Q4 2024 Alphatec Holdings Inc Earnings Call
Speaker Change: Good afternoon, everyone, and welcome to the webcast of Baytech's fourth quarter financial results.
Speaker Change: 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.
Speaker Change: During this call, you may hear the company refer to non-GAAP or adjusted measures. Reconciliations of these 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.
Speaker Change: Leading today's call will be ATAC's Chairman and CEO, Pat Miles, and CFO, Todd Koning. Now, I will turn the call over to Pat Miles. Please go ahead.
Speaker Change: Thanks much Audra and welcome to the Q4 2024 financial results call. You will enjoy some forward-looking statements. Read them at your leisure.
Bye. Bye. Bye. Bye. Bye. Bye.
First, let me address Q4 2024 financial highlights.
Speaker Change: What you're seeing is perpetuating growth leadership, so we grew at 28 percent total revenue growth in Q4, which is 4x the market.
So, we're perpetuating that leadership.
Speaker Change: for the first quarter, really since the transformation. And so what we're enjoying is revenue growth, profitable leadership.
Speaker Change: and so just love where we are and also love the growth profile forward.
Speaker Change: As we've talked about since the transformation, we're in this for the long haul, and I think the growth reflection from the clinical distinction has been robust.
Speaker Change: And we love to say around here that we're 8% market shareholders with 92% to go.
Speaker Change: But when you start to wonder, are the numbers reflective of that commitment, you have to say yes.
Speaker Change: and total revenue CAGR over a five-year period has been 40 percent.
Speaker Change: Somebody likes what we're doing and it's created demand. So we we believe that that robustness continues forward
Speaker Change: revenue per surgery on a five-year kegger. And so I think the foundational growth machine and the growth thesis is intact.
Speaker Change: The beauty about the growth thesis being intact is that the investment thesis is starting to provide powerful leverage.
Speaker Change: And that was by design. And so we love seeing the type of leverage that's coming forth and us becoming a self-sustaining company.
That's been the plan for...
for some time, and clearly it's coming to fruition and
forthright about it and excited about it.
Speaker Change: And so, as we look at the full year of 2024, we're back to the whole profitable growth commentary. We finish a year at $612 million, which is 27% revenue growth.
Speaker Change: 25% growth in established territories. Does all that mean is same-store sales. And when you start to see the expansion of same-store sales, you have to say, gosh there's some acceptance of the clinical thesis that we're putting forth.
18% surge in user growth.
Said that but it's worth repeating
Speaker Change: As well as there's a record EOS order book in dollars, so there's a lot of enthusiasm with regard to what we're doing with EOS. It makes total sense.
Speaker Change: clinically, love to be participating in the second largest market in the world which is Japan.
Todd Koning: And so we did our first cases there and we hosted a deformity summit, which would be requisite of our commitment to the deformity space. And so I would tell you I'm totally bullish on the route forward, thrilled about the year, and I'll turn it over to Todd to provide some additional color.
Todd Koning: Well, thank you, Pat, and good afternoon, everyone. I'll begin today with fourth quarter 2024 P&L highlights.
Speaker Change: Total revenue was $177 million, up 28% compared to the prior year, and up 17% sequentially. The $177 million in revenue was comprised of $157 million in surgical revenue and $20 million of EOS revenue.
Speaker Change: Fourth quarter, surgical revenue of $157 million grew 28% compared to the prior year period. That represents $34 million of year-over-year growth, our largest dollar growth in a quarter ever.
Speaker Change: The improvement was fueled by procedural volume growth of 19% and average revenue for procedure growth of 7%.
Speaker Change: Our lateral franchise continues to be the primary driver of this growth.
Speaker Change: Seasonality contributed to fourth quarter EOS revenue of $20 million, up 32% compared to last year. Demand for EOS is robust, with record order volume in the quarter. That, along with the positive reception of EOS Insight,
Speaker Change: positions us well for strong system installations and the accompanied implant pull-through in the coming years.
Speaker Change: Now turning to the remainder of the P&L, fourth quarter non-gap gross margin was 70% flat compared to the previous year.
Speaker Change: Non-GAAP R&D was $13 million and approximately 8% of sales. Top-line growth drove 200 basis points of leverage, while we continue to invest in innovation at a level slightly higher than the 2023 on an absolute dollar basis.
