Good afternoon, everyone, and welcome to the webcast of ATEC's Fourth Quarter and Full-Year 2021 Financial Results. We would like to remind everyone that participants on the call will make forward-looking statements. These statements are based on the current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the Company refer to reported amounts, which are in accordance with U.S. GAAP as well as non-GAAP or pro forma measures. Reconciliation of non-GAAP measures to U.S. GAAP can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. Leading today's call will be ATEC's Chairman and CEO, Pat Miles; and CFO, Todd Koning. Now I will turn the call over to Pat Miles.

Thanks so much, Paul, and welcome, everybody, to ATEC's Q4 full-year 2021 financial results. In the call, you will find some forward-looking statements. So if you'd like to review that at your leisure, I would invite you to do so. The 2021 was a good year. I would tell you that during a pandemic year, we grew to $243 million in total revenue, which was a 68% year-over-year growth rate. A bunch of highlights that you'll hear about during the call, we continue to pioneer PTP, which has gone exceedingly well. It is the largest revenue growth contributor in 2021. We launched more than 10 products. We closed the EOS imaging acquisition, which contributed $30 million to full year revenue. We opened a new headquarters, which is absolutely beautiful and increased sales in surgeon education capacity, which is key to our effort moving forward. We trained 400 -- greater than 400 surgeons. We opened up a distribution center in Memphis to further the foundation effort, foundational building effort and closed a $350 million convertible debt offering to fuel investment in future growth. And so if you look at Q4 2021, and kind of look at the scorecard, we had 42% organic revenue growth, we had 23% growth in surgeon users, 9% growth in average revenue per case, 84% of the products used were new. We had a blended product -- average product categories per case of two. And it was our 13th consecutive quarter of double-digit revenue growth, 11% to 13% or greater than 20%. And so the excitement here is really sector-leading growth. And so we have a three-year organic U.S. revenue CAGR of 36%. And so we have built one of MedTech's best growth stories and our best is yet to come. There's no question about that. And…

Well, thanks, Pat, and good afternoon, everybody. Thank you for joining us today. I'll begin with revenue. Fourth quarter total revenue was $74 million, reflecting 68% growth over the prior year and 18% growth compared to the third quarter. Our $74 million in revenue is comprised of $61 million in organic revenue and $13 million of EOS contribution. Fourth quarter organic revenue of $61 million grew 42% compared to the prior-year period, and revenue from lateral procedures contributed over 40% to growth in the quarter on the continued expansion of our lateral market share. Strong reception to the recently launched ALIF stand-alone interbody system was also a notable contributor to growth in the quarter. While the resurgence of COVID-19 and continued hospital labor shortages pressured surgical procedure volumes in Spire late last year, the magnitude of impact was lower in the fourth quarter than it was in the third quarter. Our fourth quarter year-over-year volume growth was 30% and driven by the advancement of our sales footprint and the continued expansion of surgeon adoption with surgeon users up 23% compared to last year. Average revenue per case grew 9% year-over-year as revenue mix continues to shift towards procedures that feature more products per case and procedures with greater complexity. In the fourth quarter, we recognized $13 million of EOS related revenue, reflecting strong deliveries in the quarter. The $13 million reflects pro forma growth of 42% compared to the revenue EOS recognized on a stand-alone basis in Q4 of 2020. Now turning to the full year 2021. Total revenue was $243 million, reflecting 68% growth compared to 2020. That is comprised of $212 million in U.S. organic revenue, a $30 million contribution from EOS and a $1 million contribution from the now terminated international supply agreement. Full year organic revenue…

Great stuff, Todd. Thanks so much. And the reality is so much of this becomes about the creation of confidence and the creation of confidence comes when things go right. And PTP, things are going right. And so what we're doing is we're taking share of a large market, and we're expanding the market by converting over traditional TLIF and PLIF surgeons. We're also increasing the complexity of cases and also doing outpatient reconstructive spine surgery in 60-minute period. So it's -- I think PTP is an MIS category killer. And then when we create confidence what happens is there's a halo effect on the other portfolio elements that are best in class by the organic innovation machine. You do that well and you attract better and better U.S. distribution, and we have a lot of room to grow within that group, and so we can't be more excited about what's going on there. And then you start to think about expanding internationally and you say, gosh, how do we do this in a way that ultimately is focal and deep? And so in the coming years, you're going to see a contribution from our international efforts that will be a valuable contributor to both the top and the bottom. And then lastly, I think don't underestimate the EOS opportunity, our opportunity to access hospitals and surgeons that we haven't had before, our ability to translate that information and our ability to evolve the industry based upon the data is out in front of us. And so we believe the decade belongs to ATEC. And we love the quote by Bill Gates, who said, Most people overestimate what happens in two years and underestimate what happens in 10. We're in this thing for the long haul and in it to win it. So I feel like we're just getting started. And with that, I want to make sure and announce that you are invited to the 2022 ATEC Investor Day in beautiful Carlsbad, California at our headquarters, where you'll see some management presentation, facility tour, Q&A, a surgeon panel, a PTP demonstration and an EOS demonstration. You could sign up on our website. So with that, we will close and take questions.

