Earnings Call Transcript - ATEC Q1 2022

Operator, Operator

Good afternoon, everyone and welcome to the webcast of ATEC's First Quarter of 2022 Financial Results. We would like to remind everyone that participants on the call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the company refer to reported amounts, which are in accordance with US GAAP as well as non-GAAP or pro forma measures. Reconciliations of non-GAAP measures to US GAAP can be found in the supplemental financial tables included in the press release, which identify and quantify all excluded items and provide management 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.

Pat Miles, CEO

Thanks very much, Casey, and welcome to the Q1 2022 financial results for ATEC. We will be sharing some forward-looking statements during this call, so please take note of that. I'll dive right in. ATEC had another impressive quarter of growth, ending with total revenue of $71 million, which represents a 61% increase year-over-year. However, what's truly crucial is the strong foundation we are establishing for our future direction. You might notice some repetition in my points. Regarding PTP, we have trained over 100 surgeons, and importantly, we are gaining traction by positioning SafeOp as a confidence builder and a means to deliver information during surgery. This prepares us for the next steps with PTP. On the EOS front, we are focusing on long-term foundational efforts related to clinical operations and economic impacts of informatics and data, while also expanding hospital access. We are laying the groundwork for future integration during surgeries with EOS. I am pleased that we are gaining market share in the U.S. Here are some highlights: we achieved 39% organic revenue growth year-over-year, 18% year-over-year growth in surgical needles, 11% year-over-year growth in average revenue per case, with new products making up 87% of our revenue and an average of 2.1 product categories sold per case. This marks our 12th consecutive quarter of over 20% revenue growth, excluding the 11% during the challenging pandemic period in Q2. As a reminder, we remain committed to establishing clinical distinction, which encourages surgeon adoption and increases sales. Our focus on clinical distinction is critical. Traditionally, the Spine market has been focused on widgets, but we have excelled in product development, launching over 40 products since 2018, which now accounts for 87% of our revenue. The real opportunity lies in spine procedures, where we are chasing the perfect procedures. This pursuit places us in the most rapidly growing segment of the market: the lateral market. Anyone who dismisses this growing market is mistaken. We are making significant strides in this area, with about 40% of our Q1 revenue growth linked to lateral procedures. We are currently around 4,000 cases into PTP, indicating that our approach is informed and calculated. The adoption is a reflection of our unmatched expertise in lateral surgery, supported by 16 peer-reviewed publications. We are just beginning our efforts to convert the lateral market from what was historically a posterior approach among surgeons. Increasing use in complex cases also indicates acceptance. Additionally, the site of service depends more on the type of pathology and intervention. We are seeing increased application in ambulatory surgery centers. This success is largely due to the challenging integration of automated neurophysiology. When you incorporate unique features like SafeOp’s automated SSEPs, it lays a strong foundation reflected in our performance and acceptance within the surgeon community. The ongoing demand for surgeon training visits demonstrates the enthusiasm surrounding PTP. Shifting to EOS, we have a solid team in place to meet our strategic goals, and we are successfully selling systems. Our product development efforts are focused on integrating pre-, intra-, and postoperative data, allowing us to access and utilize data more effectively. In Q1, our U.S. revenue surpassed $10 million, and we are ramping up product deliveries while expanding our order book. We’re bringing implant sales opportunities to new accounts, which were previously inaccessible. Not only does selling systems enhance our access to hospitals from an implant standpoint, but it also allows us to gather valuable data. The challenge for spine surgery has been its unpredictability, and possessing the capability to translate that data is crucial. We intend to approach this from three key perspectives: clinical, operational, and economic. The goal is to reduce variability in a field that traditionally lacks predictability by understanding preoperative conditions, planning based on imaging, integrating that plan during surgery, and subsequently assessing outcomes. This comprehensive approach aims to transform spine surgery into a data-driven, predictive practice. We are focusing on creating a consistent data collection strategy, which allows for more reliable outcomes. Operationally, the spine industry has historically spent significantly on implants and instruments, and understanding the operational requirements can help us optimize freight, labor, and other logistical aspects. Economically, it's vital to know the costs associated with specific procedures to effectively compete on pricing and potentially share risk with hospitals. We have significant momentum in creating clinical distinctions, which is evident from the increasing surgeon adoption rates. In Q1, we observed an 11% growth in average revenue per case and trained over 100 surgeons, reflecting an 18% year-over-year growth in our surgeon user base. Clearly, more surgeons are turning to us because we tailor our interventions according to specific pathologies. We maintain a unique and unmatched commitment to adjunctive technology and will continue to innovate in alignment with surgeons’ priorities. The adoption of our clinical thesis is reflected in our growing number of products used per surgery. I believe our clinical thesis is being accepted, and proceduralization is crucial for protecting our unique technology while setting industry standards that others will find hard to match. We will continue to leverage our experience to drive this forward. We are establishing clinical distinction that compels adoption, leading more surgeons to our solutions. In examining our presence across the U.S., we are still underrepresented in certain areas, but in locations where we are established, our growth is significant. Those who commit to us are expanding at a faster rate than our organic growth of 43%. If you wonder whether PTP is a passing trend or a solid initiative, consider that our top 20 distributors selling PTP are experiencing a growth rate of 77%. I assure you, it is a legitimate trend, and our momentum in the lateral business is strong.

