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Alphatec Holdings Inc (NASDAQ:ATEC)
Q2 2020 Earnings Call
Aug 6, 2020, 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, everyone, and welcome to Alphatec's Second Quarter 2020 Financial Results and Recent Corporate Highlights Announcement.

We would like to remind everyone that participants on the call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC.

During this call, you may hear the company refer to reported amounts, which are in accordance with 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's view of why this information is useful to investors.

Joining us on the call today will be ATEC's Chairman and CEO, Pat Miles, and CFO, Jeff Black. Now, I will turn the call over to Pat Miles, Chairman and CEO of Alphatec Spine.

Patrick S. Miles -- Chairman and Chief Executive Officer

Good afternoon, everybody. Welcome to the second quarter ATEC conference call. I'm coming up on my three year anniversary in October and really wanted to share with everyone some of our learnings around the transformation of ATEC. When I arrived, I was told that as all we needed to do is transform the sales force and all would be well. The reality is that it's never that simple.

In our second investor call, we outlined three commitments that we made to transform ATEC. The first one was how do we create clinical distinction? The second one was how do we compel surgeon adoption? And the third one was how do we revitalize the sales channel? And so, when we start to think about creating clinical distinction, what we meant -- what that meant to us is really creating more sophisticated surgical solutions, meaning to create the internal know how to be able to serve the interest of spine surgery. It is about serving the clinical requirements really better than anyone. With that, we'd be able to then compel surgeon adoption, which means how do we create confidence and predictability, how we make surgeons buy into or have confidence in the distinction we are generating. The distinction didn't have to be really from an individual product, but rather, in how we were addressing our procedures of specific type pathologies. The question was, are we creating the type of confidence that we -- that can be reflected in surgeons engaging in us with more complex surgery or more products per procedure.

And then the whole revitalizing the sales channel. This meant how do we attract the best salespeople? It doesn't matter how well we do things internally, if it is not reflected in the field. We are revitalizing our sales force with an interesting clinical aptitude. Our people have to be clinically focused. Last, these people are savvy. They know what companies are creating products and procedures that determine a prosperous future. We want them to be clinically adept and totally focused on ATEC, which hopefully becomes the exclusivity approach, which we will earn over time.

I'd like to delve into each of our commitments and demonstrate how things have changed. What is important is that we create a methodical approach, which means that our commitments or claims are reflected in metrics. But the first thing you better do is create an organic innovation machine. That is a team of experienced, passionate people, curious as to how to improve spine care. We built the fundamentals of that team or the foundation of that team over the past few years and have launched 17 products, which makes up 61% of our sales. I think we're obviously spine surgery as being commoditized, we see nothing but opportunity. Spine surgery still needs improving, and we intend to work with surgeons to do just that.

When we talk about compelling surgeons, most of it gets reflected in earning procedures where there are multiple products used or increasing surgeon confidence where there is an increasing complexity of surgery. And speaking of spine procedural development, we developed products based upon the requirements around the specific approach. You will see a lot of companies apply legacy technologies to new approaches and claim we've got one of those, but surgeons are compelled by companies willing to design and develop specifically for the approach in pathology. Also, creating a shared interest with surgeons is about designing products beyond only those that are billable. It is about fulfilling the requirements of spine surgery. As a reflection of our progress, things like the number of products used per case, up 27% since Q2 of '17. Cases with more than one product sold, up 46%. We look at things like average revenue per case, up 47%. That's one that really speaks to confidence. The surgeons have more confidence in the products that we're creating. And then revenue up from top 20 surgeons, up 51%.

Number three, is about revitalizing the sales channel. I love this one. There becomes a cynicism around sales guys running toward whoever has the highest commission rate. The reality is that they run toward the company with the most promising future. They want to be effectual to the surgeons they call on. I believe that they love being part of something special, and the great ones are a significant resource to their surgeon success. They create certainty in an uncertain environment. The number one question a salesperson gets is what's new. Well at ATEC, there's a lot new. What we have seen thus far in our sales transformation is 77% increase in the revenue per distributor with less distributors and the percentage of sales of our strategic channel at 91%. So things are getting better. So when we start to think about creating clinical distinction, I look back over the last few years and as we created the organic innovation machine, what we created is really unbelievable know how. There is great know how at ATEC. It's easy to get consumed with only financial reflection and lose sight of serving the interest of a marketplace.

Our job is to serve the interest of spine surgery. We are doing that by serving a process of how we do things. And back in 2018, we acquired foundational technology that enabled us to provide unique information to surgeons. We realized that when we acquired it that we were immediately one of two companies that could create distinction in lateral surgery with automated neurophysiology. The beauty of SafeOp was that we knew the value of what we were providing didn't stop in identifying a nerve with automated EMG in lateral. There are multiple applications beyond lateral. However, the value that we could provide in lateral was unique. It would be both nerve identification as well as discerning nerve health. It is a very big deal. That means that we immediately can do something that no one else can do. The competition will immediately say, we got one of those or we can do that. But the surgeons and salespeople know, it's just not true.

