It's a pleasure to have ATEC Spine. From the company, Todd Koning, CFO, and Tina Jacobsen in the audience, Investor Relations. Thank you for coming.
Thanks for having us.
I wanna start with Q1. Obviously, you know, record revenue growth, 54% following a very strong 2022, where you had 44% growth. We've been seeing this type of growth from you guys for a number of quarters, and obviously that's well ahead of the spine market. You know, maybe let's, you know, let's start there and kinda talk about some of the drivers of that growth.
Yeah.
you know, how you guys have been able to outperform the market as you have.
Yeah, great. Again, thanks Craig for having us and love talking about the business, so good spot to start. From a growth perspective, you know, we as you said, kinda came into the quarter and I think, you know, delivered a good strong quarter, 54% year-over-year growth. When you look at the components of that and you kinda look at where we landed on our surgical revenue, I think the growth there was just around that same 50-plus percent growth. You know, ultimately, so much of that's kinda coming through in terms of volume and as well as revenue per procedure. On the volume side, that's really been a strong component of our overall thesis.
If you look at 2022, I think we trained 20% more surgeons or, excuse me, we saw 20% more surgeons adopt our procedural approaches and technology. Really that surgeon adoption drives such a strong volume component to the business. The guys that adopted in 2022, if they follow the path of their previous annual cohorts, will continue to use more and more ATEC procedures in their overall practice as time goes on. As we've shared in the past, the different annual cohorts and how their utilization increases year after year after year, even going back to the 2018 cohort.
I think when you understand that as people adopt a procedure like PTP, they begin to utilize that in simple pathologies first, and then more complex pathologies as time goes on. The utilization of the approach increases. Then when you gain the trust and confidence of a surgeon in some of their most complex cases, you ultimately earn their business in other areas. That's really kind of what we're seeing in terms of driving the overall volume of the growth. That's been such a strong component of our growth story.
You know, when we came into 2023, you know, our guide initially of $438 really implied kind of mid-teens volume growth and kind of high single digit procedural ASP growth. You know, as we saw the Q1 numbers come through, we raised our guidance. You know, we dropped the $7 million beat, raised the balance of the year $5 million, so $12 million up in total. That was really on the basis of increased volume. We continue to see volume as being the biggest driver, and it really kinda comes down to surgeon penetration and growing surgeons.
You know, maybe just one other stat I'd throw out there is, as we look at the Q1, when we look at the sales agencies that have been with ATEC for a year or more, they grew at a rate of 48%. That just tells you that we're growing in the places that we're established, which is an important component of sustainable growth.
Got it. Very helpful. I, you know, we will get into some of the specific procedures. You know, I wanted to ask first about kind of your view on procedure recovery. You're looking across ortho.
Yeah.
In Q1, there was, you know, a robust procedure volume, probably more on the hips and knees side versus in what we've seen in spine, but still spine volumes were up, you know, from some of your competitors.
Yeah.
You know, one, what did you guys see from a procedure recovery perspective? You know, the conversations that I've had with spine companies is that there wasn't as much pent-up demand in spine as maybe hips and knees, you know, from COVID or coming out of COVID. Would just love to kinda get your perspective on, one, the Q1 procedure recovery, but then just the level of pent-up demand that may be within, you know, within the market.
Yeah. you know, I think, you know, take my comments for what they were or are. At the end of the day, when you're growing 50% in a quarter, kinda understanding what's market versus share is, it's a little bit the market component of that becomes a little bit of noise. I will tell you though, like the strength of the business coming out of Q4 and into Q1, you know, we really didn't skip a beat. I think like that speaks to, I think more than anything, it speaks to the continued adoption of our technology, and the confidence that we have and I think doing what we're doing and saying that we're gonna do.
You know, from a, from a recovery standpoint, I think people often ask about staffing and those types of things as being a headwind. I will say there's certainly staffing challenges out there still. They remain to some degree, but not nearly to the degree that they were a year ago. From my perspective, staffing should at worst be neutral year-over-year, and more likely will be a tailwind to overall capacity and ultimately volume.