Speaker Change: Non-GAAP SG&A was $105 million and approximately 60% of sales. Over half of the 800 basis points of year-over-year improvement came from infrastructure leverage with a balance from variable expense rate.
Speaker Change: Improvements. Included in this period's SG&A is a step up in depreciation related to purchase of instrument sets. As a percent of sales, depreciation increased about 50 basis points year over year. Excluding that impact, SG&A improved 850 basis points.
Speaker Change: We reported total non-GAAP operating expense of $119 million, which was approximately 67% of sales.
Speaker Change: In the fourth quarter, we took measures to improve our operational discipline, strategically realigning and reducing the organization, and rigorously evaluating discretionary spend and investment dollar allocation.
Speaker Change: The increased operating discipline is beginning to add to what was already a powerful operating leverage opportunity and contributed to Q4 marking our first non-gap operating profit since the remake of the organization began.
Speaker Change: I'll turn next to Adjusted EBITDA, which was positive for the third consecutive quarter. Fourth quarter Adjusted EBITDA was $21 million according to a 12% margin and over 1,000 basis points of improvement compared to the prior year period.
Speaker Change: The improvement in Adjusted EBITDA margin was driven by 850 basis points of SG&A leverage and 200 basis points of R&D leverage and represents a very meaningful drop through of the year-over-year growth and revenue dollars to Adjusted EBITDA.
Speaker Change: You can see in the chart on this slide that the profit margin expansion that we are executing has been significant and consistent.
Speaker Change: Top-line momentum, coupled with operational discipline, has resulted in a deliberate profitability improvement.
Speaker Change: That execution in conjunction with the cost optimization measures that we completed in the fourth quarter gives us confidence in our ability to deliver on our financial commitments and translate revenue growth into profit and cash flow.
Speaker Change: Turning to the balance sheet, we ended the fourth quarter with $139 million in cash, including approximately $50 million in proceeds related to the term loan expansion announced last quarter.
Speaker Change: debt at face value was $590 million. We continue to evaluate alternatives for the $316 million convertible notes due August, 2026, and expect continued financial execution to increase our options and the attractiveness of those options.
Speaker Change: We achieved a pivotal milestone in the fourth quarter. We generated free cash flow of nine million dollars.
Speaker Change: The primary contributors were strong-adjusted EBITDA and our transition beyond the period of heavy investment in instruments and inventory that enabled us to onboard multiple sizable U.S. geographies over the last 18 months and positions us well to continue to invest in the sales channels.
Speaker Change: I'll turn next to full year 2024 results. Total revenue was $612 million, up 27% compared to the prior year. The $612 million in revenue was comprised of $545 million in surgical revenue and $67 million of EOS revenue.
Speaker Change: Surgical revenue grew 29% compared to 2023, driven by procedural volume growth of 19% and average revenue for procedure growth of 8%.
Speaker Change: EOS revenue was $67 million, up 13% year-over-year. Non-GAAP gross margin was 70%, up 40 basis points compared to the prior year. Non-GAAP R&D for the full year was $54 million and approximately 9% of sales, an improvement of 190 basis points compared to the prior year.
Speaker Change: Non-GAAP SG&A was $407 million and approximately 67% of sales, an improvement of 290 basis points compared to the prior year. Half of that improvement was driven by infrastructure leverage and the other half by variable expense rate improvement.
Speaker Change: 2024 Adjusted Debit Dial was $31 million and approximately 5% of sales, a year-over-year improvement of $40 million and 690 basis points compared to the 2023 results.
Speaker Change: Drop-through of incremental revenue dollars to adjusted EBITDA was 31% for the full year, up significantly from the 22% in 2023. We are demonstrating growth leadership and profit margin expansion while investing in the future growth of the business.
Speaker Change: Cash use in 2024 was $128 million, in line with our expectations, and an improvement of $31 million compared to 2023.
Speaker Change: Next, I'll provide detail on full year 2025 outlook. We expect adoption of our unique procedural approach to drive revenue growth 20% to approximately $732 million, consistent with the outlook shared in our January pre-announcement.
Speaker Change: That includes surgical revenue growth of 21% to approximately $657 million, which will be fueled by mid-teens' surgical volume growth and mid-single-digit revenue per surgery growth. We expect EOS revenue of approximately $75 million.
