ATEC - NASDAQ

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

Thanks, Regina and welcome everybody to the Q3 2023 financial results. There is going to be some forward-looking statements. So, if you would read that at your leisure that would be greatly appreciated. And so our spine-focused momentum continues. So, revenue for the quarter was $118 million, 32% revenue growth. The surgical revenue growth was also 32% and a positive adjusted EBITDA of $2 million. So just a few highlights. We achieved 24% volume growth and 6% growth in revenue per procedure, drove $14 million in EOS revenue that’s a growth rate of 30%, launched Calibrate LTX, an expandable implant for lateral procedures, so nice to be in the disposable game, delivered second consecutive quarter of positive adjusted EBITDA with 860 basis points of margin expansion, raised $150 million to accelerate investment in revenue-generating assets while executing to profitability and cash flow commitments, and enhanced our Board of Directors with deep spine prowess. So, super excited about adding Keith and Dave to the team from a BOD perspective. So, our commitments haven’t changed. We are still applying our 100% spine focus, which we think is super important to create clinical distinctions. That means we are going to continue to do better and deeper work. We are going to continue to compel surgeon adoptions. We loved it to continue to do better, more distinctive work. And clearly, the surgeons would apply that to their patients for improved care and just a great opportunity from a market disruption perspective. So we want to continue to elevate distribution and continue to deliver better solutions. And so I think many C-spine has commoditized. And usually, when markets are commoditized, the results are predictable. When you think about spine, you see a revision rate in adult deformity of 25% and in degenerative, a 10% to 15% revision rate that is not in anyway predictable nor commoditized. And so we think that minimizing the clinical variables in spine through proceduralization is a very big part of making something better. And so we design and develop and integrate technology to address the goals of spine surgery, which is decompression, stabilization alignment specific to each approach. And so we designed the elements to work together for efficiency’s sake. And we believe that if money has tokenized time, things like PTP that fulfills the surgical goals in less time with a patient under less anesthesia is value creation immediately. And so when you give surgeons back time and predictability, what you do is you earn their confidence. And so when we earn their confidence, what happens is to expand the ATEC product utilization in more conventional procedures. So you start to see PLIF and TLIF and ALIF and ACDF and posterocervical be utilized in a much more common way. And so we have just really begun our pursuit to increase predictability and reproducibility. And so our commitments to advanced spine surgery are palpable. And so when you start to think about how you do that, we think about informatics, which is a big part of what we are doing, which is standardizing imaging or really through standardized imaging, quantifying global alignment, we think is a great opportunity to create objectivity to the greatest correlative of the long-term outcome. We think we can inform spine surgery much better and much more widely with automated tools and we will start seeing that in full release in mid-2024. We are also very excited about Valence, which is the navigation robotic system. We are going to integrate it into the workflow of all of our procedures and that’s going to enhance surgical precision while reducing radiation. At NASS this year, we launched Calibrate LTX. So we are expanding the sophistication of our lateral approach with a lateral expandable implant designed to enable precise control lordosis and disc height restoration. And so when you start to think about informatics or great influence, we think about EO, so we think about really what we are doing from a design perspective around catalyst. And it is going to be the most relevant system in spine. And you can see a lots going on. We have gotten several FDA clearances in automated surgical planning as well as our patient-specific rods. So congrats to our regulatory team who continues to crush it. But we think that things like knowing before surgery through automated alignment reports and automated 3D models that our ability to start to preoperatively understand what we are going to do in the operating room and then integrate the pre-op elements into the operative experience, again, furthers predictability and then evaluating that or assessing that against a post-op experience is really going to change the way that the spine surgeons think about preoperative planning and interoperative integration. And so we are off and running. We are going to start to evaluate that stuff late this year and early next and can’t be more excited about what’s going on with our ecosystem. So it is truly end-to-end. So our ability to understand preoperatively, provide automation to the surgeon, integrate that into the interoperative experience and then inform what’s next with regard to the next preoperative plan. So, we feel like that type of distinction continues to compel multi-facet surgeon adoption. And so we had a ton of surgeons through here this quarter. We had greater than 130 trained in Q3 of ‘23. We continue to earn more of each surgeon’s surgeries. And so the surgeon utilization all the way back from 2018 continues to go up into the right, which we love and the whole convoyed sales in terms of proceduralization continues to march up. And so I think from a demographic perspective, we’re totally bullish with regard to what’s going on for us in the space. And so, we have been one of the fastest growers or the fastest grower, not one of them, the fastest grower. But we always believe that our best is yet to come. And when you start to look at demographically what’s going on, we think that not only the stuff where we are driving clinical distinction, but the market dynamics really avails an opportunity that we think is really profoundly unique. And so our opportunity to create distinction within the elements of our distribution is very, very apparent. And so we are going to do two things. We are going to expand our footprint. And the first thing we are going to do is we are going to continue to address the third of geographies that are un- or under-penetrated. We are less than a 5% market shareholder. And so our opportunity is significant to continue to expand our market share. Places where we have distribution and solid distribution, we have approximately 25% share in very focal areas. So we have always talked about us having a focal footprint. Where we have committed, we have grown and we have demanded a significant market share. We believe that we can do that across the country more and more readily. And I think that the environment provides us that opportunity to capitalize on market uncertainties to improve quality and quantity of our funnel, strategically fill in gaps. Some major markets still are greenfield opportunities. So we feel great about it. So not only are we going to expand footprint, we are going to increase the contribution of our existing team. If you look at same-store sales, they are in the 30% range. So you love the growth profile of the people who have been with us for a while. So we are going to further penetrate adjacent markets within existing territories, advanced team’s clinical aptitude and continue to earn share of existing surgeon users. And so the spine industry has served us up a heck of an opportunity and we are positioned to capitalize on the market disruption. I think those of you who have followed the market since January ‘23 have seen disruption with regard to the Orthofix SeaSpine assembly, the Clovis Nuva assembly, the change in leadership at Orthofix. We think all of these things are opportunities for us to ultimately capitalize on. And so we have already added 30 professionals and we will continue to be disrupted as it relates to the expansion of a more informed team. And so we will boldly lean into an unprecedented opportunity and wanted to provide a little bit of clarity just in terms of historically how we used to have to compete in a more of a conventional market, and it was more of a 1 by 1 by 1. It was a very gradual linear sales talent onboarding. And so – and then it was a linear investment in revenue-generating assets. With this market disruption, we think it served us up really an unbelievable opportunity. And now the opportunity is completely different and it’s non-linear, both from a talent onboarding perspective as well as an investment profile of revenue-generating assets. So the opportunity is palpable. We cannot be more excited. And with that, I will hand it over to Todd.