So moving into '19, we launched 12-plus products, including an integrated SafeOp system with peripherals that integrated with our instruments and implants. This was a start of our effort to proceduralize or build individual approaches. The new products were foundational, and it enabled us to begin building a portfolio of products to compel surgeons and attract significant sales talent. The great part was that our team designed in feature sets with our foundational products that are unique and clinically valuable. Clearly, products like single step that integrate with SafeOp is one of them.

We move on to 2020. So we hit 2020 and with all of our momentum, we run smack dab into a global pandemic. However, what we don't do is panic. What we do is concentrate on what we know, which is serving the interest of spine surgery and control what we can as we restore the company as everyone would expect. So what we do is focus on three things. We design and develop new products that we deem to be weaknesses in our cervical portfolio, both the Insignia cervical plate and InVictus posterior cervical system will alpha launch in Q3 2020. It seamlessly extends InVictus up to the posterior cervical spine from the lumbar and thoracic region. We also added modularity to InVictus and integrate it with our TLIF retractor, Sigma, which will launch in Q4. These are things we do very well. So we have great expectation around these products.

Lastly, we developed a new lateral single position procedure named PTP, which will launch in Q4. This is a lateral prone transpsoas surgery, whereby once again, everyone will say, we got one of those in a typical fashion, they don't. We are the team that launched lateral surgery back in 2003. The level of lateral know how at ATEC is unrivaled. Having previously built the lateral market, it is a space for which we are profoundly familiar. The guide pictured in the loops is Luiz Pimenta. For those of you who may not realize it, he pioneered lateral surgery. He is our Chief Medical Officer. And among he and other spine surgeons with whom we interact, are people never satisfied with where spine surgery is today. PTP will be a very significant addition to not just ATEX armamentarium, but the armamentarium of spine surgery. We are several hundred surgeries into our experience, so we are not guessing. More on this as we launch in the fourth quarter.

So when we look at the investments that created value over the years, we go back and look at the importance of the people and the portfolio investments in recreating ATEC. It is very clear that we are making progress. As you can see, we have invested -- where we have invested, we prospered, where we haven't, we've struggled. The priority of our investment was to create clinical distinction, with information and lateral in our first phase. Since Q2 2017, we've grown 61% in the categories of information, lateral and posterior fixation. In Phase II, we began to invest in ALIF, Plus, and TLIF. It is up 34%, and we are just getting started. You will see continued upcoming launches in '20 and '21 in these categories. Lastly, our redesign/investment in all things cervical and biologics is at a very early stage. You will see the fruits of them in '20 and will fully launch in 2021. The point is that we have been very deliberate with our investment thesis. We know the market well and our ability to continue to invest and create clinical distinction is significant.

Now on to the scorecard for Q2 2020. The momentum we've built is strong and candidly somewhat undeniable. We are up 11% year-over-year, 15% within strategic distribution. We're growing at 25% among our Top 20 surgeons, 61% of our revenue is new products versus 32 in Q2 of '19 and less than 10% in 2018. The confidence reflected in a 14% year-over-year growth in average revenue per case is significant. It's our seventh consecutive double-digit year-over-year growth quarter. And one that I really like is that we are selling 1.8 average product category sold for surgery. That means we're starting to combine and proceduralize the portfolio in a way that's creating clinical distinction.

So as we look forward, you're going to see profound change, which means we're going to do three things. We're going to create clinical distinction. We're going to compel surgeon adoption, and we're going to revitalize a sales channel. That means that what we're going to do is continue to develop product. We're going to increasingly do things that are more complex. We're going to continue to attract surgeon interest. We're going to continue to advance toward exclusivity with regard to our sales channel and we're going to continue to expand in under penetrated geographies. So clearly, a lot of good things going on and can't be more excited about where we are as a company.

And with that, I'll turn it over to Jeff.

Jeff Black -- Executive Vice President and Chief Financial Officer

Great. Thank you Pat and good afternoon, everybody. Just a few quick minutes on the financial results. First, with revenue. Again, as Pat mentioned, we are expanding our revenue per case. We saw very strong momentum, particularly going into the last month of the quarter. June was the second highest month of volume in the company's history. And again, as expected, we continue to see the international headwind under our supply agreement that's winding down as anticipated. And as Pat mentioned, as you start to really dig into the growth metrics here, 11% growth in US revenue still reflects headwinds from our legacy distribution. That was down 23%. So strategic grew 15%. And when you look at our performance and our year-over-year growth of 11%, even in a down market, we grew off a very strong second quarter 2019 comp where we saw 28% year-over-year growth a year ago. So that speaks to continued momentum in the sales channel.

