Good afternoon, everyone, and welcome to the webcast of ATEC's First 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 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.

Thanks much, Desiree, and welcome, everybody, to the Q1 2024 financial results call. We will be making some forward-looking statements, and so I would ask you to review that at your leisure. So a quick review of the Q1 2024 highlights. We are establishing a foundation to deliver profitable long-term growth. Pretty clear, $138 million in total revenue, which is a 27% revenue growth; 450 basis points of adjusted EBITDA expansion; 30% surgical revenue growth; 23% surgical volume growth; 6% growth in average surgical revenue per case. And so from an adoption perspective, 150 surgeons trained in the quarter that drove a 21% increase in surgeon adoption. From an investment in revenue-generating assets, we continue to invest in a market that is either apathetic or disrupted. Without an expanded asset volume, you cannot support a market that clearly demands ATEC. So we deployed $60 million to enable a growing sales team to serve an expanded surgical volume. So speaking of the sales team, we are confident in the robustness of the growth as we continue to see outsized growth in especially our established territories, which was 28% growth of same-store sales. So we think that's a great statistic. We often around here talk about how the spine market needs ATEC and that ATEC is different. One of the key drivers of what makes us different is that we are 100% spine focused. Imagine that. Much like our surgeons is all we concentrate is spine. So being spine-only focused ultimately gets reflected in know-how. And when we talk about know-how, we mean sophistication and we mean unmatched mechanical imaging, navigation and neuromonitoring expertise. When you have know-how, ultimately what you do is you create clinical distinction, which ultimately compels adoption. It compels adoption from surgeons as well as attract salespeople that…

Well, thank you, Pat, and good afternoon, everyone. We appreciate you joining us on the call today. I'll begin with revenue. First quarter revenue was $138 million, reflecting 27% growth compared to the prior year and flat sequentially. The $138 million in revenue is comprised of $123 million in surgical revenue and $16 million of EOS revenue. First quarter surgical revenue of $123 million increased 30% over the prior year. This growth was against a strong comparable of 55% in the first quarter of last year. It was the highest growth comparison we have ever lapped aside from a pandemic rebound influenced quarter in 2021. And while lateral was again the largest contributor, growth continues to be strong across our entire portfolio. Surgical revenue was driven by robust procedural volume growth of 23%, which is a reflection of an increase in the number of surgeons adopting ATEC procedures and an increase in surgeon utilization. Average revenue per case grew 6% year-over-year, driven by a higher mix of lateral surgeries and increased case complexity, offset to a degree by improving mix of surgical surgeries. EOS revenue in the first quarter was $16 million, up 5% compared to last year. Similar to surgical revenue, EOS lapped a sizable 47% growth comparison, its toughest since the close of the acquisition. Next, I'll turn to results for the remainder of the P&L. First quarter non-GAAP gross margin was 71%, up 50 basis points compared to the prior year. The year-over-year increase was primarily driven by improved EOS gross margin, which is benefiting from pricing initiatives, a growing U.S. mix and improved service operations as well as strong volumes are fueling leverage of our Memphis distribution facility. First quarter non-GAAP R&D was $14 million and approximately 10% of sales compared to $12 million and 11%…

Thanks so much, Todd. I think with all the goings on in the spine space, the opportunity to improve spine surgery is significant, and that will be our value driver. When there's revision rates that are reflective of 10% to 15% in degenerative, 25% to 30% in adult deformity, the durability of spine surgery is called in to question. Clearly, ATEC is in a unique position to lead, and we look forward to doing so. And with that, what we'll do is turn the call over for questions.

[Operator Instructions] The first question comes from the line of Joshua Jennings with TD Cowen.

Congratulations on the strong start to 2024. Pat, I was hoping to ask about the opportunity in deformity. I know you guys have talked about this multiple times over the last 6 to 12 months. But one, maybe just help us think about ATEC's share in deformity. Maybe hard to parse out. And then on top of that, I was hoping to just ask about the evolution of SafeOp and integrating motor book potentials into the monitoring platform and how important that is to the deformity procedure. Just one on performing procedures and ATEC's future share taking. And then I have one follow-up on EOS.