Todd Koning, CFO

Thanks Pat and good afternoon everybody. Thank you for joining us today on our call. I'll begin with revenue. First quarter revenue was $71 million reflecting 61% growth over the prior year and a 4% decline compared to a seasonally strong fourth quarter. The $71 million in the revenue is comprised of $61 million in organic revenue and $10 million of EOS contribution. Our first quarter organic revenue grew 39% compared to the prior year period and was sequentially flat compared to the fourth quarter. Year-over-year volume growth 25% was driven by the advancement of our sales footprint and the continued expansion of the surgeon adoption, with surgeon users up 18% compared to last year reflecting increased surgeon utilization. Average revenue per case expanded 11% year-over-year as revenue mix continues to shift towards procedures that feature more products per case and procedures with greater complexity. And consistent with our increasing average revenue per case, revenue from lateral procedures contributed close to 40% of our dollar growth in the quarter on the strength of PTP, which continues to expand our lateral market share. The ALIF standalone interbody system, which launched late last year, was also a notable contributor to growth. While the resurgence of COVID-19 and associated hospital labor shortages pressured procedure volumes in Spine at the first part of the quarter, volumes gradually improved, returning to normal by the end of the quarter. We exited first quarter with exceptional momentum. In the first quarter, we recognized $10 million in EOS-related revenue, reflecting strong deliveries in the quarter and a lower degree of seasonality than anticipated. The progress we've made on our integration objectives is reducing the time required to install new orders. The $10 million reflects pro forma growth of 50% compared to the revenue EOS recognized on a standalone basis in Q1 2021. Now, continuing through the remainder of the P&L first quarter non-GAAP gross margin was 72%, down 560 basis points compared to the prior year. The year-over-year decline in gross margin was primarily due to the consolidation of EOS Imaging. The approximate 40% delta between EOS' gross margin profile and the gross margin profile of our base business was the primary driver of the year-over-year decline. Operating expenses in the first quarter reflect continued thoughtful investments to fuel long-term industry-leading growth. First quarter non-GAAP R&D was $9 million and approximately 12% of sales compared to $5 million and approximately 12% of sales in the prior year quarter. The increase on an absolute dollar basis was driven by continued investments to support organic portfolio expansion and the advancement of the EOS platform. Non-GAAP SG&A was $61 million and approximately 85% of sales in the first quarter compared to $37 million and approximately 83% of sales in the prior year period. The year-over-year increase on an absolute dollar basis was driven by the inclusion of EOS and the continued expansion and training of the ATEC sales network, which this quarter, included our annual global sales meeting. The depreciation of instrument sets to support new product launches and our growing distribution channel and surgeon education and investments required to support the increasing size and sophistication of the company also contributed to the increase. Notably, general and administrative expenses have remained relatively flat on an absolute dollar basis over the past three quarters. Total non-GAAP operating expenses amounted to $69 million and approximately 98% of sales in the first quarter compared to $42 million and 95% of sales in the prior year period. Adjusted EBITDA was a loss of $11 million compared to a loss of $4 million last year. While Q1 was a significant investment quarter, we continue to expect adjusted EBITDA for the full year 2022 to improve relative to the full year 2021 as sales growth will drive the leverage of our sales channel investments and across the business overall. We ended the first quarter with $152 million in cash, operating cash used was $38 million, which consistent with previous quarters, was predominantly related to investments in inventory and instruments to support our expanding distribution footprint and new product launches. Included in Q1 operating cash was approximately $10 million in annual compensation-related payments, which, if excluded, would bring Q1 cash use to approximately $28 million. We expect cash use this year to meaningfully