SPNE (2021 - Q1)

Welcome to SeaSpine's 2021 First Quarter Financial Results Conference Call. As a reminder, this conference call is being recorded today, May 3, 2021. I would now like to turn the conference over to Leigh Salvo, Investor Relations. Please go ahead. Leigh Sa

Thank you, and thank you for participating in today's call. Joining me from SeaSpine is CEO, Keith Valentine; and CFO, John Bostjancic. Earlier today, SeaSpine released full financial results for the first quarter ended March 31, 2021. During this conference call, we will make forward-looking statements within the meaning of federal securities laws in regard to our business strategy, expectations and plans, our objectives for future operations and our future financial results and condition. All statements other than statements of historical fact are forward-looking statements. Such statements may include words such as believe, could, would, will, plan, intend and similar expressions. You are cautioned not to place undue reliance on forward-looking statements, which are only predictions and reflect our beliefs based on current information and speak only as of today, May 3, 2021. For a description of risks and uncertainties that could cause material difference between our actual results and those stated or implied by the forward-looking statements, please see our news releases and periodic filings with the SEC, which are available on our corporate website, www.seaspine.com and at www.sec.gov.

Thank you, Leigh. Good afternoon, and thank you all for joining us. Despite a slow start to the first quarter due to restrictions on spine surgeries resulting from the winter COVID surge, I couldn't be happier with how strongly we closed the quarter. We saw a positive inflection point in late February and that momentum continued throughout March and April. With a favorable outlook for more robust spinal surgery volumes for the remainder of 2021, coupled with the anticipated contribution from our pending acquisition of 7D Surgical, we are poised to continue to take market share and to further accelerate revenue growth. The recent $95 million equity financing we closed in mid-April significantly strengthened our balance sheet and will help fund the cash portion of the 7D Surgical acquisition, while also providing additional growth capital for us to deploy more of our spinal implant sets to meet the rising demand for those systems and to support the limited and full commercial launch of over a dozen orthobiologics products and spinal implant systems currently in our pipeline for 2021. Those factors remain important and exciting catalysts for SeaSpine to attract more exclusive distribution partners and for our existing distributors to add sales reps to penetrate deeper in their territories. With further declines in COVID cases in the U.S., in an ever-increasing population of individuals getting vaccinated, we believe we now have enough confidence in our market visibility to provide revenue guidance for full year 2021 of 25% to 28% organic growth over 2020 and 30% to 33% growth over the prior year, including approximately six months of anticipated revenue contribution from 7D Surgical once that acquisition closes.

Thanks, Keith, and good afternoon, everyone. As Keith noted earlier, total revenue for the first quarter of 2021 was $42 million, an 18% year-over-year increase in sales per day, which accounts for the one additional selling day in the first quarter of 2020 compared to this year and a 16% increase as reported. In the U.S., we posted a 20% increase in sales per day and 18% reported growth. International revenue increased by 4% to $4.5 million. U.S. Spinal Implant revenue in the first quarter increased 29% on a sales per day basis to $18.4 million. That growth was led by new and recently launched products, predominantly those products that were alpha or fully launched in 2020. The rapid clinical adoption of our most recently launched products is a very encouraging sign for the growth they can drive in 2021 and beyond. Spinal implant surgery case volumes increased by more than 10%, and we were able to capture more revenue per procedure with our expanded portfolio. U.S. Orthobiologics revenue in the first quarter increased 12% on a sales per day basis to $19.1 million and was once again driven by growth in the OsteoStrand Plus products.

