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Edited Transcript of ATEC.OQ earnings conference call or presentation 4-Mar-21 9:30pm GMT

·49 min read

Q4 2020 Alphatec Holdings Inc Earnings Call CARLSBAD Mar 5, 2021 (Thomson StreetEvents) -- Edited Transcript of Alphatec Holdings Inc earnings conference call or presentation Thursday, March 4, 2021 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 * Matthew Oliver O'Brien Piper Sandler & Co., Research Division - MD & Senior Research Analyst * Sean Lee H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, everyone, and welcome to the webcast of ATEC's fourth quarter and full year 2020 financial results. We would like to remind everyone that participants on the call will make forward-looking statements, these statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the company refer to reported amounts which are in accordance with U.S. GAAP as well as non-GAAP or pro forma measures. Reconciliation of non-GAAP measures to U.S. GAAP can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. Leading today's call will be ATEC's Chairman and CEO, Pat Miles; and CFO, Jeff Black. Now I will turn the call over to Pat Miles. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [2] -------------------------------------------------------------------------------- Welcome, everybody, and good afternoon to the Q4 2020 ATEC Conference Call. Clearly, today, we will be making some forward statements. So if you'd familiarize yourself with that, I will save you from having to listen to me read it. Things are going well, really no complaints. I think when we say well, we oftentimes like to quantify what that means. And so average revenue growth over the past 8 quarters has been 30%. And so I think that, that's a good start to how we're turning around the company and the momentum that it's created. I guess more importantly and what, I guess, provides me the most optimism is really what we're doing is we're fulfilling the mission of revolutionizing the approach to spine surgery. And I think the launch of our Prone Transpsoas, PTP, is really a reflection of that. And I'll give you a little bit more on that to come. We're also increasing the clinical prowess, really the know-how of our sales force in expanding an exclusivity, which is exceedingly important; elevating surgeon and sales training through the state-of-the-art education facility. We just opened it up about a month ago. We have a 7 station cadaveric lab. We have an expanded biochemical lab. We have an expanded, what we call technology advancement group or machine shop. And so the facility really is starting to fit in with a very strategic priority that we've advanced. The other thing is really kind of the greenfield opportunity we have with furthering clinical sophistication through improved information with EOS. So that's very exciting to us. So if you were to kind of look back and just -- Q4 seems a long way away, but it was a good quarter. And year-over-year, U.S. revenue growth at 38%, year-over-year growth in revenue per surgeon at 15%. Clearly, there's adoption on the new product side. So 75% of our revenue is coming from new products. Year-over-year, an average revenue per case at 13%, ninth consecutive double-digit year-over-year growth. And we'll get more into this, but the average product category sold per case is increasing. And so one thing that you'll find about us is that you're going to hear the same thing over and over as it relates to really the strategic imperatives. And our view is if you're going to make for a meaning in this business, you better do something different and you better do something better. And that's what the whole create clinical distinction is all about, and we feel like we're making progress. And we'll delve each -- we'll delve into each of these priorities and give you a little bit of color. Also, compelling surgeon adoption comes from being better and creating clinical distinction, and we feel like we're doing that. And that really helps us revitalize the sales channel that ultimately translates what we're doing with regard to the procedures. And so just to jump right into creating clinical distinction. When you start to think about what the margin has been over the past few years. And what we've really kind of had is, I think, a reasonably good approach in terms of making sure that we're making the investments at the proper time in terms of building things. So 2020 was reflective of 11 product launches. And more importantly, we start to think about what the effect has been on the procedures. And so when you start to think about what the investment thesis is, you have to say, "Gosh, the return has been pretty good." And where we've invested, we've made significant progress. And probably the places that I'm most proud of, and it's not just because it's the biggest area of growth. But you start to look at what we call Alpha Informatix, and that's the AIX part. And it includes SafeOp. If you look at SafeOp in lateral, it places a significant experience in the company. I would tell you that we have the industry's best. And not for a moment will I ever back off saying that the new home of lateral sits up here at ATEC. And also from a posterior fixation perspective, there's -- suggesting there's significant product development aptitude would be an understatement. And then we're also making progress in the other procedures in ALIF, PLIF and TLIF. And this year should be a significant contribution on the cervical and biologics side saying is -- what we're obviating some of the legacy products that were here when we arrived. And so when you start to look at how we think about making the investments and where we make the investments, we think of the world in procedural means. And this is really intended to provide you a little bit of a view. And when we think about making things better, what we do is we think about what the procedure needs and what we should do and what priority with regard to the specific product development. And some of the elements that I think need to be called out is when you start to look at sophistication, you say, gosh, SafeOp EMG, SafeOp SSEP maybe not unto themselves the greatest revenue drivers, but they mean so much as it relates to ultimately dominating things like lateral surgery. And then you go over to the right, you start to say, gosh, we break up lateral and lateral transpsoas, LTP, and prone transpsoas trances, which is PTP; and start to think of things like positioners as being very meaningful as it relates to the dynamics of being procedurally focused. And so love this slide in that really I think that there's different approaches in terms of the way that people think about the business, and our pursuit is really in the perfect procedure. How do we ultimately fulfill the requirement of the perfect procedure? And then what we do is we build solutions from the ground up to address really the unmet specific procedural requirements versus just reactively trying to jam technology into something that candidly may not fit. And so it's a