Good afternoon, everyone, and welcome to the webcast of ATEC's Second Quarter Financial Results. We would like to remind everyone that participants on the call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the Company refer to reported amounts, which are in accordance with U.S. GAAP as well as non-GAAP or pro forma measures. Reconciliations of non-GAAP measures to U.S. GAAP can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. Leading today's call will be ATEC's Chairman and CEO, Pat Miles; and CFO, Todd Koning. Now, I will turn the call over to Pat Miles. Please go ahead.

Thanks, Audra, and welcome to the Q2 2022 financial results call. There will be some forward-looking statements. So if you review that at your leisure, we will be providing a forward view. So I'd say, a very good second quarter finished at a total revenue of $84 million for the quarter, which is a 35% year-over-year growth. I would say that the procedural investment thesis is working. And so we're scaling top line growth toward positive adjusted EBITDA in 2023, training surgeons on PTP. There's a lot of them. There's big demand. We believe PTP is the next-generation lateral surgery. We're expanding indications with new product launches, reflecting our information-based competitive advantage in clinical publications, and we'll hit on that, extending EOS' influence while leveraging new hospital access. So we're getting more hospitals and more access. And so we want to take a minute and just make sure that there's great clarity with regard to the procedural investment thesis. And so the way that we look at the world is we try to align with surgeons and surgeons don't think in terms of implants or widgets, since implants and widgets are the currency of the business, I think, oftentimes they are industry's priorities. But when surgeons think in terms of treating patients, they think of procedures, what procedural intervention will work best on a specific patient in respective pathology. What are the unique requirements, what procedure most predictably creates a sustained successful long-term outcome for a patient. And so many companies talk about procedures, but few have gone beyond really kind of implant and retractor design and development. And what we've done is really design and develop procedures based upon the unique requirements for each approach. For instance, if you're going to design a system for prone lateral surgery, it's…

Well, thank you, Pat, and good afternoon, everyone. So I'll begin with revenue. Second quarter revenue was $84 million, reflecting 35% growth over the prior year and a 19% improvement compared to the first quarter of 2022. The $84 million in revenue is comprised of $72 million in organic revenue and $12 million of EOS-related revenue. Second quarter organic revenue of $72 million increased 30% compared to the prior year, which is probably our most difficult quarterly comp given the very strong performance in Q2 of 2021. Year-over-year volume growth of 17% was driven by the continued expansion of surgeon adoption with surgeon users increasing 23% compared to last year. Much of that growth is coming from established sales agencies, with at least one year of tenure. That cohort achieved 25% growth in the quarter, demonstrating durable sales growth from our most tenured agents. Average revenue per case expanded 10% year-over-year as revenue mix continues to shift toward procedures that feature more products per case and procedures with greater complexity. Strength was portfolio-wide, with lateral biologics and ALIF all contributing significantly to the growth this quarter. EOS deliveries in that quarter were solid, driving $12 million in EOS-related revenue and growing 93% compared to the Q2 of 2021 and on a pro forma basis, growing 49%. As a reminder, the transaction closed in May of last year and we've continued to make progress with the integration, showing strong revenue, achieved the highest number of orders in any quarter, and are seeing improvements in the time required to install new orders. Continuing through the remainder of the P&L, second quarter non-GAAP gross margin was 70%. Down 320 basis points compared to the prior year, just under half of the year-over-year decline or about 150 basis points in gross margin was mix…