improve relative to last year with asset leverage and a more favorable full year adjusted EBITDA. Debt to carrying value was $337 million, which includes $316 million of convertible debt. We continue to believe that the convertible debt offering placed last year will support our baseline growth plan toward cash flow breakeven at a revenue run rate of approximately $500 million to $600 million growing at a rate of 20% per year. Now, turning to our outlook for full year 2022. We now expect full year 2022 total revenue of approximately $316 million, representing growth of 30% compared to 2021. That includes the following; we now expect full year 2022 organic revenue to approximate $269 million compared to $260 million previously. Updated expectations for growth of 27% compared to 2021 contemplate the strength of Q1 performance and the momentum with which we exited the quarter. We now expect EOS-related revenue of approximately $47 million for the full year 2022 compared to $45 million previously. Updated guidance for EOS reflects the strong execution-driven Q1 results. I shared this slide last quarter to help frame ATEC organic growth with some context about its underlying components, namely the growth of procedure volumes and average revenue per surgery. The left side of the slide depicts procedure volumes, which have increased at a significant pace since the transformation of the business began back in 2018 and the expansion of surgeon adoption and increasing geographic penetration have been essential to that growth. The right of the slide demonstrates growth in average revenue per surgery, which also has increased at a healthy clip. Average revenue per surgery grows as our procedural mix shifts towards procedures like PTP and LTP, which have higher revenue per procedure than our overall average. Our procedural solutions are being utilized in surgeries with greater complexity, which require more products per surgery, and in turn, generate higher ASPs. Finally, the level of distinction engineered into ATEC approaches and the cadence of new product launches generally enable us to command the price premium, another continuing driver of growth in average revenue per surgery. We hope this context will help connect the multiple drivers fueling the growth of volume and average revenue per case. And when we set external revenue expectations, our expectations for procedure volume growth and the expansion of average revenue per surgery are central to that math. The factors that I just shared give us continued confidence in our ability to grow procedure volume this year at a mid-teens percent rate. We are raising full year organic guidance due to direct increased expectations for average revenue per case. With the 11% growth of average revenue per case achieved in Q1, we now anticipate a high-single-digit percent rate of expansion for the full year, which compares to the mid-single-digit rate expected previously. Our guidance philosophy is to be thoughtful and prudent about how we set expectations by putting out numbers that we believe we can achieve and have a reasonable opportunity to exceed. So in closing, we continue to methodically execute the plan. We built a business capable of delivering sector-leading growth and we most certainly aren't done. Our relentless focus on revolutionizing spine surgery by delivering predictability and reproducibility and meeting unmet needs in a massive market is a mission that when executed well can earn market share and create value throughout the decade to come. I hope to see you at the ATEC Investor Day where we intend to continue to create confidence in our ability to do just that. And with that, I'll turn the call back over to Pat.

Pat Miles, CEO

Thanks so much, Todd. So we are going to continue implementing our share earnings strategy, and we're going to be doing that by making meaning out of PTP and that opportunity. What that ultimately does is? It really provides us the opportunity to create confidence for the halo effect to the point to where our Cervical portfolio has grown over 30%. And I would say that that's a halo reflection of our business. We're also advancing US distribution. We're expanding internationally. And the EOS opportunity in front of us is a monster and one that will enable us to change the way that surgeons and hospitals look at spine surgery. And so, as Todd mentioned, you guys are all invited to the ATEC Investor Day. We will share more there and we would ask that you please RSVP online. So with that, we will take questions.