We will now open the floor for questions. [Operator Instructions] The first question comes from Brooks O'Neil with Lake Street Capital. Your line is open.

Congratulations on a great year, the progress you're making. I don't understand why you're not going to add this Investor Day in Minneapolis, Minnesota this year. Well, let me just ask you, obviously, tremendous success with PTP and it sounds like proceduralization in spine is really working for ATEC. Can we expect any additional new procedures in 2022 and beyond? Or do you think you've laid out the areas that are most impactful for you guys?

Yes. thanks a lot, Brooks. And spine surgery is still not yet predictable in the hands of the masses, which really avails itself to so many opportunities. And we even think there's opportunity -- the vast majority of surgery is what would be considered L4 to S1. And there's a few things done as ALIF at L5-S1. So our ability to ultimately effectuate anterior column surgery from L4 to S1 is so apparent to us. And so that will be really kind of the next significant foray into proceduralization, but also even things like medialized approaches from the back, and there's a myriad of opportunities, cervical, there's still opportunity to proceduralize and so there's a myriad of opportunities. And I think that the challenge has always been that the industry has only invested in implants. And then to suggest that they're aligned with the surgeon, I think, is a misnomer. And so our ability to align with the surgeons based upon assembling the goods necessary so that what they can do is think, hey, this patient needs this intervention and here's the procedure I'm intervening with is a tremendous opportunity. So what you'll see immediately is more anterior column stuff from a thoracolumbar spine perspective, but you're going to see cervical stuff over time.

The next question comes from Matthew O'Brien with Piper Sandler. Your line is open.

Pat, can you talk a little bit more about the PCP growth that you saw in Q4? And what's contemplated for '22? Because what really got my attention. I know there's plenty of share for you still to take, but doing less invasive surgery and getting into the PLIF and TLIF cases, seems like a humongous opportunity that's never really materialized. So when you're starting to talk about some of those cases moving over that really gets my attention because the market opportunity there is still enormous. So talk about, again, the growth that you saw in Q4, what's contemplated in '22 and then that progression that you're making into PLIF and TLIF?

Yes. Thanks, Matt. What we're seeing is we have 400 surgeons come for training or more than that, come into the new building for training. I think it suggests an enthusiasm for a technique. And so as you know, this business is a bit of a lag. It's one of the things look like the guys in Q1 and Q2 start to ramp up to a heck of a lot more procedures in Q3 and Q4. And so they'll go back, they'll look for the simplest patient they could do to kind of get their arms around the procedure, they'll do a few of those. And then what you'll see is you'll start to see the reflection in Q4 and Q1. And so there's always a lag. And so I would tell you that we're starting to see kind of the guys in Q1 and Q2 start to do procedures. And so if you think we launched this thing back in late Q4 of '20, the guys in Q1 and Q2 are now on a ramp. The guys in Q3 and Q4 have even -- have yet even started to ramp, you got to be bullish about the procedure. And so one of the things that we -- the very team here were the guys who created the marketplace for lateral surgery down the block. And one of the most difficult questions to answer for a surgeon was, hey, if I have to directly decompress this patient, how am I going to do it in a lateral position? And then if I have to place pedicle screws, I don't want to do it in a position with which I'm unfamiliar. And so what happened is a lot of the PLIF and TLIF guys kind of steered clear of the technique. And so what we're finding now is when guys came into the office, it's not only kind of the lateral types that love all of the benefits of lateral spine surgery, but it's also the guys who were really kind of stuck on the whole, hey, I want to operate on the patient laying on their belly. And I want all of the virtues associated with not only can we indirectly decompress like we did laterally before, but I can directly decompress the patient such that I know when I leave the OR, I have fully decompressed this patient. And so I think that becomes a big part of why a TLIF and a PLIF surgeon have started to come over, and it's been fun to look at the demographics of those guys in training and you're seeing it initially mostly lateral guys and now more and more PLIF and TLIF guys are coming forward.