When you look at gross margin, again, the story is the same, although we're beginning to get a lot more clarity on the path toward our margins at scale. As expected, we saw E&O drag from legacy products. So that continues. Last year, in 2019, it had about an 800 basis point impact on margin. And for the first half of 2020, it's more along 600 basis points. Historically, we've seen it more in the 300 basis points to 400 basis points. So this speaks to future margin improvement opportunities as we scale our GAAP margins in the mid-to high 70s are well in sight.

When you take a look at high level at the P&L. Again, we're making continued investments, expanding the portfolio, investing in the sales channel. In late Q1, when the pandemic first hit, we took immediate actions to shore up spend. And we did that with an eye toward not compromising key product development initiatives. We're well on track still to release 8 to 10 new products in 2020, but at the same time, we're able to avoid workforce reductions and keep the ATEC team intact. In fact, we continue to make a number of key hires while deferring spend where it made sense. While Q2 is probably not representative of near-term expense profile, it's definitely an indication of our ability to pull the appropriate cash levers when we required -- when we're required to do so.

Again, a segway into balance sheet. When you take a look at our balance sheet, we ended Q2 with more than $55 million in cash and available draws on our Squadron line. That provides us runway through mid-2021. Our term debt with Squadron does not begin to amortize until the third quarter of 2022. We also just entered into a one year repayment holiday on our $1.1 million quarterly obligation to Orthotec. So when you take a look at our cash burn profile, more than 50% of our operating cash over the last four quarters was really to support capex for new product launches. In Q2, it was nearly 60%. So as we start to think about financing needs, it's really about making the capital investments required to drive continued growth. The shelf filing and the ATM we put in place today is intended to give us ultimate flexibility to access capital markets when it makes sense for us to do so.

Before I wrap it up and turn it back over to Pat, just a little bit of commentary and a look at our historical P&L. Again, when you look at our revenue, our annualized US revenue run rate from strategic distribution in the first half of 2020 has actually doubled since 2017. We've made investments we committed to make in portfolio and sales channel, which has driven the revenue performance we also committed to. We've also held the line on G&A. So what you're seeing in the SG&A line is truly an investment in the sales channel. The operating leverage will come over time. For now, our focus is making the right strategic investments to build predictable and sustainable top line growth.

With that, I'll wrap it -- I'll turn it over to Pat to wrap up.

Patrick S. Miles -- Chairman and Chief Executive Officer

Thanks, Jeff. Our vision for the new ATEC has begun to materialize, but we have enjoyed our seventh quarter of double-digit year-over-year sales growth. And as we talked about a few years back, really what creates double-digit growth is really is focus, execution, and building organic innovation. And there's a group here that knows how to do that. And so when you look at our efforts, it's all about executing and a culture committed to serving the interest of spine surgery. And I would tell you that we are just getting going. And so we're very excited.

And with that, we'll turn it over and take questions.

Questions and Answers:

Operator

[Operator Instructions] And first question is from Lake Street Capital, Brooks O'Neil. Brooks, your line is now open.

Brooks O'Neil -- Lake Street Capital -- Analyst

Thank you very much. Good afternoon guys. It sounds like you spine guys are hitting some strides out there.

Patrick S. Miles -- Chairman and Chief Executive Officer

We're trying, Brooks.

Brooks O'Neil -- Lake Street Capital -- Analyst

Way to go. So first question, I guess. I think Jeff mentioned that June was the second highest month in the company's history. Can you give us a little feel for what you're seeing in July and maybe early August? Obviously, some spikes occurring, but what we hear is a lot of procedures are getting done. So what do you guys see it?

Jeff Black -- Executive Vice President and Chief Financial Officer

Yeah Brooks, this is Jeff. Thanks for the question. Yeah, momentum is -- continues to be encouraging and strong. We're obviously cautiously optimistic and given the current environment, but we're seeing strong demand, right. And I think what we're finding is that the question is, is spine surgery truly elective when you've got patients in chronic pain that need surgical intervention? So we're encouraged by what we're seeing early in the third quarter.

Brooks O'Neil -- Lake Street Capital -- Analyst

Great. And Pat talked about the efforts to proceduralize various aspects of spine surgery. Obviously, your deep history in lateral with Luis, and all of that is great. What are some of the areas you think you can proceduralize going forward? And maybe talk just a little bit about those efforts.