Well, thanks, Pat and good afternoon everybody. We appreciate you joining us on the call today. So I will begin with revenue. The third quarter revenue was $118 million, up 32% over the prior year and up 1% compared to the previous quarter. The $118 million in revenue was comprised of $104 million in surgical revenue and $14 million of EOS revenue. Third quarter surgical revenue of $104 million increased 32% compared to the prior year period and was up $1.5 million sequentially with 1 less selling day compared to Q3 of 2022 and compared to Q2 of 2023. Additionally, the year-over-year growth of 32% is on top of a 53% surgical revenue growth comparison in Q3 of last year. Procedural volume grew 24% in the third quarter, reflecting strong surgeon’s adoption, with growth in the number of surgeons utilizing our procedural solutions up 25%. Average revenue per case expanded 6% year-over-year due to continued mix benefit from the momentum of our lateral franchise, the continued increase of our biologics attach rate, and an increase in case complexity. Lateral performance continued to be strong and drove increases in both procedural volume and revenue per case. With the recent update to our cervical procedural offering, cervical revenue also contributed significantly to growth. Given cervical cases have lower case ASP than our overall average this was a slight headwind to growth in revenue per case. EOS revenue in the third quarter was $14 million, up 30% compared to last year, with solid execution on deliveries and installations. Working through the remainder of the P&L, third quarter non-GAAP gross margin was 72%, up 130 basis points compared to the prior year. The year-over-year increase was primarily driven by the EOS gross margin, which is benefiting from strong execution and addressing the backlog of service needs in addition to the pricing initiatives we put in place. Third quarter non-GAAP R&D was $13 million and approximately 11% of sales compared to $10 million and 12% of sales in the prior year. The increase on an absolute dollar basis was driven by continued investment in organic innovation, including approximately $1 million of investment associated with Valence, the robotic navigation platform we acquired in April of this year. Non-GAAP SG&A was $80 million and approximately 68% of sales in the third quarter compared to $67 million and 75% of sales in the prior year period. We delivered 680 basis points of improvement year-over-year. That is noteworthy as we begin to lack the significant leverage gains achieved last year, including SG&A leverage of 860 points in the prior year quarter. The majority of the improvement in the third quarter of 2023 was driven by variable selling expense with the balance driven by infrastructure leverage and net of about 90 basis points of investment related to continued efforts establishing our international presence. Total non-GAAP operating expense amounted to $94 million and approximately 79% of sales in the third quarter compared to $78 million and 87% of sales in the prior year, demonstrating 730 basis points of operating leverage year-over-year. Adjusted EBITDA was over $2 million and approximately 2% of sales in the third quarter compared to $6 million loss and negative 7% of sales in the prior year period. This represents 860 points of margin expansion and the drop-through of approximately 30% of the year-over-year growth in sales dollars. It is worth noting that it was in Q3 of last year that we began to see significant adjusted EBITDA margin expansion. So this quarter’s strong operating performance demonstrates our ability to both sustain and expand on that progress. We are pleased to have achieved the second consecutive quarter of positive adjusted EBITDA performance that reinforces our confidence in achieving the long-term profitability goals we have committed to. We ended the third quarter with $123 million in cash. That, along with proceeds from our recent secondary offering positions us with over $260 million on the balance sheet to take full advantage of the opportunities ahead, which I’ll cover more in a moment. Operating cash use totaled $37 million, of which approximately 90% was related to investments to support growth, primarily the inventory and instruments that facilitate our growing distribution footprint and new product launches. Adjusted EBITDA improvements are benefiting operating cash use, and we expect that to continue through the balance of this year and into next as we’ve now inflected to positive adjusted EBITDA. We shared a chart on the bottom of this slide that demonstrates the percentage of free cash use for inventory and instruments. As we’ve expanded profit margins, a larger portion of cash used is going toward investment in the revenue-generating assets that support sales growth. The expansion of profit margins will enable us to achieve cash flow breakeven on schedule as we communicated in our long-range plan. Debt at carrying value was $523 million, inclusive of a $50 million draw on the Bradwell term loan facility. Now turning to our outlook for the full year 2023. We raised 2023 revenue guidance when we pre-announced the third quarter ahead of the NASS conference a few weeks ago. We expect full year 2023 total revenue growth of 35% to approximately $472 million. That includes 2023 surgical revenue growth of approximately 37% to $414 million and EOS revenue growth of approximately 21% to $58 million. As sales growth drives leverage across our business, we expect to continue to achieve significant adjusted EBITDA progress this year in conjunction with increased top line guidance, we are raising full year adjusted EBITDA guidance to $3 million, representing 860 basis points of margin expansion. The increased guide is in line with the framework we’ve shared, specifically that we anticipate about 10% of revenue upside relative to previous guidance to flow through to adjusted EBITDA, while the balance will be reinvested to drive long-term top line growth. The next slide provides additional context for updated 2023 guidance. I’ll start by sharing how our expectations for procedural volume and average revenue per surgery growth shaped surgical revenue guidance. We continue to train surgeons at a robust rate, which drives both surgeon adoption and utilization, training surgeons builds loyalty and enables surgeons to work up the procedural complexity curve, both of which increased utilization. In the middle chart is a testament to the consistent ramp and utilization that our surgeon cohorts have demonstrated each year. Due to the strong momentum of these dynamics, we now expect mid-20s percent procedural volume growth for the full year 2023 compared to low 20s volume growth expected previously. Average revenue per surgery grows as our mix shift towards procedures that require more products for surgery, like TTP and LTP and towards surgeries with greater complexity, all of which feature higher revenue per procedure than our overall average. The gradual addition of expandable implants to our portfolio and increasing biologics attach rate are also contributing. Strong reception to the upgraded cervical procedure offerings we have introduced over the course of the last year offsets the growth in revenue per surgery to some degree as cervical cases