Thank you, John. We are all very excited to add the 7D Surgical team to the SeaSpine family and to be able to leverage their outstanding enabling technologies to spread our growth influence beyond just the operating room. That will be additive to our commitment to execute at a high level on our foundational priorities that have transformed SeaSpine into the organization that we are today, namely to timely and effectively develop and launch clinically-relevant products to increase the number of core distributors and their exclusivity to SeaSpine, to generate above-market revenue growth through more efficient utilization of our spinal implant sets and to further expand our gross margins. We expect to sustain and further increase the double-digit revenue growth we delivered in the first quarter as we continue to emerge from the disruptive impacts of COVID-19. That optimism is fueled by more than 400 and soon to be more than 500 passionate and dedicated employees of SeaSpine and 7D Surgical who are motivated by our past successes and are driven to deliver clinically superior, yet cost-effective procedural solutions that differentiate us with both surgeons and distributors in this competitive market. With that, we will now open it up to questions. Operator?

Thank you. Our first question comes from the line of Matthew O'Brien of Piper Sandler. Your line is now open.

Keith, the guidance - restating the guidance, obviously, great to see it is a marked acceleration in the last three quarters versus what you have done historically. So can you just talk a little bit about where that's coming from?

Yes. So Matt, I think we kind of came in a little bit even out on the end of it, but it sounds like you're just asking how did that shift in acceleration from a growth perspective and where it came from. It really has come down to that investment that we kind of telegraphed last year that we would be continuing to invest in instrument sets and implant trays in coordination with a great deal of alphas getting to market. And I think what you saw is there's certainly a pent-up demand by our distribution teams for new products. They have done a very good job of working with marketing on helping to get the required surgeries that we need, not only in alpha, but as we moved some of our products even to full launch. And I think what you see is that combination of the investment in that, the CapEx investments in those trays, coupled with great momentum from our distributors and even newer distributors that are coming on board that have an opportunity to really take some share in their marketplace for us.

Okay. I'm sorry, I had a bit of a frog in my throat there. So specifically, again, the acceleration that you were expecting in the last three quarters is maybe a little bit of pent-up demand, but really more - is it more distributors specifically and adding some more of these folks just in greenfield areas? Is that really where it's coming from? Or is it more of the step deployment that we saw last year?

It's both. And actually, some of the upcoming full launches, Matt, are going to help create that acceleration. So thinking about the products we launched last year, they've been really successful in just an alpha launch, right, the Admiral Cervical Plate, the Meridian ALIF Interbody, the NorthStar Posterior Cervical Fixation System, right? Those are the launches that will happen midyear, and I think one of those later in the year. But those are going to be a big catalyst for what we've been able to bring new distributors on board, but also as they're hiring competitive sales reps into their distributorship. Those are some of the key systems that are attracting those sales reps and new distributors to want to work with SeaSpine and the 3D Interbody portfolio now that we can address the entire market. The Explorer, Expandable Interbody, that gives us brand-new access going to a full commercial launch to the expandable. So the good news, it's not just one system. It's a lot of systems going into full commercial launch. But if you look at the timing of those systems, that really coincides with the meaningful acceleration that you're pointing out for the rest of the year.

Got it. Okay. So it seems broad based. And then, John or Keith, a lot of people like to latch on to the instrument set deployment. And with all this extra capital that you just raised, can you talk about set launch numbers for this year, set launch numbers for next year, if you wouldn't mind? I don't know if you want to keep it close to the vest given competitive reasons.

Well, I mean, we've talked about it in the past, right? The typical alpha launch for us is 10 to 15 sets; and a typical full launch is 3x the number of sets. So we're probably in the 45 to 50 set range on average for a full commercial launch. But there are some systems that will probably deploy more, right, based on the demand expectations for those systems. So I'd say 45 to 50 set is the average full launch, but we're likely to exceed that on some of these products, just given the demand that we're expecting when we do fully launch them.

Okay, John. And I'm sorry, I wasn't very clear. Like, just an absolute number, we're going to deploy $5 million worth of sets in 2021 and $10 million next year. Any guidance on that?

