Good afternoon everyone and welcome to the webcast of ATEC’s Fourth Quarter Financial Results. We would like to remind everyone that participants on the call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the company refer to non-GAAP 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 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 very much [Indiscernible]. Welcome to the Q4 2023 financial results call. Clearly, there will be some forward-looking statements. But I would characterize 2023 as a very good year. And a few of the highlights, much of which has been communicated, but revenue of $482 million, which was a 37% total revenue growth, 890 basis points of adjusted EBITDA expansion, 40% surgical revenue growth was a broad contribution, 31% surgical volume growth versus 25% in 2022, which suggest acceleration, greater than 500 surgeons trained, and a lot of work really in three key areas, which is beginning with lateral, we launched LTP with the ALIF Midline element. We launched expandables in lateral. From an informatic perspective, EOS has really expanded from a developmental perspective and look forward to talking a little bit about that. We also acquired a navigate-enabled robotic system from an informatic perspective. And from the capital raise, raised $150 million. So, I would say a very productive year. To put it in context, we've gone from about 1% market share to probably a little north of 5%, depending upon how you calculate it. Again, I think that the interesting elements are the growth rate of 40% over that period from an annual growth rate perspective -- a compound annual growth rate perspective, 17% new surgeon CAGR, a 24% procedural volume CAGR. So, people are doing work with us. And then a revenue per case CAGR of 12% and I'll get into that as well because I think it's such a buy into our surgical thesis. Our priorities have not changed and really what we're committed to is earnings share through clinical distinction. And it's interesting, we've been talking about this since 2018, but surgeons adopt technology when there's a reason to -- when there's clinical distinction, we…

Well, thanks Pat and good afternoon everyone. We appreciate you joining us on the call today. I'll begin with revenue. Fourth quarter total revenue was $138 million, reflecting 30% growth compared to the prior year and a 17% increase compared to the prior quarter. The $138 million in revenue was comprised of $123 million in surgical revenue and $15 million of EOS revenue. Fourth quarter surgical revenue of $123 million increased 34% against a tough 49% previous year comparison with strong contribution from our entire portfolio. Underlying that surgical revenue growth was robust procedural volume, which grew 29% this quarter. That has an acceleration compared to the third quarter procedural volume growth of 24%. The growth reflects both a solid increase in the number of surgeons adopting ATEC procedures and an increase in surgeon utilization. Average revenue per case grew 4% year-over-year, driven by increased mix of lateral surgeries and expanding biologics attach rate and greater case complexity. Increasing mix of cervical surgeries is offsetting those tailwinds to some degree. And EOS revenue in the fourth quarter was $15 million, up 5% compared to last year. Turning to results for the full year 2023. Total revenue was $482 million, reflecting 37% growth compared to 2022. That was comprised of $423 million in surgical revenue and $59 million of EOS revenue. Full year surgical revenue grew 40% compared to the prior year, absolute dollar growth of $120 million. Procedural volume grew 31% year-over-year, which accelerated compared to the 25% volume growth in 2022. Volume growth in 2023 was underpinned by a 27% increase in surgeon users. Average revenue per case grew 7%, driven by increased mix of lateral surgeries and expanding biologics attach rate and greater case complexity. The increasing mix of cervical surgeries is offsetting those tailwinds to some degree.…

Thanks much Todd. I will tell you that what brings us here is our spine-focused momentum. I can't be more deliberate with regard to the value of being focused and aligned with a customer base on a very -- as a specific segment of the orthopedic market. And so that brings about 40% revenue growth. It brings about a huge opportunity for with a disrupted market. It brings about growth that is profitable from a sales perspective and a lot of momentum driven by the things that I spoke to previously. So, anyway, super excited about the 2023, celebrated the big year with our national sales meeting as of late. And I think we go into the 2024 with significant momentum. So, with that, we will take questions.

We will now open the floor up for questions. [Operator Instructions] The first question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open.

Hey, this is Phil on for Matt. Thanks for taking our questions and congrats on the excellent quarter. I was just curious if you could provide an update on the rep hiring cadence you've seen since your last update, I guess, Q3, how much disruption is still out there. And you've talked about being under-indexed in certain U.S. geographies in the past. Any update on that front from these ads?