Speaker Change: The next slide provides context for the contributors of our surgical revenue growth.
Speaker Change: I'll begin with the procedural volume growth, which is driven by the impact of ATEC clinical distinction on surgeon adoption and utilization. You can see in the chart on the top left that surgeon adoption has been steady and strong, growing another 18% in 2024.
Speaker Change: Another consistent and recurring contributor to volume growth is surgeon utilization. The top middle chart depicts the steady ramp in utilization that each of our new surgeon cohorts has demonstrated over time. Our procedural solutions earn surgeon confidence.
Speaker Change: That creates loyalty and encourages surgeons to partner with us in more cases, including increasingly complex cases.
Speaker Change: And towards surgeries with greater complexity, all of which feature higher revenue per procedure than overall average. Innovation is providing another tailwind. Our portfolio now features expandable implants and corpectomy implants.
Speaker Change: which along with an improving biologics attach rate are contributing to higher revenue per case.
Speaker Change: Turning to the outlook for full year 2025 adjusted EBITDA, we expect sales growth to continue to lever the infrastructure we have built.
contributing to an adjusted EBITDA of $75 million.
Speaker Change: That implies a 37% drop-through of the incremental growth in revenue dollars roughly in line with the drop-through that we delivered in the second half of 2024.
Speaker Change: The chart on the right depicts the deliberate nature and consistency of the profitability progress we are driving.
Speaker Change: Execution has been strong and the improved operating discipline of our organization as we exited 2024 positions us well to deliver on 2025 expectations.
Speaker Change: and our long-range plan commitments, which include a 2027 adjusted DBDAI margin of 18% at $1 billion in revenue.
Speaker Change: So to recap our financial outlook for this year, we expect continued strong revenue growth to drive incremental profit margin expansion.
Speaker Change: That, along with the benefits of our 2024 investments in instruments and inventory, will fuel positive cash flow for the full year in 2025. That's a subtle but important change relative to the previous outlook, which contemplated cash flow break even.
Speaker Change: The intent of the nuance is to be clear that we view zero as the floor to our expectations of cash flow.
Speaker Change: With respect to cadence, keep in mind that due to seasonality, Q1 has historically been the largest cash use period during the year. We expect cash use of $15 to $20 million in the first quarter of 2025, with positive cash flow in quarters 2 through 4.
Speaker Change: In conclusion, through our investments in the team and infrastructure, we have built a fast-growing, spine-focused company.
Speaker Change: We are delivering a return on those investments through durable revenue growth and strong operating leverage, which resulted in an inflection to adjusted EBITDA profitability in 2024.
Speaker Change: There's a lot more to come. 2025 will see continued profitability improvement and mark another fiscal milestone, free cash flow generation, and the capacity to self-fund future growth. With that, I'll turn the call back over to Pat.
Pat Miles: Thanks much, Todd. Our strategy is clearly working and I would say it's the consistent focus on our objectives that is reflecting that performance.
Speaker Change: I always love an objective and a reflective numeric value. And so, as we talked about, people are buying into what we're doing from a revenue perspective because we're creating clinical distinctions, which means surgery is better and outcomes are better. And that reflects in a 40% CAGR over a five-year period.
Speaker Change: We're clearly compelling surgeon adoption, which is resulting in a 19% TEGR, as talked about. And we're expanding and elevating our sales force, which is such a key part of this.
Speaker Change: For those of you out there on the sales side listening, we're open for business and we continue to grow this monster.
And so.
Speaker Change: When we started the transformation, it was all about becoming the standard bearer in spine. Our interest is always to revolutionize surgery by improving procedural durability and predictability.
Speaker Change: The one thing that we know is what plagues the durability and predictability of spine surgery is intraoperative and systemic variables.
Speaker Change: If you look to your left, and we showed this graph before, knee surgery and hip surgery as proxies for revision rates, we are well beyond those in spine, which says to us there's...
Speaker Change: ample opportunity to address these variables in ways that others haven't. And so the way that we're going about that is really through informatics. Informatics is what's going to fuel durability and make our growth leadership sustainable.
Speaker Change: If you look at what we've done with regard to the construction of our spine procedures, our interoperative leadership, which has led to our growth, is very apparent.
