variability in our income and EBITDA over the next several quarters as our operating expenses continue to normalize as a result of the strategic investments I mentioned. Nick will now close us out with some final thoughts on the quarter.

Thanks Mike. So as we look ahead we're encouraged by the momentum we built through the first half of the year. This quarter demonstrated continued demand for the Ally system, strong growth and recurring revenue and procedures, the expansion of our install base and our strongest adjusted EBITDA performance to date more importantly it reinforces that our strategy is working as Mike discussed we expect our spending levels to gradually expand as we continue investing in our commercial organization and other key growth initiatives those investments are highly strategic and reflect our confidence and optimism in the long-term opportunity ahead we're focused on building a larger installed base, increasing utilization across our growing fleet of Ally systems, and further expanding our high-quality recurring revenue business. We believe those fundamentals will continue to drive operating leverage and position the company for sustainable long-term growth. While we're pleased with the progress we've made, we believe we're still in the early stages of capturing the opportunity ahead. With the momentum we're seeing across the business and the strength of our recurring revenue model, we'll remain confident in our ability to create long-term value for our shareholders while continuing to deliver differentiated technology that benefits the surgeons and the patients that they serve. Thank you all for joining our call today and for your continued interest in Lenzar. We look forward to updating you as we make further progress throughout the year, and we'll now open the line for questions.

Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star 1-1 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Milana Frank Takanen with Lake Street, Mark. Milana, welcome.

Great. Thank you for taking the questions. I was hoping to ask one on the composition of the backlog with hope I can get some kind of insight into how you're thinking about Q3 and Q4. When looking at that backlog, is it U.S.-based, OUS-based, and then any color on if they are U.S.-based, if they're expected to be sales or placements, and kind of how that influences Q3, Q4 expectations?

That's a great question, Frank. How are you doing, buddy? Absolutely. So it's with everything. It's a little bit of both. We have some backlog with POs, as I may have mentioned in the previous quarter conference call, for primarily fourth quarter delivery, OUS, you know, given the sort of the holiday season and whatnot that I mentioned. towards the end of my remarks, and then some backlog in the U.S. with a few sold and placed systems. I haven't looked too granularly at those because some of those are facilities that were still waiting for them to finish the facility, where they were new facility. For example, one that's out west that is a new facility that they've had some delays in construction and getting into as an example. So I'm a little unclear on the ones in the U.S. yet due to those going into new facilities.

Okay. Fair enough. That makes sense. I appreciate that color. And then how should we think about recurring revenue per procedure?

I know it's not a perfect calculation if you're looking at procedure volume and recurring product revenue, but it seems like that is ticking up a little bit if you're just using kind of the the map and reverse engineering into it and obviously it's not perfect math but how should we kind of think about that asp going forward and can we see that improve over time i see the asp um staying a a bit a bit steady here it may it may go up negligibly just because the u.s procedures with more u.s systems are are are going in and so you'll see some increase some creep, if you will, in the ASP as compared to systems sold outside the U.S. which are going through distributors, and so there's a lower ASP to the procedures there, if you will. So you'll see some increase in the ASP, again, a modest increase there as the U.S. systems continue to produce. The timing of these are hard, as you know. We've talked about that. As these systems get installed, it takes somewhere between 60 and 90 days for them to fully ramp up to get to their productive. And given a higher number of systems into what we refer to as the femto-naive, new customers coming in, the good news is that overall it grows the market segment because those are customers that here before aren't doing any laser-assisted cataract surgery. And at the same time, it takes a while for them to ramp up net-net. We do see, we are going to start seeing more LLS customers, you know, the legacy system, the Lentaur laser system, start to gradually move out in replacing those with Ally systems. And so net-net, you'll see those appear, except for when we sell those Ally systems in, where you'll get a bump in the CapEx, but you'll see revenue ramping those faster due to their familiarity with the system. However, those are more moderate volume accounts to begin with, which is one of the reasons why they've, you know, continued with the legacy system. And we've managed that sort of, you know, fewer, you know, de-digging those systems out of the market, if you will. So, you know, it's a little complex, you know, from the modeling perspective.

Okay, very helpful. And then maybe if I can just have one more question, a big picture related. last quarter you outlined an objective of your reestablishing and reaccelerating your distributor relationships, OUS. Maybe an update on that would be good and how we're thinking about that objective.