Patrick S. Miles -- Chairman and Chief Executive Officer

Yeah, Brooks, I hope you are seated. I could speak for an hour. It's one of those things where -- I got to tell you, I think surgeons are looking for partners that will invest in things that ultimately makes spine surgery better. And so often, it's been only the billable that companies invest in. And like having shared interest with a surgeon means that you care enough about what he's doing to invest in the things that he needs. And it may be not a great business as it relates to the individual components, but assembled, it becomes a great business. And so I think all the way from anterior cervical discectomy infusion, all the way down to TLIF to lateral, all of them require a junket technology that at this point, they all kind of parse together and it's a bit of an underwhelming experience. And so for us to be able to choreograph or architect these things is just such a great opportunity and really create greater predictability. So when a patient goes in with a specific pathology the likelihood of them knowing exactly how things are going to go, goes very high. And so it's really virtually every procedure.

Brooks O'Neil -- Lake Street Capital -- Analyst

Every procedure. Great. And then maybe my last one, I just love to hear how things are going with SafeOp, what the response is out there in the field. And maybe if you have -- if you could share any thoughts about what the next 12 months might bring to the SafeOp platform, that would be really interesting.

Patrick S. Miles -- Chairman and Chief Executive Officer

Yeah, Love SafeOp, and I am thrilled with how it's doing. And when we created it, we said we want a conduit to deliver information into the operating room. And the first bit of information was going to be [Indecipherable]. And what we're doing is providing better neurophysiology than anybody else, as I hope I was clear, which means both whereas the nerve and then what's the health of the nerve, which nobody is doing today. And so there's one or two companies doing that. And I got to tell you, we have a better solution. And so that part is very fun. But how the thing evolves in is what's the information based upon the procedure that you're doing? And so there's all kinds of different not only neurophysiologic additions we can make to the alpha informatics platform within SafeOp, but also we're still profoundly interested in things like alignment. And so what you'll start to see is things like alignment elements added to the platform, whereby you'll have just additional information. And so there's a fair amount of things that we believe will create predictability in surgery and we believe can be delivered through that platform.

Brooks O'Neil -- Lake Street Capital -- Analyst

That's great. I told you that was my last question, but I actually have one more. And I asked you quite often about this, but a lot of buzz in the spine marketplace about robots, and we've talked about the fact that you believe in empowering surgeons more than putting a robot to work, but tell me what you see out there in the marketplace today with regard to robots and your interest in pursuing some track along those lines.

Patrick S. Miles -- Chairman and Chief Executive Officer

Yeah, it's a bit of a loaded question, clearly. The way I would answer it is we look at a specific procedure applied to a specific pathology. If you're to do the math on that and you look at the applicability of robots, it's relatively narrow. And as ubiquitous as everybody wants to think that they are, they're just not. And so the reality is, is there's still kind of interesting pieces of equipment that are not getting utilized very significantly. And I appreciate all of the exuberance that have been around for the exuberance of the lumbar total disc replacement when it came through. What you do is you watch these things and you say, gosh, what is the specific pathologic application that it's solving or what's the problem that it's solving? Well, robots at this point is only solving placing pedicle screws, which have been done for years. And so it's one of those things where I just have a tough time suggesting there's a ubiquitous value associated with robotics, when I see so much good surgery being done. As well as I look at it as a tool for a very complex surgery, where there's goofy anatomy or big time rotational issues where a surgeon really struggles. And that's, again, a very narrow part of the market. And so again, I'm enthusiastic about the technology and -- as anyone. As it relates to its applicability today, I think it's limited.

Brooks O'Neil -- Lake Street Capital -- Analyst

Okay. That's great. Congratulations on all you're accomplishing.

Patrick S. Miles -- Chairman and Chief Executive Officer

Thanks.

Operator

Next question from Piper Sandler, Matthew O'Brien. Matthew, your line is now open.

Patrick -- Piper Sandler -- Analyst

Good afternoon guys, this is Patrick [Phonetic] on for Matt. Congrats on the quarter, especially at the lens of COVID-19. I wanted to start on kind of a competitive environment you're seeing right now. You're in a really great position from a capitalization perspective, but there are smaller players who are less capitalized that are struggling during this time. So if you could kind of parse out where some of your competitive wins are coming from during this time frame, that would be helpful. Are they coming more downstream? Are you getting broad based wins both up and downstream? I think that would be helpful for us to understand. Thank you.

Patrick S. Miles -- Chairman and Chief Executive Officer

Yeah I'll do my best in terms of trying to create some clarity. I would tell you that we're getting geographic wins based upon earning people's interest and enthusiasm on what we're doing surgically. I think in pockets, we have some very strong sales -- clinically adept salespeople. And I think when we have the people that can appreciate the feature sets that have been designed into the technology, we prosper. And those are areas that we're finding success. Where we aren't finding success is when we have more legacy type people who don't engage in the clinical sophistication of what we're doing. And when they're not bringing the surgeons anything new, is kind of where we have not seen much prosperity. And so I'm not trying to be cryptic. It's just -- and I'm just telling you the way we see it and the way it is.