Thanks much, Todd. I think if you look at really what we're doing is that we're in the middle of our share earnings strategy. And that means several things. It means PTP is taking share, and that means that we're earning more lateral -- traditional lateral surgeons as well as TLIF and PLIF-type surgeons, guys who were traditionally posterior approach. As well as we're seeing it applied to more complex cases. And it's perfectly well suited. We're seeing a fair amount done in the ambulatory surgery centers. This confidence is creating a halo effect that impacts the rest of our portfolio. They have a fantastic portfolio that gets applied based upon the -- oftentimes the entry via PTP. Our sales channel is getting better and so that speaks to further confidence in earning share, and we're dipping our toe into the international business in a narrow but deep way. And I think we've defined that in previous calls and that remains very consistent. And so we also intend to capture the greater than $2 billion EOS opportunity and hopefully try to lay out a little bit about what we mean by creating predictability through a planning effort today. And so thrilled to death with regard to our ability to uniquely have that information that's going to drive better surgery. And we think that it will reflect in just the consistency by which we perform. And so our commitment that we made at the -- our Investor Day out here at ATEC of a 2025 being $555 million, which reflects a 23% CAGR and a $80 million EBITDA, adjusted EBITDA breakeven in 2023 and a perpetuation of a disciplined investment that we'll deliver cash flow breakeven without the additional dilutive capital. And so excited about that. So our opportunity to address the need for predictability and reproducibility is massive. What is the nemesis of spine is the volume of variables that you have to control. And so we know that spine surgery needs ATEC. So with that, we will take questions.

[Operator Instructions] And we'll go first to Josh Jennings at Cowen.

This is Eric on for Josh. I appreciate all the details you guys shared around volume growth expectations for the remainder of the year. I was just wondering if you could help us understand the recent procedure volume trends that you've observed to date that underpin those assumptions. What sort of month-to-month or month-over-month improvement have you seen through June, July and now into August?

Really, when you look at our volume growth, 17% in the quarter, I don't think we're going to get into the nitty-gritty of month-to-month. But I can tell you that we exited the quarter and entered the third quarter with kind of the same level of momentum that we saw in the second quarter. So we definitely saw an improvement sequentially from Q1 to Q2 in terms of volume growth. The year-over-year volume growth continued to remain strong, and I think we're -- it's really on that basis that we raised our guidance the way we did really on the back of incremental unit volume growth.

We'll go next to Mathew Blackman at Stifel.

This is Colin on for Matt. Just one on EOS. Appreciating the pressures hospitals are facing given the challenging CapEx backdrop, could you walk us through how these dynamics really affected EOS placements in the quarter and how that factors into the raised EOS guidance as well?

I'll let Todd take the guidance one, but we're so early in the whole EOS opportunity of worldwide hospital interest and there's so many different ways to acquire this system. I don't candidly see, right now, a huge headwind. And we're such a small player and the volume of units we need to place to be relevant is such that we're not kind of as appreciative of the macro dynamics. That being said, I think people hold onto cash. But again, I think what we're doing is our ability to gain access to an institution with regard to ways to rebate against implant provides hospitals access to the technology while perpetuating a relatively [indiscernible]. And so that's kind of how we see it from kind of an operational perspective, but I'll pass it on to Todd for a financial view.

Completely. And Colin, I think what we saw was a [indiscernible] number of orders in the quarters [indiscernible] record. So I guess we didn't really see a headwind from that perspective. And so I think we're very pleased with where we're at in terms of the number of orders in the period. And as it relates to the guidance, really, what we did was we kind of dropped the beat and held the second half on EOS. Overall guidance was raised $9 million. We beat by about $6 million in the quarter. $5 million of that being in organic and $1 million of that being in EOS. And so we've really raised in the second half, $3 million organic. And so that's really how you should kind of read through our guidance and the performance in the quarter.

We'll take our next question from Gibran Ahmed at Canaccord.

This is Gibran on for Kyle. Maybe just to dig in a little bit further on EOS. Just curious in terms of what you're seeing between a purchase and an earnout dynamic if you're relatively sort of agnostic to the 2. And then secondarily, with the broadened hospital access, just how deep is some of that cross-sell and pull through opportunity in these early innings? Maybe just trying to get a sense of, obviously, the opportunity is quite wide, but how deep are you getting at some of these initial accounts and initial [indiscernible]?

I would tell you that it's early goings. The vast majority of sales we have today are outright purchases. The interesting part is we're getting outright purchases in private surgeon offices and groups right now as well. And so I think what we're seeing is a place like Texas Back entered into a use-based type rebate agreement. And so the great part is, is the volume for those types of things has been what we intended it to be. And so we're [indiscernible] agnostic, as you say. And also, I think you did a good job of framing the question, which is it's the early innings. But in the quarter, we saw places like Real Cornell, OrthoIndy. OrthoIndy is like the perfect example of a place that needs it both from a spine and a total joint utility perspective. Also, Hogue here in Southern Cal. And so the places -- that's just a few of them -- are really a who's who. And again, back years ago when we had a challenge getting access to some of these institutions based upon this being a previously broken company, this is such a great way in if you will. So anyway, probably more than you intended to get from me, but just a little bit of color.