Work in progress, continued work in progress. I mentioned it was going to take several quarters for that to, you know, for me to feel comfortable that that was quote-unquote back, all the way back. ESCRS, you know, as I remarked, we're taking a direct presence there, and so, you know, I'll have some important meetings set up there. I'm also participating in an innovation session there and doing a presentation on Lenzar as well to a wide group audience there, you know, on that Sunday. So, you know, I've got a lot of important meetings set up at ESCRS. So, you know, I would say stay tuned for some news on that afterwards.

Very helpful. Thank you for taking the question.

It's going to take us, you know, a few quarters there to fully, you know, the transaction stopped, you know, much of the activity. And so restarting it is, again, you know, customers have to go through their cycle as well, if you will. And I don't have as big of a view, you know, through the distributor network to the end user, if you will. So we're going to have a lot of meetings at ESCRS and, you know, bring a lot of energy there and enthusiasm. And as I mentioned, Europe has some potential to be an important market for us.

Yep, very good.

Thank you. Our next question comes from the line of Ryan Zimmerman with U.S. Bancorp BTIG. Your line is open.

Good morning. And, you know, Nick, just congrats to you and the team showing a lot of resilience in terms of coming out of the transaction, you know, breaking and, you know, putting up the results you did this quarter. Really hats off to you there. You know, I'd like to just ask on Ally pricing. The pricing on the systems has bounced around a little bit the last few quarters. Maybe talk to me about kind of where you see that trending over time. You know, we appreciate the metrics. You're giving a lot more metrics this quarter, which is great to see. But how do you think about the durability and stability of pricing on Ally as you move into the rest of the year and maybe longer term?

Yes. Hey, Ryan, thank you for your kind words. I appreciate it. You know, we work hard here every day, as you know. There's no rest for the weary. We, the, so pricing, pricing on Ally systems, I'm assuming that you're talking about sold systems there? Yeah, exactly, exactly. And so those prices, I'm not as concerned about the prices on the Ally system, because when we sell the systems, it obviously, for us, we get a return on the CapEx there, and it helps us quite a bit in terms of breaking even right away on the systems. You're going to see fairly flat pricing on the Ally systems. When we sell more to distributors, the price dips down. When we sell in the U.S., the price is up slightly from there, but they're starting to sort of normalize a little. So when we sell systems to, like, the private equity groups, you know, it's a very, it's a funny thing, right? Because interest rates haven't come down. Those private equity groups that are running those practices that own the practices, you know, they're leveraged. They're pretty highly leveraged. And so we adjust those prices up or down depending on how many they're taking. in terms of a commitment, not that they take delivery of them all at once, but how many they take, they get some benefit to pricing moving down as they purchase more systems, if you will. And we're not talking about huge material differences here. And then these are slight variances because they get really good prices to begin with on those systems. Again, good for them and good for us. And then on the procedures, we have these tiers in place. So we partner with them. So the more volume they drive, the better pricing they get. And the less volume they drive, the higher pricing they get. And that can fluctuate on a quarterly basis because of the way we true up on a quarterly basis with them. So those private equity groups drive a lot of volume. And at the same time, there's some variability there. So prices you're going to see on the systems are going to stay relatively flat in terms of what you're seeing on the systems themselves. You'll see continuing growth in the recurring revenue, and you might see over the next couple of quarters what would appear to be a little bit of a flattening, but it's not because we're replacing some of the LLS systems with Ally systems.

Yeah, very helpful. And, you know, the gross margin, you know, even stripping away the, you know, tariff refund were good. I mean, they were a new level that we're seeing. And so, you know, in that 52 range. So my question is, you know, with the recurring revenue now run rating at $55 million annually, Is this a new level that you can sustain on the gross margin side? And, Mike, I know you're only two months into the role, but, you know, would appreciate your thoughts on this, because obviously it has, you know, the potential to really start to pick up as the recurring revenue grows faster.

Yeah, that's exactly right. That's really what's showing is because we're growing recurring revenue so much right now. So I know the company had previously talked about kind of high 40s. I think we're kind of comfortably in the low, you know, around where we're at right now, basically. So this, I think, you know, with the recurring revenue model growing as it is, I think that's a more sustainable, you know, gross margin there.

Appreciate that. Great job, guys. Thanks, Ryan.

Thank you. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back to Nick Curtis for closing remarks.

So I really appreciate everyone's interest in Lenzar and tuning in today, and as you can see, we're a work in progress here, and I'm pleased with where we are, and I thank you for joining the call. Stay tuned. More news as we continue to go. See you next quarter.

That concludes today's conference call. Thank you for your participation. You may now disconnect.