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

Thanks so much, Danica, and welcome everybody to the Q2 2023 financial results call. I would ask you to review the forward-looking statements at your leisure. I have to tell you, this has been a very good quarter. Our growth has been fueled by our spine focus. We had $117 million in Q2 '23 revenues, which was a 39% growth, with 41% surgical revenue growth, excluding EOS, and a positive $1.5 million adjusted EBITDA. Highlights include extending the lateral momentum, the strongest contributor to our Q2 growth, launching ALIF access to proceduralize LTP and midline ALIF approach for L3 to S1. We acquired a navigation-enabled robotics platform, which we'll discuss further. We drove $50 million in EOS revenue, a 24% growth, achieving 32% volume growth and 7% growth in revenue per procedure, expanding adjusted EBITDA margin by 1100 basis points. Our commitments since ATEC recreation have not changed, but under the auspices of spine focus, we've been able to continue creating authentic clinical distinction. The commitment to clinical distinction continues; there's nothing better than being aligned with your customer. Spine surgeons commit their careers to spine surgery. Being aligned with them is crucial. So we continue to compel surgeon adoption. One major misnomer in spine is that it's commoditized. Spine is not commoditized. There's great unpredictability associated with it. When you see a 10% to 15% revision rate in one to three years in degenerative surgery, it's not a predictable environment; nor is it durable when it's 25% to 30% in two to five years. We think we can drive predictability, reproducibility, and durability by mitigating variables. If you think about how to mitigate variables, elevate procedural sophistication, and recognize that spine is challenging in doing so, our view is to take an informatics approach, creating an ecosystem to control variables from end to end. Starting preoperatively, we measure patients and plan against them early on. Everything we do interpretively mitigates variables; we continue to demonstrate what's necessary. The acquisition of the navigation-enabled robotic platform suggests that we can continue to progress. Our SafeOp platform, the neural navigation and nerve health tool, continually improves. We're also attempting to inform future surgery regarding the post-op experience. Creating greater predictability in a field that currently lacks it is crucial. What's important is discussing why ATEC continues to grow, significantly outpacing the marketplace. The driver is lateral. Clinical data suggests that in certain surgical indications, lateral is preferential. Regarding blood loss, hospital stays, and days back to normal activity, it's been demonstrated to be better across 500 peer-reviewed publications. The lateral market is the most coveted market and is the growth market. While other companies celebrate anniversaries, ATEC is setting a new standard in lateral surgery. We have the experience necessary, led by Dr. Luis Pimento, our CMO, the original lateral pioneer. We apply decades of lateral experience to the first-generation goals of surgery: decompression, stabilization, and alignment. With the SafeOp platform addressing neural retraction complications, we create a more favorable position for stabilizing pedicle screws. Our experience allows us to control patient positioning effectively. We're committed to addressing the complications associated with lateral surgery, particularly through automated neuro monitoring. Our unmatched expertise in neural monitoring is ongoing, and when we see competitors imitating our products, they can't replicate our know-how. We proudly celebrate our advancements with the SafeOp platform while striving for greater predictability. We're the most committed to research and education in our field, demonstrated by recent publications and training over 500 surgeons in 2022. We have a PTP council that provides feedback, continuously enhancing our commitment to lateral surgery. We're growing from participating in a $1 billion segment to a $3 billion segment, historically highlighting PLIF and TLIF pathology. Our commitment to improving lateral surgery drives our research and education efforts. As we establish a significant presence in the market, we're improving our relationships with surgeons, expanding utilization in conventional procedures. Our intent is to advance the coveted lateral market, earning surgeons' trust, leading to higher rates of product utilization. Expect a surge in EOS influence next year, with mid-'24 bringing automated alignment reports, 3D models, and planning options. We believe assessing bone quality and refining alignments will provide valuable upgrades. With robust data collection, we're assembling the most comprehensive data set in spine, and anticipate transformative experiences through our navigation-enabled robotics platform. We're excited about the integration and enhancements expected over the coming years. Surgeon educators report 150 surgeons attended in Q2, with increasing interest reflecting the excitement of our innovations. Our current growth rate underscores our optimism for future developments.

