Earnings Call Transcript - ATEC Q3 2020

Operator, Operator

Good afternoon, everyone. And welcome to Alphatec’s Third Quarter 2020 Financial Results and Recent Corporate Highlights Announcement. 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 the 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 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. Joining us on the call today will be ATEC’s Chairman and CEO, Pat Miles; and CFO, Jeff Black. Now, I will turn the call over to Pat Miles, Chairman and CEO.

Pat Miles, Chairman and CEO

Welcome, everyone, to the Q3 2020 financial results conference call. In this session, there will be some forward-looking statements, and while I won't read them all, I encourage you to review them. I can say that Q3 2020 was a strong quarter for ATEC, with over 40% revenue growth in the U.S., which we believe will exceed the industry's performance. We're also very excited about our follow-on offering, which provides a solid foundation for our growth initiatives. Additionally, our clinical experience continues to improve, and our innovative new products will drive our long-term growth. Let’s take a closer look at our performance metrics, and I believe you'll find encouraging trends. We've achieved over 40% year-over-year revenue growth in the U.S., 20% growth in revenue per surgeon, and more than 70% utilization of new products, thanks to our strong focus on innovation. Furthermore, we've experienced 13% year-over-year growth in average revenue per case, marking an increase of 32% since Q3 2018, representing our eighth consecutive quarter of double-digit year-over-year growth, with average product categories sold per surgery totaling $1.8 million. Our commitments remain steadfast and will likely persist for some time, as we continue to create clinical distinction. This involves enhancing our organic innovation machine and encouraging surgeon adoption, ultimately increasing revenue and product sales per surgery through innovative approaches. Our objective is to maintain a steady launch of 8 to 10 products annually. In 2020, we anticipate launching more than 10 products, and the true measure of success will be the revenue generated from these new products, reflecting their adoption by surgeons. The expertise of leading surgeons such as Luiz Pimenta and Jürgen is crucial to advancing spine surgery and driving clinical distinction. PTP is one innovation we’re focusing on; it's not merely prone lateral surgery but an evolved method that improves predictability and reproducibility, allowing more surgeons to adopt this effective orthogonal approach. This advancement facilitates efficient thoracolumbar surgeries. Additionally, we've introduced the Sigma TLIF, which emphasizes less disruptive surgery and will enhance alignment through improved techniques. We see the Sigma retractor being used effectively along with other innovative systems, contributing to our overarching goal of making spine surgery better. We differentiate ourselves by investing in complete procedures rather than just implants, aligning our interests with surgeons. This alignment fosters compelling adoption metrics, such as increased revenue from more products sold per procedure. We've seen significant year-over-year growth in key areas, indicating strong momentum among our offerings. Our strategy focuses on building surgeon confidence, facilitating new procedures, and designing products for improved procedural efficiency. The impact of our SafeOp platform on sales demonstrates how our approach leads to greater adoption. The $1.8 million average products sold per procedure reflects this growth, especially following the Sigma TLIF launch. Our continued investments will yield positive returns, particularly in lateral and ALIF with TLIF procedures. We are also optimizing our sales force to enhance performance and drive growth, having achieved 43% year-over-year growth in U.S. revenue among our top 20 distributors. Notably, 92% of our sales come from our strategic channels, which have shown impressive growth of 47%. There’s considerable room for expansion in underrepresented geographies, and we are seeing strong momentum in this area. Now, I'll hand it over to Jeff to provide further financial details.