Operator, Operator

We will now open the floor for questions. The first question comes from Brooks O'Neil from Lake Street Capital Markets. Please go ahead.

Brooks O'Neil, Analyst

Good afternoon, everybody. Congratulations on the quarter. I guess I would start off with PTP, which seems to be one of the key drivers of your growth. Obviously, we expect continued growth in 2022 and pull-through related to it. Are there other areas that you see big opportunities for proceduralization in the relative next year or two or do you think continuing to drive PTP is the key to the future of the company? Thanks a lot for taking my question.

Pat Miles, CEO

Yes. It's a great question and we see tons of opportunity. I think that if you look at spine surgery just generally, it lacks predictability in the hands of the masses. And that's almost across every type of intervention. And so, we feel like lateral surgery in the lateral position is not going away, and we feel like there are a number of different opportunities to improve lateral surgery in the lateral decubitus position. And so, I think oftentimes the great part of our portfolio is there's enough distinctions in it to where what we can do is improve in a myriad of different procedures. We think there's opportunity to improve L5-S1 in terms of when someone intervenes with an ALIF, and then they want to intervene laterally. So that's a key process. We think ALIF unto itself is an opportunity for improvement. We think that the combination of EOS and what we're doing from an injectives perspective, what we're doing from any key perspective and what we're doing from a patient positioning perspective, is the way to create predictability around idiopathic scoliosis in a much more predictable way.

Todd Koning, CFO

And our commitment to lateral is unwavering and will continue to be a driver in our business and top line for multiple years, Brooks.

Operator, Operator

We take our next question from Matthew Blackman from Stifel. Please go ahead, Matthew.

Unidentified Analyst, Analyst

Hi. This is Colin on for Matt. I just had a quick question with the guidance raise. Last quarter, you talked about COVID having a similar impact in 2022 as it did in 2021, with a strong first quarter and pretty significantly raised guidance. Did that commentary kind of shift? Did it change what you see in the quarter with impact in recovery track relative to your expectations? And what kind of magnitude are you now factoring in for guidance with regard to COVID? Thank you very much.

Todd Koning, CFO

Yeah. So I think, Colin, thanks for the question. On the call last quarter, we kind of set up the year, and said basically the COVID impact in 2022 would be similarly sized in 2021 and kind of – for lack of precision kind of, evenly split across the quarters. And so obviously, Q1 is in the books and so that's kind of now and understood. Q2 we're really not anticipating or factoring in any COVID impact, and there's probably some remaining COVID impact, implicitly implied in the second half of the year. But more or less, I think the point for us is, as we're growing Q1, we grew 39% in our organic business. And so clearly, grew through any of those kinds of challenges, and I would say, to the extent there was COVID impact, it was not – certainly didn't slow us down from growing that much. So at the end of the day, I think you can assume that, there's a certain amount of COVID impact in the second half, although not certainly materially about half of what we saw last year, and we're not anticipating any here in the second quarter.

Operator, Operator

The next question comes from Matt O'Brien from Piper Sandler. Please go ahead.

Unidentified Analyst, Analyst

Hi, guys. This is Drew on for Matt. Thanks for taking the question. I do want to follow-up on the PTP side of things. You've had two pretty large step-ups in surgeon training over the last two quarters. I guess, first, what's really been the biggest driving factor for those big step-ups in the last two quarters? And then second, are those new additions already influencing that fantastic PTP number you put up this quarter, or should we expect even more good things to come? Thank you.

Pat Miles, CEO

Yeah. It's fascinating in terms of the whole surgeon education, and then the translation into sales, and there's a lag always. And so the great part is, is I think that much of the foundation built in the second and third quarter of last year are now being reflected in the growth this year. And so what happens is a surgeon goes home, and hopefully, they have a patient identified to intervene a bond and oftentimes they'll do so with a relatively narrow indication set and so something simple. And so the intention is, how quickly can someone get up and running some of their training to ultimately do a few cases. And so I would tell you that, it takes a little time to make sure that we're in the hospital and make sure all the pricing and everything else. But ultimately, I would tell you that, there's probably a two-quarter drag to somebody ultimately being trained, and then starting to do cases. And so as we see the surgeon education continuing to expand, it just speaks of future quarters' reflection in the top line.