Yes. And I think I'd add to that. Over time, we'll be able to measure after you place these units. We can measure the impact on increased volume from places where we hadn't been. That will kind of happen after we place the unit. But what's nice to know is that the leading indicator here is that these units we're getting orders for where we don't have access with the order, we're getting the access. And that's the leading indicator in why we have confidence that the value thesis is manifesting itself.

And we'll go next to David Saxon at Needham and Company.

This is Joseph on for David. Just wondering if you guys could give us the cadence into next year for cash burn and potential EBITDA break even next year.

I think as we laid out in our Investor Day in May 2023 is expected to be cash flow breakeven and 2023 -- or excuse me, adjusted EBITDA breakeven. 2023's cash burn will be certainly lower than this year. And so I think I think we're a bit early to put a number on it, but we're certainly going to improve. But the key here is getting our adjusted EBITDA improving and breaking even next year. And I think what gives me confidence is our sequential improvement here in the second quarter, where we saw a pretty significant improvement both in dollars but in terms of the percentage leverage that we saw from Q1 to Q2 and our confidence in the ability to see continued improvements throughout the year to achieve really the commitments that we laid out from long term plan standpoint. And so I view our second quarter performance here as completely consistent with our expectations relative to what we laid out in our long-term plan.

And we'll go next to Amit Hazan at Goldman Sachs.

This is Phil on for Amit. Kind of an overarching question trying to understand -- I realize you're still pretty nascent in a lot of the accounts that you're in, but staffing challenges and issues related to COVID still amounted to materiality for a lot of other companies that are more mature in nature. And so I'm just wondering what are you seeing in the environment? And basically, the question is, do you feel like you would be growing faster if conditions were slightly different right now and enabling kind of the top end to continue to grow faster?

It's kind of interesting. I don't think the environment that we participate is any different than anybody else. I don't care how big the Company is. There still tend to be the ebbs and flows. I think the difference is there's a share-taking dynamic going on that is very apparent. And so what we're doing is we're growing through it. I think that your point is the right one, which is we'd be growing faster if there was more predictability associated with the environment that we're participating in. But everybody has got the same dynamics.

And we'll go next to Phillip Dantoin of Piper Sandler.

This is Phil on for Matt. Just to ask a quick one. Is there any update on the OUS front following your first PTP in New Zealand in the first quarter?

Thanks, Phil. As you appreciate, this is a one by one by one by one business. And so we celebrated our PTP in New Zealand. And so not much of an update. We have like a great team in place in Australia [indiscernible] we're not in yet, but the Australia, New Zealand team is really kind of outstanding. We have a very high class opportunity in those two places. We can't wait to be able to get into Japan here in the coming years, probably '24 is what we're looking at. And then you have maybe the U.K. and maybe Brazil, but like we're going to stay narrow and deep. But really not a heck of a lot to communicate. We're still just getting going down there and clearly a fair amount of ebbs and flows in that part of the world, but hugely excited about what's going on. We have the right leadership in place here and down there for the opportunity.

And we'll go to Amit Hazan at Goldman Sachs.

It's Phil Thanks for taking the follow-up. I don't believe I heard during the gross margin commentary, a comment on inflationary pressures and input, kind of product costs. So I was just wondering if that's something that you're seeing, especially peak resin prices up so much, if you're having any difficulty with availability or costs are notably elevated.

Yes. So we're definitely not seeing issues with availability. I mean -- but from a cost standpoint, I mean, there is some cost pressure baked in there. I think when I look and kind of enumerated the big items, I think those are the major items that we've seen, but we're not immune to the cost pressures that everybody else is seeing out there from an inflation standpoint. And we're working through those. And I think, again, what's different from us is we are growing through some of those things, and that kind of helps us overall. But they definitely are there, and we're working to navigate them.

And that does conclude today's question-and-answer session and today's webcast. Thank you for your participation. You may now disconnect.