Speaker Change: And so we're using things like SAFOP to understand exactly where nerves are and what their health is.
Speaker Change: We're using things like valence to be precise interoperatively. If the goals of surgery are decompression, stabilization, and alignment, alignment is the last bastion that hasn't had an objective reflection.
Speaker Change: EOS is providing us that information that drives an objective reflection of alignment and so from an interoperative perspective we have an ecosystem that's reflective of the goals of surgery in a way that no one else has.
Speaker Change: If we look forward to the future, and we start to look at some of the systemic issues associated with controlling the variables that undermine the predictability of spine surgery, we think that EOS is such a core element.
Speaker Change: So, what we're doing is we will utilize EOS to understand what type of surgery
to do.
Speaker Change: What type of should the patient be intervened upon at all, as well as what are the requirements operation to fulfill that surgery. And so we feel like this is such a foundational element.
Speaker Change: And if those companies don't have informatics that ultimately mitigate variables, they're going to be left behind in this realm. And so our enthusiasm is to really continue to draft off all of the advantages of being 100% spine focused.
Speaker Change: who would have known that we're the largest pure play spine company out there and I think that we're the best position to ultimately move the field forward which means mitigating the variables that undermine the durability of spine. So with that we will go to questions.
Speaker Change: Thank you. We will now open the floor for questions. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. In consideration of others, please limit yourself to one question.
Speaker Change: Our first question comes from Brooks O'Neill at Lake Street Capital Markets.
Good afternoon, guys. Congratulations on a terrific year.
Speaker Change: So Pat, you highlighted ongoing industry disruption in the press release and we all know that Stryker's leaving and others are pursuing non-spying opportunities out there in the marketplace.
Speaker Change: What assurance can you give us that you're not going to elevate spending again in 2025 to take advantage of that disruption, and that you are focused on the profit delivery that you guys talked about in your prepared remarks? Thanks a lot.
Yeah, thanks, Brooks.
Speaker Change: is part of our current effort. And so I don't see there being unique outsize expense dynamics that ultimately undermine our kind of financial thesis.
Speaker Change: And we're just excited that more people don't know how to respond to the requirements of a field that we feel like we're experts in.
Speaker Change: And so, with that disruption, what we want to do is continue to kind of expound on our expertise, which is spine.
Speaker Change: Great. It's a fertile environment. I'm excited for 2025. Thanks a lot for taking my question.
Thanks, Brooks, and amen.
We'll move next to Vic Chopra at Wells Fargo.
Vic Chopra: Hey, good afternoon and thanks for taking the questions too for me. So first one, one of your large competitors announced the sale of its US final implants business recently. Do you expect any benefit from this from either a market share perspective or from picking up additional sales reps? And then I had a follow-up.
Speaker Change: Yeah, I'll take the first one and Todd could pop on if I miss something.
Speaker Change: be smarter. I think wherever there is disruption there is opportunity and so we're seeing it firsthand and candidly we want to lean into it. I got to tell you
Speaker Change: Those who think that this environment hasn't progressed beyond plates and screws are kidding themselves. It's also gone beyond precision-only tools in the operating room.
Speaker Change: And so, you know, why I think that we are so well positioned is I think that our informatics platform
Speaker Change: is so unique. And I think when guys from Stryker start to look around and see what opportunities they have to be part of companies that ultimately invested in the future and in the requirements of the future, I think that they're gonna look very favorably upon us. And so what I would say is, I think it's a tough place to be in a private equity world whereby investments are difficult.
Speaker Change: and the need for unique technologies that go beyond the operating room are required. And so I love it, and I think our chances are great.
Speaker Change: Great, thanks. And then my follow-up question was, you know, Pat, we saw that in your press release you said you entered Japan with your first surgery.
Speaker Change: Just maybe talk about your international plans for 2025 and what we can expect. Thank you.
Pat Miles: You know, Todd and I always laugh about kind of our original common ground.
Pat Miles: When we were at a previous place that was purple, we overspent on the infrastructure associated with an international business that wasn't providing the growth or profitability that's necessary to self-sustain. And here we committed to doing that.
Pat Miles: Japan's one of those markets that candidly shares so much with the States and with Australia. And so we're thrilled about being in those markets.
Pat Miles: It's also a market that really is arms wide open to progressive techniques like lateral.