feature a lower selling price than our other procedures. Collectively, we continue to expect these dynamics to drive growth in average revenue per surgery at high single-digit percent rate for the full year. With respect to the rest of the P&L, revenue growth has continued to feel not just meaningful operating leverage but also solid outperformance relative to the profitability commitments we shared as part of our long-range financial plan last May. Guidance for adjusted EBITDA of $3 million for this full year has increased from breakeven expectations at the start of the year, and that is net of approximately $4 million related to the Valence R&D investment that we added after acquiring the technology in April. The $3 million of adjusted EBITDA implies 860 basis points of improvement and approximately 26% drop-through on the year-over-year dollar sales growth. That inflection to positive adjusted EBITDA has made our path to cash flow breakeven increasingly clear. The components that are delivering leverage have been consistent with what we described in our long-range plan. At that time, we committed to 2,500 basis points of operating leverage. And over the 2021 to 2025 time horizon and our guidance implies, we are about halfway there in 2023. The 2,500 basis points of improvement by 2025 entails about 300 basis points of contribution from R&D margin, about 1,000 basis points related to variable selling rate and another 1,200 basis points contribution from SG&A infrastructure leverage. The improving variable selling rate and the infrastructure leverage that sales growth has enabled over the last several quarters give us great confidence to continue investing in growth while achieving our profitability commitments. I’ll turn next to the secondary offering that closed just over a week ago. Pat walked through where we stand in terms of our U.S. distribution footprint, where roughly one-third of territories, including some of our country’s most populated areas are on or under covered by ATAC representation. Industry disruption has unlocked an extraordinary opportunity for us to onboard entire teams of highly seasoned sales professionals from disrupted companies, and we expect continued recruitment success. These tenured professionals ramp toward productivity much more quickly than the sales professional new to lateral surgery or new to spine. And we need to fully support their transition to ATEC with sets and inventory they will need to serve their surgeon customers. The $150 million we raised will fund investment in those revenue-generating assets not just for the teams as we’re onboarding today, but for the teams we expect to bring on over this next year. Armed with this capital, we can lean into the opportunity ahead and sustainably expand market share. I would also like to highlight that the asset investment we are funding have an attractive ROI. $75 million invested in sets and inventory supports $100 million in annual revenues in each of the next 5 to 7 years. That upfront investment generally delivers about $30 million in free cash flow in its first year, followed by about $50 million of free cash flow in each of the following years. Conservatively assuming the assets are in circulation for 5 years implies a 3x return on investment. So while growing market share in spine is capital intensive, the returns at scale are very strong. I want to be very clear that we remain fully committed to the profitability walk we shared in conjunction with the release of our long-range plan in May of 2022. This year, we have achieved adjusted EBITDA breakeven ahead of plan and have raised full year guidance from zero at the start of the year to $3 million today, net of our investment in the Valence robotic navigation platform. Additionally, we’ve communicated and are operating to a construct that will drop 10% of any revenue outperformance compared to revenue guidance through to adjusted EBITDA. For example, we have increased revenue guidance by $34 million from the start of the year to today, and in conjunction, adjusted EBITDA guidance has increased by $3 million, net of the investment in Valence. We don’t expect that to change, and our inflection to profitability will enable us to achieve cash flow breakeven in 2025. I’ll provide some additional context that supports why we are confident in achieving our profitability commitments for this most recent capital raise. The previous slide depicted that 1,200 of the 2,500 basis points of operating margin expansion that we committed to has been and will continue to be driven by infrastructure leverage. Increased revenue growth enables us to lever the infrastructure investment made that are facilitating our expansion into a larger spine company. Accelerated revenue growth will fuel faster than expected infrastructure leverage. Another 1,000 basis points of the operating margin expansion that we committed to as a from variable cost leverage we have been seeing for the past 5 years, quarters now. With respect to our selling organization, we predominantly operate with exclusive sales agencies where the cost profile is variable and contractual over time. Additionally, our long-range plan always assumed we would expand our sales footprint as we grow. Therefore, the investment in distribution expansion was contemplated in our profitability commitments. As we unborrowed new sales agencies, the related spend is variable and at a rate that contractually works lower over time. We are structuring the new sales contracts like we have always structured sales contracts with a competitive commission rate that supports their transition to ATEC and incents them to grow their business with contractual step downs on their increasing basis of business over time. In sum, both leveraging the infrastructure and an improving variable selling cost profile will support the profitability improvements we’ve committed to. That’s a good segue to the next slide. We hope you will save the date for ATEC long-range plan update on March 19, 2024. We plan to host an in-person event in New York City, which will be webcasted for those who cannot attend. The update will add 2 years to the long-range plan that we shared last year, which went out to 2025. We recognize that plan is becoming increasingly stale due to strong business performance. We will share more about the event as we finalize details but the rest assured, our intent is to be increasingly profitable business funding growth with free cash flow will be clear. We hope you will plan to join us. Now in closing, I’d like to sincerely thank you for your continued support. This was an eventful quarter. Exceptional business momentum drove both revenue and adjusted EBITDA outperformance, a continued testament to our belief that good surgery is good business. Our capital raise will enable us to exploit unprecedented industry disruption, and we have begun to onboard new sales professionals and arm them with the revenue-generating assets they need to truly hit the ground running. The market share expansion that we expect to unfold will be very sticky and will power long-term profitable growth in the years to come. We have an active IR calendar over the next few months, and I hope to connect with many of you in person. With that, I’ll turn are the call back to Pat.