Patrick -- Piper Sandler -- Analyst

No, that's helpful. I appreciate it. It's more of a convoluted question, and I don't mean to ask difficult questions, but I'm just curious, when we think about the back half of this year, can you just talk about some of the dynamics going on between the backlog and de novo patients as we kind of think about your growth rate as you move on? Are you still seeing surgeons working through their backlogs? Is a lot of that work done? Just how should we think about that for the remainder of this year? And then I have one more follow-up. Thank you.

Patrick S. Miles -- Chairman and Chief Executive Officer

Okay. Here's my view, Patrick, is the pandemic thing has been a tale of 50 states. And so what happens is there's so many puts and takes per practice, that it's very difficult to discern what's pent-up demand and what's normalized demand. I think we saw a lot of the kind of pent-up elements from April show up in May and probably parts of June. My expectation is that there's so many puts and takes of why people get surgery and why they don't. Again, it just becomes difficult to discern what's pent-up demand and kind of what's normal kind of run rate type of things. I think surgeons are still seeing less patients in their clinics and hence, less surgical candidates. And so it's a situation where it's like -- it's really tough to discern.

Patrick -- Piper Sandler -- Analyst

That's really helpful color. And my last question, briefly. On the slides, when you're talking about Alphatec's vision moving forward, a component of that is expanding into under-penetrated geographies. Can you just help investors understand like where those under-penetrated geographies you're specifically focused on? And as you look to move into those, what's the demand like for distributors to get on board with Alphatec? I would think you're generating a lot of momentum right now for distributors to get on board. So I would think it'd be a natural process for you to expand, but I'm just curious if you could provide more color there for folks. Thanks again for taking the questions.

Patrick S. Miles -- Chairman and Chief Executive Officer

Yeah, thanks Patrick. It's a great question. And I think that what you're getting is there's a unique level of sophistication with regard to the design development prowess that exists at ATEC. And so when a new distributor comes over, I think they're blown away with regard to the technology that exists here. And so a lot of times, you'll get a little company and they'll try to compel a distributor. What we see is distributors come over here and realize that the technology here is better than where they've come from. And so it's -- as well as they see what's coming forward, and I think that there's a lot of enthusiasm. So from that standpoint, the volume of distributors coming our way that are interested in innovation is very, very high. And so that part is great.

The challenges are, are that, there are still geographies where we have some legacy people or we've just not been able to penetrate as expediently as we'd like to have. And so the great part is there's a hell a lot of opportunity out there. The tough part is we still have some disparity with regard to the prowess in the field. And so it's -- that's about as much resolutions I'd be enthusiastic to give. But it's -- I got to tell you, from a technology perspective, the people who come through this door are blown away with what we're doing.

Patrick -- Piper Sandler -- Analyst

Got it, guys. And congrats on the quarter.

Patrick S. Miles -- Chairman and Chief Executive Officer

Thanks Patrick.

Operator

Next question is from Northland Capital, Jason Wittes. Jason, your line is now open.

Jason Wittes -- Northland Capital -- Analyst

Question. Impressive growth, especially relative to your peers. You guys actually grew this quarter, which again is quite impressive. So a follow-up to a question you had earlier. You mentioned, I think June was your strongest quarter -- month ever. Could you kind of see -- give us some color in terms of how July went relative to June? And sort of how the quarter went month-to-month? It's been a metric that a lot of the other companies have been providing.

Jeff Black -- Executive Vice President and Chief Financial Officer

Yeah Jason, this is Jeff. And I guess similar to Brooks' question, we're seeing continued strong interest and momentum. Typically, July is typically slower than June, but we're certainly seeing strong momentum. And we still have every indication that, to my earlier response, was that it starts to put to question whether certain surgeries are elective or not. So what I would tell you is momentum has continued, and we're cautiously optimistic about the third quarter.

Jason Wittes -- Northland Capital -- Analyst

Okay. And I guess you're not -- given COVID, though, it sounds like you're still not in a position to provide any sort of guidance at this point, but it sounds like things are generally optimistic?

Jeff Black -- Executive Vice President and Chief Financial Officer

Correct. Yes.

Jason Wittes -- Northland Capital -- Analyst

Okay. And the -- I noticed you mentioned the cervical launch. Are you guys -- if I think about your current basket, which I know is rapidly changing, is there -- are you guys doing much cervical business? Or this -- is it potentially a big incremental game with these launches I think you're planning at the end of the year?