And so, we've really been disciplined and
Pat Miles: And we have a guy who runs that business, Chris Lyons, that has been super disciplined. He's a super clinical guy about going in with regard to lateral surgery, establishing a relevant beachhead, and then expanding from that. And so I think we're doing it the right way. We're gonna play long in that market. We have the right team on the ground. And so we feel like if it's the second biggest market, we better be serious about it. We better play long on it, not try to go in and reap a bunch of near-term victories,
We'll go next to Josh Jennings at TD Cowen.
Speaker Change: Hi, this is Eric on for Josh. Thank you for taking the question and congrats on another great quarter here. I was looking to just discuss PTP and LTP. Those offerings have been great growth drivers for ATEC over the past several quarters. I was just curious to hear
Speaker Change: What inning you think we're in with those launches? Are we still in the early phase there of their full potential and is there any way to size up the penetration that those procedures should be honored within your target surgeon bases? Thank you.
Yeah.
Speaker Change: Thanks, and I'll do the first, and I'll give the numerical reflection to him.
to Todd because I'll screw it up.
We're in the super early innings.
Speaker Change: I would tell you from a lateral perspective, we still have so much growth in the 4-to-1, meaning L4 to S1, meaning using the patient positioner to do a 5-1 ALIF and then 4-5 and above from lateral. It's growing and it's doing great but the market opportunity is much larger than what we're seeing reflected in the sales growth. I think that clearly we're growing at a super high rate.
Speaker Change: But I'm still not seeing the volume of that surgery reflect in in the number. As it relates to PTP we are
Speaker Change: in the super early innings. If the beauty of PTP is that you have access to the front of the spine, the back of the spine at the same time. And so often people would pick procedures based upon where the pathology resides.
Speaker Change: The flexibility associated with having the access to the front and the back of Vail, so many more opportunities to intervene with a procedure like PTP that has such a wide berth of
Speaker Change: you know, reflected clinical value in multiple types of pathology. And so, again, I think we're in the super early innings. Whenever I see people do T-LIF or PLIF,
Speaker Change: or even ANWF at four or five and above, it just speaks to the type of opportunity we have because the applicability of PTP is so relevant. And Eric, to give you a sense for the...
Speaker Change: the size of that market and how we see that, you know, we have talked about the lateral market being about a billion dollars in the U.S.
Speaker Change: and us having about 15% market share here in 2024. And so that tells you that we're not very penetrated in that market. And the opportunity here, as we've talked about as well, is there's $2 billion of traditional posterior approach.
surgery in PLYF and T-LIF that can ultimately be addressed.
Speaker Change: through a lateral approach. And so, you know, we think that market today at a billion can ultimately be $3 billion as we expand the utilization and broaden the adoption of lateral surgery. And so we're very excited about where we are, but we're just getting started.
Speaker Change: Understood. I appreciate all that cover and thank you for the question.
We'll go next to Matthew O'Brien at Piper Sandler.
Speaker Change: Hey, this is Phil Han for Matt. Thanks for taking our questions and congrats on the really nice quarter and cash flow positivity.
Speaker Change: Just wanted to discuss the efficiencies that you targeted, you mentioned in your prepared remarks, the efficiencies in SG&A that you found this quarter.
Speaker Change: You know, where were the savings found? Are these cuts fully realized at this point, and how might this program lead to, you know, maybe potential upside on the bottom line here in 2025?
Speaker Change: reducing the size of the organization as well as taking a very thorough look at where all of our discretionary spend is and what our investments are and where they're going.
highest priorities and so.
Speaker Change: But the ongoing improvements in operational efficiency, you know, as we look at operating better with the assets that we have, you think about all the instruments in the inventory that we've invested in over the last 18 months.
Speaker Change: We're getting better and more professional at effectively utilizing those assets to maximize their return.
Speaker Change: And so it's beyond just kind of the P&L, it's also on the balance sheet as well.
Speaker Change: And my view is, as we continue to exercise this muscle, we'll get stronger and better at it.
Speaker Change: Looking forward to seeing us to continue to improve in this area and believe that that's part of the reason why we've got confidence in our ability to meet our financial commitments here in 2025 and beyond.
Great, thanks so much.
We'll take our next question from Matt Miksic at Barclays.