I would say 94% of the market is still disruptive, I'm just kidding, 6%. The -- these things take a long time to play out. And I would say that the approach that we're taking is one of methodical nature. And so we have areas of great need. We have areas of adjacent need. And so what we're trying to do is identify where we're going to get the most expedient influence that we can with the best people that we can. This is going to play itself out over a three to five-year period. I love those who think it's a 12-month phenomenon. It's not. It will be rewarded by those who play long. And so the great part is there's plenty to do. Our portfolio becomes richer and richer with regard to its distinction and I just can't be more enthusiastic with regard to an improving portfolio with a probably a best-in-class commission rate.

And I thought the kind of reflects all of that stuff that's going on, lots of interest.

That's helpful. And I guess just on that same storyline with respect to guidance, is there any guardrails around cadence through the year as these rep hires and recent rep hires ramp and you're going to continue to hire this quarter as well. Do you expect it to ramp fairly uniformly through the year? Or is there going to be a bigger jump in the back half?

Yes, I'll let Todd speak to the numeric reflection, if there is one. What I think so often happens is that revenue is a lag indicator. And it's a lag indicator or bringing people over getting access to the hospitals, getting the surgeons familiar with the goods, but there's a lot that goes into it. And so the immediacy of the influence is somewhat muted. And so my concern always is kind of the over enthusiastic view on someone who just comes over. If we're playing along, our view is that these guys got to help us in the years to come, we would prepare them to do so with an unbelievable portfolio with unbelievable training.

And Phil, I'd tell you, the way we constructed the guidance really was reflecting the organization that we have here kind of coming out of the fourth quarter and really allowing new rep adds to be upside to that and execution of the underlying business really driving the strength of the guide. And so I think we've set up the year well in that regard. And as a reminder, our guidance philosophy is to put numbers out there that we believe we can achieve and have a reasonable opportunity to exceed. I think as it relates to cadence, I think as you see normal seasonality cadence, you typically have a step down from Q4 to Q1, step up to Q2, kind of Q2 to Q3 is flattish, and then step up in Q4. And so I think that overall shape of the curve will remain. And I think fundamentally, where we land overall will really be a reflection of the underlying strength of the business as we go throughout the year.

Makes sense. Thanks so much for taking the question.

Our next question comes from the line of Matt Blackman with Stifel. Your line is open.

Hi. This is Emily on for Matt. Just wondering if you can provide some color on the training that you've had thus far this year and expect to have in terms of what you're seeing for demand versus prior years or anything on the mix of new versus existing ATEC users or lateral versus non-lateral, anything there you can help us with?

Yes. I hope I can help you, I'm not sure I will. The dynamic becomes -- I think people have come here to learn lateral from the [Indiscernible] these guys are unbelievable lateral surgeons, and there's a whole slew of them. And so the dynamic is I think surgeons come here to learn lateral. And then I think that they are inspired by the other things. And so the continuation of the expanded indications of the portfolio would indicate that we're going to get some people who are returning because what they're doing is they're expanding their application of, say, PTP. We're starting to see the early experience with regard to corpectomy, which is really fun. Just from a standpoint of if you're lying on your stomach, you get to control the back of the spine, the front of the spine, the same in the same sitting. And there's just some real advantages from a kind of a big surgery perspective. And so that part of it is great. And so we're seeing some return, but we're also seeing a ton of new interest. And I think you saw that through the numbers on the new surgeon contribution. It's -- there's a lot of interest, and there's a lot of geography that we haven't touched yet. And so we feel like it's the right combination of people who've already adopted who are expanding new people coming in and so the tenant in the demographic.

Okay, great. And just maybe to expand on that one piece in terms of the expanded indications for lateral. So, we've had the $1 billion bucket and the $2 billion bucket of -- for a while. Is there any kind of traction moving into that bigger bucket? And with maybe an influx of experienced lateral surgeons that may be new to ATEC accelerate that trend?