That's helpful. Maybe a little bit on the product side now. PTP, you know, a lot of your success has been driven by PTP. I want to start just so, you know, we understand kind of what PTP is relative to other types of procedures. In terms of what you're seeing from a surgeon adoption, you know, where are we, you know, what inning are we in, and how much of this, the PTP adoption that you have seen has come from docs that were doing lateral surgeries prior? Or are you pulling in other types of procedures into that?
Yeah. PTP really was really the evolution or the continued evolution of lateral surgery. As you know, you know, Pat and many of our team had the experience of really creating a lateral space and category at a company that's not too far down the road from where we are today in Carlsbad. Ultimately, it was really there to really address the broader question of why did only one-third of surgeons or surgeries that really could be laterally approached, why was it only one-third that ever adopted that approach when lateral surgery's a less morbid procedures, less blood loss, and a faster recovery? It's all those good things.
When you kinda looked at how to address that, you kinda looked at the fact that there's still a lot of variables in spine surgery. Our view is when you create clinical distinction, you compel surgeon adoption. That clinical distinction in lateral really comes from trying to control some of the variables that were not controlled well. I think a great example of that is our use of a patient positioner. Can you imagine creating a procedure in early 2000s and then 15 years later still using tape to tape the patients to the bed? With our use and the development of patient positioning, you can ultimately really position the patient in a very precise and controlled manner in a way that tape doesn't allow for.
It seems very, very simple, and straightforward. When you do that, then you design all of the other components of the procedure, for the specific requirements, we talk about the retractor and all of the interbodies and the instrumentation very specifically designed to meet the needs of a lateral approach. Then doing lateral in a prone position, so laying on the belly. Traditional lateral is usually you're on your side. Our PTP Prone TransPsoas, psoas starts with a P, so PTP. The patient's laying on their belly in the prone position. That is a much more natural way for surgeons to do surgery, and that's kinda how they're taught.
If you look at a traditional surgical intervention, posterior approach, like a PLIF, a PLIF or a TLIF, those are done with the patient in the prone position. It's a more natural way for surgeons to approach the patient. It also gives you some additional improvements. When you understand that spine surgery is decompression, stabilization, and alignment, being in the prone position allows you to decompress directly, if that's what you like, or release the facets of the spine posteriorly. It also, with the belly hangs, allows for a better lordosis, so you can get better curvature, achieve more curvature of the spine, and that's really what one of the things you're trying to accomplish in a spine intervention.
Those are some of the things that the position naturally helps and benefits from. Of course, as we developed PTP, one of our early, first acquisitions was SafeOp. SafeOp is a neuromonitoring platform. To be a serious player in lateral surgery, you have to have neuromonitoring because when you approach from the skin to the spine, you have a muscle called the psoas muscle. That psoas muscle has nerves in it, and you bring your dilator through that muscle, you expand the muscle, and you don't wanna run into a nerve more or less and damage it. You have to have a way to avoid that, and that's neuromonitoring. That's why we bought SafeOp.
What we did is we knew that one of the reasons people didn't adopt lateral surgery is because the most common complication is residual thigh pain or weakness. That happens because you damage the saphenous nerve. We ultimately took SafeOp, we iterated it, and developed a way to operatively in real time monitor the health of that saphenous nerve. The integration of all these components in a procedure addressed a number of the hurdles for adoption. That was why that's how we developed PTP and kind of why. When you look at the fact that many of the early success, I think, was with people who ultimately were lateral au fait and used lateral procedures in their overall practice.
You don't have to teach them necessarily how to do lateral or convince them why lateral's better. The procedural approach itself that we developed through PTP and the differentiated neuromonitoring, all are compelling reasons to adopt PTP. I think we've seen a lot of that early on in the launch of PTP and our lateral approach. As we look then at really the market opportunity, you know, we've talked about lateral today as about a $1 billion market, and there's about $2 billion of traditional posterior PLIF and TLIF business out there. The opportunity really is how do you convince surgeons who aren't using a lateral approach to address those lower lumbar degenerative cases, how can you use lateral to do that for all the good reasons we talked about earlier?