The next question comes from Joshua Jennings with Cowen. Your line is open. Your line is open.

Great end of the year. I would love to see -- just to hear more Pat about your vision of migration of spine surgeries into ASCs and clearly ATEC is well positioned as you've described. I wonder if you could share sort of percentage of revenues for ATEC in ASCs today. We're assuming it's still very, very early innings. And then just how you see just the industry evolving and this migration occurring, there's been some naysayers in the industry as they don't see the ASC being a big opportunity in spine. But maybe the pandemic with this move towards same-day discharges or overnight stays is going to catalyze a faster migration. A couple of questions here. I apologize but one topic. So thanks again.

No. Joshua, it's -- I've been at this since 1995. And I remember years ago, when I was at Sofamor Danek, we released a minimally invasive discectomy device. And we thought that, that would overtake outpatients' spine surgery. And so I think the frustration with the topic is as much as there's not been a solution that is so meaningful from a clinical perspective. And that's why I think that the whole reconstructive element of thoracolumbar surgery is ultimately what's going to demonstrate the most benefit. Like a little decompression and outpatient surgery doesn't make for much of a difference. When you start reconstructing people and doing it predictably over and over and over and over, I think it makes a huge deal. And I think your point with regard to the pandemic driving that dynamic, I think it is exactly the case. So often, I think that we and the industry get consumed with packaging or with sterile pack goods are going to be what ultimately drives less invasive -- or not less invasive but ASC or outpatient surgery. When the reality is if can I do something that's very meaningful from a clinical perspective for a patient. And that's where I feel like the whole PTP thing has really been attractive. And so when you look at a single level spondylolisthesis, the number one reason why someone gets operated on in spine surgery now can be done in an outpatient setting. I think you're starting to think that, gosh, the relevance associated with the intervention begets an opportunity to do it in another site of service. And that other site of service clearly is the ASC. I got to tell you, I believe at some point, adjacent level surgery spondylolisthesis of Grade 1 and Grade 2, will be done in an ASC. And I think the economics support that. I think that the clinical element, which is going to be most important, clinical always first, the economics chase it will be how things go. So anyway, we start to be long-winded, but I think that your point is everybody is waiting on a surgery or on a predictable experience to ultimately have that start to show. And I think the pandemic has been a driver of that.

The next question comes from Matthew Blackman with Stifel. Your line is open.

I'll just go with the boilerplate question about 1Q. I assume January was challenging. Just curious what you're seeing in the first quarter and maybe the best way to frame it is, are you guys comfortable with where consensus is in the first quarter, something like $66 million or $67 million?

Yes. Thanks, Matt. I think as probably most people who've reported now have kind of talked about how Omicron showed up kind of mid-December, second half of December began getting tough and January was certainly more difficult than December. But as we kind of looked at -- and as we've been looking at kind of average daily sales kind of week by week, it got better. It's been getting better through January and through February. And so ultimately, I think January is better than February, and we're feeling like the second half of February was better than the first half. And so I think it's trending in the right direction, which is good. First call, I think, to your point, $65 million, $66 million, and we're feeling comfortable with that in terms of where that's at. And so I think at the end of the day, we're going to work through the pandemic. I mean we had -- we've talked about this on the full year. We had the pandemic in 2021. We're going to have some pandemic in 2022. Our kind of fundamental assumption on the full year guide is ultimately that you got to deal with it when it shows up, I don't know, but our assumption is going to kind of be a net neutral. And so growth rates overall in the full year should look real in a sense.

The next question comes from Kyle Rose with Canaccord. Your line is open.

I'm wondering if we could talk a little bit more just about EOS. Maybe what you're seeing as far as the commercial model evolves. When you think about guidance this year, how much of that is capital versus maybe more recurring or service-based revenue. Just kind of help us understand what the puts and takes of that business should look like in 2022?