Matt Miksic: Great, thanks so much for taking the question and congrats on a really strong strong finish. Maybe if you could talk a little bit about you know
Speaker Change: It's sort of an update as to how the strategy that you put in place last year, in terms of share capture and sort of maybe upgrading some of the regional field teams.
Speaker Change: has kind of contributed to some of the strengths exiting the air and sort of maybe some sense of what inning we're in in terms of that pull through into 2025 and I had one follow-up.
Speaker Change: Yeah, Matt, I'll take the first one. I, you know, I think that we continue to get better, you know, it's like, I think...
Everybody appreciates it. I think building a large and adept
Salesforce.
is, especially clinically, at Salesforce.
Speaker Change: It's kind of the hard thing and so, but you know, it's like you better build a portfolio that can, you know, inspires people and then when it inspires, you know, surgeons, then you better have a sales force that ultimately, you know, reflects in the capability to drive the confidence of the surgeon to implement that procedure.
Speaker Change: And so, I think that we're a good ways into that effort. The problem is, is we still have big geographies that we're, you know, somewhat irrelevant in.
Speaker Change: And so, as an 8% market shareholder, we have such a long way to go. But the great part is, is we're so validated in the same store sales, you start to see the 25% growth in the same store sales. I think the thesis is working clinically. I think the buy-in has been great. We just need more great people on the team from a sales perspective.
Speaker Change: And so, that's why we love the disruption in the space, and we love the ecosystem that's been built, because we think that that's reflective of the requirements of a long run. And so, I think the pieces are really kind of becoming in place. Now we just need, you know, a larger influence in the academic world. We need a larger influence in certain geographies.
Speaker Change: But we're getting there, and it's kind of a step by step by step, and so, not that that gives you precise numeric reflection, but I think it gives you a little bit of color as it relates to where we are.
Speaker Change: And if I could just add maybe two points to that, one, the investments we made in instruments and inventory again over the last 18 months, I think positions us very well to continue to grow.
Speaker Change: And take advantage of that disruption. So, I think that that is opportune. And then, if you look at the rate at which we exited.
Speaker Change: 2024, I think we grew $34 million in surgical revenue growth year over year in the fourth quarter. That's the strongest absolute dollar growth that we've ever demonstrated and I think the amount of momentum in the business is strong.
Speaker Change: That's super helpful. Thanks for the color and then maybe just you know one of the questions we get sometimes is you know you've got a robot coming this year don't have a robot right now in the lineup but you at least not not in broad circulation but
Speaker Change: but still, you know, growing and taking share at a pretty, pretty great pace and so
Speaker Change: Maybe, you know, you've got a pretty broad portfolio of what we call enabling technology. Maybe you could talk a little bit about
Thanks so much.
Yeah.
Pat Miles: Matt, I think that your commentary is such a great one and if
Speaker Change: I really tried to describe our view of the world as it relates to the controlling of interoperative variables and then the controlling of systemic variables.
Speaker Change: And when you start to think about why people have revisions in surgery...
Speaker Change: And we said it's 10 to 15% in short-segment surgery within three years, and it's north of 20% or 25% in deformity.
Speaker Change: And you start to say, is that because a guy's missing screw placement? And it's not. And so if it was all about screw placement, then the robot would have absolutely solved that issue. And I think another kind of interesting proxy is you see strikers spin their spine division out, but they keep their robot.
Speaker Change: And so, if the robot was the answer to all ills, then Stryker would have never rolled out their spine group, because they would have seen the cash register ring every time that they could utilize the robot in one of these surgeries.
Speaker Change: And so, I think what's, like all things, I think the robot and navigation are part of the solution. And so, when we talk about mitigating interoperative variables, I think that that's part of it. And I love that part. And ours is, in evaluation, it's going as expected. We're excited to have...
Speaker Change: you know, navigation and robotics in the back half of this year. But the reality of it is that I think there's also systemic element.
And when you hear the guys talk about
surgical planning, meaning should we intervene at all?
Speaker Change: And if we are going to intervene, what procedure should we do?
This is an environment that's so ripe for predictive analytics.
Speaker Change: And so we think that the foundation of EOS provides us that opportunity where there's this constant feedback loop that accommodates the need for mitigating the systemic variables. The other thing I think people don't contemplate is the operational opportunities we have to ultimately further our plight with regard to narrowing configurations that go into support surgery.