Yes. I mean if you look at our historical numbers in the cash flow, right, the set build CapEx last year was a little over $10 million that's embedded in the cash flow statement. And as I said on the call, we're looking to do more than 50% increase in set investments, that's going to be both on the CapEx side and the inventory side, right? You got to make sure that sets have the inventory stock. So it's - all-in, the total investment last year in spinal implant sets and inventory was a little over $20 million. So a 50% increase on top of - that's a pretty healthy number. But again, it speaks to the confidence we have with the demand they're going to create, but also the financing. And as you brought up, right, we've got a stronger balance sheet, so we're willing to take a little bit more of a calculated risk in deploying more sets because we're confident that the revenue is going to be there.

Our next question comes from the line of Ryan Zimmerman with BTIG. Your line is now open.

And it's been quite eventful first quarter for you guys, congratulations. Maybe just to start, Keith, you mentioned a little bit about your distributor base and their expectation to hire. And I'm just wondering if you could put a finer point on that. Just what kind of capacity or maybe kind of how big that core distributor force can grow from a sales head standpoint?

Yes. We haven't really given out the specific, like, headcount or feet on the street because it varies by distributor. That's why we remain focused on what percentage of the U.S. revenue is coming from core distributors, right? It was just short of 60% in the fourth - sorry, the first quarter. And on one of our calls earlier this year, we had set expectations, about 2/3 of our revenue., U.S. revenues, should be coming from these core more exclusive distributors as we exit 2021. So we don't want to get into given numbers, the feet on the street within those distributors, but just stay focused on the percentage of revenue and ensure that it continues to increase because, obviously, we want to work with the more exclusive folks and give them first priority to the sets.

But it's fair to say that there's capacity for them to hire. Given the plan this year with the product cadence and the set investment, we should expect that those distributors will be hiring?

Yes. And they were last year, right? I think as we got out of the first COVID surge, we saw them start to hire. And that's why we got the geographic diversification of our revenue footprint in the second half of the year that really helped us get through COVID, because some of our existing core distributors hired reps in geographies where we had no presence before. So that really helped keep the growth going in the second half of last year, and there's more to come this year. So yes, we've got a track record for seeing them hire. And as we have business review meetings with those distributors today, we know that they've got plans to continue to hire as well.

Okay. And then just second for me. You made a comment, I think, around 7D's impact to the gross margin. I know you're going to give more color when this closes, so you may be reluctant to give some color. But just - can you just give us a little bit potentially on the impact maybe gross margins for 7D's contribution this year?

Yes. So the capital side, based on the historical financials we have, their overall gross margins are on par with ours. We still have to work through the GAAP financial statements and conversion because they use private Canadian company GAAP, but I don't anticipate that change in the overall gross margin profile once we finalize those. So I think apples-to-apples, we'll see a similar gross margin profile to our overall gross margin sort of in that mid-60s range. As we generate more revenue under earn-out arrangements, then we're going to see the higher gross margins from what will most likely be spinal implants that generates that earn-out revenue. So I think that could create a little bit of a tailwind for the gross margin as well. But once we layer in the purchase accounting, I suspect a lot of the intangible assets are going to get allocated to the technology and the amortization of that technology flows through COGS. So we'll be sure to give sort of a view of what gross margin looks like without that intangible amortization because it likely will be dilutive on GAAP gross margins, but it's noncash expense. So we'll be sure to give color in a more consistent messaging with how our historical gross margin shaped up to get rid of the noise of that amortization.

Okay. I'll leave it there. And hopefully no loonies and toonies in Canadian dollars from the 7D acquisition going forward.

Our next question comes from the line of Kyle Rose with Canaccord.

Great. I wanted to see if you could just take a step back and just talk a little bit about the overall dynamics of the market, kind of going back a little bit to Matt's question. Obviously, you've seen material acceleration in growth in the U.S. market on the hardware side over the course of the last several quarters. I think we have a good understanding of some of the new product contribution, but your 10% volume growth in the Q1 is impressive. You're talking about high 20s into the 30% range for the full year. Maybe just help us understand how much of that from a guidance perspective is volume? How much do you think of that is going to come from pricing and just incremental mix on a per case basis? Just really trying to understand the magnitude of the share taking you're experiencing right now.

