Earnings Call Transcript - ATEC Q1 2025

Operator, Operator

Good afternoon, everyone, and welcome to the webcast of ATEC's First 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 or adjusted measures. Reconciliations of these 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. Now, I will turn the call over to Pat Miles. Please go ahead.

Pat Miles, CEO

Thanks much, Greg, and welcome, everybody, to the Q1 2025 financial results ATEC earnings call. There will be a few forward-looking statements, which I would ask for you to review at your leisure. So, really a great start to 2025, enjoyed revenue growth of 22% with surgical growth at 24%, that's about four times the market, if you're keeping track. This is really a phenomenal result for the largest pure-play spine company in ATEC. So Q1 is always a little challenging seasonally when it comes to profitability and cash flow, as cash flow or case volume slows compared to Q4, taxes reset, and we see a disproportionate share of meetings and events. But in spite of all of that, we delivered $11 million of adjusted EBITDA, which is our second best quarter ever and above expectations. And from a cash flow perspective, our cash burn in Q1 was at the low end of the range at $15 million. So profitability and cash flow performance in Q1 has really put us in a great position to meet or exceed our 2025 goals. I think if we harken back, the changes we made last year have resulted in a much more cash-efficient organization. So we are 100% committed to continuing to operate the company in a deliberate manner and deliver growth, profitability, and cash flow commitments as stated. The revenue came in at $169 million. Really, the key thing I'd like to highlight is the strength of the surgical growth, where we saw 24% year-over-year growth. Underpinning this growth was an 18% increase in the number of surgeons utilizing ATEC procedures. The fact that revenue grew 23% in established territories demonstrates how we continue to gain surgeon and territory penetration where we have established representation. Our thesis is working, and where we have representation that's been established, we continue to compel adoption. Durable revenue growth drives profitability and cash flow, clearly. EOS order growth was also a record for which we're very encouraged. It's a foundation of our strategy. As the largest pure play, we continue to be the preferred destination in spine. The environment for recruiting sales talent couldn't be better. We're off to a great start with great confidence in terms of moving into the year. So, anyway, with that, I'll turn it over to Todd.