Jeff Black, CFO

Thank you, Pat, and thank you all for joining the call today. Just some commentary on revenue, which we announced earlier in the month, or actually in October, and then announced again today. Strong momentum in Q3, robust recovery that we saw in late second quarter continued throughout the quarter. We saw growth in surgeon adoption, led by new products, which are now more than 70% of our revenues and we saw continued evolution of the sales channel, as Pat alluded to. Surgeon counts were up, we expanded geographies. We are also growing deeper in existing geographies with our strategic sales channel. In fact, revenue from the strategic channel was actually up 47% year-over-year. September, we saw the strongest month in U.S. revenue in the company’s history. Our average daily sales actually in the third quarter surpassed the peak we saw in the fourth quarter of 2019, which is indicative of momentum because typically the fourth quarter is strongest in this industry. And as expected, volumes under our supply agreement for legacy products with Globus continue to wind down as that agreement nears the end of its term. In terms of revenue guidance, how we think about the rest of the year and then into 2021, we expect to see sequential U.S. revenue growth of 5% to 10% in the fourth quarter, with full year U.S. revenues at $140 million to $142 million. That compares to our initial U.S. revenue guidance prior to the pandemic of $128 million to $131 million and total revenue we had previously guided $130 million to $134 million. So again, continued momentum. And in 2021, we expect U.S. revenue growth of approximately 25%, with international revenues under our supply agreement continuing to wind down through expiration of the Globus agreement in early Q3. Moving to gross margin. We maintained GAAP margins in the low 70% range even with the impact of SafeOp intangible amortization, which kicked in during the year. We are still seeing drag from excess and obsolete lessen charges on legacy product lines. But that impact has reduced from about 800 basis points in 2019 to about 600 in 2020. We will continue to see improvements as we put legacy E&O impact behind us. We expect our normalized E&O to be more in the 300 to 400 basis points range. So with that, we continue to expect gross margins in the medium term to be in the mid-70% range. On to the P&L, on a non-GAAP functional basis, meaning if you strip out non-cash stock-based compensation litigation, in terms of our run rate expenses on R&D and SG&A, you will see that we are continuing to make investments in R&D and the sales channel fueling top-line momentum, supporting long-term sustainable growth. We did start to see some leverage in the business in Q3 over last year. But over the medium-term, we still continue to expect to make what we will call outsized investments relative to our peers in product development and the sales channel. In SG&A, you see that dollar growth. It’s coming strictly from sales investment. In fact, G&A has remained down to relatively flat over the past 15 quarters. And then finally, moving on to the balance sheet. The follow-on offering in October has provided us with the runway to continue to aggressively fund our growth initiatives. Our cash usage, as you see here, driven primarily by investment needed to see the supply chain with instruments, implant sets to support a growing revenue base that’s now more than 70% from new products. So when you look at the last four quarters on average, 50% of our operating cash use has been CapEx. It was nearly 70% in Q3. With the fundraise that we executed in October, we are now well-positioned to fund the continued momentum that we are seeing, which will continue to fuel our expected growth that is well above industry rates. And with that, I will turn it back over to Pat.

Pat Miles, Chairman and CEO

Thanks, Jeff. To conclude, I believe our multifaceted strategy for achieving sustainable long-term growth is just beginning. We will keep focusing on establishing clinical distinction, which entails introducing eight to ten new products each year and aiming to increase the percentage of revenue from these new products to around 80%. Our goal is to enhance surgeon adoption by increasing the volume of products used per surgery and advancing the complexity of surgeries, gaining surgeons' trust to achieve this. We are also investing in unique technologies that will foster loyalty and drive further engagement. Consequently, you can expect our strategic sales channel to generate revenue exceeding $4 million each. We are noticing a decline in our legacy reputation, sales force, and international supply agreements, which have been obstacles for the company. We have laid the groundwork for long-term growth through a steadfast commitment to improving the clinical experience in spine, and we are just getting started. I am excited about Q3 and the direction we are heading.

Operator, Operator

First question is from Kyle Rose of Canaccord. Your line is now open.

Kyle Rose, Analyst

Thank you for taking the question and congratulations on a strong quarter. Could you elaborate on the major factors driving this performance? The new products you mentioned are clearly important. Pat, could you outline the PTP opportunity so far? You mentioned over 550 cases and the upcoming full launch. What should we expect from that in Q4 and into 2021? Also, regarding those 550 cases, could you clarify if that involves 20 surgeons, including both legacy Alphatec and new customers? I'm trying to grasp the growth potential over the next 12 to 18 months.

Pat Miles, Chairman and CEO

Thank you, Kyle. First, let me discuss the procedure itself. One interesting aspect of having developed the lateral decubitus technique previously is that after we implemented it, many people expressed that they could replicate it. They mentioned they had a retractor and possibly some neurophysiology equipment from their ENT division, along with an implant. However, they never tailored their tools to meet the specific needs of the procedure, and even today, that company continues to dominate market share in that area. What I can share from the first 550 surgeries is that we have applied our insights to define and design around the specific requirements of the procedure. The way we envision surgery is that it should be based on a thoughtful consideration of all its elements. We are noticing a significant evolution in the experience as we have integrated our designs into the procedure. Currently, we are working with a very select group of surgeons. I won't provide precise numbers, but it’s a small group. The advantage of this procedure is the flexibility it offers. When attempting to stabilize an unstable spine, surgeons can access the spine from the back to insert screws, then return to the front, and go back again, which is a flexibility exclusive to posterior approaches that can be challenging. Being able to perform this through a lateral approach is a major advancement. We are seeing a lot of acceptance and predictability in the outcomes. Many surgeons are performing this procedure for the first time and are achieving success, suggesting a potentially shorter learning curve. We believe it has great potential and have not even fully launched it yet, which is expected in the coming weeks. We are very excited about this development.