Speaker Change: If we know exactly what the surgical plan is, our ability to send less stuff...
Speaker Change: spend less on freight, spend less on instruments and inventory that go in to support these. And so we feel like our our lineup of technologies
Speaker Change: is reflective of a level of know-how in this business that's candidly unique to us. And so that's, not to be jerkish about our growth, but I think that's why you're seeing the type of impact that A-Tech is having on this space. So, anyway, sorry for the diatribe, but I just felt the need to.
Speaker Change: K-2M transition could open up. You've got a pretty great position in academic centers around EOS.
Sure.
Speaker Change: We're not talking about necessarily picking up reps and like-for-like kind of replacement, but the idea that there's a team that's important to the pediatric scoli.
Speaker Change: Center and academic centers that's in transition maybe talk a little bit about
Speaker Change: Any opportunity that you see there to kind of lean in, in that situation, that'd be super helpful. Thanks.
Speaker Change: Yeah, Matt, again, I think you're exactly right. We're an abject nobody in pediatric surgery at this point.
Speaker Change: And so, you know, what we had is we had a bunch of ESs in pediatric hospitals and we really had nothing to support them. I think that what we've done is over the last few years is committed to making sure that our product portfolio from a surgical perspective is reflective of the output.
Speaker Change: Because what happens is EOS informs what to do surgically. We want to make sure that we can fulfill that surgically. And so I would tell you that we're in the very, very early innings of any reflected prowess in that space.
So I think it's a great point.
We'll take our next question from
Speaker Change: Hi, congrats on a great quarter and thanks for taking the questions.
Speaker Change: Just on EOS, the guidance implies a pretty similar growth rate to 2024, but under what you guys did for the year. Do you expect at some point to see somewhat of an increase or inflection in the growth rate given EOS Insight or maybe the other enabling tech that you're bringing on and hopefully getting pull-through from?
Speaker Change: Let me start, and I'm going to turn it over to Todd.
The ultimate answer is yes.
Speaker Change: And the challenge is one of timing. I think the reception of EOS Insight has been outstanding.
Speaker Change: It is the tip of the proverbial iceberg. The team here and in France that is most responsible for EOS Insight
Speaker Change: We are in such the early phase of this and so I think that you know what's going to happen is it's going to be reflected in that in the kind of academic environment.
Speaker Change: you know, expectations for next year. It's like, how do you value that? And so that's where Todd jumps in.
Todd Koning: assumes about a hundred million dollars of contribution from EOS in 2027 and so if you kind of said hey
Pat Miles: Straight line that between there and then you got twelve and a half million dollars of growth Which is a little bit north of what we've what we've delivered, but I think to Pat's point
Pat Miles: As EOS Insight gets more adoption, people start talking about it, people start seeing the value of it. Our expectation is that will continue to grow the interest and we'll see more placements over time and also begin to see the the monetization of that really through more implant pull-through.
Awesome. Thanks so much.
We'll move next to Jason Witts at Roth.
Jason Witts: Thanks for taking the question and congrats on a solid quarter and especially the cash flow which is very positive here. So maybe if I could ask, you mentioned Deformity, you hosted your first summit. In terms of
Jason Witts: I'd love to know what you're presenting right now in these first summits, and maybe if you could give the game plan for the next year in terms of what you might add to the portfolio, specifically addressing deformity. That would be very helpful. Thank you.
on the early-onset scoliosis and the idiopathic. And so...
Jason Witts: When our first deformity summit was really mostly focused on adult deformity, and when you start to think about the things that we have today, I think EOS is such a foundational tool.
Jason Witts: clearly predictable algorithm to suggest as to as to what you do. And so but from a product perspective, you know, the product portfolio we have, we have EOS, we have Invictus, all of the anterior columns, the PTP is applied to adult deformity.
Jason Witts: We have osteotomy sets, we have things like SAFE-OP. One of the things I think that people overlook is the sophistication of SAFE-OP in deformity. When you start talking about rotational deformity, which is mostly more of an idiopathic disease,
They use what's called MEPs, motor evoked potentials.
Jason Witts: You know, we've gone to the distance of facilitated MEPs in a way that ultimately doesn't require the same volume of voltage, which means the patient doesn't jump.