Todd Koning, CFO

Well, thank you, Pat, and good afternoon, everybody. I'll begin today with the first quarter 2025 P&L highlights. Total revenue was $169 million, up 22% compared to the prior year. The $169 million in revenue was comprised of $152 million in surgical revenue and $17 million of EOS revenue. First quarter surgical revenue of $152 million grew 24% compared to the prior year period. That represents nearly $30 million in year-over-year growth. When normalizing for selling days, we grew $32 million year-over-year or 26%. Procedural volume growth was 17%, driven by strong surgeon adoption of 18%. This level of adoption clearly reflects the compelling nature of our portfolio and is supported by the ongoing investments in the sales force. Average revenue per procedure growth was a strong 6% as we continue to capture more of the procedural revenue opportunity. Same-store sales or sales that come from sales agents that have been in territory for a year or more grew 23% year-over-year, which demonstrates that we continue to grow significantly in the markets where we are already established through growing both our share of wallet with existing surgeons and new surgeon adoption. EOS revenue increased $17 million in the first quarter, up 8% compared to last year. Record order volume has fueled a 28% year-over-year increase in the order book, evidence of the demand for our unique end-to-end informatics solution and positions us for strong system installations and the accompanied implant pull-through in the coming years. Turning to the remainder of the P&L. First quarter non-GAAP gross margin was 70%, down 50 basis points compared to the previous year and up 70 basis points sequentially, primarily driven by product mix. Non-GAAP R&D was $13 million and approximately 8% of sales. Top line growth drove 230 basis points of leverage, while absolute spend has remained roughly flat. Non-GAAP SG&A was $111 million and approximately 66% of sales. Approximately 400 basis points of year-over-year improvement came from variable expense rate improvement, while the balance came from infrastructure leverage. We reported total non-GAAP operating expense of $124 million, which was approximately 74% of sales. By maintaining disciplined cost management, we delivered a modest 8% increase in operating expenses while continuing to invest in the growth drivers of the business. Those efforts, along with our durable top line growth, drove a 900 basis point expansion in our operating margin year-over-year. I'll turn next to adjusted EBITDA, which was positive for the fourth consecutive quarter. Our first quarter adjusted EBITDA was $11 million, equating to a 6% margin and over 800 basis points of improvement compared to the prior year period. We are very pleased with this performance. It is the second best performance we've had since the start of ATEC transformation. This quarter also marks our second consecutive period with an over 40% drop-through on a year-over-year revenue growth to adjusted EBITDA, reflecting both infrastructure scalability and an improving variable selling expense profile. You can see in the chart on this slide that the profit margin expansion that we are executing has been significant and consistent, marking 12 consecutive quarters of adjusted EBITDA margin expansion. We entered 2025 a stronger company, and that is clearly reflected in our first quarter results. This progress stems from the changes we implemented last year to improve in two key areas; firstly, the management and prioritization of our human resources; and secondly, strengthened focus and operational improvements in managing inventory and instrumentation sets. We are driving meaningful margin expansion that aligns with the priorities outlined in our long-range plan and is a result of disciplined execution. These deliberate results give us great confidence in our ability to continue delivering on our financial commitments and translate revenue growth into profit and cash flow. Turning now to the balance sheet. We ended the first quarter with $153 million in cash on hand. Additionally, we had access to $60 million of available borrowing on our revolving credit line, which was undrawn at quarter end, making our total cash and available cash $213 million. Our free cash use of $15 million in the first quarter represents a $55 million improvement in cash use over the first quarter of 2024. We managed our free cash use performance to the favorable end of the $15 million to $20 million range that we previously communicated and would have beaten if not for working capital headwinds. These headwinds were modest and transient, and we believe the metrics will improve over the course of 2025. Our first quarter cash management execution and the underlying dynamics of the business reinforce our confidence that we will be cash flow positive for the full year. In March, we successfully refinanced our 2026 convertible note. The refinancing effectively pushed out the maturity to 2030, provided dilution protection up to $23.46, and maintained the same low coupon rate of 75 basis points. We used the $405 million of proceeds to pay for the fees and the capped call and bought back 80% of the existing convert, the maximum allowed under creeping tender rules. The net proceeds of $82 million gives us flexibility to address the remaining $63 million of the 2026 notes when the time is right. Our financial outlook for the year expects continued strong revenue growth to drive incremental profit margin expansion. As we exited the first quarter of the year and contemplated our full year outlook, we felt it prudent to simply flow through the beat on the top and bottom line. This approach is consistent with our philosophy of guiding the numbers we believe we can achieve and have a reasonable opportunity to exceed. Our cash flow performance further reinforces that we will be cash flow positive for the full year 2025. As for the cadence of our cash flows for the remainder of 2025, we expect the second quarter to range from $0 to $5 million with the third and fourth quarters generating positive cash flow, resulting in us being cash flow positive for the full year 2025. Our revenue outlook for the full year 2025 expects adoption of our unique procedural approach to drive revenue growth of 20% to approximately $734 million compared to our previous guidance of $732 million. That includes surgical revenue growth of 21% to approximately $658 million, which will be fueled by mid-teens surgical volume growth and mid-single-digit revenue per surgery growth. We expect EOS revenue of approximately $76 million. Turning to the outlook for the full year 2025 adjusted EBITDA, we expect sales growth to continue to leverage the infrastructure we have built, contributing to an adjusted EBITDA of $78 million versus our prior guidance of $75 million. This includes us absorbing the impact of expected tariffs in the second half of the year. Our direct exposure to tariffs is limited to the EOS units we import from France to support the U.S. installations and the associated repair parts. We estimate the impact of tariffs on our cost of goods sold to be in the low single-digit millions of dollars. The chart on the slide depicts the consistency of the profitability progress we are making. Our adjusted EBITDA guidance of $78 million will generate an adjusted EBITDA margin of 11%. That implies a 39% drop-through of the incremental growth in revenue dollars to adjusted EBITDA. This trajectory positions us well to achieve our 2027 adjusted EBITDA margin goal of 18% at $1 billion in revenue. In conclusion, through our investments in the team and infrastructure, we have built a fast-growing, 100% spine-focused company. We're delivering on a return on those investments through durable revenue growth leadership and consistent operating leverage improvement, which is beginning to inflect the cash flow generation. With that, I'll turn the call back over to Pat.