Thanks, Todd. So 100% spine focus is compelling not only surgeons but leading sales talent. And as we always say, our best is yet to come, and we’re not guessing. So with that, we will turn it over to the operator for questions.

Yes. Let me take the qualified – let Todd jump on any other part of it. I got to tell you, the opportunities that the disruption has availed are apparent. And I think that one of the things that we’ve always done has been have been bold in terms of leaning in. And as I see the disruption being reflective of the type of demographic surgically that is reflective of our real strong suit from a developmental perspective what I see is really more opportunity for experience as it relates to onboarding people and then being familiar with regard to a portfolio that they could translate more aggressively and expediently. And so that’s how I think about the kind of the core of our business. I think that there are so many different drivers of success, candidly, that I’m very, very bullish. If we’re not perfect on one, I still feel great about the others. And so it becomes one of these things where I think it’s a multifaceted opportunity whereby I think that there is more of a tailwind than a headwind. And so I would tell you the history of the company has been one of execution. And I think that if you look over the last 5 years and you say, have these guys done what they said, I think that there is a high correlation to that. And so again, you’re with the most paranoid in terms of making sure that the verification of the performance of the devices are what they are. We always do alphas to make sure that the performance is reflective of what we intend. But I would tell you that we’re going to continue to be very, very methodical, but I think that the opportunity for aggressive sales hiring makes tons of sense based upon where we sit from a – just an expansion opportunity. So.

