Good afternoon, everyone, and welcome to the webcast of ATEC's Second Quarter 2021 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. Reconciliations of non-GAAP measures to U.S.

GAAP can be found in the supplemental financial table 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, Todd Koning. Now, I will turn the call over to Pat Miles..

Thank you much, Pete, and welcome everybody, to the Q2 2021 financial results and update. Clearly, we will be making some forward-looking statements. And just to jump right in, I know where we're positioned. I'd say that we are uniquely positioned for continued industry-leading growth.

And I think when you start looking at the tailwinds, you have to think from a PTP perspective, we're -- I'd say we're penetrating the current market, and we're really expanding the MIS market. Now I'll go through further explanation of that later in the prepared remarks, I would say that our U.S. distribution is also improving and expanding.

And so that's another tailwind. Love what's going on with regard to EOS from just our ability to have academic influence and so many of the other benefits of the type of information that comes out of a machine. And I think a lot of that is providing a halo effect with regard to more kind of conventional procedures.

And so I think we're earning our way in with some of our unique stuff and then getting rewarded additionally by the halo effect of other procedures. And then you'll love the building of a foundation for the international marketplace with EOS.

If you look at the scorecard, year-over-year revenue growth of 93%, up 28% sequentially, which is good, 46% 2-year CAGR, which I think is good. It's our eleventh consecutive quarter of double-digit year-over-year revenue growth, another I think, driver is there's real acceptance of our new products.

And I think that, that's reflected in the 84% new product revenue, 30% year-over-year growth in revenue per surgeon. I would tell you that's a phenomenon due to PTP clearly, complexity of the type of surgery. So we're earning confidence and then the halo effect of the type of confidence that we're building and then applying it to other procedures.

And then a 15% year-over-year growth in average revenue per case. And I would say that that's a convoy reflection. So we're seeing more products used per case and then clearly a complexity dynamic. And then now we're up to 2 products, and that's a blended average of categories per surgery.

And so one thing that you may hear from us over the coming years is not a lot is going to change. We're going to earn our marketplace by creating clinical distinction, and that just means improving products and procedures in spine surgery. That compel surgeon adoption unto itself.

And so and that will be reflected based upon how surgeons are applying the type of procedures that we're creating. And then what you're seeing, you'll see an expansion and a clinical aptitude increase with regard to the sales force. And so we're really excited about what's going on that front.

And as they move more toward exclusivity and the type of people that we're attracting, our clinical apps people, I like where we're going.

But starting off with regard to clinical distinctions, again, I think that the reflection of the percentage of revenue driven by new products is -- would suggest that there's been acceptance of the type of things that we put forth. From 2018 to 2020 we released around 30 products, and you could expect 8 to 10 a year from now and into the future.

I think, the relevance though really becomes in terms of how do you create and how do you pursue the perfect spine procedure. And I think that, that's really the architecture that most fascinates us. And that's why you saw the -- really the reflection of PTP is really one of the first kind of very uniquely assembled procedures come out of ATEC.

One of the things that we highly covet however, are things like information that really kind of drives predictability. And so what I want to do is spend a little bit of time on really the unmet need of clinical and economic predictability really through the vision of informatics.

And so when we think about information, I think oftentimes, we think about how relevant is the information? And is it actionable type of information? One, how do you integrate information into workflow? And then we also think about just the spatial availability in the operating room that ultimately makes one -- makes information available.

And so when you think about kind of the 3 pillars of what we've done to-date, first of all, SafeOp. We acquired SafeOp back in 2018. We said what we're going to be able to do, is we're going to be able to identify where nerves are, and then we're going to be able to tell you, gosh, what's the health of the nerve over time.

And I think the utility of that technology has been very, very valuable. And if you look across the landscape of our industry, we are now the purveyor of neurophysiology -- automated neurophysiology in spine. We continue to invest there. We continue to make improvements in it.

Nobody else is doing real monitoring, meaning the whole SSEP element of determining nerve health over the time in a case, and so the value that creates, the other beauty of that is it comes in a tablet form.

So when you start to think about the impediments to adoption and bringing huge pieces of capital equipment into the operating room, we're bringing a tablet. And so you love just the dynamics of being able to make available that information in a very seamless way.

When you start to go to navigation, really, what you want to make is you want to make sure that the workflow is very, very seamless and predictable. And so part of the challenge that navigation has had over the years is the fact that, oftentimes it is a very difficult tool to use from a workflow perspective.

You start to think about in operative CT, that requires a 2-minute spin, there's substantial radiation delivered to the -- as to the patient, so the surgeon can step away, but realize a lot goes on during an operation.

And when a patient moves in the operation, what you want to do is be able to update the image, because now the image is no longer relevant because the patient moves. The beauty of TrackX is the way it acquires an image and provides biplane navigation, is by a ubiquitous tool in a fluoroscope or a CRM, and you see the CRM picture there.

And so the beauty of TrackX is your ability to create an updated navigation of exactly where you are based upon acquiring an image out of a CRM. And so we love how that fits into the workflow of how we're executing a procedure, and these things become very, very relevant.

And the other thing becomes is as I talked about space in the operating room as finite. And so the ability to attach to a current tool that's already accepted, utilized in the operating room is valuable and not have to sell in another huge piece of capital.

When you talk about another big piece of capital, EOS is a very big piece of capital, but it's not in the operating room. So the ability to integrate that information into the operating room through the conduit that we've already created in a tablet paper platform becomes very, very attractive.

