investments to advance spine surgery and become the standard bearer have and will continue to deliver sector leading growth financial results. This quarter are also.
Also mark a significant milestone for <unk>, our revenue growth driven inflection to positive adjusted EBITDA.
We have great momentum and great opportunity ahead.
So we have an active IR calendar over the next few months, including our innovation day, which Pat mentioned in conjunction with mass in October and I hope to connect with many of you in person with that I'll turn the call back over to Pat.
Thanks, So much time I.
I think oftentimes, we see things like our best is yet to come.
But I would say that that we built a foundation.
Really assembled for our long term growth trajectory and if you look at what we've done from 2018 to 2022 and really have grown at a 40% revenue CAGR.
I think with.
Clearly a big influence on from lateral.
Our best days are yet ahead, and if you think about us continuing to drive growth through distinguishing ourselves within the lateral franchise.
We've yet to reflect the value of yields from an informatic perspective, and I think it provides us great opportunity to have.
Have an expanded presence in deformity I think the navigation enabled robotics piece is is apparent in terms of what the opportunity is there we love the uncertainty of the marketplace I think the spine focus will be rewarded and so totally enthusiastic about.
About responding to those opportunities we continue to see expanded hospital access in places that we've had zero business. We now have access and we have the opportunity to build sales forces in states, where we've had zero sales.
From an international perspective, we're in the very very early phases, and we're going to continue to be narrow and deep, but we're seeing success out of the places that were participating and then lastly, just the continued momentum in terms of lateral it is quite clear. It's like expandable will be launched at Nash both from a lateral perspective and from a pole.
Here, we're working on called <unk>, we have three D printed implants, there's a lot going on within the.
Cervical realm.
And we continue to professionalize our sales force.
Of interest and really a shout out to our regulatory team.
We have nine regulatory submission this quarter that surpassed entire previous years. So.
If you're wondering if theres a commitment to continuing to obsolete ourselves there absolutely is and so I would tell you that I believe that our 100% spine focus is powering our ability to be the standard bearer in the space and when we see our best is yet to come I think it's an objective truth.
With that I'll turn it back over the operator.
Great. Thank you we will now open the floor up for questions. At this time I would like to remind everyone in order to ask a question. Please press star and then number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
The first question comes from Matt Blackman with Stifel. Please go ahead.
Hello, Thank you for taking my questions and good afternoon everybody.
Maybe just to start at.
Pat you mentioned and I was hoping you could repeat it because it went by too fast the <unk> surgeon metric number you provided and if possible. If you were to break that out even in the roughest terms between what's called lateral naive versus competitive surgeons I'm curious if that mix has changed at all over the last six months over the last.
12 months, and then if I could add on top of that.
What sort of surgeon reception, you're getting for LTP, who might be coming in to be trained on that and then I've got one follow up.
Alright I'll let.
I'll, let Dan.
Todd answer the surgeon metric.
Just curious if it has a numeric value I'm going to screw it up.
As it relates to the reception on the LTE front, it's been very very good.
The reality is is we havent had the volume of sets out there too to garner the the level of our response to the level of demand that that's apparent and so.
But on a daily basis get text and pictures of a firewall and a lift with a four five lateral with a patient positioner and it's it's a thing of beauty and it's better than the work that we've done before and so but the surgery is good and when the surgery is good.
The volume follows and so I remain exceedingly bullish and I would say that we're in the very early phase of that.
And Matt relative to the <unk> metric, we did about 150 trainings. This quarter. If you look over the past four quarters I think it's 515 is the total so we continue it.
A strong clip.
And feel good about the level of of surgeon training and surgeon training is a great leading indicator for surgeon adoption and so as we look at the demographics of people coming through.
It's probably 25% are really.
Lateral nave I think in your words.
And kind of new to the technique with.
With the balance being.
People, who are familiar with the technique and are looking to adopt.
<unk>.
Okay, and then just one quick follow up I'm curious, maybe just take a step back talk quite a bit about the lateral market in general, but how fast do you think that market is growing today, particularly when we think about sort of the underlying spine market being a.
Maybe a low single digit grow or just maybe give us. Some context, you obviously highly levered to the lateral opportunity more so than maybe that sort of traditional low single digits by market, but just curious what you think the underlying market is growing today in the U S.