Yes. I'd expect most of it's going to come from volume, just surgery volume increases because the price component, right, there's the seasonality as you get the scoli season, but that happens every year. So I don't anticipate a significant increase in price compared to prior years. Now second quarter last year wasn't the typical scoli season just because of all the COVID shutdowns. So maybe Q2, it's a little bit more than usual that you'll see that the total ASP per procedure increasing year-over-year in a more meaningful basis. But I suspect it's mostly going to be volume. Now we are participating more in the surgery, right? We're able to do more complex surgery and support those with Mariner revision. The expected alpha launch of a Mariner or adult deformity indication should give us higher revenue per case. In fact, that we're seeing almost two SeaSpine products used for procedure. As that continues to tick up, right, that should translate into higher revenue per procedure. But I still think that growth is going to be probably coming from higher case counts.

Okay. Great. And then I know that you will get additional color on 7D after the close, but maybe just help us frame out. You did give us some incremental color with respect to guidance for this year. So talking about $7 million majority coming in the second half, but you've also talked about pressing the gas pedal down on the earn-out model. How should we think about what that $7 million really annualizes into and represents on a go-forward basis? Are you looking for people to be modeling this out as a discrete line item in your revenue builds moving forward? Should we expect growth on top of that? Or is that not fair because you're going to really be realizing the majority of that growth on the implant side? Help us think about that.

Yes. We've been probably intentionally vague in terms of what that mix of revenue is going to look like in the $7 million. We think it's going to be a mix of capital and earn-out revenue. So the capital will all hit as the units are sold. The earn-out, we're going to just be starting to get into what should be a three-year earn-out commitment. So the $7 million is a combination, but I still don't want to define the mix because there's a lot of irons in the fire in terms of capital sales. But as the year goes on, I suspect we'll see a few more earn-outs as a percentage of those total placements versus the outright capital sale. So I don't want to commit to a number and say, $5 million of it's going to be capital because it turns out $4 million is capital, but $3 million is incremental revenue we're getting from the earn-out that we wouldn't get in the absence of the 7D acquisition. I don't want to set a number that people are disappointed. We only did $4 million of capital, but we still hit our $7 million or exceeded that, right, because of the earn-out contribution. So I'm reluctant to give any kind of mix yet until we've done the acquisition and have a better chance to collaborate with the 7D leadership and sales team to define what the expectation should be for earn-out revenue versus capital.

Okay. Understood. I want to get more color.

Yes, one additional item there, Kyle, I mean, just obviously thinking about how 7D is continuing to run their business. Everything that's in their hopper right now is from their traditional modeling, right, their traditional sales modeling. So there's plenty - as Bos said, that's in certain stages of capital equipment processing and the process the hospital usually goes through. And I think we've already kind of managed to that process as often around a nine- to 12-month process. So again, I think it will be weighted more towards that end, but then we do see an acceleration as time goes on of the ability for earn-out.

Our next question comes from the line of Mathew Blackman with Stifel. Your line is now open.

I've got a couple. Maybe, Keith, curious, can you just give us a little bit more color on the new distribution partners you mentioned that were onboarded and what regions or geographies they allowed you to enter, where perhaps you were other - either underindexed or had no presence at all?

Yes. So during in and around COVID, we were still aggressively going after new distribution or helping train distribution that was just coming aboard in and around that time. We feel really good about our teams on the West Coast, Colorado, specifically, we've advanced nicely, Pacific Northwest. We're advancing nicely with partners that have grown with us during the pandemic time. We continue to have further investments in our Texas markets and our Florida markets. So we feel like there's even markets that we're in that our current distribution is going deeper or expanding with additional hires on their representation that we're clearly seeing. We're seeing the same thing going on in the Midwest for us. The Midwest has always been a traditional distributor area for us that continues to be exclusive in driving our product lines. We still have a lot of opportunity and continue to have good conversations and continue to have good conversations in the Northeast. And we view that as growth opportunity for us moving forward over the next 18 to 24 months.