Patrick S. Miles -- Chairman and Chief Executive Officer

Jason, the -- one of the best surgeries that a surgeon can do is an anterior cervical discectomy infusion, meaning the patients do most well. They'll go in and the most predictable thing that they do is that surgery. I would tell you that based on the historical challenges that Alphatec had is they didn't invest and continue to evolve the technology. And so we're dealing with a very aged cervical portfolio. And if you look at the demographics of that -- one of my slides showed where we made investments. I would tell you that it's reflective of the type of prowess we have in the different areas. And so the frustrating part is it's a hard place to create significant distinction. I think we've done a very, very good job with regard to the InVictus part. You think about us all being here for about 2.5 years, and we're going to have a stem to stern solution with regard to InVictus with modularity and all the other elements of a posterior fixation system, it takes most companies five plus years to do. I can name the company if you like, the -- I was kidding. The -- but the reality of it is that we're going to have an exceedingly strong posterior fixation offering as well as a continuing improvement on the anterior side as well. So a long answer to, yes, we're going to be much more sophisticated. We're starting to evaluate those things in Q3 of this year, and we'll launch early in '21.

Jason Wittes -- Northland Capital -- Analyst

Okay. And then another product line question. SafeOp, at least from my view, it's kind of a linchpin technology for you guys. If I think about your customer base, can you give any kind of statistics or measurements in terms of who's actually using it at this point? And what the outlook for SafeOp is in terms of adoption?

Patrick S. Miles -- Chairman and Chief Executive Officer

Yeah, first of all, realize those of us who built the previous company did so with inferior technology to SafeOp in another place. This technology -- yeah, this technology is profoundly better. And so the things that we're really tracking is linkage to specific procedures. And so how often is it used with our screws? How often is it used in lateral? And are these percentages indicative of what we believe traction to look like? And so we're finding great success in the integration of those tools together. And so that's what provides us such enthusiasm. The other thing is there's such scalability where we were previously working with a IBM 286 computer. We're working with a Bluetooth tablet that's awesome. And so just when you start to think about a footprint in the operating room, but the type of intelligence that we're bringing in, it's highly valuable. And so our enthusiasm is great. And the tie that we're seeing to the different spine procedures is very high. And so I would just tell you that it's doing what we expected it to do.

Jason Wittes -- Northland Capital -- Analyst

I mean are most of your surgeons using SafeOp in one form or another at this point? Or is there still an adoption curve going on?

Patrick S. Miles -- Chairman and Chief Executive Officer

Well, there's going to be an adoption curve until the cows come home. It's one we -- if they're doing lateral with us or they're using SafeOp.

Jason Wittes -- Northland Capital -- Analyst

Okay. That might answer my question. That's helpful. Maybe a question for Jeff real quick. I mean, the non-strategic business, is there any sort of projection in terms of where that goes in the future? I mean, it's been on a decline, obviously. It seems like there's some residuals that stick around. How should we be thinking about that business, especially on a going-forward basis?

Jeff Black -- Executive Vice President and Chief Financial Officer

Yeah Jason, I think we've got so much more visibility into that network than we did a couple of years ago. And I think the expectation was that we would continue to see that cut in half every year and potentially not be able to control that transition. We're now at a point where it's still about a $10 million run rate, but it's in some very specific key geographies. And those are geographies where that distributor will ultimately either decide to join us on a more exclusive basis or we now have the ability to move in a new distributor who will take over that territory and walk to exclusivity with us. So the answer is, we don't think that the drag ultimately will create long-term kind of a net absence of revenue, if you will, which was a real risk two year or three years ago. But it's about a $10 million run rate, and we now have the ability to -- more so than we did to manage that transition.

Jason Wittes -- Northland Capital -- Analyst

Okay. And then one last question on PTP. I think NAS is the unveiling. I guess that's going to be online, unfortunately, given -- due to COVID. Once that happens, when does that really sort of get launched into -- is that the unveiling and then it gets launched into the field? And does that make this a 2021 event? Is that the right way to think about the launch of PTP?

Patrick S. Miles -- Chairman and Chief Executive Officer

I think so, I guess. It's one of these things where it's so frustrating. The suggestion of a virtual NAS. And it's -- the great part is the timing hasn't changed, and we're not going to change it. We're going to launch it when we committed to launching it. And we're going to see the momentum pick up. It's -- you'll start to see the reflection of it really, I think, in 2021. And like years ago, when we launched lateral, I think the uptake is going to be faster with this just based upon the acceptance of the lateral and not having to sell people on lateral. But it's going to be one of those things where I think you're going to start seeing a reflection of it in our company in 2021 and 2022. So -- but it's a great opportunity to get people in our company so that we can train them on the new approach and inspire them with regard to our technology. And so we really see it as a significant opportunity.

Jason Wittes -- Northland Capital -- Analyst

Great. Thank you very much.