Yes, Matt it's a tough wanted to put a number on that.
One of the things that was the nemesis of the previous.
Experience was that there were certain indications for surgery that you couldnt address with the technique.
And so the great part is I don't know if the market is expanding as fast as we hope hope it is but I will tell you the applicability of lateral into a much larger space is very apparent to us and so that's why I like it.
I don't know if it resonates, but it's like the whole direct decompression and a prone position the ability to stabilize in a prime position historically those would have all been Clifford <unk> type patients and so for us to start to evolve the technique into a much broader market space.
Suggest opportunity and that's where it's like I have a tough time discerning is is it market is very fast market growth or is it just one of the things, we'll we're applying the technique into a much broader space from a pathologic perspective.
So either way.
We're enjoying the the trek, we're still such a small market share holder the there's a pill.
Lesser of opportunity out there but.
There's not.
Outside of expandable in the last 10 years Theres really hasnt been very much from a plethora of T that perspective in terms of evolution. So when you say, what's the most coveted market clearly the advantages of ladder has been demonstrated and that's why we're so excited about what's going on from a safety perspective, because it is very hard and so anyway.
Longer answer than you wanted but its just kind of a little bit of a context on how we think about it and Matt I think the implication there is to the extent that the lateral market is growing faster, which we do believe it is than the overall market.
That incremental growth due to tapping the existing kind of cliff and T lift market really accrues to PTP. So for us it's actually growing quite quickly because one we're taking share in existing kind of.
Pathological applications, but also because we're able to expand the amount of utility to a broader set of path allergies that growth accrues only to us.
Understood. Thank you I'll get back in the queue.
Great. Thank you. Our next question comes from Joshua Jennings with TD Cowen. Please go ahead.
Hi, good afternoon, congrats on another strong quarter.
I was hoping to just.
A little bit more about the early trends with the <unk> launch.
Yes.
Just a follow up on that.
Is.
Just with this <unk> system that Youre now launching as well.
I mean, as we as we think about LPP, gaining more and more traction in that revenue per case metric.
The LTP associated with more levels per case, and therefore increase revenue per case should that drive the kind of lateral revenue per case metric even even higher.
Yeah.
I would say.
Yes.
The shortest construct is going to be.
No.
Most common would be.
All four five in <unk>, so it's going to be at least two levels and so what we're seeing is.
It's really a a very favorable acceptance from lateral or excuse me from from approach surgeons.
As you know the nemesis of of lateral has been you can't address <unk>, one from a lateral position and so to get the type of reception that we're receiving from.
Access surgeons is super important and so what we are.
Seeing in terms of the early experience is multi level surgery.
<unk> done by an approach surgeon with our access system.
The patient position of required a tilt the patient and then bringing that patient back to an orthogonal position from four or five and above and so.
Again I think it's.
It's better the work is better than what we've done before and so the ability to apply that learning and make sure that we're including five one is hugely important and so I.
As I look at the pictures all of the orthogonality associated with what drives predictability is right there and so again all indications are that this will be a good one.
To your point.
More levels it means more complexity, which ultimately does translate into higher revenue per case.
Great. Thanks for that and then just wanted to you guys.
Is it growing so strongly also the sizable base in one of the elements. We're trying to think through is just on the cross selling opportunity was.
Yossi counts that you inherited with the acquisition.
Didn't have adopted it ticks implant portfolio.
Where are we in that process.
Options, it's still very early and Theres still a lot of opportunity and runway ahead, but just wanted to get an update there. Thanks for taking the questions.
Josh I think.
What I outlined what I believe to be the growth drivers of significant manner.
The iOS influence in any hugely meaningful way has not transpired as of yet in terms of the the reflection from us.
From the data that you get out of the <unk> unit to move people for better surgery into the operative experience and that's where it's like.
All of the automation is going to inspire significant interest.
The ability to have an automated alignment measure as you take a a full body standing by planar.
Those image so your ability to get the alignment measures to ultimately apply into your surgical plan.
And have an automated surgical what all of those seem to be an automated will elevate the likelihood of their utility and so as you utilize those and you start to say gosh in this patient I would like a patient specific rod your ability to.
So what patient specific rod and have that delivered into the experience.
And then have an inter operative reconciliation see I got what I achieved based upon what the plan was and then too.