Jason Witts: And so the sophistication of assembling technology to reflect specific types of pathologies has really served itself, not just in PTP and LTP, but it'll serve us in deformity as well. And so we see these things as procedures, and what we do is love enveloping technology in a way that ultimately reflects in greater predictability. And so we think that the number of things that we can do within that space is significant.
Speaker Change: So, hopefully that hit what you were asking for. No, I think that gave a lot of insight and it did answer it. And maybe if I could just add to that. In terms of the doctors attending this summit that you're targeting, are these current ATEC users or is this a new set of doctors or how do you see that targeting or progressing?
Speaker Change: Yeah, that's a great question. It's both. And, you know, one of the really things that we're seeing come forth is the academic guys.
Speaker Change: And what makes that fun is these guys have big, you know, big groups of residents and fellows. And so literally on Friday and Saturday we have a fellows deformity course.
Speaker Change: And so we have, like, a who's who in deformity surgery that is facultying our course this weekend.
Speaker Change: And so you'll see a ton of fellows come forth and get very familiar with EOS, they'll get very familiar with Invictus.
Speaker Change: our screw system. We're getting very familiar with our neurophysiology system.
Speaker Change: And so, just the opportunity to reach into some of these academic institutions and start to demonstrate the value of things that we have, we think is very, very valuable. And so, it's been kind of a great time to be relevant in a more academic environment such that what we're doing is seeing these guys come forth and become familiar with what we're doing.
Speaker Change: Got it. Thanks. I'll jump back in queue. Thank you very much.
Next, we'll go to David Saxon at Needham.
David Saxon: Oh, great. Good afternoon. Thanks for taking my questions and congrats on the quarter.
Speaker Change: I wanted to ask on international, and apologies, this has already been asked, but Japan, my understanding is you're working with the major society over there, I think it's JSSR, and I think...
Speaker Change: you know, once you kind of get in there, you can see fairly rapid adoption. So I wanted to kind of
Speaker Change: you know, hear where you are in terms of getting buy-in from that group, understanding you've kind of just done the first cases.
Speaker Change: there, kind of how you're engaging them, how we should think about the ramp there.
Speaker Change: And then the second part to the question is, it looks like international is about 8% of sales in the quarter.
Speaker Change: I wanted to just understand how much of that was EOS versus kind of what you're seeing in, I think it's Australia and New Zealand are your two major international markets at this point. Thanks so much.
Speaker Change: Yeah, I'll pipe in on the color and I'll let Todd answer the numeric things.
You know...
But literally, we are in the pregame.
Speaker Change: We've done a bunch of surgery there but you know nothing of sort that would reflect any type of meaningful momentum as of yet.
Speaker Change: But again, it's a market that is so substantial and so important to us that we want to play along in it.
Speaker Change: We're in there. We have the right people around the business.
Speaker Change: The right surgeons are engaged, there's great enthusiasm. That, you know, communicated directly from the surgeons who are kind of kicking the business off for us, but yeah, we're bullish.
Speaker Change: And David, just to put some brackets around the surgical revenue contribution for international, it's at the between 1 and 2 percent of total revenues.
Okay, great. Thanks so much.
Thank you.
We'll go next to Calum Titchmarch at Morgan Stanley.
Speaker Change: and whether you're just comfortable with where the street sits today for Q1, I think that's about $168 million in revenue. I guess to that, any revenue cadence assumptions, we need to be factoring into our models that kind of differ from prior years. Thanks a lot.
Yeah, thanks Calumet.
Speaker Change: the commentary on where the streets at in the first quarter we feel reasonably comfortable with. I think you definitely do have some seasonality kind of going from Q4 to Q1 which would be historical and I think
Speaker Change: Models have kind of captured that at that stage, so we're reasonably comfortable with where the consensus is sitting today in terms of Q1 timing.
Thanks a lot.
Speaker Change: And that concludes the question and answer session. I will now turn the call back over to Pat Miles for closing remarks.
Pat Miles: Yeah, thanks very much, Audra, and thanks everybody for your interest in A-TECH. We are just getting started and excited about the spine market. Thanks very much.
Speaker Change: This concludes today's webcast. Thank you for your participation. You may now disconnect.