I think I’d probably reinforce what Pat said, which is the opportunity is to accelerate our sales through the acquisition of significant competitive sales reps. And I think the point of – these are people who understand lateral surgery, their customers understand lateral surgery, want lateral surgery. I think our portfolio plays so nicely into the opportunity that relative to our historical acquisition of competitive sales reps, I think the setup is quite favorable.

Yes. I would add one thing is we’ve distinguished ourselves in lateral, and we’ve yet to see anything from EOS from an integration into a surgical application whereby what we’re doing is planning and integrating into the operating room. And so I think from a there is so much opportunity from a not only a lateral expansion perspective with regard to selling but also from a deformity perspective. And so anyway, probably things you’ve heard before, Brooks, but again, I think there is many reasons to be very bullish, and that’s why we’re leaning in.

Your next question will come from the line of Matt Blackman with Stifel. Please go ahead.

Hi, good evening, everybody. Thanks for taking my question. Todd, I appreciate you’re not prepared to fully address the LRP this evening, but it would be helpful for all, I think, if you could walk us through what, if anything, may have changed following the raise and with the plan for accelerated hiring and set investment. Can you just reflect a little bit more on how we should be thinking about your ability to drive new customer acquisitions and same-store sales growth with more sets and more reps. And then on profitability, I just want to confirm, I think you said it was in the slides, you still see free cash positive in 2025. Can you just confirm that? And then I’m going to throw another one out there. I think in your LRP, you talked about in 2025, something like an $85 million raw adjusted EBITDA number. Depending on what we’re assuming for 2025 revenues, is that still the sort of right base to the extent that we wanted to add some of that 10% drop-through on revenue upside that model that you’ve laid out? Just any help on that front would be appreciated. Thank you.

Yes, Matt, let me try and figure out where to start here. But maybe I’ll just kind of start by saying, our long-range plan assumed $555 million in revenue in 2025. I think if you use the Street assumptions today, I think – the Street next year is at $550 million, and I think in 2026, it’s around $650 million ish. So in 2025, the strength has just about, I think, $100 million north of what our long-range plan had us big debt. Our long-range plan assumes about $80 million of adjusted EBITDA in 2025. And so if you use the construct that we’ve laid out, you would expect 10% of the $100 million delta on the top line in 2025 Street to LRP to drop through the bottom line. So, that’s about $10 million add to the $80 million. That gets you to $90 million less the Valence investment. So, $85 million is probably your bogey on 2025 Street numbers today as is. And so I think that’s kind of a consistent way to think about how we’ve communicated our drop-through on revenue beats and relative to where we were at in the long-range plan as compared to where the Street is at. And so clearly, we’ve kind of overperformed relative to where the Street – relative to where our long-range plan has been. And so that’s also probably evidenced by the fact that I think the Street has us at $555 million next year, not in 2025. And so I think we have driven execution, outsized execution on the top line. We’ve achieved adjusted EBITDA breakeven a bit ahead of schedule here as well, giving us in positive territory in 2023. And so I think the other thing you wanted me to comment on was free cash flow in 2025. And so I think the point on the adjusted EBITDA is an important one because it’s really the adjusted EBITDA that ultimately then funds, your investment in the growth assets in 2025. And that’s fundamentally why we have a level of confidence that we do to say we will be free cash flow breakeven in 2025 because ultimately, the profitability of the business enables us to do that. And so I think all of that hangs together nicely and is consistent with what we laid out and is consistent with where we’re at. Was there another question in there, Matt?

Yes. I would start, Matt, and then ask Todd to pipe in. But – as you start to look at the demographics of the marketplace and you look at the closing time of the Nuva GMED thing, it was not assured that it was going to go through. And I think that doing anything prior to it being completed would have been found upon as well. And so I think when that being closed, I think seeing the disruption, the other disruption in terms of just leadership Orthofix SeaSpine. I think those things presented themselves in a unique time. And when you – what I tried to do with regard to the presentation is reflect the non-linear elements of getting sales teams over. And I think if I look back at the history of the company, when we talk about creating clinical distinction and compelling people, it’s taken us time to create a portfolio that ultimately would be reflective of the type of sales teams that are coming over today. And now you start to see the sales teams coming over, we had 15 join us in the Northeast. And so when you start to look at what the influence that has on the required instruments and implants, it’s significant. And so for us to start to look forward and say, hey, are we going to capitalize on this growth opportunity or not? We said, let’s lean in. Our history has been one of execution. And so we felt great about that opportunity and thought to ourselves the time is now. And so I think that as we look back historically, people are going to forget all about this because what you’re going to see is us build a behemoth based upon the type of aggressive perspectives of aggressive kind of efforts that we’ve previously made. And so my sense was the time is now again, not the perfect market by any stretch of the imagination. That’s not lost on us. But again, every time we’ve raised money, we’ve created value, and this is going to be no different. And so we felt like let’s lean in. This is an opportunity.