Follow up on that post operatively with the exact same film I think is ultimately whats going to compel the kind of the deformity audience into the experience and so I think we're very early on since we Havent launched the stuff I don't think that you've seen the type of.
The traction that we expect to have over the years, we realized that this was going to be a long run I would tell you what are the things I'm. Most proud of about the company is whenever we acquire a technology. What we do is we improve it and we integrated into our thesis and so I would say the last little while has been committed to.
Evolving <unk> into the way that we think about the inner operative experience and those things are forthcoming clearly in mid 'twenty four and so our excitement is that we have a lot of momentum on the lateral front and on the surgical front.
But our best days are yet ahead based upon the translation of our ability to once again take information and drive more predictability.
Thanks, so much Greg.
I appreciate it.
Okay.
Our next question comes from Matthew O'brien with Piper Sandler. Please go ahead.
Hi, This is Samantha on for Matt Congrats on a great quarter and thank you for taking our question.
To start I guess.
A little bit on the adjusted EBITDA, you've already achieved just EBIT part that versus the.
The breakeven expectation at the beginning of the year.
Can you talk to us a little bit more about what allowed you to achieve that so early and maybe what we can expect for cadence moving forward.
Thanks, Samantha I think ultimately.
When you look at our adjusted EBITDA going into the year.
More or less we kind of messaged 800 basis points of operating margin expansion or just EBITDA margin expansion.
On the full year with a little bit of that heavier in the first half and a little bit later in the second half and I think that what kind of <unk>.
Lead you to something like a minus 500 and a plus five is kind of how I think the math would have shook out.
If you looked at that from that standpoint, and so then kind of coming into this this quarter.
Knowing that zero was kind of the expectation clearly the revenue outperformance benefits there.
And we definitely benefited from some some incremental.
Improvement in our variable selling expense and so I think this quarter about half of it half of our operating expense leverage was was due to variable selling expenses. So we saw that come through a little bit stronger in the quarter and that's really just a little bit of I think timing of our investments on that front and so ultimately ended up.
A little bit better than probably would've expected given the revenue outperformance, but I'd just keep in mind that we're talking about hundreds of thousands of dollars here as we kind of flip from negative to zero in and.
We spent.
Just shy of $90 million in total so.
Being as close as we are I think was a pretty good result, and we're very pleased with I think.
The broader comment which is as we've kind of built the company and as we've architected the walk to profitability.
The profitability is coming in the areas that we expected and so that to me is what is really the takeaway here in terms of cadence.
I think our total top line raise another $12 million, so beat by 7% in Q2 and and raised by five in the back half and if you apply.
The 10% drop through on that think about another half a million dollars of drop through.
In the second half, which probably puts you couple of hundred thousand dollars positive in Q3.
And the balance there in Q4, so that's kind of kind of how we're thinking about it.
Thank you and then just one more from us.
I know, we've talked a little bit about the market growth, but also could you touch on whether youre seeing any share taking as well. Thank you.
Yeah, I mean, clearly when you just do the numbers if the market is growing.
Call it low to mid single digits.
I think our surgical revenue grew 41%, we're clearly taking a lot of share and I think that's been the story.
Clearly lateral in our clinical distinction in all of the all of the innovation, we've created and brought to the market.
<unk> is driving a ton of attention.
And I think again greatest indicator is the amount of training, we're doing and the interest that we're getting from from surgeons and from our ability to elevate the distribution footprint.
Thank you.
Our next question comes from drew Ranieri from Morgan Stanley . Please go ahead.
Hi, Thanks for taking the questions maybe.
Maybe for Todd to start but.
In your prepared remarks, you talked about just the uncertainty in the marketplace.
Your opportunity to fill in still a large geographic gaps.
Amongst your sales organization.
Pat can you go into a little bit more detail there and just.
Just given some of the market disruptions are you even pulling forward some investment in the sales organization and maybe just help us think anything is kind of baked into the to the updated guide for building out some of the geographic gaps.
Yeah, I'll go ahead and take the I.
I guess, the qualitative or get Todd.
The harder one.
The I think.
We're being as opportunistic as we can possibly be and the dynamic is is that I think that.
The sales people, who have been in spine and it found success in spine want a partner that is aligned with them and so when we talk about being spine focused much of it is really an outreach to the people who are committed to this thing over the next 10.