Yes. I guess what it looks like is that we have an absolute mirror of the implant sales management and the EOS sales management. And I think one of the things that was just exciting, Kyle, is just watching the teams come together at our sales meeting and looking at a very integrated approach to both organizations. And so to me, when you start to look at an integration and you see these groups getting together and then you look at things like a user-based rebate type of agreement to ultimately drive placements and then utilization getting driven by the implant force because now they have access to people who they haven't had access to before. And then you get access to hospitals. There is an example of there's a Bon Secours like it's like a 15 or more hospital, 20 hospital group that we didn't have any access to. We sold them in EOS and now we have full access to all 24 hospitals. And so it's things like that, that give us great enthusiasm with regard to the integration of the two groups. And so not only the placements, which we're bullish on and the funnel looks great. But also in the relevance of once they get placed, our access from an implant perspective, which is a part of what we negotiate with every placement that we make. We also negotiate access to data. And so what we're doing is putting a lot of effort into a high trust environment from an IT perspective, such that what we could do is start to really be data mavens with regard to the -- all the imaging that comes out of EOS. And so the opportunities are almost endless. That probably evaded your question, I'll let Todd jump in on the number of placements and how we ultimately look at the demographics of the sales. But I guess I just wanted to make sure that it's so important that people understand the value that EOS provides. And I think that oftentimes, it's like what are you guys doing in the imaging business. And I got to tell you, I am thrilled that we are.

And Kyle, I think your question was what percentage of the $45 million is recurring? And about 1/3 of it is on the full year basis. And so you can kind of think about 1/3 of that being recurring and 2/3 of that being related to placements and just in terms of how you should think about that kind of over the course of the year, when you look at the historical EOS experience in terms of revenue recognition when those placements happen, about 36% of revenue has historically been placed in the first half of the year and 64% has been placed in the second half of the year. And so we don't have any reason to think that this year will be any different. So that's kind of how we're thinking about the timing and the demographic of that.

The next question comes from David Saxon with Needham. Your line is open.

Yes. Just wanted to follow up on EOS. You mentioned these kind of volume-based agreements for the EOS placements. And obviously, we've seen that with other companies. But for ATEC, is this predominantly a U.S. arrangement just given that Globus International resurrection? Or are you seeing that internationally? And then any metrics or color you can share about how we should think about the magnitude of that benefit from those volume-based agreements?

Yes. Thanks so much. When you look at the demographics of our sales of the -- we had -- I think it was at $1 million last year of international sales. We have no footprint implant lines internationally. And so the reality is this is a domestic program by default. And so we feel like there's a ton of opportunity to do these types of things. The great thing is, and Todd has mentioned this in years past, at the previous place, we designed and developed an anterior program and not a posterior program. And much of the interest in terms of the kind of the original EOS group is in posterior fixation. And so when you have a type of system like an InVictus, the ability to attract people to utilize our posterior fixation system as they offset to the expense on an EOS system is super valuable. And so, that's kind of been the focus of concentration, again, creating confidence with a system that has done exceedingly well. And so, you have a sophisticated a bunch of surgeons utilizing this system. And what it's done is create the level of confidence for us to expand and really create the halo. So you want to...

Yes, David. And I think in terms of how we think about the pull-through, I think the most meaningful impact of EOS this year is really going to be, as Pat kind of talked about, gaining access to facilities that they wouldn't have had access to before. Ultimately, that's kind of contemplated within our guidance. And then as we work with each individual customer, I'm figuring out how do they want to purchase and ultimately finance the placements of their EOS. Some of those will do capital sales. Some of them will lease them and some of them will kind of avail themselves of the use-based rebates. So I think it's going to be a mixture. And ultimately, the net upside is contemplated in our guidance.

The next question is from the line of Phil Coover with Goldman Sachs. Your line is open.

We've seen a myriad of different guidance philosophies from different medtech companies this year. I think it's pretty clear, especially from that bottoms-up analysis that Todd gave that the -- you guys have a ton of confidence in the micro and what's within your control. Already touched on COVID expectations for the year a bit, but I was hoping you could touch on a few others, the staffing situation and the impact that's contemplated both in 1Q and for the year as well as any impacts from supply chain componentry other parts that could inhibit your growth profile?