Todd Koning, CFO

And Drew, one of the things we do is we track the cohort of surgeons who have been trained kind of quarter-by-quarter. And as we look at the utilization of our procedures with those different cohorts, you see a couple of things. And one is you see kind of lines that go up into the right and continue to do that. And so we've really been tracking that since we launched PTP back in Q4 of 2020. And so what I would say is that, to Pat's point early on, when they start simple and they do a couple and they get comfortable and then they probably do more of those simple procedures, and then as they begin to get more and more comfortable, they can use that procedure in more complex pathologies. And so that's really a utilization increasing walk that ultimately, I think is going to be multiyear as physicians get more and more comfortable with it. And then as you understand and as we talked about, the halo effect as they begin to trust us and understand us more and more we ultimately avail a bigger part of their overall business, and that also grows over time. So these aren't, hey I trained 10 today and so I get a bump for two quarters. The 10 I train today will continue to grow their business and their share with ATEC for years.

Operator, Operator

Our next question comes from Jason Wittes from Loop. Please go ahead.

Jason Wittes, Analyst

Hi. Thanks for taking the questions. First off, on EOS something that had a pretty solid quarter and ahead of expectations, and you've also raised the guidance. I'm just curious, if you think – if you're – as you look at how things are progressing what – are people opting more for purchases versus placements? And what is your outlook for sort of the market's appetite for placements and how you position it within the company?

Pat Miles, CEO

Yeah. I'll let Todd pipe in after a little bit of color. But my sense is that, if you look at the demographics of our company say, we're in the 2.8% to 3% market shareholder, I look at that as 97% to go. And so the reality is, is we want to get access to institutions. And when we get access to institutions, and we create a hunting license we prosper. And I think we've demonstrated that on several occasions. And so I think what we're seeing in the marketplace is we're seeing places like a Dayton Children's – they're going to upgrade from a 3.5 of previous unit to garner an ES Edge. And then you'll see someone like CBI, and what they'll do is, they'll want to earn one out more. And so it's really a combination of both. I want access everywhere. And I want access to not only the hospital to show implants in integrate our spine procedures, but I also want the data out of there, because ultimately our capacity to translate the data will be the biggest value driver of this acquisition. And so that would be my enthusiasm.

Todd Koning, CFO

Yes. I believe we are seeing a significant amount of purchases and gaining the access that has been discussed. We can arrange these in various ways, but the overall economics remain consistent for us. It really depends on our cash flow and how the customer prefers to engage with us. We are flexible. Additionally, we are obtaining favorable economics on the machines while also gaining access to the business where we are placing EOS machines.

Operator, Operator

The next question comes from Phil Coover from Goldman Sachs. Please go ahead, sir.

Phil Coover, Analyst

Thank you for taking my question. I wanted to explore how confidence in raising guidance can be understood after just one quarter, especially considering external factors that may have hindered performance. I'm particularly interested in discussing the impact COVID had this quarter, perhaps more in terms of absenteeism rather than staffing shortages. Could you provide insights on the rate of deferred procedures? Additionally, I'd like to understand the challenges posed by the supply chain and inflation, specifically regarding inventory acquisition and any possible delays in procedures that could have made the first quarter results even stronger.

Pat Miles, CEO

Yes, I'll start. Demographically, we've faced similar challenges with a weak start to the quarter followed by a strong finish. My perspective aligns with what I've heard regarding the impacts. When considering supply chain issues and staffing, I think specifically about freight and the predictability of services like FedEx in relation to customer needs. We're not experiencing chip shortages; we don't have enough electronics in the operating room to be affected by the chip manufacturers, which suggests we aren't facing challenges with chip procurement. That's how I perceive the situation.