And while you start to integrate things like a standardized standing full body weight-bearing image, and there's just such a wealth of information in these tools.

And so if you think about spine surgery as being decompression, stabilization and alignment, our ability to plan in 3 dimensions from a standing image is so opportuned and the ability to really drive alignment. Alignment has been discerned as the greatest predictor of the long-term successful outcome.

You start talking about spine, you start talking part about durability, then what you want is an aligned patient. And so just the ability to align somebody and know before you get them off the table, this patient is aligned is such an opportunity for us to design and develop into.

The other thing that hasn't been touched very well is bone quality assessment. And so to utilize some of the EOS elements to make sure your demand matching your stabilization tools in a way that ultimately enables you to fix the spine and stabilize the spine, specific to a patient.

And that gets the patient-specific type of treatment and the ability to contour your implants to the specific patients. And to understand the other unique dynamics really provides an insight into the cost of care, the whole clinical walk and the whole economic walk.

And so our view of this acquisition is that it really is a foundation for multiyear opportunity for expansion. And the great part is the academic community has already spoken. If you look across the really the world, these things have been placed in a who's who of institutions.

The great part about us owning this asset is the fact that we can avail it to virtually everybody through things like a lease agreement or an earned purchase type of an agreement. So the ability to start to translate these assets is really tremendous. And so you say, gosh, what's the crawl, walk or run associated with this effort.

And I would say the first thing that we've done is really kind of integrate our selling efforts. And that means aligning the sales force.

It means taking what used to be 6 people selling capital to now 306 people having a field force of implant people, and then having a group of capital people, really start to focus the opportune efforts, especially in North America, and so the ability to expand the footprint. The other thing becomes driving utilization.

When we start to think about a salesperson going and trying to change the behavior of a spine surgeon, it's a very challenging walk.

And I think the opportunity for a spine salesperson to walk in without the confrontational, hey, will you use my implants in a surgery, but really start to say, hey, will you utilize years in a way that ultimately enables you to be more well informed about the prospective patients, I think is a much less compensational opportunity.

And I think the ability walk someone through that experience and walk them into our way of thinking and ultimately inform surgery with our stuff, really to get I think, a reasonable walk into a selling environment.

Also, if you look across the landscape, most of the footprint out there for EOS is 3.5 or their previous generation, which was more of a pediatric or adolescent type of a tool.

The EOSedge really expands the opportunity for us to really kind of utilize this in all types of patients with different habitats and really provides an opportunity to upgrade current users.

The other thing that is going on in real-time is really trying to focus the resources on the highest priority product development initiatives that will have the greatest strategic impact. And what that means is now that EOS is part of a Spine company, how do we make sure we maximize the opportunities available to us in the most immediate term.

And to that point, one of our executives is going to move over to Paris into the EOS facility, and it's a guy, Eric Dasso, who I've worked with for many years, who I have great confidence in the ability to really create a sound cadence of execution between the 2 groups. And so I'm greatly excited about the reflection of that.

And then also, I think that just investing in the infrastructure to enable increased product and service requirements, if you think about EOS as a stand-alone company, it was really a different dynami, and for us to really expedite the order to installation and have the available resources to put forth a greater experience and a greater service level, I think, is opportune.

So it's amazing we talk all about that, and we've yet to touch on PTP. And I would tell you, clearly, every other company covets prone lateral or they wouldn't be trying to do it. And I will tell you what we're doing with PTP is outstanding.

And having been the guys who created lateral surgery at the other place, just not to be shy, I got to tell you, this is better. And it's better because what it provides is really greater optionality for the surgeon.

And when you talk about predictability in spine, in terms of the surgical approach itself, one of the things that drives predictability is orthogonality.

And so if you look at those surgeries that have gone very well and are very predictable, ACDF is one of them, ALIF is one of them, Lateral is one of them and often is because they're most -- they're orthogonal.

But for us to be able to create a very orthogonal type of a surgery and then provide the type of optionality to go from the back of the spine to the front of the spine and back to the back of the spine in the same sitting becomes very, very valuable.

And you start to think what's the value of that and you start to think what a TLIF does and a PLIF does, and you start to say above at 4.5 and above, really -- this really avails access from a surgical perspective to really almost any surgery above 4 or 5 that requires interbody fusion. And so we're super excited about the opportunity there.

And clearly, as is the number of people who are coming in for educational visits. And if you look at the graph, there is a tremendous demand on the educational group at ATEC.

And they are working very, very hard to serve the volume of interest in coming to San Diego and learning from the masters like Luiz Pimenta and Bill Taylor and guys who were part of the core crew that created the procedure in the first place.

So we're seeing the utilization really, both in complex settings as well as it's fun to see for years there's been such a great promise of that's going on in the ASC setting, but there's also several guys who are doing this in the ASC setting that is so reconstructive surgery in outpatient environment I think is exciting.

If you start to look at kind of the ROI clearly, where we've invested, we've prospered. And so you look at clearly in the informatics and lateral and posterior, there's been great momentum in those spaces. And you'll see the others follow suit as we continue to reflect the investment of the other areas.

The next key priority is about compelling surgeon adoption. And we look at that as a convoyed sales dynamic. And I previously said that we're seeing a blended average of 2 products per surgery. And the way that we think about this is are people accepting the entire thesis of how we think about a spine procedure.

And when they use all of the products and the likelihood of their accepting that thesis is higher. And so the great part is we're seeing an ever-increasing number of products per procedure.