Your next question will come from the line of Joshua Jennings with TD Cowen. Please go ahead.

Hi, thanks for taking the questions and congratulations on the strong results and the raise. I wanted to just check in on see if you can share any trends for LTP and the ramp there since the full launch earlier in the year. And also just wanted to just confirm that LTP adoption coming from previous PTP adopters? Are they – is it bringing new ATEC surgeons in? And is LTP adding to revenue per case and ATEC products used per case those metrics? Thanks for taking the question.

Yes, Josh, yes, great question. And this is why I feel like, gosh, we’ve never been more fortunate with regard to the demographics of the marketplace. And so you see a company that had a significant laterally positioned patient position business, XLIF, and then you see our opportunity to launch LTP and then expand its utility. It’s reflecting the very demographics that we expected. And yes, what – it’s expanding the average selling price per surgery. And so the very demographics that were contemplated with regard to the addition of a patient positioner the ability to do 5:1, the convoy sales associated with a biologic assembly. Like all of those elements are coming to fruition in a way that ultimately is reflective of a growth rate, and then you bring in an expertise from a sales force perspective in groups and you love the dynamics. And so I would tell you that yes, yes and yes. Like the things are happening as expected, it’s expanding the ASP and is being accepted – well accepted. We are competing against taking someone to a bed. And so you love the chances when those are the competitive dynamics in a space that has historically been dominated by somebody else.

Your next question will come from the line of Bill Plovanic with Canaccord Genuity. Please go ahead.

Hey. This is George on for Bill. Thanks for taking our questions. So, the first question we have is, you made a couple of recent Board additions. Can you kind of talk about how these additions have maybe already made an impact? And any specifics of what they will bring long-term value that has been lacking before their appointment. And then just a quick one, just a point of clarification, actually, you were talking about how with the 3x ROI number from your investments. Did you mention that being shorter than the 5-year span in terms of the industry disruption competitive reps you are bringing in? Thanks.

Could you just repeat the last question? I got...

Yes. So, just talking about the – what you said about the 3x free cash flow return of investments. Really a nice chart you guys provided in year five, but I thought I caught something about you guys saying that, that would be more of an accelerated timeline for more of these competitive rep conversions you are getting from the disruptions?

Well, maybe I can just answer that one quickly and then pass it back to Pat to speak the Board of Directors additions that we made. The 3x really is, I think independent of which sales reps are using it. So ultimately, it’s a function of and you make your investment initially in this case, $75 million. You pay for COGS and then you get – you pay for variable commission rates and you drop about $0.30 on that full year in the first year. And then in the years afterwards, you dropped about $0.50 on the sales dollar, that $100 million. And so you look at your revenue of $100 million, you look at your COGS at $25 million, and look at your selling expense roughly of $25 million. And ultimately, that drops $50 million. And that’s kind of regardless of which sales rep is there. And while there is some variation between what the sales agents are and their individual economics, on the whole, it’s not much different. And so I think what we showed would be the same regardless of which selling entity is selling it. You want to speak to the Directors…?

Yes. George, I think it’s a good question from the standpoint of – we always think of companies as assemblies of people that are committed to a specific goal. And so if I am committed to a specific goal, and I have the opportunity to garner the type of expertise that Keith Valentine and Dave Demski have, I am going to take that every day of the week. And so if you start to think about candidly competencies, I think that Keith is someone who has 30 years of experience in the field, he has got reach that is absolutely outstanding. And so there is not a person in this industry I think that doesn’t know Keith and doesn’t think favorably of him, I guess other than at companies. The – but Dave, is again, also I think a Maven in the industry, has a ton of experience. And it’s not that we are trying to shore up things that we didn’t have. I think any way to augment things is the ultimate effort into growing. So, I think Dave has done a great job in terms of leveraging businesses. It’s clear that we need to leverage our business. It’s clear we need to expand our sales force. So, all of those things that I think both of these guys bring to the table is valuable to our effort. So, I am thrilled with that to have association with Keith and Dave and thrilled that they have decided to join us.