Through the amount of training, and we've trained, you know, probably on average, you know, well, two years ago, it was 400 people. We trained about 500 this past year. We did another 100+ in Q1. We're starting to see more people who don't have lateral in their procedural, if you wanna think about it that way. That gives us the confidence that we're starting to penetrate that broader traditional posterior approach and bringing that into a lateral market.
Got it. That's helpful. You're just launching LTP?
Yep.
I guess, you know, the question that I have with that is, you know, if you have prone or PTP that was taking from the lateral procedures and, you know, trying to take from the more posterior procedures, one, I guess, you know, what does LTP offer? How will it coexist with PTP?
Yeah.
I guess in a way, you know, why is it needed? Why is it, you know, a specific lateral procedure needed that's not prone when I know you've talked about the advantages of.
Totally.
of prone.
Totally. I think there's a couple things. One is, you know, people do get used to a position, and some people are comfortable in a decubitus position. I think there's a level of familiarity and comfort with that, so that's one. I think broadly speaking, we ultimately want the pathology to determine the approach and give surgeons tools to address the pathology with the best approach. We think that LTP, ultimately taking the learnings from PTP, when you think about all of the specific things that we've designed for the procedural approach itself, applying the patient positioner. Really what it does is it gives a great opportunity to do a lateral at four, five, and above.
For those of you who don't know, there's five vertebra in the lumbar region, and really most of the surgery happens between L3 and L5, S1. Lateral is great for 4, 5, and above because your hip bone, your iliac crest gets in the way from doing a lateral procedure between L5 and S1. A fair amount of pathology happens in L5 and S1. Typically people can either do a posterior PLIF or TLIF to address L5, S1, or you can do what's called an ALIF, which really comes in through the belly. Surgeons wanna do orthogonal surgery. They wanna come in from the side directly, or they wanna come in from the belly or directly to the back.
What this allows us to do is, we've created a combination procedure, if you will, which allows a 5 1 ALIF in the lateral position to come in orthogonally as well to address 5 1, and then you can come in laterally and do 4, 5, and above. That gives great optionality for people who like to do an ALIF at 5 1 versus a PLIF or a TLIF. Really that gives surgeons flexibility and a ton of efficiency as well.
You know, we didn't talk about it on PTP, but, you know, when you do a traditional lateral and in kinda call it the old way in decubitus, when you tape somebody, you ultimately do your lateral, then you have to untape them, break the room down, break the sterile barrier, reposition the patient in the prone position so that they can place the pedicle screws for the stabilization. In PTP, you don't have to do that. It's all in one, so you avoid the whole breaking down, and it's a much more efficient procedure. LTP is much the same way. Oftentimes, people will stage patients day 1, day 2. They'll do their ALIF, and then they'll do their L4, L5, and maybe L3, L4, whatever the pathology requires.
You can now do your ALIF and your laterals all in the same, the same surgical experience, which is a big advantage as well.
Yeah. That makes sense. Moving on to, you know, what you guys call informatics, enabling tech. You know, so you have SafeOp, which we discussed a little bit. You have EOS, which is a standing imaging system. Just made an acquisition of a robotic system that looks a little bit different than what the robots are on the market today.
Right.
You know, maybe just discuss a little bit on kind of where your, you know, the platform for enabling technology is today, how you're integrating it, how, you know, your procedures are currently kind of running through that enabling tech, and then, you know, what the, what the robot can give you?
Yep.
-going forward. Excuse me.
You know, today, EOS has been such a widely accepted imaging platform, especially in kind of the pediatric space. It's low dose radiation. It's been around for years, and so a very strong base of install base in kind of academic pediatric settings. It's been a very widely accepted technology. The second generation was launched 2 years ago, and that's ultimately what's being sold and installed today. It's called the EOSedge, much higher acuity imaging and whatnot. The beauty of EOS is that it gives you a standing weightbearing film and image, and it gives you the full body. That's important 'cause as I said earlier, spine surgery is decompression, stabilization, and alignment.