And we're also seeing a year-over-year in the average revenue per case at 15%, average revenue per surgeon at 30%, and then the demand on the surgeons trained is significant, would be an understatement. And so we love that. But what it follows is, as it follows the thesis that we're willing to invest in the things that others aren't.

And those things that ultimately are the requirements of predictability. I think why you're seeing surgeons adopt things like PTP is because there is a, one, a unique know-how and that unique know-how drives the design and development of different elements that ultimately drive a predictable experience.

And so I will tell you, to this day, there's still a lot of the competitive groups out there that are not designing for the specific requirements of, and I will tell you, if you want predictability in an experience, we are designed for that experience. And so I will I will leave it there.

Clearly, when you look more closely at the non-blended, where you're seeing the significant kind of buy-in for the way that we have proposed to do a surgery is in the lateral space. And so when you start to choreograph these elements to all work together, there we an enthusiasm of utilizing multiple products per procedure.

And so the great story here is there's still so much opportunity ahead of us in terms of things to ultimately design, develop and create and further the level of predictability. And so excited about that. I'd say, lastly, just coming off a national sales meeting, the enthusiasm was palpable. And we are loving where we are.

I got to tell you, we got to continue to evolve. And so we need to continue to elevate our sales force. We've got a great exclusivity. I love it. 97% of our sales are driven by our strategic channel. The organic revenue growth within that channel is at 106%.

And I think a lot of the right things are going on with regard to the walk, trod exclusivity in the clinical aptitude. The crazy part though is if you look, you look at the 1/3 of the U.S. geographies are under or completely unrepresented. So where we have the right people in place, as you would expect, we're making for effect.

And I think that's the exciting part. And that's where you're seeing 97% of the revenue contribution are these people. The great part is that tailwind remains in that 1/3 of the geography that we can continue to elevate and create sophistication and really start to build relevance in those marketplaces.

Another thing that's going to augment distribution is, we recently opened up a distribution facility in Memphis. And when you start to think about know-how and you start thinking about distribution, then you better think about Memphis. And there's a keen know-how in Memphis by which distribution becomes really part of a great competency.

As we continue to spend significant amounts of money on capital, the one thing we want to do is make sure that we can utilize it efficiently. If you're going to utilize it efficiently, then the Memphis is like a great place to be. And so we see that, as again, a foundation, built it for a great long run in front of us.

And then when we expect to see cash, this is a foundation for a great long run in front of us. How do you also not think about the foundation for what we're doing in the international space with regard to EOS and realizing that there -- again, there's been great acceptance.

I think an interesting dynamic is that, if you've been around spine a long time, you really appreciate the influence the French's had on especially deformity surgery. And when you think about what's going on with EOS, and you think about what their reach is globally, not that we want to run to the French market as an implant market.

When you just think about the amount of influence that the French has had on spine surgery, and I think, that oftentimes a lead indicator becomes what's going on there. And in Q3, we'll see the 100 EOS units placed in France.

And again, I think it speaks to what's forthcoming with regard to much of the rest of the world is the acceptance of this technology in an arena that is steeped in experience and profoundly sophisticated in the realm of spine surgery. And so those things give us great enthusiasm as tailwinds to our business.

And I think just kind of a great second quarter and a great start of the year. But I should likely turn it over to Todd, and have him walk through the financials..

Well, thank you, Pat, and good afternoon, everyone. It's a pleasure to share the results and our strong quarter review. I'll begin with revenue. Second quarter consolidated revenue was $62.2 million, reflecting 110% growth over the prior year.

This includes organic revenue of $56 million, reflecting 93% growth compared to the prior year period and growth of 28% compared to the prior sequential quarter. Impressively, the organic growth demonstrated in Q2 was not simply attributable to an easy pandemic comparison, as our 2-year CAGR accelerated to 46%.

Both the strong 2-year CAGR and sequential improvements speak volumes about the powerful momentum our business is driving. The strength of our organic sales results in the second quarter of this year are driven by a significant increase in procedural volume and continued growth in case ASP.

With the close of the EOS Imaging transaction, we recognized $6.1 million in EOS related revenue in the second quarter, reflecting sales from the date of the transaction closed on May 13 through June 30. Finally, revenue from our international supply agreement totaled approximately $400,000 in the quarter.

So to summarize, the total revenue result of $62 million represents growth of 110% and is comprised of organic revenue of $56 million, the EOS acquisition, which contributed $6.1 million in revenue and $400,000 in revenue from the international supply agreement.

Continuing through the remainder of the P&L, the non-GAAP gross margin was 73% in the second quarter, down 430 basis points compared to the prior year. Pressure on gross margins was due primarily to the consolidation of EOS Imaging, which had an unfavorable 390 basis point impact in the period.

Historically, EOS's business generates gross margins in the mid-to-high 30s range after we adjust for GAAP to IFRS differences at internal accounting policy alignment. That is compared to ATEC gross margins in the mid- to-high 7s range.

So we do not anticipate -- so we do anticipate a lower consolidated gross margin profile as a result of the combination. Operating expenses continue to reflect consistent, thoughtful investments to support rapid long-term growth.

Non-GAAP R&D was $7 million and approximately 12% of sales in the second quarter, compared to $4 million and approximately 13% of sales in the prior year quarter. The increase on an absolute dollar basis was driven by continued investment to support organic portfolio expansion and EOS activity.

Non GAAP SG&A was $50 million and approximately 80% of sales in the second quarter compared to $23 million and approximately 76% of sales in the prior year period.