Your next question will come from the line of Drew Ranieri with Morgan Stanley. Please go ahead.

Hi. Thanks Pat and Todd for taking the questions. Just maybe wanted, I apologize if I missed this in the earlier remarks, but with the sales force that you are bringing over some of the new rep hires. Can you maybe just talk about your win rate expectations and why this would be a bit more than a typical greenfield rep hire? I would love to kind of hear your thoughts about that and maybe what productivity ramps you are kind of thinking about for some of these recent onboarding – onboarded reps?

Yes. I will do the qualifying helps to quantify, if you can, the – I know these guys candidly, but I have known him for 15 years at the previous place of employment. And candidly, when you build a market with someone, it creates a special relationship. And so what happens is, I think that there becomes a surgical thesis that people buy into that ultimately, their customers buy into. And so what happens is the more of those people that we can get and the more of those people that we could insert into our company, the higher that likely would for more expedient acceptance of what we put forth of a surgical thesis. And so I think that’s such a dramatic tailwind. And really, it’s why we went and did the raises. We felt like this is such an opportunity. It’s not just because of the lateral guys, but it’s just – it’s the building of the foundation of our company that is apparent. And so like this is spine is a small town. And so knowing people within the context of geographies that ultimately will positively affect us, which we are going to be very methodical with regard to prioritizing those geographies that most benefit us that are greenfields for us and where we have hospital access. Again, is just such an apparent opportunity. And so what’s – that’s the approach we have taken. And do you want to comment further, Todd or...?

Yes. I think the point is, given the familiarity with really both, I think the sales folks as well as the surgeon base given the fact that the demographics of their businesses are so aligned to our product portfolio, the interval confidence we have in essentially achieving the kind of business results through attracting these sales reps and these customers. The real confidence is much higher in this scenario than it would be in our history for all the reasons Pat pointed out.

Yes. I think the great part is we were going on a history with a linear walk with less confidence and now we are going to more confidence in a non-linear walk. And so the opportunity, I think is for us, we believe to be apparent.

Thanks for the color. And maybe just on the recent NASS conference. I mean you highlighted the innovation pipeline. And as you look forward – and sorry, there is going to be a couple of questions here like normal. But when you are looking at kind of your R&D pipeline looking ahead, are you starting to think more or incorporating more enabling technology in the R&D pathway from developing to actually commercializing our product and then just remind us on robotic timelines and milestones. Thanks for taking the questions.

Yes. Thanks for the question. Our plate run us over with opportunity. And so as you start to think about all of the opportunities to ultimately have EOS effectuate what we are doing, not only pre-operatively and inter-operatively and post-operatively, it’s like we have enough to do with the technology that we have made commitments towards – to last us a good while. And so just cannot be more excited about the next, really, 5 years as it relates to all of the things from an EOS perspective. In the middle of ‘24, we are going to launch the whole catalyst portfolio of goods, which is all of the automation, the automated planning, the inter-operative integration, integrating that to a customized rod, a lot of the analytics with regard to the post-operative elements, all of that will be done in Q2 of ‘24. Following that immediately starts to become the bone quality elements. And for us to start to understand gosh, what’s the underlying tissue as it relates to stabilization of spine is decompression, stabilization and alignment, then we quantified alignment and now we are starting to do with stabilization from an underlying material perspective. We have years to go with regard to playing that out in the marketplace. And so I love what we are doing from an EOS perspective, I think it’s so opportune. And then when you start to layer in, gosh, how do we get more precise, how do we create this level of execution from a surgical perspective. And I think the integration of the workflow with the Valence navigation robotics element is very, very apparent. And so by the end of this year, we will be doing cases with our fixation elements of placing pedicle screws with a robot. We don’t think that that’s an endpoint at all. Candidly, it’s kind of a bore. We think that the opportunity to ultimately create better surgery is through integrating these things into the workflow. And that’s what ‘24 is going to be our engagement in that. So, you will start to see that in the marketplace in ‘24, but really launching ‘25 of a fully integrated more precise PTP, LTP and those procedures. And so our excitement is, gosh, how do we reflect the value. We have created a heck of a conduit with regard to PTP and LTP. You start to see us putting expandable devices through those procedures in a way that we are absolutely garnering greater precision with regard to the alignment element. It’s just – you are starting to see a greater sophistication with regards to the inter-operative element, and it’s just going to be more and more informed by what we are doing from a pre and post-op perspective. And so anyway, sorry to drone, but I think that there is so much for us to do, so much work to do and so much momentum in the business. I think what we need to do is continue to fill the conduit of surgery that we have already created.

Your next question will come from the line of Sean Lee with H.C. Wainwright. Please go ahead.