Thank you, Pat, and good afternoon, everyone. We appreciate you joining us on the call today. I will begin with revenue. The second quarter of total revenue was $117 million, growing 39% over the prior year and increasing 7% compared to the previous quarter. The $117 million in revenue comprised $102 million in surgical revenue and $50 million of EOS revenue. Second quarter surgical revenue of $102 million increased 41% compared to the prior year period. Procedural volume grew 32% in the second quarter, reflecting strong surgeon adoption with growth in the number of surgeons utilizing our procedural solutions, up over 25%. Average revenue per case expanded 7% year-over-year due to continued momentum in our Lateral franchise. Our biologics attach rate and case complexity also contributed. Strong performance in Lateral drove increases in both procedural volume and revenue per case. The number of surgeons using PTP is growing, and utilization among those surgeons is expanding as the procedure applies to a broader set of pathologies. EOS revenue in the second quarter was $15 million, up 24% compared to last year, with solid execution on deliveries and installations. In the second quarter, non-GAAP gross margin was 73%, up 340 basis points compared to the prior year, primarily driven by royalty rate improvements and an increased contribution from surgical revenue. Non-GAAP R&D was $13 million, approximately 11% of sales compared to $9 million and 11% in the prior year. The increase was driven by investment in organic innovation, including approximately $1 million associated with the robotic navigation platform acquired in April. Non-GAAP SG&A was $81 million, approximately 69% of sales in Q2, compared to $65 million and 78% in the prior year. We achieved 850 basis points of improvement year-over-year due to improved variable selling expense and infrastructure leverage, which includes about 80 basis points of investment creating an international presence. Total non-GAAP operating expenses amounted to $94 million, approximately 80% of sales in Q2, compared to $75 million and 89% in the prior year, demonstrating over 800 basis points of operating leverage year-over-year. Adjusted EBITDA was $1.5 million, approximately 1% of sales in Q2 compared to an $8 million loss and negative 10% of sales in the prior year. This represents another quarter of over 1000 basis points of margin expansion. We achieved positive adjusted EBITDA this quarter, ahead of plan. Continued top-line growth and disciplined execution are delivering results. Our performance this quarter reinforces our confidence in achieving the long-term profitability goals we've committed to.

Turning to the balance sheet, we ended the second quarter with $101 million in cash. Operating cash used totaled $37 million, of which about 90% was related to investments in sales-generating assets, inventory, and instruments that fuel our growing distribution footprint and new product launches. Given strong sales momentum in the first half, we pulled forward the required set and inventory investments, offsetting that. Adjusted EBITDA improvements in the first half benefited operating cash, and we expect that to continue into the second half of this year. Carrying value was $470 million. We continue to have undrawn and available borrowings under both mid-cap revolving credit facility and the Braidwell term loan. Now, turning to our outlook for the full year 2023, we now expect total revenue to grow 32% to approximately $462 million. This includes surgical revenue growth of approximately 33% to $404 million and EOS revenue growth of approximately 21% to $58 million. As sales growth drives leverage across our business, we expect to continue achieving significant adjusted EBITDA progress this year. In conjunction with the increased revenue guidance, we are raising full-year adjusted EBITDA guidance to $2 million, representing 840 basis points of margin expansion. Increased guidance aligns with our framework, anticipating about 10% of revenue upside to flow through to adjusted EBITDA while the balance is reinvested to drive top-line growth.