Todd Koning, CFO

Yes, I believe that January was quite challenging. February showed improvement compared to January, and by March, conditions felt more normal. This aligns with broader trends we've observed. Additionally, we noticed an increased number of surgeons using our products in the first quarter compared to the fourth quarter, which is encouraging since it indicates growth in our user base. Although we faced volume challenges in January, this eased in February. By the end of March and into April, we saw further improvement. Overall, both our volume levels and our lateral business growth outpaced our total growth rate, positively impacting our average selling price per case. When I mentioned raising our guidance, it primarily hinged on the average revenue per case rather than volume alone. We were pleased with the volume performance, and case ASP exceeded our expectations. Our lateral business in Q1 performed better than we had anticipated, which reinforces our confidence to raise our full-year guidance based on average case ASP.

Operator, Operator

We take our next question from Sean Lee from H.C. Wainwright. Please go ahead.

Sean Lee, Analyst

Good afternoon, guys. Congratulations on a great quarter. Thank you for taking my question. Over the last several quarters you guys have basically mentioned potential for international expansion as well major things that you just planned over the medium-term. So I was wondering whether you can share some more details on what your thoughts are on that front? And how would you go about it? Thanks.

Pat Miles, CEO

Yes. I think that what we've kind of communicated is that we are going to go narrow and deep. And I think we've been very deliberate with regard to the countries that we're going to go into in the foreseeable term. That's going to be New Zealand, Australia, Japan, potentially the UK, and potentially Brazil. And I would announce that we have done our first PTP in New Zealand. And so now New Zealand is a PTP country. And so I can't be more excited about just the proliferation outside the great United States of our signature procedure in PTP.

Operator, Operator

The next question comes from Joshua Jennings from Cowen. Please go ahead.

Joshua Jennings, Analyst

Hi. Good afternoon. Thanks for taking the questions. Congrats to the strong Q1. Pat and Todd or maybe this one is for you Pat. SafeOp has been a huge enabler of your PTP procedure and also gaining lateral share. Just I haven't checked in on this for a while, but I just wanted to see how you see that platform evolving and how you plan on kind of keeping your lead on that important neuromonitoring element of your proprietary procedure? And then I have one follow-up.

Pat Miles, CEO

Okay. Great. These are the things I like to talk about most just because it's truly kind of the hard things to do in this business. And when you start to think about what we're doing from an automated EMG perspective, our ability to integrate this stuff in a workflow that's very elegant in lateral surgery is unparalleled. And so our ability to find the nerve and then determine its health based upon the canary in the coal mine of automated SSEPs. And so that is going extraordinarily well, and the team around that is phenomenal. It's the best in the business. The other thing that you'll see here in the not-too-distant future is NEPs. And our ability to do facilitated NEPs in a way that ultimately enables us to do things where the patients have jumped off the bed and really affirming what the canary in the coal mine tells us from an automated SSEP perspective. And so there is a long run of technological advancements that we're in the middle of that we can't be more excited about with regard to SafeOp. And the great part is, is when we create confidence in the operating room of a tool that is so valuable like SafeOp, what happens is it enables us to send more information in from an EOS perspective. And so what it creates is really a conduit that we can deliver information into that ultimately avails opportunity to us. And so we think that SafeOp is such a great first step in terms of doing that. So anyway, I appreciate that question.

Joshua Jennings, Analyst

Thank you for the details. I have a follow-up question for Todd regarding the increase in revenue guidance. It's encouraging to see that there is a shift towards higher average selling prices, particularly with PTP and lateral products performing better than expected at the beginning of 2022. One of your competitors mentioned last year that more complex multilevel cases, which are at risk of ICU admission, seemed to be postponed more frequently than single-level cases. In the context of the increasing complexity that you mentioned, could this be a potential factor driving the average selling price per case increase? Have we started to see any impact from that? Do you anticipate that as we move into the second and third quarters, some of these higher complexity cases will come through and help achieve at least a high single-digit increase in average selling price per case, or possibly even more? Thank you for taking my questions.

