U.S. Markets closed
  • S&P 500

    +32.40 (+0.88%)
  • Dow 30

    +248.74 (+0.83%)
  • Nasdaq

    +87.05 (+0.70%)
  • Russell 2000

    +43.75 (+2.37%)
  • Crude Oil

    +0.45 (+0.99%)
  • Gold

    +0.90 (+0.05%)
  • Silver

    +0.13 (+0.55%)

    -0.0022 (-0.1819%)
  • 10-Yr Bond

    +0.0490 (+5.33%)
  • Vix

    -0.49 (-2.30%)

    -0.0015 (-0.1088%)

    +0.2800 (+0.2696%)

    +73.11 (+0.38%)
  • CMC Crypto 200

    -14.05 (-3.71%)
  • FTSE 100

    +59.96 (+0.92%)
  • Nikkei 225

    -58.13 (-0.22%)

Edited Transcript of ATEC.OQ earnings conference call or presentation 5-Nov-20 9:30pm GMT

·42 min read

Q3 2020 Alphatec Holdings Inc Earnings Call CARLSBAD Nov 7, 2020 (Thomson StreetEvents) -- Edited Transcript of Alphatec Holdings Inc earnings conference call or presentation Thursday, November 5, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jeffrey G. Black Alphatec Holdings, Inc. - Executive VP & CFO * Patrick S. Miles Alphatec Holdings, Inc. - Executive Chairman, CEO & President ================================================================================ Conference Call Participants ================================================================================ * Brooks Gregory O'Neil Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst * Jason Hart Wittes Northland Capital Markets, Research Division - MD & Equity Research Analyst * Joshua Thomas Jennings Cowen and Company, LLC, Research Division - MD & Senior Research Analyst * Kyle William Rose Canaccord Genuity Corp., Research Division - Senior Analyst * Mathew Justin Blackman Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst * Patrick J. Bartoski Piper Sandler & Co., Research Division - Research Analyst * Sean Lee H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, everyone, and welcome to Alphatec's Third Quarter 2020 Financial Results and Recent Corporate Highlights Announcement. 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 the 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. Joining us on the call today will be ATEC's Chairman and CEO, Pat Miles; and CFO, Jeff Black. Now I'll turn the call over to Pat Miles, Chairman and CEO. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [2] -------------------------------------------------------------------------------- Welcome, everybody, to the Q3 2020 Financial Results Conference Call. In this conference call, you will hear some forward-looking statements. I will save you reading the forward-looking statement, but I would ask that you review it. So I would tell you that Q3 2020 was a good quarter for ATEC. Clearly, the highlights are a revenue growth of greater than 40% in the U.S. We believe that, that will outpace the rest of industry. Also super excited about the follow-on offering. It really creates a runway to execute on our growth initiatives. And then lastly, really, the clinical experience just continues to evolve. And so really, our continued approach-based new products will really drive our long-term growth. And so let's delve a little bit more deeply into the scorecard. And I think you'll find that the momentum, the numbers under the numbers are good. And so I told you a greater than 40% year-over-year U.S. revenue. 20% year-over-year growth in revenue per surgeon, the utilization of new products is greater than 70%, hats off to the organic innovation machine. And 13% year-over-year growth in average revenue per case, up 32% since Q3 of 2018, which makes for our eighth consecutive quarter of double-digit year-over-year growth. And the average product categories sold per surgery at 1.8. What you'll find is our commitments haven't changed. They likely won't change for a little while in that we will continue to create clinical distinction. And what that means is really continue to build that organic innovation machine that we talk about. The other one is continue to compel surgeon adoption, which means how do we start to increase the revenue and number of products sold per surgery really through innovative means and then lastly, continue to revitalize the sales channel in advance toward exclusivity in the U.S. And so taking a deeper look, if you say, "Gosh, how are they doing from the whole creating clinical distinction thing," it's -- so we're building the organic innovation machine. And I would tell you that our target is always between 8 and 10 products a year. And if you look to the right, you'll see that in 2020, we will launch north of 10 products. I think the real litmus test, though, is in the new product revenue contribution. That means is people are utilizing the new stuff that we're creating. But really, I think our approach-based sophistication is really the means by which we're attracting surgeons. And I can't think of 2 more prominent surgeons helping us continue advance spine by really creating clinical distinction than on your left, you have Luiz Pimenta, the surgeon who really pioneered lateral surgery. And then on the right, you have Jürgen Harms, who was the pioneer of TLIF surgery. These 2 surgeons are working with us to obsolete their last best effort. And so we have a great run in front of us based upon the types of things that these 2 are doing. I'd say the first way we're doing that is through PTP. And PTP is not prone lateral. And a lot of people say, yes, we do prone lateral. I've got to tell you, when you've done close to 600 surgeries, you understand the requirements better than anyone. And so what happens is you start to understand what the real needs of this technique are. And so you start to understand that orthogonality enhances predictability and reproducibility of the lateral approach. And what that means is it's going to be transferable to more surgeons based upon, again, the elegance of this orthogonal approach. Additionally, it increases optionality and expands applications in thoracolumbar surgery. And what that means is that your ability to start from the back and go to the front and go back to the back really enables you to approach more spine surgeries more efficiently. And then lastly, we always talk about the tenets of surgery being decompression, stabilization and alignment. And the prone position really improves the restoration of alignment. And so we believe that previously developed lateral systems do not fulfill the requirements of prone lateral surgery and will