10 to 15 years, if you had to move the field of spine surgery, you will work with us and that's where it's like our enthusiasm to to continue to outreach to candidly companies that have not been very focused in the spine field and think that it's commoditized is an opportunity for us and so where we see.
Some uncertainty in the marketplace, where a very certain place and its kind of a strange thing to say five years ago. When we took over a I wouldn't call it hugely certain.
But I will tell you today as it relates to having the foundational technology and the asset base of of the type of engineering Knowhow that we have from a mechanical perspective, the prowess on the neurophysiological perspective, the understanding of imaging the understanding of <unk>.
Navigation Robotics I will tell you that it just provides us an opportunity to go solicit and to retain top talent top talent in the room makes a difference we rely upon the sales guys in the room to make it to make a difference and so.
We're aggressively seeking.
Those guys, who can make a difference in the operating room to partner with us and so.
I think with the Globus <unk> thing and with the big companies are being somewhat lethargic, we're being opportunistic.
Andrew in terms of you know our opportunity of that Pat talked about and our willingness to invest clearly we're willing to invest.
Think we've demonstrated that as you think about the.
Growth that we're seeing in our our investment we're leaning into that growth to fuel it.
As you think about the investment in our sales organization.
<unk>.
There is certainly a level of investment that's baked into the underlying guide.
And we feel very good about where that's at.
Kind of order of magnitude, it's very similar to what we've seen in previous years and so.
Well from quarter to quarter that might change.
We feel good about.
Where we are relative to our ability to invest.
Drive the growth.
Got it thank you and maybe just one on robotics, but.
Shall experience is expected later this year freehand in late 'twenty four full integration 25, if I kind of heard that correctly earlier in the call.
But as you are thinking about commercializing the robotics platform.
I know were sold at a ways, but are you how are you thinking about.
Placement trajectory or utilization trends is there anything that makes you feel better or worse.
When you kind of benchmark to what.
Some of the other couple of competitors have been able to do in the robotics space. Thanks for taking the questions.
Thanks drew.
I think it's a great question and the dynamic becomes is.
What we love is a small footprint and so when you have a small footprint oftentimes, there's a direct relation to the Cogs and when you have a limited when you have low Cogs high technology. It provides flexibility and so as I look to the future and I look at what the capability of what the guys in.
In Boulder are doing with regard to that robot and that navigation piece, it's going to provide us great flexibility to integrated into the procedural workflow in a very elegant way, but that also means we get flexibility with regard to the <unk> to acquire Kenya, Lisa can we integrate it with regard to some type of a volume utility and implant. So I think it gives us like ultra flexibility.
We don't we don't have the backup bus up to.
Bring the robot in and out and so our enthusiasm is very high with regard to just kind of a foundational cost structure of the system I think the only thing I'd add to that Pat is just given the fact that the the cost and hence our price point would be at about a half a million dollars relative to the total price or price point being about half.
<unk>, which is significantly lower than other market prices of other robots, our ability to do earn outs and those types of things and not needing.
Five surgeons to sign up to the deal is totally eminent and so that really opens up so many more opportunities for us to essentially commercialize this thing in the long run in a way that works for everybody.
Great. Thank you. Our next question comes from David Saxon with Needham <unk> Co. Please go ahead.
Okay.
Yeah, Hey, Hey, guys. Thanks for taking my questions.
I've been hopping between calls so I apologize if any of my questions have been answered, but maybe first on the portfolio.
I wanted to see how youre thinking about the breadth of it I think you've talked about in the past about wanting to add some sort of motion.
Our patient product is that still a focus and then are there any other gaps in the portfolio that might be priorities to address.
Yeah.
You know the great part is I think the navigation robotic thing filled a big gap and and.
So.
We're totally enthusiastic with regard to where we sit from a portfolio breadth perspective today.
If you look at the.
In the high Ninety's.
Kind of prevalence of pathology and can we address it the answer is yes.
I would say a whole clearly is cervical motion.
Well, we'll fill that hole in the years to come who knows who knows when or what presents itself.
But I don't I don't see that as as much of a detriment or in the process of all output. Some co packed me things next year I would say as we sit today it's at.
Attend to me, but its one of those things with I guess forthcoming and we have a clear view we have designs we have.
When theyre very early experience so.
We're good there, but other than that I I.