All right. And then my last question. And John, you sort of touched on it a little bit, but I was hoping you could frame the complex procedure opportunity still ahead for you. I think in the past, you said it's something like 10% of your mix. But as you've mentioned, you've launched some systems for complex disease in 2020 that will transition into full launch of this year. You launched the Mariner revision and the adult deformity platform. So maybe just talk about whether you're getting closer to having the portfolio to make meaningful inroads. What else you might need? And I guess, most important, how much of an incremental opportunity complex procedures could represent in '21 and beyond? Whether it's the mix of cases that you're at now, where that could go or the revenue opportunity for complex case versus your current sort of average ASP? Just help us understand some of the opportunities still ahead of you in the complex arena.

Yes. It hasn't dramatically changed from sort of that historical 10% mix. It's increased probably a little bit because the Mariner revision system allows us to participate in more complex and deformity, but getting the adult deformity specific indication for Mariner that we anticipate in midyear this year, it'll give us a whole new entry into the deformity market and that's going to be specifically for the adult deformity indication. It's going to be an alpha launch. So we're not going to have the full launch out there. It will contribute revenue, but I don't expect it to meaningfully shift the percentage of our revenue that comes from deformity for 2021 only because it's an alpha launch and you're limited by the sets. As we move into a full commercial launch, sometime likely in early 2022, that's where I think you can see the needle start to move a bit in terms of the percentage growth of our revenue coming from the more complex and deformity procedures. But I don't anticipate a significant contribution this year because of the alpha launch. But again, it's one of those systems that's helping attract new distributors to want to work with us and they understand during an alpha phase. They may not have unfettered access to that system, but it's still something that's appealing to them to start to work with us, knowing the full commercial launches coming down the road.

Our next question comes from the line of Kaila Krum with Truist Securities. Your line is now open.

It's Sam on for Kaila. Just first to start off, I'm curious to hear about the conversations you're having with distributors with regards to 7D. And how you think that can augment your exclusive distributor force or adding additional high-value distributors? And then just will all your distributors have initial access to the system? Or is it going to take time to expand production before all of your distributors will be able to be selling the system?

Yes. So a couple of layers there. The first one is we do feel good about our ability to expand supply. I think 7D has done a very good job of working with a supplier that has the ability to scale. There is some time consideration that we have to make for that scale, but it's not something that we think is going to slow down our distribution team. Instead, I think it's more about us being sure that we're investing in the right products with that supplier so that we can have a more just-in-time or shorten down the lead times at least for how those products - or how it could be built out and be available. Now that said, yes, the conversations with our distributors are quite exciting because, obviously, we had a different arrangement with 7D previous to this that really was more of a discount off of list price. Obviously, now, we would be making decisions on the cost of goods at a baseline, and we can make the right decision on whether certain accounts, it makes more sense to do an earn-out or other accounts that have budgetary dollars, it certainly may make more sense to, of course, place the unit outright. And so our distributor is excited because I think it's a different economic equation, and they can be much more competitive in the market. And then lastly, yes, we are having even, I would say, more engaged conversations with new distribution, especially distribution that may have experience with enabling technology and their excitement to be able to provide this kind of radiation-free technology, which I think is becoming a bigger and bigger issue to hospitals, obviously, to surgeons, and certainly, as patients become more aware of, I think we're all comfortable that it's going to be a big selling feature for patients as well.

Great. That's really helpful. And then on international, first quarter growth there since last year, would love to hear what you're seeing in those markets and how we should think about improving the cadence of improvement in the year? And then also how you think 7D can potentially impact or accelerate growth over time in the international market given the uptake of what we've seen there?