The increase was driven by continued expansion and advancement of ATEC's distribution network, increased variable selling costs related to strong performance in the quarter, and investments required to support the increasing size and sophistication of the company.

Total non-GAAP operating expense amounted to $57 million and approximately 92% of sales in the second quarter, compared to $26 million and 89% of sales in the prior year period.

This level of investment in operating expense reflects the emphasis we have placed on fueling our organic innovation team and transitioning the sales channel to support continued industry-leading sales growth. Turning to the balance sheet. We ended the second quarter with $77 million in cash, walking that from our March 31, balance of $191 million.

We had a net $74 million outflow associated with the EOS transaction, $37 million in operating cash flow, of which $24 million was for inventory and instruments to support the sales growth and a further $3 million in other investing financing effects.

Our debt at face value is now $79 million with the addition of EOS related debt of $15 million in OCEANE's outstanding at 6% rate and another $6 million in existing EOS debt.

With the $77 million of cash we ended with and access to another $40 million that remains on our Squadron facility, we are well positioned to continue to invest in the growth of the company. Turning to our 2021 outlook.

We now anticipate full year 2021 total revenue will approximate $238 million, representing growth of 64% compared to the full year 2020.

As a result of the strength in the second quarter and continued strong momentum, we are increasing full year 2021 organic revenue guidance to approximately $212 million, which implies growth of 50% year-over-year and is a $24 million raise over our previous full year guidance.

Growth will continue to be driven by the impact of clinical distinction, which is expanding surgeon adoption and elevating our strategic geography. We anticipate EOS related revenue of approximately $25 million for the full year 2021, which includes the $6 million recognized in Q2.

That implies a $19 million of EOS revenue in the second half of 2021, and reflects mid-teens growth compared to the second half of 2020 as we take ownership of EOS' order book and thoughtfully integrate teams and technology.

We also expect the international supply agreement to contribute about $1 million in full year revenue before it terminates on August 31. Execution against the commitments we outlined back in 2018 clearly delivered significant growth over the past few years. And as I mentioned, our organic revenue 2-year CAGR in the quarter accelerated to 46%.

We've updated full year revenue guidance today to $238 million. That implies that strong organic momentum, coupled with the inclusion of EOS will propel growth of about 55% year-over-year in the second half. That is certainly industry-leading growth.

In closing, after having a quarter under my belt I'm incredibly excited to play a meaningful role, that will be an exceptionally long growth story.

ATEC accomplishments to date are significant, but we have multiple growth drivers in front of us and have only begun to earn the market share that decades of experience has proven as achievable through an unwavering commitment to better surgery.

I hope to connect with many of you over the next few months as we have a full calendar of investor outreach activities planned. With that, I'll turn the call back over to Pat..

Thanks much, Todd. I think in conclusion, I think the reality is we still have a lot of work to do, but there are some great tailwinds. PTP is the real deal and excited about the years of continuing to advance that procedure. Clearly, our ability to continue to improve our U.S. distribution, make it exclusive and expand it is standing in front of us.

I think reflecting EOS is our next foundation and such an opportunity to make for better surgery and further academic investments. And so I think the halo effect of some of these things will be tailwinds, as well as literally just the -- we've been a U.S. company only.

And now the opportunity to march in the international space is something that we hold very exciting. So our transformation requires strong execution against our commitments. We remain totally committed to advancing the clinical experience in spine. We feel like when value gets created than dollars chase it.

And so we're just getting started and can't be more excited about the route forward. So with that, we will take questions..

[Operator Instructions]. Your first question is from Brooks O'Neil from Lake Street Capital..

Congratulations and all of you have a confidence. One of the things that I'm particularly curious about is I have a sense that with the SafeOp informatics platform, now on the cusp of being integrated with EOS, that there's a significant opportunity for pull-through product sales and product utilization in spine surgery.

Can you just talk a little bit about where you're at in terms of integrating or linking those 3 elements, such that you can really begin to drive the product sales going forward over time..

I got to tell you, like it's great fun to be able to pull stuff into the operating limit, ultimately makes for a real effect. And so the ability to drive that information into the operating room. And even into the preoperative planning phase, what we'll do is we will inform the preoperative plan with our products.

And you start to think about all of the opportunities to do that, and that will reflect a pull-through that is abundantly clear. And so there are some very tactical ones, I think, are going to happen sooner, and that's going to be and how do we start to place more and more EOS units across the world.

And how do we ultimately tie implant utility to the EOC unit. And I think that there's been such a widespread acceptance, I very much like the combination of our currency, which becomes the implants to ultimately serve the interest of better information.

And so I think when you start to think about pull-through, I think you initially start to talk about just the effect of a current population of EOS out there that can be upgraded and upgraded through a currency, and then we start to think about the acquisition and more units through our currency.

And all of those have an effect on the volume of implants utilized. And then I think really where we want to go is, candidly, the sophistication of a very small interoperative footprint and being able to deliver information that becomes actionable in the operating room.

And that's going to take a little work in a longer period of time, but that's where it's all going, and that will completely affect what type of implants are used. One, based upon bone quality and demand matching the type of fixation elements that stabilizes spine.

And then secondarily, making sure that cash, things like how do you make sure that the patient is aligned in the way that I prescribed based upon my surgical plan. And so I think those things are the real interest and they're doable things. And the things that we've done before. And so I love where we're going on that standpoint.