Yes. Josh, I think the opportunity to influence deformity is very apparent and opportune. I think the most coveted tool in evaluating deformity is an EOS image. And I think bringing about predictive analytics to a field that completely lacks it is an opportunity to distinguish. And so it's been so exciting to see the automated measures, the planning, understanding reciprocal change in the levels, bringing that into an operative experience and understanding that you can refine a patient-specific implant, and then you can refine it in the operating room based upon the information delivered. And then just the ability to take that information and have the exact image postoperatively, it is almost predictive analytics by description. And so you think about the type of revision rates that you see in deformity, and you think about what are the variables that you're trying to control, and we think the great tool to control variables is the EOS image and ultimately how we utilize that in the surgery. And so we're a bit player in the grand scheme of things in deformity. And we feel like this tool really brings us to the forefront of both adult and idiopathic. We have a long way to go from a design development perspective in terms of some of the implant systems in that realm. We're doing a good job, but we have opportunity around. And so I would tell you, from an EOS perspective, the most coveted tool in the business. From an implant perspective, I would say good to very good. We will be great. We have the mechanical aptitude to be great. I think the big sleeper is SafeOp. And I think that when you start to -- especially if you think about idiopathic deformity and you start to think about how disruptive MEPs are today and the ability to do things like facilitation in a way that you don't need the voltage to ultimately test the motor elements of the cord and to be able to assess that by not disrupting surgery, we feel like it's another significant benefit. And so we feel like in both the adult and in the idiopathic realm, there's significant opportunities technologically to distinguish ourselves, which ultimately, this is a group that's steeped in research and a group that doesn't make decisions to change easily. But our technology portfolio, I believe, will provide that impetus.

Great. And just one follow-up, another technology question. Just on the interop alignment and automated reconciliation tool. Can you just help us understand where you are in that development process? It looks like from one of the slides that there's at least a prototype or maybe that's already in play and I'm just behind. But how important is that technology? Where are you guys in development there? It looks like it may be the only FDA -- non-FDA-cleared, I guess, piece of the EOS Insight platform, and that may just be an overread by me on the slide.

No, I think it's the right catch. The interoperative reconciliation is not something that has historically been done. And so we're, in essence, making a market there. And we're early on in the experience with that. We expect FDA clearance by the end of Q2. But I will tell you, this will be kind of a long effort in terms of creating utility and simplicity and seamlessness in the operating room. So it's our most immature element of the Insight portfolio of goods but one that we believe to be very, very valuable over time. So I'll look forward to more updates, but your catch is exactly the right one.

Our next question comes from the line of David Saxon with Needham.

I'd love to talk about the competitive powering you've seen over the last few quarters but specifically around what you're seeing in terms of leakage in territories that are covered by those competitive reps. How effective are -- has cross covering been in regions that are impact -- or covered by, I guess, non-competes? And then anything to update to the hiring from -- I think it was 50 last you disclosed in mid-March. And then just quickly for Todd. Any selling day impact in the quarter?

I'll start off and then I'll let Todd. I hate to say clean up, but he'll provide precision. It's the way we work together. Anyway, the hiring is going very, very well. It's entertaining. I get the opportunity to sit with our sales training class, and I sat in there yesterday with 30 people, men and women. And there is not a company that's not represented in the people who are coming forth to ATEC. And so one of the things that we committed to, and it's almost like the international focus of, hey, we're going to go narrow and deep. We're going to grow our sales force in a very deliberate way. Our sales leader is a very disciplined guy, Dave Sponsel, and I think that he's done a superb job in terms of being methodical with regard to the geographies that we drill into and how many people within those geographies, can we support them from an implant and instrument and a procedural perspective. And so there's a lot of things to bring to bear. And so trying to be deliberate and precise in these efforts is hugely important, but we continue to grow the sales force. There continues to be a lag in terms of their influence, but I would tell you, great progress is being made. The difference between, I think, the perspective from a banker and investor standpoint is, I think, there's an expectation that happens overnight. And I think I tried to utilize the proxy of the K2/Stryker as one that would suggest these things take time. And as we look back on them, they're going to feel quick. When you do the work through them, they're not so quick. And so anyway, we remain bullish. It's a long tail, and we are super excited about our prospects.

And David, I think I would add to that. The -- clearly, we're seeing the impact of the hires that we've made. I referenced that specifically in my prepared comments. And so I think it's clear that those hires have been having an impact in the way that we expect. Everyone is different, and everyone is in a unique situation. So there's variability from one geography to another. But I would say nothing outside of the bounds that we would expect. And so I would say very much as planned. To Pat's point, there's a ton of interest. You look at the people who are coming into the building, represents all the major players. And so I think our belief is we're absolutely doing the deal as we laid it out. And the beautiful thing here is that there's much more to come as we look forward to that. And to your specific question on selling days, we're 64 selling days here in the quarter. No impact year-over-year, and I think it's about 2 days more than Q4.