Yes. It's a great question, and the answer is yes. And so I think when you start to see like more of a nuva footprint of surgeons who come over, I think just a familiarity in the comfort in navigating the retroperitoneal space, which is core to the lateral approach. And so no matter what the position, these guys are very comfortable in terms of doing that. And so the opportunity to expand indication is going to be faster. And so if you think about kind of the cadence of our products to engage that space, we wanted to make sure that we built a great procedure with a patient positioner, with a retractor in instruments and all the necessary elements, but then was super sophisticated on the SafeOp front. And then we thought that would can inform us to be able to lock up the indications for surgery. And so you saw a regular static implant, on an expandable implant now you're seeing a corpectomy -- and so you're seeing the kind of lockup of sophisticated the applications of surgery. And so it's -- the more informed, the more sophisticated the lateral user, the faster they will uptake and the more indications for surgery that they will utilize. And so previously, if there was like compressive material in the posterior part of the spine, it would indicate cash, I should do a TLIP because I can't do a decompression in the -- with a patient in the lateral position that the advent of PTP avails opportunity to do all of what you would normally do with a patient in a prone position and approach from the back and indirectly compression, but also get all the benefits of lateral in that position. And so that's our enthusiasm with PTP, and that's how we're seeing kind of the utilization. But if you're a lateral surgeon, what we're seeing is a faster--

And Emily, it really makes a lot of sense when you look at that and you understand that, that kind of translates into more procedures or more products through the procedure. So, products per case goes up, revenue per seizure kind of hit some tailwind through that. Plus, as Pat said, when they apply it to more complex pathologies, oftentimes that means either more procedures within their practice, get to use TTP or there are more levels in that procedure, both of which and all of which really contribute to this great same-store sales growth that you see because ultimately, the utilization of procedure just continues to expand and broaden the more that we offer it and the more they get comfortable with it.

At a higher price because of the--

Great. Thanks so much.

Next question comes from the line of Vik Chopra with Wells Fargo. Your line is open.

Hey, good afternoon and thanks for taking the questions. Just two for me. So, you talked about 15 new product launches and line extensions in 2023, can we expect a similar things in 2024? And maybe just talk about some of the key product launches we should be at a low at for? And then I had a follow-up, please.

Yes. Thanks Vik. The -- one of the things that I love about the company is that there is an organic innovation machine there's an authenticity around way to move the field. And so we have been committed as a cadence I've always done between eight and 10 -- and some of these things will be line additions and others will be big new product launches. But I think the things that will start to move the needle is in 2024, you'll start to see a continuation of this expansion of the cervical portfolio, which we think is opportune because as more people utilize lateral get confident with this, what they do is they expand the utility within the cervical realm, we want to make sure that we did all of that and so we continue to expand kind of the sophistication within that realm. Also, there are so many opportunities for us to continue to build the next foundation. And then one of the next foundations for us is how do we think through things like bone quality as it relates to EOS. And can we translate that bone quality into an implant. And so us becoming sophisticated with 3D printing is very important. So, you'll start to see 3D printed implants from us. And so we love the opportunity for the assembly of goods. I would say another one that's forthcoming that we'll get a lot of experience this year, but next year will be a big one will be the integration of the navigated robotic element into PTP. And so just when you start to think about the opportunity for innovation, it's not in a single silo. It's in the assembly of goods. And so for us to understand neurologically where we are with regard to SafeOp assembled to a navigated robotic element with regard to our Valence platform, those together become the innovation, not one or the other. And I think that so often people think, I'm going to commit to a single technology, and this is going to change everything. Spine is a field of great variables and so sorry for the diatribe. But if things of that nature that I think you're going to see a lot of -- we also have a keep expandable TLIF implant that's going to be excellent. And so I think there's going to be just a myriad of new products that you're going to see either deliver through a procedure that already exists or elevating the sophistication of a procedure through the utility of assembled goods.

And the prevent from Insight is a huge add to--

Yes. Yes, this year. So, the whole Insight, the Insight portfolio is -- we are super excited about it. The crazy part though is if you've been in this business sadly as long as I have, what you see is that these things take a little while to, in essence, reflect the value from a revenue perspective. And so you'll launch these products, you'll bring the field on these products, you'll get the hospitals to accept the pricing on these products. And then you'll see the revenue reflection. And so that's why we always say revenue is a lag indicated to the work that we've done 18 to 24 before. And so anyway, sorry for the guide trend.