But I think the earlier phase may be a great one with regard to seeing impacts still reflected through the utility or value of EOS.

Second question I had was -- I'm excited about international. Obviously, your international agreement with Globus ends this month, end this month.

Can you just talk a little bit about how you foresee expanding and enlarging the ATEC presence and take advantage of international opportunities, let's say, over the next year or so?.

Yes. I think -- I'll speak broadly about the international opportunity. And again, it's something that we're very enthusiastic about. We're also very realistic about how we get contribution out of respective areas of the world. And so I think that we will be very well served by being very narrow and very narrow and deep.

As you appreciate, I think the clinical distinction that we're driving requires engagement at a deeper level. And so for us to lay a foundation for depth through a narrow focus is what's in our interest. And I think that anybody who's been around the spine space knows the really the great 5 or 6 markets that are very apparent.

And so I think that it's going to be a very apparent walk toward markets that have kind of a good paying environment, have a very kind of clinically sophisticated environment. And we're not -- we're going to go into these markets with the best of the best, which is such an advantage. A lot of people dump in markets, and that's not our way.

Our opportunity is to go in there and really go with out of the gate, first generation products that are the best and the best..

And Brook, I think as Pat said, kind of this narrow and deep allows us to be fully committed to a geography, and ultimately drive penetration. And then we believe that, that will ultimately throw off returns sooner and give us a better overall margin profile in the long run in our international footprint..

Your next question is from Kyle Rose from Canaccord..

So just really two for me. One, I wondered if you could just talk a little bit more about the case mix you're seeing in the United States. And obviously, with the growth from new products and the average product per case, the whole scorecard is moving in the right direction. But maybe you could give us just a little more color.

I mean, I think we've talked in the past, PTP has got a pretty high training burden. It seems like training is happening a lot more now than it was previously.

So are you seeing more of those PTP cases come in? Or just when you're bringing on the new reps, are they going towards one side of the product portfolio versus another? And then I'll ask my next one in a minute..

I'll start off and then I'm going to turn it over to Todd, because he's going to be more precise than me and all things. I think the people that come through here are super excited about PTP. But the beauty is that there's an underlying sophistication to what we've done from a product development perspective.

It's funny if people come here and they say, gosh, I want to come and learn PTP. And then they'll see things like SingleStep, and they'll see things like SafeOp, and they'll see things like Identity. And the different things that we're doing, we'll say, what -- this is truly next-generation of stuff.

And so the great part is I think that people are compelled by the PTP thing. And to your point, is there's a training requirement to there, and there's going to be a long walk on that, and it's going to be a good long walk.

But I think that what's earning utility becomes some of the sophistication associated with the type of design prowess that we have from an engineering and marketing perspective and just the whole team, honestly. So anyway..

And overall, Kyle, I mean, when we kind of look at our portfolio, our product portfolio clearly was a strong contributor to our growth, very much in line with our overall growth profile. We saw a strong contribution from our Alpha InformatiX line, as well as Biologics in the quarter, kind of above our corporate growth rates.

And then when you kind of look into it, obviously, the PTP driving a lot of the procedural volume, and then that pull through, we're seeing strong contributions from both Invictus and Identity, which you would expect, and I think is reflected in the fact that 84% of our total revenues are from new products.

So I think when you kind of dig in that layer or two deeper, it all really hangs together quite nicely..

And then you talked about the strength of the exclusive team. Maybe just any more gaps that you see in the portfolio that you think you will need to address in order to really capture, I guess, the remaining portion that might not be exclusive? And then secondarily, just on EOS.

On the exit velocity, I mean I appreciate the guidance for this year, $25 million.

Is that the kind of the run rate we should think about moving forward when we think about the second half of this year in the mid teens growth? Just trying to understand longer-term modeling implications of EOS as well, just particularly given you're going to take some of the earn-out opportunities as well..

That was really three questions. Let me answer the one that's got a hole in the portfolio, and I'll let Todd answer the one on EOS and exit velocity. If you look across our portfolio, there are still holes in our portfolio. And I think the ones that are most specific, candidly, you're going to see in the short-term are things like corpectomy devices.

And so one of the real great opportunities with PTP is the different types of surgery. So it's candidly simialr to an experience that we're very familiar with that we had previously, which becomes as you teach someone how to ultimately do a procedure and then they walk up the sophistication curve.

And so you'll see the applications of say, PTP and things like a single level 4, 5 spinal thesis or a 3, 4 adjacent level. And then you'll see it start to walk up. And so what we're doing is we're running forward to catch the corpectomy because it's ultimately going to get there.

And so I would say, when you start to think about holes, currently, an expandable corpectomy device is what I would consider up all. But again, we're running up the sophistication ladder and what we want to do is, beat through corpectomy, and I think we will.

The other elements becomes, as we get more sophisticated about the utility of PTP in longer contract surgery, our ability to start to go to the back first and release the facets to make sure that we completely control the angulation of a specific level and then to be able to do that through an expandable device is super exciting.

I get a hard time for not loving expandable devices. What I don't like is introducing more variability into an environment that doesn't require it. I would tell you the level of sophistication that we will get to in terms of insulating a segment is very, very high.

We'll take the EOS information integrated in and make sure that we were able to ultimately architect an alignment that is completely what we intended. And so things like expandable devices are going to enable us to do that, and things like corpectomy are still what I would consider a hold.

But again, we're walking up a sophistication ladder that I think is kind of what we love to do and why we're here. And so I'll let Todd jump out at EOS..