Pat Miles, CEO

Thank you much, Todd. I want to spend a few slides just kind of walking through a couple of strategic imperatives, as I would say. Our strategy has been steadfast and our execution relentless. We have been consistent not only in who we intend to be, but in the execution of it all. We are creating clinical distinction. It's undeniable. We have and will continue to architect unparalleled procedural solutions that improve patient outcomes. PTP and LTP are clearly heading into deformity in a similar way. The revenue growth and surgeon user growth affirm we are compelling adoption. We are doing this by furthering clinical value. We talk a lot about furthering value by minimizing surgical variables with technology, and this is happening. Additionally, we're expanding our sales force and getting better in the field. So I would say that we are scaling and we are winning. Something that's near and dear is really the growing validation of our EOS and informatics thesis. We've talked a lot about the unusually high revision rates in spine surgery versus hip and knee, which just speak to the opportunity. The volume of variables in spine surgery far outnumbers that in single joint surgery. Our view is that many of the issues driving revision spine surgery can be effectuated by controlling variables through improved informatics. Hence, the foundational commitment. There's a misplaced notion that revision is most often caused by intraoperative surgeon error due to a lack of precision. The reality is that most revision surgery is not due to error in implant or pedicle screw placement, but rather error prior to the surgery due to a lack of surgical planning. For this reason, we strongly believe that the spine field needs more automated informatics. Our pre-intra and post-op informatics will drive much more predictable surgery than the incremental precision associated with pedicle screw placement. Our thesis committed to EOS and informatics. Much like we said in the early days of ATEC the ATEC turnaround, spine needs ATEC. Spine surgery needs automated alignment planning and predictive analytics, and we're bringing that to you with EOS. There is nothing better than having a thesis and then having it reflected in specific patient outcomes, and that's what we're doing. Our history is one of technological furtherance. Much like when we acquired SafeOp and integrated different modalities, the auto EMG, auto SSEPs, and facilitated MEPs, we furthered the technology to a point of great clinical influence on lateral surgery. SafeOp is a proxy for what we're doing for EOS. The same effect is happening with EOS. Below and pictorially, you see a patient where the pre-op scan gave not only spine alignment parameters in an automated way, but also where the spine should be normatively. Not just numeric reflection, but really where the spine should be. A surgical plan was assembled and executed with a post-op scan at six and 12 weeks. The pre-op picture reflects not only automated measures but where the normative position is based upon age and demographic. The plan provides a simulation of values required to achieve the surgical goals. The six and 12-week assessments provide a comparison versus surgical plans so you can tell exactly how you did. This is a much more comprehensive clinical approach than what is commonly done today. If alignment is a key quota for a successful long-term outcome, it impacts or lessens the revision rate. This type of information provides objective measures and makes for a meaningful difference. We cannot be more excited about where we are with the EOS strategy. There is a lot of enthusiasm regarding the acquisition of the units, and we are headed towards a future of predictive analytics. What's fueled the company today is the architecting of procedures. Our procedural strategy continues to expand application and grow in volume. If your objective is to lessen variables that undermine clinical predictability, then assembling all the elements of a procedure will create demand and compel adoption. We have seen our lateral franchise grow in both total procedures and addressable pathologies. As is the case with most new techniques, surgeons start their adoption in short segment, simpler applications, and as they see success, they expand to more levels and greater complexity. That has clearly been the case with our lateral perspective. We recently launched our fully integrated corpectomy system that includes not only implants but a specifically designed retractor for the unique requirements of this surgery. Often vertebral fracture is in the thoracic spine; it's vital to monitor the spinal cord, and here enters SafeOp 3 with the MEP modality. Monitoring motor function throughout these complex surgeries is a requirement. A big reason we are growing at this rate is that these spine procedures are fully thought out. They include patient positioners, specific monitoring, customized surgical exposure with indication-specific retractors, and soon to come, integrated navigation to reduce radiation and increase precision. We will continue to expand our footprint in lateral surgery and beyond. A nemesis in spine has been the requirement for surgeons to make do without fully contemplated spine procedures. That is no longer the case as we continue to expand our significant influence. In speaking about compelling adoption and winning access, our lateral business is the perfect proxy for our procedural strategy. We are taking learnings from that experience and applying it across other techniques. Our growth rate reflects compelling adoption. Surgeons are increasing their utility through greater volume and expanded application. With EOS, we are gaining access to more surgeons, academic institutions, and hospital systems. The very thesis we contemplated is coming to fruition. The clinical credibility of our foundational informatics technology enables us to win access. Our informatics ecosystem is the most comprehensive and scalable in the business. The recently launched EOS Insight software enables us to scan a patient, automate alignment measures for assessment, simulate the surgical effect through our planning software, and integrate the surgical plan into the OR to reflect the plan and confirm intraoperatively. The most exciting element is the correlation, not only immediately after surgery to understand the veracity of the surgical plan execution but also to understand how things evolve over time through longitudinal correlation. Correlation is the foundation of AI. We have the makings of an informatics system that will be predictive as we move forward and gain a deeper understanding for improved decision-making. If spine is your vocation, I don't know of a better place than ATEC. That is why we know it to be the preferred destination. I'm excited to continue to grow the ATEC faithful. With that, we'll take questions.