The next few slides provide additional context for updated 2023 guidance. I'll start by sharing how our expectations regarding procedural volume and average revenue per surgery growth shaped surgical revenue guidance. We continue to train surgeons at a robust rate, which drives both surgeon adoption and utilization. Training surgeons builds loyalty, enabling surgeons to progress along the procedural complexity curve, both of which increase utilization. Over the past four quarters, we've conducted about 150 trainings this quarter, totaling around 515. Strong training is a great leading indicator for surgeon adoption. As for demographics of those coming through training, approximately 25% are lateral naive, with the balance familiar with the technique, looking to adopt PTP and LTP. We expect low twenties percent procedure volume growth for the full year 2023, heightened from our prior high teens estimate. Average surgery revenue growth is due to a shift toward procedures that require more products, like PTP and LTP, driving high single-digit growth for the full year.

Matt, it's tough to put a number on the lateral market growth. However, the applicability of lateral into a much larger domain is very clear. The market may not be expanding as quickly as hoped, but the indications for surgery we can address with the technique suggest considerable opportunity. I don't see significant historical improvements in the verticals for a decade aside from expandables. Clearly, lateral advantages have been validated, and we’re excited about where SafeOp fits into this picture. As we now address a broader range of pathologies, we believe we're on an upward trajectory. Looking at the metrics we've recorded, we can see a robust growth pattern in places like PTP through our training programs.

If the lateral market is growing faster than the overall market, that incremental growth will accrure to PTP. At this stage, we’re taking significant market share as our clinical distinction and innovations continue to attract surgeon interest and expand our distribution footprint.

Hi, good afternoon. Congrats on another strong quarter. I was hoping to learn more about the early trends with the LTP launch. Considering the TLIF access system as well, it appears LTP may lead to increased revenue per case due to more levels, correct?

Yes, it is correct, Josh. The most common contracts will typically involve L45 and L5-S1. The acceptance from lateral approach surgeons has been favorable, primarily driven by our access system designed for multilevel surgeries. Moreover, previous challenges related to the lateral approach not addressing L5-S1 have been overcome by incorporating our innovations. We're confident indicating that this will be a positive change for our practices, as we rely on success to drive surgery volume.

More levels will increase complexity, which usually translates into a higher revenue per case. We're anticipating that as we expand this access, it will contribute to a stronger overall performance against our revenue targets.

As we evaluate our surgeon training metrics, we must acknowledge that the EOS influence has not yet translated into significant traction, primarily due to pending launches in automated elements, which we anticipate to drive higher interest in the surgery applications we're currently developing. We realize delivering improved automation leads to better surgery performance, and we remain committed to evolving EOS to enhance our interoperative experiences as we move forward. We're excited about the impact this will have as we roll out specific features through mid-'24. Regarding our international markets, we're being deliberate in our approach. Early experiences in Australia show potential for robust engagements that can drive growth. Japan represents a larger market that aligns with our approach and philosophy. We've established solid groundwork, and we're optimistic about these markets as contributors. In domestic markets, while there's uncertainty, we find ourselves positioned to exploit those challenges rather than retreat, and we're reviewing these options consecutively.

Our roadmap provides distinct opportunities to expand, but we're ensuring investments align with our strategic growth initiatives. We'll leverage market disruptions effectively as we incorporate growth through new products and serve as a solid platform for sustainable development.

Congrats on the great quarter. Can you quantify the surgeon training conversion and how long it takes typically for a surgeon to convert to PTP?

It's challenging to define exact timelines as individual surgeon needs differ greatly, influenced by experience and preparedness to adopt PTP. Some may require several training sessions, while others could quickly adapt following a single course. Surgeons will take time to familiarize themselves thoroughly before implementing it into practice. Yet, the increasing industry demand indicates a strong push towards broader adoption. The geographic expansion contributes significantly to our growth. Many regions have a substantial spine spend but little awareness of our capabilities. Our strong growth rate in established markets reflects our enthusiasm for expanding to adjacent territories. The excitement we're generating leads to a favorable atmosphere for continued growth.

Thank you, ladies and gentlemen. That concludes today's call. Thank you all for joining. You may now disconnect.