Yes. Kyle, I think when you look at our guidance, it implies $19 million in the second half and kind of mid-teens growth, as I said earlier. And when you look at the revenue, a good chunk of that revenue was maintenance-related recurring revenue which then we add to that placements and the revenue associated with delivering the actual equipment.

And so certainly, we've got a strong order book here. Pat talked about our focus on reducing the amount of time from order to delivery. And I don't know how much we talk, but I think there's a tremendous amount of excitement and interest from our existing surgeons. People come in here, they see the EOS machine.

And so we got a lot of interest in the technology. And so I think that bodes well for our ability to continue to drive growth and placements as we go into 2022.

And ultimately, as Pat said, the reflection of the value of yields won't just be in the EOS revenue line itself, it will also be in our ability to translate that in to implants and the utilization of our products..

Our next question is from Josh Jennings from Cowen..

Congratulation on the first half of the year. Wanted to ask about the surgeon education visits. I'm just looking at the chart you guys provided in the presentation looks at least a doubling in Q2 versus even Q4 of '20 in terms of the number of education visits.

I wanted to just understand better the conversion rate of new customers, the percentage of, if you can break it down, get this granular.

The percentage of visits from new customers, surgeon customers? And is the growth and resurgent customer adds kind of correlating with these new growth in the education visits? And then within the new customer surgeon customer bucket, are you seeing more better in MIS surgeons coming to get educated? Or are these open surgeon -- historically open surgeons that are migrating to MIS.

I just have one follow-up..

Yes, Josh. I think I'll talk a little bit about our conversion and then pass it over to Pat to kind of dive into maybe the -- who's coming through and what kind of folks are participating. But we pay a lot of attention to conversion. We haven't really been public about the conversion rate.

But I think what I would say is we're very pleased with the level of conversion, and we do pay attention to it. And certainly, there's an incredible amount of demand for access to the training and our sales organization understands that. And it's a commitment on their part. It's a commitment on the surgeons' part, commitment on our part.

And I think what's really need is that when you sit there and oftentimes on a Friday, I'll pop in and kind of listen to some of the wrap-up and you get a chance to talk to different people, what's nice to know is everybody understands the level of commitment that it takes from all parties to make that learning experience happen.

And so I think that's why we see the strength of adoption post training that we do.

And Pat, maybe you want to talk about kind of who's coming through?.

Yes. As I listen to Todd, and I thought about the history over the last few years, mathematically speaking, they have to be new, because there's so many more people coming and they're coming for the reason to learn something new. And so it's a demographic element, but I think that we're most excited about.

The fascination for us is where these lateral guys that are coming to in essence, refine a new skill set in the same type of an approach from a prone position or is it guys who are more conventionally minded who have done more posterior approach. And candidly, it's been both.

I would tell you that probably the familiarity with the person who is laterally trained has been likely the guys who are most early interested, because I think they understand the effect of being able to address the back of the spine, the front of the spine and back to the back of the spine.

It's been fun also to see a lot of conventional guys, guys who would be open TLIF or open PLIF come through here and really be, say, I have been waiting to do lateral surgery until there is a solution that may be will need to decompress directly the back of the spine. And so it's been kind of a fun thing to see.

But I would tell you that we're still in such kind of a bit of the early adopter phase. There's a lot of new surgeons to ATEC, which is, I think, the most exciting part of it because I think that we blow them away with regard to our new facility. Our facility is state-of-the-art, and it was designed specifically for this very utility.

And so the opportunity to create confidence in a group of people that ultimately come here to learn something and walk away with a renewed view of our company is just such a great opportunity. And so independent of providing specific rates of closure with regard to those, they walk away with great enthusiasm..

And just a question on EOS. And just I know it's a short time since you closed the deal, but just any updated thoughts on cross-selling opportunities of ATEC implants and instruments into the EOS customer base and the other way around EOS systems into your ATEC customer base would be helpful just to understand..

Yes. Josh, I appreciate the questions very much. And I can't tell you, like we've had several prominent EOS surgeons here. And the type of language that they use in terms of the importance of this acquisition can't be understated. And I think that our interest in terms of selling through that is clearly high.

But I think, what's more important is to further the field fund we experience, and that's going to really drive real value.

If you start to look at like -- so you look at, say, a large multi-special orthopedic group, and you say, gosh, how is EOS relevant to them? And there's been papers published that talk about an 8% to 10% dislocation rate in total hip surgery when someone fixes a construct to the pelvis in a total hip patient.

And there's very clear reasons why that happens and it helps people retrofit or publish when they sit. But the beauty of our mitigating some of that, I think, is, one, the proper things for a company like us to do. But two, there's great financial value in knowing that information and being able to do something about it.

And so as I look at the landscape, I start to say, Gosh, what's still reflective. It's not that we're going to sell a few more pedicle screws based upon some alignment thesis, but it's more a matter of understanding the richness of the information coming from that unit and translating into a better care profile..

Your next question is from Matthew O'Brien from Piper Sandler..

Pat, can you talk a little bit about the U.S. distribution group that you have, where that needs to go in terms of getting them more exclusive, the opportunities that are there? And then you mentioned that 1/3 of the group that's still kind of underrepresented at the moment.

If I do the math, it seems like the 2/3 that are doing well are about 5% market share in the U.S. because overall, you're about 4%. So I'm just wondering if you have a couple of geographies that are in the upper single digits.