Operator, Operator

Thank you. We will now open up the floor for questions. It looks like our first question today comes from Brooks O'Neil with Lake Street Capital Markets. Brooks, please go ahead.

Brooks O'Neil, Analyst

Thank you. Good afternoon, guys. Congratulations on the good start to the year. Pat, you're just talking a lot about the new corpectomy system, and I'm hoping you could give us a little bit of a feel for how big you think that market segment might be and maybe what the competitive dynamics are as it relates to other players that already have products or systems to address the need?

Pat Miles, CEO

Yes. Thanks, Brooks. I appreciate the question. In terms of valuing the market, that's a bit of a tough one. From a marketplace perspective, I would tell you that we're the only ones doing this in the prone position. When you have instability based upon fracture, which is oftentimes mostly tumor and trauma, the utility for a corpectomy comes into play. When you have instability, what you want is access to the front and the back of the spine. The beauty of PTP is that you have access to the front and the back in the same setting. This is really a unique approach for us. Others have tried to do it in the lateral position, but to do it in a prone position is highly advantageous. I'm super excited about it. It's completely reflective of what we intended; you start simple and continue to walk. You see not only expansion in the volume of procedures applied but also the number of applications and reasons why someone should learn and apply the technique to their practice. We're seeing this in spades. The EOS and academic access I brought up are helping, as a lot of these get shipped over to academic institutions due to the complexity and because these are oftentimes seriously ill patients. The EOS play dynamics continuing while marching up the complexity curve is apparent. From an engineering perspective, the system is outstanding. The retractor and the versatility of the exposure system are incredible. The mechanical prowess we have around here is unbelievable and ties in well with other things we’re doing, as I said, with MEPs from a SafeOp perspective and otherwise.

Brooks O'Neil, Analyst

Great. Pat, that was awesome. Do you mind if I just ask, do you think you will ultimately incorporate any functionality from EOS in that particular procedure or no?

Pat Miles, CEO

The beauty of what we're doing with EOS is our ability to measure alignment parameters with a patient like that, which is rarely done. To be able to get an EOS scan and then integrate that element into the operative experience and ensure the patient walks away not only fixed from a stability perspective, but fixed in alignment. We talk about the goals of surgery being decompression, stabilization, and alignment; we will have fulfilled them based on the sophistication of the procedure and the type of informatics that drives behavior. The alignment piece is a big part of it, and you can utilize EOS as a proxy for alignment integrated into the operative experience.

Brooks O'Neil, Analyst

Great. Thank you very much.

Operator, Operator

And our next question comes from the line of Vik Chopra with Wells Fargo. Vik, please go ahead.

Vik Chopra, Analyst

Hey, good afternoon and thanks so much for taking the question. Two for me. I was just wondering if you could just talk about the tariff exposure in 2025. When you expect that to hit the P&L, and maybe what percent of your products are sourced from or manufactured in Mexico, China, and the EU? And then just had a quick follow-up, please.