No, not at all. That was a great. Thank you. And just my follow-up question, you have your upcoming investor meeting in March. Any things that you kind of what we can expect at the upcoming Analyst Day? Thank you.

Yes, Vik. And I won't steal the thunder of the meeting. But fundamentally, we're going to give another two years of financial projections, very consistent with how we laid out the story in May of 2022. Obviously, we'll have some additional kind of qualitative components to that. But fundamentally, it will be an extension of our financial commitments through the year 2027.

Our next question comes from the line of Josh Jennings with TD Cowen. Your line is open.

Hi, this is Eric on for Josh. Thanks for taking the question. I wanted to focus on your opportunity internationally. I understand you guys are just getting going in some markets like Australia and New Zealand specific to 2024, what level of international contribution have you guys factored into guidance here?

So, we haven't broken that out specifically, Eric. I think you'll see us give more granularity on that type of, I guess, insight in our long-range plan update. So maybe stay tuned there. But I'd tell you that it's starting to contribute, and we're getting good growth in the Australia and New Zealand markets as they're really starting to work for us. And as Pat said, we'll begin very, very early stages to see a little bit of revenue reflection coming out of Japan later this year. Not material at all, but it will be good to start seeing that. We've really built a great team in both Japan and Australia and New Zealand, really, really start to come on. So, I think we're very excited about the opportunity. And our experience thus far in those markets has reinforced the strategy of going narrow and deep in a very specific geographic footprint that we've laid out. So, maybe I'll leave it there, unless Pat wants to add.

The organization has done a ton of work to lay the foundation for future success of international. And that's -- you're most proud of because of just the predictable cadence of what's transpiring. So, each of the different teams, I think has it. And then to Todd's point, we have the right team on the ground and so the translation of that business could be what we intended to be.

That's great. And then maybe thinking about EOS. You guys have talked about the updated platform being slated for a rollout in the not too distant future here. I was just curious to your expectation for that launch? And maybe how many systems you think you could have in the market exiting 2024? Just any sort of launch metrics that we could be expecting would be great. Thank you.

Yes, I won't give you any launch metrics, but I will tell you that everything is on track. And I probably got in the presentation, I didn't talk about the regulatory clearance of them. So, the impediment, we found them, and it's us. And so we should be on time is my point, and I was just thinking about an impediment. The dynamic is one where I think that there's going to be great demand. The challenge of capital equipment is that you got to get the dollars allocated, you use dollar, then you have to get the room ready, and then you have to get the line in terms of getting it placed. And so again, I think that our enthusiasm for the technology is over the move. I just want to make sure that it's tempered, but with the practical dynamics associated with getting these systems in place. And so the technology is everything that we had hoped for and that we had intended. The automation, it's ultimately being integrated into the workflow of how we're doing things is exactly what we expected. It's -- again, I think it's creating just a more sophisticated field. And so all of that is coming Q2 2024 as committed, but the dynamics of the influence on the volume of units in the field will be felt in the years to come.

Understood. Thank you for taking the questions.

Next question comes from the line of Brooks O'Neil with Lake Street Capital Markets. Your line is open.

Thank you. Good afternoon. I just am kind of intrigued by this notion that you have 25% market share in some markets, but 5% overall in the US spine market. And I'm just hoping you could talk a little bit about some of the keys to getting to that 25% in the markets where you have it to whether you're confident that you can get to 25% in the markets where you don't? And are there any structural obstacles to achieving the big share in some key markets around the country now? Thank you.