Alignment is the greatest correlative to long-term positive spinal intervention outcomes. Why does that make a difference? Because typically, people will do segmental films, and really kind of maybe from the top of the hip to the thoracic area if you've got a lumbar degen case. The challenge with that is you don't know if the patient is kinda retroverting their hips or bending their knees 'cause they're in pain while you're taking the picture, so you don't get a true understanding of what the actual lordosis and curvature of the spine is in a normal standing position. All of this stuff is related to itself. EOS has been a great way for us to ultimately understand true global alignment, which allows for surgical planning.
Really doing that in kind of in an automated way. You can take your scan and get your global alignment measures, and there's a number of them that ultimately help surgeons plan surgery and how much correction they wanna get in an intervention. Bringing that into the intraoperative experience with here's the plan, and then intraoperatively understanding what kind of correction you can get. EOS will also help you understand bone density at different vertebral levels, which is today a DEXA scan kind of gives you an averaging. This will give you great clarity on how what's the quality of the bone in different levels, which will allow you to be more precise and better prepared as a surgeon to intervene on a patient.
Additionally, it'll allow you to bring in pre-bent rods, which, you know, again, it aims to give you the type of correction that you want and be a little bit more efficient intraoperatively. Through a lateral intervention, you would have clearly the neural navigation of SafeOp, as well as then REMI, which we just bought, or the Fusion Robotics asset that is a navigation-enabled robotic platform, which you can clearly place the screws. Our view and vision of how you integrate the navigation component into a lateral procedure is really to be able to navigate your initial dilator so that you can ensure you're orthogonal and in the place that you want, kind of, anterior and posterior on the spine.
Place your retractor, monitor the position of that retractor so that if it begins to migrate south anteriorly, that you can correct that. So you can navigate that intraoperatively and assess that with real-time information. Then be able to navigate your disc prep and your interbody placement. Doing all of that with minimal fluoroscopy. One of the realities of lateral surgery today is it takes a lot of radiation for patient and surgeon. Doing that in a navigated fashion will ultimately reduce the amount of radiation.
When you think of somebody who has not adopted lateral, but kind of believes in it, but maybe haven't thought that they've got enough volume to really justify going through the work to learn it, and maybe don't feel great about the radiation component. Once we integrate the navigation robotic aspects of our acquisition into the lateral procedure, that'll address that concern as well. Really, we're trying to take as many variables out of spine surgery as possible to ensure that you get a reproducible and a predictable experience.
What's the timing of some kind of combination...
Combination of all that?
Of all that?
Yeah. From an integration of the navigation robotic component, you know, the first thing we're gonna do is we're gonna get the system cleared with our InVictus posterior fixation system. That's kind of about a 6-9 month effort. We've got the clearance of freehand navigation, that's probably a 12-18 month effort. In parallel with that, we'll be integrating kind of the overall procedural approach with the navigation. Think about that for PTP, that's probably a 2025 experience.
Okay. Wanna touch on profitability, EBITDA. Getting to break even has been, you know, a long-term goal for you guys. I know.
Yeah.
I know, you know, you guys have made a lot of progress. I think in Q1…
Thanks for acknowledging that.
I've asked you about it for a number of years now. I think in Q1, correct me if I'm wrong, I think 1,100 basis points up year-over-year.
Mm-hmm.
I think guidance is 800 basis points.
Yep.
Year-over-year, obviously you're ahead of the guidance. Couple things. You know, anything that the back half, why you couldn't deliver the 1,100 if you are, you know, ahead, you drop in, you know, does that all come down right to EBITDA? Maybe just start there.
Yeah. you know, our adjusted EBITDA goal here is to break even on the full year. That implies about 800 basis points of improvement year-over-year. I think as kind of the cadence walks throughout the year, we've kind of said, "Hey, it's gonna be a bit heavier in the first half versus the second half in terms of overall expansion." You know, as we've kind of looked at, and I guess I'd say one other thing is maybe the second half has a little less expansion in the guide, just because when we purchased the Fusion Robotics assets, ultimately we absorbed about $5 million of annual run rate R&D investment in that.
you know, our revenue raise allows us to maintain our adjusted EBITDA commitment that we came into the year with. Even post-acquisition, we're maintaining the guide on that, really enabled by the higher revenue and the strength of the business. That's why you see a little bit of that differentiation first half, second half. Really the long range plan that we shared with investors, little under a year ago, really said, as we expand our operating margins, the lion's share that's gonna come out of SG&A. And about two-thirds of that is gonna come out of infrastructure leverage.