Todd Koning, CFO

Yes, Vik, good afternoon. Thank you for your question. The tariff exposure, as I mentioned in my prepared remarks, is estimated to be around low single-digit millions, affecting our cost of goods sold primarily in the second half of this year. Our exposure is mainly related to our EOS equipment and any associated replacement parts, since we manufacture our EOS machines in France and import the U.S. volume into America for the installed base. We do not have direct tariff exposure in our implant business.

Vik Chopra, Analyst

Okay. That's super helpful. And my follow-up question is, any update on your robot launch plans and maybe just talk about how Valence will fit into the company's overall strategy? Thank you.

Pat Miles, CEO

Yes. Thanks, Vik. Everything is going as planned. We are doing cases. As a matter of fact, I was in a case recently, and everything is going as planned. The whole verification process is crucial. Such a big part of our thesis is procedures. I was in a place recently, and we completed seven PTPs before 1:00 p.m. This speaks to the efficiency of the workflow. The last thing we want to do is slow it down because of a goofy interaction with our robotic piece or navigation piece. We are in the alpha phase. Everything is going as planned. Looking forward to integrating the navigation piece with that, and this should be an end-of-the-year launch. I’m excited about the navigation piece and integrated workflow as I am with the robotic piece.

Operator, Operator

All right. Thank you, Vik. And our next question comes from the line of Matt Miksic with Barclays. Matt, please go ahead.

Matt Miksic, Analyst

Thank you for answering the questions. Todd, could you provide more details about the cash outlay? This was a significant topic last year. You exceeded our expectations in the first quarter as we anticipated. Could you discuss how the cash usage is changing and what the trends for the remainder of the year might look like? I also have a quick follow-up.

Pat Miles, CEO

Hey Matt, because I don't do numeric things very well, I'm going to tell you just a little color. What thrills me is, when you think about cash utility, I think of sets and the like. We're getting light years better in terms of asset utilization and management. As we continue to mature, I think clinically, we improve in profound ways. We're also enhancing operational prowess, which is a big part of cash utility. Before Todd responds with specific numbers, I want to mention the investment in our Memphis facility years ago, the type of sophistication going on there, and the evolving internal dynamics. Our field force is improving, and the people managing in the field are getting better. I just want to emphasize that because it’s essential.

Todd Koning, CFO

Agreed, Pat. So, Matt, maybe I'll step back and hit a couple of things. The timing question is real. Last quarter, we said Q1 would have a cash use between $15 million and $20 million, and we hit the low end of that range, feeling good about that execution. On my prepared remarks, I said for Q2, you should expect from $0 to $5 million with positive cash flow in Q3 and Q4, getting us something north of 0 for the full year. That's the cadence we expect. Your question about what changed and why we did better? I noted the modest yet transient working capital headwinds. Our assumption for DSO was around 45 days; we were near the high 40s earlier. Some of that comes down to timing. For us to achieve $15 million cash outlay despite that headwind shows progress. I feel confident working capital metrics will improve for the year, which reinforces our cash flow goals. Our adjusted EBITDA was significantly better, about $3 million better than anticipated. Alongside ongoing profitability, this gives us confidence in cash flow expectations, with dynamics of top-line growth and expanding profitability driving improvements in asset utilization.

Matt Miksic, Analyst

That's super helpful. And just maybe one question, if I could, on some of the competitive dynamics in spine right now. Any color you have on the quality of reps, the type of reps, the number of inbound leads, and the posture of the company regarding adding reps as an important strategy to grow? Any color would be appreciated. Thanks.

Pat Miles, CEO

Yes. We were trying to be subtle with regard to the preferred destination piece. In all sincerity, if your vocation is spine surgery, you want to ally with a company dedicated to being great in spine surgery. Candidly, that's us; we’re the pure play. We’re unapologetically evangelical about this space. We know we can make it better. Outside, you see how things have spun into private equity in a few instances. We’ve already made a big investment that we're scaling over the next few years. We feel our ecosystem allows for continued improvement, evolution, and capacity to enhance. We’re seeing many people realizing this when new surgeons come over. Will their reps come with them? Yes, as ex-Stryker, Medtronic, and Globus reps join us. The volume of new surgeons reflects the dynamics that drive change. If you'd told me seven years ago that we'd be sitting as the largest pure-play spine company with the opportunity to run the table, I'd be surprised. That's where we are today, and we couldn't be more excited.