Good afternoon guys. Thanks for taking my questions. So, just expand upon the remarks on the tables for EOS. We have seen yields revenue kind of pulling spend more or less for the last year or so. I was wondering whether with the expected launch of Catalyst in 2024, is that going to set off a period of growth for yields, or is that – the benefit of Catalyst going to be more reflected on growth in the rest of the portfolio?

Yes. Sean, it’s a great question. And the question is going to be ultimately where we see the revenue. And I think the near-term revenue impact is going to be on the implant. The long-term revenue reflection will be on the placing of capital. I think as much as you hate to realize to be true like when people start to understand the value of what we are creating from a catalyst perspective, it will take the capital period to acquire the capital to ultimately start to integrate it into their respective practice. And so over the next 5 years, you will start to see an increasing reflection of EOS’ capital, but you will see a more immediate reflection of the implant impact. And so – but I think the opportunity is an and, and I think you are going to see it on both fronts. And so our enthusiasm for the technology is both from an inter-operative perspective in terms of how it influences as well as the capital. Todd, anything to add?

Yes. I mean I think if you kind of go back to the full year 2020 and you look at what our CAGR has been on EOS since we acquired the company, I think you would see around a 20% growth in EOS revenue. And I feel like that’s been a good consistent growth. I think it doesn’t reflect what Pat has talked about and what we ultimately think it can be and will be and should be. But I do think it’s been solid growth on a multiyear CAGR basis.

Yes. And I am going to drone for one second. But just the opportunity presented by EOS is unique to us. And it’s unique to us because we are willing to do the work required to ultimately reflect the value that it brings to the marketplace. And that’s where it’s like. I think people have profoundly underestimated EOS and the value that it brings. It is unique. And so will it be reflected financially, absolutely. And so we can’t be more excited about it.

Great. Thanks for that.

Your next question will come from the line of Jason Wittes with ROTH. Please go ahead.

Hi. Thanks for taking the questions. Maybe some clarifications. First off, when you talk about a non-linear sales growth, just maybe if I can push a little harder. Does that mean you – what timeline are we talking about, because normally, there is a gestation period. And there is also even non-compete to deal with before these guys are fully up and running. Are you saying that it’s going to be a lot quicker. And also, obviously, you are going to get a lot more pick up a lot more of the business than you normally would, or how should we be thinking about this, if I could just push you a little harder on that?

Yes. Thanks Jason. I guess the way that we are thinking about it is really in the pragmatic way that we have experienced it, which is as opposed to one guy coming on and us kind of growing at the linear dynamic, you will have 3 to 5 to 10 come on. And so the preparation required for that is more significant. And there is all kinds of depending upon the state and the non-compete dynamics. There is all kinds of considerations. Are they going to switch territories so that they don’t effectuate their non-compete agreements or how is that can be managed. But the volume of variables associated with these things is significant. But just to, I think provide us most pragmatic reflection is as opposed to a one by one by one, we are seeing a 3 by 5 by 10. And so – and we are seeing a 3 by 5 by 10 in disruptive companies that ultimately where the – as we talked about the thesis of our company is more reflective of what they have come from. And so when that’s the case, it’s not a matter of we understanding or compelling them on lateral surgery, it’s one that they have already had experience in.

So, this should have immediate impact on 2024, the hires that you are making right now, correct and even potentially fourth quarter.

I am going to the whip in the first for long. I hope that they impact in 2023. It’s any way that we can create a level of comfort and make sure that they are well versed on our products and prepare them and provide them support and coverage, whatever is required is candidly, make sure that the surgeons are well prepared through the education program. We have such a great surgeon education program in such a great surgeon group that does education. I think a lot of these guys know each other from years past. And so if they can get trained on PTP from this, they met him when he trained them on excellent, and so that opportunity just perpetuates in – it’s such a favorable dynamic.

I think Jason, by and large, this really ultimately kind of becomes a meaningful ‘24 to meaningful ‘25 opportunity for us.

And if I could push on that, Todd, who is going to answer this anyway. I think you said you are now pretty comfortable with kind of what consensus is, which is about a year ahead of your original 3-year to 5-year plan, which is around 550. And that’s largely because of these hires. Did I hear that correctly, or am I...?

I mean consensus has been consensus before we – I think before all of this has transpired. So – but I will tell you, I think based on where we are at and I think the opportunity that we have and the success that we have experienced thus far, we like to set up going into next year relative to where consensus are at.

So, there should be upside then.

Well, we like where we are at. Let’s put it that way.

Sure enough. Alright. Thank you guys very much.

Thanks very much.

Thanks Jason.

I would now like to hand the conference back over to Pat for any closing remarks.

Well, my closing remark is, thanks everybody for your interest in ATEC. We truly are just getting going. I can’t be more excited about what’s happening at the company and thank everybody for your attention. So, thanks very much.