That was a tough one, Brooks. I would say the features or kind of the reflection of those people who are at 25% market share oftentimes may have kind of a key center that they have gotten into and they've gotten into it with lateral surgery and then the lateral surgery has proliferated amongst the partners. And so there's been a competitive dynamic for people to adopt what we're doing. And so I would say that -- there are some great statistics around if you have a significant lateral business as a distributor of ours, then the likelihood of you growing at north of 40% is high. And then that ultimately reflects in the 25% market share in their respective geography. And so I would say that that is really kind of the foundation. And it's a lot of the guys who, candidly, have been somewhat familiar to us from previous companies that came over early and they've been able to establish the business. And then what they've done is they've reaped the reward of the halo effect. Candidly, one of the great things with regard to people who have just come over as of late in areas where there is kind of a focal EOS field reflection, those guys will ultimately likely not only build out the lateral space, but also build off the EOS installed base. And so when you ask kind of is there an impediment to long-term growth, there really isn't. This is an interesting business, though, just based upon the demographics of each of the individual geographies. Guys are very slow to change. And what we try to do is provide every reason in the world to change. Our view is the more we can reflect in a wide geography of EOS informatics, the volume of information that we'll provide to create greater predictability will drive people to us. And so that's why I think that the strategy of lateral first, a procedural reflection; EOS second, a procedural reflection -- I hope that 10 years from now nobody's talking about individual products because all they're talking about is what they're doing procedurally. And we feel like that procedural opportunity, informed by something like EOS, and a kind of growing sophistication with the information that's driven at the surgeon will make for better outcomes. These better outcomes will drive a better day. And so that's how we're thinking about it, and that's how we're seeing it reflected. Hopefully, that's kind of precise enough to answer your question.

So that was great, Pat. I really appreciate that. Just tack on one tiny a little bit more is not to be greedy, but does deformity give you an opportunity to grow your share in some markets even beyond the current 25%?

Yes. I think it's truly a great question, Brooks. Why do you see this being somewhat of a stodgy environment, as you see so many places that have committed to a provider for long periods of time? And so to un-seek those providers in a long period of time, you have to do something that's unique. And so the deformity market is a big market. And the reason why the numbers kind of get a little wonky is because it's not as though there's a lateral market and then there's a deformity market. There's tens of collateral is used in deformity. But let's just say, it's a very large market. and the ability to ultimately participate in that market is a sign of sophistication. And so oftentimes, if you do the complex things well, you can do the more things well. And what's happened is, there's been companies that have long been in this business that have established themselves as deformity providers. We believe that deformity is best approach from an assembly of goods, much like we have with regard to lateral. It's a different assembly of goods. But the opportunity for us to do a patient positioner in idiopathic scoliosis, where there's a curve that's more flexible, we think is opportune. We think neurophysiology in terms of automating it with regard to facilitated MEPs and even using automated SSEP is valuable in those cases. And then understanding rotational deformity with regard to EOS. When you start to assemble all of those things that suggest to us a procedural requirement. And that's where I think people have historically used gestalt. I'm so experienced in this field that I can do it. Our view is how do we provide objective information that ultimately drives behavior. And that's where we think that once that starts to become more commonplace, our ability to reflect an influence in that market is high.

Make total sense to me. I'm looking for $2 billion. Let's go to

We too.

Next question comes from the line of David Jackson with Needham & Company. Your line is open.

Hi. Pat. Hi, Todd. Congrats on the quarter. Thanks for taking my question. I wanted to start on lateral specifically for LTP. So for a doctor who's doing ALIP or sorry, XLIP is LTP the path of least resistance from an ATEC product perspective? And if so, how has that launch resonated with kind of doctors? Is that where you're seeing the most traction in that cohort?

Yes, completely. It's -- so as the parcel who is in Sao Paulo taking people to beds in the early days of XLIF creation to understand the requirements of having a product development group and marketing group that understand them viscerally is so valuable. And so what you're seeing is even we clearly communicate that PTPs the next generation to do lateral or expo, there's still many applications where LTP is super valuable. And so what we've done is we've taken all the learnings that we've had from XLIF, from previous years as well as from PTP and we've combined those and that gets reflected in terms of a patient position. Imagine when 2024, people are still taking people to beds and suggesting that there's nothing left to do in spine surgery that is pickable. And then the opportunity to say, "Hey, I'm a monitoring company, but is all I'm going to tell you where the nerve is and then the monitoring is not valuable after that. But people still have side pain because of plexopathy because what they're doing is retracting the Plexus to them. And so there's many opportunities to continue to make these things -- to improve these procedures. And I think that we're doing those with regard to the assembly of the technology that we are to lateral. And so when a surgeon comes and tries it the collateral, what they see as the next generation of goods.

Okay. Great. Super helpful. And then I just wanted to clarify something, Todd, I think you said in the script, for the OpEx cadence, did you say it was supposed to be kind of front-end loaded higher in the first and second quarter? I just want to make sure whether I heard that correctly or not. Thank so much.