Matt Miksic, Analyst

Well, congrats on all the progress. Thanks for taking the questions.

Todd Koning, CFO

Thanks, Matt.

Operator, Operator

Thank you, Matt. And our next question comes from the line of Mathew Blackman with Stifel. Mathew, please go ahead.

Mathew Blackman, Analyst

Good afternoon, everybody, and just upfront, I had every intention to respect your one question request, but no one else has, so I guess I won't either. So apologies in advance. But if I could start, Pat, you alluded to it, Todd, maybe you can layer in some numbers if applicable. I was hoping to get a state of the union on the sales force today, where they are in terms of productivity relative to expectations, particularly the reps you've recruited and onboarded over the last couple of years. Do they have all the sets and implants they need? Are you finding more opportunities than expected with these new reps? Just how the rep footprint is performing and how that performed in the first quarter?

Pat Miles, CEO

Yes. Mat, that's such a good question because what happens oftentimes is the demographic of the rep reflects what he sold previously. What we're seeing is, geographically, different footprints in the types of sales. Initially, we were conventional with product utility but are evolving to proprietary sales reflections. A case that comes to mind is up in the Northeast; we are seeing that start to come forth. We have the sets. We're being more efficient with them, availing more opportunities to place them in various locations. The exciting part is we're in a bunch of academic institutions, which we weren't before. The reputational dynamic and unique tool with PTP along with EOS availability are influencing access. These contemplated acquisitions continue to evolve. However, we have more to build out with regard to sales force density; we are still young in the process.

Todd Koning, CFO

Yes. Agreed. Mat, I’d give you two data points here. We talk about same-store sales. So, growth in agent territories that have been with us for a year or more grew at 23%, compared to 24% growth in our overall surgical revenue in Q1. This shows that people show up year after year, growing in their territories. It tells you that we can expand across territory and attract more surgeons into that territory. We've added more than $60 million over the last two years, and that's about a $30 million annual clip. The growth in 2025 has accelerated compared to 2024. The investments we're making are paying off, reflective of the demand profile driven by our clinical distinction in the procedural approach.

Mathew Blackman, Analyst

I appreciate that. And then my follow-up, it's a good segue on Pat's commentary on EOS. I'm just curious if you can give us a rough sense on how EOS placements are splitting out between new accounts for ATEC, under-indexed accounts, and core ATEC users. Also, is there a number you can point to regarding EOS systems and the pull-through magnitude for your portfolio? The Holy Grail for EOS is getting into these complex procedures where you're under-indexed compared to peers. Is that occurring? Is a tipping point approaching? Any color on EOS would be helpful. Appreciate it. Thank you.

Pat Miles, CEO

Yes. Thanks, Mat. This long play is about the systematic approach we took in turning this company around and doing something unique reflective of our expertise in lateral, and that’s playing out as planned. EOS, we can show you examples of watching the EOS things play out in real-time. Are we gaining access? It's different; we previously had zero access. Having places like the hospital for special surgery with, I believe nine of them, demonstrates that it is a valuable tool. The demographics say that most EOS buyers were not our customers before, but they are customers now. Historically, EOS has been more pediatric, and we were under-indexed in pediatric surgery but are moving in that direction. Our initial focus has been on adult deformity; you'll see adoption grow in the adolescent realm. We believe our best is yet to come, as we have not yet touched parts of this thing that are highly valuable from a clinical perspective.

Mathew Blackman, Analyst

All right, I appreciate it, guys, and I promise we'll all try harder next quarter to limit ourselves to one question. Thanks.

Pat Miles, CEO

Thanks.

Operator, Operator

Thanks, Mat. And next question comes from the line of Matthew O'Brien with Piper Sandler. Matthew, please go ahead.