Patrick S. Miles -- Chairman and Chief Executive Officer

Thanks.

Jeff Black -- Executive Vice President and Chief Financial Officer

Thank you Jason.

Operator

Next question from Canaccord, Kyle Rose. Kyle, your line is now open.

Kyle Rose -- Canaccord -- Analyst

Great. Thanks for squeezing me in gentlemen. So a lot has been asked. But Jeff, you gave it a lot of commentary in the prepared remarks. But I just -- I want to go back to just the overall Q2 as it stands because, I mean, the growth you delivered, considering the economic backdrop and what we've seen the peer group do is exceptional. So I'm wondering if you can help maybe walk us through the Q2 from -- on a month-over-month perspective. What was the low point, some of the productivity improvements you saw? Because I mean, if you put up 15% in the strategic group overall, then -- I mean, that implies your exit velocity in June was materially higher than that. So trying to understand what went right and then we'll kind of dig in from there.

Patrick S. Miles -- Chairman and Chief Executive Officer

Let me provide the color Kyle. April was exceedingly tough. We -- there are still places that were doing surgery. I think some of the virtue that we, I guess, appreciated was the fact that in the pocket of areas where people were doing surgery, they continued to do surgery. And so that was, I guess, an opportunity for us. But I think it's not going to be profoundly different with regard to the case volume. One thing that we did see is when we see the continued magnification of the number of products per surgery use and then less of a decrease in the volume of surgery, what we see is an expansion in our revenue number. And so much likely -- we talked about strategically from the beginning is our expectation is if we do a great job assembling procedures, use more products per procedure, compel more people, then we're going to see a big expansion. We saw a recession in the volume of cases but still saw more products per case used as well as more complex surgery being done. So I'll let Jeff answer the numeric ones.

Jeff Black -- Executive Vice President and Chief Financial Officer

Yeah Kyle, just to give a little more color on that. To that point, obviously, April, we saw a significant impact. For the quarter, as we disclosed, we saw about a 4% year-over-year decrease in surgical volumes, right? And obviously, more than made up for that in the increase in the expanding revenue per case. But to your point, most, if not all, of that 4% happened in the middle of the pandemic, right? So all the way throughout April and early May a little bit, but we started to see very strong robust recovery. And in June, again, second highest month in company history, and we hit an average daily sales level that exceeded the peak in Q4 of '19.

Kyle Rose -- Canaccord -- Analyst

Okay. Great. That's very helpful. So then maybe help me understand. I get that there's a lot of uncertainties in that there's a little bit of caution around putting in guidance and some goalposts on the back half of the year. But help me understand, I guess, how you think about some of those uncertainties. And what would need to go wrong to, I guess, materially change some of the momentum you have? Because when I look at what happened in April, I mean, it's one of the biggest deferrals of procedures we've ever seen in the space, but you guys still deliver the type of growth you have. So I guess I'm just trying to understand, even in that backdrop, you grew. I guess, what are you contemplating for the second half from a headwinds, tailwinds perspective that might not give you confidence to put in a floor for growth when we think about some sort of goalpost?

Patrick S. Miles -- Chairman and Chief Executive Officer

Yes, Kyle, I think it's the obvious things. I'm trying to think of anything that would be informed. But it's usually the uncertainty around what's going on from a flare-up on the pandemic front. There's -- to me, like there's nothing that's obvious around what could derail the momentum other than, again, this significant pandemic that becomes uncertain for us all. And so I wish I had a great answer, but that's all that -- I think the other thing is, back to the whole comment about it's a tale of 50 states. It's like -- there becomes puts and takes within each of the different states. And so it's just difficult to discern what's going on over a long period of time.

Kyle Rose -- Canaccord -- Analyst

Okay. And then just the last one for me is, we've heard a lot of commentary about hospitals restricting commercial patterns as far as rep access to meet with physicians and get into cases. And then also just challenges meeting with value analysis committees and getting on contracts. So maybe kind of help us understand, I mean, obviously, you're growing, obviously, you're bringing on better talent. You're launching new products. How have your conversations and your ability to convert physicians, add new accounts during this backdrop? How has that played out? And then maybe different or better than what you were expecting over the course of the last couple of months? And thank you for taking the questions.

Patrick S. Miles -- Chairman and Chief Executive Officer

I got to tell you, Kyle, I think that's the question. The reality of it is, we went into the pandemic, and we said we can sit here and kind of take what's going on or we could be aggressive. And I'll tell you, we -- I think we were very aggressive from a sales education perspective, from a surgeon recruitment perspective, from a sales recruitment perspective. One of the things that I think that this pandemic has given us is pause and pause to determine who I want to partner with over the next 10 years and who is a scalable company. And what's transpired is that I would tell you that we've grown out of this thing based upon the enthusiasm to partner with us.

