Good afternoon, everyone and welcome to Alphatec's Fourth Quarter 2018 Conference Call. We would like to remind everyone that participants on this call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the company refer to reported amounts, which are in accordance with U.S. GAAP as well as non-GAAP or pro forma measures. Reconciliation of non-GAAP measures to U.S. GAAP can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management views of why this information is useful to investors. Joining us on the call today will be ATEC's Chairman and CEO, Pat Miles; President and CFO, Jeff Black. Now I will turn the call over to Pat Miles.

Thank you very much and we're going to try something new. And as opposed to you being forced to deal with my suspect reading skills, we're going to walk through a bit of a presentation. And I got to tell you, I so prefer this, just because I can speak to this sort of passion that I have with regard to what's going on with the company and really the undercurrent of momentum that's being created. And so, if you all fly past the forward-looking statements, we've already been through that, but really begin to look at the -- look at slide number three. And what you'll find is, you're going to find some reoccurring themes. And I will tell you, our effort here and really the foundation that we've built in 2018 is about how do we create clinical distinction, how do we, in essence, reset the sales force and how do you start to compel surgeon adoption? And so, a ton of work has gone on this year to reflect that effort. And I would say, first and foremost is it's really a key differentiating technology that we acquired in SafeOp. We'll talk more about that later, but that is a distinguishing differentiating technology that will enable us to create the clinical distinction that we speak of. We had 12 Alphas in 2018. And I think what you can't lose sight of is that design development and -- the box down to the left and clearance of a lot of products. What Alpha provides you is a confidence in a predictability associated with the performance of these products. And so, as we go into 2019 and go through the launch of a number of new products, I think, we go into 2019 with a lot of confidence. As…

Thank you Pat, and good afternoon everybody. I want to spend just a couple of minutes walking you through a little more color commentary on the financial results that we released today. Starting off with revenue. We think it's important to start to get a bit of a deeper dive into the components of our revenue. And as Pat talked about us building out our distribution channel, it was a real focus for us in 2018. We focused on building out a channel of strategic distributors and we're seeing it deliver. And what we mean by strategic delivery is -- or distributor is it's someone who's committed to invest and scale their business as we offer them expansive geographies and we fill their bags with innovative products. And ultimately, a strategic distributor is going to be one that is expected to walk to exclusivity over time. And when you look at how we break up the revenue on a year-over-year basis, we saw nearly 30% increase in revenue growth from that strategic distribution channel. Yet at the same time, we saw revenue from legacy distribution continue to wind down as part of our planned transition. So we think this is masking, what we consider real growth in the business. And we're highly encouraged by the contribution we've seen from this group of distributors. It's happening even before the full impact of new products and technologies are launched. So the bottom line is we're seeing strong growth from the very channels we committed to invest in. A quick note on margin and margin presentation. So the numbers that we presented earlier today and the numbers you see here for 2017 and 2018 represent a reclassification. So we are now presenting instruments at depreciation over the line in SG&A which was previously…

Thanks, Jeff. I think 2018 has been a heck of a year for us. Clearly, we would love to come in at guidance, but I will tell you we've built the foundation for a machine. And so I would tell you that, we've created clinical distinction, which I think bodes well for our capacity to continue to evolve our sales channel and continue to compel surgeons. So I would tell you that, the best is yet to come, and couldn't be more proud of the ATEC team here in Carlsbad and those out in the field who are turning the floodgates with vigilance. So with that I guess we'll take questions.

[Operator Instructions] Our first question from the line of Brooks O'Neil from Lake Street Capital. Your line is open. Brooks O’Neil: Good afternoon, guys. I appreciate all the color on the call and congratulations on all the progress you've made.

Thanks, Brooks. Brooks O’Neil: So I have a couple of questions. Historically, Pat the company's been able to estimate or quantify the transition on the distributor side. And I think the last time I heard it quantified or specified it was around 57% of revenue from dedicated distributors. Is it possible given the continuing transformation you're working on to give us a metric that relates to that or at least helps us to gauge your progress in transitioning that distributor network?