Kyle Rose, Analyst

I appreciate the additional details. When considering our growth strategy, we are focused on enhancing the sales channel and its quality. The products are certainly contributing, along with several significant upgrades over the past two years. Could you clarify the productivity status of the hires made in late 2018 and throughout 2019? Specifically, how are they performing as they transition off non-competes and move up the productivity curve, particularly in converting surgeons? Additionally, what is your perspective on the pace of hiring so far in 2020? This information would help us understand the growth opportunities as more new hires become active.

Pat Miles, Chairman and CEO

We are making significant investments to attract talent, particularly those who have a unique contribution to spine surgery. We've noticed that many larger companies appear to be losing interest in this sector. Some of their employees are contemplating a transition to work with us, where success is closely tied to spine-focused initiatives. This gives us an excellent opportunity to recruit professionals dedicated to spine surgery. As a result, we’re experiencing increased interest from former employees of larger firms who are seeking to transition their surgeons to innovative technologies that were not previously an option. Our sales management team is evolving, and I appreciate the blend of clinical expertise and sales discipline we see within Nuvasive, akin to Stryker. The culture among our salesforce is maturing, fostering a reliable and clinically skilled group. While it’s challenging to define clearly, we are continually observing growing interest in becoming distributors for ATEC, and we are being intentional about planning for the long-term. Overall, there is considerable enthusiasm surrounding our growth potential.

Kyle Rose, Analyst

Okay. Great. I will let some others jump on. Thank you for taking the questions.

Operator, Operator

Next question is from the line of Matthew O’Brien of Piper Sandler. Your line is now open.

Patrick Bartoski, Analyst

Good afternoon, guys. This is Patrick on for Matt. Congrats on the quarter and thank you so much for taking our questions. I wanted to start with your fiscal year ‘21 commentary. The guidance is really strong. You have been able to do well in the midst of this pandemic. And so I am just wondering how you are thinking about some of those COVID components impacting the year from what it looks like the numbers ahead of kind of where the street was modeling. So how much conservatism are you kind of baking into that expectation and like what are the puts and takes? Appreciate the color.

Pat Miles, Chairman and CEO

I will share my perspective on the factors to consider, and then I'll let Jeff provide more details. The reality is that we are witnessing significant adoption of our procedures. This gives us confidence, especially when we see successful and consistent applications of our spine procedures. We are trying to remain cautious and not get ahead of ourselves, but it’s important to acknowledge our current growth trajectory and our outlook. If another pandemic occurs, it would clearly pose challenges. However, we have observed that hospitals are managing well, with ICUs not being overwhelmed. Surgeons are taking necessary precautions and are diligent about resuming the volume of patient interventions that they had prior to the pandemic. We believe this will lead to a steady progress. We are also aware of external factors beyond our control that concern us. Nonetheless, considering the demographics we are seeing, we aim to remain consistent with our projections. Jeff, would you like to add anything?

Jeff Black, CFO

Yeah. I think Pat covered it well. I think, again, we are trying to be as careful as we can not to get ahead of ourselves and understanding that there always is that risk of another sort of pullback from that’s pandemic related. But at the same time, we feel very comfortable in the health and momentum in the business and our ability now to continue to invest in an accelerated way and ensuring that we can bring on new distributors and new surgeons, and comfortably enable them with the right products in the supply chain. We feel good on it.

Patrick Bartoski, Analyst

That’s really good color, guys. I really appreciate it. And then just a quick follow-up, if you don’t mind. I wanted to switch gears. I know you had just recently launched the InVictus MIS tower. I am just curious, apologies if I missed it in your prepared remarks. But just curious what some of that initial feedback has been. I know it’s early days. But just kind of what you are hearing from your surgeons? Then if you kind of just take like a step back you have done a lot of work to really build out your cervical portfolio and that cervical opportunity. So can you just walk us through like how you are feeling right now with your portfolio and just how you are thinking about that opportunity as we kind of move into ‘21? And again, I really appreciate you taking the questions.