Yes. I think just to work backwards, I think 7D just got EU CE Mark approval recently. So there's a new opportunity for them and us together in Europe, right? We have an infrastructure in place in Europe and good distributor relationships there. So I think we'll be able to bring more to the table in terms of Europe because they're just getting started there. They have a really healthy relationship already in Australia with a pretty large distributor, and they've sold a decent number of 30-some units that they sold internationally to that Australian distributor. So I think there's opportunity to grow and place more systems there as demand increases. But also with the MIS module slated to get launched probably sometime in the third quarter, once we get FDA 510(k) clearance, there's an opportunity to increase average ASPs, right, with the MIS module included, but also to go back to all of the customers who bought the unit without MIS and try to get them to purchase the MIS module. So I think there's upside, obviously, in both locations, probably more upside in the EU because they just are getting started there, but we've got a healthy relationship and a good presence in Australia ourselves. And I think that's where we've seen more clarity in terms of growth in 2021. I think 10% growth is pretty realistic place to start for international this year. Maybe we'll be able to exceed it, but I think there's still a decent amount of uncertainty in Europe in terms of when they finally emerge from COVID, and we see sustained increases in surgery volumes. But starting off, again, it's only 10% of our revenue. But I think a 10% increased expectation for international this year given the uncertainty is probably where I'd place my marker now. And if things get better and they emerge from COVID quickly, then we could exceed that as well.

Our next question comes from the line of Brandon Folkes with Cantor Fitzgerald. Your line is now open.

Can you just elaborate a little bit in terms of the color you're seeing in revenue per case, even if it's just directionally maybe in the quarter compared to sort of last year? And then anything post the quarter as well?

Sorry, you're looking for just sort of…?

Revenue per case. Yes. Just some color, even if it's just qualitative color.

Yes. It continues to increase, right? The two things were - well, the three things we're tracking is surgery volume increases looking at the number of systems used per procedure, which also translates into higher revenue per cases as we see more systems being used. But also as we're participating in more complex and deformity, that's something we're tracking. So as Keith talked about in the script, right, case growth was over - volume increase was over 10%. Revenue per case is it's sort of in the - it's typically been in the low to mid-single digits, the revenue per growth. So it's nominally driving a little bit of upside. But in line with the question before, I think the growth expectations we've got for the rest of year - the rest of this year and beyond is mostly going to be coming from volume from just having a presence in new markets.

Our next question comes from the line of Jeffrey Cohen with Ladenburg. Your line is now open.

Well, hi, Keith and Bos, how are you?

Good. How are you, Jeff?

Just fine. Can you help us tidy up Q2? You talked about $150 million of cash. Shares were 27.9 million, plus the raise of 5.18 million, which is 33.1%. And then the 4.29 million from the 7D will appear over time, as selected by the 7D holders. Is that what you're intimating?

Correct. Yes, it depends on when they - whether they elect for SeaSpine shares or exchangeable shares. And then if they elect for exchangeable shares, when do they tender those based on their own personal tax situation to convert it into SeaSpine shares.

Okay. And that should be within five years?

It has to be within five years. Yes. There's a mandatory tendering date five years after issuance.

Got it. And along the same lines, Bos, do you expect any onetime charges associated with the closing expected for Q2? And where they may pop up on the financial statements?

The bulk of the costs were incurred in Q1, right? We talked about the $1.3 million of legal and other professional fees. Just because of the follow-up activity in Q2 with the shareholder meeting and getting court approval from the Canadian courts, there'll be some residual legal and professional fees that come through in the second quarter that we'll give clarity to. But I would anticipate 1/3 to 1/2 of what we saw in the first quarter. But we'll also be investing a few more dollars in the integration effort as well. But I don't anticipate it's going to be more than half of what we incurred in the first quarter because that was all the prep work and due diligence and drafting the documents that guide us to those numbers.

Okay. Got it. And then lastly for me. Keith, any commentary on April, specifically as far as trends, procedures and backlog at hospitals? Did you pick up anything out of Texas from last quarter? And any areas of strength geographically here?