Yeah, Brooks. I think it's the right question. It's one of those things that we want the metric to really drive that insight into the business. And what we've found is the dedicated things became a bit mushy. What won't be mushy is exclusivity. And so as we roll forward we will assemble metrics associated with what our walk is in that effort. One of the challenges is exclusivity is a two-way street. It's not just a dictum from a company that requires it; it's earning that. And the one thing that we will do is based upon the type of distinction that we're creating clinically, people will want to be exclusive with us because we will have earned their trust and their capacity to build a large business. And so this is going to be a walk together, but it was one of the most profound walks in my previous experience is making sure that we're all on the same team at every stage at every turn. But -- so a long-winded answer but yes we'll provide you more color on that. Brooks O’Neil: Okay, great. Let me ask you a little bit about SafeOp. I have a sense of your excitement about the opportunity with SafeOp. I'm just curious if this is an element that we should expect to see revenue and earnings from. Or would you envision it more be a complement or a driver of revenue from the -- more of the product classifications you sell?

Yeah. I think it's a great question Brooks. The issue becomes is the real currency items in surgery are going to be the implants. And you're going to see revenue associated with the utility of SafeOp, but the real revenue is going to be in the assembly of products that we can put together in an approach to fulfill the obligations of surgery. So what that means again long-winded is that we're pulling through some of the items that are going to have less of a financial upside. But we feel like that's our opportunity. Brooks O’Neil: Yeah, that makes sense to me. So just one more. Can you give us some sense for the feedback you're getting from surgeons relative to the 12 Alpha launches you have underway at this time?

Yeah. If I were to give you the quotes by very renowned guys you would be exceedingly pleased. And there's a lot of sensitivity toward who's using what. And so what I'll do is reserve their right to stay anonymous. But you have a group here, Brooks that are not passively good at what they do. And let me speak to a guy Jim Gharib who created the neurophysiology system that hasn't changed in 15 years down the road. He's with us up here changing neurophysiology for the better along with Richard O'Brien and Rob Snow. And those are the most versed guys in the business in that effort. You have a product development team with regard to our thoracolumbar side that's unrivaled and same with regard to on the identity side. And so I got to tell you it's -- we're not guessing and we've got a team here that is profoundly good. And so my long-winded answer is the reflection from the surgeons have been consistent with regard to what we would expect. Brooks O’Neil: Great. And then just maybe for, Jeff, I guess I had one more is, do you feel that the $30 million of incremental capital is sufficient to allow you to complete the transformation of Alphatec? I know you said probably get you into 2020, which is great but you think you have the money you need to keep driving the business the way you want to drive the business?

Yeah, absolutely Brooks. I think what this does is it gives us the capital we need to execute on these product launches to continue to invest in the sales channel and to really start delivering quarter-over-quarter growth. So it ultimately starts creating the value that ultimately is reflected in the work that's going on behind the scenes. Q – Brooks O'Neil: Yes. And can I just ask one more? I'm sorry. As it relates to the legacy products and the drag of revenue and being able to show that quarter-over-quarter revenue growth, I know you're probably going to try to break out some of this stuff. But do you think before the end of 2019 we'll get to a place where you can have essentially clean, real, observable revenue growth at the top line of your income statement? A – Jeff Black: Yes, Brooks, I think we'll get close. When you look at our outlook for 2019, we expect that the legacy and terminated distribution line will end up being somewhere in the $9 million to $10 million for 2019. So it starts to become a smaller percentage of the overall revenue picture. And we'll continue to see that bleed off over the course of '20, but most of it has really bled off in the last two years. Q – Brooks O'Neil: Yeah, okay. Thanks so much. I'm excited for your progress. Thanks a lot. A – Jeff Black: Thank you.