Pat Miles, Chairman and CEO

Certainly. The InVictus MIS Tower has performed exceptionally well, and its functionality is impressive. It aligns perfectly with our strengths in mechanical design and device development. When considering our innovation efforts, a key strength lies in the new products we're launching through InVictus. This level of enthusiasm around these devices is somewhat expected. I believe our portfolio is solid, but what will set us apart is not just the implant systems but also the components that support them. That's why we're excited about products like PTP and Sigma TLIF, which address challenges in spine care that have previously gone unaddressed. As a company focused solely on spine health, we possess significant internal expertise. I'm pleased with the direction of our portfolio, and we're committed to investing in solutions for spine problems, as that will be our distinguishing factor. Regarding cervical solutions, we're still in the early evaluation stages, but I am optimistic that by 2021, we will have a cervical portfolio competitive with the best in the industry. We’ve already begun performing cases and gaining experience in this area.

Patrick Bartoski, Analyst

Thanks guys.

Operator, Operator

Next question is from the line of Josh Jennings of Cowen. Your line is now open.

Josh Jennings, Analyst

Good afternoon. Thanks for taking the questions. It’s great to see these third quarter results. You guys gave a lot of really strong metrics and I think the implication is that, the new surgeon customer adds or new Alphatec surgeons are building as well. You haven’t given any specific metrics around that. I was just wondering if there’s any kind of high-level quantification you can give in terms of where you sit with surgeon customers today versus maybe 12 months ago? And just in the third quarter, is the PTP launch or even in front of the formal launch and the Cigna TLIF launch, there’s new product development. Is that causing a pull-forward in terms of bringing new surgeons into the Alphatec fold?

Pat Miles, Chairman and CEO

Thanks, Josh. I’ll address the recruitment of new surgeons. Spine surgery operates like a small community, and individuals tend to recognize those who have successfully performed spine procedures in the past. There is a natural confidence in their ability to do it again. It would be misleading to imply that there hasn’t been some influx of enthusiastic surgeons, particularly as we near the design completion of PTP and the launch of Sigma TLIF. This has led to some surgeons joining us and has generated a good amount of enthusiasm both internally and across the industry. Regarding comparative metrics, I prefer to defer to Jeff, setting him up for a challenge in the process, but I approach our numerical analysis somewhat differently.

Jeff Black, CFO

Yeah. Josh, I am sure you can appreciate. We generally don’t disclose actual surgeon numbers or how many we have added. But we can tell you qualitatively that as Pat had mentioned early on, that as a result of the slowdown in the pandemic, it actually did allow us or from the pandemic, allow us to access a population of surgeons and bring them on frankly a little earlier than we would have expected, right, just because they had time to think about their next move. And so we saw what we would say, a better than expected ramp-up in new surgeons, not just accounts coming on, but the volumes that they were creating early on. And we have a number of surgeons that came on during 2020 that are already in or even approaching our top ‘20. So very encouraged. It’s a small number still. It’s a small base, but very encouraged by what we are seeing in terms of the not just the adoption of new accounts, but their ability to ramp up very quickly.

Josh Jennings, Analyst

I appreciate that extra detail. As a follow-up, do you have any updated thoughts regarding Alphatec, particularly in terms of collaboration with a partner or bringing something in-house related to navigation or imaging? I know you announced an acquisition with EOS earlier this year, but I’d like to hear if there's anything else you can share about your strategy on navigation or imaging and how that integrates with the new products you’re introducing. Thank you for addressing my questions.

Pat Miles, Chairman and CEO

Yeah. Josh, one of the kind of opportunities that I think that this company has is, as opposed to letting the tail wag the dog with regard to a technology and letting us define it or letting it define us. I think what’s been great about this is we get to define what technology we require based upon the procedures. And so one of the things that has, I think, evaded spine surgery, is this whole dynamic of making image guidance a routine part of a specific procedure based upon the type of value that provides. And so recently we have created a relationship with a company whereby what we are able to do is integrate this technology and it’s an image guidance technology called TrackX, that it helps us really kind of verify orthogonality. And so when we start to talk about creating predictability in surgery and making sure that it’s reproduced among the masses, the ability to integrate these types of technologies into what we do in a very elegant workflow becomes super valuable. And so as opposed to saying, gosh, we are so excited about our image guidance system. And okay, where is it supposed to be used, we get to say the workflow associated with what we are doing from a procedural perspective accommodates this image guidance element that provides great value into the specific utility within a procedure and so that’s what makes us most excited. And so, yes, we have an image guidance relationship. We believe to be very valuable. We think that the type of technology that it avails within the utility of our needs is perfect for what we are doing and so we are excited about it.