not be reproducible. And so in addition to PTP, we are also working with Professor Harms in taking TLIF to the next level. And we are doing that and working on achieving improved alignment through less disruptive surgery. So to date, we've launched the Sigma TLIF. And really, it's a -- the Sigma element of it is a pedicle-based access system built to deliver less disruptive, more predictable surgery, provide direct visualization of key anatomic landmarks as well as when we start to think about convoyed sales and we say, "Gosh, putting products together to ultimately reflect predictability in a procedure", you start to see that this Sigma retractor is used with InVictus MIS Mod, which is delivered with SingleStep. IdentiTi is used in the interbody space and SafeOp Neural InformatiX system is utilized to make sure that the screws are in the right place and the neural elements are okay. But if you start to think about creating clinical distinction and compelling surgeon adoption, what makes us different, really, is our focus on investing in making spine surgery better, which means the entire approach. And often, industry makes decisions purely on implants. And when you start to think about compelling surgeon adoption through clinical distinction, the only way you really do that is when you are aligned and have kind of an aligned interest shared with the surgeons. And if you look to the left, oftentimes industry makes decisions only on making slight differences in the implants that are ultimately, the currency. But when you invest on the right in the entire procedure, what it ultimately creates is really an aligned interest with the surgeon who ultimately has to serve the patient. And so that becomes really a big part of what we do. And so when we start to think about how we compel surgeons and what the metrics are that reflect success there, we start to see, gosh, is there an increased revenue in number of products sold per procedure. And I mentioned the 1.8, and I'll get into that a little bit more. If we start to think about our year-over-year growth in cases with greater than one product sold is 50%. So you have to think gosh, there's traction there. Year-over-year growth in average revenue per case is up 13%, that's 32% versus Q3 of '18. And then year-over-year growth in revenue per surgeon is 20%. So again, I think that these things speak to the number under the number and really create a little bit of momentum. I would tell you there's really 3 key ways that we compel increased surgeon adoption. And one of them is you create confidence. And what that means is when a surgeon has more confidence, what they start doing is pushing more complex surgery your way. And so more complex surgery oftentimes means more levels. And so I would tell you, that's one way. The other way becomes -- is in new procedures. In terms of us providing them technology that ultimately avails their ability to do things that they couldn't do before. And so the ability to start to provide them optionality and efficiency of things that candidly are better. And then the last thing is what we talk about a lot, which becomes a whole convoyed sales, which becomes, are the different products that we would design and deliver for this proceduralization being adopted. So I think that, that's really a great segue into the convoyed sales and the -- really, the impact of the Alpha InformatiX SafeOp catalyst has -- what the catalyst has been to much of our products per procedure reflection. And when you start to say, "Gosh, where is it most impacted? And so you look at the blended rate of 1.8 products per procedure, you saw the Sigma TLIF that we just launched, you're going to see an increase in that area. You clearly already see it in the lateral space, and that suggests that there's a lot of adoption in terms of where we're heading from a lateral perspective. When you take a step back and you start to view the investment thesis and how things have done and how things are paying off. I think, again, this can all -- functions together. If you look at the Phase I investment and you start to see what the return on that's been, it's really been information, which is the SafeOp platform, Lateral, which is a great growth area as well as (technical difficulty) Posterior Fixation as we [earn] the entire procedure. And that's up significantly, clearly. And then Phase II becomes the ALIF PLIF and TLIF, a lot of growth there. And as I think I mentioned in the near past, we're in the very early stages of an Alpha experience with regard to a number of cervical products that will ultimately complement the portfolio as well. And so moving on to the sales force and revitalizing the sales channel, can't be more excited about what's going on there. We're advancing really toward exclusivity. And that's all about how do you compel people and how do you compel surgeons, ultimately drives the sales force to be compelled as well. And I think that you're seeing a very good performance on that end. And so you're seeing U.S. revenue growth year-over-year among top 20 distributors at 43%, percentage of sales driven by a strategic channel at 92%, and U.S. revenue growth from strategic distribution of 47%. And so I think that those people who are engaged in becoming clinically adept and are really driving significant growth. The great part is, there's so much opportunity for expansion. So our early phase reflects 103% growth in U.S. revenue per distributor since 2018. And that means we're decreasing the number of distributors, but they're creating more revenue per distributor, which is really kind of a reflection of professionalizing this sales force. The crazy part is we still have a ton of geographies that are significantly under- or completely unrepresented. And so we're still building this thing out, and we're doing it with momentum, which is the most comforting part. And then you say, you look at the whole 92% of our revenue contribution coming from the strategic sales network. And on the right, you see really the revenue per distributor making the march that one would expect with regard to the level of success, I think, that we're having. So I will let Jeff delve into the details financially. And so why don't I turn it over to Jeff. -------------------------------------------------------------------------------- Jeffrey G. Black, Alphatec