Yes. So I think as we tried to give some color, too, we view March and April as being very similar in the sense that there is backlog that's being worked through. I think the other good thing is that more and more patients are going to see their doctors for care, so they're able to get scheduled. We're hearing still the same kind of feedback from the surgeons that are visiting that they're - they still feel like they're getting through some backlog. They're being scheduled out throughout the entire quarter. And they feel really good that this will continue, especially with their office load, if you will, continuing to see more and more patients. So everything seems to be an indication that it's still a robust time as far as getting caught up as well as getting new patients into the stream.

Okay. Got it. And then lastly for me, if I could throw one more in. Any commentary on the biologic platforms out there? And have you taken any price increases? And have you seen anything more recent or competitive in nature as far as offerings or pricing?

Yes. I would say we're not really seeing anything I would view as market changing from pricing. I do - we continue to be getting more and more opportunities into larger buying group hospitals or being put onto the ability to compete on minimal number of vendors. And so with that sometimes does come so more aggressive ways we have to think about how we're going to approach those accounts. But I wouldn't say that, that's anything different than a new opportunity at a new store, so to speak. It's not something that we're seeing in the marketplace as if there's a giant erosion on the pricing side for our DBM specifically. I think there's still the higher technology DBMs and the ones that we know have more unique features we are still able to get a premium on, but we also feel like we can be very competitive where we need to be in those larger buying groups.

Okay. Got it. Nice quarter, nice readout and outlook. I appreciate it.

We do have a follow-up question from the line of Matthew O'Brien with Piper Sandler. Your line is now open.

I guess, I just wanted to - so I just wanted to talk about the spend outlook. I guess the only thing that some folks may look at from the quarter is the EBIT loss, and I know you spend a lot in Q1 and you're stepping on the gas and everything. But I'm just - I'm wondering - and you're talking about a little bit more free cash flow burn this year versus last year. So I'm just thinking investors may think, "Okay, we're going to see an elevated spend level over a multiyear period." That kind of changes how I was thinking about them getting to profitability. Is it fair to think about, "Look, we see a lot of really good things here in '21, '22, we're going to invest really heavily and then you'll get a lot more leverage to the EBIT line in '23 and '24. So just bear with us for two years as we spend a bunch of money because we could see all this opportunity. And then you get that leverage that you're hoping for, still kind of in the time frame you're hoping for, which is '23 and '24?"

Yes. No change to those expectations longer term in terms of getting the adjusted EBITDA breakeven and then free cash flow breakeven, right? And that last one, sort of still at the $275 million revenue mark. That being said, the free cash flow burn increase that we're projecting for this year over last year, it's all expected to be driven by higher investments in inventory and CapEx, like we talked about earlier. But the adjusted EBITDA loss we're anticipating is going to continue to decline this year versus full year last year because we are already seeing some of that leverage. Most of it's in the gross margin line, but I think we're also doing a pretty good job managing the G&A line. But reinvesting in more R&D, sales and marketing and the inventory CapEx. But the free cash flow burn increase this year is going to be a little bit of dilution from 7D, right, their contribution in the second half of this year. But overall, still forecasting for reduced adjusted EBITDA losses. But the free cash flow burn increase is going to come entirely from higher growth investments in sets and inventory to build the scale we need to achieve those efficiencies because while the orthobiologics today is a free cash flow positive business, because of the less complex supply chain, right, you are not investing in the sets and lower commission rates, overall, we want to invest our way to grow from spinal implants to get to the scale that we need to get free cash flow breakeven on that. And that's why with the financing, we have a little more confidence to opportunistically invest in growth that kind of underlies the accelerated revenue growth we've got in the back half of this year and longer-term expectations. But fundamentally, we haven't changed our assumptions around getting the free cash flow breakeven at that $275 million revenue mark.

Thank you. There are no further questions.

Thank you very much for joining us, and we'll be in touch with you at the end of the second quarter. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.