Todd Koning, CFO

Yes. Thanks Josh. As I was thinking about the case ASP and as we contemplated in the overall guide I think, it's really more of a mix component rather than lateral ASP actually growing throughout the year. So I really think it's more about our lateral business, which has a higher ASP than our overall average growing at a faster rate kind of throughout the year than we had initially contemplated in the guide. And so I think that's kind of the basis for what we did in our guidance. I think your question and comments on page, if to the extent that more complex procedures got delayed kind of in that Jan-Feb timeframe, and is there a few of those that need to kind of get worked through over the next couple of months? That seems logical. I don't really have a data set that would neither confirm nor deny, but to me, it's logical.

Operator, Operator

We have a follow-up question from Phil Coover from Goldman Sachs. Please go ahead, sir.

Phil Coover, Analyst

Thank you for addressing my follow-up questions. I want to revisit my earlier inquiry about the EOS side. Specifically, did EOS in Q1 exceed expectations, or was it primarily driven by a strong backlog and order book? I’m also curious if there was any deferral that might have occurred, approaching the question from a different angle regarding the capital side and installation timeline. Additionally, I noticed the 4,000 figure mentioned in the slides. Is that related to lateral procedures or PTP? Is it a cumulative total, or does it reflect a number from 2021 linked to the 26,000 figure? As a follow-up, if that number is from 2021 and is cumulative, does it represent around 12% to 15% of total cases so far? Looking ahead, where do you see PTP growing as a percentage of total cases in the next two to three years? Thank you again for taking the time to answer my questions.

Pat Miles, CEO

I will begin because I can't keep up with all the questions and I don't have the answer to all of them. I'll defer to my colleagues on some matters. Regarding PTP, we hope patients come for an intervention and don't need to return. The PTP figure represents the total number of PTPs performed over the last year and a half, which is just over 4,000. This is a strong start for understanding the procedure's dynamics. The application potential is significant, especially for cases at or above 5-1 from a posterior approach. These patients are not excluded from needing a PTP. Overall, we view this as a solid beginning for a strategy aimed at improving our rapidly growing market.

Todd Koning, CFO

Phil, you asked about the contribution of PTP to our overall revenue. I’d like to clarify that we expect PTP to continue being a significant growth driver for us. Our estimate suggests we hold a mid- to high single-digit share in that market. We believe our approach is distinct and objectively superior. Therefore, we anticipate emerging as leaders in that market over time. The exact timing of this growth is uncertain, but that is our expectation. You also had a question regarding EOS.

Pat Miles, CEO

Is there a backlog, I think was the question.

Todd Koning, CFO

Backlog in EOS. So I think I've answered the question on EOS. We outperformed expectations. Largely, I think that reflects the operational rigor that we're applying to the business here. There's just I think a bit more of a cadence in terms of delivering and installing. I think one of the things you're seeing here in the first quarter and then we'll see more of over time is that the sales will be more reflective of a US marketplace presence. And so we've made sales investments in our distribution channel to drive growth in the US market. And the US market is one where people buy machines. We deliver them and install them versus multiple OUS markets have historically been a distributor-based business. And so part of the reality then is that we have got an installation team that then has to take those orders and install them over time. And what we want to do is create enough demand that the installation team is kind of a gating item to some degree. And so certainly today what you're seeing is our rigor on planning and delivering and installing on a timeline and on a calendar that's just a bit more rigorous and I think also reflects that you've got more US based volume which requires installs. And so I think that's why you're seeing us drive a $10 million number here in the quarter. And probably what you'll see throughout the year is a bit more linear growth, rather than the history of what you've seen is historically we saw EOS revenue be about 35% to 40% in the first half and the balance being in the second half, largely because a lot of that was influenced by distributor sales. And so again, as we become more reflective of the US market presence and the investments we've made here on the sales front, I think you'll see more consistency sequentially quarter-to-quarter in terms of the sales.

Pat Miles, CEO

And I would just add that the funnel is growing. And that's the part that I think inspires us.

Operator, Operator

This now concludes our Q&A session. So I'll hand the call back over to Pat.

Pat Miles, CEO

Thanks much, Casey. And I just appreciate everybody's interest in ATEC. We are literally in inning number one of a great game and love what we're doing and appreciate everybody's interest in ATEC. Thanks so much.

Todd Koning, CFO

Thank you.

Operator, Operator

Thank you all for joining. This now concludes the call. You may now disconnect your lines.