pursuit that we have that I think is the value-creation engine of what we're doing. And ultimately, what it does is it compels surgeon adoption. Surgeons get it. And surgeons, I think, very much appreciate this tech because it feels like we're aligned with them in their pursuit to make sure that they're serving the interest of patients. And so if you look at kind of the numeric reflection of success, we keep walking up the product categories per case to 1.9 in aggregate, the year-over-year growth in average revenue per case at 13%. This just means we're doing more and more sophisticated things. And then revenue per surgeon, so we're compelling them better, I guess, and that we just keep seeing the growth. But the reason for that, really, is what the investment thesis is. And the investment thesis is the things that ultimately make a difference. I remember talking to a surgeon friend not long ago, and we were just prioritizing those things that ultimately make a difference in the success of his treating patients. And oftentimes, the implants may be fourth or fifth in terms of importance. I think so often, companies think that spine surgery is implant, and it's just not the case. What we are our stewards to the effort. And I love the fact that what we're doing is engaging technology in a way that integrates so that people can make objective actionable decisions during a surgery to better fulfill the requirements of care. You also start to think about adoption and you start to say, gosh, how much of the surgery are we getting? And what is the opportunity? One of the quotes around here that I so appreciate is sophistication is in direct relation to the number of distinctions you draw to the subject. When you start to look at what we're doing with regard to lateral, clearly, we have LTP and PTP, maybe you start to look at the number of products per surgery that we could ultimately fulfill to create a pursuit of the perfect procedure. And you realize that we're literally just -- it's the tip of the iceberg, so to speak, with regard to the different ways that we could ultimately influence care for the better. And so we believe that, that creates value. And so when you start to think about how we're translating that to the field and revitalizing our sales channel, it's going very well. And hats off to that group. I will tell you, I think that from a sales management perspective, it's as good as it gets. And we have a great team, and I'm exceedingly proud of them. And so the percentage of sales driven by our strategic channel is 95%, and the revenue growth from that strategic distribution group is 47%. The great part is, is that we're growing -- the growth in U.S. revenue per distributor is significant and has been. And that's been a big part of the turnaround. We still have a ton of open geographies, and we keep the walk of trying to maximize the number of people on the street and minimize the volume of agents and making sure that those agents continue to grow in size. But with that, I will -- I'll turn it over to Jeff Black. -------------------------------------------------------------------------------- Jeffrey G. Black, Alphatec Holdings, Inc. - Executive VP & CFO [3] -------------------------------------------------------------------------------- Thank you, Pat, and thank you all for joining us today. I'll just spend a few quick minutes on some color commentary on the results that we announced today. First was revenue. Following the initial COVID impact that the industry saw, we all saw in Q1 and Q2, we did see a robust recovery acceleration in our U.S. product revenue, really on the strength of new and expanding product portfolio that Pat just walked you through. We actually finished the year ahead of our initial 2020 guidance, even though we did see some pressure on volumes in late Q4 from the uptick in COVID cases. On the OUS, international front, our international supply agreement for our legacy products is winding down as expected, and that agreement expires in mid-2021. On gross margins, when you look at our gross margins, we're running in the high 70% range on a non-GAAP basis, and that excludes noncash charges for excess and obsolescence. On a GAAP basis, we're running in the low 70%. So the reason we're stripping out E&O for now is that over the past 2 years, we've been taking really outsized reserves on our legacy product inventory, representing about 800 basis points in 2019, about 500 basis points in 2020. So we'll continue to see some of this E&O drag in 2021. But by the end of the year, that should be primarily behind us. On a normalized basis, we continue to expect E&O to be somewhere between 300 and 400 basis points, and our GAAP margins in the mid-70% range. A couple of comments on the P&L. Consistent with prior quarters, we focused investments in product development and sales channel. For this view, we strip out the stock-based compensation, litigation, restructuring, transaction-related costs, really to provide a sense of our true core investments. And when you look at R&D as a percentage of revenue, it continues to track above peers as we continue to fill the product pipeline. You can expect a similar profile into 2021. SG&A, it's a similar story in that growth in our SG&A, it really represents an increase in variable costs associated with the ramp in revenue as well as key investments we're making in our strategic sales channel, going broader into new geographies and also deeper into existing geographies. As the business continues to scale, we'll need to make investments in G&A-related infrastructure. But to date, we've really held the line on G&A and are already beginning to see cost leverage on the G&A line. Balance sheet. In the fourth quarter, we shored up the balance sheet pretty significantly. We reduced debt, we secured capital required to fund continued investments in the business as well as the purchase of our pending acquisition with EOS. So we secured $250 million in new capital during the fourth quarter through public and private placements of common stock, and we're better positioned than ever from a balance sheet perspective to execute the business. As a -- in terms of cash burn profile, it continues to reflect investment in supporting our revenue ramp. In Q4, you take operating cash burn, 70% of it was in CapEx. The large majority was for instrument kits and implant inventory to support our growing new product revenue base, which now accounts for about 75% of our U.S. revenue in the quarter. When you look at the balance sheet on a pro forma cash and available cash basis, including the pipe that we secured in December and closed just this past Monday, we have pro forma cash and available cash through our credit facility with Squadron of about $280 million. On the revenue guidance, we are reaffirming guidance that we provided in the fourth quarter, $176 million in U.S. revenue. That represents 25% revenue growth. That will continue to be driven by strong surgeon adoption, expanding strategic distribution, and we'll continue to see a ramp-up in new products. Our