Josh Jennings, Analyst

That’s great. Thanks, Pat.

Operator, Operator

Next question is from the line of Brooks O'Neil of Lake Street Capital. Your line is now open.

Brooks O'Neil, Analyst

Thank you. Good afternoon, guys. I wanted to come back to the question, Kyle, asked at the outset and maybe come at it a slightly different way. When you guys think about the PTP procedure and just recognizing what all you know about spine surgeries in general. Can you estimate kind of an annual procedure number for that approach, kind of as it is, in your mind, fully adopted in the marketplace? Are we talking about 10,000 PTPs a year? Are we talking $50,000 or some other number?

Pat Miles, Chairman and CEO

Hey, Brooks. This is Pat. You might remember the first insight into PTP from Dr. Pimenta about a year and a half ago, so I should really be asking you that question. One of the benefits of this procedure is its flexibility and applicability. Spine surgery, in general, sees TLIF as the most commonly performed procedure, still leading in volume to this day. While I don’t keep exact tabs on the number of TLIFs, I know it’s quite substantial. What I can say is that at L45 and above, we could replace every TLIF that exists. That might sound bold, but I genuinely believe it could be true. The exciting aspect is that there is significant potential ahead. We have a lot of hard work to do, which is why we feel optimistic, as this journey focuses on creating lasting value. The PTP procedure seems to offer a pathway to a technique that might eliminate the necessity for one of the most frequently performed procedures. I think, and while this is speculative since we need years of research to validate these ideas, I’m truly confident about the broader application of this procedure beyond just those who have taken up lateral approaches.

Brooks O'Neil, Analyst

Wow! That’s fantastic. That’s great. Let me just ask one more. I really appreciate that color. I am hoping you might just give us a broad sense of how you feel about the SafeOp platform and how it’s being accepted in the marketplace today and maybe what you hope it can help you do in the marketplace during 2021.

Pat Miles, Chairman and CEO

Thanks, Brook. I want to emphasize that the core driver for the company is the SafeOp platform. We often use Alpha Informatix and SafeOp interchangeably, which might lead to some confusion. Our goal is to position Alpha Informatix as an overarching brand for all the technologies we plan to introduce into the operating room via this platform. It's essential to establish relevance in the platform to effectively incorporate more technologies into the operating room. I can confidently say that the adoption of the SafeOp platform is progressing as well as, or even better than, we had anticipated. The impact it’s having on procedures aligns with our expectations and initial vision during the acquisition. We're very enthusiastic about it and believe it will continue to enhance the value we provide as surgery evolves.

Brooks O'Neil, Analyst

Fantastic. Thanks a lot and keep up all the great work.

Operator, Operator

Next question is from Matthew Blackman of Stifel. Your line is now open.

Matthew Blackman, Analyst

Good afternoon, everybody. Thanks for taking my questions. Maybe just for Pat, could you talk a little bit more about the U.S. geographic expansion playbook? You highlighted in the presentation, you have talked about it in the past, there are certainly some areas that are still white spaces for Alphatec? And I just wanted to, how do you think about building up your presence in some of these major markets over, call it, the next 12 months or so?

Pat Miles, Chairman and CEO

Thank you for the question. I believe one of the keys to our company is having the right people involved. We have effectively aligned our internal efforts with our sales initiatives, which has been crucial. Creating a solid internal foundation first allowed us to project that externally. We see significant opportunities in Middle America and parts of the western United States that are not fully tapped. We are just beginning to gain traction in Southern California, and many major metropolitan areas are still in the early stages for us. What's encouraging is that our technological offerings are attracting individuals who can influence these regions. I'm excited because if we had initially focused on recruiting salespeople before establishing our internal structure, it would have hindered our progress. Developing our internal capabilities first has allowed us to grow and attract talent more efficiently.

Matthew Blackman, Analyst

I appreciate that. I have one last question for Jeff regarding the current balance sheet. Can you discuss what investments you can pursue or expedite now that were previously limited? I assume these are channel investments, but I'm also curious if there are other areas where you felt restricted due to your capital position. Thank you.

Jeff Black, CFO

I think you hit the mark. We now possess the capability and flexibility to make the necessary commitments to ensure we have the implant sets and instruments required to penetrate the market and promote ongoing adoption, especially among new surgeons and distributors. Moving forward, we will continue to invest in the sales channel and engage the right distributors and partners to expand into new regions. In terms of research and development, we aim to maintain a pace of eight to ten product launches each year. This allows us to pursue opportunities like the TrackX in-licensing we undertook, as well as further develop our core skills in adjunct technologies, such as software development. Overall, we have significant flexibility to make optimal investments in the appropriate areas, and in some cases, this extends beyond just hardware.