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

I've been bouncing around on calls, so I apologize if this already been asked. But can you maybe just talk about what you saw -- what trends you saw during the quarter with respect to patient volumes? And then I had a follow-up, please.

Yes. I guess -- this is Pat. I think what we saw is a pretty consistent flow really all the way through the quarter. There's -- yes, I think there are some vacations in the back end of March, but again, nothing that would create any discerned interest. So it felt very, very normal.

Felt good, Vik, in a way. As you can see, we clearly overachieved relative to our expectations. And also, the exit velocity there gives us a level of confidence to raise forward guidance as well, especially on surgical revenue. So I think to Pat's point, you've always got kind of Q1 vacations and timing with different types of holidays. But on the whole, I felt very good about the trends and where they're headed.

Okay. And then just as a follow-up. Maybe just talk about the cadence of revenues and margins as we think about the rest of the year, specifically in Q2 and Q3.

Yes, definitely. I think as we kind of look at our overall -- really overall revenue growth of 25%, so $601 million, I think ultimately, our view is that you look at that being on average just about 25% growth. I think you'll see something similar to that in kind of Q2 and Q3, plus or minus. I think when we look at the guide, you saw us really kind of probably beat our expectation relative to EOS in the first quarter. Fundamentally, I think that's a little bit of timing movement from Q2 to Q1. And then ultimately, when you look at the profitability walk, I think our profitability view is adjusted EBITDA, we raised guidance by $1 million, went from $22 million to $23 million. That $23 million means 570 basis points of margin expansion on the full year. We did 450. And I think as we've been talking about at the first half of the year, we'll be maybe 100 basis points of margin expansion less than the full year, so kind of 450 to 500. The second half would be probably 100 basis points north of that. So kind of think on total like 650 to 700 in total. So when you kind of boil that out, I think in absolute adjusted EBITDA dollars, you're probably close to breakeven in the first half and the balance coming in the second half. So I think on the whole, that's how we see the timing of revenue and profitability walking through the year.

Next question comes from the line of Caitlin Cronin with Canaccord Genuity.

It's George on for Caitlin. I kind of wanted to dig into more of EOS guidance. Obviously, you raised your full year guidance, but just any more color you could give in terms of why you reiterated EOS revenues when the quarter looked pretty strong from our end, especially with the Insight being launched. Maybe talk about if -- how much of that is based on the expectations and if there's any more upside there. And then I have one follow-up.

Yes. I guess I'll start off. The one thing that's an unadulterated truth in capital equipment is there's a lag. And what we haven't done is presold the whole Insight platform. And so we have a lot of work to do to go out and sell Insight. We are hugely bullish in terms of the long-term prosperity that's generated by EOS Insight. But candidly, a few people know about it. And so our opportunity to ultimately lay the foundation for our future large business, I think, is reflective of our thoughtfulness on the guidance front.

Thanks, Pat. And I think the other thing I would add to that, just a couple of contextual things. The $65 million is a 9% year-over-year growth. If you recall, last year, we had about $2 million of onetime buys associated with a market exit. And so when you strip that out kind of on a like-for-like basis, you get to a mid-teens growth. And so if you look at that $65 million, another way you look at over the last 2 or 3 years, we've grown that business 20% year-over-year. And so underlying strength of the EOS business. I think what we've delivered is quite strong. I will say when you look at our guide being $65 million going into the year and then the performance we had this year, keeping it $65 million, really, I would tell you that it reflects a level of conservatism associated with the capital equipment market and probably just being a little bit conservative on that point. And from your question relative to how does EOS Insight launch impact our view, I think I'd just point you back to past comments, which is I think that will be reflected ultimately in interest in orders. And if you think about the capital selling cycle being a 12-month cycle, there's some time that I think once we really start to see EOS Insight influencing the revenue. Certainly, I think we'll start to see some orders matriculate and come through here over time. But that's really how we view the 2024 EOS revenue setup.

Yes. That's really great color. And then just one quick one for me. Just early days in terms of Valence obviously. But can you talk a little bit about appetite among your existing EOS users and really any insights in how many of your existing EOS users are currently using robots and competitors?

Yes. That's a tough question. I think our customer base is pretty reflective of just kind of the general audience of robotic users. And I think we've always had a little bit of a disparate view with regard to the value of robotics as they currently are reflected. And so the bullishness of our Valence strategy is really in the integration of the technology into lateral surgery and just continue to elevate the precision associated with the technique. And we think that there's a ton of opportunities. They're very apparent to us. The design and development stuff is going as planned, and we'll share some information in terms of just the utility of the nav robotic stuff just for the sake of interest as we get through this year. But next year, I think you'll begin to see the influence clinically, which, again, will -- then there will be a bit of a drag numerically. But anyway, it's a nice tailwind that's yet to be reflected.