David. My commentary was specific to the cash flow cadence throughout the year. So we've communicated we're going to spend about $100 million of cash this year as part of the investment in the sets in inventory, the revenue-generating assets that will ultimately fulfill the needs of the sales folks who come and who will come. And so that's what we're spending it on. We spent some there. Clearly, in the fourth quarter, you can see that -- and then ultimately, cash burn in the first quarter will step up from Q4. It will step down in Q2. And in the second half, it will be approaching cash flow breakeven. And so I think ultimately, that will be the cadence that we're expecting throughout the year with respect to cash burn.

Okay. Great. Thank you.

Our next question comes from the line of Drew Ranieri with Morgan Stanley. Your line is open.

Hi, Pat and Todd. Thanks for taking the question. And apologies if this has been covered already. But on balance, could you give us an update on how you're thinking about development for the product? And with more competition coming potentially in 2025, just remind us how you're thinking about differentiation of your system, especially as maybe more spine procedures are starting to move towards the ASC? Thanks for taking the question.

Thanks much, Drew. Thanks much, Drew. First of all, I guess I can't be more excited about what's going on with regard to Valence. We're getting experience. So it's being utilized, which we suggested as much. That utilization is going to get expanded. It's going to be -- 2024 is going to be more of an evaluation, verification type of a year with regard to -- it's going to be used, like all the other robots, in a relatively conventional way in terms of just placing screws. The launch in 2025 will ultimately be a verified tool that ultimately integrates or assembles with the workflow of, first and foremost, what we're doing in PTP. And so just the ability to assemble neurophysiology with navigation integrated into that effort will be phenomenal. And so making sure that you know where the bones are, you know where the nerves are, and you understand what the health of the nerve is, all of those things are great. One of the virtues of PTP is you have control of both the front of the spine and the back of the spine. And so your ability to literally manipulate both those at the same time in a navigated way is fantastic. And so you will start to see that in '25, and that's a unique opportunity for us. And so we have the ability to navigate 2 things at once here in in the coming years. When you start to think about ASCs, one of the dynamics is that oftentimes they're surgeon-owned. And I've not met a ton of surgeons who love to buy expensive capital. And so what we have done is ultimately create a footprint that accommodates the utility of navigation robotics in a way that's procedural. And so if we have to bring everything in the site of service, it's really just not that big a deal because our thinking is only around the success of the procedure and the required elements that make for predictability. And so our enthusiasm with regard to the ASC is very high because the footprint of our goods is very limited and our ability to ultimately execute critical surgery within a small space where there's not a high enthusiasm for capital is good. So that's the thinking, and that's where we are from a strategic perspective.

Got it. And maybe just one more. I don't think this was discussed, but just how -- in your 2024 guidance, maybe just talk to us about how you're thinking about competitive rep hiring and what factor that might have to play in there with any additional hires that you did or will do beyond 2023? And lastly, just can you just remind us where you are in terms of sales force headcount for year-end?

Drew, this is Todd. As we kind of laid out our guidance for 2024, we ultimately said, what organization do we have exiting the year? What's our run rate? And so that really is how we built our -- what was our exit rate in '23? That's really how we thought about and built our 2024 guide. So it's really a reflection of the fundamental, I think, underlying fundamentals of the business and the organization that we have in place. I think as you know, oftentimes what we do today really reflects revenue in 12 to 18 months from now. So our view is as we get more competitive reps on board and as the business may do better than what we have assumed, that might -- that ultimately would be kind of what would drive an upside case to our guidance. But fundamentally, we're trying to put guidance out there that we believe we can achieve and have reasonable opportunities to exceed. I think that opportunity to exceed would really probably be on the volumetric side and kind of the core business and/or upside down on the reps that kind of come throughout the year. Relative to total sales force, kind of the low-300s, mid-300s. So that's more or less where we're at.

There are no further questions at this time. Mr. Miles, I'll turn the call back over to you.

Thanks very much, Debra. And really just thanks, everybody, for your interest in ATEC. We are in this for the long haul, clearly, and we can't be more excited about the momentum that was created in a great year in 2023. Thank you very much.