I Love, where we are I think what youre going to see is you're going to see continued expansion within kind of the idiopathic deformity space for us not that translate rotational understanding in iOS to a a system that ultimately address some of those things to not utilize some of our learnings from patient positioning to not utilize.
Our Motorola potentials within a neurophysiology realm, and so I think that we have a lot of opportunities to continue to expand our are really kind of competencies across different pathologies and different patient types.
We feel great about where we are.
I love it because ultimately it's really such a reflection of.
The organic innovation machine that we've built here that can ultimately address so much of the gaps that we havent front of us and Thats ultimately why you see our commitment to invest the kind of R&D spend that we do.
Great Thanks for that.
If I could just ask a follow up for Todd.
Just on an EBITDA.
I guess, just the path to $80 million and 25% I think at the analyst day, you kind of thought it would be more of a ramp.
But I think your.
Kind of outperforming EBITDA so could.
It looked more linear with 24 being closer to 40.
Any thoughts there would be helpful. Thanks.
Yeah, Thanks, David for the question.
I guess, what I would tell you is.
I feel very good about how the Leverages manifesting itself and I think one of the great comfort I have sitting in my seat is is the fact that Pat and I were totally aligned on where the company is going.
And the way our leadership team has built the company.
<unk> reflects the leverage that we've communicated.
So the investments reflect the priorities of the business.
As we grow ultimately, we see that leverage and so.
What I would tell you is is we feel good about the quarter happy that we can raise full year guidance be a little bit of ahead of the game there.
And our ability to continue to March toward our long term goals and objectives totally intact, and we feel feel great about it and so.
I'm, probably going to be short of giving you a hard number or hard answer there, but I like our chances.
Yeah, Great that's helpful and congrats on the quarter. Thanks, guys.
Thank you.
Alright. Our next question comes from Erin <unk> from Lake Street Capital markets. Please go ahead.
Hey, good afternoon, everyone. This is Aaron on the line for Brooks Congrats on the strong quarter you guys are doing a lot of good things and we're really excited about the growth going forward.
So how sustainable do you believe that these elevated procedure volumes can continue you know you mentioned this a little bit in the prepared remarks, but.
Are you seeing other companies respond to the innovation with any moves or their own how are they responding to innovations and lateral with an with safe harbour Niels.
Yeah, Erin thanks, Thanks, so much for the question.
Our best of Brooks.
Yes.
The interesting thing is that these things are very tough to pivot, meaning if theres a competitive dynamic that is very well protected if not it is not the IP that protects it it becomes the knowhow that does and that's kind of why I gush about the neurophysiology piece.
I think I've been at this in terms of just within lateral north of 20 years.
Yeah, 22 years and so the reality is the one thing I know is that neurophysiology automated neurophysiology is an absolute unequivocal requirement and so when people show different things and lateral but they don't show an automated neurophysiology system that ultimately includes SSC piece to understand a retraction injury and theyre not serious about part.
Dissipating so when I look at a procedure and I see people copy our patient positioning of the copy our attractive what they can't copy is the knowhow that we have here with regard to neurophysiology and so that's going to be a very difficult thing to do and so that's going to take years to do in years.
Competency to create and so that's why I love, our momentum and I loved the type of progress, we're making from a from a surgeon user perspective. Because these are these are unadulterated truth, that's where it's like I feel like we're very well protected in the very area, where we have a committed expertise because there's a very long level.
<unk> experience and.
And Knowhow and so my general view is.
We will continue to grow procedurally, and we will continue to really relish in the high ASP of the convoy sales and that's why we ultimately say gosh, we're creating distinction that distinction driving adoption. The adoption is reflective of the condensate sales.
Great Awesome very helpful. And then just a quick follow up I think you might have mentioned this as well in the remarks, but can you describe just a little bit what youre seeing now in the international markets and what your plans are sort of there would.
Would you consider that.
Meaningful priority for you guys and then also on the on the flip side are you seeing any disruption in the.
The domestic markets at all.
You know.
Let me answer that.
The international thing first.
I would tell you that one of the things that we.
Want to do is we want to be very deliberate and so when we go into a marketplace, we won't be all in.
And so our early experience in Australia has been awesome, So new news.