[Operator Instructions] Our next question comes from the line of Swayampakula Ramakanth from H.C. Wainwright. Your line is open. Q – Swayampakula Ramakanth: Thank you. Good afternoon Pat and Jeff. A couple of quick questions. The first one being, you outlined three big strategies, clinical distinction, revitalizing revenues and compelling surgeon adoption. So how do you see these three? And at this time, what do you think is your weakest link? And what requires more energy than you're actually putting in at this point? A – Pat Miles: It's a great question okay? It's -- well one feeds the other right? It's one of those things where it's like if I can't do something better or different -- when I say I mean the company. If we can't do something better or different, our capacity to compel a sales channel and to inspire surgeons becomes very, very difficult. And so I thought that one of the interesting slides in the deck was just a percentage of revenue contributed by products that were six-plus years old. And so it said 46% of that was six-plus years old. I will tell you the other 45% is a single product and it's on the four to five years old. And so when -- based upon my experience in this business, if you're not obsoleting yourself and you're not creating the level of distinction, the ability to have -- garner a following becomes very difficult. I would tell you, hats off to the sales guys who have created momentum prior to our capacity to release a product portfolio that we will ultimately be known for. And so I think what happens is there becomes a lot of momentum based upon the promise of past experience and it's not something that we're going to let anybody down. So again I hope I answered your question. I will tell you its 90%, 90% and 90% of my time. Q – Swayampakula Ramakanth: Okay. Thank you. So the other -- the second question which I was -- which I kind of -- its interesting that you come out and say your expectation of growth is to get to $200 million revenue range by 2022. And in 2019, the current midpoint guidance is $100 million. So you're -- so I'm trying to figure out or I'm trying to understand, what are the pushes and pulls that you're thinking of when you're talking about growing $100 million in revenues in three years from the end of 2019? And also, what do you think are the drivers that people like me are not actually giving any value or it's giving little value?

Yeah. R.K., this is Jeff. Great question or I guess a couple of questions. But yeah, I think the way that you should think about it and it's the way we think about it is, it's -- there's a compounding effect of what we're doing, right? I think that Pat articulated the importance of ensuring that we've got the right products to market. And right now, less than 10% of our revenue is represented by new products. So, the ability to get new products to market in 2019 and begin to see that acceleration is going to drive adoption. I think the sales channel then will be fed with a bag of brand new products. It'll be much less challenging to compel distribution to come over in a big way. And when you start to think about reducing the footprint of -- in terms of overall distributors, but bringing high quality distributors that can get to that peer target of $4 million to $5 million a year versus $1 million where we are today, you start to see a real opportunity there. And I think the third is, right now, we're selling one product in every case. To the extent that we can just take our existing volume and double the number of products into every case, that's a compelling growth metric there, right? So even with the existing surgeon base, just adding another product into each case will -- it could actually extend or expand the revenue by 30%, 40%.

Great. And then I'm going to ask a SafeOp question, but I hope it's not just -- it's not what you just answered. But I'm -- so from where I'm sitting here, it looks like in your opinion SafeOp seems to be a platform, that could potentially open up a lot of revenues in terms of getting surgeons' attention. So, how should we think of this being a driver of sales? And would we see more of SafeOp integrated products coming in 2019 and 2020, or what's the value of that?

Yeah. R.K., to me that becomes the initial line in the sand in terms of our opportunity to enter someone's operating room and provide them information. And so, we look at the whole Alpha Informatix as a conduit into the operating room to provide meaningful information. And so, the first things you're going to see out of that are the neurophysiology pieces. When you look at like our thoracolumbar -- our new thoracolumbar system, the pedicle screw system, all of those tools will be integrated into having feature sets that accommodate the integration or the application of the SafeOp platform into, say pedicle screw placement or our lateral system will have been able to be integrated in there. And so, what you'll see is becoming more and more relevant with regard to the different approaches that we are participating in. And so, if there is an informatic need that ultimately makes spine surgery better, what we have is a conduit to deliver it through in the whole Alpha Informatix platform. And so, I think that what you'll see is that's the whole not guessing thing. We know that we can make lateral surgery better with the type of feature set that exists within SafeOp. And then what it does is just provides us more and more application within the context of an approach, that enables us to elevate the sophistication of our portfolio or our approaches into surgery.

Great. Thank you very much. Thank you, Pat and Jeff for taking all my questions.

So thanks, R.K. So with that I hope you hear the enthusiasm we have at the new ATEC and we greatly appreciate your interest in the company. And with that we'll sign off.

Thank you. This concludes today's conference call. Thank you for joining. Have a wonderful day. You may all disconnect.