international supply agreement, as I mentioned, will terminate in August of 2021. And so we're seeing that ramp down as expected. And again, as you all know, the EOS transaction, which we expect to close in the second quarter, not included in this guidance, and we'll update guidance when that transaction closes. And finally, just to wrap up with an update on EOS. As you likely saw, we expect to file the tender offer tomorrow to execute the transaction. We still expect that we're on track, that it will close in the second quarter. When you look at their 2020 results, they reported a month or 2 ago up just under 20% year-over-year in revenue. Recurring revenue is strong. They're seeing a strong book of business. Even though it did get impacted by pandemic-related elements on the capital business, they are seeing nice robust uptake in demand in their new products. So we're excited about bringing them on board. Very significant opportunities for us to take advantage of cross-selling opportunities, very minimal overlap in the customer bases and real ability to access their installed base with our implant business and vice versa. So we're excited about that transaction and more on that as that evolves. And with that, I'll turn it back over to Pat. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [4] -------------------------------------------------------------------------------- Thanks, Jeff. So I got to tell you, we're -- we can't be more excited. We feel like we have a multi-faceted growth strategy. And in the meantime, we're perpetuating clinical distinction by revolutionizing surgery. We're advancing sophistication both on the sales force front and on the -- EOS is going to provide us more opportunity to do so. Cervical and biologics is going to meaningfully start to contribute, 8 to 10 products a year, we'll keep going. The sales channel, I think the -- we'll start to run towards $4 million per distributor, which has been a long-term goal. And so we believe we'll continue to compel surgeon adoption and the headwinds reputationally. And from a sales force have, for the most part, dissipated, and we're looking forward to the other headwind of the international supply agreement to expire. So I can't be more excited. It was very fun this past weekend at the Seattle Science Foundation, Dr. Pimenta, who is the Pioneer of lateral undisputed really gave a presentation of PTP. And it was one of those gratifying experiences to watch a pro talk about what's next in lateral surgery. And so if opportunity presents, I believe it will be linked to our -- the investor part of our website, if there's interest in understanding more about PTP. But with that, I guess we'll take questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Brooks O'Neil from Lake Street Capital. -------------------------------------------------------------------------------- Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2] -------------------------------------------------------------------------------- Great presentation, great quarter, great everything. So what I wanted to start off with is kind of a big picture question. You spine guys took over ATEC a couple of years ago, and you've done a great job with the company and the stock's begun to respond. How would you assess where you are in your overall journey? Number one. Number two, can you point to a couple of the big things you hope to accomplish in 2021, these milestones? And then as you think about the next couple of years, what are the kind of 2 or 3 big things you feel you need to kind of cross over to get to the other side of the big boy/little boy picture in the spine industry? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [3] -------------------------------------------------------------------------------- Well, we've always felt like we are big boys, so we're going to run at that. I'm just kidding you, Brooks. So I would tell you we're still super early in this thing. One of the fun things was that when we acquired SafeOp, it was such an important part to be a conduit into surgery that we can deliver information. And I got to tell you that those guys that are only delivering mechanical devices without information are going to suffer. And so much of the opportunity to make something better is through the informatics of surgery. And so we're thrilled about that acquisition. But more importantly, we've created a conduit where surgeons can rely upon meaningful actual information that we are delivering to them. And so I think that, that was such a great kind of start. And it's really the start of our opportunity to make sure we identify the requirements of each procedure and deliver the informatic element that's most important to make for predictability. And so that's super exciting. I think that will continue through '21. And just the ability to take all the EOS elements and start to be able to take that information and a preoperative plan through that conduit to make sure that the surgeons are getting what they need is profoundly valuable. And so you start to think about closing EOS. That's a big thing this year. You start to look at -- we've been developing some cervical products this year, so cervical will start to make a nice contribution. We'll continue to expand the sophistication from an indications perspective as it relates to things like PTP and LTP. And so I think that there's a maturing process that's going on in 2021 that's very, very valuable. And so -- but I think long term, I got to tell you, there's such a great opportunity. There's a lot of people running our way with regard to, "hey, listen, what's the next 10 years look like and who's going to be the company that ultimately giant kills based upon their understanding of the requirements of the environment that we're working?" And I feel like that's us. And so I'm super excited about the long-term prospect of this company. -------------------------------------------------------------------------------- Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [4] -------------------------------------------------------------------------------- Great. That's really fantastic. And then just the last thing, I think you were just talking about it, but clearly, your efforts are all about empowering spine surgeons with informatics, with great tools, et cetera. Obviously, there are people in the industry who think the right approach is to just offer up a robot and get it into the OR. Can you sort of distinguish your thrust from the robot, thrust you see from some of the other guys out there? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [5] -------------------------------------------------------------------------------- Completely. And I genuinely have nothing against individual types of technology. But I think when you start to prioritize what the -- what's going to have the greatest impact on a specific procedure. And for instance, we developed the whole PTP thing. And you say, "Gosh, is a robot or is a patient position going to have a larger effect on the predictability associated with an outcome of, say, prone transpsoas surgery?" I got to tell you, it's not even close. It's the patient positioner. And then you start to say, "Gosh, it's neurophysiology, meaning being able to identify where neural elements are or understanding the health of them. What's more important that or a robot?" And by far -- and so again, I think that there's nothing wrong with robots. I hope we -- I'll get to some robotic view. But there's things that are priorities to that when you start to look at what the requirements are of a specific procedure. And so I don't want to get in a big argument with anybody over the value. We'll see at the end when the market reflects the demand on what we're doing. But I got to tell you, I'm very bullish on our understanding what the requirements are of what the priority should be from a product development perspective. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Your next question comes from Joshua Jennings from Cowen. -------------------------------------------------------------------------------- Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [7] -------------------------------------------------------------------------------- Pat and Jeff, congrats on the strong end to the year and all the progress. I wanted to follow up on Brooks' question and your thinking about Alpha InformatiX. SafeOp has been a huge enabler for some of the procedure and surgery techniques and approaches you guys are introducing. I imagine you guys aren't standing still on neuromonitoring. Anything you can share just in terms of how you see SafeOp platform about evolving? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [8] -------------------------------------------------------------------------------- Yes. I think it's a great question. It's like a lot of the core technology around SafeOp, it was really kind of the inspiring part. It's like the ability to automate SSEPs has been really revolutionary. And the speed by which we can deliver that information is significant. But kind of the foundational elements of the technology where we can pick up super small signals has been the reason why we get to do it over and over and over, where most people -- well, people can't capture the signal consistently and so -- from a somatosensory of a potential standpoint. But the beauty of that is what are the other applications where we can apply these technologies in a way that the signals are very small but very meaningful. And so we're deciphering those -- we believe there's some DSEP or hopefully some more individual neural kind of information that we can provide. But is it important as we look at, say, TLIF? Or is it important as we look at some of the cervical applications? And then addition to that, as you start to look at, gosh, can we start to say, "Hey, there's a canary in the coal mine saying that there may be a retraction injury and then verify that with other technologies?" So I think that there's so many opportunities that continue to utilize this technology in ways that are very valuable to the surgical experience. And so it feels like we're just getting going on that front. -------------------------------------------------------------------------------- Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [9] -------------------------------------------------------------------------------- Excellent. And then I noticed in the kind of product portfolio build-out section in Alpha Informatix, you guys listed TrackX. I was hoping you guys could just help us kind of think about that kind of intraoperative imaging and how that's evolving and how you're integrating it into your Alpha Informatix platform? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [10] -------------------------------------------------------------------------------- Yes. Thanks much. It's funny. It's like people will talk about robotics. And you think that, gosh, we don't like imaging technology, but we're going to buy EOS. We love imaging technology. And one of the great elements of creating surgical predictability is making sure the entire bell curve can do this thing reproducibly. And what happened is one of the best ways to do that is to devise procedures that are orthogonal. And so if you go directly to the front of the cervical spine into an ACDF, that's very predictable because it's a very straightforward movement. If you go to the front of the spine, in the lumbar spine, it's very predictable. If you go absolutely directly to the site, it's predictable. And so what happens is if you continue in that lane, it becomes a very safe corridor. And to be able to utilize TrackX, which, in essence, is radiation with biplane fluoro and be able to say, hey, am I staying in my lane,from an informatic perspective, we believe that, that creates safety. And so it's much like your car, when you start to get out of your lane, it says, "Hey, you're getting out of your lane." And so we tease our hair, "Stay in your lane, bro." It's -- so we feel like the whole TrackX element becomes a very valuable part of alerting surgeons to making sure that they're staying (inaudible). -------------------------------------------------------------------------------- Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [11] -------------------------------------------------------------------------------- I just have one more, sorry, just to sneak it in. I think it's clear and we have an understanding of just the kind of halo effect when you launch a surgical technique like PTP, and you get some pull-through in some of the other procedure categories. But I was just wondering, specifically, for (inaudible) portfolio launch. I mean does a PTP customer, can you experience the halo effect even in cervical? And maybe just more directly, what percentage of your kind of minimally invasive lumbar surgeons are also performing cervical procedures, excuse me? Just wanted to think about as you introduce cervical products, the launch and anything that can help in the trajectory? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [12] -------------------------------------------------------------------------------- Yes. Thanks, Josh. I got to tell you, this is an interesting business. And I love the kind of nomenclature of halo effect. Because what happens is when you compel someone or create confidence with them, the likely for them to throw you the things that are less complicated is important. And so the opportunity for us to create a best-in-class cervical portfolio is often earned by the confidence created through things like PTP. And so it's funny to us when we see people touting things that candidly are very conventional and haven't evolved much surgically in a way that ultimately -- our view is that what we'll do is we'll do the hard things very well, and I bet we'll get allocated the things that are relatively straightforward. And so -- but it's great because they're all a reflection in the confidence the surgeon has in what you do. And so it's important that this stuff is best-in-class. So we're excited about the contribution in cervical. And one of the other things, we're going to launch -- in the time that I've been here, we're going to launch what's called InVictus OCT, and that's occipital cervical thoracic system, and it's going to come here in the very near term. And so we will have gone from head to [safe] on the period of time that we've been here where most others have not even come close to touching that experience. And I think it just speaks to the level of prowess of our product development group. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Your next question comes from Kyle Rose from Canaccord. -------------------------------------------------------------------------------- Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [14] -------------------------------------------------------------------------------- So I just want to take a little bit of a step back. I mean you guys grew 30% this year. I mean that's clearly multiples above the broader market. But when you talk about some of the key products, when I think about the SafeOp, PTP, those are products that -- I think on the last call, you talked about 550 cases in PTP. I mean those are techniques that take a lot more surgeon training. So I guess help us understand, when you think about the growth in 2020, how you were able to put out like this type of growth in this market despite some of the heavy lifting required for the new product launches? And I'm just trying to understand how that really sets up and informs the growth in 2021 when the burden of education, hopefully get easier, you can get more in front of people. I'm just really trying to understand how much of the underlying groundwork was really late in '20 to continue to see more upside in 2021? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [15] -------------------------------------------------------------------------------- Yes. I'll speak to the color, and then I'll let Jeff probably add some intelligence to it. But the -- I think that what we saw in 2020 was really kind of just the initial entree. One of the things that we do a lot of is alpha evaluation. And I think that the alpha evaluation for something like PTP was very robust. And the great part is if you look at the impact that it has on our price per surgery, it's significant based upon a number of categories of products used. And so when you start to think about SafeOp and posture fixation and, candidly, interbody stuff and like there's a lot of categories in things like PTP. So there's a magnification of the reflected revenue when you start to pile on the volume of cases that ultimately,are earned through delivering what we believed it would. And so I would tell you that those are the types of things that have developed -- or delivered the majority of the growth. The other thing is, candidly, there's sales groups coming our way that have significant books of business and inspired surgeons. And I think that they start to get a feel for the type of technology that this new company has, and they're not underwhelmed. And so I think that the fun part is, that, that there's few things worse than not fulfilling the very expectation that you created with regard to bringing these people over, and their ability to be successful with our technology has been very high. Do you want add anything, Jeff? -------------------------------------------------------------------------------- Jeffrey G. Black, Alphatec Holdings, Inc. - Executive VP & CFO [16] -------------------------------------------------------------------------------- Yes. I think just to expand on that a bit. I think, Kyle, there are a number of growth drivers. And I think that's why maybe it's hard for you to get your head around kind of where it's all coming from. But I think it's certainly the expansion of PTP. But it's from a surgeon base that already exists that are already using our existing products. So from that perspective, it's incremental to what they're already doing. And then to Pat's point, we're going not just expanding geographies, we're going deeper into existing geographies. So there are a number of sort of growth levers, if you will, that we could pull that gets you to that growth rate. -------------------------------------------------------------------------------- Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [17] -------------------------------------------------------------------------------- No. That's very helpful. I'm just trying to understand the type of growth we saw in the second half in relation to guidance for the full year in '21. So maybe let's touch on that a little bit. Obviously, you closed out the year very strong. I think when you listen to your peers -- although you're clearly not apples-to-apples given your growth. When you listen to your peers, they saw a slowdown in cases in the latter part of the Q4. That seems to have continued for the first 2 months into the Q1. Just so when we think about the 25% growth year-over-year -- obviously, you've got some big comps in the second half. But just how should we understand and think about the progression of revenues through the year, given we still will have some COVID headwinds in the near term? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [18] -------------------------------------------------------------------------------- Yes. Kyle, I would say my view is we felt some of the lumpiness at the end of the year and then some of the lumpiness at the beginning of the year. And I think that -- the great part is I think to everybody's commentary that the uncertainty is dissipating. And so we're seeing upticks in terms of just the confidence in the availability to deliver surgery. And so -- but I would say it wasn't different in terms of the dynamics of what they saw and what we saw. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Our next question comes from Matthew O'Brien from Piper Sandler. -------------------------------------------------------------------------------- Matthew Oliver O'Brien, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [20] -------------------------------------------------------------------------------- I guess just to follow up a little bit on Kyle's question on the guide for the year. I mean 25% growth is phenomenal. It's well above the market growth rate, obviously, a little bit of a decel versus, Pat, what you've been talking about over the last 8 quarters as far as 30% growth. And then you're moving into cervical, you're moving into biologics a little bit more. So I'm just trying to make sure I understand that you're trying to be more conservative, still plenty of opportunity on the lumbar side of things versus things that are -- just our penetration opportunities maybe slowing down a little bit on lumbar, so we're shifting into cervical or anything along those lines that you're trying to call out here again. Are you just trying to be conservative with the outlook for the year? Any color there would be helpful. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [21] -------------------------------------------------------------------------------- Yes. The thoracolumbar ain't slowing down. It's one of those things where it's like -- there's lumpiness out there. And you start to look at us having just come out of a pandemic, and it would be irresponsible to get too ahead of ourselves. And so we're enthusiastic about like growing this thing out. And what we do is we chart the different categories in terms of our procedural influence very carefully. And so what we're just trying to do is architect forward, but it's not a matter of our concern over the demand for what we're doing being affected. It's more a matter of just saying, gosh, how do we think about the lumpiness of the environment and the different things that we have to do. And so I think that we're trying to be thoughtful. I don't know about conservative. I think nobody else is talking about 25% growth. So it's one of the those things we're just trying to be proper stewards of the profit. -------------------------------------------------------------------------------- Matthew Oliver O'Brien, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [22] -------------------------------------------------------------------------------- Okay. Makes total sense. And then thinking about the space. Just generally speaking, you've got a bigger player, not 1 of the biggest 3 or 4 players, but a bigger player that's spinning off their spinal, dental businesses. And you don't have dental, so you can't go after that piece of their business, but they are a sizable player. You have a big domestic presence. Is there a way to make a bigger push or thrust into some of those accounts there? Because I know they're already thinking about -- some guys that are already pretty nervous. So is there a way to really get more kind of a disproportionate amount of that share into the Alphatec organization over the next maybe year or 2? And then I'm also curious about national accounts. You haven't talked a ton about that. I'm just wondering what you're doing from a national account perspective. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [23] -------------------------------------------------------------------------------- Yes. Yes. If there's one thing that we love, it's disruption. And so it's one of the things where it's like -- I think that there's leaders of companies that don't like spine because they don't know it. And I think there's so much opportunity to make spine surgery better that I think people have fatigued on how to do that. And I think one of the virtues of the company is the fact that we're a great student to the requirements of the environment. When I say that, what I mean is, is we can't be more optimistic about making things better. And when there's disruption, especially with companies that haven't been super excited about this space, gosh, we love it because there's a ton of disruption. And we feel like it avails opportunity -- significant opportunity. And so we love the continued disruption. And if the rest of them want to spin their spine divisions off, we'll be thrilled about that. And so the -- as it relates to national accounts, not to just -- I'm bullish on what we're doing. I think we're earning a lot of respect based upon the types of things that we're doing. And one of the ways then becomes, do you have something that's unique? And so we've got into a number of IDNs based upon the fact that nobody else has a fully baked prone transpsoas portfolio. A lot of people say, "Hey, I can apply our stuff to this." And then they have a terrible experience, and they say it's a bad surgery. The reality of it is they haven't designed and developed for the specific utility. And so our opportunity is with these IDNs is to insert ourselves with regard to having unique technology and then being able to expand our footprint the best we can with them. And so that's been very successful, and we've gotten access to a lot of places based upon having something unique better. So anyway, it's part of the fun. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- Your next question comes from Mathew Blackman from Stifel. -------------------------------------------------------------------------------- Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [25] -------------------------------------------------------------------------------- Pat and Jeff, appreciate the questions. Congrats on a great end to the year. Maybe, Pat, to start, can you just give us perhaps a little bit more color on the PTP rollout or any metrics to share on surgeon adoption to date, whether it's skewed to ATEC customers or if there's more of a balance of new customers adopting? And then a follow-up to that is, have you been able to go full bore with the rollout given the 4Q COVID resurgence? I assume there's incremental training required. Is that something you've been able to adjust to? Or has that been a headwind? And then I've got a couple of follow-ups. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [26] -------------------------------------------------------------------------------- Okay. Great. Yes. It's been interesting. The rollout has been interesting in that, as I said, this group has as much lateral experience. When I say that, I'm trying to be nice. This place has more lateral experience than anybody. And so what happens is you go out there and you solicit surgeons who have had a large experience with lateral surgery and to ultimately compel them to come get trained and to adopt it into their practice has candidly not been overly challenging. And so we've gotten a very good reception. The reason -- one of the core reasons we've done PTP is really not to just stay with a bunch of people who've already adopted what we deem to be great surgery in specific types of indications, but also to attract surgeons who have historically been surgeons who have approached the spine from a posterior perspective. And so to have a position in prone and have them approach it from that patient positioning is much more familiar to them. And so we feel like the initial guys, when they see Luiz Pimenta and Bill Taylor and people like that, they say, "Gosh, I know these guys. These guys are luminaries in the field of lateral spine. Gosh, this is something I should listen to." And then ultimately, our expectation is we're going to continue to expand it based upon those people who are most comfortable operating in a prone position. And so hopefully, that answers your question. -------------------------------------------------------------------------------- Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [27] -------------------------------------------------------------------------------- Yes. I appreciate it, makes sense. And then just 2 more. Just as we think about the key growth drivers in 2021, they're all basically the same drivers we saw in 2020 with EOS layered on top of that. As we think about each of those, the revenue per procedure, channel productivity, channel upgrades and U.S. geographic expansion, has the rank order importance of those changed at all versus 2020? And specifically, as we think about -- you've mentioned it a couple of times, expanding the U.S. footprint, does that become a bigger contributor in 2021 directionally versus 2020? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [28] -------------------------------------------------------------------------------- Gee, I kind of think of them as all being so important. It's one of those things where it's like it's tough to say, gosh, one is going to be a larger contributor, right? I think that we always start with saying, can we drive clinical distinction, which will ultimately compel surgeons, which will ultimately drive kind of a sales footprint and then making sure that it gets reflected in a way the surgeon finds success and then success breeds success. And that's kind of the order of always how we think about things. And so unless Jeff has any other commentary, it's -- I don't think about it any differently than what I just described. -------------------------------------------------------------------------------- Jeffrey G. Black, Alphatec Holdings, Inc. - Executive VP & CFO [29] -------------------------------------------------------------------------------- Yes. And I would say, as Pat had run through on the presentation, the average product categories per case, still in the early stage, still a ton of room to expand. And so I would think about growth drivers being very similar as they were in 2020 because we're just getting started. There's still so much opportunity to expand both product per case as well as revenue per case and then expand geographies and go deeper into existing geographies. So I think the growth levers are very similar to what they were in 2021. -------------------------------------------------------------------------------- Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [30] -------------------------------------------------------------------------------- And then last question, sort of following up on Kyle's question earlier, and for a number of reasons I know this is not a fair question. But with all the success in 2020, clearly, momentum in '21, now you've got EOS on top of that, is there any change in how you think about or how we should think about the sustainable growth rate for Alphatec in like '22 and beyond? I guess what I'm asking, can you sustain 20%-plus growth over the next several years? Or are there things that we should be sensitive to or law of large numbers or anything like that? It sounds like you're still in the very early innings here. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [31] -------------------------------------------------------------------------------- Yes. It feels like we're in the early innings. We're a smaller company just from a pure numeric perspective, but I think that we're playing big. And so I think that there's a significant runway for the company ahead of us. And so it's tough to say, "Hey, listen, we're just going to handle this on a year-by-year basis and do what we know, how to do it as well as we can and not get ahead of ourselves." It's like -- a pandemic last year was a great reflection on not getting ahead of yourself. And so I would tell you that we're just going to stay the course and focus on what we are pretty good at and what we'd love to do, and we feel like that will reflect growth. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Your next question comes from Jason Wittes from Northland. -------------------------------------------------------------------------------- Jason Hart Wittes, Northland Capital Markets, Research Division - MD & Equity Research Analyst [33] -------------------------------------------------------------------------------- Just a few questions here. So first off, it sounds like you did have maybe some COVID hit, but it was somewhat indiscernible. Is that the right way to think about it? And going into this -- I guess we're into 2021 at this point. Again, is that also the case that there may be some, but it's not necessarily discernible to the mix of your business given the growth rate you guys have? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [34] -------------------------------------------------------------------------------- Yes. I would describe it -- it's like kind of at the end of the year was lumpy and the beginning of the year is lumpy. And as we've talked about, it's like it's the tale of 500 counties. I used to say it's a tale of 50 states. And now it's a tale of 500 counties because everybody is kind of making their own decisions as to when they start back. And so -- and then you layer that in with regard to the type -- the reasons why people operate and the type of demographics that practice and it just creates a confluence of -- just to be able to prognosticate it is very hard. And so for us, we've just seen lumpiness in the closures of hospitals and whatnot. But we feel like a lot of it is dissipating, and we're well on the back end. -------------------------------------------------------------------------------- Jason Hart Wittes, Northland Capital Markets, Research Division - MD & Equity Research Analyst [35] -------------------------------------------------------------------------------- Okay. That's fair. And I think it was mentioned earlier on TrackX. It's a pretty slick technology. And I mean, basically, if you talk about narrowing the bell curve so that every surgeon can do something and also reducing radiation, it seems to do all that. That relationship, is that exclusive to you guys? And is that something you consider central to your navigation strategy as well? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [36] -------------------------------------------------------------------------------- Yes. So the -- one of the things that we're huge fans of is workflow. And so the ability to ultimately integrate within someone's workflow becomes very, very important. And TrackX is such a great tool. And part of it becomes is how do you acquire the image. And to be able to upgrade the image or update the image based upon a single fluoro shot and continue on with biplane fluoro is so valuable because what happens is it doesn't require a brand-new spin or -- as a lot of the technology requires. And so we love the fact that what you can do is update it on the fly and really kind of keep the workflow of the experience at a very rapid pace. As it relates to relationship is we are exclusive as it relates to all things PTP. They started the company before -- around the same time we did. And so they -- it's not exclusive from a posterior perspective but it is from a PTP perspective. So all the anterior stuff that we're doing together is something that is exclusive to us. -------------------------------------------------------------------------------- Jason Hart Wittes, Northland Capital Markets, Research Division - MD & Equity Research Analyst [37] -------------------------------------------------------------------------------- Okay. That helps. And then on EOS, I think when you initially announced the deal, I think you threw out an estimate of something in the range of $40 million to $50 million on a full year basis for this year, 2021. That's not -- that's full year, that's not inclusive of when you close the deal. But is that still a reasonable expectation for what a full year of EOS might look like in 2021? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [38] -------------------------------------------------------------------------------- Let me jump on it, and then Jeff will provide the specifics. When I -- I'm not sure that, that was thrown out, but... -------------------------------------------------------------------------------- Jason Hart Wittes, Northland Capital Markets, Research Division - MD & Equity Research Analyst [39] -------------------------------------------------------------------------------- Okay. So I apologize. It might have been my assumption, but go ahead. Sorry, Pat. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [40] -------------------------------------------------------------------------------- No. No. No. I guess the way that we think about EOS is there's very little overlap in the 2 businesses. And as we channel check the interest of our customers in EOS, it is exceedingly high. And as we start to think how we can play a role in some of the academic institutions that have already acquired the technology, we also see that as being very high. And so the opportunity is significant. But as it relates to quantifying it, it's -- that's where I rely on my colleague, Jeff. -------------------------------------------------------------------------------- Jeffrey G. Black, Alphatec Holdings, Inc. - Executive VP & CFO [41] -------------------------------------------------------------------------------- Yes. Jason, well, I think what you're referring to is when we announced the deal, we had shown a pro forma illustrative revenue profile that combined the 2 consensus numbers. I think that's what you're referring to. So that is -- I think that's exactly that number. And so I guess what we'll say is that, look, we're still modeling the business. We'll be much better prepared to provide guidance once it closes. -------------------------------------------------------------------------------- Jason Hart Wittes, Northland Capital Markets, Research Division - MD & Equity Research Analyst [42] -------------------------------------------------------------------------------- Okay. That's fair. And let me just ask you from just a sort of integration standpoint, what does EOS look like on day 1? I mean I would assume there's a lot of work to be done to fully integrate it within the whole informatics platform within Alphatec itself. What does it look like on day 1? What does it look like on day 365? And what does it look like 5 years from now? If that's a fair question to ask. -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [43] -------------------------------------------------------------------------------- Yes. It's -- I'm not sure it's fair or not. No, the -- one of the things that we authentically want to do is kind of run at the integration of this thing, but we want to be super responsible with how we go about doing that. And so we will have somebody from this office sitting in Paris as part of that team. And just to start the kind of the cadence of how we do things together will be very, very important. And so I think the first thing that will be done is how do we ultimately help each other with regard to sales synergies. And when you have guys selling capital and all they're doing is knocking on the door of a hospital administrator and then telling surgeons, "hey, this is a very important piece of equipment they see once a quarter," it becomes very hard to create this impetus for excitement and for movement. And so when we have the number of guys that we have in the field with the surgeons every day and then hitting on the surgeons from a kind of an implant sales force perspective and then having the capital guys hitting on administration, it really creates a much more -- much faster route to, I think, a buying position because the relevance of the technology is so high. Our view is we're going to start informing surgical planning and things of that nature very, very quickly, and that's going to be some of the first things that we do. And then we think that there's so much opportunity to deliver information through the Alpha Informatix platform in a way that ultimately makes surgery better. And so we feel like we have years of opportunity to take the type of information to make things better. And so I don't know what the time line of each of those projects are as of yet. But I know exactly what it looks like, and that's what makes us so excited. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Your next question comes from Sean Lee from H.C. Wainwright. -------------------------------------------------------------------------------- Sean Lee, H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate [45] -------------------------------------------------------------------------------- Most of my questions have been answered, but I just have a higher level one on how you view the product portfolio. In the prepared remarks, you mentioned increased number of products per procedure as well as switching distributors to exclusive as the main driver for the coming years. I was wondering, which part of your product portfolio you feel could do with the most number of new products? Where do you see how -- where do you see new products that help the most in driving these 2 goals? -------------------------------------------------------------------------------- Patrick S. Miles, Alphatec Holdings, Inc. - Executive Chairman, CEO & President [46] -------------------------------------------------------------------------------- Yes. I think it's a great question. I think that it's like -- we make nobody be exclusive. We -- and we earn exclusivity. And I don't mean to be trite with regard to saying that, but as well as the things -- so it's like if you have the type of technology where these guys can really create a big business and have great confidence in the business forward, our opportunity to earn their confidence is very high. And so when I start thinking about things like -- and clearly, the least objective here is with regard to PTP. But when you start to look at lateral surgery, you start to say, gosh -- right now, just the way that we see lateral surgery, there could be 9 different product categories associated with lateral surgery. And you start to say, "Gosh, this is the type of resolution that we see these procedures." I start to think, "Gosh, we can really, really distinguish ourselves in lateral surgery." And then I thought that the comment with regard to the halo effect, I'd say, cervical may be very high. And so it's that type of thing that becomes compelling. And so I get excited about the compelling exclusivity with things like PTP. And then ultimately the halo effect of some of the different things that are maybe more conventional in nature. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- And that was our last question. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.