And I think what -- I guess what I'd say just in terms of my commentary earlier on COVID really was both kind of the viral impact as well as the hospital staffing impact combined. And so our expectation is that we had COVID in 2021, and the same order of magnitude will hit us here in 2022. Now whether that takes the form of more staffing shortage feeling or kind of the virus impact on patient flows, I don't know whether I can comment on how that split is going to shake out. But in aggregate, we see those things working in tandem and order of magnitude being the same this year as it was last year. And so I think that's kind of the COVID commentary. In terms of how we think about the 1Q, I think I shared earlier how the sales have kind of progressed throughout the quarter. And we shared earlier that we're feeling like the first call is a reasonable place to be feeling comfortable with that. And so I think you can draw your conclusions there. And then I think, finally, on the supply chain side, while we'll certainly have some challenges there, they haven't really been of the order of magnitude that gotten in the way of us getting anything done to the extent that we know we need to. And so a good job of mitigating and managing and working through those.

The next question comes from Jason Wittes with Loop Capital. Your line is open.

Just two related to EOS. One, how should we think about the gross margin for that business? And two, Pat, you had mentioned there's a lot of data sharing going on. I think -- where are we now in terms of what data is being shared and sort of what's the medium and longer-term vision in terms of what kind of data that will grow into?

I'll let Todd jump on the gross margin, but I'll go ahead and start with the second one first. I would say the data sharing is in its infancy, but the opportunity is massive. And I think that's why we're committing so much effort to kind of the high trust IT environment. And so when you start to think about the opportunities to share imaging data and you match that with patient-reported outcomes measures and then you start to group like patients. Everybody talks about the opportunity to provide analytics of source. And this foundationally does. And so we think of it as a clinical, a operational and a economic opportunity. And so to be able to have a data-rich environment that ultimately aggregates this data and then to be able to, again, near neighbor them, meaning what are like types of pathology growth, like types of patients and start to understand complications, profiles and the like and start to understand how someone should be realigned and what their bone quality is, is such a profound opportunity from a data collection perspective. And then to understand what the requirements of surgery are based upon having kind of the preoperative plan generated here and to understand what needs to go, can we start to take dollars out of the shipment based upon an understanding of exactly what's required. We have a high expectation that you can, and can really know you can. And so just our ability to start to customize the configuration that serves the interest of a respective procedure to start to understand what specifically that patient needs and what the expectations are associated with him brings you to an economic opportunity we think is exciting. And so we're in the super early stages of this. But as we've said, it's kind of the virtue of being interested in the long haul and loving the environment that you're serving. And so we love spine, want it for the long haul, and we'll be the guys that ultimately output this information.

And Jason, as it relates to gross margin, the EOS gross margins in kind of the mid- to high 30s kind of bounces around a little bit. And there's a couple of factors there. One factor is the mix of OUS revenues. The OUS revenues, many of those are distribution agreements. And so ultimately, they're bearing a lower gross margin for us. So I think historically, that's been a reasonable percentage of total revenue. We've placed our incremental resource our investments here in the U.S., where we have a higher ASP and ultimately a higher gross margin. So I think, ultimately, we'll see some tailwind with that. And I think that will be a driver of gross margin tailwind in the EOS space.

Your last question comes from Sean Lee with HC Wainwright. Your line is open.

So maybe could you -- in the prepared remarks, you guys mentioned plans to expand internationally. So could you provide a little color on your thoughts on maybe what products and which geographies you would like to target first? And also how does EOS plan into that?

Yes. It's something that we're super excited about, and so excited because ultimately, we're going to be very focal. And so literally, the countries of significant interest out of the gates are New Zealand, Australia, Japan, the U.K. and then maybe at some point, the South America. But our interest is really to jump into countries whereby we could have the effect of the same kind of share EOS implant strategy as we have in North America. And so there's so many kind of like-minded approach to surgery in the countries that I named, we feel like the opportunity to enter those marketplaces very aggressively such that we get the same type of an uptake is kind of the best place to utilize our time and resources. And so that's the thinking.

Yes. Totally. And I think, Sean, the -- for me, the differentiation here is we're fully committed to these limited international markets, and we're going to bring our best to those markets. And I think oftentimes, there's a stratification of what products and life cycle you bring to different markets. We want everybody to have the best offering that we have to offer. And so we believe, one, that's the right thing to do for patients and clinicians; two, we also believe that's ultimately how you're going to build a sustainable business because we're going to go in these markets direct. And so ultimately, you get a commitment to the clinical requirements of the procedure through neurophys in particular. And so ultimately, we think that's the best way to build a large, scalable business as fast as possible.

And that concludes the question-and-answer session. I will now turn the call back to Pat Miles for closing remarks.

Yes. I just wanted to say that we can't be more excited about what's going on and in it for the long haul, and we really appreciate everybody's interest in ATEC. So thanks so much.

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