Holdings, Inc. - Executive VP & CFO [3] -------------------------------------------------------------------------------- Thank you, Pat, and thank you all for joining the call today. Just some commentary on revenue, which we announced earlier in the month or actually in October and then announced again today. Strong momentum in Q3, the robust recovery that we saw in late second quarter continued throughout the quarter. We saw growth in surgeon adoption, led by new products, which are now more than 70% of our revenues. And we saw continued evolution of the sales channel, as Pat alluded to. Surgeon counts were up, we expanded geographies. We're also going deeper into existing geographies with our strategic sales channel. In fact, revenue from the strategic channel was actually up 47% year-over-year. September, we saw the strongest month in U.S. revenue in the company's history. Our average daily sales, actually in the third quarter surpassed the peak we saw in the fourth quarter of 2019, which is indicative of momentum because typically, the fourth quarter is strongest in this industry. And as expected, volumes under our supply agreement for legacy products with Globus continue to wind down as that agreement nears the end of its term. In terms of revenue guidance, how we think about the rest of the year and then into 2021, we expect to see sequential U.S. revenue growth of 5% to 10% in the fourth quarter, with full year U.S. revenues at $140 million to $142 million. That compares to our initial U.S. revenue guidance prior to the pandemic was $128 million to $131 million. And total revenue, we had previously guided $130 million to $134 million. So again, continued momentum. And in 2021, we expect U.S. revenue growth of approximately 25%, with international revenues under our supply agreement continuing to wind down through expiration of the Globus agreement in early Q3. Moving to gross margin. We maintained GAAP margins in the low 70% range, even with the impact of SafeOp intangible amortization, which kicked in during the year. We're still seeing drag from excess and obsolete [lessens] charges on legacy product lines. But that impact has reduced from about 800 basis points in 2019 to about 600 in 2020. We'll continue to see improvements as we put legacy E&O impact behind us. We expect that our normalized E&O is really more in the 300 to 400 basis points range. So with that, we continue to expect gross margins in the medium term to be in the mid-70% range. On to the P&L, on a non-GAAP functional basis, meaning if you strip out noncash stock-based compensation, litigation, in terms of our run rate expenses on R&D and SG&A, you'll see that we're continuing to make investments in R&D and the sales channel, fueling top line momentum, supporting long-term sustainable growth. We did start to see some leverage in the business in Q3 over last year. But over the medium term, we still will continue to expect to make what we'll call outsized investments relative to our peers in product development and the sales channel. In SG&A, you see that dollar growth. It's coming strictly from sales investment. In fact, G&A has remained down to relatively flat over the past 15 quarters. And then finally, moving on to the balance sheet. The follow-on offering in October has provided us with the runway to continue to aggressively fund our growth initiatives. Our cash usage, as you see here, driven primarily by investment needed to see the supply chain with instruments, implant sets to support a growing revenue base that's now more than 70% from new products. So when you look at the last 4 quarters on average, 50% of our operating cash use has been CapEx. It was nearly 70% in Q3. With the fundraise that we executed in October, we're now well positioned to fund the continued momentum that we're seeing, which will continue to fuel our expected growth that is well above industry rates. And with that, I'll turn it back over to Pat. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [4] -------------------------------------------------------------------------------- Thanks, Jeff. And really, to close this, I think that the multifaceted strategy for sustained long-term growth is in the early phase. And so I think what you're going to see is we're going to continue to focus on creating clinical distinction, which means 8 to 10 new products a year and expand the percentage of revenue driven by new products toward the 80% range. I think increasing surgeon adoption in terms of moving that volume of products per surgery forward, or increasing it rather. Increasing the complexity of surgeries in terms of earning the confidence of the surgeons to be able to do that, investing in unique technologies that pull-through -- that create pull-through and drive further loyalty. And so you'll see our strategic sales channel deliver revenue that's going to get north of $4 million each. And I think what we're seeing is the dissipation of the legacy reputation, the legacy sales force and the legacy international supply agreement that's -- that I would suggest has been a headwind to this company. And so we built the foundation for long-term growth through relentless commitment to advancing the clinical experience in spine. And we are truly just getting going. And so excited about Q3 and looking forward to moving forward, so. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- We will now open the floor for questions. (Operator Instructions) First question is from the line of Kyle Rose from Canaccord. -------------------------------------------------------------------------------- Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [2] -------------------------------------------------------------------------------- And congrats on a very strong quarter here. I wonder if we could just touch on just a little -- a couple of the biggest drivers. And obviously, new products, which you outlined on the call, are significant. So maybe just frame out, Pat, the PTP opportunity thus far. I mean, over 550 cases you're going to move into the full launch. What should that really look like when you move into the full launch into Q4 and then in 2021? And maybe help us understand: 550 cases, is that 20 surgeons, some of which are legacy Alphatec, some of which are new customers? Just trying to understand what that really represents from a growth opportunity over the course of, call it, the next 12 to 18 months? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [3] -------------------------------------------------------------------------------- Yes. Thanks, Kyle. I guess, first, let me address the procedure itself. One of the interesting parts of having built lateral decubitus before at the other place was that once we did it, everybody came out and said, we can do that. And they said, gosh, we have a retractor. We have -- maybe we have a neurophysiology thing from our E&T division, and we have an implant, and they never designed for the requirements of the specific procedure. And to this day, you still see that company still having a predominance of market share in that space. And so what I would tell you that through the first 550 surgeries, what we did is really kind of applied the learnings to creating the specific requirements and designing to those requirements. And so I think what happens is, is when you contemplate how surgery should go, it should go based upon someone having thought through all of the different elements. And really, that's what we're finding. And we've seen a great evolution in terms of the experience based upon having designed our way into the procedure. And so literally, what you've seen is a very narrow group. I'm not going to give you exact numbers of the surgeons, but it's a very narrow group. The great thing about this procedure is there's a ton of optionality. And so if someone's trying to stabilize an unstable spine, the ability to go to the back of the spine and put screws in and then go back to the front of the spine and then go back to the back of the spine. That type of optionality is really unique to only posterior approaches, which are difficult. And so to be able to do this from a lateral approach is really a big deal. And so what we're finding is a lot of acceptance. We're finding a lot of predictability in the experience. We have a lot of -- a number of guys that are doing it for the first time, and they're finding success in it. So we feel like the learning curve element may be less. But we feel like it has a great run in front of it. And we really haven't (technical difficulty) even fully launched it yet, which will be here in the coming weeks, but super excited about it. And -- but I guess that's the flowering discussion on that idea. -------------------------------------------------------------------------------- Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [4] -------------------------------------------------------------------------------- Great. I appreciate the incremental color there. And when we think about the other part of the growth strategy, it's increasing the sales channel and the quality of the channel. Obviously, the products are helping drive that. But you've had some strong upgrades over the course of the last 2 years. Maybe just help us understand when you think about the hires and the cohort of hires that you made in late 2018 and then over the course of 2019, where are you from -- or where are they from a productivity standpoint, coming off noncompetes and coming up the productivity curve, you have converting surgeons? And how do we think about the pace of hiring thus far in 2020? Just kind of help us inform what that growth opportunity might be as more people come off the bench? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [5] -------------------------------------------------------------------------------- Yes. It's one of those things where it's like -- we're investing a ton in things that will compel them because they have something unique to bring to their surgeons. And so where we've seen a lot of activity is a lot of the big company guys that I can -- I can really think some of the bigger companies are bored with this business. And so the bigger company guys are thinking to themselves, gosh, I have another 10 or 15 years in this business, and I want to come over and do something with somebody whose success is determinant on spine. And so I think the spine-only thing gives us a great opportunity to continue to bring people in that are -- have committed their vocation to spine surgery. And so we're seeing really kind of a continued level of larger company or previously larger company type of individuals. Clearly, we're still a small company, so I guess that means a lot of things. But we're seeing them from guys who've had reasonable businesses, and now they're getting the opportunity to move their surgeons into technologies that maybe have not been previously available to them. And so we're seeing a sales management team that has a kind of a Stryker bent, I think I've spoken before, but I loved always kind of the NuVasive clinical aptitude with the Stryker sales discipline. And I think the culture within the sales force is really evolving in a way that's creating a very predictable, clinically adept assembly of people. But tough to characterize, we continue to see a lot of inflow with regard to the interest in becoming a distributor for ATEC. And what we're trying to be as thoughtful with regard to what the long-term walk looks like. And so I would say there's a lot of enthusiasm. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Next question is from the line of Matthew O'Brien of Piper Sandler. -------------------------------------------------------------------------------- Patrick J. Bartoski, Piper Sandler & Co., Research Division - Research Analyst [7] -------------------------------------------------------------------------------- This is Patrick on for Matt. Congrats on the quarter. I wanted to start with your fiscal year '21 commentary. The guidance is really strong. You've been able to do well in the midst of this pandemic. And so I'm just wondering how you're thinking about some of those COVID components impacting the year from what it looks like, the numbers ahead of kind of where Street was modeling. So how much conservatism are you kind of baking into that expectation? And like what are the puts and takes? Appreciate the color. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [8] -------------------------------------------------------------------------------- So yes, I'll give you what I believe would be the puts and takes, and then I'll let Jeff answer with the substance. The reality is, is what we're seeing is outsized adoption of our procedures. And so when you start to think about what provides you bullishness, it's when you start to see people applying our spine procedures with great success reproducibly and so believe you me, we're doing our best to not get ahead of ourselves. And -- but it's also key that there's some respectability with regard to what our current growth pattern looks like and where we believe we're heading. If another pandemic hits, clearly it's problematic. What we've seen, though, is that hospitals are not -- the ICUs are not overflowing. We're seeing surgeons who are taking every precaution and being diligent with regard to getting back to intervening on the volume of patients that they did prior to the pandemic. And so I think that we see a relatively methodical walk forward. Again, we're concerned, too, about the things that are well out of our control. But when you start to see the type of demographics that we're seeing, we're trying to be consistent with regard to our projections. So Jeff, you want to... -------------------------------------------------------------------------------- Jeffrey G. Black, Alphatec Holdings, Inc. - Executive VP & CFO [9] -------------------------------------------------------------------------------- Yes. I think Pat covered it well. And I think, again, we're trying to be as careful as we can not to get ahead of ourselves and understanding that there always is that risk of another sort of pullback from, that's pandemic-related. But at the same time, we feel very comfortable in the health and momentum in the business. And our ability now to continue to invest in an accelerated way and ensuring that we can bring on new distributors and new surgeons and comfortably enable them with the right products in the supply chain, we feel good about it. -------------------------------------------------------------------------------- Patrick J. Bartoski, Piper Sandler & Co., Research Division - Research Analyst [10] -------------------------------------------------------------------------------- That's really great color, guys. I really appreciate it. And then just a quick follow-up, if you don't mind. I wanted to switch gears. I know you had just recently launched the InVictus MIS Tower. I'm just curious, apologies if I missed it in your prepared remarks, but just curious what some of that initial feedback has been. I know it's early days, but just kind of what you're hearing from your surgeons. And then, if you kind of just take like a step back, you've done a lot of work to really build out your cervical portfolio and that cervical opportunity. So can you just walk us through like how you're feeling right now with your portfolio? And just how you're thinking about that opportunity as we kind of move into '21? And again, I really appreciate you taking the questions. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [11] -------------------------------------------------------------------------------- Sure, sure. The -- I've got to tell you, in trying to be thoughtful with regard to the response. First of all, the Tower, the InVictus MIS Tower has gone phenomenally well. I think the functionality of that system is outstanding. It falls right within the competency of what we do exceedingly well, which becomes a mechanical design device development. And so if you -- when I start to think about the organic innovation machine and I start to think about components of that, I would tell you, a great competency of this company becomes in the types of things that we're launching through InVictus. And so it's -- and again, not to be -- get ahead of myself, but it's somewhat not surprising in terms of the level of enthusiasm behind those types of devices. And so I would tell you that the foundation of our portfolio is where we intended. I think what's going to distinguish us, though, is not just the implant systems, but the things that assemble them. And that's why we're so excited about things like PTP and the Sigma TLIF. And just the ability to fix problems in spine that haven't been addressed before. And so I think that, that's really the benefit of being a spine-only, profoundly curious company that has a ton of internal know-how. And so I would say that the portfolio is in the place that we intended. And I'm thrilled that we're going to continue to commit dollars to our fixing of problems in spine because that will be what distinguishes us. So anyway. As it relates to cervical, cervical is still in the exceedingly early phases. We're in our evaluation period. But I think that we'll be very pleased here in 2021 to have a cervical portfolio that will compete with anybody's in the business. And so that should be a relatively, first half of 2021, we're already doing cases and getting experience now. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Next question is from the line of Josh Jennings of Cowen. -------------------------------------------------------------------------------- Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [13] -------------------------------------------------------------------------------- It's great to see these third quarter results. You guys gave a lot of really strong metrics. And I think the implication is that the new surgeon customer adds or new Alphatec surgeons are building as well. You haven't given any specific metrics around that. I was just wondering if there's any kind of high-level quantification you can give in terms of where you sit with surgeon customers today versus maybe 12 months ago? And just in the third quarter, is the PTP launch or even in front of the formal launch and the Sigma TLIF launch, there's new product development. Is that causing a pull forward in terms of bringing new surgeons into the Alphatec fold? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [14] -------------------------------------------------------------------------------- Yes. Thanks, Josh. I'll comment on the kind of the bringing the new surgeons forward. I think that this is -- spine surgery is a small town. And I think that what happens is, is that people recognize those who have built spine procedures before and have confidence in their capacity to do it again. And so I would be insincere to not suggest that there's been some pull-forward of surgeons who have been enthusiastic, really in the end of the design phase of PTP coming over and Sigma TLIF coming over. And so I think that's brought some surgeons over and it has created, I think, a level of enthusiasm internally and kind of throughout the field. As it relates to metrics that are comparative, I'd be deferent to Jeff, hopefully not setting him up for a fall. But I'd be deferent to Jeff in terms of just how we look at it numerically. -------------------------------------------------------------------------------- Jeffrey G. Black, Alphatec Holdings, Inc. - Executive VP & CFO [15] -------------------------------------------------------------------------------- Yes. Josh, I'm sure you can appreciate, we generally don't disclose actual surgeon numbers or how many we've added, but we can tell you qualitatively that as Pat had mentioned early on that as a result of the slowdown in the pandemic, it actually did allow us or from the pandemic, allow us to access a population of surgeons and bring them on, frankly, a little earlier than we would have expected, right, just because they had time to think about their next move. And so we saw what we would say, a better-than-expected ramp-up in new surgeons, not just accounts coming on, but the volume that they were creating early on. And we have a number of surgeons that came on during 2020 that are already in or even -- or approaching our top '20. So very encouraged. It's a small number still. It's a small base, but very encouraged by what we're seeing in terms of the -- not just the adoption of new accounts. But their ability to ramp up very quickly. -------------------------------------------------------------------------------- Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [16] -------------------------------------------------------------------------------- I appreciate that extra detail. Just my follow-up. On any updated thoughts for Alphatec's, I guess, either collaboration with a partner or bringing something in-house on the navigation or imaging side? I know you guys had announced an acquisition earlier this year with EOS, but just wanted to see if there's anything else you could share just in terms of your strategy on the navigation front or imaging front and incorporating that into -- with all these new products you guys are churning out. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [17] -------------------------------------------------------------------------------- Josh, one of the kind of opportunities that I think that this company has is as opposed to letting the tail wag the dog with regard to a technology and letting us define it or letting it define us. I think what's been great about this is we get to define what technology we require based upon the procedures. And so one of the things that has, I think, evaded spine surgery is this whole dynamic of making image guidance a routine part of a specific procedure based upon the type of value that it provides. And so recently, we have created a relationship with a company whereby what we're able to do is integrate this technology, and it's an image guidance technology called TrackX, that helps us really kind of verify orthogonality. And so when we start to talk about creating predictability in surgery and making sure that it's reproduced amongst the masses, the ability to integrate these types of technologies into what we do in a very elegant workflow becomes super valuable. And so as opposed to saying, gosh, we're so excited about our image guidance system. And okay, where is it supposed to be used? we get to say the workflow associated with what we're doing from a procedural perspective accommodates this image guidance element that provides great value into the specific utility within a procedure. And so that's what makes us most excited. And so yes, we have an image guidance relationship. We believe it to be very valuable. We think that the type of technology that it avails within the utility of our needs is perfect for what we're doing. And so we're excited about it. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Next question is from the line of Brooks O'Neil of Lake Street Capital. -------------------------------------------------------------------------------- Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [19] -------------------------------------------------------------------------------- Guys I wanted to come back to the question Kyle asked at the outset, and maybe come at it a slightly different way. When you guys think about the PTP procedure, and just recognizing what all you know about spine surgeries in general. Can you estimate kind of an annual procedure number for that approach? Kind of as it is, in your mind, fully adopted in the marketplace? Are we talking about 10,000 PTPs a year? Are we talking 50,000 or some other number? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [20] -------------------------------------------------------------------------------- Brooks, this is Pat. And I think you may have gotten the first glimpse of PTP from Dr. Pimenta almost 1.5 years ago. But -- so I should be asking you that question. Yes. One of the virtues of the procedure is its optionality and the applicability. And so if you look at spine surgery in general, the #1 procedure by far, still to this day, is TLIF. And so just in terms of the volume of procedures. And I get -- I don't stay very close to the specific numbers of TLIFs, but it's a lot of them. And so what I would tell you is at L45 and above, we could obviate every TLIF known to man. And again, that may sound like an outlandish statement, I believe that could be true. And so the great part about this is, I think it has a tremendous runway in front of it. Clearly, we have years of hard work to do. And that's I think what makes us so bullish, is this becomes the long walk of value creation. And so I think that the PTP procedure provides us that entrée into a technique that potentially obviates the need for one of the most popular procedure. And I believe -- and again, this is speculative because we've got to have years of research to affirm all of these things. But I've got to tell you, I'm very, very bullish on our potential utility of this procedure in a much broader audience than those that adopted lateral. -------------------------------------------------------------------------------- Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [21] -------------------------------------------------------------------------------- Wow, that's fantastic. That's great. Let me just ask one more. I really appreciate that color. I'm hoping you might just give us a broad sense of how you feel about the SafeOp platform and how it's being accepted in the marketplace today? And maybe what you hope it can help you do in the marketplace during 2021. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [22] -------------------------------------------------------------------------------- Yes. Thanks, Brook. The -- I've got to tell you, if you look at the real catalyst of the company, I would tell you, that it's the SafeOp platform. And not to confuse -- we oftentimes use Alpha Informatix and SafeOp interchangeably. And I think we probably confuse people. The intention is to use Alpha InformatiX as kind of an umbrella of all the technologies that we're going to deliver into the operating room through that platform. And so what you have to do is create relevance in the platform to be able to ultimately supply more technologies into the operating room through that conduit. And I would tell you, it's going exceedingly well with regard to the type of adoption. And it -- so I would tell you, the adoption of the SafeOp platform is going as well or better than what we expected. And the catalyst that it's creating for procedures is, again, I think, what we expected and what we defined in the origin of the acquisition. And so we're super excited and believe it will continue to provide value as we continue to evolve surgery. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Next question is from Matthew Blackman of Stifel. -------------------------------------------------------------------------------- Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [24] -------------------------------------------------------------------------------- Maybe just for Pat, could you talk a little bit more about the U.S. geographic expansion playbook. You highlighted it in the presentation, you've talked about it in the past. There are certainly some areas that are still white spaces for Alphatec. And I just wondered, how do you think about building up your presence in some of these major markets over, call it, the next 12 months or so? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [25] -------------------------------------------------------------------------------- Yes. Thanks for the question. The -- I would tell you, like that the -- I think like one of the keys to this company is putting the right people around the table. And I think where we've done that from a sales perspective, and what's happened is, it's reflected what we've done internally. And it was best that we created the company internally first and then reflected it outside, if you will. And so I would tell you that we have kind of tons of literally white space. Middle America is a white space for us. There's parts of the Western part of the United States are somewhat white spaces for us. I've got to tell you, we're in the very early phases of kind of a Southern California type of influence. And so a lot of the major metropolitan areas are very early in the influence for us. And so the great part is, is I think with the technological lineup that we have, we're attracting a lot of the type of people that can have influence in those geographies. And so that's what makes me most excited, is the fact that if we would have done it the other way around in terms of trying to attract all the salespeople and then built internally, it would have lagged. I think our ability to go ahead and get the opportunity to build internally and then to attract has been a much more expedient process. -------------------------------------------------------------------------------- Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [26] -------------------------------------------------------------------------------- All right. I appreciate that. And then 1 final question for Jeff. Just thinking about the balance sheet today. Can you talk about what investments you can get after now or accelerate that were more limited before the recent raise? I assume it's set investments and channel investments. But just curious if there's some other stuff that you were a bit -- your hands were a bit tied because of where you were from a capital position. -------------------------------------------------------------------------------- Jeffrey G. Black, Alphatec Holdings, Inc. - Executive VP & CFO [27] -------------------------------------------------------------------------------- Yes. Matt, I think you nailed it in terms of -- we now have the ability and the flexibility to make the commitments we need to make to ensure that we've got the implant sets, the instruments to seed the market to drive this continued adoption, particularly with new surgeons and new distributors. I think beyond that, it's really -- we're going to continue down the path of investing in the sales channel and bringing on the right distributors and the right partners to expand geographies. And on the R&D and product development side, it's continue down the path of 8 to 10 products per year. I think this gives us the opportunity to do things like a TrackX type of end licensing that we did, continue to develop some of the core competencies around adjunct technologies like software development. So it just gives us a lot of flexibility to make the right investments in the right areas. And in some cases, really beyond just sort of the hardware portfolio. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- Next question is from Jason Wittes of Northland. -------------------------------------------------------------------------------- Jason Hart Wittes, Northland Capital Markets, Research Division - MD & Equity Research Analyst [29] -------------------------------------------------------------------------------- And also thank you for giving guidance. I think you're the first company, at least this earnings season, that's been brave enough to give guidance for this year and even next. So on that topic, if I think about sort of next year, you kind of said 25% plus, which is in line with kind of your longer-term -- or some of the longer-term goals that you put out there. So it's not -- so it's in line with that, not surprising, but also very healthy. What drivers can we look at to say that will drive that number? I mean, if you think about the metrics this quarter, you've got quite a few, obviously, which you've listed. One is additional revenue per procedure. There's sales force expansion. There's new products. How does that play into 2021 numbers? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [30] -------------------------------------------------------------------------------- Yes. Jason, this is Pat. Yes, I would tell you that very similar. The great part is, I think that the company has done a reasonably good job in terms of creating momentum prior to significant launches. And so what gives us confidence, and again, just trying to be methodical about this, is that the early reflection of our experience with regard to things like PTP and even just lateral -- decubitus lateral and the Sigma TLIF and things like that provide us multiple products per surgery, increased revenue per procedure, and we're compelling more people. In addition to compelling more people, what we're also doing is really attracting a more serious surgeon that's doing more levels. And so there's kind of nothing cosmic around the reflection of the business other than we feel like we're at the early phase of a reflected growth curve. -------------------------------------------------------------------------------- Jason Hart Wittes, Northland Capital Markets, Research Division - MD & Equity Research Analyst [31] -------------------------------------------------------------------------------- Well, I would also just add that if I annualize your fourth quarter, given the guidance you've given for this year, I can get to 25% without doing much. So I assume there's some conservatism in 2021 numbers. And also, I assume there's not much concern about COVID per se in that estimate. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [32] -------------------------------------------------------------------------------- Yes. I would tell you that we're not getting ahead of ourselves. We're being as methodical as we possibly can in terms of the approach. And I can't imagine anybody else out there suggesting even close to 25% growth. And so it begets one of these dynamics to where we're still concerned about COVID. And we are watching every day with regard to seeing impacts at different hospitals. But also just trying to be credible with regard to how we're approaching a view. As you said, nobody else is giving guidance, and we're out there just trying to be thoughtful. -------------------------------------------------------------------------------- Jason Hart Wittes, Northland Capital Markets, Research Division - MD & Equity Research Analyst [33] -------------------------------------------------------------------------------- I appreciate that. And last, just if I look at this quarter, again, appreciate the metrics. There's quite a few and quite a few good ones or almost all good ones here. In terms of products, specifically, if I think about what's really kind of the main product drivers, what would you point to? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [34] -------------------------------------------------------------------------------- Yes. Won't give individual products, but I would tell you that if I were to characterize our growth, I would say the catalyst is SafeOp and that catalyst gets most highly reflected in things like lateral surgery out of the gate. And somewhat, we're seeing growth in the Posterior Fixation, which is ultimately a reflection of proceduralizing within the context of earning, say the lateral, which is the front of the spine and then getting the back. And so those are areas that ultimately are most impacted by the catalyst of the SafeOp effort. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- Next question is from Sean Lee of H.C. Wainwright. -------------------------------------------------------------------------------- Sean Lee, H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate [36] -------------------------------------------------------------------------------- Congratulations on the great quarter. So in your prepared remarks, you mentioned that the company will be looking to transition to more exclusive distributors. So I was wondering if you can provide some thoughts on maybe what areas of the company you can improve on the most or maybe add to your product portfolio, that would make this switch more convincing for your distribution partners? Which areas can we expect to see the biggest growth in 2021? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [37] -------------------------------------------------------------------------------- So there's not a place in the company that we can't improve. And so there are so many opportunities just to become better as a company. And so I would tell you that everything is going (technical difficulty) [well] right now. We have light years to go in terms of chasing the perfect procedure. And so we will continue to do that. The things that I think are very compelling as it relates to the kind of evolution into exclusivity from a salesperson's perspective is that we have a portfolio of products that are compelling surgeon adoption in ways that enable their surgeons to do unique things. And there's nothing better as a salesperson than to be able to walk into the surgeon's office and avail a spine procedure that may not be part of their armamentarium today. And so to be able to do all of the things that they had previously been able to do, plus have a [semblance] of new procedures, I think really begets a growth opportunity and one where -- when somebody looks out over the next 10 years and says, who do I want to be with, what they want to do is they want to be with a company that ultimately is in pursuit of that perfect procedure, which is us. And so we have light years to improve, but I've got to tell you, there is an evangelical earnestness to this organization. Just want to thank everybody for their interest in ATEC. We are at the early phase of the company build and excited about the route forward. So thanks for your interest and look forward to the next quarter. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- And that concludes today's conference. Thank you all for participating. You may now disconnect.