And in Australia are very are not huge markets, but I got to tell you. We're doing great surgery in those markets with people, who know how to deliver great surgery, and that's where if we realize the precursor to a great business is doing great work and so our enthusiasm as it relates to the contribution in the years to come from Australia, New Zealand is very very.
Hi, we started to lay the foundation for Japan, We will do the same thing in Japan, Japan is a great market and it's a big market I.
I think from a surgical perspective, they view surgery in a very similar vein as we do and so as we think of the international contribution we don't feel like we have to be worldwide. What we want to do as we always talked about as being narrow and deep and so the interest there becomes becomes just that how do we continue to.
To follow the very directive that we.
Committed to in the early phases of the recreation of this company.
As it relates to the to the domestic market I.
I think that Theres a lot of disruption.
I think that the.
We're irritating people, which is the intent and I think that that.
<unk>.
I think that the Globus innovation news creates uncertainty and so and I think there's also a lethargy in the companies that arent spine focus and so to me I think.
We're sitting in a in a very opportune spaces.
Great opportunity in the in the international markets.
Uncertainty for us to exploit in the domestic market and so I think we find ourselves in a very good place.
Awesome, Yeah, that's very helpful. Thanks for taking the questions and congrats again on the strong quarter.
Thanks, Sharon Thanks Darren.
All right. Our final question is from Sean Lee with H C. Wainwright. Please go ahead.
Good afternoon, guys and congrats on a great quarter and thanks for taking my questions.
Moving back a bit.
Prepared remarks, where you mentioned the increasing surgeon training. So I was wondering what's the.
So Tycho I guess like for the Pvp, where how long does it take for a surgeon to concentrating to start using the PTP in their practice and then move on to become a repeat customer and what's the rate of disease.
Certain convergence.
Don if you could tell us that we would be forever indebted.
Again, each of the individual surgeons have different needs and they come to us with different sets of experiences. So one of the one of the challenges is is what are the what are the list of requirements to ultimately prepare somebody for them to feel comfortable in applying the procedure into surgery.
And believe you me, it's within our interest to make sure that they are profoundly concert and comfortable and so one surgeon may need a single <unk> experience and they come to of course need to start doing cases. Other surgeons may need a course, they may need to go watch a surgery they may need to go.
They mainly the procter surging into their surgery and they they may be very very slow to uptake and so.
It is profoundly different for each individual surgeon, but one thing I know and this should provide you a great comfort is the surgeons don't want to make any mistakes and I think that they are profoundly careful and so theyre going to take their time and sometimes they need to be competed into it depends upon the marketplace, but I got to tell you theres numerous geographies.
Out there where PTT is such an upswing that the surgeons feel forced to do it because theyre, losing patients for not doing it and so.
We are profoundly confidence I think the publications all suggest that this is an absolutely predictable reproducible experience but.
We have to respond to the individual needs of their respective surgeon to make sure that it's predictable.
So I know that's a long winded answer and I didn't give you any specific numbers, but candidly I can't and won't.
I understand.
It's very helpful for our help in understanding this market.
Next my next question is on <unk>.
You mentioned during the prepared remarks that you're seeing.
The geographic expansion and moving into adjacent markets, especially.
How much is that contributing to your overall growth and where do you see that trend going over the next six to 12 months.
Yeah, I think that's it's a great question and I would tell you is limited and it's.
So often what'll happen is we may have a a.
Candidly a stronghold in a in a in a specific city, but then the adjacent cities that have big spine spend we do nothing and so.
The great part about I think are the makeup of our business is youre seeing 38% growth in those territories that had been established and so we're seeing that type of growth in same store sales that that in my mind means gosh I've accepted that as a as a.
As a tool that will fix our business that will expand and so the great thing is we have like if youre going out 38% in those areas in your overall growth is 41% surgically.
I'd say its not like we are and a bunch of people that ultimately gets to a place and that's where it's like our enthusiasm is add those adjacencies. So we could enjoy not only the adjacencies, but the same store sales growth that we would enjoy in that in that geography, and so to me that's the excitement.
Great. Thank you again for taking my questions.
Thanks, Sean.
Great. Thank you I will now turn the call back over to Pat miles for closing remarks.
Yeah. Thanks, very much for your interest in <unk> and as we say our best is yet to come so excited about what's going on and we love spine and we are thrilled to be serving it. Thanks.
Thank you ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Please wait the conference will begin shortly.
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