All of the investment we've made in the business kind of in 21, 2021 and earlier, you think of the facility that we have, our surgeon training, distribution facility and some of those things, just kind of the infrastructure of the business to run it, has been made, we're leveraging much of that as we grow our revenue. The balance of it's kind of coming from our variable selling model. Ultimately, we're seeing a walk down of average rates as we grow. The comforting or the nice thing is that as we've shown, you know, it was 800 Bips of expansion the second half last year and 1,000 expansion Q1, that has really come in those components.
It gives us confidence that as we walk to adjusted EBITDA breakeven this year that You know, the fact that it's coming in the components that you expected it to gives you confidence that you can continue to do the deal. We've really said from a revenue standpoint, to the extent that we beat guidance, really $0.10 on the dollar drops through to adjusted EBITDA. You know, we're reinvesting back in for growth by and large, but still recognizing that you drop some through. We feel pretty good about that because our guide, 22-23, still drops kind of low 30s% on an absolute basis percentage drop through. Like the year-over-year in absolute dollars is meaningful drop through.
Our view is it's good to continue to invest back in the business to the extent that we overachieve.
What have you guys said about where you can ultimately get from a EBITDA margin and operating margin perspective?
Highly profitable.
No, no numbers there.
Our focus is let's just get to zero, and let's get to cash flow breakeven.
The two of the most similarly sized competitors to you have very different margin profiles so.
Yeah. You know, and I can kinda share some of that. You know, we like to talk about applied learnings. You know, you see us do a couple of things that are specific. One is when we launched, or when we built the company, really when Pat started, the first thing he did was invest in a quality mechanical goods, like the posterior fixation system, the interbodies, just great stuff, probably the best in the business. We bought SafeOp, and then we launched our lateral. The experience previously was launching lateral, do all of the work, and then missing out on the pedicle screws and some of the rods, which is a fairly large amount of the revenue of that procedure.
That's why you see us have a lateral revenue per procedure that's, you know, $17,000-$18,000 per procedure, where it wasn't that experience previously. That's kinda first applied learning. Second is, you know, our walk into international is one where we're very focused and specific so that we ultimately enter geographies. We've been clear about New Zealand, Australia, and Japan being the three focus areas because they have philosophically adopted a anterior column lateral view of the world. The surgeon has a great influence on what they use, and the economics and how stuff is sold facilitates, you know, a procedural approach.
At the end of the day, we believe if we're direct in those markets, and specific, we can ultimately run a revenue and a profitability profile that's much more favorable than if you were to go out and, you know, get into a bunch of companies through or countries through distributors. You run into some problems there in terms of profitability profile. Then our commitment to being spine focused. You know, one of the points there is, I think, ultimately, some of the challenges of neurophysiology, like a neural monitoring business, those are low margin businesses standalone. You know, our commitment is to really be spine focused. I think from a profitability standpoint, that's differentiated from some of the experience that-
Got it.
That you shared.
A couple minutes left here and just wanted to touch on. There was a, you know, announcement, merger announcement, acquisition in your space. You know, you probably are positioned, at least kinda in my opinion, as one of the, you know, the beneficiaries of that. Just wanted to see, you know, from any sales force disruption from that. We wanted to see, have you seen any of that, or what's your approach to it? How do you know, see it as an opportunity for you guys?
Yeah. You know, clearly, I think, you know, spine's a small town and we know the players and the players know us. I think our interest is to continue to grow the business. That's gonna take more people from a selling standpoint. Oftentimes it takes some sort of impetus for people to make change. I think this is a great accelerant, excuse me, if you will. You know, our intent is to continue to run the play. I'll tell you, there's great talent out there, and, you know, we're gonna compete like hell to get the talent to run the play.
Anything that you've noticed yet or?
Highly talented.
Okay. I had to try. I had to try. As we're about out of time, I'll cut it off there. Thank you, Todd, for coming.
Thanks for having us, Craig.
Thank you.