Unidentified Analyst, Analyst

This is Samantha on for Matt. I guess we just wanted to touch on overall volumes, how those are trending? And then also any feedback on growth in the ASCs as well?

Pat Miles, CEO

Yes, our view is the market is healthy, and volumes are good. I don't think you'd grow 24% surgically if that wasn't the case. I’ll give a high-level view; Todd can also provide specifics. The ASC is a long play. The most straightforward pathologies get done where the surgeon has the greatest comfort and predictability. Over time, I think you’ll see that change. There are surgeons today performing PTP in outpatient settings with very simple single-level tasks, the ability to manage pain and inherent complications drive ASC dynamics. Most of the work is focused on decompression and simple levels. I think you’ll see this evolution take time.

Unidentified Analyst, Analyst

Awesome. Thank you. That's great. I know you previously touched on the robot that's coming out, I think you said at the end of this year. I guess just wanted to touch on that again and kind of any feedback on what's left to get it launched and any feedback you've had from physicians? Thank you.

Pat Miles, CEO

Yes, thanks. The feedback has been great. It places screws accurately, which is quintessential for robots in the spine space. The software is intuitive, and the utility is efficient. My greatest concerns involve workflow. Are we increasing anesthetic time for slightly more precise screw placements that don’t affect clinical dynamics? That’s not what we want. We want seamless workflow. We’re just waiting on our navigation piece so that we can navigate entire procedures; we're navigating the lateral space, integrating the robot in the posterior. Watching a surgery where a surgeon has access to the anterior column and navigates while the posterior closes is unmatched today. We’re witnessing exactly what it's supposed to do with regard to the robotic piece, because all a robot is, is part of a stabilization workflow. There’s been some romanticizing of it that’s misdirected.

Unidentified Analyst, Analyst

Thank you.

Operator, Operator

Thanks, Samantha. Our next question comes from the line of Young Li with Jefferies. Young, please go ahead.

Young Li, Analyst

Good afternoon and thanks for taking the question. I'll just keep it to one. On the spine market, I guess I'm kind of curious about the deferability and resilience of the market during an economic downturn. Can you jog your memory regarding what happened to the spine market during the financial crisis as a potential worst-case scenario for any macro headwind?

Pat Miles, CEO

Yes, I shudder to say I was around in 2008, but my recollection might not be precise regarding different years. Spine is not elective. When people have neural pain, they will not postpone it. I would say it's highly resilient in the face of economic uncertainty. We're not seeing volume changes. There is significant demand for what we're doing. Nothing has changed; there is high demand for our services. There’s a robust backlog of requirements, and we're diving in aggressively while supporting the market.

Todd Koning, CFO

To put a finer point on history, the market was reasonably robust during the financial crisis. During COVID, while staffing influenced volume shifts, fundamental demand was unaffected.

Pat Miles, CEO

We agree with that.

Operator, Operator

All right. Thanks Young. Our next question comes from the line of Josh Jennings with TD Cowen. Josh, please go ahead.

Eric Anderson, Analyst

Hi, this is Eric on for Josh. Thank you guys for taking the question. I wanted to ask your latest thoughts around expansion into international markets. I know Australia and New Zealand have been a focus. You had your first surgeries in Japan not too long ago. Specifically, I was just curious if your thinking internationally changes at all given the current macro landscape or maybe not at all, but how should we be thinking about that?

Pat Miles, CEO

Yes, we’ve been affirmed by our approach. We haven't built a huge international infrastructure to serve a place that's not profitable. We’re bullish on Australia and New Zealand. I received a note about people exceeding 100 in their PTP experience down in Australia. Everything is going as intended. We don’t have a significant infrastructure, but we have a narrow business that reflects a surgical perspective like ours. We're early in the second largest market, Japan, and we have significant growth ahead there. We’re set up in adult deformity, and EOS is continuing to yield results. We believe we’re well-positioned and are not interested in expanding outside our focal strategy.

Todd Koning, CFO

Yes, narrow and deep. That's what we've always said, and it's working. To Pat's point, the strategy is paying off. We have significant growth ahead in the international markets.