And then when can you get the whole group up to that 5% level, and then think it even beyond that, does it take a couple of years to get the whole group to 6% or 7% of the U.S.

market? Or can you do it or you will be taking longer than that?.

So the beauty of the question is, is one who doesn't do that math well and so you're going to angulate me into a converting. And so let me just speak generally, and Todd will give you the math, the beauty of him here.

I look at the places where we have very effectual salespeople that literally -- and I'm still going to surgery, and I was in surgery recently, and I watch these guys make surgery better. And so I love the company to talk about replace models and everything else.

I hope they further that deal, because we're not and so where we have effectual salespeople we prosper. And there's multiple marketplaces around the country that we have very affectionate guys, who are exclusive to us that are doing the very thing that you're describing, which is marching up the market share ladder.

And candidly, they are bigger and bigger pockets as we will for. They're about 2/3 of our -- as a population just because some of the larger cities are places that we haven't had much effect. But if I look at New York City, candidly, Chicago and Los Angeles, but we're big players. I think we're well below the numbers that you're counting.

But actually, you look at other geographies, and we're making significant hay. So it's kind of one of those things where it's like we're taking in some markets, we're taking a C player to B. In other markets, we have D players, we're moving to A. And Todd, why don't you provide a little....

Yes, we did have the national sales maybe a couple of weeks ago, and it was really my first opportunity to meet a lot of the sales force.

And then I'd say the quality of the individuals that show up and not just to the meeting, but to show up every day, the surgery is great and really encouraging to me, and I just want to give a shout out to the team, because I think they're fantastic. And once we do get I think full coverage, we've got really sky the limit based on what I've seen.

But to kind of get to your question, I think what we've seen is we've seen and ultimately, our guidance here implies 50% year-over-year growth.

And ultimately, I think Pat did a great job of laying out the drivers we have in front of us, PTP penetration, ability to expand that MIS market into TLIF and PLIF, reflecting the power of EOS, the halo effect of all of that. And I think all of that should continue to help us drive strong growth north of 20% into the next number of years.

And so ultimately, how that gets reflected in market share will depend on our performance and our ability to deliver. But I think we've got all of the makings of a strong run here in front of us..

But switching over to just a couple of things maybe for you, Todd.

Just did I hear the instrument set deployment number right? Did you say $37 million this year? And then just on top of that, it may be helpful for investors, given where the cash level went from with the EOS acquisition and then some of the onetime transaction costs, just to give us a sense for the cash burn back half of this year and then into '22..

Yes. So our total operating cash was $37 million, Matt. Of that $37 million, $24 million was deployed in instruments and inventory. And so I think that's ultimately there to drive the level of growth and to support the growth that we foresee in the future. Again, if you kind of walk back our cash position, we landed at $77 million.

We were at $191 million, going from $191 million to 77 and $73 million of that was used on the EOS transaction. That's about $90 million of cash out in both shares purchased on EOS as well as OCEANE's acquired. And then we added about $17 million of cash in the transaction.

And so that's how you get $73 million in terms of a net use of cash associated with yields in the quarter. Then you take the $37 million, and of that $37 million, $24 million is for instruments and inventory, as I said, supporting our sales growth. And then the balance of the operating cash is at about $13 million from there.

We had about $5 million of contribution from EOS, of which a good chunk of that was some transaction expenses, and we had some transaction expenses in our operating as well.

And so as you kind of think about the cash use in the second half, we've certainly made additional investments in instruments, in inventory, and we're going to continue to do that to drive the support or drive the growth and to support the growth that we're seeing, and we continue to expect.

So our estimate is somewhere in the $45 million to million $50 million of cash used in the second half of the year is our expectation. And then just to, I guess, make the point, with $77 million on hand, we've got excess to another $40 million with Squadron.

And so that would give us about $117 million of cash, which I think is planning our way into the future..

Your next question is from Jason Wittes from Northland..

Couple of follow-ups. First of you mentioned international expansion.

Do we see it for this year or is that something more for next year in terms of when we can see that starting to contributing to the top line?.

Yes. That's a good question. I would tell you that we're in the foundation lane phase and not ready to give specific timing with regard to our participation in the space..

Okay. That's fair. And then related to EOS, it looks like this year, you're kind of tracking for the second half. I think you mentioned mid-teens growth year-over-year.

Does that include any kind of assumptions on pull-through or synergies? Or how should we think about that number? And also going forward, and maybe this is asked, is that the right kind of growth rate to expect for EOS? I want to know how we should be thinking about this part of the business?.

Yes, Jason. So in the second half, our EOS guidance is implied at $19 million, which is mid-teens growth. And that reflects really kind of core EOS revenue. So kind of think about the maintenance revenue, as well as the revenue that we gain when we sell a unit and deliver it and transfer the title. And so that is really very EO specific.

As I mentioned earlier, the ultimate economic reflection of the EOS transaction is going to come both in the form of EOS related revenue as well as the pull-through of our products and services kind of on the core ATEC side of the business.

And so ultimately, that will be the reflection of the value of the transaction, and it will come both in our hardware products and services as well as EOS placements. In terms of how to think about the EOS revenue in 2022 and beyond, the second half really reflects the order book that we've seen. And so ultimately, that order book is there.

We're working to do those placements and deliver on our commitments. And our ability to drive growth there is, of course, dependent to our ability to drive interest in yields. And I'll tell you, I like our chances there.

I think we've got great interest from the ATEC friends and family, and I'm quite excited about what the future holds as it relates to the EOS business, both kind of core EOS revenue, as well as the broader reflection of the transaction as it relates to implants..