Operator, Operator

Next question is from Jason Wittes of Northland. Your line is now open.

Jason Wittes, Analyst

Thank you for your questions and for providing guidance. You're one of the few companies this earnings season to issue guidance for this year and the next. Regarding next year, you mentioned a growth of over 25%, which aligns with your longer-term goals. This is consistent and encouraging. What factors should we consider that will contribute to achieving that growth? In this quarter, you've highlighted several key metrics, such as increased revenue per procedure, sales force expansion, and new products. How do these elements factor into your expectations for 2021?

Pat Miles, Chairman and CEO

Yeah. Jason, this is Pat. Yeah. I would tell you that very similar. The great part is, I think, the company has done a reasonably good job in terms of creating momentum prior to significant launches. And so what gives us confidence, and again, just trying to be methodical about this is that the early reflection of our experience with regard to things like PTP and even just lateral the tubes lateral and the Sigma TLIF and things like that provide us multiple products per surgery, increase revenue per procedure and we are compelling more people. In addition to compelling more people, what we are also doing is really attracting a more serious surgeon that’s doing more levels and so there’s kind of nothing cosmic around the reflection of the business other than we feel like we are at the early phase of a reflected growth curve.

Jason Wittes, Analyst

Well, I would also just add that if I annualize your fourth quarter, given the guidance you have given for this year, I can get to 25% without doing much. So I assume there’s some conservatism in 2021 numbers and also I assume there’s not much concern about COVID per se in that estimate?

Pat Miles, Chairman and CEO

Yeah. I would tell you that we are not getting ahead of ourselves. We are being as methodical as we possibly can in terms of the approach. And I can’t imagine anybody else out there suggesting the close to 25% growth and so it one of these dynamics to where we are still concerned about COVID and we are watching every day with regard to seeing impacts at different hospitals. But also just trying to be credible with regard to how we are approaching a view, as you said, nobody else is giving guidance and we are out there just trying to be thoughtful.

Jason Wittes, Analyst

I appreciate that. And last, just if I look at this quarter, again, appreciate the metrics, there’s quite a few and quite a few good ones or almost all good ones here. In terms of products, specifically, if I think about what’s really kind of the main product drivers? What would you point to?

Pat Miles, Chairman and CEO

Yeah. I won’t give individual products. But I would tell you that if I were to characterize our growth, I would say, the catalyst is SafeOp and that catalyst gets most highly reflected in things like lateral surgery out of the gate. And somewhat, we are seeing growth in the fixation, which is ultimately a reflection of proceduralizing within the context of earning, the lateral, which is the front of the spine and then getting them back and so those are areas that ultimately are most impacted by the catalyst of the SafeOp effort.

Operator, Operator

Next question is from Sean Lee of H.C. Wainwright. Your line is now open.

Sean Lee, Analyst

Good afternoon, Pat and Jeff. Congratulations on the great quarter and thanks for taking my question. So in your prepared remarks, you mentioned that the company will be looking to transition to more exclusive distributors. So I was wondering if you can provide some thoughts on maybe what areas of the company you can improve on the most or maybe add to your product portfolio that would make this switch more convincing for your distribution partners, which areas can we expect to see the biggest growth in 2021? Thanks.

Pat Miles, Chairman and CEO

There isn't a part of the company where we can't enhance our performance, and there are numerous opportunities for us to improve. Currently, everything is progressing well. We have a long way to go in our pursuit of the ideal procedure, and we will keep striving for that. From a salesperson's perspective, our product portfolio encourages surgeon adoption in ways that allow surgeons to perform unique procedures. For a salesperson, there’s nothing more rewarding than entering a surgeon’s office with a spine procedure that they may not currently offer. By enabling them to continue their existing capabilities while introducing new procedures, we are creating significant growth opportunities. Looking towards the next decade, partners will want to align with a company dedicated to achieving that ideal procedure, which describes us perfectly. While we have considerable room for improvement, I want to emphasize the genuine commitment of this organization. Just want to thank everybody for their interest in ATEC. We are at the early phase of the company build and excited about the route forward. So thanks for your interest and look forward to next quarter.

Operator, Operator

And that concludes today’s conference. Thank you all for participating. You may now disconnect.