Eric Anderson, Analyst

Understood. Yes, that makes sense. And if I could ask one quick follow-up. Just on pricing generally, if I think about commentary from some med device management teams lately in ortho specifically, it seems like in the last year or so, we entered a new pricing era for companies introducing innovation. Considering spine, ATEC fits that bill. I'm curious how your team is thinking about pricing.

Pat Miles, CEO

I’ll make one quick point, and Todd will get into specifics. We believe strongly in convoyed sales regarding procedural pricing. More products are being incremented per procedure. Historical pricing degradation is not what we're witnessing because the convoyed sales are resulting in procedural element accumulation.

Todd Koning, CFO

We often see same product, same-store year-over-year having low single-digit declines. Our innovation efforts, launching new products, and positively mixing our portfolio help us manage some of those pricing headwinds. As Pat said, capturing more procedural revenue opportunities is part of our growth strategy.

Eric Anderson, Analyst

That makes sense. Thank you for the questions.

Operator, Operator

Thanks, Eric. And our next question comes from the line of David Saxon with Needham. David, please go ahead.

David Saxon, Analyst

Great. Good afternoon. Thanks for taking my question, and congrats on the quarter. I’ll direct this to Todd. You've talked about allowing 10% of top-line outperformance to drop through to the bottom line. As numbers grow, maybe the upside diminishes. But is that still a valid framework, or has the size of the business or near-term opportunity changed your perspective?

Todd Koning, CFO

Yes, thanks, David. Looking at our drop-through in absolute terms, Q4 last year was 49%. We delivered 44% of incremental year-over-year revenue drop-through to adjusted EBITDA. Even on the beat, we dropped down a substantial amount to the bottom line thus far. There’s a level of focus on driving profitability and cash utility, you'll see us continue that through the year.

David Saxon, Analyst

Great. Thank you.

Operator, Operator

All right. Thanks, David. And our next question comes from the line of Caitlin Cronin with Canaccord. Caitlin, please go ahead.

Unidentified Analyst, Analyst

Hey guys, it's Michaela filling in for Caitlin. Thanks for taking the question. We've seen a focus with some recent M&A on the interventionalist call point. I was wondering if there are any plans to leverage that call point or how you're considering that?

Pat Miles, CEO

No, I'm just being snarky. Our business centers on the spine surgeon and the alignment with what they do. We feel strongly that we have a customer with whom we have aligned interests. We think that defocusing our organization into an interventionalist or pain environment would be a huge mistake, and that's just our candid view.

Unidentified Analyst, Analyst

Got it. Thanks so much.

Operator, Operator

Thank you, Michaela. Our next question comes from the line of Sean Lee with H.C. Wainwright. Sean, please go ahead.

Sean Lee, Analyst

Hey, good afternoon guys. Congrats on a good quarter and thanks for taking my questions. For the last couple of years, you guys have been making a big push through on the EOS and informatics and SafeOp with pre-op planning, intra-op monitoring, and post-op analysis. I wonder if you can provide some color on which parts of this system are seeing the most use right now, and where do you think the biggest growth will come from in the future?

Pat Miles, CEO

Yes, it's a great question, Sean. The dynamic is one of maturity. When you think about how we've built this from $89 million back in 2018, headed to a guidance of over $734 million now, it's about the uniqueness in our lateral effort. We're providing surgeons with invaluable nerve health data throughout the lateral surgery. Given the anatomy connected with nerves in relation to spine work, providing that neural precision is unmatched anywhere. That is reflecting in our substantial growth rates. We're still at the beginning for the EOS discussion and much more mature with SafeOp. Surgeons want these systems. The challenge has been the currency, many wanting to sell pedicle screws but the focus should be on shared interests and procedural requirements for patients.

Operator, Operator

Thank you, Sean. And that concludes today's call. I will now turn the call back over to Pat Miles for closing comments. Pat?

Pat Miles, CEO

Thanks, Greg. Just want to thank everybody for their interest in ATEC. I want to remind you that we are the preferred destination and excited about the business that we serve. Thanks for your time.

Operator, Operator

Thank you, Pat. Ladies and gentlemen, that concludes today's call. Again, thanks for joining and you may now disconnect. Have a great day, everyone.