Next question comes from the line of Sean Lee with H.C. Wainwright.

Just a quick question on the international market. So from the slides, it looks like the full launch of PTP in Japan isn't expected until 2026. So I was wondering, what steps remains to be done before you can launch the product there? And also, do you plan on additional expansions internationally before that?

Yes. Appreciate the question. The dynamic is that the Japanese market is a very careful market. And so the one historical dynamic has been that the JSSR, which is the Japanese Spine Society, opines on the regulatory clearance of companies in the market space. And we were over at the JSSR recently and had a very productive meeting and very exciting. They're going to initially enable us to go in with some more conventional items. You saw that our InVictus portfolio got cleared, and we'll start to go in with that. We'll start with lateral surgery in that marketplace, and our LTP will be really the first thing that garners experience in Japan. And then what they'll do is they'll slowly go in with PTP. So we're just trying to be thoughtful with regard to what our expectations are from a contribution standpoint in that market, realizing that it's a very conservative market and things will go slow. What gives us great excitement is, if you look at the -- again, we consider Australia as such a great proxy, Australia, New Zealand. And you look at 400 PTPs being done in Australia. It just speaks to the predictability and reproducibility of a technique that gets introduced to a new market space and just our ability to ultimately garner -- like you don't get 400 if it's not predictable and reproducible. And so our enthusiasm to get into Japan, which is a much larger footprint, and again, a very consistent group of people as the Americans are in terms of just the procedural bent and the interest in applying procedures to pathologies and not being a widget market. So anyway, probably more than you cared for, but that's our enthusiasm. That's the drag. That's why we said 2026 on PTP. It is just going to be a methodical walk.

Next question comes from the line of Young Li with Jefferies.

Sorry, I've been hopping around on calls. But I guess the question is on the top 10 U.S. market chart. Very strong growth in 2 years from 2% to 6%. I wanted to hear a little bit about some of the top reasons for that growth and penetration. Is it from competitive rep hiring, so organic growth, maybe using EOS to open accounts, PTP? Just want to hear a little bit of the reasons for that. And what are some of the other key strategic U.S. markets you're focused on for '24 and '25?

Yes. I'll provide some opinions on the markets where I feel like we're making great progress. I'll probably refrain from describing what markets we expect to be next. Probably the other call that you were on will be listening in. I'm just kidding. The -- it doesn't matter. The -- probably -- as I look at the very, very big markets, I look at like Chicago, more organic type of a growth profile. Some clear additions of people that have made significant differences in our run rate in, say, Chicago. New York and New Jersey have been a competitive hiring scenario that has been outstanding. That was a big block of guys that came over in full in the fourth quarter of last year. They're starting to make progress, and they're going to be well suited to make a great run for a long period of time in that market. And so I would say the impact in the most immediate or apparent growth spaces of, say, New York and Chicago, 2 of the biggies, have been -- I would say inorganic in New York, more organic in Chicago. I would say organic in Los Angeles. Starting to see Los Angeles start to demonstrate growth. Very organic in Houston. Houston, it's the PTP capital of the world. The -- but no, I think we're just seeing that those people that have experience in this space, especially those that have experience in lateral, have done exceedingly well. Phoenix is another market where we have really an exceptional team. And so where we have people who have bought into the thesis of the company and have engaged deeply into what we're trying to build, we are making significant progress. And I think it's reflective in the top line growth number.

It's -- I also think it's reflective in kind of the statistics underneath where we continue to see surge in growth, but consistent increased surgeon adoption. And I think that reflects the broadening adoption of our core lateral franchise, PTP. Think about how you can apply that to more and more complex pathologies over time as you adopt that. And then you think about the halo effect and ultimately the impact that, that has on our ability to just not only dive deeper in a geographical area by adding more surgeons but to dive deeper within a surgeon's practice.

Yes. One last point is we have a PTP meeting coming up with more than 50 surgeons in attendance. It's oversubscribed. And it just -- it makes me think back about several years ago when we started to talk about this and completely got dismissed by the rest of the marketplace only to be right. And it's -- I would tell you that what makes this thing fun is a group of people that have been around spine surgery for years and ultimately are applying their experiences in ways that ultimately create progress. And so we're living in a good time in this business and just can't be more excited about the opportunities forward. Well, I would just say thanks for your interest in ATEC. We are just getting started, and it isn't just a tagline. So anyway, thanks so much for your interest.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.