Maybe push a little bit harder, though.

In terms of how you're selling EOS right now, is it still going to be traditional capital equipment sale with service? Or are you starting to bundle in with or offer some kind of bundling or something to take advantage of the Alphatec platform?.

Jason, let me jump in. So I would say really there's 3 ways we're going to sell EOS. We are going to sell outright capital, we're going to lease it, and there's going to be an earned purchase type of an agreement.

And so the things that I think created a headwind for EOS without ATEC is the inability to have a currency by which people can appreciate all the value of that technology without multiple ways to ultimately offset the financial requirements.

And so I think what we're seeing is a lot of enthusiasm to say, hey, listen, how do I partner with you guys? There's already an interest based upon all 10 that they're learning about ATEC, and then it's like, gosh, how do we elevate that with regard to in EOS.

And so I think our building infrastructure to support that demand is of high interest to us..

Okay. And then just last question on Alpha InformatiX. Now that you've added EOS, it's a pretty impressive offering. How do you think about this developing? I mean, obviously, there's more to go on EOS.

Are there other pieces that you think you need to add to this platform, so they get even more compelling?.

Yes. I think it's a great question. I think one of the great things that I think that this company does is we apply our learnings. And you couldn't have convinced me that I would be in the patient positioning business years ago. And so I think whatever the requirement is to further the improvement in surgery is the business that we will be in.

And so it's a tough one because the one problem I'm super excited about is so there's great internal confidence in terms of creating -- realigning the spine and doing patient-specific stuff, I think another great outlier because the whole bone quality dynamics and just the opportunity to elevate the sophistication and demand to match an implant based upon the specific requirement of a patient's bone.

And so I think we have a great runway in terms of deciphering all of those things. And so in the near -- I guess in the near view, those are the things that I think that are a super opportunity.

Like imagine going in the operating room and having an objective measure associated with how you're trying to realize a patient versus someone just guessing maybe too strong, but we relying upon gesture and Alpha does an objective measure. And that's where we're heading. And I think that's a great opportunity in the most immediate term..

Your last question is from Sean Lee of H.C. Wainwright..

So I just have a couple of higher level questions for you. So in terms of EOS, because we know that it has a different sales cycle and even more somewhat certain customer base than your traditional offering.

So I was wondering whether you keep the sales team separate, but are operating on a one big team and then you try to integrate everyone and then have all the reps cross-selling both products on both sides..

Yes. I think it's a good question. And I think that in EOS's case, I think the EOS was an imaging company, we sell imaging to a radiologist. And but what you need is you need someone who's going to utilize the type of image, and that's going to be most often in a spine surgeon or an orthopedic surgeon.

And so I think what's important is that what we do is we overlap the selling forces. And if the main driver is going to be the spine surgeon that's going to drive the demand for the imaging. I think that it's important that that's the person that ultimately drives the acquisition of the capital.

And so we've already reconfigured our forces to overlie them. They all report up through a single channel, and we believe that EOS is an informatic company. And so our ability to knock down the barriers associated with the financial headwinds to acquire a unit is what we believe to be most important.

But I think that your comment is a sound one in that there's going to be some interaction with radiology, but it's something that the capital for us is well used to doing and very verse in terms of those kind of selling cycles and selling dynamics..

And Sean, I think when you look at the 2 sales, it's really 1 sales force, but we've added some resources specific to the capital sales process. And so ultimately, we're making sure that very much aligned with the objectives of our Spine, a shared company of our spine team.

But the reality is it takes a very specific kind of know-how and understanding in specific institutions, on how to move a piece of capital equipment through the process and to get the deal done. And that's really what this team is all about, because they have that expertise. They know how to do it.

They're going to work very closely with the implant team as we look at leads and understanding who we're going to target and how we're going to go forward here. But there's definitely a different skill set, and we want our implant team focused on implants..

My second question is on the -- how you will develop yields going forward. So looking back at the success of SafeOp, a lot of success comes from how SafeOp is driving the portal sales of your other products.

So I was wondering whether you try to recuperate that with yields and whether in the future you develop spine related products that work specifically with yields?.

Yes. I think you're right on it with regard to the intention. And so there's little love. We try to not be coy and say ATEC informed by EOS and really be informed to by means what are things that we can do to improve spine care through the understanding of our learnings of EOS.

And I think in the near-term, what you're going to see is you're going to see a surgical planning platform that ultimately is informed with the ATEC product. And then what you're going to see is you're going to see the evolution of ATEC product being evolved based upon the findings of the types of information that EOS provides.

And that's where like, it's like, for instance, if you think of OsseoScrew, we have a screw that expands. And you start to think about, hey, someone may not have great bone quality at a specific level. Our ability to take an OsseoScrew and apply it to that level based about a surgical plan is very apparent.

And so that would be kind of the least sophisticated thing one could expect from the type of information through EOS. And so the excitement that we have in terms of really tailoring people's surgery, and people always talk about patient-specific stuff.

I got to tell you that there's a real walk toward a much more patient specificity associated with the findings through this tool..

I will turn the call over to our ATEC's Chairman and CEO, Pat Miles..

Thanks very much. And I just wanted to thank everybody for their interest in ATEC. We have a heck of a long run in front of us and super excited about moving the field of spine surgery forward. And I just appreciate everybody's interest in what we're done. Thanks very much..

This concludes today's conference call. Thank you for participating. You may now disconnect..