And not to be coy, again, or try to be funny, but it's really been an opportunity for people to reevaluate where they are and where they want to go. And so that's kind of what we've seen as it relates to the ability to get into accounts and the ability to pair -- kind of pair the visits. Like we've had some challenges with regard to salespeople coming out here, especially from the northeast and then going back into their accounts. So what we've had to do a lot is kind of the telephonic and like everybody else, do Webex stuff. But I think that the most foundational learning from this experience is that we're a small aggressive company, and that didn't change over the pandemic. And so our opportunity to go compel people is very high, and we took advantage of that.

Kyle Rose -- Canaccord -- Analyst

Great. Thank you very much. And congrats again on an exceptional quarter.

Patrick S. Miles -- Chairman and Chief Executive Officer

Thank you.

Jeff Black -- Executive Vice President and Chief Financial Officer

Thank you Kyle.

Operator

And last question from H.C. Wainwright, Sean Lee. Sean, your line is now open.

Sean Lee -- H.C. Wainwright -- Analyst

Good afternoon, Pat and Jeff. And thanks for taking my question. Most of the stuff I wanted to ask about have already been answered. But if you could just provide a little bit more color on how the quarter went in terms of geographics and different types of surgery. Like, were you seeing surgery slowdown a lot more in certain geographies than others? Were there a faster rebound in certain areas? Were there some procedures that were affected more than others? If you could just provide us some thoughts on that?

Patrick S. Miles -- Chairman and Chief Executive Officer

The answer is yes. I think your question is really an answer, which becomes -- there are different volumes in different geographies. And then there were different types of cases. And I think it's probably reflective of everybody else's experience, which is where the pandemic was most high, what you would get is you'd get a fair amount of cervical cases that were emergent, which were myelopathic patients that potentially had the exposure of something bad going on over the long term. So they were cases that got done or trauma type of cases where there was a car accident or some other issue where there's an immediate operative requirement.

What got pushed out are more of some of the degenerative type of things that were more long-term in nature. And so I would tell you that, that happened different in different geographies. And so kind of back to the puts and takes that we talked about earlier is depending upon how much of a pandemic was in the respective geography would kind of dictate the types of surgeries that would go on. But it would often then start off with the most simple things that were most emergent and then evolve into the more complex type of surgeries.

Sean Lee -- H.C. Wainwright -- Analyst

I see. That's helpful. Another thing I would like to ask is since you guys mentioned you kind of went into high cash shutdown cash preservation mode because of the uncertainties associated with the pandemic, I was wondering whether you've turned the faucet back on completing now? Is it -- or is it back to business as usual? And whether are we going to see any impact from the spending slowdown in the second half of the year? Thanks.

Patrick S. Miles -- Chairman and Chief Executive Officer

I'll let Jeff answer the question most directly, but I will tell you that we're buying implants and instruments to keep up with demand. I would say that's the most -- when we start to get back to normal operating activity, I would say that's the most aggressive thing that we're doing. As it relates to operating expenses, I think we're still trying to be exceedingly thoughtful stewards with regard to how we march forward.

Jeff Black -- Executive Vice President and Chief Financial Officer

Yes. So I think that's right. Just to give color commentary, we certainly have -- took a critical look and continue to take a critical look at hiring. Able to phase hiring, for sure. We've not slowed down on the product development front. But our priority now is ensuring that we are making the right investments in supply chain to meet up with the demand for product, right. And so we'll continue to look at opportunities to defer or pull levers as we can. We -- the pandemic in and of itself is a cost savings tool in there's just not as much traveling happening. There's a lot of virtual training going on. So some of the spend slows down because we just aren't able to do it. And in other cases, we're taking a very critical look as, is it necessary for today to drive current momentum. And if it's not, we revisit it and figure out if it's spend we can defer.

Sean Lee -- H.C. Wainwright -- Analyst

I see. That's very helpful. Thanks for the color and that's all I have.

Patrick S. Miles -- Chairman and Chief Executive Officer

Great. Well, thanks for the questions. And I guess, we'll end with companies are about people, and we've assembled a great bunch of people and are enjoying the start of some momentum. And so excited about what's going on with ATEC. And I appreciate everybody's interest. Thanks so much. Take care.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Patrick S. Miles -- Chairman and Chief Executive Officer

Jeff Black -- Executive Vice President and Chief Financial Officer

Brooks O'Neil -- Lake Street Capital -- Analyst

Patrick -- Piper Sandler -- Analyst

Jason Wittes -- Northland Capital -- Analyst

Kyle Rose -- Canaccord -- Analyst

Sean Lee -- H.C. Wainwright -- Analyst

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